With this first series of articles, CoVstat_IT opens its new economic research column. The final objective is to outline and implement a dedicated statistical dashboard similar to the epidemiological one, providing a comprehensible model and offering simplified interpretations accessible for the large public.
The Marshall Plan is imprinted in our collective memory as maybe the most successful government reconstruction plan applied at such a huge scale at international level.
However, we are going to argue, the present relevance of the Marshal Plan during the Great COVID-19 Lockdown of 2020 relies upon the by now forgotten gory details of its implementation, a masterpiece of operational accuracy.
The public speech delivered on the 5th of June 1947 by the Secretary of State George C. Marshall to the graduates of Harvard University outlined the simple and sound reasoning behind the plan: the US government ought to “whatever is able” (a much more modest and realistic perspective than the “whatever it takes” typical of contemporary central banking) to restore the “normal economic health” of Europe, without which “no political and no assured peace“ would be possible.
Actually, it took much difficult and dirty-hands political work to “sell” the plan to the American people, but the very clear initial line of reasoning of Marshall (economic crisis brings social dissatisfaction that leads to political instability) struck a chord in the general public and proved to be the right one.
So, the Marshall Plan came into reality: the European Recovery Program (ERP), active from 1948 to 1952 with a budget of 13$ billions (equivalent to 143$ billions in 2017).
Today, when we refer to the ERP, we should not mistake it for nowadays central bank “helicopter money” to the public and the private sector.
The ERP, in fact, was a developmental project coordinated by ad hoc political and economic agencies: aid and support were conditional to the enactment of planned measures for shared objectives. Let us report some historical examples of specific program operations that show the level of detail and control of the ERP measures, as opposed to generic credit lines and simple grants of funds:
- Pays freight subsidies for 16.8 million private voluntary relief packages from Americans to Europe.
- Funds building of a new wharf in North Borneo to help that British colony export vitally needed rubber.
- Assists in building railroads and water systems in French North Africa.
- $50 million for medicine to combat tuberculosis.
- Technical assistance program: over 3,000 Europeans make six-month visits to various U.S. industries to learn new techniques; there was a similar program in agriculture.
- The Ford Motor Co. in Britain receives funds to replace machine tools needed to produce cars, trucks, and tractors for export, thereby earning valuable foreign exchange credits.
- The Otis Elevator Company (U.S.) helps to modernize British factories, and the value of its investment is guaranteed by ECA insurance.
- ECA money enables Portugal to purchase key equipment and materials to build a new hospital-tender ship for its cod-fishing fleet.
- The French aircraft industry in able to purchase propellers for the aircraft it is producing.
- An alcohol production plant in Scotland is granted $6.5 million, thereby reducing Britain’s need to import alcohol and facilitating plastic, pharmaceutical, and rayon production.
In the US, the Economic Cooperation Administration (ECA) was established to revitalize European production and solve complicated trade and financial problems, enlisting many private-sector professionals with technical and business acumen.
The European countries created the Organization for European Economic Cooperation(OEEC), the first form of supranational economic cooperation in the history of the continent.
The OEEC would collect the desiderata of each national State, prepare actionable proposals and present them to the ECA in order to obtain a transfer of funds.
In practice, the largest part of the ERP loans and grants were directly spent in exchange for US imports.
Approximately 70% of the total ERP budget consisted of real US goods: raw materials (3.5$ billions), food, seed and fertilizer (3.2$ billions), machinery and vehicles (1.9$ billions), fuel (1.6$ billions).
The ERP fund would promptly liquidate US producers with US dollars and accept repayments in local currency from the receiving European nations; usually, the local currency reserves of the ERP fund were in turn re-injected into circulation within the originating country for new developmental projects.
We can distinguish between a first phase of the ERP providing food and fuel for immediate relief, and a second phase aimed at modernizing and expanding industrial centers and transportation services.
From early 1948 to 1949, food declined from roughly 50% of the total budget to 27%, whereas raw materials and machinery rose from 20% to roughly 50%.
Technical assistance represented only 1% of US aid to Europe, but it possibly offered the greatest return on investment of the entire ERP: American technical, engineering, manufacturing, statistical and marketing know-how were transferred to European professionals, workers and managers, both in the private and the public sector.
Statistically, local resources accounted for 80-90% of capital formation in post-war Europe. Nonetheless, the ERP provided the “critical margin” that made European self-help possible, by solving otherwise unsurmountable issues (essential imports, production bottlenecks, inflation).
Psychologically, the Marshall Plan was a sudden boost to European morale since the aforementioned speech of the Secretary of State: the US helped Europe to help itself and the European people, thanks to a new perspective, rebuilt self-esteem and worked hard with a positive mind-set.
In summary, from a philosophical point of view the Marshall Plan was mainly characterized by:
- a strong leadership style based on solid rational arguments accompanied by a shared and inclusive decision process;
- the definition of clear, specific and measurable goals;
- a qualitative focus on productivity rather than a concentration on budget amounts;
- a “recovery” attitude (self-help) as opposed to mere assistance and support.
The Marshall Plan was proposed to all the States of Europe, but only 16 West-European countries accepted it: USSR and its satellites rejected the American offer.
Since then the world has changed, we passed from two rigid bilateral blocks to an unstable multilateral equilibrium.
Are there any international players that are already behaving according the Marshall Plan “script”? Does this “script” need an update? Such important questions require another in-depth discourse drawing inspiration from this long but needed historical overview.
- Blueprint for Recovery by Michael J. Hogan – Article published on the U.S. Embassy website in Germany celebrating the 50th anniversary of the Marshall Plan. The article, by the former editor of Diplomatic History, reviews the origins of the Marshall Plan, why the plan succeeded, and lessons learned.
- Funding Amounts and Examples – Examples of Marshall Plan Aid
- Marshall Plan 1947-1997: A German View by Susan Stern – Reprinted from German Missions in the United States.
- Reflections on the Marshall Plan by Henry A. Kissinger (May, 2015)
- The Marshall Plan: Design, Accomplishments, and Significance by Curt Tarnoff – This report discusses the Marshall Plan’s design, implementation, accomplishments, and its relevance to current foreign aid programs. The Appendix lists numerous related studies and publications.