strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Summer 2008 / Issue 51(originally published by Booz & Company)


The Forgotten Lessons of the Marshall Plan

To combat poverty in Africa, government should redirect aid to foster local business.

Illustration by Lars Leetaru

More than 60 years ago, on June 5, 1947, U.S. Secretary of State George Marshall announced the European Recovery Program (later known as the Marshall Plan) in a famous commencement address at Harvard University. He said that it was “logical” for the United States to do whatever it could to restore the region to economic growth, “without which there can be no political stability and no assured peace.” The plan, funded by the U.S. government and ad­ministered by a Europe-wide commission, spent US$13 billion over four years and engendered the highest rate of economic growth (about 35 percent per year) in European history. When the work of the plan was finished, the economies of every western European country had not just returned to prewar levels of growth and economic development, but surpassed them.

Ever since, the Marshall Plan has been widely hailed as a triumph, an example of foreign aid as an enabler of economic revitalization on a grand scale. During the past few years, some leaders have proposed it as a model for helping an entirely different region. A call has gone out for a Marshall Plan for Africa. Extreme poverty, civil wars, and disease have ravaged much of the continent, leaving it poorer today than it was 20 years ago. Sub-Saharan Africa in particular, home to two-thirds of the world’s least developed countries, is the focus of greatest concern.

Jeffrey Sachs, the director of Columbia University’s Earth Institute, included the idea of a Marshall Plan for Africa in his book The End of Poverty: Economic Possibilities for Our Time (Penguin, 2005). The United Nations Millennium Project, which Sachs helped conceive and design, evoked the Marshall Plan in its reports, as did the George W. Bush administration’s Millen­nium Challenge Account (MCA), which was launched in 2006. And, in 2005, the U.K.’s Chancellor of the Exchequer (now Prime Minister) Gordon Brown made “a modern Marshall Plan” for Africa part of his grand vision for international aid, arguing that Africa’s situation calls for concerted action by the world community.

Brown’s proposal, which has in­fluenced many subsequent proposals and projects, contained four main elements. First, rich countries and multilateral institutions (such as the World Bank and International Monetary Fund) would forgive all their existing loans to the governments of African nations. Second, rich countries would double the amount of their direct development aid to Africa, establishing an “international finance facility” to support early phases of activity by borrowing against future promises of aid. Third, African governments would commit to anticorruption measures and more spending on health, education, and welfare. Fourth, rich countries would end trade barriers that hinder the import of African agricultural products.

There is much reason to agree with the objectives of a Marshall Plan for Africa. Raising the economic growth rates and standards of living in Africa, especially in sub-Saharan Africa, would have many beneficial effects. But most of the existing proposals, including Brown’s, represent a great misunderstanding of the intention of the original Marshall Plan and the way it worked. It was less a sweeping program of foreign aid to governments and agencies than a large-scale effort to restore the power of business as a growth engine. A true Marshall Plan for Africa could ignite growth and reduce poverty, but only through a set of institutions that are different from those the current aid system is using. A broader understanding of the history of the Marshall Plan in Europe could lead to much more effective international investments and political initiatives, not just in Africa but throughout the world.

Marshalling Resources
In 1960, the average output per worker of African countries was about the same as that of Asian economies. But the latter have since experienced a boom, whereas most African economies have stagnated or deteriorated. This lack of growth has reinforced war and dictatorship throughout the continent, just as it threatened to do in Europe after World War II.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.