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Aid, Debt & Development

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Remember the Plan
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Sixty years ago last week, US secretary of state George C Marshall stepped up to the podium at Harvard University and set out his case for supporting European recovery from second world war devastation.


15th June 07 - Richard Kozul-Wright and Paul Rayment, The Guardian (UK)

While revisionist historians have questioned the precise impact of the Marshall Plan - in our view it played an important role in bolstering a tentative European recovery and restoring investor confidence, not least in Germany - European politicians still evoke its memory as a measure of the imagination and effort required to eliminate grinding poverty in the developing world and, since 9/11, to break its links with terrorism. But they are generally silent on what this might imply in practice.

There was little indication that the G8 leaders meeting in Heiligendamm last week were aware of the anniversary. If they had, they would have been embarrassed to contrast American decisiveness in 1947 with their own lack of coherence and ambition with respect to contemporary development challenges.

Critics have, of course, been quick to dismiss ideas of a "new Marshall Plan" on the grounds that large sums of aid cannot be absorbed efficiently (or cleanly) by poor countries which are, anyway, very different from western Europe. In fact, back in 1947, members of the US Congress were voicing similar concerns about their taxpayers' dollars disappearing down a European "rat hole".

There is no disputing the generosity of the Marshall Plan - $12.4bn over four years, or over $100bn in today's prices - but more was involved than providing Europeans with much-needed dollars. It also introduced a framework of organising principles to ensure that the aid was used effectively and so "permit the emergence of political and social conditions in which free institutions can exist".

We see at least five major virtues of the Marshall Plan that could be usefully emulated in establishing an aid structure that supports rather than hinders developing countries in their efforts to achieve sustainable rates of economic growth and tackle poverty.

First, it set a time frame for adjustment that was more realistic than the "shock therapy" envisaged by the US treasury, thereby acknowledging that policy-makers needed sufficient time to discover what worked best in their particular circumstances. This approach guided the postwar liberalisation of trade and finance which if too rapid would have simply led to payments crises and political unrest.

Gradual liberalisation also prevented European enterprises being snapped up by American firms at fire-sale prices, giving them time to get back on their feet. The absence of such thinking has been a major source of the distrust and tensions surrounding multilateral trade negotiations since the late 1990s.

Second, it ended the piecemeal assistance that had failed to promote economic recovery. Marshall aid was premised on the identification of structural constraints, on national targets for the main economic variables and on a sequenced approach to meeting objectives. This was the basis for a coherent aid effort. Marshall also insisted that such plans had to be drawn up by Europeans themselves, not by the United States. This attitude contrasts sharply with the G8 countries today which, despite much talk about partnerships and democracy, still behave as if they know what is best for the rest of the world and how to achieve it.

Third, it released aid in tranches as intermediate targets were met. Conditions were important to gain and sustain the support of the US taxpayer by ensuring aid was used efficiently, but these were more flexible and less intrusive that those required in the last 20 years or so by the international financial institutions.

Fourth, it recognised that effective leadership was about taking difficult decisions with the minimum of delay. Aid was flowing to Europe in well under a year from Marshall's speech, a painful contrast with G8 assistance which has been marked by unfulfilled promises, long delays in disbursement, and weak coordination among large numbers of donors with competing objectives.

Finally, the Marshall Plan encouraged a degree of united and cooperative effort among Europeans. This led to regional cooperation in areas where there were significant externalities, economies of scale and various trans-boundary issues requiring joint action. For most countries most of the time, pressing problems still involve their neighbours. The very fact of increased efforts to tackle these is itself a sign of increasing stability that can have a significant impact on economic activity and especially fixed investment.

The Marshall Plan was, of course, designed to support the objectives of the United States, but the thinking behind it had a long-run perspective, was sensitive to the national feelings and preferences of those whose "hearts and minds" were to be won, and emphasised larger public interests over narrow corporate ones. As such, it created a basis for genuine democratic discussion about the future shape of European societies.

At Heiligendamm the G8 leaders repeated their rhetoric about their "firm resolve" to help Africa and tackle today's global challenges, but they might have done a lot better had they reflected on how the Marshall Plan converted rhetoric into effective and successful action.


Richard Kozul-Wright is a senior economist at the United Nations; Paul Rayment is a former senior economist at the United Nations. Their book, The Resistible Rise of Market Fundamentalism, will be published this summer by Zed Books.

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