The Party That Failed
An Insider Breaks With Beijing
When on June 4, 1947, Secretary Marshall spoke at Harvard of the terms upon which the United States stood ready to aid European recovery, neither he nor his Commencement audience probably realized that his modest speech would lay the cornerstone of a major reconstruction of world political and economic policy.
Like all pronouncements of genuinely universal significance, the words of the Secretary of State crystallized aspirations already deeply rooted in the minds of men in many nations. After reviewing the wholesale disintegration of the fabric of Europe's economy resulting from the war, the Secretary stated that it was the purpose of the United States to contribute to "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." He made it clear that "the initiative must come from Europe," and that the aid of the United States would be offered to those who demonstrated their readiness to collaborate in such a general recovery but would be withheld from those who manoeuvred to block it. Finally, he stated that "any assistance that this Government may render in the future should provide a cure rather than a mere palliative" to the ills that had contributed and were contributing to "hunger, poverty, desperation and chaos."
The yeast in Secretary Marshall's words lay in the promise of American aid to an indigenous European Recovery Program, designed no merely to reconstitute the state of unstable equilibrium which had preceded the last war, but rather to establish a solid economic foundation of mutual collaboration and interdependence that would preclude the recurrence of armed conflict such as had engulfed Europe and involved the United States twice in a single generation.
It was no part of Secretary Marshall's intent to make the European Recovery Plan an instrument in a war of ideologies between the Soviet Union and the United States. That result came from Russia's refusal to associate herself, or allow her satellites to associate, with the swiftly asserted initiative of the nations of western Europe to fulfill the terms which the Secretary had defined as precedent to the granting of American aid. By taking this grave step, the Soviet Union clearly placed itself in the category which Secretary Marshall denominated "governments, political parties or groups which seek to perpetuate human misery in order to profit therefrom, politically or otherwise," and hence among those who "will encounter the opposition of the United States." It was by choice other than our own that the European Recovery Program has become a joint instrument of United States and western European policy that must be carried out in the face of avowed Soviet hostility.
No sober appraisal of the Program can afford to ignore its continuing implications. For the nations of western Europe, it means a commitment to collaborative action that must continue far beyond the restoration of the prewar status quo. Carried to its logical conclusion, it calls for a degree of economic and perhaps political unity in Europe that has never been attained in the past. For the United States is means a clear recognition of the hard truth that the conditions necessary to a stable Europe are necessary to our interests as well, for the simple reason that a major European war is certain to involve us too. Thus viewed, the European Recovery Plan does not represent for us either an investment gamble or a game to be played through to a decision and a hand-shake all round. In describing it we cannot afford the luxury we indulged in when we were awakening support for UNRRA, the Reciprocal Trade Agreement renewal, the British Loan, and the International Bank and Monetary Fund, namely of pretending that the step under consideration was the unique and final measure needed to discharge our responsibilities toward Europe.
The only tenable attitude for us is to regard the Marshall Plan as a current step toward a steadfast goal which both we and the nations of western Europe understand and are determined to achieve. Clear awareness of the objective is far more important than any detail of administrative procedure, and even more important than the dimension of the aid we propose initially to offer. The best rule for defining the terms of our assistance is that they should be flexible enough to allow accommodation to exigencies that cannot presently be foreseen. The best determination of magnitude is, to paraphrase a quip of Mr. Lincoln, that our aid should be large enough to reach from our intention to the realization of our goal.
However hot our passion for the objective -- and for Americans, at least, no conviction is truly tempered unless it has been touched by fire -- our processes of appraisal and measurement should always be conducted at low temperature. We are asked to pay the score, and we should add it up to see whether it promises to give fair value for our pains and falls within the limits of our resources.
Fortunately, the information upon which such an accounting may be based is at hand. Indeed, we in the United States who often plunge into the most momentous decisions with nothing to guide us but our faith find ourselves a thought embarrassed by the wealth of data that has been made available upon this unprecedentedly studied problem. Last summer the 16 nations which elected to enter into the conversations which we had suggested met in Paris to schedule what each could do severally, what each could contribute to the others, and what deficits must be met by outside assistance. From then on there has issued such a spate of statistical estimating, here and abroad, that even the hardiest of professionals have been put to it to ride the torrent.
The very profusion of the data offered may justify the inevitably dull exercise of making one additional attempt to marshal this welter of information in a form to answer three elementary but crucially important questions:
What is the magnitude of the burden that the United States is being asked to assume?
Is the proposed assistance justified in terms of relative European needs and American margins of surplus?
Does the commitment entail such a great mortgage upon American resources that the fulfillment of it will strain the American economy to a point where its basic stability is threatened or controls alien to American peacetime custom will have to be invoked?
II. THE MAGNITUDE OF THE PROGRAM
The Paris Committee estimated the 1948-1951 import needs of the 16 participating countries (plus Western Germany) at $57 billion, exclusive of their mutual trade. Of this, $35 billion was estimated as the required imports from dollar areas, and of this, in turn, $20 billion was premised as coming from the United States. After estimating the total potential of the area concerned to export goods and services beyond its borders, the Committee calculated that there would be a net trade balance deficit of $19.6 billion which could only be met through outside financial aid. By far the greatest amount of this deficit was expected to occur in 1948, after which conditions were expected steadily to improve until, in 1951, the trade of the area would fall short of balancing by only $1.6 billion.
These estimates have been screened and re-screened by numerous United States agencies, public and private -- most ably and effectively by the so-called Harriman and Herter Committees. Finally, after meticulously weighing the justification of European needs against American availabilities, the Administration arrived at a list of export requirements for the area that it was prepared to honor if Congress proved willing to make available the necessary funds. The Administration, perforce basing its estimates upon arbitrarily assumed prices, calculated the authorization needed of the entire program at $17 billion. Since April first, the start of the last quarter of fiscal year 1948, the program was lengthened from four to four and a quarter years. $6.8 billion was calculated as the requirement for the first 15 months, carrying through the fiscal year 1949 (1).
When the Administration proposal was submitted for the consideration of the Congressional committees, Senator Vandenberg's advice prevailed in determining that firm authorization would be sought only to cover the $6.8 billion required for the first 15 months, although it was also agreed that due emphasis must be given to the fact that we were embarking upon the long-term program outlined. This course was recognized as wise in view of the palpable impracticality of estimating either European requirements or American availabilities over a 51-month period, and particularly of calculating the dollar costs at unpredictable future prices.
Though the figure of $6.8 billion is thus set as the "cost" of the Marshall Plan to the United States from April 1, 1948, through June 30, 1949, in point of fact, since an additional sum is being sought by the Army for use in western Germany for comparable purposes, the prospective burden upon the United States Treasury may be more properly stated as $7.4 billion.
III. EUROPEAN NEED VS. AMERICAN MARGIN
The second question is whether or not Europe is in genuine need of assistance, and whether or not we have sufficient margin to offer it. A definitive answer to the latter half of this inquiry must wait upon the evidence offered in the next section. Here we shall present only prima facie evidence revealed by comparing the relative food and industrial output positions of Europe and the United States.
The following table presents the respective diets of the Marshall Plan area and of the United States, prewar and for the latest current period available, in terms of calory intake per capita.
Measurement upon a calory basis is admittedly crude, and tends to understate the degree of disparity in the American and European diets.
RELATIVE FOOD CONSUMPTION, PREWAR AND 1946-1947, IN THE MARSHALL PLAN AREA AND THE UNITED STATES (in calories per person per day)
Number of Number of Percent
calories calories of Prewar
Marshall Plan Area
Average entire population 2830 2470 87.3
Average nonfarm population 2850 2300 80.7
Austria, nonfarm 2850 1950 68.4
Germany, nonfarm 2580 1950 (1) 68.4
Greece, nonfarm 2450 2100 85.7
Italy, nonfarm 2550 1950 76.5
France, nonfarm 2800 2200 78.6
United Kingdom, total 3000 (1938) 2700 (Nov. 1947) 90.0
United States 3250 (1935-39) 3420 105.2
(1) The ration of the typical city-dwelling consumer in the German "Bizone" today is only 1200 to 1400 calories per day. The goal for 1950-51 is 2300-2700 calories per day.
The evidence presented in this table tells its own story. Before the war the diet in the Marshall Plan area was well below ours. Since then it has seriously deteriorated, while ours has improved. The situation in a number of the selected countries shown is far worse than the average for the entire area.
It would take a harsher judgment than most of us could muster to argue that our margin is one which affords no leeway for granting assistance.
Table B shows industrial output in physical measurement terms (i.e. value of output measured in constant prices) upon a per capital basis for a representative selection of countries in the Marshall Plan area and for the United States.
INDUSTRIAL PRODUCTION PER CAPITA, AUGUST 1947 COMPARED WITH PREWAR, IN SELECTED MARSHALL PLAN COUNTRIES AND THE UNITED STATES
(Prewar 1937 = 100)
United Kingdom 99
U.S. Zone 41
U.K. Zone 29
Austria (1946 figure, 1947 not available) 40
United States 147
In most of the Marshall Plan countries industrial output is below the 1937 levels -- in some case, disastrously below. The United States has bettered its 1937 performance by almost 50 percent.
Two remarks may be in order in addition to the obvious one that here is another field in which our margin of advantage is sufficient to permit some sharing without undue hardship. The first is that the evidence to date offers little over-all support to those who have expressed fear that aid to European industry might wipe out America's competitive advantage. The second points to the extremely low measure of industrial recovery in former enemy countries as a possible explanation of why, in view of the former interdependence of national economies in Europe, the recovery of the remaining nations has not come nearer than it has to matching our own.
IV. U.S. CAPACITIES TO MEET DEMAND
Evidence bearing on the capacity of the American economy to meet European Recovery Program demands, and on the amount of strain that we may reasonably expect to encounter in the attempt to do so, is presented in the four tables in this section.
The first of these, Table C, supplies data relevant to our ability to carry the gift and loan burden that will be assumed in 1948, if the Marshall Plan is added to other known and presently contemplated commitments. It is obvious that the issue is placed in better perspective by measuring the contemplated task against the record of our past performance. The second column of the table presents the absolute magnitude of our gift and loan budget for 1948 compared with our gifts and loans in previous years. The third column relates the yearly magnitudes of gifts and loans to the total resources from which such offerings must be drawn (annual Gross National Product), since the strain imposed by a given load depends both upon its weight and the strength of the structure that supports it.
UNITED STATES GIFTS AND LOANS COMPARED WITH GROSS NATIONAL PRODUCT (in billions of dollars)
Year Total Gross
National Product U.S. Gifts and Loans (Net)
Value Percent of GNP
1938 84.6 0.1 .1
1946 203.7 5.8 2.8
1947 231.8 prelim. 8.5 prelim. 3.7
with Marshall Plan 230 est. 9.7 est. 4.2
without Marshall Plan 230 est. 5.5 est. (1) 2.4
After World War I
1919 77.9 3.5 4.5
1920 85.0 1.4 1.6
Peak Years for Gifts and Loans between the Wars
1927 90.9 1.6 1.8
1928 93.7 1.8 1.9
(1) Private aid plus U.S. commitments aside from the Marshall Plan and proposed new aid to the Far East.
From the above table it will be seen that the absolute magnitude of the gift and loan budget for 1948 is $9.7 billion, a larger amount than we have ever committed for such use in the past. Nevertheless, if our estimate of the Gross National Product for 1948 proves to be sound, the percentage (4.2 percent) committed to gifts and loans, while very high compared to even the more expansive years of our peacetime experience, is not unprecedentedly high. It is only moderately higher than the comparable percentage for 1947, and slightly under that for 1919.
Whatever measure of comfort may be drawn from the slim precedents cited above may be discounted by many who hold that the stability of our economy is endangered less by the magnitude of our money commitments than be the export, from our already strained resources, of the additional goods which the Marshall Plan grants will enable Europe to purchase here.
In Table D perspective for judging the size of our export burden is furnished by comparing 1948 prospects, with and without the Marshall Plan, to the record of previous years. Again, the category with which we are concerned -- this time it is the annual value of exports -- is related to the Gross National Product, or the total value of United States output of goods and services from which exports must be drawn. The estimates given of the value of 1948 exports under the two contingencies are believed to be realistic, but if they carry any bias it probably serves to overstate the 1948 export load, since the figures shown here are substantially higher than the export calculations submitted by the Harriman Committee.
UNITED STATES EXPORTS COMPARED WITH GROSS NATIONAL PRODUCT (in billions of dollars)
Year Total Gross National Product U.S. Exports of Goods and Services
Value Percen of GNP
1938 84.6 4.2 5.0
1946 203.7 15.3 7.5
1947 231.8 prelim. 19.5 prelim. 8.4
with Marshall Plan 230 est. 19.0 est. 8.3
without Marshall Plan 230 est. 15.0 est. 6.5
After World War I
1919 77.9 10.8 13.9
1920 85.0 10.3 12.1
1925-29 average 92.9 6.6 7.1
The above table shows that the value of exports for 1948, even if financed by the full Marshall Plan commitment, probably will be slightly lower than it was in 1947, both in absolute terms and as a percentage of the Gross National Product. It should not be ruinous to our domestic economy to ship abroad in 1948 a percentage of our national output which is substantially the same as was exported in 1947, only slightly higher than in 1946, a trifle more than a percentage point higher than in 1946, a trifle more than a percentage point higher than the average for the prosperous years 1925 to 1929, and very much lower than the proportion exported in the years 1919 and 1920, immediately following the First World War.
Admittedly, our exports for 1948 must be drawn from a tight supply-demand situation. But the increased demand is due to factors in our domestic economy. If American prosperity collapses in 1948, the disaster can hardly be charged to the relatively temperate and stable pull of exports. Nevertheless, it would be rash to assume that we shall encounter little difficulty in meeting specific export commitments even if there should be conclusive evidence that the general load will be well within our demonstrated capacity. Particular segments of the export program envisaged under the Marshall Plan could still prove to be difficult of execution and might have disruptive effects upon our domestic economy; and there would be small comfort in the assurance that the grand total could be taken in stride if it were differently constituted.
Table E breaks down the prospective flow of exports to the Marshall Plan area in a manner that permits a reasonably detailed appraisal of what we are undertaking for the calendar year 1948. The first column shows, for each of the major categories, the level of our shipments in 1947. The second shows what the Paris Committee considered to be Europe's minimum needs from the United States in carrying a European recovery program forward to the goal of establishing self-sufficiency by the end of 1951. The third sets forth our Administration's estimates of what we would undertake to supply, balancing both our appraisal of European needs and our capacities to meet them in view of our own urgent domestic requirements and the claims of other areas. And the last column shows the percentage of the column two requests that would be satisfied by our column three offerings.
Space limitations and a decent regard for the margin of readership tolerance preclude the possibility of presenting here anything but the most superficial analysis of what Table E reveals in detail. Nevertheless, the following comments may aid the reader in arriving at his own appraisal:
1. The total value of our proposed 1948 shipments to the Marshall Plan area amounts to 93 percent of what was asked, and about 4 percent less than our actual rate of shipments to the area in 1947. The explanation of why the Marshall Plan funds will not increase our 1948 exports beyond 1947 levels lies in the fact that both European and other nations have been making large purchases in our markets from accumulated dollar exchange which now is substantially exhausted.
2. In the categories of goods "programmed" by the Paris Committee -- and these represent the items which the participating nations regard as crucially important to their recovery program -- we propose to meet only 76 percent of their demand; and in these scarcity categories our 1948 shipments will be 14 percent below what we sent them in 1947.
3. On the "non-programmed" items, we propose to furnish Europe with 25 percent more than was called for by the Paris Committee, with an export rate for 1948 about 10 percent higher than for 1947. In general, our supply-demand situation in these categories is sufficiently comfortable to allow shipments at the proposed levels to be made without hardship, and in some cases with positive advantage to American producers.
4. In general, the categories in which we shall experience the greatest difficulty in meeting our undertakings are identified by low percentage figures in the fourth column. With few exceptions, our decision to supply substantially less than the Paris Committee requested was dictated less by a decision that needs were overstated than by the reluctant conviction that a commitment to supply the full demand would result in serious dislocations in our domestic economy.
Table E: ACTUAL U.S. GOODS EXPORTS TO THE MARSHALL PLAN AREA, JANUARY-JUNE 1947, AND 1948 LEVELS REQUESTED BY PARIS COMMITTEE AND ESTIMATED BY U.S. (1) (in billions of dollars at July 1, 1947, prices)
January-June 1947 January-December 1948 April 1948-June 1949
Actual Exports Requested by the Administration Estimates
(Annual Rates) Paris Committee (Annual Rates)
Value Percent of
Total U.S. goods exports to Marshall Plan area 5.83 5.98 5.59 93
Programmed by the Paris Committee 3.41 3.86 2.93 76
Food, feedstuffs, fertilizer 1.79 1.45 1.12 77
Coal .27 .31 (2) .31 100
Petroleum and products (from all
dollar sources) .52 est. .58 (3) .52 90
Iron and steel .23 .34 .23 68
Timber .06 .10 .10 100
Machinery, equipment, vehicles
Agricultural equipment .05 .37 .11 30
Electrical equipment .06 .15 .08 53
Coal mining machinery .03 .08 .07 88
Petroleum equipment .17 (3) .21 (4) 124
Inland transport .40 .20 .13 65
Steel plant equipment N.A. .10 .04 40
Timber equipment Negligible .01 .01 100
Not programmed by the Paris Committee 2.42 2.12 2.66 125
Cotton .35 1.83 .46 ...
Tobacco .21 .21 ...
Other, unspecified, except machinery 1.10 1.99 ...
Misc. machinery and equipment .76 (5) .29 ...
(1) U.S. goods exports to the Marshall Plan area requested by the Paris Committee over the four-year period 1948-1951 amounted to $20.44 billion (at July 1, 1947, prices). The Administration totals for 51 months through June 1952 as originally presented to Congress amounted to $21.65 billion (at July 1, 1947, prices). After adjustments for our own imports from the area, other western hemisphere trade, changes in price, and non-governmental methods of financing, the requested authorization amounted to $17.0 billion.
(2) Shown on the same basis as Administration estimates, April 1948-June 1949; includes a small amount for dependent territories.
(3) Includes some allowance for dependent territories.
(4) Estimated from the 51-month allowance made by the Administration; includes equipment for U.S. companies operating in the Marshall Plan Area or dependencies.
(5) Including small amounts of steel plant equipment.
The specific items which promise to cause us the greatest difficulty are grains (particularly wheat), nitrogen fertilizer, petroleum products, steel, agricultural equipment, and freight cars (under inland transport equipment). In the remaining categories in which our offerings are sharply lower than the demands -- electrical and steel plant equipment -- we should be able to fulfill what we are proposing to furnish, if not easily, still without formidable strain.
The thing to remember in weighing the impacts of our commitments in the "critical" fields is that the budgets as drawn represent a considered appraisal of what our capacities can support. In just two instances is there marked likelihood that the expert judgments may go seriously astray.
Our undertakings in grain were set at a time when world crop outlooks were far less bright than they are at present. Now that bumper crops from the southern hemisphere are assured, and far larger than previously estimated yields both in Europe and America are in prospect, it should be possible to come closer to filling the urgent minimum needs of western Europe than was supposed. But until the harvest is counted, the gods of weather can always upset the best laid plans of mice or men.
The other field of major uncertainty is petroleum. Here the hazards are largely political. European recovery depends essentially on a recuperation of energy -- food for human energy, and fuel to stoke the fires that power the turning of wheels. Europe must place an increasing reliance upon petroleum to piece out what, at best, is a coal supply which is inadequate to prospective needs. Although a relatively small amount of petroleum products is scheduled to move to Europe directly from the United States, a considerably larger amount will be drawn from the Caribbean area whence we derive an important share of our own supply. Even so, our current supply is seriously below present demands. If the quotas of oil that Europe is expecting to obtain from Middle Eastern sources are blocked or seriously reduced by political disturbances, the whole energy economy of the world will be thrown disastrously off balance.
Readers who have had the patience to bear with this examination of particulars are entitled to some respite in the form of a brief conclusion.
The aid that will be extended to western Europe through the Marshall Plan is thoroughly justified by the needs of that area and is well within the capacity of the United States to provide. In even the more difficult segments of the program, what we propose to do in the coming year should not prove to be formidably harder than what we have done in 1947.
A considered examination of our 1948 commitments supports the conclusion that their probably distortion to our domestic economy has been overstated to the American public. There seems to be little justification for the frequently heard insistence that to meet the requirements of the Marshall Plan we shall have to reinstitute such wartime controls as price-fixing, rationing and allocation of materials.
While there is room for legitimate differences of opinion upon such important matters as the administration of the program, the degree of control that we should attempt to exercise over Europe's use of the aid supplied, and whether the major portion of our assistance should be offered as a gift or paid for in national currencies held to our account under appropriate restrictions, none of these differences of opinion is sufficiently decisive to justify making it a partisan issue. There is little wisdom in falling into a frustrating dispute over the design of a spoke in the wheel of a vehicle which is essential to our use but can carry us only one leg of a long and arduous journey.
The goal's the thing! If we in this country can agree that it is our continuing objective to help Europe attain such a degree of effective unification that she can hope to avoid the recurrence of war, we shall have advanced far on the road to political maturity. Perhaps the most cogent measurement which the Marshall Plan will provide is whether or not this nation has the capacity to pursue undeviatingly a unified aim.
(1) As this is written, the Senate Foreign Relations Committee has just recommended that the initial appropriation be $5.3 billion for twelve months beginning April 1, 1948, instead of $6.8 billion for fifteen months. This change would not alter substantially the analysis here set forth.