July 21, 2017

Tony explains everything

While in Europe I came across Postwar by the late Tony Judt.  All other activities stopped as I plunged in and read as much as I could...but man there's a lot of it.  After two days I was about a quarter of the way through the book.  "Tour de force" is a bit of understatement - the man seems to have known everything, and talked with everyone about the things he didn't know.  Here is his quick rundown on the Marshall Plan:
Between the end of the war and the announcement of the Marshall Plan, the United States had already spent many billions of dollars in grants and loans to Europe. The chief beneficiaries by far had been the UK and France, which had received $4.4 billion and $1.9 billion in loans respectively, but no country had been excluded—loans to Italy exceeded $513 million by mid-1947 and Poland ($251 million), Denmark ($272 million), Greece ($161 million) and many other countries were indebted to the US as well. 
But these loans had served to plug holes and meet emergencies. American aid hitherto was not used for reconstruction or long-term investment but for essential supplies, services and repairs. Furthermore, the loans—especially those to the major western European states—came with strings attached. Immediately following the Japanese surrender President Truman had imprudently cancelled the wartime Lend-Lease agreements, causing Maynard Keynes to advise the British Cabinet, in a memorandum on August 14th 1945, that the country faced an ‘economic Dunkirk’. Over the course of the following months Keynes successfully negotiated a substantial American loan agreement to supply the dollars that Britain would need to buy goods no longer available under Lend-Lease, but the American terms were unrealistically restrictive—notably in their requirement that Britain give up imperial preferences for its overseas dominions, abandon exchange controls and make sterling fully convertible. The result, as Keynes and others predicted, was the first of many post-war runs on the British pound, the rapid disappearance of Britain’s dollar reserves and an even more serious crisis the following year. 
The terms of the loan negotiated in Washington in May 1946 between the US and France were only slightly less restrictive. In addition to a write-off of $2.25 billion of wartime loans, the French got hundreds of millions of dollars in credits and the promise of low-interest loans to come. In return, Paris pledged to abandon protectionist import quotas, allowing freer entry to American and other foreign products. Like the British loan, this agreement was designed in part to advance the US agenda of freer international trade, open and stable currency exchanges and closer international cooperation. In practice, however, the money was gone within a year and the only medium-term legacy was increased popular resentment (much played upon by the Left) at America’s exploitation of its economic muscle.
By the spring of 1947, then, Washington’s bilateral approaches to Europe’s economic troubles had manifestly failed. The trading deficit between Europe and the US in 1947 would reach $4,742 million, more than double the figure for 1946. If this was a ‘hiccup of growth’, as later commentators have suggested, then Europe was close to choking. That is why Ernest Bevin, the British Foreign Minister, responded to Marshall’s Commencement Address by describing it as ‘one of the greatest speeches in world history’, and he was not wrong.
Marshall’s proposals were a clean break with past practice. To begin with, beyond certain framing conditions it was to be left to the Europeans to decide whether to take American aid and how to use it, though American advisers and specialists would play a prominent role in the administration of the funds. Secondly, the assistance was to be spread across a period of years and was thus from the start a strategic programme of recovery and growth rather than a disaster fund. 
Thirdly, the sums in question were very substantial indeed. By the time Marshall Aid came to an end, in 1952, the United States had spent some $13 billion, more than all previous US overseas aid combined. Of this the UK and France got by far the largest sums in absolute amounts, but the relative impact on Italy and the smaller recipients was probably greater still: in Austria, 14 percent of the country’s income in the first full year of the European Recovery Program (ERP), from July 1948 to June 1949, came from Marshall Aid. These figures were enormous for the time: in cash terms the ERP was worth about $100 billion in today’s (2004) dollars, but as an equivalent share of America’s Gross Domestic Product (it consumed about 0.5 percent of the latter in the years 1948–1951) a Marshall Plan at the beginning of the twenty-first century would cost about $201 billion.
Great book.



Blogger VMM said...

Agreed. (I read it last year. Did I mention it to you?)

July 21, 2017 at 7:25 AM  
Blogger JAB said...

I couldn't help but notice the similarity of language: replace "the Europeans" with "the impoverished" in a domestic context in the last paragraph, and you have a pretty good description of why the New Deal worked, and with the same principles.

July 21, 2017 at 11:12 AM  
Blogger The Other Front said...

You know, VMM, next time you could post something about it on your "blog"...

JAB - I think the New Deal was a big reason the U.S. got out of the 30s with civil society in better shape that most European countries, despite the fact that the Depression hit the U.S. harder than many European nations.

For more on that theme see last paragraph of my next post on the Judt book.

July 21, 2017 at 8:02 PM  

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