The Marshall Plan
View from the United States
The Marshall Plan is a touchstone of American philanthropy after World War II, at least for Americans. It is part of our story of why American is unique, for a certain generation of Americans. Interestingly, those Americans that take pride in the Marshall Plan today probably would never support anything like it now.
What was the Marshall Plan?
The Marshall Plan was an initiative to support Western Europe after the end of World War I. The plan was extended to all of Europe, but rejected by the Eastern Bloc states. The impetus behind the plan was history after World War I. After that war the allies demanded reparations from Germany that ended up plunging that country into chaos, and then the Nazi Party into power. The allies wanted to prevent that situation from repeating*.
The Marshall Plan was the first recovery plan by a single nation to multiple post-war countries, both allies and previous enemies. This is seen as normal now, but the Marshall Plan was the first in the modern era where a single country set out to rebuilt so many other nations economies.
The official name of the Marshall Plan was the European Recovery Program (ERP). The United States officials worked with their European counterparts to identify and fund endeavors that would help a country to recover to pre-WWII wealth and kick start manufacturing regrowth.
In the first four years of the Marshall Plan, $13 Billion dollars were lent or granted to Western European Countries. That is approximately $173 Billion in 2023 dollars.
Need for the Marshall Plan
To understand why the Marshall Plan was implemented, one needs to first understand the economic reality after the War. The only 2 countries were not devastated by World War II, Canada and the United States. The United States accounted for 50% of world gross domestic product and held 80% of the world’s hard currency reserves. (For more information on the currency situation see (The End of Bretton Woods.)
The United States needed to support their Western European trading partners and allies by helping to rebuilding their economies and thus cementing their relationship to the United States.
The reason for implementing this support plan came as communists were posed to take over Greece and Turkey. Great Britain the traditional supporter of the anti-communist parties was unable to continue to provide support to the area. The Marshall Plan was, in part, designed to support these countries and keep them out of the Soviet sphere of influence. It was seen at the time to be critical to both keep communist parties out of governments and to built support for the Untied States and democracy.
Purpose of the Marshall Plan
The Marshall Plan had both stated and unstated goals.
Kick start European economic expansion.
Marshall plan funds were designed to help rehabilitate target countries’ economy and industries after World War II. The distribution of funds were based on the economy size before the war, and designed to start investment back into those economies.
Resolve European Hunger.
After the devastation of the war, hunger in the battle zones was rampant. Fields, groves, and livestock farms had all been decimated. Furthermore, rural areas were hard to clear with left over munitions scattered around, and so it was a slow process to recover these capabilities. American farmers were subsidized and provided food for millions in Europe.
Project and Protect Democracy - and America
As noted above, both Greece and Turkey were at risk of “falling” to communism and joining the Eastern Bloc. America used aid as leverage to reinforce American support. This same type of support was not available from the Soviet Union, which suffered much more damage than any nation except Nazi Germany. The Marshall Plan blunted some of the support for the communist parties in France, Italy and Finland.
Create a Market for American Goods
As noted, the United States controlled half of the world’s GDP after World War II. One of the goals of the Marshall Plan was to provide markets for American goods. This was important not only because Europe did not have the funds to purchased American goods, but the national manufacturers needed somewhere to sell their goods. Moving the US economy from a war footing to a capitalist footing required sales from US firms and most of the world could not afford these goods otherwise.
The Success of the Marshall Plan
The Marshall Plan was followed by similar initiatives in the 1950s through to the 1970s both in Europe and in Asia. The full impact has been estimated in wildly different ways. In pure dollar terms, the amount lent or granted would have only added about ½ a present of additional GDP. On the other hand, the Western recipients of Marshall Plan funds grew between 15- 25% in four years and this rapid growth is often credited to the Marshall Plan.
The Eastern Bloc and Soviet Union were invited to participate but the Soviet Union blocked participation by the Eastern Bloc. The Soviet Union did not just block these funds for their Soviet allies, but also blocked Finland and other unaligned nations from taking part in areas where Russia had influence. It wasn’t until Yugoslavia broke with the Soviet Union under Tito, that Yugoslavia did participate in the US initiatives.
Criticism of the Plan
There were some prominent economists that criticized the program at inception. One complaint was that directed investments were never going to be a successful as the free market investments and so the United States should not be funding infrastructure.
For economist looking back at the plan, their criticisms are structured around motives and outcomes. Today some experts believe this was economic imperialism, forcing Western Europe to adopt the United States trading system as opposed to the Soviet system. There are other economists who don’t see the Marshall Plan as promoting the United States’ economic model, but instead it provided the funds and ability for Western Europe to support Socialist initiatives that might have been mistakes.
American politicians in the 1940s quickly grew tired of supporting countries in Europe with rhetoric about putting America first after we “saved their asses” from Hitler. Support within the American government changed the momentum by moving away from a single plan, which was easy to cut funds for, and selling it a bit at a time which made it more acceptable to politicians.
In any case, the criticisms of the Marshall Plan in retrospect are very different from the public perception immediately after the war.
Legacy of the Marshall Plan
Most economic policies don’t really create a “legacy”. However, the Marshall Plan created the blueprint for economic support with multiple recipients concurrently. China’s Belt and Road Initiative calls back to the plan, and other multinational aid schemes refer to it as well. Further more the Marshall Plan outlined a process for improving economies that was used with the fall of communist governments in eastern Europe.
* The Soviet Union did take end up taking much of the manufacturing infrastructure from the Nazi forces in Germany, Austria, and other Nazi installations in Eastern Europe. These were regarded essentially as “spoils of war”, not reparations.