Thoughts of the Week

Created: 2000-03-27
Last Modified: 2000-03-27
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Thoughts on Visiting the OECD

J. Bradford DeLong

March 2000

I spent the first half of spring break this year on the edge of the Bois du Boulogne--the great park on the west side of Paris in a large bend of the Seine--wandering around western Paris and giving talks at the OECD, the Organization for Economic Cooperation and Development, an organization housed in one beautiful former Rothschild chateau and a number of more modern office-like buildings that are less distinguished. I attended a number of meetings. I listened to some undistinguished simultaneous translations. I looked around at a large bureaucratic organization that churns out unbelievable quantities of paper, much of it--since the OECD largely moves by consensus and has some 29 member countries--drained of any substance that some current national government thinks might work to its short-run politicaldisadvantage. And as I sat in large, windowless underground conference rooms decorated in what I think of as 1960s chic--modernist colored glass chandeliers and so forth--I found myself getting teary-eyed.

One reason I found myself getting teary-eyed was that on the plane over to Paris I read a novel--Alan Furst's The World at Night--about Paris under the Nazi occupation. And the contrast between the Paris that I saw in my mind's eye while reading the novel and Paris at the start of the twenty-first century--free, rich, vibrant, and peaceful--was remarkable. Sixty years ago the Nazis were two months away from conquering Paris. Today it is hard to believe that the city will ever be (or was) under threat of conquest).

A second reason was that Paris really is lovely in the springtime.

A third reason was that to watch the OECD go about its business reinforces one's sense of how well the twentieth century has turned out. People at the end of the twentieth century by and large gather not to talk of how to resist (or assist) dictators or to wage (or avert) wars. Instead, they by and large gather to talk--for the most part sincerely--of how to spur economic growth and make the world more productive. The hopes that the Rothschilds had when they gave the chateau to the OECD have mostly been fulfilled. Post-World War II economic growth--especially in western Europe--has been miraculous. And in this relatively but not absolutely good outcome the OECD, in its origin as a club of Marshall Plan donors and recipients deciding how to organize recovery and allocate aid dollars, played an important role.

The success of the post-World War II revival can be gauged by matching its pace with the hobbled post-World War I recovery of Europe. By 1949 average income per capita in Britain, France and Germany had recovered to within a hair of pre-war levels, some two years ahead of the post-World War I pace. By 1952, seven years after the war and at the effective end of the Marshall Plan, incomes per capita were 15 percent above pre-war levels. Western Europe did not achieve a similar degree of recovery in the 11 years separating World War I from the Great Depression.

Post-World War II Europe managed to obtain rapid political and financial stability on the one hand and avoid extended controls on internal prices and quantities that would disable the market mechanism on the other. The strong but moderate labor movement, heavy reliance on market price signals to allocate quantities, and extensive tax and transfer systems to somewhat level the market-generated distribution of income together formed an institutional régime that proved extraordinarily successful when veiwed from a world-historical perspective.

What role did the Marshall Plan play in helping Europe find its way to the high-growth post-WWII régime? It did not make Europe prosperous by accelerating the pace of European investment. It did not significantly transform Europe by easing bottlenecks, for in a well-functioning market economy it is hard to argue that such bottlenecks had more than a transient impact on the level of production. Market economies are best at finding and making use of possibilities for substitution.

But would the market economy have been allowed to do its job? The disastrous outcome of laissez-faire policies in the Depression left politicians ill-disposed to "trust the market," and eager to embrace regulation and demand stimulation. Had European political economy taken a different turn, post-World War II European recovery might have been hobbled by government actions that cramped market mechanisms. Perhaps clumsy allocative bureaucracies would have rationed scarce foreign exchange, and placed ceiling prices on exportables to protect the consumption of urban working classes. The war had given post-WWII Europe substantial experience with economic planning and rationing. Militant urban working classes calling for wealth redistribution and an end to the sytem tht had brought Great Depressions voted Communist in such numbers as to make the Communist Party a potential part of a permanent ruling political coalition in France and Italy.

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 the interwar experience). To some degree this 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 to carry out their intentions: without such aid, they would soon have faced a harsh choice between contraction to balance their international payments and severe controls on admissable imports. To some degree this came about because Marshall Plan administrators wished it--and put pressure on European governments to decontrol and liberalize even when they wished to do otherwise.

The Marshall Plan provided extra resources to make financial stabilization more politically palatable. It also gave politicians in Western Europe who did seek early stabilization a trump-such stabilization was necessary for Marshall aid. The U.S. refused to release French counterpart funds to the Treasury in 1948 until the new government raised its taxes. French officials were outraged: nevertheless, they took steps to obtain the quick release of the funds. Countries had to agree to balance government budgets, restore internal financial stability, and stabilize exchange rates. Marshall Planners also sought a labor movement interested in raising productivity rather than in redistributing income from rich to poor. With labor peace a potential precondition for Marshall aid, labor organizations were willing to push for productivity improvements first and defer redistributions to later. Morever, European labor movements split over the question of whether Marshall aid should be welcomed--which left the Communists on the wrong side, opposed to economic recovery.

The passage of the Marshall Plan was a near-run thing. From the left, independent presidential candidate Henry Wallace attacked it as a plot to transfer the wealth of the American people to plutocrats at home and abroad. In Wallace's eyes, the Marshall Plan was "the economic side of the bankrupt Truman doctrine. While it is being sold to the American people as a peaceful plan for cooperation and recovery, it will use the tax dollars of the American people for the benefit of private capitalists at home and abroad." Wallace saw the Marshall Plan as an attempt by Truman and his advisors to create what we might think of as fascism with a human face: although "cloaked in decent language," the Marshall Plan had been "designed to suppress the democratic movements in Europe."

From the right, Republicans like Senator Kenneth Wherry, acting Majority Leader, attacked the Marshall Plan for threatening to destroy free enterprise in Western Europe by encouraging planning and to help Communism by encouraging East-West trade. This attack was the first thin end of the wedge as Republican conservatives shifted from attacking the Roosevelt-Truman administration as too interventionist to attacking it as soft on Communism. Later generations of conservatives like William F. Buckley would be pleased at the thought that some of the mud slung by Senators like Wherry, William Jenner, and Joe McCarthy--who claimed George Marshall as a member of his pro-Stalin "conspiracy so black"--had stuck not only to Truman and Acheson but to Marshall as well; Buckley wrote that "Marshall no longer rides as high as he once did in the esteem of his countrymen.To the extent that McCarthy, through his careful analysis of Marshall's record, has contributedhe has performed a valuable service."

Rather than listening to the left or the right, the American Congress listened to people like George Marshall, Dean Acheson, Harry Truman (who asked "Can you imagine the plan's chance of passage in a Republican Congress in an election year if it were named for Truman rather than Marshall?"), and Arthur Vandenberg. It accepted Vandenberg's characterization of the Marshall Plan as making it "the policy of the people of the United States to sustain and strengthen principles of individual liberty, free institutions and genuine independence through assistance to those countries of Europe which participate in a joint recovery program based upon self-help and mutual cooperation."

Vandenberg did not promise success, saying that while "this act may well become a welcome beacon, if a beacon is to be lighted at all it had better be lighted before it is too late.There are no blueprints to guarantee results. We are entirely surrounded by calculated risks. I profoundly believe that the pending program is the best of these risks." He went on to say that the Marshall Plan "can be the turning point in history for a hundred years to come. If it fails, we will have done our final best. If it succeeds, our children and our children's children will call us blessed"

....If not for Truman, Marshall, Acheson, and Vandenberg, it is hard to imagine that anything like the Marshall Plan would have come to pass. As Louis Halle (1967) says of these in his history of the Cold War: "I am not one who thinks that great men make history. Still, I would rather not do without them..."

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We'll have to talk about Paris sometime but for now look at this site. After your "peaceful" comment in the thought of the week column I had to gasp a bit. Peaceful within the city limits perhaps but the real action is in the "banlieu" or the 'burbs (nothing lilke our version of the 'burbs). Also it's not reported here but nightly in any one of the major cities in France there are car burnings and major acts of violence.

Contributed by meissner@econ.Berkeley.EDU (Chris M. MEISSNER) on March 30, 2000.

I just added myself to your list, and it was something of a treat to read your description of Paris, particularly since I was in Paris for one night, Sat., 3/18 after reading the attached paper at an international symposium on Joan Robinson. Since the symposium was in Dunkerque, thoughts of the War were on my mind and I too found myself thinking that this wonderful city-I had never visited it previously-had been in Nazi hands six decades ago. (Dunkerque is something to see as well; it appears never really to have recovered from the war and reminds me somewhat of my hometown of Youngstown, Ohio, which has never recovered from the closing of the steel mills).

I'm not an economist, but a philosopher who is very interested in economics. The paper will doubtless convey something of both my interest in and ignorance of economics, but I had the great good fortune to spend considerable time in Dunkerque with Geoff Harcourt and with Christina Marcuzzo and Claudio Sardoni of the University of Rome. I'm looking to keep learning, however, and you can probably assist me.

In any event, it was nice to stumble upon your web page-I think it was while searching from info. on David Landes' new book.

Contributed by Udell, I. Larry ( on March 30, 2000.

A beautifully written essay. But you were visiting the rich club. To which one grinchly feels obliged to say:

Kosovo Chechnya sub-saharan Africa etc....

And don't get me started on air, water & soil contamination

Contributed by Michael Froomkin - U.Miami School of Law ( on March 30, 2000.

Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
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