Beginning the Marshall Plan

The postwar Marshall Plan, aimed at helping Europe’s war-shattered economies to recover, ran for four years from April 3rd, 1948. Generous as it was of the US to give away $12bn, part of the motivation behind it was to prevent the spread of communism. It was not just money, but the dropping of barriers to trade and the ending of damaging and unnecessary regulations.

Some have claimed it as the basis of the German economic recovery, but the statistics don’t support this. The UK received about 26% of the total, and France 18%, compared to West Germany’s 11%. Yet neither the UK or France recovered as fast or as far as Germany did. Furthermore, it accounted for only 3% of the combined national income of the recipient countries (1948-1951), meaning it increased their GDP by only 0.3%. It was Ludwig Erhard’s “bonfire of restrictions” that gave birth to the German Economic Miracle.

The Soviet Union not only declined to participate, but prevented its satellites such as Poland and Hungary from receiving any of its largesse. It formed its own Molotov Plan, which later merged into Comecon. It also exacted huge reparations from countries that had sided with the Axis powers. Stalin took the view that the plan was American imperialism, designed to make the European countries economically dependent on America.

The Marshall Plan was immensely generous of the US, representing about $100bn at today’s values. It was not without its critics, however, with some saying that it encouraged countries to keep going with outdated and failing industries. They did this largely for political, rather than economic, reasons. Giant industries such as coal and steel constituted powerful constituencies, and it is claimed by some that Marshall Plan money enabled governments to keep open some plants that should have been replaced by more modern ones.

These seem to be minority views, with the general consensus being that the Marshall Plan helped, but played a less significant role than did the Erhard reforms in Germany, and similar economic liberalization in other countries. There is a similar discussion today about the role played by development aid in helping to boost the economy of poorer countries. Some say it helps, but others instead urge poorer countries to cut tariffs and regulations, and liberalize their economies, while we should open our markets more to their produce.