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 / Summer 2008 / Issue 51(originally published by Booz & Company)


The Forgotten Lessons of the Marshall Plan

Indeed, the immediate impetus for the original Marshall Plan was the United Kingdom’s announcement that it had run out of money to support the Greek government, which was fighting a Communist insurgency. Communism had al­ready taken over half of Europe at the end of the war, and insurgencies and Communist parties were gaining ground throughout the rest of the continent.

The plan had four components. The first involved the way aid money was gathered and spent. The United States was the source; it channeled all grants through an in­dependent funding and monitoring mechanism with its own global and local institutions. These included the Economic Cooperation Administration (ECA), which ran the entire program, with headquarters in Washington and small missions in every western European country.  Each country had a special ECA account. The receiving countries formed their own regional coordinating body, the Organisation for European Economic Co-operation; this was a forerunner of both the Organisation for Economic Co-operation and Development and the European Union.

The second component was the intensive involvement of the private sector. The original initiative was run by business leaders, in­cluding the top administrator, Paul Hoffman of Studebaker Motor Company, then a major carmaker based in Indiana. The ultimate re­cipient of each loan — in effect, the unit of economic development — was an individual entrepreneur or business, not a government agency or nongovernmental organization (NGO). Money went directly to European governments, but they were required to use it to make loans to local businesses. The borrowers later repaid the loans to these governments, which could then lend them out again. This virtuous circle meant that all money spent on public projects would come from loans, most of which were repaid. It also helped ensure a focus on restoring the commercial infrastructure — such as ports and railroads, supply chains, banks and other financial institutions, and telecommunications networks — that would further boost economic activity.

Third, each European gov­ernment made economic policy re­forms to support its domestic private sector. They made it easier for all businesses, from upstart en­trepreneurs to midsized manufacturing and larger enterprises, to thrive. The closest that Brown’s proposal for Africa came to enabling business-sector development was the provision to cut trade barriers in donor countries. The original Marshall Plan did the opposite: It cut trade barriers in recipient countries, thereby increasing the markets and prospects for the entire region through increased trade.

The fourth component was a regional coordinating body that handled the distribution of funds among countries. This ensured that countries (and their resident businesses) would compete for funds. If one country did not cooperate, another was happy to take its funds.

It was a fortunate circumstance that these four components, and the pro-global-business sentiment un­derlying them, could be put into place. Although some isolationists in the U.S. Congress focused on the cost of the enterprise and opposed intervening outside U.S. borders,  most U.S. politicians understood that domestic fortunes would rise with those of a prosperous, peaceful Europe. There was also a political consensus that business was the primary source of prosperity and stability; American industry had just won the war. And no competing system of economic development existed; the current, prevailing approach to foreign aid, with its reliance on government agencies and NGOs, would not emerge until the 1960s.

Current Economics
Most of today’s Marshall Plan for Africa proposals have little in common with the original Marshall Plan. But there are some important similarities between Europe then and Africa now. One is the sense of urgency. Africa is in danger of economic and social collapse, whereas Europe was under threat of Soviet advance. The second similarity is the recognition that the speed of implementation is critical. The original plan lasted only four years, and most of the present-day plans aspire to offer help in a similar time frame. Third, the financial scale of the original Marshall Plan was similar to today’s proposals; both involved spending about $20 billion per year in today’s dollars.

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