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Finance … Development September 1979
Article

Review article: From Marshall Plan to global interdependence

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1979
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Barbara Ward

In 1977, when 30 years had passed since General George C. Marshall in his Commencement address at Harvard University proposed the first outline and direction of the Marshall Plan, there could certainly be no more appropriate body to celebrate the anniversary than the Organization for Economic Cooperation and Development (OECD). Among all the inevitable uncertainties of historical change and chance, one thing is clear. Had it not been for the Marshall Plan, there would have been no OECD. The celebration was thus a fitting act of pietas.

The Marshall Plan’s critical role as a catalyst of change could not be foreseen in the confused and bewildered aftermath of the 1945 victory. In a general sense, the Allies were still near enough to the tragic failures of the 1919 settlement to be profoundly anxious not to repeat them. Already at Bretton Woods they had established what they hoped would be an orderly framework for currency stability and expanding trade. A strengthened United Nations had been planned with full U.S. participation and with a network of supporting agencies to deal with the world’s long-term economic and social needs. Immediate relief for the stricken nations was undertaken by the United Nations Relief and Rehabilitation Administration. But these visions of order were not of a sufficient scale or immediacy to cope with the massive degree of destruction, the all but total lack of capital, the breakdown of trade and, by 1946, the threat to world food supplies that made up the perilous reality of postwar economic disorder.

It was at this point that the United States intervened decisively to end the slide to deepening dislocation. The disbursement of $16,000 million (at 1947 dollar values) in direct gifts to the needy nations in Europe between 1946 and 1951 was the economic core of the Marshall Plan. But its political and diplomatic pattern was no less unprecedented. The recipients were invited to formulate their own needs and plans. A joint body of donors and receivers, the Organization for European Economic Cooperation (OEEC), was established to supervise the strategy. And in effect only one condition was laid down: the United States asked that the plans for recovery be concerted in such a way as to ensure that national plans took account of the larger unity and that the advance of each would support the advance of all. (The United States had not forgotten the deepening fragmentation of the European market that preceded the crisis of 1929.) No doubt disillusion with the “one-by-one” approach, symbolized by the failure of the United States’ large postwar loan to shore up the United Kingdom’s sterling area, gave immediate urgency to the appeal for a cooperative framework. But within it were the seeds of something much more historically significant—the possible break with United States’ traditional isolationism, the reconciliation of France and Germany, an end to the vengeful hostilities of the first half of the twentieth century and indeed to a millenial tradition of European conflict.

Lincoln Gordon (editor), From Marshall Plan to Global Interdependence (Paris, Organization for Economic Cooperation and Development, 1978)

True, the offer of financing under the Marshall initiative divided Europe when Stalin refused his satellites permission to cooperate. But Soviet occupation of Eastern Europe had ensured the split in any case. Meanwhile, in Western Europe, the Marshall Plan and the OEEC provided the framework, the hope and the dynamism out of which were born not only the countries’ longest spell of growth and prosperity but also the anchoring of United States’ commitment to Europe and the evolution—under Jean Monnet’s leadership and with the vision of men like Robert Schuman, Konrad Adenauer, and Alcida de Gasperi—of a common market or economic community in which the hostilities of centuries could be forgotten in a new experience of common purpose and joint work. The OECD came to represent the actual and potential European members of this proposed market, in close links with the United States and Canada and with other industrialized democracies, those in Scandinavia, in Australasia, and Japan. The parentage of the OECD is thus clear: the 1947 Marshall decision to give massive aid to European countries within the framework of a cooperative, agreed, and responsible strategy of reconciliation and reconstruction.

It is also likely that, without the Marshall initiative, the OECD countries in the following decades would not themselves have evolved a policy of bilateral economic aid toward what came to be known as the “South” or “developing countries”—the lands emerging either from direct Western colonial control, in Africa, in Asia, or from long dependence on the dominance of already industrialized states (as in Latin America). It could also be argued that the boost to recovery and growth made possible by the Marshall subsidies provided the only conceivable climate for a sustained effort, through the General Agreement on Tariffs and Trade, to avoid what, in retrospect, looked like one of the main precursors of the 1929 disaster—rising tariff protection and increasing restrictions on the international movement of trade and capital. Thus, the Marshall Plan not only created the original framework of the OECD; it also continued to influence many aspects of the developed world’s evolving commercial and aid policies.

Focus on OECD

There is, therefore, nothing illogical about the tendency of the papers prepared in 1977 for the Marshall Plan anniversary to concentrate not so much on the Marshall Plan itself nor even—as the title for the collection suggests—on global interdependence. The center of attention is quite simply the OECD, its economic relations with other world groups—the communist states, the developing nations—and some reflections on the social and economic consequences of what is seen to be a new degree of mutual openness and hence influence and interdependence largely between the OECD’s own members.

This sense of concentration on the industrialized market economies is almost certainly increased by the lack—in speeches, comments, or discussion reports—of any very precise picture of the balance of the OECD’s relationships with the world economy as a whole. Apart from one brief mention in a closing speech, it is not made clear that the OECD countries, with just under 17 per cent of the world’s peoples, commanded throughout the three decades under review 63 per cent of the world’s gross national product (GNP). During the same period the Comecon countries—mainly the Soviet Union and Eastern Europe—accounted for 9.3 per cent of world population and 15 per cent of GNP. Thus, for three fourths of the world’s peoples, what was left was only just over 20 per cent of GNP. This division, not surprisingly, leaves some 800 million human beings in what has come to be called “absolute poverty,” undernourished, short-lived, illiterate, unskilled, and often workless or at best semiemployed.

This fundamental equation did not much change between 1947 and 1977—save for the oil exporting developing states—even though in the 1950s and 1960s most economies grew, and world trade and manufacturing facilities underwent an unprecedented expansion. But as the 1970s began, the dollar, the central currency of the whole system, grew unsteady, in part because of the financial strains of the Vietnamese conflict. Food prices rose sharply after “the great Soviet grain raid” in March 1973. Then followed the crisis of oil prices quadrupling after the oil embargo. There were signs of a traditional recession after so long a period of unchecked growth—overcapacity, falling order books—in the industrialized world. Nonetheless, with inflationary pressures and large current account deficits, several industrial countries moved to cut back a whole range of public expenditures which, in the confident days of sustained world growth, had been primary instruments for offsetting local fluctuations in demand or remedying imbalance and injustice.

Thus, while world developments of the 1970s produced economic strains which increased the need for government intervention, the paradox emerged that they seemed to have lost much of their capacity to make their intervention effective. Perhaps as a result of the long years of prosperity—not to speak of the new freedom to move resources and activities across traditional national frontiers—large-scale corporate and union power was able to continue to push up wages and prices, even in a market of declining demand, and to pass on the result in the form of higher prices and wages and of a further cycle of inflation. By 1977, a new word which had appeared in the politicians’ lexicon, stagflation—the phenomenon of unemployment and prices rising together—had come into widespread use. It need hardly be pointed out that this new fact did not imply simply loss of policymakers’ domestic freedom. It created a whole new range of inhibitions to thwart possible international action. After all, what is more discouraging to proposals for opening up domestic markets to more foreign goods or increasing the flow of concessionary aid than the pressures at home of unemployed voters or declining regions?

Increasing protectionism?

If one can speak of a common approach appearing in all the richly diverse Marshall Plan anniversary papers and discussions, whether they are analytical or mainly chronological and descriptive, it is the fear that, after the sudden eruption of economic disorder in the 1970s, there would occur, indeed might already be occurring, an ominous retreat to practices and strategies which had built up world tensions before 1914 and directly precipitated the catastrophe of the Great Depression. Would not sectional interests—established industries, the stronger corporations and unions, the nation-state itself—look increasingly to such traditional defenses as excluding competitors, increasing protectionism, safeguarding their own economies at whatever cost to other producers and consumers? Would they then not find themselves back in the old vicious circle—in which each state, determined to be a producer, forgets that “export-led growth” for everybody leaves out the possibility of needed balancing market demand? Who buys if everyone is determined to sell?

In his paper on the European Economic Community (EEC), Lord Franks wonders whether the EEC can continue its cautious advance toward supranationalism if no progress is made in concerting some form of energy policy or in lessening the essential protectionism—of Europe’s farmers—which underlies the Common Agricultural Policy. He also foresees extreme difficulty in securing agreement on a common monetary policy, given the fact that it remains one of the modern states’ chosen instruments in its domestic struggle against inflation and unemployment. Professor Charles Kindle-berger, while not particularly sympathetic to the kind of package deal proposed by the developing nations in their New International Economic Order, admits their difficulty in earning the resources needed for modernization if some of their agricultural products and the kind of competitive goods they begin to produce in their new industries are excluded—by direct or indirect protection—from the markets of the rich.

Professor Peter Knirsch’s very useful paper, describing the fluctuations, largely political in origin, of trade relations between the OECD and the European Comecon countries, points to a rather different type of limit but one as inhibiting to further advance. When, in the 1970s, the communist states decided that their more rapid modernization required, above all, advanced technology, they increased their Western imports dramatically. But their own goods were either under the ban of the West’s agricultural protectionism or had failed to reach the required industrial quality. They borrowed to cover the deficit. By 1977, the debt had grown to $50 billion and, once again, further advance along that same route looked uncertain, if not closed.

Nor should one forget the new structural problems faced by the OECD governments. As we have noted, and as the analytical papers of Professors Michel Crozier, Assar Lindbeck, and Stanley Hoffman each make clear, the decades of prosperity had produced two opposite effects. On the one hand, the industrialized democracies had moved toward steadily widening patterns of trade, investment, and movements of capital and people, all of which mitigate and modify a government’s capacity to control its own economic decisions fully. On the other, the electorates in all these states had come to take for granted a degree of prosperity and security which could, in a whole variety of circumstances, require direct governmental intervention. Everywhere administrations were both weaker, yet expected to accomplish more. How would they react? Could they move toward a quite new degree of cooperative action, taking up to the appropriate international level the needed balance between production and consumption, between debt and the means of repayment, between carrying the costs of readjustment and enjoying the gains of successful market penetration? Or would the outcome be a retreat to fiercely defended but inherently inadequate national action?

Crisis averted

Such were the uncertainties of 1977. It must be said that the intervening span has not changed them much. Some unexpected developments have fended off catastrophe. Private financial institutions have displayed courage and flexibility in assisting governments, particularly in new industrializing countries, to continue essential purchases of Western goods. The conditions of the resulting debt at higher rates and for shorter terms than official assistance or multilateral loans have made the developing world’s debt, now reaching $180 billion, more potentially insecure. But the kind of collapse of purchasing power of the late 1920s has been avoided. The very large oil surpluses of the oil exporting developing states have also been lavishly spent on Western goods—and arms—and this has helped to prevent a cumulative fall in world demand. One could perhaps add that the People’s Republic of China made its first modest appearance as a potential market. But the Western governments seem no nearer than in 1977 to answering the question whether they can evolve the aims and the machinery for an effective cooperative international strategy capable of returning the world economy to steady growth and of overcoming internal stagflation.

Within the OECD a measure of wage restraint has worked in some countries; although unemployment remains high, its effects are mitigated by universal social security systems. But the attempt to persuade the more productive and less inflationary members—above all, the Federal Republic of Germany and Japan—to take a lead in stimulating a more general growth has had little effect. The United States’ unquenched thirst for imported oil has further weakened the dollar. Monetary stability within the EEC is recognized as a prime aim and has recently taken a step forward in Europe with the European Monetary System, but the cooperation of the United Kingdom is still undetermined. In the wider world economy, in spite of progress on tariff cutting in the Tokyo Round, protective devices of all sorts—voluntary quotas, internal subsidies, exclusive qualifications—do not diminish. No overall agreements have been reached with the developing nations. More stable commodity prices, a larger flow of capital, particularly for the basic needs of the poorest states, easier access to developed markets, rescheduling of debt, in short, all the items of a possible postcolonial or “new international economic order,” are still as much in debate as they were in 1977. The world economy has not gone over the precipice. But the precipice has not gone away either. Indeed, the Iranian upheaval could have brought the nations nearer the brink.

It is surely at this point that the two suggested themes in the title of these Marshall Plan anniversary papers—From Marshall Plan to Global Interdependence—become really relevant. Without too much notice being taken of the fact, the processes of aid and investment, virtually launched by the Marshall Plan, have indeed produced a degree of global interdependence which the OECD governments are slow to recognize. The United States, the EEC, and Japan are now selling at least one third of their manufactures to the newly developing nations. While ministries fret about the threat from imported sportswear or rubber shoes or even wooden clothespins, developing nations are becoming massive importers of the basic tools of development without which they cannot grow and which sustain a sizable part of the Western labor force in productive employment. The marginal utility of such investment is high. An extra ton of fertilizer in Michigan, U.S.A., adds little or nothing to the crop. In Bangladesh it could quintuple it.

Even with aid programs that represent less than one third of 1 per cent of Western GNP, Third World productivity and, hence, demand have grown to provide a third of the Western market for manufactures. Speed up the process, transfer, say, the often promised 0.7 per cent of GNP, double and triple Third World food production—and carry food reserves over from good years to bad—diversify and decentralize new industry to support rural and regional growth, keep the effort going over, say, two decades, link a measure of domestic restraint by the rich in the interests of the poorest peoples—do all this and perhaps the whole world economy might be set once again on a course of modest but sustainable growth.

This is not a “Marshall Plan” in the strict sense, for, in 1947, what was in question was a quick restoration of existing industrial and farming capacity. Now much of the task is creation, not restoration. But the strategy could have some of the apparently forgotten characteristics of the original Marshall gesture—generosity from the wealthy states (the bulk of them in the OECD and all much better off on a per capita basis than was the United States in 1947), the working out of details between donors and receivers in an equal partnership, the full responsibility of those enjoying assistance both from the pattern and content of cooperation and for their own contribution to it—the sort of relationship the poor nations are groping for in their search for a New International Economic Order.

Above all, a new approach could contain that element of solidarity and compassion which underlay General Marshall’s thought when he said at Harvard: “Our policy is directed not against any country or doctrine but against poverty, hunger, desperation and chaos.” The prescription worked in 1947. The opposite—decision-less drift—failed in 1929. Even if we leave out the moral issues of unequal wealth and deepening misery, the sheer historical analogy between success and failure in one half century should persuade wealthy governments, in all realism, to follow the strategy of generosity and justice. It has worked once—superbly. Is there any fundamental reason for believing that it could not do so again?

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