Marshall Plan
The Marshall Plan (officially the European Recovery Program, ERP) was an American initiative enacted in 1948 to provide foreign aid to Western Europe. The United States transferred $13.3 billion (equivalent to $173 billion in 2023) in economic recovery programs to Western European economies after the end of World War II. Replacing an earlier proposal for a Morgenthau Plan, it operated for four years beginning on April 3, 1948,[1] 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.[2] 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.[3]
For the computer program, see Marshall Plan (software).Long title
An act to promote world peace and the general welfare, national interest, and foreign policy of the United States through economic, financial, and other measures necessary to the maintenance of conditions abroad in which free institutions may survive and consistent with the maintenance of the strength and stability of the United States.
April 3, 1948
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 (receiving about 26% of the total). The next highest contributions went to France (18%) and West Germany (11%). Some eighteen European countries received Plan benefits.[4] Although offered participation, the Soviet Union refused Plan benefits and also blocked benefits to Eastern Bloc countries, such as Romania and Poland.[5] The United States provided similar aid programs in Asia, but they were not part of the Marshall Plan.[A]
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,[6] which means an increase in GDP growth of less than half a percent.[7]
Graham T. Allison states that "the Marshall Plan has become a favorite analogy for policy-makers. Yet few know much about it."[8] 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.[9]
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.[10] 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.[11] Marshall spoke of an urgent need to help the European recovery in his address at Harvard University in June 1947.[12] 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.[13] To combat the effects of the Marshall Plan, the USSR developed its own economic recovery program, known as the Molotov Plan. However, the plan was said to have not worked as well due to the USSR particularly having been hit hard by the effects of World War II.[14]
The phrase "equivalent of the Marshall Plan" is often used to describe a proposed large-scale economic rescue program.[15]
Wartime destruction[edit]
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.[27] 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.[28]
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.[29]
The only major powers whose infrastructure had not been significantly harmed in World War II were the United States and Canada.[30][31] 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[edit]
Slow recovery[edit]
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%.[32] Exceptions were the United Kingdom, the Netherlands and France, whereby 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.[33] 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.[34]
Food production was two-thirds of the pre-war level in 1946–48, while normal grain and meat shipments no longer arrived from the East. The drop in food production can be attributed to a drought that killed a major portion of the wheat crop while a severe winter destroyed the majority of the wheat crop the following year. This caused most Europeans to rely on a 1,500 calorie per day diet.[35] 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 at the end of 1949.[36] 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.[37]
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.[38] Historian Nicholas Balabkins concluded that "as long as German industrial capacity was kept idle the economic recovery of Europe was delayed."[39] 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."[40] In addition, the strength of Moscow-controlled communist parties in France and Italy worried Washington.[41]
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 Bloc nations would join the plan, and thus be pulled out of the emerging Soviet bloc, but that did not happen.
Soviet negotiations[edit]
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.[49] Molotov refrained from supplying accounts of Soviet assets. 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.[50]
After six weeks of negotiations, Molotov rejected all of the American and British proposals.[50] During negotiations with the French and the British, Molotov received a ciphered telegram from Vyshinsky, Soviet Minister of Foreign Affairs. The official position of the Soviet Union, on Stalin's orders, had changed dramatically, and now Moscow's representatives in Paris were forcefully rejecting the Marshall Plan.[51] Due to this change, Molotov rejected the counteroffer to scrap the British-American "Bizonia" and to include the Soviet zone within the newly constructed Germany.[50] 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.[50]
Passage in Congress[edit]
Congress, under the control of conservative Republicans, agreed to the program for multiple reasons. The 20-member conservative isolationist Senate wing of the party, based in the rural Midwest and led by Senator Kenneth S. Wherry (R-Nebraska), was outmaneuvered by the emerging internationalist wing, led by Senator Arthur H. Vandenberg (R-Michigan). The opposition argued that it made no sense to oppose communism by supporting the socialist governments in Western Europe; and that American goods would reach Russia and increase its war potential. They called it "a wasteful 'operation rat-hole'"[72] Vandenberg, assisted by Senator Henry Cabot Lodge Jr. (R-Massachusetts) admitted there was no certainty that the plan would succeed, but said it would halt economic chaos, sustain Western civilization, and stop further Soviet expansion. Senator Robert A. Taft (R-Ohio) hedged on the issue. He said it was without economic justification; however, it was "absolutely necessary" in "the world battle against communism." In the end, only 17 senators voted against it on March 13, 1948[73] A bill granting an initial $5 billion passed Congress with strong bipartisan support. Congress eventually allocated $12.4 billion in aid over the four years of the plan.[74]
Congress reflected public opinion, which resonated with the ideological argument that communism flourishes in poverty. Across America, multiple interest groups, including business, labor, farming, philanthropy, ethnic groups, and religious groups, saw the Marshall Plan as an inexpensive solution to a massive problem, noting it would also help American exports and stimulate the American economy as well. Major newspapers were highly supportive, including such conservative outlets as Time magazine. Vandenberg made sure of bipartisan support on the Senate Foreign Relations Committee. The Solid Democratic South was highly supportive, the upper Midwest was dubious, but heavily outnumbered. The plan was opposed by conservatives in the rural Midwest, who opposed any major government spending program and were highly suspicious of Europeans.[75] The plan also had some opponents on the left, led by Henry A. Wallace, the former vice president. He said the plan was hostile to the Soviet Union, a subsidy for American exporters, and sure to polarize the world between East and West.[76] However, opposition against the Marshall Plan was greatly reduced by the shock of the communist coup in Czechoslovakia in February 1948. The appointment of the prominent businessman Paul G. Hoffman as director reassured conservative businessmen that the gigantic sums of money would be handled efficiently.[77]
Negotiations[edit]
Turning the plan into reality required negotiations among the participating nations. 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 level of might. The Benelux countries (Belgium, Netherlands, and Luxembourg), 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.[78]
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.[78] 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.[79]
Agreement was eventually reached, and the Europeans sent a reconstruction plan to Washington, which was formulated and agreed upon by the Committee of European Economic Co-operation in 1947. In the document, the Europeans asked for $22 billion in aid. Truman cut this to $17 billion in the bill he put to Congress.
On March 17, 1948, Truman addressed European security and condemned the Soviet Union before a hastily convened Joint Session of Congress. Attempting to contain spreading Soviet influence in the Eastern Bloc, 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.[80]
Members of the Republican-controlled 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.[80]
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 Organisation for European Economic Co-operation (later called the Organisation for Economic Co-operation and Development or OECD), which was headed by Frenchman Robert Marjolin.
Funding for CIA fronts[edit]
The Central Intelligence Agency received 5% of the Marshall Plan funds (about $685 million spread over six years), which it used to finance secret operations abroad. Through the Office of Policy Coordination money was directed toward support for labor unions, newspapers, student groups, artists and intellectuals, who were countering the anti-American counterparts subsidized by the communists. The largest sum went to the Congress for Cultural Freedom. There were no agents working among the Soviets or their satellite states.[111] The founding conference of the Congress for Cultural Freedom was held in Berlin in June 1950. Among the leading intellectuals from the US and Western Europe were writers, philosophers, critics and historians: Franz Borkenau, Karl Jaspers, John Dewey, Ignazio Silone, James Burnham, Hugh Trevor-Roper, Arthur Schlesinger Jr., Bertrand Russell, Ernst Reuter, Raymond Aron, Alfred Ayer, Benedetto Croce, Arthur Koestler, Richard Löwenthal, Melvin J. Lasky, Tennessee Williams, Irving Brown, and Sidney Hook. There were conservatives among the participants, but non-communist (or former communist) leftists were more numerous.[112]
Repayment[edit]
The Organisation for European Economic Co-operation (OEEC) took the leading role in allocating funds, and the OEEC 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. Five percent of the counterpart money was paid to the US to cover the administrative costs of the ERP.[119] In addition to ERP grants, the Export-Import Bank (an agency of the US 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 US, France, and Britain. Another 16 billion marks represented postwar loans by the US. 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.[120]
