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Marshall Plan
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The Marshall Plan (from its enactment, officially the European Recovery Program, ERP) was the primary plan of the United States for rebuilding and creating a stronger foundation for the countries of Western Europe, and repelling communism after World War II.
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The Marshall Plan (from its enactment, officially the European Recovery Program, ERP) was the primary plan of the United States for rebuilding and creating a stronger foundation for the countries of Western Europe, and repelling communism after World War II. The initiative was named for Secretary of State George Marshall and was largely the creation of State Department officials, especially William L. Clayton and George F. Kennan.
The reconstruction plan, developed at a meeting of the participating European states, was established on July 12, 1947. It offered the same aid to the USSR and its allies, but they did not accept it. The plan was in operation for four years beginning in July 1947. During that period some USD 13 billion in economic and technical assistance were given to help the recovery of the European countries that had joined in the Organization for European Economic Co-operation.
By the time the plan had come to completion, the economy of every participant state, with the exception of Germany, had grown well past pre-war levels. Over the next two decades, many regions of Western Europe would enjoy unprecedented growth and prosperity. The Marshall Plan has also long been seen as one of the first elements of European integration, as it erased tariff trade barriers and set up institutions to coordinate the economy on a continental level.
Wartime European concerns
European war destruction
Much of Europe was devastated with millions killed and wounded. Fighting had occurred throughout much of the continent, encompassing an area far larger than that in World War I. Sustained aerial bombardment meant that most major cities had been badly damaged, with industrial production especially hard-hit. Many of the continent's greatest cities, including Warsaw and Berlin, lay in ruins. Others, such as London and Rotterdam, had been severely damaged. The region's economic structure was ruined, and millions had been made homeless. Although the Dutch famine of 1944 had abated with an influx of aid, the general devastation of agriculture had led to conditions of starvation in several parts of the continent, which was to be exacerbated by the particularly harsh winter of 1946–1947 in northwestern Europe. Especially damaged was transportation infrastructure, as railways, bridges, and roads had all been heavily targeted by air strikes, while much merchant shipping had been sunk. Although most small towns and villages in Western Europe had not suffered as much damage, the destruction of transportation left them economically isolated. None of these problems could be easily remedied, as most nations engaged in the war had exhausted their treasuries in its execution.
After World War I, the European economy had also been greatly damaged, and a deep recession lasting well into the 1920s had led to instability and a general global downturn. The United States, despite a resurgence of isolationism, had attempted to promote European growth, mainly through partnerships with the major American banks. When Germany was unable to pay its reparations, the Americans also intervened by extending a large loan to Germany, a debt the Americans were left with when the US joined the war in 1941.
The only major power whose infrastructure had not been significantly harmed in World War II was the United States. It had entered the war later than most European countries, and had only suffered limited damage to its own territory. American gold reserves were still intact as was its massive agricultural and manufacturing base, the country enjoying a robust economy. The war years had seen the fastest period of economic growth in the nation's history, as American factories supported both its own war effort and that of its allies. After the war, these plants quickly retooled to produce consumer goods, and the scarcity of the war years was replaced by a boom in consumer spending. The long term health of the economy was dependent on trade, however, as continued prosperity would require markets to export these goods. Marshall Plan aid would largely be used by the Europeans to buy manufactured goods and raw materials from the United States.
Wartime conferences
The Allies had different ideas regarding post-war Europe, The Soviet Union had sustained immense damage by the German invasion was unprecedented both in terms of death toll (est. 27 million) and the extent of destruction, and had historically suffered greatly from invasions from the West. Accordingly, Moscow was committed to ensuring that the new order in Europe would guarantee Soviet security for the long term and sought to eliminate the chance of a hostile government reappearing along the USSR's western border by controlling the internal affairs of these countries. At the Yalta Conference in February 1945, the Allies attempted to define the framework for a post-war settlement in Europe but failed to reach a firm consensus. After Germany's surrender, at the Potsdam Conference, starting in late July, serious differences emerged over the future development of Germany and Eastern Europe.
Morgenthau Plan
In occupied Germany, the US and the Soviet Union established zones of occupation and a loose framework for four-power control with the fading French and British. Having lost 20 million people in the war, the Soviet Union was determined to destroy Germany's capacity for another war, and pushed for such in wartime conferences. The resulting Morgenthau plan policy foresaw returning Germany to a pastoral state without heavy industry. The Plan's basic concept was that Germany's economy under the "level of industry" plans would be reduced to 50% of its 1938 capacity, so that a militarized Germany could not re-emerge in the future. The Soviets and French were in favor of the plans, while the British, who were occupying the region least capable of providing food for its population, were opposed. A closely related, but rejected, proposal by French bureaucrat Jean Monnet, the Monnet plan, would have given France control over the German coal areas of the Ruhr and Saar and used these resources to bring France to 150% of pre-war industrial production. United States Joint Chiefs of Staff ("JCS") directive 1067 embodied the Morgenthau Plan's goals, but proved impractical because it prohibited actions necessary for the occupation to function, banned personal interactions between Germans and Americans Administration of occupied Germany was coordinated by the Four Power Allied Control Council (ACC). The first German industrial plan, also known as the "level of industry agreement", was signed in early 1946 and stated that German heavy industry was to be reduced to 50% of its 1938 levels by the destruction of 1,500 listed manufacturing plants
Initial post-war events
Creation of the Eastern Bloc
Following the Allied victory in May, the Soviets effectively occupied Eastern Europe. During the final stages of the war, the Soviet Union began the creation of the Eastern Bloc by directly annexed several countries as Soviet Socialist Republics that were originally effectively ceded to it by Nazi Germany in the Molotov-Ribbentrop Pact. These included Eastern Poland (incorporated into two different SSRs), Latvia (became Latvia SSR), Estonia (became Estonian SSR), Lithuania (became Lithuania SSR), part of eastern Finland (became Karelo-Finnish SSR) and northern Romania (became the Moldavian SSR). Other states were converted into Soviet Satellite states, such as the People's Republic of Poland, the People's Republic of Hungary, the Czechoslovak Socialist Republic, the People's Republic of Romania, the People's Republic of Albania, and later East Germany from the Soviet zone of German occupation. The mineral-rich industrial centers Saar and Silesia were removed from Germany, a number of civilian industries were destroyed in order to limit production, and the Ruhr Area was in danger of being removed as late as 1947.
Morgenthau Plan problems
The zone of Germany occupied by the Soviets produced much of Germany's food supply, while the British and American zones had to rely on food imports even before the war. In addition, Soviet leader Joseph Stalin ordered the incorporation of part of eastern Poland into the Soviet Union, while compensating what remained of Poland by ceding to it a portion a large portion of Germany that lay east of the Oder-Neisse line and contained much of Germany's fertile land.
The shortage of food was one of the most acute problems. Before the war, Western Europe had depended on the large food surpluses of Eastern Europe, but these routes were largely cut off by the Iron Curtain. The situation was especially bad in Germany where according to Alan S. Milward in 1946–47 the average kilocalorie intake per day was only 1,800, an amount insufficient for long-term health. Other sources state that the kilocalorie intake in those years varied between as low as 1,000 and 1,500 (see Rheinwiesenlager). William Clayton reported to Washington that "millions of people are slowly starving." As important for the overall economy was the shortage of coal, aggravated by the cold winter of 1946–47. A series of cold winters aggravated an already poor situation. The European economies did not seem to be growing as high unemployment and food shortages led to strikes and unrest in several nations. In 1947 the European economies were still well below their pre-war levels and were showing few signs of growth. Agricultural production was 83% of 1938 levels, industrial production was 88%, and exports only 59%. In Germany, homes went unheated and hundreds froze to death. In the United Kingdom, the situation was not as severe, but domestic demand meant that industrial production came to a halt. Germany received many offers from Western European nations to trade food for desperately needed coal and steel. Neither the Italians nor the Dutch could sell the vegetables that they had previously sold in Germany, with the consequence that the Dutch had to destroy considerable proportions of their crop. Denmark offered 150 tons of lard a month; Turkey offered hazelnuts; Norway offered fish and fish oil; Sweden offered considerable amounts of fats. The Allies were however not willing to let the Germans trade.
In addition, the power and popularity of indigenous communist parties in several Western European states worried the United States. In both France and Italy, the poverty of the postwar era had provided fuel for their communist parties, which had also played central roles in the resistance movements of the war. These parties had seen significant electoral success in the postwar elections, with the communists becoming the largest single party in France. Though today most historians feel the threat of France and Italy falling to the communists was remote, it was regarded as a very real possibility by American policy makers at the time. The American government of Harry Truman began to believe this possibility in 1946, notably with Churchill's Iron Curtain speech, given in Truman's presence. In their minds, the United States needed to adopt a definite position on the world scene or fear losing credibility. The emerging doctrine of containment argued that the United States needed to substantially aid non-communist countries to stop the spread of Soviet influence. There was also some hope that the Eastern European nations would join the plan, and thus be pulled out of the emerging Soviet bloc.
Abandoning the Morgenthau Plan
In a series of reports called The President's Economic Mission to Germany and Austria, commissioned by Harry S. Truman, former President Herbert Hoover presented a very critical view of the result of current occupation policies in Germany. In the reports Hoover provided proposals for a fundamental change of occupation policy. Hoover argued for a change in occupation policy, amongst other things stating"There is the illusion that the New Germany left after the annexations can be reduced to a 'pastoral state'. It cannot be done unless we exterminate or move 25,000,000 people out of it." In addition, General Lucius D. Clay asked industrialist Lewis H. Brown to inspect postwar Germany and draft "A Report on Germany" in 1947, containing basic facts relating to the problems in Germany with recommendations for reconstruction. Under Secretary of State Dean Acheson had made a major speech on the issue, which had mostly been ignored, and Vice President Alben W. Barkley had also raised the idea. The Great Depression had also shown the dangers of tariffs and protectionism, creating a strong belief in the need for free trade and European economic integration. Because of the increasing costs of food imports to avoid mass-starvation in Germany, and with the danger of losing the entire nation to communism, the U.S. government abandoned the Morgenthau plan in September 1946 with Secretaty of State James F. Byrnes' speech Restatement of Policy on Germany.
Comporting with the view of United States occupation zone commander General Lucius D. Clay, the Joint Chiefs declared that the "complete revival of Germany industry, particularly coal mining" was now of "primary importance" to American security. In January 1947, Truman appointed General George Marshall as Secretary of State, scrapped JCS 1067 and supplanted it with JCS 1779, which decreed that "an orderly and prosperous Europe requires the economic contributions of a stable and productive Germany." The restrictions placed on German heavy industry production were partly ameliorated, permitted steel production levels were raised from 25% of pre-war capacity to a new limit placed at 50% of pre-war capacity.
The United States was already spending a great deal to help Europe recover. An estimated $9 billion was spent during the period from 1945 to 1947. Much of this aid was indirect, coming in the form of continued lend-lease agreements, and through the many efforts of American troops to restore infrastructure and help refugees. A number of bilateral aid agreements had been signed, perhaps the most important of which was the Truman Doctrine's pledge to provide military assistance to Greece and Turkey. The infant United Nations also launched a series of humanitarian and relief efforts almost wholly funded by the United States. These efforts had important effects, but they lacked any central organization and planning, and failed to meet many of Europe's more fundamental needs. Already in 1943, the United Nations Relief and Rehabilitation Administration (UNRRA) was founded to provide relief to areas liberated from Axis powers after World War II. UNRRA provided billions of dollars of rehabilitation aid, and helped about 8 million refugees. It ceased operations in the DP camps of Europe in 1947, in anticipation of the American-directed Marshall Plan. Many of its functions were transferred to several UN agencies.
The Soviet zone
At the direction of Stalin, in the Soviet-occupied zone of Germany, Soviet authorities forcibly unified the Communist Party of Germany and Social Democratic Party in the Socialist Unity Party ("SED"), claiming at the time that it would not have a Marxist-Leninist or Soviet orientation. The SED won a first narrow election victory in Soviet-zone elections in 1946, though Soviet authorities oppressed political opponents and even prevented many competing parties from participating in rural areas. In the more open local elections across the Soviet zone in October of 1946, the SED was thoroughly rejected in favor of the Social Democrats, which gained two and a half time more votes than the SED. Thereafter, the Soviets implemented restrictive laws, such as a tight system of censorship restricting access to print and electronic media, an elaborate political police apparatus that kept the population under close surveillance, punishment of communist opponents by the Soviet SMERSH secret police and the institution of a compulsory Marxist-Leninist school curricula that resulted in many professors and students fleeing to the west. In a June 1945 meeting, Stalin told German communist leaders in the Soviet zone that he expected to slowly undermine the British position within their occupation zone, that the United States would withdraw within a year or two and that nothing then would stand in the way of a united Germany under communist control within the Soviet orbit.
Soviet negotiations
After Marshall's appointment in January 1947, administration officials met with Soviet Foreign Minister Vyacheslav Molotov and others to press for an economically self-sufficient Germany, including a detailed accounting of the industrial plants, good and infrastructure already removed by the Soviets in their occupied zone. During the Moscow session of the Council of Foreign Ministers in March and April 1947, it became clear that decisions on on a future central government and an eventual final peace treaty with a re-formed Germany depended on solving economic issues. The United States, Britain and France sought a common basis for reconstruction and long-term demilitarization. The Soviets took a punitive approach, looked forward to delaying rather than accelerating economic rehabilitation, demanded unconditional fulfillment of all prior reparation claims and wanted progress toward nationwide socioeconomic transformation.
Marshall and British Foreign Secretary Ernest Bevin wanted accords on food deliveries to their zones, higher levels of industry, joint management of export and imports, priority for both payment of imports and maintenance of a minimum living standard, termination of production equipment removals, limitation of Soviet reparation claims and free movement of people, goods, and ideas across zonal borders. They pushed for a German economy under quadripartite control, including the Soviet zone and the Ruhr regime. After six weeks of negotiations, Molotov rejected all of these requests. He blamed the British and Americans for having violated the Potsdam obligations for economic unity by merging their zones.
Molotov also rejected the counter-offer to scrap the British-American "Bizonia" and to include the Soviet zone within the newly constructed Germany. Marshall and Bevin proposed that the western powers would agree to permit the Soviets to take reparations from current German production (contrary to Potsdam agreements) if the Soviets would accept the higher level of industry, allowing those higher industrial levels to essentially pay for the additional reparations, along with political unity under a democratic government with guarantees of human rights and fundamental freedoms. Molotov was prepared to begin to discuss the proposal only if "decartelization" eliminating private ownership of industry occurred, land reforms were enacted, "economic disarmament" occurred, and all "other" demands allegedly agreed upon at Potsdam would be fulfilled before Soviet troop withdrawals, which essentially meant that no compromise would be made on levels of industry or reparations.
Thereafter, the Moscow talks were adjourned. Marshall was particularly discouraged after personally meeting with Stalin to explain that the United States could not possibly abandon its position on Germany, while Stalin expressed little interest in a solution to German economic problems.
The speech
After the adjournment of the Moscow conference following six weeks of failed discussions with the Soviets regarding a potential German reconstruction, the United States concluded that a solution could not wait any longer. In addition, earlier public discussions of the need for reconstruction had largely been ignored, as it was not clear that it was establishing official administration policy. It was decided that all doubt must be removed by a major address by Secretary of State George Marshall. Marshall gave the address to the graduating class of Harvard University on June 5, 1947. Standing on the steps of Memorial Church in Harvard Yard, he offered American aid to promote European recovery and reconstruction. Marshall outlined the US government's preparedness to contribute to European recovery. "It is logical," said Marshall, "that the United States should do whatever it is able to do to assist in the return of normal economic health to the world, without which there can be no political stability and no assured peace. Our policy is not directed against any country, but against hunger, poverty, desperation and chaos. Any government that is willing to assist in recovery will find full co-operation on the part of the U.S.A." Marshall was convinced that economic stability would provide political stability in Europe. He offered aid, but the European countries had to organise the programme themselves.
The speech, written by Charles Bohlen, contained virtually no details and no numbers. The most important element of the speech was the call for the Europeans to meet and create their own plan for rebuilding Europe, and that the United States would then fund this plan. The administration felt that the plan would likely be unpopular among many Americans, and the speech was mainly directed at a European audience. In an attempt to keep the speech out of American papers journalists were not contacted, and on the same day Truman called a press conference to take away headlines. By contrast Acheson was dispatched to contact the European media, especially the British media, and the speech was read in its entirety on the BBC.
Rejection by the Soviets
British Foreign Secretary Ernest Bevin heard Marshall's radio broadcast speech and immediately contacted French Foreign Minister Georges Bidault to begin preparing a quick European response to (and acceptance of) the offer. The two agreed that it would be necessary to invite the Soviets as the other major allied power. Marshall's speech had explicitly included an invitation to the Soviets, feeling that excluding them would have been too clear a sign of distrust. State Department officials, however, knew that Stalin would almost certainly not participate, and that any plan that would send large amounts of aid to the Soviets was unlikely to be approved by Congress.
Initial reactions
While the Soviet ambassador in Washington saw the Plan as creating an anti-Soviet bloc, Stalin felt that the Soviets should take the offer. Stalin directed that, in negotiations to be held in Paris regarding the aid, countries in the Eastern Block must not agree to accepting economic conditions. Stalin changed his outlook when he learned that credits would be extended only on willingness to accept economic cooperation and that Germany would also be extended aid, which he thought would retard the Soviets' ability to exercise influence in western Germany.
Initially, Stalin planned to attempt to kill, or at a minimum hamper, the Plan through destructive participation in the Paris talks regarding conditions. However, he quickly realized that this would be impossible when Molotov reported after his July 1947 arrival in Paris that no major modifications were negotiable in accepting the credit. Looming as just as large a concern was the Czechoslovak eagerness to accept the aid, as well as indications of a similar Polish attitude. Stalin suspected a possibility that these Eastern Bloc countries might defy Soviet directives not to accept the aid, potentially causing a loss of control in the Eastern Bloc. In addition, the most important condition was that every country to join the plan would need to have its economic situation independently assessed, scrutiny to which the Soviets could not agree. Bevin and Bidault also insisted that any aid be accompanied by the creation of a unified European economy, something incompatible with the strict Soviet command economy.
Compulsory Eastern Bloc rejection
Molotov left Paris, rejecting the plan. Thereafter, statements were made suggesting a future confrontation with the west, calling the United States both a "fascizing" power and the "center of worldwide reaction and anti-Soviet activity", with all countries aligned with it being branded enemies. The Soviets also then blamed the United States for communist losses in elections in Belgium, France and Italy months earlier, in the spring of 1947. It claimed that "marshallization" must be resisted and prevented by an means, and that French and Italian communist parties were to take maximum efforts to sabotage the implementation of the Plan. In addition, western embassies in Moscow were isolated, with their personnel being denied contact with Soviet officials.
On July 12, a larger meeting was convened in Paris. Every country of Europe was invited, with the exceptions of Spain (a World War II netural that had sympathized with Axis powers) and the small states of Andorra, San Marino, Monaco, and Liechtenstein. The Soviet Union was invited with the understanding that it would likely refuse. The states of the future Eastern Bloc were also approached, and Czechoslovakia and Poland agreed to attend. In one of the clearest signs of Soviet control over the region, the Czechoslovakian foreign minister, Jan Masaryk, was summoned to Moscow and berated by Stalin for thinking of joining the Marshall Plan. Polish Prime minister Josef Cyrankiewicz was rewarded by Stalin for the Polish rejection of the Plan. Russia rewarded Poland with a huge 5 year trade agreement, 450 million in credit, 200,000 tons of grain, heavy machinery and factories. The Marshal Plan participants were not surprised when the Czechoslovakian and Polish delegations were prevented from attending the Paris meeting. The other Eastern European states immediately rejected the offer. Finland also declined in order to avoid antagonizing the Soviets. The Soviet Union's "alternative" to the Marshall plan, which was purported to involve Soviet subsidies and trade with western Europe, became known as the Molotov Plan, and later, the COMECON. In a 1947 speech to the United Nations, Soviet deputy foreign minister Andrei Vyshinsky said that the Marshall Plan violated the principles of the United Nations. He accused the United States of attempting to impose its will on other independent states, while at the same time using economic resources distributed as relief to needy nations as an instrument of political pressure.
Stalin sought to immediately take stronger control over the Eastern Bloc countries, abandoning the prior appearance of democratic institutions. When it appeared that, in spite of heavy pressure, non-communist parties might receive in excess of 40% of the vote in the August 1947 Hungarian elections, an all-out repression was instituted to liquidate any independent political forces. In that same month, total annihilation of the opposition in Bulgaria began on the basis of continuing instructions by Soviet cadres.
Szklarska Poreba meeting
In late September, all European communist parties were invited to meet in Szklarska Poreba. A Communist Party of the Soviet Union (CPSU) report was read at the outset to set the heavily anti-western tone, stating now that "international politics is dominated by the ruling clique of the American imperialists" which have embarked upon the "enslavement of the weakened capitalist countries of Europe." Parties were to struggle against the U.S. presence in Europe by any means necessary, including sabotage. It further claimed that "reactionary imperialist elements throughout the world, particularly in the U.S.A., in Britain and France, had put particular hope on Germany and Japan, primarily on Hitlerite Germany--first as a force most capable of striking a blow at the Soviet Union". Referring to the Eastern Bloc, it stated that "the Red Army's liberating role was complemented by an upsurge of the freedom-loving peoples' liberation struggle against the fascist predators and their hirelings." It argued that "the bosses of Wall Street" were "tak[ing] the place of Germany, Japan and Italy." The Marshall plan was described as "the American plan for the enslavement of Europe." It described the world now breaking down "into basically two camps--the imperialist and antidemocratic camp on the one hand, and the antiimperialist and democratic camp on the other."
Although the Eastern Bloc countries except Czecholslovakia had immediately rejected Marshall Plan aid, Eastern Bloc communist parties were blamed for permitting even minor influence by noncommunists in their respective countries during the run up to the Marshall Plan. The meeting's chair, Andreia Zhadanov, who was in permanent radio contact with the Kremlin from whom he received instructions, also castigated communist parties in France and Italy for collaboration with those countries' domestic agendas. Zhadanov warned that if they continued to fail to maintain international contact with Moscow to consult on all matters, "extremely harmful consequences for the development of the brother parties' work" would result. The Italian and French communist leaders were prevented by party rules from pointing out that it was actually Stalin who had directed them not to take opposition stances in 1944. The French communist party, as others, was then to redirect its mission to "destroy capitalist economy" and that the Soviet Communist Information Bureau would take control of the French Communist Party's activities to oppose the Marshall Plan. When they asked Zhadanov if they should prepare for armed revolt when they returned home, he did not answer. In a follow up conversation with Stalin, he explained that an armed struggle would be impossible and that the struggle against the Marshall Plan was to be waged under the slogan of national independence.
Negotiations
Turning the plan into reality required negotiations both among the participating nations, and also to get the plan through the United States Congress. Thus sixteen nations met in Paris to determine what form the American aid would take, and how it would be divided. The negotiations were long and complex, with each nation having its own interests. France's major concern was that Germany not be rebuilt to its previous threatening power. The Benelux countries, despite also suffering under the Nazis, had long been closely linked to the German economy and felt their prosperity depended on its revival. The Scandinavian nations, especially Sweden, insisted that their long-standing trading relationships with the Eastern Bloc nations not be disrupted and that their neutrality not be infringed. The United Kingdom insisted on special status, concerned that if it were treated equally with the devastated continental powers it would receive virtually no aid. The Americans were pushing the importance of free trade and European unity to form a bulwark against communism. The Truman administration, represented by William Clayton, promised the Europeans that they would be free to structure the plan themselves, but the administration also reminded the Europeans that for the plan to be implemented, it would have to pass Congress. The majority of Congress was committed to free trade and European integration, and also were hesitant to spend too much of the money on Germany.
Agreement was eventually reached and the Europeans sent a reconstruction plan to Washington. In this document the Europeans asked for $22 billion in aid. Truman cut this to $17 billion in the bill he put to Congress. The plan met sharp opposition in Congress, mostly from the portion of the Republican Party that advocated a more isolationist policy and was weary of massive government spending. This group's most prominent representative was Robert A. Taft. The plan also had opponents on the left, with Henry A. Wallace a strong opponent. Wallace saw the plan as a subsidy for American exporters and sure to polarize the world between East and West. This opposition was greatly reduced by the shock of the overthrow of the democratic government of Czechoslovakia in February 1948. Soon after a bill granting an initial $5 billion passed Congress with strong bipartisan support. The Congress would eventually donate $12.4 billion in aid over the four years of the plan.
Truman signed the Marshall Plan into law on April 3, 1948, establishing the Economic Cooperation Administration (ECA) to administer the program. ECA was headed by economic cooperation administrator Paul G. Hoffman. In the same year, the participating countries (Austria, Belgium, Denmark, France, West Germany, Great Britain, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, Turkey, and the United States) signed an accord establishing a master financial-aid-coordinating agency, the Organization for European Economic Cooperation (later called the Organization for Economic Cooperation and Development, OECD), which was headed by Frenchman Robert Marjolin.
Implementation
The first substantial aid went to Greece and Turkey in January 1947, which were seen as being on the front lines of the battle against communist expansion and were already being aided under the Truman Doctrine. Initially the UK had supported the anti-communist factions in those countries, but due to its dire economic condition it requested the U.S. to continue its efforts. The ECA formally began operation in July 1948. Its official mission statement was to give a boost to the European economy: to promote European production, to bolster European currency, and to facilitate international trade, especially with the United States, whose economic interest required Europe to become wealthy enough to import U.S. goods. Another unofficial goal of ECA (and of the Marshall Plan) was the containment of growing Soviet influence in Europe, evident especially in the growing strength of communist parties in Czechoslovakia, France, and Italy.
The Marshall Plan money was transferred to the governments of the European nations. The funds were jointly administered by the local governments and the ECA. Each European capital had an ECA envoy, generally a prominent American businessman, who would advise on the process. The cooperative allocation of funds was encouraged, and panels of government, business, and labor leaders were convened to examine the economy and see where aid was needed.
The Marshall Plan aid was mostly used for the purchase of goods from the United States. The European nations had all but exhausted their foreign exchange reserves during the war, and the Marshall Plan aid represented almost their sole means of importing goods from abroad. At the start of the plan these imports were mainly much-needed staples such as food and fuel, but later the purchases turned towards reconstruction needs as was originally intended. In the latter years, under pressure from the United States Congress and with the outbreak of the Korean War, an increasing amount of the aid was spent on rebuilding the militaries of Western Europe. Of the some $13 billion allotted by mid-1951, $3.4 billion had been spent on imports of raw materials and semi-manufactured products; $3.2 billion on food, feed, and fertilizer; $1.9 billion on machines, vehicles, and equipment; and $1.6 billion on fuel.
Also established were counterpart funds, which used Marshall Plan aid to establish funds in the local currency. According to ECA rules 60% of these funds had to be invested in industry. This was prominent in Germany, where these government-administered funds played a crucial role lending money to private enterprises which would spend the money rebuilding. These funds played a central role in the reindustrialization of Germany. In 1949 – 50, for instance, 40% of the investment in the German coal industry was by these funds. The companies were obligated to repay the loans to the government, and the money would then be lent out to another group of businesses. This process has continued to this day in the guise of the state owned KfW bank. The Special Fund, then supervised by the Federal Economics Ministry, was worth over DM 10 billion in 1971. In 1997 it was worth DM 23 billion. Through the revolving loan system, the Fund had by the end of 1995 made low-interest loans to German citizens amounting to around DM 140 billion. The other 40% of the counterpart funds were used to pay down the debt, stabilize the currency, or invest in non-industrial projects. France made the most extensive use of counterpart funds, using them to reduce the budget deficit. In France, and most other countries, the counterpart fund money was absorbed into general government revenues, and not recycled as in Germany.
A far less expensive, but also quite effective, ECA initiative was the Technical Assistance Program. This program funded groups of European engineers and industrialists to visit the United States and tour mines, factories, and smelters so that they could then copy the American advances at home. At the same time several hundred American technical advisors were sent to Europe.
German level of industry restrictions
Even while the Marshall Plan was being implemented, the dismantling of German industry continued, and in 1949 Konrad Adenauer wrote to the Allies requesting that it end, citing the inherent contradiction between encouraging industrial growth and removing factories and also the unpopularity of the policy. Support for dismantling was by this time coming predominantly from the French, and the Petersberg Agreement of November 1949 reduced the levels vastly, though dismantling of minor factories continued until 1951. The first "level of industry" plan, signed by the Allies in March 29, 1946, had stated that German heavy industry was to be lowered to 50% of its 1938 levels by the destruction of 1,500 listed manufacturing plants. In January 1946 the Allied Control Council set the foundation of the future German economy by putting a cap on German steel production—the maximum allowed was set at about 5,800,000 tons of steel a year, equivalent to 25% of the prewar production level. The UK, in whose occupation zone most of the steel production was located, had argued for a more limited capacity reduction by placing the production ceiling at 12 million tons of steel per year, but had to submit to the will of the U.S., France and the Soviet Union (which had argued for a 3 million ton limit). Steel plants thus made redundant were to be dismantled. Germany was to be reduced to the standard of life it had known at the height of the Great depression (1932). Car production was set to 10% of prewar levels, etc.
The first "German level of industry" plan was subsequently followed by a number of new ones, the last signed in 1949. By 1950, after the virtual completion of the by then much watered-out "level of industry" plans, equipment had been removed from 706 manufacturing plants in western Germany and steel production capacity had been reduced by 6,700,000 tons. Vladimir Petrov concludes that the Allies "delayed by several years the economic reconstruction of the wartorn continent, a reconstruction which subsequently cost the United States billions of dollars." In 1951 West Germany agreed to join the European Coal and Steel Community (ECSC) the following year. This meant that some of the economic restrictions on production capacity and on actual production that were imposed by the International Authority for the Ruhr were lifted, and that its role was taken over by the ECSC.
Expenditures
The Marshall Plan aid was divided amongst the participant states on a roughly per capita basis. A larger amount was given to the major industrial powers, as the prevailing opinion was that their resuscitation was essential for general European revival. Somewhat more aid per capita was also directed towards the Allied nations, with less for those that had been part of the Axis or remained neutral. The table below shows Marshall Plan aid by country and year (in millions of dollars) from The Marshall Plan Fifty Years Later. There is no clear consensus on exact amounts, as different scholars differ on exactly what elements of American aid during this period was part of the Marshall Plan.
| Country | 1948/49
($ millions) | 1949/50
($ millions) | 1950/51
($ millions) | Cumulative
($ millions) |
|---|
| 232 | 166 | 70 | 468 | | and | 195 | 222 | 360 | 777 | | 103 | 87 | 195 | 385 | | 1085 | 691 | 520 | 2296 | | 510 | 438 | 500 | 1448 | | 175 | 156 | 45 | 366 | | 6 | 22 | 15 | 43 | | 88 | 45 | 0 | 133 | | 594 | 405 | 205 | 1204 | | 471 | 302 | 355 | 1128 | | 82 | 90 | 200 | 372 | | 0 | 0 | 70 | 70 | | 39 | 48 | 260 | 347 | | 0 | 0 | 250 | 250 | | 28 | 59 | 50 | 137 | | 1316 | 921 | 1060 | 3297 | | Totals | 4,924 | 3,652 | 4,155 | 12,721 |
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Effects
The Marshall Plan was originally scheduled to end in 1953. Any effort to extend it was halted by the growing cost of the Korean War and rearmament. U.S. Republicans hostile to the plan had also gained seats in the 1950 Congressional elections, and conservative opposition to the plan was revived. Thus the plan ended in 1951, though various other forms of American aid to Europe continued afterwards.
The years 1948 to 1952 saw the fastest period of growth in European history. Industrial production increased by 35%. Agricultural production substantially surpassed pre-war levels. The poverty and starvation of the immediate postwar years disappeared, and Western Europe embarked upon an unprecedented two decades of growth that saw standards of living increase dramatically. There is some debate among historians over how much this should be credited to the Marshall Plan. Most reject the idea that it alone miraculously revived Europe, as evidence shows that a general recovery was already underway. Most believe that the Marshall Plan sped this recovery, but did not initiate it.
The political effects of the Marshall Plan may have been just as important as the economic ones. Marshall Plan aid allowed the nations of Western Europe to relax austerity measures and rationing, reducing discontent and bringing political stability. The communist influence on Western Europe was greatly reduced, and throughout the region communist parties faded in popularity in the years after the Marshall Plan. The trade relations fostered by the Marshall Plan helped forge the North Atlantic alliance that would persist throughout the Cold War. At the same time the nonparticipation of the states of Eastern Europe was one of the first clear signs that the continent was now divided.
The Marshall Plan also played an important role in European integration. Both the Americans and many of the European leaders felt that European integration was necessary to secure the peace and prosperity of Europe, and thus used Marshall Plan guidelines to foster integration. In some ways this effort failed, as the OEEC never grew to be more than an agent of economic cooperation. Rather it was the separate European Coal and Steel Community, which notably excluded Britain, that would eventually grow into the European Union. However, the OEEC served as both a testing and training ground for the structures and bureaucrats that would later be used by the European Economic Community. The Marshall Plan, linked into the Bretton Woods system, also mandated free trade throughout the region.
While some modern historians today feel some of the praise for the Marshall Plan is exaggerated, it is still viewed favorably and many thus feel that a similar project would help other areas of the world. After the fall of communism several proposed a "Marshall Plan for Eastern Europe" that would help revive that region. Others have proposed a Marshall Plan for Africa to help that continent, and U.S. vice president Al Gore suggested a Global Marshall Plan. "Marshall Plan" has become a metaphor for any very large scale government program that is designed to solve a specific social problem. It is usually used when calling for federal spending to correct a perceived failure of the private sector.
The West German economic recovery was partly due to the economic aid provided by the Marshall Plan, but mainly it was due to the currency reform of 1948 which replaced the Reichsmark with the Deutsche Mark as legal tender, halting rampant inflation. This act to strengthen the German economy had been explicitly forbidden during the two years that the occupation directive JCS 1067 was in effect. The Allied dismantling of the West German coal and steel industry finally ended in 1951. The Marshall Plan was only one of several forces behind the German recovery. Even so, in Germany the myth of the Marshall Plan is still alive. According to Marshall Plan 1947–1997 A German View by Susan Stern, many Germans still believe that Germany was the exclusive beneficiary of the plan, that it consisted of a free gift of vast sums of money, and that it was solely responsible for the German economic recovery in the 1950s.
Repayment
The Organization for European Economic Cooperation took the leading role in allocating funds, and the ECA arranged for the transfer of the goods. The American supplier was paid in dollars, which were credited against the appropriate European Recovery Program funds. The European recipient, however, was not given the goods as a gift, but had to pay for them (though not necessarily at once, on credit etc.) in local currency, which was then deposited by the government in a counterpart fund. This money, in turn, could be used by the ERP countries for further investment projects.
Most of the participating ERP governments were aware from the beginning that they would never have to return the counterpart fund money to the U.S.; it was eventually absorbed into their national budgets and "disappeared." Originally the total American aid to Germany (in contrast to grants given to other countries in Europe) had to be repaid. But under the London debts agreement of 1953, the repayable amount was reduced to about $1 billion. Aid granted after July 1, 1951 amounted to around $270 million, of which Germany had to repay $16.9 million to the Washington Export-Import Bank. In reality, Germany did not know until 1953 exactly how much money it would have to pay back to the U.S., and insisted that money was given out only in the form of interest-bearing loans — a revolving system ensuring the funds would grow rather than shrink. A lending bank was charged with overseeing the program. European Recovery Program loans were mostly used to support small- and medium-sized businesses. Germany paid the U.S. back in installments (the last check was handed over in June 1971). However, the money was not paid from the ERP fund, but from the central government budget.
Areas without the Marshall Plan
Large parts of the world devastated by World War II did not benefit from the Marshall Plan. The only major Western European nation excluded was Francisco Franco's Spain. After the war, it pursued a policy of self-sufficiency, currency controls, and quotas, with little success. With the escalation of the Cold War, the United States reconsidered its position, and in 1951 embraced Spain as an ally, encouraged by Franco's aggressive anti-communist policies. Over the next decade, a considerable amount of American aid would go to Spain, but less than its neighbors had received under the Marshall Plan.
While the western portion of the Soviet Union had been as badly affected as any part of the world by the war, the eastern portion of the country was largely untouched and had seen a rapid industrialization during the war. The Soviets also imposed large reparations payments on the Axis allies that were in its sphere of influence. Finland, Hungary, Romania, and especially East Germany were forced to pay vast sums and ship large amounts of supplies to the USSR. These reparation payments meant that the Soviet Union received almost as much as any of the countries receiving Marshall Plan aid.
Eastern Europe saw no Marshall Plan money, as their governments rejected joining the program, and moreover received little help from the Soviets. The Soviets did establish COMECON as a rebuttal to the Marshall Plan. The members of Comecon looked to the Soviet Union for oil; in turn, they provided machinery, equipment, agricultural goods, industrial goods, and consumer goods to the Soviet Union. Economic recovery in the east was much slower than in the west, and the economies never fully recovered in the communist period, resulting in the formation of the shortage economies and a gap in wealth between East and West. Finland, which did not join the Marshall Plan and which was required to give large reparations to the USSR, saw its economy recover to pre-war levels in 1947. France, which received billions of dollars through the Marshall Plan, similarly saw its average income per person return to almost pre-war level by 1949. By mid-1948 industrial production in Poland, Hungary, Bulgaria, and Czechoslovakia had recovered to a level somewhat above pre-war level.
Japan too, had been badly damaged by the war. However, the American people and Congress were far less sympathetic towards the Japanese than they were to the Europeans. Japan was also not considered to have as great a strategic or economic importance to the United States. Thus no grand reconstruction plan was ever created, and the Japanese economic recovery before 1950 was slow. However, by 1952 growth had picked up, such that Japan continued, from 1952 to 1971 to grow in real GNP at an average annual rate of 9.6 percent. The US by contrast, grew at a rate of 2.9 percent from 1952 to 1991. The Korean War may have played a role in the early economic growth in Japan. It began in 1950 and Japan became the main staging ground for the United Nations war effort, and a crucial supplier of material. One well-known example is that of the Toyota company. In June 1950, the company produced 300 trucks, and was on the verge of going out of business. The first months of the war saw the military order over 5,000 vehicles, and the company was revived. During the four years of the Korean War, the Japanese economy saw a substantially larger infusion of cash than had any of the Marshall Plan nations.
Canada, like the United States, was little damaged by the war and in 1945 was one of the world's largest economies. The Canadian economy had long been more dependent than the American one on trade with Europe, and after the war there were signs that the Canadian economy was struggling. In April 1948, the U.S. Congress passed the provision in the plan that allowed the aid to be used in purchasing goods from Canada. The new provision ensured the health of that nation's economy as Canada made over a billion dollars in the first two years of operation. This contrasted heavily with the treatment Argentina, another major economy dependent on its agricultural exports with Europe, received from the ECA, as the country was deliberately excluded from participation in the Plan due to political differences between the U.S. and then-president Perón. This would damage the Argentine agricultural sector and help to precipitate an economic crisis in the country.
Criticism
Early criticism
Initial criticism of the Marshall Plan came from a number of liberal economists. Wilhelm Röpke, who influenced German Minister for Economy Ludwig Erhard in his economic recovery program, believed recovery would be found in eliminating central planning and restoring a market economy in Europe, especially in those countries which had adopted more fascist and corporatist economic policies. Röpke criticized the Marshall plan for forestalling the transition to the free market by subsidizing the current, failing systems. Erhard put Röpke's theory into practice and would later credit Röpke's influence for the West Germany's preeminent success. Henry Hazlitt criticized the Marshall Plan in his 1947 book Will Dollars Save the World?, arguing that economic recovery comes through savings, capital accumulation and private enterprise, and not through large cash subsidies. Ludwig von Mises also criticized the Marshall Plan in 1951, believing that "The American subsidies make it possible for [Europe's] governments to conceal partially the disastrous effects of the various socialist measures they have adopted." He also made a general critique of foreign aid, believing it creates ideological enemies rather than economic partners by stifling the free market.
Modern criticism
Criticism of the Marshall Plan became prominent among historians of the revisionist school, such as Walter LaFeber, during the 1960s and 1970s. They argued that the plan was American economic imperialism, and that it was an attempt to gain control over Western Europe just as the Soviets controlled Eastern Europe. In a review of West Germany's economy from 1945 to 1951, German analyst Werner Abelshauser concluded that "foreign aid was not crucial in starting the recovery or in keeping it going." The economic recoveries of France, Italy, and Belgium, Cowen found, also predated the flow of U.S. aid. Belgium, the country that relied earliest and most heavily on free market economic policies after its liberation in 1944, experienced the fastest recovery and avoided the severe housing and food shortages seen in the rest of continental Europe.
Former U.S. Chairman of the Federal Reserve Bank Alan Greenspan gives most credit to Ludwig Erhard for Europe's economic recovery. Greenspan writes in his memoir The Age of Turbulence that Erhard's economic policies were the most important aspect of postwar Western Europe recovery, far outweighing the contributions of the Marshall Plan. He states that it was Erhard's reductions in economic regulations that permitted Germany's miraculous recovery, and that these policies also contributed to the recoveries of many other European countries. Japan's recovery is also used as a counter-example, since it experienced rapid growth without any aid whatsoever. Its recovery is attributed to traditional economic stimuli, such as increases in investment, fueled by a high savings rate and low taxes. Japan saw a large infusion of cash during the Korean war, but because this came in the form of investment and not subsidies, it proved far more beneficial.
Criticism of the Marshall Plan also aims at showing that it has begun a legacy of disastrous foreign aid programs. Since the 1990s, economic scholarship has been more hostile to the idea of foreign aid. For example, Alberto Alesina and Beatrice Weder, summing up economic literature on foreign aid and corruption, find that aid is primarily used wastefully and self-servingly by government officials, and ends up increasing governmental corruption. This policy of promoting corrupt government is then attributed back to the initial impetus of the Marshall Plan.
Noam Chomsky wrote that the amount of American dollars given to France and the Netherlands equaled the funds these countries used to finance their military forces in southeast Asia. The Marshall Plan was said to have "set the stage for large amounts of private U.S. investment in Europe, establishing the basis for modern transnational corporations." Other criticism of the Marshall Plan stemmed from reports that the Netherlands used a significant portion of the aid it received to try to re-conquer Indonesia in the Indonesian War of Independence.
In popular culture
Secretary of Commerce W. Averell Harriman’s press aide, Alfred Friendly, wrote a humorous operetta about the Marshall Plan during its first year; one of the lines in the operetta was: "Wines for Sale; will you swap / A little bit of steel for Chateau Neuf du Pape?"
See also
Further reading
- Agnew, John and Entrikin, J. Nicholas eds. The Marshall Plan Today: Model and Metaphor. Routledge. (2004) online version
- Arkes, Hadley. Bureaucracy, the Marshall Plan, and the National Interest. Princeton, N.J: Princeton University Press, 1972.
- Behrman, Greg, The Most Noble Adventure: The Marshall Plan and the Time When America Helped Save Europe (Free Press, 2007) ISBN 0743282639
- Bonds, John Bledsoe; Bipartisan Strategy: Selling the Marshall Plan Praeger, 2002 online version
- Chiarella Esposito; America's Feeble Weapon: Funding the Marshall Plan in France and Italy, 1948–1950, Greenwood Press, 1994 online version
- Denison, Edward F. & Chung, William K., How Japan's Economy Grew So Fast Brookings Institute, 1976
- Djelic, Marie-Laure A.; Exporting the American Model: The Post-War Transformation of European Business.Oxford University Press, 1998 online version
- Fossedal, Gregory A. Our Finest Hour: Will Clayton, the Marshall Plan, and the Triumph of Democracy. Stanford, CA: Hoover Institution Press, 1993.
- Gimbel, John, The origins of the Marshall plan (Stanford University Press, 1976). ()
- Kennedy, David, Cohen, Lizbeth, Bailey, Thomas A., The American Pageant A History of the Republic
- Kipping, Matthias and Bjarnar, Ove; The Americanisation of European Business: The Marshall Plan and the Transfer of Us Management Models Routledge, 1998 online version
- Mee, Charles L. The Marshall Plan: The Launching of the Pax Americana. New York: Simon and Schuster, 1984.
- Milward, Alan S. The Reconstruction of Western Europe, 1945–51. London: Methuen, 1984.
- Röpke, Wilhelm, Humane Economist,
- Vickers, Rhiannon, Manipulating Hegemony: State Power, Labour and the Marshall Plan in Britain Palgrave Publishers, 2000 online edition
- Wallich, Henry Christopher. Mainsprings of the German Revival. New Haven: Yale University Press, 1955.
- Wasser, Solidelle F. and Dolfman, Michael L., "BLS and the Marshall Plan: The Forgotten Story: The Statistical Technical Assistance of BLS Increased Productive Efficiency and Labor Productivity in Western European Industry after World War II; Technological Literature Surveys and Plan-Organized Plant Visits Supplemented Instruction in Statistical Measurement," Monthly Labor Review, Vol. 128, 2005
- Wend, Henry Burke; Recovery and Restoration: U.S. Foreign Policy and the Politics of Reconstruction of West Germany's Shipbuilding Industry, 1945–1955. Praeger, 2001 online version
- Zmirak, John, Wilhelm Röpke: Swiss Localist, Global Economist (ISI Books, 2001)
External links
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- The speech marked the turning point away from the Morgenthau Plan philosophy of economic dismantlement of Germany and towards a policy of economic reconstruction.
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- April, 1946.
- , Time magazine July 28, 1947
- "The Marshall Plan as Tragedy," comment on Michael Cox and Caroline Kennedy-Pipe, "The Tragedy of American Diplomacy? Rethinking the Marshall Plan," both published in the Journal of Cold War Studies, vol. 7, no. 1 (Winter 2005) () ()
- Luis García Berlanga's critique of the Marshall Plan in a classic Spanish film: Welcome Mr. Marshall!
- Cincinnati Enquirer December 10, 2006
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