The Marshall Plan in the 1950s-1960s - Report Example

The Marshall Plan in the 1950s-1960s World War II left a Europe that was reeling with devastation and utter ruin. Many of Europe’s great cities werethe most badly hit by sustained aerial bombings during the war with millions of people losing their homes and hunger looming heavily ahead as fields planted with crops and industrial centres were among the casualties of the war. Buildings, docks, highways, and other infrastructures and superstructures lay in ruin and rendered useless. Yet, at the other side of the Atlantic, a major player in the war began to emerge as an economic power witnessing its fastest economic prosperity yet at the height of the war years. The United States of America grew exponentially during this period spurred by the manufacturing sector which was kept busy churning out weapons, bullets and other implements of war. It was against this backdrop that George Marshall, then newly appointed Secretary of State by US President Truman, came up with an economic recovery proposal plan for Europe aptly called the Marshall Plan. Many authors attached varied reasons for its adoption ranging from humanitarian to the outright Machiavellian end of manipulating European economy. In the end, what is important is that Western Europe made a definitive recovery from its economic slump after WWII and was well on its path to economic progress. I Motives, Actual and Perceived, of the Marshall Plan Although the USA had claimed the humanitarian reason of European recovery as the primary justification for the adoption of the multi-billion dollar Marshall Plan, various writers have proposed their own perspectives of its actual motives. Alan Milward for example, does not accept the idea that the European economy was in grave danger in 1947. On the contrary, he said that the post war years, especially 1947, did not show any symptoms of the so-called European economic crisis upon which the Marshall Plan was justified on. He argued that there was no indication that any group of people were starving or in danger of starvation or any bank crashes anywhere in the continent and on the other hand, “most European countries were still in a period of rising output and expanding foreign trade.” 1 Eichengreen partially adopted Milward’s position as to the lack of production crisis and the European infrastructure repair already being undertaken even before the Plan was adopted except that he acknowledged that the Marshall Plan played a crucial role in averting an impending crisis in Europe. 2 Other views point to the anti-communism and anti-Soviet American policies as largely behind the adoption of the Marshall Plan. The European multi-billion aid was said to target the isolation of the Soviet bloc and make communism a non-alternative for western European countries - a sort of a containment plan. Still others see the Marshall Plan as a way to ward off an impending economic crisis in the USA itself. A European economy grinding to a halt was seen to hasten the recession already predicted and looming in the horizon as anticipated by some American economists. The end of WWII was anticipated to bring a US overcapacity of $14 billion a year, which the USA must find markets for overseas. This was a scenario that was accepted and assumed by Britain, Russia and France when they convened in June 1947. The US itself must therefore take the initiative to finance a trade masquerading as a humanitarian aid to Europe. 3 Author Andrew Carew surmised that there was a deeper rationale for the Marshall Plan, deeper than the containment and recession angles. He suspected that the Plan was to “reconstruct international capitalism in a way acceptable to America.” Greater than the idea of restraining the rise of Communism, which at that time was not as much of a threat as it eventually came, was the seductive notion of manipulating world economics to fully use it to one’s advantage. Thus, the question was not whether “capitalism would survive, but whether it would survive in the form most beneficial to United States business interests.” What the US feared most, according to this perspective, was economic autarky that could take it out of the trading loop as well as its exports in bilateral and barter agreements. The Marshall Plan was therefore, a grand scheme of the US foreign policy and a surreptitious ploy to influence European political economy. 4 Whether European economy was collapsing or not in 1947, most authors agreed that it was not at its soundest. Even Milward observed that there was a “severe fall in gold and foreign exchange reserves in some countries associated with acute balance of payments difficulties,” a condition that affected the convertibility of sterling into dollars and had the potential of collapsing the Bretton Woods System, one of the pillars of the capitalist world. 5 The Bretton Woods system was a monetary management system, which was established by major industrial states such as the US and the UK, among others, at the height of WWII in Bretton Woods, New Hampshire to regulate commercial and financial transactions between and among its participants. It established both the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). The system established the rules of fixing the countries respective exchange rates to the + or – 1% band, pegging their currencies to gold and making the US dollar the reserve currency. To keep within the allowable band of exchange rates, countries had to either buy or sell US dollars to stabilize their respective currency exchange rates. 6 Some political observers admitted that the European condition immediately after WWII was indeed dire. Author Martin Schain pointed out, for example, that France had increased inflation problems the resolution of which was nowhere in sight starting 1946, which was aggravated by the harsh winter that took place between 1947 and 1848. Both industrial and agricultural production did not increase from pre-war levels and western European countries did not have the dollars needed to import basic necessities from the US. Although western Europeans would not admit it, Schain argued, it was clear that even the $9 billion in aid that the US was already siphoning off to Europe was not sufficient to lift the European economy off the ground. 7 The Marshall Plan was conceived, according to Schain, to stave off European vulnerability to the idea of communism brought about by economic difficulties. Since it was a rationale that would not be ideologically seductive to Western Europe, the idea of European integration was instead used to underpin the massive aid plan. European integration entailed Germany rehabilitation and resolution of the French security concerns about Germany’s recovery. Schain also believed that the Americans were not motivated by political ends alone in adopting the Marshall Plan but also by economic goals. Like Milward, Schain believes, although in a less calculating manner, that the US wanted the market secure for its products by helping Europe get back on its feet. 8 II The Effect of the Marshall Plan on the European Economy in the 1950s, 1960s WWII left Europe and Japan economically devastated, with their international reserves far from ideal. Their industrial capacity was also severely affected along with their export and import capabilities. The US, on the other hand, emerged from the war financially and economically better than ever before possessing 60% of the world’s gold reserves, with many of its allies heavily indebted to it. It had a total average surplus of $8 billion in the post-war years in goods and services, with gold stocks increasing despite an annual average of $5 billion in grants whilst foreign countries were losing dollar reserves. 9 The Marshall Plan began with an inauspicious speech by Secretary Marshall before the Harvard graduating class of 1947 in June 5 of that year. It was a very general offer of economic help to Europe but ten months later, the Foreign Assistance Act of 1948 emerged and became the basis of the Economic Cooperation Agency or ECA, which administered the Plan known as the European Recovery Programme or ERP. The US poured in $13 billion dollars from 1949 to 1952 to sixteen European countries that signed bilateral agreements with it. In 1951, ECA was substituted by the Mutual Security Agency, eventually renamed again in 1954 to Foreign Operations Agency or FOA and again to International Development Aid (IDA) in 1961. 10 The Marshall Plan was offered to all European countries including the USSR and countries under its occupation, but the former refused to participate in the Plan bringing along some eastern European countries allied to it. The European countries that participated in the Plan were the following: Austria; Belgium; Denmark; France; Greece; Iceland; Ireland; Italy; Luxembourg; the Netherlands; Norway; Portugal; Sweden; Switzerland; Turkey; the UK, and; West Germany. 11 Thirteen Member States of the European Union had been recipients of aid under the Marshall Plan. Spain, on the other hand, was excluded from the aid because of its then fascist Franco government – the very same reason it became only an UE Member State in 1986. Finland did not voluntarily apply for fear that this would jeopardise its neutral relation with the USSR. It was in the early 1950s that continental Europe began to regain economically. This development was attributed to: sustained high level of demand; growth of labour productivity due to increase in labour opportunities; growing investments; strengthening of balance of payments engendering growth in the export sector; trade barriers reduction, and; the exploitation of the productivity gap between the US and Europe. It was also observed that world reserves of gold slightly increased in 1959 from its number in 1949, with distribution ratio becoming more even between the US and the rest of the world with the US owning less from 26.0% in 1949 to 22.5% in 1959 and the world from 19.6% in 1949 to 34.8% in 1959. 12 Table 1 shows the application of the Marshall Aid Plan in millions of dollars to each of the sixteen countries that participated. The UK was the largest recipient, followed by France, Germany, Italy, and the Netherlands. However, in the early 1950s, UK’s performance was considered lacklustre, as deflationary measures were often resorted to advance its external position. Its investment ratio was also low vis-à-vis other continental European countries. 13 This was not really surprising considering that the British Treasury was one of the hardest hit in the post-war scenario, with its dollar reserves dwindling by as fast as US$176,000 a week forcing it to use the last of its reserves before the Marshall Plan rescued it. 14 Schain outlined the Marshall Plan objectives and their relative success in his book The Marshall Plan: Fifty Years Later. According to him, the Plan had 5 objectives: the increase of production; the expansion of foreign trade; the improvement of internal financial stability; the development of European economic cooperation, and; the rearming of Europe within a developing economy structure. Schain believes that all of these goals had either been fully or partially met. Production, for example, in the industrial and agricultural sectors increased by as much as 35% and 16%, respectively. In addition, the macroeconomic crises that permeated in the recipient countries’ economies in the post-war era were gone by the end of 1951, which corresponded to the expiration of the Plan funding. Thus, inflation, unemployment and budget deficits were lessened. Moreover, the North Atlantic Treaty Organisation (NATO) was also created, albeit after 1951, which ensured the security the collective defence of Europe and its Member States. The goal foreign trade expansion was partially fulfilled with the increased trade with the US although trade with Eastern Europe remained unstable at that time.15 Milward is skeptical, however. Although he admits the rapid growth and recovery of Europe in the 1950s and 1960s, referring to 1948 as “the year of social stability and undisputed economic advance in Western Europe,” he suggests that the dramatic political and economic changes are attributable to “part of the course of internal political development in the European countries concerned,” rather than purely due to the Marshall aid. Milward points out, for example, Table 1 Marshall Plan Allotments to European Countries (in millions of USD) 16 that had Great Britain refused the Marshall Aid, as did the Soviet, and used its import surplus for the year 1948/49, it would still have about £270 million reserves at the end of that year. 17 III Conclusion There are many theories and school of thoughts about the significance of the Marshall Plan to the recovery of Europe after WWII. There are many theories as well as to the motives of the US in offering it to Europe in the first place. These theories ranged from political, economic and military reasons. However, it would not be surprising if indeed the US had adopted the Plan other than for humanitarian reasons. It is not far-fetched, but only natural, for a state to consider its own interests first before considering those outside of its borders. After all, its primary obligation is the well-being and security of its citizens and its territory. In addition, countries were not obligated to accept it. As a matter of fact, several countries, such as the USSR, Finland and other Eastern European countries opted out of the Plan. As Milward said, the rapid growth and recovery of Western Europe beginning 1948 was undisputed. Whether this was directly attributable to the Marshall Plan or whether the massive aid poured by the US through the Marshall Plan was only one of the few factors that helped in the recovery of these countries are still subject to debates and disputes. To say that the Marshall Plan alone caused the economic recovery of these countries is to deprive them of their individual capabilities considering that at one time or another some of these countries had economies even greater than that of the US. It would be therefore safe to say that although the Marshall Plan initiated and greatly helped the economic recovery of Europe, it was the manner with which the aid was used which really determined its success. References: Argy, Victor. The Postwar International Money Crisis: An Analysis, Vol. 93. Oxon: Taylor & Francis, 2006. Carew, Anthony. Labour Under The Marshall Plan: The Politics Of Productivity and the Marketing of Management Science. Wayne State University Press, 1987. Cini, Michelle. ‘From the Marshall Plan to EEC: Direct and Indirect Influences,’ The Marshall Plan: Fifty Years After by Schain, Martin. New York & Hampshire: Palgrave Macmillan, 2001. de Long, Bradford J. & Summers, Lawrence. Equipment Investment and Economic Growth. 1995. Edwards, Sebastian. Openness, Trade Liberalization, and Growth in Developing Countries. Journal of Economic Literature, Vol. 31, Issue 3, 1993. Eichengreen, Barry. ‘The Bretton Woods System: Paradise Lost?’ The Gold Standard in Theory and History by Barry Eichengreen and Marc Flandreau. Gardner, Roy. ‘The Marshall Plan Fifty Years Later: Three What-is and a When,’ The Marshall Plan: Fifty Years After by Schain, Martin. New York & Hampshire: Palgrave Macmillan, 2001. Hogan, Michael. The Marshall Plan: America, Britain, and the Reconstruction of Western Europe, 1947-1952. Cambridge University Press, 1989. Milward, Alan. The Reconstruction of Western Europe, 1945-51, Vol. 391. University of California Press, 1984. Reeymen, Dafne. ‘The Economic Effects of the Marshall Plan,’ The Marshall Plan Today: Model And Metaphor by Agnew, John & Entrikin, J. Nicholas. Routledge, 2004. Read More