In March 1947 United States president Harry Truman unveiled what became known as the Truman Doctrine, pledging US support for European countries so they could exercise self-determination and resist a communist takeover.
The first practical elements of this policy came in May 1947, with the approval of aid packages for Greece ($400 million) and Turkey ($100 million). Much more was to come in June with the promulgation of the European Recovery Program (ERP). It became known as the ‘Marshall Plan’ after its chief promoter, Secretary of State George Marshall. Members of the US government viewed the economic reconstruction of Europe as a matter of great urgency. There were two reasons for this. Firstly, economic instability would generate political instability and may lead to communist revolutions. Secondly, the future of US trade was dependent on a productive and prosperous Europe.
Marshall explained this in a June 1947 speech to Harvard University students:
“Aside from the demoralising effect on the world at large and the possibilities of disturbances arising as a result of the desperation of the [European] people concerned, the consequences to the economy of the United States should be apparent to all. It is logical that the United States should do whatever it is able to do to assist in the return of normal economic health to the world, without which there can be no political stability and no assured peace. Our policy is not directed against any country, but against hunger, poverty, desperation and chaos. Any government that is willing to assist in recovery will find full co-operation on the part of the United States of America. Its purpose should be the revival of a working economy in the world so as to permit the emergence of political and social conditions in which free institutions can exist.”
American leaders scheduled a conference for July 1947 in Paris, to negotiate an aid package for rebuilding Europe and its economies. Delegates attended from 16 European countries; the Soviet Union, Poland, Czechoslovakia and Hungary did not attend, the latter three withdrawing under pressure from Moscow.
The European delegates drafted a reconstruction plan that required $22 billion of credit. Truman whittled this down to $17 billion and sent draft legislation to Congress in early 1948.
Isolationists in Congress attempted to block funding for the Marshall Plan. They resented the expenditure of American taxpayers’ money on foreign countries, several of which had defaulted on their wartime debts to the US. Many American businesses weren’t keen on reconstructing European industries that might grow to compete with their own. Some suggested giving food and material only, rather than credit.
The left-wing in America and elsewhere condemned the Marshall Plan as an attempt to strengthen the grip of US-led capitalism on Western Europe. A few economic purists complained because of the plan’s significant interference in European markets. Despite these objections, Congress approved the Marshall Plan and authorised an initial payment of $5.3 billion in April 1948.
By no means was Marshall Plan aid a ‘blank cheque’ for European governments. The US was determined to fund essential areas of development and avoid corruption or ‘skimming’. The Americans set rigorous conditions on Marshall Plan funding, reserving the right to cease this funding if recipient nations did not follow certain directives.
The US Congress established the Economic Cooperation Administration (ECA) to oversee the distribution of its funds. ECA representatives were stationed in European countries and played a pivotal role in approving, directing and monitoring Marshall Plan money. Local governments were required to adopt certain economic policies; ECA bureaucrats studied their economies and decided where and how funds were needed most. Countries importing certain raw materials or manufactured goods were required to buy them from American suppliers.
The ECA also provided advice on management and productivity, as noted by Duignan:
“The Americans also delivered know-how. For example, at the Doboelman soap works in Holland, American experts showed the Dutch how to cut processing time from five days to two hours with new machinery. In Norway, fishermen used a new type of net made from yarn spun in Italy. In Offenbach in West Germany, Marshall Plan leather revived the handbag industry. In Lille, Marshall Plan coal kept a steel factory in business. And in Roubaix, Marshall Plan wood maintained one of the world’s largest textile mills. In 1945, only twenty-five thousand tractors were in use on French farms – four years later, Marshall Plan aid had put another two hundred thousand tractors in the field. Overall, American investment in Western Europe grew apace, and more and more U.S. patents found customers abroad.”
The Marshall Plan would run for four years and cost more than $US13 billion. This aid not only facilitated the recovery of Europe’s national economies, it had obvious advantages for the United States. Not only was the Marshall Plan successful in stabilising many European governments and blocking Soviet expansion, it built a ‘new Europe’ with a political economy was based on open markets and free trade, rather than protectionism and self-interest. This allowed American exporters to enter European markets more easily than was possible before World War II. Other advantages for the United States included:
Soviet containment. The Marshall Plan stabilised the economies and political systems in several European nations bordering the Soviet sphere of influence. This reduced the likelihood of communist takeovers in these countries. Political instability in these countries might also have given Moscow an excuse to annex them.
Liberalisation. The Marshall Plan encouraged the development of liberal-democratic systems of government in Europe. Since some European countries had no positive experience of democracy, particularly Germany and Austria, it was important to create conditions of prosperity under which liberalism and democracy could survive.
A historian’s view:
“What the Machiavellis among us never understood was why the Soviet Union did not join the Marshall Plan and disrupt it, as they have done with many organisations. It would not cost anything. It would be simple to agree in principle and object in practice. The fear in Washington was that the Soviet bear might hug the Marshall Plan to death. Soviet abstention left the West free to operate its own recovery programme, with the Soviet Union excluded at its own insistence.”
Charles Kindleberger, historian
Profit for American companies. Most of the resources and goods purchased with Marshall Plan funds came from the United States itself. This had obvious benefits for American exporters and domestic industries. Marshall Plan spending allowed the US to recover from a short-term economic slump in 1946-7 and enter a period of economic boom. American corporations built networks and established trade links in Europe that continued well after the ERP had run its course.
Encouragement of free trade. Prior to World War II most European nations had protectionist economic policies – in other words, it was difficult for foreign traders to export to European markets. The conditions placed on Marshall Plan aid injected free trade policies and practices into European economics. As mentioned above, these reforms would prove beneficial and profitable for American producers and manufacturers.
Propaganda value. The Marshall Plan was cleverly marketed by the American government as a generous and visionary policy, to allow the rebuilding of Europe. The conditions on Marshall Plan funds, however, were not publicly advertised. Washington also offered ERP aid to the Soviet Union and Soviet-bloc countries, knowing that the conditions would make it impossible for them to accept.
Top eight recipient nations of Marshall Plan funds (US dollars)
1. The Marshall Plan was another name for the European Recovery Plan (ERP). The ERP was an extensive aid program for post-war Europe, approved by Harry Truman in 1947.
2. In the four-year period between 1947 and 1951, more than $13 billion of American aid was advanced to European nations for post-war reconstruction.
3. Marshall Plan aid was overseen by the ECA and remitted with strict conditions. Among them were the adoption of free-market economic policies and liberal-democratic political systems.
4. This aid enabled the post-war reconstruction of Europe. It also advanced American commercial interests by stimulating the US economy and opening up Europe for future trade.
5. In the context of the Cold War, the Marshall Plan helped weak and war-ravaged governments and economies to recover and avoid falling prey to communist infiltration or revolution. It was also a significant propaganda device for the US.