The Marshall Plan
J. Bradford DeLong
http://www.j-bradford-delong.net/
delong@econ.berkeley.edu
I just spent a frustrating weekend in Los Angeles, at what
Thomas Schelling said was the last Marshall Plan commemoration.
The weekend was frustrating because Alan Milward strongly disagrees
with Barry Eichengreen's and my 1993 paper on the Marshall Plan
(J. Bradford De Long and Barry Eichengreen, "The Marshall
Plan as a Structural Adjustment Programme," in Rüdiger
Dornbusch, Wilhelm Nölling, and Richard Layard, eds., Postwar
Economic Reconstruction: Lessons for Eastern Europe (London:
Anglo-German Foundation for the Study of Industrial Society,
1993)). And I can't figure out why he disagrees with us. Or,
rather, I can't figure out *what* he believes--what he thinks
the likely distribution of possible destinies for Europe would
be in the absence of the Marshall Plan.
I have listened to him. I have read his 1984 book, _The Reconstruction
of Western Europe_. I have re-read his 1984 book far into the
night, annoying my wife. And I still cannot figure out what he
thinks.
Does anyone out there who has recently read _The Reconstruction
of Western Europe_ think that they understand the structure of
Alan Milward's argument? Does anyone understand why he thinks
that the Marshall Plan was trivial (if not positively harmful)
in its effects on the post-WWII economies of western Europe?
It seems pretty clear to me what would have happened in the
absence of the Marshall Plan. Western European countries at the
end of 1947 would have seen their foreign exchange reserves running
dry, as they continued to import from the dollar area some 3%
of GDP more than they were able to export. The European countries
had virtually no chance of attracting private capital flows in
order to finance this dollar gap: U.S. private investors had,
after all, lost a fortune by investing in Europe in the decade
after World War I. So in 1948 the western European countries
would have had to take action to close their balance of payments
deficits quickly and nearly completely.
How to do this? One way would be through devaluation. But
devaluation takes two years or so to boost exports and lower
imports. In the short run, the J-curve means that devaluation
is more likely to boost than to reduce a balance of payments
deficit. Almost surely some if not all western European economies
would have resorted to large devaluations in 1948 in the absence
of a Marshall Plan. But the closing of the balance of payments
deficits would have required other measures.
One of the other measures would have been old-fashioned deflation:
defend the international economy and your exchange rate by attacking
the economy. Stop recovery for a year--have national product
fall by 10 instead of growing by 5 percent. The political consequences
of this would not have been pleasant.
The second measure would have been to slap on additional import
controls and licenses--creating a domestic interest group that
lived off of access to the licenses, another group of hothouse
domestic producers who would be devastated by moves to freer
trade. And so forth. A Europe that starts out on that path would
have had a very hard time becoming the open-to-international-trade
European Common Market that we actually saw.
How much damage would deflation, import licenses, steps away
from free trade, and so on--including the political consequences
of the interruption of recovery--done? I don't know. The fact
that economic miracles of the scale of post-WWII Europe are rare
makes me think that they are probably quite fragile.
At any rate, that's my counterfactual. Can anyone help me
figure out what Alan Milward's is?
Brad De Long
Dear _____,
You asked for "details" on what I had described
as a frustrating weekend spent in Los Angeles (at what Thomas
Schelling said was the last Marshall Plan commemoration) trying
to figure out what Alan Milward believes.
It is clear that Alan Milward strongly disagrees with my 1993
paper on the Marshall Plan (J. Bradford De Long and Barry Eichengreen,
"The Marshall Plan as a Structural Adjustment Programme,"
in Rüdiger Dornbusch, Wilhelm Nölling, and Richard
Layard, eds., Postwar Economic Reconstruction: Lessons for Eastern
Europe (London: Anglo-German Foundation for the Study of Industrial
Society, 1993)).
But I can't figure out why he disagrees with us. Or, rather,
I can't figure out *what* he believes--what he thinks the likely
distribution of possible destinies for Europe would be in the
absence of the Marshall Plan.
Let me try to summarize what he did say:
--That the Marshall Plan needs to be analyzed in isolation:
that UNRRA aid before was a separate business--aimed at "relief"
rather than "reconstruction", and that MSA after was
part of "security policy". He said this in a comment
on Tom Schelling--who had said, extremely emphatically, that
the key behind the MSA was to get dollars to European central
banks (and that the "security policy" rationale was
simply to make it easier for congress to vote for what Schelling
saw as a continuation of the Marshall Plan).
--Milward gave no reasons for separating out the Marshall
Plan from the rest of the arch of post-WWII U.S. policy. He seemed
to think that the reasons were obvious.
--That the Marshall Plan had no material impact on the pace
of European reconstruction.
--That U.S. post-WWII poilcy to encourage European integration
was a failure: that when integration came,it came not on the
pattern that the U.S. had been pushing but as the result of detailed
negotiations among national bureaucracies concerned with narraow
national advantages.
--He explicitly rejected the point that bureaucracies maneuver
in a field of force determined by visionaries--and that bureaucrats
do, once in a while, actually obey their political masters on
some subset of the priorities that their political masters sense
are important. He seems not to credit the point that American
policy makers wanted *any* form of European integration they
could get, believing in free trade and desperately wanting to
bind western Europe together.
--That he found it interesting that figures like Jean Monnet
and Robert Schuman are "cult figures" in the United
States, while they were quickly marginalized in Europe in the
1950s and have been totally ignored since. (Yet he is the one
who resides at a university that has both Monnet fellows and
a Schuman Center.)
Now it seems pretty clear to me what would have happened in
the absence of the Marshall Plan.
Western European countries at the end of 1947 would have seen
their foreign exchange reserves running dry, as they continued
to import from the dollar area some 3% of GDP more than they
were able to export. The European countries had virtually no
chance of attracting private capital flows in order to finance
this dollar gap: U.S. private investors had, after all, lost
a fortune by investing in Europe in the decade after World War
I. So in 1948 the western European countries would have had to
take action to close their balance of payments deficits quickly
and nearly completely.
How to do this? One way would be through devaluation. But
devaluation takes two years or so to boost exports and lower
imports. In the short run, the J-curve means that devaluation
is more likely to boost than to reduce a balance of payments
deficit. Almost surely some if not all western European economies
would have resorted to large devaluations in 1948 in the absence
of a Marshall Plan. But the closing of the balance of payments
deficits would have required other measures.
One of the other measures would have been old-fashioned deflation:
defend the international economy and your exchange rate by attacking
the economy. Stop recovery for a year--have national product
fall by 10 instead of growing by 5 percent. The political consequences
of this might not have been pleasant. The second measure would
have been to slap on additional import controls and licenses--creating
a domestic interest group that lived off of access to the licenses,
another group of hothouse domestic producers who would be devastated
by moves to freer trade. And so forth. How much damage would
deflation, import licenses, steps away from free trade, and so
on--including the political consequences of the interruption
of recovery--done? I don't know. The fact that economic miracles
of the scale of post-WWII Europe are rare makes me think that
they are probably quite fragile.
A Europe that started out on either of these paths would have
had a difficult time becoming the open-to-international-trade
European Common Market that we actually saw.
So that is my counterfactual. What is Alan Milward's? After
all, we know that all historical judgments of importance or unimportance
are really statements about counterfactual worlds...
I went back and read Milward's Reconstruction of Western Europe.
I read it late into the night, annoying my wife. And I did not
come up with anything satisfactory.
The closest I came was a statement that: "Whether the
degree of deflation which might have had to be pursued in western
Europe after August 1947, had the ERP not been announced, would
have seriously interrupted the reconstruction boom is a hypothetical
question which need not be pursued since, in the context of the
argument, Marshall Aid only postponed the hour of reckoning until
an American recession did arrive or the ERP came to an end. The
question was, what would happen then?" (p. 471). And the
answer is that strong demand from Germany made up the slack:
"The reabsorption [of West Germany] into the western European
trade and payments framework... was essential for sustaining...
recovery." (pp. 471-2).
This left me scratching my head. Is Milward really saying
that the Marshall Plan was unimportant in 1948-1949 because West
Germany boomed in 1951-1952, selling machinery to and buying
other products from western Europe? That makes no sense. So I
cannot figure out what the thread of his argument is.
Best,
Brad Delong
Context:
>Only with the extension of Marshall Plan aid beginning
in 1948 was the
>contradiction between these short-term and long-term goals
overcome. The
>Marshall Plan has traditionally been viewed as having promoted
Western
>Europe's economic recovery. Milward has effectively demonstrated
that the
>principal economic significance of the aid was not that it
promoted
>economic recovery-for recovery was already under way-but
that it provided
>offsetting financing to resolve the European balance-of-payments
crisis.
My Comment:
Strike one (against Milward, not Helleiner): There is no difference
between "promoting economic recovery" and "resolving
the European balance-of-payments crisis." Had the balance-of-payments
crisis been "unresolved" as East Asia's balance-of-payments
crisis over the past year and a half has been "unresolved,"
there would have been no post-1947 economic recovery in Europe.
Milward knows perfectly well that balance-of-payments crises
destroy economic growth. However, he prefers to split hairs,
argue that people like Kindleberger are wrong to claim that "the
Marshall Plan caused recovery" because recovery was already
underway, and then casually admit when pressed in seminars that
"the Marshall Plan allowed the *fundamental* resolution
of Europe's balance-of-payments crisis to be postponed for three
years"--which as I understand it is Charlie Kindleberger's
maximal claim.
Thus as I read the debate, Milward has shown *nothing* and
will admit to this when pressed. As you can guess, Milward really
annoys me...
Context:
>Milward has in mind the offsetting of deficits caused
by European imports;
>however, Marshall Plan aid was also crucial in offsetting
capital flight
>from Europe to the United States. Indeed, according to the
"able and
>authoritative" New York Times correspondent Michael
Hoffman, the total
>volume of U.S. aid to Western Europe in the early postwar
years was
>exceeded by the total volume of European capital moving in
the other
>direction.[18]
My Comment:
Strike two (against Helleiner this time): We can't directly
track international capital flows. The best we can do is talk
to people who are undertaking international capital flows to
figure out why they are doing what they are doing, and then to
look at the balance-of-trade figures to infer net capital flows.
If a country is earning a lot of foreign currency via exports
(tracked fairly well by recipient countries' customs services)
and not spending much of that hard currency on imports (tracked
fairly well by the home country's customs service), then we infer
that capital must be flowing out. Balance-of-trade-based estimates
of capital flows are poor because capital flows are the difference
between two numbers, imports and exports, that are themselves
not measured that well. But balance-of-trade-based estimates
are by far the most reliable.
Thus when one finds the "able and authoritative"
New York Times correspondent saying x about international capital
flows, one should first ask: (a) Is what he is saying consistent
with the import, export, and official settlement totals of the
country in question? If not, then ask: (b) Does he have magic
sources of information that make his observations much more reliable
than those gotten from the balance-of-trade statistics? The answer
to (b) is "no." There are times and places where balance-of-trade
statistics are really badly messed up, but post-World War II
western Europe is not one of them.
Since the answer to (a) is "no" as well, the right
thing to conclude is that Mr. Hoffman (able and authoritative
as he may be) is simply one more example of the fact that in
a world this big you can find five people willing to say anything.
And Mr. Helleiner suffers from one of the big vices of political
historians: taking what some observer says about economics as
evidence without inquiring whether said observer could have known
what he was talking about.
Context:
>American policymakers were in fact keenly aware of
the link between
>Marshall Plan aid and European capital flight. In late 1947,
particularly
>vocal demands from the French government for help in locating
the concealed
>assets of its citizens in the United States increased the
visibility of
>this issue in Congress. Many members wondered if the cost
of the Marshall
>Plan to the American taxpayer could be reduced by forcing
wealthy Europeans
>to keep their money at home. They deplored the "small,
bloated, selfish
>class of people [in Europe] whose assets have been spread
all over the
>place" and questioned "whether or not [the United
States] should become a
>sanctuary for refugee money."[20] The view of the American
Veterans
>Committee, for example, was that "the American taxpayer
should not be
>obliged to provide the necessary funds for the program while
well-to-do
>Europeans continue to hold on to their private hidden investments
in the
>United States."[21]
My Comment:
Strike three: We are now talking not about capital flight
made possible by the Marshall Plan, but about wealth owned by
French citizens who had moved their assets to the U.S. before
the June 1940 fall of France to the Nazis. We have now drifted
very, very far from the initial claim that Marshall Plan dollars
coming in was immediately grabbed by rich Europeans and deposited
in their bank accounts in New York...
Did U.S. policymakers worry that Marshall Plan aid might generate
capital flight, and thus fail to do its job of aiding western
Europe's recovery? Yes, they worried about it a lot. Does the
fact that they worried about it mean that it happened? No, it
doesn't: and the best evidence we have on capital movements suggests
strongly that it didn't. Did U.S. policymakers think that it
would be good to allow the French government to tap assets of
French nationals who had moved their money out of France before
June 1940? Some did, some didn't, and in the end little was done.
(Although note that we are only talking about *French* assets
here: Britain had grabbed the American assets of British nationals
to finance World War II, and the U.S. had grabbed many of the
American assets of German nationals.) Did a lot of European capital
flee to the U.S. between the end of the war in Europe and the
start of the Marshall Plan? Almost surely not: capital flight
requires that you export *something*, take the proceeds, and
invest them in the country that you are fleeing to. Western Europe
was exporting very little in 1945, 1946, and 1947.
Context:
>Kindleberger also trips over himself and supports Milward's
claim when
>he quotes a key player, Dean Acheson, as saying that the
Soviet walk
>out of talks was "the desired result". (Acheson,
*Present at the
>Creation*, pp. 234-5; cited in Kindleberger, ibid, p. 92).
My Comment:
A few words about "trips over himself" and Stalin's
"exclusion" of the Soviet Union from the Marshall Plan.
As I understand it, there were four factors present in the
U.S. extension of an invitation to participate in the Marshall
Plan to the Soviet Union: (a) a fear that if the Soviet Union
accepted, then it would be impossible to get the aid program
through a Republican-dominated Congress, (b) a hope that the
escalation of the Cold War could be stopped and ratcheted down
as Stalin began to focus on how U.S. aid could help with post-WWII
reconstruction, (c) a desire not to be seen as further breaking
the wartime alliance--as not taking another step to ratchet up
the Cold War--and (d) a belief that the more rapid and successful
the reconstruction of Europe proceeded, the better for everybody.
All four of these motives were present, to differing degrees,
in all of the people helping design the Marshall Plan. I do not
know what the balance of motives was in George Marshall's mind
(though recall that this is someone who had just spent a year
of his life trying to construct a Mao-Chiang condominium in the
belief that such a power-sharing agreement was possible). I do
not know the exact balance of motives in whatever combination
of thoughts of individual minds one wishes to call the "State
Department view" (although I do know that all four factors
were present). But neither does anyone else now.
Alan Milward, however, says that he knows the balance and
that the balance was extreme--that the invitation to the Soviet
Union was a *sham*, a propaganda move extended in the firm belief
that Stalin would never accept it. How Milward knows this is
unclear--as Kindleberger says, the "evidence that makes
[Milward] so sure is not presented" in Milward's book. And
I agree with Kindleberger: whatever makes Milward so sure is
not presented in his book.
But there is no doubt that Dean Acheson was by then a hawk
on the Soviet Union, and did breathe much easier once Molotov
left--that having offered aid to the wartime ally and then not
having to explain to Republican senators why American taxpayers'
money was being used to prop up Stalin's totalitarian regime
was from Acheson's perspective the best possible result. And
Kindleberger quotes from _Present at the Creation_.
In so doing, Kindleberger doesn't "trip over himself,"
he merely tries to fulfill his duty to tell the story "wie
es eigentlich gewesen."
To say of someone that they "trip over themselves"
when they report important facts that tend to bear against their
general case reveals a failure to understand what it is to be
a historian
Brad DeLong
Context:
On both questions--the importance of economics and the
current wave of
triumphalism--I have the same reaction: who wins and who loses?
To
suggest that the Williams/New Left thesis is wrong ignores the
nature of
the world political economy over the past few decades. To suggest
that
foreign trade or investment isn't important, statistically, to
"America"
overlooks just how profitable it has been to certain Americans.
My Comment:
This is an evasion.
Certainly there have been times when narrow interest groups
have seized control of policy in democratic states and used state
power to promote their narrow material interest. But (oil aside,
and (sometimes) trade relations with the rest of the industrial
core aside), I have never seen any convincing evidence that this
was the case for U.S. foreign policy.
The U.S. got into World War I for ideological reasons--not
to safeguard the value of British and French government bonds
sold by J.P. Morgan and Kuhn Loeb. Dean Acheson embargoed the
export of oil to Japan in 1941 for a number of reasons, but a
desire for American firms to displace Japanese firms in the China
trade was not high among them. Truman sent MacArthur into South
Korea because of the lessons that had been drawn from Munich,
not because South Korea would serve as a source of "cheap
sweatshop labor" to enrich the profits of American companies.
(Indeed, South Korean labor today is neither "cheap"
nor "sweatshop.") Kennedy and Johnson's fear of being
painted as soft on Communism, not a desire to secure oil concessions
in the South China Sea, was the principal force behind the U.S.
move into Vietnam. Nixon and Kissinger's geopolitics, not Anaconda,
were the driving force behind the U.S. government-sponsored assassination
of General Schneider, U.S. government applause for Pinochet's
coup, and the U.S. government's overlooking the assassination
of an American citizen and an ex-Chilean cabinet minister ten
blocks from the White House.
Lenin's "Imperialism: The Highest Stage of Capitalism"
was written more than eighty years ago. We have good reason to
think that it was wrong then. We have more reason to think that
it is wrong now--and thus to avoid the silly leap (without substantial
evidence) from the proposition that it is theoretically possible
for foreign policy to be shaped in the material interest of elites
to the conclusion that it *was* so shaped...
Brad DeLong
Context:
...Regions and nations didn't "win"
the Cold War--a particular class of individuals did: Wall Street
bankers,
arms manufacturers and dealers; particular high-tech industries;
collaborating elites in targeted nations, and so forth. And what
was the
price? Proxy wars with devastating impact [Vietnam being just
the best
example but only one of many]; diminished standards of living
globally
amid a rush toward militarized economies; diminished democracy
virtually
everywhere. Yes, that's a "victory" but only for those
who had a
meaningful stake in the system.
My Comment:
Gee. Arriving in this week's mail was the 1999 United Nations
_Human Development Report_. Its centerpiece is something called
the Human Development Index--HDI--a weighted average of life
expectancy, material standards of living, school enrollment rates,
and adult literacy rates. You can quarrel with it as a measure
of human happiness (it has no place for, say, the memory of having
watched your relatives be hacked to death by their neighbors--and
in years after the hacking-to-death is over it no longer affects
life expectancy measures). But it is an honest attempt to construct
a summary measure of human progress.
You can use the HDI to see how representative anecdote-based
claims that human progress has been confined to "Wall Street
bankers... arms manufacturers... collaborating elites" and
that the world has seen "diminished standards of living
globally." It is an interesting fact that *every* single
country for which the U.N. has an HDI measure for 1975 and 1997
shows an improvement. (However, I daresay that would not be the
case if it had 1975 estimates for countries like the Russian
Federation, North Korea, and perhaps Cuba).
Rank Country 1975 1997
1 Canada 0.862 0.932
2 Norway 0.850 0.927
3 United States 0.865 0.927
4 Japan 0.851 0.924
6 Sweden 0.859 0.923
7 Australia 0.838 0.922
8 Netherlands 0.856 0.921
9 Iceland 0.853 0.919
10 United Kingdom 0.840 0.918
11 France 0.848 0.918
13 Finland 0.834 0.913
15 Denmark 0.861 0.905
16 Austria 0.836 0.904
18 New Zealand 0.843 0.901
19 Italy 0.824 0.900
20 Ireland 0.811 0.900
21 Spain 0.814 0.894
22 Singapore 0.737 0.888
24 Hong Kong 0.757 0.880
27 Greece 0.792 0.867
28 Portugal 0.735 0.858
30 Korea, Rep. 0.680 0.852
39 Argentina 0.776 0.827
40 Uruguay 0.759 0.826
43 U.A.E. 0.735 0.812
45 Costa Rica 0.741 0.801
46 Trinidad 0.746 0.797
48 Venezuela 0.740 0.792
56 Malaysia 0.614 0.768
59 Mauritius 0.635 0.764
61 Fiji 0.674 0.763
67 Thailand 0.604 0.753
68 Romania 0.722 0.752
72 Ecuador 0.645 0.747
77 Philippines 0.646 0.740
78 Saudi Arabia 0.595 0.740
79 Brazil 0.639 0.739
80 Peru 0.641 0.739
84 Paraguay 0.655 0.730
88 Dominican R. 0.617 0.726
90 Sri Lanka 0.605 0.721
98 China 0.521 0.701
101 South Africa 0.637 0.695
102 Tunisia 0.510 0.695
105 Indonesia 0.471 0.681
112 Bolivia 0.524 0.652
113 Swaziland 0.497 0.644
114 Honduras 0.515 0.641
117 Guatemala 0.517 0.624
120 Egypt 0.432 0.616
122 Botswana 0.501 0.609
126 Morocco 0.426 0.582
127 Lesotho 0.471 0.582
130 Zimbabwe 0.539 0.560
133 Ghana 0.431 0.544
134 Cameroon 0.422 0.536
135 Congo 0.450 0.533
136 Kenya 0.453 0.519
138 Pakistan 0.347 0.508
143 Togo 0.395 0.469
146 Nigeria 0.322 0.456
149 Mauritania 0.343 0.447
150 Bangladesh 0.318 0.440
151 Zambia 0.453 0.431
153 Senegal 0.326 0.426
154 Côte d'Ivoire 0.374 0.422
155 Benin 0.306 0.421
159 Malawi 0.328 0.399
162 Chad 0.286 0.393
163 Gambia 0.270 0.391
164 Rwanda 0.323 0.379
165 C.A.R. 0.342 0.378
166 Mali 0.246 0.375
168 Guinea-Bissau 0.249 0.343
170 Burundi 0.282 0.324
171 Burkina Faso 0.237 0.304
173 Niger 0.247 0.298
Context:
>Kindleberger also trips over himself and supports Milward's
claim when
>he quotes a key player, Dean Acheson, as saying that the
Soviet walk
>out of talks was "the desired result". (Acheson,
*Present at the
>Creation*, pp. 234-5; cited in Kindleberger, ibid, p. 92).
My Comment:
A few words about "trips over himself" and Stalin's
"exclusion" of the Soviet Union from the Marshall Plan.
As I understand it, there were four factors present in the
U.S. extension of an invitation to participate in the Marshall
Plan to the Soviet Union: (a) a fear that if the Soviet Union
accepted, then it would be impossible to get the aid program
through a Republican-dominated Congress, (b) a hope that the
escalation of the Cold War could be stopped and ratcheted down
as Stalin began to focus on how U.S. aid could help with post-WWII
reconstruction, (c) a desire not to be seen as further breaking
the wartime alliance--as not taking another step to ratchet up
the Cold War--and (d) a belief that the more rapid and successful
the reconstruction of Europe proceeded, the better for everybody.
All four of these motives were present, to differing degrees,
in all of the people helping design the Marshall Plan. I do not
know what the balance of motives was in George Marshall's mind
(though recall that this is someone who had just spent a year
of his life trying to construct a Mao-Chiang condominium in the
belief that such a power-sharing agreement was possible). I do
not know the exact balance of motives in whatever combination
of thoughts of individual minds one wishes to call the "State
Department view" (although I do know that all four factors
were present). But neither does anyone else now.
Alan Milward, however, says that he knows the balance and
that the balance was extreme--that the invitation to the Soviet
Union was a *sham*, a propaganda move extended in the firm belief
that Stalin would never accept it. How Milward knows this is
unclear--as Kindleberger says, the "evidence that makes
[Milward] so sure is not presented" in Milward's book. And
I agree with Kindleberger: whatever makes Milward so sure is
not presented in his book.
But there is no doubt that Dean Acheson was by then a hawk
on the Soviet Union, and did breathe much easier once Molotov
left--that having offered aid to the wartime ally and then not
having to explain to Republican senators why American taxpayers'
money was being used to prop up Stalin's totalitarian regime
was from Acheson's perspective the best possible result. And
Kindleberger quotes from _Present at the Creation_.
In so doing, Kindleberger doesn't "trip over himself,"
he merely tries to fulfill his duty to tell the story "wie
es eigentlich gewesen."
To say of someone that they "trip over themselves"
when they report important facts that tend to bear against their
generatl case reveals
Brad DeLong
|
Professor
of Economics J. Bradford DeLong, 601 Evans Hall, #3880