Senator WILEY. You are talking about the officials of Yugoslavia. What about the people?

Mr. KENNAN. The people, so far as I could see, could not be more friendly toward Americans or more hospitable or more kind. I have never met with greater kindness and courtesy from any people in any country I have ever lived in. The people are touchingly wellinclined toward us.

PRO-SOVIET LEANINGS

Senator CAPEHART. In case we got into a war with Russia, whose side would they be on?

Mr. KENNAN. They would try to keep out of it if they could.
Senator CAPEHART. Could they?

Mr. KENNAN. They would be more afraid of the Russians than they would be of us, and for this reason they would try to cover that flank as well as they could, and they would do everything possible to try to keep the Russians from coming into their country, even at the cost of a very considerable appeasement.

I think that the answer generally to your question is, if it comes to a war, I would expect them to try to keep out of it, but to lean to the other side if they have to lean.

TITO'S STATEMENTS

Senator WILEY. What about Tito? 1

Mr. KENNAN. Tito is more of a problem to us, perhaps, than the government as a whole, because he is an older man whose youth was spent in the Communist movement. It seems to me that he feels a need for proving to the people in the Communist orbit that his independence is not disadvantageous to them.

He hates to have it said about him that he has become the tool of the imperialists. He leans over backwards to make statements which are agreeable to the eastern side in order to try to prove that just because he is independent, this does not mean that they have a grievance against him. This is one of my great problems.

His statements have been more extreme than the views, I think, of the government as a whole. I think many other people have had their doubts about the wisdom of the things he said.

One of the complexities of my situation is that I have to deal with both things. I have to deal with his statements as head of state, and yet I have to remember that there are younger people coming along in this regime who do not see things entirely identical.

THE ECONOMIC SYSTEM

Senator CAPEHART. Mr. Chairman, is it all right to ask some questions?

The CHAIRMAN. Sure, go ahead.

Senator CAPEHART. Are the people fairly prosperous there? Are they 100 percent communistic in their economy?

* Marshal Tito (Josip Broz), President of Yugoslavia.

Mr. KENNAN. No. They have introduced during the last 4 or 5 years very considerable measures of liberalization of the economy, especially including the element of competition between economic enterprises.

Senator CAPEHART. What industries are not communized?

Mr. KENNAN. None of them are communized today in the sense of being under government ownership. They are theoretically and legally under the ownership of the people who work in them, that is, the entire staff, executive and workers, and not just the work

ers.

Senator CAPEHART. That hold the individual businesses?

Mr. KENNAN. Businesses are owned individually up to a point where they employ five people or less. If they get to employ more than five people, they cannot be individually owned. They have to be owned by the collective body of the people who work in them. Senator CAPEHART. In other words, if there are 100 people working in that business, the 100 people would own it?

Mr. KENNAN. The 100 people would own it.

WORKERS COUNCILS

Senator CAPEHART. How do they arrive at who should be the head man over there?

Mr. KENNAN. They have what is called a workers council, a form of representation.

Senator CAPEHART. A workers council within each unit?

Mr. KENNAN. Yes.

Senator CAPEHART. In other words, take these 100, for example――

Mr. KENNAN. That is right.

Senator CAPEHART [continuing]. They would elect their own head man?

Mr. KENNAN. They would elect their workers council, and this workers council would have power to dispose today of over 55 per cent of the revenues, the net proceeds of the enterprise. They can decide whether to pay higher wages in certain instances or whether to put this money back into the enterprise, what they would want to do with it.

This, of course, is relative. I say these are the powers they have These are the powers they have on paper. This is a country which is still run by a party. The party, which began as a Communist Party, still calls itself that.

LIMITS OF COUNCILS' POWERS

Senator CAPEHART. Do you mean run by a party rather than government?

Mr. KENNAN. The party infiltrates everything, and the party members in one of these workers councils have a very powerful, in fluential position. Nevertheless, the councils are not completely frauds, and sometimes they develop pretty hot arguments and test of power within these workers councils despite the part.

The CHAIRMAN. Do they divide the profits if they want to?
Mr. KENNAN. They can by raising wages.

The CHAIRMAN. I see.

Mr. KENNAN. They can compete for managerial personnel, and do. That is, if a man is known to be a good factory director, he will get bids from a lot of workers councils around the country.

Senator SYMINGTON. But he cannot divide up any profits on the basis of the ownership of any stock.

Mr. KENNAN. No. They can only do it through wages, and there they have to adjust to certain general standards, labor union standards, throughout the country. I think there are limits.

LIBERAL PARTY DICTATORSHIP

Senator CAPEHART. Where do they get their capital to operate this unit of 100 workers?

Mr. KENNAN. They get it from the state investment bank, and that is the main string of control that the central government has over these enterprises. They provide the source of funds.

Senator CAPEHART. Is this state bank 100 percent communistic? Mr. KENNAN. Yes.

The CHAIRMAN. They pay interest on this?

Mr. KENNAN. Yes. They are a government show, and they are run by the party. The whole thing is really run-it is still a party dictatorship. But there is not terrorism anywhere near the degree that there is in Czechoslovakia or in Eastern Germany.

In fact, we find very little difficulty today in meeting Yugoslav people, in having them come to our homes, and we come to their homes. They have very little difficulty in traveling. Their regime is relatively liberal about letting them out.

TRANSFER OF F-86 AIRCRAFT

Senator SYMINGTON. Mr. Chairman, may I ask a question here. The CHAIRMAN. Yes.

Senator SYMINGTON. Mr. Ambassador, it is always a great pleasure to see you.

When I was in the Middle East, in a country that is considered a very good friend of ours, the European edition of the New York Times had a story that we were selling, I forget how many, 125 or 175 F-86's to the Yugoslavs at less than 1 percent of the original cost. I figured that out myself, based on overall price.

These people said, "This is the plane you are giving them; we admit it is not much good, but you are giving it to them and they, in effect, are your enemies." I believe this was after the Belgrade statement.

"What is the point? Who are you for? Are you for building us up as a bulwark of the free world or are you for building up the Communists?"

What would be your answer to that?

I might say I was asked the same question and I did not have any more information about that than I did about the Congo when I went home in November. I wish what Mr. Rusk had told this committee-he said he would let the members of this committee know so that while we were home we would have had some answers.

But in any case, what would be your answer to a question of that character from people who think that they have been on our side

and done their best to support our policies and programs in the free world defense against communism?

PRUDENCE RECOMMENDED

Mr. KENNAN. Senator Symington, I cannot speak to this particular case. It has never come under my ken. Nobody has ever asked me about it, and I am not familiar with the circumstances of it.

I would say that when it is a question of selling obsolescent equipment on proper terms-terms that we would sell it to anybody else in the world and against good dollar repayment-I think we might as well do it, because if we refrain from doing it, I suspect the Yugoslavs will get it from some source anyway. I think in certain instances it is better that they get it from us than that they get if from other people.

However, if it involves training Yugoslav pilots or anything in this country, I would want to look at this very carefully and be sure that we do not do anything that bewilders or confuses our own public. I think we ought to be very careful and prudent in what we do along these lines.

The CHAIRMAN. Do I understand as Ambassador you were never consulted and know nothing about this kind of a deal?

Mr. KENNAN. No. It is my impression that this was all arranged during the previous administration. At any rate, I can assure you we were never consulted in any way about its continuation out there.

JUSTIFICATION FOR SUCH ASSISTANCE

Senator SYMINGTON. Let me rephrase my question again because of my great respect for your knowledge. I want to show you what a problem there is in foreign aid. For the first time in my State, last year the majority of the Congressmen voted against foreign aid per

se.

Suppose you take India: Nehru 2 boasts about the fact that he is a peace-loving man, and that he is not interested in any military aspects.

He has one of the world's largest armies, and, by far, the largest air force in the Middle East. He has over one-half million men in uniform, and he is the only person out there who has anything like the 1,000 airplanes that he has in his air force.

Now, these people at the Belgrade Conference, as I remember it, sided with Mr. Khrushchev 3 on this testing business, against Mr. Kennedy.

If you are going to try to move along in the picture of foreign aid, and you come out to my State, how do you, in the discussion with people who are getting really fundamental-there is only one paper in my State that is really for this program-how do you develop the nuances of justifying heavy aid to Yugoslavia?

It is hard for me to do so on India, but I would think the harder it was for India, it would be even more hard to do it for Yugoslavia.

2 Jawaharlal Nehru, Prime Minister of India.

3 Nikita S. Khrushchev, Soviet Premier.

GRANT AID SHOULD CEASE

Mr. KENNAN. Senator, I certainly agree that is a legitimate question, and not an easy one to answer. I think I would only be able to deal with it in specific terms.

I am no great friend of aid to Yugoslavia, if by aid what you mean is any sort of one-sided grant aid or concealed grant aid, for which they do not pay us, and the sooner that ends out there the better I think it will be.

This view, incidentally, is shared by the Yugoslav leaders themselves. They are a very proud people. They do not really like to take this, and it is my hope that before very long we will not have any more of this.

FOOD ASSISTANCE

At present I think about the only thing that we are still committed to giving them is the surplus food for this year. This corresponded with my own recommendations. They asked for 1 million tons, and I felt we ought to give them about half of that, and that is what we are giving them now.

The reason I felt this was that they had a harrowing drought, the worst I have ever seen anywhere in my life, from June to October this year, and they were obviously going to be badly short of food. I thought that to cut out the surplus food shipments we had been giving for years, just at this moment when the people had had it, was going to create a misimpression there that I did not want to see created. Besides that, we have a problem of disposing of this stuff.

But it is my hope that within about 3 years, not next year because the drought is going to affect next year's crop, too, but within about 3 years they ought to be able to provide for their own needs in food, and that will be done with.

LOANS TO AID INDUSTRIALIZATION

As for other forms of aid, I do not think we cught to give the Yugoslavs anything really that they do not pay for. I am inclined to think that we ought to continue to make dollar loans to them, for dollar repayment, on a reasonably liberal credit basis for their industrialization. If you are interested, I will tell you why I feel

that.

Senator SYMINGTON. Sure.

Mr. KENNAN. This would not be great. This would be a matter of a few million dollars per year, and they would have to pay it back. The reason is that they, having broken with the Kremlin, have in recent years had a rate of growth greater than that of their satellite neighbors to the east; that is, they are industrializing faster on a basis of a set of economic relationships, which is primarily with the West, than their neighbors to the east are industrializing by relying on the Soviet Union.

I want to see that continue. I do not want to see them fall behind the Rumanians in the rate of growth. For this reason I would like to see us be reasonably represented in there, perhaps only to the