Marshall Plan Commemorative Section: Lessons of the Plan: Looking Forward to the Next Century

Walt W. Rostow

From Foreign Affairs, May/ June 1997

Summary:  A look back at perhaps the most important foreign policy success of the postwar period. Edited by Peter Grose, with contributions by historians Diane B. Kunz and David Reynolds, a memoir by Charles P. Kindleberger, a profile of Marshall and Acheson by James Chace and one of Will Clayton by Gregory Fossedal and Bill Mikhail. And reflections from Roy Jenkins, Walt Rostow, and Helmut Schmidt.

Walt W. Rostow, the Rex G. Baker, Jr., Professor of Political Economy at the University of Texas at Austin, was Director of the State Department's Policy Planning Staff and National Security Adviser to the Kennedy and Johnson administrations.

Three dimensions of the Marshall Plan increase in significance with the passage of time. The first is the plan's role in producing a postwar global economy that would avoid the problems that plagued the West between the two world wars, including those that led to the Great Depression. The best economists of the United States and Europe felt that severe unemployment was the major danger in the wake of the war. Moreover, many feared that countries might again embrace protectionism as the world spiraled into the grasp of economic nationalism. To build a trade and monetary system that would bring their hopes to life, American planners tied their aid to the liquidation of the wartime debt that Western European countries had incurred with their colonies and other developing nations.

Second, the Marshall Plan helped shape the military and political events of the late 1940s and early 1950s and was in turn shaped by them. These included the communist pressure on Greece and Turkey, which led to the Truman Doctrine in March 1947 and Marshall's more constructive proposal in June of that year; the decolonization crises experienced notably by France, the Netherlands, and Belgium, which strained those countries' economies; the Soviet blockade of West Berlin and the creation of the North Atlantic Treaty Organization, which flowed directly from the extension of West German currency reform to West Berlin; and the Korean War, which led the United States to commit four divisions to NATO, raised the question of West German disarmament, and converted the Marshall Plan into a military support program.

The final aspect is the Marshall Plan's role in promoting the move toward European unity. Europeans took the lead in this effort, but they received critical support from both major parties in the United States, despite integration's implicit anti-American rationale. This anti-American undertone may surprise some today, but it was at the time understood with some subtlety on both sides of the Atlantic. Nevertheless, Americans undertook the Marshall Plan as a national effort. It involved the executive branch and Congress, Democrats and Republicans, the private sector and trade unions, farmers, and a significant portion of the electorate. Only the major war that had preceded it had more fully mobilized American society.

Early in 1946, while serving in the German-Austrian Economic Division of the Department of State, I concluded that if the United States restricted itself to housekeeping tasks within the American zone of Germany and of Berlin, it would ultimately preside over the split of Germany and Europe and harm the prospects for a sound European recovery. Consequently I wrote a memorandum advocating a concerted approach to the continent's economic and security problems, which envisaged an offer of assistance to all of Europe, including the U.S.S.R., and was committed to proceeding in the west if Moscow's response was negative. This plan gained the backing of top State Department officials including Dean Acheson and William Clayton, but James Byrnes, then secretary of state, rejected it, preferring to present the Russians with a proposal for a 50-year disarmament of Germany. Byrnes did, however, endorse the proposed Economic Commission of Europe, in which I later served within the office of the executive secretary. The ECE had members from both blocs and might have been the institutional home for the future Marshall Plan if Stalin had permitted Eastern European participation. These early proposals helped set in motion work among like-minded staff at the State Department that proved operationally useful a year later when George Marshall set forth a similar plan at Harvard's commencement in June 1947.

THE VISIBLE HAND

Seen from a broad perspective, the Marshall Plan reflected the conviction, shared by a good many -- though not all -- Americans, that the isolationism and acute nationalism that had flourished from the presidential election of 1920 until Pearl Harbor, especially during the Great Depression, must not again hold sway. American leaders who held these views tried to make sure that there would be no repeat of such episodes as the U.S. withdrawal of short-term loans to Europe in 1928 so as to take a profit on the stock market. An international conference held at the New Hampshire resort of Bretton Woods in 1944 created the International Monetary Fund to assure that short-term lending would not be determined by short-term private considerations. To provide similar guarantees in long-term lending, the conference created the World Bank.

The Bretton Woods conference also set out to tackle the problem of protectionism. Agreeing that tariffs had proved an illusory device for shielding nations from the vicissitudes of international trade, the conference participants committed their countries to negotiate an approximation of worldwide free trade. But the postwar period was marked by a dramatic shift in the terms of trade, the prices of a country's or region's exports in relation to the prices of imports; the terms of trade had declined modestly between 1933 and 1938 for Britain, Western Europe, and the United States but fell precipitously by some 30 percent for all three in the late 1940s. Thus in 1947 Western Europe confronted an awkward combination of unfavorable terms of trade and a related shortage of dollars. The essential foodstuffs and raw materials European recovery required -- grain, cotton, vegetable oil, meat, dairy products, petroleum, and metals -- could be acquired only from the United States, given the levels of output elsewhere. The postwar pressures for protection in Europe were, not surprisingly, intense.

The Marshall Plan helped cover the shortage of dollars while Western Europe expanded its agricultural production and shifted, wherever possible, from dollar to non-dollar imports. By 1951 grain production in Western Europe, except in Britain, which had expanded agriculture during the war, was not yet back to where it had been in the 1930s, but it was rising, and the postwar dependence on dollar imports was falling. The consequences for the developing world were dramatic. From 1945 to 1951, Third World countries, especially overseas exporters of foodstuffs and raw materials, were able to acquire a relatively greater quantity of European manufactured imports for a given quantity of their exports. This tendency was enhanced in some cases by a country's ability to increase imports by drawing down sterling balances and other reserves built up during the war. For example, the volume of Argentine exports actually declined slightly between the periods 1940-44 and 1945-49, but imports increased 90 percent.

By 1950 the upshot of the European recovery, facilitated by Marshall Plan aid that narrowed the dollar gap, was clear: exports from Western Europe, except from Germany, had surged; European imports had expanded at a slower rate; Third World countries, which enjoyed favorable terms of trade, had seen a disproportionate rise in exports; and, above all, world trade had experienced a remarkable resurgence, which lifted it for the first time above the levels of 1929. These benign outcomes were among the least noted consequences of the Marshall Plan as it was implemented in the form of the European Recovery Program. The program not only revived Europe, but reestablished a vital triangular trade between Western Europe, the United States, and their trading partners in the developing world.

BUTTER TO GUNS