Marshall Plan

Also called: European Recovery Programme · Topic: The Making of a Global World · NCERT: Beyond NCERT

Meaning

The Marshall Plan, officially the European Recovery Programme (ERP), was a US aid programme. George C. Marshall, the US Secretary of State, announced it in June 1947. From 1948 to 1952 it gave about 13 billion dollars, mostly as grants (gifts, not loans), to help European countries rebuild after the Second World War.

It matters because it rebuilt Western Europe quickly and tied it to the US. It also helped split Europe into two Cold War camps, one led by the US and one by the Soviet Union.

Explanation

Background: why the US stepped in

• Europe lay in ruins. The Second World War killed at least 60 million people, and large parts of Europe and Asia were destroyed: cities, factories, roads and ports.
• There were two new world powers.
• The United States came out as the clear leader of the Western world. Its land was untouched and its industry was huge.

• The Soviet Union had become a world power. Its planned, state-run economy looked successful, and communist parties were strong in some West European countries, such as France and Italy.

• US leaders feared that hunger would spread communism.

• Poor, jobless people might vote for communist parties.

• So rebuilding Europe was also a way to contain (stop the spread of) communism.

• The existing tools were too small. The IBRD / World Bank had been set up to finance post-war reconstruction, and it started lending only in 1947. Its funds could not meet Europe's needs. The Marshall Plan filled the gap with US money given directly to European countries.

• It also followed the lesson that mass production needs mass consumption.
• American factories needed buyers.
• A rebuilt Europe with steady incomes could buy American goods.

Main features

• Announcement: Marshall first set out the idea in a speech at Harvard University on 5 June 1947.
• Law and start: The US Congress passed the plan in 1948, during President Harry Truman's term, and aid began that year.
• Size: about 13 billion dollars over roughly four years (1948–1952). Estimates differ slightly; 12–13 billion is often quoted.
• Form: mostly grants, with a smaller share of loans. Aid came as food, fuel, raw materials and machinery, as well as money.
• Who ran it:
• On the US side, the Economic Cooperation Administration (ECA) managed the aid.

• On the European side, the receiving countries had to plan together through the Organisation for European Economic Co-operation (OEEC), set up in 1948.

• Who got it: about 16–17 West and South European countries. The largest shares went to Britain, France and West Germany.

• Aid was offered to all of Europe, including the USSR.
• The Soviet Union refused it and made the East European countries under its control refuse it too.

Results

• Fast recovery. Industrial output in Western Europe rose quickly in the late 1940s and early 1950s. This helped start the post-war boom (1950–70), when world trade grew over 8% a year and unemployment stayed under 5% in most industrial countries.
• Europe split in two.
• The Soviet answer was the Molotov Plan and then Comecon (1949), an economic bloc for Eastern Europe.

• Europe was now divided into a US-backed West and a Soviet-backed East.

• Europe began to work together. Because the OEEC forced countries to plan jointly, it is seen as an early step towards European unity. The OEEC later became the OECD (1961).

• The World Bank's focus changed. Once Europe and Japan were rebuilt, from the late 1950s the IMF and World Bank turned their attention to developing countries.

Time, place and evidence

• Period: the early Cold War. It was announced in 1947 and the aid ran from 1948 to 1952.
• Place: it was planned in Washington and announced at Harvard University, USA. The aid went to Western and Southern Europe. Japan was not part of it; the US helped Japan through separate aid.
• Key people:
• George C. Marshall, US Secretary of State, who announced the plan.
• Harry Truman, the US President, who signed it into law.

• V. M. Molotov, the Soviet Foreign Minister, who rejected it for the USSR.

• How we know:

• Marshall's Harvard speech of 5 June 1947.
• The US law that created the programme, the Economic Cooperation Act of 1948.
• The records of the ECA and the OEEC.

• US and European government accounts of how the aid was spent.

• Wider frame: the plan worked alongside the Bretton Woods system, agreed by 44 nations at Bretton Woods, New Hampshire, in July 1944 [1][2].

Don't confuse with

• Truman Doctrine (March 1947): a policy promise that the US would help countries resist communism, first applied to Greece and Turkey. The Marshall Plan was the economic programme that followed. The Doctrine is the policy; the Plan is the money.
• IBRD / World Bank: an institution owned by many countries, created at Bretton Woods (1944), that gives loans [1]. The Marshall Plan was a programme of one country, the US, and gave mostly grants.
• Comecon / Molotov Plan: the Soviet answer to the Marshall Plan, for Eastern Europe. It was a rival bloc, not part of the Marshall Plan.
• OEEC vs OECD: the OEEC (1948) was the European body that shared out Marshall aid. It later became the OECD (1961). Do not date the OECD to the Marshall Plan years.

Prelims Hooks

• Marshall Plan = European Recovery Programme. It was announced by US Secretary of State George C. Marshall at Harvard University on 5 June 1947.
• Aid ran from 1948 to 1952 and came to about 13 billion dollars, mostly as grants.
• The largest receivers were Britain, France and West Germany. The USSR and Eastern Europe refused the aid.
• In order: Bretton Woods (July 1944) → Truman Doctrine (March 1947) → Marshall Plan announced (June 1947) → OEEC (1948) → Comecon (1949).
• Trap: "Japan was a major Marshall Plan recipient" is false. The plan covered Europe only.
• Trap: the Marshall Plan was not run by the World Bank or IMF. It was a separate, US-only programme run by the ECA.

Mains Points

• It served both the economy and the Cold War.
• It rebuilt Europe's ability to produce and to buy, which fits the post-war lesson that mass production needs mass consumption.
• It also tied Western Europe to the US and checked communist influence.

• The Soviet refusal and the creation of Comecon made the economic split of Europe a fact. That makes the plan a turning point in the start of the Cold War.

• Historians disagree on how much it achieved.

• The traditional view: the plan saved Europe from collapse and started the 1950–70 boom.
• Some economic historians argue that recovery had already begun by 1947, and that the aid was small compared with Europe's total output.

• In this view, its real value was political: it built confidence, gave Europe dollars to import machinery, and pushed countries to plan together through the OEEC.

• The aid went to industrial countries first.

• Grants rebuilt industrial Europe, while newly free countries in Asia and Africa got little.
• The IMF and World Bank turned to developing countries only from the late 1950s.
• This gap helps explain why the poorer countries later formed the G-77 (1964) and called for a New International Economic Order [3][4].

Related concepts

• Bretton Woods Conference
• Bretton Woods system
• International Monetary Fund
• World Bank
• Fixed exchange rate
• General Agreement on Tariffs and Trade
• Multinational corporation
• Group of 77
• New International Economic Order
• Floating exchange rate

Read more

• Rebuilding the world economy: Bretton Woods to globalisation