Read this essay on the Marshall Plan.
A. Summary of Conclusions Our central conclusion is that the Marshall Plan did matter. But it did not matter in the way that the “folk wisdom” of international relations assumes. Milward (1984) is correct in arguing that Marshall Plan aid was simply not large enough to significantly stimulate Western European growth by accelerating the replacement and expansion of its capital stock. Nor did the Marshall Plan matter by financing the reconstruction of devastated infrastructure, for as we show below, reconstruction was largely complete before the program came on stream.2 The Marshall Plan did play a role in alleviating resource shortages. But this channel was not strong enough to justify the regard in which the program is held. By 1948 and the beginning of Marshall Plan aid bottlenecks were scarce, and markets were good at alleviating their impact. Rather, the Marshall Plan significantly sped Western European growth by altering the environment in which economic policy was made. In the immediate aftermath of World War II politicians who recalled the disasters of the Great Depression were ill-disposed to “trust the market,” and eager to embrace regulation and government control. Had European political economy taken a different turn, post-World War II European 2Wartime relief, post-World War II UNRRA aid, and pre-Marshall Plan “interim aid” may well have significantly speeded up the reconstruction process. Although we do not address the question of the role of pre-Marshall Plan aid in this paper, we hope to examine its effects in future work. 4 recovery might have been hobbled by clumsy allocative bureaucracies that rationed scarce foreign exchange and placed ceiling prices on exportables to protect the consumption of urban working classes. Yet in fact the Marshall Plan era saw a rapid dismantling of controls over product and factor markets in Western Europe. It saw the restoration of price and exchange rate stability. To some degree this came about because underlying political-economic conditions were favorable (and no one in Europe wanted a repeat of interwar experience). To some degree it came about because the governments in power believed that the “mixed economies” they were building should have a strong pro-market orientation. Marshall Plan aid gave them room to maneuver in order to carry out their intentions: without such aid, they would have soon faced a harsh choice between contraction to balance their international payments and severe controls on admissible imports. To some degree it came about because Marshall Plan administrators it pressured European governments to decontrol and liberalize even when they wished to do otherwise. In post-World War II Western Europe the conditions imposed, formally and informally, for the receipt of U.S. aid encouraged the reductions in spending needed for financial stability, the relaxation of controls that prevented markets from allocating resources, and the opening of economies to trade. Marshall Plan “conditionality” pushed governments toward versions of the “mixed economy” that had more market orientation and less directive planning in the mix. While post- World War II European welfare states and governments are among the most extensive in proportion to economic life in history, they are built on top of, and do not supplant or bypass, the market allocation of goods 5 and factors of production. The Marshall Plan should thus be thought of as a large and highly successful structural adjustment program.3 The experience of the Marshall Plan therefore suggests lessons for the role the West can play today. Although the yield of a Marshall Plan for Eastern Europe and the Soviet Union might well be high, the benefits would not not direct increases in productive capacity made possible by aid. Aid to Eastern Europe may accelerate growth in the manner of the Marshall Plan if it leads to policies that accelerate the move toward market organization, free trade, and financial stability. Aid might perhaps help as an incentive and as a cushion to make reform possible. But it is not a substitute for reform, or for the process of structural adjustment.
Recent Comments