Lessons from the Marshall Plan

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Published on March 6, 2014

Author: CROCHET

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The Marshall Plan and the Road to Recovery: Learning from the Past Crises
Meeting with the Independent Hellens, Athens March 5th 2014

The Marshall Plan and the Road to Recovery: Learning from the Past Crises The Role of the Strategist State Prof. Claude Rochet Athens, Mars 5th 2014

Before the Marshall Plan: The Morgenthau Plan Deindustrialization Weak Political power = a clear intention of destroying a country => Fostering a negative synergy among ALL European countries 2 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

The Malthusian consequences of a Morgenthau plan No industry => Malthusian trap No industry => economic collapse No industry => Negative synergies, recession for all 3 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Rediscovering the traditional mercantilist wisdom Town and industries are at the heart of economic synergies as engines of wealth creation Speech by G. Marshall June 5th 1947 4 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

What the Marshall Plan was NOT?  Only a massive transfer of monetary ressource to finance imports from the US  Just a political operation to contain communism  The catalyst of European recovery  Monetary orthodoxy  Free market orthodoxy 5 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

What it was: Strong public intervention: Gov’t failures are always preferable to market failures  Alleviation of war controls on prices and quotas, exchange rate stability, BUT under mixed economies redistributional systems  Priority to productive investments  Considering the economy as a whole and not specific firms as market mechanisms would do  + Knowledge transfer => Strong multiplier effect  Political consensus on welfare state  Bretton-woods system: no currency straitjacket  6 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

A key issue neglected by the folk vision of the Marshall plan:      Knowledge transfer accounted for 1,5% of the total cost of the plan (20bnUS$) 4-6 weeks study tours were organized in the US to learn management methods Productivity solutions suited to local conditions Workers Unions supported the plan under the condition that productivity benefits will be shared between owners, workers and consumers This resulted in dramatic productivity increase of 25-50% with no increase in fixed assets, and an historic increase of TFP 7 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Prodty increase in the absence of a manufacturing sector Why it succeeded?: Applying the old recipes All activities are not alike and growth is an uneven process Searching for synergies between economic activities Increase the technological content of products and labour 8 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Play it again, Sam! As Time Goes by, the fundamental things apply… Why did the plan worked: - Linking agriculture and industry - Creating free-trade zone, BUT within symmetrical partners - Relying on technologies and activity specific sectors These are the principles formulated by F. List in 1841 The preconditions for wealth, democracy and political freedom are all the same: a diversified manufacturing sector 9 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Troïka policies are akin to Morgenthau plans (1) De-industrialization as a massive destruction weapon…. 10 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Troïka policies are akin to Morgenthau plans (2) Morgenthau plan in action … with a particular emphasis on Greece 11 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Troïka policies are akin to Morgenthau Morgenthau plans (2) plan in action Investment (% GDP) A process of primitivization: • Loss of skills and emigration • Retrogression to primitive state Unemployment (% GDP) 12 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Lessons from the past:  Development is an uneven process  Activities are not alike  Wealth is not valued by hours of work but with knowledge  Infant activities protection is needed to preserve the first mover advantage  High quality activities spill over all the society => civic humanism The issue of Good and strong Gov’t is still topical as a condition for growth Clisthenes’ principles: isotopia, isonomia, isocratia Allegory of the Good Governement, Sienne Town Hall, by A. Lorenzetti 13 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

What is the role of a strategist state? A strategic vision borne by sovereign state 2. Power and plenty are linked 3. Understanding the role of high quality activities 4. Modernization of public administration and political strategy are closely intertwined 5. Promoting the entrepreneurs and fighting the rentiers 6. Keeping a tight rein on finance 1. Since 1720, financial follies are alike 05/03/2014 Claude Rochet The road to recovery: Learning from the past crises 14

Thank you! Claude.Rochet@univ-amu.fr http://claude-rochet.fr 15

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