The Marshall Plan: A Strategy that Worked

By David Ellwood

It didn't start as a plan, and some of the veterans said it never did become a plan. Its own second-in-command, Harlan Cleveland, called it "a series of improvisations ... a continuous international happening." Yet the European Recovery Program (ERP) – better known as The Marshall Plan – has entered into history as the most successful American foreign policy project of all since World War II. After the fall of apartheid, South Africans called for a Marshall Plan. After the fall of the Berlin wall, East Europeans and Russians demanded the Marshall Plan they had been denied by the Soviet Union in 1947. Fearful of disintegration in Africa, the British government in 2005 proposed coordinated international intervention on the lines of the Marshall Plan. The myth of the Marshall Plan has become as forceful as its true historical legacy.

In 1955 the plan's official historian noted how from a one paragraph "suggestion" by Secretary of State George Marshall at a Harvard graduation ceremony, had sprung a program which "evolved swiftly into a vast spirited international adventure: as the enterprise unfolded it became many things to many men." Fifty years later, such was the fame of the project, that the same could still be said.

The Inception of an Idea

Three contingent developments led to the creation of a special new American project to help Western Europe in the spring of 1947. The first was the physical condition of the post-World War II continent after the setbacks caused by the extreme winter of 1946-47. Second was the failure of the recent Truman Doctrine – an outspoken scheme to help Greece and Turkey fight Soviet pressures – to indicate a constructive way forward for all. Third was the gruelling experience of Secretary of State George Marshall in the Moscow Conference of Foreign Ministers, dedicated to the future of Germany, in March-April 1947.

In the Oval Office discussing the Marshall Plan, left to right: President Truman, Marshall, Paul Hoffman, Averell Harriman.

Marshall had been recalled to become secretary of state by President Harry S Truman at the beginning of 1947, after retiring from the Pentagon at the end of the war as Army chief of staff. Marshall's success in that job – Churchill called him "the organizer of victory" – and his personal qualities of incisiveness, integrity, and self-abnegation made him one of the most authoritative public figures of the era. His patience and sense of duty were tested to the full in Moscow. A senior American diplomat, George Kennan, summarized Marshall's pithy conclusion upon leaving the Soviet capital:

Europe was in a mess. Something would have to be done. If he (Marshall) did not take the initiative, others would.

Kennan and his new State Department "Policy Planning Staff" produced one of the master-documents from which the Marshall Plan eventually flowed. In part, their thinking derived from Roosevelt-era understandings of the causes of two world wars and the Great Depression: class hate, poverty, backwardness, and the lack of hope for change. It was a key intention of the people in Washington rebuilding the world after the war to support the ordinary citizen's demand for a share in the benefits of industrialism. People with prosperity, or at least the prospect of it, didn't turn to totalitarianism, they believed.

But there was a specific European dimension to the Marshall effort, which came from the same reflections. Europe's evil genie, said people like Kennan, Assistant Secretary of State Dean Acheson, and future ERP Ambassador Averell Harriman, was nationalism. If that root of Nazi-fascism and all the rivalries of the 1930s could be bottled up in an integrated economic framework, uniting all the Old World, then prosperity might stand a chance, and Europe's urge to start world wars and then drag America into them might finally be killed off.

In these ways, modernization and integration became the twin watchwords of the ERP, and the arguments turned round how to bring them about. It was central to the method of the Marshall Plan that the Europeans should think and act for themselves within the vision: That was what made the plan not just another aid program.

In Marshall's brief and outwardly simple comments at Harvard, in June 1947, there were, first of all, explanations of Europe's devastation and hopelessness. There were warnings for those who sought to exploit the misery politically. There was a clear signal that ideology (at that point in history, Communism) should not count in reconstruction. Then came the crux of the speech, a tantalizing paragraph inviting the Europeans to agree together on what they needed and what they might do were the United States to step in. The U.S. role, Marshall said, "should consist of friendly aid in the drafting of a European program and of later support of such a program so far as it may be practical for us to do so." The secretary of state insisted that the Europeans must act jointly, and that "a cure and not a palliative" must be sought. He concluded by urging his fellow Americans to "face up to the vast responsibility which history has clearly placed upon our country."

The map shows nations that participated in the Marshall Plan.

"We expected them to jump two inches and they've jumped six feet," wrote one American journalist. In less than two weeks, the French and British foreign ministers set in motion in Paris a Conference on European Economic Cooperation (CEEC), which, in stages between the end of June and the end of September, with the help of 14 other governments, prepared a report to the State Department on the total economic aid they thought they needed. Most of those represented did not have a national plan and some not even an overall picture of their nation's economy. With no experience of any sort in joint, continent-wide planning, the delegates arrived at a grand total of $28 billion. The figure was rejected immediately by Washington as hopelessly optimistic.

But the Paris CEEC event was most famous for the arrival – and swift departure – of a large Soviet delegation headed by the Kremlin's foreign minister, Vyacheslav Molotov. In this still-controversial crisis of Cold War history, the Russians were confronted with the Western proposal for a jointly formulated and implemented recovery strategy treating the whole of Europe, including Germany, as a single economic entity. As anticipated in Washington, they walked out, insisting that the Americans and their key allies had no other intention than to line up Europe's economies under their own control and launch a new world division of labor: great power imperialism in its latest, American, guise. Soviet pressure on East European nations intensified after the rupture among the World War II allies. In February 1948, Czechoslovakia became the victim of a pro-Communist coup d'état instigated by Moscow.

Setting the Plan in Motion

After a long winter of discussion, some stop-gap help, and greatly increased tension in East-West relations, the European Recovery Program was born officially with an act of Congress signed by President Truman in April 1948. To administer the project, a new federal agency, the Economic Cooperation Administration (ECA), was brought into being at the same time, headed by the CEO of the Studebaker automobile company, Paul G. Hoffmann, a Republican, symbolizing bipartisan support for the program. Expenditures began to flow immediately, under tight Congressional supervision.

The program's official enactment identified the supreme objective as creating in Western Europe "a healthy economy independent of extraordinary outside assistance" by 1952. To this end, comments the economic historian Imanuel Wexler, " the act stipulated a recovery plan based on four specific endeavours: (1) a strong production effort, (2) expansion of foreign trade, (3) the creation and maintenance of internal financial stability, and (4) the development of (European) economic cooperation." To the dismay of many Europeans who had counted simply on a big relief program, it soon became clear that such an agenda could only be realized by way of permanent structural change in the European economies, singly and together, as a whole. This was what Marshall had meant when he talked of "a cure rather than a palliative," nothing less.

To meet the challenge, the ongoing Conference on European Economic Cooperation (CEEC) quickly turned itself into the Organization for European Economic Cooperation (OEEC), under the Belgian foreign minister, Paul-Henri Spaak. In the meantime, American embassies in each of the member nations were obtaining signatures on the bilateral pacts which spelled out the obligations of European governments towards their new sponsors. Among them was recognition of the authority of the ECA "Mission" to be set up in each national capital. A formal committee would link each mission to its participating government, in order to supervise the running of the program on the ground.

The committee's key task was to make plans for spending productively the sums in the new "Counterpart Fund." This was a characterizing feature of the whole operation, the tool that most distinguished the Marshall Plan from any conventional aid program. The fund was an account at each national bank specially created to contain the proceeds from the local sale of ERP-supplied goods. Much of the help, it turned out, would not be as free, or as liquid, as the Europeans had imagined. It would instead normally be merchandise sent from the United States and sold to the highest bidder, public or private. Their payments would then go back not to the United States, but into the new fund. From it would come the money to pay for national reconstruction and modernization efforts, as decided between the ECA Mission and the government in each participating capital.

At the same time the ERP was clearly a mighty weapon in the Cold War. Its senior representative in Europe, Ambassador Harriman, went so far in 1949 as to characterize the entire effort as a "fire-fighting operation." Marshall's successor as secretary of state, Dean Acheson, the individual who, in his own words, " probably made as many speeches and answered as many questions about the Marshall Plan as any man alive," remembered that "what citizens and the representatives in Congress always wanted to learn in the last analysis was how Marshall Aid operated to block the extension of Soviet power and the acceptance of Communist economic and political organization and alignment." Against the plan indeed stood the forces of the Cominform, an international propaganda organization set up in October 1947 by the Kremlin with the explicit purpose of combating the Marshall Plan, internationally and – using local Communist parties – within each participating nation. At a time when Communist forces were leading armed insurgency in Greece, looked capable of taking power politically in Italy, seemed to threaten chaos in France, and knew what they wanted in Germany – unlike the West at this stage – the Cold War gave an urgency to the program which concentrated minds everywhere.

Selling the Plan to Its Beneficiaries

From the very beginning the ECA planners had been aware that to tackle the political obstacles their efforts were likely to encounter, they would have to go over the heads of the local governing classes and speak directly to the people. Improvising swiftly, the teams of journalists and filmmakers who launched the ERP "Information Program" turned it, by the end of 1949, into the largest propaganda operation directed by one country to a group of others ever seen in peacetime.

A January 1950 report by Mike Berding, the ERP information director in Rome, instructed:

Carry the message of the Marshall Plan to the people. Carry it to them directly – it won't permeate down. And give it to them so that they can understand it.

No idea seemed too large or daring for the Information Program in its heyday. Workers, managers, and employers were told of the benefits of greater production and productivity, scientific management, and a single-market Europe. In each country there were specialized publications on these subjects, joint committees, trips by European leaders to inspect American factories, conferences and eventually, in some places, even "productivity villages" where model factories and workers' communities could be seen in action. For other groups in society – state employees, teachers, families, even schoolchildren – the promises of the American information campaign were more jobs, higher living standards, and ultimately peace in a Europe without rivalries. The Information Program eventually produced tens of documentary films, hundreds of radio programs, thousands of copies of its pamphlets, and attracted millions of spectators for its mobile exhibitions.

Here posters, models, illuminated displays, audio messages, and films would present the plan as graphically as possible, for every level of understanding. A booklet from a display at the Venice exhibit of summer 1949 opens with a dramatic quantification of the aid arriving at that time: three ships a day, $1,000 a minute, two weeks' salary from every American worker. The goals and the methods of the program are explained in everyday language, with the details explaining how work has been restored to lifeless industries, how new machinery has modernized factories and how greater output is needed Europe-wide to stabilize economic life on a continental scale. The concluding message states that:

ERP is a unique chance offered to European nations towards reconstructing their economies, raising the standard of living among the masses, and attaining by the year 1952 an economic stability which is the foundation of political independence. ... Every worker, every citizen is bound up in this rebirth. The future and the peace of Italy and of Europe, the general well being of all, depend on the will and the work of each single one of us.

The Plan Evolves

The plan's early years, from June 1948 to the start of the Korean war in June 1950, were remembered by all concerned as the golden epoch of pure economic action and rewards. Experts pointed to the rise of nearly a quarter in the total output of goods and services that the ERP countries enjoyed between 1947 and 1949. They asserted that the "over-all index of production, based on 1938, rose to 115 in 1949, as compared with 77 in 1946 and 87 in 1947." Agriculture, too, recovered, and progress on the inflation front was considered "uneven but definitely encouraging." The foreign trade of the member states was back to its prewar levels, but its most remarkable feature was a change in direction. No longer oriented towards the old European empires, trade was increasing most rapidly within Western Europe, among the ERP members themselves. Experience would show that this was a long-term structural shift in the continent's economy, which within a few years would set going political demands for European integration.

Meanwhile, by the end of 1949 it had become clear that the partner nations had visions of the European Recovery Program that differed in significant respects from those of the American planners when the hard choices came to be made. Across Western Europe, governments badly needed the ERP dollars, but at the same time they sought to make their own deal with what the Americans were offering and, especially, with what they were demanding in exchange. If dependence on the United States there was to be for a while, then it should in any case be conditional, on "our" terms, the Europeans felt.

The British went to extraordinary lengths to resist the Marshall Plan's insistence on immediate economic integration with the rest of Europe, the great string attached to Marshall aid everywhere. The Dutch resisted pressure to start dismantling their empire in the name of free trade. The Austrians refused point blank to reform their railways and their banking system as the Americans desired. The Greek people rejected a new ERP-sponsored currency because they believed that gold sovereigns were the only truly reliable form of monetary exchange. The head of the Italian industrialists told the mission chief in Rome that no matter how cheap synthetic fibers became, Italian women would always prefer clothes made in the home with natural materials. Tinned food might be sold very cheaply, he said, but Italian traditions of cooking would always be preferred. Small firms and traditional artisan skills would be central to Italy's future, just as they had been in the past.

By the start of 1950, practical experience and extensive opinion polling had brought a significant shift in outlook, to the point where the strategists felt obliged to concede that "the majority of Europeans today" had one overriding concern of their own: security. Gradually, in spite of America's reliance on a liberal capitalist economy, the Marshall planners were obliged to recognize the depth of the European commitment to the idea of the non-Communist social welfare state. They insisted simply that its benefits be distributed as widely as possible, to cut the ground from under Communist attacks, both on the plan and on reformist social democratic ideals.

The Impact of Korea

But the unexpected and fear-inspiring turn of events in Asia in 1950 soon put the very existence of the Marshall Plan in doubt. The sharply intensified Cold War confrontation that started with the North Korean invasion of the South in June shortened the project in time and radically transformed it, opening the way to the era of general rearmament and "Mutual Security." Congressional amendments of 1951 and 1952 to the original ERP Act provided $400 million more for a continuing drive to persuade European employers and workers to "accept the American definition of the social and economic desirabilities [sic] of productivity," but now so that military output for national defense against the Soviet threat could be increased at the same time as consumer goods. Everyone was expected to do more for the general effort (hence strengthening NATO), and so rebuild their armed forces, greatly run down since the end of WWII. The ECA men on the ground quickly decided that there was no conflict between America's demand for general rearmament and the traditional ERP objectives: It was just a matter of bending the existing policy goals to the new requirements.

In such a context the successful ERP Information Program soon accelerated into something resembling "psychological warfare," with the world of industry and organized labor identified as the key front in the ideological Cold War against Communism. As one of the ERP's most influential brains, Assistant Administrator (and later Acting Administrator) Richard M. Bissell, explained in Foreign Affairs in April 1951, the United States could wage this war in Europe most effectively by the force of its economic example and the powerful appeal of its consumerist economy to Europeans of all regions and social classes:

Coca-Cola and Hollywood movies may be regarded as two products of a shallow and crude civilization. But American machinery, American labor relations, and American management and engineering are everywhere respected. ... What is needed is a peaceful revolution which can incorporate into the European economic system certain established and attractive features of our own, ranging from high volumes to collective bargaining. ... [This] will require a profound shift in social attitudes, attuning them to the mid-twentieth century.

The Balance Sheet

In the end, every participating nation succeeded in carrying out its own distinctive version of Richard Bissell's peaceful revolution. Economically, the Marshall Plan mattered far more in Greece, France, Austria, and Holland than it did in Ireland, Norway, or Belgium. For some nations, such as Italy, it was perhaps truly decisive for one year only, for others, the benefits flowed for several years. Each nation made different use of the economic impetus provided by the plan. The Danes secured raw materials and energy supplies. Other peoples, such as those in the German occupation zones, appreciated most the food provided by the ERP. In Italy and Greece, help with rebuilding railways, roads, and power supplies gave the most lasting benefit. In France, industrial investment came first; in Britain, the Counterpart Fund was almost entirely used to pay wartime debts and re-float sterling.

Both Austria and Sweden, each in its own way, believe that their successful anchorage in the West dates back to the Marshall Plan. If Communist parties grew in Italy and France, they at least did not take control, and these nations remained oriented towards the West. Perhaps Germany was the nation that benefited most overall, as the dynamic of European integration conceived and fostered by the ERP allowed the new Federal Republic to grow in strength and respectability while calming the suspicions of its neighbors. The hoped-for revolution in Franco-German relations did indeed come about. Whatever its other origins in short-term, Cold War necessities, no political development heightened the contrast with the post-World War I era more than this one.

Fifty years after the great experience, Jim Warren, a Marshall planner in Greece, rejoiced:

We had a goal; we had fire in our bellies; we worked like hell; we had tough, disciplined thinking, and we could program, strive for, and see results.

A 2004 ceremony in the Degli Orazi and Curiazi hall on Capitoline Hill in Rome, the room where the European Community was established in 1957.

For a short, intense period, a new American presence arrived in Europe, dedicated to finding ways to translate the successes of the American economic experience into recipes for the political salvation of others, and so turn American myth into model. Appreciative Europeans of the time spoke of "a sense of hope and confidence" these American planners brought – of "restored courage and reawakened energy" in the Old World.

In Europe the clash of imported and native models provided the energy to set the great 1950s boom going. The European Recovery Program had supplied the spark to set the chain reaction in motion. In 1957 came the Treaty of Rome, which launched the European Economic Community. Although this scheme of fledgling economic integration was far less radical than the American visionaries of 1949 had demanded, of the inheritance left by the Marshall Plan and its promises, none was more concrete. This founding document initiated Europe's peaceful economic integration, a process that continues to this day.

As for the Americans, following a wobbly emergence in World War I as an international power, they had finally developed foreign policies and a grand strategy "consonant with our new responsibilities as the greatest creditor, greatest producer, and greatest consumer of the 20th century" – as Vera Micheles Dean put it in 1950 in a book entitled Europe and the United States. They had also endowed themselves with a new national image of America as a power that could successfully blend military, political, and economic leadership on an international scale, an image destined to reappear whenever nations turned from war and misery to reach forward towards a new, more hopeful future.

David Ellwood is an associate professor in international history, University of Bologna, and an adjunct professor with Johns Hopkins University's School of Advanced International Studies (SAIS), Bologna Center. His publications on postwar European history include: Italy 1943-1945: The Politics of Liberation and Rebuilding Europe: Western Europe, America and Postwar Reconstruction. His current project is America and the Politics of Modernization in Europe, to be published by Oxford University Press. Professor Ellwood is a 2006 fellow of the Rothermere America Institute at Oxford University.