The 8th May 1945. VE-Day. Finally, victory in Europe. With the surrender of German forces the day before, the bloodiest theatre of combat the world had ever known came to close. It would be just over three more months until the Japanese surrender brought the world to peace once again.
The scale of the devastation across Europe only became fully apparent once the fighting ceased. The continent lay in ruin, countries ravaged after six years of war. For the victors, a weary sense of triumph, but it would be a stretch to call anybody a winner. Europe was a broken, bankrupt continent on the verge of collapse. Something of gargantuan proportions would be needed to assist it. That program came to be known as the Marshall Plan.
The carnage of World War II had left a very different global landscape. An estimated 60 million people had died – 25 million of those within the Soviet Union only. The great cities of Europe lay in ruin, with untold millions now homeless. Heavy industry had been decimated on both sides and re-building it would be key to the reconstruction of the continent.
The true effects of the United States’ Marshall Plan are still debated more than ever in the modern era, but unquestionably Europe before the Plan and the one after was a very different place.
I’m going to go into the Plan and its various sections later in the video, but let’s start with a quick overview. The Marshall Plan ran from 1948 to 1951, though a similar style of plan also ran between 1951 and 1961, and involved 16 different nations, who roughly received aid on a per capita basis. The goal of the plan was essentially to rebuild Europe by reconstructing its shattered industry, modernising its methods and increasing trade. It was not quite as simple as just writing out a series of checks, but I will come to that later on.
The plan was originally the European Recovery Plan, but eventually, it was named after the United States Secretary of State George Marshall, who had played a pivotal role in its implementation. Marshall would go on to be named Time Person of the Year in 1948 – no doubt having the largest economic recovery plan in history named after you didn’t harm his cause.
It was three years after the end of the war when the Marshall Plan was enacted and funds and goods began to move across the Atlantic. Though recovery certainly began during these years, Europe was in a shattered state.
More than a quarter of the UK’s national wealth had disappeared. The level of debt the country had was in the region of £21 billion (close to £1 trillion today), much of it held by foreign nations, in particular, the U.S. A loan from both the United States and Canada in 1946 just about kept the country going, but didn’t stop bread rationing from being introduced between 1946 and 1948, something that didn’t even occur during wartime.
Quite astonishingly, the debt to both countries was not finally paid off until 2006, sixty-one years after the end of the war. The 50th instalment completed the repayment of the $4.1 billion ($27 billion today) loan. If you’re wondering why it wasn’t paid off in 50 years, it was because Britain was allowed to defer payments for specific years pretty much whenever it wanted, something it did six times.
Elsewhere, conditions were equally grim, if not worse. Germany had been partitioned into four sections, with Britain, France, the U.S and USSR each administering one section. On top of that, the country had lost a quarter of its pre-war land area with Germans living in these areas either expelled or not permitted to return if they had fled during the fighting.
The official stance of the United States with regards to Germany was that, except to prevent starvation, no help would be granted to it to aid the rebuilding of the country. In fact, in the immediate years after Germany’s surrender, the allies continued to systematically dismantle the country. The deindustrialization of the country called for its heavy industry to be reduced to 50% of that in 1938.
After two years this position began to soften. Perhaps some were reminded of the deep bitterness that the Treaty of Versailles had left on the German people after World War I. The Treaty effectively crippled the country for years to come – then a certain Adolf Hitler arrived on the scene screaming and shouting about injustices. Europe and the U.S could continue to punish Germany, but it soon became clear that a strong (and peaceful) Germany would be key to building a better Europe. The cycle needed to be broken.
The plan was initially drafted by the participating European states on 5th June 1947 but was not signed by President Truman until the following year on 3rd April. It initially granted $5 billion ($54 billion today) in aid to 16 European countries, but this was also followed by $17 billion ($183 billion today) in economic and technical assistance. The two biggest recipients were the UK and France, with $3.2 billion ($34.5 billion today) and $2.2 billion ($23.7 billion today). Holland, West Germany and Italy were the three countries whose aid surpassed $1 billion ($10 billion today).
The biggest priorities of the plan were to increase European industrial output and free-up trade in and out of the continent. If I was to suggest a rather more clandestine, but very obvious purpose, it was also implemented to prevent the spread of communism in Europe and to cement American power in the region. Make no mistake about, the Marshall Plan brought much-needed aid but was certainly not a selfless act.
The implementation was also complex. It wasn’t as simple as wiring the money and allowing countries to do whatever they wanted with it. Much of the aid came in goods (usually bought from the U.S) and technical assistance – which I will come to shortly. Goods that were shipped across the Atlantic were then sold at dollar value within the participating countries and the profit made paid into European Recovery Plan (ERP) bank accounts held by the central bank in the individual countries. The accumulated funds in these accounts could be spent as the countries wished. France and Germany used much of it for long-term reconstruction projects, while the UK splashed a huge amount on debt repayment.
By mid-1951, over $13 billion ($130 billion) today) worth of aid had made its way across the Atlantic. $3.4 billion ($33.9 billion today) on imports of raw materials and semi-manufactured products, $3.2 billion ($31 billion today) on food, feed, and fertilizer; $1.9 billion ($18.9 billion today) on machines, vehicles, and equipment; and $1.6 billion ($15.9 billion today) on fuel.
Counterpart funds, which were funds provided in the local currency, also played a key role in the recovery. These were often used to provide loans for private businesses, with the stipulation that 60% of total funds be spent on industry. In 1949 and 1950, 40% of West Germany’s investment in its expanding coal industry came from these funds. Once a business repaid its debt, that money would be used for another business, and so on and so on, with the small amounts of interest steadily building up over time.
This was a system that provided the backbone to the German recovery and is still in use today. While others rattled through their funds, German politicians made a concerted effort to continuously recycle theirs. The pot of money was worth DM 10 billion in 1971 and had grown to DM 23 billion in 1997. By the end of 1995, a total of DM 140 billion had been used for private loans in German. And we wonder why they’ve done rather well for themselves!
Another key aspect of the Marshall Plan was the Technical Assistance Program. Not only did governments want their industries re-built, but most were more than a little intrigued about the astonishing productivity that was coming out of U.S factories. Through the US Bureau of Labor Statistics (BLS) studies of labour productivity were used to advise foreign nations and often hosted foreign visitors to the U.S to tour American workplaces. France alone sent 500 separate groups to the U.S, totalling 4,700 businessmen and experts.
American economists, statisticians, and engineers were able to compare productivity numbers between the U.S and European nations which could highlight certain strengths and weaknesses. On the back of this, new machinery and technology could be provided to raise productivity. And can you guess where this new machinery came from? You’ve got it, from Uncle Sam himself. Now I know that sounds like walking into a car garage and asking the dubious mechanic if he knows of any additions you might need, but broadly speaking it did do the job. As I’ll come to later, industrial output did rise enormously and no doubt these kinds of productivity drives did help.
Perhaps as a show of faith, or maybe to force Stalin to make his position clear, the Marshall Plan was offered to both the Soviet Union and its satellite states. After six weeks of negotiations, this was rejected out of hand by Stalin who may have feared the capitalist influence it could bring. The Soviets had in fact been keen on slowing the European recovery rather than speeding it up while pursuing reparation claims against Germany and other countries it had fought against.
The USSR also prohibited the Eastern Bloc countries (everything east of the Berlin Wall) from participating in the plan. Czechoslovakia and Poland had both been eager to take part in the plan by both were pacified with aid deals with the Soviet Union.
It quickly became clear that the battle lines were once again being drawn in Europe. The West and the East – those taking part in the American recovery plan, and those who for many different reasons stayed under the control of Soviet influence.
The greatest war the world had ever known had just finished, but the Cold War was just getting started.
Did it really help?
Seventy years later this is a question that is still keenly debated. Some claim that Europe was already well on its way to recovery after the war, while others believe the Marshall plan was the cornerstone to it all.
The four years between 1948 and 1952 saw the biggest growth Europe had ever seen. Now that’s not entirely surprising considering where the continent had come from, but a 35% increase in industrial output is still a phenomenal achievement. As I mentioned earlier, Europe before and after the plan were very different places.
But the idea that this was some kind of miracle plan that saved the continent single-handed is certainly a stretch. If anything, it was an excellent stimulus package that gave the European economies that jolt they required, but it was still fairly small scale when we think about nations’ economies. Grants from the Marshall Plan accounted for roughly 3% of the combined national income of the participating countries, which would equate to just a 0.3% increase in overall GDP.
Some modern historians now look at it more as an act of U.S imperialism and a front to battle communism rather than something that brought about dramatic change. What is particularly interesting is that the speed of recovery was not equal and certainly wasn’t linked to the amount the country received under the Marshall Plan. Britain and France took more than West Germany and yet recovered significantly slower. Former US Chairman of the Federal Reserve Bank Alan Greenspan wrote that Europe’s recovery had more to do with Germany’s economic policies of trade and slow steady re-building than with the Marshall Plan.
A Continent Re-built
Whatever you think of the Marshall Plan it’s impossible to deny that two things emerged from it. Firstly, Europe rose stronger than it ever had. While the establishment of the European Union in 1993 was still many decades off, the stage was set for considerably better cooperation between European nations.
Once it was allowed to re-establish its industries a revitalised West Germany set a blistering pace in terms of recovery and by the 1950s its unemployment was so low that the country began allowing foreign immigrants to settle in the country, many from Turkey.
The second aspect to emerge from the Marshall Plan was a supremely powerful United States. No doubt that the Marshall Plan provided much-needed assistance to an impoverished continent, but it was a gracious act that the U.S greatly benefited from. It kept the booming American industry machine ticking over while also facilitating significantly better trade contacts throughout Europe.
But not only that, the plan helped keep the dreaded wave of communism behind the Iron Curtain and helped to export the American ideals of freedom and democracy to Europe.
The Global Plan
This is an idea that sounds a little far-fetched now, but we thought it might be a nice note to end on. In his book, Earth in Balance, former U.S Vice President Al Core laid out a concept for what he described as a Global plan, based on a similar framework to the Marshall version. Both a way of alleviating our environmental concerns and providing much-needed assistance to third world countries.
It included five strategic goals:
- stabilize the world population.
- rapidly develop environmentally appropriate technologies
- a comprehensive change in the economic “rules of the road” by which we measure the impact of our decisions on the environment
- negotiation & approval of a new generation of international agreements
- a cooperative plan for educating the world’s citizens about our global environment.
The idea has now spawned into the Global Plan Initiative, a network of over 5,000 individual supporters and more than 200 organisations from around the world to establish a system where sustainability is paramount to the global economy – a global Eco-Social Market Economy.
This might sound on touch on the idealistic side, but with the way the world is at the moment, I’d say that all options are on the table. The Marshall Plan was not black and white, it both aided the European recovery and helped to establish the U.S as the preeminent superpower. Chances are Europe would have been OK without it, but it certainly sped up the process.
Perhaps this Global Marshall Plan is really something we should look more carefully at. Drastic times call for drastic measures and while the physical destruction and casualties of 2020 pale in comparison to 1945, the world once again finds itself shattered and broken. It will be a long road to recovery. To save the world, maybe we need to look at what we did last time.