Approaches to Poverty Eradication and Economic Development II
Rescued by the Marshall Plan
Let us consider the post-war European Recovery Programme, the Marshall Plan. Speaking at Harvard University on 5 June 1947, US Secretary of State George C. Marshall said: "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."
This had been preceded by President Harry Truman's 12 March 1947 address to the US Congress, when he asked for funds to help Greece and Turkey, which the U.S. government believed would fall victim to socialist revolutions. He said: "The seeds of totalitarian regimes are nurtured by misery and want. They spread and grow in the evil soil of poverty and strife. They reach their full growth when the hope of a people for a better life has died. We must keep that hope alive. The free peoples of the world look to us for support in maintaining their freedoms. If we falter in our leadership, we may endanger the peace of the world - and we shall surely endanger the welfare of our own nation." With regard to the Marshall Plan, the 26 August 1947 US State Department document we cited in part one said: "Program submitted for U.S. consideration must contain these elements: Concrete proposals for area-wide recovery of agriculture and basic industries - coal, steel, transport, and power - which are fundamental to viable European economy. Proposals must correlate individual national programs and individual industry programs and give priority to projects promising quickest expansion of output."
In a contemporary report, the U.S. Marshall Foundation says, "the Marshall Plan was a rational effort by the United States aimed at reducing the hunger, homelessness, sickness, unemployment, and political restlessness of the 270 million people in sixteen nations in West Europe. Marshall Plan funds were not mainly directed towards feeding individuals or building individual houses, schools, or factories, but at strengthening the economic superstructure (particularly the iron-steel and power industries.) The program cost the American taxpayers $11,820,700,000 (plus $1,505,100,000 in loans that we repaid) over four years, and worked because it was aimed at aiding a well-educated, industrialised people temporarily down but not out. "Over its four-year life, the Marshall Plan cost the U.S. 2.5 to 5 times the percent of national income as current foreign aid programs. One would need to multiply the program's $13.3 billion cost by 10 or perhaps 20 times to have the same impact on the U.S. economy now as the Marshall Plan had between 1948 and 1952."
The report also makes the important point that, "Americans were reluctant to invest in Europe because their profits were available only in local currencies that were little desired by U.S. businesses and investors."
The May 2003 edition of the US 'Harper's Magazine' published an article by William Finnegan entitled "Economics of Empire". Finnegan wrote: "(The) pillars of the postwar international financial order were conceived during the latter part of World War II at a conference of American, British, and European economists and civil servants held in Bretton Woods, New Hampshire, and dominated intellectually by John Maynard Keynes. The World Bank was originally intended to help finance the reconstruction of postwar Europe - a project that neither private capital nor shattered states could be expected to undertake. After the Marshall Plan made that purpose redundant, the Bank, looking for a raison d'Рєtre, began to concentrate on Asia, Africa, and Latin America, where it loaned money to poor governments, usually for specific projects."
To explain Finnegan's comments, including his reference to the World Bank, we would like to quote a portion of a 1 May 1947 Memorandum written by a State Department official, Joseph Jones, to the then Under Secretary of State, Dean Acheson. Jones wrote:
"An important omission in this outline is a discussion of why the World Bank cannot do the job, or why the American banking community cannot do it; also why the expenditures must be largely in terms of grants-in-aid rather than loans. I quote Walter Lippman, May 1, on this point: 'In acting to forestall this (West European) collapse, we can afford to have no illusions. The deficit of the western European countries cannot be met, as Mr McCloy's recent address makes clear, by the World Bank, or by the American banking community. The sums needed are too large. The transactions are abnormal and altogether outside ordinary private finance. Nor can the deficit be met by government loans because in fact these sums cannot be paid back. They will have to be contributed as a national investment in peace and prosperity.' "
In an article in the May 1997 edition of 'Harvard Magazine', entitled "From Plan to Practice: The context and consequences of the Marshall Plan", Professor Charles S. Maier says: "The young economists who staffed European Recovery Programme agencies had learned the new Keynesian doctrines just before the war. They appreciated large and integrated markets, but understood that sometimes government spending was required to help markets function. World War II had further demonstrated that governments could plan purposeful economic activity and mobilise productive resources. "By 1951.Americans had supplied about $14 billion in aid, probably between 1 and 2 percent of our gross national product for the period - roughly five times the proportional share we now allocate to foreign assistance.
"In the first two years of the program, American aid provided a major share of German and Italian gross capital formation; then it fell, as in Britain and France, to a much smaller share. In quantitative terms, Europeans were soon accumulating their own capital. "Nonetheless, Washington's assistance satisfied key needs and was targeted to eliminate critical shortages. Assistance in dollars allowed Europeans to invest without trying to remedy their balance of payments drastically through deflation and austerity. This meant that economic recovery did not have to be financed out of general wage levels. Working-class voters (at least outside France and Italy, where strong Communist political cultures still thrived) could thus be rallied by politicians who offered gradualist social-democratic alternatives and remained friendly to the West.The Marshall Plan.worked to stabilise the consensual welfare-state politics that prevailed until the 1970s."
Despite what Professor Maier says about capital inflows into the UK and France, we must however point out that in the four years 1948 to 1952, the UK and France received in grants and loans $3.2 and $2.7 billion respectively, while Germany and Italy received $1.4 and $1.5 billion. The Marshall Plan had a number of important features.
- It represented a conscious, purposeful and determined response by the then most powerful country in the world to what it considered an imminent danger to its survival - developments that President Harry Truman said would "endanger the welfare of our own nation", if allowed to run their course.
- To ward off this strategic danger, the U.S. was ready to spend whatever was necessary and required.
- It understood that so big was the challenge it faced that it could not rely on "the market", the private sector, to provide the resources to meet this challenge.
- It was accordingly ready and willing to use public funds to provide the investment and other resources that would enable the West European economies to reach their "take off" point.
- Rather than argue that governments had to minimise their role in the economy, it proceeded from the positions explained by Professor Maier, that "governments could plan purposeful economic activity and mobilise productive resources."
- Accordingly, the European Recovery Programme was based on a carefully prepared plan, which took into account the immanent capacities of the West European economies, including the understanding that here the U.S. had to "aide a well-educated, industrialised people temporarily down but not out".
- It also understood and took the position that such was the level of disruption and disequilibrium of the West European economies that they could only be returned to "normality" through grants, rather than loans or dependence on foreign direct investment.
- It integrated the imperative of social cohesion and stability within the economic plan, to avoid mass rebellion by the working people, to facilitate the achievement of the economic and political goals of the Economic Recovery Programme. It therefore ensured that the economic recovery was not based on "structural adjustment" and an unsustainable debt burden, but on the avoidance of the austerity and deflation that would have made the achievement of the goal of "consensual welfare-state politics that prevailed until the 1970s" impossible.
- It achieved its objective of providing the "substantial additional help" to purchase the "food and other essential products" Western Europe needed to escape from "misery and want" and "the evil soil of poverty and strife."
- It therefore succeeded as a development programme, enabling Western Europe to develop modern economies, "independent of abnormal outside support".
The success of the Marshall Plan represented the first example in the post-war years of what could be done to achieve the objective of the defeat of the twin challenges of poverty and underdevelopment. Given the level of development reached by many of the West European countries before World War II, it gave an indication of the larger resources that would be needed to defeat far worse poverty and underdevelopment in the larger part of the world that, even at the end of the War, constituted the colonial possessions of the countries the Marshall Plan sought to assist. The other strategic challenge the United States faced was the future of a number of countries in the Asian Far East. Japan, the principal adversary of the US in this region, like Germany in Europe, had to be neutralised.
Similarly, it had to be rescued from the threat of socialist revolution. The same consideration applied to South Korea and Taiwan. The first had socialist North Korea as its neighbour. The second was a province of socialist China. In addition, both North Korea and China were allies of the Soviet Union. Accordingly, the 'Truman Doctrine' had to apply both to Western Europe and the Asian Far East. Logically, the Far East had to have its own Marshall Plan.
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