Crusading for democracy

President Reagan's crusade for democracy abroad needs protection from well-meaning Saracens at home. Almost a year after he announced the venture in London, it faces legislation that would sharply alter the $65 million Project Democracy designed to carry it out.

The aims are still to promote liberty and democracy through information, conferences, and support of such free institutions as newspapers, labor unions, and political parties. But about half of Project Democracy's millions would be steered to a ''private'' nonprofit National Endowment for Democracy. The endowment in turn would give this taxpayers' money to the Republican Party, the Democratic Party, the AFL-CIO, and the Chamber of Commerce of the United States. Each of these bodies would choose how to use its share of the money to promote democracy abroad.

At first glance the private-enterprise spread of democracy seems right in tune with Reagan philosophy. And not only Reagan philosophy. Many American private institutions have long given support in one way or another to free institutions abroad. Nongovernmental sources benefit from not smacking of government propaganda or, as in past CIA activities in this area, of government interference.

To avoid the liabilities of government sponsorship, however, the private channels have to be private all the way, such as US labor unions supporting their counterparts overseas. To be truly private the National Endowment for Democracy would have to be financed by its party, union, and business participants, not by government handouts.

For these groups simply to be conduits for government money is not only to fly in the face of free-enterprise philosophy but to risk suspicions on the part of recipients abroad that the US government somehow is pulling the strings. Indeed, there is already talk in Washington of arriving at guidelines on how the endowment funds should be spent. As the proposed legislation is debated, the closest presidential and congressional attention is demanded to avoid the worst of both worlds.

Endowment backers cite the example of European political parties that have long supported their counterparts across national borders. It is noted, for instance, that outside aid helped to sustain opponents of Spain's dictatorship while Franco was in power.

Europe's parties, however, tend to be more homogeneous than America's. Questions are now being raised on how a recipient party or other institution abroad could be chosen to satisfy the range of opinion within either of the US parties. And what would a recipient think when informed that a grant was not from Democratic or Republican pockets but from the federal government by way of the United States Information Agency?

The government has shown that it can foster democratic principles through such nonpropagandistic means as the Fulbright and other exchange programs. But, as we and many others have said before, the best way for America to crusade for democracy is to provide a shining example of democracy. The government's most effective role lies in protecting and enhancing that democracy. When it chooses to take measures abroad, the open approach of Project Democracy is, of course, preferable to the covert measures exposed in the past. Congress's skepticism over this project may lead to cutting it back; it should not lead to substituting a private program that is not really private.