Not Just Another Recession
Why the Global Economy May Never Be the Same
WHEN the war ended, the first question that a great many Europeans asked themselves, standing face to face with the ruins heaped upon their countries by another world war, was "How can the inhabitants of this impoverished, disorganized and tightly compartmented Continent work for peace and a stable system among the nations of the world?" The answer was not obscure. The first step toward the resurrection of Europe was economic collaboration among the European nations. Since this so plainly was the path toward peace and stability, I shall note at the outset some of the reasons why for two years no progress was made in that direction.
In the first place, the Allies did not make the best use of the available political forces within each European state after the liberation of the Continent, nor did they perceive how ready was public opinion to support European collaboration. Only a few leaders were prepared to proclaim in 1944 what all recognize as necessary in 1948 -- and some who did proclaim it were branded Utopians. In the second place, at least in Italy, the seemingly unavoidable need of including Conservatives, Christian Democrats, Socialists and Communists in the same government made any organic program impossible. So long as cabinets were composed of such un assimilable elements, the situation was bound to remain static, as the author of this article, who belonged to three such cabinets, had opportunity to observe. In addition, Italy, one of the great states of Europe, was stupidly humiliated and dangerously mutilated by the Treaty of Peace, while the division between the Great Powers created a bottomless abyss in the heart of Europe -- Germany. The burden of mediation, which grew heavier every day as the tension between the United States and Russia grew more acute, fell on the shoulders of France; and France herself felt insecure and could not find any real guarantee against new aggressions in the postwar international system.
The task of making peace was viewed as a series of separate problems, to be dealt with through a process of endless bargaining which resulted almost always in a success for Russian tactics and an extension of Soviet influence. European problems were never viewed as an organic whole, and economic reconstruction was looked upon as a problem of procuring emergency aid which would set in motion again a mechanism which had supposedly only jammed. In other words, each country tried to carry on from day to day by means of American aid, without plans and, as a result, often with a waste of relief funds. Naturally there was no European recovery.
This went on for about two years, until at last General Marshall brought everyone's attention to the main point: he said simply that all Europe was wounded, and that what had to be healed was the economic and social structure of Europe as a whole. As we Italians understand the Marshall Plan, and as we interpreted it at the Paris Conference of the 16 nations, it has three essentials. It puts the initiative for reconstruction in the hands of the countries of Europe; it requires the maximum coordination of efforts; and it makes the economic factor dominant over all other considerations. That is to say, it substitutes organized international production for the chaos which exists in the Europe of the so-called independent states. It does not anticipate events by urging a political unification of Europe. Secretary Marshall did not give his proposal a political coloring of any kind; he urged Europe to work her way to recovery and offered American aid in making this autonomy possible. The Harvard speech was a turning point in the history of the relations between Europe and America, and Europeans are deeply grateful to Secretary Marshall and to the United States for taking this approach to a solution of our common problems.
The invitation addressed to Russia -- and of course to all the other states of eastern Europe -- to take part in the preliminary discussions of the plan showed plainly that everyone looks upon the U.S.S.R. as an integral part of Europe. The U.S.S.R. seemed not to look upon herself quite that way; and at any rate, after the Paris meeting of the three Powers which preceded the conference of the 16 nations, it was clear that Russia would participate only on condition that the old divisions between the national states remained unaltered, in other words, that the Marshall Plan not be allowed to help Europe achieve an organic unity, but be transformed into just one more relief program. This would have meant sacrifices for the American taxpayer, yet no possibility of recovery for the Continent, and an inexorable relapse after the relief funds had been spent. America has given $20 billion in aid to foreign countries since V-Day, and no one supposes that she can continue this kind of assistance endlessly. The relapse that would follow the final donation of relief funds would quite possibly be irreparable.
This is the reality behind the eternal repetition of the word "independence" in attacks on the Marshall Plan by the Moscow propaganda machine. Every intelligent man knows that such a concern for the "independence" of European states which are economically prostrate and politically unstable is nothing but a pretext for putting them at the mercy of a strong and bold neighbor. Europe can get on her feet only by economic and social coöperation, that is to say, a program of international economic rehabilitation, and the elimination of class struggles. Only a new international conception, harmonizing the ideals of the independence and the interdependence of nations, can give the old Continent a new lease of life.
The Italian Government greeted the Marshall Plan with unconditional approval from the first moment. The idea that the plan should be open to all countries of Europe was repeatedly stressed by me during the Paris Conference of July 1947, and confirmed in the final report of the Conference. It was apparent, moreover, that America was not going to be too impressed by phrases, and that what was needed was an example that would show that Europeans meant business. The suggestion that an Italo-French customs union be formed, which I put forward at Paris, was made as much for the sake of a concrete step toward European coöperation as to promote Italy's special interest.
Western Europe once had an excellent system for the exchange of products and services against raw materials, whereby the deficit in the balance of payments of each country was met by invisible assets, such as the tourist traffic, shipping, insurance and foreign investments accumulated through many generations. Today, as a result of the experiments in self-sufficiency imposed by Fascism and Nazism, and the ravages of war, there is nothing left of the old system. A mass of nearly 300,000,000 human beings finds itself faced with the grim task of rebuilding its economy from the bottom up. The Italian economy depends on foreign countries for the supply of the basic raw materials -- cotton, metals, rubber, coal, fuel oil, and nearly half of her wheat. Some people, even in Italy, ask: Is Europe therefore destined to be made a market for otherwise unsaleable American surplus production? No fear is more childish than this. As a matter of fact, in 1937 and 1939 total American exports to Europe were only 5 percent, and in 1947 not over 8 percent of total American production. It is a fact that, at least so far, Russia herself relies in part on the United States for some products, although they exist abundantly within her own boundaries, for instance, oil; while for other products, such as timber and coal, she is dependent in part on Poland and Finland.
The Italo-Russian interchange, even in the years preceding the war, never exceeded an average of 2 percent of the total of exports and imports in both directions. But while I admit that this is the present reality, it is clear that Italy must do her best, now and in the future, to improve her economic relations with the countries of eastern Europe. To this end, in the last months of 1947, the Italian Government concluded a whole series of economic agreements with these countries, which are perfectly compatible with the European Reconstruction Program, and, as far as we are concerned, extend and complete it. Italy cannot afford to neglect any trade arrangements capable of raising the low standard of living of her people, balancing the budget, and diminishing the burden of taxation. The index of the Italian national income is lower than that of almost all other countries of Europe, as a result of the fundamental characteristics of her economy -- the growing pressure of population and the lack of equilibrium between the supply of labor and capital. In 1938 the national income averaged about 110-125 billion lire; in 1946 it was reduced to about two-thirds. In comparison with 1914, the purchasing power of the average individual income has been reduced by more than half, from 667 lire in 1914 to 332 lire in 1946 (about a third of a dollar a day). Every calculation of the rates of taxation must take into account the extremely low level of living which this entails, and, among other anxieties, the consequent danger to social peace. At the beginning of 1947 the number of unemployed was 2,000,000.
The budget deficit has not been bridged by the special financial measures which have been taken, and inflation is still a danger. Last April a total revenue of 521 billion lire was estimated for the budget of 1947-48, against a total expenditure of 832 billion lire -- a deficit of 311 billion lire, not taking into account the obligations imposed by the Peace Treaty. A recent estimate leads us to hope for an increase of at least 100 billion lire in revenue, as a result of the first payments on the special taxes imposed on capital at the end of 1947. Since the present average index of prices is 50 times that of the prewar period, while the actual revenue is only two-thirds as much, the monetary revenue has increased approximately 33 times. If the total revenue of the 1938-39 budget (27 billion lire) is multiplied by this coefficient, the resulting figure is about 900 billion lire. If the price index remains unchanged this would make the burden of taxation by the central government the same as in the immediate prewar years. The limit of taxable capacity, however, is below this figure, because the increase in population has reduced the amount of income available, already very low in relation to the subsistence level.
Ever since the Marshall Plan was first suggested, Italian foreign policy has constantly emphasized two major points in connection with it. The first is that Europe must respond to the proposal made by Secretary Marshall in the spirit in which it was formulated, and thus make unified effort for reconstruction its primary objective. The second is that the door must be kept open to every opportunity of reaching commercial agreements with the countries of eastern Europe. Active participation in the work undertaken by the 16 nations for the realization of the Marshall Plan, and appropriate economic policy toward countries bound to the Soviet Union, are two aspects of the same policy, the aim of which is the consolidation of peace.
The first stage of the negotiations for a customs union between France and Italy was successfully concluded in the conversations at Rome in December 1947, in which the experts of the two countries reached common conclusions on the dual problem of full employment of manpower and improvement of the standards of living. France and Italy are both importing nearly all their raw materials from abroad, and the export markets of both are seriously curtailed. A customs union would create a common market of about 100,000,000 people. It would facilitate direct understandings between the various industrial groups concerning the purchase of raw materials from abroad, the exchange of patents, inventions, and so on, the exchange of raw materials and manpower, and collaboration instead of competition in sharing export markets. This would permit specialization in production and a widening of markets. Both countries might thus achieve full employment of manpower, and at the same time lower the costs of production. Both would be better able to face international competition. This union should be a step toward a network of regional agreements in Europe, which would create the most favorable conditions for carrying out the Marshall Plan. The group studying the project of a European Customs Union met again in Brussels in February 1948, heartened by the successful beginning of the Franco-Italian conversations and, I think, aided by the experience of the Italian delegates.
In all fields Italy has stressed the importance of putting economic factors first in the reconstruction of Europe. In May 1947, Prime Minister De Gasperi created the post of Minister of the Budget, which would be entrusted with the control of all state expenditure, and called to fill it Senator Einaudi, a distinguished economist and advocate of free trade of the Cordell Hull school. If Italy succeeds in checking inflation the credit will be Signor Einaudi's. The battle is not won, but at present Italy is the only country in Europe which has been able to bring about a decrease in prices. Indeed, we are aware that normal economic conditions can come only as a result of exceptional efforts. When a coalition government as nearly national in character as possible was essential, Prime Minister De Gasperi did not hesitate to sacrifice the interests of his party in order to widen the base of the government. The Socialists headed by Saragat and the Republicans led by Pacciardi agreed to share the responsibility of power at a moment when the tree of government was bearing nothing but thorns. If one remembers how different are the traditions of the Italian Republican Party -- the party of Mazzini and Garibaldi -- from those of the Christian Democratic Party, the historical importance of this collaboration between the Democratic Left and De Gasperi's Catholic Party can be properly estimated.
The democratic government of Italy, like that of France, is an example of the "Third Force" in European politics of which much has recently been written. In external affairs, this "Third Force," which is represented by Bevin and Blum no less than by De Gasperi and Schuman, is an expression of the two concrete objectives which I have just emphasized -- mutual collaboration for the Marshall Plan, and a desire to obtain the coöperation of eastern Europe. Those who wish to prevent collaboration between eastern and western Europe have launched a violent offensive against the Plan and against this "Third Force" which is its strongest support. In the verbiage of these attackers the collaboration between European democracies is nothing but a hypocritical mask hiding "imperialism." Such opponents of the Marshall Plan seem to wish to drive everyone to take one or the other of two extreme positions, alike at home and in international relations. Chain strikes are organized for the express purpose of cancelling out the economic improvement which results from the help we are receiving from America. Trade union demands of a purely political nature at times seem to have no other objective than to create uncertainty and economic paralysis. In Italy, in 1947, we had 1, 131 strikes (though often only symbolic ones).
But none of this is characteristic of Italian life alone. The same manifestations and the same disruptive forces are everywhere in Europe. I can speak for Italy only -- and as far as Italy is concerned, the truth is that she is resisting this pressure today and will resist it in the future, and, I think, with increasing success. As it becomes more and more apparent that all this violence is deliberately organized, the Italian people, who have had a good deal of experience with this sort of thing, are less and less likely to be taken in by it. The very important thing is that, in resisting it, we must not let ourselves be dragged outside the boundaries of legality; in the face of provocation we must resist the temptation to use the methods of dictatorship. Democracy best shows its strength in defense of justice. As long as the Government represents order, and the alternative is disorder, it will be able to count on the moral support of the great majority of hard-working Italian citizens.
We know that it is our duty to keep steadily at work while waiting for passions to calm. The propaganda which exploits hunger will fade out as economic recovery takes place. Now is the hour for economic collaboration -- the sound basis for coöperation in every field. The honest welcome accorded the Marshall Plan is the best proof given since the war of the possibility of European recovery -- and of world peace. If all peoples do their duty, and if the clear-sighted and unselfish help of America is continued, it is quite possible that, just as 1848 saw the dawn of the independence of Italy, so 1948 will see the dawn of the interdependence of Europe.