Book Excerpt(ish): The Marshall Plan

It pains me to observe the dismantling of a US-led global order that took decades to build. Institutions such as USAID have been razed, often in mere days. NATO is evaporating before our very eyes. While the institutions are important, the foundational block of that global order was always trust. Violent though it could be at times, American global hegemony was not imposed so much as coaxed.* Now that trust is gone, American ability to advance US interests through persuasion is also gone.

For generations, in the mirrored halls of European diplomacy, Americans suffered the reputation of being impatient, flippant, unreliable, and certainly manipulable. Much of the diplomacy of World War II was conducted into the headwinds of European suspicions that the Americans would never carry through on their promises. After the war, as the Cold War unfolded a world in which long-term commitments would be vital, the Americans redoubled their efforts to reassure their allies, to prove their staying power, or “credibility” as successive presidents put it. Now, the Trump administration’s kowtowing to dictators, unilateralism in Venezuela, unaccountable territorial fixation on Greenland, and contempt for the US-led international trading system has swept away the trust that countless Americans had built.
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The first postwar down payment on American credibility was the Marshall Plan, one of the great triumphs about which one fears most Americans today are largely ignorant. Contrary to myth, the Marshall Plan was not a gigantic grant of cash. It was not a blank check. It was, for all its imperfections, a deeply considered and thoughtfully pursued partnership between the US and the sixteen European countries that participated. A sizable chunk of my book focuses on the Marshall Plan, its transformative energies, and the ways in which Dutch policymakers accepted some of those energies while resisting others. What follows is a brief history of the signature US foreign policy of the twentieth century:

Secretary of State George C Marshall being hosted at commencement exercises, Harvard University, June 1947. His remarks unveiled American proposals for what became known as the Marshall Plan.

​The Americans were aware of, and deeply concerned about, economic privation throughout Europe after World War II. Congressional fact-finding delegations as well as high profile diplomatic visits returned with worried, even alarmist, accounts of the suffering of European populations. Large loans and other considerations to Britain and France in 1946 had been consumed by inflation and trade imbalances, demonstrating that stopgap measures would not stabilize a collapsing Europe. At issue was not merely solicitude for starving European populations. There were also hard-headed economic and geopolitical concerns. A starving and permanently collapsed Europe would not be able to trade with the United States, an immense concern for American officials still wary of retreat into another Great Depression.

​Geopolitically, American policymakers were highly sensitive to the appeal of communism among starving European populations. Communist parties operated in all the nations of Europe, especially strong in France and Italy. If something was not done to reverse the economic spiral, European democracy might fall to internal communist subversion, further imperiling peace and the international trade upon which prosperity for all rested.
           
In response, Washington officials conducted careful surveys and began deep planning. The State Department created a new Policy Planning Staff to study the mounting problems with which the new globally-conscious Americans were now faced; European privation was the issue of first concern. Congress also studied the problem with various high-profile study committees. All agreed that the economic recovery of Europe and its successful integration into vibrant channels of global trade was necessary. It was for this reason that the international negotiators at Bretton Woods in 1944 had already designed sources of capital and the beginning of a rules-based system to promote the recovery of global trade. But more needed to be done, notably the financing of new and expanded industrial capacities in the devastated countries, to give Europeans the earning power to surmount their current trade accounts imbalances (the so-called “dollar gap”). A small fillip to consumption was also thought necessary to bridge the gap between current scarcity and future full employment, lest the attractions of communism prevail.
           
Most officials within the Truman administration reached the same conclusion, that only massive amounts of American aid could provide the requisite capital to help Europe get going again. But the Americans were sensitive to charges, mostly from the communists, that American aid would bring American domination. From nearly the beginning, therefore, the principles of self-help and European self-determination were fully enmeshed in the American plans. When Secretary of State George Marshall famously announced the plan in an address at Harvard in June 1947, one of its basic preconditions was the idea of “friendly aid”: the Americans would finance, but the Europeans themselves would propose the investments to which American capital would be devoted. Congress did reserve the right, through a complicated administrative machinery, to approve investment proposals both from individual participating countries as well as from the countries in the aggregate, in the form of an organization known as the Organization for European Economic Cooperation (OEEC) one of the precursor institutions of European integration. Congress would reauthorize annually the legislation for what became known as the European Recovery Program (ERP).
           
This complicated process meant that the Americans were deeply enmeshed in all aspects of participating countries’ domestic economies. The ERP established an administrative organization called the Economic Cooperation Administration (ECA) in Washington, with the head of Studebaker, Paul Hoffman, installed as chief. The ECA operated a sister organization in Paris, the Office of the Special Representative (OSR) which coordinated plans and proposals with the OEEC.

Additionally, the ECA maintained country missions in each of the 16 participating countries; the mission to the Netherlands was in The Hague. The ECA missions staffed technical and economic experts as well as labor experts for outreach to unions. Participating countries set up domestic organizations themselves, both to coordinate with the Marshall Plan missions, but also to keep American involvement at least one step away from their ministries of economic affairs. Every proposal for industrial or agricultural investment, for commodity import, for debt reduction, or other investment went through a complicated accounting from country mission through the OSR-OEEC (to avoid continent-wide duplications) to the ECA in Washington. ECA also reported every year to Congress, which kept a hawk’s watch over taxpayer monies. No significant charge of fraud has ever stuck to the program.
           
With their European counterparts, the Americans scoured proposals, looking for greater efficiencies or to prevent redundancies. It made little sense to fund a start-up auto industry in one country if another already had a basic infrastructure. The Americans stymied Dutch designs on basic steel production, though they did develop a new specialized steel industry. In this way, the Marshall Plan promoted European integration.
           
Crucial to the program was to find a way to battle inflation. However responsibly managed, the sudden influx of millions of dollars into individual domestic economies threatened to bring a massive inflation, which would eat away at precisely what the program was designed to build. An ingenious work-around was found whereby the Europeans would deposit into a separate account in local currency the value of the American dollars imported into the country. The participating country would get the investment benefits of the additional dollars, but the removal from circulation of the local currency would place a damper on inflation.

These so-called “counterpart funds” gave the Americans a singular leverage point in the program. Regular ERP funds were invested in partnership with the Americans and the Europeans, but the counterpart expenditures had to be approved by the Americans. In this way the Americans could block spending or investments deemed inflationary or insufficiently productive. The Americans tended to devise country-specific programs for counterpart expenditures; in the Netherlands, much went to land reclamation, which was a productive use of the money, kept to Dutch traditions, and allowed for big, showy programs that played well in the press.
           
Counterpart gave the Americans additional leverage. The ECA kept five percent of all counterpart funds to spend at their own discretion. That five percent paid for the administrative costs of Marshall Planners-in country. It also funded American information programs about the Marshall Plan. In this way, participating countries’ populations paid to propagandize themselves. And the propaganda effort was massive, perhaps the largest peace-time propaganda offensive in world history. Pamphlets and booklets, films and radio programs, speakers and books, posters, exhibitions, and technical experts of all sorts blanketed Europe not only with images of American benevolence, but with more ideologically-charged messages about the American example. The lesson was simple: “You too can be like us.” In item after item the Europeans learned that scaled production, increased productivity, and continent-wide trade integration—all just like in America—would bring the blessings of a high consumption, prosperous economy. While parts of this message certainly stuck, it is in the general resistance to this American “growth paradigm” that the Europeans showed their true independence.
           
In 1951, during the Korean War and under heightened fears of Soviet aggression, Congress reauthorized the Marshall Plan, but renamed it the Mutual Security Program. The original authorizing legislation had expressly forbidden spending on military items, so as to not inflame communist opposition. Now, the ECA was renamed the Mutual Security Administration (MSA) and Marshall Plan funds became available for defense purposes. Much MSA funding was also coordinated with the various military spending supports the Americans had put in place to promote NATO, and the Americans placed enormous pressure on their allies to spend more on defense. Much of the ideological emphasis at this point still encouraged European integration and trade liberalization (much the same thing as far as the Marshall Planners were concerned), but now the propaganda increasingly stressed productivity. Raising the efficiencies of European industrial production was increasingly held to solve the “guns v. butter” paradox, in other words, to allow the Europeans to rearm without also cutting in too much to consumption, since frustrated consumers were thought to provide ripe breeding ground for communism.
           
The Marshall Plan ended in 1953, one year later than originally conceived. The Netherlands was the first country to decline further Marshall aid, though other forms of US support were available. The remnants of the Marshall Plan were folded into a number of other agencies during the Eisenhower years. Kennedy resurrected the idea of foreign development aid, with a special focus on the global south and established USAID as a kind of successor agency to the old ECA. In recent years the USAID has done remarkable work for relatively little cost, notably in Africa, where it helped to administer President George W. Bush’s life-saving PEPFAR program. The Trump administration shuttered USAID without cause or explanation soon after taking office, largely ending a tradition begun with Secretary Marshall 78 years earlier.
           
Did the Marshall Plan work? Many economists are cool to the idea that the Marshall Plan itself drove European recovery. Certainly, it is too much to say that the Marshall Plan saved Europe. European work, sacrifice, and leadership did that. Most economic historians would likely agree that the Marshall Plan provided a crucial economic margin, that its contribution was not irrelevant, and that Marshall funds made faster and more durable recovery possible. Beyond that, the Marshall Plan contributed in important ways to European integration.

Most certainly, however, the Marshall Plan contributed to European-American understanding and cooperation. It reassured nervous Europeans that the Atlantic alliance was stable and could be counted on. It built trust, in other words, in an ongoing relationship that has weathered many storms and contained many tensions that might otherwise have boiled over into conflict.
Until now.
 
*Where the Americans did attempt to dominate, such as Cuba or Vietnam, American power was often successfully resisted, though of course at immeasurable cost.
 
Further reading: Benn Steil, The Marshall Plan: Dawn of the Cold War (Oxford, 2018)
 
—David J. Snyder