A modern marshall plan

E&T details the Marshall Plan and looks at whether it could play a role today.

At the end of the Second World War, the Allies were determined that Germany should never go to war again. Although the country, divided into four zones occupied by Britain, the United States, France and the Soviet Union, was in economic chaos, much of its industrial base had survived.

The first 'Level of Industry Plan' envisaged the destruction of what was left of the German war machine by reducing steel and coal production and dismantling the heavy engineering industries. Around 1,500 listed manufacturing plants would be destroyed or removed to Allied countries. Germany was destined for the standard of life that had existed during the Great Depression and, it was hoped, a peaceful pastoral society with a little light industry would emerge.

All the Allies took part in this planned post-war plundering of German industry and technology. As well as physically removing factories, the victors seized intellectual property (patents, industrial secrets, scientific and technical knowledge) along with many scientists and technicians, including most famously, Werner von Braun who had worked on the V2 Rocket. An elite British intelligence unit abducted hundreds of German scientists and put them to work in government ministries and private firms in the UK, giving a boost to British business and impeding the German ability to compete.

Ironically, the Volkswagen factory was offered to Britain but rejected, the Rootes commission reporting that "the vehicle does not meet the fundamental technical requirement of a motor-car… is quite unattractive to the average buyer… to build the car commercially would be a completely uneconomic enterprise." The revival of the factory was largely down to a British army officer, Major Ivan Hirst, who persuaded the military to buy the car. By 1946 the factory was producing 1,000 vehicles a month and in 1947 commenced exports to Holland.

Spoils of war

But this was an exception. With the Allies garnering all they could from the defeated Germany, scant attention was paid to economic or industrial reconstruction. Even talking about the subject was frowned upon. General Lucuis Clay, the US viceroy in Germany, was directed only to prevent starvation and disease, restore public utilities and clear roads. But with a valueless currency and rigid price controls, there was little incentive for Germany to produce goods or resume trading. Barter became a way of life.

The allies soon realised that this could not go on. Just as the rise of Hitler and fascism could be attributed to economic chaos in Germany during the 1920s - caused, to a large extent, by the harsh penalties inflicted on the country at the end of the First World War - it was feared that the starving and dispirited population would turn to communism. The allies also realised that the reduction of Germany to a pastoral, virtually industry-free, state was unworkable - as former President Herbert Hoover pointedly put in a report in March 1947 - "unless we exterminate or move 25,000,000 people out of the country."

Finally, it was accepted that German industry had been the motor of the regional economy and there could be no European revival if it was left to crumble. With General George Marshall's speech in June 1947, everything changed. "Our policy is directed not against any country or doctrine but against hunger, poverty, desperation and chaos. Its purpose should be the revival of a working economy in the world, so as to permit the emergence of political and social conditions in which free institutions can exist."

The Marshall Plan, officially the European Recovery Programme, was born and ran from April 1948 to June 1951.

Nearly $13bn of Marshall Aid was divided primarily between the UK and France, with smaller amounts filtering through to 13 other countries, including West Germany. As Herbert Mayer writes in his book 'German Recovery and the Marshall Plan', "It gave the people of Europe and especially Germany a new lease on life with the promise of better times ahead. It substituted work for charity."

Funds went to Germany to revive the coal, iron and steel industries, with 67 new power stations also built. With visits to the US under the 'Technical Assistance Programme', European experts were given access to American technology.

While there is no doubt that the Marshall plan helped the reconstruction of Germany, the latter received far less aid than other countries and its recovery continued to be hampered by the dismantling and removal of factories until 1951. Most credit for what became known as the 'German Economic Miracle' has been given to Ludwig Erhard, who became the director of the bi-zonal office of Economic Opportunity in 1947 and in June 1948 undertook a complex currency reform - the Deutsche Mark replacing the Reichsmark - which eliminated the 1936 price freezes and abolished all controls on industrial production and development of a free market. Almost overnight, the black market and barter disappeared and within 18 months output had risen by 75 per cent.

The Marshall Plan achieved mythical status in Europe and, above all, in Germany where some considered it entirely responsible for the reconstruction of its economy. In reality, its effect in Germany was probably more psychological than practical in that it showed the people that their recovery was essential to the new Europe.

Marshall today

There is little doubt that the effect of the aid given to banks in the current economic crisis has also been partly psycho-logical - the knowledge that something was being done easing the panic. Without that the situation could have been far worse, and it is probable that there would have been a world-wide financial crisis of epic proportions.

As the banks underpin the world economy, they had to be saved. Some, however, feel that aid should have been given to failing manufacturing industries. With the closure of a steel mill or factory, the body of technological and engineering skills that has been built up, often over many years, disintegrates and it may be impossible for it to be reconstituted when trading conditions improve.

Further information

Ivan Hirst: Englisman who made Volkswagen part of the German economic miracle.

http://www.guardian.co.uk/news/2000/mar/18/guardianobituaries [new window]

How T-Force abducted Germany's best brains for Britain: Secret papers reveal post-war campaign to loot military and commercial assets

http://www.guardian.co.uk/science/2007/aug/29/sciencenews.secondworldwar [new window]

The "Marshall Plan" speech at Harvard University, 5 June 1947

http://www.oecd.org/document/10/0,3343,en_2649_201185_1876938_1_1_1_1,00.html [new window]

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