The Chairman

by Kai Bird

  Truman may never have seen this particular letter, and if he did, one can assume he gave it no credibility. Hoover himself must have known that such charges were ridiculous and that his “reliable informant,” probably J. Anthony Panuch or Donald Russell, was politically motivated. The FBI chief passed on such allegations to the White House only because it suited his own agenda, which was to prevent the creation of a rival central intelligence agency. He also just happened to be wiretapping Oppenheimer’s phone that spring, and so was privy to the scientist’s attempts to lobby various government officials against what Baruch was now doing to water down the Acheson-Lilienthal proposals.39

  Hoover forwarded this information to Baruch, which naturally made the prickly financier even more determined to go his own way. He chose to disregard the opinion of most scientists and decided that the Soviets would not be able to build their own atomic bomb for twenty years. If so, he believed there was no reason to relinguish the American monopoly anytime soon, and he now began to toughen the Acheson-Lilienthal Plan by adding a number of conditions: the Soviets would have to give up their veto right over any action by the new atomic authority; any nation violating the agreement would immediately be punished by atomic attack; and, before being given access to any nuclear secrets, the Soviets would have to submit to a survey of their uranium resources and an inspection of their nuclear-research facilities.40

  McCloy and the other members of the Acheson-Lilienthal committees only learned the full import of these amendments to their plan in mid-May, at a meeting hosted by Baruch and Eberstadt. It did not go well. McCloy and Acheson vigorously objected that such an early emphasis on punitive provisions would doom the plan. There was no such thing as complete security, McCloy angrily told Baruch, and it would be “presumptuous” to suggest such harsh and automatic penalty provisions. The Soviets would never agree to these conditions, particularly at a time when the United States was continuing to build and test atomic weapons. What Baruch was proposing was not cooperative control over the bomb, but an atomic league designed to prolong the U.S. monopoly. Everyone present was taken aback that McCloy had so uncharacteristically vented his anger. The next day, Justice Frankfurter wrote his former student, “I am told that it was a real bull fight—and that you were so disgusted with the gentleman on the other side that you just sputtered ‘dust in the air’ ”41

  Baruch and Eberstadt remained unshaken in their views, and the following month presented to the United Nations what became known as the “Baruch Plan.” McCloy was not surprised when it was promptly rejected by the Soviets. Later, Dean Acheson concluded, “It was his [Baruch’s] ball and he balled it up.. . . He pretty well ruined the thing.”42 An early opportunity had been lost to prevent a nuclear-arms race between the two major powers, and McCloy always felt that Baruch was to blame.43

  At the end of June 1946, Ellen and the children moved to the family retreat in the Adirondacks for the summer. McCloy visited them on weekends, and took some time off to go fishing. His six-month law practice at Milbank, Tweed was beginning to pick up, when he suddenly received an intriguing offer. A month earlier, Eugene Meyer, the publisher of the Washington Post, had taken on the presidency of the International Bank for Reconstruction and Development. The “World Bank”—and its sister institution, the International Monetary Fund—had been created at the Bretton Woods conference and were supposed to finance the postwar economic recovery. Ostensibly part of the United Nations system, the Bank and the IMF were finally incorporated at a meeting in Savannah, Georgia, in March 1946. McCloy had observed the Bretton Woods deliberations with great interest, and so was more than a little bit tempted when Meyer called him one day and offered him the position of general counsel to the Bank.

  He thought the idea “flattering.” He was still finding it difficult to get back to the law. His corporate cases just couldn’t compare to the excitement of public policy-making. But after thinking about it for a week, he wrote Meyer, “Though I would probably have a more interesting time dealing with the extremely important problems of organization and policy . . . I cannot help but feel the timing is wrong.” It would not be “appropriate or sound for me to leave my new firm and the connections I have just made so shortly after my return from Washington.”44 Still, he was interested enough in the World Bank to take the trouble to recommend someone as a substitute—his old Cravath partner Chester McClain. A frequent fishing companion, McClain had spent the entire war years at Cravath, and McCloy thought he might welcome a stint in Washington. Meyer jumped at the suggestion and used McCloy to recruit McClain in July.

  Barely five months later, Meyer stunned the financial community when he suddenly announced his resignation. He had found the whole business an enormous headache. Partly because of disputes between member nations, most particularly the United States and Britain, and partly because of distrust on Wall Street, he had not been able to sell a single bond or issue any development loans. He had also found himself embroiled in a debilitating conflict with his own board of executive directors, in particular the U.S. executive director, Emilio G. Collado. A brilliant thirty-six-year-old, Harvard-trained economist, “Pete” Collado had spent his entire professional life in the Roosevelt administration, working with such liberal personalities as Harry Dexter White at the Treasury Department and Alger Hiss in the State Department. Meyer consequently considered him a brash young New Dealer, and they didn’t get along. Collado and the executive directors from other nations believed Meyer should run the Bank according to policy voted upon by the board. They were eager to issue as many loans as possible, and quickly. When Meyer refused one day to approve an early loan to Chile, Collado pounded the table, demanding that the loan be approved. Meyer calmly refused, saying the Bank was not a relief agency. But such constant disputes with Collado took their toll on the seventy-one-year-old Meyer, and in December 1946 he resigned. He told his secretary, “I could stay and fight these bastards, and probably win in the end, but I’m too old for that.”45

  His departure sparked speculation in Wall Street that the nascent institution would never recover. Russell Leffingwell, a J. P. Morgan & Co. partner, wrote Meyer that it would be a “bad setback for the bank.”46 In London, the Financial Times voiced fears that the World Bank might now become a “universal soup kitchen” and its monies “used for financing vote-catching reconstruction schemes propounded by the starry-eyed politicians of many nations.”47

  CHAPTER 14

  The World Bank: “McCloy über Alles”

  “Jack, you’ll never have to worry about what to do after the World Bank. There will always be a place for you and people who will want you.”

  FREDDIE WARBURG, 1947

  “Pete” Collado had a feeling he had overplayed his hand. As U.S. executive director, he still possessed a virtual veto over the Bank’s activities. But without a president, the Bank was rudderless and in danger of running aground. Collado knew that he was too young to aspire to the presidency himself. So now, in consultation with his fellow board members, he began casting about for Meyer’s replacement. Several prominent bankers were approached, including Graham F. Towers, governor of the Bank of Canada. But he declined, saying that a U.S. citizen had to lead the Bank if its credibility on Wall Street was to be restored. Collado then remembered that Meyer had tried to persuade McCloy to become the Bank’s general counsel. During the war, working at the Treasury Department, he had occasionally run into Stimson’s aide, and they had worked together briefly at Potsdam.1 With the backing of Treasury Secretary John W. Snyder, Collado flew up to New York two days before Christmas 1946.

  Though it was a wet, snowy day, Collado failed to wear galoshes or a proper overcoat, and by the time he arrived at the Waldorf Astoria for his appointment, he was shivering and had a cold. Worse, McCloy quickly made it clear that he was not inclined to take on the job. “Pete,” he said, “you’ve made such a hell of a mess of it, you don’t think I’m going to move into that damn thing?” Collado returned to Washington that day with
only McCloy’s halfhearted promise to think about it, and spent the next two weeks in bed with the flu.2

  In his methodical manner, McCloy now sought the counsel of his friends. He was aware that Lew Douglas himself had turned down the job when it had been offered to him the previous spring. Not surprisingly, Douglas discouraged him, but others urged him to take the job. One day, he went out to visit Freddie Warburg at his Middleburg, Virginia, horse farm. Sitting out on the veranda, smoking a cigar, and looking across the expanse of his wealthy friend’s beautiful estate, McCloy told Warburg, “I think it’s time to earn some money for my family.” But Freddie could tell that McCloy was actually quite inclined to take the job: “Jack,” he said, “you’ll never have to worry about what to do after the World Bank. There will always be a place for you and people who will want you.”3

  Some of McCloy’s Wall Street colleagues saw in his possible appointment an opportunity to take control of the World Bank away from the New Deal crowd represented by “Morgenthau and those clucks.”4 Harold Stanley, president of Morgan Stanley & Co.; Baxter Jackson, president of Chemical Bank; Randolph Burgess, vice-chairman of National City Bank; and George Whitney, president of J. P. Morgan & Co. all encouraged McCloy. Whitney thought that, if its operations could be run on a “sensible and restrained basis,” then McCloy “was the ideal man to head the Bank.”5

  But after a fortnight of consideration, McCloy formally turned the job down. It seemed to him that the Bank’s bylaws were such that the presidency had all the responsibility and the executive-board members, in particular the U.S. director, had all the power. When informed of his reasons, Snyder and Collado went separately to New York to make their personal appeals. Soon the fact that McCloy was being courted for the job was reported in the press. Time said he was on the point of saying “I do,” but then “saw the bride’s family,” meaning Collado and the other executive directors. Among “knowing Washingtonians,” reported the magazine, Collado had an “increasing fondness for having his own way. . . .”6 McCloy actually had no personal animosity for Collado; he thought of him as a bit “liberal,” but there was nothing personally objectionable in that.7

  The problem was the structure of the World Bank itself, the fact that the Articles of Agreement adopted at Bretton Woods placed a preponderance of power in the hands of the directors. As the Bank’s first annual report made clear, “matters of policy determination” were the responsibility of the twelve executive directors. The president confined himself to “administrative” questions, “subject to the general direction and control of the Executive Directors.”8 McCloy had sought the advice of Eugene Black, vice-president of Chase National Bank and one of Wall Street’s best-known bonds salesmen. Black had just returned from an inspection of war-torn Europe, and he was impressed with the potential importance of the World Bank. But he confirmed that the real power rested with the U.S. executive director, who controlled 37 percent of the Bank’s shares. Black advised that he not accept the presidency unless he got the right to select the U.S. director.9

  So, on February 17, 1947, McCloy went down to Washington for a meeting with the non-American board directors. He presented what the British bluntly called an “ultimatum.” Eugene Black would replace Collado as U.S. executive director, and simultaneously Black would take charge of the Bank’s bond operations. Robert L. Garner, a gruff, nononsense banker and businessman, would become the Bank’s vice-president. Moreover, McCloy announced he would not take the post unless he was given a free hand in all of the Bank’s loan decisions. He, as president, would decide whether to present a loan package for approval to the board, not the other way around. If these terms were not acceptable, he and his team were ready to return to New York that afternoon. There was some grumbling that his conditions violated the spirit of the Articles of Agreement. But, given the current impasse and the Bank’s “diminishing” capacity to function, the non-American directors reluctantly agreed. Even then, McCloy said he would not finally accept the job until he was satisfied that the only potential buyers of the Bank’s bonds, the New York commercial banks and insurance companies, were likely to cooperate. At the conclusion of the meeting, the British director reported back to London that McCloy “was at times unnecessarily truculent. . . . What happens now I don’t know but I must say that dirt is a disagreeable diet.”10

  The British at that moment faced dire economic conditions brought on by a growing balance-of-payments deficit and exacerbated by one of the most severe winters in a century. The Labour government in London was desperate for dollar loans to finance necessary food and fuel imports. They had been led to believe at Bretton Woods in 1944 that the World Bank had been established precisely in order to prevent the kind of postwar fiscal crisis they now faced. The Bank’s inactivity was “imperilling” a general European recovery. London interpreted McCloy’s ultimatum as further evidence that Washington intended to renege on its Bretton Woods commitments. One British official bitterly complained, “It [the World Bank] was not set up to finance ordinary commercial schemes which are 100 percent financially sound. . . . It was set up to promote the schemes of reconstruction which were socially desirable, but which were so uncertain financially that the risk was to be shared among the governments of the world. . . . It is waiting for ‘projects’ of the ‘gilt-edged’ variety, instead of getting on with the reconstruction of the world.”11

  Such criticisms quickly made their way into the British press. While McCloy went back to New York to consult with a variety of bankers and insurance-company executives, the Financial Times reported, “. . . on Mr. McCloy’s insistence, the U.S. Government is accepting a greatly restricted concept of the Bank’s role, thus foreshadowing much smaller World Bank lending in the next two years than was previously anticipated.”12

  This was not, indeed, the kind of Bank that Harry Dexter White had first envisioned in 1942. White had been to Treasury Secretary Henry Morgenthau what McCloy had been to Stimson. A hard-driving and imaginative man, he was one of the New Deal’s most powerful bureaucrats. At the end of the war, he became U.S. executive director of the Bank’s twin, the International Monetary Fund. Though Lord John Maynard Keynes and others contributed to the early discussion among the Allies, it was essentially White’s 1942 draft proposal that was adopted at Bretton Woods. He was adamant that the Bank not become merely a rich man’s club; it should be truly international and function as a global central bank for development and war reconstruction. In principle, enlightened opinion in New York’s financial circles—as evidenced by some of the Council on Foreign Relations’ study reports—conceded that some kind of “international agency” should stimulate foreign investment after the war, so as to prevent a repeat performance of the post-World War I disruptions in world trade. But Wall Street was disinclined to turn such a task over to such an ideologically committed New Dealer as White.13

  By early 1947, White could see that the political tides were running against him; he announced his resignation, effective the end of March. Still, he was hopeful that in the next two years America would lend on the order of $10 billion around the globe, and as to his own plans, he was determined to attempt to “recreate the New Deal” by promoting the political fortunes of Henry Wallace.I14

  McCloy had had his own conflicts with White during the 1944 debate over the Morgenthau Plan to create a pastoral Germany, and though their relations had been amiable on the surface, he was not sorry to see White leave Washington. From his point of view, any association between the Bank-Fund group and prominent New Dealers like Harry White would only make it more difficult to sell the Bank’s bonds on Wall Street. As he now moved in the direction of accepting the post, McCloy began assembling his own team of men to take with him into the Bank. Finally, on the last day of February 1947, newspaper headlines proclaimed, “McCloy to Head World Bank on His Own Terms.”15 In London, a witty British Foreign Office official sarcastically wrote his own headline for the day’s news: “McCloy über Alles,” a play on the German slogan “Deut
schland über Alles” (“Germany over the World”).

  The next day, at a press conference, McCloy insisted that personality conflicts had not led to the two-month delay in his appointment. There was a role, he said, for the Bank in war reconstruction; the world could not remain “half rubble and half well-built.” But he had to be sure that the Bank could become “a going concern rather than a mere distributor of its own capital.” That meant it had to be able to sell its own securities on Wall Street. In practice, if the Bank was to rely for most of its capital on the sale of securities, then it could expect to issue very few loans over the next few years. On paper, the Bank had pledged assets of nearly $8 billion, but only 20 percent of this sum would be in hand by early summer, virtually all of it from the United States and Canada. Obviously, unless McCloy intended to ask the United States to increase its capital pledges by an enormous magnitude, war-torn Europe could expect to receive very little assistance from the World Bank.

  That was exactly the message McCloy intended to convey to Wall Street. For the next two years, he planned to run the Bank as if its clients were private Wall Street investors and not the forty countries that had joined in the hope of receiving development aid. Some observers were slow to see what was happening. Soon after McCloy’s selection, Hugh Dalton, an influential British MP, wrote U.S. Treasury Secretary John Snyder that he hoped the “way is now clear for the Bank to go full steam ahead. . . . It is essential that it should now act quickly and positively, and give concrete proof of its powers by beginning operations at once. I have said as much to McCloy.”16

  McCloy, however, cringed whenever he saw references in the press to the “$8 billion bank,” and did everything he could to lower the public’s expectations regarding future loans. At the end of March, he had Black propose to the executive directors a firm rule that the Bank not loan more than the sum of the U.S. and Canadian subscriptions to the Bank. The British director reported back to London that such a regulation “fairly obviously represents at least part of the price which the New York market insists on having as the condition of its support of the Bank issues. . . .”17 A week later, the British learned from McCloy that in all probability the Bank would lend nothing like as much as $1 billion a year: if so, “it will be utterly ineffective as a substantial contributor towards world recovery. This whole story seems to point to the conclusion that the Bank and the Fund can now probably be written off as agencies for good and can merely be reckoned as instruments for the enforcement of dollar diplomacy.”18 Not surprisingly, tensions between the executive board and McCloy were high. At one early meeting, as McCloy opened the proceedings by introducing Black and Garner to the board, Sir James Grigg, the British director, muttered, “Here goes a meeting of the Chase Bank.”19