Insights

Why It Is So Hard to Repeat the Marshall Plan

June 06, 2022
by
Benn Steil
7 min read
Foreign Policy
Ukraine
Photo credit: DesignRage / Shutterstock.com
Hardly a year goes by in which there are not impassioned calls from prominent politicians and commentators to address some daunting geopolitical challenge with a “Marshall Plan.”
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During the Great Financial Crisis, it was a Marshall Plan for Greece and Southern Europe;1  during the Arab Spring revolts, a Marshall Plan for the Middle East.2  Then there was a Marshall Plan for war-ravaged Syria3  and, most recently, a Marshall Plan for Ukraine4 —and even for a post-Putin Russia.5  And for those thinking a Green New Deal insufficient, there is even a Marshall Plan for Planet Earth.6

The fundamental error made by advocates of new Marshall Plans, however, is to presume that the essence of the original one was simply the application of vast sums of government money. Those sums were indeed substantial: in current dollars, about $160 billion between 1948 and 1952. During that period, the 16 Marshall countries rebuilt and recovered rapidly, increasing output nearly 60 percent. This fact underlies the belief that the dollars were the source, or at least the primary source, of this achievement. Yet economists who have analyzed the Keynesian stimulus effect on Western Europe’s revival have generally concluded that it was modest. My research suggests that other, less quantifiable, factors were comparably or more important—or, at the very least, vital complements.7

60%

During that period, the 16 Marshall countries rebuilt and recovered rapidly, increasing output nearly 60 percent.

By far the most critical complementary factor was credible US security guarantees. These were not part of the original State Department blueprint for the Marshall Plan, but quickly became so, at the insistence of France and the United Kingdom, in the form of the North Atlantic Treaty Organization (NATO) born in April 1949. Because the countries ultimately covered by the Marshall Plan were not nearly as vulnerable geographically to the threat of Soviet attack as were, for example, eager but unfortunate Czechoslovakia and Poland, the United States could credibly underwrite their security. This fact allowed the Marshall countries to specialize and integrate economically—most notably with the recent mortal adversary and industrial powerhouse, Germany (or rather the western part of of it)—rather than pursue inefficient autarkical policies to assure supplies of steel and other commodities vital for unaided self-defense.

It is notable that the United States committed comparably large annual sums to European relief efforts, through the United Nations Relief and Rehabilitation Administration, in 1946 and 1947—with no material effect on economic recovery. This aid, in contrast to the security-supplemented Marshall aid, did not prevent the Soviet Union from successfully undermining democratization, economic reform, and private investment in Central Europe.

Fast forward to the 21st century, and we observe that the United States committed $50 billion more to war reconstruction in Afghanistan and Iraq than it did, in current dollars, to the 16 Marshall countries combined—again, with precious little to show for it. The main reason was the inability of the United States to defeat the Taliban insurgency in Afghanistan and the Iran-sponsored militias in Iraq. In such precarious security environments, never friendly to Western-style market reform to begin with, the private domestic and foreign investment necessary to generate sustained robust economic growth never materialized.

Another challenge that aspiring Marshall Planners face is that the objectives behind the aid they call for require that it be conditional on recipients pursuing policies consistent with those objectives.

More recently, impassioned calls for prospective Marshall Plans in Syria and Ukraine completely ignore the critical security element. Without the removal of Bashar al-Assad, and neutralization of the ongoing Iranian threat, at a minimum, Syria has no prospect of mobilizing aid to generate private investment and growth. Likewise, Ukraine will never attract private investment while it remains under the shadow of a Russia that is willing and able to unleash large-scale destruction at a moment’s notice. And whereas the creation of NATO was integral to the success of the Marshall Plan, ending the prospect of Ukraine’s incorporation into the alliance is a central Russian war aim.

Another challenge that aspiring Marshall Planners face is that the objectives behind the aid they call for require that it be conditional on recipients pursuing policies consistent with those objectives. In the late 1940s and early 1950s, the United States had great difficulties getting Marshall Plan beneficiaries to pursue its preferred economic policies. France, for example, insisted on funneling aid toward industrial modernization when the United States wanted it focused on fiscal and monetary stabilization. In Italy, the situation was reversed, with Washington demanding more modernization and less pre-Keynesian macroeconomic orthodoxy. The reason these governments could ignore the United States’ threats to cut off aid is that they knew it had only one actual non-negotiable condition: that they keep communists out of their coalitions. This condition they cheerfully met. In the end, these countries’ economies recovered, if not in the manner and as quickly as Washington wished, and so the aid achieved its broad economic as well as political aims. But in less culturally and geographically hospitable terrain, such as Afghanistan and Iraq, where corruption is far more difficult to stamp out, the lack of plausible alternative friendly governments meant that conditionality was all but impossible to enforce. Aid would come irrespective of what they did—at least until the United States accepted that it would never achieve its aims and left.

A third, related, challenge facing aspiring Marshall Planners is that some of their aims will inevitably be incompatible. The Truman administration wrestled intensively with this problem in Germany. Should it prioritize denazification or economic revival? Which of the country’s victims would be compensated, and which creditors repaid? Would aid favor US exporters, at the cost of worsening Europe’s dollar shortage, or German exporters, at the cost of US jobs? Such trade-offs would be obvious in a post-conflict Ukraine or a post-Putin Russia. To what extent should donor aid support donor industry and jobs relative to those of the recipient country, or those of more-efficient third countries? How can US, EU, Ukrainian, and Russian trade and security interests be reconciled and balanced? Since defensive and offensive military capacities are often in the eye of the beholder, can one side’s capacities be increased without increasing another side’s anxieties? If not, what should be the priority? These are questions that go well beyond, and may be considerably more important than, how much money will be mobilized.

The Marshall Plan holds such enormous attraction to well-meaning policymakers and commentators because it seems to hold out the promise of buying peace and prosperity in troubled regions.

The Marshall Plan holds such enormous attraction to well-meaning policymakers and commentators because it seems to hold out the promise of buying peace and prosperity in troubled regions. But the plan did not actually do that; it was merely a pump primer for a much larger effort aimed at forging alliances in the service of protecting US political, economic, and security interests. The instances in which it can be replicated are severely circumscribed by matters of geography, adversary resistance, and conflicting recipient priorities. By all means, we should continue to think big when the problems are big—but dollars can never be more than a part of the solution.

Benn Steil is director of international economics at the Council on Foreign Relations and the author, most recent, of The Marshall Plan: Dawn of the Cold War.

This year the German Marshall Fund marks its 50th anniversary and the 75th anniversary of the Marshall Plan. These historic moments serve as an opportunity to highlight the achievements of one of the most important American diplomatic initiatives of the 20th century and how its legacy lives on today through GMF and its mission. Learn more about GMF at 50.