The Marshall Plan was the American initiative to aid Europe, in which the United States gave $17 billion (approximately $160 billion in current dollar value) in economic support to help rebuild European economies after the end of World War II. It is sometimes described as ‘ the most successful aid program’ ever.
It is often quoted and usually misunderstood. It was one of the ways the USA helped Western Europe to recover after the devastation of WW2. In this masterly extract from a book by the late historian Toby Judt he put this into context – effectively the money was a gift from America to Western Europe which they were free to use pretty how they wished. The only conditions were that the use of the funds were planned in advance and certain Soviet controlled counties were excluded. Effectively the US was investing in Western Europe as a future market once it had recovered. A more cynical view might be that it also prevented countries in desperate circumstances being pushed into further strife and even into the arms of the Russians. Whatever the truth (A bit of both probably) it was a huge act of generosity at a time when Europe really needed it.
Contrast that with George W’s appalling conceived ‘Marshall Plan’ for Iraq which as far as we can tell involved channeling huge sums of US taxpayers money to government contractors (a surprising number of whom were owned by or associated with members of his government) who never seem to have got round to spending it in Iraq.
This is Mr Judt’s careful analysis of the original:
“It is widely believed by scholars today that for all the contemporary gloom the initial post-war recovery and the reforms and plans of the years 1945-47 laid the groundwork for Europe’s future well being. And to be sure, for western Europe at least 1947 would indeed prove the turning point in the continent’s recovery. But at the time none of this was obvious. Quite the contrary. World War Two and its uncertain aftermath might well have precipitated Europe’s terminal decline. To Konrad Adenauer like many others, the scale of European chaos seemed worse even than in 1918. With the precedent of the post-World War One mistakes uppermost in their thoughts, many European and American observers indeed feared the worst. At best, they calculated, the continent was in for decades of poverty and struggle. German residents of the American Zone expected it to be at least twenty years before their country recovered. In October 1945 Charles de Gaulle had imperiously informed the French people that it would take twenty-five years of ‘furious work’ before France would be resuscitated.
But long before that, in the pessimists’ view, continental Europe would collapse back into civil war, Fascism and Communism. When US Secretary of State George C. Marshall returned on April 28th 1947 from a Moscow meeting of Allied Foreign Ministers, disappointed at Soviet unwillingness to collaborate in a solution for Germany and shaken by what he had seen of the economic and psychological state of western Europe, he was clear in his own mind that something rather dramatic would have to be done, and very soon. And judging from the resigned, doom-laden mood in Paris, Rome, Berlin and elsewhere, the initiative would have to come from Washington.
Marshall’s plan for a European Recovery Program, discussed with his advisers over the next few weeks and made public in a famous Commencement Address at Harvard University on June 5th 1947, was dramaticand unique. But it did not come out of nowhere. Between the end of the war and the announcement of the Marshall Plan, the United States had already spent many billions of dollars in grants and loans to Europe. The chief beneficiaries by far had been the UK and France, which had received $4.4 billion and $1.9 billion in loans respectively, but no country had been excluded—loans to Italy exceeded $513 million by mid-1947 and Poland ($251 million), Denmark ($272 million), Greece ($161 million) and many other countries were indebted to the US as well.
But these loans had served to plug holes and meet emergencies. American aid hitherto was not used for reconstruction or long-term investment but for essential supplies, services and repairs. Furthermore, the loans—especially those to the major western European states—came with strings attached. Immediately following the Japanese surrender President Truman had imprudently cancelled the wartime Lend-Lease agreements, causing Maynard Keynes to advise the British Cabinet, in a memorandum on August 14th 1945, that the country faced an ‘economic Dunkirk’. Over the course of the following months Keynes successfully negotiated a substantial American loan agreement to supply the dollars that Britain would need to buy goods no longer available under Lend-Lease, but the American terms were unrealistically restrictive—notably in their requirement that Britain give up imperial preferences for its overseas dominions, abandon exchange controls and make sterling fully convertible. The result, as Keynes and others predicted, was the first of many post-war runs on the British pound, the rapid disappearance of Britain’s dollar reserves and an even more serious crisis the following year.
The terms of the loan negotiated in Washington in May 1946 between the US and France were only slightly less restrictive. In addition to a write-off of $2.25 billion of wartime loans, the French got hundreds of millions of dollars in credits and the promise oflow-interest loans to come. In return, Paris pledged to abandon protectionist import quotas, allowing freer entry to American and other foreign products. Like the British loan, this agreement was designed in part to advance the US agenda of freer international trade, open and stable currency exchanges and closer international cooperation. In practice, however, the money was gone within a year and the only medium-term legacy was increased popular resentment (much played upon by the Left) at America’s exploitation of its economic muscle.
By the spring of 1947, then, Washington’s bilateral approaches to Europe’s economic troubles had manifestly failed. The trading deficit between Europe and the US in 1947 would reach $4,742 million, more than double the figure for 1946. If this was a ‘hiccup of growth’, as later commentators have suggested, then Europe was close to choking. That is why Ernest Bevin, the British Foreign Minister, responded to Marshall’s Commencement Address by describing it as ‘one of the greatest speeches in world history’, and he was not wrong.
Marshall’s proposals were a clean break with past practice. To begin with, beyond certain framing conditions it was to be left to the Europeans to decide whether to take American aid and how to use it, though American advisers and specialists would play a prominent role in the administration of the funds. Secondly, the assistance was to be spread across a period of years and was thus from the start a strategic programme of recovery and growth rather than a disaster fund.
Thirdly, the sums in question were very substantial indeed. By the time Marshall Aid came to an end, in 1952, the United States had spent some $13 billion, more than all previous US overseas aid combined. Of this the UK and France got by far the largest sums in absolute amounts, but the relative impact on Italy and the smaller recipients was probably greater still: in Austria, 14 percent of the country’s income in the first full year of the European Recovery Program (ERP), from July 1948 to June 1949, came from Marshall Aid. These figures were enormous for the time: in cash terms the ERP was worth about $100 billion in today’s (2004) dollars, but as an equivalent share of America’s Gross Domestic Product (it consumed about 0.5 percent of the latter in the years 1948-1951) a Marshall Plan at the beginning of the twenty-first century would cost about $201 billion.
Immediately following Marshall’s speech the foreign ministers of Britain, France and the USSR met in Paris, at Bevin’s suggestion, to consider their response. On July 2nd the Soviet foreign minister Vyacheslav Molotov walked out and two days later Britain and France formally invited representatives of 22 European countries (excluding only Spain and the Soviet Union) to discuss the proposals. On July 12th sixteen European states took part in these discussions. All of these—Britain, France, Italy, Belgium, Luxemburg, Netherlands, Denmark, Norway, Sweden, Switzerland, Greece, Turkey, Ireland, Iceland, Austria and Portugal—would be among the eventual beneficiaries. But despite the initial interest shown by Poland, Czechoslovakia, Hungary, Bulgaria and Albania, no future Communist state took part in the European Recovery Programme or received a dollar in Marshall aid
It is worth pausing to consider the implications of this. The fact that the money was to be confined to the West (with Greece and Turkey as honorary west Europeans) undoubtedly made it easier for Truman to secure passage of the ERP through Congress the following year. But by then much had changed and Congress was willing to be convinced that Marshall Aid was an economic barrier to Soviet expansion. In June 1947, however, the offer of aid through Marshall’s new programme was made to all European countries without distinction. Stalin and Molotov were of course suspicious of American motives—the terms Marshall was proposing were quite incompatible with the closedSoviet economy—but their sentiments were not widely shared elsewhere in eastern Europe, in what was not yet a bloc.
Thus Jan Masaryk, Czechoslovakia’s non-Communist Foreign Minister, enthusiastically accepted the joint Franco-British invitation of July 4th. The very next day the Czech Communist Party leader and Prime Minister, Klement Gottwald, was summoned to Moscow and initially instructed to attend the Paris conference. But his orders were clear: he was to use his presence in Paris to demonstrate ‘the unacceptability of the Anglo-French plan, prevent the adoption of unanimous decisions, and then leave the conference, taking as many delegates of other countries as possible.’
Four days later Stalin reconsidered. Gottwald was told to withdraw his country’s acceptance of the invitation to Paris. Meeting with a delegation from the Czech government, including Masaryk, Stalin advised the Czechs that ‘[w]e consider this matter to be a fundamental question on which [Czech] friendship with the USSR depends. If you go to Paris, you will show that you want to cooperate in an action aimed at isolating the Soviet Union.’ The next day the Czech coalition government duly announced that it would not be sending a delegation to Paris. ‘Czechoslovak participation would be construed as an act directed against friendship with the Soviet Union and the rest of our allies. That is why the government unanimously decided it will not take part in this conference.’
Why did the Czechs give way? Their Polish and Hungarian neighbours, with the Communists already in charge and the Red Army in close attendance, had no option but to follow Soviet ‘guidance’. But the Red Army had long since left Czechoslovakia and the Communists did not yet have a monopoly of power. Yet Masaryk and his colleagues buckled at the first display of Stalin’s displeasure. Had the non-Communist Czech parties insisted on accepting Marshall Aid they would have carried the overwhelming majority of their fellow citizens (and quite a few Czech Communists) withthem, making it that much harder for Stalin to justify enforcing his will. In the broader context of post-Munich politics the Czech decision to favour the Soviet embrace was understandable; but it almost certainly paved the way for the Communists’ successful coup in Prague seven months later.
Czechoslovakia’s exclusion from the Marshall Aid programme was an economic and political catastrophe for the country. The same is true of the ‘choice’ imposed on every other country in the region, and above all, perhaps, for the Soviet Union itself. His decision to stand aside from the European Recovery Program was one of Stalin’s greatest strategic mistakes. Whatever their private calculations, the Americans would have had no choice but to include eastern Europe in the ERP, having made the offer available to all, and the consequences for the future would have been immeasurable. Instead, the aid was confined to the West and marked a parting of the ways between the two halves of the continent.
Marshall Aid was from the start intended to be self-limiting. Its goal, as Marshall himself set it out in his Harvard speech, was to ‘break the vicious circle and restore the confidence of the European people in the economic future of their own countries and of Europe as a whole.’ Rather than merely offering aid in cash it proposed the provision of goods, free of charge, delivered to European countries on the basis of annual requests formulated as part of a four-year plan by each recipient state. These goods, when sold in each country, would generate so-called ‘counterpart funds’ in the local currency which could be used according to bilateral agreements reached between Washington and each national government. Some countries used these funds to purchase more imports; others, like Italy, transferred them into their national reserves in anticipation of future foreign exchange needs.
This unusual way of furnishing assistance carried innovative implications. The programme obliged European governments to plan ahead and calculate future investment needs. It laid upon them a requirement to negotiate and confer not just with the United States but with each other, since the trading and exchanges implied in the programme were intended to move from the bilateral to the multilateral as soon as possible. It constrained governments, businesses and labour unions to collaborate in planning increased rates of output and the conditions likely to facilitate them. And above all, it blocked any return to the temptations that had so stymied the inter-war economy: under-production, mutually destructive protectionism, and a collapse of trade.
Although the US administrators of the Plan made no secret of their expectations, they left it to Europeans to take responsibility for determining the level of aid and the manner of its distribution. European politicians—accustomed to the blunt self-interest of the US in earlier bilateral loan negotiations—were rather taken by surprise. Their confusion was understandable. Americans themselves were divided as to the goals of the Plan. Idealists in the New Deal mould—and there were many in post-war American administrations—saw an opportunity to reconstruct Europe in the American image, emphasizing modernization, infrastructural investment, industrial productivity, economic growth and labour-capital cooperation.
Thus ‘productivity missions’, funded by the Marshall Plan, brought to the US many thousands of managers, technicians and trade unionists to study the American way of business—five thousand from France alone (one in four of the overall total) between 1948 and 1952. One hundred and forty-five ‘European productivity teams’ arrived in the US just between March and July 1951—in most cases consisting of men (rarely women) who had never before set foot outside Europe. Meanwhile enthusiastic New Dealers in the Organization for European Economic Cooperation (OEEC), set up in 1948 as a conduit for ERP funds, urged upon their European colleagues the virtues of freer trade, international collaboration and inter-state integration.
These American urgings met, it must be said, with limited immediate success. Most European politicians and planners were not yet ready to contemplate grand projects of international economic integration. The Marshall Planners’ greatest achievement in this respect was perhaps the European Payments Union, proposed in December 1949 and inaugurated a year later. Its limited objective was to ‘multilateralize’ European trade by establishing a sort of clearing-house for debits and credits in European currencies. This was designed to overcome the risk that each European country might try to save badly needed dollars by restricting imports from other European countries, to everyone’s eventual disadvantage.
Using the Bank of International Settlements as their agent, European states were encouraged to secure credit lines proportional to their trading requirements. Then, instead of using up scarce dollars they could settle their obligations through an intra-European transfer of credits. All that mattered was not whom you traded with but the overall balance of credits and debits in European currencies. By the time it was wound up in 1958, the Payments Union had quietly contributed not merely to the steady expansion of intra-European trade but to an unprecedented degree of mutually advantageous collaboration—financed, it should be noted, by a substantial injection of US dollars to furnish the initial credit pool.
From a more conventional American perspective, however, free trade and its attendant benefits were themselves a sufficient objective and justification for the ERP programme. The United States had been particularly hard hit by the trading and export slump of the thirties and spared no effort to convince others of the importance to post-war recovery of liberalized tariff regimes and convertible currencies. Like English Liberals’ enthusiasm for free trade in the era before 1914, such American pleas for the unrestrictedmovement of goods were not altogether un-self-interested.
Nevertheless, this self-interest was distinctly enlightened. After all, as CIA Director Allen Dulles observed: ‘The Plan presupposes that we desire to help restore a Europe which can and will compete with us in the world markets and for that very reason will be able to buy substantial amounts of our products.’ In a few cases there were more immediate benefits: back in the US, organized labour’s backing for the Marshall Plan was secured through the promise that all in-kind transfers from America would be despatched in US-owned ships loaded by American dockworkers unionized in the AFL-CIO. But this was a rare case of direct and immediate advantage. For the most part Dulles was right: the Marshall Plan would benefit the USA by restoring her major trading partner, rather than by reducing Europe to an imperial dependency.
Yet there was more to it than that. Even if not everyone saw it at the time, Europe in 1947 faced a choice. One part of that choice was recovery or collapse, but the deeper question was whether Europe and Europeans had lost control of their destiny, whether thirty years of murderous intra-European conflict had not passed the fate of the continent over to the two great peripheral powers, the US and the Soviet Union. The Soviet Union was quite content to await such a prospect—as Kennan noted in his memoirs, the pall of fear hanging over Europe in 1947 was preparing the continent to fall, like a ripe fruit, into Stalin’s hands. But for American policymakers, Europe’s vulnerability was a problem, not an opportunity. As a CIA report argued in April 1947, ‘(t)he greatest danger to the security of the United States is the possibility of economic collapse in western Europe and the consequent accession to power of Communist elements’.
A Special Ad Hoc group of the State, War and Navy Departments’ coordinating committee spelled the point out more fully in a report dated April 21st 1947:
‘It is important to maintain in friendly hands areas which contain or protect sources of metals, oil and other natural resources, which contain strategic objectives or areas strategically located, which contain substantial industrial potential, which possess manpower and organized military forces in substantial quantities, or which for political or psychological reasons enable the US to exert a greater influence for world stability, security and peace.’
This is the broader context of the Marshall Plan, a lowering political and security landscape in which American interests were inextricably interwoven with those of a fragile and sickly European sub-continent.
The better-informed European recipients of Marshall Aid, notably Bevin and Georges Bidault, his counterpart at the French Foreign Ministry on the Quai d’Orsay, understood this perfectly well. But European domestic interest in the European Recovery Program itself, of course, and the uses to which it was put, varied considerably from country to country. In Belgium, where American assistance was probably least urgently needed, the Marshall Plan may even have had a long-term prejudicial impact, allowing the government to spend heavily on investment in traditional industrial plants and politically-sensitive industries like coal mining without counting the long-term cost.
In most cases, though, Marshall Aid was applied as intended. In the Plan’s first year, aid to Italy was largely devoted to urgently needed imports of coal and grain, together with help for struggling industries like textiles. But thereafter 90 percent of Italian counterpart funds went directly to investment: in engineering, energy, agriculture and transportation networks. In fact, under Alcide De Gasperi and the Christian Democrats, Italian economic planning at the end of the forties rather resembled its east European counterpart, with consumer goods deliberately disfavoured, food consumption held down to pre-war levels and resources diverted to infrastructural investment. Thiswas almost too much of a good thing: American observers became nervous and tried unsuccessfully to encourage the government to introduce more progressive taxes, relax its austere approach, allow reserves to fall and avoid bringing about a recession. Here, as also in western Germany, American Marshal Planners would have liked to see social and economic policies slanted more to the Centre and away from traditional deflationist policies.
In France, Marshall Aid very much served the goals of the ‘planners’. As Pierre Uri, one of Monnet’s associates, later acknowledged: ‘we used the Americans to impose on the French government what we deemed necessary’, ignoring the American desire for liberalization but responding enthusiastically to US exhortations to invest and modernize. ERP dollars—$1.3 billion in 1948-49 and a further $1.6 billion in the next three years—financed almost fifty percent of French public investment under the Monnet Plan during the Marshall years, and the country could never have managed without it. It is thus more than a little ironic that it was in France that the Marshall Plan faced the greatest popular criticism. In mid-1950 only one French adult in three acknowledged having even heard of the Marshall Plan and of these 64 percent declared it to be ‘bad’ for their country!
The Plan’s relatively poor image in France represented a partial public relations success for the French Communists, perhaps their greatest.20 In Austria the local Communists—backed by Soviet forces still occupying the eastern region of the country—never made any dent in the popularity of Americans and their aid; the latter put food in people’s mouths and this was what mattered most. In Greece the situation was clearer still. In the circumstances of a brutal civil war Marshall Aid, extended to Greece in April 1948, made the difference between survival and destitution. The $649 million of American aid to Greece under the ERP supported refugees and staved off hunger and disease: the mere delivery of mules toindigent farmers made the difference between life and death for thousands of peasant families. In 1950 Marshall Aid was credited with furnishing half of the country’s GNP.
How successful was the European Recovery Program? Western Europe indubitably recovered, and precisely over the period (1948-1951) of the Marshall Plan. By 1949 French industrial and agricultural production both exceeded 1938 levels for the first time. By the same criterion sustained recovery was achieved in 1948 by the Netherlands, in 1949 by Austria and Italy, in 1950 by Greece and West Germany. Of those countries occupied during the war, only Belgium, Denmark and Norway recovered sooner (in 1947). Between 1947 and 1951 the combined GNP of western Europe rose by 30 percent.
In the short-term the chief contribution of the Program to this recovery was surely the provision of dollar credits. These underwrote trade deficits, facilitated the large-scale importation of urgently needed raw materials and thus carried Western Europe through the crisis of mid-’47. Four-fifths of all the wheat consumed by Europeans in the years 1949-51 came from dollar-zone countries. Without Marshall Aid it is not clear how the fuel shortages, food shortages, cotton shortages and other commodity scarcities could have been overcome at a politically acceptable price. For while the economies of western Europe surely could have continued to grow without American assistance, this could only have been achieved by repressing home demand, cutting back on newly-introduced social services and further reducing the local standard of living.
This was a risk most elected governments were understandably reluctant to run. In 1947 the coalition governments of western Europe were trapped and they knew it. It is all very well for us to recognize in hindsight that Marshall Aid ‘merely’ broke a logjam born of renewed demand, that Washington’s new approach overcame a ‘temporary’ dollar shortfall. But no-one in1947 could know that the $4.6 billion gap was ‘temporary’. And who at the time could be sure that the logjam was not sweeping the fragile European democracies over a roaring cataract? Even if the ERP did no more than buy time, that was a crucial contribution, for time was precisely what Europe appeared to lack. The Marshall Plan was an economic program but the crisis it averted was political.
The longer run benefits of the Marshall Plan are harder to assess. Some observers were disappointed at the Americans’ apparent failure to persuade Europeans to cooperate in integrating their planning as much as they had initially hoped. And it is true that whatever collaborative habits and institutions the Europeans did eventually acquire were only indirectly indebted to American efforts, if at all. But in the light of Europe’s recent past, any moves in this direction represented progress; and Marshall’s invitation did at least oblige the mutually-suspicious European states to sit down together and co-ordinate their responses and, ultimately, much else. The Times was not so very wide of the mark when it stated, in a leader on January 3rd 1949, that ‘(w)hen the cooperative efforts of the last year are contrasted with the intense economic nationalism of the inter-war years, it is surely permissible to suggest that the Marshall Plan is initiating a new and hopeful era in European history.’
The real benefits were psychological. Indeed, one might almost say that the Marshall Plan helped Europeans feel better about themselves. It helped them break decisively with a legacy of chauvinism, depression and authoritarian solutions. It made co-ordinated economic policy-making seem normal rather than unusual. It made the beggar-your-neighbour trade and monetary practices of the thirties seem first imprudent, then unnecessary and finally absurd.
None of this would have been possible had the Marshall Plan been presented as a blueprint for the ‘Americanization’ of Europe. On the contrary, post-war Europeans were so aware of their humiliating dependence upon American aid and protection that any insensitive pressure from that quarter would certainly have been politically counter-productive. By allowing European governments to pursue policies that had emerged from domestic compromises and experiences, and by avoiding a one-size-fits-all approach to recovery programmes, Washington actually had to forego some of its hopes for western European integration, at least in the short term.
For the ERP was not parachuted into a vacuum. Western Europe was able to benefit from American help because it was a long-established region of private property, market economics and, except in recent years, stable polities. But for just this reason, western Europe had to make its own decisions and would ultimately insist on doing so. As the British diplomat Oliver Franks put it: ‘The Marshall Plan was about putting American dollars in the hands of Europeans to buy the tools of recovery. ’ The rest—convertible currencies, good labour relations, balanced budgets and liberalized trade—would depend on Europeans themselves.
The obvious comparison, however, was not between American visions and European practices but between 1945 and 1918. In more respects than we now recall, the two post-war eras were uncannily alike. In the 1920s Americans were already encouraging Europeans to adopt US production techniques and labour relations. In the 1920s many American observers saw Europe’s salvation in economic integration and capital investment. And in the 1920s Europeans, too, looked across the Atlantic for guidance about their own future and for practical aid in the present.
But the big difference was that after World War One the US gave only loans, not grants; and these were nearly always supplied through the private capital market. As a result they carried a price tag and were usually short-term. When they were called in at the onset of the Depression, the effect was disastrous.
The contrast in this respect is striking—after initial stumbles in 1945-47, American policymakers went to some lengths to correct the mistakes of the previous post-war era. The Marshall Plan is significant not just for what it did but for what it was careful to avoid.
There was one European problem, however, that the European Recovery Plan could neither solve nor avoid, yet everything else depended upon its resolution. This was the German Question. Without German recovery French planning would come to nought: France was to use Marshall counterpart funds to build huge new steel mills in Lorraine, for example, but without German coal these would be useless. Marshall credits with which to buy German coal were all very well; but what if there was no coal? In the spring of 1948 German industrial output was still only half that of 1936. The British economy would never recover while the country was spending unprecedented sums ($317 million in 1947 alone) just to sustain the helpless population of its zone of occupation in northwest Germany. Without Germany to buy their produce the trading economies of the Low Countries and Denmark were moribund.
The logic of the Marshall Plan required the lifting of all restrictions upon (West) German production and output, so that the country might once again make its crucial contribution to the European economy. Indeed, Secretary of State Marshall made clear from the outset that his Plan meant an end to French hopes of war reparations from Germany—the point, after all, was to develop and integrate Germany, not make of it a dependent pariah. But in order to avoid a tragic re-run of the events of the 1920s—in which frustrated efforts to extract war reparations from a prostrate Germany had led, as it seemed in retrospect, directly to French insecurity, German resentment and the rise of Hitler—it was clear to the Americans and their friends that the Marshall Plan would only work as part of a broader political settlement in which French and Germans alike could see real and lasting advantage. There was nomystery to this—a post-war settlement in Germany was the key to Europe’s future, and this was as obvious in Moscow as it was in Paris, London or Washington. But the shape such a settlement should take was an altogether more contentious matter.”
Review by Neil Acherson (Need to Register)