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Post-war
Reconstruction
The Marshall Plan
The reconstruction
of the economies and polities of Western Europe after World War II was
an extraordinary success with rapid growth, relatively muted
distributional conflicts and a rapid expansion of world trade. This
period's greatest success may lie in the establishment of representative
institutions and `mixed economies' in Western Europe. In Discussion
Paper No. 634, J Bradford De Long and Research Fellow Barry
Eichengreen investigate the lessons of this success for Eastern
Europe today. Many argue that the West should extend large-scale aid to
the reforming economies in exchange for a commitment to reform, citing
as a precedent the Marshall Plan, which transferred some $13 billion of
US aid to Western Europe during 1948-51.
De Long and Eichengreen investigate the Marshall Plan's contribution to
post-war Western Europe's economic prosperity and political stability
and the extent to which lessons of this period apply to Eastern Europe
now. They find that the Marshall Plan did matter, but not in the way
that the `folk wisdom' of international relations suggests. The
magnitude of aid under this programme was too small to stimulate growth
significantly by accelerating the replacement and expansion of the
capital stock. Nor did it significantly contribute to financing the
reconstruction of devastated infrastructure, which was largely complete
before the programme came on stream. The Marshall Plan did play a role
in loosening foreign exchange constraints and improving capacity
utilization, but this effect was not strong enough to justify the
programme's subsequent reputation.
De Long and Eichengreen argue rather that the Marshall Plan boosted West
European growth significantly by altering the environment in which
economic policy was made. The formal and informal conditions imposed on
governments seeking US aid encouraged the reductions in spending needed
for financial stability, the relaxation of controls and the
liberalization of foreign trade. This conditionality pushed the `mixed
economies' towards a market orientation and away from directive
planning. Aid provided support to cushion consumption during
readjustment and reorganization, which made the relaxation of controls
and the return to market organization from war-time controls politically
palatable and provided an additional inducement for reform. The Marshall
Plan is therefore best viewed as a large and highly successful
structural adjustment programme.
The Marshall Plan: History's Most Successful Structural Adjustment
Program
J Bradford De Long and Barry Eichengreen
Discussion
Paper No. 634, May 1992 (IM)
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