S. Hrg. 104-716 THE BENEHTS OF FOREIGN AID TO THE UNITED STATES ECONOMY 104-716 Y 4. AP 6/2: S. HRG, The Benefits of Foreign Aid to the... HEARING BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED FOURTH CONGRESS SECOND SESSION SPECIAL HEARING Printed for the use of the Committee on Appropriations '^3 2 c m? U.S. GOVERNMENT PRINTING OFFICE 35-138cc WASHINGTON : 1996 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053955-2 S. Hrg. 104-716 THE BENEHTS OF FOREIGN AID TO \^ THE UNITED STATES ECONOMY Y4.AP 6/2: S. HRG. 104-716 The Benefits of Foreign Aid to the... HEARING BEFORE A SUBCOMMITTEE OP THE COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE ONE HUNDRED FOURTH CONGRESS SECOND SESSION SPECIAL HEARING F*rinted for the use of the Committee on Appropriations ^°2o m? U.S. GOVERNMENT PRINTING OFFICE WASHINGTON 1996 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053955-2 COMMITTEE ON APPROPRIATIONS MARK O. HATFIELD, Oregon, Chairman TED STEVENS, Alaska ROBERT C. BYRD, West Virginia THAD COCHRAN, Mississippi DANIEL K. INOLPj'E, Hawaii ARLEN SPECTER, Pennsylvania ERNEST F. HOLLINGS, South Carolina PETE V. DOMENICI, New Mexico J. BENNETT JOHNSTON, Louisiana CHRISTOPHER S. BOND, Missouri PATRICK J. LEAHY, Vermont SLADE GORTON, Washington DALE BUMPERS, Arkansas MITCH McCONNELL, Kentucky FRANK R. LAUTENBERG, New Jersey CONNIE MACK, Florida TOM HARKIN, Iowa CONRAD BURNS, Montana BARBARA A. MIKULSKI, Maryland RICHARD C. SHELBY, Alabama HARRY REID, Nevada JAMES M. JEFFORDS, Vermont J. ROBERT KERREY, Nebraska JUDD GREGG, New Hampshire HERB KOHL, Wisconsin ROBERT F. BENNETT, Utah PATTY MURRAY, Washington BEN NIGHTHORSE CAMPBELL, Colorado J. Keith Kennedy, StaffDirector Mark Van de Water, Deputy StaffDirector James H. English, Minority StaffDirector Subcommittee on Foreign Operations, Export Financing, and Related Programs MITCH McCONNELL, Kentucky, Chairman ARLEN SPECTER, Pennsylvania PATRICK J. LEAHY, Vermont CONNIE MACK, Florida DANIEL K. INOUYE, Hawaii JAMES M. JEFFORDS, Vermont FRANK R. LAUTENBERG, New Jersey JUDD GREGG, New Hampshire TOM HARKIN, Iowa RICHARD C. SHELBY, Alabama BARBARA A. MIKULSKI, Maryland ROBERT F. BENNETT, Utah PATTY MURRAY, Washington MARK O. HATFIELD, Oregon, ROBERT C. BYRD, West Virginia (Ex officio) (Ex officio) Professional Staff Jim Bond JuANiTA Rilling Tim Rieser (Minority) (II) CONTENTS Page Opening statement ofSenatorJames Jeffords 1 Statement of George Burrill, president, Associates in Rural Development, Inc., Burlington, VT 1 Opening remarks ofSenator PatrickJ. Leahy 2 Summary statement ofGeorge Burrill 5 Exports to developingworld 5 America at crossroads 6 Prepared statement ofGeorge Burrill 7 Statement of Steven J. Daugherty, director, government affairs, Pioneer Hi- Bred International, Inc., Des Moines, lA 10 Phase out price supports 11 Prepared statement ofStevenJ. Daughtery 12 Statement of Patrick J. Cronin, manager, marketing services, Johnson Con- trols, Milwaukee, WI 15 Foothold in foreign markets 16 Prepared statement ofPatrick Cronin 18 Statement of Douglas V. Bloss, corporate vice president, Armstrong Inter- national, Stuart, FL 21 Prepared statement 23 Statement of Robert Foster, volunteer, Volunteers in Overseas Cooperative Association [VOCA], Washington, DC 24 Poland's economy 25 Prepared statement ofRobert Foster 26 Advantages oftrade 29 Export assistance programs 31 Expand our presence overseas 31 Providing foreign assistance 32 Free enterprise system 33 Exposure to foreign markets 34 Danger ofisolationism 36 Marshall plan 37 International markets 38 Foreign aid programs 39 Material Submitted Subsequent to Conclusion of Hearing Prepared statement of the Business Alliance for International Economic De- velopment 41 Prepared statement of the Alliance for International Educational and Cul- tural Exchange 52 (III) THE BENEFITS OF FOREIGN AID TO THE UNITED STATES ECONOMY MONDAY, SEPTEMBER 16, 1996 U.S. Senate, Subcommittee on Foreign Operations, Export Financing, and Related Operations, Committee on Appropriations, Washington, DC. The subcommittee met at 3:05 p.m., in room SD-138, Dirksen Senate Office Building, Hon. James M. Jeffords presiding. Present: Senators Jeffords and Leahy. NONDEPARTMENTAL WITNESSES STATEMENT OF GEORGE BURRILL, PRESIDENT, ASSOCIATES IN RURAL DEVELOPMENT, INC., BURLINGTON,VT opening statement of senator JAMES JEFFORDS Senator JEFFORDS. I call the subcommittee hearing to order. Today we have I think an extremely important hearing. One of the most misunderstood aspects of our relationship in the world right now is how advantageous it is for us to be involved inter- nationally. We are here today to take a look at how we can make our sometimes troublesome relationships positive in the end result. It is not news to anyone that the budget pressures are forcing cutbacks in the role of Federal Government and reductions in Fed- eral assistance to many domestic programs. Foreign aid is not im- mune from this trend. In fact, it is more susceptible to budget cuts, because it is not seen as having a direct impact upon the lives of people or the economic health ofour Nation. This misperception is augmented by the fact that most Ameri- cans think that we pour great amounts of money into foreign aid programs and that they constitute a significant—probably as much — as 15 percent, some say 25 percent ofour budget. Yet, as the pan- elists know, this is far from the truth. Less than 1 percent of the Federal budget goes to foreign aid and a significant percentage of that goes to military aid. Our panelists are here today to inform us about their business experiences and how they see foreign assistance benefiting the American economy. I appreciate their willingness to join us this afternoon. I am afraid most Americans are not aware of the impor- tance of our foreign involvement to them and to their children's fu- ture. (1) As parents, we want our children to have the opportunity to maintain a high standard of Hving. As the population continues to expand, our economy must continue to grow in order to provide this opportunity. But it seems to me that the only way our economy will continue to expand at the rate it is is to steadily increase our mar- kets abroad. U.S. businesses will have to become more inter- national in their outlook. The Federal Government will have to do a betterjob ofencourag- ing businesses to prepare for global competition and to help them identify opportunities overseas. But overseas markets do not just spring up out of nowhere. They gradually develop as a nation climbs out of poverty and develops ties with the international trad- ing community. As a country increases its standard of living, mar- ket opportunities naturally expand. But just being the most powerful Nation on Earth does not auto- matically get us access to those markets. We have to have a rela- tionship with those countries. We have to be involved in their de- velopment at an early stage if we expect special consideration later on. We need to speak their language and understand their culture. As a victor in the cold war, we cannot expect to just scoop up the trade opportunities that emerge in freer economic surroundings. We must learn to be better salesmen for our products and we must learn how we can tailor our expertise in those settings. This is a challenge both for American business and foreign assistance. I would like to thank my colleague, Senator Leahy, for being with me. He organized this hearing, and I commend him for that. He has a great outlook on these matters, and I am pleased to have him serving on the subcommittee. I would also point out that we have excellent witnesses. We have George Burrill, a good friend for many years, president of Associ- ates in Rural Development from Burlington, VT. He will testify in his capacity as the steering committee chair for the Business Alli- ance for Economic Development. The alliance has produced a very useful white paper called "For- eign Assistance: What's in it from Americans?" I have a copy of it here. Steven Daugherty of Pioneer Hi-Bred International of Des Moines, lA, will talk about the impact of foreign assistance upon agricultural trade. Next we will hear from Douglas Bloss of Arm- strong International, and Mr. Patrick Cronin of Johnson Controls on the role that foreign assistance has played in the development oftheir businesses. Finally, Bob Foster of Volunteers in Overseas Cooperating As- sistance [VOCA], will discuss the effect that his volunteer time overseas has had on his dairy business opportunities. So Senator, please. OPENING REMARKS OF SENATOR PATRICK LEAHY Senator Leaiiy. Thank you, Mr. Chairman. I would note to Mr. Daugherty that Senator Harkin had hoped to be here and has been delayed, but he will submit a statement for the record. He wanted to make sure that you were appropriately welcomed, and Senator Jeffords has done that, but I also want to thank my colleague and good friend Jim Jeffords for coming down, helping to make this hearing possible. I know he made the trip back earlier than he might have other- wise from Vermont. George Burrill and Bob Foster know that espe- cially this time ofyear we do not like leaving Vermont one moment earlier than we have to, but Jim made that sacrifice because this is an important hearing. As the chairman has said to you, we talk about whether there is a constituency for foreign aid and everybody says, ofcourse there is not. Well, there is. We think there is not because ofthe scandals when foreign aid was handed out to corrupt dictators who stuck it in their pockets. Foreign aid has been referred to as a luxury or charity or something we cannot afford. It is said that the American people do not support it. Well, the reality is somewhat different. I have heard, as I think every Member of Congress has heard that if we just get rid of foreign aid we could balance the budget tomorrow. Well, here is the reality. Foreign aid is less than 1 per- cent ofour budget. Now, you could get rid of all foreign aid, and you not only would not balance the budget, but I tell you right now, there are a whole lot of companies in this country that are exporting, and if we cut this 1 percent we are going to make that deficit even worse, be- cause this 1 percent pays for practically everything we try to do outside of our borders and in turn, pays for innumerable benefits within our borders. We live in an increasingly competitive interdependent world, and our security at home is more and more dependent on the much-ma- ligned and poorly understood and grossly underfunded programs that are collectively referred to as foreign aid. So I think we should begin this hearing by taking the term "foreign" out of foreign aid. Foreign aid helps us. It helps others, but it helps us here in this country, and ifwe focus our attention on the benefits of foreign aid to the U.S. economy and U.S. security, I think we can broaden un- derstanding of why the "cut foreign aid bandwagon" is misguided and wrong. There are 5.8 billion people in the world today. Doing quick math, that is about the equivalent population of 22 times the Unit- ed States. The United States and the rest of the world are both markets for our products, but if we had to rely just upon the U.S. market to keep our economy growing into the next century, is there any doubt the global marketplace is going to win, hands down? It seems obvious to me anyway, and I think it is to all ofthe pan- elists today. But the competition for those markets is fierce, and the United States is losing out today because ofour own nearsightedness. Since 1992 we have cut foreign aid over 20 percent. That trend is due to the simplistic notion that the more foreigners get, the less we get. In fact, I think the foreign aid budget is about 40 percent less than it was at the time President Reagan was in office, but as our foreign aid declines and we curtail our support for inter- national organizations we see that just the opposite happening in Japan. Japan is our foremost economic competitor. I think they would like to see us get out of the market entirely and just turn it over to them, because there, foreign aid and international cooperation are closely linked to Japan's future prosperity. Every day, American companies are searching for new consumers for their products, and developing countries are the obvious source. The market can only expand so far in Europe. It is the developing countries where the greatest opportunities are. Ifyou tap into these markets, you find all kinds ofproblems. The countries are plagued by poverty, political instability, corruption, investment codes that discourage investment, impenetrable bu- reaucracies, and unfortunately in some areas organized crime. But to try to respond to these and numerous other global challenges every year as the challenges get greater, we budget less. Most Americans will not take notice of the shift inward until it is too late. While some in Congress boast about cutting back on aid give-aways and get cheers back home when they give those speech- es, fortunately for this country our business community is striking out in just the opposite direction. They have accepted, and in fact many have embraced the reality of an interrelated and inter- dependent world where prosperity derives from engagement, not from retrenchment. The business community knows, even if some politicians do not, that 80 percent of the foreign aid budget pays for goods and serv- ices the U.S. Government buys from American companies, which is supported by 200,000 jobs annually. Whether a farmer in Kansas or a truck manufacturer in Illinois, or an electronic engineer in California, they are all increasingly dependent on the worldwide marketplace for their livelihood. This year, our foreign aid is used to buy tents to shelter millions of refugees in Africa, machines to build roads in Asia, immuniza- tion for children in Central America, wheat, and vegetable oil to avert starvation abroad. These are products made by American workers. We can boil it down to purely dollars and cents reasons for doing it. It helps create jobs here, and some may ask the moral question, if you are 5 percent of the world's population using one-quarter of the world's resources, there is a moral responsibility to be involved, too. In the past 5 years, our exports to developing countries have grown by $100 billion. That has created 2 million new American jobs. Total U.S. aid to Latin America in this century totals about $30 billion. This year alone, after a century of getting up to that $30 billion level, our exports to their region will be 2Vi times that amount. We are seeing the same trend in Africa, a region that was once dismissed as hopeless. These markets do not just appear spontaneously in countries where people oftentimes cannot even afford a pair of shoes. They are created. Our foreign aid helps pave the way for America's pri- vate sector. It opens up markets, U.S. trade and investment. It takes an educated work force to do that. It also takes American business people to show that kind ofinno- vation. We are going to hear from some of them. Senator Jeffords has already introduced the panel. As Jim knows, it is rare that even the hint of p—arochialism ever comes up in the Appropriations Committee, but nothing against Mr. Bloss, Cronin, or