This dissertation has been microfilmed exactly as received 68-2959 BRYSON, Phillip James, 1939- THE INTERNATIONAL COST-SHARING ROLE OF WEST GERMAN DEVELOPMENT ASSISTANCE. The Ohio State University, Ph.D., 1967 Economics, general University Microfilms, Inc., Ann Arbor, Michigan ©Copyright by Phillip James Bryson 1968 THE INTERNATIONAL COST-SHARING ROLE OF TOST GERMAN DEVELOPMENT ASSISTANCE DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University By Phillip James Bryson, B.A. ****** The Ohio State University 1967 Approved by I Adviser / Department of Economics ACKNOWLEDGMENTS This dissertation is the product of the kindness and generosity of a number of individuals. Especially deserving of thanks is my adviser, Professor Richard U. Sherman, Jr., for suggesting the topic and pro­ viding guidance and encouragement throughout the study. Professor Richard A. Tybout was a consistent provider of valuable insights and constructive suggestions. His patient and willing helpfulness are deeply appreciated. Professor David M. Harrison graciously provided valuable assistance and Professor Walther P. Michael read the first four chapters and offered numerous helpful comments. Financial support was granted by the Mershon Social Science Pro­ gram of The Ohio State University, and to the memory of former director} Professor Edgar S. Furniss, Jr., I owe a debt of gratitude. Mrs. Georgialee Furniss gave extremely capable editorial assistance and constant encouragement. The entire Mershon staff was congenial and helpful. Finally, my wife deserves gratitude for unfailing support. If the final product has merit, then it is because all these individuals contributed. For the inadequacies that remain, I alone am responsible. ii VITA October 11, 1939 Born - Salt Lake City, Utah 1964 ......... B. A., University of Utah, Salt Lake City, Utah 1964-1965 ............ Mershon Fellow, The Ohio State University, Columbus, Ohio 1965-1966 ............. Teaching Assistant, Department of Economics, The Ohio State University, Columbus, Ohio 1966-1967 ....... Mershon Doctoral Fellow, The Ohio State University, Columbus, Ohio 1967 ......... Assistant Professor of Economics The University of Arizona, Tucson, Arizona FIELDS OF STUDY Major Field; Economics Areas of Specialization Economic Planning and Comparative Economic Systems Economic History National Security Economics Economic Theory and The History of Economic Thought Secondary Field: Political Science Areas of Specialization International Relations National Security Policy iii TABLE OF CONTENTS Page ACKNOWLEDGMENTS..................................................... ii VITA ............................................................... ill TABLE OF CONTENTS.................................................. iv LIST OF TABLES .............................................. vii LIST OF FIGURES .............................................. x GLOSSARY ........................................................... xi CHAPTER I INTRODUCTION ............................................. 1 Germany as the Focus of the Investigation ....... 2 Approach and Scope of the Investigation ............... 5 Cost-Sharing and the World Demand for Aid .......... 8 The Politics of Cost-Sharing.............. 13 II BURDEN-SHARING THEORY: THE STATE OF THE A R T ........... 18 The Principles of Burden-Sharing .......... 19 Some Estimates of Cost-Sharing Performance: The Principles Applied .......... ........... 27 A Brief History of Burden-Sharing ..................... 39 The Role of International Negotiations in Cost-Sharing .......................................... 43 The "Relevant Considerations of Cost-Sharing .......... 54 III ANALYSIS OF THE GERMAN CONTRIBUTION IN A COMPARATIVE FRAMEWORK ................................ 60 Contemporary Theory of Foreign Assistance Costs and Benefits......................... 60 The Loans vs. Grants D e b a t e ........................... 60 The Donor C o s t ................ 63 The Donor B e n e f i t ................................. 65 The Actual and Declared C o s t s ......................... 67 ^ Aid in a Comparative Framework ..................... 74 IV GERMAN POLICY TOWARD TRADE AND A I D ...................... 79 Trade Needs of Developing Countries ........... 79 iv V TABLE OF CONTENTS"-Continued CHAPTER Page The Relationship Between Trade and Foreign Assistance Programs 83 The German Postwar Record ...... ................. 88 Foreign Trade and the Short-Run Optimization of German Interests ................................... 94 The Trade Model ................... 97 Prospective Long-Term Gains of Trade in De­ veloping Markets ..................................... 100 German Trade and its Benefits for the L D C ' s .......... 106 Toward an Integration of the Trade-Aid M o d e l ......... 110 German Trade and the Future of the Developing Countries ............ 112 V DEFENSE BURDENS AND AID CONTRIBUTIONS: THE TRADE-OFFS FOR GERMANY .............................. 121 Defense as a Cost-Sharing Problem: The NATO E x p e r i e n c e ........................................... 122 The German Contribution to the Alliance ............... 132 The Substitute Relationship Between Aid and Defense ..................................... 146 Toward an Integration of the Aid-Defense Model .... 162 Cost-Sharing and the Future of the Alliance ......... 165 A Note on the Role of International Negotiations in Defense Cost-Sharing .............................. 173 VI GERMAN CONTRIBUTIVE CAPACITY .......................... 178 The Reestablishment of German Economic Power ..... 178 The Social Market Economy Today ............ 183 Investment: The Foundation of the Miracle ....... 186 Consumption: An Offering to the Miracle ............... 189 Economic Policies and Performance: The Miracle Makers ........................ ........... 192 Contributive Capacity and the Investment Deduction ................. ......... 204 Aid and the German Economy: The Complete Model .... 211 Contributive Capacity and the Public Opinion Constraint ..................... 217 Some Final Considerations of Contributive Capacity ........ 221 VII RECENT FOREIGN ASSISTANCE TRENDS OF THE FEDERAL REPUBLIC ............................................. 225 German Attitudes and Motivations ...................... 226 Recent Aid Performance' and the "New Look" in the Ministry of Cooperation ...... ................. 227 Getting More Magnanimity per Mark ........... 233 vi TABLE OF CONTENTS--Continued CHAPTER Page VIII SUMMARY AND CONCLUSIONS............. 242 The Principles of Burden-Sharing ..................... 243 Objectives of German Aid ........ .......... 245 The Role of Bargaining in the Cost-Sharing Operation........ • ............ 246 The German Contributiy.e Effort ............. 247 International Trade as a "Relevant Consideration" . 249 The Defense Deduction ............................. 250 Contributive Capacity and the Investment Deduction.............. 253 Recent German Aid T r e n d s ............................* 255 APPENDIXES ........................... 257 BIBLIOGRAPHY 283 LIST OF TABLES Table Page 1. Sharing the Burden of A i d .......... 29 2. Cost Shares for Ten Countries, Various Methods of Assessment ......... ............ 30 3. Relative Contributions to International Government, to Underdeveloped Countries, and to Defense, 1960 . 33 4. Distribution of Economic Aid Contributions, DAC Countries, 1960 ......................... 35 5. DAC Contributions, 1960 ......................... 36 6. DAC Aid Commitments Compared to GNP, 1961 and 1962.. ........ .. 37 7. Relative DAC Aid Shares Compared to Relative GNP, 1961 and 1962 .................................................. 37 8. Discounted Aid Shares, 1961 and 1962, Compared with Real GNP, 1961 38 9. Contrasts in German Development Aid ............ 68 10. Development Credits of the Federal Republic, 1961-1964 .... 70 11. Terms of Trade for the Federal Republic, 1961-1964...... 72 12. The Grant Element of German Loans, 1961-1964 73 13* Comparative Aid Contributions of the FRG, US, UK, and France, 1954-1965 ............................................. 76 14. The Foreign Trade of the Federal Republic, 1951-1965 93 15. The Significance of Trade to the FRG, US, UK, and France, 1954-1965 ............................................. 95 16. Principle German Exports to Developing Countries, 1964 .... 107 17. German Trade with Developing Countries, 1951-1965 ............. 108 18. The Trade-Aid Model ............ 113 vii viii LIST OF TABLES— Continued Table Page 19. The Patterns of Defense Outlays, 1954-1965 . ........ 137 20. The Patterns of International Contributions, 1954-1965 • • • • 152 21. Aid Expenditures as a Percentage of Defense Expenditures, 1954-1965 154 22. The Defense Deduction and Total "Fair" Aid Outlays . ..... 159 23. The Expanded Model: Trade, Aid, and Defense ............ 163 24. Origin and Use of the National Product of the Federal Republic of Germany, 1950-1964 181 25. GNP Yearly Growth Rate of the FRG ....................182 26. Investment as a Percentage of GNP for the FRG, US, UK, and France, 1954-1965 .. ......... 187 27. German Net Savings ••.•.••••.... ........ .... 189 28. The Summation of Investment Plus Defense as a Percentage of G N P ......................................................... 207 29. "Fair" Aid Shares with Defense and Investment Deductions . • 210 30. The Integrated Model .......................... 212 31. Net Contributions of the Federal Republic