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The Marshall Plan (officially the European Recovery Program, ERP) was the American initiative to aid Europe, in which the United States gave economic support to help rebuild European economies after the end of World War II in order to prevent the spread of Soviet Communism. The plan was in operation for four years beginning in April 1948. The goals of the United States were to rebuild war-devastated regions, remove trade barriers, modernize industry, and make Europe prosperous again. The phrase "equivalent of the Marshall Plan" is often used to describe a proposed large-scale rescue program.
The initiative was named after Secretary of State George Marshall. The plan had bipartisan support in Washington, where the Republicans controlled Congress and the Democrats controlled the White House. The Plan was largely the creation of State Department officials, especially William L. Clayton and George F. Kennan, with help from Brookings Institution, as requested by Senator Arthur H. Vandenberg, chairman of the Senate Foreign Relations Committee. Marshall spoke of an urgent need to help the European recovery in his address at Harvard University in June 1947.
The reconstruction plan, developed at a meeting of the participating European states, was established on June 5, 1947. It offered the same aid to the Soviet Union and its allies, but they did not accept it, as to do so would be to allow a degree of US control over the Communist economies. During the four years that the plan was operational, US $15 billion in economic and technical assistance was given to help the recovery of the European countries that had joined in the Organization for European Economic Co-operation. In 2013, the equivalent sum reflecting currency inflation since 1948 totalled roughly $148 billion. The $15 billion was in the context of a US GDP of $258 billion in 1948, and was on top of $15 billion in American aid to Europe between the end of the war and the start of the Plan that is counted separately from the Marshall Plan. The Marshall Plan was replaced by the Mutual Security Plan at the end of 1951.
The ERP addressed each of the obstacles to postwar recovery. The plan looked to the future, and did not focus on the destruction caused by the war. Much more important were efforts to modernize European industrial and business practices using high-efficiency American models, reducing artificial trade barriers, and instilling a sense of hope and self-reliance.
By 1952, as the funding ended, the economy of every participant state had surpassed pre-war levels; for all Marshall Plan recipients, output in 1951 was at least 35% higher than in 1938. Over the next two decades, Western Europe enjoyed unprecedented growth and prosperity, but economists are not sure what proportion was due directly to the ERP, what proportion indirectly, and how much would have happened without it. A common American interpretation of the program's role in European recovery is the one expressed by Paul Hoffman, head of the Economic Cooperation Administration, in 1949, when he told Congress that Marshall aid had provided the "critical margin" on which other investment needed for European recovery depended. The Marshall Plan was one of the first elements of European integration, as it erased trade barriers and set up institutions to coordinate the economy on a continental level — that is, it stimulated the total political reconstruction of western Europe.
Belgian economic historian Herman Van der Wee concludes the Marshall Plan was a "great success":
By the end of World War II, much of Europe was devastated. Sustained aerial bombardment during the war had badly damaged most major cities, and industrial facilities were especially hard-hit. The region's trade flows had been thoroughly disrupted; millions were in refugee camps living on aid from United Nations Relief and Rehabilitation Administration and other agencies. Food shortages were severe, especially in the harsh winter of 1946–1947.
Especially damaged was transportation infrastructure, as railways, bridges, and docks had been specifically targeted by air strikes, while much merchant shipping had been sunk. Although most small towns and villages 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.
The only major powers whose infrastructure had not been significantly harmed in World War II were the United States and Canada. They were much more prosperous than before the war but exports were a small factor in their economy. Much of the Marshall Plan aid would be used by the Europeans to buy manufactured goods and raw materials from the United States and Canada.
Europe's economies were recovering slowly, as 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 Britain the situation was not as severe.
In Germany in 1945-46 housing and food conditions were bad, as the disruption of transport, markets and finances slowed a return to normality. In the West, bombing had destroyed 5,000,000 houses and apartments, and 12,000,000 refugees from the east had crowded in. Food production was only two-thirds of the pre-war level in 1946-48, while normal grain and meat shipments no longer arrived from the East. Furthermore, the large shipments of food stolen from occupied nations during the war no longer reached Germany. Industrial production fell more than half and reached pre-war levels only at the end of 1949.
In May 1947 communist ministers were abruptly expelled from the French and Italian governments.
During the first three years of occupation of Germany the UK and US vigorously pursued a military disarmament program in Germany, partly by removal of equipment but mainly through an import embargo on raw materials, part of the Morgenthau Plan approved by President Franklin D. Roosevelt.
Nicholas Balabkins concludes that "as long as German industrial capacity was kept idle the economic recovery of Europe was delayed." By July 1947 Washington realized that economic recovery in Europe could not go forward without the reconstruction of the German industrial base, deciding that an "orderly, prosperous Europe requires the economic contributions of a stable and productive Germany." In addition, the strength of Moscow-controlled communist parties in France and Italy worried Washington.
In the view of the State Department under President Harry S. Truman, the United States needed to adopt a definite position on the world scene or fear losing credibility. The emerging doctrine of containment (as opposed to rollback) 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, but that was not to happen.
In January 1947, Truman appointed retired General George Marshall as Secretary of State. In July 1947 Marshall scrapped Joint Chiefs of Staff Directive 1067 implemented as part of the Morgenthau Plan under the personal supervision of Roosevelt's treasury secretary Henry Morgenthau, Jr., which had decreed "take no steps looking toward the economic rehabilitation of Germany [or] designed to maintain or strengthen the German economy." Thereafter, JCS 1067 was supplanted by JCS 1779, stating 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.
With a Communist insurgency threatening Greece, and Britain financially unable to continue its aid, the President announced his Truman Doctrine on 12 March 1947, "to support free peoples who are resisting attempted subjugation by armed minorities or by outside pressures", with an aid request for consideration and decision, concerning Greece and Turkey. Also in March 1947, former US President Herbert Hoover, in one of his reports from Germany, argued for a change in US 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' (Morgenthau's vision). It cannot be done unless we exterminate or move 25,000,000 people out of it." Hoover further noted that, "The whole economy of Europe is interlinked with German economy through the exchange of raw materials and manufactured goods. The productivity of Europe cannot be restored without the restoration of Germany as a contributor to that productivity." Hoover's report led to a realization in Washington that a new policy was needed; "almost any action would be an improvement on current policy." In Washington, the Joint Chiefs declared that the "complete revival of German industry, particularly coal mining" was now of "primary importance" to American security.
The United States was already spending a great deal to help Europe recover. Over $14 billion was spent or loaned during the postwar period through the end of 1947, and is not counted as part of the Marshall Plan. Much of this aid was designed to restore infrastructure and help refugees. Britain, for example, received an emergency loan of $3.75 billion.
The 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 Germany. UNRRA provided billions of dollars of rehabilitation aid, and helped about 8 million refugees. It ceased operations in the Displaced persons camp of Europe in 1947; many of its functions were transferred to several UN agencies.
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, goods and infrastructure already removed by the Soviets in their occupied zone. The Soviets took a punitive approach, pressing for a delay rather than an acceleration in economic rehabilitation, demanding unconditional fulfillment of all prior reparation claims, and pressing for progress toward nationwide socioeconomic transformation.
After six weeks of negotiations, Molotov rejected all of the American and British proposals. Molotov also rejected the counter-offer to scrap the British-American "Bizonia" and to include the Soviet zone within the newly constructed Germany. 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.
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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.
To clarify the US's position, a major address by Secretary of State George Marshall was planned. 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. The speech described the dysfunction of the European economy and presented a rationale for US aid.
The modern system of the division of labor upon which the exchange of products is based is in danger of breaking down. . . . 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 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 USA. 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.
Marshall was convinced that economic stability would provide political stability in Europe. He offered aid, but the European countries had to organize the program themselves.
The speech, written by Charles Bohlen, contained virtually no details and no numbers. More a proposal than a plan, it was presented vaguely and made little impact in America. Eight weeks after the Harvard speech, the State Department wrote in a confidential memorandum that "The Marshall Plan has been compared to a flying saucer — nobody knows what it looks like, how big it is, in what direction it is moving, or whether it really exists." 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. In contrast, Dean Acheson, an Under Secretary of State, was dispatched to contact the European media, especially the British media, and the speech was read in its entirety on the BBC.
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 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.
Throughout its history, the Soviet Union had a state-controlled, Communist economy; the centrally planned economy regulated collective farming, industrial manufacturing, and the means of production. This was one main source of the Soviet government's power over its citizens. By controlling the economy, the USSR leaders could effectively dictate the other facets of Soviet policy and life. George Kennan, the United States' ambassador to the Soviet Union, articulated this point in his 1946 "Long Telegram." Kennan concluded, "Soviet [economic] policy will really be dominated by pursuit of autarchy for Soviet Union and Soviet-dominated adjacent areas taken together," meaning that the Soviet government wanted economic independence for the USSR in order to protect its sphere of influence. Consequently, accepting American aid from the Marshall Plan posed a potential threat to the Soviet government's ability to keep the Eastern Bloc together.
While the Soviet ambassador in Washington suspected that the Marshall Plan could lead to the creation of an anti-Soviet bloc, Stalin was open to the offer. He directed that—in negotiations to be held in Paris regarding the aid—countries in the Eastern Bloc should not reject economic conditions being placed upon them. Stalin only changed his outlook when he learned that (a) credit would only be extended under conditions of economic cooperation and,(b) aid would also be extended to Germany in total, an eventuality which Stalin thought would hamper the Soviets' ability to exercise influence in western Germany.
Initially, Stalin maneuvered to kill the Plan, or at least hamper it by means of destructive participation in the Paris talks regarding conditions. He quickly realized, however, that this would be impossible after Molotov reported—following his arrival in Paris in July 1947—that conditions for the credit were non-negotiable. 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 of the Eastern Bloc. In addition, the most important condition was that every country choosing to take advantage of the plan would need to have its economic situation independently assessed—a level of 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.
Soviet Foreign Minister Vyacheslav 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 U.S.-aligned countries branded as 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 any 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 neutral 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 Józef Cyrankiewicz was rewarded by Stalin for the Polish rejection of the Plan. Russia rewarded Poland with a lucrative five-year trade agreement, the equivalent of 450 million 1948 dollars in credit, 200,000 tons of grain, heavy machinery, and factories.
The Marshall 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 (see also Finlandization). 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 immediately sought to 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 percent of the vote in the August 1947 Hungarian elections, an all-out repression was instituted to suppress independent political forces. In that same month, total annihilation of the opposition in Bulgaria began on the basis of continuing instructions by Soviet cadres.
In late September, the Soviet Union called a meeting of nine European Communist parties in southwest Poland. 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. The report 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, the report 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 Czechoslovakia had immediately rejected Marshall Plan aid, Eastern Bloc communist parties were blamed for permitting even minor influence by non-communists in their respective countries during the run up to the Marshall Plan. The meeting's chair, Andrei Zhdanov, 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. Zhdanov 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.
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 (Cominform) would take control of the French Communist Party's activities to oppose the Marshall Plan. When they asked Zhdanov 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.
Turning the plan into reality required negotiations among the participating nations, and to get the plan through the United States Congress. 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, (Belgium, Netherlands and Luxemburg), 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 as a longstanding belligerent during the war, 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 L. Clayton, promised the Europeans that they would be free to structure the plan themselves, but the administration also reminded the Europeans that implementation depended on the plan's passage through Congress. A majority of Congress members were committed to free trade and European integration, and were hesitant to spend too much of the money on Germany. However, before the Marshall Plan was in effect, France, Austria, and Italy needed immediate aid. On December 17, 1947, the United States agreed to give $40 million to France, Austria, China, and Italy.
Agreement was eventually reached and the Europeans sent a reconstruction plan to Washington. In the document the Europeans asked for $22 billion in aid. Truman cut this to $17 billion in the bill he put to Congress. The plan encountered sharp opposition in Congress, mostly from the portion of the Republican Party led by Robert A. Taft that advocated a more isolationist policy and was weary of massive government spending. The plan also had opponents on the left, Henry A. Wallace notably among them. Wallace saw the plan as a subsidy for American exporters and sure to polarize the world between East and West.
Wallace, the former vice president and secretary of agriculture, mockingly called this the "Martial Plan," arguing that it was just another step towards war. However, opposition against the Marshall Plan was greatly reduced by the shock of the Communist coup in Czechoslovakia in February 1948. Soon after, a bill granting an initial $5 billion passed Congress with strong bipartisan support. Congress would eventually allocate $12.4 billion in aid over the four years of the plan.
On March 17, 1948, President Harry S. Truman addressed European security and condemned the Soviet Union before a hastily convened Joint Session of Congress. Attempting to contain spreading Soviet influence in Eastern Europe, Truman asked Congress to restore a peacetime military draft and to swiftly pass the Economic Cooperation Act, the name given to the Marshall Plan. Of the Soviet Union Truman said, "The situation in the world today is not primarily the result of the natural difficulties which follow a great war. "It is chiefly due to the fact that one nation has not only refused to cooperate in the establishment of a just and honorable peace but—even worse—has actively sought to prevent it."
Members of the Republican-dominated 80th Congress (1947–1949) were skeptical. "In effect, he told the Nation that we have lost the peace, that our whole war effort was in vain," noted Representative Frederick Smith of Ohio. Others thought he had not been forceful enough to contain the USSR. "What [Truman] said fell short of being tough," noted Representative Eugene Cox, a Democrat from Georgia. "There is no prospect of ever winning Russian cooperation." Despite its reservations, the 80th Congress implemented Truman's requests, further escalating the Cold War with the USSR.
Truman signed the Economic Cooperation Act into law on April 3, 1948; the Act established 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, the United Kingdom, 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 or OECD), which was headed by Frenchman Robert Marjolin.
The first substantial aid went to Greece and Turkey in January 1947, which were seen as the front line of the battle against communist expansion, and were already receiving aid under the Truman Doctrine. Initially Britain had supported the anti-communist factions in those countries, but due to its dire economic condition it decided to pull out and in February 1947 requested the U.S. to continue its efforts. The ECA formally began operation in July 1948.
The ECA's 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 in 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, (Kreditanstalt für Wiederaufbau, meaning Reconstruction Credit Institute). 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.
The US Bureau of Labor Statistics (BLS) contributed heavily to the success of the Technical Assistance Program. The United States Congress passed a law on June 7, 1940 that allowed the BLS to "make continuing studies of labor productivity" and appropriated funds for the creation of a Productivity and Technological Development Division. The BLS could then use its expertise in the field of productive efficiency to implement a productivity drive in each Western European country receiving Marshall Plan aid.
By implementing technological literature surveys and organized plant visits, American economists, statisticians, and engineers were able to educate European manufacturers in statistical measurement. The goal of the statistical and technical assistance from the Americans was to increase productive efficiency of European manufacturers in all industries.
In order to perform this analysis, the BLS performed two types of productivity calculations. First, they used existing data to calculate how much a worker produces per hour of work—the average output rate. Second, they compared the existing output rates in a particular country to output rates in other nations. By performing these calculations across all industries, the BLS was able to identify the strengths and weaknesses of each country's manufacturing and industrial production. From that, the BLS could recommend technologies (especially statistical) that each individual nation could implement. Often, these technologies came from the United States; by the time the Technical Assistance Program began, the United States used statistical technologies "more than a generation ahead of what [the Europeans] were using".
The BLS used these statistical technologies to create Factory Performance Reports for Western European nations. The American government sent hundreds of technical advisors to Europe in order to observe workers in the field; this on-site analysis made the Factory Performance Reports especially helpful to the manufacturers. In addition, the Technical Assistance Program funded 24,000 European engineers, leaders, and industrialists to visit America and tour America's factories, mines, and manufacturing plants. This way, the European visitors would be able to return to their home countries and implement the technologies used in the United States. The analyses in the Factory Performance Reports and the "hands-on" experience had by the European productivity teams effectively identified productivity deficiencies in European industries; from there, it became clearer how to make European production more effective.
Before the Technical Assistance Program even went into effect, Maurice Tobin (the United States Secretary of Labor) expressed his confidence in American productivity and technology to both American and European economic leaders. He urged that the United States play a large role in improving European productive efficiency by providing four recommendations for the program's administrators:
The effects of the Technical Assistance Program were not limited to improvements in productive efficiency. While the thousands of European leaders took their work/study trips to the United States, they were able to observe a number of aspects of American society as well. The Europeans could watch local, state, and federal governments work together with citizens in a pluralist society. They observed a democratic society with open universities and civic societies in addition to more advanced factories and manufacturing plants. The Technical Assistance Program allowed Europeans to bring home many types of American ideas.
Another important aspect of the Technical Assistance Program was its low cost. While $19.4 billion was allocated for capital costs in the Marshall Plan, the Technical Assistance Program only required $300 million. Only one-third of that $300 million cost was paid by the United States.
Even while the Marshall Plan was being implemented, the dismantling of German industry continued; and in 1949 Konrad Adenauer wrote to the Allies requesting the end of industrial dismantling, 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 greatly reduced the levels of deindustrialization, though dismantling of minor factories continued until 1951. The first "level of industry" plan, signed by the Allies on 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 pre-war 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). Consequently, car production was set to 10% of pre-war levels, and the manufacture of other commodities was reduced as well.
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-down "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 war-torn 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.
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 were part of the Marshall Plan.
|Belgium and Luxembourg||195||222||360||777|
|Italy and Trieste||594||405||205||1204|
Ireland which received 146.2 million USD through the Marshall plan, received 128.2 million USD as loans, and the remaining 18 million USD as grants. By 1969 the Irish Marshal plan debt, which was still being repaid, amounted to 31 million pounds, out of a total Irish foreign debt of 50 million pounds.
The UK received 385 million USD of its Marshall plan aid in the form of loans. Unconnected to the Marshall plan the UK also received direct loans from the US amounting to 4.6 billion USD. The proportion of Marshall plan loans versus Marshall plan grants was roughly 15% to 85% for both the UK and France.
Germany, which up until the 1953 Debt agreement had to work on the assumption that all the Marshall plan aid was to be repaid, spent its funds very carefully. Payment for Marshall plan goods, "counterpart funds", were administered by the Reconstruction Credit Institute, which used the funds for loans inside Germany. In the 1953 Debt agreement the amount of Marshall plan aid that Germany was to repay was reduced to less than 1 billion USD. This made the proportion of loans versus grants to Germany similar to that of France and the UK. The final German loan repayment was made in 1971. Since Germany chose to repay the aid debt out of the German Federal budget, leaving the German ERP fund intact, the fund was able to continue its reconstruction work. By 1996 it had accumulated a value of 23 billion Deutsche Mark.
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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. American 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 United States worked to direct the Marshall Plan towards children and an increase of nutritional material for all citizens within western Europe so as to shed a positive light on its goals as it worked to effectively defeat communist threats. One effect of the plan was that it subtly "Americanized" countries, especially Austria, who embraced United States' assistance, through popular culture, such as Hollywood movies and rock n' roll (Bischof, Pelinka and Stiefel 174-175).
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 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 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 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 (usually on credit) in local currency. These payments were kept by the European government involved in a special counterpart fund. This counterpart money, in turn, could be used by the government for further investment projects. 5% of the counterpart money was paid to the U.S. to cover the administrative costs of the ERAP. The Marshall Plan money was in the form of grants that did not have to be repaid. In addition to ERP grants, the Export-Import Bank (an agency of the U.S. government) at the same time made long-term loans at low interest rates to finance major purchases in the US, all of which were repaid.
In the case of Germany there also were 16 billion marks of debts from the 1920s which had defaulted in the 1930s, but which Germany decided to repay to restore its reputation. This money was owed to government and private banks in the U.S., France and Britain. Another 16 billion marks represented postwar loans by the U.S. Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.
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, which did not overtly participate in World War II. 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. Austria, 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 the Soviet Union itself received about the same as 16 European countries received in total from Marshall Plan aid.
In accordance with the agreements with the USSR shipment of dismantled German industrial installations from the west began on March 31, 1946. Under the terms of the agreement the Soviet Union would in return ship raw materials such as food and timber to the western zones. In view of the Soviet failure to do so, the western zones halted the shipments east, ostensibly on a temporary basis, although they were never resumed. It was later shown that the main reason for halting shipments east was not the behavior of the USSR but rather the recalcitrant behavior of France. Examples of material received by the USSR were equipment from the Kugel-Fischer ballbearing plant at Schweinfurt, the Daimler-Benz underground aircraft-engine plant at Obrigheim, the Deschimag shipyards at Bremen-Weser, and the Gendorf powerplant.
The USSR did establish COMECON as a riposte to the Marshall Plan to deliver aid for Eastern Bloc countries, but this was complicated by the Soviet efforts to manage their own recovery from the war. 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.
From the end of the war to the end of 1953, the U.S. provided grants and credits amounting to $5.9 billion to Asian countries, especially China/Taiwan ($1.051 billion), India ($255 million), Indonesia ($215 million), Japan ($2.44 billion), South Korea ($894 million), Pakistan ($98 million) and the Philippines ($803 million). In addition, another $282 million went to Israel and $196 million to the rest of the Middle East. All this aid was separate from the Marshall Plan.
Canada, like the United States, was little damaged by the war and in 1945 was one of the world's largest economies. It operated its own aid program. In 1948, the U.S. allowed ERP aid to be used in purchasing goods from Canada. Canada made over a billion dollars in sales in the first two years of operation.
The total of American grants and loans to the world from 1945 to 1953, came to $44.3 billion.
Initial criticism of the Marshall Plan came from a number of 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 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. Neoliberal icon Ludwig von Mises of course 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". Some critics and Congressmen at the time believed that America was giving too much aid to Europe. America had already given Europe $9 billion in other forms of help in previous years. The Marshall Plan gave another $13 billion, equivalent to about $100 billion in 2010 value. Critics did not think that it was necessary for Americans to be using so much money to help nations they had already assisted in many ways before.
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 US 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. 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 US investment during the Korean War.
Criticism of the Marshall Plan also aims at showing that it began 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 actions against their colonial subjects in East Asia, in French Indochina and the Netherlands East Indies respectively. 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". The Netherlands received U.S. aid for economic recovery in the Netherlands Indies. In January 1949, the American government suspended this aid in response to the Dutch efforts to restore colonial rule in Indonesia during the Indonesian National Revolution, and it implicitly threatened to suspend Marshall aid to the Netherlands, if the Dutch government continued to oppose the independence of Indonesia.
Alfred Friendly, press aide to the US Secretary of Commerce W. Averell Harriman, 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?"
In Ian Flemming's novel Casino Royale, CIA agent Felix Leiter gives James Bond a large amount of money, allowing Bond to continue his critical baccarat game against the villainous Le Chiffre. A note in the envelope humorously compares the loan to Marshall Aid.
The Spanish comedy film Welcome Mr. Marshall! tells the story of a small Spanish town, Villar del Río, which hears of the visit of American diplomats and begins preparations to impress the American visitors in the hopes of benefitting under the Marshall Plan.
The board game Twilight Struggle includes a card called "Marshall Plan", which greatly increases American influence in Western Europe.
In Mad Men season 3, episode 9 ("Wee Small Hours"), Conrad Hilton tells Don Draper the hotel chain's expansion plan, to bring America to the world (whether they like it or not, and even to the moon), is "Generosity. Like the Marshall Plan."
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