Economist and author Benn Steil explains the background to the 1947 US aid initiative to Europe and describes how it helped shape relations between the USA and USSR. He also considers what impact it had on European recovery after the Second World War

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00:01:25the Cold War really did begin after the Marshall Plan because it wasn't until that point that both sides United States and the Soviet Union had decided to abandon the Yalta Potsdam framework for collaboration and to pursue their interest unilaterally
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00:02:43today's guest is pennsdale to a senior fellow on the right job International economics at the Council on Foreign Relations
00:02:53easy author of the Marshall Plan during the Cold War a new book that explores the famous US initiative to provide economic aid to Western Europe after the second World War I spoke to bend down the line a little while back to find out more just come out in the US and UK and I can see it's already gone to some excellent reviews so perhaps we could stop talking about the name itself how much was the plan the worth of George Marshall well the architects of the plan where people below Marshall in the state department than in particular to individuals famous Diplomat George Kennan who coined the term containment as it applied to the Soviet Union in a famous foreign affairs article in 1947 Cannon was primarily responsible for Designing the Marshall Plan as a Geo strategy to keep the Soviets from
00:03:52penetrating the parts of Europe that they did not actually control at the end of World War II very important figure who sadly is largely forgotten today is a man named Will Clayton who was under Secretary of economic Affairs in the state department and he and many ways can be considered one of the founding fathers of the European Union integrating Western Europe economically politically and later militarily was actually a vital component of the Marshall Plan it was seen as being necessary to revitalize the European economies as quickly as possible and to ensure that they could go here and act as one in the face of any potential aggression either from the Soviet Union or perhaps down the road Germany
00:04:52so you told about this idea containment in this fear of surgery encroachment into Western Europe how realistic a prospect was that in the years of the second world war it was highly unlikely that star and would have used military means at that point of course he was anxious to have his troops in as much of Europe as possible at the end of the conflict Jim he told the French communist leader in 1947 that it was extremely fun fortunate that the Soviet Union was unable to occupy Paris but he would not have been foolish enough to try to send tanks into Western Europe having said that local communist parties particularly in Italy and France were extremely powerful in 1947 they were both parts of Coalition governments at the time and of course they receive tremendous moral end
00:05:52their support from the Soviet Union so these were considered by the United States effectively to be Soviet fifth columns with in Western Europe answer the Marshall Plan evolved economic assistance to buy large number of countries in Europe what kind of money we talked about in total in 1948 dollars were talking about 13.2 billion dollars spread over 4 years it was very important to Kenan to do this over a four-year period to demonstrate to Western Europe that the United States was here to stay it wasn't going to Bandon Western Europe it wasn't going to go home and Retreat into isolationism as it had after World War II put that number 13.2 billion in contacts that was about 1.1% of US GDP to .6% of recipient country GDP
00:06:52as a percentage of u.s. output today we're talking about 800 billion dollars we want to get $800 to Euro equal of opposition to that how how were they able to get through the gates political opponent for the public-at-large it was an extreme domestic Challenge and in fact the effort to push the Marshall Plan through a republican Congress that was very anxious to cut taxes and have a peace dividend was widely referred to as the Marshall Plan to pass the Marshall Plan and there's one individual in particular who deserves enormous credit Marshall himself says the plan should have been some capacity be named after him is Republican senator Arthur Vandenberg he was head of the Senate Foreign Relations Committee a 1/2
00:07:52isolationist in the 1930s who changed his views quite dramatically after Pearl Harbor decided the United States could no longer consider itself protected by its two oceans the world become too small and without Arthur Vandenberg efforts it is highly unlikely that the Marshall Plan could have gotten enough Republican support to actually have passed into legislation which it did in April 1948. From the various European countries to this promise that I can donate assistance
00:08:32well the person who picked up the ball and ran with it the the quickest and the most enthusiastic Lee was of course the British prime minister Ernest Bevin and that was partly due to the efforts of Marshalls Deputy Dean Acheson when Marshall made his famous speech adumbrating what would become the Marshall Plan at Harvard in June of 1947 he deliberately deliver the message in a very low-key way he wanted the ideas to germinate percolate a bit in the United States he didn't want splashy headlines and he didn't get them but action was very concerned that the big message might be missed in Europe so he called together a group of British News man just before Marshall speech and said this is going to be
00:09:32big stop whatever time of night it is he said wake up Ernie and Bevan clearly got the message and immediately after hearing the speech he contacted his French counterpart George Beadle he met with a video in Paris to plan their strategy which in in conjunction with the Americans was to lure the Soviet foreign minister vyacheslav Molotov to Paris in order to negotiate the possibility of the Soviet Union participating in the Marshall Plan but the actual aim was to encourage him to storm out so that he himself and of course Joseph Stalin in the Soviet Union would take the responsibility for dividing Europe and not the United States
00:10:28Americans with author Marshall primary to say to Union but they never accept it so was America happy to accept the consequences or potential for the polarization in I wouldn't use the term happy it was a last option but Marshall had spent six weeks in March and April in Moscow negotiating with Molotov and Stalin over Germany trying to find some means of producing a peace treaty and unifying the country but the difference is between them or just irreconcilable there was an arrow issue that divided them that was reparations stolen insisted on at least 10 billion dollars in reparations from the Western occupied part of Germany in current dollars that would be a little over a hundred billion the Americans were absolutely on willing to consider that because at the time they were keeping Western
00:11:28how many alive so 10 billion in reparations from Western Germany would have effectively have been financed by the United States itself it had made that mistake after World War 1 and wasn't about to repeat it but there was a much bigger split between the two and that was that neither the United States nor the Soviet Union could afford to have a unified Germany as an ally of the other so when Marshall came home after the stalemate in Moscow in April of 47 he made a famous radio dress in which he said the patient is sinking while the doctors deliberate what he was trying to get across was that cooperation with the Soviet Union was effectively over if the United States did not take immediate unilateral action to revive Western Germany and Western Europe in general which was really sinking in
00:12:28to dis Order & Chaos Britain in particular the United States itself was going to be faced with a major economic and physical security threat of Soviet Union in the Eastern European countries that have fallen under Soviets why what was what was that response this is one of the most fascinating parts of the story start on had early on I actually considered trying to participate in the Marshall Plan because he he was a Marxist ideal log and really believe that the United States had to give billions of dollars to Europe in order to prop up its own industry which was of course suffering from some overcapacity after the war but she believes the inevitable prices of capitalism had come and that perhaps he could get unconditional aid from the United States just as he had
00:13:28would lend lease during the war he also wanted to participate in order to try to undermine it from within and make sure that the United States could not impose terms and initially he actually told the satellite States in Eastern Europe to participate in discussions in order to encourage them to storm out and make clear that the American conditions would be unacceptable in particular the Revival of Western Germany the problem stone-faced was that the checks in particular were so enthusiastic that he did not actually trust them he did not believe that they would actually storm out of I need conference and he reversed himself entirely insisting that they could not participate in any means even in order to show their displeasure with aspects of the American initiative
00:14:28argue in the book that the Cold War really did begin after the Marshall Plan because it wasn't until that point that both sides United States and the Soviet Union had decided to abandon the Yalta Potsdam framework for collaboration and to pursue their interest unilaterally and in particular Stein Crackdown on Eastern Europe violently after announcement of the Marshall Plan prior to the Marshall Plan he was willing to tolerate a coalition governments of sorts in Poland and Czechoslovakia Romania Bulgaria and Hungary but after the Marshall Plan he pushed out all the remaining Democratic forces in Eastern Europe and imposed a strict regime of fealty to Moscow
00:15:28is that right absolutely the state department was very clear about this some you can see this an internal memoranda FDR's vision for the postwar world have been widely described as one world the United Nations for example was supposed to be a forum for cooperation between the United States and the Soviet Union to maintain peace and stability around the world now the Truman Administration was going to consciously be pursuing a foreign policy based on the idea of Two Worlds a democratic capitalist world and an authoritarian communist world and the dividing line in Europe was going to be very clear and the United States very consciously wrote off countries in Central and Eastern Europe that really did want desperately to participate in
00:16:28the Marshall Plan in particular Czechoslovakia and Poland listening to stories and fold that's why you're here right with an audible membership you've got access to audiobooks Muse comedy and more from all the best office and broke asses in the business just go to audible.com history extra history extra to 500 500 to get started audiobooks can help you be a better you what do you want to feel healthier get motivated and something new is offering you a free 30-day trial membership which includes one free audiobook per month to even if you cancel your membership after 30 days and he pokes you downloaded including free one romaine noodles to keep
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00:17:58you told your dad about Germany already very recently been at war with Germany receiving significant economic aid from America the French in particular wolf Furious about this in fact the French were just about as ruthless in their occupation of Germany as the Soviets were they were ripping factories and bringing them back to Francis reparations and they were very very concerned about the United States reversing the so-called morgenthau plan this was a plan in 1944 to deindustrialize Germany effectively to pasteurize it to make sure it could never threaten its neighbors again and so France really had to be drawn Kicking and Screaming into the Marshall Plan B cause of their concerns about the US Focus
00:18:58on Reviving The West German economy as quickly as possible and I should emphasize that the Marshall Plan would never have succeeded unless the United States had given France and Britain firm security guarantees because they were very concerned about Germany not just the Soviet Union in the form of NATO which was created in 1949 and the creation of NATO I believe should be credited first and foremost to the British prime minister Ernest Bevin Who convinced the United States that the security guarantees were we're going to be fundamental in particular because the United States was demanding Western European economic integration and not meant that these countries with no longer be self-sufficient if they were going out to depend on each other economically that meant for example that Germany could cut off coal supplies at
00:19:58any point in time or the Soviets might come to control Germany and cut off coal Supply so it was going to be Beitel that the United States not just provide economic aid but provide clear-cut security guarantees what kind of uses did the European countries put the money to it and how far was it stipulated for the United States view on this was really quite schizophrenic on the one hand Marshall was quite insistent that the details of the plan should be worked out in Europe on its own as a grouping and submitted to the United States but as you can imagine the Europeans had difficulty cooperating and they also had very different Visions about how they wanted to proceed to bendy and the Americans did try to impose certain conditions very different conditions and in different countries but they largely felt the one
00:20:58condition that they were able to impose which was by far the most important to them was to keep the local communist parties out of government in Italy and France in May and 47 just before Marshall speech the Communist were booted out of government and they were never allowed back in and I believe that's one of the reasons why business relationships and investment began to revive so quickly after announcement of the Marshall Plan because people on the ground understood now that the Americans would do what it takes to make sure that the Communists would not come back into power but Italy and France are pursued very very different strategies with their Marshall funding French pursue their Mona plan for National industrial modernization despite the fact that the Americans were constantly cutting off Aid and turning it back on trying to get the French to
00:21:58focus on fiscal and monetary stabilization and the Italians did just the opposite the Americans were encouraging them constantly to have some sort of industrial modernization plan like the French but they pursued a strict policy of fiscal and monetary stabilization insisted on a sort of neoliberal agenda about allowing the economy to revive through private Enterprise and I should emphasize that both of those approaches were largely successful so each country pursued its own way forward with as I said the one Proviso that the Communist not be allowed back into government Marshall Rite Aid put to embracing in Britain most of the money was actually used to retire debt as you can imagine the
00:22:58The Truman Administration wasn't entirely happy with British economic policy the new labor government was busy nationalizing firms and in the British occupation Zone Germany they were also encouraging nationalization which was totally unacceptable to the Americans and they put it into that after the so-called by Zone Fusion in Germany but I think it's very important to emphasize that despite the fact that the Truman administration had very great differences on economic policy with the British with the French and the Italians the Americans were very supportive of the show called NCL non-communist left in these countries because they believed that the NCL had Democratic legitimacy and it was the first priority of the Truman Administration to make sure
00:23:58none of these countries are succumb to the temptation of Communism and so that is the reason why the Truman Administration tolerated all I see is which state they thought were misguided except in one country as you can imagine in in West Germany where the United States was basically a dictator largely a benign dictator but a dictator none-the-less General Lucius clay are the military governor on on the ground for example refused to allow the social Democrats to nationalize various Industries he was determined to create a West German State first which she hoped would come to be controlled by the center-right and Konrad Adenauer which was against such nationalization and of course he was very happy when that did come to pass in September of 1949
00:24:58absolute recovery in their late 40s early 1950s how far is it in the Marshall Plan was responsible for that well you know the early eulogistic accounts of the Marshall Plan escribe virtually the entire a remarkable recovery to the Marshall ate itself it was only a few decades later when economist started turning there a statistical tools on the subject and expressed a bit more skepticism about it basically what the economist found is that indeed something was going on here there was an enormous recovery and output between the time that the Marshall Plan was announced in 47 in the time it was wrapped up in mid 1952 industrial output increased by about 60% to put that in perspective be you and five years before the financial crisis in 2008 so I'll put increase
00:25:58by 15% to something was clearly going on but when they looked at the expected Keynesian mechanisms by which this account recovery could have been affected for example the ability to import more because these countries were short of dollars they didn't find the large effect was it that government spending was higher than it would have been well actually no government spending as a percentage of GDP fell across the Marshall countries during those years so I think the fact came from two factors in particular that were more difficult to quantify the first was that George Kennan had always emphasized that the most important effect of the Marshall Plan would be psychological that is convincing the Europeans that the Americans were not going home would not Retreat into isolationism
00:26:58provide for their security I think that had an enormous stimulative fact on private Enterprise a zampa sized earlier Cannon was very anxious that this be a multi-year program in order to make this clear that this was not the United States just giving a sum of money and retreating into isolationism again the second most critical Factor was the reintegration of Germany into the West European economy before the war Germany had been the primary capital good supplier for Europe Germany basically traded capital goods for food and other Commodities but after the war the United States was the primary capital good supplier in Europe and this was running down critically the stash of dollar foreign Reserves
00:27:58in Western Europe to one of the Ambitions of the United States was to replace itself as the primary capital good supplier to Europe with Western Germany to Western Germany would be put back into its old role as quickly as possible and this was enormously successful and together with the security guarantees that were provided to Western Europe this had an enormous stimulative effect that it was a success oh I would argue that it was an enormous success let me read you and extremely of prescient statement from a Republican senator back in October 47 as the Marshall Aid was being developed Senator Henry Cabot Lodge he wrote to Vandenberg who passed it on tomorrow
00:28:58show that quote unquote the recovery of Western Europe is a 25 to 50 year proposition and the aid which we extend now and in the next three years will in the long future result and are having strong friends abroad now if you advance forward to 1989 and the collapse of the Berlin Wall you see that the Soviet Alliance is crumbled immediately or once that structure was taken down whereas the institutions that the United States built with its Western European Partners in the early years after the second world war I'm thinking in particular of NATO and the European Union where is attractive as ever and I think this is really perhaps the finest testimony to the long-term success of the Marshall Plan
00:29:56just finally ever since the Marshall Plan was was inaugurated people told of you that's kind of idea again to try and resolve other issues around the world that's right but how far do you think the Marshall Plan is ammo so we should still be well you know when I set out to write this book I think the thing that intrigues me most about the Marshall Plan was the endless desire to repeat it in the past 5 years alone there have been calls for new Marshall plans in Ukraine in Greece and southern Europe and North Africa and Gaza and most recently in Syria but we've never seen anything even remotely similar to The Marshall plan on being implemented and I think that speaks to the unique historical circumstances at the time and it also speaks to some of the failures of economic intervention in in more recent times consider American reconstruction Aid in Iraq and Afghanistan
00:30:56the United States has spent over two hundred billion dollars on reconstruction in Iraq and Afghanistan and in current dollars that's more than 50% more than the entirety of Marshall Aid yet the United States has almost nothing to show for it and they think the primary reason is the complete absence of internal and external Security in Iraq and Afghanistan and as I had emphasized earlier the provision of just that sort of security through NATO was actually by vital to the success of the Marshall Plan
00:31:36that was Ben Steele
00:31:40the Marshall Plan to let the cold war issues be published today the 15th of March in the UK by Oxford University press
00:31:48and in the US it's already on sale published by Simon & Schuster
00:31:54okay stop spot wolf today but please do this and then again on Monday the more from the world history thanks for listening to this history extra podcast which was produced by Jack Fletcher what you think about this episode. Com out your messages and feet Traditions alternatively history extra history content don't forget to visit our website history.com which is full of History articles quizzes image Galleries and more
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