Marshall Plan
The Marshall Plan was an American initiative enacted in 1948 to provide foreign aid to Western Europe. The United States transferred $13.3 billion in economic recovery programs to Western European economies after the end of World War II in Europe. Replacing an earlier proposal for a Morgenthau Plan, it operated for four years beginning on April 3, 1948, though in 1951, the Marshall Plan was largely replaced by the Mutual Security Act. The goals of the United States were to rebuild war-torn regions, remove trade barriers, modernize industry, improve European prosperity and prevent the spread of communism. The Marshall Plan proposed the reduction of interstate barriers and the economic integration of the European continent while also encouraging an increase in productivity as well as the adoption of modern business procedures.
The Marshall Plan aid was divided among the participant states roughly on a per capita basis. A larger amount was given to the major industrial powers, as the prevailing opinion was that their resuscitation was essential for the general European revival. Somewhat more aid per capita was also directed toward the Allied nations, with less for those that had been part of the Axis or remained neutral. The largest recipient of Marshall Plan money was the United Kingdom. The next highest contributions went to France and West Germany. Some eighteen European countries received Plan benefits. Although offered participation, the Soviet Union refused Plan benefits and also blocked benefits to Eastern Bloc countries, such as Romania and Poland. The United States provided similar aid programs in Asia, but they were not part of the Marshall Plan.
Its role in rapid recovery has been debated. The Marshall Plan's accounting reflects that aid accounted for about 3% of the combined national income of the recipient countries between 1948 and 1951, which means an increase in GDP growth of less than half a percent.
Graham T. Allison states that "the Marshall Plan has become a favorite analogy for policy-makers. Yet few know much about it." Some new studies highlight not only the role of economic cooperation but approach the Marshall Plan as a case concerning strategic thinking to face some typical challenges in policy, as problem definition, risk analysis, decision support to policy formulation, and program implementation.
In 1947, two years after the end of the war, industrialist Lewis H. Brown wrote, at the request of General Lucius D. Clay, A Report on Germany, which served as a detailed recommendation for the reconstruction of post-war Germany and served as a basis for the Marshall Plan. The initiative was named after United States secretary of state George C. Marshall. The plan had bipartisan support in Washington, where the Republicans controlled Congress and the Democrats controlled the White House with Harry S. Truman as president. Some businessmen feared the Marshall Plan, unsure whether reconstructing European economies and encouraging foreign competition was in the US' best interests. The plan was largely the creation of State Department officials, especially William L. Clayton and George F. Kennan, with help from the Brookings Institution, as requested by Senator Arthur Vandenberg, chairman of the United States Senate Committee on Foreign Relations. Marshall spoke of an urgent need to help the European recovery in his address at Harvard University in June 1947. The purpose of the Marshall Plan was to aid in the economic recovery of nations after World War II and secure US geopolitical influence over Western Europe. To combat the effects of the Marshall Plan, the USSR developed its own economic recovery program, known as the Molotov Plan.
The phrase "equivalent of the Marshall Plan" is often used to describe a proposed large-scale economic rescue program.
Development and deployment
The reconstruction plan, developed at a meeting of the participating European states, was drafted on June 5, 1947. It offered the same aid to the Soviet Union and its allies, but they refused to accept it, under Soviet pressure as doing so would allow a degree of US control over the communist economies. Secretary Marshall became convinced Stalin had no interest in helping restore economic health in Western Europe.President Harry Truman signed the Marshall Plan on April 3, 1948, granting $5 billion in aid to 16 European nations. During the four years that the plan was in effect, the United States donated $17 billion in economic and technical assistance to help the recovery of the European countries that joined the Organisation for European Economic Co-operation. The $17 billion was in the context of a US GDP of $258 billion in 1948, and on top of $17 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; that new plan gave away about $7.5 billion annually until 1961 when it was replaced by another program.
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 was expressed by Paul Hoffman, head of the Economic Cooperation Administration, in 1949 when he told Congress 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":
Wartime destruction
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. Millions of refugees were in temporary camps. The region's trade flows had been thoroughly disrupted; millions were in refugee camps living on aid from the United States, which was provided by the United Nations Relief and Rehabilitation Administration and other agencies. Food shortages were severe, especially in the harsh winter of 1946–47. From July 1945 through June 1946, the United States shipped 16.5 million tons of food, primarily wheat, to Europe and Japan. It amounted to one-sixth of the American food supply and provided 35 trillion calories, enough to provide 400 calories a day for one year to 300 million people.Especially damaged was transportation infrastructure, as railways, bridges, and docks had been specifically targeted by airstrikes, 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 the process.
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.
Initial post-war events
Slow recovery
Most of Europe's economies were recovering slowly, as unemployment and food shortages led to strikes and unrest in several nations. Agricultural production was 83% of 1938 levels, industrial production was 88%, and exports 59%. Exceptions were the United Kingdom, the Netherlands and France, where by the end of 1947 production had already been restored to pre-war levels before the Marshall Plan. Italy and Belgium would follow by the end of 1948.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, the bombing had destroyed 5,000,000 houses and apartments, and 12,000,000 refugees from the east had crowded in.
The split of Germany into zones also interrupted food supplies within the country, leading to a drop from 80% self-sufficiency in food production for all of pre-war Germany to 50% in the western zones at pre-war production levels.
On top of that reduction, the food production in the western zones was 30% below pre-war levels in 1946–48.
The drop in food production across Europe can also be attributed to a drought that killed a major portion of the wheat crop while a severe winter destroyed most of the wheat crop the following year. This caused most Europeans to rely on a 1,500-calorie-per-day diet or less.
Industrial production fell more than half and reached pre-war levels at the end of 1949. While Germany struggled to recover from the destruction of the War, the recovery effort began in June 1948, moving on from emergency relief. The currency reform in 1948 was headed by the military government and helped Germany to restore stability by encouraging production. The reform revalued old currency and deposits and introduced a new currency. Taxes were also reduced and Germany prepared to remove economic barriers.
During the first three years of occupation of Germany, the Allied occupational authorities 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. Historian Nicholas Balabkins concluded 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 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 Bloc nations would join the plan, and thus be pulled out of the emerging Soviet bloc, but that did not happen.