The Marshall Plan Today: Model and Metaphor

    Model and Metaphor

Books of Related Interest Geopolitics at the End of the Twentieth Century Nurit Kliot, Haifa University, Israel, and David Newman, Ben Gurion University of the Negev (eds) Boundaries, Territory and Postmodernity David Newman, Ben Gurion University of the Negev (ed.) Geopolitics: Geography and Strategy Colin S. Gray, University of Hull, and Geoffrey Sloan, Britannia Royal Naval College, Dartmouth (eds) Geoproperty Foreign Affairs, National Security and Property Rights Geoff Demarest, United States Army Land-Locked States of Africa and Asia Dick Hodder, Sarah J. Lloyd and Keith McLachlan School of Oriental and African Studies, London (eds) From Geopolitics to Global Politics: A French Connection Jacques Lévy (ed.) The Changing Geopolitics of Eastern Europe Andrew H. Dawson and Rick Fawn University of St Andrews (eds)

THE MARSHALL PLAN TODAY Model and Metaphor

Editors

JOHN AGNEW J. NICHOLAS ENTRIKIN University of California, Los Angeles

First published in 2004 in Great Britain by Routledge 11 New Fetter Lane London EC4P 4EE and in the USA and Canada by Routledge 29 West 35th Street New York, NY 1001 Copyright in collection © 2004 Routledge Copyright in chapters © 2004 individual contributors Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2004. British Library Cataloguing in Publication Data A catalogue record for this book is available from The British Library ISBN 0-203-50307-4 Master e-book ISBN

ISBN 0-203-58233-0 (Adobe eReader Format) ISBN 0 7146-5514-7 (cloth) ISSN 1466-7940 Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress All rights reserved. No part of this publication may be reproduced, stored in or introduced into a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher of this book.

Contents List of illustrations Contributors Foreword: The Marshall Plan Speech Preface List of Abbreviations Introduction: The Marshall Plan as Model and Metaphor John Agnew and J. Nicholas Entrikin

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Part I: European Recovery 1 Post-World War II western European Exceptionalism: The Economic Dimension J. Bradford DeLong

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2 Europe and the Marshall Plan: 50 Years On Alan S. Milward

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3 The Economic Effects of the Marshall Plan Revisited Dafne C. Reymen

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4 The Marshall Plan and European Integration: Limits of an Ambition Gérard Bossuat

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Part II: Markets and National Policy 5 As the Twig is Bent: The Marshall Plan in Europe’s Industrial Structure Raymond Vernon

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6 Confronting the Marshall Plan: US Business and European Recovery Jacqueline McGlade

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7 The Marshall Plan: Searching for ‘Creative Peace’ Then and Now Paul Bernd Spahn

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Part III: International Cooperation and Globalization 8 The Marshall Plan and European Unification: Impulses and Restraints Wilfried Loth 9 The Marshall Plan: a Model for What? Thomas C. Schelling

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10 From Marshall Plan to Washington Consensus? Globalization, Democratization, and ‘National’ Economic Planning 241 Stuart Corbridge Index

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Illustrations The following plates appear between pp. 140 and 141. Plates 1 ‘All Our Colours to the Mast’ 2 ‘Western Europe’s Recovery’ 3 President Harry Truman signs the Foreign Assistance Act of 1948, setting into motion the ‘Marshall Plan’ for European Recovery 4 The central figures of the Marshall Plan were (left to right) President Harry Truman, Secretary of State George Marshall, Will Clayton and Paul Hoffman 5 ‘Without the Marshall Plan Your Bread Would Be Bare . . .’ 6 ‘England: Something for Everybody’ 7 Miner’s Homes in Holland 8 ‘The American Bludgeon’ was Russia’s interpretation of America intruding on the sovereignty of west European economies 9 ‘Can He Block It?’ Figures 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 3.1 3.2 7.1 10.1

Germany: GDP per capita, 1870–1994 France: GDP per capita, 1870–1994 Italy: GDP per capita, 1870–1994 Britain: GDP per capita, 1870–1994 GDP per capita since 1900 Exports plus imports divided by national product Real investment as a share of GDP US transfers abroad as a share of GDP German unemployment, 1949–70 Western European inflation, 1950–96 Days lost to strikes Allotments and aid received per country Contribution by Marshal Plan in GNP growth European Recovery Program recipients Diagram of the world system during (A) and after (B) the Cold War

27 28 29 30 35 40 44 46 47 47 49 113 115 197 261

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Tables 1.1 Effect of international trade on Western European post-WWII development 2.1 Net ERP aid received, after trading settlements made with ‘conditional’ aid 2.2 Net total ERP aid received, after trading settlements made with ‘conditional’ aid and drawing rights 2.3 Additional output growth attributable to the Marshall Plan, allowing for interaction effects 3.1 Comparison between aid requiring counterpart deposits and allotments 3.2 Aid requiring counterpart deposits and loans compared to allotments 3.3 Deposits in counterpart funds and loans compared to allotments 3.4 Regression equations used for the simulations 3.5a Contribution to growth by the Marshall Plan through the three traditional channels 3.5b Contribution to growth by the Marshall Plan allowing all channels to operate 3.6 Impact of aid on investment, current account and government spending 3.7 Growth equations (1948–1955) 5.1 Foreign manufacturing subsidiaries established by multinational enterprises in selected areas 5.2 Number of mergers, acquisitions, and joint ventures in manufacturing industries, 1982/83 to 1992/93 7.1 Funds made available to ECA for European economic recovery 7.2 European recovery program recipients

41 61 61 63 116 117 118 119 119 120 120 121 161 165 193 196

Contributors John Agnew is Professor of Geography at UCLA. He served as the Associate Director of the UCLA Center for European and Russian Studies. He is author of numerous books and articles on geopolitics including Political Geography (Arnold), The United States and the World Economy (Cambridge), and Mastering Space (Routledge) with Stuart Corbridge. Gérard Bossuat holds the Jean Monnet Chair of Contemporary History at the University of Cergy-Pontoise (France). He also chairs the Department of History and directs a Master ‘Manager of Europe’ project. Professor Bossuat is a member of the Liaison Group of the Historians within the European Community and of the administrative staff of the Jean Monnet Foundation in Lausanne, and of the Institut Pierre Mendes in Paris. He is on the editorial boards of Matériaux pour l’Histoire de notre temps, Recherche socialiste, and Journal of European Intégration History. Professor Bossuat’s recent books are Les aides américaines économiques et militaires à la France, 1938–1960 (Paris), Comité pour l’histoire économique et financière de la France (2001); Les fondateurs de l’Europe unie (Paris, 2001); and (with Georges Saunier) Inventer l’Europe, histoire nouvelle des groupes d’influence et des acteurs de l’unité européenne, actes du colloque de Cergy-Pontoise des 8–10 November 2001, PIE Peter Lang, 2003. Stuart Corbridge is Professor of Geography at the London School of Economics and at the University of Miami. He works mainly on India and is the author of Reinventing India: Liberalization, Hindu Nationalism and Popular Democracy (Polity, 2000, with John Harriss). His next book, with Glyn Williams, Manoj Srivastava and Rene Veron, will be published by Cambridge University Press in 2004 under the title Seeing the State: How the Rural Poor Experience Governance and Democracy in India. Besides India, his main interests are in development studies and international political economy. J. Bradford DeLong is Professor of Economics at the University of California, Berkeley, Co-Editor of the Journal of Economic Perspectives, and a Research Associate of the National Bureau of Economic

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Research. He served in the Clinton Administration as Deputy Assistant Secretary of the Treasury for Economic Policy. He has written on the evolution and functioning of markets, the course and determinants of long-term economic growth, and the making of economic policy. Recent publications include, ‘The Marshall Plan: History’s Most Successful Structural Adjustment Programme’, with B. Eichengreen (in R. Dornbusch et al. (eds), Postwar Economic Reconstruction and Lessons from the East), ‘Keynesianism Pennsylvania-Avenue Style’, Journal of Economic Perspectives. J. Nicholas Entrikin is Professor of Geography at UCLA and former Associate Director of the UCLA Center for European and Russian Studies. His writings include works on place and political community in western Europe and North America as represented in The Betweenness of Place: Towards and Geography of Modernity (Johns Hopkins), ‘Lieu, Culture et Démocratie’, Cahier de Géographie du Québec, ‘Political Community, Identity, and Cosmopolitan Place’, International Sociology, and ‘Democratic Place-Making and Multiculturalism’, Geografiska Annaler. Wilfried Loth is Professor of Modern European History at the Universität in Essen, Germany. A specialist on the history of the Cold War, Professor Loth has had several of his books translated and published in English, including The Division of the World: 1941–1955 (Routledge), Stalin’s Unwanted Child: The Soviet Union, the German Question and the Founding of the GDR (Macmillan) and Overcoming the Cold War: A History of Détente, 1950–1991 (Routledge). Jacqueline McGlade is Associate Dean for Graduate and Academic Affairs and Associate Professor of History, University of Northern Iowa. She has published several articles on American aid and post-1945 western Europe including ‘From Business Programme to Production Drive: The Transformation of US Technical Assistance to Western Europe’, in Marshall Aid and European Industry (Routledge), NATO Procurement and the Revival of European Defense, 1950–60 (Palgrave) and ‘The Big Push: The Export of American Business Education to Western Europe after World War II’, in Missionaries and Managers: United States Technical Assistance and European Management Education, 1945–60 (Manchester). Alan S. Milward is Senior Research Fellow at St John’s College, Oxford and Official Historian to the United Kingdom Government. He is

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affiliated with The European University Institute and the University of North London. Professor Milward is the author of numerous books and journal articles on modern European economic history, including The Reconstruction of Western Europe: 1945–51 (Methuen) and The Frontier of National Sovereignty: History and Theory, 1945–92 (Methuen). Dafne C. Reymen has a Ph.D. in Economics from Stanford University. She is currently working for the ECORYS group, conducting policy preparatory research, and is Visiting Professor at EHSAL (Brussels, Belgium). Thomas C. Schelling is the Lucius Littauer Professor of Political Economy (Emeritus) at Harvard University and the Distinguished University Professor of Economics and Public Affairs at the University of Maryland. He has served in the United States Bureau of the Budget, the Economic Cooperation Administration in Europe and in the White House Office of the Director of Mutual Security. Professor Schelling is a member of both the National Academy of Sciences and the American Academy of Arts and Sciences. His books include Choice and Consequence (Harvard University Press), Arms and Influence (Yale), and The Strategy of Conflict (Harvard University Press). Paul Bernd Spahn is Professor of Public Finance at the Johann Wolfgang Goethe University in Frankfurt, Germany. He has served as an economic consultant for the International Monetary Fund, the World Bank, the Commission of the European Union, and numerous governments all over the world. His research interests include public finance, especially tax policy and coordination, fiscal decentralization, international economics, and economic integration. Raymond Vernon was the Clarence Dillon Professor of International Affairs and the Herbert Johnson Professor of International Business Management at Harvard University. Before joining the faculty at Harvard he spent a long career in the Securities and Exchange Commission and the Department of State dealing with issues of postwar recovery in Japan and Europe. He was a member of the American Academy of Arts and Sciences and the author of numerous books on international finance and development, including, Big Business and the State Changing Relations in Western Europe (Harvard), Beyond Globalism: Remaking American Foreign Economic Policy (Free Press) with D. Spar, In Hurricane’s Eye: The Troubled Prospects of Multinational Enterprises (Harvard). Professor Vernon passed away in 1999.

Foreword: The Marshall Plan Speech The following is the speech given by Secretary of State George C. Marshall in which he outlined a program of economic assistance to war-torn Europe. It became known as ‘The Marshall Plan Speech’. June 5, 1947, Harvard University, Cambridge, Massachusetts Mr President, Dr Conant, members of the Board of Overseers, Ladies and Gentlemen: I’m profoundly grateful and touched by the great distinction and honor and great compliment accorded me by the authorities of Harvard this morning. I’m overwhelmed, as a matter of fact, and I’m rather fearful of my inability to maintain such a high rating as you’ve been generous enough to accord to me. In these historic and lovely surroundings, this perfect day, and this very wonderful assembly, it is a tremendously impressive thing to an individual in my position. But to speak more seriously, I need not tell you that the world situation is very serious. That must be apparent to all intelligent people. I think one difficulty is that the problem is one of such enormous complexity that the very mass of facts presented to the public by press and radio make it exceedingly difficult for the man in the street to reach a clear appraisement of the situation. Furthermore, the people of this country are distant from the troubled areas of the earth and it is hard for them to comprehend the plight and consequent reactions of the longsuffering peoples, and the effect of those reactions on their governments in connection with our efforts to promote peace in the world. In considering the requirements for the rehabilitation of Europe, the physical loss of life, the visible destruction of cities, factories, mines, and railroads was correctly estimated, but it has become obvious during recent months that this visible destruction was probably less serious than the dislocation of the entire fabric of the European economy. For the past ten years conditions have been abnormal. The feverish preparation for war and the more feverish maintenance of the war effort engulfed all aspects of national economies. Machinery has fallen into disrepair or is entirely obsolete. Under the arbitrary and destructive Nazi rule, virtually every possible enterprise was geared into the German war

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machine. Long-standing commercial ties, private institutions, banks, insurance companies, and shipping companies disappeared through loss of capital, absorption through nationalization, or by simple destruction. In many countries, confidence in the local currency has been severely shaken. The breakdown of the business structure of Europe during the war was complete. Recovery has been seriously retarded by the fact that two years after the close of hostilities a peace settlement with Germany and Austria has not been agreed upon. But even given a more prompt solution of these difficult problems, the rehabilitation of the economic structure of Europe quite evidently will require a much longer time and greater effort than has been foreseen. There is a phase of this matter which is both interesting and serious. The farmer has always produced the foodstuffs to exchange with the city dweller for the other necessities of life. This division of labor is the basis of modern civilization. At the present time it is threatened with breakdown. The town and city industries are not producing adequate goods to exchange with the food-producing farmer. Raw materials and fuel are in short supply. Machinery is lacking or worn out. The farmer or the peasant cannot find the goods for sale which he desires to purchase. So the sale of his farm produce for money which he cannot use seems to him an unprofitable transaction. He, therefore, has withdrawn many fields from crop cultivation and is using them for grazing. He feeds more grain to stock and finds for himself and his family an ample supply of food, however short he may be on clothing and the other ordinary gadgets of civilization. Meanwhile, people in the cities are short of food and fuel, and in some places approaching the starvation levels. So the governments are forced to use their foreign money and credits to procure these necessities abroad. This process exhausts funds which are urgently needed for reconstruction. Thus a very serious situation is rapidly developing which bodes no good for the world. The modern system of the division of labor upon which the exchange of products is based is in danger of breaking down. The truth of the matter is that Europe’s requirements for the next three or four years of foreign food and other essential products – principally from America – are so much greater than her present ability to pay that she must have substantial additional help or face economic, social, and political deterioration of a very grave character. The remedy lies in breaking the vicious circle and restoring the confidence of the European people in the economic future of their own countries and of Europe as a whole. The manufacturer and the farmer throughout wide areas must be able and willing to exchange their product for currencies, the continuing value of which is not open to question.

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Aside from the demoralizing effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace. Our policy is directed not against any country or doctrine but against hunger, poverty, desperation, and chaos. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist. Such assistance, I am convinced, must not be on a piecemeal basis as various crises develop. Any assistance that this Government may render in the future should provide a cure rather than a mere palliative. Any government that is willing to assist in the task of recovery will find full cooperation, I am sure, on the part of the United States Government. Any government which maneuvers to block the recovery of other countries cannot expect help from us. Furthermore, governments, political parties, or groups which seek to perpetuate human misery in order to profit therefrom politically or otherwise will encounter the opposition of the United States. It is already evident that, before the United States Government can proceed much further in its efforts to alleviate the situation and help start the European world on its way to recovery, there must be some agreement among the countries of Europe as to the requirements of the situation and the part those countries themselves will take in order to give proper effect to whatever action might be undertaken by this Government. It would be neither fitting nor efficacious for this Government to undertake to draw up unilaterally a program designed to place Europe on its feet economically. This is the business of the Europeans. The initiative, I think, must come from Europe. The role of this country should consist of friendly aid in the drafting of a European program and of later support of such a program so far as it may be practical for us to do so. The program should be a joint one, agreed to by a number, if not all, European nations. An essential part of any successful action on the part of the United States is an understanding on the part of the people of America of the character of the problem and the remedies to be applied. Political passion and prejudice should have no part. With foresight, and a willingness on the part of our people to face up to the vast responsibility which history has clearly placed upon our country the difficulties I have outlined can and will be overcome. I am sorry that on each occasion I have said something publicly in regard to our international situation, I’ve been forced by the necessities

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of the case to enter into rather technical discussions. But to my mind, it is of vast importance that our people reach some general understanding of what the complications really are, rather than react from a passion or a prejudice or an emotion of the moment. As I said more formally a moment ago, we are remote from the scene of these troubles. It is virtually impossible at this distance merely by reading, or listening, or even seeing photographs or motion pictures, to grasp at all the real significance of the situation. And yet the whole world of the future hangs on a proper judgment. It hangs, I think, to a large extent on the realization of the American people, of just what are the various dominant factors. What are the reactions of the people? What are the justifications of those reactions? What are the sufferings? What is needed? What can best be done? What must be done? Thank you very much.

Preface Most of the chapters presented in this book derive from papers presented at a conference held at UCLA in November of 1997 entitled ‘The Marshall Plan: Lessons after 50 Years (1947–97) – Through the Cold War and Toward Unification’. The conference was organized under the auspices of the UCLA Center for European and Russian Studies (renamed in 2002 as the UCLA Center for European and Eurasian Studies). The editors were the then former and current associate directors of the Center and the primary conference organizers. The papers were revised to form the core of this book, and several additional contributions were invited. The one paper that is presented in its original conference format is that of late Professor Raymond Vernon. We would like to thank Professor Ivan Berend, the Director of the Center, for his leadership and generosity in supporting the conference and this publication. In addition to Center support, financial assistance for the conference was provided by the Goethe-Institut German Cultural Center, the University of California Berkeley Center for German and European Studies, the Kreditanstalt für Wiederaufbau, and Mr George Gregory. Vera Wheeler, Center Program Director, and her staff provided greatly appreciated assistance in the planning and organization of the conference. We would also like to acknowledge the conference participants whose work is not presented here but whose contributions were essential to the success of the meeting. They include: Professor Michael Intriligator, Dr Malinka Koparanova, and the former Czech Foreign Minister Jirí Dienstbier. Several people were especially instrumental in the preparation of this book and are deserving of notice. First and foremost, we would like to express our gratitude to Carol Medlicott for her invaluable assistance in preparing the manuscript for publication. Her organizational efficiency, critical eye, and sound judgment were essential to the successful completion of this project. The UCLA Academic Senate Faculty Research Grant Program provided funding for her work. The critical yet encouraging commentary and careful manuscript review provided by Professor Günther J. Bischof were important to us in revising both the introduction and the overall thematic organization of the volume. Lisa Hyde of Frank Cass Publishers and Heidi Bagtazo

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of Routledge have been patient and effective editors in facilitating the transition from manuscript to published volume. John Agnew J. Nicholas Entrikin UCLA

Abbreviations AMF AMP CED CEEC COCOM DOTs EBRD ECA ECSC EDC EIP EPU ERP EURATOM FFMA FNA FOA GAB GARIOA GATT IMF ISB ITO MDAA MSA NAM NATO NFTC NICs NSC OECD OEEC OIG UNRRA

Jean Monnet Archives Additional Military Production Committee for Economic Development Committee on European Economic Cooperation Coordinating Committee Developing and de-colonized countries European Bank for Reconstruction and Development Economic Cooperation Administration European Coal and Steel Community European Defense Community European Industrial Projects European Payments Union European Recovery Program European Atomic Energy Community French Foreign Minister Archives French National Archives Foreign Operations Administration General Agreement to Borrow Government Aid and Relief in Occupied Areas General Agreement on Tariffs and Trade International Monetary Fund International Settlements Bank International Trade Organization Military Defense Assistance Act Mutual Security Agency National Association of Manufacturers North Atlantic Treaty Organization National Foreign Trade Council Newly Industrialized Countries National Security Council Organization for Economic Cooperation and Development Organization for European Economic Cooperation Overseas Investment Guarantees United Nations Reconstruction and Rehabilitation Administration

xx USDS USTA&P

    US Department of State US Technical Assistance and Productivity Program

Introduction: The Marshall Plan as Model and Metaphor JOHN AGNEW AND J. NICHOLAS ENTRIKIN

In a 1947 address at the Harvard University Commencement, Secretary of State George C. Marshall outlined the idea, later enshrined in the Truman Administration’s European Recovery Program, of reconstructing a devastated Europe only just emerging from World War II through the infusion of US aid on a massive scale. The Marshall Plan would eventually cost between 12 and 13 billion dollars before being subsumed by US defense spending on NATO and support for a variety of bilateral aid programs in the early 1950s. The Marshall Plan was indeed by many measures a successful international aid program, which like most such programs had more than purely philanthropic aims. Among other things, a devastated Europe was an invitation to Soviet political meddling, an opportunity for rebuilding export markets for US businesses, and a chance to experiment with creating an open world economy that would not experience repetition of the economic and political disasters of the previous twenty years. Evocative speeches at timely moments played a major role in defining and reorienting ‘Europe’ after World War II. One was Winston Churchill’s ‘iron curtain’ speech at Westminster College in Missouri in 1946. Another was George Marshall’s speech at Harvard in 1947 offering American aid and advice in rebuilding a shattered continent. A third was Robert Schuman’s speech in Paris in 1950 proposing common European control over coal and steel resources. These speeches, perhaps because they were relatively short and eloquent, captured the popular imagination of the time. They shifted thinking by creating a new conventional wisdom. With hindsight they seem like founding moments of what has happened since. The fact that two were given in the United States points to both American centrality to Europe’s future and the interweaving of destinies that was already under way. Scholars have long debated the extent to which the Marshall Plan of 1947 actually contributed to the postwar growth and prosperity of western Europe and the degree to which it was an unprecedented act of

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state altruism or an example of American imperialism. Indeed, scholarship on the consequences of the Marshall Plan has gone through several identifiable stages. Accounts of the Marshall Plan as the major cause of postwar European recovery were challenged by the revisionist counterfactual analysis of Alan Milward (1984), and Milward’s conclusions have in turn been questioned by Barry Eichengreen and Marc Uzan’s (1992) econometric analysis reasserting the positive impact of the plan through its critical and timely support of basic market systems in fragile European national economies. These and other interpretive disagreements highlight the troublesome data issues associated with Marshall Plan scholarship, in which seemingly straightforward claims, such as the amounts of aid received by participating countries, are matters of continual reassessment and argument. What appears beyond dispute, however, is that the plan had two major impacts, irrespective of either its quantitative effect or its motivation. One was the political–psychological boost its massive economic assistance gave to a recovering Europe. The other was its undoubted contribution to the divergence in political–economic paths of western and eastern Europe. After Stalin’s rejection of the plan as an example of unmitigated American imperialism, the funds and the American ideas for how they should be spent poured into western Europe where they influenced the course of both ideology and institutions over the next 50 years. Indeed, it is not too far-fetched to suggest that the opening up of national boundaries to trade and investment implicit in the plan’s approach and the conjoining of private and public initiatives within the plan helped lay the groundwork for later European unification and the decisive choice of the US side by western Europe in the emerging Cold War between the United States and the Soviet Union. Since 1989, the reinvigoration of European unification and the collapse of the Soviet Union have created a sense of a new European age, of a unifying Europe looking to the future rather than a divided Europe mired in the past. Recent events, such as the dreadful and continuing violence in the former Yugoslavia, the cataclysmic economic implosion of Russia, and the emergence of significant cleavages among members of the European Union with respect to acceptance of key policies on population mobility and currency unification, and foreign policy cleavages over the war in Iraq, remind us of the fragility of what has been achieved. At the same time they suggest the need for greater international coordination to combat a renewal of political and economic fragmentation. Yet the seemingly compulsive progress of integration within the European Union and the convulsive collapse of the Cold War world also recall the European past, particularly the years immediately after World War II,

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when Europe was divided between east and west, and what these years signify both in terms of the trajectory of western Europe thereafter and the relevance of that experience for the assimilation of the east into the project of European unification. In particular, the spirit of integration represented by the European Union can be traced to the immediate postwar years when a group of western European political leaders, such as Monnet, Schuman, De Gasperi, and Adenauer, combined a vision of an integrating Europe with support for an American plan of economic recovery and institutional reform. This initiative was directed as much at preventing a recurrence of the Depression of the 1930s as at minimizing the likelihood of a return of the national animosities that had produced the two world wars. As such it closely matched contemporary American imperatives. Along with the military commitments of the United States to western Europe in the form of NATO, designed to frustrate Soviet ambitions beyond the sphere of influence agreed to by the Allies (the United States, Britain and the Soviet Union) at the Yalta conference in 1945, the most important material and symbolic economic commitment of the US government took the form of the Marshall Plan, designed to limit the political success of indigenous Communist parties by pointing to American financial support and the absence of any Soviet equivalent, stimulating European economic growth to help American exports, and creating (in conjunction with the Bretton Woods Agreement on currencies of 1944) a world economy in which the competitive protectionism of the 1930s would be a thing of the past. The Marshall Plan has become the centerpiece of claims about what distinguished the aftermath of World War II in Europe from that of World War I, particularly the limited emphasis on reparations from a ‘guilty’ Germany and the necessary role in this played by the United States government, and the specific American contribution to western European economic growth and prosperity in the 1950s and 1960s. It has also become a model or rhetorical device for exhorting planned external intervention elsewhere, more recently for eastern Europe and the former Soviet Union, and most recently for Afghanistan and Iraq, to do what the Marshall Plan is alleged to have done so successfully for western Europe after World War II. More than fifty years after the introduction of the Marshall Plan, therefore, the plan still lives on but now as a model for organizing the transition from state socialism to open market economies. As Barry Eichengreen (2001, 141) has noted, the Marshall Plan was a unique response to a particular historical circumstance, but ‘Marshall’s key insight, that a market economy needs institutional and policy support to function effectively, is as timely today as 50 years ago.’

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Two related themes, the Marshall Plan as a force for western European economic recovery and political integration and as a model for the later world economy and the recent transition economies, form the conceptual axis for the organization of this volume. The Marshall Plan looms large in general debates about the origins of the Cold War and the globalization of the world economy under American auspices. It has recently assumed an intellectual and political importance out of all proportion to what its initiators seem to have had in mind. Since the end of the Cold War the Marshall Plan has taken on a mythic role in political rhetoric and in debates among scholars that is deserving of close attention. The purpose of this book is to begin such a reevaluation by incorporating examination of the impact of the plan, its legacy for European integration, its emergence as a model for the transition from state socialism, and its founding as a vital underpinning of the globalizing world economy which accompanied the mutual development of the Cold War western world’s American and European halves. The book consists of 10 chapters by authors from a range of disciplines – from economics and history to political science and human geography – and a diversity of national backgrounds – from French and British, to German and American. They combine to tell a collective narrative that extends well beyond a specifically ‘American story’ of the Marshall Plan and its consequences. The book also offers a mix of views from leading authorities on the Marshall Plan, including Alan Milward, Raymond Vernon, Wilfried Loth, Gerard Bossuat, and Thomas Schelling, and a group of younger, noteworthy scholars, such as J. Bradford De Long, Stuart Corbridge, Dafne C. Reymen, and Jacqueline McGlade. The continuity of the Marshall Plan as a metaphor and model for beneficent external intervention to aid in economic transformation under conditions of socio-economic collapse is one feature that distinguishes this book from others on the Marshall Plan or aspects of it that have appeared since 1980. The other feature is its focus on the longerterm impacts of the Marshall Plan, including that of its effect on European unification. Most previous studies fit under one of three rubrics. In the first category are volumes of memoirs, recording the origins and working of the plan from the point of view of participants. The volumes published in celebration of the 35th and 40th anniversaries of the plan are of this type (Hoffman and Maier, 1984; Clesse and Epps, 1990). The second category consists of studies of the politics of the plan in relation to single countries (for example, Bischof, Pelinka and Stiefel, 2000; Maier and Bischof, 1991; Whelan, 2000) or the role of individual political figures, such as Dean Acheson, in its formulation (for example, Chace, 1998). The third, and final, are books that have emphasized the

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impact of the Marshall Plan on the postwar economic recovery of western Europe (for example, Wexler, 1983; Milward, 1984; Eichengreen, 1995) or its role in creating a political–economic ‘bridge’ between the United States and Europe across which American ideas of political– economic organization might freely pass (for example, Mee, 1984; Hogan, 1987). Though covering many of the themes raised in the other studies, this book endeavors to provide a rather more comprehensive perspective on the Marshall Plan than is found elsewhere in terms of the plan’s long-term political influence, as well as its shorter-term political and economic impact. Not surprisingly, it is closest in format to another 50th anniversary volume, The Marshall Plan: Fifty Years After, edited by Martin Schain (2001) under the auspices of the Center for European Studies at New York University. Both books examine the debates concerning the Marshall Plan’s legacy for European recovery and integration, but some of the following chapters extend beyond these themes to include consideration of the salience and discursive power of the idea of the plan in other arenas of international affairs. The Introduction provides four services to the reader of the book. The first is to situate the Marshall Plan in the geopolitical context of the Cold War and the new world economy to which it contributed. A particular emphasis is placed on what the Marshall Plan signifies about the peculiar character of the dominance exerted by the United States as an emerging superpower in the late 1940s. The second is to provide a brief overview of the Marshall Plan and its legacy. This is a brief narrative of the origins and unfolding of the plan that should help in providing background for the disputes over its impact in subsequent chapters. The third is to outline the use of the Marshall Plan as a metaphor and model for external support, particularly in relation to eastern Europe in the early 1990s. Finally, the organization of the book, the specific chapters, and their relationship to the overarching themes are traced. The Peculiarity of American Hegemony In early 1947 the United States government did not yet have any kind of grand strategy in relation to either its global role or the more specific problems of its military and political presence in Europe. As Dean Acheson, then Under-Secretary of State, wrote in his memoir, referring to himself and his colleagues in the Truman Administration: ‘Only slowly did it dawn upon us that the whole world structure and order that we had inherited from the nineteenth century was gone and that the struggle to replace it would be directed from two bitterly opposed and ideologically irreconcilable power centers’ (Acheson, 1969, 726).

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What was clear was that the relative location of the various victorious armies at the end of the war seemed to augur a world divided into spheres of influence with the Red Army in eastern Europe, the American army in Japan and southern Korea, the British and American forces in Germany and Italy, and the British army in Greece. This vision, originating at the Yalta Conference in 1945, received its most vivid expression in Winston Churchill’s famous speech on 5 March 1946 at Westminster College, Missouri, when the former British prime minister warned that an ‘iron curtain’ had descended across Europe and an Anglo-American alliance had to make sure that it went no further. Stalin had earlier endorsed his own version of a dividing world when in a speech on 9 February 1946 he spoke of the fundamental incompatibility between his communist and the American capitalist systems. The war of words that constituted the verbal face of the Cold War as it was to grow down the years was under way. Its military and political–economic components were not long in revealing themselves. Mutual suspicions fueled by divergent political–economic systems, a budding arms race, and mutual interpretations based on totalistic accounts of the Other, systematically exaggerating each one’s negative features, left little scope in 1946–47 for calm realpolitik appraisal of either side’s intentions or capabilities. Each side began to define itself as the complete opposite of the other with each considered as an ideal type of political–economic system between which there could be no compromise in a struggle for global primacy. The growing rigidity of this division did not unfold linearly. The recent opening of Soviet archives suggests some Soviet wavering in terms of response to the initial offer to include the Soviet Union and eastern Europe in the plan (Roberts, 1994). Many forget that Marshall’s speech did not single out western Europe but had a much more expansive understanding of Europe (Loth, 1988). The British also contributed to the polarization, not only by means of Churchill’s rhetoric and Foreign Secretary Bevin’s fervent anti-communism and enthusiasm for Anglo-American joint ventures, but also through pursuing the goal of propping up the British Empire by encouraging an east–west division in place of possible alternatives, such as a US–Soviet détente, that might have doomed the continuation of British pretense to Great Power status (Ryan, 1982; Taylor, 1990). The signs of the growing Cold War were evident, however, in the conflict over the Greek civil war, struggles over Berlin, revelations of Soviet espionage to acquire nuclear secrets, George Kennan’s writings characterizing the Soviet Union as an adversary that only understood the ‘logic of force’, and an increasing consensus between the two political parties and among powerful economic interests in the United States that the

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country could not safely retreat into its shell as it had done after World War I. Although the military aspect of the emerging global confrontation with the Soviet Union received pride of place in both Washington DC and Moscow, the US approach increasingly involved a focus on tying foreign policy to the needs of domestic economy including a sense that the future success of the latter depended on an expanding world market to which the Soviet Union as an autarkic state-command economy posed a direct threat. What made the United States a peculiar superpower, therefore, was not its command over nuclear weapons or its military might in general but its desire and ability to export its ethos of organized capitalism so as to build and protect its base at home. This made it qualitatively different from the previous experience of the British and their focus on territorial empire-building or the Soviet Union’s commitment to ideological rather than material exports. The Americans have been the true dialectical materialists, exporting ideas and commodities at one and the same time. The immediate origins of the Marshall Plan lay in the perception by leading figures in the Truman Administration that (1) with the defeat of Germany and Italy and the exhaustion of Britain and France, Europe was a power-vacuum into which the Soviet Union might expand unless countered economically as well as militarily by the United States, and (2) the economic recovery of Europe involved not only direct financial aid to rebuilding but also an institutional reorientation in many European nations towards the American model of business–government relations preferably in a framework in which the barriers between states in Europe would become like those between States in the United States (Leffler, 1984; Hogan, 1987, 26–53). The American insistence on a multinational approach with joint planning and resource sharing suggests how seriously the US Administration took the idea of moving beyond bilateral aid into an entirely new world of multilateral commitments and multinational institution building. At an early stage the Marshall planners presciently determined that Germany, the devastated enemy of two years previously, would serve as the locomotive of European recovery. For this to happen, however, the legitimacy of national governments (above all, that of West Germany) as providers for their populations had to be reestablished and the other countries had to be open to the impulses transmitted by German economic rejuvenation. If American federalism inspired the political thrust, the economic principles to guide American engagement with Europe were those that had evolved in the corporate expansion of the 1920s and the New Deal of the 1930s in the United States: ‘where a large internal economy integrated by free-market forces

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and central institutions of coordination and control seemed to have laid the groundwork for a new era of economic growth and social stability’ (Hogan, 1987, 27). Europe was viewed as central to world economic recovery. The Europe that mattered was the industrial one that was currently in crisis but when it did recover was likely to pose a threat to the US unless incorporated into an American-ordered world economy. US aid was to finance the dollar deficits of Europe incurred in transatlantic trade and thus to enable reconstruction and movement towards currency convertibility (Eichengreen, 1996, 104–5). Left undefined in Marshall’s speech so as to suggest a purely beneficent, even anti-geopolitical approach to reconstruction, postwar ‘Europe’ was really industrial western Europe as viewed from the US, plus other countries included largely for political reasons. But of course Europe was also the historic region of origin of most Americans at the time, not least their leaders. So, it was seen as ‘natural’ that Europe would have a high priority in postwar American designs. The confrontation with the Soviet Union was also most obvious and crucial in Europe, whether directly through military competition, or indirectly through the threat posed by large communist parties with Moscow affiliations in Italy, France and several other countries. Will Clayton, one of the architects of the plan, directly linked the European origins of most Americans with anti-communism in a speech on 18 December 1947: Western Europe is made up of our kind of people. Many of our forefathers came from there. Those people hate Communism but if they must resist it under conditions of economic frustration, cold, and hunger, they will lose the fight (Dobney, 1971, 229). The actual impact of the plan was much more complex than the Marshall planners foresaw. Though the Marshall Plan, along with such American international initiatives as the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade, were to give powerful institutional support to the emergence of an ‘embedded liberalism’ in relations between the US and Europe, individual countries adapted differentially to the initiatives of the plan. The American architects of the plan realized that they could not achieve their goals without active European collaboration, so they were sensitive to national differences, including different national business histories and financial systems. Rather than ‘one size fitting all’, therefore, the Marshall Plan allowed for significant national variation in response to the general overarching political–economic direction implicit in the plan for Europe as a whole. Out of the Marshall Plan and, after 1949, with NATO, a regional

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architecture of power, institutions, and ideology evolved, which, while allowing for local differences, served three security goals, somewhat flippantly expressed as ‘keeping the Americans in, the Russians out, and the Germans down’ (that is inside but controlled within a western community of states), and the economic goals of stimulating European economic recovery in a broad framework building towards regional integration on an American model but allowing for national differences. Of course, what was shared was a generally dirigiste appreciation of the virtues of planning and state–business collaboration, associated in the United States with the New Deal, something lost to the world economy since the 1980s’ explosion of support for monetarist and supply-side economic ideologies that look with disfavor on the explicit planned intervention represented by the Marshall Plan and such subsequent European institutional initiatives as the European Coal and Steel Community, the European Common Market, and the European Union. If in early 1947, therefore, as Dean Acheson relates, there was no American grand strategy for the postwar world, after midsummer of that year there was indeed. It was represented in the Marshall Plan, a proposal that managed to encapsulate within one general policy initiative a set of ambitious goals for making over Europe in a new, Americanized image. Not only did this mark a total departure from the American attitude of retreat after World War I, it also signaled the rise of a new and distinctive superpower, oriented towards a remaking of its recent enemies and allies alike rather than their simple conquest or incorporation into an American imperium. This is why the Marshall Plan can be seen both as a philanthropic act and a cunning design for a new world order. To its architects, neither one would be seen as contradicting the other. Revisiting the Marshall Plan Formal American planning for European recovery had begun by early 1947. From the beginning its two most significant features for later adoption were a tendency to think in terms of Europe as a whole and the need to integrate Germany into a regional trading and production system so as to encourage recovery all round and reduce the fears of its neighbors that a revived Germany necessarily meant a dangerous one. The Marshall Plan grew out of a series of memoranda and speeches influenced by these ideas about the form that European recovery might be encouraged to take. But it also emerged in response to a perception that European recovery was in crisis and needed a kick start by the only country capable of giving it: the United States.

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Key among the speeches and memoranda were a speech given by Dean Acheson in Cleveland, Mississippi on 8 May 1947, where a leading figure in the Truman Administration State Department previously skeptical about the need for a Cold War plan asserted the need for a ‘coordinated European economy’ to be pursued, if necessary, ‘without full Four Power agreement’ (Acheson, 1969, 228–9) and a persuasive memorandum penned by another State Department official and former Texas cotton broker, Will Clayton, a week after his return from a European trip, 27 May 1947, that recommended 6–7 billion dollars in new aid each year over three years to reorganize an economy that had become ‘divided into many small watertight compartments’ but now should become a ‘European economic federation’ (Clayton Memorandum, quoted in Hogan, 1987, 43). The day after the submission of his memorandum, Clayton met with Secretary of State Marshall and others, such as George Kennan, to discuss his recommendations and those of the Policy Planning Staff of the State Department, which Kennan then headed. Interestingly, Truman himself was absent from this discussion. His keeping a low profile can perhaps be put down to his image as a partisan politician whose patriotism could be questioned by the Republicans, then in legislative ascendancy within the federal government, and Marshall’s contrasting image as the organizational genius who had brought victory in the recently concluded war. At this meeting the main points of what was to become Marshall’s historic speech were outlined and agreed to. They included the idea of closer European union, extending an invitation to eastern European countries and the Soviet Union to participate in a recovery plan but with the goal of integrating western Europe alone if they refused to join, and insisting that the Europeans themselves should develop an overall plan of multilateral action under American auspices. This may have been one of the most brilliant political strategy sessions of all time. Not only did it lay out a simple yet effective plan for American aid to European recovery, it also provided a vision of a ‘new’ Europe to serve as a basis for more specific American military and economic policies towards the region and a way of restricting Stalin’s options by making him reject the noble offer of American aid rather than exclude him from the outset and thus give him the ready opportunity to portray the plan as a plot to extend American dominion over western Europe. In late 1945 the US government had vastly underestimated the degree of European economic exhaustion. The best example of this was the inadequacy of the 3.75 billion dollar British loan of 6 December 1945 to the task of setting the British economy back on track. Only through touting the virtues of sustaining free enterprise beyond American shores

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and invoking the threat of Soviet fishing in troubled waters did the Truman administration convince a skeptical Republican Congress that some action was due. Through 1946 and into 1947 the perceived failure of a British or a wider European recovery encouraged an increasing sense of crisis. Crop failures in France and Italy and a brutally cold winter throughout Europe reinforced the sense that something had to be done in 1947. This reached a peak with two related events: the virtual bankruptcy of Britain in late 1946 as an American-mandated convertibility of sterling into dollars led to a run on the pound and the British government’s announcement in early 1947 of a withdrawal of its forces from Greece where British-supported Royalists were battling a Communist insurgency. It was in response to this situation that President Truman went to Congress on 12 March 1947 to enunciate his ‘doctrine’ of protecting ‘free peoples’ from Communist (Soviet) aggression. Clayton’s persuasive advocacy of doing something for European recovery came at precisely the moment, therefore, when events combined with policy preparation to make his logic compelling (for a brief but useful account of Clayton’s contribution to the Marshall Plan, see Fossedal and Mikhail, 1997). Marshall decided to make a short speech about what Europe needed in a Commencement Address he had already been invited to give at Harvard University on 5 June 1947. Reflecting the melding of themes urged by Acheson, Kennan and Clayton, the speech announced a proposed program of American aid to Europe that was not directed against any country (in other words, the Soviet Union), was to involve active European direction, and was to be such that ‘Any assistance that this Government may render in the future should provide a cure rather than a mere palliative’ (Marshall Commencement Address at Harvard University, 5 June 1947, reprinted in Mee, 1984, 271–3; see Foreword). Above all, the speech appealed directly to Americans’ sense of generosity and fears for an American economy without strong international supports. Reference to the Soviet Union and communism was indirect but nevertheless present sufficiently to suggest that without American action the Soviet Union would be the beneficiary of Europe’s present penury and misery (Leffler, 1992, 157–64). The speech passed without much immediate publicity, the US government had not yet adopted the mores of Hollywood, save for a press conference by President Truman on the day of the speech announcing its content. The Administration was aware of strong opposition to international initiatives from within the Republican party that controlled the Congress and had to contend with the charge, following President Truman’s veto of a Republican tax cut bill on 17 June 1947, that ‘Truman had decided to relieve the war-torn countries of Europe rather than the

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hard-pressed taxpayers of the United States’ (Hogan, 1998, 90). There was as yet no great popular consensus for either a global crusade against communism or an internationalist economic policy. Indeed, many domestic interests had nothing much at stake in foreign investment and were not readily persuaded of the compelling national-security argument for American financing of European recovery (Fordham, 1998). In addition, one common interpretation of the American experience continued to see it in terms of opposition to European statecraft and Great Power politics more than as a national experiment in political economy that now needed to expand in order to survive. To supporters of America as a haven from European skullduggery, the Marshall Plan went against the tenets of the greatest previous speech given by an American General, George Washington’s Farewell Address, as it warned against the dangers to the fledgling republic of ‘foreign entanglements’ (see Hogan, 1998, 69–118, 419–62). As things turned out, the plan had a crucial ally in Republican Senator Vandenberg and its most important proponent in George Marshall, the Secretary of State. Vandenberg helped adapt the legislation for a European Recovery Program to meet with objections from his own side but without gutting it of its essential ingredient, a substantial first year commitment of funds to the tune of 5.3 billion dollars. Marshall’s role as the mastermind of American victory in World War II and his aloof, almost monumental demeanor, made for difficulty in countering anything he might sponsor, as the Truman Administration knew and used to its advantage (Pogue, 1987). The association of Marshall’s name with the plan, therefore, became its greatest political asset even though he himself, in typically modest fashion, insisted that the plan not bear his name but be called the ‘European Recovery Program’. Rarely could such a genuine act of modesty have had such limited effect! The Plan remained wedded to his name right from the start. Despite the support of Vandenberg and the celebrity of Marshall, multiple claims were deployed to convince skeptical Representatives and Senators of the plan’s necessity: Nothing was excluded from the administration’s pitch if it looked as though it might attract a few votes. If economic arguments failed, references were made to charity; if charity failed to arouse interest, the plight of Western civilization itself was worked into the conversation (Mee, 1984, 239–40). A major plus for the Administration was the positive response of the new-fangled ‘public opinion’ as expressed through a Gallup poll. More Americans had heard of the plan than had not. Of those who had, 56

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percent thought the plan best considered an act of charity; 8 percent thought it would ‘curb communism’; and 35 percent regurgitated the grab bag of claims on offer from the plan’s proponents, had no opinion, or had never heard of it. This provided not only tangible evidence of support from the public for the plan but also a broad sympathy for Marshall’s primary goal of rescuing Europe from economic crisis (Mee, 1984, 241). An American popular ‘desire for universal harmony’ (Dallek, 1983, 158) could be seen as expressing itself in the Marshall Plan. Public perception of the plan was not left, however, entirely to chance. It was aided and influenced by the close cooperation of the State Department and prominent business and labor ‘internationalists’ who formed organizations, such as the Committee for the Marshall Plan to Aid European Recovery, as part of a coordinated effort to influence both public opinion and a wary Congress (Wala, 1986). Congressional opinion was finally brought into line by a combination of leaked documents that vilified Stalin as a former ally of Hitler (in the German–Soviet non-aggression pact of 1939) and the Soviet overthrow of the multi-party Czechoslovakian government that seemed to prove that Stalin was a continuing threat to world peace. Even though the Czech crisis could be seen, as it was by George Kennan, as a delayed consolidation of the Soviet sphere of influence, it allowed the Administration to play the anti-communist card when all other arguments had failed to convince. This was to prove to be only the first time in a long line of occasions as the Cold War advanced, that US governments were to use this card to trump their opponents, both domestic and foreign. To administer the huge task of transferring American goods and credits to Europe, President Truman chose a businessman, Paul G. Hoffman, as the Economic Cooperation Administrator. Truman had wanted to appoint his friend Dean Acheson, but Senator Vandenberg insisted that Acheson would never be confirmed by the US Senate and suggested a Republican businessman in his place. Hoffman staffed his Washington office with other businessmen and made the goal of expanding European productivity to American levels the overall goal of the plan. With Averell Harriman as his Paris-based representative to the European side of the operation – the Economic Cooperation Administration (ECA) in the US and the Organization for European Economic Cooperation (OEEC) in Europe – Hoffman set about convincing and badgering the Europeans into accepting his experts and their advice. Economic and political effects were not long in coming. In particular, the introduction of American machinery seemed to have dramatic effects on production across a range of manufacturing industries, credits allowed European firms and governments to import raw materials from the

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United States and elsewhere, public works projects, such as restoring war-damaged harbors, received infusions of equipment and funds. Even before the first supplies arrived, European anti-Communists were using the promise of Marshall Plan aid as a campaign issue against their Communist opponents. Through its Information Division in Paris and the eighteen country missions, the ECA flooded Europe with propaganda for the plan. Greatest attention and money was directed at those countries seen as most susceptible to a communist threat, but even those countries seen as relatively secure, for example, Ireland, were targeted in order to address ‘misconceptions of the United States’ (Whelan, 2000, 362). Emanating from these sites were numerous press releases, posters, publications, radio programs, newsreels, and documentary films produced by the ECA to promote the plan as a message of hope to the war-weary European populace (Hemsing, 1994; Ellwood, 1988). There was opposition to the plan in Europe. Apart from the Communists who saw the plan as disguised American imperialism, there were some who resented the arrogance of the Americans (Pisani, 1991). Others saw the Marshall Plan as a Trojan Horse for American business, sizing up assets in anticipation of future investment and control. But before these currents could form anything other than disparate voices at the margins of organized politics, the US government became involved in a war in Korea that led to a rapid switch towards military aid to Europe and abandonment of the Marshall Plan as it had operated from the late Spring of 1948 until 25 June 1950. In those two years the US had contributed a total of $13,015,000,000 (Mee, 1984) or $12.5 billion (Milward, 1984, 94), depending upon whom you rely, to European recovery. More crucially, the plan had helped restore European economic confidence at a critical time when recovery was still fragile. More controversially, the plan may have contributed to the overall growth of Europe in the 1950s and probably helped revive thinking and action about the benefits of European economic integration. With its security successor, NATO, the Marshall Plan also put the United States into Europe, defying physical geography to define a political geography in which the United States tied its global fortunes irrevocably to a subset of those European nations that had agreed to participate in the plan. Its architects could have had no idea of its long-term significance. The Marshall Plan as Metaphor and Model Of course, a large part of Europe was denied participation in the plan because it lay inside the Soviet sphere of influence. With the disintegra-

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tion of the Soviet sphere of influence and the collapse of the Soviet Union itself in the early 1990s, the Marshall Plan came back to life, only this time as a metaphor for the external effort needed to bring eastern Europe into the world economy and as a model for what was required institutionally and financially to do so. More recently, President Clinton invoked the Marshall Plan as a precedent for both the military action and subsequent reconstruction taken against Serbia in response to the ‘ethnic cleansing’ of Albanians in Kosovo in 1999. Others continue to call for Marshall Plans for Albania, Bosnia and other specific parts of eastern Europe. More recent events in the Middle East have shifted the geographic referent but not the message. In a 2002 speech at Marshall’s alma mater, Virginia Military Institute, President George W. Bush invoked the Marshall Plan in describing American efforts in re-building post-Taliban Afghanistan and more broadly for securing peace in the aftermath of a more geographically generalized war on terror. Administration critics counter that it is precisely the lack of a Marshall Plan-like scale of investment in building infrastructures and economies that jeopardizes the military successes in the wars in both Afghanistan and Iraq. These concerns have also appeared in Congressional debate. For example, the Committee on International Relations of the US House of Representatives met in the summer of 2002 to discuss ‘Economic Development and Integration as a Catalyst for Peace: A “Marshall Plan” for the Middle East’. Its Chairman, Representative Harry J. Hyde, proposed an American Marshall Plan for the Middle East, where the enemy was violence and extremist religious and nationalist ideologies rather than communism, and the goal was investment in material conditions that would foster hope and a renunciation of terror by the general population (Committee on International Relations, 2002). These invocations of the Marshall Plan are not entirely new ideas. The Marshall Plan idea had been subject to episodic appropriation down the years for projects as diverse as the ‘war on poverty’ in American cities and Third World development projects and environmental clean-up. For example, beginning in the late 1950s, a Marshall Plan for Third World development was a re-occurring theme in the diplomatic efforts of Bruno Kreisky, the Austrian Federal Chancellor from 1970 to 1983 (Lacina, 2000, 13). What has been particularly attractive about invoking the name of the Marshall Plan in relation to eastern Europe and the Soviet Union, however, was that these were the very countries to which an offer of aid had been made under the original plan but which had been refused by Stalin. Justice would be finally served if the offer were made again. Using historical analogies or metaphors to justify some present design or plan is integral to modern diplomacy and to international discourse

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more generally (Lakoff and Johnson, 1980). Some metaphors are recycled to the point of becoming clichés, such as ‘Munich’, as a synonym for appeasement of dictators, or ‘Vietnam’ as a metaphor for military intervention without an ‘exit strategy’, or, more to the point, for ‘quagmire’. Events continue to generate fresh expressions, such as ‘Tiananmen’ as a metaphor for brutal crackdown, and ‘Gulf War’ for hollow victory, increasing the repertoire of terms that give color and dimension to debates over foreign policy. Metaphors tend to be given negative play and are invoked largely for undesirable outcomes. The Marshall Plan is interesting as a metaphor for directing foreign-policy discussions because it has acquired a largely positive connotation. In both negative and positive cases, however, ‘history’ is widely regarded as offering ‘lessons’ as imparted by familiar metaphors without attending much at all to how international and global contexts may have changed since the original moment/place to which the metaphor refers. Political leaders must communicate in familiar terms with both the public and their counterparts. They must also justify their actions with reference to previous action or inaction that produced desired or undesired outcomes. They have no other way in which to make the case for this or that policy. Former Secretary of State Madeleine Albright, for example, is reported to have drawn a direct comparison between her efforts to build a post-Cold War order in Europe and elsewhere with the enterprise of Acheson and others during the Truman Administration. An interviewer refers to her reaction to reading James Chace’s (1998) new biography of Dean Acheson by quoting her as follows: ‘I have been accused of overstating the case,’ she said, alluding to her reputation for tough-sounding rhetoric on the problems of eastern Europe. ‘They [Acheson, Clayton, et al.] did it in spades, and that is how they got the Marshall Plan’ (Dobbs, 1999, 56). Yet this reaction by reference to a 1999 that is essentially unchanged from a 1947 in the meaningfulness of both metaphor and associated action was elicited at precisely the same time at which Britain’s Law Lords were rejecting the once hallowed right of a Head of State (in this case Chile’s Augusto Pinochet) to immunity from prosecution of human rights offenses and the NATO bombing assault on Serbia represented the final breakdown of the legitimacy of a regime’s claims to do whatever it might like within its ‘sovereign’ territory. The world changes, therefore, even as it is still represented in terms of supposedly timeless historical metaphors. The use of the Marshall Plan as a historical metaphor in relation to eastern Europe serves a number of purposes. One is as a serious rhetorical strategy to point to a dire need to parallel the opening up and privatization of assets within previously state-command economies with institution building to help create the legal conditions, government reg-

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ulation, and business organization without which long-term and equitable economic growth cannot occur. It thus provides a rhetorical weapon against the advocates of a neo-liberal ‘big bang’ who have had the ear and the hearts of many western leaders in the early 1990s. Implicit in the use of the Marshall Plan metaphor, therefore, is a political–economic model that harkens back to the postwar years but which is no longer au fait in the brave new world of 1990s transnational liberalism where the magic of the marketplace rules dominant political agendas. Another usage implies less a nostalgia for an international Keynesianism than an attempt at communicating with Western publics about the drastic state of affairs in eastern Europe and the former Soviet Union. From this point of view, the end of the Cold War can be compared in the severity of its human consequences to the aftermath of World War II. Hence, something like the Marshall Plan is needed to give hope to the dispirited and promise to potential investors. Very quickly, however, national aspirations to acquire membership in NATO, as a sort of second-hand membership in a Western ‘club’, replaced talk of a new Marshall Plan for eastern Europe as a whole, in which a distinction was increasingly made by those in its most western parts (for example, Czechoslovakia, Poland, and Hungary) to distinguish themselves as a more qualified ‘Central’ Europe from a less ‘NATO-ready’ eastern Europe between themselves and the former Soviet Union. This tendency has been exacerbated in the divisions within NATO that have seen fault lines within its traditional core members. The strains caused by the Iraq War have further deepened these fault lines as well as created new ones. The diplomatic fallout between the United States and NATO allies France and Germany led not only to the inflammatory geography contained in US Defense Secretary Donald Rumsfeld’s comments about an ‘old’ and ‘new’ Europe, but also to the equally incendiary remarks by French President Jacques Chirac chastising eastern European nations for their ‘infantile’ support of the US position and warning that such behavior could lead to problems in their accession into the EU. Finally, the Marshall Plan has come to signify a kind of bold American initiative that has been replaced by either an absence of decisive action, say in relation to the 1994 Rwandan genocide, or the global refugee crisis, or a muddled and indecisive multilateral action, as in Somalia, throughout the Middle East and the Balkans. So, particularly from an American perpective, the Marshall Plan conjures up an image of an America that seems to have lost its political and moral compass. Its invocation, therefore, represents a hoped-for return to decisive initiatives, whether or not they are precisely modeled on the plan itself. In many quarters there is an increasing sense that the world’s troubles and problems, especially those of

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the Middle East, cannot be left to either the marketplace or to simple multilateral agreements among states. As the ‘sole superpower’ the United States has global responsibilities. The Marshall Plan offers inspiration to those who take this position for two reasons (for example, Rostow, 1997, 211). First, the plan had a popular consensus in the United States that has been lost in divisive debates about foreign policy. There is a nostalgia here for a pre-Vietnam War ‘non-partisan consensus’. Second, the plan was a truly multilateral, even if strongly pushed by the United States. Even the smallest countries could participate. It was, therefore, a demonstration of world leadership more than imperialism. After September 11 the Bush Administration has taken decisive action, but critics argue that such actions have not heeded the message contained in President Bush’s own invocation of the Marshall Plan in reference to Afghanistan. They argue that massive investment in postwar rebuilding efforts and multilateralism are precisely what is needed to make the war on terrorism successful. These various uses of the Marshall Plan metaphor have had powerful resonance. What remains in dispute is how appropriate they are for early 1990s and contemporary eastern Europe, or elsewhere today and in the future. Is there an essential equivalence between the post-World War II period and the wounded but still potentially powerful western European economies, on the one hand, and the post-Cold War period and a set of much weaker and, from an American perspective, less vital set of economies in the East, on the other? Have NATO and European Union membership overwhelmed the symbolic attractiveness of the Marshall Plan model among east European élites? In the contemporary world can a project such as the Marshall Plan be appropriately invoked when international and global conditions are so different from those in 1947, with no Soviet threat to discipline American politicians and competing demands on American power that make ‘Europe’ more responsible for its own future than was the case in the late 1940s? Does the Marshall Plan mark the beginning of an era of transatlantic multilateral cooperation that is now coming to a close? These are just some of the questions raised by invocation of the Marshall Plan. As long as the present is understood in terms of the ‘lessons of history’, however, the Marshall Plan, one of the few positive metaphors in circulation in the gloomy circuits of world affairs, will continue to be recycled as both model and legitimation of actions planned and under way. The Thematic Organization of the Book and Chapter Overview The organization of the book reflects the range of themes outlined above. The three sections attempt to convey, in turn, (1) whether and how

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the Marshall Plan led to economic recovery and political cooperation in western Europe after World War II; (2) some of the ways in which western European and American economies came together as a result of the Marshall Plan yet how each side had a basic institutional similarity that facilitated this, in contradistinction to recent western and eastern Europe; and (3) long-term impacts of the Marshall Plan both as an influence on European unification, as a metaphor for east European economic recovery in the early 1990s, and as a model for a globalizing world economy that faces problems of international cooperation for development and environmental sustainability that are not dissimilar to those engaged by the Marshall Plan in its day. The four chapters in section 1, by J. Bradford DeLong, Alan S. Milward, Dafne C. Reymen, and Gerard Bossuat, offer different perspectives on the general political and economic impacts of the plan in western Europe in the aftermath of World War II. Bradford DeLong sees the cooperative spirit among business, labor, and governments in western Europe as owing something to the early example of the plan. The virtuous circle of growth underpinned by this collaboration only faltered after 1973 when the oil-price crisis and the adoption of monetarist policies by some governments undermined the trust and mutual confidence of the various parties. Alan Milward extends his justly famous critical analysis of the Marshall Plan as a stimulant of postwar European economic growth in arguing for its inappropriateness as a model for contemporary eastern Europe. He directly challenges those, largely American authors, such as DeLong and Eichengreen, Maier, and Hogan, who have attributed Europe’s rapid economic recovery after World War II to the plan. He forcefully argues that specific empirical questions about the impact of the Marshall Plan open up larger theoretical questions about the emergence and successful functioning of an interdependent international economic system over a long period. Dafne C. Reymen offers a cogent analysis of the Marshall Plan’s spending pattern, describing in detail the gap between the funds allocated to each country and what was actually spent. She finds that this latter figure tells a set of different national stories about the impact of the plan rather than the single one about Europe as a whole that usually prevails. Late 1990s aid plans to eastern Europe are assessed in light of the template provided by this analysis. Finally, Gerard Bossuat offers a skeptical view of both American leadership and the impact of the plan. He utilizes a wide range of French-language sources to argue that the American military presence in Europe has had more long-lasting effects upon western Europe than has the Marshall Plan. The second section focuses on the institutional consequences of the plan. Raymond Vernon, a major historian of international business and

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a participant in the administration of the plan, traces a significant shift in European business culture to the effects of the Marshall Plan. In particular, he sees the plan as challenging and undermining the cartel culture of European big business in a way that was later carried forward under the policies of the European Union. Jacqueline McGlade provides evidence for greater ambivalence of segments of American business towards the Marshall Plan than has conventionally been noted. She sees a fundamental conflict that divided American business between a desire to gain and protect markets in Europe and a concern over American postwar rebuilding and possible support for future European business competitors. Finally, Paul Bernd Spahn sees the institutional similarity between the United States and western Europe as laying the groundwork for the Marshall Plan’s success. In counterpoint, the political–economic dissimilarity between eastern and western Europe today is much greater than was that between the US and western Europe in 1947. The third section brings the book full circle from consideration of the Marshall Plan’s specific impacts in the short- and medium-term to Alan Milward’s important point about the plan’s relationship to long-term trends in global political–economic interdependence. Wilfried Loth’s perspective is overtly political in investigating the role of the Marshall Plan as a force for European integration. He sees the aid and conditionality of the plan as encouraging Europe’s recovery but argues that it also facilitated and encouraged the movement for a more integrated Europe as manifested most recently in the European Union. Thomas C. Schelling, a former official in the Marshall Plan and a distinguished economist/political scientist, speculates on the Marshall Plan as a model for the early twenty-first century. He argues that now it must be directed at global problems such as the environmental threats from greenhouse gases. The Marshall Plan was a regional program that had global consequences. Today we need global programs for many of the problems we face. But they too must be based on cooperation. That is the lasting legacy of the Marshall Plan: whatever is made of its specific impacts, it is probably the best example in modern history of successful multinational cooperation to achieve a common goal. Finally, Stuart Corbridge compares the Marshall Plan as a model for economic development to the currently favored development strategy often called the ‘Washington Consensus’. Similar to the Marshall Plan, the Washington Consensus has sought to encourage open economies and democratic political institutions in aid to developing countries, but, unlike the plan, it has not offered a consistent and reliable set of aid packages to make long-term institutional change possible. This reflects the crisis in national approaches to planning implicit in the plan in an increasingly globalized

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world economy in which mobile capital is less and less constrained by national borders. A world economy the Marshall Plan helped bring about is no longer congenial to the national-planning goals it adumbrated. Indeed, it is remarkable that the Marshall Plan remains so prominent in political discourse at a time when the world that it helped to construct has changed so significantly. Even the Atlantic alliance that the Marshall Plan helped to create and nourish shows signs of weakening. The United States and many of its traditional western European allies seem to be headed in different foreign policy directions, and these diplomatic differences have extended into cultural antagonisms and mutual incomprehension (Kagan, 2003; Lambert, 2003). In spite of these deteriorating relations among nations formerly linked by the plan, the symbolic power of the Marshall Plan as model and metaphor has not diminished. If anything its significance has been enhanced by the recognition that massive investments in material conditions that give hope for distressed peoples and nations have lasting positive consequences for both benefactor and recipient nations as well as for world peace. References Acheson, D. (1969) Present at the Creation: My Years in the State Department. New York: Norton. Bischof, G., Pelinka, A. and Stiefel, D. (eds) (2000) The Marshall Plan in Austria (Contemporary Austrian Studies v. 8). New Brunswick: Transaction Publishers. Chace, J. (1998) Acheson: The Secretary of State Who Created the American World. New York: Simon & Schuster. Clesse, A. and Epps, A. (eds) (1990) Present at the Creation: The Fortieth Anniversary of the Marshall Plan. New York: Harper and Row. Committee on International Relations, United States House of Representatives. (2002) ‘Economic Development and Integration as a Catalyst for Peace: A Marshall Plan for the Middle East’, Proceedings, July 24, 2002 Hearing, One Hundred and Seventh Congress, Second Session, Washington, D.C., http://house.gov/international-relations. Dallek, R. (1983) The American Style of Foreign Policy: Cultural Politics and Foreign Affairs. New York: Knopf. Dobbs, M. (1999) ‘Double Identity: Why Madeleine Albright can’t Escape her Past’, New Yorker, 29 March, pp.50–7. Dobney, F.J. (ed.) (1971) Selected Papers of Will Clayton. Baltimore: Johns Hopkins University Press. Eichengreen, B. and Uzan, M. (1992) ‘The Marshall Plan: Economic Effects and Implications for Eastern Europe and the Former USSR’, Economic Policy, 14, 13–75. Eichengreen, B. (1995) Europe’s Postwar Recovery. Cambridge: Cambridge University Press. Eichengreen, B. (1996) Globalizing Capital: A History of the International Monetary System. Princeton: Princeton University Press. Eichengreen, B. (2001) ‘The Market and the Marshall Plan’, in Schain, M. (ed.), The Marshall Plan: Fifty Years After. New York: Palgrave, pp.131–45. Ellwood, D.W. (1988) The Marshall Plan Forty Years After: Lessons for the International System Today. Bologna: Bologna Center for the Johns Hopkins University School of Advanced International Studies.

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Fordham, B.O. (1998) Building the Cold War Consensus: The Political Economy of U.S. National Security Policy, 1949–51. Ann Arbor: University of Michigan Press. Fossedal, G. and Mikhail, B. (1997) ‘A Modest Magician: Will Clayton and the Rebuilding of Europe’, Foreign Affairs, 76/3, pp.195–9. Hemsing, A. (1994) ‘The Marshall Plan’s European Film Unit, 1945–55: a Memoir and Filmography’, Historical Journal of Film, Radio and Television, 14, pp.269–98. Hoffman, S. and Maier, C. (eds) (1984) The Marshall Plan: A Retrospective. Boulder CO: Westview Press. Hogan, M.J. (1987) The Marshall Plan: America, Britain and the Reconstruction of Western Europe, 1947–1952. Cambridge: Cambridge University Press. Hogan, M.J. (1998) A Cross of Iron: Harry S. Truman and the Origins of the National Security State, 1945–1954. Cambridge: Cambridge University Press. Kagan, R. (2003) Of Paradise and Power: America and Europe in the New World Order. New York: Knopf. Lacina, F. (2000) ‘The Marshall Plan – Contribution to the Austrian Economy in Transition’, in Bischof, G., Pelinka, A. and Stiefel, D. (eds) The Marshall Plan in Austria. New Brunswick: Transaction Publishers, pp.11–14. Lakoff, G. and Johnson, M. (1980) Metaphors We Live By. Chicago: University of Chicago Press. Lambert, R. (2003) ‘Misunderstanding Each Other’, Foreign Affairs, 82, 62–74. Leffler, M.P. (1984) ‘The American Conception of National Security and the Beginnings of the Cold War, 1945–48’, American Historical Review, 89, pp.346–81. Leffler, M.P. (1992) A Preponderance of Power: National Security, The Truman Administration, and the Cold War. Palo Alto: Stanford University Press. Loth, W. (1988) The Division of the World, 1941–1955. London: Routledge. Maier, C. and Bischof, G. (eds) (1991) Germany and the Marshall Plan. New York: Berg. Mee, C.L., Jr (1984) The Marshall Plan: The Launching of the Pax Americana. New York: Simon & Schuster. Milward, A. (1984) The Reconstruction of Western Europe, 1945–51. Los Angeles and Berkeley: University of California Press. Pisani, S. (1991) The CIA and the Marshall Plan. Lawrence: Kansas University Press. Pogue, F.C. (1987) George C. Marshall: Statesman 1945–59. New York: Viking. Roberts, G. (1994) ‘Moscow and the Marshall Plan: Politics, Ideology and the Onset of the Cold War, 1947’, Europe–Asia Studies, 46, pp.1371–88. Rostow, W.W. (1997) ‘Lessons of the Plan: Looking Forward to the Next Century’, Foreign Affairs, 76/3, pp.205–12. Ryan, H.B. (1982) The Vision of Anglo-America. Cambridge: Cambridge University Press. Schain, M. (ed.) (2001) The Marshall Plan: Fifty Years After. New York: Palgrave. Taylor, P.J. (1990) Britain and the Cold War: 1945 as Geopolitical Transition. London: Pinter. Wala, M. (1986) ‘Selling the Marshall Plan at Home: The Committee for the Marshall Plan to Aid European Recovery’, Diplomatic History, 10/3, pp.247–65. Whelan, B. (2000) Ireland and the Marshall Plan. Dublin: Four Courts Press. Wexler, I. (1983) The Marshall Plan Revisited. London: Greenwood Press.

Part I European Recovery

1 Post-World War II western European Exceptionalism: The Economic Dimension J. BRADFORD DELONG

Introduction After World War II western Europe developed a set of politico-socioeconomic institutions that turned out to work remarkably well. The institutional setup was scorned by the Left as a social democratic halfway house that failed to solve the structural contradictions of capitalism and was doomed to eventual instability and collapse. Similarly, the Right saw it as sapping the will and individualistic enterprise of the people, and thus opening the door to left-wing totalitarianism. But the western European social democratic ‘mixed economy’ worked amazingly, remarkably, unbelievably well. It delivered economic growth at a pace that the world had never before seen. It produced an after-tax and transfer distribution of income that was remarkably egalitarian. It powered western Europe’s remarkably smooth and rapid transition through the final stages of its structural transformation to an industrial economy and society. So what went right? Where did this post-World War II western European exceptionalism come from? What lessons were learned from the Great Depression and from World War II, and why did these lessons prove so appropriate for managing western European economies in the first generation after the war? And what went wrong thereafter? The post-World War II European miracle lasted for only a single generation, until 1973. Why was western European exceptionalism so temporary? And why did the economic policy lessons learned from the Great Depression, World War II, and the first post-World War II generation turn out to be inappropriate for the post-1973 period? The short answer is that after World War II western European politico-economic policy was successful because it tapped into a virtuous circle. Trade expansion drove growth, growth drove expanded social insurance programs and real wage levels; expanded social insurance states and real wage levels made for social peace, which allowed inflation

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to stay low even as output expanded rapidly; rapidly expanding output in turn led to high investment, which further increased growth and created the preconditions for further expansions of international trade. The combination of all these factors created an extra 1.5–2 percent per year of productivity growth – the approximate magnitude of the unexpectedly rapid growth of the post-World War II western European miracle – coming from nothing but the fact that things had started off on the right foot. Why, then, did the period of western European exceptionalism end? I believe that western European exceptionalism ended because it was assassinated. It was assassinated by an odd combination of oil barons, union leaders and monetarists. Without the tripling of world oil prices in 1973, and again in 1979, the pressure to do something to reduce inflation would have been much weaker. It was strong pressure to do something to reduce inflation that broke down the alliance between social democratic welfare state politicians and union leaders. The former pressured the latter to sacrifice their real wages in support of the fight against inflation. This they refused to do. The consequence was, first, higher inflation and, second, a shift in political power to the Right and the turnover of power to make monetary policy to central banks interested in halting inflation no matter what the cost. Once it was plain that the old consensus politicians could not fight inflation through corporatist dialogue, the new non-consensus politicians won votes by promising that they would fight inflation through monetary restraint – and their monetarist economic advisers assured them that any excess unemployment created by fighting inflation would be transitory and temporary (see Friedman, 1968). In the United States the monetarists turned out to be largely right: the higher unemployment created by fighting inflation turned out to be transitory and temporary. In Europe the monetarists turned out to be wrong: the higher unemployment created by fighting inflation turned out to be persistent and permanent, leaving Europe with its current problems of structural unemployment (see Cohen, 1996). The post-World War II western European Miracle The Magnitude of the Miracle Nobody disputes that post-World War II western European economic growth was miraculous. The magnitude of the miracle is clear in the graphs of the broadest of macroeconomic aggregates. As Figures 1.1–1.4 show, in West Germany, France, Italy, and even in Britain, the level of

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$20,000

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Figure 1.1 Germany (West after 1945): GDP per capita, 1870–1994

real economic product – GDP – per capita exceeded the best performance of the interwar period by the early 1950s. By 1960 all countries’ economic product was higher than not just the best interwar performance, but it was well above levels that would have been predicted by extrapolating pre-1939 or pre-1914 trends into the indefinite future. For example, in West Germany just after reunification, GDP per capita (measured in 1990 dollars) from the late 1970s through the 1990s was, and remained, some 40 percent higher than even pre-1914 trends would have predicted, and some 70 percent higher than would have been predicted from the interwar growth trend. In France GDP per capita settled into a new trend some 70 percent higher than the pre-1914 trend – and fully 100 percent higher than the interwar trend. Italy was even more extreme, with GDP per capita levels settling into a new trend at double what would have been predicted from simple extrapolation from before 1914 or from the relatively stagnant interwar period. Even Britain – which experienced the smallest relative acceleration in growth after World War II of the four – has today a GDP per capita level some 20 to 30 percent above the pre-1914 trend, and

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Figure 1.2

France: GDP per capita, 1870–1994

some 30 to 40 percent above the interwar trend. The net result has been to give the average Italian in the 1990s a measured material standard of living of some $16,500 dollars of 1990 purchasing power – more than five times the measured material standard of living on the eve of the Great Depression. For (West) Germany the coefficient of multiplication is 4.5; for France it is 3.5; for Britain the coefficient of multiplication is roughly 3. National statistical agencies, however, are far from perfect. They have a hard time measuring the impact on the material standard of living of the invention of new goods and new types of goods. Walk around Westwood, Los Angeles, and see the people wearing polarized sunglasses, listening through earphones to portable CD players, wearing shoes with well-cushioned yet lightweight soles, and drinking the products of espresso machines. Ask yourself the question: when did the increment to material welfare from the ability to make shoes with better soles, polarized sunglasses, or espresso machines enter into national income

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$20,000

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Figure 1.3

Italy: GDP per capita, 1870–1994

accountants’ calculations of aggregate economic activity? The odds are that each of these improvements never made it into national income accountants’ estimates of long-run growth. National income accountants have limited budgets and very difficult tasks. There are many who believe that unmeasured improvements in productivity stemming from new goods and new types of goods average perhaps 1 percent per year today. It seems reasonable to extrapolate their estimate to cover all of this century, and to hypothesize that unmeasured improvements contributed perhaps half as much in the second half of the nineteenth century, when technological progress was slower. Before 1850 these issues are much less important, for most of pre-1850 waves of innovation were in the making of producer, not consumer, goods. If correct, then the coefficient of multiplication since 1930 in Italy is not a factor of 5 but a factor of 10; in (West) Germany not a factor of 4.5 but a factor of 9; in France not a factor of 3.5 but a factor of 7; for Britain not a factor of 3 but a factor of 6. That is, I think, the proper measure of the post-World War II western European miracle.

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Figure 1.4

Britain: GDP per capita, 1870–1994

Does this seem too large a coefficient of multiplication? It probably is if you are one of relatively poor for whom the inventions of the past 60 years are a smaller part of your consumption bundle. It probably is too large if you are one of the very rich for whom the principal benefit of wealth is, as economist Paul Krugman likes to say at conferences, ordering people around: ‘seeing ’em jump’. It probably is too large if you follow Richard Easterlin (1997) and believe that increased material wealth does not increase human happiness, and that our restless dissatisfaction and non-satiation today tells us that the twentieth century has seen the triumph of economic growth. Easterlin adds that this triumph is not a triumph of humanity over material wants. Instead, it is material wants that have triumphed over humanity. But for those from the lower middle class to the merely rich, it is hard to imagine anyone who does not view their material welfare as vastly, vastly greater than that of their counterparts of 60 years ago. Consider modern audiovisual and recording technologies, antibiotics,

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information-processing, telecommunications and transportation. It is hard to escape the conclusion that more than half the differences between 1300 and today in how western Europeans live their material lives have come since the start of the Great Depression. Was This Miracle Inevitable? From today’s perspective it is easy to ignore claims that the western European growth miracle is something in need of special explanation. Is not the ‘convergence’ of western European economies to the approximate level of national product per capita and the approximate long-run growth path of the United States a ‘natural’ process? Was it not bound to happen as technology diffused across national boundaries, as universal secondary education made its presence felt, and as governments allowed market forces to direct investment and to weed out noncompetitive firms (see Barro and Sala-i-Martin, 1995)? But there is nothing ‘natural’ about such ‘convergence’ to North American norms. To put it another way, if ‘convergence’ is ‘natural’ to economists, it is ‘unnatural’ to political economists. There are many forces and factors that could have blocked the western European growth miracle – and that did indeed block its analogue in many times and places. There are only only two other places and times that this ‘natural’ process has been operating with strength similar to that of western Europe in the first post-World War II generation. One is North America during its 1860–1950 century of industrialization. A second is East Asia in the past two generations. But in the world as a whole since 1870, and in the world since 1945, the dominant trend has been toward divergence, not convergence (see DeLong, 1988). Over the past century, at least, those nations and economies that start behind in GDP per capita have tended to fall further behind as time has passed. Let me expand on this point by very briefly sketching out crude pictures of three counterfactual alternative futures for western Europe as of 1945 – alternatives that might have been the future, or that informed observers in 1945 thought might well become the future, but that were vastly different from what western Europe’s actual experience turned out to be: relatively stable democracy, growing welfare states with diminishing income inequality and rapid economic growth. Stalin’s Dream The first we might as well call Stalin’s dream: the future that Josef Stalin may well have expected to see in western Europe in the generation after the end of World War II. Or, more accurately, a future that we might

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speculate Stalin expected, for trying to read the mind of Josef Stalin is an extremely hazardous occupation. For Stalin and his acolytes, all the experience of the interwar period reinforced the interpretation that Lenin (1916), drawing from Hobson (1913), had arrived at in trying to understand the failure of Marx’s (1848) predictions of increasing immiserization to come true in the pre-World War I period. The pre-World War I economies had managed to avoid the problems of overproduction, insufficient consumption and consequent financial crises, deep depressions and worker immiserization through imperialism: maintaining employment at home by force-flooding the rest of the world with exports. But by 1910 there were no new markets to conquer: imperialist expansion had reached its limits. Hence, Stalin and his acolytes may well have believed that history was on their side. In World War I the imperialist capitalist powers resorted to armed struggle so that the victors, at least, could restore the conditions for imperial expansion and further prosperity. But the spoils of empire from defeated Germany, Austria-Hungary and Turkey were small. Hence the post-World War I prosperity in the victors was short-lived and anemic. Moreover, the bourgeoisie in the losing nations became anxious for a rematch – World War II. World War I had brought their brand of state socialism to Russia and its dependencies. World War II had brought their brand of state socialism to the Balkans, to the Elbe and to half of Asia. So to Stalin and his acolytes the obvious thing to do in the aftermath of 1945 was to wait: cement state-socialist control where the Red Army had marched, rebuild the economies of the socialist powers, and sit back and wait for interimperialist rivalry to once again flame up, this time into World War III. The centrally planned direction of investment through the replacement of the anarchy of the market by the logic of socialist development would enable industry in eastern Europe to leap far ahead of western Europe (see Sweezy, 1942): Krushchev addressing the west during Eisenhower’s presidency was confident that he and his would be there at your funeral. Overproduction and underconsumption would push western Europe, Britain and the United States into a new Great Depression. The United States would greedily eye the British and French empires as potential markets to ensure full employment across the Atlantic. Sooner or later World War III would break out with the United States on one side and Britain and France on the other. And in the aftermath of capitalist imperialism’s third suicide attempt, state socialism would advance to the Atlantic, or perhaps further. It is worth pausing at this point to note that Josef Stalin and Paul Sweezy were not alone in expecting economic growth behind the Iron

-     

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Curtain to leap ahead of growth in the capitalist powers. Governments behind the Iron Curtain were supposed to be able to cut the consumption of their disciplined, regimented, brainwashed, totalitarian citizenry to the bone, leaving more of total economic product for investment. Higher investment would mean faster growth. All knew that the Soviet Union – with a third of its population under enemy occupation, with a quarter of Nazi Germany’s prewar industrial capacity, facing an enemy with all of the resources of occupied Europe to draw on – had outproduced Nazi Germany in tanks and aircraft during World War II. A common view in the industrial west after World War II was that the Soviet economy and society was inferior at producing goods for consumers or making it possible to live a free and happy life, but was quite possibly superior at generating long-term growth – particularly long-term growth directed at supporting military power. Swift Soviet construction of nuclear and thermonuclear weapons in the decade after World War II and the extraordinarily successful Soviet space program of the late 1950s and early 1960s both gave support to the vision of the Soviet economy as a powerful engine of heavy industrial growth and technological progress. The Argentine Trajectory A second live possibility – one feared greatly by staff economists such as Charles Kindleberger (1987) in the US Department of State – was that post-World War II western European governments would fail: they would either fail to maintain the high level of aggregate demand urged by Keynes (1936), or they would fail to allow the market system to do its job in its place. Call the second of these possible failures the Argentine trajectory: post-World War II western Europe viewed in the Argentine mirror (see DeLong and Eichengreen, 1993). Had the post-World War II western European political economy taken a different turn, governments might have been slow to dismantle wartime allocation controls. The late 1940s and early 1950s might have seen the creation in western Europe of allocative bureaucracies to ration scarce foreign exchange and the imposition of price controls on exportables in order to protect the living standards of urban working classes. In response to the social and economic upheavals of the Depression, Argentina in fact adopted such policies: demand stimulation, large-scale income redistribution to politically powerful organized urban workers, and the use of tight controls to manage imports, exports and the trade balance.

34

   

Carlos Díaz-Alejandro (1970) provides what has become the standard analysis of Argentina’s post-World War II economic stagnation. At the end of World War II Juan Perón gained mass political support. Taxes were increased, agricultural marketing boards created, unions supported, urban real wages boosted and international trade regulated. Perón sought to generate rapid growth and to twist terms of trade against rural agriculture and redistribute wealth to urban workers who did not receive their fair share. The redistribution to urban workers and to firms that had to pay their newly increased wages required a redistribution away from exporters, agricultural oligarchs, foreigners and entrepreneurs. The Perónist program produced almost half a decade of very rapid growth. But then agricultural production fell because of the low prices offered by government marketing agencies to subsidize urban workers. The rural sector found itself short of fertilizer and tractors. Squeezed between declining production and rising domestic consumption, Argentinian exports fell. By the first half of the 1950s the real value of Argentine exports was only 60 percent of the depressed levels of the late 1930s, and only 40 percent of 1920s levels. The consequent foreign exchange shortage presented Juan Perón with only unattractive options. First, he could attempt to balance foreign payments by devaluing to bring imports and exports back into balance in the long run and in the short run by borrowing from abroad. But effective devaluation entailed raising the real price of imported goods, and thus cutting the living standards of the urban workers who made up his political base. Moreover, devaluation improves the trade balance only in the long run of two years or more. In the short run devaluation is effective only if it makes international speculators willing to bet their money and provide short-term capital inflows – and a resort to foreign funding would have been treason. Second, Peron could contract the economy, raising unemployment and reducing consumption and expand incentives to produce for export by decontrolling agricultural prices. Once again, however, this would have cut the living standards of his political base by creating mass unemployment. The only live option was to control and ration imports. As Carlos Díaz-Alejandro (1970) writes: First priority was given to raw materials and intermediate goods imports needed to maintain existing capacity in operation. Machinery and equipment for new capacity could neither be imported nor produced domestically. A sharp decrease in the rate

-     

35

of real capital formation in new machinery and equipment followed. Hostility toward foreign capital, which could have provided a way out of this difficulty, aggravated the crisis . . . (p.157) Subsequent governments did not reverse these policies: the political forces that Perón had mobilized had to be appeased, and the economic interests that lived off of the (few) import licenses or off of the exclusion of foreign competition grew large and active. Thus post-World War II Argentina saw a huge rise in the price of capital goods. Given low and fixed agriculture prices, hence low exports, it was very expensive to sacrifice materials imports needed to keep industry running in order to import capital goods. Unable to invest, the Argentine economy stagnated. In 1929 Argentina was a developed country: its share of the labor force in industry is intermediate between Germany and Italy – something approaching that of France. Its level of national product per capita is sometimes above, sometimes below, but always in the same league as France and Germany (and far above Italy) until the 1950s. Yet since World War II Argentina has stagnated, as Figure 1.5 shows. Measured $20,000

Germany France Italy

$10,000

Argentina

Log Scale

$5,000

$2,500

$1,250 1900

1920

1940

1960

1980

Year

Figure 1.5

GDP per capita since 1900

36

   

GDP per capita today is some 60–70 percent higher than in 1930 or in 1914 (and taking account of unmeasured improvements in productivity perhaps gives a coefficient of multiplication of 2.5). Argentinians today have access to enough modern consumption technology to give them significantly higher material standards of living than their counterparts of the belle epoque. But the gap between what Argentina’s level of material productivity is and what it so clearly might have been is immense. And the consequences of slow growth for Argentinian politics have filled the country with sorrow. Might western Europe have followed a similar trajectory? Quite possibly. In Díaz-Alejandro’s estimation, four factors set the stage for Argentina’s decline: a politically active and militant urban industrial working class, economic nationalism, sharp divisions between traditional elites and poorer strata and a government that viewed the price system as a tool for redistributing wealth rather than for determining the pattern of economic activity. At the end of World War II western Europe was at least as vulnerable as Argentina to this populist overregulation trap. The war had given Europe more experience than Argentina with economic planning and rationing. Militant urban working classes calling for wealth redistribution voted in such numbers as to make communists plausibly part of a permanent ruling political coalition in France and Italy. Economic nationalism had been nurtured by a decade and a half of depression, autarky and war. European political parties had been divided substantially along economic class lines for a generation. The contrast between western Europe’s successful economic redevelopment after World War II and its unsuccessful redevelopment after World War I is remarkable (see Maier, 1987). And ex ante I at least cannot find strong structural factors that would ensure that western Europe’s post-World War II economic trajectory would keep it in, and Argentina’s carry it out, of the First World. The Cross of Gold The third alternative was the crucifixion of the post-World War II European economy upon what turn-of-the-century US presidential candidate William Jennings Bryan called the cross of gold: inappropriate reliance on the gold standard to manage domestic and international economies in an environment in which such reliance would generate cruel and painful deflation. Countries with few gold reserves faced with the task of balancing their imports and exports do so by squeezing their economies, creating mass unemployment as a way of reducing imports to what can be financed out of export earnings.

-     

37

Such a scenario seems to me at least to be easy to imagine. It requires only (1) a much earlier end of US loans and grants to Europe; (2) the failure of international capital flows from the United States to fill the gap; and (3) the control over monetary and fiscal policies in western Europe then of people with the same views as those who control monetary and fiscal policies in western Europe now. Such governments respond to rising prices or to trade deficits by deflation. They respond to trade surpluses by accumulating gold reserves. The first priority is to maintain sound finance: a balanced government budget and a firm commitment not to reduce the gold value of the currency. Suppose American aid to Europe had come to a sudden and firm end at the end of 1946. Suppose that private international capital flows had not started up to cover the gap between western European exports and imports – after all, American long-term investors in Europe after World War I had lost a fortune. Suppose that western European countries had applied policies – mixtures of devaluation and deflation – in order to avoid running out of foreign exchange reserves. What would have happened then? Devaluations – no matter how large – would not have helped European countries balance their international accounts in the short run. Devaluation makes exports cheaper, but it also means that less foreign currency is earned for each commodity exported. In a long run of more than two years, devaluation swings the current account toward surplus and can bring imports down and into balance with exports. But in the short run it does not. In the short run of less than two years devaluation is more likely to increase than reduce a current account deficit. In the short run, deflation is the only way to close a gap between exports and imports: reduce demand for imports by reducing the incomes of those who buy imports, and the way to reduce the incomes of those who buy imports is to reduce national product and cause unemployment through high interest rates. The average current-account deficit for the big three western European nations – Italy, Britain and France – was 3 percent of national product. Since imports (M) are a function of the level of national product (Y): M ⫽m0 ⫹m⬘Y and since the current account balance (NX) is equal to the difference between exports (X) and imports (M): NX ⫽X ⫺M As long as exports are unchanged, the magnitude of the reduction in national product depends on the size of the increase in imports needed

   

38

to bring the current account into balance, and on m⬘, the marginal effect of a reduction in national product on imports:

⌬Y ⫽

⌬(NX ) m⬘

Thus a back-of-the-envelope estimate of the reduction in national product necessary to close the gap between exports and imports of Italy, France and Britain in 1948 would be roughly 9 percent, if the marginal effect of a reduction in national product on imports were equal to onethird: a 9 percent fall in total production relative to potential output, and in all probability a 5 percentage-point rise in unemployment. But this estimate holds only if exports were unaffected by the policies undertaken to bring trade into balance. In fact things are worse, for exports are not unaffected by the policies undertaken. More than half of European countries’ exports in the immediate aftermath of World War II were to other European countries. Were Italy to reduce its current account deficit by reducing imports, it would reduce imports from France – and so boost France’s current account deficit. European countries’ attempts to reduce their trade deficits reduce each other’s export earnings as well. Taking account of the size of intra-European trade and the fact that reductions in national product are an order of magnitude larger than the reductions in the trade deficit doubles the back-of-the-envelope estimate of the post-1947 recession required to balance western Europe’s current account. Requiring western Europe to balance its current account from 1947 on, using market forces, would have imposed a Great Depressionsized interruption on the course of western European recovery. Thus I find it difficult to understand claims by Milward (1984) and others that Marshall Plan (and preceding, and subsequent) aid was not very significant. Such claims seem to rest on a belief that aid merely postponed a necessary adjustment to reality because it did not permanently solve the dollar gap. But to me this seems to miss the point. Expanding exports and other sources of financing to match imports was much easier in the early 1950s as a gradual process in the context of the Korean War boom and the contribution of a US army to western European defense than it would have been as a sudden shock in 1947. A claim that countries forced to restrict imports suddenly and substantially could still have financed imports of essential capital goods begs the question of how the reduction in other categories of imports was to be achieved. Was it to be achieved through overall reductions in demand that would cause mass unemployment? Was it to be achieved through the installation of an apparatus of controls and licenses that would soon

-     

39

have acquired a powerful native political constituency, and pushed western Europe onto the Argentine trajectory? Milward does not say. He simply does not analyze how international payments would have been balanced in the late 1940s in the absence of a Marshall Plan. Whatever patterns of western European economics and politics would have emerged from such a Great Depression-sized interruption of post-World War II recovery, they would not have resembled the 1950s as that decade actually unfolded. The post-World War II political settlement might not have survived a post-World War II recession the size of the Great Depression: perhaps Stalin’s dream would have come true on an accelerated timetable. Moves in the direction of the Argentine trajectory toward a bureaucracy that licenses every import have proven very hard to reverse, and have had devastating consequences for economic growth elsewhere in the world (see Diaz-Alejandro, 1970). How realistic are these three counterfactual alternative scenarios? The third is very realistic indeed. Ex ante there were good reasons to think that it might well happen. Post-World War II and pre-World War II history are littered with examples of countries that faced substantial current account financing difficulties, and found their economies in deep recession as a result. The second in fact happened – to Argentina under Perón, and after. It could have happened elsewhere as well. The first appears, from our present-day standpoint, to be not so realistic. The world does not work as Lenin or Hobson thought. Imperial markets were not essential to maintain First World prosperity. The United States, on the one hand, and Britain and France on the other, did not come close to military blows over the future of empires, and over Third World markets. Nevertheless, history is full of contingencies. Neither World War I, World War II, nor the Great Depression makes any sense when analyzed as the equilibrium outcome of strategies followed by rational and well-informed governments and private economic agents. One or two major wars or economic disasters in the post-World War II period might well have brought us all appallingly close to Nineteen Eighty-Four by 1984. The particular combination of institutions and policies appeared remarkably well tuned to produce rapid economic growth in the 1950s and 1960s. But things could very easily have been otherwise. They were otherwise in western Europe after World War I, and in the southern cone of Latin America after World War II.

   

40

The Components of western European Exceptionalism So what were the components of the European miracle? What were the sources of such rapid post-World War II western European growth? Expanding International Trade An important cause of rapid post-World War II growth was expanded international trade. Traditionally, western Europe had exported industrial goods to and imported agricultural goods from eastern Europe, the Far East, and the Americas. After World War II there was little prospect of rapidly restoring this international division of labor. Imports of food and consumer goods for relief diverted hard currency from purchases of capital goods needed for long-term reconstruction. Changes in net overseas assets reduced annual earnings from abroad. The net effect of the inward shift in demand for exports and the collapse of the net investment position was to give Europe in 1947–48 only 40 percent of the capacity to import that it had possessed in 1938. From this base, the successful export performance of western Europe after World War II is remarkable. As Figure 1.6 shows, by the end of the 1960s the ‘openness’ of the main continental western European economies – the sum of their exports plus their imports, measured as a share of total national product – was easily twice that of the interwar average. 70%

Germany 60%

Britain

40%

Italy

France 30% 20%

10%

Year

Figure 1.6

Exports plus imports divided by national product

1990

1980

1970

1960

0%

1950

Percent

50%

-     

41

World War II marked a watershed between an interwar period in which international trade was a relatively small and stable share of national product, and a period in which trade underwent a strong secular increase not only in its absolute volume, but relative to GDP. What if this expansion of world trade had not taken place? What if exports and imports as shares of national product had remained at their (relatively low) levels of the interwar period? The puzzle always facing economists trying to understand economic growth is whether trade causes faster growth or growth causes expanded trade. The most recent attempt to cut this Gordian knot was undertaken by Jeffrey Frankel and David Romer (1996). Their conclusion is that each dollar of expanded imports or exports expands total national product by some 34 cents: expanded exports allow an economy to shift labor into the export sectors where it is more productive, and to raise consumer welfare and producer productivity by giving them more power to purchase imports from low-price consumer and capital goods producers in other countries. Expanded trade puts more pressure on domestic monopolies to reduce their excess profits and to become more efficient. Expanded trade allows economies to more easily and productively soak up technological innovations made elsewhere in the world. Frankel and Romer’s estimates allow us to assess how much postWorld War II western European growth was aided by the fact that a wide variety of pressures – from the US government seeking faster European unity to French politicians eager to weld the German and French economies together so tightly that neither could ever afford to begin a war again – pushed western European economies into more open configurations with higher import and export shares of national product. Table 1.1 reports calculations based on Frankel and Romer’s methodology. They suggest that a little bit less than half a percentage point per year in post-World War II pre-mid 1970s growth in national product in the TABLE 1.1 EFFECT OF INTERNATIONAL TRADE ON WESTERN EUROPEAN POST-WWII DEVELOPMENT

Country France West Germany Italy Britain

1930s openness

Mid-1970s openness

Difference in GDP level attributable to expanded trade

Difference in annual growth

20% 15% 15% 30%

40% 47% 44% 57%

7.9% 12.9% 11.6% 11.4%

0.31% 0.52% 0.46% 0.46%

42

   

major economies of western Europe can be attributed to increased openness. Market-Conforming Governments Renewed growth required, in addition to financial stability and openness to trade, free play for market forces. On this issue the Marshall Plan – specifically, the conditions attached to US aid – tried to constrain western Europeans’ choices. Each recipient had to sign a bilateral pact with the United States. Countries had to agree to balance government budgets, restore internal financial stability, and stabilize exchange rates at realistic levels. Europe was still committed to the mixed economy. But the United States insisted that market forces be represented liberally in the mix: this was the price that the United States charged for its aid. The demand that European governments trust the market came from the highest levels of the Marshall Plan administration. Dean Acheson (1960) describes the head administrator, Economic Cooperation Administration chief Paul Hoffman, as an ‘economic Savonarola’. Acheson describes watching Hoffman ‘preach his doctrine of salvation by exports’ to British Foreign Secretary Ernest Bevin. ‘I have heard it said,’ wrote Acheson, ‘that Paul Hoffman missed his calling: that he should have been an evangelist. Both parts of the statement miss the mark. He did not miss his calling, and he was and is an evangelist.’ Now this point should not be overstated. The price charged for Marshall Plan aid was one that western Europeans might well have paid for their own sake in any event. Support for the market was widespread, although just how widespread was uncertain. At most US pressures and others tipped the balance. Some memoirs, like those of Vincent Auriol (1970), suggest a powerful influence for US pressure. Others tell a very different story. Moreover, post-World War II western Europe remained very, very far from laissez-faire. Government ownership of utilities and heavy industry was substantial. Government redistributions of income were large. The magnitude of the ‘safety nets’ and social insurance programs provided by the post-World War II welfare states were far beyond anything that had been thought possible before World War I. Post-World War II western Europe was so far from laissez-faire that many (including Hayek, 1944) thought it was doomed: doomed to totalitarianism as mixed-economy governments used their economic powers to suppress dissent, and doomed to stagnation as creeping socialism paralyzed the economy. But the large post-World War II social insurance states were accom-

-     

43

panied by financial stability, by substantial reliance on market processes for allocation and exchange, and by openness to world trade. The powerful mixed-economy governments took the separation of powers seriously: judges remained independent, pressure from government-owned enterprises to refrain from criticizing governmental policy remained light, and political competition remained free and open. Fears that the social insurance state would inevitably slide into totalitarianism proved as false as the fears that the social insurance state would cripple the market economy. Thus western Europe’s post-World War II bet on a market-heavy mixed economy turned out to be a good one, delivering a relatively egalitarian distribution of income, a high degree of social insurance, and rapid economic growth. It is difficult to figure out how much difference the market-heavy mixed economy made. How much would a marginal step away from market and toward centrally-planned allocations have harmed post-World War II western European growth? No one knows. Certainly the degree of variation within western Europe, or between western Europe and the United States, was insufficient to generate visible differences in growth performance. Both Germany and Sweden did well. Both France and Italy did well. Perhaps it is simply best to say that this factor was tied up with all the others: without a market-heavy component of resource allocation under the mixed economy, it is hard to believe that either expanded trade or high investment would have been a significant aid to growth. High Investment Europe’s rapid growth in the 1950s and 1960s was associated with exceptionally high investment rates, as Figure 1.7 shows. The investment share of GNP was nearly twice as high as it had been in the last decade before World War II. Accompanying high rates of investment, was rapid growth of productivity. Even in Britain, the laggard, productivity growth rose sharply between 1924–37 and 1951–73, from 1 to 2.4 percent per year. This high investment share did not, however, reflect unusual investment behavior during expansion phases of the business cycle. Rather, it reflected the tendency of investment to collapse during cyclical contractions and the absence of significant cyclical downturns between 1950 and 1971. High investment was a consequence of successful Keynesian demand management. Thus successful performance at managing the business cycle translated into success at maintaining long-run economic growth. How much success? It depends on how much you believe that high investment is an important source of rapid growth in the sophistication and productivity

   

44 40%

Italy

Percent

35% 30%

Germany

25%

France

20%

Britain

15% 10% 5% 0% 1950

1960

1970

1980

1990

Year

Figure 1.7

Real investment as a share of GDP (from the International Comparison Project)

of technologies that an economy can successfully apply. I believe in the estimates found in DeLong and Summers (1991): they suggest that a five percentage point reduction in investment as a share of GDP – a reduction in the average share that might well have followed from a much more variable cyclical performance – would have produced an 0.8 percentage point per year boost in the rate of economic growth. Keynesian Demand Management The post-World War II era was the era of John Maynard Keynes. But what does that mean? It means that Keynes’s name was a powerful one to conjure with, because anyone who rejected his intellectual legacy could be accused, convicted, and immediately hanged as a fool who wished to bring the Great Depression back. But how much of a difference did Keynesian policies actually make? Let’s take a look at Keynesian policies – both those adopted for Keynesian reasons, and those adopted for non-Keynesian reasons but that Keynes would nevertheless have applauded.

-     

45

Supreme Allied Commander, Europe As far as western Europe is concerned, the first ‘Keynesian’ policy was the US government’s desire to spend a fortune – and to require that western European governments spend a fortune as well – on the military establishment of NATO. This piece of military Keynesianism was in large part a reaction to the policies of Josef Stalin and Kim Il Sung: the attack on South Korea was an essential step in shifting the American congress from a post-World War II demobilization mindset to a Cold War mobilization mindset. Without Stalin’s letting Kim Il Sung off the leash and his attacking South Korea, there was no prospect that congress would have ever approved the blueprint for the Cold War military that Dean Acheson (1969) and company had drawn up in NSC-68, and no prospect that the NATO military establishment, as we have known it for the past fifty years, would have come into being (see Halle, 1967). By the mid-1950s, however NATO was in place, just waiting there in case Stalin’s successors were to attempt in Germany what Stalin, Mao, and Kim Il Sung had attempted in South Korea: the reunification by force of a country that had been divided in the armistice that ended World War II. In the mid-1950s Stalin’s successors were largely unknown: today we know vastly more about them than anyone west of the iron curtain knew then. The only solid thing known about them then was that they had flourished under Stalin. And they had continued playing the games Stalin played by shooting one of their own number – Lavrenti Beria – in the power struggle that followed Stalin’s death. Stalin, their master, had exhibited a taste for snatching up territory when he thought it could be taken cheaply – starting with the suppression of the Mensheviks in Georgia, and including the attack on eastern Poland in the opening days of World War II, the annexation of Latvia, Lithuania, and Estonia as well as Moldova in advance of Hitler’s attack on Russia. Western Germany could probably not be snatched up cheaply by a Soviet coup de main. But the fact that occupying western Germany in 1955 would probably be very different from occupying Latvia in 1940 was not wholly reassuring. Stalin also at times exhibited a remarkable degree of bad judgment: allowing Kim Il Sung to launch the Korean War, the unsuccessful attack on Finland in 1939, his belief in the early 1930s that social democrats were the foe of the German Communist Party most worth fighting, and (the mother of all miscalculations) his decision in mid-1939 to become Hitler’s ally, in the hope that Russia could then watch Nazi Germany and the western democracies exhaust themselves in trench warfare.

   

46

Perhaps Stalin’s successors would exhibit a similar appetite for conquest on the cheap, and a similar weak grasp of geopolitical realities. So by the mid-1950s a full US army – corps, divisions, airwings, and an enormous logistical tail – was sitting in western Germany as a deterrent. The United States spent lavishly to project its Cold War military power. Net military transactions amounted to three-quarters of a percent of US national product in the mid-1950s, and total unilateral transfers to Europe to 1 percent of America’s national product: approximately 3 percent of western European GDP at that time, as Figure 1.8 shows. 2.5%

2.0%

1.5% Net military transactions Other unilateral transfers 1.0%

0.5%

0.0% 1946

1950

Figure 1.8

1954

1958

US transfers abroad as a share of GDP

Inflation and Economic Growth Keynesian policies to stimulate demand, however, were effective only so long as labor markets were accommodating, requiring increased pressure of demand (applied by governments in response to slowdowns) to produce additional output and employment rather than higher wages and hence higher prices. Unemployment fell to remarkably low levels, as Figure 1.9 shows. Yet the macroeconomy was stable. Investment was maintained at high levels, and rapid growth persisted. Should things change – and should Keynesian policies be blamed for higher inflation rather than praised for maintaining high employment – then the policy consensus that supported western European exceptionalism might quickly unravel, and did quickly unravel in the 1970s when inflation spiked, as Figure 1.10 shows.

-     

47

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

Figure 1.9

German unemployment, 1949–70

25%

Britain Average 1951–55

Italy

France

15%

10%

5%

W. Germany

Year

Figure 1.10

Western European inflation, 1950–96

1990

1980

1970

1960

0%

1950

Inflation (Percent per Year)

20%

1970

1969

1968

1967

1966

1965

1964

1963

1962

1961

1960

1959

1958

1957

1956

1955

1954

1953

1952

1951

1950

1949

0.0%

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Thus one key to Europe’s rapid growth was relatively inflation-resistant labor markets. So long as they accommodated demand pressure by supplying more labor input rather than demanding higher wages, the other pieces of the puzzle fell into place. What then accounted for the accommodating nature of postwar labor markets? One explanation is that they were not really that accommodating. As Figure 1.10 shows, inflation in the first half of the 1950s in France, Italy, Britain and West Germany averaged some 4.3 percent per year – higher than inflation is today in any of the four countries, and a level of inflation that would cause today’s central banks to worry that policy was too loose, raise interest rates, and push unemployment back up. Why didn’t central banks in the 1950s worry about inflation that averaged nearly 5 percent? Perhaps the most important reason was that this rate of inflation did not (Britain aside) produce frequent balance-of-payments crises. As long as foreign exchange markets were not pressurizing the central bank to devalue the currency, central banks were generally happy. And the key reason that moderate domestic inflation in western Europe could be combined with no pressure on exchange rates was the so-called Balassa–Samuelson Effect: the fact that a rapidly-growing industrializing economy has a rapidly-rising equilibrium real exchange rate as well, because the process of industrialization is the process of becoming more competitive in making traded goods – better at producing the industrial manufactures that make up the bulk of international trade. Thus a fixed exchange rate in the 1950s was compatible with a relatively high inflation rate – an inflation rate several percent per year higher than the United States. As long as central banks focused not on internal balance but on maintaining a fixed exchange rate against the dollar, it did not strike them that the moderate inflation of the 1950s was anything to worry about. Another conventional explanation of the coexistence of full employment with (relatively) low inflation in post-World War II Europe, following Kindleberger (1987), is elastic supplies of underemployed labor from rural sectors within the advanced countries and from Europe’s southern and eastern fringe. Elastic supplies of labor disciplined potentially militant labor unions. A problem with this argument is that the competition of underemployed Italians or Greeks or eastern European refugees was hardly felt in the United Kingdom, yet UK labor market behavior was transformed as in other countries after World War II. But there are other explanations. Charles Maier’s (1987) very convincing explanation is ‘History’. The memory of high unemployment and strife between the wars served to

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moderate labor-market conflict. Conservatives could recall that attempts to roll back interwar welfare states had led to polarization, destabilizing representative institutions and setting the stage for fascism. Left-wingers could recall the other side of the same story. Both could reflect on the stagnation of the interwar period and blame it on political deadlock. Certainly any comparison of the magnitude and duration of strikes – shown in Figure 1.11 – between pre-Nazi and post-World War II Germany cannot help but leave the viewer convinced that industrial relations were completely and fundamentally different before and after. 40 – 35 – 30 – 25 – 20 – 15 – 10 –

0

1920 _ 1949 _ 1922 _ 1949 _ 1924 _ 1949 _ 1926 _ 1949 _ 1928 _ 1949 _ 1930 _ 1949 _ 1932 _ 1949 _ 1922 _ 1949 _ 1922 _ 1949 _ 1949 _ 1949 _ 1950 _ 1949 _ 1952 _ 1949 _ 1954 _ 1949 _ 1956 _ 1949 _ 1958 _ 1949 _ 1960 _ 1949 _ 1962 _ 1949 _ 1964 _ 1949 _ 1966 _ 1949 _ 1968 _ 1949 _ 1970 _

5 –

Figure 1.11

Days lost to strikes (millions)

One potential explanation of relative labor peace is that the Marshall Plan set the mold for post-World War II labor relations. Putting the point in this way serves to underscore that the Marshall Plan was but one of several factors contributing to observed outcomes. Marshall Planners sought a labor movement interested in raising productivity rather than in redistributing income from rich to poor (see Maier, 1987). With labor peace a potential precondition for substantial Marshall Plan aid, labor organizations agreed to push for productivity improvements first and defer redistribution until later. Moreover, money was channeled to non-communist labor organizations. European labor movements split over the question of whether Marshall aid should be welcomed – which left the communists on the wrong side, opposed to economic recovery. Yet another element in the post-World War II supposed success of

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Keynesianism – policies to boost production and maintain full employment by managing aggregate demand – was the fact that Keynesian policies came as a surprise. It is very possible that the first generation of Keynesian policies were vastly more effective because they represented a change to which firms and workers had not yet adapted. Perhaps in subsequent generations they are likely to generate not faster growth and higher employment but stagflation – the combination of higher unemployment and higher inflation – as individuals and businesses learn to foil the effects of a government-induced boost to the economy by indexing their wages to inflation before the fact. Here the Bretton Woods System – understood not in the sense of Milward (1984), but of Eichengreen (1996) – played a role. Bretton Woods linked the dollar to gold at $35 an ounce and other currencies to the dollar. So long as American policy makers’ commitment to the Bretton Woods parity remained firm, limits were placed on the extent of inflationary policies. So long as European policy makers were loath to devalue against the dollar, limits were placed on their policies as well. Price expectations were stabilized. Inflation, where it surfaced, was more likely to be regarded as transitory. Consequently, increased pressure of demand was less likely to translate into higher prices instead of higher output, higher employment, and greater macroeconomic stability. If you add up the flow of unilateral military transfers to support NATO, the automatic expenditures of the expanded western European welfare state, and the ability to run low interest rates and stimulate investment made possible by the Balassa–Samuelson effect, it is easy to conclude that there simply was no room for anything like a Great Depression in post-World War II western Europe. The flow of social welfare spending, of American unilateral transfers, of European defense spending, and of investment were all amplified by the Keynesian multiplier to provide a strong base of aggregate demand already close to the ceiling of potential output. Keeping aggregate demand strong meant that western European investment remained high as a share of national product. Successful demand management not only kept production near potential and reduced the distributional misery of the business cycle, it also significantly accelerated European economic growth. Yet perhaps the impact of Keynesian doctrines was felt more in what they prevented than in what they did. Had policies in the 1950s and 1960s been like policies in the 1930s, all expenditures would have been cut in an attempt to balance the budget whenever recession threatened. The intellectual dominance of Keynesian ideas prevented the balance-the-budget at all costs policies that had proved so harmful during the Great

-     

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Depression (see Hall, 1989). And to prevent, by ideological force alone, even the possibility of something as destructive as Chancellor Bruening’s resort to deflation in the early 1930s – that was an important achievement (see Hall, 1989). Virtuous Circles All these explanations rely, at some level or other, on virtuous circles. One way to think about the post-World War II settlement, and the contrast with the interwar period, is as a coordination problem. Labor, management and government in Europe could, in effect, choose to try to maximize their current share of national income like after World War I. Inflation, strikes, financial disarray, cyclical instability and productivity problems can all be seen as corollaries of this equilibrium. Alternatively, the parties could trade current compensation for faster long-term growth and higher living standards, even in present-value terms. Workers would moderate their wage demands, management its demands for profits. Government agreed to use demand management to maintain employment in return for wage restraint on the part of unions. Higher investment and faster productivity growth could ensue, eventually rendering everyone better off. Such a ‘social contract’ is advantageous only if it is generally accepted. If workers continued to aggressively press for higher wages, management had little incentive to plow back profits in return for the promise of higher future profits. If management failed to plow back profits, workers had little incentive to moderate current wage demands in return for higher future productivity and compensation. If labor relations were conflictual rather than harmonious, productivity would be the casualty. Once western Europe had shifted onto this ‘social contract’ equilibrium path – once workers and management began to behave in a manner consistent with the superior equilibrium – they had no obvious reason to stop. The End of the Miracle Everything went right in western Europe – growth, distribution, price stability, employment stability – up until 1973. Since then things have gone wrong. If western Europe is ‘exceptional’ today, it is exceptional in its high and stubborn structural unemployment, and in the narrow vision of its central bankers. False Monetarist Gods In the late 1960s and early 1970s western European inflation crept up from roughly three percent per year to roughly six percent per year, in

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part because inflation in the United States had crept up. It is not clear why six percent per year inflation would have represented a crisis: it was little more than the rate of inflation that European governments had tolerated in the early 1950s, after all. What changed Europe’s political economy, and did provoke a crisis, was the explosion in inflation that followed the tripling of world oil prices by OPEC in the fall of 1973. Governments reacted to a fall in aggregate supply by trying to boost aggregate demand – and found themselves with inflation rates in the range of twelve to twenty percent in the mid-1970s and again at the end of the 1970s, when the fundamentalist Iranian Revolution again disrupted world energy markets. In the wake of these oil shocks and the rise in expectations of future inflation that the unhinging of the price level’s nominal anchors had created, governments had a choice of three strategies: •

•

•

The first strategy was one of drift: hope that something would turn up to improve the situation. This may have been the best strategy ex ante, but ex post nothing turned up to improve the situation. The second strategy was to attempt ‘corporatism’: ask labor unions to moderate wage increases, and accept falling real wages for a while as part of the price for restoring overall price stability and maintaining the high-growth, high-investment, high-employment configuration in western Europe. The third strategy was to hit the economy over the head with a brick: turn over macroeconomic management to central bankers, give central bankers the independence to make their own decisions, and tell them to make fighting inflation their first, last, and only priority.

The ‘corporatist’ strategy was the dominant one tried in the 1970s, and it failed. Some union leaders could not hold their members to the corporatist bargains that union leaders had agreed to. Some union leaders found themselves outflanked in union politics by challengers who denounced those who had comfortably gotten into bed with the politicians. Some union leaders did not think that high inflation was their problem or that their country’s social democrats were their party. In this they were wrong. Consensus politicians generally got one or at most two chances to bring inflation under control by corporatist agreement. After their one or two chances had expired, voters angry at inflation would vote for the other side – and they would go the centralbanker route. Few union leaders in the 1970s understood how damaging the high-unemployment central bank-launched disinflations of the 1980s were going to be to their constituents and their organizations.

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By 1985 there were many ex-union leaders and many ex-union members who wished that they had been more willing to cooperate with consensus social democratic politicians in the 1970s. As inflation remained high in the late 1970s, left-wing economists hastened to assure voters that inflation was just a redistribution and not a very painful one. In the United States left-of-center economists compared inflation to a head cold – and the provoking of a recession to ‘cure’ inflation the equivalent of submitting to a lobotomy to try to cure it. But left-wing economists were ignored by voters. Faced with a disease, inflation, that the consensus social democratic politicians could not cure, voters and politicians looked for another solution, and the monetarists were there to offer one. In country after country, consensus social democratic politicians were replaced by those who would hand over power to manage the macroeconomy to central bankers whose views could be described as ‘monetarist’ – not necessarily in the sense that they believed that chartist-like tracking of M1 (flow of money) was the answer, but in the sense that they believed that if the central bank focused on reducing inflation then the rest of the economy would take care of itself (see Friedman, 1968). And, indeed, the politicians and central bankers were assured by monetarist economists that a shift toward an anti-inflation policy would lead at the most to a few years of temporarily high unemployment. The monetarist belief was that business cycles are fluctuations around (not shortfalls below) a business cycle-free long-term growth path. Fight inflation, the monetarists told the central bankers, and in a few years you will have the best of both worlds: low inflation and low unemployment. In the long run, Friedman (1968) assured everyone, the average rate of unemployment would be the ‘natural’ rate of unemployment no matter what the rate of inflation was – so there was ultimately no cost to handing control of economic policy over to the inflation-fighters. As far as the United States is concerned, it appears that the monetarists told the truth: after a decade made more difficult by the destructive and growth-retarding structural fiscal deficits of the Reagan administration, the United States had a low unemployment, a low inflation rate, and a high share of high-tech private investment in GDP. As far as Europe is concerned, it appears that the monetarists were wrong. Unemployment in Europe began to rise in the mid-1970s, and became more than four times what it was at the start of that decade. There has been no sign of any ‘natural’ rate toward which unemployment tends to return.

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The Exclusion of the Unemployed As unemployment in Europe rose and remained high in the 1980s, it became more and more clear that no one – or, rather, no one powerful in the political nation – really cared. There is a sense in which the European Union today has high unemployment because, in Daniel Cohen’s (1996) words, ‘the war on unemployment is in the hands of governments which represent first and foremost the point of view of the people who have jobs and fear losing them’. Unemployment has been feared and regretted, but feared and regretted less than the remedies that would have been necessary to contain it, and that might have harmed the market position of some of the unemployed. As Cohen (1996) argues, one possible road that western Europe might have taken in response to the stubborn persistence of unemployment would have been to try to construct in Europe the conditions that made the monetarist promise – that unemployment produced by fighting inflation would be temporary – true in the United States. European governments could have attempted to increase the amount of ‘churning’ in the labor market by increasing speed with which those who seek jobs find them: forcing those who have jobs to compete with those who do not. The distributional consequences of following this ‘American strategy’ are unpleasant. One consequence is insecurity on the part of the employed, and a shift in power in labor-management relations back toward management. A further consequence is the steady downward pressure on wages from the potential competition of the unemployed, downward pressure that has led to a vast widening of income inequality in the United States. A second road to cure European unemployment would have been to try to boost public employment, and to spend large sums of money on reentry programs for the jobless – training subsidies, job search assistance, and much higher subsidies to employers for hiring the unemployed. But these costly reentry programs must be paid for by higher taxation. The fear has been either that higher taxation will slow economic growth, or that programs for the unemployed will crowd out other social benefits. The European Union has remained stuck in the middle. It has rejected the first strategy. It has not tried the second. The United States provides a somewhat positive example of the first strategy. There is no successful example of the second: it is not clear that it is even possible.

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Conclusion Had European political economy taken a different turn, post-World War II European recovery might have been hobbled by clumsy allocative bureaucracies that rationed scarce foreign exchange and placed ceiling prices on exportables to protect the consumption of urban working classes. Yet post-World War II western Europe saw a rapid dismantling of controls over product and factor markets, and the restoration of price and exchange rate stability. To some degree this came about because underlying political– economic conditions were favorable. After all, no one in Europe wanted a repeat of interwar experience. To some degree it came about because the governments in power believed that the ‘mixed economies’ they were building should have a strong pro-market orientation. To some degree it came about as a result of a Marshall Plan that gave post-World War II European politicians a little bit of extra room to maneuver, in order to carry out their intentions. Without aid, they would likely have faced a harsh choice in the late 1940s between contraction to balance their international payments and severe controls on admissible imports. For budgets to be balanced and inflation to be halted in postWorld War II western Europe, political compromise was required. Consumers had to accept higher posted prices for foodstuffs and necessities. Workers had to moderate their demands for higher wages. Owners had to moderate demands for profits. Taxpayers had to shoulder additional liabilities. Recipients of social services had to accept limits on safety nets. Rentiers had to accept that the war had destroyed their wealth. There had to be broad agreement on a ‘fair’ distribution of income, or at least on a distribution of the burdens that was not so unfair as to be intolerable. Such agreement was easier to reach, the larger the size of the pie available for division among interest groups. Thus at first aid and then rapid economic growth made virtuous circles very possible. What about Europe today, which is far from exceptional? It is hard to believe that the differences that separate the slowlygrowing, unemployment-ridden western Europe of today from the western Europe of the Great Keynesian Boom are large. Not much has changed, and yet we have wandered from there to here. Perhaps we can change a little bit, and go back from here to there? Perhaps. Perhaps not. But in any case western European economic management leaves those of us who study and make macroeconomic policy on this side of the Atlantic scratching our head in puzzlement. What western Europe appears to need are policies that will (a)

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stimulate demand by expanded government deficits and lower interest rates, (b) free up the labor market and make it easier to hire workers so that higher demand will generate lower unemployment and not higher inflation, and (c) a reform of the social insurance state so that it provides fewer sinecures to those with favorable economic positions and more genuine social insurance. But when we look at western Europe today, we do not see such policies. Instead, we see policies of continued fiscal contraction in order to meet the requirements for monetary union. These do not provide companies and workers with stronger incentives to make and find jobs either through government subsidy or through market opportunity. Since either tacking right or left appears unacceptably risky, the decision of European governments has been to stay in the middle, and hope that monetary union will lead to something positive. But what that ‘something positive’ will be, no one can say. Bibliography Acheson, D. (1960) Sketches from Life. New York: Harper & Bros. Acheson, D. (1969) Present at the Creation. New York: New American Library. Auriol, V. (1970) Mon Septennat, 1947–1954. Paris: Armand Colin. Barro, R.L. and Sala-i-Martin, X. (1995) Economic Growth. New York: McGraw-Hill. Borchardt, K. (1991) Perspectives on Modern German History and Policy. Cambridge: Cambridge University Press. Bordo, M. and Eichengreen, B. (1993) A Retrospective on the Bretton Woods System. Chicago: University of Chicago Press. Cohen, D. (1996) The Misfortunes of Prosperity. Cambridge: MIT Press. DeLong, J. Bradford (1988) ‘Productivity Growth, Convergence, and Welfare: Comment’, American Economic Review, 78/5 (December), pp.1138–54. DeLong, J. Bradford and Eichengreen, B. (1993) ‘The Marshall Plan as a Structural Adjustment Programme’, in Rüdiger Dornbusch, Wilhelm Nölling, and Richard Layard (eds) Postwar Economic Reconstruction: Lessons for Eastern Europe. London: Anglo-German Foundation for the Study of Industrial Society. DeLong, J. Bradford and Summers, L.H. (1991) ‘Equipment Investment and Economic Growth’, Quarterly Journal of Economics, 106/2 (May), pp.445–502. Diaz-Alejandro, C. (1970) Essays on the Economic History of the Argentine Republic. New Haven: Yale University Press. Easterlin, R. (1997) The Economic History of the Twenty-First Century. Berkeley: University of California Press. Eichengreen, B. (1989) ‘European Economic Growth After World War II: The Grand Schema’, presented to the Conference ‘Marking the Retirement of William N. Parker’, New Haven. Eichengreen, B. (1992) Golden Fetters: The Gold Standard and the Great Depression. New York: Oxford University Press. Eichengreen, B. (1996) Globalizing Capital. Princeton: Princeton University Press. Frankel, J. and Romer, D. (1996) Trade and Growth: An Empirical Investigation. Cambridge, MA: National Bureau of Economic Research. Friedman, M. (1968) ‘The Role of Monetary Policy’, American Economic Review, 58/2 (May), pp.1–17. Gimbel, J. (1976) The Origins of the Marshall Plan. Palo Alto: Stanford University Press.

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Hall, P. (1986) Governing the Economy: The Politics of State Intervention in Britain and France. New York: Oxford University Press. Hall, P. (ed.) (1989) The Political Power of Economic Ideas: Keynesianism Across Nations. Princeton: Princeton University Press. Halle, L. (1967) The Cold War as History. New York: Harper and Row. Harris, S. (1948) The European Recovery Program. Cambridge, MA: Harvard University Press. Hayek, F. (1944) The Road to Serfdom. Chicago: UC Press. Hazlitt, H. (1947) Will Dollars Save the World? New York: Appleton-Century. Hobson, John A. (1913) Imperialism, a Study. London: Allen and Unwin. Hogan, M. (1987) The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947–1952. Cambridge, UK: Cambridge University Press. Keynes, J.M. (1936) The General Theory of Employment, Interest, and Money. London: Macmillan. Kindleberger, C. (1987) Marshall Plan Days. Boston: Allen and Unwin. Lenin, V. (1916) Imperialism, the Highest Stage of Capitalism. New York: Vanguard Press. Maier, C.S. (1987) In Search of Stability. Cambridge: Cambridge University Press. Maier, C.S. (1977) ‘The Politics of Productivity: Foundations of American International Economic Policy after World War II’, International Organization, 31, pp.607–33. Maier, C.S. (1981) ‘The Two Postwar Eras and the Conditions for Stability in Twentieth-Century Western Europe’, American Historical Review, 86, pp.327–52. Marx, K. (1848) Wage-Labor and Capital. New York: Vanguard Press. Milward, A.S. (1984) The Reconstruction of Western Europe 1945–51. London: Methuen. Sweezy, P. (1942) The Theory of Capitalist Development. New York: Oxford University Press. Wallich, H. (1955) Mainsprings of the German Recovery. New Haven: Yale University Press.

Note I would like to thank Alan Taylor, Richard Freeman, Robert Waldmann and especially Barry Eichengreen for helpful discussions. This essay draws heavily upon the ideas of, conversations with, and joint work conducted with Barry Eichengreen. I would also like to thank the National Science Foundation, the Alfred P. Sloan Foundation, and the University of California at Berkeley’s Institute for Business and Economic Research for financial support.

2 Europe and the Marshall Plan: 50 Years On ALAN S. MILWARD

Although there have been some thoughtful academic celebrations of the 50th anniversary of the Marshall Plan, they have been quiet affairs indeed compared to the lavish celebrations of its 40th. It is now thought of as having done its work. The Wall has come down. Only the academic debate continues, mostly over arguments raised at the time of the 40th anniversary, which coincided with the first wave of serious publications into the Marshall Plan’s meaning and impact. After 40 years it was still important for US officials to maintain the public position of their government in 1947, that aid would be available to all European countries who were ready to participate in a cooperative organization for its utilization. There were still a few academics maintaining the same position, but their defenses were being overwhelmed. Successive conferences in western European capitals reached solid academic agreement that not only were the terms for aid to Soviet bloc countries unacceptable to their political systems, but that they were intended to be so. The offer was couched in the way it was to allow for the possibility that Czechoslovakia and, with much less hope of success Hungary and Poland, might still have enough room for political maneuver to accept it, change their political system and be attracted out of the rapidly forming Soviet bloc. That possibility was at once closed by the USSR. The Marshall Plan did not divide Europe and Germany by accident; the outcome was foreseen and in the case of Germany intended. Before the 50th anniversary came around, the Cold War, the Soviet bloc and even the Soviet Union itself were no more. The problem had become not the immovability of eastern Europe but its instability. It was natural to ask the question whether another Marshall Plan might not bring stability to the former Soviet bloc as the original had earlier done to western Europe. The attempt to answer that question gave a further impulse to answering the question in the forefront of earlier research: how effective was the Marshall Plan? The results have been to deepen somewhat our understanding of the plan’s economic impact on western Europe, but in doing so also to show how inapposite it would have been

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to have had a second Marshall Plan for eastern Europe. The amount of money would have had to be far greater and spent over a longer period of time. Most authors, however, are persuaded that the greater difficulty would have been the lack of political response. The question that emerges from this examination of the possibilities for a second Marshall Plan for Europe is of wider importance than the history of the Marshall Plan itself: what is necessary for an interdependent international economic system to function successfully over a relatively long period? This large question has been reached by beginning with a much narrower one: what was the quantitative contribution of Marshall Aid to western Europe’s postwar growth? It is not easy to know the precise quantities of Marshall Aid received by each country. Marshall Aid was voted annually for each US fiscal year by Congress from the start (1 July 1948) of fiscal year 1949. After the first annual allocation, however, there were two successive attempts to multilateralize intra-European trade over the US fiscal years 1949 and 1950 (1 July 1948–30 June 1950) by allowing national Marshall Aid allocations to be used in trade settlement transfers between OEEC countries. The second of these, in fiscal year 1950, took the form of constituting drawing rights for trade debtors on aid actually allocated to the creditor country. It meant that sums finally received by any country could be very different from those originally allocated to it at the start of the fiscal year. In February 1950 Congress allowed as much as one-third of the total Marshall Aid appropriation for fiscal year 1951 to be set aside to support the creation of a genuinely multilateral payments system for intrawestern European trade. Such a system was brought into being by the agreement on the European Payments Union (EPU) signed in September 1950. Of the total Marshall Aid appropriation, 19.4 per cent was allocated as working capital to EPU, and so was transferred by EPU trade settlement operations to intra-European trade debtors. A further 8.3 percent went into a special fund to guarantee the UK against losses of gold through membership of EPU. Taking account of the transfers of Marshall Aid through trade settlements raises the question of whether it makes economic and historical sense to measure its impact separately from that of other contemporary aid programs of which the dollar transfers were also recycled through international trade. Calculations which show the relatively low contribution of Marshall Aid to the growth of the West German economy need, for example, to be read in the awareness that an earlier relief program operated by the US army of occupation, Government Aid and Relief in Occupied Areas (GARIOA), was still in operation in the first fiscal year

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of Marshall Aid and in calendar year 1949 was responsible for financing more than half of the aid-financed imports into West Germany. Other large aid programs to Greece were also in operation throughout the Marshall Plan period. Most published estimates of the sums of Marshall Aid received have as their end-point 30 December 1951, because that was the day on which the Economic Cooperation Agency (ECA), set up to administer Marshall Aid, was wound up. The Truman administration, however, had intended Marshall Aid to be a five-year program and funds were in fact disbursed until 30 June 1953 (the end of fiscal year 1953) under the aegis of ECA’s successor agency, the Mutual Security Agency (MSA). Quantitatively, the addition of the funds transferred through MSA for similar imports as under the aegis of ECA does not make much difference to the measured contribution of the Marshall Aid program to the growth of European economies, but its existence means that the leverage exerted by Marshall Aid over the recipients did not end, as most studies make it do, in 1951. All estimates of the quantitative contribution of Marshall Aid to the growth of western European countries, either as a static contribution to their national income, or to current accounts which were almost invariably in deficit with the dollar zone, or to investment, show it to have been much smaller than the propagandistic enthusiasm of contemporary economists proclaimed.1 Western Europe of course was not a whole, and all quantitative estimates also agree that the contribution through any of these channels to recipient nations shows a wide range of difference. The same two conclusions hold when any attempt is made to dynamize the effect of Marshall Aid, but the contribution of Marshall Aid appears larger when dynamized. The importance of final Marshall Aid receipts, not allocations, as a percentage of GNP in the first US fiscal year (1949) of the plan’s operation varied from 14 percent in the case of Austria to 0.3 percent in the case of Sweden. There were seven countries out of the fifteen recipients in the program where the net addition was more than 5 percent of GNP (Table 2.1). Growth rates of GNP in western Europe were high over the period 1945–51; Marshall Aid was intentionally degressive. Net aid receipts thus declined as a percentage of GNP throughout the program. Table 2.2 illustrates this for some recipients. In Table 2.1 the powerful effect of using ‘conditional’ aid to recipients to enable trade debtors to them to purchase their exports can be particularly noted in the case of the Irish Republic. A neutral country in World War II, to whose economy the word recovery hardly applied, since on balance the world war was beneficial to it, received a substantial addition

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TABLE 2.1 NET ERP AID RECEIVED, AFTER TRADING SETTLEMENTS MADE WITH ‘CONDITIONAL’ AID. US FISCAL YEAR 1949 (1 JULY 1948–30 JUNE 1949) AS A PERCENTAGE OF GNP

Austria Netherlands* Irish Republic France* Norway Italy Iceland Denmark Western Germany (Trizone) United Kingdom Belgium/Luxembourg* Sweden

14.0 10.8 7.8 6.5 5.8 5.3 5.0 3.3 2.9 2.4 0.6 0.3

* Including aid to overseas territories. Source: Bank for International Settlements, 19th Annual report (Basle, 1949).

TABLE 2.2 NET TOTAL ERP AID RECEIVED, AFTER TRADING SETTLEMENTS MADE WITH ‘CONDITIONAL’ AID AND DRAWING RIGHTS, 1 JULY 1948–30 DECEMBER 1951 AS A PERCENTAGE OF 1949 GNP

Netherlands France Italy United Kingdom (GDP) West Germany (1950 GNP)

A At pre-September 1949 exchange rates

B At post-September 1949 exchange rates

16.1 9.9 8.8 5.2 4.7

23.1 11.5 9.6 7.5 5.9

For method of calculation see A.S. Milward, The Reconstruction of Western Europe 1945–51 (London: Methuen, 1984), p.97.

to GNP by virtue of the very large proportion of its imports which was purchased from the UK. Otherwise, the direct contribution of Marshall Aid to national income is notably high in some cases: Austria, the Netherlands and France. Austria is omitted from Table 2.2 because difficulties with the data make the calculation less robust than for the other entries. However, the table shows how rapidly the contribution of total net aid received by this method of reckoning must have declined over the successive three and a half year period. As an upper bound it would represent an addition of 6.6 percent to Dutch GNP and a lower bound of

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4.6 percent over the period as a whole. For France it would have fallen between 3.3 percent and 2.8 percent, for Italy between 2.7 percent and 2.5 percent. It seems likely therefore that Austria and the Netherlands were the only two recipients in western Europe to which Marshall Aid made a really significant contribution to growth of GNP. Even there, it should be borne in mind that the average annual growth rate of national income in the Netherlands over the period 1945–60 was almost 5 percent. In France it was 4.4 percent. Analysis of the channels through which this financial contribution may have contributed to the growth of GNP has remained in a resolutely Keynesian mode. Marshall Aid has been typically measured as a contribution to investment, and investment as a contribution to growth. In one sense this is historically appropriate. The political justification of the Marshall Aid program embodied every assumption of Keynes’s economics on which Harrod–Domar growth models were to be constructed. In historical retrospect this probably had to be so. The political objectives of the US government, which underlay Marshall Aid, could not have been attained had Congress been confronted with an alternative form of economic analysis in which the Aid program would have appeared mainly as an invitation to lax monetary policy, prolonged balance of payments deficits and inflation. It was in fact all three. However, political reliance on Keynesian assumptions was justified, at least in the medium-term, by the low inflation rates that followed the end of Marshall Aid. The years 1952–58 recorded lower average rates of inflation across western Europe than any subsequent period of comparable length. The whole program was predicated on the concept of economic growth, albeit early and ill-defined. Until summer 1947 American postwar aid to Europe had been called, accurately enough, relief. It was not intended to go beyond that year. The loans to the UK and France were for a different purpose: to try to ensure their adherence to the international commercial framework set out in the Bretton Woods agreements. Marshall Aid, however, was conceived under another star, a future dominated by a long-run economic and social competition with the communist system. The capacity of capitalism to generate national and personal income growth more successfully than the communist alternative had to be demonstrated, otherwise western Europe would not survive as the western defensive bulwark of the United States. It followed, therefore, that it was on total factor productivity that dollar aid must have its effect. The persistence of Keynesian modes of analysis of Marshall Aid can in part be justified by the argument that it tests a major policy on its own terms. It is not a-historical. It asks whether Marshall Aid worked in the way that the US government hoped that it would.

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It was in this Keynesian context that Eichengreen and Uzan sought to dynamize the contribution of aid to the European economies’ growth.2 Their method was to write equations specifying three channels through which Marshall Aid could have operated: investment, current account and government spending, as well as a set of growth equations containing variables for other possible determinants of growth, and then to carry out a series of simulations using historical data, but setting Marshall Aid to zero in order to obtain a counterfactual value for GNP growth without Marshall Aid. The results indicate that the effect of Marshall Aid operating through any one of the three channels varied between small and insignificant. The largest effects were in Austria and the Netherlands, confirming my earlier arithmetical counterfactuals. However, when the growth equations were respecified to include the Marshall Plan allotments, not the receipts as used in Tables 2.1 and 2.2, in the growth equations, and the three channels – investment, current account and government spending – were made to interact, the contribution of Marshall Aid to economic growth appeared as more significant, at least for fiscal year 1949 (1 July 1948–30 June 1949). It would seem, therefore, that it was through other channels than providing additional cash for investment, for the current account, or for government budgets that Marshall Aid had this greater impact. The apparently larger contribution made by Marshall Aid in Table 2.3 should be taken as a contribution to growth in western Europe as a whole. If Eichengreen and Uzan had used receipts, rather than allotments, the individual additions to growth for the separate countries would read TABLE 2.3 ADDITIONAL OUTPUT GROWTH ATTRIBUTABLE TO THE MARSHALL PLAN, ALLOWING FOR INTERACTION EFFECTS (%)

Fiscal year 1949 (1 July 1948–30 June 1949) Austria Belgium Denmark France Germany Italy Netherlands Norway Sweden United Kingdom

7.50 1.50 2.00 2.50 2.25 3.50 4.75 0.00 0.25 1.00

Source: B. Eichengreen and M. Uzan, ‘The Marshall Plan: Economic Effects and Implications for Eastern Europe and the Former USSR’, in Economic Policy, vol. 14, 1992 (April).

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quite differently. They would, for example, show a larger contribution to the growth of France. Through what mechanisms were these interactive effects, which seem to show the Marshall Plan as a more significant contribution to Europe’s growth than more direct measurements imply, obtained? Five suggestions can be found in the large literature on the Marshall Plan. One is that the plan founded Europe’s reconstruction on an implicit social contract between labor and capital whose specific intention and effect was to improve total factor productivity. A second more specific version of this hypothesis is favored by Eichengreen: that the international institutional machinery created by the Marshall Plan, notably the European Payments Union (EPU), created a framework for higher growth by institutionalizing this implicit social contract into the trade settlements machinery. A third is that quality of investment mattered more than volume. Investment, it can be argued, widened bottlenecks of resources, of transport and of technology at crucial moments in the recovery process and in so doing built a bridge between postwar recovery and Europe’s great boom. A fourth is the effectiveness of the conditionality on which Marshall Aid was provided. A fifth is the transference to western Europe of a politicosocial system in the United States directed mainly towards continued improvements in overall productivity. The idea that total factor productivity and GNP grew so rapidly after 1945 in western Europe because of a ‘social contract’ between capital and labor was originally popularized by Maier. He saw the social contract as a corporatist political deal between government, employers and labor, in contrast to the manifest failure to reach any such agreement after World War I. He called this ‘the politics of productivity’.3 This phrase has been extremely influential on a stream of writers who have identified the Marshall Plan as the vehicle through which this corporatist deal was introduced into European politics. Hogan’s meticulous study of American–British diplomatic relations during the Marshall Plan, for instance, sees the Marshall Plan as the export of the political model of the New Deal to western Europe.4 Ellwood sees the Marshall Plan as a force which fundamentally reshaped attitudes to politics and to productivity in western Europe.5 DeLong and Eichengreen are more tentative, but nevertheless suggest that the Marshall Plan influenced European labor movements towards increasing total factor productivity rather than redistributing income, and that in so doing it might have reduced the pressure of wage inflation on European economies, and that this, in its turn, might be one explanation for Europe’s 25-year uninterrupted boom.6 Generalization about a corporatist ‘social contract’ in Europe is an open invitation to historians to argue that on their particular patch it was

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not so. On one particularly important patch, France, that certainly does seem to have been the case. Wage demands were not moderated and the most powerful trade union was so opposed, often violently, to the Marshall Plan that its membership seemed to live in a different political system from employers and government. Maier’s hypothesis has led to interesting detailed studies of the use of lavishly-funded American trade union officials by the ECA to influence European unions towards accepting the American version of collective bargaining within a politico-economic ideology not fundamentally in conflict with that of employers.7 It would certainly not be justifiable to conclude from these studies that the politics of European trade union movements were changed into a simulacrum of those of their American counterparts. They seem to have remained strikingly different, most of them by the end of the 1950s still at least as interested in redistribution and in political power at the center as in confining themselves to collective bargaining within a system without purposively redistributive political machinery. The idea of the social contract, however, also inspired the argument of Eichengreen that the international institutions of the Marshall Plan were built on the social contract which Maier believed he had identified. Why, Eichengreen asked, was the settlements machinery of the European Payments Union so complicated and so favorable to debtors?8 Would not dollar convertibility of current accounts, conforming to the International Monetary Fund (IMF) definition of convertibility, have been more desirable? Convertibility, after all, was the goal of the UK Treasury and the preferred option of the US Treasury. It would have been attainable in 1950, Eichengreen argues, when most European balances with the United States became much more favorable. The United States chose otherwise and discouraged such a move. A foreign policy consideration influenced the US decision to back the merely transferable settlements machinery of EPU with Marshall Aid. This was American political support for European integration; EPU kept France and Germany together in an integrationist framework when the former still had no hope of establishing convertibility and the latter was scarcely born. When Germany from 1952 onwards would have been able to follow sterling into non-resident convertibility, the United States still discouraged any such British move, because France would have been left behind. But it is not on the US desire to persevere with European integration that Eichengreen lays weight, so much as on the generosity of the EPU settlements machinery to current account debtors.

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    A repeat of the debilitating struggle over income distribution that had characterised the post-World War I period was successfully averted. Workers agreed to moderate wage demands if management agreed to reinvest the profits they thereby accrued in productivity-enhancing plant and equipment. Each side agreed to trade short-term gains for long-term benefits so long as the other side agreed to do the same.9

The settlements mechanism of EPU reflected and sustained, he argues, these, often implicit, domestic political contracts. Dollar convertibility, rather than currency transferability between members as EPU provided, would, Eichengreen is able to demonstrate, have reduced European incomes by between 1 and 2 percent. That reduction would have been almost comparable statistically for OEEC member-states as a whole to there having been no Marshall Plan. EPU was almost certainly the most generous multilateral settlements mechanism for debtors which history records. In return for any surpluses within intrawestern European trade members received mostly EPU credits in European currencies transferable within the payments union. The working capital was made up of a dollar deposit allocated from Marshall Aid and quota-deposits by each member. The quota-deposit was reckoned as 15 percent of the total of each member’s visible and invisible transactions with all other members. Any surplus up to 20 percent of this initial quota would be covered only by the registration of credits on the other members. Only after a surplus reached 60 percent of the initial quota was repayment made entirely in gold/dollars. Between the 20 percent mark and the 60 percent mark a sliding scale of repayment moved progressively towards a higher gold/dollar share but still provided for much of total debt to be repaid by credits in transferable EPU currencies, not in freely convertible US dollars or in gold. The US and UK Treasuries regarded EPU as a serious impediment to eventually achieving convertibility under IMF rules, as did the Federal German Ministry of Economics. There were repeated demands by the Federal Republic, which after 1951 ran a commodity trade surplus with every EPU member, for the settlements to be hardened. The great immediate beneficiary was the most persistently large debtor, financially unstable, inflationary France. It may well be, however, that in terms of GNP growth rates, rather than short-run financial advantage, the German Federal Republic was as big a beneficiary of this debtor-favorable system as France. Membership in the EPU forced it to finance its own manufactured exports with soft EPU debts. Had they had to be paid for in gold/dollars their expansion

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would have been much slower. If there is such a thing as export-led growth, West Germany in the 1950s must be the strongest example. While GDP in the Federal Republic grew at an annual average rate of 7.8 percent over the period 1950–58, the value of manufactured exports showed an annual average increase of 19.7 percent. Over the whole decade, 1950–60, the contribution of exports of goods and services to West German GNP grew from 11.6 percent to 20.7 percent. In France, to complete the picture, it fell slightly. Eichengreen could well reply to French critics of his hypothesis that EPU represented the social contract, that if powerful communist unions took no account whatsoever of that idea it mattered less when at the level of the international economy the golden fetters of the 1920s were now fixed so loosely that governments in Paris could satisfy labor’s demands by a higher rate of growth of per capita income than in any earlier period for which we have records. Growth, however, was a long-term and a complex process; EPU only a short-term institution. Its settlement terms were hardening from 1952 onwards. Furthermore, the argument that EPU represented the postwar social contract in action has to contend with the view that it was far more shaped by the exigencies of American foreign policy than by any transfer of a New Deal corporatist model across the Atlantic. What was the New Deal of the 1930s? There seems no clear answer. In contrast, there is a very clear answer to the question: what was American foreign policy after 1947? In American eyes EPU was a step towards integrating western Europe in the interests of the United States’ own national security and a step towards the eventual implementation of the worldwide convertibility and multilateralism announced at Bretton Woods. Neither of these objectives awoke much enthusiasm in the breasts of European labor, nor in the political parties on which it bestowed its votes. The discussion over whether Marshall Aid, by eliminating resource bottlenecks, did permit the continuation of the high western European growth rate apparent between summer 1945 and 1948 is inextricable from the discussion over whether western Europe was facing a ‘crisis’ in summer 1947 on the eve of Marshall’s announcement of the American offer. It should be noted that if Europe was facing a crisis, only three western European countries, Austria, France and Italy, received immediate US aid. They did so under the Interim Aid program intended to fill the gap before Congress finally approved the full Marshall Aid program. Marshall Aid only started from the end of June 1948. The immediate cause of the rush to announce the Marshall Plan, before indeed there actually was a plan, was not the weakness of investment, demand, employment or output in western Europe. All were high and rising. It was the combination of widening payments deficits and

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rapidly disappearing gold/dollar reserves in some countries, notably France, the Netherlands and the UK, and the much more apparent conflict with the communist system. What could the Bretton Woods agreements mean, and what would the chances of successful competition with the communist system be if major western European countries had to contemplate even more drastic, and longer-term trade and exchange controls than already existed in 1947? Marshall Aid had as its immediate purpose to facilitate dollar imports into western Europe. The recovery of postwar European output to prewar levels, and in some cases beyond them, could not continue, US officials argued, in the face of more severe balance of payments constraints, and they also believed the signs that it would not do so to be already apparent by June 1947. In a trading world without currency convertibility and only very restricted transferability the particular quality of Marshall Aid was that it allowed imports in the scarce currency, the US dollar. Borchardt and Buchheim, although their statistical method has not been left uncriticized, have been able to show that the sudden ability to be able to purchase and hold much larger stocks of cotton, for example, does seem to have improved the stability of the trend along which output of cotton goods grew in the West German textile industry.10 Cotton, being almost wholly imported into western Europe from the United States, would be the obvious example of a resources bottleneck. Close inspection of the foreign trade returns for all the aid recipients indicates, however, that resource bottlenecks would have been important had no extra dollars been made available, but that western European economic policies would not necessarily have had to change because of them.11 Fuel and cotton dominated Marshall Aid financed shipments of raw materials to western Europe. Between them they amounted to 29.5 percent of the total value of those imports. All other raw materials amounted to less than 8 percent of the total. Most raw material imports into western European manufacturing were not bought in dollars. More typically, they were purchased in sterling from Sterling Area countries or were found within the overseas territories of European states. Furthermore, as coal output recovered in Germany the importance of American coal shipments fell steeply. Dominant in 1948, in 1950 they were insignificant. If, however, we look only at the first full calendar (not fiscal) year of Marshall Aid, from 1 January 1949, it is food which constitutes the biggest single item in Marshall Aid-financed imports. An exact reckoning is unachievable, but food in that calendar year was at least one-third of the value of all Marshall Aid-financed imports. In 1950 it was roughly 27 percent. This was only to be expected, because North America was,

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with the exception of Australasia, where surpluses were much smaller, the only source of food surpluses in the world. The recovery of western European agricultural production to its prewar levels took five years from the end of the war. Was food a resource bottleneck? Would Europeans have been too hungry without Marshall Aid to sustain the growth of output? Could they have foregone the dollar food imports which Marshall Aid allowed and still sustained the same level of imports of capital goods and raw materials as they were running in the first six months of 1947? A strictly quantitative answer is that, if all the west European countries which accepted Marshall Aid had held food imports at their level as it existed on the eve of Marshall Aid for the duration of the whole program, all except France and the Netherlands could have imported the same level of capital goods and raw materials by spending their dollar earnings. This assumes the continuation of aid to Western Germany under the GARIOA program, most of which was spent on food imports. There is insufficient data to answer the question for Austria, which may well have been in a similar situation to France and the Netherlands. Hypothetically, the period of time over which the equivalent value of dollar capital goods imports to those that were actually purchased could have been bought would have had to be extended in France by about three months and in the Netherlands by about a year. Leaving Austria aside, all other Marshall Aid recipients would not have had to cut back on dollar food imports. While this does not demonstrate conclusively that food imports were not a bottleneck, it casts a doubt over that possibility. Average rations in West Germany, Italy and Austria in 1946–47, when people could get hold of them, were below the estimated minimum calorific value to sustain manual work. Furthermore, with rapid growth and rising expectations would it have been politically possible to suppress food consumption levels until 1951 in order not to run out of dollars for capital goods imports? Perhaps in a world where competition with the communist system became central to policy it would not. But that is a political judgment; food was not a resource bottleneck in 1947 in the sense in which people would have been too hungry to go on working. Work gave access to black market supply, which in the three countries with the lowest calorific consumption per capita was as important as ‘official’ rations – a fact which also implies that the official figures for the calorific value of daily consumption are almost certain to be, for the active population, underestimates. DeLong and Eichengreen argue that resource shortages were not, however, merely due to foreign exchange shortages.12 Postwar policies in

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western Europe had, they assert, induced a ‘marketing crisis’. Prices were controlled at levels so low that goods were hoarded. The shortages of food were caused by the refusal of farmers to bring their output to markets. The faltering in the growth of manufactured output observable in some countries in spring 1947 had, they argue, similar causes. Policy was creating ‘shortage economies’. How useful is this concept of the ‘shortage economy’ to understanding western Europe’s situation in 1947? The only evidence for hoarding that DeLong and Eichengreen offer is the wheat shortage in France in autumn 1947 when the bread ration had to be reduced. There is a case for blaming this on an error of central government pricing policy. In an effort to reduce the area sown to wheat, which had been expanded by German occupation policy during World War II, the centrally-set purchase price to farmers was reduced in 1946. The objective was laudable: a step towards market efficiency and away from the protectionism of the 1930s. The outcome was disastrous. The price set was far too low relative to the price of other grains, including fodder grains for livestock, and too low also relative to meat and dairy produce prices. The area sown to wheat over the 1946/47 winter was only 65 percent of the average of the period 1934–38. The problem was then compounded by what is still western Europe’s worst winter of the century, sending France in search of dollar wheat imports. Here, certainly, is a fine example of exactly those same central planning defects that were proliferating in eastern Europe at the same time. But the purpose of central planning in this case was quite different; it was intended as a step towards a more open international market. And there is no evidence that French farmers were withholding wheat from the market in autumn 1947, only that they did not have enough to offer because they were offering other things instead. The only good evidence of hoarding goods in western Europe in 1947 and 1948 comes from occupied Germany. It has usually been cited as evidence against the argument that the Marshall Plan had a dramatic impact on the German economy, but in fact it supports the arguments of Eichengreen and DeLong. Abelshauser demonstrated an increase in the output of manufactures in the American and British occupation zones of Germany from the end of the war until the 1948 currency reform. The increase in goods reaching the market did not correspond to the increase in output, but the phenomenon was widely reported that from the day following the currency reform there was an influx of goods into shops which did not abate. For this the only feasible explanation was that they were part of earlier output increases not marketed or diverted into black markets.13 But where else in western Europe was the currency so worth-

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less that it was replaced by cigarettes? Where else was there no effective central bank or central government? Physical controls, notably on imports, did reduce the quantity of goods coming onto markets relative to the postwar increases of purchasing power in most western European countries and this can fairly be described as suppressed inflation. In the UK physical controls diverted manufactured output into exports. Suppressed inflation, while it restricted consumption, did not reduce the supply of domestically produced food to markets. On the contrary, all over western Europe by the start of the Marshall Plan food prices, in response to worldwide food shortages, whose fundamental cause was the damage done by the war to world agriculture, were rising rapidly as farmers were incorporated into postwar political coalitions. High food prices, much higher than in North America, were already on their way to generating food surpluses. Governments relaxed physical controls over the resource supply in the domestic economy according to their particular political persuasions, not because Marshall Aid made it possible. In the UK, the biggest receiver of Marshall Aid, food rationing outlasted the Marshall Aid program. The argument at that point leads logically into an assessment of the value of conditionality in forcing the interactions which were responsible for Marshall Aid’s contribution to economic growth in Europe. Roughly, with much overlapping, the sequence of Marshall Aid conditionality was as follows. In the first year it was for relief and to allow for continued dollar imports without increased trade and currency controls. Of the two most onerous conditions, one was the insistence on cooperation within a European international organization which would itself work with ECA in enforcing a rational utilization of aid between its members as a whole. Marshall Aid was to be for ‘Europe’, not for a set of separate competing national economic objectives. The other was that each aid recipient must deposit in the national bank the equivalent in national currency of all grants received. These deposits, mostly coming from public or private sales of goods imported under Marshall Plan license, could only be used with ECA approval. Legislation setting up the Marshall Aid program specified for what purposes that approval could be given. Five percent of these so-called ‘counterpart funds’ was for the United States’ own administrative purposes. For the remainder three purposes were specified: fiscal and monetary stabilization; the extension of production capacity; and any objective that supported recovery. By the second year of the program the main use of conditionality became that of levering interwestern European trade and payments from bilateralism to multilateralism. At first this was through the allocation of ‘conditional’ Marshall Aid, later through the allocation of ‘drawing

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rights’. When countries received aid on which trading partners could draw to pay for imports from the original recipient it was the importer who had to make the counterpart deposit on its own national bank when the drawing rights were claimed. Already, however, in 1950 conditionality sought to impose a third condition: financial stability. It is on this third element of conditionality that DeLong and Eichengreen place great emphasis. Having sustained growth and then achieved multilateralism in settlements, the United States successfully used its leverage, they argue, to slow down the inflationary force behind the high reconstruction growth rates. Their argument has a further implication: sequential conditionality of this order could have been equally effective in a second Marshall Plan for eastern Europe. There are many difficulties in determining how strictly the conditionality of the terms was, or even could be, enforced. The original conditions of the Marshall Aid bilateral agreements to be signed by each accepting country were rejected, most emphatically where they demanded some US control over dollar exchange rates of European currencies. The United States was not providing for the most part for the poor or the weak, but for countries on which its national security in the widest sense was thought to depend, many of which were on the point of also becoming its military allies. Their bargaining power, as the history of the negotiations showed, was strong and the bilateral agreements once signed, American leverage over the recipients was always diminishing. Their economic position improved rapidly and for most of them dollar aid as a proportion of GNP shrank as rapidly. The common European organization, OEEC, which the United States demanded as one condition of the Marshall Aid program remained, in spite of American wishes, merely cooperative, when, that is, its cooperative activities were not thwarted by the fierce national struggles for shares of the available cash. The history of France, which received the second largest share of aid over the program’s duration, is instructive. The policy of the Department of State to ‘integrate’ western Europe could have no meaning without French participation. Indeed, before the close of the Marshall Aid program the State Department had to make a direct appeal to France to come forward with its own program of integration to substitute for the unsuccessful American efforts associated with the Marshall Plan. By then the United States was committed to keeping ground forces in Western Germany for a further 19 years, making French cooperation even more important. Any exaggerated report from Paris that the centrist coalition governments would be replaced by either communist or Gaullist majorities was a leverage which France could exercise over

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Washington as powerful as that of the United States over Paris.14 The effective power in this kind of bargaining lay as much in the hands of the weak, if they were important enough to US policy, as in the hands of the strong in Washington. A similar story about American–Italian relations under the Marshall Plan has been convincingly told, in which American policy in Italy had no choice but to support the policies of the indispensable Christian Democrats.15 It is difficult to find examples where either French or Italian governments were prevented by conditionality from doing whatever they wanted with Marshall Aid.16 Esposito has examined in detail for France and Italy the question of whether US control of the counterpart funds and the US administration’s many other ways of putting pressure on aid recipients did lead to greater financial stability. In France, she concluded, the United States had no choice but to support the centrist coalitions.17 Similarly, in Italy the Pella government had to be supported because it defended the interests of the essentially pro-American middle class. Supporting these coalitions meant releasing counterpart funds to sustain French and Italian economic policies, even when these displeased the ECA. Italian governments produced financial stability from this potentially inflationary situation by clearing the use of their counterpart funds for investment, especially in southern Italy, as ECA officials wanted them to, and then not spending the money, in spite of public US criticism. French governments spent the counterpart funds on investment, but in conformity with US pressures presented an appearance of trimming public expenditure, when financial stability became the condition for aid. They did this by cuts in the public budget. However, the official budget surpluses of 26.1 billion francs and 49.3 billion francs in the years 1948 and 1949 would have been deficits if the extraordinary budget which included expenditures on investment by the Modernization Fund were taken into account. In 1948 there would have been a deficit of 2.2 billion francs and in 1949 of 4.0 billion francs.18 Genuinely balanced budgets were achieved only in 1964. An overall balance of payments surplus on current account for metropolitan France and its overseas territories was reached only in 1954, for two years only, and it depended entirely on a level of American aid absolutely and relatively much higher than Marshall Aid. France’s commodity trade deficits, the result of sustained high levels of uncovered public expenditure, dominated the pattern of settlements in EPU and thwarted all efforts towards comprehensive trade liberalization between OEEC member states until the late 1950s. It can not be argued that American pressure on France brought financial stability. It could better be argued that that was not, after all, what the United States primarily wanted from France.

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As for the other objective of conditionality, multilateral payments settlements between aid recipients, that was achieved by reserving so large a share of the Marshall Aid allocation for fiscal year 1951 for this purpose that it did set the potential recipients, especially the UK and France, scrabbling to invent something that would qualify them for the dollars. Without the dollar contribution to its working capital EPU could not have functioned. However, of the 600 million dollars of the Marshall Aid appropriation set aside to further trade and payments liberalization, only 350 million dollars went into the working capital of EPU. The limits which bargaining with powerful partners placed on American leverage through conditionality were marked by the 150 million dollar slice of that appropriation which had to be set aside to guarantee any British gold losses incurred in allowing sterling to be used in EPU multilateral settlements under the same rules as the other currencies. Without sterling’s inclusion EPU would have fallen well short of America’s aims. Nor is it the case that conditionality, although it did lead to multilateral settlements, led to the liberalization of European commercial policies in other respects. Import quotas and, as a second defence, protectionist tariffs lasted well beyond the end of the Marshall Aid program, restricting trade between the larger west European economies. The extent of trade liberalization under Marshall Plan auspices has been greatly exaggerated by most authors, searching for explanations of western Europe’s high growth rates. The import quotas which had spread their barriers across intra-European trade in the 1930s probably reached their maximum restrictive effect in 1948–49. From 1950 the OEEC Trade Liberalization Program was intended to widen and eventually eliminate quotas. Tariffs were the province of GATT. On a wide range of imports between 1945 and 1955 tariffs were suspended, however, because quotas kept out goods irrespective of any global price differences related to differences in total factor productivity. Widening or removing an import quota within the OEEC Trade Liberalization Program thus usually had the effect of reactivating an inactive tariff. GATT’s effectiveness faded quickly after 1950. In western Europe it was mainly the smaller countries, for which tariff bargaining was an unpropitious activity, which wanted tariff reductions on intra-European trade, while the larger countries, committed in OEEC to weakening the force of quota restrictions, had no intention of lowering their tariffs at the same time. Between the reductions made in GATT in 1950 and the implementation of the 1957 Treaty of Rome from the start of 1958, British, French and Italian tariffs remained mostly unchanged. The United States was also protectionist. The OEEC Trade Liberalization Program was in fact a British initiative deliberately put

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forward in order to block any common European program of tariff reduction, lest it lead in the direction of a customs union and a federation and thus a reduction in United Kingdom tariffs and in the extent of discriminatory preferences on trade with the Commonwealth. British tariffs and preferences were held in reserve for an eventual major tariff bargain with the United States. It did not come in the 1950s. The OEEC program did widen and remove many import quotas in the first year of its operation. But in November 1951 the UK reimposed almost all its earlier quotas on imports from OEEC member-states and added some previously non-existent ones. In February 1952 France followed Britain’s example. It was only in 1955 that import quotas on intrawest-European trade were energetically removed, although much less so on French imports and not at all on agricultural trade if there was no other protective device which made them unnecessary. Quotas on imports from the United States did not begin to be dismantled until 1961. It was evidently not the Marshall Plan’s contribution to trade liberalization which accounted for the remarkably rapid expansion of intrawest-European trade in the 1950s. Reichlin in an otherwise carefully considered contribution writes, . . . while the degree of trade liberalization achieved over the period when the EPU was greasing the wheels of intra-European trade and finance varied across countries, overall results were impressive: after three months, 60 percent of intra-European trade was liberalised; this figure reached 84 percent in April 1955 and 89 percent in June 1959.19 These percentages are merely OEEC index numbers for purposes of cross-country comparison. They give no information about the total percentage of intra-west European trade value which had been freed from the restriction of physical controls by 1955. In April 1955 it would not have looked very different as a percentage figure from that of, for example, 1936.20 The liberalization of intra-western European trade was mostly a phenomenon of the 1960s and its origins are to be found in a western European prosperity so long-sustained that trade liberalization ceased to threaten it and became seen as a necessity for its continuation. There is, however, a longer view within a wider perspective which can be taken of the impact of the Marshall Plan on intra-European trade. Eichengreen’s work and my own eventually converge by different routes on a very strong shared conclusion; that it is ultimately through its part in the construction of a more durable and efficient international order after 1948 than after 1921 that the Marshall Plan made its contribution, not just to recovery but also to growth. Within the EPU it did not need

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trade liberalization to create trade expansion. Primarily it needed a payments framework within which West German exports could grow. EPU provided that: a major contribution to the international economic order compared to the framework not provided by ‘reparations’ after World War I. Outside the bilateral, lender–borrower, relationship which it established between Germany and France, EPU also sustained the imports of investment goods from Germany on which depended the dynamic industrialization of other western European economies; Austria, Denmark, Italy, the Netherlands, Norway, Portugal. The link between investment, imports and growth over the period 1945–60 does seem discernible, the correlation between investment ratios and imports of capital goods and steel even more so.21 If it was industrialization which was a major force for GNP growth in western Europe over the whole period from 1945 to 1968, there is a plausible case for saying that it would not have been possible in the initial period of recovery without EPU. By 1955 West Germany had become the main supplier to, the biggest market for, and also the most rapidly-growing market for, almost every OEEC member-state. By that date two-thirds of the value of world capital goods exports was made up of American and German exports, a return to the interwar pattern. Increases in capital goods imports into western European economies correlated closely with increases in investment. Without a settlements mechanism which obliged the country running a trade surplus with every other member of EPU to finance its own exports with what were only IOUs on the settlements mechanism, only to be effectively repaid within two years or longer, prevailing levels of investment and purchases of capital goods could not have been sustained across western Europe. This was not because the dollars with which to buy these imports would not have been available in sufficient quantity; it is easy to show that American and British capital goods output and exports could not have expanded rapidly enough to come anywhere near satisfying this level of demand. What seemed bad business to the German Ministry of Economics seemed good business to the very large number of medium-sized German machine and machine-tool producers. They got their money straight away in their own currency, leaving their government to beat vainly, and mistakenly, on diplomatic tables demanding a larger share of repayment from importers in gold/dollars. Had they succeeded, German exports would have grown more slowly. It was not conditionality, although that had its uses, which created an international order in which the interactions which seem to have made more of Marshall Aid than its simple quantitative contribution to par-

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ticular macroeconomic entities became effective. Rather, it was the broad area of common agreement between donor and recipients about the objectives of domestic and international reconstruction. In detail, they did not have enough in common to reach agreement, other than the obvious fact that a very hard, but not impossible, political choice faced recipients if they rejected aid. There was some general idea, of a ‘social contract’, but it was no more specific than a common sentiment that domestic policies in the interwar period had led to an instability too great to be accommodated in a viable international order. When it came to turning sentiment into policy there were as many different forms of ‘social contract’ as members of OEEC. But at the higher level of international strategy the band of disagreement was much narrower. What the Marshall Plan created, and it was its intention, was an entity called ‘The West’, with a set of common practices and, where necessary, rules. Its purposes were military security, social security based on economic success, and social and political cohesion. In all those areas it necessarily had to offer both a better present and a better future than the communist system. On that, participants in the plan did not disagree. From the plan’s announcement, there was a shaping force to the international order and its institutions, something vividly absent after 1918. This perception presents two strong temptations. One is to claim that the intense argument about Marshall Aid is narrow and misguided, because American aid was an ongoing system whose broad strategic objectives did not change. The difficulty of quantifying Marshall Aid, because it was both co-existent with and replaced by Mutual Security Aid after 1950, has been noted. Why separate it, if all aid ultimately had a similar purpose? Detailed analyses of US Mutual Security Aid programs are lacking, but no program subsequent to Marshall Aid had the same large political ambitions nor the same degree of political representation in so many European countries. Military aid, however similar some of its objectives, was provided for a much more narrowly defined material and political output. In all probability research will end in denying that American aid to Europe after 1948 was a continuous system. This temptation therefore should be spurned. The second temptation is to assume that the creation of ‘The West’ was in itself a cause of economic growth in western Europe, because it made easier, or inevitable as some writers imply, the transference of a set of American values into European societies of which the result was an increase in total factor productivity. Closing the gap in output per head between Europe and the United States, it is frequently assumed, was a matter of adopting American practices. During the Marshall Plan considerable sums of aid were spent in encouraging the transfer of technology,

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managerial practice, and cultural attitudes eastwards across the Atlantic. Killick’s recent study is a strong reassertion of this assumption. Citing the opinion of the Director of ECA, Paul Hoffman, that more important than what Europeans learned about technology in the United States was what they learned about America as the land of good wages, he adds: The entertainment media and the educational propaganda to a considerable extent acted together, collectively projecting the same text. The consequent increased demand for consumer goods and improved life-styles then operated together with the new technology, and improved organization to revolutionize European production and living standards.22 While it can be accepted that the level of overall productivity in any society is determined by the sum of its complex social, economic, and even political ideas and practices, because they all in some proportion contribute to shaping patterns of investment, work and decision making, that does not mean that it is improved by osmosis. Europeans neither caught higher total factor productivity through contact with infectious Americans nor through being shown American films. Many describable, even tangible changes have to happen when growth is so rapid. These seem rarely to be specified, described, or analyzed in the existing literature. Visits by ‘productivity teams’ of European businessmen under Marshall Plan auspices to see higher total factor productivity in action on the factory floor in the United States have proved difficult to link to any actual change in western European production methods. Claims that some American model of capitalism was grafted onto Europe read vaguely. Words like ‘Americanization’, ‘modernization’, ‘consumerism’, ‘convergence’, pour across the page in discourses which post-modernists will have no difficulty in tricking out in showier ambiguities. Much more specific comparative work is needed to demonstrate the precise point at which any of these ‘-ations’ and ‘-isms’ improved European growth rates. ‘Americanization’ is not a helpful concept when used to describe universal trends, such as an increase in cars as by Berghahn, to describe changes in company management and in managerial education in Germany that strongly resembled earlier changes in the United States.23 But even then, rather than coinciding with Berghahn’s analysis of the auto industry, there is no link to prove that these were translated into higher productivity, ownership and the introduction of flow production on the assembly line in car factories. The final inability of quantitative analyses precisely to demonstrate through what mechanisms the interactions of Marshall Aid may have led to higher European growth rates is evident, but even a dip into the shallow end of the present pool of liter-

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ature on ‘Americanization’ will send the intelligent enquirer scurrying back with relief to their dry numeracy. Yet, if the overall, ongoing impact of the Marshall Plan on western Europe’s economic growth is to be assessed, that assessment has to decide between two propositions. One is that American aid did build a bridge between postwar recovery and sustained growth. The other is that Europe’s growth was autonomous in the sense that its springs were almost wholly European and that without the Marshall Plan it would merely have been retarded a little in Austria, France and the Netherlands. Which is nearer to the truth? Discussion of the Marshall Plan has gone through a not untypical cycle of historical judgment. It began with a propagandistic emphasis in which the United States was presented as having rescued a hungry and collapsing western Europe from a disastrous crisis, a consensus from which the only dissenters were so extreme as to have no good case to argue. It passed through a stage in which a more exact quantitative enquiry reduced its economic impact to that of a useful, but not necessarily indispensable, contribution to an uninterrupted and powerful European recovery which led on into Europe’s greatest boom. While the quantitative conclusions have not been effectively challenged in their dimensions, it has been repeatedly suggested that they do not, and can not tell the whole story. They do however point to where the story needs to be completed. For that completion we are still waiting. In the interim some conclusions have become clear. One is that international donors and lenders do well to give and lend to the rich and the skilled. That, no doubt, is the way to get speedy ‘interactions’ from relatively small sums of aid and thus get quickly to a result which very few doubt was a notable success. A second is that the convergence of so many rich and powerful societies in a broadly agreed international strategy presents historians with an exceptionally complicated task of explanation, because the strands of influence between these societies were multiple. Explanations are not likely to get any better as long as they suppose that as far as productivity and growth were concerned the only flow of influence that mattered was from America. That is surely to regress to the simplification of the 1950s, that all that was essentially necessary was to copy from the country at the top of the per capita income league table. A third is that the diplomatic conformation, the Cold War, was crucial in leading to a broadly common set of strategic objectives whose existence overcame the weakness of conditionality. The final one is that although the anticipated forcefulness and thus the terms of conditionality might well both have been much stronger in any second Marshall Plan for the eastern bloc countries after 1992, this would not have improved its chances of success.

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Notes 1. For contemporary exaggerations, H.S. Ellis, The Economics of Freedom: The Progress and Future of Aid to Europe (New York: Harper, 1950). 2. B. Eichengreen and M. Uzan, ‘The Marshall Plan: Economic Effects and Implications for Eastern Europe and the Former USSR’, Economic Policy, 14 (April 1992). 3. C.S. Maier, ‘The Politics of Productivity: Foundations of American International Economic Policy After World War II’, International Organization, 21 (1977). 4. M.J. Hogan, The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947–1952 (Cambridge: Cambridge University Press, 1987); Hogan, ‘American Marshall Planners and the Search for a European Neocapitalism’, American Historical Review, 90 (1985). 5. D. Ellwood, Rebuilding Europe; Western Europe, America and Postwar Reconstruction (Harlow: Longman, 1992). 6. J.B. DeLong and B. Eichengreen, ‘The Marshall Plan: History’s Most Successful Structural Adjustment Program’, in R. Dornbusch, W. Nölling and R. Layard (eds), Postwar Economic Reconstruction and Lessons for the East Today (Cambridge, MA: MIT Press, 1993). 7. A. Carew, Labor under the Marshall Plan: The Politics of Productivity and the Marketing of Management Science (Manchester: Manchester University Press, 1987); F. Romero, The United States and the European Trade Union Movement, 1944–1951 (Chapel Hill, NC: University of North Carolina Press, 1992). 8. B. Eichengreen, ‘The European Payments Union: An Efficient Mechanism for Rebuilding Europe’s Trade?’ in B. Eichengreen (ed.), Europe’s Post-War Recovery (Cambridge: Cambridge University Press, 1995), pp.169–95. 9. Eichengreen, 1995, p. 187. 10. K. Borchardt and C. Buchheim, ‘Die Wirkung der Marshall Plan – Hilfe in Schlüsselbranchen der deutschen Wirtschaft’, Vierteljahrshefte für Zeitgeschichte, vol. 35, iii (1987); Borchardt and Buchheim, ‘The Marshall Plan and Key Economic Sectors: A Microeconomic Perspective’, in C. S. Maier and G. Bischof (eds), The Marshall Plan and Germany (Oxford: Oxford University Press, 1991). 11. A.S. Milward, The Reconstruction of Western Europe 1945–1951 (London: Methuen, 1984), pp.105–9. 12. DeLong and Eichengreen, ‘The Marshall Plan’. 13. W. Abelshauser, Wirtschaft in Westdeutschland 1945–1948 Rekonstruktion und Wachstumsbedingungen in der amerikanischen und britischen Zone (Stuttgart: Deutsche Verlags-Anstalt, 1975). 14. G. Bossuat, La France, l’aide américaine et la construction européenne, 1944–1954, 2 vols (Paris: Imprimerie Nationale, 1992) traces Franco-American negotiations in detail. Bossuat, L’Europe Occidentale à l’heure américaine. Plan Marshall et unité européenne, 1945–1952 (Brussels: Editions Complexe, 1992) comments more generally on them. 15. J.L. Harper, America and the Reconstruction of Italy, 1945–1948 (Cambridge: Cambridge University Press, 1986). 16. F.M.B. Lynch, France and the International Economy. From Vichy to the Treaty of Rome (London: Routledge, 1997) shows the relationship of all forms of US aid to French international economic choices. There is no comparably comprehensive study on the influence of aid on Italy’s economic policies, but see C. Esposito, America’s Feeble Weapon. Funding the Marshall Plan in France and Italy, 1948–1950 (Westport, MA: Greenwood Press, 1994) which, while mainly confined to the issue of the use of Marshall Aid counterpart funds, does nevertheless provide a useful comparison. 17. C. Esposito (1994), pp.29–82. 18. Overall budget result from INSEE, Le Mouvement économique en France 1949–1979 (Paris: Imprimerie Nationale, 1981). Official budget result from INSEE Annuaire Statistique, vol. 58 (1951) (Paris: Imprimerie Nationale, 1952). Balance of current account from INSEE Le Mouvement économique en France de 1944 à 1957 (Paris: Imprimerie Nationale, 1958). 18. L. Reichlin, ‘The Marshall Plan Reconsidered’, in B. Eichengreen (ed.), Europe’s Post-War Recovery (Cambridge: Cambridge University Press, 1995), p.53.

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20. For an explanation of the index numbers and an account of the Trade Liberalization Program, A.S. Milward and G. Brennan, Britain’s Place in the World, 1945–1960. A Historical Enquiry into Import Controls (London: Routledge, 1994). 21. Eichengreen and Uzan (1992) calculate an increase in investment of 0.7% of GNP with one year’s lag for each allotment of Marshall Aid equivalent to 2% of GNP. To re-emphasize, allotments were not receipts. Over the Marshall Plan as a whole imports of capital goods financed by Marshall Aid correlate with increases in investment ratios (Milward, 1984). 22. J. Killick, The United States and European Reconstruction 1945–1960 (Edinburgh: Keele University Press, 1997), pp.167–8. 23. V.R. Berghahn, The Americanisation of West German Industry, 1945–1973 (Leamington Spa: Berg, 1986).

3 The Economic Effects of the Marshall Plan Revisited DAFNE C. REYMEN

This chapter aims to contribute to the literature analyzing the economic effects of the Marshall Plan, or European Recovery Program. The study of the plan’s institutional framework is taken as a starting point to identify those effects. The study of that framework casts doubt on a few commonly held beliefs about the European Recovery Program. In particular, due to the financial and organizational structure of the program, the aid actually received by each of the participating countries differed substantially from the aid allotted. It is nevertheless the latter that traditionally has been used in assessing the effect of the plan. Moreover, knowledge about how the plan operated institutionally allows us to formulate hypotheses on how it operated economically. The large discrepancy between allotments and aid actually received implies the need for reassessing the impact of the plan. The second part of the chapter thus examines the plan’s impact, using the ‘net inflow of funds’ as the empirical measure of aid for each country. It tries to estimate the plan’s contribution to growth, which is measured by the outcome of simulation experiments based on an econometric analysis similar to that of Eichengreen and Uzan (1992). Contrary to their findings, we cannot conclude that the Marshall aid was a substantial direct stimulus to growth. More specifically, the chapter confirms their results for two countries, but shows that a similar conclusion cannot be drawn for most countries. Europe-wide effects, however, may still have been significant. Introduction In view of the economic recovery of eastern Europe today, the Marshall Plan is subject to renewed interest. This aid program is often invoked as an important factor in the spectacular reconstruction of western Europe after World War II. Although the Marshall Plan, or European Recovery Program, is said to be one of the most successful programs of foreign policy, its economic

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effects for each of the recipients have been subject to debate. Over the past 50 years, the literature has put forward differing points of view on the contribution of the Marshall Plan to the economic growth of postwar western Europe. This chapter will shed new light on this discussion, stemming from understanding the institutional framework of the program. In particular, the last generation of authors engaged in this debate claim that the Marshall Plan did provide an important direct stimulus to growth, but not by operating through the traditional channels of increased investment on government spending. It solved a crisis of confidence in the market mechanism. Eichengreen and Uzan (1992) conducted an econometric analysis to sustain this claim and to isolate the impact of the plan in terms of additional growth for the recipient countries. The first step in assessing the economic impact of such an aid program is to determine the scope of the aid in quantitative terms. Although some authors have recognized that apportioning the total of Marshall aid received by each country is a difficult task, no attempt has yet been made to identify the exact net amount of aid received by each country. Indeed, to assess the magnitude of the plan, one needs to scrutinize its institutional framework, as will become clear from the discussion below, by studying the financial and organizational structure of the plan. This analysis casts doubt on allotments (dollars transferred from the United States to Europe per country and per fiscal year), used in all previous works, as the measure of aid received by each country. This chapter also explains why the aid actually received differs from the aid allotted and proposes a new measure of aid received compatible with the institutional framework of the plan. Consequently, that new measure of aid received will here be called the net inflow of funds. Second, knowledge about how the plan operated institutionally allows us to formulate some hypotheses about how it could have operated economically. More precisely, this chapter shows, starting from the institutional framework, that a) the Marshall Plan cannot have solved the food crisis of Europe in 1947, contrary to what some previous scholars have advocated, and b) that the Marshall Plan operated by relieving fiscal constraints. Third, given the more appropriate measure of aid received for each country put forward by the financial and organizational structure, an econometric analysis, similar to that of Eichengreen and Uzan (1992), is also conducted below (see pp.100–5) to re-examine the plan’s contribution to growth. The results of the econometric analysis diminish the direct association advocated herein between the Marshall Plan and postwar growth.

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The chapter argues that the finding of considerable additional growth thanks to the plan solving a crisis of confidence – a claim confirmed for France and the UK – cannot be generalized to the rest of Europe. A striking counterexample is Belgium. Moreover, it will be shown that in the two above-mentioned countries, there was another (institutional) reason that accounts for the effectiveness of the Marshall aid. Last but not least, I point to the fact that three generations of scholars who have studied the impact of the Marshall Plan have failed to recognize that it was in reality embedded in a complex system of postwar aid programs. The European Recovery Program did not operate as an isolated plan of assistance. This fact will be explored in separate research. The second section points to the current interest for the Marshall Plan in the political arena. The third section discusses some aspects of the literature studying the plan that are relevant for this paper. The fourth and fifth sections introduce the reader to the institutional framework of the plan and provide the building blocks of the paper. The sixth section explains the lessons we can draw from that framework and section seven conducts the econometric analysis, the results of which are then discussed in the next section. The ninth section provides suggestions for future research, and the last section concludes. Renewed interest in the Marshall Plan On 5 June 1997, it was 50 years ago that George C. Marshall, then Secretary of State for the United States, delivered a speech at the commencement exercises at Harvard University. That discourse would be at the origin of a plan that injected approximately 10 billion dollars into postwar Europe from 1948 to 1951. Although the audience present at the speech did not capture all of its full historical significance, immediately afterwards the State Department started working vigorously on the proposal.1 Marshall’s name has been attached ever since to the aid program that came into being as the European Recovery Program (ERP) by law in April 1948, through Title I of the Foreign Assistance Act. The 50th anniversary of the plan has brought it back into the spotlight with all kinds of commemorative celebratory events. Frequently the plan is invoked in relationship to the current eastern European economies in transition. Sometimes the Marshall Plan has been cited as an example-to-follow for aid provision for those newly emerging democracies, and sometimes the relationship is invoked in a more subtle way. At the Netherlands Celebration of the 50th anniversary in May 1996 (during the EU–US summit) Wim Kok, EU president,2 pleaded expli-

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citly for a new Marshall Plan for central and eastern European countries, mainly to restore and complete their infrastructure. On 16 July 1997, Jacques Santer, president of the European Commission, proposed the ‘Agenda 2000’.3 Invitations to start negotiating about their adherence to the European Union were addressed to a few eastern European economies.4 At the same time the European Union designed a pre-joining strategy, in part also to comfort the so-called ‘failed’ candidate members. The assistance within the framework of this strategy and the integration of the first new members in 2003 would amount to approximately 80 billion dollars for the period 2000–2006. Jacques Santer, president of the European Commission, called it ‘a real Marshall Plan’.5 Since the Marshall Plan is hailed as one of the most well-known constructs of foreign policy, and at the same time one of the greatest successes of foreign policy, it is probably not surprising that it is invoked by many politicians in the light of the challenges faced by the central and eastern European countries. Those countries are at present building (or even rebuilding) their infrastructure, market institutions and economies. Although a parallel can be drawn, the initial conditions are very different in these two cases, and thus the possible positive economic outcome of a generous aid program is not at all ensured. Moreover, over the past five decades, scholars have been debating whether the plan provided for a real economic stimulus at all. They have not reached a consensus about the role of the plan in the reconstruction and subsequent remarkable growth of western Europe, nor the channels through which it had its main effects. Literature Overview Given the incredible growth performances of the western European countries in the two decades after the war, the existence of causality between the Marshall aid and these growth performances has been examined extensively in the economic literature. In particular, its economic effects have been debated vigorously. The literature has put forward differing points of view on the importance of the plan for the economic growth of postwar western Europe. For a long time the Marshall Plan was explained as a response to an economic crisis so severe as to carry the inherent danger of collapse of the western European economies. The following paragraph explains the main elements of that crisis as it had been depicted for several decades. First of all, the devastation in western Europe after World War II was considerable. The infrastructure was seriously damaged. The resulting

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transportation difficulties rendered provision of goods difficult and thus hindered restarting industrial production. Coal production – coal still being a primary energy source at that time – had collapsed. Factories were damaged, destroyed or dismantled. Second, inflationary pressure was omnipresent in western Europe in those days. A general lack of investment and consumption goods, combined with strong demand conditions due to the important catch-up demand immediately after the war, put pressure on the general price level. Last but not least, there was a huge dollar shortage. The dollar-gap was due to increased imports of capital and consumption goods from the United States to Europe and the severely weakened exports from Europe to the United States. Moreover, and very importantly, the countries with dollar surpluses (on balance of trade) could not allocate them to other countries because they would get weak non-convertible currencies instead. This fact endangered the continuation of intra-European trade. On top of all these problems, the harvest failure of 1947, due to the biting cold, implied that grain had to be imported from the United States. This meant that, not to increase the dollar-gap further, the imports of capital goods had to be restricted despite their importance to restructuring. For several decades this was the story behind Europe’s distress, and several authors believed that the Marshall Plan effectively addressed these different elements in the crisis and provided the funds necessary to overcome the crisis and to put Europe onto its subsequent spectacular growth path. Schuker mentioned, in reaction to an article by Maier which will be discussed further, that ‘American economic aid provided the crucial margin that eliminated bottlenecks in transport and raw materials supply, coaxed hoarded goods and gold on to the market, and paved the way for the all important conquest of inflation.’6 Many others found the plan and the OEEC7 to be the decisive factors in the economic rebuilding of Europe.8 In the 1980s, however, doubts about this view were arising. Maier9 asserted that direct American aid only played a modest role in the recovery and that a ‘modulated judgment on the role of American capital’ was more appropriate. The discussion had begun about whether the previous line of thought was true and what it was that Europe had been saved from. This second generation of scholars, led by Alan Milward, was debating whether the program really was the crucial factor in the recovery. He argued that the alleged crisis of the summer of 1947 did not really exist, and thus that it could not have been the finishing stroke in an already unsustainable deficit, and the one which triggered the United States to initiate the program. In his book10 Milward undertook a series of counterfactual calculations which do not support the conclusion that

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Europe would have suffered from an economic collapse had the US government not come forward with the dollars. These assertions led to a debate between Hogan and Milward. Hogan does not agree with Milward that there is no case for attaching particular weight to the Marshall Plan. Kindleberger and Hogan are convinced about the existence of an (impending) crisis in 1947 linked to the poor harvest in that same year. The harvest failure of 1947, extending the need for increased food imports, would have induced governments to curtail on essential dollar imports from capital goods (to surmount the growing deficit in dollar trade). The Marshall Plan dollars did save Europe from this impending (production) crisis by avoiding the collapse of the critical dollar imports. Milward refutes this view, or in particular, the existence of the impending crisis. He argues that a time in which almost every western European country had investment as a share of GNP higher than in any year since 1917 can hardly be called a time of crisis. Moreover he says that the statistical evidence clearly shows that the increase in European dollar imports over the preceding years, in both 1947 and 1948, were not due to an increase in food imports, but rather to an increase in capital good imports. Consequently according to Milward, It follows that Marshall aid did not revive the economy of an area vital to America’s security; rather, it sustained a powerful investment boom already under way for two years by providing the dollars for a continued high level of capital-goods and industrial raw material imports from the dollar zone.11 More recently, a third generation of scholars, led by Barry Eichengreen, has revived the idea that the program was crucial for the recovery of Europe. This generation refutes and at the same time combines the views of the two previous ones by arguing that the Marshall Plan contributed enormously to Europe’s recovery from World War II, but not through the obvious channels of stimulating investment, augmenting imports and financing infra-structure repairs. Eichengreen and Uzan wrote: ‘Post-war Europe’s crisis was not a crisis of insufficient investment, inadequate capacity to import raw materials, or inability to repair devastated infrastructure. Rather, Europe was suffering from a “marketing” crisis.’12 In other words, for them the plan indeed had its merit as a remedy against an impending crisis, but a crisis of another nature than the one defined by Hogan. The plan’s crucial role was in restoring the market mechanism, which was in danger of breakdown: The city industries were not producing adequate goods to exchange with the farmer. The farmer was, due to lack of

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confidence in currencies, hoarding his goods rather than offering them for sale for money. These authors stress that the plan’s main role was to facilitate the restoration of financial stability and to liberalize production and prices, rather than to facilitate growth through the traditional channels such as stimulation of investment or increased government spending. This chapter will shed new light on this discussion by scrutinizing the institutional framework of the program more closely. All previous works have started by depicting the situation in Europe – its crisis (if any) or the nature of it, its position in the road to recovery etc. – to then deduce whether or in what part of Europe’s development the Marshall Plan (that is, the dollar allotments to Europe) stepped in. Unlike previous works, this chapter starts with the study of the financial and organizational structure of the plan itself to discern how it could have operated. This approach does not carry the inherent danger of attributing a role to the plan which it conceptually could not have fulfilled given the way it was conceived. The European Recovery Program: Organizational Characteristics This section explains the broad institutional framework created to execute and assure the smooth running of the program. First it argues, contrary to what is commonly believed, that the Marshall Plan operated for five years. This can be seen as a first immediate lesson to be drawn from the study of the institutional framework. Next, the Intra-European Payments Plans will be discussed. The ‘conditional aid’ mechanism, an essential part of the financial characteristics of the plan, is defined within the context of that institution. The Marshall Plan, a four-year plan? The US Economic Cooperation Act of 1948 laid down the terms, conditions and supporting institutions under which the European Recovery Program would function. According to this Act (Sec. 104 of Title I), the institution responsible for the execution of the program would be the Economic Cooperation Administration (ECA). The Act specified that aid would only be allocated if the participating countries pursued their economic recovery jointly, according to the specifications laid down in the report of the Committee on European Economic Cooperation (CEEC).13 For pursuing their recovery jointly, the participating countries were required to establish a permanent organization. The Organization of European Economic Cooperation (OEEC) was the institution they created. The task entrusted to the OEEC consisted of

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coordination of the effort to rebuild Europe from the economic disaster following World War II, or in other words, the coordination of the Marshall Plan.14 Sec. 122(a) of Title I of the Economic Cooperation Act determined the termination of the program to be 30 June 1952 (or earlier by passage of another resolution) with the provision that during the 12 months following this final date outstanding obligations might be fulfilled. However, effective 30 December 1951, the powers, function and responsibilities of the Economic Cooperation Administration were assumed by the Mutual Security Agency (MSA) in accordance with Section 502 of the Mutual Security Act and of Section 7(c) of Executive Order No. 10300. From then onwards, the above mentioned agency was deemed the successor of the ECA in all respects. So, if one wants to associate the Marshall Plan with the ECA, from an institutional point of view, the natural end date of the Marshall Plan would be 31 December 1951. The MSA was established with the aim that all programs of military, economic and technical assistance15 – assistance pursuant to the provisions of the Mutual Defense Assistance Act of 1949 as amended, assistance pursuant to the provisions of the Economic Cooperation Act of 1948 as amended, assistance for purposes, and under the provisions, of the United Nations Palestine Refugee Aid Act of 1950, assistance under the provisions of the Act for International Development – could be administered as a unified program. The ECA was thus no longer in existence after 31 December 1951. However, by December 1951, the fiscal year 1952 – running from 1 July 1951 to 30 June 1952 – had already started. Aid administered up to December 1951 thus already included aid awarded for the following fiscal year (which was administered under the MSA). Indeed, the fiscal 1952 programs were incorporated in the Mutual Security Act of 1951. The MSA was responsible for administering aid for fiscal years 1952 and 1953. All allotments, authorizations made from 1 July 1951 to 30 June 1953, are said to be allotments for ‘defense support’ and the period mentioned is the ‘defense support period’. The types of goods shipped to Europe during this period though, did not fundamentally differ from those shipped during the first three years of the European Recovery Program. In other words, the allotments for fiscal year 1952 were partly administered by the ECA and partly by the MSA. Moreover, some funds that are included in the allotments up to 30 June 1951 remained in existence after that date and were administered by the MSA. Indeed, to the extent that aid allocated to the European countries under the Mutual Defense Assistance Act of 1949 represents

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economic assistance, it was for each country included in the Marshall Plan allotments. The Mutual Defense Assistance Program’s economic assistance funds were transferred to the ECA, beginning with the fiscal year 1 July 1950 to 30 June 1951, and were included in all data on allotments, procurement authorizations and paid shipments. These same funds were also included in the data on aid administered by the MSA. From these arguments it should be clear that one cannot define 30 June 1952, as the end of the Marshall Plan. The institutional change from ECA to MSA blurred the distinction between the European Recovery Program and other aid programs. For the plan’s economic significance, 30 June 1952, is an arbitrary cut-off point. Given that the institutional change occurred during fiscal year 1952, and that funds for economic assistance administered first under ECA later continued to be administered under the MSA, we believe that from an economic point of view 30 June 1953, is a more meaningful point for defining the end of the Marshall Plan. Intra-European Payments Plans We will discuss some features of the Intra-European Payments Plans and its successor, the European Payments Union. It is within the framework of these institutions that ‘conditional aid’ is defined and the mechanism and results of its working become clear. Most trade relations governing trade in Europe after the war were bilateral, due to the non-transferability or non-convertibility of currencies. Because of the non-convertibility of the European currencies, all intra-European payments had to be honored in gold or convertible currencies (dollars in particular). Since there was a severe shortage of gold and dollars, countries tended to balance their payments with each of their trade partners individually in order to minimize settlements in gold or dollars. These bilateral trade relations were perceived as one of the main obstacles to growth in Europe. Two reasons were put forward to sustain this claim. First, to achieve growth, a minimum of competition is necessary. The fact that countries tended to balance their payments with each of their trade partners individually, prohibited them from choosing the best products at the best prices. Country A would curtail importation of goods from country B, even if and exactly because country A had payment surpluses with other countries. Consequently the resource allocation could not be optimal. Second, Europe was in desperate need of dollars to buy essential goods for recovery in the western hemisphere. The settling of intra-European surpluses and deficits with dollars only added to that dollar scarcity and induced countries to restrict European

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trade. Consequently, for the intra-European trade, already strongly reduced before the war, not to collapse, American aid had to intervene for the financing of intra-European deficits. To attain this goal, the agreements for Intra-European Payments and Compensations came into being, one for fiscal year 1949 and a second one for fiscal year 1950. The agreements aimed at overcoming the bilateral trade and payment practices. The second agreement went further and tried to remedy some of the shortcomings of the first agreement in easing the payments problems hampering development of trade within Europe. The operation of both payments plans depended directly on ECA-aid and thus carried the inherent danger that intra-European trade would convert to bilateralism in the post-ERP period. That was the reason why a new payments plan, calculated to maintain multilateral commerce after 1952, was conceived. That plan, signed in September 1950, is better known as the European Payments Union. For the first payments plan, the pattern of deficits and surpluses was estimated in advance. Creditor countries received ECA dollars under the condition that they would extend equivalent amounts in their local currency to their debtors. This portion of aid received by the creditor country and earmarked to be transferred to its debtor, was called ‘conditional aid’. The transfer, required for receiving the aid, amounted to the creditor country reallocating the aid to its debtor country.16 The transfer from creditor to debtor was called a contribution and the aid that the debtor received was called a drawing right. These drawing rights could be used by the debtor country only to cover its deficit with that particular creditor. The conditional aid allotment put a maximum on the dollar amount the creditor country could receive, and it would only be received if drawing rights were extended. This payment mechanism did not fundamentally alter the existing trade mechanisms and thus substantial gold payments were still required to settle the balances. The participating countries, together with Portugal and Switzerland, had a gross amount of surpluses and deficits of 1.8 billion dollars. After the operation of the payments plan, 1 billion dollars still had to be settled.17 These deficits were settled with payments in gold, dollars, mutually accepted third currencies or temporarily financed by the use of credit margins. Moreover, discrepancies between the estimates and the actual flow of trade were inevitable and entailed a certain inflexibility. Some drawing rights were used up to their maximum permissible amounts in the first few months of the plan and some remained unutilized. The following payments plan tried to improve upon the first one by revising drawing rights (conditional aid) at least twice a year. But, more

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importantly, some transferability of drawing rights was devised. As in the previous agreement, drawing rights were used by debtors to cover deficits with specific nations. Of these drawing rights however, 25 percent would be now transferable, that is, could be freely used by the debtor against any participating country. The conditional aid would of course be allotted to the nation on which drawing rights were used. To anticipate the arguments developed later in the paper, this rule entailed that the conditional aid portions in the allotments did not represent actual aid received for the country to which the conditional aid was allotted. That country was recipient but not beneficiary of that aid portion. This second payments plan also contained special provisions to take into account Belgium’s unique position in intra-European trade as a creditor country. Namely, its payments surplus resulting from intraEuropean trade was estimated to be larger than its dollar deficit. Consequently, part of Belgium’s surplus was to be financed by multilateral drawing rights and long-term credits extended by Belgium to France ($21.5 million), Netherlands ($38 million) and the UK ($28 million).18 It is also worth noting that Portugal became a full participant in this payments plan and received direct dollar aid for the first time in fiscal year 1950. Switzerland, on the other hand, remained the only member of the OEEC not receiving ECA aid. Since both of these plans fell far short of the complete transferability of drawing rights, following these two agreements, the European Payments Union (EPU) came into existence. The agreement was signed on 19 September 1950, and became effective retroactively from July 1st. The principal features of the agreement were as follows: •

•

•

The EPU was designed to promote intra-European trade through a clearing system which permitted each member to offset its deficit with any other member against a surplus with a third. Countries could thus freely incur deficits and surpluses in their trade with each other. Each government needed to be concerned only about its balance of payments with western Europe as a whole, and not with its balance against any single member country. To discourage excessive surpluses and deficits, the union required surplus countries to settle part of their surpluses with credits, and debtors to settle part of their deficits with gold or dollars. Each member country was assigned a quotum (15 percent of its total intraEuropean payments and receipts on current account in 1949) which determined the maximum cumulative deficits or surpluses which could be financed under the EPU. The ECA provided the initial working capital of 350 million dollars for

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the new institution. It also agreed to finance, if necessary, the deficits of certain countries should they encounter serious difficulties (a fund for special assistance amounting to 100 million dollars). Moreover, several countries – Austria, Greece, Iceland, the Netherlands, Norway and Turkey – were given initial credit balances totaling 314 million dollars. Prospective creditors – Belgium–Luxembourg Economic Union, Sweden and the United Kingdom – were also allotted initial debit balances comparable to conditional aid under the IntraEuropean Payments and Compensations agreement. These initial credit and debit balances were utilized before settlements were applied against a respective country quota. We will not discuss further all the mechanisms behind the working of the European Payments Union, since they have been examined elsewhere.19 We only consider here those which are relevant in order to realize the true scope of the Marshall Plan aid. Table 3.1 shows the initial debit or credit balances defined at the start of the EPU, together with the type of aid financing them (which will be explained in the next section). The initial debit balance for Belgium was later reduced from 44 to 29.4. By June 1951, no initial balances were left unused. The European Recovery Program: financial characteristics First, the mechanisms and financing of the aid allocation will be discussed. Next Marshall Plan allotments are defined and the notion of counterpart funds explained, a fundamental aspect of the financial structure of the program. Modes of aid allocation The aid was not allocated all at once for several years, but rather the US Congress appropriated a certain amount per fiscal year. The ECA had to divide the amounts of aid appropriated by the Congress among the participating countries (allotments) and determine the proportion of grants, loans and conditional aid for each of the countries (more about these different forms of aid in the following paragraphs). Another main task of the ECA was to determine the supply-programs per country per type of good and/or service. In particular, the ECA announced before the start of each quarter a country’s dollar allotment for that quarter. The country then provided the Administration with a proposal of its needs in goods and services. The ECA had to examine and approve the proposed supply-programs, and finally the goods and services had to be

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shipped and delivered. This defines in a nutshell the functioning of the aid allocations. Procurement Authorizations Given a well-defined supply-program, the Administration issued (against the allotment) procurement authorizations defining the origins of goods to be delivered to the country during that quarter.20 In other words, such an ‘authorization’ was a permission given by ECA to a foreign government or its agent to purchase a commodity with ECA funds. Apart from deliveries made by procurement agencies of the US government that were paid directly by the ECA, the two main ways of financing procurement were: 1) through letters of commitment to the US bank of the supplier, or directly to the suppliers to cover specific authorizations, or 2) by reimbursement to the participating countries. It should be clear that this system amounted to the United States granting these goods to Europe; the money spent was grant aid provided to Europe. Sometimes the procurement authorized would be financed through loans approved by the Administrator. These loans were also issued against the allotment and would be administered by the Export–Import Bank. Intra-European purchases The participating countries could also buy supplies from each other; they could inter-aid each other. Such inter-aid (inter-trade) was even strongly encouraged since, as already mentioned, expansion of trade within Europe was seen as the motor of Europe’s recovery and growth. These intra-European purchases were financed through the conditional aid mechanism explained in the section on Intra-European Payment Plans. A debtor country could use its drawing rights on its creditor’s conditional aid portion to finance its supplies. The creditor country was the recipient of the conditional aid, but the debtor country the actual beneficiary. The latter received the goods for free as it would through procurement authorizations, with the difference that the goods came from a European country rather than from the United States. Technical Assistance There was a third form under which aid was allocated, namely, productivity and technical assistance. Experts would be sent to Europe with the goal of improving industrial productivity. They would provide advice about marketing research, financial practices, economic reporting, manpower utilization, et cetera. Delegations from European countries would

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also come to the United States to learn about the latest management techniques and production technologies. The ECA would usually finance the travel of the persons involved in the delegations. ECA funds for such missions were not allotted to certain countries in advance; they were available for use wherever the need would occur. Also some strategic materials (rubber, diamonds, bauxite), as well as investment guarantees, were supplied to the European countries with ECA funds without advance allocation to a particular country. Allotments Aid was thus allocated mainly under three different forms, either as a grant, or as a loan, or as conditional aid. The dollar amounts of aid per country and per fiscal year consisting of the grants, loans and conditional aid were called Marshall Plan allotments. In Table 3.2 we can see the total of the allotments to the participating countries and their division into these different types of aid. If a country received aid under the form of a grant, it basically received a gift. No repayments had to be made nor were there any conditions attached to receiving that aid. The only requirement attached to the grants was that the country had to put an equivalent amount in domestic currency into special accounts called counterpart funds. A country could also get a loan, to be understood in the ordinary sense of the word. The loans were procured by the intermediary of the Export–Import Bank. The interest rate attached to these loans was relatively cheap at the time, and repayment did not have to start until after the termination of the program. Luxembourg, for example, received a loan of three million dollars to be repaid from 30 June 1956 to 31 December 1983, with an interest rate of 2.5 percent.21 Conditional aid was a particular form of aid aimed at solving the problem of financing the intra-European payment deficits, with the peculiar characteristic that the recipient of that aid is not the beneficiary. Counterpart Funds Each country participating in the European Recovery Program agreed to deposit, for all assistance received in the form of grants, amounts in local currency commensurate with the dollar cost of the grant aid received into a special account. This special account was called a counterpart fund. What source of funds did the countries draw upon to fulfill this requirement? Most of the goods shipped to Europe were not distributed as gifts to its population. The end-consumers had to buy the goods in the

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market at the regular (local) market price. These goods were sold through private commercial channels, either directly or by the recipient governments. The proceeds from the sales were put into the counterpart funds. This deposit requirement applied to all assistance received under the form of grants. This means: (1) the grant part of the allotments, (2) aid attributed as grants but not included in the allotments, and (3) the drawing rights exercised on a trade partner. Notice that within the conditional aid mechanism, the local currency deposit requirement applied to the country using drawing rights (on another country’s conditional aid allotment). The country receiving the conditional aid (on which drawing rights were exercised) only acted as an intermediary and consequently, there was no deposit requirement for its conditional aid portion. Aid provided under the form of a loan did not require local currency deposit either. Part of the local currency deposited, namely 5 percent, was reserved for use by the United States. In particular, the funds were first used for the administrative expenses of the ECA and then for production or purchase of strategic materials. Funds not needed by the ECA were transferred to other United States government agencies. The remaining 95 percent was available for use by the country itself. The money could be used for different purposes in accordance with the Economic Cooperation Act: (1) to ensure stabilization of the fiscal and monetary situation of the country, (2) to extend its production capacity, and (3) in general for any aim that supported the recovery of the country. Agreement of the ECA for the use of the funds was required and, in particular, the agency had to approve withdrawal of the funds. Lessons from the institutional framework The first section explains why the aid actually received differed from the aid allotted, and provides the arguments for why the counterpart fund deposits are a more appropriate measure for the net inflow of Marshall funds in each country. The following sections point to other lessons we can draw from the study of the institutional framework. Counterpart fund deposits as a measure of aid received Aid requiring deposits There are at least two elements that render allotments a poor indicator of actual aid received. The first element that biases the allotments as a measure of actual aid received is the conditional aid portion. The second element is that some of the aid granted was not included in the allotments.

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From the discussion above on the institutional characteristics of the plan, it should be clear that the conditional aid scheme makes the data on Marshall Plan allotments an inappropriate measure of total aid received per country. Substantial parts of the conditional aid had to be made available to the country’s debtor. As such, that money received is then only payment (in dollars however) for goods and services delivered and not actual aid received. In Table 3.2 we can see that the conditional aid portion is a non-negligible portion of the allotments. By 30 June 1951, the conditional aid amounted to approximately 13.4 percent of the total allotments. That portion obviously varies from country to country. In particular it varies in a range from 0 percent (for example, Greece) to 82 percent for Belgium. For some countries the allotments thus seriously misrepresent the actual aid received. From the discussion above we also recall that some parts of the grant aid given were not included in the allotments: industrial guarantees, productivity and technical assistance, and commitment for strategic materials. Although this portion of aid is quite small, namely 2 percent of the total allotments as of 30 June 1953, they are a further indication that the allotments are not a good indicator of actual aid received. To measure the total value of all goods and services received through the Marshall Plan, one needs to consider all the grant aid, loans, and drawing rights utilized. Except for the loans, this value is exactly represented by ‘aid requiring deposits’.22 The required deposits into counterpart funds thus provide an alternative measure of aid received that does not suffer from the shortcomings mentioned in the two previous paragraphs. Table 3.3 compares the data on aid requiring counterpart deposits23 with data on allotments,24 cumulative for fiscal years 1949, 1950 and 1951. One can notice for the different countries a large variation in the ratio of required deposits to total allotment, ranging from 0 percent to 142.75 percent. Keeping in mind that the loan components of the allotments did not require counterpart fund deposits, one should add the loan component to the required deposits for a total meaningful comparison. The results in Table 3.4 show that there can be a large discrepancy between the total value of all goods and services received by a country (equal to aid requiring deposits plus loans) and the allotments. We observe a ratio of required deposits and loans to total allotment ranging from approximately 12 percent to 158 percent. Actual counterpart fund deposits The procurement authorization procedure induced considerable delays between the moment the aid was awarded to a country and the moment

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the goods were in fact delivered. To determine the value of goods and services received by a country at any particular moment in time, this timing issue needs to be taken into consideration. There was a considerable timelag between the allocation of the allotments and the actual reception of aid. At any moment in time, there could be a considerable discrepancy between the aid allotted to a country and the actual expenditures against procurement authorizations. For example, on 30 June 1949, the allotments to participating countries amounted to 5.9 billion dollars, the procurement authorized against these allotments totaled approximately 5.4 billion dollars, but the total value of goods shipped was only 3.9 billion dollars. So the data series Marshall Plan allotments, on top of the shortcomings already mentioned, is not a good measure of aid received at that particular point in time due to the delay between the awarding of the aid and the actual shipping of the goods. We know however, that the actual deposits into the counterpart accounts would not occur until the aid was really received. The ECA would not request the deposits until the goods were shipped. The recipient governments sold the goods received on the market, to then put the proceeds from the sales in the counterpart funds. So actual deposits into the counterpart accounts are an even better measure of aid received. Table 3.5 shows the ratio of dollar equivalents of deposits together with loans to allotments for civil years 1948, 1949 and 1950. Comparing column three and column six, we can clearly notice the timing issue under consideration: the delay between aid received and aid allotted is apparent at the start of the program, and during the second year there is a considerable catch up. Figure 3.1 shows this even more clearly. It displays for each participating country the allotments and the value of all goods and services received. The graphs are ranked according to an increasing ratio (total aid received)/(total allotments) over the five years during which the Marshall Plan operated. This ratio varies from 20 percent to 150 percent, depending on the country under consideration. In Figure 3.1a it varies from 20 percent to 100 percent, thus representing the countries that received less aid than traditionally assumed and in Figure 3.1b this ratio varies from 100 percent to 150 percent. For completeness or consistency, we also have to consider disbursement of loans rather than simply their allocation in determining the net inflow of funds for a country. Indeed, for loans too there was a timediscrepancy between the awarding and the actual disbursing. Considering all these elements together, one comes to the conclusion that the measure of actual aid received for a country during a particular year, to be used when analyzing the economic impact of the plan, should be

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the actual deposits in counterpart funds plus disbursed loans. The latter truly represent the net inflow of funds for a country at any particular moment in time. Data about the disbursement of loans can be found in the semi-annual report of the Export–Import Bank of Washington. It is the net inflow of funds, being actual counterpart fund deposits plus disbursed loans, which will be used in the econometric analysis in section seven as the variable for Marshall Plan aid. Counterpart fund deposits have been used for analysis by other authors, but not as the measure of aid actually received. Counterpart fund deposits have been studied for the extent to which they contributed to domestic investment, or to examine whether they indeed gave the United States more leverage or decision power for the spending of the funds. Did the Marshall Plan ‘save’ Europe? One element in the debate focuses on whether Europe suffered from a crisis or not, what the nature of it was, and consequently, whether the Marshall Plan aid saved Europe from that crisis and in what way. As explained in the literature overview section, Eichengreen positions himself in the first generation of authors by attributing a crucial role to the Marshall Plan as the effective answer to the (impending) crisis in Europe. On the other hand, he disagrees with the first generation and supports Milward’s claim in that there was no such thing as a production crisis, and that Europe’s recovery in terms of infrastructure repair, et cetera, was already well under way. For the third generation of authors, the Marshall Plan was an effective remedy against a crisis of a totally different nature. This chapter, for the first time, dissociates the potential role of the Marshall Plan from whether or not a crisis existed. Let’s accept that there was a crisis and examine whether the plan healed it. The study of the financial structure of the plan clearly shows that even if there was a crisis due to the huge dollar shortage and amplified by the harvest failure, it could not have been the Marshall dollars that filled that insurmountable dollar gap in 1948. As shown by the net inflow of funds for each country in Figure 3.1, the dollars did not start flowing properly into Europe until 1949, or at earliest, late 1948. Moreover, as Mee (1984)25 argues, the disastrous agricultural harvest of 1947 was followed by a superb harvest in 1948. In addition, for the other major food importer, West Germany, a big part of its needs were already fulfilled under the GARIOA relief programs. This is an essential element to which we will return later. Thus, in other words, simply from the knowledge of the functioning of the aid transfer mechanism, we can deduce that aid transfer cannot have been the savior of a so sharp and pressing crisis.

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However, several authors believe the crisis to be more one of lack of confidence by the main agents or players in the economy. Charles J. Mee formulates it as follows: ‘The plan contributed, more than dollars or credits or goods, the crucial element of confidence – for governments to reach across borders, for entrepreneurs to take new risks, for banks to extend credit for workers to set aside immediate gains.’26 Or as DeLong and Eichengreen27 put it ‘Rather, the Marshall Plan sped Western European growth by altering the environment in which economic policy was made.’ Whether the plan indeed solved such a crisis of confidence is an issue to which we will return later. Another lesson Most of the aid awarded to Europe under the European Recovery Program went to the continent under the form of goods. In other words, the physical transfer of the aid was mostly achieved by shipping commodities. In particular, about 50 percent of those goods were food and agricultural commodities.28 As mentioned above, these goods were not distributed to the population as would be the case with a humanitarian relief program. From the point of view of the population, these goods were not gifts for each individual. It was the governments of the various countries which received them, and they sold them through regular commercial channels to the population. The end-consumers had to buy the goods in the market at the regular (local) market price. Conceptually, the Marshall Plan thus relied on sufficient purchasing power of the population! From the government’s point of view, this system thus generated extra money for them, which, admittedly, they had to lock into the counterpart funds. Every Marshall dollar worked twice, once for the citizens and once for the government. Although the ECA had to approve of the use of the counterpart funds, this system did generate considerable revenue for the governments. To the recipient government, counterpart funds are as valuable as any other revenue. As with taxes, they entail a transfer of funds from the population to the governments. So logically, from studying the operation of the plan, one would expect the effects of the plan to be greatest in the countries facing severe fiscal constraints. This hypothesis will also be examined in the econometric analysis. Econometric Analysis The econometric analysis conducted is similar to that by Eichengreen and Uzan (1992). For analyzing the macro-economics of foreign aid, the

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proposed regressions are based on a three gap model (cf. Bacha, 1990). Identified next is the effect of Marshall aid operating through the traditional channels of stimulating investment, augmenting imports or increased public spending, followed by estimates of any direct effects that the plan might have had operating independently of those channels. Impact of the aid through investment, current account, and government spending channels The following two paragraphs explain Eichengreen and Uzan’s method which will also be applied in this paper. Table 3.4 shows the different regression equations that are used. Multivariate regressions (respectively equations 1, 2 and 3 of the table) estimate the effect of Marshall Plan aid on, respectively, investment, current account, and government spending. A regression linking each of these channels to growth (together with other determinants of growth, see equation 4 of Table 3.6) estimates the growth effect of the Marshall Plan operating through that channel. The regression does not indicate that the plan operated through any of these channels. In order to isolate the combined effects of the Marshall Plan on GNP-growth operating through those three channels, Eichengreen and Uzan conduct a simulation experiment. They simulate a system of four equations consisting of the growth equation explaining the growth rate of GNP, and the three equations determining investment, current account and government spending shares. Marshall aid is not included directly in the growth equation since the aim is to estimate the combined effects of the Marshall Plan through the three above-mentioned channels. The equations are simulated using first the observed values, and next the Marshall Plan variables are set to zero to compute counterfactual values for GNP growth. The difference between the predicted and counterfactual simulations is the effect of the Marshall Plan, in so far as the plan affects GNP growth through the channels investment, current account, and government spending. With this analysis, the above-mentioned authors find only very small effects generated by the Marshall Plan operating in this way. As shown in Table 3.7, very small effects of additional growth appear, ranging from 0.01 percent (Sweden, 1950) to 0.15 percent (Austria, 1949). The following paragraphs explain how and why their results are altered when using net funds inflow rather than allotments to represent the Marshall Plan funds received by each country. The variables used for estimation in this paper and the sources of the data are specified in the appendix to econometric analysis. We first of all estimate the regressions explaining the influence of aid

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on, respectively, investment, current account and government spending (Table 3.8). In each of these equations, it is the current net funds inflow, rather than the lagged allotment, that is included as variable for Marshall aid. Indeed, our measure of aid already takes the delay in disbursement into account, as explained above. A variable for terms of trade was not included as it was shown to be insignificant in all instances by the abovementioned authors’ analysis. The variable per capita GNP relative to the United States stands for the degree of recovery that the involved countries already achieved. We can deduce from each of the three equations that the significant coefficients on these variables indicate that the further along the countries were on the road to recovery, the larger their investment share, current account surplus, and government spending. Population growth and inflation did not seem to have a significant influence on these shares. The coefficients on disbursed Marshall Plan funds are as expected and in line with the results of Eichengreen and Uzan. Aid equal to two percent of GNP raises the investment share by over one percent. The negative coefficient of aid in the second column is not to be interpreted as evidence that Marshall Plan inflows permitted the maintenance of larger current-account deficits.29 The causality runs in the other direction since allotments were positively related to current account deficits. Conceptually, allotments were allocated according to the need for financing (dollar) deficits in the balance of payments; that was the main criterion for the initial division of aid by the ECA.30 The negative coefficient of aid in the third column is not significant, and suggests that Marshall Plan aid did not influence the level of government spending. Table 3.9 presents the regressions trying to link the aid to real GNP. In the first column a growth equation expressing the growth rate of GNP as a function of several variables (GNP relative to the United States, openness, export growth, and Marshall Plan aid) is estimated. The coefficient of per capita GNP relative to the United States is no longer significant, but real export growth is an important determinant of growth. Only the coefficient of current aid is significant (at the 90 percent confidence level) and positive. The fact that more open countries were hampered in their growth (a negative coefficient on openness) seems more surprising. As Eichengreen and Uzan noted, the more open countries probably suffered more from the bilateral trading mechanism and the existing barriers to trade after the war. In addition to that, the more open economies are likely to be the ones receiving most of their Marshall Plan allotment as conditional aid, meaning virtually no net disbursement of funds to those countries. For

      

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Belgium this situation is believed to be one of the factors for its relatively slow growth during the 1950s.31 The second column of Table 3.9 adds the investment, current account and government expenditure (expressed as shares of GNP) to the growth equation. We also find that the coefficients on these variables are not significant, but adding them does not alter any of the conclusions of the above paragraph. In addition the negative coefficient on lagged aid becomes significant. The third column represents the regression used in the first simulations. The system used for simulation consists of the three estimated equations in Table 3.8, together with the third column of Table 3.9. That system is simulated using the historical values of the exogenous variables, once with the real values for net inflow of funds and once with these values set to zero. The difference between the first simulated value for GNP-growth and the counterfactual simulation then gives us the additional growth generated by the Marshall Plan when the plan is operating through the investment, current account and government-spending channel. Our simulation under this scenario, but conducted with net inflow of funds as variable for Marshall Plan aid rather than allotments, yields comparably small results (see Table 3.7a). For Sweden in 1950, we record additional growth of 0.03 percent, and in 1949 for Austria 0.65 percent. In our results the range of additional growth stretches from 0.02 percent (Turkey, 1949) to 0.97 percent (Greece, 1949). In the two years following its implementation, when the Marshall Plan should have had its largest effects, on average it raised GNP in the recipient countries by less than 0.33 percent. Our results thus similarly support the conclusions that the Marshall Plan did not operate through these three channels. Direct effects of the Marshall Plan To explore the possibility that other channels – rather than investment, current account or government spending – are operative, a second scenario is considered. The growth equation is re-estimated by including the Marshall Plan aid directly and by interacting investment, current account and government spending with the Marshall Plan aid (see column 4 in Table 3.9). That interaction allows for the possibility that the effects of aid were more noticeable in countries with low investment ratios, weak current-account positions and restricted government spending. A similar set of simulations, as in the section above, is conducted but with the growth equation being column 4 of Table 3.9. The simulation with this modified growth equation leads to additional growth rates

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thanks to the Marshall Plan, which are a magnitude greater than before. Eichengreen and Uzan’s results are reported in Table 3.7b and vary from about ⫺2.25 percent for Norway in 1950 to 7.5 percent for Austria in 1949, with additional growth of 4.75 percent for the Netherlands in 1949. They conclude from this simulation to very large effects of the Marshall Plan – with, in 1948, a rate of return on US aid in the order of 100 percent for Austria, France, Germany, Denmark and the Netherlands – not operating through the channels of investment, current account, or government spending. Convincing arguments are proposed for France, and to a lesser extent for Italy and the UK to explain this enormous impact. The Marshall Plan solved a so-called marketing crisis in Europe by encouraging financial stability, which solved the problem of shortages due to repressed inflation, and by reducing policy uncertainty. That policy uncertainty is thought to be linked to uncertainty about the nature of the regime, which withheld the different agents in the market from making any economic decisions since outcomes could not be predicted. Investors were reluctant to buy securities, not knowing whether they would be taxed away. Creditors were reluctant to loan money for any length of time, not knowing whether its value would be inflated away. Workers were reluctant to commit to training or apprenticeship programs or to accept positions in which compensation was deferred, not knowing whether the structure of pay would be changed and job security would be threatened.32 It is in estimating these direct effects of the Marshall Plan that our results start to differ considerably. Our simulations under this scenario – conducted as always with the net inflow of funds as variable for Marshall Plan aid rather than allotments – do not lead to the same conclusions. The simulation generates additional growth rates that vary from ⫺1.01 percent (Netherlands, 1950) to 5.78 percent (Greece, 1949) (see Table 3.7b). It is not surprising to find Greece under both scenarios at the high end of the scale since it received 1.5 times as many funds under the Marshall Plan as what has been traditionally assumed or as could be measured with the allotments. The negative additional growth for Norway in Eichengreen and Uzan’s results converted to positive, which was also to be expected since that country is on Greece’s side and on the boundary of the spectrum. For the Netherlands we find additional growth of 2.41 percent in 1949 and ⫺1.01 percent in 1950, results which are in contrast to the ones in the preceding paragraph and which do not allow us to conclude enormous direct effects. For all recipients for which comparison is possible – except for France and the UK – the growth effects are smaller (varying from slightly smaller up to smaller by a factor of 3).

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One could argue that this leads us to believe that the analyses and arguments of the above mentioned authors still goes true for France and the United Kingdom, which were two of the main examples they used as an illustration, but that these arguments become less plausible for the other countries involved. Moreover, we notice in Table 3.7b that the ‘enormous impact’ to which these authors allude, seems to be valid only for 1949. In addition, they generalize their claim despite studying only ten countries out of the fifteen which were recipients. Although this program was conceived for Europe, the identification of the economic effects unavoidably goes through a country-by-country analysis and it is not always suitable to generalize. One obvious reason is that the Marshall Plan conceptually fitted the particular position of every European country in its intra-European trade relationship. This is one of the merits of the plan. The Belgian case gives at least some support for the point of view that generalization is not always suitable (see below). Interpretation of the results Did the Marshall Plan operate by alleviating fiscal constraints? As explained above, the way the aid transfer was organized suggests that the plan would have been most effective in countries with severe fiscal constraints. The counterpart funds without doubt generated additional revenue for the governments of the recipient countries. The regression in column 4 of Table 3.9 might shed some light on that hypothesis. The coefficients on the interaction terms are not significant, but the coefficient on the last interaction term (government spending * Marshall aid) is positive. Thus the higher government spending – and thus the more likely that the government was already up against its expenditure ceiling – the more each percent of aid (as a share of GNP) stimulated growth. Paradoxically, Eichengreen and Uzan reach the same conclusions from a negatively signed coefficient. In particular, all their coefficients of the interaction terms (although also not all are significant) are negative. We can agree with the fact that negative coefficients on the first two interaction terms would lead to the conclusion that the direct effect of the aid was most powerful in countries with low investment and large current account deficits. However, to conclude that the Marshall Plan had the largest impact on growth in countries for which the fiscal gap was binding requires that the coefficient on the government spending interaction term be positive. The fiscal gap starts binding when a government spends too much compared to the available revenue.

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Did the Marshall Plan solve a confidence impasse? Although such a factor may not be readily quantified, the results of the simulations for France and the United Kingdom show additional growth rates (due to direct effects of the plan) that are even larger than those of Eichengreen and Uzan. This result can only confirm their findings that the Marshall Plan solved a crisis of confidence for these two countries in particular. However, for France and the United Kingdom, there is another factor that played in their favor. Namely, the whole Marshall Plan system, in which every dollar should contribute twice, worked most effectively for France and the United Kingdom. Every dollar-value of goods, after being shipped and sold to the population, generated a dollar in the counterpart funds. The ECA approved withdrawal of these funds before use. Similar to the delay between reception and allocation of aid, there was a delay between deposits into and withdrawals of the counterpart funds. As of 30 June 1951, for example, deposits in counterpart funds amounted to 8.849 billion dollars, but only about 78 percent of those funds were already approved for withdrawal, namely 6.952 billion dollars.33 Most of the funds approved for withdrawal were withdrawn shortly afterwards though. Now by 30 June 1951, the United Kingdom and France not only detained together more than half of the approved withdrawal funds, but each had already withdrawn their respective share of 2.278 billion dollars for France and 1.647 billion dollars for the United Kingdom. Both of these countries spent almost all the counterpart funds focusing on one single aim, as opposed to other countries that spread out their funds over different uses. In particular, France used almost all of its funds for promotion of production and mostly in the so-called heavy industries (coalmining, primary metals, power facilities), whereas in the United Kingdom, the counterpart funds were used integrally for debt retirement. For comparison, by 30 June 1951, Austria had 686 million dollars worth of deposits as opposed to 414 million dollars of withdrawals, and the Netherlands detained 785 million dollars in deposits but only 271 million dollars were withdrawn. As opposed to other countries where the counterpart funds were only gradually released over time, France and the United Kingdom were very quick to utilize their funds. In a very concentrated period of time, from 1949 to the end of June 1951, they were able to fully exploit the two-for-one Marshall dollar system stemming from the financial and organizational structure of the plan. So again, the results obtained are compatible, and fully in accordance, with what we have learned about how the plan operated institutionally. The other countries for which comparisons with Eichengreen and Uzan’s work are possible are Austria, Belgium, Denmark, Italy, the

      

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Netherlands, Norway and Sweden. For Norway, in contrast to their results, the results in this paper indicate positive additional growth thanks to the Marshall Plan. This was to be expected since Norway is on the boundary of the set countries with a net inflow of funds of 1.5 times the allotted aid. Otherwise all those funds would have been given in vain, indicating a total dissociation of Marshall aid and growth in Norway. For Sweden, the additional growth in our results is concentrated in 1950 as 0.34 percent of extra growth, rather than spread out over 1949 and 1950 in two quarter percentages. This is also a direct consequence of using the net inflow of funds rather than allotments in the analysis. The loan allotted to Sweden in two slots of about 10 million dollars in 1948 and 1949 (see Table 3.5 and Figure 3.1) was in fact disbursed at once in 1950 for the total amount of 20.4 million dollars. For Sweden this result should thus not have been otherwise than the reported findings of no additional growth due to the plan in 1949 (since the plan did not provide funds in 1949), and small additional growth in 1950. For Austria the additional growth is more spread out over the two years, despite the peak in net funds inflow in 1949. For the four remaining comparable countries (Belgium, Denmark, Italy and the Netherlands), there are, interestingly enough, two of them – Belgium and Italy – with a smaller net inflow of funds than allotments, and two that received more aid than traditionally assumed. For all four of them the contribution of the Marshall Plan to growth is more moderate than that advocated by Eichengreen and Uzan. Figures 3.2a and 3.2b compares the average Marshall Plan contribution during 1949 and 1950 in the average growth over those years, as claimed by Eichengreen and Uzan and by this chapter, respectively. We will certainly not claim that this diminished association between the Marshall Plan and growth invalidates Eichengreen and Uzan’s arguments that important direct effects can be attributed to the plan solving a confidence crisis, but it does guard us against the generalization of arguments that are plausible for some countries but not necessarily for others. Neither for Belgium, nor Denmark, nor the Netherlands, does their paper contain any information to sustain their claim. For Belgium in particular, the conclusion that the Marshall Plan had an important direct effect in solving a crisis of confidence can be refuted. First of all, the marketing crisis was said to find its cause, among others, in the high inflation pressure. Although it is true that high inflation, or the threat thereof, was a problem throughout Europe, Belgium was an exception in this regard. Inflation was tackled in Belgium by a very drastic operation: the Gutt-operation34 (law of 6 October 1944-Staatsblad 7 October 1944).

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Second, the argument that many countries suffered from relatively unstable or even weak governments, seems for Belgium not to be totally justified either. From the middle of 1949 a stable-center-right oriented regime took power. From then until mid-1958, Belgium was ruled by only five different successive governments. This is in strong contrast to France for instance, where during that same period 15 different governments tried to lead their country on the road to recovery, not to mention the 36-day-long political vacuum which occurred even as late as the third quarter of 1957. Furthermore, the magnitudes presented in this paper are more plausible given Belgium’s role in the recovery program. For Belgium, this additional growth rate due to direct effects of the aid is only about half a percent in 1949 rather than one and a half, and in 1950 it is negative (⫺0.29 percent) rather than 0.75 percent. These magnitudes are more plausible for at least two reasons. First, those countries receiving large shares of conditional aid and thus considered to be relatively strong trading partners in the European market at that time, in general benefited considerably less in terms of net aid actually disbursed to them. As noted lately by several authors (see for example Cassiers, 1995), in the case of Belgium this amounted to subsidizing its trading partners and it thus encouraged development of its traditional exports. It led to a situation in which the Marshall Plan boosted growth in the short term, but did not provide adequate funds for modernization of the industrial apparatus. In fact, this situation and its potential consequences were already identified by the participants of the Belgian administration of the ECA in the first half of 1950.35 Second, if one considers the totality of the institutional framework surrounding the plan, Belgium was a contributor, rather than a recipient, of aid. Belgium received aid – net inflow of funds – totaling 70.7 million dollars, approximately all of it as loans. In addition, as discussed earlier, Belgium extended, under the second payments plan, credits to France, the Netherlands and the United Kingdom for a total of 87.5 million dollars. Considering these facts, Belgium was actually a net contributor of aid during the Marshall Plan period. This might have harmed its economic growth, but on the other hand, the extra impulse due to the Marshall Plan obtained in the result for 1949 could then be attributed to a cumulative effect, through the recovery of its trading partners, from which Belgium probably benefited. According to the analysis in this paper, the conclusion that the Marshall Plan exercised considerable direct effects generating additional growth because the plan solved a crisis of confidence, is very likely not valid for all countries. For those countries where a comparison was pos-

      

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sible, the program seems to have had a much smaller impact on the participating economies as has been recently advocated, and we are more inclined to share the view of the second generation of authors claiming that it certainly helped Europe but did not ‘save’ it from anything like an unsurmountable crisis. It is not our conjecture that the Marshall Plan was unimportant. As noticed by Milward (1989), the fact that the Marshall Plan keeps raising fundamental questions is a proof of its importance and value as a subject of study. Moreover, even the results found in this paper should not minimize the program’s significance. Using the same example of Belgium again, we find that the Marshall Plan did generate additional growth of about 0.5 percent in 1949 according to the simulation. Such a result should not be dismissed as negligible. An increase of 0.5 percent in the growth rate cannot be judged in isolation, but has to be interpreted in relation to the growth rate itself, which was about 2 percent in 1949. So, the proportion ((0.5 percent) / (2 percent)) is much more meaningful as a measure of the stimulus capacity of the Marshall Plan. Isn’t a proportion of about 25 percent a stimulus worth ‘trumpeting’ about? Suggestions for future research The underlying cause(s) of, or conditions for, Europe’s postwar supergrowth have not been fully understood yet. Many theories trying to explain this remarkable growth have been advanced. Structural explanations have pointed to the sharp increase in agricultural productivity achieved by tractors and fertilizers, or have attributed growth to an increase in the supply of labor released for industry from agriculture and from migration. Monetarist accounts praise the rigorous stabilization programs in Germany and Italy. Institutional accounts stress the wage restraint of the Dutch, German and Italian workers and thanks their commitment to reconstruction, as an important factor. The existence of the Marshall Plan was probably also an element in the spectacular growth of Europe, with several scholars debating the extent of its role. The three generations of scholars who have worked on this issue all fail to recognize, no matter what their conclusions about the economic impact of the Marshall Plan were, that that plan of assistance was part of a much bigger effort of development aid. Several other aid programs, in the form of grants as well as loans, were running approximately concurrently with the European Recovery Program (the official term for the Marshall Plan) and seem to have been put in its shadow. United Nations Relief and Rehabilitation Administration (UNRRA), Government Aid and Relief in Occupied Areas (GARIOA), Mutual

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Defense Assistance Program and Import–Export Bank assistance, are but a few of these. In addition, enormous military assistance was provided under the Mutual Security Program. All these programs together were considerably more important in scope, at least in monetary terms, than the European Recovery Program. Despite the existence of all these programs collectively, the Marshall Plan tends to be the only one invoked when contemplating the role of western aid in economic reform and stabilization programs for eastern Europe. Obviously many of these programs are not as widely known as the Marshall Plan. Was it appropriate to overlook them in the analysis of the economic impact of the Marshall Plan? With respect to this last point, the question arises as to how one can differentiate between the impact of the Marshall Plan aid and the impact of those other very ambitious aid programs, in particular, the military assistance. Over the entire Marshall Plan period, from 3 April 1948 to 30 June 1953, Europe was awarded a total of 14 billion dollars for economic and technical assistance, defense support and mutual defense financing. The military assistance allotted during that same period amounted to 11 billion dollars! As part of the Marshall Plan, 1.2 billion dollars in loans were attributed to the participating countries. The Export–Import Bank, however, disbursed an additional 1.8 billion dollars in loans to these countries from 1945 to 1951. The UNRRA shipped commodities for an equivalent of 1 billion dollars. Through the GARIOA program, Germany alone received assistance in the amount of 1.5 billion dollars. If we consider this broader framework of aid provision, which still only gives us a partial picture, we find that during the seven years after the war 29.3 billion dollars in assistance was provided to western Europe. On top of that, there were also about 50 voluntary foreign relief agencies providing assistance directly. Moreover, countries also contracted individually with the United States for reconstruction funds. For example, the United Kingdom received a loan of 4.6 billion dollars from the United States. This loan is of a different order of magnitude than the total loan of 385 million dollars that the United Kingdom received over the whole period of administration of the European Recovery Program. The Marshall Plan has generally been studied in isolation rather than as part of this complex aid system. The United States was led, for a mixture of humanitarian, commercial and military motives, to underwrite the European reconstruction. Each of the programs, not just the Marshall Plan itself, somehow fulfilled its role within this set of functions, for example the sequence UNRRA, Marshall Plan, Mutual Security Program. Recognizing that the European Recovery Program might have (fully) fulfilled its function in this sequence should be part of

      

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the study of its role in European reconstruction. Although this is material for future research, we believe that this system of aid provision by the United States to western Europe after the war could turn out to be the example of a successful aid development policy. What would this mean for eastern Europe today? Suppose we translate that figure of 29.3 billion dollars into today’s dollars. From 1945 to 1980 prices have more than quadrupled. The 29.3 billion dollars of that period would translate into 131.9 billion in 1980 dollars. Even from this modest calculation, we can infer that the proposed assistance budget of 80 billion dollars (ECU 75 billion) remains far under this figure. The endeavor of guiding the dawning eastern European market economies into economies fully and independently capable of participating in a competitive world market is difficult. If the western Europeans really want to guide their eastern European neighbors successfully in this endeavor, aid will be crucial today as well. A comparison with the Marshall Plan could be appropriate under the condition that the generosity of the European Union towards its immediate eastern neighbors is of similar magnitude. If western Europe wants to aim for a similarly successful foreign policy operation, it must start by doubling the European Union’s proposed contribution. Conclusions This paper differs from previous works on the Marshall Plan in that it uses the institutional framework of the plan as a starting point in the analysis. This chapter has shown that deeper knowledge about the institutional characteristics of the plan is essential – essential not only to quantify the distribution of aid among the participating countries, but also to learn about the plan’s possible effects, ensuring that the identified effects are possible or compatible with the way the program was designed. The financial structure of the plan casts doubt on the allotments as measure of aid received. Figure 3.1 shows the discrepancy between the allotments traditionally used in the study of the economic effects of the plan and the actual measure of aid received. The study of the organizational characteristics of the plan has also shown that, contrary to widely held belief, the Marshall Plan was in fact a five year program in operation from 3 April 1948 to 30 June 1953. Knowledge about the magnitude of the net inflow of funds to the participating countries confirms that the Marshall Plan could not have saved Europe from a crisis so severe as to lead to its collapse, in contrast to the views advanced by some of the scholars who studied the economic effects of the plan.

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Knowing how the plan operated institutionally allows us to formulate the hypothesis that its main channel of operation was by relaxing the fiscal constraints of the recipient governments. The econometric analysis does not provide conclusive evidence with respect to this issue. The results of the econometric analysis also diminish the direct association (advocated by the last generation of scholars) between the postwar burst of growth and the Marshall Plan. In particular, it is shown that the claim that the Marshall Plan solved a crisis of confidence, although plausible for some countries, cannot be generalized for all countries. We do not want to leave the reader with the impression that the European Recovery Program was unimportant to the recovery of western Europe after the war. The plan was embedded in a complex system of several aid programs of similar magnitude that surely had enormous impact. This larger structure has been insufficiently appreciated in the literature and consequently we have addressed this in separate research.

       Allotments

Allotments

Aid received

300

Belgium

250

113

Aid received

50

Sweden

40

200

30

150

20

100

10 0

50

1948

-10

0 1948

1949

1950

1951

1952

1953

1400

1949

1950

1951

1952

1953

-20

700

UK

1200

Italy

600

1000

500

800

400

600

300

400

200

200

100 0

0 1948

1949

1950

1951

1952

1953

1948

1949

1950

1951

1952

1953

12

600

Germany

500

Iceland

10

400

8

300

6

200

4

100

2 0

0 1948

1949

1950

1951

1952

1948

1953

1949

1950

1951

1952

1200

100

Ireland

80

1953

France

1000 800

60

600

40

400

20

200

0

0

1948

1949

1950

Figure 3.1a

1951

1952

1953

1948

1949

1950

1951

1952

Allotments and aid received per country ($ million)

1953

   

114 Allotments

Aid received

Allotments

120

Aid received

120

Denmark

100

80

60

60

40

40

20

20

0

Turkey

100

80

0 1948

1949

1950

1951

1952

1953

450

1948

1949

1950

1951

1952

1953

45

400 350

Netherlands

40 35

300 250

30 25

200 150

20

Portugal

15 10

100 50

5 0

0 1948

1949

1950

1951

1952

20

1953

Trieste

15

-5

1948

1949

1950

1951

1952

300

1953

Austria

250 200

10

150 100

5

50

0 1948

1949

1950

1951

1952

1953

0 1948

-5

300

Greece

250

1949

1950

1951

1952

160

1953

Norway

140 120

200

100

150

80 60

100

40

50

20

0

0 1948

1949

1950

1951

1952

1953

Figure 3.1b

1948

1949

1950

1951

1952

1953

      

Other

MP share

115

66.47%

74.40%

65.81%

59.25%

33.53%

25.60%

34.19%

40.75%

Belgium

Denmark

Italy

Netherlands

Figure 3.2a Contribution by Marshall Plan in GNP growth allowing all channels to operate as estimated by Eichengreen and Uzan (Average over 1949 and 1950)

Other

MP share

95.85%

79.52%

75.84%

87.50%

4.15%

20.48%

24.16%

12.50%

Belgium

Denmark

Italy

Netherlands

Figure 3.2b Contribution by Marshall Plan in GNP growth allowing all channels to operate as estimated by Reymen (Average over 1949 and 1950)

280 261.4 126.2 1313.4 613.5 191.7 8.3 86.3 668 507 101.1 0 45.4 17.9 49 1619.7 5888.9

Total allotted (TA)

278.6 3 71.3 1079.4 351.9 200.9 0 0 348.7 245.4 78.4 0 0 14.1 0 783.3 3455

Required deposits

Cumulative FY 48–49

99.5 1.15 56.5 82.18 57.36 104.8 0 0 52.2 48.4 77.55 n/a 0 78.77 0 48.36 58.67

as % of TA 446.4 472.3 212.3 2011.7 898.2 348 15.3 131.2 1071.7 775.3 190.6 38.8 97.3 30.4 107.5 2527.6 9374.6

Total allotted 525.4 3 166.2 1705.6 835.4 430.4 4.5 3 590.2 708.3 225.1 13.6 0 21.9 49.4 1649.4 6931.4

Required deposits

Cumulative FY 49–50

Sources: For allotments: FOA (1953) pp.4–5. For counterpart funds: see text.

Austria Belgium Denmark France Germany Greece Iceland Ireland Italy Netherlands Norway Portugal Sweden Trieste Turkey UK Total

Country

TABLE 3.1

117.7 0.64 78.29 84.78 93.01 123.68 29.41 2.29 55.07 91.36 118.1 35.05 0 72.04 45.95 65.26 73.94

as % of TA 560.7 546.6 257.4 2444.9 1297.3 515.1 23.7 146.2 1315.8 877.2 236.7 50.5 118.5 32.5 152.5 2826 11401.6

Total allotted

723.6 3 225.6 2165.2 1213.8 702.6 13.8 10.6 868.9 814.1 337.9 18.2 0 32.9 71.5 1855 9056.7

Required deposits

as % of TA 129.05 0.55 87.65 88.56 93.56 136.4 58.23 7.25 66.04 92.81 142.75 36.04 0 101.23 46.89 65.64 79.43

Cumulative FY 50–51

COMPARISON BETWEEN AID REQUIRING COUNTERPART DEPOSITS AND ALLOTMENTS (MILLION $)

280 261.4 126.2 1313.4 613.5 191.7 8.3 86.3 668 507 101.1 0 45.4 17.9 49 1619.7 5888.9

278.6 53.9 102.3 1251.4 351.9 200.9 2.3 86.3 415.7 374.9 113.4 0 20.4 14.1 38 1106 4410.1

99.5 20.62 81.06 95.28 57.36 104.8 27.71 100 62.23 73.94 112.17 n/a 44.93 78.77 77.55 68.28 74.89

Total Required as % allotted (TA) deposits +Loans of TA

Cumulative FY 48–49

446.4 472.3 212.3 2011.7 898.2 348 15.3 131.2 1071.7 775.3 190.6 38.8 97.3 30.4 107.5 2527.6 9374.6

525.4 55.6 197.2 1888 835.4 430.4 8.8 131.2 663.2 841.8 260.1 41.1 20.4 21.9 122.2 1986.3 8029

Total Required allotted deposits + Loans

Cumulative FY 49–50

Sources: For allotments: FOA (1953) pp.4–5. For counterpart funds: see text.

Austria Belgium Denmark France Germany Greece Iceland Ireland Italy Netherlands Norway Portugal Sweden Trieste Turkey UK Total

Country

TABLE 3.2

117.7 11.77 92.89 93.85 93.01 123.68 57.52 100 61.88 108.58 136.46 105.93 20.97 72.04 113.67 78.58 85.65

as % of TA 560.7 546.6 257.4 2444.9 1297.3 515.1 23.7 146.2 1315.8 877.2 236.7 50.5 118.5 32.5 152.5 2826 11401.6

723.6 71.1 256.6 2347.6 1213.8 702.6 18.1 138.8 941.9 947.6 372.9 54.9 20.4 32.9 144.3 2191.9 10179

129.05 13.01 99.69 96.02 93.56 136.4 76.37 94.94 71.58 108.03 157.54 108.71 17.22 101.23 94.62 77.56 89.28

Total Required as % allotted deposits + Loans of TA

Cumulative FY 50–51

AID REQUIRING COUNTERPART DEPOSITS AND LOANS COMPARED TO ALLOTMENTS (MILLION $)

TABLE 3.3

234 202.8 103 1083 495.5 180 10.3 89 576 410.6 80.9 0 33 18.2 10 1312.9 4839.2

Austria Belgium Denmark France Germany Greece Iceland Ireland Italy Netherlands Norway Portugal Sweden Trieste Turkey UK Total

67.5 40 53.1 537.9 64 51.5 2.3 60 158.9 166.1 64.7 0 10 5.6 30 671.6 1983.2

Dep. + Loans 28.85 19.72 51.55 49.67 12.92 28.61 22.33 67.42 27.59 40.45 79.98 n/a 30.3 30.77 300 51.15 40.98

as % of TA 162.4 258.6 84 701.1 353.2 121 2.9 28.6 364.1 276.9 83.1 10 46 9.1 80.2 1005 3586.2

Total allotted 281 13.9 93.6 962.6 497.8 246.7 1 29.3 328.2 369.5 100.7 4.7 10.4 9.4 16.7 857.1 3822.6

Dep. + Loans

1949

Sources: For allotments: FOA (1953) pp.4–5. For counterpart funds: see text.

Total allotted

Country

1948

173.03 5.38 111.43 137.3 140.94 203.88 34.48 102.45 90.14 133.44 121.18 47 22.61 103.3 20.82 85.28 106.59

as % of TA 109 55 45.3 382.7 253.3 102.9 4.6 26.6 226.9 147.3 47.3 36 39.5 4.6 30.9 387.9 1899.8

Total allotted

205.7 1.7 67.9 571.1 357.8 247.9 8.9 41.9 250.6 291.2 145.8 41 0 9.2 97.8 513.6 2852.1

Dep. + Loans

1950

DEPOSITS IN COUNTERPART FUNDS AND LOANS COMPARED TO ALLOTMENTS (PER CIVIL YEAR; MILLION $)

188.72 3.09 149.89 149.23 141.26 240.91 193.48 157.52 110.45 197.69 308.25 113.89 0 200 316.5 132.41 150.13

as % of TA

      

119

TABLE 3.4 REGRESSION EQUATIONS USED FOR THE SIMULATIONS

(1) sinvt ⫽␣0 ⫹␣1gnpreust ⫹␣2opennesst ⫹␣3popgrt ⫹␣4inflt ⫹␣5aidt ⫹␧1t (2) scat ⫽␤0 ⫹␤1gnpreust ⫹␤2opennesst ⫹␤3popgrt ⫹␤4inflt ⫹␤5aidt ⫹␧2t (3) sgovt ⫽␥0 ⫹␥1gnpreust ⫹␥2opennesst ⫹␥3popgrt ⫹␥4inflt ⫹␥5aidt ⫹␧3t (4) gnpgrt ⫽␦0 ⫹␦1gnpreust ⫹␦2opennesst ⫹␦3regrt ⫹␦4sinvt ⫹␦5scat ⫹␦6sgovt ⫹␧4t (5) gnpgrt ⫽␪0 ⫹␪1gnpreust ⫹␪2opennesst ⫹␪3 regrt ⫹␪4aidt ⫹␪5aidlt ⫹␪6sinvt ⫹ ␪7scat ⫹␪8sgovt ⫹␪9sinvt*aidt ⫹␪10scat*aidt⫹␪11sgovt* aidt⫹␧5t

TABLE 3.5A CONTRIBUTION TO GROWTH BY THE MARSHALL PLAN (%) THROUGH THE THREE TRADITIONAL CHANNELS

Eichengreen & Uzan

Reymen

Countries

1949

1950

1949

1950

Austria Belgium Denmark France Germany Greece Iceland Ireland Italy Netherlands Norway Portugal Sweden Turkey UK

0.15 0.07 0.05 0.08 0.04 n/a n/a n/a 0.08 0.13 0.05 n/a 0.00 n/a 0.05

0.11 0.07 0.05 0.05 0.03 n/a n/a n/a 0.05 0.11 0.07 n/a 0.01 n/a 0.05

0.65 0.06 0.29 0.34 n/a 0.97 0.05 0.25 0.25 0.67 0.47 0.03 0.00 0.02 0.20

0.78 0.00 0.19 0.18 0.15 1.14 0.60 0.57 0.16 0.50 0.61 0.12 0.03 0.27 0.12

   

120 TABLE 3.5B

CONTRIBUTION TO GROWTH BY THE MARSHALL PLAN (%) ALLOWING ALL CHANNELS TO OPERATE

Eichengreen & Uzan

Reymen

Countries

1949

1950

1949

1950

Austria Belgium Denmark France Germany Greece Iceland Ireland Italy Netherlands Norway Portugal Sweden Turkey UK

7.50 1.50 2.00 2.50 2.25 n/a n/a n/a 3.50 4.75 0.00 n/a 0.25 n/a 1.00

⫺1.00 ⫺0.75 ⫺1.00 ⫺0.00 ⫺0.25 n/a n/a n/a ⫺1.00 ⫺0.00 ⫺2.25 n/a ⫺0.25 n/a ⫺0.25

4.92 0.56 2.11 2.70 n/a 5.78 0.06 2.15 2.46 2.41 2.36 0.35 0.00 0.28 1.52

⫺2.81 ⫺0.29 ⫺0.28 ⫺0.26 ⫺0.69 ⫺2.31 ⫺2.50 ⫺2.50 ⫺0.71 ⫺1.01 ⫺0.51 ⫺1.30 ⫺0.34 ⫺2.85 ⫺0.23

TABLE 3.6 IMPACT OF AID ON INVESTMENT, CURRENT ACCOUNT AND GOVERNMENT SPENDING

sinv

sca

sgov

Constant

11.23** (9.634)

⫺3.143** (2.92)

13.107** (19.803)

GNP rel. to US

0.052** (2.992)

0.047** (2.902)

0.035** (3.534)

Openness

0.199** (6.728)

0.046* (1.699)

⫺0.028 (1.648)

Population growth

0.597 (1.049)

0.0002 (0.0004)

⫺0.264 (0.816)

Inflation Net inflow of funds N R2 (T-statistics are in parentheses) * significant at the 10% level ** significant at the 5% level

⫺0.01 (0.228) 0.51** (3.373) 123 0.35

⫺0.066* (1.658)

⫺0.016 (0.666)

⫺0.766** (5.486)

⫺0.118 (1.371)

123 0.37

123 0.16

      

121

TABLE 3.7 GROWTH EQUATIONS (1948–1955). DEPENDENT VARIABLE IS REAL GNP-GROWTH.

Constant GNP rel. to US Openness Real export growth Net funds inflow Lagged net funds inflow

(1)

(2)

(3)

(4)

5.171** (4.393) ⫺0.011 (0.599) ⫺0.068** (2.227) 0.149** (5.588) 0.361* (1.721) ⫺0.312 (1.457)

1.797 (0.634) ⫺0.036 (1.648) ⫺0.122** (3.458) 0.126** (4.374) 0.481** (2.045) ⫺0.36 (1.743) 0.287** (2.941) 0.193 (1.637) 0.036 (0.208)

4.302 (1.307) ⫺0.035 (1.469) ⫺0.151** (3.569) 0.142** (5.288)

109 0.39

122 0.35

0.144 (0.042) ⫺0.027 (1.229) ⫺0.116** (3.243) 0.121** (4.189) 1.538 (1.004) ⫺0.426** (2.038) 0.395** (3.437) 0.162 (1.247) ⫺0.034 (0.169) ⫺0.064 (1.622) 0.14 (0.507) 0.036 (0.442) 109 0.41

Investment (sinv) Current account (sca) Gov. Spending (sgov)

0.239** (2.112) 0.051 (0.45) ⫺0.045 (0.229)

sinv * smpa sca * smpa sgov * smpa N R2

110 0.32

(T-statistics are in parentheses) * significant at the 10% level ** significant at the 5% level

Bibliography National and International Official Publications Banque des Règlements Internationaux, Rapports Annuels, Bâle ——Dix-septième Rapport Annuel, 1er avril 1946–31 mars 1947 ——Dix-huitième Rapport Annuel, 1er avril 1947–31 mars 1948 ——Dix-neuvième Rapport Annuel, 1er avril 1948–31 mars 1949 ——Vingt et unième Rapport Annuel, 1er avril 1950–31 mars 1951 ——Vingt deuxième Rapport Annuel, 1er avril 1951–31 mars 1952 Belgisch Staatsblad, Wet van 29 Juli 1948, pp.8896–8905, 31 Oktober 1948 Committee of European Economic Co-operation, Report of the Committee on Payments Agreements, Printed and Published in English by his Majesty’s Stationery Office ——London: 27th September 1947 ——Second meeting, 15th to 25th October 1947

122

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Economic Cooperation Administration, Local Currency Counterpart Funds, Division of Statistics and Reports, Washington DC ——Various (monthly) issues from January 31, 1949 to October 31, 1951 Economic Cooperation Administration, Reports to Congress of the Economic Cooperation Administration, US Government Printing Office, Washington DC ——First report, For the Quarter ended June 30, 1948 ——Second report, For the Quarter ended September 30, 1948 ——Third report, For the Quarter ended December 31, 1948 ——Fourth report, For the Period January 1 – April 2, 1949 ——Fifth report, For the Period April 2 – June 30, 1949 ——Sixth report (For the Quarter ended September 30, 1949) to Thirteenth report (For the Quarter ended June 30, 1951) Economic Cooperation Administration, Reports for the Public Advisory Board, Division of Statistics & Reports, Washington DC ——First report (July 16, 1948) to Fortieth report (September 30, 1951) Export–Import Bank of Washington, Semiannual Reports, Washington ——First Semiannual Report to Congress (July–December 1945) to Twenty-first Semiannual Report to Congress (July–December 1955) Foreign Operations Administration, European Program, Local Currency Counterpart Funds, Statistics and Reports Division, Washington DC ——Data as of June 30, 1953 ——Data as of December 31, 1953 Foreign Operations Administration, Monthly report on the European and Far East Programs to the Public Advisory Board, Washington DC ——Data as of May 31, 1953 ——Data as of June 30, 1953 Foreign Operations Administration, Procurement Authorizations and Allotments, Statistics and Reports Division, Washington DC ——Data as of June 30, 1953 Governmental Affairs Institute, The Marshall Plan and Its Meaning, Cornell University Press, 1955 Mutual Security Agency, Local Currency Counterpart Funds, Division of Statistics and Reports, Washington DC ——Monthly issues from November 30, 1951 to May 31, 1953 Mutual Security Agency, Monthly reports to the Public Advisory Board, Division of Statistics and Reports, Washington DC ——Monthly issues: Data as of October 31, 1951 to Data as of April 30, 1953 Mutual Security Agency, Priorities Bulletin, Priorities Office, Washington DC, January 4, 1952 Mutual Security Agency, Procurement Authorizations and Allotments, Division of Statistics and Reports, Washington DC ——Monthly issues: Data as of November 31, 1951 to Data as of May 31, 1953 Nationale Bank van België, Tijdschrift voor Documentatie en Voorlichting, Afdeling Studiën en Documentatie ——XXIVe Jaar, Vol. I, Nr 5, Mei 1949 ——XXVe Jaar, Vol. I, Nr 5, Mei 1950 ——XXVe Jaar, Vol. II, Nr 6, December 1950 ——XXVIe Jaar, Vol. II, Nr 6, December 1951 ——Zeven en twintigste jaar, Vol I, Januari-Juni 1952 OCDE, Historique, Objectifs, Structure, OCDE Service de l’Information, 1971 OECD, From Marshall Plan to Global Interdependence, OECD, Paris, 1978 OECD, From Marshall Plan through 20 years of OECD, OECD Information Service, December 1980 OECD, The European Reconstruction 1948–1961, OECD Historical Series, 1996 OECE, La Coopération Economique Européenne, Paris ——Deuxième Rapport préparé par l’Organisation Européenne de Coopération Economique pour le Conseil de l’Europe, Paris, Novembre 1951

      

123

——Troisième Rapport établi pour le Conseil de l’Europe par l’Organisation Européenne de Coopération Economique, Paris, Mai 1952 OECE, Program de Relèvement Européen, Second Rapport de l’OECE OEEC, Organization for European Economic Co-operation, Paris ——Statistics of national product and expenditure nr 2, 1938 and 1947 to 1955 ——Basic Statistics of Industrial Production 1913–1952, OEEC Statistical Bulletin OEEC, Organization for European Economic Co-operation, A Decade of Co-operation Achievements and Perspectives, 9th report of the OEEC, Paris, April 1958 UNRRA, Report of the Director General to the Council for the Period 1 July 1947 to 31 December 1947 and Summary of Operations from 9 November 1943 to 31 December 1947, Washington DC 1948 UNRRA, The Story of UNRRA, Office of Public Information, United Nations Relief and Rehabilitation Administration, Washington DC, February 15, 1948

Secondary Sources Bacha, E.L. (1990) ‘A Three Gap Model of Foreign Transfers and GDP Growth in Developing Countries’, Journal of Development Economics, 32, 2, April, pp.279–96. Cassiers, I. (1995) ‘“Belgian Miracle’ to Slow Growth: The Impact of the Marshall Plan and the European Payments Union’, in Eichengreen, B. (ed.) Europe’s Post-War Recovery. Cambridge: Cambridge University Press. DeLong, J.B. and Eichengreen, B. (1993) ‘The Marshall Plan: History’s Most Successful Structural Adjustment Program’, in Dornbusch, R., Nolling, W. and Layard, R. (eds) Postwar Economic Reconstruction and Lessons for the East Today. Cambridge, MA: MIT Press. DeVere, E.P. (1956) The Marshall Plan: Declared Objectives and Apparent Results. Ph.D. Dissertation, State University of Iowa. Eichengreen, B. and Uzan, M. (1992) ‘The Marshall Plan: Economic Effects and Implications for Eastern Europe and the Former USSR’, Economic Policy, April, Vol. 14, 13–75. Eichengreen, B. (1993a) Reconstructing Europe’s Trade and Payments. The European Payments Union. Manchester: Manchester University Press. Eichengreen, B. (1993b) ‘Institutional Prerequisites for Economic Growth: Europe After World War II’, University of California at Berkeley, Working Paper no. 93–216, September. Eichengreen, B. (1994) ‘Institutions and Economic Growth: Europe after World War II’, Centre for Economic Policy Research, Discussion Paper no. 973, June. Eichengreen, B. (1995) ‘Mainsprings of Economic Recovery in Post-War Europe’, in Eichengreen, B. (ed.) Europe’s Post-War Recovery. Cambridge: Cambridge University Press. Esposito, C. (1995) ‘Influencing Aid Recipients: Marshall Plan Lessons for Contemporary Aid Donors’, in Eichengreen, B. (ed.) Europe’s Post-War Recovery. Cambridge: Cambridge University Press. Feinberg, R.E. (1982) Subsidizing Success: The Export-Import Bank in the U.S. Economy. Cambridge: Cambridge University Press. Hardach, G. (1987) ‘The Marshall Plan in Germany, 1948–1952’, The Journal of European Economic History, 16, 3, pp.433–85, Winter. Hillman, J.J. (1982) The Export-Import Bank at Work. Westport, Connecticut: Quorum Books Greenwood Press. Hogan, M.J. (1987) The Marshall Plan. America, Britain, and the Reconstruction of Western Europe, 1947–1952. Cambridge: Cambridge University Press. Kindleberger, C. (1987) Marshall Plan Days. Boston: Allen & Unwin. Luykx, Th. and Platel, M. (1985) Politieke Geschiedenis van België van 1944 tot 1985. Antwerpen: Uitgeverij Kluwer Rechtswetenschappen. Maier, C.S. (1981) ‘The Two Postwar Eras and the Conditions for Stability in Twentieth-Century Western-Europe’, American Historical Review, 86, 2, April. Marantz, M. (1950) Le Plan Marshall, Succès ou Faillite?. Paris: Librairie Marcel Rivière et Cie. Mee, C.L. Jr. (1984) The Marshall Plan. The Launching of the Pax Americana. New York: Simon and Schuster.

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McKinnon, R. (1979) Money in International Exchange. The Convertible Currency System. Oxford: Oxford University Press. McKinnon, R. (1996) The Rules of the Game. International Money and Exchange Rates. Cambridge, MA: MIT Press. Milward, A. (1984) The Reconstruction of Western Europe 1945–51. London: Methuen & Co. Ltd. Milward, A. (1989) ‘Was the Marshall Plan Necessary?’, Diplomatic History, 13, 2, Spring, pp.231–53. Reichlin, L. (1995) ‘The Marshall Plan Reconsidered’, in Eichengreen, B. (ed.) Europe’s Postwar Recovery. Cambridge: Cambridge University Press. Schelling, T.C. (1991) ‘The Marshall Plan: A Model for Eastern Europe?’, in Wolf, C. Jr. (ed.) Promoting Democracy and Free Markets in Eastern Europe. San Francisco: ICS Press. Schuker, S.A. (1981) ‘Comment on “The two Postwar Eras and the Conditions for Stability in Twentieth-Century Western-Europe’’’, American Historical Review, 86, 2, April, pp.353–62. Van der Wee, H. (1985) De gebroken welvaartscirkel, De wereldeconomie 1945–1980. Leiden: M. Nijhoff. Wala, M. (1983) ‘Selling the Marshall Plan at Home: The Committee for the Marshall Plan to Aid European Recovery’, Diplomatic History, 10, 3, Summer, pp.247–65. Williams, J.H. (1950) ‘The Marshall Plan Halfway’, Foreign Affairs (New York, Council on Foreign Relations) no XX, April. Williams, J.H. (1952) ‘The End of the Marshall Plan’, Foreign Affairs (New York, Council on Foreign Relations) no 30, April. Yoshikawa, H. (1997) ‘Japan: Post World War II Financial Assistance’, Paper presented at the AEA conference, New Orleans, January.

Notes 1. Wala (1986). 2. The Dutch government held the EU presidency from January to June 1997. 3. The Agenda 2000 outlines the European Union’s goals in terms of expansion, financing and internal politics for the coming decade. 4. Hungary, Poland, Estonia, the Czech Republic, Slovenia and also Cyprus. 5. However, the debate at the meeting of the Ministers of Foreign Affairs to discuss the Agenda 2000 – about the financing of the European Union, did not indicate ‘real Marshall Plan’ generosity. 6. Schuker (1981) p.357. 7. The Organization of European Economic Cooperation was the institution under which the participating countries agreed to undertake a joint recovery program, with the assistance furnished by the US. The United States managed the program through the Economic Cooperation Administration (ECA). 8. See, for example, DeVere (1956), Hogan (1987), Van der Wee (1985). 9. Maier (1981) p.342. 10. Milward (1984) pp.104–6. 11. Milward (1989) p.238. 12. Eichengreen and Uzan (1992) p.15. 13. The CEEC was formed in June 1947, and consisted of the delegations of 16 countries which prepared the Convention of Paris in April 1948 where the OEEC came into being. 14. The OEEC had to ensure that the participating countries pursued their economic recovery jointly, as defined by the Committee when preparing the laws governing the European Recovery Programs. By signing the Convention of Paris, the countries committed to: a considerable effort to promote development of production; development of economic cooperation between the participating countries (e.g. by reducing trade barriers, by trying to achieve a multilateral system of payments among themselves); the creation and preservation of domestic financial stability; and a solution for the dollar deficit of European countries, partly by augmenting exports.

      

125

15. The following Acts of Congress, as amended, comprised the major elements of existing foreign aid legislation during the Marshall Plan period: The Economic Cooperation Act of 1948, authorizing the European Recovery program; The Mutual Defense Assistance Act of 1949, providing for a comprehensive military assistance program; The Act for International Development, authorizing technical assistance under the Point Four Program: This legislation reflecting amendments through the year 1951 is contained in the Mutual Security Act of 1951 and Other Basic Legislation. 16. It is worth noting though that this amounts, for the creditor country, to payment in dollars for goods and services delivered to the trading partner. Such a system allowed the Marshall aid to fulfill a double role. It served to sustain trade between the participating countries and at the same time to reduce the dollar shortage in Europe. 17. Fifth Report to Congress of the Economic Cooperation Administration, For the Period 3 April–30 June 1949, p.13. 18. Sixth Report to Congress of the Economic Cooperation Administration, For the Quarter Ended 30 September 1949, p.28. 19. See for example Eichengreen, Reconstructing Europe’s Trade and Payments (1993), Chapter 2. 20. In practice though, this system was being executed with at least a quarter delay, meaning that the procurement authorizations issued against the allotments of a certain quarter generally were utilized during the following quarter. Delivery of the goods would occur even later. 21. Nationale Bank van Belgie, Tijdschrift voor Documentatie en Voorlichting Mei 1949 p.231. 22. As a reminder, aid requiring counterpart deposits included the grant part of the allotments, the grants not included in the allotments and the drawing rights exercised. 23. All data on counterpart funds presented in Tables 3.3, 3.4 and 3.5 (required deposits, actual deposits, et al.) are drawn from the following sources: (i) Third Report to Congress of the Economic Cooperation Administration. For the Quarter Ended 31 December 1948. Appendix D on Counterpart Funds; (ii) Economic Cooperation Administration, Local Currency Counterpart Funds, Division of Statistics and Reports. Various (monthly) issues from 31 January 1949 to 31 October 1951; (iii) Mutual Security Agency, Local Currency Counterpart Funds, Division of Statistics and Reports. Monthly issues from 30 November 1951 to 31 May 1953; and (iv) Foreign Operations Administration, Local Currency Counterpart Funds, Statistics and Reports Division. Data as of 30 June 1953, and Data as of 31 December 1953. 24. Data on allotments are drawn from: Foreign Operations Administration. Procurement Authorizations and Allotments (European and Far East Programs). Statistics and Reports Division. Data as of 30 June 1953. 25. Mee (1984) p.261. 26. Mee (1984) p.262. 27. DeLong and Eichengreen (1993) p.190. 28. ECA, Paid Shipments, Division of Statistics and Report, as of 30 June 1951, Statement Nr 21. 29. See Eichengreen and Uzan (1992) p.65. 30. In particular, each participating country received a total dollar allotment equal to the deficit to be honored in dollars against the non-participating countries, if that deficit could not be paid by other means than with the help of the ECA. The first estimation of the needs was made in October 1948, when the OEEC handed the ECA its report for the first year of the program covering the period June 1948–June 1949. This report examines the needs and the dollar assets of the participating countries during that year. It contains a proposal for division of aid per country, and the means of financing the estimated deficits in the balance of payments of each country. 31. See pp. 108 for further details. 32. Eichengreen and Uzan (1992) p.39. 33. ECA, Local Currency Counterpart Funds, Division of Statistics and Reports, 30 June 1951.

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34. It was an excellent measure inspired, not by political, but by purely economic motivations. (Also the author, the excellent minister of finance Gutt, who had conceived and executed the plan, did not appear in any subsequent government.) It consisted mainly of the following operation: new money was printed, the old declared out of operation. Every citizen could deposit the old money and receive 2000 BEF (40$) in new money plus a part of his/her previous deposits. Forty percent of the total deposit was then only gradually released over a period of many years. The remaining 60 percent was transformed into loans at the low interest rate of 3.5 percent. 35. Belgian Request for direct grant from ECA, 12 June 1950; RG 469 Dir. of Adm., Adm. Serv. Div., Comm. & Rec. unit, Geographic Files, Box 39.

4 The Marshall Plan and European Integration: Limits of an Ambition GÉRARD BOSSUAT

Was the Marshall Plan merely an attempt to vassalize western Europe as has often been asserted? Historians are quick to note that the Marshall Plan satisfied the essential interests of the United States, providing a way for the US Government to intervene in European affairs more cleverly than the Truman doctrine had allowed in March of 1947. But it would be a serious mistake to consider only this point of view, since the Marshall Plan did impact the economic growth of Europe. In the case of France, American aid arrived exactly at the most appropriate time. Jean Monnet, the high commissioner for the French plan, had prepared, on the request of General de Gaulle, a plan for modernizing and equipping France. Paradoxically, the American aid made France stronger and more autonomous, providing France with greater economic security while the French government used the counterpart of the dollar aid for three years in order to fulfill its own development aims. Similar designs for the use of American aid prevailed in Italy, Germany and Austria. Marshall Plan aid was linked to the perhaps exaggerated demand of European unity as a post-World War II western European goal. In order to foster integrative impulses, the Organization for European Economic Cooperation (OEEC) was established. But was it really the result of American pressure? The Question of European Unity The Marshall Plan did not give rise to the idea of European Unity or European integration. Before World War II, then during the Resistance, and finally at the Liberation, both individuals and organizations worked for the unity or federation of Europe. However, Marshall’s speech on 5 June 1947, stressed the unity of the European peoples as condition for any American aid.1 Did Marshall have in mind the creation of the United States of Europe?

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Democracy for Europe In 1947 the journalist Theodore White described the European continent as frozen by state controls, insolvent, fighting hopelessly against starvation and disorder. American political experts were imagining that Europe could be attacked by the Russians and that refugee groups established in the Alpine region could organize a Resistance movement. The image of Europe presented in CIA documents as a besieged and weakened continent, fractured from within,2 was long dominant both within the US Government and within the media. Early in the Cold War, Joseph Alsop, in the New York Herald Tribune, suggested that the Soviet Union was prepared to wage war from eastern Europe and could do so catastrophically with no warning.3 He suggested that western Europe was simply too weary of war to realize that rearmament was necessary, declaring that ‘tired men prefer self-delusion to further effort’.4 Moreover, he noted that the French recognized America’s self-interest, not its altruism, in European reconstruction. Indeed, democracy was the objective promoted by American aid, and the US Government believed that a good democracy was incompatible with the presence of strong communist parties. Left-wing politics, even within a democratic framework, was regarded as suspect, especially in France and Italy. So the question of any European integration had to be primarily a political one. How the US Department of State was Driven to European Unity The German historian Hans-Jurgen Schroder explains that George C. Marshall’s Harvard speech implicitly suggested that communism could be resisted through the economic recovery of Germany.5 US policy makers believed that Germany’s economic revival could be dangerous. So they imagined a recovery program for Europe that would link Germany to the western system. The unity of Europe would provide a means to control Germany skillfully, sacrificing, if need be, the security policies of France and of the USSR. But US policy makers in the National Security Council (NSC) regarded France as a particular problem, because of its weakness and her anti-German policy. Paradoxically, France warranted unique consideration, and the multinational European framework would be perfect for this purpose.6 In his famous thesis, Pierre Mélandri writes, ‘some level of economic integration in Europe became obvious to the American leaders’, for the sake of a technical necessity, as a trump card against enemy propaganda, and finally as a framework of German reconstruction. The theme of European unity would also have been a way of warranting that Europeans would be suitable partners for the Americans, economically

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as well as politically.7 In 1947, Mélandri insisted on highlighting European unity. Previously bilateralized American aid programs had failed and Congress wished for an effective aid. What immediately came to mind was European unity. Contemporary scholars have searched for the genesis of the concept of European unity within the US Department of State (USDS). Charles Maier indicates that in 1946, young USDS economists were already looking for a coherent aid plan for Europe.8 On May 27, 1947, USDS Deputy-Secretary for Economic Affairs William Clayton conveyed the ideas of two young USDS economics experts Harold Van Cleveland and Ben T. Moore, in suggesting that Marshall should create a European Economics Federation. This quickly led to a meeting on 28 May 1947 between Kennan, Clayton and other USDS division heads with the Secretary of State George Marshall. Ideally, they wanted Europe’s economic borders to be removed. Charles Bohlen, chief adviser to the USDS Planning Staff, added that American aid would be dependent upon a European Mutual Recovery plan and possibly upon the establishment of an economic federation. According to contemporary historian of the Marshall Plan period Alan Milward, the Marshall Plan – or European Recovery Program (ERP) – aimed at attaining overall economic integration in a single political area.9 Michael Hogan’s work on the Marshall Plan forwarded the theme of European unity as an instrument of Marshall’s proposal.10 Hogan asserts that Washington wanted a single European market, at least, and an Economic European Federation at best. A key question confronting USDS officials in the first half of 1947 was how to determine the exact geographic parameters to be covered by the ERP. US foreign policy in April 1947 was viewed primarily in terms of bilateral, not multilateral, relations; and the countries viewed as significant players in bilateral relationships were Greece, Turkey, Iran, Korea and France.11 Germany was not the target of bilateral overtures, because her postwar status was still seen as the central problem. Marshall’s Harvard speech, by speaking only of Europe in a general sense and not of specific countries, implied that Europe was not just one amongst many indistinct geographical areas. Rather, it possessed unifying potential that would allow the United States to deal with it on a bilateral basis. However, the Harvard speech also implied that Europe was to become a divided whole, by expressing reservations about governments that would be likely to oppose the recovery of other countries. George Kennan soon clarified the debate. He referred to aid to western Europe, without attacking communist countries. William Clayton stated in substance that the USSR was not to receive any American aid, but on the

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contrary was to make its own contributions to the recovery of the European economy.12 Thus, on the eve of the inter-European negotiations, which were held in Paris in the summer of 1947,13 USDS planners had turned an important corner in their conception of a bifurcated Europe as recipient of coordinated aid programs. A Pessimistic Outlook for European Unity, 1947–48 It was necessary to create different types of European unity, at least in the economic field. The most impatient of pro-Europeans were already regretting that the Europeans had not decided to establish a framework for unity conforming to American wishes.14 Impassioned American columnists were of the view that Europeans were behaving according to Russian expectations, merely preparing a purchase list for the United States without expending serious efforts towards either institutional unity or the pooling of resources. US Senator Bourke Hickenlooper feared having to reequip a disunited Europe, which thereafter could run the risk of falling into Soviet hands like a ripe fruit. ‘On nous prend pour des poires!’ Senator Henry Cabot Lodge said.15 The Release of the German Precondition In September 1947, William Clayton made it understood that Germany had to take part in the European reconstruction, as a precondition to the viability of the Marshall Plan. Moreover, European unity would only make sense with active French and British participation. Some American columnists were giving great attention to the model of an anti-Soviet western Europe under Franco–British leadership.16 Yet, even if the two countries had been leading a common action since Marshall’s speech, there were not many common wishes for European unity. France was indeed reluctant about the German question. During the summer of 1947, this reluctance made France unable to take leadership of the European recovery. French politicians wanted the Ruhr to be internationalized and were fighting German recovery in spite of Monnet’s advice not to do so. In short, France was trying to achieve her own aims of development and modernization and was far from a willing participant in Europe’s institutional unity. American Pressure During the Autumn of 1947 Predictably, then, the idea of creating a European organization parallel to US aid came from the United States. William Clayton insisted that western Europe expand its economic borders by setting up a common custom’s policy. In response to this suggestion, which struck European

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politicians as interventionist, the French decided to contact Italy and the Benelux countries through diplomatic channels. This led to a French proposal of a custom union in Europe, a move which was a surprise to Great Britain.17 On 12 September 1947, the sixteen countries to which US aid would be directed under the Marshall Plan created a committee for the study of the custom unions. Some non-Europeans also joined: Canada, Australia, New Zealand, South Africa, India and Pakistan. But these initiatives had been put forward largely to impress the US Congress, and none of them were completed.18 Only Italy favored the concept of a broad customs union; France would have preferred a project on a far smaller scale, including only itself and its Benelux neighbors.19 But the sixteen aid-recipient states could not avoid recognizing that the United States was adamant on the customs union proposal. The United States insisted that the existence of one body in which all interEuropean financial stabilization commitments could be concentrated would be an improvement. Ultimately, the French delegation warmly approved of American offers, due to the important condition that it was to be funded in dollars. Henceforth, the US Administration, until then relatively unassuming, took on an important role. William Clayton listed six essential points for western Europe’s planned recovery: internal financial stabilization; commitment for fulfilling the forecast programs; strengthening inter-European cooperation; a customs union and the release of quantitative trade barriers; setting a distinction between procurement and equipment imports; and the setting of a European continuing organization to fulfill the common recovery program.20 It was the reluctance of Europeans to unite which motivated the establishment of these six recovery principals. The Good Will of the Europeans Were the sixteen aid-recipient states able to go further towards integrating their collective recovery than merely general commitments on custom unions? France and Great Britain held the solution. British Foreign Minister Bevin foresaw the possibility of a more focused entente between the two countries. For his part, Chauvel, the General Secretary of Quai d’Orsay, believed in a union between France, Great Britain, Italy and Benelux.21 The result of the Paris Conference of the Sixteen for European Unity at the end of September 1947 was a shift to cooperation more generally. The sixteen states expressed a commitment to release progressively the trade quantitative barriers in Europe. Moreover, they decided to build a system for the transferability of the European currencies and to create custom unions. In addition, they promised to create a

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common organization for watching the improvements of the European cooperation. Yet in Washington, DC, in October 1947, the US Administration continued to assert its influence over European affairs, pushed the acceptance of a newly-created European organization to control the use of the American aid and even to share it.22 Averell Harriman, then US Secretary of Commerce, spoke frankly to European representatives about the geopolitical conditions of the American aid. He explained to them that the departure of Russians from the talks on aid and the Jdanov commitment had opened a new stage in world history. The Marshall Plan had two aims, he said, the recovery of postwar Europe, but also the defense of a kind of civilization held by western Europe and the United States in common.23 It was obvious that it was necessary to provide western Europe with a recovery infrastructure able to also defend this common civilization. US policy makers asked that the Europeans establish a decisive management framework for the Recovery Program, one which would not interfere in the economic and financial control that each individual European government could continue to exercise over its own territory by virtue of its sovereignty. But on one point the United States was unyielding: European unity must include Germany. Europeans reacted in practical terms to this US determination. They had to do all the more as the situation in Europe worsened financially and politically. European negotiators conceived of the plan’s implementation on the basis of a threefold unity: western anti-Soviet unity; a great economic union; and a regional customs union. During the month of December 1947, the French and British tried to display their good will to the Americans. For example, Bevin told the French that it would be interesting to make a kind of Federation in western Europe with or without a legal basis.24 The British cabinet took under consideration the matter of a European union in the beginning of January 1948 in order to include the Benelux countries, but above all to organize a common defense after the failure of the Four Foreign Ministers Conference of London in December 1947.25 The French, for their part, delighted to see the British attitude and pleaded for an extension of a continental custom union to Great Britain. Certainly the French did not want to set a SainteAlliance against the Soviet Union, but neither did the British intend to enter a European customs union without their dominions or their dependent overseas territories. So what was to be thought about Bevin’s speech on 22 January 1948, calling for a union of western European states? According to René Massigli, the French ambassador to London, Bevin was about to prepare the economic framework of the Marshall Plan and a customs union.26 Under the fear of pressure, the Brussels Treaty

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quickly took a military framework as a way for calling the United States to defend the European continent. Thus, nothing was drawn up regarding a European organization, since neither the Five nor the Brussels Treaty created the European unity, nor channelled the American aid for a common plan. This collective weakness reinforced the US Administration’s opinion that the Europeans were unable to unite. We can see today that the lesson has been remembered. Next to this real hope of organizing Europe by the Five, the projects for a Franco-Italian customs union, first developed in September 1947 by Alphand, a high officer of the French Foreign Ministry, came out as it was, a cache-misére. It fulfilled the wish to anticipate the inclinations of the United States in favor of some economic framework of western Europe and to help the domestic interests of the Italian and French Christian Democracy, as Chauvel said.27 The Franco-Italian Customs Union was born from the opportunity of its having a temporary characteristic, Chauvel said, without beating about the bush. The Franco-Italian Union would not have any cohesion or logic unless it were to spread to the Benelux countries and Great Britain. Yet it would hold a triple advantage. It would control Germany, permit Europe to reach Commonwealth markets, and make Europe independent from the United States. The Debate on the Framework of the European Marshall Plan Organization US pressure eased slightly while Congress voted the appropriations of the ERP, in March and April 1948. The debate altered the framework of the future organization. The French government under the premiership of Robert Schuman seemed to have chosen in favor of a new European unity policy. French and Italian negotiators imagined a continuing organization with a strong executive power able to take initiatives within the framework of the decisions of the Conference of the Sixteen. They confronted the British opposition, who preferred an organization of cooperation with a unanimous vote system. Robert Marjolin even spoke about ‘supranationality’. London wanted Brussels as the site for the future organization to weaken Paris, while the French proposed Paris.28 During the final session of the Conference of the Sixteen Session Conference, Ernest Bevin was weakened in the face of broad support for a strong organization, led by the French. The American press criticized the British maneuvers. Henry Labouisse, an American diplomat, came to Paris with the intent of improving the prospects of the French initiative. The organization would be well built and would prepare programs for the participant countries, according to Quai d’Orsay.29 But, finally, the British thesis still prevailed.

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The Working Committee of the Sixteen proposed a continuing organization for European Economic Cooperation, but decisions would be taken unanimously.30 The French text went further. It proposed to set, ‘a center for the cooperation between the participant countries, a tool for merging progressively the economies of each of the participant countries into a real European economy’. This text clearly made the economic integration top priority. The courses of action were to be the setting of a European production and trade program in the framework of a yearly and multilateral plan.31 A majority vote rule, in the place of unanimous vote, seemed necessary to such an ambition. The French proposals to the Conference of the Sixteen in March 1948 came probably from Jean Monnet, via Marjolin, one of his close associates. These proposals indicate that the first project for a federal Europe predated Robert Schuman’s plan of 9 May 1950. This series of events suggests a different interpretation from that of the English historian Alan Milward, who said that the French and the English agreed to allow the nation-states to keep their sovereignty.32 During negotiations France clashed with Great Britain and Switzerland on this point, and confronted the indecision of the Benelux countries, in spite of the support of the Italian representative and the American observer. On April 16, the date of the signature of the Organization of European Economic Cooperation (OEEC) Treaty, the sixteen European participant countries admitted, at least, their interdependence and showed their will to cooperate. But Monnet was piqued at this result, which further consolidated a European dependence on the United States. The more realistic answer would have been to create ‘a European Federation’ with Great Britain.33 In spite of this failure, Marjolin later considered that the United States forced the Europeans to take charge of their affairs together, and that it largely contributed to forging ‘a European spirit’.34 As the target of resentment, the United States negotiated bilateral agreements which were in some respects questionable, in order to permit the participant countries to use aid. The United States asked for each participant country to sign a kind of declaration in favor of the American aid and of the European unity. This fact alone proved that the United States no longer trusted in European unity by April 1948. The OEEC was composed of sixteen participant countries: Austria, Belgium, Denmark (together with the Faeroe Isles and Greenland), France, Greece, Ireland, Iceland, Italy (with the addition of San Marino), Luxembourg, Norway (as well as the Spitzberg), Holland, Portugal (with the addition of Madeira and the Azores), the United Kingdom, Sweden, Switzerland (with the addition of Lichtenstein) and

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Turkey. Quickly added to these sixteen founding countries were the Anglo-American bi-zone and the French occupied zone in Germany. Soon Trieste was added as well. European states’ colonial dependencies were then joined. French, Lusitanian, British, and Belgian territories, even the former Italian Somalia were all to take part in it. The French, the British, Lusitania, Dutch Asia and the Near East, America and Oceania participated in OEEC through the European colonial countries. Thus, right from the beginning, the OEEC was to be a worldwide organization, as well as a European one. The OEEC was not the only representative of the Americans for aid. A year later, the OEEC was turned into a syndicat-cooperative. The possibility of attaining a political supranational institution had disappeared.35 Worried Minds in Western Europe What did the average citizen in western Europe think of European unity under the rubric of the OEEC? It was not as easy then as it is today to ascertain scientifically the state of public opinion. The journalists served as the barometer of opinion. Léon Blum, a French democratic socialist leader, indeed represented an opinion in the search for a future of a defeated Europe. In spite of his socialist point of view, Blum depicted precisely the state of a democratic public opinion dissatisfied with the role of France in the world, and aware of the historic failure of Europe. As a socialist, Léon Blum had asked for American aid before George Marshall even proffered it, in six extraordinary articles on the Peace Lend Lease. Blum’s conversion to America was total because, as he said, America had to replace the inefficient UNO in Europe.36 As a result, Europe had to build ‘a European plan’ to make the best of the Peace Lend Lease.37 Blum referred to the United States of Europe, or to a European Federation as planned by Paul Van Zeeland and Winston Churchill; and this European Federation did not exclude the USSR or eastern Europe.38 To Blum, the Soviet refusal of Marshall aid was a ‘disaster’. But the impact of the Szlarzka Poreba meeting in September 1947 reinforced Blum’s opinion that the old times were finished.39 The Prague Coup in February 1948 gave the final blow to a Pan-Europa. In October 1947, Léon Blum, bitter but not hopeless, told the public that the French would be neither a people protected by Americans nor one subjugated to the Soviets. Thus, he gave western Europe the aim to become a ‘Third International Force’.40 The Marshall Plan, a Limited Action Towards a European Unity The US legislation on Foreign Aid passed on 3 April 1948, officially created the Marshall Plan, otherwise known as the ERP.41 Although it

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was envisioned as a plan of four years duration, the US Congress initially approved funding for the first year only, from April 1948 until April 1949. National Long-term Plans or a Great European Recovery Program? During the summer of 1948, Monnet, no doubt disappointed by the OEEC, continued to give priority to the French national objectives for modernization, over those of a preliminary European integration,42 doing so with the approval of the Quai d’Orsay. But he could not ignore the necessity of an inter-European cooperation. How was he to adjust the national programs and avoid a dollar race, in order to permit normal European trade? The Quai d’Orsay began to recycle the old prewar formulas again, that is to say, the European economic ententes. Confronted with this lack of imagination, the Americans urged the Europeans to act. On 25 July 1948, Harriman told the European states that they had to prepare without any delay a four-year long European Recovery Plan, so that the stability of the balance of payments would be realized before the end of 1952. The French Modernization and Equipment Plan, which had officially been in progress for eighteen months, was reviewed to achieve an economic viability in 1952. In practical terms, this meant ensuring the availability of farm surpluses for export to Germany and Great Britain. This disguise of the French plan as a European plan betrayed a lack of pan-European spirit in the French long-term approach and in the integration of the French economy in the greater Europe of the OEEC. Monnet wrote on 12 July 1948, ‘Cooperation is indeed necessary, but it will take place later, and lean on the national efforts which precede it and prepare it.’43 The British attitude was the same. It seemed that the major European states were less concerned with the unity of Europe than with the satisfaction of their own development ambitions. Without a real common European plan, it was easy to criticize individual national plans. The British or Swiss wondered whether the French would cooperate with the rest of Europe. Were the French apt to think seriously about exporting while they were unable to invest in a classical way? British criticism was voiced in a letter from Stafford Cripps, the Chancellor of the Exchequer, to the French Prime Minister and Minister for Finance, Henri Queuille, on 27 November 1948. Cripps reminded Queuille that the British government was ready to adjust its long-term plan to the French long-term plan, if Great Britain could rely on the fulfillment of the French export aims. Was he inviting the French to cooperate? The British and Swiss doubted that France would be able to amend herself. Criticism forced the French government to respond to

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them all the more strongly, especially in the face of US public opinion which was following suit with the English and with the OEEC. However, even though the criticism of France’s financing of its own investments was accurate, the British were hardly without their own sins. Seeming to misunderstand the meaning of the expression, ‘European cooperation’, the British were preparing for a plan to withdraw from the sterling area and to restrain the use of the pound on the Continent. The Quai d’Orsay denounced strongly the ‘autarchy’ of the long-term British program, amid broader French demands that the British cease to favor their Empire and their dominions. Massigli himself said that in the long-term British plan, true international cooperation was given only limited consideration. This state of affairs was serious. Indeed, such a profound disagreement among the French and British programs could portend the collapse of European integration. A counterplot was studied by the Office in Charge of European Negotiations near the French Prime Minister (SGCI), in relation with other bureaus of the Foreign Affairs minister, which proposed an alternative both to oppose the Monnet plan and to satisfy the other OEEC countries. The suspect French long-term plan would counter the British plan. It provided for a cartellization of industry, a partial liberalization of trade, the creation of a large domestic market, and the sharing of exports towards the third market. Its signature was the provision of collective long-term supply agreements. As a US official remarked, ‘the French thesis would not be expressed in a French national program, but in a French program for the whole of Europe’.44 It was, therefore, no more and no less, about coordinating functional specialization of European economies to achieve a European Economic Union. This alternative to the French long-term plan – that is, the revised Monnet plan – and to the British plan, must still be mentioned as an indicator of the increasing awareness of an incoherence of the European countries in the French offices. Alexandre Kojève, who was present at the origin of the alternative, compares a European building strategy based on the Franco-British relation, with the balance of power between the French and British long-term programs. Given that, in Kojève’s words, ‘The power of both economies being immense,’ Kojève proposed the Quai d’Orsay to fight for, ‘a European economic policy, even a continental one, of which the French delegation would be the supporter’.45 But he did not choose the way towards this ‘European integration’. In reality, the Europeans as a whole and the British and the French in particular, did not succeed in building a European Recovery Program, that is, a common European recovery plan. The export figures given by

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each participant country overtook the capacities of the European market to absorb them. The question of the inter-European division of labor was not considered. Under British influence, the Sixteen’s report on any kind of European Recovery Program foresaw a general austerity, ‘by some severe dirigiste methods’, said the French delegates. French negotiators adamantly refused this report. But who could arbitrate in the Franco-British confrontation without a proper European political authority? Looking for an ‘Entente Cordiale’ Towards a European Recovery Program Franco-British negotiation remained the only solution, and this began on 11 February 1949 in London. The French brought with them their ideas for specializing the European economies, the sharing of the third market exports, the organization of investments, and a cooperation in order to use the pound in the trade exchanges with third countries. Economic specialization was thus the master concept for the French. Indeed, economic specialization was ‘the essential tool of cooperation since it increases interdependence of the participant countries and ends the autarchic trend’.46 Robert Schuman expressed it very well to Averell Harriman on 29 January 1949, when he remarked that France and Benelux, ‘see in a volunteer Trade Cooperation Policy based on trade specialization and trade liberalization an essential supplement to national efforts’.47 This indicates that the French were now ready to cooperate with the British. The SGCI advised the French government to lean towards the British Imperial system, ‘which gives serious warranties against the competition from the United States’.48 Consequently, before the important Franco-British talks, the French offices hoped to find the basis for consensus with the British, either on the grounds of a favorable bilateral cooperation for modernization, or on those of a broader European entente. But the Franco-British talks were a bitter defeat for the French. As for the economic inter-European entente, the British showed an obvious reluctance to any industrial specialization. The term ‘offends the British’, the SGCI noted. The results were hopeless for the ERP. On 4 March 1949 at the OEEC, Schuman declared that cooperation between Britain and the Continent was not working. Schuman’s pessimism is suggested by his cautious remark that he feared postponement of any hope to prepare the European economic integration that they sought.49 This failure relaunched the tendency towards a nationalist withdrawal. The CGT, (Confédération générale du travail), a French pro-communist trade union and the strongest of all, denounced the French long-term program

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as a backward plan imposed by American imperialism to shift the French economy towards some sort of a colonial one. While the United States had intervened to say that it did not want European autarchy, it had not been seen pressing the British to work out a European economic integration. So, in the end, it is perhaps uncertain whether the United States placed its trust in European unity? Moreover, perhaps the United States also feared the building of a western Europe, indeed open on the dollar area, but allowing for transitions unbearable to American interests. In April 1949, Monnet worked out a last attempt to link Great Britain to the Continent. It had all begun with the Petsche–Cripps meeting on 3 March 1949. Monnet proposed to merge both the British and French economies, as had been done on 16 June 1940. But Monnet noted in his Memoirs that the negotiators were not ready for it. Monnet proposed a special alliance strategy between France and Great Britain, in which French and British ambitions could both flourish. But in spite of some words of good will, the talks failed.50 Lord Plowden’s recollection of the 1940 situation suggests one possible explanation: ‘We could obviously not agree however to do anything which would have made us incapable of sustaining an independent resistance if France were to be overwhelmed.’51 Indeed, the OEEC was distressed by the memory of the French disaster of May 1940. It would be, at best, an advisory organization. The hope to build a Britain-leading Europe remained vivid in the minds of the French, while such a will did not exist on the British side, at least until the British membership to the Common Market in 1972. ‘The real truth’, said Marjolin, ‘was that the effort to set a four year plan had failed. There was no such thing as Europe.’52 Britain did not trust France, and it was deeply reluctant to endanger its privileged ties with the United States, or so it thought. In 1949, Britain could not think that France and the other Continental states would ever be able to emerge from their weakness and set up their own security. The signing of the Atlantic Alliance confirmed that opinion. The treaty had not been a positive outcome for European unity, and neither had the Cold War. The British chose to be safe with the Commonwealth and the United States against a European adventure which they could have led. As Marjolin said so aptly regarding the notion of British leadership, ‘There were many of us in France and in the other European countries who were ready to accept it, who even yearned for it.’53 That was the end of innocence for the founders of Europe. The disappointment was immense and continues to exert its influence decades later. It can still account today for the bitterness of those on the Continent towards Great Britain and the inability to achieve some salutary gesture of inter-European confidence.

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Having faced that major setback in 1949, the French then were forced to confront more directly the German recovery, which they could no longer ignore. The Quasi-Peripheral Strategy of USDS The US Department of State tried to reappraise its European policies. The Kennan project for an Anglo-American unity in autumn 1949 was an adaptation of the American policy for Europe linked to the real balance of power. Kennan appreciated that Great Britain was both geographically and by mind-set separated from the Continent. This project, of which the corollary was western European unity, failed because of the negative reactions of the American embassies in Europe and because of the reluctance of the US Secretary of Treasury. The idea of an institutional entente with Great Britain was at the core of American projects. The German danger certainly was a fundamental issue in the process of European integration. The United States long believed that the Franco-German quarrel was inextinguishable. According to Walter Lippman, the anti-German attitude of France was still understandable at the beginning of 1949. So, France was called upon to lead Europe, but within the framework of an entente with Germany and the rest of continental western Europe.54 This policy forged by Kennan set France at the core of European continental unity. Thus, US policy makers thought that France could, in any case, manage links with Germany to its own advantage, by means of European unity. In view of the Bevin–Acheson–Schuman talks on 15 September 1949, Dean Acheson offered France the leadership in Europe, together with the narrowest economic and political association with western Europe. One of the strongest American fears was to see Germany leave the western block, reasserting its full sovereignty. To avoid this risk, US policy makers wanted the OEEC to maintain some supranational powers in the monetary and economic fields, in addition to the French leadership on Continental Europe. Moreover, they spoke of integration. The American and British counter-insurance would have been given to France within the framework of the OEEC and NATO. It is useful to notice that the Europe Bureau at USDS considered the creation of the European Payments Union (EPU) within the containment of Germany. A ‘Little Europe’ for the Want of a Strong OEEC So we must think of the Schuman plan within the favorable scope of French leadership of continental Europe. High-ranking US civil servants often wavered between a continental European Union, useful to overcome the Franco-German conflict, and an Atlantic community

Plate 1

‘All Our Colours to the Mast’

Plate 2

‘Western Europe’s Recovery’

Plate 3 President Harry Truman signs the Foreign Assistance Act of 1948, setting into motion the ‘Marshall Plan’ for European Recovery

Plate 4 The central figures of the Marshall Plan were: (left to right) President Harry Truman, George C. Marshall, Will Clayton and Paul Hoffman

Plate 5

Plate 6

‘England: Something for Everybody’

Plate 7

Miner’s homes in Holland of concrete blocks made with an American block molding machine

Plate 8

‘The American Bludgeon’ was Russia’s interpretation of America intruding on the sovereignty of west European economies

Plate 9

‘CAN HE BLOCK IT?’ (Used by permission of Donald E. Marcus)

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uniting the Continent, Great Britain and the United States. They certainly preferred the latter and their leadership role within it. For this reason their ambivalence towards a ‘little Europe’ can be explained. They considered essential an integration that would facilitate the German participation in a little Europe; but more essential yet was a EPU that would gather all the OEEC countries. The Schuman proposal of 9 May 1950 provoked great admiration from the Truman Administration. In November 1950, the Staff Planning Group of the European Bureau of USDS accepted the Schuman plan, more in view of the Franco-German entente than with the idea of uniting Europe economically. It did not see the Schuman plan as a real start for a European Federation, but as an excellent argument to support the virtues of the Federation. It also saw France pledge its prestige in an irrevocable way so that the plan’s collapse was virtually unthinkable. But the USDS bureaux did not intend to push hard for the unity of Europe. They understood, as did both Miriam Camp and Harlan Cleveland of the Mutual Security Administration (MSA), that unity was first and foremost the business of the Europeans. So it was not easy for USDS to postpone any form of European unity which would have been lightly discriminating, subject to commitments before the GATT, or to hope for a free open common market. The Franco-German entente was perceived as a primary aim, one that was associated with the preoccupation with boosting the morale of the European working class, which had just been asked to participate in the functioning of the Steel and Coal High Authority. Sharing the Aid, or Cooperation in Progress The OEEC was confronted with the first concrete step towards a cooperation of the Sixteen, the difficulties of sharing the Marshall aid. Franco-American clashes on the German question were expected. Monnet proposed to give a small committee of ‘four wise men’ the power to divide the aid. It was made up of Guillaume Guindey, the French Foreign Finance Director, Eric P. Roll, the British Under-Secretary of the Treasury; first Pietro Stoppani, and then Giovanni Malagodi, the Italian government Advisers for Financial Affairs; and Dirk Spierenburg, the General Director of the Dutch Economic Affairs. The committee delivered its report on 12 August 1948. But Greece, Ireland, Iceland, Norway and Turkey would not accept it. The Bi-zone protested even more strongly. General Clay demanded $637 million; he only got $414 million. The provision of the first year Marshall aid package of $4,875 billion was shared as follows among the Sixteen, in descending order:

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$illioni United Kingdom 1,263 million France 989 million Italy 601 million Netherlands 496 million Bi-Zone Germany 414 million Belgium/Luxembourg 250 million Austria 217 million Greece 146 million Demark 110 million French-Occupied Germany 100 million Norway 84 million Ireland 79 million Turkey 50 million Sweden 47 million Trieste 18 million Iceland 11 million Total 1948–1949 Aid

4,875 million

The second provision of aid was to trigger a British crisis. The British were claiming $1.5 billion during fiscal year 1949–50, as compared to the $1.2 billion received in 1948–49, having stated not long before that the Marshall aid was becoming useless! Baron Snoy et d’Oppuers, the Deputy Chairman to the OEEC Council, together with the General Secretary of the OEEC, Robert Marjolin, managed to have a sharing aid model accepted. However, one can say that during autumn 1949, there was indeed a crisis for the Marshall Plan and for European unity. In September 1949, the Continental Europeans were to learn at the last minute that Cripps had devalued the pound without consulting them.55 The United States also rebuked the Europeans concerning their lack of unity, for the Marshall funds had been used to meet the dollar deficit of each European country. Henceforth, the United States was ready to give funds on the basis of an inter-European action program. The Europeans had asked for $22 billion for four years. President Truman presented to the Congress a proposal of $17 billion for the same four years. The participant countries received $11.8 billion in the form of grants between 3 April 1948 and 31 June 1951. Loans amounting to $1.139 billion were added to these grants for the duration of the ERP. Altogether, the ERP reached $13 billion, but was reduced year after year. In fact, the Korean War transformed US aid into aid for the rearmament of NATO countries.

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Solidifying Cold War Relations The general viewpoint prevalent in European countries of the interEuropean relations did not fail to take into account Europe’s so-called eastern states. The French decision makers, for example, wanted neither the Cold War nor the partition of Europe. Their position was obvious concerning the economic borders of Europe at the eve of the Marshall Plan. The French wanted to keep good relationships with the east, as is shown in the liberal Franco-Polish Trade Agreement (which troubled the Americans56) or in the journey to Warsaw made by Georges Boris, the French representative of the European Economic Commission in Geneva, in August 1948. The United States succeeded in setting up a blockade of the eastern countries with an organization soon called the Coordinating Committee (COCOM). The French departments were taken aback. The reaction of Olivier Wormser, a high civil servant to the Quai d’Orsay, was astonishment, because it was apparent that what France needed was Polish coal, non-ferrous products, and wood from the eastern European countries. The implementation of embargo lists would make the east–west tension worse. Wormser suggested bringing the problem before the OEEC to avoid an uncertain tete-a-tete with the United States.57 Other European countries, although they were in favor of a deeper mobilization against the east, were not ready to forget that the ‘People’s Democracies’ were their European brothers. The Marshall Plan tended to discourage these economic relations between the two halves of divided Europe. NATO Against the OEEC The United States passed a law on 10 October 1951, creating the Mutual Security Administration, which merged the economic and military assistance. It was to provide $4.9 billion for European security and only one billion for defense support, formerly economic assistance, during the fiscal year 1951–52. The ECA was in fact replaced in January 1952 by the Mutual Security Agency, or MSA. More than simply a name change, this indicated a shift in disposition regarding Europe. The Americans asked Marjolin to turn the OEEC into an economic Atlantic organization to reinforce its effectiveness in the event of a possible war.58 There was no easy solution to this proposition. As a symbol of non-military European reconstruction, the OEEC represented a venue for cooperation between the Atlantic Alliance countries and some neutral countries such as Sweden, Switzerland and Austria. It was a direct outgrowth of the Marshall Plan, while NATO was specifically created to guard the west against Soviet danger. Was it not in the political interest of the

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Europeans to maintain the integrity of the OEEC in order that it might someday be a platform for broader European unity, in relation with the Council of Europe? France, one of the OEEC’s more loyal supporters, was unable to fight for its original intent of planned economic harmonization, because of its own actual economic and political weaknesses. So it fell to Great Britain to try and merge the OEEC into a great Atlantic market, which would have been under a joint Anglo-American protection. Yet, the reluctance to dismantle the European organization was able to prevail under the action of the neutral countries. The NATO conference in Ottawa in September 1951 witnessed the creation of a special committee (Monnet, Harriman and Plowden) in charge of the questions of the economic development of the NATO countries in connection with rearmament. The debate on the utilization of the OEEC for NATO was linked to the equilibrium of the Alliance. Although the Korean War had strengthened the Atlantic powers and accentuated security issues within the Alliance, the OEEC remained a symbol for peace in Europe, one to which France was firmly attached. In spite of America and Great Britain’s insistence, and Marjolin’s ambivalence towards the future of the organization, there was ultimately no merging of the two organizations. In August 1951 the OEEC launched an initiative to increase the production levels in the OEEC countries by 25 percent within five years. The Marshall Plan and the Long-term Interests of Europe While the Marshall Plan did not impose unity on Europe, because of differences of judgment within the Truman Administration, it nevertheless answered some needs for Europeans regarding the remaining power of great European states, and also regarding certain international events. Trade Liberalization and Productivity The economic development of Europe was suffering from the nonconvertibility of European currencies and from trade quotas. These obstacles were progressively reduced. On 18 November 1947, France, Italy and the Benelux countries decided to establish automatic payments among themselves for a one-year period. In October 1948, a new multilateral agreement was signed. All the OEEC countries, except for Switzerland and Portugal, agreed on the principle of compensations and of automatic payments within European trade. But the system was rigid. The system of payments was organized on a provisional basis regarding the condition of trade balance. The countries in debt obtained bilateral drafting rights from their creditor countries in the European currency

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that they needed. This credit was reimbursed to the creditor countries by American aid dollars within the framework of the Marshall Plan. Credit on this basis rose to $564 million in the fiscal year 1948–49. In the fiscal year 1949–50, partial transferability of drafting rights was introduced. Twenty-five percent of each drafting right was multilateralized, that is to say, capable of being used in any European member country of the Marshall Plan. By the end of 1949, the OEEC tried to suppress the various obstacles to exchanges. A code of trade liberalization was negotiated, which, along with economic principles, was very substantial, but insufficient for the hopes of the political unity of Europe. The question of economic organization for Europe arose after the collapse of the Franco-British talks of February–April 1949. The French had proposed to set a voluntary organization for the markets, a clever compromise between a market economy and the protection of weaker economies. Others envisaged creating either a classical common market, or like the Secretary of the OEEC, a specific organization for European currencies. The Marshall Plan demanded an increase in productivity in the different economic sectors. In March 1953, the Council for the OEEC created a European productivity agency, an entity which provided information and service to stimulate productivity. The productivity policy was illustrated by productivity missions to the United States to observe the arrival of the new industrial age. Some attempts were made to settle, as quickly as possible, the question of transferability of European currencies. The French proposed to set an economic and monetary regional union, known as FINEBEL and gathering France, Belgium, Luxembourg and the Netherlands. The French memorandum of 12 November 1949 would have permitted Germany to join it, but the French administration was not inclined to allow its admission. The free quotation of currencies would have been authorized in a system of controlled floating change. A special fund to support the mechanism would have been created, with the participation of the American aid. The project was criticized by the British, who were worried by the prospect of the birth of a ‘Little Continental Europe’. But FINEBEL’s collapse was total, because the United States had succeeded in having the European Payments Union accepted. The European Payments Union, a Fruit of the Marshall Plan In December 1949, the United States proposed the creation of a European Payments Union, or EPU, that the British supported. The creation of the EPU had three different targets: to release the obstacle of the non-convertibility of European currencies; to release the quota

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restrictions; and to cut short the constraints of bilateralism. The organization of the EPU gave a reference quota for each country to settle surpluses and deficits automatically. This quota was worth 15 percent of any state trading with the other OEEC countries. Each member paid a contribution to a common fund of the EPU corresponding to 60 percent of its referenced quota. On 7 July 1950, the Council of the OEEC approved the creation of the EPU, which would facilitate trade payments. A state that was commercially indebted to the members of the EPU corresponding to 20 percent of its quota could ask for the EPU to pay for its debt. If its debt increased, it had to pay back its deficit by progressively using its gold or dollar reserves. If, however, its deficit was to exceed the level of its reference quota, the EPU would cease to intervene, and this unfortunate country would have to repay its debts alone. Thus, countries were encouraged to watch out for their foreign deficits, lest they rise too high. Contrastingly, a creditor at the level of 20 percent of its quota was reimbursed by credits from the EPU. If the country’s surplus were still increasing, the ensuing part of 20 percent of its quota would be paid, half in gold, half in credit. This system was to work up to 100 percent of the quota. Conversely, the ECA made $350 million available for the EPU to boost such actions. These mechanisms were managed by the International Settlements Bank (ISB), based in Basel, Switzerland. The EPU was broken up on 27 December 1958, despite the great regret of many. However, the creation of the EPU had necessarily been accompanied by a liberalization of trade, and by the end of 1950, 60 percent of the private trade was liberated. Indeed, there were serious relapses, as in France and Great Britain. In August 1955, a European monetary agreement was signed between the members of the OEEC. It prepared for the general convertibility of currencies, realized in 1958. The EPU negotiations were accompanied by new considerations on European economic unity, which were subsequently halted by the Franco-British failure of April 1949. In June 1950, OEEC Council chairman Dirk Stikker proposed an action plan for the economic integration of Europe by means of industrial specialization, the international division of work, and a single European market. But in part the Stikker plan aimed at avoiding the principles of unanimity when it came to reaching a decision. A European integration fund would have to be created to resolve social questions. The French and Italian ministers, Petsche and Pella, amended the Stikker plan, stressing the importance of a European Investments Bank, which could have played a regulatory role for the investments. However, neither of these plans were ever adopted. Ultimately, it fell to the EPU to facilitate the convertibility of the European currencies. Moreover, the EPU permitted inter-European

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trade liberalization, but the EPU was unable to create full European integration. Conclusion The OEEC represented a hope for uniting Europe, primarily because US policy makers vaguely imagined that it would be a model for the United States of Europe. But Europeans forged it as an organization of cooperation, not as one of integration. Thus, it disappointed many supporters of an institutional European unity. What is more, it did not resist the attacks of those who preferred NATO, a US-dominated and Atlanticist organization. Other organizations sought the establishment of some kind of European unity: the ECSC, the EDC, EURATOM, and the Common Market. However, the OEEC, being the European organization for the Marshall Plan, worked remarkably well at ‘casting the bronze bases’ of capitalist growth in Europe and multilateralizing trade and payments. American aid to Europe was two-faced. On the one hand, it expressed the common interest of the European and American peoples. On the other hand, its support of an Atlantic security policy obsessed with the Communist threat worked against European unity. Yet, in both cases, the Marshall Plan and the MSA aid packages tied together western Europe and the Atlantic area, without preventing the former from promoting her own unity, based on her own concepts. But was Europe a willing participant? This aid reminded the Europeans that the time of autonomy was over, and not only economic, but commercial and political liberalism as well were the ‘new age’ bible of a free international society. Living under the American shadow was protective and Europe needed that shelter for a while. But did she perhaps overuse it, to the point of forgetting that it was possible for her to live according to her own ambitions? The creation of the European Community in 1957 seems to mark the awakening of Europe. But fundamental questions, such as the economic and political autonomy of the European Union, are still to be tackled. The necessary friendship between European countries within the OEEC seems to us to be the central point of European recovery. The American demands have been useful to show the way towards trade and payments liberalization, and as such, they have been in keeping with the aspirations of the liberals in Europe. At the same time, they have restricted the supporters of the welfare state. But so long as US aid benefited broadly interpreted national interests and raised standards of living for the majorities, it was accepted with gratitude. However, the militarization of the American aid was a turning point

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in US policy towards Europe. American aid tied to its own definitions of Cold War security eventually became an obstacle to growth. The conservative governments in Europe have been seen to anticipate the wishes of the Pentagon by adopting the American interests more completely than would have been reasonable. Integration thus became more Atlanticist than European, and it undoubtedly slowed down the process of an institutional unity of Europe. References Auriol, V. Journal du Septennat, 1947–1954, T. 1, 1947, T. 2, 1948, T. 3, 1949, T. 5, 1951, T. 6, 1952, T. 7, 1953. Bossuat, G. (1992) L’Europe occidentale à l’heure américaine (Plan Marshall et unité européenne), 1944–1952. Complexe, Bruxelles, Questions au XXe siècle, p.351. Bossuat, G. (1997) La France, l’aide américaine et la construction européenne, 1944–1954, 2 vol., Comité pour l’Histoire Economique et Financière de la France, (CHEFF) Paris, Imprimerie Nationale, bibliographie, chronologie, index, 1010 pp. Réédition. Bossuat, G. (2001) Les aides américaines, économiques et militaires à la France, 1938–1960, une nouvelle image des rapports de puissance, Comité pour l’histoire économique et financière de la France. Hogan, M.J. (1987) The Marshall Plan, America, Britain, and the Reconstruction of Western Europe, 1947–1952. New York: Cambridge University Press. Maier, C. (1991) ‘Politique et économie internationales, 1947–1948, George C. Marshall et l’histoire du plan Marshall’, in Le plan Marshall et le relèvement économique de l’Europe, Bercy colloquium, March 21–23, CHEFF. Marjolin, R. Europe in Search of Its Identity. p.23, the Russell C. Leffingwell Lectures, 9, 16, September 18. Marjolin, R. (1986) Le travail d’une vie, Mémoires 1911–1986. Paris: Editions R. Laffont. Mélandri, P. (1979) Les Etats-Unis face a l’unification de l’Europe, 1945–1954, Volume I, Thesis publications, Université de Lille III, p.134. Milward, A. (1984) The Reconstruction of Western Europe 1945–1951. London: Methuen. Schroder, H-J. (1986) ‘The Economic reconstruction of West Germany in the context of International Relations 1945–1949’, in Josef Becker, Franz Knipping (eds), Power in Europe? De Gruyter, p.306. Schroder, H-J. (ed.) (1990) Marshallplan Und Westdetscher Wiederaufstieg: Positionen Kontroversen. Stuttgart: Franz Steiner Verlag. Wall, I.M. (1991) L’influence américaine sur la politique française, 1945–1954. New York: Cambridge University Press.

Notes The archival material comes from the French National Archives: FNA; from the French Foreign Minister Archives: FFMA; from the Jean Monnet Archives: AMF. 1. ‘It would be neither fitting nor efficacious for this Government to undertake to draw up unilaterally a program designed to place Europe on its feet economically. This is the business of the Europeans. The initiative, I think, must come from Europe. The role of this country should consist of friendly aid in the drafting of a European program and of later support of such a program so far as it may be practical for us to do so. The program should be a joing one, agreed to by a number, if not all, European nations.’ 2. According to a short item of D. Dhombres, Le Monde, ‘La CIA contre les alliés’, October 23, 1993. 3. New York Herald Tribune, 17 November 1952.

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4. Ibid., 24 November 1952. 5. Hans-Jurgen Schroder, ‘The Economic reconstruction of West Germany in the context of International Relations 1945–1949’, in Josef Becker, Franz Knipping (eds.), Power in Europe? De Gruyter, 1986, p.306; Hans-Jurgen Schroder (Hrsg.), Marshallplan Und Westdetscher Wiederaufstieg: Positionen Kontroversen. Stuttgart: Franz Steiner Verlag, 1990. 6. Irvin M. Wall, L’influence américaine sur la politique française, 1945–1954, New York: Cambridge University Press. 1991, p.113. 7. Pierre Mélandri, Les Etats-Unis face a l’unification de l’Europe, 1945–1954, Volume I, Thesis publications, Université de Lille III, 1979, p.134. 8. Charles Maier, ‘Politique et économie internationales, 1947–1948, George C. Marshall et l’histoire du plan Marshall’, in Le plan Marshall et le relèvement économique de l’Europe, Bercy colloquium, 21–23 March 1991, CHEFF, p.39. 9. Alan Milward, The Reconstruction of Western Europe 1945–1951, London: Methuen, 1984, p.466. 10. Michael J. Hogan, The Marshall Plan, America, Britain, and the Reconstruction of Western Europe, 1947–1952, New York: Cambridge University Press, 1987. 11. Irvin M. Wall, L’influence américaine sur la politique française, 1945–1954, New York: Cambridge University Press, 1989, p.114. 12. FFMA, B Amérique 1944–1952, Etats-Unis 162, Bonnet, June 14, 1947, 9:58 PM, document number 2002. 13. See Gérard Bossuat, La France, l’aide américaine et la construction européenne, 1944–1954, 2 vol., Comité pour l’Histoire Economique et Financière de la France, Paris, Imprimerie Nationale, bibliographie, chronologie, index, 1010 pp. Réédition 1997. 14. Bertrand de Jouvenel, L’Amérique en Europe, Le plan Marshall et la Cooperation internationale, Plon, 1948, p.71. Pierre Mélandri, Les Etats-Unis face a la construction de l’Europe 1945–1954, Volume 1, Thesis Publications, Université de Lille, 1979, pp.183–4. 15. Roughly translated as ‘we are not to be taken for a ride!’ Charmasse on American columnists on Germany and Austria, Baden-Baden, 13 September 1947, FFMA, YI 228, 1944–1949, p.123. Bulgaria: Louet, foreign affairs officer at Bidault, interviews with the American mission. Sofia, 5 October 1947, 1:20 PM, YI 228, 1944–1949, pp.484–6. 16. Manuscript note of G.R. (Georges Rey) to Pierre Olivier Lapie, 23 July 1947, FNA, 331 AP 1. Note on foreign policy: H. Bonnet to G. Bidault, July 7, 1947, document number 1437, YI 1944–1949, 228, including an article on France and the Marshall Plan from the 6 July edition of the New York Times. 17. FAN, 457 A.P. 20, DAEF, 2 August 1947, DG, Alphand, note for the president, p.4. 18. Max Petitpierre told Hoppenot, the French ambassador to Bern, that the French initiative has been made, ‘by the wish to honor the superficial and totally theoretical views of some American leaders, principally M. Clayton’; FFMA, ZE 1944–49, Italie 91, Note from M. Chauvel, 3 January 1948, for M. Paris, a/s UDFI. CE 46, Hoppenot, Berne, 18 September 1947, 9 PM, 214–218. 19. Vincent Auriol, Journal du Septennat, 1947–1954, T. 1, 1947, T. 2, 1948, T. 3, 1949, T. 5, 1951, T. 6, 1952, T. 7, 1953–54. Armand Colin, 1970 seq, Council of Ministers, August 8, 1947, p.391 T. 1. 20. FNA, 457 AP 20, MAE, H.A., DAEF, DG, 11 September 1947, note. 21. FFMA, Z Europe 1944–1949, Grande-Bretagne 38, Visit of Bevin to M. Ramadier, 22 September 1947, 4 AU 23, dr 5. Z Europe 1944–1949, Grande Bretagne 38, Massigli, October 1, 1947, 2173, very secret, 3 October 1947, 2212, Massigli papers, telegram 2173, 1 October 1947. Z Europe 1944–1949, Grand Bretagne 38, conversation between Bevin and Chauvel, 20 October 1947, circular IP, 288, 29 October 1947, urgent UP from 28 October. 22. FFMA, CE 46, B 33689, Bonnet, 23 October 1947, 11:30 PM, 3210–13, document number 354 DET, a/s du CCEE. 23. FFMA, CE 46, Bonnet, 25 October 1947, 8:30 PM, 3242–6. 24. FFMA, CE 46, Massigli, London, 16 December 1947, 8:35 PM. YI 1944–49, 229, 17 December 1947, English-French conversations, very secret. 25. FFMA, Massigli papers, 3 January 1948, number 30/31.

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26. FUMA, Z Europe 1944–1949, Généralités 20, Massigli, O.W. 5 February 1948, to G. Bidault, 276. Z Europe 1944–1949, Généralités 20, SG, 31 January 1948, report note of Secretary General Harvey. 27. FFMA, Z Europe 1944–1949, Italie 91, Note from M. Chauvel., 3 January 1948, from M. Paris, a/s UDFI. 28. FFMA, CE 47, Massigli, 6 February 1948, 10:10 PM, 466–69. 29. FNA, 457 AP 21 PB, 24 March 1948, DAEF, note for the president, negotiations of the Sixteen. 30. FFMA, CE 47, FNA, 457 AP 21, AE, VL, 31 March 1948, note on the draft agreement prepared by the conference committee of the Committee of the Sixteen. 31. FNA, 457 AP 21, proposals of the French delegation to the CT of the CCEE concerning the principles of the organization of the countries participating in the reforming of Europe, s.d; p.7; recopied with appendices. 32. The Reconstruction of Western Europe, 1945–51, London: Methuen and Company, 1984, p.173. 33. AMF 22/1/5, 18 April 1948, letter from Monnet to Schuman, and 22/1/6, from Monnet to Bidault. 34. Robert Marjolin, Europe in Search of Its Identity, p.23, the Russell C. Leffingwell Lectures, 9, 16, 18 September, 1980 p.21. 35. Léon Blum, ‘On attend un Mirabeau’, Le Populaire, 26 August 1949. 36. Léon Blum, ‘L’Amérique et l’ONU’, Le Populaire, 20 May 1947. 37. Léon Blum, ‘L’unité européenne’, Le Populaire, 25–26 May 1947. 38. Léon Blum, ‘Le prêt-bail de la Paix’, Le Populaire, 8–9 June 1947. 39. The SFIO before the Cold War, Debate, Robert Verdier, pp.32–3, et 67, Cahiers Léon Blum, ‘La SFIO et la politique extérieure de la France entre 1945 et 1954’, number 21–2. 40. Œuvres, 1947–1950, p.125. 41. Public Law number 472, from 3 April 1948. 42. AMF 14/6/7. Ou 52 J 119, mémorandum for the Inter-ministerial Economic Committee on questions of European economic Cooperation, 16 July 1948. Response from Quai d’Orsay to the note from Monnet of 27 June to Bidault (or of 23 June), in Y international 1944–1949, 131, MAE to CGP, 9 August 1948. 43. FNA, F 60 ter 389, Jean Monnet to Council President, 13 July 1948. 44. FNA, F 60 ter 391, source SGCI, Remarks on the telegram of M. Bonnet of 21 December 1948, from Washington. 45. FFMA, CE 50, A. Kojève, 16 November 1948, at MAE. 46. FFMA, CE 64, note of VL, ‘Economic Cooperation’, 18 January 1949, note. 47. FFMA, CE 64, H. Alphand, 11 January 1949, economic cooperation, from posts in Europe, Washington conversations between Schuman and Harriman on the problems raised in implementing European economic Cooperation. 48. FNA, F 60 ter 476, note of the SGCI on agenda points 2 and 3 of conversations M. Petsche and Sir Stafford Cripps. 49. FFMA, CE 64, AE, 3 March 1949, plan statement of the Chairman of the GCM of the OEEC. 50. Jean Monnet, Mémoires, t. 1, pp.401–4. A.S. Milward, The Reconstruction of Western Europe, 1945–1951, Methuen, 1984, p.201. Text of the meeting is available in Pierre Uri, Fragments de politique économique, Les libertés de la fonction publique, les servitudes de la dispersion, PUG, 1989, pp.103–12. 51. Archives Jean Monnet, Lausanne, AMF 22/3/3 note sur les entretiens Monnet–Plowden par Pierre Uri, 23 April 1949; AMF 22/3/5, Lord Plowden interview, in ‘money program’ [Monnet program], Monnet profile, 5351: 5544. Interview with Lord Plowden, by Richard Mayne, 2 February 1982, series deposited in Lausanne with the interviews done by A. Mares. 52. Robert Marjolin (1986) Le travail d’une vie, Mémoires 1911–1986. Laffont, p.201. 53. Robert Marjolin, Europe in Search of Its Identity, p.23, the Russell C. Leffingwell Lectures, 9, 16, 18 September 1980. 54. Walter Lippman, New York Times, 8 January 1949.

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55. The pound was devalued by 30% in relation to the dollar, moving from $4.03 to $2.80. The franc and other currencies necessarily followed. The franc passed from 214 per dollar to 347 per dollar, but it must be revalued by 11% in relation to the pound. 56. FFMA, CE 49, R. Schuman, à René Massigli, 19 September 1948, 373 a/s commerce between eastern and western Europe. 57. FFMA, CE 52, O.W. 22 October 1948, note for the Chairman, commerce with eastern European countries. 58. FFMA, CE 89 DGAEF MAE 24 July 1950, note for the President; note for the Chairman, notes taken by the French delegation to the OEEC on the statements of Bissell, 1 October 1950.

Part II Markets and National Policy

5 As the Twig is Bent: The Marshall Plan in Europe’s Industrial Structure RAYMOND VERNON

Apart from great wars, there are not many events in history that can be credited with a decisive role in the subsequent development of the nations involved. But the Marshall Plan is a candidate for that distinction. For it dramatically raised the sights of European nations as to the possibilities of economic cooperation. And, with that remarkable achievement, it opened up the possibility of an industrial structure in Europe that otherwise might have taken a very different form. Europe’s Industrial Traditions To place Europe’s industrial structure after World War II in appropriate perspective, one has to recognize the intimate historical relationship that existed before the war between big enterprises in Europe and the national governments of their home countries. Many of these enterprises had come into existence long before World War II with the direct patronage of their home governments and with the expectation that they would perform some specific function important to the state, such as promoting trade in distant places, producing guns for the military establishment, or freeing the country from its reliance on some key import such as steel or chemicals. When enterprises such as these set up subsidiaries or affiliates in other countries before World War II, as many did, they tended to favor countries with close political ties to their home governments. British firms were disproportionately represented in the Empire or the Commonwealth, French firms in other francophone countries, German firms in Central Europe, and so on.1 There were occasional exceptions, of course. Enterprises in small countries, such as Nestlé in Switzerland, sometimes outgrew their home markets and were obliged to take potluck in global markets. Enterprises that specialized in raw materials production, such as Unilever in Africa, sometimes had no choice but to gamble on a foreign production site, hoping to bring the diplomatic protection of their home government

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after them. By and large, however, the geographical commitments of most large European firms were closely linked to the political orientation of the respective home government of each. The propensity of Europe’s large firms to keep out of one another’s way before World War II was strongly fortified by another factor, namely, the pervasive existence of international cartels. In today’s environment, it is difficult to recall that the word ‘competition’ has not always been regarded with favor in Europe, nor the word ‘cartel’ with opprobrium. In industries in which producers employed major economies of scale, any effort of one firm to penetrate the market of a rival in another country conjured up the threat that each of the firms would eventually respond by lowering its price to a point at which it was unable to recoup its fixed costs. Such a response could lead to the eventual destruction of at least one of the rivals, possibly even to their mutual destruction. Before World War II, therefore, the leaders sought to reduce that threat through the negotiation of international cartels. The cartels were a major force in European markets, operating with the concurrence of their governments in steel, aluminum, copper, lead, oil, alkalis, dyestuffs, hormones, nitrates, pharmaceuticals, cement, batteries, cables, lamps, glass, electrical equipment, railroad cars, rayon, and numerous lesser products.2 In many of these arrangements, including notably those in steel, oil, and lamps, leading US firms were members or allies of the European cartels; but, because such firms could not count on the support of the US government or the US public, they commonly kept their association with the Europeans under wraps.3 The year 1947, when the Marshall Plan was being put together, hardly seemed a propitious time for US planners to be promoting the concept that Europe’s salvation lay in opening its borders and increasing competition in European markets. This was not an idea for which Europe’s industrial leaders and Europe’s labor unions had exhibited much sympathy in earlier years. Besides, Europe was struggling under the acute scarcities of the reconstruction era, and governmental planning seemed essential for its survival. Nevertheless, the US government put great stress on the objective of, ‘facilitating and stimulating an increasing interchange of goods and services among the participating countries and with other countries . . .’.4 A number of factors helped to make such an intrusive intervention possible. For one thing, Europe was down and out, in desperate need of financial help that the United States was offering along with its advice on freer markets. The forces that might otherwise have resisted the idea of opening national borders, such as the leading industrial

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firms and the labor unions, were in no position to put up effective resistance. For another, the idea that open economic borders might be helpful for Europe’s recovery also had its European supporters. After all, it had been British scholars such as Adam Smith and David Ricardo who had produced the first formal theories of the virtues of international competition. Moreover, schools of Austrian and German scholars had a long history of support for competitive markets even if their industrial leaders had paid scant attention to such threatening ideas.5 Perhaps more important in Europe’s acceptance of the idea of open markets was the conviction of a handful of atypical visionaries in Europe, including Konrad Adenauer, Paul Henri Spaak, and Jean Monnet, that Europe must undergo a deep political change that would end the war-making capacity of the individual states. Leaders such as these were prepared to look beyond the immediate emergency in Europe and to envision the eventual possibility of an open European market. And because the politicians and bureaucrats of Europe were in the saddle at the time, coping with emergencies of postwar reconstruction, the protectionist influences that industrial leaders and labor leaders exercised in more normal periods were briefly in eclipse. The US-sponsored idea of linking Europe’s recovery to that of increased competition in Europe had to overcome not only some wellentrenched ideas in Europe but also some basic principles embedded in other international programs sponsored by the US government itself. In the year 1947, US officials were in the throes of a giant negotiation for the creation of an International Trade Organization (ITO), one of whose fundamental principles was that of avoiding the development of preferential trading blocs. The concept of creating open markets in Europe carried an inescapable connotation, later to become a tangible reality, of the development of just such a European bloc. On the other hand, the ITO Charter did include a major concept that was fully in accord with the tenets of the Marshall Plan, and this would have enduring consequences long after the plan had been completed. This was the concept that governments should cooperate in controlling restrictive business practices that had the effect of suppressing international competition. Drawing on the wording that was concurrently being developed in the ITO negotiations, the idea of such cooperation found its way into the bilateral agreements negotiated between the United States and each of the Marshall Plan countries.6

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A Seed Takes Root The Marshall Plan was launched, therefore, in a setting that rejected the old cartel-based division of national markets in Europe, substituting instead a vaguely formed expectation that some kind of pan-European market would eventually emerge. That expectation was reflected in the programs of the Organization for European Economic Cooperation, which included representatives from the countries of Europe and North America participating in the program. Under the trade liberalization program that emerged under Marshall Plan sponsorship, European countries progressively relaxed the licensing barriers that each was maintaining against imports, at least as those barriers applied to other European countries. For the time being, therefore, the US government found itself the sponsor of a program creating an area that collectively discriminated in favor of European products and against dollar goods. These early successes of the Marshall Plan stimulated a string of proposals to create a European market on a more enduring basis. Most of these proposals contemplated the creation of a formal free trade area among European countries. But none of these really took hold until the extraordinary proposal from France in 1950 to create a European Coal and Steel Community (ECSC), whose prime purpose would be to intertwine the French and West German economies in such a way as to block the possibility of a future war between them.7 The success of the ECSC in commanding the support of Europe’s leaders rested on various factors. Not least was its boldness, a proposal that matched the Marshall Plan for its unprecedented character. But there was another element that contributed to its eventual adoption. The United Kingdom had been the traditional spoiler of any international arrangement that seemed to lock it too tightly into Europe; so it was prone to throw cold water on any proposal raised in the Marshall Plan context that seemed to have that consequence. The heart of the ECSC proposal, however, was a French–German relationship, with the United Kingdom being offered participation on a ‘take it or leave it’ basis. In the first of a series of such choices, the British elected to refuse the invitation, leaving the French and Germans to move ahead. The ECSC proposal contemplated a liquidation of national barriers in the European markets for coal and steel. It rejected a return to the prewar cartel system, drawing once again on the language of the ITO Charter to define the outlawed private practices. But reflecting the critical importance of coal and steel at the time, the ECSC treaty also left extensive contingent powers in official hands, including the power to

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control capacity and production in the coal and steel industries; so it did not clearly resolve the relative roles of private sector competition and official planning within the coal and steel markets. That clarification, however, came seven or eight years later, with the negotiation of the European Economic Community (EEC). By that time, the idea that Europe could benefit from stronger economic ties among its member states had taken root in much of Europe. The visionary leaders on the European continent who had been so important in the Marshall Plan period were still very much in evidence, supporting their long-term objectives for peace in Europe. Charles de Gaulle’s ascendancy to the French presidency in 1958 seemed briefly to threaten the future of the project; but de Gaulle was apparently beginning to see a united Europe as an answer to the threat of hegemony from the United States, as well as a means of helping to maintain France’s expensive agricultural-support programs. These factors in combination managed to carry the project for the EEC over its final hurdle, bringing it into being in 1959. How important was the Marshall Plan in defining the terms of the new community? The decision to create a supranational body was far more European in origin than American, stemming from the determination of Europe’s small group of inspired leaders to fashion a remedy appropriate to the problem of ending European wars.8 But the Marshall Plan could claim some credit for preparing the ground that led to such a decision. In the execution of the plan over a four-year period, European leaders had repeatedly tackled and solved a succession of difficult issues, building up a capacity for international give and take that had no precedent in Europe’s diplomatic history. Some of the European principals involved in the drafting of the EEC treaty and in its subsequent ratification had played central roles in the Marshall Plan a decade earlier. As some of them testified, their shared experiences under the Marshall Plan deeply affected their views in subsequent years of the possibilities of a unified Europe. Still, one has to look for an explanation of why the provisions of the EEC gave so much weight to the use of open markets and so little to the use of public power, a clear shift from the provisions of the ECSC. That shift probably had less to do with any strong ideological attachment to free markets than with a basic political problem attending any new confederation of national governments. Like the US experience in drafting its constitution two centuries earlier, member states apparently had second thoughts about surrendering extensive powers to a new supranational authority. Accordingly, the final structure of the treaty creating

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the European Economic Community (later to be folded into the European Union) was one that imposed extensive checks and balances on the Brussels bureaucracy. The upshot was that, outside of agriculture, open markets and competition were largely assigned the basic role of bringing about a unified European economy. If the Marshall Plan had never existed, the possibility still remains that Europe’s leaders would have been groping toward some sort of European entente during the 1950s. But with the United Kingdom constantly resisting any measures that smacked of steps toward a confederal Europe, the most ambitious possibility would have been that of a conventional free trade area, festooned with the numerous qualifications, exceptions, and restraints that typify such agreements, and administered by intergovernmental bodies with highly circumscribed powers. In that kind of setting, European businesses might have been expected to develop along quite different lines than those that eventually emerged. New Perspectives for Business In the decades following the creation of the European Economic Community, trade among the countries of Europe grew very rapidly, at a rate that was far faster than the growth of their trade with countries outside of Europe. Of course, this was a period in which the members of the European Union grew by stages from six to nine to twelve to fifteen. Still, the record of the twelve countries that were members of the EEC during the 1980s provides a representative picture of the trend over the longer term. The intra-European exports of this group of twelve rose from 37.2 percent of their global exports in 1958 to 63.4 percent of their global exports in 1994.9 One cannot say for certain how much of the rise in this ratio was the result of the trade-liberalizing measures of the European Union. For one thing, these developments occurred in a period when vast changes were taking place in industrial techniques, consumer tastes, and transportation facilities, any of which could conceivably have contributed to the trend. Moreover, the trend might conceivably have been achieved through trade diversion at the expense of those outside the area. Numerous studies of European trade trends, however, provide reasonable grounds for generalization. They suggest that the provisions of the EEC have been an important factor in the growth of intra-European trade; and, although the growth of trade in agricultural products had been achieved largely at the expense of outsiders, most of the growth has represented new trade creation induced by the decline in national protection inside Europe.10

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With the new perspectives being created by the Marshall Plan, the ECSC, and the EEC in the decade or two after the end of World War II, one might have supposed that the animal spirits of business managers in North America and Europe would have produced a sharp surge in trade and investment in Europe. In the first few years of that interval, however, the reaction of the business world to the opportunities for crossing European borders was on the whole cautious and restrained. US businesses seemed in an especially good position at the time to the new perspectives. Many US-based firms had acquired technological capabilities during the period of war and recovery that put them well ahead of any global competitors; their dominance in electronics, consumer durables, food processing, various branches of the machinery industry, and some types of chemicals was particularly apparent. Moreover, the Marshall Plan itself, launched in 1948, seemed to offer both economic opportunity and political support for many firms based in the United States that had an interest in Europe’s markets. Many US firms were prevented from exporting their products directly into Europe as a result of import restrictions; but a considerable number still might have been expected to set up manufacturing subsidiaries in Europe. As Table 5.1 indicates, some in fact did; but it was several years after the launching of the Marshall Plan before the movement was more than a trickle. By the 1960s, US firms were acquiring new subsidiaries in Europe in impressive numbers. But as the data in Table 5.1 indicate, big firms based in Europe were not far behind those in the United States in acquiring TABLE 5.1 FOREIGN MANUFACTURING SUBSIDIARIES ESTABLISHED BY MULTINATIONAL ENTERPRISES IN SELECTED AREAS (AVERAGE NUMBER ESTABLISHED PER YEAR)

By 187 US-based Parents

1914–45 1946–52 1953–58 1959–67 1968–70

By 137 Parents based in UK or Continental Europe

In UK

Other Europe

Elsewhere

In US

In Europe

Elsewhere

3.7 6.1 9.8 27.3 na

5.5 10.0 25.3 102.2 na

15.7 39.0 85.1 176.0 na

1.8 1.9 3.1 18.1 49.6

11.8 12.5 20.9 92.4 270.3

8.7 32.9 42.1 123.2 265.4

Source: James P. Vaupel and Joan P. Curhan, The World’s Multinational Enterprises (Boston: Harvard Business School, 1973), and Joan P. Curhan, William H. Davidson and Rajan Suri, Tracing the Multinationals (Cambridge: Ballinger Publishing, 1977). na = not available

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new subsidiaries in other European countries. Their acquisitions, however, appear to have been tentative and shallow, representing little in the way of capital commitment or aggressive expansion. If anecdotal evidence is to be believed, the large European firms preferred to serve other parts of Europe through exports from their home base rather than through subsidiary sales. The apparent hesitation of European firms to make big capital and strategic commitments in other European countries in the 1950s and early 1960s is easy to understand. For most of them, the decade following the end of the war was one of acute scarcity, typified by a lack of capital and of production capacity; and, where such difficulties could be overcome, the pent-up demand in the home markets usually had first priority. Besides, the physical proximity of Europe-based firms to other European countries led many to believe (notwithstanding some evidence to the contrary in a number of industries) that markets in those other countries could be effectively served from their home location. By the end of the 1950s, US-based multinationals had managed to make a visible mark in the penetration of Europe’s markets. While this penetration was achieved partly through their exports, much of it was linked to the establishment of producing subsidiaries in Europe. And by 1966, Jean-Jacques Servan-Schreiber was warning Europeans in his celebrated Le Defi Americain that Europe was falling dangerously behind its American competitors. Facing the incursions of US competitors in their home territories, some leading enterprises in Europe sought and acquired from their home governments the formal or informal status of ‘national champions’, which gave them an inside track to government purchases, subsidized loans, and other forms of public assistance so that they might fend off the foreign invaders.11 But in only a few years, it began to appear that the ‘national champion’ approach was not working. Although US-based competitors seemed to be faltering in the 1970s, new sources of competition were appearing in Europe from Japan, Korea, and various lesser sources. Besides, in industries such as aircraft manufacture, computer software and hardware, and biotechnology, where European countries were hoping to make a mark, the lackluster performance of Europebased companies seemed unchanged. Toward a Single Market In an earlier era, European enterprises that were losing out to foreign competitors would have turned their minds to the possibility of an international cartel, in which markets would be parceled out among existing

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competitors. In a few European industries, indeed, just such a solution was attempted.12 But some new conditions existed in Europe that rendered such a response much more difficult than in the period before World War II. One of these conditions, as Table 5.1 suggests, was the existence of foreign-owned subsidiaries in some numbers in each country of Europe, complicating the problem of parceling out European markets among the members of a cartel. In particular, the subsidiaries of US-based firms in Europe would be chary about joining such a group. But a second factor was the existence of Articles 85 and 86 of the Rome Treaty, embodying strictures against restrictive business practices and against the exercise of monopoly power. Although these articles were somewhat different in substance from US statutes on such subjects, and although they pointed to different procedures for their enforcement, the basic concepts went directly back to the relevant provisions of the ITO Charter and the Marshall Plan bilaterals. The European Commission’s record of enforcement of these articles, which occasionally included heavy fines for offenders, was vigorous enough to give pause to prospective offenders. By the latter 1970s, it was becoming clear to many leading firms in Europe that their responses to the increasing competition from firms headquartered in the United States, Japan, or even Korea were not sufficient. A common diagnosis of their difficulties began to emerge. One basic problem, as many big firms in Europe perceived it, was that the barriers to trade that still remained inside Europe were sufficiently formidable to prevent Europe-based firms from treating the whole of Europe as their home market. These barriers took the form of hundreds of national regulations that, notwithstanding the existence of a European customs union, served to separate the markets of the various member states. Lacking a home market with the dimensions of the United States or Japan, European business managers saw themselves as handicapped in international competition. In industries in which economies of scale or scope were very high, European firms were often reluctant to exploit such possibilities, for fear that the remaining trade barriers inside Europe might present serious obstacles to the sale of their expanded output. And where a network of subsidiaries inside Europe would be helpful to the growth of the firm, as in the case of the pharmaceuticals industry, European firms were often discouraged by the difficulties of assembling such a network, particularly the difficulties arising from differences in the national statutes relating to the taxation, disclosure, and management of business enterprises. Of course, problems such as these appear to apply just as much to competitors from the United States and Japan seeking to enter Europe

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as to those headquartered in European countries. As European firms saw it, however, foreign enterprises that enjoyed the advantages of a strong home base such as the United States or Japan could finance their entry into distant markets from the profits of their home base. Besides, unlike European firms, US and Japanese firms often did not have the easy option of serving European markets through exports from their home base. In any event, by the late 1970s, many of Europe’s big enterprises were beginning to realize that simply eliminating border restrictions inside the European Market, as Europe had done since the Treaty of Rome, was far from creating a genuine ‘single market’ for Europe. With border restrictions eliminated, it became evident that a labyrinth of national regulations, standards, and practices, public and private, was still creating major impediments to the cross-border movement of goods and services. Although scholars, officials, and business managers could hardly have been ignorant of such restrictions, few had any idea of their collective power; indeed, even today scholars only dimly realize how much remains to be done before goods and services can cross international borders with the same facility as they enjoy inside their national markets. The growing desire for a single market in Europe placed Europe’s big businesses solidly behind the European Commission’s project in the 1980s to convert Europe from a ‘common market’ based on a customs union, to a ‘single market’ with far deeper commitments to remove the frictions that could inhibit cross-border trade and investment within Europe. Eventually, a program was developed involving nearly 300 major decisions by the Union, dealing with practically every form of national regulation that might inhibit the movement of goods, services, and investments across national borders inside the Union. A common concept ran through these decisions, one that came to be labeled as ‘mutual recognition’. In principle, if not always in practice, these new regulations prohibited members of the Union from blocking the importation of goods and services exported from other member countries if the exports conformed to the general standards adopted by the Union; and member states were left free to choose their own means of meeting such standards.13 If the Union required fireproofing of children’s pajamas, for instance, an exporter in Europe would be entitled to cross national borders even if the exporter’s means of meeting the Union’s requirement differed from those applied in the importing European country. Throughout the 1980s, intra-European trade continued to grow faster than the global trade of the area.14 Not all of that intra-European relative growth could be accounted for by the Single Market initiative,

    ’  

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inasmuch as that project was hardly off the ground by the close of the 1980s. But it was becoming apparent that European businesses were not waiting for government action to expand the links among the national markets of Europe. Another thing was happening in the 1980s in Europe, a development with more ambiguous implications. As Table 5.2 shows, mergers and acquisitions involving European firms were growing swiftly. As observed earlier, some European governments imposed substantial procedural difficulties and tax hurdles on such operations, especially when the operation involved a merger with a firm whose seat was in another country. TABLE 5.2 NUMBER OF MERGERS, ACQUISITIONS, AND JOINT VENTURES IN MANUFACTURING INDUSTRIES, 1982/83 TO 1992/93

National*

Community*

International*

Total

1982/83 1983/84 1984/85 1985/86 1986/87

102 170 231 266 324

55 48 69 92 112

39 60 57 79 74

196 278 357 437 510

1987/88 1988/89 1989/90 1990/91 1991/92 1992/93

385 676 777 858 876 730

50 182 252 235 192 147

125 235 302 315 280 299

560 1096 1331 1408 1348 1176

Source: European Commission Report on Competition Policy, various annual issues. The data from the years 1987/88 forward are derived from a larger database than are the data prior to that date. * ‘National’ deals involve firms from a single state. ‘Community’ deals involve firms from at least two different member states. ‘International’ deals involve firms in both member and nonmember states.

Still, despite the impediments to mergers under the national laws of many European countries, such operations were already growing in number before the launching of the Single Market exercise. Indeed, extrapolating from the subtotal of 1778 for the five-year period from 1982 to 1987, the average number of such operations reported to the European Community came to 356 annually, about one per day. However, by the end of the six-year time period from 1987 to 1993, as can be calculated from the subtotal of 6919 for that period in Table 5.2, the average number had risen more than threefold 1,153 annually.

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During the period of rapid growth, the number of mergers and acquisitions involving partners from different countries managed to keep pace with the number that involved only a single country, a striking achievement in view of the greater fiscal and administrative difficulties entailed in cross-border deals. The forces that lay behind this mushrooming of mergers in Europe were complex. To plumb those motives adequately, it helps to examine the changing perspectives of European firms. New Perspectives In the decades immediately following World War II, the Marshall Plan helped to open up Europe’s markets to competition via two different routes. It eased the way for the introduction of anti-cartel provisions in the agreements subsequently consummated among European states, including notably the European Coal and Steel Community and the European Economic Community. And it lubricated the entry of the subsidiaries of foreign enterprises into Europe, rendering much more difficult the introduction of private agreements to restrict trade inside the European market. Even in the absence of the Marshall Plan, the global environment might eventually have obliged big business in Europe to develop a less parochial perspective. Indeed, long before World War II, some Europebased firms were already establishing manufacturing subsidiaries outside of Europe in moderate numbers.15 And after World War II, as Table 5.1 shows, some European firms substantially increased their presences in foreign countries through the establishment of subsidiaries. Many of these newly established subsidiaries represented little more than the resumption of old business ties in ex-colonies and in other countries that were once in the political sphere of the home country; but a considerable number, including those subsidiaries established or acquired in the United States, represented new efforts on the part of the Europeans to go global. Although the Marshall Plan may have had something to do with these new developments, a number of forces well removed from Marshall Plan influences were contributing to the need of European businesses to develop a global perspective. One of these was the increasing speed of technological change, and the increasing complexity of the products and services it produced. A considerable body of literature supports the view that these changes have induced firms in high-tech industries to cast an increasingly wider geographical net both for their technological inputs and for specialized components.16

    ’  

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Illustrative of the effect of these changes on locational decisions has been the trends in two widely diverse industries: automobiles and computer chips. In both instances, producers have been obliged to rely on a wide network of suppliers. In the case of automobiles, assemblers have had to reach out to producers of aluminum and plastic products as well as to producers of electronic equipment. The increased diversity of their needs has helped to create new industrial clusters in the Midlands of the United Kingdom and elsewhere. In the case of computer chips, the propensity to create clusters of related suppliers has existed from the first, generating specialized industrial communities for example in Silicon Valley, in the environs of Grenoble, and on the outskirts of Tokyo.17 In their efforts to create or augment clusters such as these, European firms’ industries have found themselves obliged to reach outward to USbased and Japan-based firms, often using strategic alliances of various kinds to create the required connections.18 A second factor producing a wider web of firms in Europe was the so-called ‘paradigm shift’ of national governments in the early 1980s, which elbowed Keynesianism aside in favor of more market-oriented strategies.19 The European versions of this global shift were apparent in the programs of Margaret Thatcher and François Mitterrand. Needless to say, the shift had the support of US-based and Japan-based firms eager to penetrate European markets. And, after the disappointing experience of large European firms with the national champion idea in the 1970s, these shifts in policy to more open markets garnered their support as well. Particularly welcome among the big European firms was the trend led by the United Kingdom and France to privatize many of their stateowned enterprises. The motives for that movement were mixed: partly ideological, partly budgetary, and partly in the interests of long-term efficiency. But the final result was one that opened up the infrastructure of many countries in Europe to private sector participation. One is tempted to conclude that the Marshall Plan’s final effect on Europe has simply been to hasten a convergence among the enterprises of industrialized countries that was destined to take place in any case, swept along by global changes in technology too powerful to resist. But European industry continues to retain some characteristics that differ in some persistent respects from industry in the United States. In automobiles, for instance, Europe’s enterprises have managed to hang on to the remains of a geographically segmented market inside the European Union, evidenced by substantial price differences in identical makes and models from one country to the next. The automobile

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manufacturers based in Europe have fended off some of the European Commission’s efforts to break open dealership arrangements, and have managed to maintain restrictions on dealers’ rights to take on rival lines of automobiles and on dealers’ rights to sell to buyers located in other EU countries. Moreover, in some member countries of the Union, European automobile manufacturers have managed to cling to the right to use national design patents as a way of preventing the growth of an independent replacement parts industry.20 More generally, some of the responses of European firms to the opening of national boundaries in the 1980s may eventually have the effect of curbing competition rather than increasing it. Many of Europe’s mergers, like those in other markets, are motivated by the conviction that bigger is better. Some of these, as in the manufacture of aircraft and the production of communication software, threaten to generate a market structure with strong elements of monopoly. And the risk in this respect seems greater for the markets of Europe than for those of the United States. In Europe, according to some fragmentary data, the merger wave has increased the size of the average European firm and exacerbated the degree of industrial concentration in European markets.21 There are some tell-tale signs as well that the trend has sharpened the distinction between small national firms and large multinational leaders in some countries, contributing to internal stresses in national politics. In the United States, on the other hand, the merger wave among the leaders has gone hand in hand with the flowering of a new wave of ‘start-ups’, pushing at the edges of the new technologies, and competitive conditions continued undiminished through the 1980s. But these are only tentative conclusions, which would profit from added research. As it is, numerous observers take note of the fact that the structure of industries in Europe appears to be less fluid than that of the United States. Governments continue to take a proprietary and protective view of the leading firms on their territory, even as the ties weaken somewhat. Occasionally, one sees small reversals on the part of governments in the trend toward open markets, as in the 1990s when the UK government added restraints on its new crop of privatized enterprises and the French prime minister cast doubt on the durability of the privatization trend. At the same time, start-up financing for small firms is less common in Europe and shows few signs of developing. Differences such as these suggest a lower tolerance in Europe for competition, uncertainty, and risk. So it is easy to picture a European market that, but for the events of the Marshall Plan, would have been much more eager for protection and much more prone to multinational cartel agreements.

    ’  

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If the Marshall Plan has had any effect on the structure of European industry, it has been to delay and dilute the propensity for a suppression of competition in the European markets. Without the Marshall Plan, the huge two-way flow of investment and trade across the Atlantic would probably have been more subdued. The remaining philosophical differences underlying economic developments on the two Atlantic shores, such as the role of labor as social partners and the function of the social safety net, would probably have been more pronounced. For better or worse, ‘globalization’ could have been a much longer time in coming. Notes 1. The generalizations are based on records of the growth and spread of 137 multinational enterprises headquartered in Europe; see James W. Vaupel and Joan P. Curhan, The World’s Multinational Enterprises: A Sourcebook of Tables (Boston: Harvard Business School, 1973). 2. Ervin Hexner, International Cartels (Chapel Hill: University of North Carolina Press, 1946), pp.184–386. 3. An extensive bibliography appears in George W. Stocking and Myron W. Watkins, Cartels or Competition? (New York: Twentieth Century Fund, 1948), pp.493–505. 4. From the bilateral agreement between the US government and each of the nineteen Marshall Plan participants; see Henry Pelling, Britain and the Marshall Plan (New York: St Martin’s Press, 1988), p.155, which carries the text of the bilateral agreement between the United Kingdom and the United States. 5. The intellectual and political support within Germany for open markets during the postwar reconstruction period and its relation to the Marshall Plan are nicely described in Gustav Stolper, et al., The German Economy: 1870 to Present, translated by Toni Stolper (New York: Harcourt, Brace, and World, 1967), pp.233–41. 6. Signatory countries agreed ‘to prevent, on the part of private or public commercial enterprises, business practices or business arrangements affecting international trade which restrain competition, limit access to markets, or foster monopolistic practices whenever such practices or arrangements have the effect of interfering with the achievement of the program of European recovery.’ See Pelling, op. cit., p.156. 7. William Debold, The Schuman Plan (New York: Praeger, 1959). 8. The views of Europe’s leaders during this period are well reviewed in Francois Duchene, Jean Monnet (New York: W.W. Norton, 1994), pp.181–308. 9. The 1958 figure is from A. Sapir, ‘Regional Integration in Europe’, Economic Journal 102 (1491–1506), and the figure for 1994 is from Eurostat Yearbook, 1996 (Luxembourg: Office for Official Publications of the European Communities, 1996), p.282, p.449. 10. The principal studies are identified in Jacques Pelkmans, European Integration (Harlow, Essex: Addison Wesley Longman, 1997), p.92. 11. Raymond Vernon, ‘Enterprise and Government in Western Europe’, in Vernon, R. (ed.) Big Business and the State (Cambridge: Harvard University Press, 1974), pp.11–14. 12. D.G. Goyder, EEC Competition Law (Oxford: Clarendon Press, 1985), especially 134–74. 13. IIE citation, 1997. 14. Between 1980 and 1992, intra-European imports for 12 European countries rose from 49.3 percent to 64.2 percent of their global imports, while the comparable figures for exports rose from 56.1 percent to 66.9 percent. Sources are cited in an earlier footnote. 15. Lawrence G. Franko, The European Multinationals (Stamford, CT: Greylock Publishers, 1976), pp.24–44. 16. For instance, L.K. Mytelka (ed.), Strategic Partnerships: States, Firms, and International Competition (London: Pinter Publishers, 1991); and C. Antonelli, ‘The Emergence of the

170

17. 18.

19. 20. 21.

    Network Firm’, in Antonelli, C. (ed.), New Information, Technology, and Industrial Change: The Italian Case (Dordrecht, Neth: Kluwer Academic Publishers, 1988). This tendency is described in Michael Porter, The Competitive Advantage of Nations (New York: Free Press, 1990), pp.69–130. For France and Germany in particular, see J. Nicholas Ziegler, Governing Ideas: Strategies for Innovation in France and Germany (Ithaca: Cornell University Press, 1997), especially pp.185–96. Peter Gourevitch, Politics in Hard Times (Ithaca: Cornell University Press, 1986). As of October 1997, the issue was still in contention in the European Union. See ‘Hopes Boosted for Cheaper Car Parts and Repairs’, Financial Times, October 23, 1997, p.2. Andrew Cox and Glyn Watson, ‘The European Community and the Restructuring of Europe’s National Champions’, in Jack Hayward (ed.), Industrial Enterprise and European Integration (Oxford: Oxford University Press, 1995), pp.308–10.

6 Confronting the Marshall Plan: US Business and European Recovery JACQUELINE MCGLADE

Since the 1980s, the United States has championed the de-regulation of Cold War-inspired strategic trade embargoes and controls in an effort to re-enable the expansion of business, technology transfer and trade worldwide.1 The re-embrace of laissez-faire over state initiatives as the stimulus for world economic development represents an important shift in US foreign policy making and government–business relations. For over 40 years, the Cold War had provoked the erection of restrictive trade barriers which, in turn, had re-ordered world business, often in favor of strategic security over economic expansion. At the end of World War II, few US executives envisioned the coming of such a ‘Cold War business world’ distinguished by bi-furcated east–west trade markets and military security imperatives. In addition, the strong resurgence and renewed strength of European and Japanese competitors, facilitated in part through US overseas recovery aid programs, heightened US corporate frustrations and dismay as the Cold War wore on. In the past, US firms had come to rely on the federal government as a promoter of trade expansion and the protector of home markets.2 The thrust of Cold War foreign economic policy making moved sharply, however, in a different direction that constrained companies from pursuing market opportunities worldwide and placed import/export activities under intense federal scrutiny. Despite such difficulties, historians have tended to portray the US business community as largely in favor of Cold War economic measures that advanced technical aid, strategic embargoes, and trade containment overseas. In the view of some scholars, postwar business leaders actively supported the rapid ascendancy of large-scale state economic programs over laissez-faire as the impetus for solving daunting problems posed by European economic recovery and communist aggression.3 This chapter, however, offers the alternate view that US business engaged in conflicting debates, often critical of excess federal involvement, when addressing problems related to European recovery and the

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threat of communist expansion. Instead of enjoying a corporatist-style relationship, the US business community often remained widely split and at odds with federal agencies over policies that revived business competitors overseas, contained east–west trade, and limited market development worldwide. Finally, the chapter discusses the significant alterations that occurred in the traditional dynamics of US government–business relations as Cold War pressures led to the ascendancy of state-managed geopolitical priorities and security over the promotion of laissez-faire trade expansion. The Marshall Plan and the Re-ordering of Postwar Business The Marshall Plan served as the first in an escalating set of state responses to world economic problems that US business had to confront after World War II. When passed by law in 1948, the European Recovery Program (ERP), or Marshall Plan, enabled the extension of 12 billion dollars in US aid overseas – a sum higher than the total of all previous foreign aid expenditures. As a result, the ERP symbolized a decisive, historic break by the United States away from isolationism toward interventionism in postwar foreign recovery.4 This bold embrace of massive federal spending to resolve European economic distress also posed an abrupt, if not radical, departure from the traditional path of US private investment and corporate activity over government subsidies as the stimulus for overseas economic recovery. Understandably, then, debates within the US business community varied widely as the emergence of the ERP as the leading prescription for European economic revival. Many groups noted that domestic business interests and conditions did not necessitate an immediate upsurge in European recovery. While US firms had penetrated transatlantic markets before the outbreak of World War II,5 Germany, not the United States, had occupied the position as the strongest business and industrial competitor operating on the European continent in 1939.6 Indeed, less than 30 percent of all US investment made its way into western Europe before 1938 with 72 percent of business financing located on the US continent.7 While many business leaders advocated, along with government officials, that the export of increased capital act in the postwar era as a ‘trade-creating rather than [a] trade-replacing’8 measure for the United States in relation to its trading partners, the means by which to achieve this end – through private means or government aid – remained hotly contested. Championing a rapid solution, American ‘free traders’, executives of multinational firms, and offshore exporters eagerly supported the forma-

   

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tion of the ERP as a massive business ‘creation and transfer’ package when it emerged in 1947–48. Business ‘liberals’ took a particularly strong stand including such influential figures as Studebaker Motor Car Company President Paul Hoffman, W. Averell Harriman, and General Electric Company President Philip D. Reed. Both Harriman and Hoffman aided directly in drafting the ERP as an aid program that would go beyond recovery to ‘reconstruct’ 9 the economic and business base of western Europe. Progressive executives also argued that the ERP advance substantial financial and industrial reforms intended to reorient overseas business practices closer in line with US corporate models and methods.10 In contrast, the National Association of Manufacturers (NAM), a leading conservative forum for US companies, maintained a separatist stance, eschewing the corporatist-style partnership of business liberals and government policy makers on issues related to overseas economic recovery. In a report in 1948, NAM bluntly stated, ‘Government is not well-suited to carrying on foreign trade’ and cautioned against overt state planning and involvement in the postwar recovery of world business activity and trade.11 The membership of the National Foreign Trade Council (NFTC) shared the skepticism of NAM and viewed the Marshall Plan as an unprecedented level of government involvement in world economic affairs.12 Small and local business owners, arrayed across the country, in chapters of the US Chamber of Commerce, also questioned the extension of economic aid to western Europe. While largely concerned with domestic conditions, many small firms, nevertheless, resented the extension of recovery funds overseas while re-establishing business operations in the midst of a sluggish postwar US economy.13 Business executives also remained divided over the issue of using the Marshall Plan as a platform for European remilitarization. Prominent business liberals tended to support the view of Secretary of State George C. Marshall that the ERP be advanced solely as an economic initiative. Conversely, business conservatives and national security pundits sided with government Cold Warriors such as Dean Acheson and William Bissell that ERP aid support the revival of European military defense as well as economic revival. As Chairman of the NAM’s International Committee, Colgate S. Bayard, counseled his conservative colleagues on the necessity of European rearmament and warned of the dangerous military challenges posed to postwar business world: US prosperity has a direct relationship to the . . . well being of the rest of the world . . . The establishment of an orderly and stable

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    world . . . is not merely an ideal of our times. It is a practical and stark necessity . . . as we live in a world of long-range bombers and catastrophic military weaponry.14

While arguing for increased military protection, Bayard and other likeminded business conservatives nevertheless remained ambivalent over federal government involvement in the areas of foreign business reform, aid subsidies and trade regulation. Despite the stringency of business, conservative views, the absence of a direct Soviet military threat in 1948 ultimately worked to the advantage of business liberals intent on preserving the ERP as an overseas business reform measure. Business progressives already held special political advantage over their conservative colleagues as long-time supporters of Franklin Roosevelt’s New Deal and World War II administrations. Committed to establishing an effective framework for government–business relations, several ‘progressive executives’ had formed a new association, the Committee for Economic Development (CED), in 1942 to aid the Roosevelt Administration in casting New Deal economic and industrial policies. As prominent CED members, many business liberals went on to acquire powerful positions as government administrators and advisers during World War II.15 Overall then, business liberals possessed a level of political privilege and access into the postwar Truman White House not held by their conservative counterparts. Not surprisingly, business progressives such as Paul Hoffman, W. Averell Harriman, and Philip Reed assumed top positions in the formation of the ERP administration in the spring and fall of 1948. The reformist focus that business liberals brought to the ERP, however, soon drew strong reactions from business and political conservatives alike. Such dissension proved long term as the Marshall Plan frequently acted as a catalyst to deepen and sharpen divisions among US liberal and conservative leaders over issues related to European recovery and anti-communist security. Disunity also triggered a shift in control away from the US business community as officials attempted to implement ERP aid in support of congressional wishes. As the Cold War wore on, this loss of authority would severely impact the ability of business groups to counter foreign technical aid and trade containment measures increasingly advanced by the Pentagon and the US Department of State. Business Struggles Over Marshall Plan Administration Initially though, the US business community seemed destined to dominate the priorities and management of the Marshall Plan. In the

   

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program’s first months, administrative leadership, not competing economic visions, surfaced as the central source of concern among US business groups over the ERP. Indeed, business leaders united in protest over President Truman’s choice of Washington insider Dean Acheson to serve as the director of the ERP’s newly formed administrative agency, the Economic Cooperation Agency (ECA). Though a Cold Warrior, Acheson was a State Department official and thus unacceptable to Republican congressional leaders and business progressives intent on controlling the advance of the ERP.16 When Truman nominated Will Clayton, a prominent business executive turned State Department official, Republican politicians still balked, reflecting Senator Arthur Vandenberg’s concern that ‘it was Congress desire’ that the ERP administrator come ‘from the outside business world with strong industrial credentials and not via the State Department’.17 Bowing to Republican pressure, Truman finally appointed CED Chairman Paul Hoffman as director of the ECA in April 1948. Hoffman’s appointment proved an important victory for business progressives and political liberals eager to transform, as well as revive, the European economy. As business progressives and other liberal developmentalists had argued in ERP congressional hearings, lasting recovery could only be achieved in western Europe through advancing reforms that fostered the expansion of consumer markets, enhanced industrial performance, liberalized trading practices, and the growth of private investment for enterprise financing.18 Under Hoffman’s executive leadership, liberal developmentalists hoped that the ECA would act as an institutional springboard for the launching of a wide range of economic reforms overseas. In line with such aspirations, Hoffman envisioned the ECA from the start as a European ‘business advisory’ agency and his job of that as ‘an investment banker’.19 To bolster the business-like profile of the ECA, Hoffman also hired a large number of private executives, sometimes to the detriment of government bureaucrats and political nominees forwarded by the Truman White House.20 By late 1949, Hoffman and his staff went on to create a distinctive array of programs such as the United States Technical Assistance and Productivity Program (USTA&P) and the European Industrial Projects (EIP) which advanced significant financial, managerial, and technical reforms in a large number of European business sectors.21 Despite Hoffman’s commitment to shape the ECA in a ‘business-like manner’, controversy mounted over the agency’s economic reform goals as the Marshall Plan entered its second year in 1949–50. Growing protests on the part of conservative business groups proved particularly

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damaging for the ECA, which struggled after 1949 to maintain its reform mission over remilitarization as the focus for European business revitalization. Increasingly, conservative executives and trade protectionists criticized the ECA’s fervor to modernize as well as revive European business management and industrial capabilities. In particular, ECA efforts to ‘reconstruct’ the European economic base as a liberalized trading environment marked by increased market integration and business efficiency alarmed US protectionists for a variety of reasons. While some executives feared a loss of advantage as foreign competitors modernized through the benefits of the ECA, others anticipated the erection of tougher barriers against market penetration as European countries experienced economic revitalization. Frustrated business executives also began to condemn ECA policies that restricted US export and shipping opportunities overseas, as they had anticipated lucrative contracts to re-supply western Europe with equipment, consumer goods, and industrial materials through the ERP. In an attempt to revive key European domestic and export markets, however, the ECA had instituted instead a set of controls that severely limited the entry of US imports such as wood byproducts, paper, aluminum, machine tools, tobacco, tuna and livestock. In response, leading business groups including the NAM and the NFTC united with import–export and agricultural associations to lobby hard against ECA embargo policies. The ECA’s ‘50–50 quota’ policy also came under fire as it split ERP cargo transportation evenly between US and European ships. When taken together, the technical aid programs, import embargos, and shipping restrictions led the NAM to declare by 1949 that such measures were ‘creating . . . permanent barriers to an expanding world trade’.22 In reality, few US companies enjoyed any substantial increases in European trade emanating from ECA business programs or those of its successor agency, the Foreign Operations Administration (FOA).23 In fact, it seemed to many in the US business community that the ECA had generated serious reversals in overseas exporting. Prior to the coming of Cold War-inspired economic regulations, the US business community enjoyed an annual 11.5 billion dollar surplus in overseas export trade. While European recovery problems precipitated a slide in export gains downward from 16.8 billion dollars to 19.7 billion dollars by 1947, a more dramatic plunge to 13.8 billion dollars occurring shortly after the enactment of ECA trade restrictions. While US export markets experienced a 33 percent decrease in growth from 1946–50, import markets largely penetrated by ECA subsidized European products rose to 12 billion dollars representing a 30 percent increase in net worth since 1945.

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As a result of increased imports, US surplus export trading continued to fall to only 1.8 billion dollars by 1952 and, despite some revitalization after the Korean War, failed to climb above an annual figure of 5.7 billion dollars until the 1960s.24 Certainly, slumping trade figures bolstered the claims and complaints of business conservatives that Cold War policies were hindering instead of assisting US economic expansion overseas. Weathering such business concerns, Hoffman and his ECA team continued to create programs true to the reformist spirit of the Marshall Plan in support of European corporate growth and modernization over US market expansion. As historian William Sanford has noted, many segments of the US business community did not understand that the ‘ERP was not designed, [nor] . . . administered, as a vehicle for increasing . . . exports abroad’.25 As a result, business resentment against the ECA climbed higher even before the program entered its second year. In order to alleviate some business criticism, the ECA instituted a few new programs in 1949–50, most notably the Overseas Investment Guarantees (OIG) program and the United States Technical Assistance and Productivity Program (USTA&P), in an attempt to generate US corporate involvement in the ECA and re-investment in European companies. In both cases, the programs generated only modest business participation and support. While the OIG extended up to 100 percent coverage in financial guarantees for US firms willing to re-invest in western Europe, few companies took advantage of the program and levels of transatlantic investment rose only slightly from 1948 to 1957.26 Domestic trade and manufacturing figures also demonstrated the general reluctance of US corporate interest in expanding operations back into western Europe. As a reflection of business isolationism, the combined total income from export–import trading rarely comprised more than 10 to 11 percent of the total GNP for the United States prior to the 1970s. As a result, domestic markets predominated in business activities and accounted for 75 to 80 percent of the nation’s wealth.27 Though encouraged by Cold War officials to participate in programs intended to revive European capitalism, US companies chose instead to secure new market opportunities at home, not abroad when engaged in postwar expansion. The United States Technical Assistance and Productivity Program (USTA&P) also raised business concerns as it posed a direct threat to US competitiveness at home and abroad. Started in 1948 as an ‘exchange of persons in industry’ program, the USTA&P sponsored visits for European managers and unionists interested in the operations and organization of US companies. After hosting a first round of teams from Great Britain, the USTA&P received requests from other European

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nations and extended the program to include France, Italy, Belgium, the Netherlands and Norway. For the next eight years, the USTA&P expanded its range of assistance and offered in-depth business reform programs to hundreds of European firms that included management retraining seminars, in-plant consultancy ventures, and capital equipment purchasing programs. Intensified by the sudden rearmament needs of the Korean War, USTA&P stepped up efforts after 1950 to stimulate a massive transfer of US management models and industrial techniques into European companies involved in military as well as civilian production. As a result, the USTA&P emerged as the centerpiece program in the ECA’s new ‘production drives’ intended to dramatically accelerate the revitalization of European defense manufacturing as consumer goods production. For US firms, the USTA&P presented several serious challenges in terms of government–business cooperation. First, executives voiced strong concerns that the program supplied potential overseas competitors with modernized equipment, innovative management strategies, and cutting edge technical assistance. Citing fears over industrial competition, sabotage, and espionage, major companies such as Du Pont and General Electric, which initially participated in the program, began to restrict, and in some instances, prohibit European team visits after 1950. The issue of USTA&P business consultations also became a particularly contested activity. While the USTA&P solicited US firms to release top managers to serve as consultants overseas at government expense, very few companies or executives complied with the requests. Overall, top managers saw the USTA&P as directly competing with, or worse, undercutting revenues, which companies had traditionally earned through offering fee-based consultancy services to clients and subsidiaries abroad. As a result, many of the USTA&P’s overseas industrial consultants after 1949 hailed from US business schools instead of companies.28 In general then, executives viewed the attempts of the ECA through programs such as the USTA&P and OIG to revive and modernize overseas industries as threatening and injurious to the interests of US companies. Instead of solidly supporting Cold War initiatives, many US executives by 1950 questioned the wisdom in creating foreign aid programs that provided potential competitors with new industrial advantages and created stiff barriers to US overseas business expansion. While skeptical of Marshall Plan industrial aid programs, companies remained, however, in the precarious position of seeming unpatriotic, if overly resistant to ECA requests. In the end, continuing business struggles over cooperation and the economic liberalization agenda of the ECA acted to diminish significantly any control that the American

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business community had over government initiatives intended to support European recovery and rearmament through the extension of preferential aid, industrial modernization, and military contracts. After a controversial start then, the Marshall Plan and its business reform mission increasingly became a target for Cold War conservatives determined to wrestle away control of European aid objectives from liberal developmentalists. While initially supportive, the Truman White House, now principally preoccupied with finding solutions to spur European rearmament in support of the Korean War, also lost confidence in the business reformist thrust of the ECA. Business Recovery Not Reform: The Marshall Plan After 1950 The reorganization mid stream of the Marshall Plan in 1950–51 away from business reform toward accelerated European production in support of rapid rearmament had a profound negative effect on business as well as overseas cooperation with shifting Cold War economic aims. The mounting rivalry after 1950 between the European recovery objectives of liberal developmentalists versus Cold War conservatives particularly complicated public views both home and abroad as to the intentions and effectiveness of ERP aid. Burdened by restrictive policies and slumping export markets, US business protectionists increasingly sided with military strategists who criticized the lack of strong anti-Soviet defense measures in US European aid programs. Together, Cold War strategists and conservative executives began to press for an end to the economic reform agenda of the Marshall Plan. In support of realignment of US aid in support of European remilitarization over reform, the Truman White House pushed in late 1949 and early 1950 to oversee the passage of several overseas military initiatives including the Military Defense Assistance Act (MDAA), the Additional Military Production (AMP) program, and the North Atlantic Treaty Organization (NATO) charter. In all cases, a strong signal now appeared from Washington that policy makers intended to transform the Marshall Plan in its final years to act as an instrument, along with NATO, to accelerate European remilitarization over the advance of civilian recovery accomplished through industrial reform.29 Liberalized economic remedies championed for Europe by former New Dealers, progressive executives, and free trade advocates through the ECA. Adding to his agency’s political difficulties, ECA Director Paul Hoffman strongly resisted moving the Marshall Plan away from its original economic reform agenda toward the management of European

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remilitarization. Despite the passage of congressional mandates and subsidies that tasked the ECA with spearheading European rearmament assistance, Hoffman and his staff remained reluctant to modify the emphasis of programs such as the USTA&P to accommodate European military as well as civilian production teams. Instead, ECA staffers simply stepped up and expanded the reach of the agency’s civilian business recovery and industrial reform activities arguing that increased military production would flow as a by-product of overall European corporate reform. By resisting the integration of a defense agenda, ECA officials carried out a last ditch attempt to preserve the Marshall Plan’s original economic liberalization mission and foster improved business and industrial performance through acts of European self-initiative over US military directives. Despite several new ‘production drives’ instituted in late 1950 and 1951, the ECA ultimately failed to shield the Marshall Plan from attacks and reorganization prompted by business attacks, congressional disfavor, and shifting strategic priorities emerging from the rising tide of US Cold War conservatism. Burdened by restrictive policies and slumping export markets, US business protectionists criticized the liberalized economic remedies championed for Europe by former New Dealers, progressive executives, and free trade advocates through the ECA. Joined by military strategists and other Cold Warriors, business protectionists also voiced strong concern over the lack of anti-Soviet defense measures in the ERP. Together, Cold War strategists and conservative executives began to press for an end to the economic reform agenda of the ERP even before its finish in 1952. In line with such sentiments, the Truman White House moved in late 1949 and early 1950 to oversee the passage of the Military Defense Assistance Act (MDAA), the Additional Military Production (AMP) program, and the North Atlantic Treaty Organization (NATO) charter in support of accelerating European remilitarization aid measures over that of ERP’s civilian recovery mission.30 By the summer of 1950, the Truman Administration took steps to remove the independent status of the ECA and place it under the direct control of the US State Department. At its inception, business liberals had insisted that the Marshall Plan be established as a ‘stand alone’ agency free of excessive intervention from either the Pentagon or State Department. In addition to its loss of autonomy, the ECA officially assumed the responsibility to administer European military production programs previously outlined by the MDAA and the AMP acts. After a bout of ill health, Paul Hoffman resigned as head of the ECA in August 1950 throwing the agency into further disillusionment and disarray.31 While the ECA’s new director, former private industry executive

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William C. Foster, tried to recover some of the momentum lost in support of European business reform, the overwhelming expectations of conservatives for immediate gains in overseas production tempered his efforts. With the help of agency officials including former MIT economics professor Richard Bissell and business executive William Batt, Foster did retain, for a short time, ECA civilian business reform programs. Foster soon bowed to conservative pressures, however, and reorganized several ECA programs including the USTA&P to support European remilitarization by the spring of 1951.32 Despite such efforts, the ECA ultimately ceded its authority over European aid planning and administration upon its absorption by the US State Department in late 1950. As a result of its annexation, the ECA also ceased to function as the independent ‘business agency’ first imagined by Hoffman and other liberal executives in 1948. In addition to losing its autonomy over European aid, the ECA had to accept the increased presence of Pentagon and State Department officials on program planning boards and as liaisons to industrial projects overseas. By the fall of 1951 then, the ECA’s economic reform mission was essentially finished with Marshall Plan business programs slated for elimination in 1952. Only a few programs survived beyond the end of the Marshall Plan, most notably the USTA&P, which under the newlycreated Mutual Security Agency (MSA), continued to extend and monitor military production contracts and industrial re-development projects in western Europe until its end in 1958.33 Beyond the Marshall Plan: Business Responses to Cold War Controls With the termination of Marshall aid in 1952, the US business community advocated and expected the end of US controls over transatlantic trade and the return of prewar laissez-faire relations. Within a decade, however, firms continued to struggle in the bewildering atmosphere of a new Cold War business world significantly re-ordered by geopolitical divisions and bound by prohibitive foreign trade policies and stringent economic controls. Cast by strategies of east–west trade containment, the growing net of Cold War international economic measures presented strong challenges and severely limited many traditional routes toward US business expansion. By the end of the 1950s, the US business community had suffered a series of painful re-adjustments as the imposition of strategic embargoes, military and technical assistance, and export controls forced a greater separation of the east–west markets. Like the Marshall Plan, the coming of Cold War trade containment measures generated controversy

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and alarm among US business groups. In general, liberal executives expressed extreme regret over the abrupt re-direction of US policy away from overseas economic reform toward trade containment. Business liberals argued that European economic expansion, not limitation, provided the best platform for political and social stabilization achieved through unrestrained business investment, opportunity and production tied to flourishing consumer markets and rising living standards. In favor of containing communist expansion, conservative executives questioned the severity of Cold War embargoes and joined business progressives in bemoaning restrictions that curtailed the expansion of overseas markets.34 Once split over the direction of government involvement in European recovery, the US business community became increasingly united then after 1960 in its concerns over the wisdom and effectiveness of Cold War economic containment strategies. In particular, business conservatives and liberals condemned containment controls that hampered the global expansion of free trade by denying business access into lucrative markets in eastern Europe and Asia. Executives also protested against Cold War policies that encouraged the entrance of European and Japanese imports in to US markets to compensate for the loss of traditional markets impacted by strategic embargoes and held under communist control.35 Trade figures of the early Cold War bear out the validity of US business concerns. After rising for 150 years, the US share in world exports of manufactured goods began to decline steadily after 1945 while foreign industrial products to the United States rose from less than 5 percent to over 27 percent of the total import base by 1955.36 As the US share in world exports slumped from 18 percent in 1950 to 12 percent in 1977, foreign exports of other western nations expanded rapidly from less than 60 billion dollars to 1 trillion dollars in the same period. Instead of fulfilling business dreams of a postwar world dominated by the expansion of US trade, the Cold War had generated policies that favored the industrial growth and market penetration of western competitors over the interests of US producers. Indicative of the secrecy and evasion tactics of the Cold War, many of the controls had originated with a relatively anonymous, semi-official organization known as the Coordinating Committee (COCOM). Initially intended to block the importation of specific military material and equipment into emerging communist bloc countries, the network of COCOM controls had become so enlarged by 1959 that virtually every aspect of western trade had been affected.37 Despite such problems, angry business groups found little solace in the actions of the Eisenhower Administration, which remained committed to enlarging rather than reducing world trade embargoes. Western

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diplomatic tensions also escalated as east–west trade restrictions collided with the growing needs of European as well as US producers to expand into new markets. Tense communiqués between US President Dwight D. Eisenhower and UK Prime Minister Harold Macmillan in 1959 revealed the extremely difficult and complex state of western economic affairs as re-construed through anti-Soviet import–export and security trade controls. On 5 May, Eisenhower sent an urgent cablegram to UK Prime Minister Harold Macmillan in which he voiced his frustration over discussions being held by European powers in NATO on the possible extension of credits to the Soviet Union for the financing of industrial equipment and plant construction. In his message, Eisenhower complained to Macmillan that he was ‘particularly disturbed’ to learn that the United Kingdom, along with other key countries in NATO were leaning in favor of the credits as a measure for increased trade: I realize that we [US–UK] have not always seen eye to eye on economic counter measures with respect to the Soviet Union. On the other hand . . . I believe strongly that we should . . . resolve all significant . . . sources of division between us . . . [for] any unilateral action . . . might well give the Soviets the impression that the West is not united in its . . . vital security interests in Central Europe.38 Eisenhower also warned Macmillan that a large-scale extension of credits to the Soviet Union could potentially ‘disrupt world markets’ particularly in the area of basic commodities which ‘many underdeveloped and Commonwealth countries must export’. He further counseled Macmillan that an increased trade base for the Soviet Union would trigger an ‘expansion of Soviet economic penetration in less developed countries’. In the end, any western support shown for the expansion of Soviet world trade would lead to ‘increased difficulty in this country [United States] of obtaining public and congressional support for our Mutual Security program and related [aid] policies . . . ’.39 While import–export firms certainly stood on the frontline in terms of absorbing re-directions in world trade through COCOM, ultimately multinationals, as well as domestic-based producers, felt the impact of an ever-constricting sphere of western trade markets by the 1960s and 1970s. While lost revenue figures remain difficult to ascertain, government reports in the 1950s noted that illegal shipments of goods from West Germany to eastern Europe ran as high as 100 million dollars annually, while Great Britain suffered 75 million dollars downturn in trade with China. US shippers also estimated Asian market losses at 40 to 75 million dollars as a result of COCOM trade embargoes. By the 1960s, state constraints on western business movements also prohibited penetration of

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developing technical markets in many regions of Asia, eastern Europe, the Middle East and Africa. For US producers, the supranational thrust of Cold War measures spelled not only losses in overseas but domestic markets as well, as policy makers further relaxed European and Japanese import restrictions to compensate for the constricted state of world trade.40 Countering The Cold War Business World By 1960, the US business community as a whole had come to the realization that the Cold War had forged an unfamiliar world trade environment dominated by the geopolitics of communist containment. Unlike trade barriers of previous eras, Cold War embargoes imposed a tight, international net of business restrictions that imperiled the former ‘open door’ climate of western economic trade and diplomacy. For US producers, east–west containment strategies resulted in significant losses as trade with the Soviet Union which totaled 236 million dollars in 1946, fell to 10 million in 1950 and to less that 2 million with countries in the entire communist bloc by 1956. While Soviet importation of western technology had steadily climbed from 16.6 percent in 1913 to a high of 80 percent of all machinery imports in 1939, by 1960 COCOM embargoes had eliminated virtually all technology transfers from the west to the Soviet Union.41 Not surprisingly then, the US business community, as in the case of European industrial aid, began to push in the 1960s for changes in US foreign economic policy away from Cold War containment toward the return of trade liberalization and expansion.42 Initially, business groups endorsed efforts of the Eisenhower and Kennedy Administrations to expand economic funding for developing and de-colonized countries or DOTs. In 1954, DOT economic development funding first established in 1946 through the POINT IV program experienced its largest leap upward from 700 million to 1.6 billion dollars. After a series of slight fluctuations, DOT economic development budgets leveled off to an annual rate of 1.5 billion dollars in comparison to European aid total of less than 100 million dollars by 1958. The incoming Kennedy Administration further expanded the geographic reach of DOT aid beyond its primary programs in Africa, Southeast Asia, and the Middle East to include Latin and South America.43 While such government support for Third World development aided some firms, most US companies, however, remained frustrated in the 1960s over Cold War barriers that blocked their entrance into mature western markets. Saddled with high inventories of goods, US firms found

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it difficult to counter COCOM restrictions and new integrationist policies flowing from the 1957 Treaty of Rome that protected European consumer and producer markets from aggressive penetration. Business groups also blamed Cold War policies that continued to offer a substantial level of civilian industrial supports to western Europe through hefty NATO production contracts. As in the case with the Marshall Plan, US executives watched in frustration as European competitors, in the name of western mutual security, moved steadily ahead with manufacturing facilities re-built through the largesse of Cold War aid supports.44 Nevertheless, relief did emerge in the late 1960s and 1970s as the Nixon Administration scaled back strict economic containment by championing a major revision of highly restrictive Export Control Act of 1949 and easing US trade controls with China and eastern Europe. The successful relaxation of east–west tensions throughout the 1970s led to additional legislation such as the Export Administration Act of 1979 that liberalized trade controls primarily held over agricultural exports and consumer products markets between the United States and communist countries. With the exception of trade sanctions levied by the Carter and Reagan Administrations (largely in response to Soviet occupation of Afghanistan), the United States has actively sought to break down many of the daunting trade barriers erected in the early Cold War years and allow for the re-privatization of world markets. Conclusion When first framed, the US business community split over the Marshall Plan as an appropriate path for the economic revival of western Europe. Conservative executives warned against such a rapid, radical expansion in US foreign aid activities preferring that private investment and trade drive overseas recovery. Business progressives, however, lobbied hard for its passage arguing that the Marshall Plan held an important opportunity for the United States to reform and modernize European business and labor practices. Overall, US firms expected to realize lucrative export contracts and trading gains flowing from the extension of 10–13 billion dollars in Marshall Plan economic relief aid. Needless to say, many in the US business community bitterly resented the ensuing framework of Cold War aid that offered European, and eventually Japanese companies, extensive aid supports in the form of management assistance, modernized equipment, and military contracts. Throughout the 1950s and 1960s, US executives also reacted to the rise of COCOM strategic controls that bifurcated world markets along east–west lines. Confined to a shrinking sphere of western markets, US

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companies struggled to maintain their domestic as well as overseas market advantages against the growing competition of European and Japanese firms renewed Cold War industrial aid. For many executives, the entrance of economic containment as the thrust of Cold War foreign policy, not only severely limited opportunities for business expansion, but also thwarted the spread of capitalist markets worldwide. While sympathetic to the plight of US producers, the Eisenhower Administration maintained the path set by the Truman Administration, extending large amounts of industrial aid programs to offset European complaints over NATO production drains. After 1960, the Kennedy and Johnson administrations also struggled to satisfy the demands of the western alliance, US calls for business expansion, and the enforcement of east–west trade controls. As a result of mounting business pressure at home and abroad, the Nixon Administration took the first steps to deescalate economic containment as a Cold War strategy and re-open east–west markets. Since the 1980s, the United States continues to champion the rapid de-regulation of Cold War trade controls to accommodate the growth of free markets worldwide. The calls for change, however, came as early as the late 1950s as executives questioned the many incongruities posed by the simultaneous embrace of containment and economic liberalization in foreign economic policy making under the Cold War. While some groups in the US business community felt that Marshall aid and other industrial supports of the 1950s facilitated European recovery at the expense of national interests, the legacy of US efforts cannot be underestimated in international terms. For many countries in western Europe, the late merger of Marshall Plan aid with Cold War military contracts provided a prolonged period of lucrative support that enabled overseas to modernize and revitalize production operations. European firms, particularly large industrial producers, also benefited directly from the extension of financial capital, production contracts, and consultant services advanced through US aid programs. With the help of US aid and other government supports, overseas companies managed to successfully rebuild and modernize their business operations, thus recapturing, in many cases, the market advantages gained prior to World War II. The increased capacity of overseas industries also supported the emerging European political aims of economic integration as well as the expansion of continental consumer and export markets. Overall, the Marshall Plan and similar programs advanced under the MSA allowed for the triumph of European self-determination and autonomy over US directives in recovery planning. Also, the Marshall Plan, COCOM controls, and other Cold War economic policies required

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that US officials support multilateral solutions and accommodate European priorities over US business concerns to maintain western solidarity against Soviet expansion. Thus, US commitment to stemming the Cold War through western multilateralism and mutual security significantly altered the traditional path of US government–business relations previously marked by ‘Open Door’ foreign market access and laissez-faire expansionism. Notes 1. On the de-regulation of Cold War strategic trade controls, see M. Mastanduno, Economic Containment: CoCom and the Politics of East–West Trade (Ithaca, NY: Cornell University Press, 1992). 2. See W.H. Becker, The Dynamics of Business Government relations: Industry & Exports, 1893–1921 (Baltimore: Johns Hopkins University Press, 1982) and J. Hoff Wilson, American Business and Foreign Policy 1920–1933 (Boston: Beacon Press, 1973). 3. See M. Hogan, The Marshall Plan: America, Great Britain and the Reconstruction of Western Europe, 1947–52 (Cambridge: Cambridge University Press, 1987) and M. Leffler, A Preponderance of Power: National Security, the Truman Administration and the Cold War (Stanford, CA: University of California Press, 1992). 4. For overview of US aid spending prior to the Marshall Plan, see M. Curti, Prelude to Point Four: American Technical Assistance Missions Overseas, 1838–1938 (Washington, D.C.: Government Printing Office, 1984). 5. For an overview of the rise of US multinational companies in western Europe before World War II, see M. Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (Cambridge, MA: Harvard University Press, 1974) and A. Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, MA: Harvard University Press, 1990). 6. See A. Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, MA: Harvard University Press, 1990), pp.587–92. 7. J.H. Dunning, ‘Changes in the Level and Structure of International Production: the Last Hundred Years’, in M. Casson (ed.), The Growth of International Business (London: Allen and Unwin, 1983), p.90. 8. C. Fred Bergsten, T. Horst and T.H. Moran, American Multinationals and American Interests (Washington, DC: The Brookings Institution Press, 1978), p.404. 9. Secretary of State George C. Marshall first applied the term ‘reconstruction’ to describe US aid objectives for a western European aid program in his Harvard Commencement Address, 5 June 1947. 10. The position of business liberals was significantly advanced in the fall of 1947 when President Harry S. Truman asked W. Averell Harriman to head a committee to examine the European relief question. It forwarded an initial set of findings and recommendations to Congress in December that acted as the basis for the drafting of a legislative aid package in the spring of 1948. 11. International Committee Report, 1948, p.1, Folder B, Box 26, Papers of the National Association of Manufacturers (NAM), Hagley Museum and Library. 12. National Foreign Trade Council was first established in 1912 as a trade promotion organization International Relations Report, 1942, p.8, Folder A, Box 76, NAM Papers, Hagley Museum and Library. 13. See ‘Newsletters’ folder, Papers of the US Chamber of Commerce (USCC), Hagley Museum and Library. 14. International Relations Report, 1942, p.8, Folder A, Box 76, NAM Papers, Hagley Museum and Library. 15. On the influence of business liberals in government administration from 1941–52, see J.

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16.

17. 18.

19. 20.

21.

22. 23.

24. 25. 26. 27. 28.

29.

    McGlade, ‘From Business Reform Programme to Production Drive: The Transformation of US Technical Assistance to Western Europe’ in M. Kipping and O. Bjarner (eds), The Americanization of European Business: The Marshall Plan and the Transfer of US Management Models (London: Routledge, 1998). For more on the emergence of business progressivism, see R.M. Collins, The Business Response to Keynes, 1929–1964 (New York: Columbia University Press, 1981); Kim McQuaid, ‘Corporate Liberalism in the American Business Community’, Business History Review, 52 (Autumn 1978), pp.342–68; and K. McQuaid,Uneasy Partners (Baltimore, MD: Johns Hopkins University Press, 1993). In his rejection of the nomination, Republican Senator Arthur Vandenberg warned that, under Acheson, the ECA would employ a ‘Machiavellian philosophy of obstructing Soviet recovery’ instead of helping ‘Europeans formulate and carry out a plan for . . . genuine recovery’. See H.B. Price, The Marshall Plan and Its Meaning (Ithaca, NY: Cornell University Press, 1955), p.73. W. Sanford, The American Business Community and the European Recovery Program, 1947–52 (New York: Garland Publishing, 1988), p.102. For more on the foreign policy views of the CED, see the Hagley Museum and Library, Wilmington, DE, Papers of Phillip Reed. Also, M. Hogan, The Marshall Plan (Cambridge, New York: Cambridge University Press, 1987), pp.95–101, and C. Maier, ‘The Politics of Productivity: Foundations of American International Economic Policy After World War II’, International Organization, 31 (1977), pp.607–33. See Price, The Marshall Plan and Its Meaning (Ithaca, NY: Cornell University Press, 1955), p.73. National Archives and Records Administration (NARA), Record Group (RG) 469, ECA, Office of the Administrator (OA), Box 3, Memo from H.S Truman to P. Hoffman, 9 August 1948. J. McGlade, ‘From Business Reform Programme to Production Drive: The Transformation of US Technical Assistance to Western Europe’, in M. Kipping and O. Bjarner (eds), The Americanization of European Business: The Marshall Plan and the Transfer of US Management Models (London: Routledge, 1998). Report on International Relations, 1948, NAM Papers, Box 12, Hagley Museum and Library. With the expiration of the ERP in 1952 and the creation of the Mutual Security Agency (MSA) in 1953, the ECA was placed under the US Department of State and renamed the Foreign Operations Administration (FOA). The FOA managed a dual mission of European economic and military aid until 1958 when it was reorganized as the International Cooperation Administration (ICA). Ironically, the advent of ICA harkened a partial return to economic reform as the basis for its European aid programs while many of its military aid programs were assumed by NATO and the newly formed European Economic Commission (EEC). See J. McGlade, ‘The Illusion of Consensus: American Business, Cold War Aid and the Recovery of Western Europe, 1948–1958’, Ph.D. dissertation (Washington, DC: The George Washington University, 1995). US Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970 (Washington: US Department of Commerce, Bureau of the Census, 1975), pp.228–30. W. Sanford, The American Business Community and the European Recovery Program (Greenwood, CT: p.131. Survey of Current Business, Vol. 29 (Government Printing Office (GOP): November 1949), p.20 and Vol. 40 (GOP: September 1960), p.20. Ibid. See J. McGlade, ‘The US Technical Assistance and Productivity Program and the Education of Western European Managers, 1948–58’, in T.R. Gourvish and N. Tiratsoo (eds), Missionaries and Managers: American Influences on European Management Education, 1945–60 (Manchester, UK: Manchester University Press, 1998). See J. McGlade, ‘From Business Reform Program to Production Drive: The Transformation of US Technical Assistance to Western Europe’, in M. Kipping and O. Bjarner (eds), The Americanization of European Business: The Marshall Plan and the Transfer of United States Management Models (London: Routledge, 1998).

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30. For more on the forging of United States–European mutual security aid programs, see J. McGlade, ‘NATO Procurement, Technical Assistance, and the Revival of European Defense, 1950–1960’, in G. Schmidt (ed.), A History of NATO: The First Fifty Years (London, UK: Palgrave, 2001), vol. 3. and M. Hogan, A Cross of Iron: Harry S. Truman and the Origins of the National Security State, 1945–1954 (Cambridge, UK; New York: Cambridge University Press, 1998). 31. See J. McGlade, ‘From Business Reform Programme to Production Drive: The Transformation of US Technical Assistance to Western Europe’, in M. Kipping and O. Bjarner (eds), The Americanization of European Business: The Marshall Plan and the Transfer of US Management Models (London: Routledge, 1998). 32. Ibid. 33. See J. McGlade, ‘The Illusion of Consensus: American Business, Cold War Aid and the Recovery of Western Europe, 1948–1958’, Ph.D. dissertation (Washington, DC: The George Washington University, 1995). 34. US Economic and Trade Policy Staff, Study of US Competitiveness (GOP: July 1980) and C.R. Taylor and W.J. Heinz, US Manufacturers in the Global Marketplace (New York: The Conference Board, 1994). 35. See J. McGlade, ‘Re-Globalizing Technology: The Impact of US and Japan Business Cooperation and Competition Since 1945’, in Proceedings of the Ist International Conference on Business & Technology, Technology and Society Division, Japan Society of Mechanical Engineers, University of Kyoto, October 20–22, 2002, Kyoto Japan. 36. D.C. Garfield, ‘Free Trade or the Lack Thereof’, The Conference Board, October 11, 1977, p.1, Box 192, Accession # 1057, Papers of the Conference Board, Hagley Museum and Library; C. Murchinson, World Trade and the United States (American Cotton Manufacturers Institute, Inc.: Washington, DC, 1953), pp.23–5, Pamphlet Collection, Hagley Museum and Library; R.E. Lipsey, ‘Assessing the Current International Competitive Position of the United States’, The Conference Board Conference: ‘International Trade Policy and American Industry: A Threatened Consensus’, October 11, 1977, p.2, Box 169, Accession #1057, Papers of the Conference Board, Hagley Museum and Library. 37. For the origins of COCOM and debates over its effectiveness in fashioning east–west trade splits see, G. Adler-Karlssen, Western Economic Warfare 1947–1967. A Case Study in Foreign Economic Policy (Stockholm: Almqvist & Wiksell, 1968), Chs. 8 and 9 and A. Sutton, Western Technology and Soviet Economic Development, Vol. III: 1945–1965 (Stanford: Hoover Institution Press, 1973), p.54. Also, see R.J. Carrick, East-West Technology Transfer in Perspective (Berkeley, CA: Institute of International Studies, 1978) and Peter Wiles, Economic Institutions Compared (New York: Wiley, 1977), M. Mastanduno, Economic Containment: CoCom and the Politics of East-West Trade (Ithaca, NY: Cornell University Press, 1992), pp.4–5, Richard T. Cupitt, Reluctant Champions: U.S. Presidential Policy and Strategic Export Controls: Truman, Eisenhower, Bush, and Clinton (New York; London: Routledge, 2000); A. Dobson, US Economic Statecraft for Survival, 1933–1991: of Sanctions, Embargoes and Economic Warfare (London; New York: Routledge, 2002), and I. Jackson, The Economic Cold War: America, Britain and East–West Trade, 1948–63 (Houndmills, UK; New York: Palgrave, 2001). Also see, US Congress, Joint Economic Committee, Subcommittee on Foreign Economic Policy, A Foreign Economic Policy for the 1970s: Part 6, hearings, 91st Congress, 2nd session, December 7–9, 1970, p.1242. 38. NARA, Department of State Doc. #760, Cablegram from Eisenhower to Macmillan, 5 May 1959, pp.1–5, Declassified Document File, 1997. 39. Ibid. pp.1–5. 40. US Congress, Senate, Committee on Interstate and Foreign Commerce, Export Controls and Policies in East–West Trade, report, 82nd Congress, 1st session (Washington, DC: GPO, 1951), pp.13–22. 41. G.K. Bertsch, East–West Strategic Trade, CoCom, and the Atlantic Alliance (Paris: The Atlantic Institute for International Affairs, 1983), pp.13–15. 42. M. Mastanduno, Economic Containment: CoCom and the Politics of East–West Trade (Ithaca, NY: Cornell University Press, 1992), p.28.

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43. Ibid. 44. J. McGlade, ‘The US Technical Assistance and Productivity Program and the Education of Western European Managers, 1948–58’, in T.R. Gourvish and N. Tiratsoo (eds), Missionaries and Managers: American Influences on European Management Education, 1945–60 (Manchester, UK: Manchester University Press, 1998).

7 The Marshall Plan: Searching for ‘Creative Peace’ Then and Now PAUL BERND SPAHN

Introduction World War II came to an end in 1945 with disastrous economic and political consequences. Europe suffered in particular: agricultural and industrial production had significantly fallen below prewar levels, and so had exports; there were food shortages, deficient housing and scarcity of raw materials; existing capital equipment was either devastated, or obsolete and ill-adapted to peace production; people were hungry, poor, and demoralized; gold and dollar reserves had been depleted; and European economies lacked access to world markets. At the political level there was humiliation and shame in Germany on one side; aching nationalism and political divisiveness in the rest of Europe on the other. Political antagonism between west and east would cleave the world into two hostile blocs for more than a generation. Civil and political liberties and democratic institutions were fragile and under assault from misery, lack of opportunities, and widespread pessimism. At that time, a soldier – a former chief of staff of the United States Army who had become secretary of state – George Catlett Marshall, rose to address young students of Harvard University with a truly visionary message: It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace. Our policy is directed not against any country or doctrine but against hunger, poverty, desperation and chaos. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.1 Marshall’s sketch of ideas would form the bedrock of a US foreignpolicy initiative and foreign-aid program that was truly unique in its approach and amazingly successful. Discarding the punitive philosophy of the Treaty of Versailles, Marshall stood for international cooperation

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and ‘creative peace’, as one observer has called it.2 This was initiated in the face of political opposition at home, where the polls showed little support for the plan and where there were strong isolationist tendencies in Congress. The program was criticized to be a waste of money with little economic and political impact in Europe. It was neither expected to induce much economic restructuring and development under the conditions prevailing in Europe, where government interference and planning was rampant, nor to deter those who favored communism from flirting with Moscow. On the contrary, detractors were concerned that the plan would shelter uneconomic and unsustainable industrial structures of European economies, that it would strengthen interventionist antimarket governments, and that it would run counter to US and European private business interests. Finally there was opposition to the plan on the grounds that it would assist Europe’s colonial powers in maintaining their grip on African and Asian territories. True, Marshall did not stand alone with his initiative at the time. The cooperative and multilateral spirit of his program had equally guided the conception of other important institutional arrangements at the international level, notably the conception of the Bretton Woods institutions – the International Monetary Fund, the World Bank and GATT. But these institutions would unfold their work only later, and the plan was thus crucial for political and economic developments in Europe. For the world economy, the initiative was indeed bold and unprecedented. Marshall’s original speech contains few details and specifications of the plan, but it was to spawn the singular European Recovery Program (ERP), which was formally presented by president Harry Truman in a message to Congress only six months later. This Program was to endure for four years and was designed to achieve three ambitious policy objectives: first, the expansion of European agricultural and industrial production; second, the restoration of sound currencies, budgets, and finances of individual European countries; and third, the stimulation of international trade among European countries and between Europe and the rest of the world. ‘Creative Peace’ Then The amounts expended (gross) under the plan were about 12.8 billion dollars (Table 7.1), or roughly a 7.2-fold amount, or 92 billion dollars, in current prices.3 Two implementing agencies were set up, one on the US side (the Economic Cooperation Administration (ECA), one in Europe (the Organization for European Economic Cooperation (OEEC) in Paris, which was to become the nucleus of today’s Organization for

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TABLE 7.1 FUNDS MADE AVAILABLE TO ECA FOR EUROPEAN ECONOMIC RECOVERY a (IN MILLIONS OF US DOLLARS)

Funds available

Direct appropriationsb Borrowing authority (loans)c Borrowing authority (investment guaranty program)d Funds carried over from interim aid Transfers from other agenciese Funds made available (gross) Less transfers to other agenciesf Funds made available (net)

3 April 1948 to 30 June 1949

1 July 1949 to 30 June 1950

1 July 1950 to 30 June 1951

Total

5,074.0 972.3 150.0

3,628.4 150.0 50.0

2,200.0 62.5 –

10,902.4 1,184.8 200.0

14.5

6.7

9.8 6,220.6 – 6,220.6

225.1 4,060.2 – 4,060.2

– 217.0 2,479.5 225.4 2,254.1

21.2 451.9 12,760.3 225.4 12,534.9

Notes: (a) Compiled from figures made available by the budget division of ECA and from figures published in the Thirteenth Report of ECA, pp. 39 and 152; and Thirteenth Semiannual Report of the Export–Import Bank of Washington, DC for the period July–December 1951. Appendix I, pp.65–6. (b) The Foreign Aid Appropriation Act of 1949 appropriated $4 billion for 15 months, but authorized expenditure within 12 months. The Foreign Aid Appropriations Act of 1950 contained a supplemental appropriation of $5,074 million for the quarter 2 April to 30 June 1949, and an appropriation of $3,628.4 million for the fiscal year 1950. The General Appropriation Act of 1951 appropriated $2,250 million for the European Recovery Program for fiscal year 1951, but the General Appropriation Act of 1951, Sec. 1214, reduced the funds appropriated for the ECA by $50 million, reducing the appropriation for that year to $2,200 million. (c) The Economic Cooperation Act of 1948 authorized the ECA to issue notes for purchase by the Secretary of the Treasury not exceeding $1 billion for the purpose of allocating funds to the Export–Import Bank for the extension of loans, but of this amount, $27.7 million was reserved for investment guarantees. The Foreign Aid Appropriation Act of 1950 increased the amount of notes authorized to be issued for this purpose by $150 million. The General Appropriation Act of 1951 authorized the Administrator to issue notes up to $62.5 million for loans to Spain, bringing the authorized borrowing power for loans to $1,184.8 million. (d) The Economic Cooperation Act of 1948 was amended in April 1949 to provide additional borrowing authority of $122.7 million for guarantees. The Economic Cooperation Act of 1950 increased this authority by $50 million, making the total $200 million for investment guarantees. (e) Transfers from other agencies included: from Greek–Turkish aid funds $9.8 million; from Government Aid and Relief in Occupied Areas (GARIOA) funds for Germany $187.2 million; and from Major Defense Acquisition Program (MDAP) funds $254.9 million. The Foreign Aid Appropriation Act of 1950 and the General Appropriation Act of 1951 authorized the President to transfer the functions and funds of GARIOA to other agencies and departments. Twelve million dollars were transferred to ECA from GARIOA under Section 5(a) of the Economic Cooperation

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TABLE 7.1:NOTES (continued)

Act of 1950 and the remainder under the President’s authority. The Mutual Defense Assistance Act of 1949 appropriated funds to the President, who was authorized to exercise his powers through any agency or officer of the United States. Transfers to ECA were made by Executive Order. (f) Transfers to other agencies included: $50 million to the Yugoslav relief program, $75.4 million to the Far Eastern program, and $100 million to India. The transfer to Yugoslavia was directed by the Yugoslav Emergency Relief Assistance Act of 29 December 1950. The transfer to the Far Eastern program was made by presidential order (presidential letters of 23 March, 13 April, 29 May, and 14 June 1951). The transfer to India was made by presidential order (presidential letter of 15 June 1951). Source: Brown, Jr., William Adams and Opie, Redvers (1953) American Foreign Assistance. Washington: The Brookings Institution, p.247.

Economic Cooperation and Development (OECD). This division of competencies reflected Marshall’s intent to establish a truly transatlantic partnership, a ‘joint venture’ between the United States and participating European countries, and a multilateral and shared responsibility for carrying the program to success. And a success it was, indeed! By the end of 1951, during the four years of the plan, industrial production for all participating countries had increased by two-thirds and agricultural production by one-quarter. Aggregated GDP had grown by 25 percent during that same period. The trade deficit of participating European states with regard to the dollar area had fallen from about 8 billion dollars in 1947 to nil during the first half of 1953,4 and this despite deteriorating terms of trade. Success can also be expressed in terms of specific quantitative objectives, such as steel production (60 million tons per year compared to a target of 55 million tons per year which had already been set at an ambitious 20 percent above prewar production), or oil-refining capacity (twice as high as the official target). Financial stability in Europe had been restored (of course also by other measures such as the German currency reform of 1948) and the ‘dollar gap’ had been virtually closed. Intraregional trade among OEEC countries had substantially grown as it was fostered under the plan and was institutionally supported by a European Payments Union (EPU) established in 1950, which acted as a clearing and settlement system for payments among member states. During the duration of the plan, government budgets recovered through stable wages, higher taxes, and the consolidation of debt burdens, and budget deficits could be reduced substantially. True, there is considerable debate on whether the ensuing postwar ‘economic miracle’ in Europe can be ascribed to the plan and its offspring institutions (such as the EPU) even partially. As the skeptics

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195

argue, the resources transferred constituted only less than 3 percent of combined national incomes of OEEC countries, and they were less than one-fifth of gross investment. Moreover only 17 percent of Marshall aid was spent on machinery and vehicles at home, with the remaining part spent on commodity imports from the United States.5 But the skeptics must also explain why Europe could maintain an investment level of about 20 percent of GDP during that time – one-third higher than before the war – despite the fact that national savings had actually been zero in 1948. There is evidence that countries receiving more aid under the plan also invested more.6 Moreover, the Marshall Plan had a high leverage effect through the mobilization of counterpart funds in national currencies, because national governments had to match Marshall aid through their own taxpayers’ money in order to account for program costs denominated in local currency. Also, the impact of the Program was enhanced through the possibility to target the funds on specific areas for reconstruction and development. And the yields on new investment were indeed extremely high, with the social rate of return on investment estimated as high as 50 percent per year during that period.7 The main beneficiaries of the plan were the United Kingdom (24 percent) and France (20 percent of total aid). The losers of the War, (West) Germany and Italy, received about half that amount each (10 and 11 percent of the total). In terms of per capita transfers, the main beneficiaries were the smaller European countries – Iceland, the Netherlands, Austria, Greece and Norway. Among the larger countries with populations exceeding 40 million, again the United Kingdom and France were at the top in terms of per capita transfers received – with both securing approximately US $450–460 each in current prices. By contrast, West Germany and Italy received only about $206 and $232 per capita in 2002 US dollars (Table 7.2). If per capita transfers received by country are related to the per capita average of the region (excluding the population figure for the Asian part of Turkey), the relativities can be seen from Figure 7.1, which is based on Table 7.2. Four groups can be distinguished. Portugal, Turkey and Sweden form a group with aid in per capita terms that falls more than 70 percent below the average. West Germany and Italy received roughly 40 percent less, respectively a third less, than the average in per capita terms. Belgium/Luxemburg, Denmark, the United Kingdom and France each obtained roughly 30 percent more than the average per capita. The smaller countries Norway, Greece, Austria and the Netherlands clearly stand out in terms of per capita aid received, the latter three countries obtaining about twice as much as the average. There is only one country

Austria Belgium/Luxembourg Denmark France Greece Iceland Ireland Italy Netherlands Norway Portugal Sweden Turkeya United Kingdom West Germany Regional

6,934 9,025 4,336 42,500 7,600 22,145 2,959 46,885 10,377 3,308 8,606 7,126 23,485 50,650 48,708 –

June 1952 Mid-1952 Mid-1951 March 1952 April 1951 Mid-1951 Mid-1951 September 1952 July 1952 March 1952 Mid-1951 June 1952 December 1950 December 1951 December 1952 –

Population in 1,000s

13,325.9

677.8 559.3 273.0 2,713.6 706.7 29.4 147.5 1,508.8 1,083.5 255.3 51.2 107.3 225.1 3,189.8 1,390.6 407.0

Total

48.87

97.75 61.97 62.96 63.85 92.99 202.72 49.85 32.18 104.41 77.18 5.95 15.06 9.58 62.98 28.55

Per capita

Current dollars

95,946.5

4,880.2 4,027.0 1,965.6 19,537.9 5,088.2 211.7 1,062.0 10,863.4 7,801.2 1,838.2 368.6 772.6 1,620.7 22,966.6 10,012.3 2,930.4

Total

351.9

703.8 446.2 453.3 459.7 669.5 1,459.6 358.9 231.7 751.8 555.7 42.8 108.4 69.0 453.5 205.6

Per capita

In 2002 dollars

100.0

5.1 4.2 2.0 20.4 5.3 0.2 1.1 11.3 8.1 1.9 0.4 0.8 1.7 23.9 10.4 3.1

Share of total in percent

Notes: (a) European part only. Source: US Agency for International Development, November 16, 1997 (from CRS Report for Congress, US Information Agency Homepage). Population data from Statistisches Jahrbuch für die Bundesrepublik Deutschland (various issues); own calculations. The estimation of amounts in 2002 prices is based on the US consumer price index (urban population), which produces roughly a factor of 7.2.

Total

TABLE 7.2

EUROPEAN RECOVERY PROGRAM RECIPIENTS, 3 APRIL 1948–30 JUNE 1952 (MILLIONS OF US DOLLARS)

  ‘ ’

197

West Germany United Kingdom Turkey Sweden Portugal Norway Netherlands Italy Ireland Greece France Denmark Belgium/Luxembourg Austria –100

–50

0

50

100

150

Source: See Table 7.2

Figure 7.1

European Recovery Program recipients: per capita transfers received in percent of average per capita aid

that comes close to the average per capita amount – Ireland. The wide dispersion of per capita aid (with a standard deviation of 66.7 percent) is indeed striking. There is wide agreement that the plan alone would probably not have achieved much, and that it was only one of several factors that added to economic growth and reconstruction in Europe. Contributing equally to this ‘miracle’ were existing human resources, sound – albeit, badly damaged – infrastructure, the resumption of access to new technologies and world markets, a robust legal framework and functioning bureaucracies, as well as widespread political support in the region. But although the direct effects of the plan on European economic growth may be questioned, a number of distinctive elements of the program were indeed important for postwar economic and political developments and the enhancement of well-being in western Europe: The first of these distinctive elements was the explicit recognition of a positive relationship between economic and political stability. This does not only emphasize the role of sound economic conditions for consolidating the role of government and the political system. It also embraces

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a dynamic component for attaining long-term stability and sustainability of European economies, because most of the aid was given in the form of grants and large amounts of indebtedness of the new partners in an emerging transatlantic partnership was thus avoided. The lessons of the Treaty of Versailles and its consequences had been learned. A second factor was the recognition of national sovereignty of OEEC countries, although under Allied control in the case of Germany. The institutions of the plan fostered dialog and cooperation, not submission or coercion. Initiatives had to be taken by recipient countries, implementation was a joint endeavor, and responsibilities were shared. Although the United States had a clear-cut foreign-policy objective of its own, namely, the containment of communism in the world, the emphasis of the plan was on partnership and mutual respect. Thus the European institutions created under the plan, the OEEC and EPU, proved to be extremely effective instruments of US diplomacy under difficult historical circumstances. Third, the national security objectives of the United States were carried to western Europe and the groundwork for NATO was laid8 which would ultimately prove to be extremely effective in preserving peace in the western Hemisphere. The plan had extended financial assistance even to central and eastern European countries and the Soviet Union,9 although the latter and its allies rejected this as an infringement on their national sovereignties and as jeopardizing the long-term aim of a ‘world revolution’ and the establishment of communism at the global scale. By marrying foreign policy objectives, political stability and economic recovery, the plan was indeed ‘creative’ in its search for peace, and it is noteworthy that Marshall was in fact the only professional soldier ever to be awarded the Nobel Prize for Peace. Fourth, the OEEC as a forum for mutual consultation and cooperation became the cradle of more comprehensive economic policy coordination among industrialized countries in the world, with progressive expansion of its membership. Some would draw the line even further and relate the plan to the launching of the Coal and Steel Community in 1952, and eventually its longer-term successor, the European Union of today. These far-reaching implications may seem to be exaggerated for many,10 because such developments were mainly driven by European initiatives. However, the initial trigger effects of the plan should indeed not be underestimated in this context because these probably tipped the balance in a precarious political and economic situation where the newly emerging or reconstructing democracies in Europe, suspicious and unaccustomed to cooperation and partnership, were in search of a new feasible modus vivendi among themselves and with the rest of the world.

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199

Fifth, the plan had a distinct leaning toward the free play of the market and toward the liberalization of international trade even where this seemed to jeopardize short-term US interests. Indeed, at the time, US businessmen feared (and experienced) both mounting competition from European exporters at home, and the loss of formerly uncontested markets abroad. The emphasis on the market and on free trade, although far from being fully realized immediately, would create the conditions for a consumer-driven reallocation of resources and the enhancement of well-being in European countries, as well as for a rapid conversion of their ‘war-production machinery’ into internationally competitive economies. It also brought western Europeans into the club of prospering countries that adopted a liberal, market-oriented philosophy, and they would become reliable partners in a reintegrating world economy. However, the plan was not only important because it contributed to mobilize long-run dynamic gains from trade in an integrating world economy, from which both sides of the Atlantic would benefit. It was also decisive in guiding policy making in western Europe where governments were indeed still predisposed toward interventionism and regulation. Without the plan, the dismantling of wartime allocation controls and the elimination of restraints on competition and the free movement of resources are likely to have been slower and the transition process much more painful for Europeans. Sixth, at a more technical level, the plan was creative in setting an unambiguous sunset date for support. This made it clear that the plan was to be temporary ‘aid toward self-aid’, and not to be relied upon indefinitely. This distinguishes it, for example, from the current regional transfer program within unified Germany. The latter may be more massive in scale,11 but it is deemed to be less effective because a policy of gap filling has raised expectations of continuing bailouts, it hinders self-initiatives, and it slows down structural adjustment in eastern Germany. Seventh, the idea of counterpart funds, whereby each country benefiting from Marshall aid was required to set aside a matching amount of its own currency, reinforced the impact of the program through a leverage effect. It gave the United States an important policy lever in conveying its own policy priorities, especially as these priorities changed later when an increasing proportion of the funds was being channeled toward defense under the impression of the Korean War. The policy regarding the counterpart funds was, however, very flexible. Whereas they were typically earmarked to specific investment projects in utilities, transportation and communication facilities, for instance, Great Britain was allowed to channel a substantial part of counterpart funds into retiring

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debt. In France, the release of counterpart funds seems to have been made contingent on policies leading to a balanced budget.12 Eighth, Marshall aid provided a special fund that was intended to finance technical assistance and to bring to Europe experts from the United States. Although this program was small in terms of financial commitments, the effects of such assistance are generally thought to be rather important, and the program as such is considered to have been a success. Finally, the plan contributed to raising the morale of European citizens, turning widespread pessimism into purposeful actions. It also produced, at least in West Germany, feelings of gratitude – which would be further augmented during the blockade of Berlin. And it contributed to the reconstitution of German national self-esteem after the devastating and humiliating experience of the Nazi regime. All of these many elements combine into a singular American aid program for ‘creative peace’ which will remain forever linked to Secretary of State George Marshall’s name. The Quest for a ‘New Marshall Plan’ It has often been argued, with regard to the Third World and, more recently, to transition economies, that a new Marshall Plan was needed to assist economic development and reconstruction in these countries. In order to assess whether a new version of the plan would work under the present conditions prevailing in transition and developing countries, it must first be understood why the plan was successful in the first place and what the conditions for its success had been. Unquestionably, the ERP seed money fell on extremely fertile grounds in postwar Europe. European economies were operating in an institutional setting where private property rights had essentially been preserved, even under Hitler’s planned economy, where there was a spirit of initiative, response, and entrepreneurship, and where there existed functioning administrations in the public sector. There were solid legal foundations that could be relied upon in order to foster and support economic activities. Moreover, US aid could mobilize a high degree of political commitment for the objectives of the plan because such commitments of the most recent past had been discredited, not only in Germany, but also in other European countries where collaboration with the Nazi regime had been noticeable. The emphasis of the Program was on productivity rather than rent seeking, and the efficient use of dollars for international trade allowed an economic recovery that quickly became self-sustaining. Ironically, the destruction of production capac-

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201

ities during the war often proved to be an advantage for European entrepreneurs because it called for a redesign of production from scratch and because it inspired firms to discard old-fashioned production lines and to adopt the most modern techniques available at that time. Moreover, economic restructuring and development were supported by a highly motivated, disciplined and skilled workforce. After the hardships of the war, and particularly in Germany, after political disillusionment that had come with the end of the war, this workforce had but one simple new ideology – economic accomplishments and success. Poverty, social distress, and fragile democratic institutions together with the lure of a hitherto unknown, but potentially attractive alternative ideology – communism – spurred the enthusiasm of those, including the US, that waged a battle against time in order to prevent Europe from falling prey to yet another historic blunder. Finally, the plan had to fill the void of a newly emerging world economic order where the main institutions conceived in 1944 at Bretton Woods – the International Monetary Fund, the World Bank and GATT – were still in their infancy and had barely begun to lay the groundwork for free trade, effective development policies, and a stable financial system for the world, with convertibility of currencies, fixed exchange rates, and freedom of capital movement. The historic conditions prevailing in postwar Europe were thus unique and cannot simply be compared with the situation that prevails in the developing or transition economies of today. In a modern, integrating world economic order that prepares for the 21st century, the circumstances are quite different from those that existed half a century ago. This is evident in several notable ways. For example, international cooperation has not only become the prevailing policy paradigm, there is also a great number of institutions that seek to provide effective policy coordination and mutual support at the international level: the International Monetary Fund, and the World Bank, the World Trade Organization, as well as the United Nations and a host of regional development banks. Many of these institutions are in a position to mobilize funds for countries in distress, to support economic reconstruction and growth, and to work out development programs in conjunction with their member governments. Furthermore, they are committed to creating a stable and effective framework for international finance and to facilitating access to world capital markets, they monitor the common rules established for international trade, and they sustain world commodity markets and multilateral trade based on the principles of nondiscrimination and transparency. For the industrialized world, the OECD constitutes an effective coordination agency, and the European

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Union has matured to an entity that shares responsibilities with the United States at an international level. Apart from these coordinating institutions, there is a clear trend toward regional economic integration and joint policy making among nation states, not only in the European Union, but also in other parts of the world (NAFTA, ASEAN, APEC, Mercosul). This implies a tendency toward multilateralism rather than bilateralism in addressing economic restructuring and development of retarded regions. Since the war, the world economy has become highly interdependent. Markets – in particular, financial markets – are increasingly transgressing national boundaries while becoming more and more globalized and difficult to regulate or control. The scope for national economic policies is not only reduced by regional integration and international policy coordination, but the force of markets and competition at the world level also reduces it. The free flow between countries of factors of production – capital and labor – has created a highly competitive environment with a multitude of new financial instruments and a massive expansion of financial activities. Moreover, global competition puts pressure on standardized labor contracts with severe consequences for the financing of the welfare state, which is predominantly based on payrolls, and it impinges on the ability of national governments to tax.13 After the fall of the Berlin Wall, the market paradigm has gained distinction over interventionist philosophies, and the protectionist mood in many transition and developing countries has surrendered to more competitive attitudes worldwide. The defensive strategy of import substitution in foreign trade, which had retarded economic developments in many parts of the world, has finally yielded to a more aggressive exportorientation, which benefits both, industrialized nations and developing countries alike as the latter open up their economies to confront international competition. There are thus the first traces of an all-embracing global consensus on the importance of market forces and of competition in the efficient use of resources, despite continuing cleavages on the question of how to distribute the wealth of nations. The globalization of markets, the decentralization and diversification of production processes, the ubiquity and ready availability of information, ease of communication, and international competition, do not only imply the convergence of prices through market arbitrage, but also of policies, perceptions, expectations and visions. In particular, globalization is about to open up the service industry, which offers to developing countries an easier access to information, technology, and markets – at least potentially. These new trends in the world economy have greatly enhanced the

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prospects for economic development in transition and emerging economies in conjunction with its financing. In the late 1990s, liberalized private capital markets mobilized significant amounts of international capital for the developing world, much more than official government aid put together. But private capital flows are also more volatile than politically-determined aid because they are highly sensitive to perceived market risks and to policy blunder. Therefore, private capital investments in developing, emerging and transition economies are often of a short maturity. It implies that capital flows can be rather volatile. They also sidestep a great number of countries where growth potentials are sensed to be weaker. Nevertheless, they vividly bear testimony to the fact that finance does not seem to constitute a major bottleneck for development in principle. Moreover, even countries whose access to private capital markets is more difficult are not left out. They can rely on multilateral international lending agencies and on a comprehensive network of bilateral arrangements with a great number of investment and development banks, as well as on continuing bilateral aid from industrialized nations. All this renders a new financial aid program similar to the Marshall Plan less compelling now than in the postwar period. Furthermore, as demonstrated by Germany’s regional transfer program to the Eastern Länder, financial aid can be counterproductive when it is given on a recurrent basis. It tends to entail moral-hazard behavior, to neutralize pressures for economic restructuring, and to raise expectations of further bailouts. ‘Financial dependency’ may rapidly become a ‘lifestyle’ even for states. So it should be clear that a new Marshall Plan for transitioning and developing countries cannot be, and should not be, a long-term restructuring exercise. This is a point that is frequently overlooked by advocates of a new plan. It is therefore important to be reminded that the Marshall Plan was succinctly limited in time, and this was an important element of its success. The question is now whether a targeted, time-limited ERP for central and eastern Europe could have made sense after the fall of the Berlin Wall. This question is more rhetoric than real, because historically such a program was not brought to bear, and by now its chances appear to have been missed. Hence, were today’s politicians less visionary than Secretary of State Marshall in his own time? Some would say that perhaps they were, but I plead that even Marshall may have hesitated to propose his program for transition countries in the historically unique situation after the collapse of communism. Why? As argued above, countries can nowadays rely on well-functioning international capital markets, and there are international bodies that

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specialize in the setting-up of economic development and restructuring schemes, combining it with specific, targeted and conditioned financial aid. These bodies include not only the International Monetary Fund and the World Bank, but also the United States and the European Union, along with specific European agencies such as the Londonbased European Bank for Reconstruction and Development (EBRD). There are many reasons to believe that it was wise to put those institutions in charge of dealing with the immense challenge after the historical breakdown of communism rather than advocating for a blind remake of the Marshall Plan. The channeling of unconditional finance into the formerly communist countries would have indeed been dubious because •

•

•

• •

•

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their political and administrative institutions, the organization of production and distribution, and the legal framework for economic operations were (and still are, to some extent) inappropriate for a well-functioning market economy; key economic sectors, such as finance and other highly specialized services, were deficient in these countries and typically had to be rebuilt from scratch; private property had been limited, and collective property rights had thwarted investment initiatives and entrepreneurship; moreover, reforms to rewind this process had to be slow by nature, and they tended to be erratic; entrepreneurship and specific skills of a modern service industry were (and still are) largely absent; public enterprises were non-competitive in these formerly-closed economies, with poor technologies in most industries, hidden subsidies at all levels of production, and excessive social functions bestowed upon the enterprise sector; administered pricing had eliminated or distorted economic incentives; this was also true for postwar western Europe, but the length of time socialist countries had endured such regimes (as well as their dimensions) were more marked, and a harsh reversal of the policy threatened to entail social hardship and was therefore limited in scale; and finally the level of public expenditures was unsustainable, and the tax systems were distortive and misconstrued.

Consequently, a first period of restructuring had to be devoted to the establishment of a political and legal framework to support civil liberties and the play of a free market. This involved liberalization and privatiza-

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tion, institutional reforms to sustain such things as capital markets and other non-bank financial sectors, and the restoring of macroeconomic stability. True, grantor governments and international donors have tried to encourage such restructuring through conditional grants and loans, but such transfers could hardly become as effective as the Marshall Plan as long as these requirements had not been met. The first-round transfers to transition economies can thus be regarded as a vehicle to encourage basic reforms, which was typically expected to bear fruit only in the long run. This is different from the US approach of half a century ago. In a second phase of reform in transition economies the key challenges will be: [T]o build, consolidate and strengthen the institutions, policies and practices which underpin a well-functioning market economy and the investment that supports growth. In responding to these challenges, good governance will be crucial. This must involve openness, transparency and credibility and the absence of bureaucratic interference and corruption. Such governance is vital to the emergence and maintenance of an effective competitive process. The private sector must also in this phase build the sound business practices, which will lead to long-term success. Good governance both encourages and is supported by the development of civil society.14 Again, this is a longer-lasting and painful process that cannot be expected to bear fruit rapidly, neither with nor without grants money. The necessary reforms in many transition economies are generally lagging behind, and progress in enterprise restructuring and improving governance continues to be slow. Furthermore, severe income inequality, fragile institutions and uncertainty about legal rights and entitlements, the lack of familiarity with the rules of a market economy, weak initiatives in the private domain, and poor performance of the public sector exacerbate it. All this may be exacerbated by corruption in the public administration in these countries. Was the Marshall Plan then a historic incident with no further relevance for solving today’s problems? Nothing could be more mistaken! In today’s search for ‘creative peace’, one can still benefit from Marshall’s basic philosophy: from the cooperative and multilateral spirit of his program and from his idea of partnership, shared responsibilities, collaboration among governments and institutions, mutual respect, and full recognition of sovereignty and individual freedom. Such virtues are crucial in a globalizing world where information, attitudes, and moral values will have to be shared without engendering new

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ideological cleavages and confrontations. We still have to be ‘creative’ in the search for peace, just as Marshall was at his time, although different conditions will commend different measures. But Marshall’s basic message – cooperation, concertation, dialog and respectful deliberation – endures all the same. ‘Creative Peace’ Today As follows from the preceding analysis, the conditions for financing reconstruction and development are very different from those that existed after World War II. There is now mounting agreement on a ‘world economic order’, which is favorable to market processes and critical to state interventionism. Moreover, there are functioning international institutions such as the International Monetary Fund and the World Bank, and there are private capital markets that are prepared to bring savings to work on a global scale, even to the lesser-developed countries provided that their sovereign risks are manageable. Although finance does not seem to be the main bottleneck in these days, financial aid as such is not sufficient to solve pending problems of a globalizing world. What will allow the formerly socialist and the developing countries to participate in global welfare and its expansion can be typified by three i’s: institution building, infrastructure and integration. Institution building Institution building means democratization of the society in order to have citizens participate in public decision making and to set up the necessary control mechanisms for checking errant behavior such as collusion and corruption. It also means the establishment of a robust financial sector with an independent central bank and the conduct of a stability-oriented monetary policy, as well as a healthy private banking sector that is subject to international competition and functions in a transparent way. There is also the need for tax reform, for the improvement of the budget process, and for the realization of fiscal discipline through hard budget constraints. Institution building implies fiscal decentralization and the enhancement of allocating public resources. It entails a clear definition of property rights, including risks associated with the environment. It requires the overhaul of existing pension systems and the confinement of other financial risks of the public sector, the detachment of the government budget from public enterprises – that is, privatization – and, in particular, of state banks that provide access to soft financing, which in turn means the strengthening of the domestic private financial sector and its control. Finally, it also means the corrob-

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oration of the political and legal system and its institutions, as well as the improvement of the overall climate for investment and economic activities. Soft financing through foreign aid would probably only slow down this adjustment process, unless clearly based on a code of conditionality. As for institution building in transition and developing countries, responsibility must remain with the citizens of these countries and their respective representatives in the first place. Assistance from abroad will always find its limits in a given national polity, according to the perceptions of the citizens and agents living therein. Foreign assistance has thus to be confined to technical advice, which may be supported by financial incentives. Today such expertise as well as corresponding funding mechanisms are predominantly vested in functioning international organizations – although bilateral aid may complement the complex mosaic of international political and economic relations. In this context, the International Monetary Fund must continue to assume a key role in coordinating macroeconomic policies and in developing and implementing monetary and fiscal reforms. In the past, the IMF has often assisted structural transformation processes, notably in the former Soviet Union, and therefore some observers, including the Bretton Woods Commission, advocate for a stricter separation of functions from those of the World Bank. The latter should primarily focus on microeconomic restructuring, while the International Monetary Fund should fulfill its tasks in the area of macroeconomic policy coordination. However, this separation is difficult given the fact that structural policies, institutional and political reform, and development processes are intrinsically connected to macroeconomic adjustment. In order to assist institution building within emerging countries and to support private-sector capital flows in this part of the world, the IMF must concentrate on its role as a crisis manager in anticipation. This requires stronger surveillance through continuous and more candid dialogs with member countries and the closer monitoring of data. ‘The world community would gain by using the Fund as the principal forum for multilateral surveillance and coordination of national fiscal and monetary policies.’15 The Fund must develop a set of standards to guide member governments in publishing economic and financial data on their own and to keep markets better informed. This would provide the discipline needed to ensure a systematic review of economic developments; it would provide an opportunity for governments to deliver collective advice; and it would permit markets to make informed decisions and perform its role more efficiently. Also financial market supervision and regulation would have to be strengthened both at the national and the international level.

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Infrastructure As to infrastructure development, the World Bank performs a key role in assisting structural adjustments to render markets more responsive to change and to enhance economic welfare. In recent times, this has been particularly important in the context of transforming the formerly socialist economies. Continuing widespread poverty in many countries, population growth and pressing environmental problems all pose major development challenges. Thus, the case for a major role for the World Bank is strong and even more acute. Together with regional development banks, it plays a key part in promoting sustainable social and economic development. However, the World Bank will have to narrow its focus on co-financing public goods for which private resources are difficult to mobilize. This is not at odds with the present philosophy of the Bank, which tends to foster private sector developments and to mobilize resources for poverty reduction through markets. The end of the Cold War will permit the World Bank to avoid misallocation of resources through political concessions, and to insist instead on harsher conditionality and to concentrate on projects with a high social rate of return. The Bank is now in a better position to decline lending to governments that lack commitment in reducing poverty, that violate human rights or that misallocate resources for military oppression and corruption. The Bank will have to place the emphasis on supporting primary education and health, and on the protection of the environment. Moreover, the Bank must assume a key role in coordinating international development projects among major donor countries and multilateral institutions. And the Bank should decentralize its operations wherever possible without losing sight of the coherent framework of its general policy. This will enhance its effectiveness and foster democratic participation. The global trend in the world economy also requires the World Bank and the International Monetary Fund to catalyze greater private sector involvement. This means inter alia that the work of the IFC and MIGA has to be integrated more strongly in their programs. Non-government institutions and new public–private arrangements will offer new chances to realize development projects with greater participation of beneficiaries and the private sector while assuring adequate risk-sharing between public and private lenders. A change in the statutes of the Bank may also have to be considered, and particularly to those statutes which now restrict operations to countries whose sovereign risks are fully guaranteed. In a world in which some countries have emerged from underdevelopment and others are freed from the yoke of totalitarianism, it seems

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perverse that the Bank has to refrain from business with these potentially more dynamic regions whenever they ask for some risk-sharing, while it would have to concentrate on the poorer, albeit riskier, countries which assume a full bail-out guarantee of little value. However, there will be a continuing need for poverty alleviation in a globalizing world. The main instrument for this purpose is the enhanced structural adjustment facility (ESAF) of the International Monetary Fund, which provides conditioned assistance for growth-oriented adjustment programs in low-income countries. This facility was extended and enlarged not too long ago, and a self-sustaining facility has been put in place. This constitutes a decisive improvement in the plight of poor countries. It is an irony, however, that the financing of IDA as the suborganization with the heaviest impact on alleviating poverty is constantly at risk and that major contributors, like the United States, fail to honor their commitments. Official development assistance of industrialized countries, multilateral and bilateral, is now less than 0.3 percent of GDP, at the lowest level since 1973. This trend should be reversed. Increasing demands on the Bretton Woods institutions’ resources will also require a strengthening of the financial basis for multilateral action in a globalizing world. While there are initiatives to develop new parallel financing arrangements by the Group of Ten and selected other countries with the aim of doubling the credit lines available under the General Agreement to Borrow (GAB) of the Fund, these measures are likely to be insufficient and not act as substitutes for an increase in quota. The fiftieth Annual Meeting of the International Monetary Fund and the World Bank of October 1995 had endorsed an emergency financing mechanism in order to enable the IMF to respond rapidly, with sizeable front-loaded financing, to deal with potential Mexico-style crises. It also supported currency stabilization funds on a short-term basis for confidence building, and to expand the scope of emergency assistance in postconflict situations. In 1997 the IMF quotas were increased again, but in view of the late-1990s turbulence in Southeast Asian financial markets and the more recent insolvency of Argentina, it is doubtful whether the scope for emergency funding is sufficiently large. In particular, shortterm events such as those observed in foreign currency and other asset markets require temporary multilateral interventions, but these may put longer-term infrastructure developments in other parts of the world at risk. Integration While institution building and infrastructure development is mainly a responsibility of governments of transition and developing nations

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themselves, where foreign assistance can only be subsidiary, integration requires active participation of western nations as well as the political will to cooperate with formerly socialist and developing countries. This is where Marshall’s spirit of partnership and mutual respect, of cooperation and concertation is particularly imperative. Political and economic integration is the paramount device in the search for ‘creative peace’ under contemporary conditions. It offers a platform for solving international conflicts through deliberation and negotiation, and it has the potential to enhance welfare through the arbitration of opportunities that are mutually beneficial to consumers and producers. It also leads to the forming of a network of political, cultural, commercial and personal relations that will ultimately lead to a better understanding among individuals and agencies, and thus consolidate peace. At the political level, the Organization for Security and Cooperation in Europe, NATO’s ‘Partnership for Peace’, the Group of Eight, the Council of Europe, and many other multilateral bodies and institutions now take a cooperative approach to a wide range of issues. Such institutions try to achieve cooperation and progress towards these issues through preventive diplomacy, confidence and security building measures, arms control, economic policy concertation, the exchange of information and technical assistance, democratic and economic institution building, election monitoring, and so forth. The extension of NATO is an important approach to political integration of the formerly socialist world, which can only be successful if combined with confidence and security building. At the economic level, the expansion of trade with transition and developing countries is mandatory in order to help them overcome their balance-of-payment problems and to foster their re-insertion into the world economy. This requires, inter alia, a revision of the hitherto protectionist attitudes in some sectors of the economy such as agriculture where the comparative advantages are clearly on the side of countries like Poland, Romania, Bulgaria, and many countries in the Third World. A new round of WTO-negotiations will have to settle such problems, but this could be too slow a process for integrating central and eastern European countries into the world economy rapidly enough, and some immediate political action is required. The European Union and its agricultural policy play a key role in this context. Although there are initial indications of a change in attitudes, much remains to be accomplished. Fostering trade with central and eastern European countries is just one element of a new type of creative peace policy. The decisive step will, of course, have to be the enlargement of the European Union and the acceptance of full membership, mutual respect and full recognition of

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sovereignty and individual freedom among nations in this part of the world. As in the days of Marshall, shared responsibilities and collaboration among governments and institutions are the ultimate test for partnership in a Europe that has finally come to overthrow the legacies of communism and of World War II. Conclusions The Marshall Plan was a success at its time and it had significant portent beyond its immediate financial impact, which may be questioned. The plan stressed the positive relationship between economic and political stability. It emphasized the free play of the market and the liberalization of international trade. It fostered dialog and cooperation, and it married foreign policy objectives with political stability and economic recovery. It created a forum for mutual consultation and cooperation among industrialized countries. Finally, it raised the morale of European citizens turning widespread pessimism into purposeful actions. These are its main outcomes, and they extend well beyond finance. In the light of such historical experience, the quest for a new Marshall Plan directed toward the formerly socialist and developing countries is understandable, but it neglects the fact that the world economy has dramatically changed during the last half of a century. Moreover, the specific conditions that initially prevailed in transition countries would have made such a program rather dubious. Unconditional funds to central and eastern European countries would have evaporated without noticeable results because political and administrative institutions were and are still weak, the organization of production and distribution is inadequate, and the legal framework for economic operations is fragile. The lack, in these countries, of an institutional framework to support market forces and initiatives is likely to have rendered financial aid ineffective. Also good governance is needed, and is too often lacking, for a successful transition process. Good governance must involve openness, transparency and credibility as well as the absence of bureaucratic interference and corruption. The most important prerequisites for successful transformation and development are institution building, infrastructure and integration. Institution building implies the democratization of society in order to have citizens participate in public decision making and to set up necessary control mechanisms. Infrastructure development is needed to assist structural adjustment, to render markets more responsive to change, and to enhance economic welfare. Political and economic integration of transition and developing countries is the paramount device in the search for ‘creative peace’ under modern conditions.

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While institution building and infrastructure development is mainly the responsibility of governments of transition and developing nations themselves, integration requires active participation of western nations as well as the political will to cooperate with formerly socialist and developing countries. It is in the notion of integration where Marshall’s spirit of partnership and mutual respect, of cooperation and concertation, remains particularly meaningful. Marshall’s legacy is his vision, not so much a program that was appropriate for postwar Europe. ‘Creative peace’ today exacts politicians to draw on Marshall’s imagination and to design new programs in his spirit if they want to pass the test of history, as Marshall indeed did. At the beginning of the 21st century it may be apposite to remember the words of President Bill Clinton spoken in The Hague in 1997: Now, the dawn of new democracies is lighting the way to a new Europe in a new century – a time in which America and Europe must complete the noble journey that Marshall’s generation began, and this time with no one left behind.16

Notes 1. George C. Marshall, Harvard University commencement ceremonies of 5 June 1947. 2. Porter letter to Kindleberger, January 16, 1947, RG 59, file: 501.BD Europe/1-1647, quoted in Michael J. Hogan, The Marshall Plan, America, Britain, and the Reconstruction of Western Europe, 1947–52 (Cambridge: Cambridge University Press, 1987), p.37. 3. US Agency for International Development, 16 November 1971. 4. OECD Observer, June 1967, pp.10–11. 5. J. Bradford DeLong and Barry Eichengreen, ‘The Marshall Plan: History’s Most Successful Structural Adjustment Program’, Working Paper No. 3899, National Bureau of Economic Research (NBER), November 1991, p.30. It should be noted however that such imports were not exclusively for consumption and that these commodities also set world quality standards for the emerging European production, a precondition for successful exports during the following years. 6. Ibid. 7. Ibid. 8. Compare US House of Representatives, Committee on Appropriations, Foreign Aid Appropriation Bill for 1950, 1949, p.33. 9. It may be debated, though, whether this offer was serious and whether it was not simply a strategic gesture whose acceptance by the Soviet Union would have embarrassed the US government – playground for speculation by historians, but vain through the pace of events. 10. It should be noted however that US politics was favorable to the idea of European integration at the time. For instance, John Foster Dulles told the National Publisher’s Association in January 1948 that any plan for the future of Germany should be ‘in terms of the economic unity of Europe’. And further, ‘A Europe divided into small compartments’ could not be ‘a healthy Europe’. Quoted in Hogan, 1987, p.37. 11. Net transfers from west to east Germany constituted DM 160 billion in 1995, or 42 percent of the recipient region’s GDP – compared to about only 3 percent of GDP for the OEEC countries during the years of the Marshall Plan.

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12. Vincent Auriol, Mon Septennat, 1947–1954 (Paris: Armand Colin, 1970), p.162. 13. Vito Tanzi, Taxation in an Integration World (Washington: The Brookings Institution, 1995). 14. EBRD, Transition Report 1997 (London: Europan Bank for Reconstruction and Development, 1997). 15. Manmohan Singh, ‘The IMF and the World Bank in an Evolving World,’ in James M. Boughton and K. Sarwar Lateef (eds), Fifty Years After Bretton Woods: The Future of the IMF and the World Bank, Proceedings of a conference held in Madrid, 29–30 September 1994 (Washington: International Monetary Fund, 1995), p.38. 16. President William J. Clinton, at a commemorative event for the 50th anniversary of the Marshall Plan, in the Hall of Knights, Binnenhof, The Hague, Netherlands, 28 May 1997.

Part III International Cooperation and Globalization

8 The Marshall Plan and European Unification: Impulses and Restraints WILFRIED LOTH

Did the Marshall Plan encourage the integration of the separate states in Europe and point the way to political unity? Or, rather, did its structure encourage the rebuilding of a strong state-centered system that has hindered European unification? My answer is that both these seemingly contrasting theses are partially correct, but that the impulses to integration in the final analysis outweigh the inclination towards state-centrism. In this chapter, I will examine both claims and argue that a balance of the two is necessary to explain the impact of the Marshall Plan on the question of European unity. I will conclude with an analysis of three possible ‘founding’ claims to European unity among key European policy makers. Continental Antecedents and Initiatives to Unity It should be remembered that the process of European unification has roots which reach deeper than the launching of the Marshall Plan alone. As soon as the failure of the Versailles peace order became evident, the initiatives towards the unification of Europe were given a strong impetus. The successful revisionist policy and the rapid triumphal march of National-Socialist Germany in 1939–40 opened the European peoples’ eyes to two painful facts. First, the European nation-states were no longer assured of guaranteeing the safety of their citizens. And second, intergovernmental alignments no longer provided sufficient protection against armed aggression. Awareness of these factors intensified the demand for the creation of collective security structures, which made it possible to eliminate inter-state anarchy, at least on European territory. At the same time, all those nations which felt threatened by German National-Socialist expansion allied themselves more closely together. In Great Britain this development, which, for a long period, was hardly recognized, appeared in a nascent form as early as the time of the Munich Agreement in September 1938, which was widely perceived as a disgraceful event.

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Authors like Lord Lothian and Clarence Strait, who came out in favor of a federation of democratic states, attracted enormous attention. Churchill’s union offer to France in June 1940 must also be seen against this background.1 Later however, once French and British advocates of an armistice had alone resisted the German offensive for more than a year, the British people’s willingness to establish long-term ties with the Continent declined markedly. Lasting peace was now expected to emerge from a close collaboration with the United States, and the British themselves believed they had assumed the role of one of the three world powers, watching over the peace. On the other hand, those who actively resisted German occupation not only witnessed the failure of the League of Nations, but also experienced national humiliation and breakdown. Owing to this, the rejection of the nation-state principle was expressed with even greater radicalism and, as soon as the prospect of overcoming the National-Socialist empire in Europe became more plausible, the receptivity to federal ideas gained ground. As Léon Blum stated in the spring of 1941, ‘this war must finally give rise to fundamentally strong international institutions and must lead to an international power taking far-reaching effect as otherwise other wars will certainly follow’.2 And, like Blum, dozens of other resistance authors, as well as the overwhelming majority of resistance groups, expressed in writing what would be required for such a degree of effectiveness: the restriction of national sovereignties in favor of a so-called ‘super-state’ with its own institutions and its own leadership.3 The reasoning of the resistance elites was not only shaped by the war and national breakdown, but by the experience of an increasing loss of power in relation to the new world powers. This was especially true the longer war-related strains persisted. While European resources suffered an extensive loss in value due to war, the United States of America benefited economically from the war due both to her function as main supplier of materials to the anti-Hitler coalition and also to the absence of the European countries from the world market. By the war’s end, the United States had extended its volume of production to more than twice her previous output, achieving standards of economic production that definitely surpassed the limits imposed by the European nation-states. Thus, the competitiveness and consequently the independence of the European countries was called into question. Simultaneously, the outcome of the war enabled the United States to rise to become the world’s leading strategic military power, whereas the Soviet Union advanced concurrently to become the strongest military power on the European continent. As a result, the old states of the con-

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tinent not only suffered considerable losses of their previous influence in international politics, but also themselves became more vulnerable to the power and influence exerted by the two main victorious powers that had emerged from the war. Both the accelerated development of productive resources and the obvious loss of political power and importance by the European nationstates produced the impression that a consolidation of European resources as a means of self-stabilization against the previous ‘wing states’ of Europe was now a matter of top priority. The European exile politicians, who were most concerned about this aim, primarily envisaged regional unification. In view of the relative homogeneity of the countries involved and given the intensity of economic interchange already achieved, such regional unions appeared to be within reach and were thus intended to serve as the initial starting point for more comprehensive political unions. In any case, those politicians who were now engaged in the development of regional union initiatives normally considered a ‘bigger’ Europe as the most desirable objective; however, they first concentrated on those things that seemed to be realizable in a postwar situation marked by general upheaval. This was true for both western and eastern European exile governments during World War II. In view of the current situation, it is a particularly remarkable fact that the most concrete plans of federalization and union were developed by representatives of the eastern European governments in exile and resistance.4 The readiness to find supra-national solutions was intensified by the fact that numerous members of resistance movements perceived the totalitarian suppression exercised by the Fascists to be the final consequence of the absolute nature of the nation-state principle of sovereignty. They rediscovered the mutuality of traditional European values when fighting against the extreme fascist form of etatism and nationalism. What urged them to resist was not so much their fight against foreign rule as their rebellion against the suppression of human rights. They were thus induced to move closer together by overcoming ideological, social, and national barriers, as well as to take precautionary measures in order to prevent a repeated abuse of nation-state power. According to Ernesto Rossi and Altiero Spinelli, the nation-states’ efforts to maintain a dominant position would necessarily lead to totalitarian regimes; therefore the European peoples would have to oppose the beneficiaries of the old order by eliminating the partition of Europe into sovereign nation-states: ‘A free and unified Europe is the necessary prerequisite for a development of modern civilization, which came to a standstill in the era of totalitarianism.’5

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The longer the war persisted and revealed the atrocities of the National-Socialist regime, the more it became obvious that federative structures had to be established in order to solve the German problem. The social roots of German imperialism could only be eliminated by a controlled restructuring of German society. But, as Claude Bourdet wrote in March 1944, ‘[t]his guardianship will only be endurable and tolerated, if Europe’s nations partially renounce their national sovereign rights in favor of a European federation’.6 Without the prospect of Germany’s development within a federal community of Europeans, the enforcement action taken there by the victorious powers would only threaten to produce a new spirit of vengeance amongst the Germans. Altogether, the experiences of World War II up to 1943 led to a broad unification movement in Europe. This movement was somewhat uncertain about the geographical boundaries of a unified Europe and about Europe’s role in a global peace organization. There were different conceptions regarding attitudes towards the Soviet Union as well as Germany’s role within a unified Europe; there were, furthermore, different social objectives and political strategies, and different levels of rejection of the traditional power politics. There was also no single united view of the political implementation of the ideals represented in the European movement, and there were different attitudes towards the need for certain regional unions. However, the unification movement was marked by a consensus of opinion and similarity of motives, which went beyond national and ideological borders. In particular, it pointed out the inadequacy of the traditional nation-state system and the threat to peace exacerbated by that inadequacy, as well as the need for federative regulations. This consensus was typical of the majority of politicians in exile and the overwhelming majority of resistance elites in occupied countries from France to Poland, with the exception of a minority of conservatives and the communist resistance. Great Britain did not share this consensus, and following an initial turn towards federative solutions, it increasingly gained confidence in its own power. The same applied to the Nordic states, which traditionally oriented themselves towards Great Britain. For continental Europe in a narrower sense, however, this consensus of opinion constituted a basis for developing an alternative solution to the restoration of the collapsed nation-state system. After the war, the numerous unification plans developed by resistance movements all over Europe did not immediately take the shape of a concrete unification policy. While Stalin blocked any kind of union in eastern Europe, any steps towards western European unification threatened to deepen the looming division of the continent between east and west. One could not be certain if unification initiatives would do justice

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to the goal of safeguarding the peace; therefore, numerous advocates of the unification idea shrank back from overtly ambitious overtures. In France particularly, such hesitations gave rise to forces hoping to combine integration with the enforcement of the nation’s own leadership. France’s immediate neighbors, however, could not accept such concepts of integration as advocated by Charles de Gaulle. Thus, numerous unification initiatives did not get beyond their tentative beginnings.7 Crafting the Marshall Plan Concept Given this situation, the Marshall Plan and its rejection by the Soviet Union proved to be decisive for the political breakthrough of the unification movement. On the one hand, it led to a clear division of the continent, a division that the Europeans could ignore no longer. On the other hand, several factors appeared to heighten the urgency of western European unification. The perception of European economic weakness and of its paralysis in the face of new global confrontation was intensifying. US presence in Europe was growing. Intervention in global conflict in order to save the peace appeared increasingly necessary. Developments such as the communist takeover in Czechoslovakia added to the fear of Soviet aggression. And with the integration of West Germany into the containment program, the problem of creating a framework for integration designed to control the German recovery had to be approached in a new manner. Henceforth, security from Germany could neither be based on quadripartite control nor on unilateral discrimination of the new West German state. The Germans were now able to request a reward for their new role as an indispensable partner of the Western Alliance. The possibility could not be excluded, however, that after they shook off the chains of occupation, they would turn to the Soviet Union, which held the key to German unification. This fear, the revival of the RapalloTrauma, turned the creation of supranational structures in western Europe into a matter of top priority. Europe still had the opportunity to integrate Germany, the political adviser to General Koenig, Jacques Tarbe de Saint-Hardouin, wrote in early September 1948, ‘but this opportunity must rapidly be seized; in one year’s time it will already be too late’.8 On the whole, these impulses brought about an initiative for the integration of those European countries that participated in the Marshall Plan, a project which appeared in 1948–49 promoting such initiatives as the Brussels Pact, the Organization for European Economic Cooperation (OEEC), and the Council of Europe, and which the French

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government in particular increasingly pursued. This result was due to the fact that, in the crisis of Spring 1947, US Department of State (USDS) planners, especially those of the political planning staff headed by George F. Kennan, seized on the concept of joint economic aid for the European countries, including (West) Germany, combined with extensive integration of their national political economies. Corresponding with the unification plans of the Europeans, the idea of a joint reconstruction of the European economy was propagated by a group of younger experts in the Truman administration, among them Thomas C. Blaisdell, Harold Van B. Cleveland, Theodore Geiger, Charles P. Kindleberger, Paul R. Porter, and Walt W. Rostow.9 John Foster Dulles may be regarded as the political promoter of the concept. Dulles, as almost no other promoter of containment policy, had pointed again and again as early as 1946 to the necessity of confronting France with the far too severe demands of its German policy, arising from its internal political instability. As a way out of the impasse into which this policy was leading, he called on the people, in a spectacular speech given on 17 January 1947 in New York City to ‘plan the future of Germany . . . more in terms of the economic unity of Europe and less in terms of the Potsdam dictum that Germany shall be a “single economic unit’’’. The world, Dulles said, particularly western Europe, was threatened by a ‘Soviet challenge’ more dangerous than that of Soviet expansion as far as the Iron Curtain, namely, the revolutionary and subversive challenge presented by ‘economic need’. Therefore, as the United States’ ‘founding fathers’ had once done, now in Europe as well, the victorious powers must place ‘matters of concern to all under an administration responsible to all’. Dulles went on to assert that: ‘Europe divided into small economic compartments cannot be a healthy Europe. All of Europe’s economic potentialities need to be used and European markets should be big enough to justify modern methods of cheap production for mass consumption.’10 Unlike Churchill’s Zurich plea for ‘a kind of United States of Europe’ on 19 September 1946 Dulles’ speech was enthusiastically received by the US public and by US Congressmen on both the Republican and Democratic sides of the aisle. Similarly, Walter Lippmann called on 20 March 1947 for a ‘European economic union’, in order to avoid the threatening collapse of the European political economies. In Congress on 31 March, Lippmann spoke further in favor of the ‘creation of a United States of Europe within the framework of the UN’.11 An ad hoc committee drawing from USDS, the War Department, and the Navy Coordination Committee (SWNCC) was formed to examine the necessities and possibilities of new foreign loans. This committee presented a

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‘preliminary report’ on 21 April, which not only confirmed yet again that quite substantial aid was in the interests of US security, but which pointed out additionally that: (the) cost and duration of United States economic assistance are directly dependent upon the successful integration and coordination of the economic programs in the critical countries both with each other and with similar programs in countries not receiving special US aid.12 A coordinated European program of reconstruction, as thus conceived, had three decisive advantages compared with the hitherto popular program of individual loans. First, as was elucidated in planning texts until the end of April 1947, it took better account of the actual interdependence of European economies and facilitated the rational implementation of US means, not least of which was the means of a more effective division of labor in European countries. Thus, coordinated reconstruction had a greater chance of bringing about lasting economic stabilization in these countries. It also offered better guarantees for the implementation of a multilateral free trade system and against the general tendency towards a relapse into protectionist measures. Secondly, an additional factor, after the Moscow conference of the Allied Council, was that the program held out hopes for solving the problem of France, which was still an obstacle to the reconstruction of Germany, the latter, in turn, being indispensable to the reconstruction of Europe. It did this by offering France new US credit instead of German reparations, thus proposing a recovery of both the French and the German economies. This would enable France to buy the German products it required. Moreover, it would lead to a certain institutionalization of the interdependence between the German and the French economies, thereby removing the ground for French fears of repeated German dominance. Thirdly, as was shown by the favorable response among the US public, the coordinated program had the advantage of making the considerable new loans domestically acceptable by combining them with the anti-communist rhetoric of the Truman doctrine. This offered a potential forward leap towards the ‘unification’ of Europe, which would make future subsidies superfluous. And this was a leap for which there was, at least apparently, an extremely successful parallel in the history of the ‘United States’ of America. Immediately after Marshall’s return from the Moscow conference, all the personnel of the Truman administration agreed on the decision to launch the new multilateral aid program.13 With an eye to the European public, which, unlike the US public, had characterized the Truman

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doctrine very unfavorably, Kennan’s political planning staff formulated, in a memorandum prepared on 23 May, the main tactical elements of the operation now beginning. The US offer was not to be presented as a program for combating communism per se, but for combating the economic disaster in Europe, ‘which makes European society vulnerable to exploitation by any and all totalitarian movements’. It was not to be formulated by the US Government, but by the Europeans: ‘The formal initiative must come from Europe’; and, for political and economic reasons, it had to be ‘a joint one agreed to by several European Nations’. The offer was, in principle, to be open also to the east European countries, and even to the Soviet Union, inasmuch as the (west) European countries wanted it to be. But it had to be formulated in such a manner, ‘that the Russian satellite countries would either exclude themselves by unwillingness to accept the proposed conditions, or agree to abandon the exclusive orientation of their economies’.14 In his speech of 5 June 1947 at Harvard University, Marshall basically kept to Kennan’s recommendations, setting off a worldwide debate on what was soon to be described as the ‘Marshall Plan’. He depicted the economic misery of Europe as it had been described in USDS analysis and encouraged ‘a joint program’ for reconstruction ‘agreed to by a number, if not all, European nations’. He announced, in addition, so as not formally to preempt the jurisdiction of Congress, merely his willingness that, ‘the role of this country should consist of friendly aid in the drafting of a European program and of later support of such a program so far as it may be practical for us to do so’.15 Challenges in European Implementation However, while the US decision to support western European union certainly made it much easier to carry out these plans, the real driving force behind them was a forthright independent European movement. This movement went beyond, and at times greatly exceeded, the new European pressure groups represented at the Hague and elsewhere. It secured the support of national governments and, at least in the countries that were to become the ‘Community of Six’, met with widespread public approval. A close examination of public opinion and of voting behavior shows that, at least in France, West Germany, and Italy in 1948/49, a clear majority favored real integration with supranational elements, and that the Council of Europe was understood as the embryo of a future federal Europe.16 When, in July 1947, the representatives of sixteen nations met in Paris to discuss the modalities of the Marshall Plan, which had until then been left deliberately vague, not only did the

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Italian and Benelux delegations once more put forward ideas of union, but the French government also announced itself in favor of integration without further delay. In particular, it called for the creation of a European customs union, and made known its interest by aiding and controlling the recovery program by means of joint economic mechanisms.17 The concept of a federal Europe, however, presupposed British participation. First, Great Britain’s inclusion would guarantee that a unified Europe carried enough weight to be active in world politics. Second, Great Britain would also serve as a counter-force to potential German dominance over Europe. Third, in terms of European domestic policy, left-wing factions foresaw that the British presence would evolve into a ‘Third Force’ between US capitalism and Soviet communism. This threefold necessity of British participation explains the persistence with which, especially France and the continental left, tried to win British support for the unification project. Given the British reluctance, this approach resulted in some hesitation before any decisive step towards economic unification was taken. Certainly, Foreign Minister Ernest Bevin was convinced of the desirability of a ‘Third Force’, to the extent that he endorsed in principle the French proposal for a customs union. But Bevin’s cabinet colleagues were determined to use the resources of the sterling area to bolster Britain’s own national recovery, so the British government’s position remained ambiguous.18 As a result, the Europeans tried to organize Marshall aid without any significant degree of integration. Under US pressure, the European states made a few concessions. They reduced their demands from 29.2 billion dollars to $19.3 billion dollars and, for the long term, instead planned to finance modernization measures through World Bank credits. Pending productivity growth, they also agreed to ‘take concerted steps’ to fight inflation, to set realistic exchange rates, and to adopt ‘definite measures directed toward the progressive reduction and eventual elimination of barriers of trade’.19 The Europeans also formulated some planning goals for agrarian modernization as well as for the development of heavy industry. Furthermore, they agreed to coordinate their work on hydroelectric power stations and transportation capacities. However, they continued to be persistent regarding a question of immediate importance, the creation of a supranational bureau. When the British delegation led by Sir Oliver Franks rejected such a bureau as interference with national sovereignty, the ‘Free Traders’ in the USDS, those who opposed the idea of a centralized recovery planning, succeeded. While the Europeans had to agree to the creation of a permanent organization, it would possess predominantly

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advisory functions and would demand unanimous decisions regarding coordination. US negotiators closely participated in the formulation of the report of the ‘Committee of European Economic Cooperation’ (CEEC), which the delegates approved on 22 September.20 Disappointed by the lack of European consensus to carry through with cooperation and integration, the USDS largely based its organization of the Marshall program on its own ideas. Accordingly, it showed more consideration for the demands of the US Congress than for the necessities of a decisive integrated European plan. The USDS distanced itself from its original intent to accept the CEEC report as a definite foundation for the relief program and instead tried to downplay the importance of the CEEC report. In the words of George F. Kennan, USDS tried to ‘decide unilaterally what we finally wish to present to Congress’.21 In December 1947, when the discussion with Congress began, the Administration refrained from asking for a comprehensive plan. It now asked that an aid program be agreed upon for the duration of four years, but that the total amount which was to be spent was to be left open. Instead, the funds had to be reallocated each year. This, of course, decisively added to the US influence, and to that of Congress in particular, and for the Europeans made long-term planning difficult.22 The Administration also accepted the British reservations against a strong executive of the OEEC as requested by France and the Benelux countries. In negotiations on the structure of the Marshall Plan organization that began in late January 1948 in Paris, the French asked for the creation of a strong executive, which would receive authority over the allocation of the US relief funds and make autonomous decisions on national recovery plans. The Benelux countries supported this request, as did the US administration, which had again sent its delegates to Paris with ‘friendly advice’. The British reaction, of course, was reserved. In the beginning of the second round of negotiations, the British delegates made clear that they would only agree to a structure in which the decision-making authority remained with the national governments. When the representatives signed the convention of the OEEC on 16 April 1948, they agreed on the creation of an executive committee, which worked on the basis of unanimous decisions made by the full assembly. The general bureau merely concerned itself with routine assignments of the organzation’s administration and planning preparations. Although the sixteen participating countries committed themselves to the continuation of integration and agreed to increase the community’s authorities if necessary, the convention was hardly more than an organizational frame for real integration.23 The Truman Administration insisted that at least this frame be

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adhered to, but it failed to follow through. Instead, it transferred the difficult task of allocating US funds to the individual OEEC countries, even against the will of the majority of the participants. The final control of the funds’ expenditure, however, remained with the Economic Cooperation Administration (ECA), designed to administer the Marshall program. At the same time, ECA received a veto right over matters regarding the use of the so-called ‘equivalent funds’, that is, those payments that the consumers of US relief deliveries had to pay into national funds, which, in turn, served to support reconstruction measures. In case of the German zones of occupation, the most important both in political as well as in economic terms, neither the OEEC nor ECA but the occupying authorities allocated the funds.24

Other Structures for Integration None of this could prevent real European integration. In May 1950 when French Foreign Minister Robert Schuman brought himself to plunge into supranationality, even without Great Britain, it was agreed that Europe would start with the European Coal and Steel Community (ECSC). He did so because the preparations for German rearmament threatened to revoke production restrictions for Germany’s heavy industry, thereby preparing for a loosening of the occupation statute, and he succeeded because no alternative for France remained.25 Equally, the participation in the Marshall Plan and the OEEC could not prevent the French government from promoting a European defense community, and it was certainly not the US government which aimed at defeating the treaty of the European Defense Community (EDC). Nevertheless, the Marshall Plan played a role in defeating the EDC in 1954. To put it more precisely, it was the economic success of the Marshall Plan which contributed to the failure of the EDC and the overall decline of the European movement in the course of the early 1950s. In fact, the reconstruction process of individual western European economies was proceeding remarkably well, on the basis of the potential which had remained in spite of war devastation and with additional support from Marshall Plan funds at the beginning of the 1950s, as the following passage suggests:26 Compared with 1947, the increase in industrial production in 1951 was 35 percent in Denmark, 33 percent in Norway and Belgium, 31 percent in Britain, 39 percent in France, 54 percent in Italy and 56 percent in the Netherlands (in West Germany as high as 312

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    percent). A free exchange of goods within the OEEC enabled internal trade to rise from 5.9 thousand million dollars in 1947 to 13.1 thousand million dollars in 1951, whilst imports from the USA decreased in both absolute and relative terms; 5.6 thousand million out of 15.2 thousand million in 1947, and 4.4 thousand million out of 20.6 thousand million in 1951. Exports to the USA increased in the same period from 0.73 to 1.81 thousand million dollars.27

Even the European dollar deficit was replenished, ‘so rapidly that by 1951 the goods and services balance of most countries had been equalized, from 1950 onwards even showing surpluses’.28 In view of this remarkable success, the first signs of the historically new and impressive ‘economic miracle’, the economic and political weaknesses of the old nation-states appeared much less dramatic than they had in the first postwar years. Furthermore, both the Atlantic alliance and the more prominent role of atomic weapons now performed part of the functions originally assigned to a unified Europe. This was not only true of the safeguarding of western Europe’s position against the Soviet Union, which could hardly be guaranteed by European efforts alone; it likewise applied to Germany’s security. Continuing US military presence on West German territory provided for a somewhat insufficient but nevertheless reassuring degree of security, and the prospect of a French atomic weapon which emerged in the spring of 1954 was perceived as a further reassurance. After the emotional debate on EDC, these particular provisions for security from Germany’s neighbors allowed France to accept Germany’s direct hand in NATO.29 Thereafter, European Community structures were only necessary to control the West German economic rise, to stabilize the general economic boost, to strengthen European input in world politics, and to ensure the union’s lasting survival. These were all respectable reasons to continue with the integration process despite the EDC’s failure. However, even as a whole they did not yet suffice to break up the nationstate oriented structures and interests that were in conflict with the integration project, which meanwhile were reaffirmed. In this situation, the treaties for the foundation of the European Economic Community (EEC) and the European Atomic Energy Commission (EURATOM) of March 1957 represented an attempt to save that part of the European idea which could still be saved.30 It was basically politically motivated, and, like previous integration projects, it aimed at the creation of a politically-unified Europe. For the first time, however, an initiative proposed a whole set of economic interests which favored a close alliance of the Six, independent of its political usefulness.

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With some effort, three common interests could be agreed upon. First, French modernization planners favored the intensified, though by no means vigorous, but politically attractive use of nuclear energy, which Jean Monnet had brought up for discussion. Second, the Dutch and a growing number of French farmers supported a European agrarian market with modernization aids and sales guarantees, which in principle should be extended beyond the Six, but could also be kept at that level. Finally, the Dutch, and increasingly the German and Belgian industries wanted to remove the trade barriers between the ECSC countries. Of course, the mere consolidation of these interests did not suffice to revive integration. In terms of a quid pro quo, the atomic energy commission, a common agrarian market, and the elimination of trade barriers could be aligned, but they met with the resistance of those having to expect disadvantages from such an arrangement. In the agrarian sector, importing countries resisted the expected high consumer prices, and the lobby of those countries less likely to compete fought the abandonment of national protectionism. In France, large parts of the industry as well as most of the workers’ representatives feared the open competition of a European market. In the Federal Republic of Germany, Ludwig Erhard’s liberal philosophy encouraged the industry to resist common external tariffs, integration controls, and a harmonization of social burdens, which threatened to restrict German economic expansion. Given this resistance, integration needed to go beyond economic compensation arrangements; instead, the project warranted energetic pursuit for overarching political reasons. The political will prevailed, because those political forces, which had initially favored European integration but had meanwhile been disappointed by its means of realization, did not withdraw to traditional nation-state policy. The majority wavered between insight, in the necessity to unify, and the regret that it could not be carried out as wished. They distanced themselves from concrete unification projects, but they did not give up their hopes to realize these ideals in the future. In France, which once again held the key to integration, US pressure to realize EDC had increased aversions against the integration project which continued even after the EDC’s failure. Concurrently however, the obvious West German immunity to Soviet initiatives to reunify Germany helped to reduce prejudices against a partnership with the Federal Republic. Conclusion: Can a ‘Founding Father’ of European Unity be Identified? In view of these conditions in public opinion and organized interests, marked by indecisive and contradictory impulses, tactically-skilled

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politicians had good chances to pursue structural ideas. Three politicians in particular can claim to be the ‘founding fathers’ of the EEC and EURATOM, not because of their ideas but because they had the ability to intervene specifically and decisively. The first of these was the Belgian Foreign Minister, Paul Henri Spaak, who presided over the commission of experts appointed by the Messina Conference designed to examine the different suggestions to continue integration. In this position, he aligned the various economic projects with their political core. By exerting pressure on the individual delegations and by specifically supporting highly motivated experts, he used a first phase of negotiations, from July to October 1955, to turn the commission’s rather technically oriented assignment into a harmonizing integration concept. In May 1956, Spaak repeatedly backed the expert group that had meanwhile been consolidated around Pierre Uri and Hans von der Groeben, helping them to resist diverging forces among the national bureaucracies and politicians and to specify compromises. A second claim can be found in the French Prime Minister, Guy Mollet. His courageous and skilled tactical moves succeeded in convincing a majority of the National Assembly to overcome their initial reservations and to support the project. Determined to follow through with the treaties since his inauguration in January 1956, he gave priority to the less controversial EURATOM project and fought to win a parliamentary majority. In the negotiations on the treaty, Mollet demanded a number of concessions, which intentionally obscured the supranational qualities of the EEC project, but appeased the French opponents of integration. After the deadly blow the French had given to EDC, Mollet carefully prepared for a situation in which France could not possibly justify another rejection of an integration project. In 1957, when the treaties were still being negotiated, he demanded that the National Assembly give its mandate for the last phase of the negotiations. This strengthened the French position at the negotiating table and in principle also bound the National Assembly to the EEC project. As a final potential claimant, Konrad Adenauer pursued the linkage of the Federal Republic and France with the West, and for this purpose made remarkable economic and political concessions to France. As Chancellor, Adenauer used his full authority, to overcome both the considerable resistance of his cabinet and of German public opinion. By backing the department in the Federal Ministry for Economics that worked on matters regarding the Schuman Plan, Adenauer sidetracked Erhard’s opposition against a common market with external tariffs and controlling authority. When the negotiations threatened to mire in French special requests, he capitulated at least twice in order to help

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Mollet prevail in the French National Assembly. First, when Adenauer visited Paris in November 1956, a visit that psychologically impressed a French public just shaken by the Suez debacle, he gave his consent to temporary export aids and import contributions as well as to the obligation to pursue the harmonization of the social systems. And second, three months later, the Chancellor granted France a share in the costs for the development of their overseas possessions and agreed to include this provision in the treaties. The fact that, until the very last, the negotiations threatened to fail only shows the importance of input from Spaak, Mollet, and Adenauer. Only after Mollet’s success in the National Assembly’s debate in January 1957 did observers and interested parties begin to seriously consider that, unlike the EDC, the European common market would actually be realized. Although hard to assess in retrospect, it might be possible that, in France, the shock of the Suez situation helped to overcome parliamentary obstructions. In any case, in November 1956, the interference of the two superpowers in the BritishFrench Suez adventure convinced the French public of the futility of one-nation acts. Adenauer’s discrete solidarity also helped to convince France to reconsider the necessity and possibility of western European self-assertion in world politics. Only after Suez would the French government dare to give in to the demands of the negotiation partners and officially accept the EEC and EURATOM package. This time, the economic effects of the Marshall Plan helped the European political leaders to gain support for a project which, after all, contained some economic and social risks. The Eisenhower administration supported them by preventing the British government from attacking the customs union of the Six. But once again, it was a European decision, even if facilitated by the attitude of the US. George C. Marshall was not the founding father of the European community, but rather a benign and sometimes disturbing godfather. Notes 1. See John Pinder, ‘Federal Union 1939–41’, in Walter Lipgens (ed.), Documents on the History of European Integration, Vol. II: Plans for European Union in Great Britain and in Exile 1939–1945 (Berlin/New York: de Gruyter, 1986), pp.26–155; Andrea Bosco, Federal Union and the Origins of the ‘Churchill Proposal’: The Federalist Debate in the United Kingdom from Munich to the Fall of France, 1938–1949 (London: Lothian Foundation Press, 1992). 2. Léon Blum, À l’échelle humaine (Paris: Gallimard, 1945). 3. See Walter Lipgens (ed.), Documents on the History of European Integration, Vol. I: Continental Plans for European Integration 1939–1945 (Berlin/New York: de Gruyter, 1985). 4. Walter Lipgens, ‘East European Plans for the Future of Europe: the Example of Poland’,

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5. 6. 7. 8.

9.

10. 11. 12. 13. 14. 15. 16.

17.

18. 19. 20. 21. 22. 23. 24.

25.

26. 27.

28.

    ibid., pp.609–58; Felix Gross and M. Kamil Dziewanowski, ‘Plans by Exiles from East European Countries’, in Documents, Vol. II, pp.353–413. Documents, Vol. I, p.479. Claude Bourdet, ‘Future Allemagne?’, Combat, no. 55, March 1944. See Wilfried Loth, Der Weg nach Europa. Geschichte der europäischen Integration 1939–1957, 3. Auflage (Göttingen: Vandenhoeck & Ruprecht, 1996), pp.22–47. Letter to Robert Schuman, 7 September 1948, quoted in Raymond Poidevin, ‘Le facteur Europe dans la politique allemande de Robert Schuman (été 1948–printemps 1949)’, in Raymond Poidevin (ed.), Histoire des débuts de la construction européenne (mars 1948 – mai 1950) (Bruxelles: Bruylant, 1986), pp.311–26. Also see Walter Lipgens and Wilfried Loth (eds), Documents on the History of European Integration, Vol. III: The Struggle for European Union by Political Parties and Pressure Groups in Western European Countries, 1945–1950 (Berlin/New York: de Gruyter, 1988). See Walt W. Rostow, The Division of Europe after World War II: 1946 (Austin: University of Texas Press, 1981), pp.3–8, 38–45, 51–72; and Michael J. Hogan, The Marshall Plan, America, Britain, and the Reconstruction of Western Europe, 1947–1952 (Cambridge/Mass.: Cambridge University Press, 1987), S. 35–7. Vital Speeches of the Day, 13 (1947), pp.234–6; see Ronald W. Pruessen, John Foster Dulles. The Road to Power (New York: The Free Press, 1982), pp.190ff., 216, 308ff., 318ff., 336. Compare Walter Lipgens, A History of European Integration 1945–1947 (Oxford: Clarendon, 1982), pp.468–71. FRUS 1947, Vol. III, pp.204–13. See meeting with Marshall, 28 April 1947, in FRUS 1947, Vol. III, pp.234–6. FRUS 1947, Vol. III, pp.223–9; see also on the emergence of the policy of George F. Kennan, Memoirs 1925–1950 (Boston: Little, Brown & Co., 1967), pp.326–42. FRUS 1947, Vol. III, pp.237–9. See Lipgens/Loth, Documents, Vol. III, pp.17ff. and 441ff., and Walter Lipgens and Wilfried Loth (eds), Documents on the History of European Integration, Vol. IV: Transnational Organizations of Political Parties and Pressure Groups in the Struggle for European Union, 1945–1950 (Berlin/New York: de Gruyter, 1991), passim. See Alan Milward, The Reconstruction of Western Europe, 1945–1951 (London: Methuen, 1984), pp.69–89; John W. Young, Britain, France, and the Unity of Europe 1945–1951 (Leicester: Leicester University Press, 1984); Pierre Guillen, ‘Le projet d’union douanière entre la France, l’Italie, et le Benelux’, in Poidevin (ed.), Débuts, pp.143–64. Milward, Reconstruction, pp.235–50. The US Ambassador in France (Cafferey) to the Secretary of State, Paris, 31 August 1947, FRUS 1947, Vol. III, p.393. Loth, Der Weg nach Europa, pp.62–3. Memorandum by the Director of the Policy Planning Staff, Washington, 4 September 1947, FRUS 1947, Vol. III, p.402. Loth, Der Weg nach Europa, p.63. Ibid., pp.66–7; Hogan, Marshall Plan, pp.123–7. Compare Pierre Melandri, Les États-Unis face à l’unification de l’Europe 1945–54 (Paris: Pedone, 1980), pp.108–44; Hadley Arkes, Bureaucracy, the Marshall Plan and the National Interest (Princeton: Princeton University Press, 1972), pp.59–131; Imanuel Wexler, The Marshall Plan Revisited (Westport/London: Greenwood Press, 1983), pp.9–54. See Wilfried Loth, ‘Der Abschied vom Europarat. Europapolitische Entscheidungen im Kontext des Schuman-Plans’, in Klaus Schwabe (ed.), Die Anfänge des Schuman-Plans 1950/51 (Baden-Baden: Nomos, 1988), pp.183–95. For a discussion of the economic effects of Marshall aid, see the contribution by Alan Milward in this volume. Quoted from the figures in Alfred Grosser, Das Bündnis. Die westeuropäischen Länder und die USA seit dem Krieg (Munich: Hanser, 1978), p.119; figures for West Germany from Georges von Csernatony, Le Plan Marshall et le redressement économique de l’Allemagne (Lausanne: Impr. vaudoise, 1973), p.159. Grosser, Bündnis, p.119.

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29. See my argument in Wilfried Loth, ‘Die EVG und das Projekt der Europäischen Politischen Gemeinschaft’, in Rainer Hudemann, Hartmut Kaelble, Klaus Schwabe (eds), Europa im Blick der Historiker (Munich: Oldenbourg, 1995), pp.191–201. 30. Much new evidence on the origins of EEC and EURATOM can be found in Enrico Serra (ed.), Il Rilancio dell’Europa e le Trattati di Roma (Milano: Bruylant, 1989). For a general assessment of the decision-making process see Loth, Der Weg nach Europa, pp.113–33, and Wilfried Loth, ‘Deutsche und französische Interessen auf dem Weg zu EWG and Euratom’, in Andreas Wilkens (ed.), Die deutsch-französischen Wirtschaftsbeziehungen 1945–1960 (Sigmaringen: Thorbecke, 1997), pp.171–87.

9 The Marshall Plan: a Model for What? THOMAS C. SCHELLING

The Marshall Plan was occasionally invoked, just a few years ago, as a model for aid to eastern Europe. That model was never realized. A possible interpretation of the Marshall Plan as ‘model’ is the collective division of assets and liabilities. I shall argue, toward the end of this chapter, that half a century after the Marshall Plan it remains a good model – maybe the only model – for sharing obligations to reduce greenhouse emissions in the interest of moderating potential climate change. But first some explanation of what the Marshall Plan was and how it worked; there are not many around who remember. The Marshall Plan did not inaugurate US foreign aid. Lendlease to Britain and the Soviet Union had amounted to almost 50 billion dollars by the end of World War II, at a time when US annual gross national product was about 175 billion dollars. After the war, relief and rehabilitation programs amounted to 16 billion dollars before inauguration of the Marshall Plan. And after the beginning of the Marshall Plan in April 1948, other aid programs, mainly for areas outside Europe, continued. The Marshall Plan differed from other programs in that it was indeed a ‘plan’. Other aid had been given as necessary for relief, rehabilitation, and assistance in occupied Germany and Japan, and to stabilize the pound sterling; the Marshall Plan was to have a beginning and an end. The economic problems of western Europe were believed to be finite and solvable. The United States called on the countries of western Europe to put together a plan, not just for receiving US aid but for recovering economic independence within a foreseeable period. The governments of western Europe were expected not only to demonstrate what aid they needed from the United States, but also how, with US aid, they could complete their recovery from the war. It was furthermore to be a European plan, not fifteen national plans. It was to be European in two respects. First, because trade among the countries of western Europe was exceedingly constrained by a system of bilateral trade negotiations, usually dictated by the desire for bilateral balance, a more flexible, market-determined, and multilateral system of trade was considered essential to Europe’s recovery. The expansion and

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multilateralization of intra-European trade was to be a central part of the plan. This goal was substantially achieved by the successful negotiation, in 1950, of the European Payments Union. Second, it was to be a European plan in that the potential recipients, immediately after Secretary of State George Marshall’s commencement address, were to put together a joint program indicating the amount of aid they would collectively need to complete timely recovery. Each nation’s requirements were scrutinized and cross-examined by the other European nations. An exorbitant claim by one was perceived to be a threat to what the others could receive, and the result was a negotiated total. After the funds were appropriated and available, the Organization for European Economic Cooperation was immediately given the task of proposing the appropriate breakdown of the second year’s aid among recipient countries. The word ‘cooperation’ in the titles of both the European organization and the US Economic Cooperation Administration was taken seriously. The Form of Aid The aid in the Marshall Plan was all ‘government to government’. A small part was in the form of loans; most of it was grants. In principle, the aid amounted to a grant to the central bank of the recipient country. For practical purposes one can think of the aid as being commingled with other dollar resources available to the central bank, and sold to importers who paid their local currency to the central bank and spent the dollars on imports. Virtually none of the aid was earmarked for particular activities or projects in the recipient countries. Later, beginning in 1951, there would be a strong identification of US assistance with military procurement and construction, but during the Marshall Plan years the aid did not explicitly go to any specified sector or industry. It simply filled a gap between the dollar imports that were deemed necessary for economic progress and the dollars available from all sources (not excluding drawdown of reserves) that could reasonably be expected. (There were a very few minor attempts to have US aid directly identified with specific projects – workers’ housing in France, for instance, or projects undertaken jointly by two or more countries – but such efforts were unsuccessful.) The domestic currency exchanged for Marshall Plan dollars was sequestered and identified as ‘counterpart funds’. By agreement, these funds could be used only with the consent of the United States. In most countries, but not all, there was no fiscal significance to this provision;

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the counterpart funds were merely government accounts at the central bank, and usually were cancelled against existing government short-term debt. Commodity Composition of Aid The commodity composition of the European dollar imports in the Marshall Plan is interesting. There is sometimes a naïve expectation that aid for a postwar recovery program, with high levels of investment expected in the recovering countries, should consist largely of capital goods. There is, similarly, an expectation that aid in support of a military buildup will consist mainly of militarily useful goods. In the first fifteen months of the Marshall Plan, however, purchases of machinery and vehicles accounted for only eight percent of the funds. Imports of raw materials and semi-finished products were only about a quarter of the total. Nearly 60 percent was food, feed, fertilizer and fuel. Four years later, when economic assistance was being given in support of the defense programs of the (same) NATO countries, one might have expected the aid to consist of metals, machinery, and the other items that contribute to defense production; but food, feed, fertilizer and fuel still accounted for nearly half the total. This of course was just a reflection of comparative advantage. Most postwar reconstruction requires chiefly local resources. Dredging canals, restoring roadbeds, building and rebuilding housing and factories, all require domestically available labor. These enterprises also require fuel for vehicles and for electricity. And a significant part of capital investment must be devoted to increasing the stock of farm animals; feedstuffs are a large component as animal stocks are built up. The same is true of a military buildup. Armies need to enlist people who otherwise would be in the civilian labor force; they need to house, transport and equip them. Armies need vehicles and ammunition, as well as other technologically unsophisticated goods. Supporting the NATO buildup was not altogether different from supporting the rebuilding of the European economies. Comparative advantage determined the composition of the dollar imports, and the only reason to have expected military aid to include much advanced military equipment would have been either a need for high-technology equipment that only the United States could produce, or surplus military equipment disposed of as the United States modernized its own forces.

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Defense Support In 1951, three years into the Marshall Plan that was to run for four years, the European Recovery Act was replaced by the Mutual Security Act and there was a nominal shift in orientation from economic recovery to military buildup. What had been ‘economic aid’ became ‘defense support’; the Organization for European Economic Cooperation – eventually the OECD of modern times – was substantially superseded by NATO. The procedures for determining aid requirements and for dividing the available aid, and the people who engaged in the activity, were unchanged. It was the same ball game with the same players in the same ballpark: only the name was changed. The widespread belief that the net effect of an expenditure is revealed by what is purchased directly with the money was remarkably persistent, and it allowed the US executive branch to engage successfully in something close to deceit. Under the Mutual Security Act the aid for Europe that was not actually military equipment was named ‘defense support’, and the executive branch was able to identify increased domestic military expenditure in the European countries as the direct result of dollar aid. To some extent the express allocation of counterpart funds – the local currency funds corresponding to the central bank’s sale of dollar exchange to importers of Mutual Security imports – helped make the connection. But as the Congress became less and less interested in what it called ‘economic aid’ and more interested in what it called ‘military aid’, and the executive branch wanted to provide more dollar assistance than the Congress was likely to approve, military aid funds were increasingly used for ‘offshore procurement’. Offshore procurement was simply the purchase of military equipment in Europe to be delivered to the military forces of the European countries. As far as any European central bank was concerned, ‘exporting’ military equipment to the United States government for delivery to NATO had the same effect as would equivalent dollars provided under a direct ‘defense support’ program of economic aid. The offshore procurement program was initially envisioned as a way of buying, with US dollars, equipment in one country for delivery to another, but eventually even that façade was not maintained, as equipment was procured, for example, in France for delivery to France. The French war in Indochina was especially popular with the Congress. To help improve the French dollar balance of payments, the US aid program – with ‘military assistance’ dollars – picked up the tab for all kinds of supplies being shipped to the French forces in Indochina, amounting in one year to more than one billion dollars. The United

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States paid no attention to what was actually ‘purchased’; the whole object was simply to cover enough expenditure to relieve the French balance-of-payments deficit. If the Congress had found the construction of schools and hospitals in France to be more popular in the United States than the Indochina war, the United States could have paid for schools and hospitals – as long as they were going to be built anyway – and the war in Indochina would have been financed out of the French defense budget. Either way, the central bank of France would have received the same dollars to dispense to French importers. The Marshall Plan Model for a Greenhouse Regime International concern with ‘greenhouse’ gases and their possible effects on climate dates from the 1992 Rio Conference, attended by President Bush, which produced a ‘framework convention’ for the pursuit of reduced carbon emissions. A sequel occurred in Kyoto in December 1997, where ‘targets and timetables’ for such emissions were to be negotiated. There were some proposals for the formal allocation of emission rights among countries, perhaps ‘enforceable’, with perhaps some trading of such national quotas. There was disappointment with the lack of convincing progress since the 1992 environmental summit in Rio. Many wondered whether Kyoto would settle anything. Many – especially among those who hoped for concrete progress – believe Kyoto has not settled much. ‘Targets and timetables’ received nominal acquiescence, but without much evidence that nations accepting targets for a decade hence had any good idea of how to reach them, or even any intention of trying very hard. But five years was too soon to be disappointed. Nothing like a carbon emissions regime had ever been attempted, and it is in no country’s individual interest to do much about emissions: the atmosphere is a global common where everybody’s emissions mingle with everybody else’s. The burden to be shared is large. There are no accepted standards of fairness. Nations differ greatly in their dependence on fossil fuels. And any regime to be taken seriously has to promise to survive a long, long time. There are few precedents, if any. The United Nations budget required a negotiated formula, but adherence is conspicuously imperfect, and the current budget, even including peacekeeping, is two orders of magnitude smaller than what a serious carbon regime would require. Shares in the World Bank and the International Monetary Fund were successfully negotiated, as were shares in the postwar United Nations Reconstruction and Rehabilitation Administration (UNRRA). There never was a formula for distributing Marshall Plan dollars; there was never an explicit criterion,

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such as equalizing living standards among participating countries, equalizing growth rates, maximizing aggregate output or growth, or establishing floors under standards of living. Nor was any formula ever developed in connection with NATO ‘burden sharing’. But in European recovery and in NATO there was a procedure of critical examination, comparison, and debate, in the course of which there emerged some consensus on what the relevant variables were and what criteria were legitimate to argue about. That period from the end of World War II, with the establishment of the UN budget and UNRRA through the middle 1950s was one in which precedent and tradition appeared to be developing with respect to the claims of recipient countries, the obligations of providing countries, and the sharing of common costs in international institutions ranging from the International Postal Union to the UN and NATO. I actually published an article on this development in 1955 and included it in a textbook in 1958 (Schelling), in the belief that I was discussing the emerging foundations for some international fiscal regime. But, probably because of the Cold War, that development stagnated for forty years. We are now perhaps approaching the threshold of some international greenhouse regime that could cost participants some two or three percent of GNP forever. Two percent of GNP is a politically unmanageable magnitude in many countries. Economically it is not so forbidding: per capita income in the US grows at a rate that will double it around the middle of the coming century, and if the US lose two percent in perpetuity it will reach that doubled per capita income in, say, 2062 instead of 2060. But doing what is necessary will be painful. The only experience commensurate with carbon reduction was division of aid in the Marshall Plan. In 1949–50 there was four billion dollars to share. The percentage of European GNP that this amounted to depends on hypothetical exchange rates appropriate to the period – all the European exchange rates at the time were far from realistic – but it was probably worth several times two percent, while differing drastically among countries. The United States insisted that the Europeans divide the aid themselves, and gave them most of a year to prepare. The procedure can be called ‘multilateral reciprocal scrutiny’. Each country prepared detailed national accounts showing consumption, investment, dollar earnings and imports, intra-European trade, specifics like per capita fuel and meat consumption, taxes and government expenditures – anything that might be pertinent to making a claim, or denying a claim, on the aid money. (This was an era when ‘national accounts’ were a very recent development even in the United States and the United Kingdom; some countries needed technical assistance in understanding them.)

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As mentioned above, there never was a formula, nor were there even criteria; there were ‘considerations’. Each country made its claim for aid on whatever grounds it chose. Each was queried and cross-examined about dollar-export potential, domestic substitutes for dollar imports, dietary standards, rate of livestock recovery, severity of gasoline rationing, and anything pertinent to dollar requirements. The objective was to achieve consensus on how to divide four billion dollars. Although they did not reach closure, they were close enough for arbitration by a committee of two people to produce an acceptable division. After the Korean War began, when NATO replaced recovery as the objective, the same procedure was used. Again, full consensus was not reached, but again there was enough agreement for arbitration by a committee of three to decide not only the division of aid but military burdens to be assumed (but of course not ‘enforced’). In NATO, multilateral reciprocal scrutiny proved effective, no doubt because an unprecedented camaraderie had been cultivated during the Marshall Plan. Consensus had to be reached by countries as disparate in their development, their war damages, their politics and their cultures as Turkey, Norway, Italy, and France. A similar procedure recently led (before Kyoto) to the European Union’s schedule of carbon reduction for its member countries; and what came out of Kyoto has similar appearance. A difference is that in the Marshall Plan it was for keeps! Did the Marshall Plan succeed despite or because of its lack of formal quantitative criteria and its reliance on looser, more open-ended, pragmatic modes of discourse and argument? In the time available, plan participants could not have agreed on formal criteria. In the end they had to be satisfied with the division. Any argument over variables and parameters would necessarily have been self-serving arguments once removed; arguing explicitly over shares was more direct and candid. Had the process gone on several years, more formal criteria might have been forged. The same may occur eventually with carbon emissions. Reference Schelling (1958), International Economics. Boston: Allyn and Bacon.

10 From Marshall Plan to Washington Consensus? Globalization, Democratization, and ‘National’ Economic Planning STUART CORBRIDGE

Introduction It is hardly surprising that some academics and policy makers are nostalgic for a return to the days of the Marshall Plan and the Bretton Woods system. After all, the past 25 years have not been the most celebrated in the history of the world economy. In the 1970s inflation rocked the economies of the OECD and reached still higher levels in many developing countries. In the 1980s mass unemployment returned to the economies of western Europe after 30 years of fullish employment, and more than thirty countries in the ‘South’ suffered grievously from a debtcum-development crisis that saw 200 billion dollars transferred in net terms from the poorest to the richest countries.1 Nor did the United States escape the turmoil unleashed by global restructuring in a world awash with credit monies. The Reagan boom of the mid-1980s gave rise to a ballooning budget and trade deficits in the US, and was financed in part by massive borrowing from America’s Asian creditors. In the course of just five years, from 1982 to 1986, an historic buildup of US net assets worth 141 billion dollars was turned into a net foreign debt of 112 billion dollars.2 By 1987 every ‘family of four (in the United States) had borrowed some $9000 . . . from foreign lenders’; ‘little wonder’, then, as Benjamin Friedman put it that same year, that ‘most Americans think they are living well’.3 In the end the bubble burst and therein lies a message, or so one might suppose. A world based on zenocurrencies can seem not just uncontrolled but inauthentic. It is not easy to grasp how a UK-based investment bank, Barings, can be brought to its knees by the actions of one trader, Nick Leeson, gambling with client monies in the derivatives of east and southeast Asia. The modern world economy appears to lack stability, and it is this absence that encourages some commentators to urge a return to the ideas and plans of the mid-century period.4 In this narrative, the Marshall

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Plan (and the Bretton Woods institutions) are lauded for their qualities of design and intentionality, as much as for their financial contributions to support European recovery. The Marshall Plan years symbolize a commitment to pattern and order. The world (or European) economy that was (re-)made in the 1940s and 1950s was made in the image of a ‘corporative neo-capitalism’.5 The Marshall Plan, on this reading, embodied US self-confidence in its ability to design a new Europe, and spoke to a generous internationalism that is not on offer today. The Marshall Plan also privileged production over finance, the real economy over the money economy. Within the system of fixed exchange rates agreed at Bretton Woods, and allowing for the planned convertability of European currencies in the 1940s and 1950s, national governments were given space and funds to modernize their productive economies according to their own methods and inclinations. Although US Marshall planners expressed a preference for private forms of economic ownership and control, the nationalization of large swathes of European industry and infrastructure was not ruled out by Europe’s banker. In short, the Marshall Plan can be read as a charter for sustained economic growth that tempered a commitment to more open and liberal trading regimes with a willingness to promote development under the rubric of national plans and with significant infusions of foreign aid. The Golden Age of Capitalism that emerged in the 1950s and 1960s can then be read as the product of these commitments and of a deeper commitment to planning and systemic order under the aegis of a benevolent hegemon.6 In contrast, the turbulence and vindictiveness of the post 1971–73 period can be read as the morbid symptoms of an underlying disorder in world affairs. In the absences of strong national planning and a dominant economic force, power in the world economy has slowly been leached to the market and market makers, and short-termism has replaced the developmentalism that characterized the Golden Age. Nations no longer command their own destinies, and are buffeted by an elemental and amoral globalization. To borrow the words of W.B.Yeats, the center cannot hold, and things fall apart. It is easy to see why this narrative is seductive, even where it is hackneyed. By linking ideologies of embedded liberalism and developmentalism to an enlightened internationalism, this reading of postwar history fits snugly with the worldviews of those, like Brandt and Brundtland, who have urged common responses to common crises.7 One might even see links to the economic concerns of post-Keynesianism or to the political conclusions of hegemonic stability theory (a strong and stable world economy demands a strong, stable, and proactive hegemony).8 The narrative also commands support because it attends to the victims of glo-

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balization, or privatization or ‘funny money’. It is hard not to see the poor in Africa or Latin America as the victims of a commitment to sound money that prioritized creditors over debtors in a way that the architects of the Pax Americana never did. It is almost as if the world economy of the 1980s revisited the punitive years of enforced reputations that Keynes described in The Economic Consequences of Peace.9 The Marshall Plan was meant to end all that. But while I do see the point of these claims, and while I share many of the normative commitments that are common to them, I want to argue that the seductions of this Marshall Plan narrative need to be resisted, or at least rethought. The argument will be made in three parts. I first suggest that the Pax Americana was conceived as a harbinger of the globalized world that we recognize today.10 In a very real sense, the Marshall Plan has given way to the Washington Consensus, and neat contrasts between the stable/planned/orderly/national worlds of the postwar era and the market-led disorder of a globalizing world economy are strained and misleading. This is not to deny certain important differences between the Golden Age years and a current phase of transnational liberalism,11 but it does offer a more continuationist reading of the ‘Marshall Plan period’. I then examine the flip-side of the Marshall Plan-versus-globalization thesis. I consider what impacts globalization (variously defined) might have on state autonomy and territorial modes of rule. I also challenge the view that the linked processes of liberalization–privatization are straightforwardly destabilizing, as opposed to offering new vistas of ‘disorderly orderliness’. This leads me to question whether and how particular versions of liberalization–globalization might be empowering and for whom. It is not clear that the Golden Age of Capitalism was golden for those outside the metropolitan heartlands of Europe and North America. Such people were expected to know their place and were often compelled to remain in that place. Nor is it clear that economic development was guaranteed by the dirigiste states that took shape in the shadows of the Atlantic world order or in the lee of the Cold War rivalries of the nuclear powers. Lastly, I reflect on where these observations might lead us in terms of policy and politics, and in relation to calls for a second Marshall Plan or a new Bretton Woods settlement. Although I see merit in these calls, I believe that agendas of empowerment appropriate to the 1990s and beyond must pay rather less attention to questions of aid and indicative planning, and rather more to questions of inequality, social capital and market access, risk management and accountability, and the needs and rights of distant strangers. I touch briefly on these agendas before bringing the chapter to a close.

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From Marshall Plan to Washington Consensus? The word ‘plan’ plays a key role in those narratives of post-1945 economic history which present the years since 1971/3 period in terms of a fall from grace, or as a menacing descent into disorder. Planning here is conjoined to a strong sense of design and intentionality and is not infrequently opposed to the apparent anarchy of a world market disorder. What is not properly considered in this discourse is that planning can refer to ‘planning for something’ as well as the ‘planning of’. This confusion is written into most accounts of what is called globalization. Globalization seems to emerge from nowhere, or as a result of technological developments that were unplanned or unintended. The notion that globalization was planned for by governments is correspondingly downplayed. I will come back to this in the next section of the paper. Some appreciations of the Marshall Plan or the Pax Americana make a related mistake. Commentators who are keen to signal the active dimensions of the planning regimes that marked the Marshall and Bretton Woods agreements – the planning of exchange rates, plans to promote industrial recovery and economic coordination, the planned delivery of foreign aid or assistance, plans to contain the Soviet Union – are sometimes less willing to acknowledge that much of this planning of was promoted with an eye to the promotion of (planning for) a liberal regime of internationalized capitalism. But consider how the Marshall Plan might look if we attend to both these dimensions of planning. It remains true that ‘planning of’ is key to understanding the achievements and lessons of the Marshall Plan. The Marshall Plan involved important commitments to planning in an immediate and directional sense. At the local scale it involved a commitment to what Charles Maier has called the ‘politics of productivity’.12 The politics of sustained economic growth encouraged governments in western Europe to turn their backs on the competitive economic nationalisms of the inter-war period in favor of coordinated programs of industrial expansion that would benefit from economies of scale at a subcontinental level. Marshall Planners also spent time on questions of resource use in the Ruhr and on improving managerial techniques and attitudes in Europe’s heavy industries. Detailed production targets were drawn up and institutions were put into place to deal with problems of economic coordination.13 At the national scale, the Marshall Plan is rightly synonymous with significant transfers of economic resources from the United States to its allies in war-torn western Europe. The Marshall Plan is credited with being ‘the forerunner of aid programs for developing countries’ and praised for its generosity: ‘During this period

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(1948–1953) the transfers from the United States in the peak years amounted to 2–3% of total US GNP – ten times the current aid levels.’14 These transfers were meant to ease various bottlenecks that would emerge in western Europe in the process of economic recovery. Some of these bottlenecks were of a human resource or technical nature and required technical assistance, while others were financial and spoke to the dollar shortage that affected Europe until the mid-1950s. Finally, at the sub-continental scale, the Marshall Plan involved concerted actions to secure western Europe against the Soviet threat or against local communist parties. Some of these actions were of a covert nature and some involved the wielding of the US stick. For the most part, however, America’s Marshall Planners were keen to work with their European counterparts rather than against them. In what Geir Lundestad has called an ‘empire by invitation’,15 the United States showed respect for European national exceptionalisms and permitted western Europe to pursue discriminatory trade policies against the United States. Hogan suggests this compromise was reached because the Marshall Plan represented the international dimension of the New Deal synthesis that had been achieved in the United States in the 1930s; it wasn’t simply a matter of geopolitics. US Marshall planners were prepared to turn ‘old politics of class conflict into the politics of administration’,16 in the process of promoting an associative capitalism that involved public–private partnerships in key European industries. These several dimensions of the Marshall Plan carried with them a strong commitment to planning in the sense of ‘planning of’. The 1940s were remarkable for a sense of directionality and intentionality in international affairs. The United States ended the war in a position of unrivalled economic supremacy and soon offered up their vision of a good and productive society to the rest of the world. This was true not only in Europe and Japan, but in relation to what became the Third World. Escobar notes that, ‘In his augural address as President of the United States on January 20, 1949, Harry Truman announced his concept of a “fair deal” for the entire world. An essential component of this concept was his appeal to the United States and the world to solve the problems of the “underdeveloped areas” of the globe.’17 The Marshall Plan thus gave way to the Point Four Program, and the latter persisted with the former’s assumption that problems elsewhere could be treated as technical problems and solved by judicious applications of external finance and technical know-how. In the first decade of the American Century, a new vision of developmentalism was born, which later found expression in the United Nations’ (First) Development Decade (1961–70) and simplified models of economic development.18 More prosaically, but

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perhaps more importantly, the faith in reason and associative capitalism that marked the Marshall Plan was exemplified in the Bretton Woods treaty. The Marshall Plan for European Recovery took shape within a managed system of international payments that fixed the value of the dollar against gold and then pegged the value of other currencies against the world’s principal reserve currency. Once more, fixity and stability seemed to be the order of the day, and not a few commentators have drawn attention to the higher rates of GNP growth achieved by the world’s leading industrial nations at a time of fixed exchange rates. It is not unreasonable, then, to laud Pax Americana for its strong sense of purpose. This is one lesson that is worth salvaging from the Marshall Plan years. In the 1940s and 1950s, the dominant political and intellectual philosophies of the west – corporatism, Keynesianism, developmentalism – suggested that problems could be solved and the world could be made a better place. And this was more than just a pious hope. The ideology of developmentalism that took hold in the 1950s promised economic development for all countries so long as investments were made in the cultural fabrics necessary to support modern bureaucratic-industrial regimes.19 The precise nature of these changes would be diagnosed by experts and effected by planners and entrepreneurs. Moreover, to the extent that such changes required resources in the short term that could only be paid for in the longer term, it was legitimate and desirable that gaps were plugged with foreign aid. But if the planned use of scarce resources promised a better future for all citizens – not least under the watchful eyes of the World Bank and the IMF – the broader vision promoted by US Marshall planners was of an internationalized capitalism that would escape from the national preferences and exceptionalisms that were bound to cocoon it in the postwar years.20 To write in these terms is not to condemn this vision, nor is it to see the Marshall Plan as a stalking horse for a less acceptable form of US imperialism. It is simply to argue that the Pax Americana involved a strong dose of ‘planning for’ that is not adequately dealt with in those accounts of the period which take its languages of bureaucratization, technicization, and ‘planning of’ at face value. Consider the implications of this view. The vision of US Marshall planners – and that of Harry White and Morgenthau in the Bretton Woods negotiations – was quite different from the vision of the French or the British, or key individuals like Maynard Keynes. Pace Bretton Woods, Keynes advised Sir Frederick Phillips at the UK Treasury in the summer of 1943 that ‘The Harry White Plan is not a firm offer’. He went on:

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The real risk is that there will be no plan at all and that Congress will run away from their own proposal. No harm, therefore, at least it seems to me, if the Americans run up a certain amount of patriotic fervour for their own version. Much can be done in detail hereafter to improve it. The great thing at this stage is that they should get thoroughly committed to there being some plan; or, what is perhaps another way of putting the same thing, that their public should get thoroughly used to the idea that such a plan is inevitable.21 Now, this comment can be read as a shot across the collective bows of those right-wing critics of the New Deal in the United States who objected in principle to coordinated international economic actions.22 But it can also be read as an early indication of Britain’s misgivings in the face of the US plan for a less governed capitalism. These battles came to a head in the negotiations at Bretton Woods, where Keynes’s plans for a supranational unit of account, Bancour, and for IMF disciplines on surplus as well as deficit countries, were brushed aside in favor of White’s plan. These same tensions surfaced at the same time of the Marshall Plan. Although Britain was allowed to renege on its agreement to make sterling convertible by 1947, this was at some cost in terms of US loans foregone.23 Furthermore, while Britain was able to insist on a strong measure of control over the structural properties of its own economy (in terms of nationalization and socialized health care, for example, or in relation to fiscal policy), this commitment to a planned economy was agreed to by Britain’s creditor more as a matter of political expedience than as a firm endorsement of national exceptionalism and the principle of ‘planning of’. As Michael Hogan points out, if the first purpose of US Marshall planners was to make western Europe safe from communism, the broader goal was to remake Europe in its image. Hogan suggests this goal was never fully realized, and this is true if we confine attention to the Marshall Plan years and to the 1950s. Worries, with respect to Soviet expansionism, cautioned the US against economic and political agendas in western Europe that would ride roughshod over European sensibilities and political calculations. Hogan may even be right to contend that: ‘In the beginning, the Marshall Plan had aimed to remake Europe in an American mode. In the end, America was made the European way.’24 But this is true only if the end refers to the Marshall Plan period proper. A different end-point suggests a different conclusion. Suppose the end-point is 1990 or 1997. The fashionable talk in development circles in the late 1990s was not of aid programs or planned growth, but of Washington Consensus. In a conscious echo of so many

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other posts, or ends (and not the least the end of history), Jeffrey Williamson has sketched out what he takes to be a new development orthodoxy appropriate to the 1990s.25 In place of broad ideological disputes and debates about the relative merits of capitalism or socialism, this orthodoxy – the Washington Consensus – holds that two key lessons about development have now been learned. A first lesson is that sustained economic growth is promoted by governments which show respect for private property regimes, the virtues of entrepreneurship and the importance of financial discipline, and is promoted most vigorously in economies that are open and outwardly-oriented. A second lesson is that open economies work best in democratic polities.26 In other words, the Washington Consensus describes for the 1990s what the Marshall Plan was looking forward to in the 1940s, albeit without the massive aid budgets and the linked anxieties about a communist threat. If we examine what the Marshall planners were planning for, it was just these goals. In place of national planning, US Marshall planners wanted a United States of Europe or at least a Europe-wide space economy. In place of competitive devaluations, the Marshall planners and their Bretton Woods counterparts wanted an open and competitive international trading system. In place of anciens régimes and the politics of vested interest, the Marshall planners wanted to encourage democratic rule in Europe and to combine this with expert management of national and Europe-wide economic and political systems. The fact that US Marshall planners tolerated strong public sectors in Europe does not invalidate this conclusion. Nor is it gainsaid by the fixed-peg exchange rate regime negotiated at Bretton Woods. These planning devices were necessary and appropriate in the 1940s, 1950s, and even 1960s, but did not impede the promotion of a more open and internationalized capitalism (a more globalized capitalism?) in the years that followed. To the contrary: one can reasonably argue that the Marshall Plan was successful both in securing the recovery of western Europe in the 1940s and 1950s (by virtue of an associative capitalism), and in securing the longer-term integration of a more open and competitive western Europe into the circuits of a globalizing capitalism. The Marshall Plan was never just a program for European recovery. The Marshall Plan embodied a liberal vision of capitalism that was quite foreign to the midcentury traditions of Europe, and this vision found concrete expression in the ‘new Europe’ that was built following a shift to currency convertibility in the late 1950s and following the construction of a European Economic Community. In like vein, the ending of a fixed exchange rate system in 1973, while important and traumatic, was always in the cards. Robert Triffin had made just this point in 1960.27 The paradox that Triffin

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identified related to the changing position of the US economy in a world economy that was being rebuilt in part with US funds and at the expense of US traded goods. In time, just as Triffin noted, dollars would leave the United States for locations offshore, and this would call into question the long-run value of the dollar against gold and thus all currencies against the dollar. The very success of the Pax Americana ensured the relative decline of the US economy and demanded adjustments in the payments mechanisms that linked countries together. The technical changes that ensued as a result of these asymmetries, or what Brett calls the uneven development of postwar capitalism,28 were, as I suggested, profound and even traumatic, but they reinforced rather than invalidated the US plan for the world economy that was mapped out in the mid to late 1940s. ‘Globalization’ may have hastened these changes and may have exposed some of their sharper edges, but globalization was not the mainspring of today’s Washington Consensus, and nor should globalization bluntly be opposed to geoeconomic planning. The Marshall Plan was more than just a plan, it was a charter or a vision. Its legacy is with us now, as a presence as much as an absence. ‘Globalization’, Market-Access, and Ordered Disorder Globalization and Marshall A certain amount of backtracking is now in order. To argue that the Marshall Plan was consistent in its aims with aspects of the more open world economy we see around us today is not to argue that the means by which this open world economy was brought about postwar were unimportant or at one with the mechanisms and structures that secure openness in the 1990s. Of course not. The metropolitan world economy was considerably more regimented in the 1950s and 1960s than it is today, and it is not unreasonable to place the blame for some current instabilities on the privatization and liberalization of those sectors of the economy that the Marshall planners sought to regulate more closely. This is particularly true in respect of international money, where the power of national governments to regulate dizzying flows of finance has been severely disrupted by the ending of a fixed exchange rate system and the emergence of the Euromarkets.29 But we do need to tread carefully when making these judgments. It was not the primary intention of US Marshall planners to seek command over international money and national space economies as ends in themselves. The Marshall Plan vision was of an open and expanding (North Atlantic) world economy that would be governed by

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national governments in accordance with this vision and in agreement with the rules of conduct that followed from membership of the IMF, the IBRD, and the General Agreement on Trade and Tariffs. In the 1950s it was incumbent on the United States to allow Europeans to rebuild their economies behind tariff barriers and with due regard for local resource scarcities. European recovery through the ‘free market’ was not an option, either practically or intellectually. It also made sense for the US to fund European recovery. The United States needed export markets in Europe and it was concerned that further communist incursions would require the US economy to be placed on a command footing.30 US freedoms demanded a plan for European recovery and security that was prepared to compromise economic freedoms (of a certain type) during the recovery period. It is unlikely that these dimensions of the Marshall Plan will be revamped in this extravagantly public forum. The circumstances that persuaded Congress to sanction Marshall Plan funds to Europe – a New Deal coalition in the United States, the relative absence of private funds for economic recovery, a perceived Soviet threat – have long since disappeared. Paradoxically though, or so it might be argued, circumstances permitting the large-scale transfer of private (and some public) funds to emerging or transitional economies are now better established than they were forty or fifty years ago.31 In terms of the Marshall Plan’s ends, if not means, globalization might seem to promise the continuation of the American dream in another guise. This suggestion will provoke unease in some quarters, but let me press on with it. If the long-term goals of the Marshall Plan were consistent with what we might call an open and globalized world economy, the real issue is to assess the broader relationships between globalization (openness), economic growth, market access, and sustainable social development. This assessment should have regard for the different means by which globalization has been promoted postwar (and the various meanings of globalization), and for the different spatial scales at which such an assessment can be made. Globalization and Pangloss Boosters of globalization are keen to make three arguments. A first argument returns to ideas of a Global Age of Capitalism in the 1950s and 1960s. From the point of view of many developing or transitional economies, the Golden Age was a chimera. The world economy that emerged from Bretton Woods and the Marshall Plan was an Atlantic world economy.32 Although the Bretton Woods conference in July 1944 received delegations from the Soviet Union, France, India, China, South

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Africa, Mexico, Brazil, and other countries besides, the Bretton Woods agreement reflected an Anglo-American (and mainly American) view of a new world order.33 The US was keen to see an end to the old system of imperial preferences. US imperialism would be a commodity imperialism and not a territorial imperialism. But the United States was not yet committed to the industrial development of the Third World. The Third World was expected to play a singular role in the circuits of capitalist commodity trade planned for at Bretton Woods and under the GATT rules. Crudely stated, the Third World was expected to supply raw materials and primary commodities to the United States and Europe, while Europe and (more so) the United States would engage in the production and export of manufactured goods to one another and to the developing world.34 Insofar as Third World countries were encouraged to build up industries of their own, this was within a national-economy framework. In Latin America, import-substitution was geared to consumption goods and the region early on received direct investment flows from USbased multinationals. In South and even East Asia, in contrast, importsubstitution industrialization was geared more to capital goods, and foreign direct investment was sometimes discouraged. Development was to be fostered by strong national governments committed to agrarian reforms and the planned use of scarce resources. The Nehru– Mahalanobis strategy for India exemplified this philosophy.35 Developing countries that tried to step outside these triangular relations were poorly treated. Notwithstanding the GATT arrangements, escalating tariffs in the developed world discouraged export-led industrialization in the developing world, and countries that experimented with socialist development strategies were often punished militarily.36 Vietnam is just the best-known example of US willingness to deal with its European and Asian peripheries in different ways. Against this background, globalization in the sense of privatization and liberalization might be seen as empowering for some developing countries. In subSaharan Africa, for example, where food prices in many countries have been depressed by state marketing boards and a persistent urban bias, pressures to devalue local currencies and ‘get prices right’ might improve the living conditions of the rural poor and secure new trading opportunities more in keeping with the region’s existing advantages.37 In India, meanwhile, globalization-through-liberalization now has the support of all the major political parties bar the Communists.38 By the mid-1960s the executive state charged with planning India’s development had been captured by vested interests from among the upper reaches of India’s bureaucracy, the monopoly industrial bourgeoisie and richer farmers.39 The Government of India was unable or unwilling

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to raise the funds needed to power through its public-sector development projects and many industries grew lazy for lack of effective competition.40 In the 1970s, India’s public-sector steel plants ran at less than fifty percent of capacity. To buy off various demand groups (farmers, students, workers, bureaucrats, scheduled communities) the state resorted to deficit financing and the country neared bankruptcy in the late 1980s. Against this background, the program of economic liberalization introduced by Prime Minister Narasimha Rao and Finance Minister Manmohan Singh in 1991 promises much. There are signs that India is sustaining a six to seven percent rate of growth of GDP, when for years the economy grew only at three to four percent, the so-called Hindu rate of growth.41 Sustained growth of this order will pull people out of poverty at a rapid rate; indeed, India’s rate of absolute poverty is predicted to halve (from about 35 percent) over the next twenty years.42 India’s reforms are also encouraging foreign companies to set up in large numbers. Here, perhaps, is globalization in the sense that it is more commonly understood – as the export of capital. Indian auto manufacturers are now engaged in joint ventures with foreign companies, including Suzuki, Honda and BMW. IBM has moved back to India along with Coca-Cola, two companies asked to leave by Mrs Gandhi in 1977 in the heyday of economic nationalism. The Indian middle classes can watch the BBC world news on Rupert Murdoch’s Star TV satellite system, if they are not already watching MTV. In sum, globalization in the sense of the progressive internationalization and diffusion of capital flows, often accompanied by trade and financial reforms and liberalization, seems to be associated with rapid economic growth in many developing countries. The World Bank is firmly of the view that developing countries which are outwardly oriented to the world market consistently outperform those developing countries which seek to protect themselves from external competition. The rise of the East Asian newly industrialized countries (NICs) is said to lend support to this view.43 It certainly lends support to the contention that the Golden Age of Capitalism for at least some developing countries and regions had to await the end of the Atlantic world economy mapped out at Bretton Woods. A second argument in favor of globalization takes issue with the ‘market disorder thesis’. Opponents of globalization (again in the sense of expanded flows of private capital and privatized credit creation) like to contrast the social and economic stability of the Bretton Woods years with the looming instability that has stalked the world economy since 1971–73. Leaving aside the Euro-American worldview that this contention conceals, and leaving aside the presumption that the Bretton Woods

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system was ever this powerful,44 proponents of globalization might reply as follows. First, the period from 1945 to 1970 was unusual in terms of the history of the capitalist world economy. The relative closure and stability of the world economy at this time was a reaction against a particular reading of the events of 1929–33 (apparent market failure) and a response to the particular conditions of Europe following World War II. The world economy between 1870 and 1914 was much more open than the Bretton Woods world economy, and was at least as ‘globalized’ as the world economy of the 1990s in terms of trade/GDP ratios and the private–public mix.45 Second, and relatedly, the spread of capitalism and economic growth to non-OECD countries and regions post-1970 has increased coordination problems in the international economy. The Bretton Woods system of economic and financial governance was appropriate to a world with a dominant economic power, but a dollar–gold exchange rate system and regulated liquidity creation could not be expected to cope with the demands imposed by and upon a less welldefined world economy. Third, and again relatedly, the post-Bretton Woods (post-Marshall) world economy is not unregulated, nor is it unstable in the sense of tending to ultimate collapse. This might be an odd claim to make in the wake of the debt crisis and the various derivatives scandal, but the point that proponents of globalization as ‘marketization’ are keen to make is that neither of these crises gave rise to a second crash of 1929. A common defense of globalization as marketization/liberalization is that ‘private’ systems of insurance and regulation are now in place to guard against systemic collapse. In the financial markets, insurance is provided by swaps and hedging (‘derivatives’) and by futures markets. More generally, governance is provided with and without government, as in the meetings of experts convened by the G-3 or G-7 powers or by the IMF and World Bank.46 The Plaza and Louvre accords of the 1980s grew out of these meetings held by the London and Paris clubs of creditors. Governments have chosen – or planned for – globalization and have purposefully created a world economy that is regulated in different ways than the Bretton Woods world economy. Finally, stability for its own sake is not entirely to be welcomed. That way lies stasis or death. If the emerging market order is more disorderly than the imposed orders of the postwar era, this is not a matter for great concern. Proponents of a market-order thesis advance the more Darwinian view that a measure of instability in the world economy is at once natural and inevitable, and that it helps to drive out bad practices (lax financial management, anti-competition policies) and poor economic agents (debtors and laggards). Orderly disorder is the name of the game.47

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Globalization and Jeremiah These are not credulous or implausible arguments. But they are partial. The case against ‘globalization’ can be made just as straightforwardly. Consider, first, who gains and who loses from globalization-as-marketization. A common complaint raised against globalization – not least in the west and not least against strategies of deregulation/liberalization – is that unemployment is increased in ‘mismatch’ industries even as the wages of unskilled workers are depressed by ‘flexible’ labor market practices. Globalization has been associated with the production of a 40-30-30 society in countries like the United States and Great Britain post-1980. The incomes of the top 40 percent of earners have increased dramatically and in real terms, the incomes of the next 30 percent of earners have remained stagnant and made more vulnerable, and the economic fortunes (including the social wage) of the bottom 30 percent of ‘earners’ have been depressed.48 Some commentators refer to the growth of an underclass as a result of these income shifts, and to growing problems of social anomy and dislocation. The privatization of productive economic activities has been accompanied in cities by a corresponding privatization of security arrangements, as the welfare systems of the postwar era have been replaced by work-to-welfare schemes and the growth of private spaces defended by surveillance equipment and bodyguards.49 Meanwhile, in the developing world, the growth of inequalities has been even more marked. In countries including Brazil, China, and India, liberalization or structural adjustment programs – associated with capital inflows and the disciplines of international finance – have secured huge and lasting benefits for a growing middle class while failing to increase the security of the laboring poor.50 Regional income gaps have also opened up, as between west and east India or coastal and interior China, along with worsening gender inequalities in some cases. In this analysis, globalization is once more connected to landscapes of loss and plenty, profit and exploitation. Footballs on sale in the club shops of Aston Villa FC and Manchester United make (un)healthy profits for their retailers and wholesalers, while depriving children of their liberty in India and Pakistan (where the balls are stitched) and children in England of more pounds than they should pay. A similar story might be told of Nike shoes, but switching East Asia and the United States for South Asia and England. Globalization is a word that neutralizes the iniquities of a turbo-charged capitalism run by and for the shareholders of a small group of global firms. This vision of a ‘monopolized-market-place’ stands at the back of a second charge against globalization: namely, that it disenfranchises governments and citizens and substitutes the sham democracy of the

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market-place and the disciplines of mobile capital. These disciplines were to the fore in the spat between Malaysia’s Prime Minister, Dr Matathir, and the financial speculator George Soros, at the 1997 meetings of the IMF in Hong Kong. Following on from an unprecedented bout of currency turbulence in ‘miraculous’ East Asia, Dr Matathir took steps to stop Malaysia’s ‘real’ economy being punished by currency speculators seeking to place better bets elsewhere in the global casino. Soros, for his part, spoke of the necessary disciplines of mobile capital and the role of market-makers in correcting government-induced imbalances in erstwhile open economies. It was a classical and important stand-off, and the broader concerns of Dr Matathir were soon apparent. His concern was for the ‘real’ economy, not just the economy of money. His concern was for ‘his people’, not for financiers or shareholders abroad. His concern was for the continuation of a south-east Asian miracle that had been sponsored by strong and effective government actions (planning of and for), despite the pro-market rhetorics of so many boosters of the Asian miracle. Matathir, like Alice Amsden,51 believed that economic growth and development depended on governments ‘getting relative prices wrong’, in the process creating new comparative advantages rather than accepting a received position in the global division of labor. Globalization threatened this scope for state autonomy. Globalization threatened deterritorialization and with it a loss of accountability (and so true democracy) in favor of unseen economic agents elsewhere and unelected ‘experts’ in the new centers of government. This narrative presentation of globalization and loss also finds expression in the charge that globalization erodes cultural differences; that it flattens out regional particularisms, and imposes a degree of cultural standardization that dumbs down more than it levels up.52 The source of this impending homogeneity is the idea that everything has its price; that peoples and governments should not value ‘things’ in nonprice terms. Herein lies the great fear of many who oppose globalization. Globalization through the market-place and by means of new communications technologies makes us all consumers of MTV and Microsoft, Oprah and Friends. We become passive as a result. Globalization creates worlds for us and disciplines us to accept what we are given. National planning or national sovereignty, or so the story goes, allows for activity and real politics; it encourages the politics of democratization, debate and empowerment where globalization promotes the politics of consent. Living With Disorder, or Shaping Globalization53 It is now time to backtrack again. Although the debates that rage between proponents and opponents of ‘globalization’ are real enough, I

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have not tried to adjudicate between these competing claims; indeed, my aim has been to amplify the differences between these apparently conflicting world views. But this will not do. A major purpose of this paper has been to challenge those views of postwar economic and political history that bluntly contrast the Marshall Plan period (usually as good) with the era of ‘globalization’ (usually as bad) that has followed it. A secondary purpose has been to argue that the Marshall Plan period wasn’t all that golden for non-OECD countries and to suggest that ‘globalization’ has its boosters in the developing world (and not only among the rich). If these claims are to be reconciled it is important to return to the ‘globalization’ debates to challenge some of the either/or logics that restrict policy choices to the brute and unbending. The chapter will move to a conclusion by considering the following dimensions of globalization and its effects: (a) inequality, empowerment, social capital and market access; (b) risk and accountability; and (c) enlightened self-interest and the needs and rights of distant strangers. Inequality, Empowerment, Social Capital and Market Access Few can doubt that where ‘globalization’ is pressed through strategies of deregulation, privatization and liberalization, it can increase inequalities in income and wealth, at least in the short and medium term. Countries undergoing structural adjustment in Africa and Latin America (not to mention the ex-USSR) offer testimony to this. The restructuring of welfare systems in the west to ensure ‘competitiveness’ will have a similar outcome. So-called flexible labor markets appear anything but flexible to those forced to survive on low wages, or who have to surrender rights of association, sick pay and the like.54 But does globalization have to be this violent? And what are the alternatives to ‘globalization through deregulation’? A tenable answer to these questions might begin with the linked concepts of empowerment, social capital and market access. It is not plausible to maintain that countries and regions can opt out of ‘globalization’ without bearing costs. Modernity (even postmodernity) is about pleasure and pain, not one or the other. But this is not to let ‘globalization’ off the hook. Hirst and Thompson have argued that discourses of globalization are most dangerous when they suggest globalization is undifferentiated, uncontested, and inevitable. So-called globalization comes in many shapes, and it is not preordained that strategies for trade liberalization must go hand-in-hand with strategies for labor market reforms. India’s experiments with staged liberalization are some way removed from the shock therapy experiments foisted on

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Russia and other countries in the former Soviet Union. Choices have to be made; politics still matters.55 Nor is it the case that labor market reforms must spell disaster for the laboring poor, although such reforms often have done. Much depends on the terms by which poor women and men can access the market – whether they come to the market-place with skills and resources or whether they come bereft of such human capital. This is just the point that Jean Dreze and Amartya Sen make with respect to India. Dreze and Sen contend that India’s protected labor markets have done few favors for the laboring poor (as opposed to a unionized labor aristocracy), and they are reasonably content with the Government of India’s plans for new exit policies in the industrial sector, trade reforms and denationalization.56 But they challenge the view that a switch from the state to the market in the realm of production must be accompanied by a parallel switch in the realm of production. On the contrary, Dreze and Sen condemn India’s reforming government for compounding sins of commission (too much government intervention in the economy) with sins of omission (too little government intervention in the cases of education, literacy, and health care).57 This is a simple point perhaps, but it is a key one nonetheless. Just as planning doesn’t guarantee improved livelihoods for the poor (not least in the long run), nor does globalization have to run counter to the interests of the poor and social equality. People need to be empowered to access the market and to understand (as people in Taiwan and South Korea have surely understood) that ‘the market’ is an embedded institution rather than an abstract entity.58 Markets are made and globalization is made. The task is to make sure that markets are made in a way that increases access for the poor and the marginalized, and to protect those who are unable to access the market. Real market access depends on spaces of empowerment. These spaces – in the home, in the school, in the workplace – are still firmly territorialized, even where globalization presents itself as somehow deterritorialized. So-called globalization is often made or remade locally. Risk and Accountability The suggestion that globalization is made locally will be of little comfort to those who are thrown out of work, or deprived of social benefits, by globalizing forces over which few effective local controls can be exercised. It is one thing to prepare oneself to join ‘the market’ and quite another to demand that buoyant labor markets are always at hand. The globalization that we have seen since 1970 has not extended to large-scale and legalized flows of labor (as opposed to large-scale and usually legal

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flows of capital). Indeed, globalization has often gone hand-in-hand with the rise of nationalist movements which are vehemently opposed to the free flow of labor. Buoyant labor markets have also been knocked back by violent slumps in the OECD world economy (notably in the early 1980s), and by structural adjustment policies in indebted developing and transitional economies. The fight against inflation has taken priority over the fight against unemployment. These various pathologies of ‘globalization’ in turn raise questions of risk management and accountability in the world economy. The dangers that many people see in the privatization and deterritorialization of economic powers are that levels of uncertainty increase along with the levels of measurable risk, and that decision-making powers are ceded to selfinterested and unelected economic agents. A distinction between risk and uncertainty is at the heart of Keynesian economic theory and informed key economic policies in the postwar period. Risk, said Keynes, can be calibrated and guarded against by various insurance mechanisms.59 Just as householders pay an insurance premium which reflects the likely incidence of property crime in their area, so firms can guard against exchange rate risks in the futures market and banks and other financial institutions can use credit rating agencies to assess the risk of country default.60 To the extent that these insurance activities can be privately provided, there is some merit in the New Right’s claim that ‘the market’ is not inherently unstable and in need of government regulation. Order can be generated endogenously as well as imposed exogenously. But certainty is quite another matter. As Keynes pointed out, uncertainty is by definition unpredictable and not measurable. The way to deal with uncertainty is to design systems that are less likely to generate ‘uncertainty’, or to invoke the precautionary principle. In the case of ‘globalization’ this would mean coordinated international actions to deal with likely ecological disasters such as global warming or ozone layer depletion.61 It might also mean throwing sand in the wheels of the global casino, perhaps in the form of the transactions tax suggested by James Tobin.62 In each case, possible hot-spots would be cooled down by globalizing actions that seek the regulation of markets, as opposed to regulation for markets (as in recent GATT negotiations). In each case, too, responsibility for such ‘regulation of’ might be returned to elected representatives of national governments, very possibly working in tandem with members of international commissions and non-governmental organizations. Where such powers are not returned, they must be fought for. Narratives of globalization do not have to run counter to narratives of democratization, activism, or transparent control.

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Enlightened Self-Interest and the Needs and Rights of Distant Strangers The local and the national scales are not the only scales where it is important to press for versions of globalization that are open to democratic accountability and which might promote relatively stable and sustained economic growth through ‘the market’. Popular representations of the Marshall Plan period also invoke a spirit of internationalism, or of the responsibilities that richer countries might have to and for poorer countries. Calls for a new ‘Marshall Plan’ made in this spirit center around the paucity of government aid budgets in the post-Bretton Woods period. To the extent that aid flows can be targeted upon the poorest and can be delivered by non-governmental organizations, it is right that progressive opinion in richer countries should demand higher budgets for Real Aid.63 And if arguments for aid delivery have to be made in terms of enlightened self-interest (the development of x will increase export markets for y), so be it. But aid isn’t the only way that we can think about our obligations to distant strangers. Two further sets of arguments can be deployed against those visions of globalization that are oblivious to global inequalities, or which like to naturalize them as the inevitable products of race, culture, or the environment. A first argument invokes the word exploitation and takes us beyond the vocabularies of Marshall and the Bretton Woods agreement. Analyses of global commodity chains by NGOs like Oxfam and some academics are putting flesh on the claim that many commodity producers in developing countries are unfairly rewarded for their work and given little scope for diversification.64 Many producers are exploited by monopsonistic purchasing and marketing agencies – hardly in the spirit of ‘the market’ – and by trading regimes which discourage value-addition activities in the South. Many commodity producers are also prisoners of exploitative contracts and trading agreements within their own countries. In such cases aid is not the main requirement. Small-scale producers and the laboring poor need actions to empower them locally (which takes us back to questions of social capital and market-access arrangements) and internationally (as in fair trade campaigns or campaigns to write down outstanding debt stocks). These actions at once involve poor people in their own struggles and respond to problems as a matter of what is right as much as a matter of what is needed. A second argument takes up the question of needs and rights in a different way. In opposition to arguments which seek to blame the poor for their poverty, or which declare that richer persons or countries are always the recipients of their just deserts, a concern for transnational justice might invoke the claim, ‘There but for the grace of God go I.’ In

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other words, a concern for ‘development ethics’ would have resort to a modified Rawlsianism that begins by denying the ‘talents effect’ beloved by some on the Right.65 Instead of assuming that we are the authors of our own fortunes, a social contract theory of justice would point out that many talented people are born each day to parents who lack land and work – or capabilities and entitlements – in countries like Bangladesh or Nepal. By the same token, many less talented people are born to affluent parents in high-income neighborhoods in Los Angeles and London. Given these starting conditions, it hardly makes sense to condemn one set of individuals for doing poorly in monetary terms while commending another for ‘making something of themselves’. Moreover, because such individuals could have been born in radically different circumstances – could have traded places – it behoves us to consider what responsibilities we might have, as affluent individuals or countries, to poorer individuals far away who we are unlikely to meet; to our distant strangers. Further, to the extent that globalization (through telecommunications in a shrinking world) makes us more aware of these (less?) distant strangers, it is possible that globalization could lend weight to those calling for a new internationalism born as much of moral concern as from enlightened self-interest.66 Conclusion These last remarks are inevitably partial and speculative, and are not intended to serve as a guide to detailed policies in the post-Cold War era. Nevertheless, they do begin to map out a policy menu that is at some remove from the policies that we associate with the Marshall Plan and which some commentators would like to see reinvented as Marshall II. The policy menu to which I have alluded differs from the Marshall Plan menu in three key respects. It differs, first, in terms of geographical scale. In the late 1940s and early 1950s, it was understandable that the United States would concentrate its energies on the rebuilding of western Europe and Japan. The United States has strong geopolitical reasons for doing so, and the ‘Third World’ had yet to make much of an impression upon US economic or security concerns. Matters are different today. Parts of the ‘Third World’ matter rather less to the United States in the 1990s than in the 1980s – for example, the Horn of Africa following the end of the Cold War – and this gives us cause for concern. Regions such as this, along with parts of the ex-socialist bloc and some inner city areas in the First World, are unable to access the world market on anything like favorable terms and are very often treated as sites of contagion or sites for dumping the unwanted byproducts of market-led development.67 New cores and new peripheries

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are emerging in a global political economy no longer dominated by a single, or even straightforwardly territorial, hegemonic power (see Figure 10.1). Away from these wild or excluded zones, however, we find newly industrialized countries and city-regions (including New Delhi or Shanghai) that patently do ‘matter’, and which cannot be disregarded in the way that they were fifty years ago.68 The very success of the Marshall Plan for European Recovery paved the way for a globalizing world economy in which power is more widely diffused and shared by states, global institutions, and market-makers. Plans for a second Marshall Plan would have to recognize these developments and acknowledge the relative decline of the United States in a postwar world economy.

Figure 10.1 Diagram of the world system during (A) and after (B) the Cold War

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A second difference returns us to questions of design and intentionality. In the 1940s and 1950s, it was possible to conceive of economic and geopolitical problems in mechanical terms. Problems in one part of the world could be diagnosed by an economic power in another part of the world, and faulty parts or systems could be repaired using local resources and kick-started by a leading economic power. This is probably not the case today. The world economy in the 1990s is more open and interdependent than the nationally-oriented world economy of the 1940s and 1950s. The possibility that intentional actions in one part of the world economy will have unintended and undesirable consequences elsewhere is accordingly greater, and the benefits of dirigisme (as opposed to precautionary regulation) are less clear-cut. There is also less confidence today in the capacity of states to discipline international markets or to coordinate international policy actions. A third point of difference concerns the politics of aid and assistance. In the 1940s and 1950s, the United States was able to mobilize political support for massive aid programs, and the recipients of foreign assistance tended to be governments or elites who paid little heed to the voices of those who they governed. (Or, more positively, modernizing governments made the assumption that their dream of development was shared by the people.) In the 1990s it is difficult to generate support for large aid budgets in the west, and newer discourses of participatory development warn against a vision of development where people are made the supplicants of the state rather than the sources of their own development.69 These discourses do not have to generate a strong anti-aid rhetoric (although some do), because Real Aid can prime the pump of local empowerment schemes and provide funds for investment in social capital. Nevertheless, the thrust of such discourses, and of the Right’s counter-revolution in development theory and policy,70 has been to focus attention on human capital development, empowerment, and even market-access, and rightly so. None of this means that we should not welcome a second Marshall Plan for the 1990s. My argument, rather, is that a second Marshall Plan would want to address itself to non-European problems (most notably debt reduction and development problems), and should be phrased in less ‘executive’ terms than its acclaimed predecessor. I would also want to argue that a longing for Marshall II is misplaced to the extent that we define the Marshall Plan for European Recovery in terms of what it planned for, as much as what it sought the planning of. For good or ill, the open world economy of the 1990s is very much a product of the Marshall Plan years, and deliberately so.

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Notes 1. This estimate based on the ‘implied resource transfer’ calculated by Kucinski (1988), Table 7.1. For a higher estimate, see Branford and Kucinski (1988); Lindert, by contrast, claimed in 1989 that ‘most debtor countries have not been repaying significantly since 1982’ (Lindert, 1989, p.250). On the definitional and data problems involved, see Corbridge (1993a) and Cline (1995). 2. Corbridge and Agnew (1991), p.71. 3. Friedman (1987), p.5. 4. For an interesting discussion, see Helleiner (1992). 5. Hogan (1987), p.2.

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6. On the Golden Age of Capitalism, see Glyn et al. (1991). On the US as a benevolent hegemon or benevolent despot, see Gilpin (1987) and Parboni (1981). 7. For an account of embedded liberalism in the postwar world order, see Ruggie (1983). The enlightened internationalism of Brandt and Brundtland refers to their accounts of the common actions needed to deal with debt and development (Brandt, 1993) and global environment problems (Brundtland, 1987). 8. Hegemonic stability theories come in two main guises. One version has been developed by realists in the international relations camp. Realists hold that anarchy is the natural state of international relations and that an open or ‘liberal’ international economic system is only ever secured, transiently, by the disciplinary actions of the hegemonic power committed to this goal (Bull, 1977; Waltz, 1979). A second version has been developed by neoKeynesians like Charles Kindleberger, himself a player in the Marshall Plan negotiations. Kindleberger suggests that the main source of instability in international affairs is capitalism itself. Strong state actions by a hegemonic power are necessary to dampen down the tendency to boom and bust that capitalism promotes (Kindleberger, 1978, 1984). 9. Keynes (1971). 10. Others have come to a broadly similar conclusion. In a recent review of John Gaddis’s book, We Now Know (Gaddis, 1997), Neal Ascherson writes as follows: ‘Stalin quite failed to see the commitment to free-trading capitalism implicit in the [Marshall] Plan and prepared to join it, mistaking it for a benevolent offer of American financial aid. Only later, after warnings from his diplomats and agents, did he change his mind’ (Ascherson, 1997, p.26). 11. For an elaboration and defense of this term, see Agnew and Corbridge (1995), Chapter 7. 12. Maier (1977). 13. See Gimbel (1976). 14. Chenery (1989), p.137. 15. Lundestad (1984), quoted in Hogan (1987). 16. Hogan (1987), p.23. 17. Escobar (1995), p.3. 18. For example, the Harrod–Domar growth model, or the Rostow stages of growth model (Rostow, 1960). Rostow, like Kindleberger (footnote 9), was a significant player in the Marshall Plan deliberations (see Rostow, 1981). 19. The editors of the first major journal of development studies, Economic Development and Cultural Change (first published in 1952) chose its name very carefully and long promoted this ideology. 20. For an account of US postwar assault on national capitalisms, see Wood (1986). 21. Quoted in Moggridge (1992), p.692. 22. For example, Henry Hazlitt and Robert Taft: see Hitchens (1968). 23. Hogan (1987), pp.82–3, referring to the 1946 Anglo-American loan agreement. 24. Hogan (1987), p.445. 25. Williamson (1993) summarizes the economic aspects of the Washington Consensus. It should be noted that Williamson is less concerned with the merits of different political systems than he is with silencing what he calls ‘economic nonsense’ (p.1330). 26. Washington’s (or the World Bank’s) insistence on the virtues of democratization came rather late in the day, and not until its attention was switched from the East Asian miracle (where some see democratization as a luxury that must follow development: see Leftwich, 1996) to sub-Saharan Africa (World Bank, 1989a, 1992). For a skeptical view see Moore (1996). 27. Triffin (1960). 28. Brett (1985). 29. In the early 1990s, daily turnover in the world’s major foreign exchange markets was worth more than $1 trillion, and the ‘great majority of these transactions, perhaps 90 percent or more, are unrelated to current account flows’ (Walter, 1993, p.197). 30. Hogan (1987), pp.91–4; see also Arkes (1972). 31. World Bank (1995, 1996); see also Dooley et al. (1996).

268 32. 33. 34. 35. 36. 37.

38. 39. 40. 41. 42.

43. 44.

45. 46. 47. 48. 49.

50. 51. 52. 53.

54. 55.

    For a cogent discussion see Van der Pilj (1984) and Arrighi (1994). See Corbridge (1994). Dicken (1992). For interesting discussions of planning as the new Godhead in Independent India, see Inden (1995) and Zachariah (1997). Chomsky (1992). Robert Bates is perhaps the best known exponent of this thesis (Bates, 1981, 1988), which was also argued by the so-called Berg Report of the World Bank (1981). The World Bank has recently claimed that ‘adjustment’ is working in Africa and that its reforms are securing improved economic growth and social equity (World Bank, 1994). Although many academic commentators are less sanguine (Adepoju, 1993, Mosley et al., 1995, Simon et al., 1995), in a recent review of published surveys, data-sets and economic models, Howard White offers qualified support for the Bank’s position (White, 1996). In practice, liberalization enjoys the support of the Communist Party of India (Marxist) in the West Bengal, under the leadership of Jyoti Basu. Bardhan (1984) presents a classic statement of this ‘intermediate regime’ thesis. World Bank (1989b); see also Corbridge (1991). A phrase associated with Raj Krishna. Singh (1991) offers a thorough review of the evidence. Singh also makes the important point that poverty and inequality are not one and the same thing. It is perfectly reasonable to expect the reform process in India to reduce poverty while increasing inequalities. See World Bank (1993), and not withstanding the 1997 financial crises in the region we must suppose. The Bretton Woods system in its pure form lasted from about 1958–1966. For a searching revisionist account of the so-called Bretton Woods system, see Walter (1993). In some respects, Walter’s work on Bretton Woods parallels the revisionist, and similarly less UScentered account of the Marshall Plan offered by Alan Milward (Milward, 1984). See also the contrasting contributions of Milward and DeLong to this volume. Hirst and Thompson (1995), Chapter 2. For a broad ranging discussion of ‘governance without government’ see the collection of essays edited by Rosenau and Czempiel (1992). This view owes as much to Hayek as Darwin. See Hayek (1960, 1976); see also Kirzner (1989). A fine recent account of Hayek’s work and legacy is Gamble (1996). For a discussion, see Hutton (1995); see also Atkinson and Mogenson (1993). Mike Davis’s account of Los Angeles as a city of quartz remains a classic in this genre (Davis, 1990), but the security industry is hardly confined to the United States or affluent OECD countries. The front cover of one of India’s leading weekly magazines, India Today, ran the following story on 6 October 1997: ‘Extortion nightmare – with the state failing to protect its citizens and criminals discovering easy money in kidnapping, the rich take cover behind armed guards and bullet-proof cars.’ Critiques of India’s liberalization programs include Breman (1996) and ASG (1997). For a more cautious assessment see Bhaduri and Nayyar (1996). Amsden (1989, 1994); see also Wade (1990). For accounts of strategic trade theory, see Krugman (1986), and Auty (1995). Latouche (1996) provides an alarming, indeed alarmist, account of the ‘Westernization of the world’. Michael Mann writes that: ‘I conceive of human societies as always formed of multiple, overlapping and intersecting networks of interaction. Globalism is unlikely to change this. Human interaction networks are now penetrating the globe, but in multiple, variable and uneven fashion’ (Mann, 1997, p.495). This is very much my view. Globalization is changing some networks and relationships, but it is not creating a new world that is radically at odds with previous worlds. Further, these networks and interactions themselves shape globalization, hence the title of the paper. Globalization is not pre-given, nor is it simply out there and ready made. See also Jessop (1997). Reimer (1994). David Held and his colleagues have essayed some of the most incisive accounts of the

     

56. 57. 58. 59. 60. 61. 62. 63.

64. 65. 66. 67.

68. 69. 70.

269

changing nature of democratic politics in an age of globalization: see Held (1993); Potter et al. (1997) and McGrew (1997). For a recent review of Held’s ouevre, see Goldblatt (1997). Dreze and Sen (1995). Ibid., p.8. On social capital more generally, see Evans (1996). The distinction is well made by Peter Evans (Evans, 1995). Keynes (1972); see also Skidelsky (1992). See Sinclair (1994). Ulrich Beck’s account of the ‘risk society’ deals persuasively with these and other issues: Beck (1992). Tobin (1994); see also Mendez (1996). The Real Aid agenda was forcefully pressed by British NGOs including Oxfam, Christian Aid and Save the Children in the 1980s; see Independent Group on British Aid (1982). Under Prime Minister Thatcher, UK official development assistance declined from 0.52% of GNP in 1979 to 0.27% of GNP in 1990. In 1993 the figure was 0.31%; in the United States the corresponding figure was 0.15%. See Bernstein (1996) and Cook (1994). On transnational justice, see Beitz (1991) and O’Neill (1991, 1996). On development ethics, see Crocker (1991), Gasper (1996) and Qizilbash (1996). On the possible connexions between space-time compression and emerging moral geographies, see Corbridge (1993b), Harvey (1996). Watts (1991) deals persuasively with various rhetorical constructions of ‘Africa’ as a site of illness, communicable disease and excess population; Clapp (1995) provides information on the dumping of toxic wastes in sub-Saharan countries by affluent (effluent) countries in the North. On the hegemony and territory in a deterritorializing world, see Agnew and Corbridge (1995); see also Luke (1993). See Brohman (1996) for an up-to-date account. See also Ferguson on aid, bureucratization and various discourses of ‘development’ in southern Africa (Ferguson, 1994). The phrase is Toye’s (Toye, 1993).

Index Abelshauser, W. 70 Acheson, D. 4, 5, 9, 10, 11, 13, 16, 42, 45, 140, 173, 175 Adenauer, K. 3, 157, 230 Afghanistan 3, 15 Agriculture 11, 69–70, 86, 229; commodities as aid 100, 236; food crisis in Europe 83, 87, 191 Albania 15 Albright, M. 16 Allied Powers 3 Alphand 133 Alsop, J. 128 American Empire/Imperium 9 ‘Americanization’ 78–79 Amsden, A. 255 Argentina 33–36, 39 Auriol, V. 42 Australia 131 Austria 61, 62, 63, 69, 76, 79, 104, 106–107, 127, 134, 142, 143 Bacha, E.L. 101 Balassa–Samuelson Effect 48, 50 Balkans 17 Barro, R.L. 31 Bayard, C.S. 173–174 Belgium 84, 92, 93, 97, 103, 107, 108, 134, 142, 145, 178 Benelux 131, 132, 134, 138, 144, 225, 226 Berghahn, V.R. 78 Beria, L. 45 Bevin, E. 6, 42, 131, 132, 133, 140, 225 Bischoff, G. 4 Bissell, W. 173, 181 Blaisdell, T.C. 222 Blum, L. 135, 218 Bohlen, C. 129 Boris, G. 143 Borchardt, K. 68 Bosnia 15 Bourdet, C. 220

Brazil 254; and Bretton Woods 250 Brett, E.A. 249 Bretton Woods Agreement/System 3, 50, 62, 67, 68, 192, 201, 207, 241, 242, 244, 246, 248, 250–251, 252–253, 259 British pound sterling 11, 74, 234 Breuning, Chancellor 51 Brussels Treaty 132, 221 Bryan, W.J. 36 Buchheim, C. 68 Bush, G. W. 15 Camp, M. 141 Canada 131 Cartels, international 156, 158, 163, 168 Cassiers, I. 108 Center for European Studies, NYU 5 Central Intelligence Agency (CIA) 128 Chace, J. 4, 16 Chauvel, M. 131, 133 Chile 16 China 250; and Bretton Woods 254 Chirac, J. 17 Churchill, W. 1, 6, 135, 218, 222 Clayton, W. 8, 10, 11, 129, 130, 131, 175 Cleveland, H. 141 Clinton, W. 15, 212 Clesse, A. 4 Cohen, D. 26, 54 Cold War 4, 5, 6, 13, 17, 58, 143, 171, 174, 180, 182, 186 Committee for Economic Development 174 Committee on European Economic Cooperation 88, 226 Committee on International Relations 15 Common Market 9, 147

 Coordinating Committee (COCOM) 143, 182–185 Cripps, S. 136, 139, 142 Cross of Gold 36–40 Czechoslovakia 13, 17, 58 Dallek, R. 13 De Gasperi 3 De Gaulle, C. 159, 221 De Long, B. 44, 64, 69, 70, 72, 100 Denmark 76, 104, 107, 134, 142 Détente 6 Diaz-Alejandro, C. 34–35, 39 Dirigiste 9 Dobbs, M. 16 Dobney, F.J. 8 Dreze, J. 257 Dulles, J.F. 222 Easterlin, R. 30 Economic Cooperation Act 88–90, 96 Economic Cooperation Administration (ECA) 13, 14, 60, 65, 71, 73, 78, 88–89, 92–94, 95, 96, 98, 100, 102, 106, 108, 143, 175–177, 179–181, 192, 227, 235 Economic Miracle, European 31, 194, 197 Eichengreen, B. 2, 3, 5, 8, 19, 50, 63, 64, 65–66, 67, 69, 70, 72, 75, 82, 83, 87, 99, 100, 101–102, 104, 105, 106, 107 Eisenhower Administration 182–184, 186, 231 Eisenhower, D.D. 182–183 Ellwood, D.W. 14, 64 Epps, A. 4 Escobar, A. 245 Esposito, C. 73 Estonia 45 Ethnic Cleansing 15 EURATOM 147, 228, 230 European Coal and Steel Community (ECSC) 9, 141, 147, 158–159, 166, 198, 227, 229 European colonial dependencies 134–135, 192 European Commission 85, 164, 168

271 European Defense Community 147, 227–228, 229, 230 European Economic Community (EEC) 159, 165–166, 228, 230, 248 European Industrial Projects 175 European Payments Union 59, 64, 65, 66, 67, 73, 74, 75, 76, 90–93, 140, 141, 145–147, 194, 198 European Union 3, 9, 17, 54, 85, 147, 160, 198, 204, 210 FINEBEL 145 Finland 45 Fordham, B.O. 12 Foreign Assistance Act 84 Foreign Operations Administration 176 Fossedal, M. 11 Foster, W. C. 181 France 7, 8, 11, 17, 27, 35, 37, 38, 43, 48, 61, 62, 64, 65, 68, 69, 72, 75, 79, 92, 104–105, 106, 108, 127–128, 129; and Bretton Woods 250; farmers 70, 229; FINEBEL 145; Foreign Ministry 133, 134, 137; France–US policy 73; and Indochina 237–238; Modernization and Equipment Plan 136, 138, 142, 144, 199–200, 221, 224, 226; reparations 223; SGCI 137, 138; USTA&P 178 Frankel, J. 41 Friedman, B. 241 Friedman, M. 26, 53 Geiger, T. 222 General Agreement on Tariffs and Trade (GATT) 8, 74, 141, 192, 201, 250, 251, 258 Georgia 45 German Communist Party 45 Germany 3, 7, 9, 17, 27, 35, 43, 48, 58, 65, 69; hoarding goods 70, 72, 76, 99, 104, 127, 128, 129, 132, 142, 199, 223–224; Ministry of Economics 66, 76; pre-WWII 172, 200, 217–218, 220; and Soviet containment 221, 228 Government Aid and Relief in Occupied Areas (GARIOA) 59, 69, 99, 109–110

272 Great Britain (United Kingdom) 7, 11, 16, 27, 37, 38, 43, 48, 61, 62, 68, 92, 104–105, 106, 108, 131, 134, 139, 142, 158, 160, 199, 220, 226, 254; Bretton Woods 247, 250; rationing 71; tariffs 74–75; treasury 66 Greece 6, 60, 104, 129, 134, 141, 142 Greek Civil War 6 Great Depression 3, 25, 28, 39, 43, 50 Gross Domestic Product (GDP) 27–31, 35, 41, 44, 67, 194–195, 209; France 28; Great Britain 30; Italy 29; West Germany 27, 67; US transfers as share of 46 Gross National Product (GNP) 60, 62, 63, 64, 66, 72, 76, 87, 101–103, 234, 239, 246 Guindey, G. 141 Gulf War 16 Gutt-operation 107 Hall, P. 51 Harriman, A. 13, 132, 136, 138, 144, 173, 174 Harrod-Domar growth models 62 Hayek, F. 42 Hemsing, A. 14 Hickenlooper, B. 131 Hirst, P. 256 Hitler, A. 13; attack on Russia 45 Hobson, J. 32, 39 Hoffman, P. 4, 13, 42, 78, 173, 174–175, 177, 179–180 Hogan, M. J. 5, 7, 8, 10, 12, 19, 64, 87, 129, 245, 247 Hungary 17, 58 Hyde, H. 15 Iceland 141, 142 Import-Export Bank 110 India 131, 251–252, 254; Bretton Woods 250; staged liberalization 256 inflation 47, 48, 50, 51–52, 53 International Monetary Fund 65, 192, 201, 204, 206–209, 238, 246, 250, 253; 1997 Meetings 255 International Trade (effect of on Europe) 41, 156–157, 162–163, 166–169

    International Trade Organization (ITO) 157, 163 Iran (Revolution) 52, 129 Iraq 2, 3, 15, 17 Ireland 14, 60, 135, 142, 143 Iron Curtain 1, 6, 32–33, 222 Italy 6, 7, 8, 11, 35, 37, 38, 43, 48, 62, 69; Italy-US policy 73, 76, 104, 107, 128, 132, 143, 145, 178, 224 Japan (trade competition) 164 Jdanov commitment 133 Johnson, M. 16 Kagan, R. 21 Kennan, G. 6, 10, 11, 13, 129, 140, 222, 226 Keynes, J.M. 33, 43, 62, 243, 246–247, 258 Keynesianism 17, 43, 44–46, 50, 62–63, 167, 242, 246, 258 Kim Il-Sung 45 Kindleberger, C. 33, 48, 87, 222 Kojeve, A. 137 Kok, W. 84 Korea 6, 14, 45, 129 Korean War 38, 142, 199, 240 Kosovo 15 Kreisky, B. 15 Krugman, P. 30 Kruschev, N. 32 Labouisse, H. 133 Lacina, F. 15 Lakoff, G. 16 Lambert, R. 21 Latvia 45 Leffler, M.P. 7, 11 Lend Lease 135, 234 Lenin, V. 32, 39 Lippman, W. 140, 222 Lithuania 45 Lodge, H.C. 130 Loth, W. 6 Lundestad, G. 245 Luxembourg 95, 134, 142, 145 Maier, C. 4, 19, 48, 64, 65, 86, 129, 244; ‘politics of productivity’ 64, 244

 Malagodi, G. 141 Mao Tse-tung 45 Marjolin, R. 129, 133, 134, 142, 144 Marshall, G. C. 1, 8, 10, 12, 13, 84, 127, 128–129, 135, 173, 191, 202, 212, 223–224, 231 Marshall Plan: anniversaries 4, 5, 58–59; Foreword 1, 11, 191, 224, 235; speech, Harvard University Massigli, R. 132, 137 Mee, C. 4, 11, 12, 13, 14, 99, 100 Melandri, P. 128–129 Mergers and Acquisitions 165–166 Middle East 15, 17 Mikhail, B. 11 Milward, A. 2, 5, 14, 38, 39, 50, 86–87, 99, 109, 129, 134 Mitterand, F. 167 Mollett, G. 230–231 Moldova 45 Monnet, J. 3, 127, 130, 134, 136, 139, 141, 144, 157, 229 Moore, B. T. 129 Morgenthau, H. 246 Mutual Defense Assistance Act 89, 110, 179 Mutual Security Act 89–90, 237 Mutual Security Agency 60, 77, 89, 110, 141, 143, 147, 181, 186 National Association of Manufacturers (NAM) 173, 176 National Foreign Trade Council 173, 176 National Security Council 128 Nestle 155 ‘Net inflow of funds’ 82 Netherlands 61, 62, 63, 68, 69, 76, 79, 92, 104, 107, 108, 134, 142, 145, 178 New Deal 7, 67, 173, 250 New Zealand 131 Nineteen Eighty-Four 39 North Atlantic Treaty Organization (NATO) 1, 3, 8, 14, 16, 17, 45, 50, 140, 142, 143–144, 147, 179, 183, 198, 210, 228, 236, 239–240 Norway 76, 104, 107, 134, 141, 142, 178 NSC–68 45

273 Overseas Investment Guaranties (OIG) 177–178 OPEC 52 Organization for Economic Cooperation and Dependency (OECD) 194, 201, 237, 241, 253 Organization for European Economic Cooperation 13, 59, 66, 72, 73; OEEC Council 142, 145, 146, 158; participant countries 134–135, 195–198, 227–228; Trade Liberalization Program 74, 75, 76, 77, 86, 88–89, 128, 136, 137, 139–141, 144–145, 147, 221, 226, 235, 237 Pakistan 131 Pax Americana 243, 246, 249 Pelinka, A. 4 Peron, J. 34, 39 Pinochet, A 16 Plowden, Lord 139, 144 Pogue, F.C. 12 Poland 17, 45, 58 Portugal 91, 134 Politics of Productivity 64, 244 Porter, P. 222 Quai d’Orsay 131, 133, 136–137 Queuille, H. 136 Raw materials 68, 86, 236 Red Army 6, 32 Reed, P.D. 173, 174 Reichlin, L. 75 Roberts, G. 6 Romer, D. 41 Roll, E.P. 141 Roosevelt Administration 174 Rossi, E. 219 Rostow, W. 222 Rumsfeld, D. 17 Russia (USSR) 2, 6, 7, 8, 15, 17, 33 45, 58, 128, 129; Bretton Woods 250; fishing 11; nuclear weapons 33; post-Soviet 257; space program 33 Rwandan Genocide 17 Ryan, H. B. 6

274

   

Sala-i-Martin, X 31 Sanford, W. 177 Santer, J. 85 Schain, M. 5 Schuman, R. 1, 3, 133, 134, 138, 140, 227, 230 Sen, A. 257 Serbia 16 Servan-Schreiber, J. 162 Shroder, H.J. 128 Shuker, S.A. 86 South Africa 131; and Bretton Woods 250 Spaak, P.H. 157, 230 Spierenburg, D. 141 Spinelli, A. 219 Stalin, J. 2, 6, 13, 15, 31–33, 45, 220 Stiefel, D. 4 Stikker, D. 146 Stoppani, P. 141 Summers, L.H. 44 Supreme Allied Commander, Europe 45–46 Sweden 43, 107, 134, 142, 143 Sweezy, P. 32 Switzerland 91, 92, 134, 143

Truman, H. 10, 11, 13, 142, 175, 192, 245

tariffs 74, 229 Taylor, P. J. 6 Thatcher, M. 167 Thompson, P. 256 Tiananmen 16 Turkey 129, 134, 141, 142 Treaty of Rome 74, 163, 185 Trieste 142 Triffin, R. 248–249 Truman Administration 1, 5, 7, 10, 12, 13, 16, 60, 132, 141, 144, 174–175, 179–180, 186, 222, 226–227; Truman Doctrine 223–224

Washington Consensus 20 Washington, G. (Farewell Address) 12 Wexler, I 5 Whelan, B. 4, 14 White, H. 246–247 White, T. 128 Williamson, J. 248 Wormser, O. 143 World Bank 8, 192, 201, 204, 206, 208–209, 225, 238, 246, 253 World War I 9, 32 World War II 19, 25, 32

unemployment (German) 47, 54 Unilever 155 United Nations 89, 222; Palestine Refugee Aid Act 89; Relief and Rehabilitation Administration (UNRRA) 109–110, 238–239 United States Congress 11, 15, 59, 62, 67, 131, 133, 142, 224, 226, 250 United States Technical Assistance and Productivity Program (USTA&P) 175, 177–178, 181 United States Treasury 66 United States Department of State 13, 72, 84, 129, 140, 181, 222, 225–226; Europe Bureau 140, 141; ‘Free Traders’ 225; Policy and Planning Staff 10, 129, 222, 224 Uzan, M. 2, 63, 82, 83, 87, 100, 101–102, 104, 105, 106, 107 Van Cleveland, H. 129, 222 Van Zeeland, P. 135 Vandenberg (Senator) 12, 13, 175 Vietnam 16, 251

Yalta Conference 3, 6