The Political and economic debate of the macroeconomic effects of the Marshall Plan

In June 1947, the United States Secretary of the State, George C. Marshall, delivered the speech at Harvard. In his speech to the alumni of Harvard, the former U.S. Army Chief of Staff stressed the importance of the creation of a certain plan that would help the European nations to recover themselves from the Second World War devastations, as well as to return the world into its normal state, “without which there can be no political stability and no assured peace Marshall G.C. (2013, September 6). The "Marshall Plan" speech at Harvard University, 5 June 1947. In Organization for European Economic Co-Operation.,” as quoted in Marshall's speech. The plan that would distribute the aid to Europe was consequently named after George Marshall, the U.S. Secretary of State, as he was the main ideologist of the plan. In the development of the Marshall Plan took part in the United States Department of State and its officials, including Marshall himself and Kennan, and with massive support from the U.S. Senator from Michigan, Arthur H. Vandenberg, who requested assistance from Brookings Institution, an American public policy think-tank.

According to the report of the Brookings Institution, the implementation of the plan creates a number of questions that have to be described below in order to understand the complex structure of the Marshall Plan itself. Firstly, the question of the executive body, responsible for the Marshall Plan administration, has risen. Four options of the status and form of the new agency were proposed: In the first case, a new and independent agency within the Department of State - autonomous but directly subject to the Department of State; the second option was to create an agency separated from the Department of State but under full control of the Department in all issues regarding foreign affairs; third option - a separate agency, included in the executive branch of power, subject only to the President of the United States and the fourth option was to establish an independent agency that would be considered free from the control of the Chief Executive and from other agencies or commissions that occupy regulatory functions. Discussion over the form of administration of the agency outlined that the administration proposed to be conducted either by one responsible director or the commission or board. The form of the organization itself would either be corporate or a non-corporate.

That discussion was crucial, as the form of organization, for instance, predetermines how an organization could behave itself in terms of relations between Government and corporations - corporate form would be far more flexible as it would be free from the Government regulations, as stated in the document, and be more, quote, “business-like”, as the agency, in that case, could take contracts from other businesses, sue and be sued, etc. If compared to a non-corporate structure, the disadvantage of a corporate structure is that it could place business and lobbying interests over the governmental and foreign policy priorities. A single director for the agency was considered unfavourable: too much power over a massive plan would be concentrated in one hand; however, a single administrator would hasten the process of decision-making, and his responsibilities could be controlled within the new agency, as well as by the Federal Government.

A board of directors, created by the U.S. Congress, is another option: in the form proposed, the cabinet would have direct access to President Truman and vice versa. It would enhance the accountability of the agency to the Government and, at the same time, make the agency efficient through the direct line with the President and offices of the agency in the countries that would receive the aid. The negative side of such an option is the exceeding complication of the agency operation. Other issues, as outlined, were the maintenance of delivery and provision of the U.S. aid, defining the methods of financing, how existing services of the U.S.

Government agencies could be used, administration of the exports in order to control the trade balance and what responsibilities the proposed agency has in regard to the other US-led aid programs. The following conclusions were made by the specialists of the Brookings Institution: (a) in order to comply with the constitutional obligation of the U.S.

President of leading the U.S. foreign policy, a new body should be created within the executive branch of power that would be accountable both to the Department of State and directly to the U.S. President and work in cooperation with other Federal agencies; (b) explained by the previous experience, the agency would be led by a single administrator, whose status would be equal to that of the heads of other agencies with which a new body has to work collaboratively, and administrator would be appointed by the President after the approval of the U.S. Senate; (c) an urgent need for flexibility dictated the decision of choosing non-corporate form of organization, with vast exemptions from limitations on salaries, making contracts and granted an access to the Government funds, if necessary and would be required to report post-audit to the General Accounting Office; (d) an advisory committee from people of different experience, appointed by the President, would be created in order to use various experience that could make the plan more effective and obligate President to make reports to the Congress; (e) the administrator, accountable to the President, would be in charge of connecting and consulting with other agencies and calculate the needed financial or material provision for the needs of the plan; (d) while the President would enter and authorize agreements with the third parties, the Department of State would held negotiations and administrator would be approved to negotiate with the foreign governments to act quicker and allocate the aid in time The Brookings Institution. (1948). Report to the Committee on Foreign Relations of the U.S. Senate On Administration Of U.S. Aid For A European Recovery Program (pp. 1-20). Washington D.C., WA: United States Government Printing Office.. The complex architecture of the European Recovery Program was dictated due to the scale of the perspective aid allocated and by the necessity of rapid improvements of the West European industry. Besides, it was a challenge for the United States in terms of logistics and organization.

2.3 The Marshall Plan in Action

Figure 1.1. The amount of aid allocated by the Marshall Plan.

Officially it is called the European Recovery Program of 1948. Even though the plan offered financial and economic aid to the Soviet Union and Eastern European nations, East European countries were under heavy pressure from the Soviet Union. They had to refuse from the support, and the Soviet Union simply denied the proposal of the United States. Sixteen European nations, namely Austria, Belgium, Denmark, France, West Germany, the United Kingdom, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Sweden, Switzerland, Turkey, and the United States started long and tough rounds of negotiations, regarding the plan and expressing their own concerns. European Recovery Plan aimed at the recovery of the European industry, with the goal to double or triple pre-war output. The production remained the last option for Europe to strive and prosper, as Europe faced severe human losses during the war, and its merchant fleet was destroyed. In addition, Europe had to increase heavy industry exports and search for non-dollar areas imports, as the U.S. dominated the trade with European nations. After the aid comes to an end, it was planned that the aid-recipient countries would be able to sustain themselves stable and efficient Marshall G.C. (1948, January 8). European Recovery Program Act of 1948 Speech. In The George C. Marshall Foundation. .

The main issue that caused disputes was Germany itself: European nations were afraid of repentance of the events of WWI and WWII, expressing a negative attitude towards rebuilding the German industrial complex. In spite of the Cold War rise and the fact that the plan was developed with the participation of George Kennan, the creator of the containment policy, it was clear that the bipartisan consent regarding the project would be achieved. However, the requested aid by Europe on the scale of 29.2 billion U.S. Dollars was impossible for the United States. The proponents of anti-internationalism met the plan proposed with sharp critique and opposition, stunned by the finances demanded by Europe.

In order to achieve a bipartisan consent, the Plan would be administrated by an autonomous agency, the mentioned above ECA, and Congress would authorize no more than one year of active support. The Economic Cooperation act that enacted the ERP was adopted in Congress and signed by President Truman on April 3 1948. Besides its direct political purposes, the Marshall Plan had three political goals: recovery of industries, stabilization of the prices at international markets and normalization of global trade. Block F.L. (1978). The Origins of International Economic Disorder (pp. 89). Los Angeles, CA: University of California Press. The aid would be distributed through the newly designed Organization for European Economic Co-Operation and administrated by the Economic Cooperation Administration, set by the United States. OEEC contributed significantly to the containment initially, allowing to coordinate the post-war rebuilding process between the recipients, according to Baldwin & Wyplosz (2009). ECA offices were in all sixteen capitals of countries-recipients of aid because it was far more efficient to stay in direct touch with local administrations as they knew better where to allocate the funding received. It was planned that the assistance would be distributed in the period from 1948 to late 1951-1952. By the middle of 1951, $12 Billion U.S. Dollars worth of aid in different forms (from food supplies to heavy machinery) were distributed to the Western European nations. Remarkably, the assistance from the Marshall plan was spent on purchasing the needed goods or supplies mostly from the United States and Canada, as their economies were least impacted by WWII. Marshall Plan was designed not only as a gesture of goodwill of the American people but as a mean of preventing the spread of Socialism in Western Europe, intending to re-establish trade relations of European countries with the United States and between themselves, within Europe, strengthening capitalism and promoting liberal democratic values.

In the second subparagraph, the European post-war economic “golden age” and the evolution of the European integration would be described in order to outline the results of the Marshall Plan.

3. Europe and its “before and after”: Post-war Revival

“Competition is the most promising means to achieve and secure prosperity. It alone enables people in their role of consumer to gain from economic progress. It ensures that all advantages which result from higher productivity may eventually be enjoyed.” - Ludwig Erhard, the German Minister of Economy, November 1957

The second part of this chapter would describe the events that happened in the Western European nations' economies, as well as political systems - an essential factor for keeping economic growth. All countries that would be mentioned below have been subject to the European Recovery Program and mainly proved that they are able to self-sustain and effectively mobilize their own economies throughout the darkest years of post-war famine and uncertainty. This sub-charter summarises the consequences of the Marshall Plan implementation and is aimed to prove that directly or not, the Marshall Plan was overall effective in its initial purposes of the European recovery and containment of the Soviets.

3.1 The Dollar Gap: a trap for Europe

With the implementation of the Marshall Plan and recent geopolitical trends emergence, the European economy started to recover. A body responsible for the intra-European trade was created in order to stimulate economic growth. The European Payments Union was founded in 1948, a fund that was financed by the Marshall Plan aid. The EPU provided monthly quotas to the countries with deficits to finance these deficits and help the nations that experience transitional difficulties, as Eichengreen (2007) stated. Trade surpluses from other countries of EPU were used by those with a trade deficit, allowing the latter to import with no need for foreign exchange. The organization also created instruments for guaranteeing that creditors would obtain their funds back.

If a member country exceeded its quota, the Managing Board send recommendations for economic policies and presented it to the council of OEEC. Eichengreen B.J. (2006). The European Economy since 1945: Coordinated Capitslism and Beyond (5th ed., pp. 79-85). Princeton, NJ: Princeton University Press. The Board was also responsible for granting exceptions from limits in individual cases. Besides, the war has created a technological gap between Europe and the U.S. The only way to overcome it was by trade and import of technologies from the USA. The easy-to-produce U.S. mass-manufactured goods, combined with the high level of human capital in Western Europe, eliminated technological differences by the early 1950s. The aid provided to European nations was in the form of large grants in U.S. Dollars or loans on extremely favourable terms.

That assistance contributed significantly to the growth of Europe, even though indirect. The direct effect of aid was not that outstanding, as the payments to recipients were from one to two per cent of their GDP per year for four years of the Plan action. The total amount of support was nearly 15 billion U.S. Dollars. For instance, the most substantial sum of aid was allocated to Great Britain, with 3,2 billion U.S. Dollars. An average West European state required almost 10 per cent of GDP per year in investments for achieving the alteration of the economy. Block F.L. (1978). The Origins of International Economic Disorder (pp. 99-100). Los Angeles, CA: University of California Press.

The most beneficial effect of the program was in stimulating the intra-European trade. Since the end of the war, European governments controlled trade vigorously due to the currency rate issues and already mentioned “dollar gap”. Trade barriers were also present between Europe and the United States, and they broadened the gap. The Americans designed the ERP in such a way that it would be obligatory to reduce trade barriers before participating in the program. In fact, the administrator of the Marshall Plan, Paul Hoffmann, claimed the need for European integration in the form of a single large market without any trade restrictions like quotas or tariffs at the end of 1949.

The formation of a European market would lead to a higher level of technologic production and make mass production possible. Another point for the single economic area was in the enhancement of the competition: the absence of trade barriers and heavy national regulation led to lower prices and improved quality of production. The most significant stimulant of economic growth, however, was the European Payments Union, mentioned before.

The mechanism of redistribution of trade profits between countries with a trade surplus and trade deficit within the EPU revived and reinforced trade between European nations. Hence, the economic development of the Western European states started from the introduction of the Marshall Plan; however, it was trade liberalization that has significantly contributed to European recovery. Apart from the mentioned EPU, the national economies could begin to capitalize on comparative advantage in trade and, by doing that, ease the production and distribution of the production in Europe. A lesser dependence from U.S. imports hastened economic development, and it was more accessible from the perspective of logistics. Altogether, it helped to sustain the dollar gap and create a stable foundation for a common European market. In addition, the Marshall Plan empowered the market economic order and strengthened moderate movements while splitting European socialists and communists apart with the latter to marginalize and leave governments generally.

3.2 European Unification and Trade Liberalization

Even though West European nations have documented and conceptualized their relations with each other (under the aegis of the United States), the fear of Germany's military aggression reemergence remained. It was like that due to the fact that coal and steel are the essential resources for arms production, hence, for waging war and Germany always had to have enough of both. After two World Wars, France has more reasons to fear Germany than any other European nation and was in desperate need of coal to rebuild the country. A French entrepreneur and diplomat, even though never elected to any official post, Jean Monnet, proposed the following plan in 1945.

He suggested that France would take control of the remnants of the German coal industry in Saarland and then transfer the coal mined to the French production. That would lead to the weakening of Germany permanently and thus preventing it from gaining its strength back, as well as getting a stable supply for coal. However, the containment of the German economic potential proved to be unsuccessful as it would not be possible to rebuild Europe without Germany, as it was stated before. Robert Schuman, the Prime Minister and Foreign Minister of France, continued the line of his colleague regarding the view of Germany and offered a particular proposal that claimed to be effective without such unnecessary contamination of Germany.

The idea, initially belonged to Schuman, was as simple as possible: make the war between France and Germany impossible through creating a supranational body that is aimed to integrate regional nations based on the common market for coal and steel creation. If these commodities would be produced cooperatively and redistributed at the common market, the peace between two historic enemies would be restored, and neighbouring nations would also benefit largely from the common market implementation. The concept of Schuman was supported and collectively developed further with Jean Monnet. Both are widely praised as the founding fathers of the European Union. That resulted in the European Coal and Steel Community creation. In 1950, Schuman proposed to place the French and West German coal and steel production under the supervision of a single High Authority.

This organization was to be designed for administrating coal and steel production and distribution. Schuman Declaration of May 9 1950 was the base for a Treaty of Paris of 1951 that proclaimed the creation of the European Coal and Steel Community - a supranational community of 6 nations: West Germany, France, Italy, Belgium, the Netherlands and Luxembourg with the purpose of regulating the industrial production and distribution of iron, coal and steel without duties between the members. The agreement itself focused primarily on peace rather than on the commodities, mentioned in the name of the organization.

Long-lasting tranquillity in Europe was a necessary condition to switch from the balance of power to connection of the interests, and Schuman unambiguously emphasized on that. Besides its primary objective, ECSC was destined to reunite Europe, enhance European security, create a common market, and become the first supranational institution in the world. The idea of united Europe within the boundaries of a specific union or federation of the states traces back to Kant's concept of the pacific union of states. Remarkably, the German philosopher published his essay in the times of significant disturbance: Europe was erupted by a number of wars, most notably by the French Revolutionary Wars that divided and clashed European nations face to face, making Europe an enormously vast battleground, much as it was during and after the Second World War.

In his 1795 essay “Perpetual Peace,” Immanuel Kant argues that in order to achieve the aforementioned perpetual peace, three definitive articles could be distinguished: constitutional (constitution of every state should be republican), international (international law should be created on the base of a federation of free states) and cosmopolitan (acceptance of the principle of universal hospitality). Even though these principles are not the direct foundation of a newly created ECSC, the Kantian concept is the proclamation of thought of many Europeans at different times: the wish for united and peacefully coexisting Europe. Only after nearly 150 years, Europe started its way towards unification and consolidation.

It was undoubtedly the right time for a start because the damage that WWII made to the European continent was unprecedented and impossible to sustain solely by any nation of Europe. It is hard to overestimate the value of ECSC as an integrating body. In economic terms, the ECSC marked the beginning of a single European market, even though at its start it was narrow and specific. The differences in wages made production costs different and created a comparative advantage for a country with lower wages. Besides, tax rates varied considerably, which also made a production of one nation more profitable than of others.

At the example of the Netherlands and Belgium further, in the chapter, such discrepancies would be demonstrated. Trade between the members of ECSC in iron and steel boosted at 170 per cent in 1952-1957, according to Mikesell (1958). What was more striking is that the trade of other goods increased, marking the success of the idea and becoming an important milestone that contributed to European integration. This institution was designed to rebuild not only Europe itself but to re-establish the relationships between them, based on interdependence and progress.

Intensification of trade relations spoke for itself, and the next logical step in the process of integration was the creation of a single European market. A failure to agree over the establishment of the European Defense Community and European Political Community as a further step of European incorporation led to a focus at more practical issues. The Germans and Benelux countries were eager to create a single market, with France opposing that offer. Belgian Prime Minister, Paul-Henri Spaak was in charge of creating a report that would justify the formation of a common market. At the Venice Conference on 29-30 May 1956, Spaak Committee summarized that the deeper integration is achievable by continuing the elimination of trade barriers, joint customs agreements with outer nations and establishing common institutions. The report was accepted, and it formed a base for the Intergovernmental Conference on the Common Market and Euratom, held in Brussels in July 1956. The conference resulted in the agreement upon the basic principle of the common market by all ECSC members.

However, the disagreements between sides appeared: export-oriented Benelux and Germany stood for reduction of customs duties to lower the trade barriers within the community, whereas France and Italy favoured market regulations due to the character of their economies that relied on protectionism for remaining competitive. A select point was made over the agriculture, to create another body similar to the ECSC, that was denied. The previous energy crises obligated the sides to prepare a joint decision over the energy policies. Even though it was barely possible to coordinate oil or gas usage in energy production, the parties agreed to cooperate in the atomic energy by creating Euratom - the European Atomic Energy Community. The conference led to the Treaty of Rome of March 25 1957, known as the European Economic Community Treaty.

The treaty established the European Economic Community, a supranational institution that proclaimed a customs union for its members. It proposed to create a Common Agriculture Policy, a Common Transport Policy and founded the European Commission, the executive body of the European supranational institution. The EEC was governed by the Commission and the Council of Ministers. Montgomery (1965) stated that the single market, in terms of the EEC, could lead to the economies of scale realization. The creation of EEC caused a steady grow in intra-European trade up to 73 per cent after two years from starting its operation. All tariffs between participators were eliminated by July 1968.

3.3 A Brief Outlook at the European Economies: Leaders and Underdogs

Figure 2.1. Levels of Production of the Marshall Plan Aid Recepients.

Reprinted from “The European Economy since 1945: Coordinated Capitslism and Beyond”, by Eichengreen, B., 2007, p. 91, Princeton, NJ: Princeton University Press.

The improvements in the European economies reflected first of all, with the redistribution of the labour force. There was a direct need for manufactured commodities; thus, the labour force had to transfer from agricultural sector to manufacturing. Modern means of agriculture like machinery or synthetic fertilizers eased farming and there needed fewer workers. Fast industrialization brought rapid urbanization, a process of settlement from rural plains to cities. Remarkably, the intense migration from Southern Europe to Northern Europe and Western Europe either from Central or Eastern Europe or from the former European colonies coincided with the necessity for the labour force and that supported the economic growth. Likewise, it could be described as a demand for goods increased the demand for labour. Fortunately for Western Europe, there was a flood of migrants from Eastern Europe, especially to Germany that bordered Socialist states and there was no shortage of labour force for a long time. Labour migrants fulfilled the needs of Europe in the labour force that previously barely had people to work.

That offered Europeans a fantastic possibility to reinvest the profits back into the capital. Post-war economies were seeking these investments, paying off with a GDP growth. Investments played a core role in the recovery of the 1950s; however, the ventures should have been coordinated by the authorities to focus on development but not extracting profits out of Europe. For instance, the national government might have used a variety of means to transfer funds directly to a specific industry, as it was in France. Massive conglomerates enjoyed direct access to government credits and carry on enormous investments in the spheres needed most of all, as it was in Italy and Spain. Such mechanisms endangered the development of the national economies, as they diminished the competition domestically - and that inevitably mirrors in the temps of growth.

At the beginning of the European “golden age”, one could outline the true leaders in the economic development of Europe - Germany and the Netherlands. The U.K. and Belgium, contrarily to the leaders, stagnated and these countries did not experience the same exploding growth as three nations named above.

Figure 2.2 The Growth of European economies in the 1950s.

Reprinted from “The European Economy since 1945: Coordinated Capitslism and Beyond”, by Eichengreen, B., 2007, p. 91, Princeton, NJ: Princeton University Press.

Firstly, it would be beneficial to examine the peculiarities of the German economic miracle. There was little doubt that with the hands untied, the German economy would skyrocket in no time. With considerably developed industries, left as the remnants of the former Empire, Germany did not need creating supportive productions to recreate the fundamental economic drivers. Moreover, the German economic miracle would impossible without the change in economic policy, as it did Ludwig von Erhard, the German economist. He designed a new social market economy system that combined free market and social welfare that later on started redistributed from the profit of the export. Resolving the issues of transition period like the adoption of a new currency, fixing prices and, crucially, the removal of all restrictions, transiting West Germany to a liberal market with market price regulation Erhart L. V. (1958, July 6). Germany's Economic Goals. Foreign Affairs, 36(4), 611-617.. Still rich in coal and iron ore and steel, despite the responsibilities to share these goods within ECSC, Germany's plenty of resources let to cut imports of the American steel while increasing intra-European steel trade.

A decent advantage of the West German economy, where cartels-giants were eliminated after the war, was its ultra-competitiveness. In the absence of dominating firms at the market, the competition was between numerous small and medium businesses that were driven by survival and had to cut prices for staying competitive, according to Eichengreen (2007), that helped German firms to be competitive internationally as well. That led to more than doubling of the national exports after a decade. The number of 9 per cent of West German GNP in the year 1950 rocketed to 19 per cent in 1960. The mass production of commodities of all stripes and colours in West Germany concurred with the overall economic growth in Europe and met the demands at European markets. A sustainable growth domestically, caused by the high demand for German goods worldwide and in Europe particularly, attracted investments to the German economy. Between 1950 and 1960, the level of investments was as high as one-quarter of GDP, outnumbering every West European nation in those terms. German Government intervened as little as possible, and that let Germany to exceptional economic growth. The golden years' economic boost made Germany the leading economy of Europe.

Figure 2.3. Macroeconomic index of the Netherlands. Reprinted from “Three phases of the Dutch Economic Growth and Technological Change, 1815-1997” by Smits J-P., Jong H.D., Ark B.V., 1999, p.6

The Netherlands, a nation that depended on the German economy at all times, was second in line for an honourable mention. Contradicting with Germany in terms of the economic management, the Dutch preferred to follow neo corporatist pre-war practices, in some cases regulating the economic processes, abolishing this practice in the middle of 1950s. Far-seeing macroeconomic policies of the Dutch Government like monetary reform for slowing the inflation rate, combined with the aid from Marshall Plan, helped the Netherlands to prosper. Similarly to the German economy, the Dutch could boast with highly developed technical industries like the production of electronic devices or chemical industry.

Leading Dutch exporting companies got preferential access to additional funds or labour force. Phillips, KLM, The Royal Dutch Shell - these enterprises were thriving even before the rapid growth. van Zanden J.L. (1997). The Economic History of The Netherlands 1914-1995: A Small Open Economy in the 'Long' Twentieth Century (Routledge Contemporary Economic History of Europe) (p. 124). London, United Kingdom: Routledge. Take Royal Dutch Shell as an example. This company had an unlimited demand for its products needed in every feasible sector: Apart from crude oil and natural gas, Shell supplied oil products and synthetic materials, chemicals. Moreover, the Netherlands accounted for half of the gas consumed in Europe shortly after the discovery of the Groningen gas fields in 1957. According to Jan-Pieter et al. (1999), the Netherlands emerged as the energy-intensive economy that provided the rest of Europe with it.

Interestingly, in the first post-war years, agriculture goods, contrarily to the European trends, accounted for 48-50 per cent of the Dutch exports. Cheap production of farming goods was possible due to the sophisticated farming methods, usage of waterways and fertile soil. A factor that contributed to the success significantly was the labour costs. Devaluations of 1944 and 1949 minimized inflation, making the labour costs cheaper than of its challengers at the European market, keeping it less expensive on 20 per cent than those of Belgium and West Germany up to the year 1960. Eichengreen B.J. (2006). The European Economy since 1945: Coordinated Capitslism and Beyond (5th ed., p. 98). Princeton, NJ: Princeton University Press. That let the Netherlands recommend itself as a low-cost producer. Besides, a high level of output and well-qualified labour force brought to its economy colossal profits. An astonishing number of 18 per cent of GDP as non-residential investments stimulated industries and fueled up the national economy. However, in long-run, the perspectives of unemployment growth were real, and for escaping that the Netherlands had to guarantee the growth by continuing the investment attraction. A peculiar thing in the Dutch developmental pattern was their close attention to the logistics.

Europoort in Rotterdam and Schiphol Airport near Amsterdam, despite a high cost of both projects, ensured economic growth and even today contributes to it noticeably. The level of integration of the Dutch economy into European is high. It began with the creation of the Benelux in 1948. The governments-in-exile of the Netherlands and Belgium agreed to form a customs union, uniting it with the already existing one amid Belgium and Luxembourg. Van Zanden (1997) remarked that the countries experienced complexities with the implementation of a customs union due to developmental differences between the Netherlands and Belgium that recovered faster than the Dutch economy in the first post-war years.

Besides, the Dutch exports created a threat predominantly to Belgian agriculture, as the Netherlands had more productive and cheap farming. The post-war increased competitiveness between nations as a result of trade liberalization and Belgian producers faced difficulties with competing against Dutch goods. That problem would be discussed later in regard to Belgium. A further step of integration was the participation of the Netherlands in the European Coal and Steel Community, created in 1952. The Netherlands participated in the Treaty of Rome design and in the year of 1957, the Treaty proclaimed the creation of the European Economic Community. It brought further trade liberalization that let the Netherlands grow its exports to EEC members: from 41.1 per cent (1957) to 54.2 per cent (1963).

A neighbour of the Netherlands, Belgium, experienced a different path. Of course, like the Netherlands, a country was in the customs union of Benelux and has later become a member of ECSC and EEC. The first and foremost reason why Belgium experienced a stagnation was the ethnolinguistic differences. Belgium is a country of three ethnicities: the Flemish Dutch (Vlaams-Nederlands), a Dutch-speaking nationality that lives in the Flanders (Vlaanderen), a region that occupies the north of Belgium, including Brussels; the Walloons (Wallons), a Romanic French-speaking ethnic group, settled in Wallonia (la Wallonie), the largest region of Belgium that comprises 55 per cent of the country's total territory, and finally, the German-speaking minority that established in the east of a country as a consequence of the First World War and comprised circa 1 per cent of the population. The tensions between the Flemish and the Walloons have always been acute, especially before the federalization. In the years of the Industrial Revolution, the so-called sillon industriel, lied on Wallonia, was the locomotive of the Belgian economy.

Fantastically rich in iron ore and coal, Wallonia rapidly industrialized the region, surpassing any other European nation in terms of industrial output except the United Kingdom. With such an economic dominance within the country, the French wanted to stay further from the Netherlands, especially after gaining independence in 1830. That resulted in the `franconization' of Belgium, where the French language has become the primary language of the state, as well as in daily life. That ended after the Second World War when finally, the Flanders surpassed Wallonia in terms of economic development. Flanders followed the Dutch pattern of development, with its focus on chemical, electronic and logistic industries.

The port of Antwerp is the second-largest port in Europe after the Port of Rotterdam that was crucial for the post-war development, being Belgium's window to the international markets. The story of success of the Flanders fueled the nationalist attitudes from both sides: the Flanders wanted greater autonomy, as their economic growth were unrivalled by stagnating Wallonia and cultural differences remained high, as franconization were seen by the Flemish as discrimination against them. The Walloons faced a crisis in their critical industries of mining and steel production that made them rioting in the 1960s.

Another reason why Belgium did not achieve the same pace of development as the Netherlands or Germany was its excessive reliance on protectionism and divided labour market due to linguistic differences. Fearing for a decline in household purchasing power, the Belgian Government did not devaluate franc significantly, compared to other nations. That made the cost of labour higher if compared to Belgium's neighbours, and this factor is crucial in explaining why Belgium relied heavily on protectionist measures that stagnated the growth.

Besides, a dominant stance of the Netherlands in terms of agricultural exports created a threat to the Belgian farmers. Belgium insisted that the agriculture products should be excluded from the Benelux customs union treaty, as they could not compete with the Dutch products. Dutch industries increased their exports to Belgium that hurt the Flanders in 1950s. The trade gap between the Netherlands and Belgium recessed to 15 per cent in 1952, compared to almost 50 per cent in 1950, according to van Zanden (1997). That led to the limitation of the Dutch exports of the products that were far more competitive, introduced in 1953, and that was a blow to both the Benelux customs union and intra-European trade as well. Third, untouched by the war, the industrial complex of Belgium focused primarily on the goods that were highly competitive at the market even in the first post-war years, and there was no stimulus to upgrade or recreate the industry.

Consequently, compared to the rebuilt and up-to-date industrial complexes of other European countries, mainly the West German, took advantage, leaving the Belgian economy behind in terms of labour productivity. Finally, the Belgian government made a number of poor decisions like investing in the industries that were not in demand or could not compete, like textiles and farming, or provided subsidies to the coal industry, guided by political but not economic reasons.

The United Kingdom demonstrated one of the weakest decision-making among the European states and proved its complete inability to redesign its economic system. The nation received the most substantial amount of Marshall Plan aid - 2.7 billion US Dollars for post-war recovery, cultivating in total 4 billion US Dollars of post-war loans from the United States. The newly-elected Labour government has chosen not to reindustrialize the country but to establish a social welfare state with the help of the loans. Undoubtedly, a piece of common knowledge would be to underline the absence of any reason by doing exactly what the Labourists did. Firstly, the trade unions played a significant role in stagnating growth. New production techniques caused dissatisfactions as thewy were seen as a threat for a working man. Mass-production methods usage was limited by the trade unions in order to save the jobs of the people.

That led to the fall of output and bankruptcy of businesses - they barely could compete with the mass production of West Germany, for instance. An impossibly high level of nationalization, one-fifth of the British economy, as stated in Eichengreen (2007) was an obstacle for growth. There was no clear plan of actions developed by the United Kingdom to coordinate the nationalized enterprises and investments to them. Once being the great naval nation, its shipbuilding industry practically collapsed after WWII. The private sector was in no way compared to the European one, as the foundation of cartels as a countermeasure to the Great Depression deprived the market of competition.

Unable to compete with the legions of small and medium businesses from Europe, the United Kingdom showed a tiny increase in exports at 20 per cent between 1955 and 1960, compared to 50 per cent of West Germany in the same period. Besides, an imperial stance and orientation on the Commonwealth prevented the British from joining any European agreement until 1973, which worsened its economic development due to the presence of trade barriers between Europe and the UK. Finally, the decolonization process has taken from Great Britain direct access to the colonial resources and several important trade ports like Singapore. Altogether that kept the United Kingdom impotent, and that was the dusk of the greatest empire in human history.

3.4 An Inference from the European Experience

With four nations reviewed briefly, it is possible to make an inference from the subchapter. The Marshall Plan contributed to the post-war development of Europe and created an institutional foundation in the face of OECC and EPU. Depending heavily on imports at the brink of 1940s, Western Europe started to develop the industries and promote them, once the basic needs were covered, to orientate themselves on exports. The intensification of the trade led to the rise of intra-European competition, both regionally and domestically, with the exception of the United Kingdom. The pattern was in many European countries all the same: the abolishment of excessive government intervention practices in the national economies, the free-market competition created a fertile soil for a stable and sound economic growth, as demonstrated by West Germany.

Regulation and government coordination decayed the economic development, as it was proven by Belgium, Great Britain, and France that was slightly mentioned in the chapter. A keen international competition put a challenge for the European states. For the protection of its citizens, all Western European countries developed social welfare systems that would protect a citizen in the case of unemployment. It was possible to introduce social welfare due to the high profits from trade, what in return ensured high standards of living, according to Baines (2019). Following the wish for a peaceful Europe, the European Coal and Steel Community was founded in 1952. It served as the starting point for the unification of Europe, continuing with a single market, established by the European Economic Community. It culminated into the creation of the European Union in 2009. A political and economic union of 27 states provides a single market and a single currency.

Four Freedoms of the European Union are the freedom of movement of capital, goods, services and labour. As for 2017, the EU accounts for 25 per cent of the global nominal GDP. EU could be considered as the culmination of the promoted liberal democratic values and free-market economic system, what means that in general, the Marshall Plan accomplished its mission with flying aces even before the transformation of EEC into EU. The interdependence that was seeded after the war during the all-European recovery was the core reason for success.

4. Politics vs Economics: Debates to be Set

The last chapter of the current paper would focus on the outcomes of the Marshall Plan for the United States. Both political and economic reasoning of the plan would be presented to support and prove the argument that despite its massiveness, the Marshall Plan, as a geopolitical initiative brought more that it took from the United States. It is hard to deny that both in short and long-term, the plan led to the success of the Western World, led by the USA. This chapter describes the benefits and losses that the Marshall Plan created.

4.1 Political Results of the Marshall Plan

First, political achievements would be described. Evident expansionist attitudes of the Soviets forced the United States to act precipitously. Coincided with the dire need for help in Europe, the United States started the creation of the democratic Europe that would be a permanent American ally. Leffler (1988) outlined two main geopolitical matters of the Marshall Plan: the cooptation of West Germany and stabilization of Western Europe. Primarily, the United States considered that in order to be able to restrain the Socialism and Communism spread in Europe, the nations there should be wealthy and deeply integrated between themselves. The Marshall Plan allocated the necessary help and let the Europeans overcome the technological gap between then and the United States in circa ten years. Investments in capital from the Marshall Plan aid would serve as the supportive instruments for the survival of industries, to overcome the dollar gap and undermine the growth of left-wing attitudes in the societies.

Its particular economic results for Europe have been mentioned before. For the United States, it was the creation of a buffer zone that could be considered as a political goal of the plan. To unite Europe, Germany was a key country to restore. With a high dependence from the German industry, Europe could not successfully develop further. The unification of three Allied occupational zones (the French, the British and the American) led to the establishment of the Federal Republic of Germany, or West Germany in 1949. The strong and developed Germany would be a great partner in defence of the liberal democratic values in Europe. The provision of financial aid within the Marshall plan allowed the U.S. to influence local political processes, as it was in Italy. In order to prevent the formation of a coalitional government, to which the Communists would be included, George Marshall allocated additional aid to Italy with the condition to exclude Communists from the government. Leffler M.P. (1988, June 1). The United States and the Strategic Dimensions of the Marshall Plan. Diplomatic History, 12(3), 277-306. In long-term, the Marshall Plan, aside from the direct benefits of support to the European nations, strengthened the relations between the United States and West Europe, forming the so-called Western World.

The latest experience of dealing with the Soviets proved the necessity of a particular military alliance or union that would defend the undergoing development of Europe. Initially, France and Britain signed the Treaty of Dunkirk of 1947 that was aimed to prevent the events of WWII and to counteract the Soviets, enhancing defence capabilities by mutualizing them. The treaty was updated in the following year because of the new members - the Benelux nations of Belgium, the Netherlands, and Luxembourg. The Treaty of Brussels of 1948 guaranteed mutual defence on a period of 50 years for all five countries and had the same purpose as the bilateral agreement of the U.K. and France and proclaimed the creation of the Western Union alliance. These treaties have formed the foundation for a new military organization that would include all Western European nations and those who received the U.S. economic aid via the Marshall Plan.

Sustainable development demands safety that has always been an absolute privilege in the region. There was no doubt that relatively small nations like Benelux countries would benefit most from the mutual defence agreement as it was proved that these countries were practically unable to fight with a well-organized armed enemy for a long time. Given that the Soviet Union possessed enormous human capital, military strength, and absolute power over its own citizens, USSR could easily invade and occupy tiny nations without facing practically any resistance, as it was already with the Nazi Germany occupation of Benelux in 1940. With the creation of a military alliance of the Western nations, the implementation of further developmental projects by the United States would bring fruits of labour in the form of economic prosperity and intensify further interdependence within the Western world. The enlarged Treaty of Brussels would ensure the safety of European nations and allow them to continue post-war recovery build-up. The United States would be the main guarantee of European security.

After the discussion at home, the North Atlantic Treaty was accepted after meetings with European representatives, and North Atlantic Treaty Organization was founded on April 4 1949. Besides its five already participating members from the Treaty of Brussels, Canada, Portugal, Italy, Denmark, and Iceland joined the organization in the very beginning. The members agreed to form an international military alliance for ensuring and maintaining mutual security. The core agreement was that in case of an attack against one of the alliance members, it would be considered that all other members of the alliance were attacked at the same enemy.

Each member would assist militarily those members who faced a threat of invasion or experienced an armed attack by another state in order to restore peace in the North Atlantic area. Primarily, the North Atlantic Treaty Organization aimed mostly at the organization of military forces of its members to counteract and contain the Soviet Union collectively; however, its other purpose is to maintain collective security that would ensure domestic safety within the alliance. In other words, the military union implies a joint responsibility for keeping safety domestically. NATO worked as a containing factor for any nation within a coalition if it would fall into the hands of the enemy.