extracted text

20 Maart 1953

De Hooggeleerde Heer
Prof, Chr, Qlaaz,
Cleraatlslaan 6,
Aerdenhout,
Amice»
Bijgaand het redactionele artikel, dat eerst kan verschijnen nadat het reg-eringscoaranimiciué is cepubliceerd, In
verüand hiermede wil je deze proef wel zor/rvuldig onder je
houden. Gaarne je eventuele opmerkingen v6or a,s. Dinsdag,
aangezien ik Woensdag voor vier dagen naar Luxemburg vertrek.
liet vriendelijke groeten»

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EGA HISTORY
Tentative Outline

Part I. INTRODUCTION
Chapter 1, Perspectives
II
2. The Outlook in 19lt7

^ w . l.A\n(L./

Part II. THE M I N NARftATIVE
3.
h»
5,
6,
7,
8,
9,
10.
11,

Emergence of the Marshall Plan
Action by the United States Congress
Launching the European Recovery Prograia
First Year (19U8-ii9): Food and Tools
Second Year (19l49-5o): Toward Economic Expansion ana
Unification
Third Year (1950-5l): Economic Progress and Military Crisis
Fourth Year (1951-52): Transition to the Mutual Security Program
Aid to China and Korea
Programs in Southeast Asia
Part III. ENDS, MEANS, AND LESSONS GAINED

12,
13.
lUo
15.
16.
17.
18.
19.
20.
21.

HBP
26 Oct,

'52

Effective Administration
Conception and Goals of European Recovery
European I n i t i a t i v e
Purposes and Technics of American P a r t i c i p a t i o n
The Expansion of Production
Impetus and S t e p s toward European Unity
Economic S t r e n g t h and J t i l i t a r y S e c u r i t y
Promoting t h e Advancement of Newly Developing Areas
The Marshall Plan i n t h e Contest for Minds
How Great a Milestone?

Part I.

INTRODUCTION

The purpose of the introduction is (a) to put the EGA program into a setting of historic developments and trends which should whet the
reader's interest and widen his perception of the scope and significance
of the ilarshall Plan; and (b) to cite some salient aspects of the situation
in 19ii7 - - especially in Europe, but also in Asia - - v/hich precipitated
the thinking leading up to the EGA program.

Chapter 1.

Perspectives

The Marshall Plan, in the historic setting of world crisis in
the 20th Century:

as a chapter in the record of U.S. aid programs - -

as an answer to aggressive communism - - as a new phase of, and an
instrument for, evolving U.S. foreign policy (in fostering recovery,
economic expansion, integration and security in V/estern Europe; in
promoting economic and political advancement in underdeveloped areas)
- - as an influence in the development abroad of both private enteriorijc. and governmental intervention in economic affairs - - as an
episode In the longer search for durable peace, security and economic
progress - - as a catalyst for expanding international cooperation
- - as a factor in world politics through its contribution to'^iard
strength and unity for the free world. The development and outvjorkin^s
of the Marshall Plan as providing one of the mor-t instructive chapters
in recent world history - - importance of analyzing the experience
promptly in order to derive from it demonstrable, lessons for the future.
Chapter 2. The Outlook in 19h7
Recovery from World ^'ar II only partial - - situation at end
of UNÏÏIAprogram - - cold and drought in Europe in 19^7 - - shortages
in food and other essentials - - levels of agricultural and industrial

-2output - - obsolescence in machinery, methods, technics - - inflationary pressures - - the dollar problem - - economic and social
dislocations - - political dangers. The communist sweep in China - actual and potential repercussions in other Far Eastern countries - economic and political problems in these areas. Interin aid programs
not sufficient in Europe or Asia - - the widening rift with Russia - the growing peril of aggressive communism - - the need for greater unity
of purpose and action.

-3Part II. THE ilAIN NJXRÜ.TIVE

The purpose of Part II is to present in compact and readable
form the story of the EGA operation as it unfolded, beginning with
origins preceding the enabling legislation and continuing through
successive phases up to the transition to the Mutual Security Program.
The narrative should indicate the main forces that shaped policy,
divergencies in approach and compromises reached, the considerations
underlying major decisions, the more important steps and technics
adopted to carry out those decisions, and the results attained. It should
also convey some distinct impressions of the shocks, emergencies and
pressiires that characterized day-to-day operations.
The principal account will be that of the European Recovery Prograjn,
but due attention will be given also to the development of Far Eastern
programs conducted by EGA. Since basic conditions and conseouent
approaches to the administration of aid in Europe and Asia differed
in many respects, separate treatment for Europe and the Far East is
contemplated, with due recognition of interrelationships and similar
elements.
Only major developments can be covered in this part of the work,
vjhich is expected to run to approximately 2oO manuscript pages; the
many intiividual country programs will not be given separate comprehensive
treatment but vjill be drawn upon to illustrate or elucidate elements
in the broad record of evolving operations.
Chapter 3. Emergence of the Marshall Plan
Evolution of the Marshall Plan concept - - the Acheson speech - the Ifershall speech - - response in the UK and T^estern Europe - - the
Paris meeting - - reaction of Russia and Eastern Europe (pronouncements
aid propaganda, the "Molotov Plan", the Cominform, etc.) - - creation
and work of the GEEC. The role of the Department of State in formulating the Marshall Plan - - work of the Budget Bureau, other agencies
and special committees - - character and influence of the Harriman,
I(rug and Nourse committee reports - - conception of U.S. interest in
Europe and Asia - - concern over what the U.S. economy could afford - collaboration between Executive and Legislative Branches at policy and
staff levels - - informing the public (governmental and private efforts.

including activities of the citizens' Committee for the Marshall Plan)
- - Congressional response - - public opinion reactions in the U« S.
(business, labor, farm groups, the press); popular reactions in '^urope.
Chapter U. Action by the United States Congress
Department of State draft - - Herter Committee report and draft
- - staff work - - intensity of interest in the Congressional committees - - pressure groups - - non-partisan approach - - contribution of
individual Committee members - - the hearings - - principal witnesses
- - points of view developed - - major issues considered - alternative courses of action and decisions reached during the
committee stage - - public sentiment - - psychological effect of the
Communist coup in Czechoslovakia - - the great debate of 19hQ - executive-legislative coordination - - major changes wrought by
Congress - - the final act (Foreign Assistance Act of 19US): objectives,
main provisions, tools for the job.
Chapter 5o

Launching the European Recovery Program

Legislative authorization for administration and operations - selection and appointment of the Administrator and Special Representative in Europe - - setting up shop - - the excitement, drive, color
of trying to organize a multi-billion dollar enterprise almost overnight
- - formulation of objectives - - keeping the public informed - -interim administrative procedures - - establishing and staffing the EGA,
including OSR and country missions - - types of personnel selected - expediting security clearances - - nature of the agency (a "business
enterprise", organization adapted specifically to objectives of the
Marshall Plan, etc.). EGA relationship with State Department and. other

-5U.S. agencies, in '^adiington and overseas - - relations x-dth Congress - the -qjatchdog committee" - - advisory boards. Negotiations in Europe- establishment, functions and preliminary work of the OEEC - - collaboration between European and U.S. technicians - - preparations m d e by
participating countries for the receipt of aid - - negotiating the
bilaterial agreements. Determining the basis for country allotments - initial procurement policies and procedures - - the first emergency
programs - - psychological effects.
Chapter 6.

First Year (19hQ-h9):

Food and Tools

organization "airborne" by the first of August. The immediate and
urgent task:

food and tools to Europe - - the dollar problem - - first

shipments - - the emergency operation - - its effects. The "country studies" - - methods of reducing the collar deficit - - balance-of-payments
and internal-accounts approach to aid-requirements analysis - - cooperation between European and U.S.economic technicians . - the changing
meaning of recovery - - recovery goals - - the "multiplier" concept - commodity and capital goods shipments during the year. Financial operations - - protecting the U.S. domestic economy. Aid to European agriculture - - industrial projects - - beginning of technical assistance - - investment - - use of counterpart funds - - strategic materials prqgram - rise in production, productivity and employment - - monetary and financial
stabilization - - stimulation of trade - - Am. rican aid and intraEuropean payments; external payments. Work of OEEC - - European cooperation. Relations with the Soviet bloc.

Keeping the public posted - - con-

tacts with congress - - preparing the 195o-5l program - - evolution in
programming procedures.

- 6Chapter 7.

Second Year (19ii9-50):

Toward Economic Expansion and

Continuing advances in industrial and agricultural production - in employment, foreign trade and financial stability - - promotion of
dollar exports - - no genuine recovery without economic expansion - - investment patterns - - planning for accelerated development in the dependent overseas territories - - encouragement to private enterprise - investment guaranties. Increasing attention to question of economic integration in Europe - - Congressional interest - - significance arjd activities of OEEC - - efforts toward liberalization of intra-European
trade - - intra-European payments plan - - European Payments Union - Schuman Plan proposed (May 9, 1950) - - Mutual Defense Assistance Program.
Chapter 8.

Third Year (19^0-5l):

Economic Progress and Military Crisis

The invasion of South Korea - - U.S. and U.N. reaction

impetus,

to rearmament - - economic aid linked to defense of the free world - expansion in strategic materials production and procurement - - aid to
Yugoslavia and loans to Spain. Delayed impact of rearmament programs —
recovery momentum in production and trade - - agricultural and industrial projects —

productivity and technical assistance - - prices and

financial stability.

Necessity for expanding Europe's economic base - -

accelerating development in the overseas territories. Further gradual
steps toward European economic unification through trade liberalization,
EPU, NATO, signing of the Schuman Plan treaty (April 13, 195l).
Chapter 9.

Fourth Year (1951-52):

Transition to l^tual Security Program

Preliminary thinking on new orientation necessitated by defense requirements - - recommendations and influence of the Gray and Rockefeller

- 7reports - - other studies and recommendations - - effects of rearmament
upon European economic recovery and dollar-dependence not fully apparent
in spring of 1951 - - the President's budget message - - the temper of
Congress - - the Mutual Security Act - - greatly increased emphasis on
defense - - economic aid as "defense support" - - the 1951-52 prograii
- - expansion of military aid - - establishment of the ilutual Security
Agency - - survival of Point Four.

Further steps toward coordination

in Europe, especially in the area of common defense - - NATO and planning for the European Defense Community - - diminishing role of the
OEEC - - the task and method of allocating resources and manpower to
defense - - work of the TCC and the "three wise men" - - results - economic impact of defense programs - - gains and looses - - wind-up of
the European Recovery Program and ECA - - transition to Mutual Security.
Chapter 10. Aid to China and Korea
Basic poverty and retarded economic-political-social development
in Asia - - the legacy of colonialism - - upsurging of revolutionary
thought and movements - - the rise of nationalisiri. Impact of Itorld
War II in China - - UNRRA and interim aid programs - - direction and
tactics of the communist movement - - "capture" of the Chinese revolution by international communism.

Congressional hearings on China - -

passage of the China Aid Act as part of the Foreign Assistance Act of
I9U8 - - outlines of the program - - the China Mission - - emergency
food deliveries and rationing - - industrial projects - - the Joint
Commission for Rural Reconstruction - - agricultural production and
land reform programs - - continuing Communist gains in, and eventual
control of, the China mainland - - retreat to Formosa.

Previous

-8Chinese record in Formosa - immigration from the main land, political
and social unrest, inflation - - commodity, industrial, agricultural
and land reform programs

impact of these programs - - steps toward

fiscal reform - - gradual stabilization - - military aid and its economic implications - - situation at end of the EGA period.
Inception and objectives of the EGA Korea program

take-over

from the U.S. military - - launching of the relief and reconstruction
operation —

relations with North Korea - - the aim of viability

translation of this aim into a workable program - - concentration on
emergency commodity imports, fertilizer and power production, land
reform - - progress before the invasion of South Korea - - effects of
the invasion - - reversion of responsibilities to military authorities
- - creation of UNKRA.
Ghapter 11. Programs in Southeast Asia
Increased threat of communist expansion in southeast Asia - - insecurity of inexperienced new governments faced with intractable economic,
political and social problems

their need for winning confidence

and support of their peoples

local inertias and lack of organiza-

tional experience
"intervention".

hatred of "colonialism" and sensitiveness to

Dual paradox in aiding partially reactionary re-

gimes as means toward safe;_uarding their independence from communist
domination, v/hile attempting to overcome with liberal, constructive measures resentments carried over from past colonialism.

EGA consulta-

tions with State Department and role in policy formation - - the Griffin survey mission

negotiation of aid agreements. Establishment of the

Special Economic and Technical (STEM) I«Jissions - - first emergency oro-

#

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-9-

graras - - initial reactions of recipient governments - - communist propaganda - - emergence of agricultural, he?1th and training programs - applications of the Point Four concept - - obstacles and difficulties encountered - - gradual rise in confidence as programs gain ground. Developing rationale of aid based on political and economic objectives
- - effort to strengthen progressive elements - - working from xdthin,
i.e., trying to see problems from the viewpoint of the people of the
area - - developments in technical assistance - - health programs - aids for increasing production - - illustrations of joint planning - encouragement of agrarian, financial and political reforms - - methods
devised for assisting in the modernizing of governmental and business
institutions. Effect of transition to greater emphasis upon securityobjectives. Assessment of net gains and setbacks at end of the EGA
program.

Continuing perils in this region.

#

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- 10 Part III ENDS, MEANS, AND LESSONS GAINED

The aim of this third and final part of the work is to bring together,
in a series of condensed chapters, a "distillation" of the thinking of persons XTTho have participated in or observed closely, the recovery program,
and who have reflected deeply on the meaning of the liarshall Plan in the
present period of world history. An adequate evaluation of this vast enterprise requires not only an analysis of the way in wh which specific
goals were pursued and the measurable results attained, but also an effort to discern what light was thrown by the EGA experience on some of the
more deepseated and pressing problems of the day. The purpose of this
part of the volume '-rill not be to repeat what has been said in previous
sections, nor to present a series of independent essays on the questions
treated. It will be, rather, to derive from analysis of the EGA experience
some of the insights and lessons which may be of greatest continuing pertinence and value.
As presently contemplated, then. Part III will contain a critical study
and evaluation of the major objectives of the Marshall Plan, the means employed for their realization, and the lessons gained in the course of actual operations. Beginning with a consideration of factors in the swift
development of an organization designed to conduct competently and with
dispatch the vast and enormously complex aid program, the analysis will
move on to a more funamental review and critique of the conception and
goals of European recovery.
Since the initial basic idea upon which the Plan was based was that
of a cooperative European effort buttressed by American aid, attention v/ill
be directed next to the nature and extent of European initiative, the precedent which this established and the groundwork which it laid for effective cooperation. This will be followed by a study of the purposes and
technics of American participation — through the provision of aid on a
massive scale and through active cooperation and participation in the development of programs and of policies needed to make the aid effective.
Consideration will then be given to the means whereby some of the more spectacular results of the European Recovery Program were achieved — in the
field of production — and to the obstacles which prevented an even more
impressive rise in industrial and agricultural output.
The next theme >rill be that of economic unification in Europe — the
evolution and merits of the concept itself as seen during the EGA period
and the significance of the specific efforts exerted in behalf of this basic long-range objective. After this will come an analysis of the effects
of the rearmament program upon ERP, and the adequacy of the reorientation
that developed toward the dual objective of economic strength and military security. The ensuing chapter will be devoted to a critical review
of the aims and technics employed by EGA in promoting the advancement of
underdeveloped — or newly developing — areas, in southern Europe, the
dependent overseas territories, and especially the Far East. This will
lead into a consideration of the role and significance of the Marshall
Plan in relation to the crucial contest between East and West for psychological and political advantage among the people of VJestem Europe and in

/

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- 11vast areas economcially less advanced.
Finally, an effort will be ms.de to view the Harshall Plan in terms
of its overall results, seen in relation to initial goals and terms of
reference; and then to present in sharp focus some of the problems that
remained unsolved when the program came to an end.
Before this study has reached a more advanced stage, and particularly
before there has been opnortunity for extensive consultations here and abroad with persons who have in the best position to appraise soberly the
the wider import of the Fiarshall Plan, it would be premature to try to
set forth in any final fashion the approach to be taken in this part of
the work, or to state what might appear to be some of the more meaningful
insights and lessons gained from this new venture in ilmerican foreign relations. A more detailed program for this portion of the work will be developed in January. Some of the topics and question on which we shall in
the interim seek thoughtful observations and opinions within the participating countries are listed beloxj under tentative chapter headings.
Chapter 12. Effective Administration
Central aims in the planning of ECA as an agency - - chief factors
instrumental in rapid organization - - reciniting methods - - criteria
in selecting key personnel, in choosing professional staff - - advance
from informal "chaos" to orderly administration - - distinctive features
in the theory and form of organization adopted (e.g. centralized role of
programming) - - new departures, for a government agency, in habits and
technics of management - - relations with other agencies, in V/ashington
and abroad - - relations with participating governments.
Practical advantages and disadvantages of ECA's separate-agency status - - in adapting its organization and operating procedures to the pursuit of specific new objectives - - in policy formulation - - in the conduct of relations vd.th the OEEC and other international organs - - in
country relationships and programming - - in dealing with special problems
as they arose. Illustrations of intra-governmental issues and how they
weie resolved - Washington and abroad.

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- 12 Division of responsibilities between ECA/l'ashington and the European
regional office (OSR) - - relative emphasis in orientation of these offices toward Congress and toward European governments - - specific issues and their resolution - - which matters were best dealt with by
ECA/W?

which by OSR?

Organizational pattern, functions and supeivision

of the country missions - - noteworthy problems in mission administration and how they were resolved^
Problems faced in the organization of CELC, OEEC, E?U —

British

participation - - innovations introduced - - administrative strengths
and weaknesses of these coordinating agencies. Variations in the methods whereby participating governments handled their relations vrith
EGA —

and in which they administered the aid received; among the pro-

cedures and practices adopted, which were the more effective?
Chapter 13. Conception and Goals of European Recovery
Focusing of attention, in early planning, on study of Europe's
economic problems and what would be necessary in order to cope vjith
them - - contrast with earlier approaches, e.g. by UNRRA - - debate over
relative importance of currency convertibility, non-discriminatory trade,
production, employment, and effort to overcome balance-of-payments deficits —

consideration of related social and political objectives

emergence of new emphases in U.S. and Suropearx thinicing and planning,
Europe viewed not only as a grouping of individual economies, but also as
a whole - - both short- and long-range problems envisaged - - planning
aided by Congressional approval in principle of a four-year program»
Major emphasis as actual programming began, upon attainment of
short-run objectives in individual countries - - many reasons for thia

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- 13 (Popular conception of "recovery", desire to achieve positive results
promptly, etc.) .

early operations characterized by predominant aim

of achieving massive increases in production - - and related aims of
increased trade and fiscal stability - -GI^IP studies and "recoveryguides" - - balance of pajnuents analysis and viability goal - - reducing
the dollar pap - - "spectrum" of countries ranging from those having primarily an exchange problem (e.g. Belgium) to those having a serious lack
in net resources (e.g. Greece) - - studies of national internal accounts
- - subsequent influence upon economic policies - - concept of increasing viability and dirrdnishing aid - - impressive gains in many countries,
especially in production.
Major obstacles in translating production and trade increases into
attainment of broader Marshall Plan objectives increasingly apparent as
program developed - - individual economies with resources and markets too
sruall for the mass production and mass markets needed for Europe to compete successfully in the modern world - - problems greatly accentuated by
trade and exchange barriers (including the protective measures adopted by
planned economies).

Increasing recognition of urgent need for European

economic unification - - translation from general conception into specific processes and institutions - - the start made toward European
unity.

(Detailed analysis of the impetus and steps toward unification to

appear in Chapter 17.)
Problems encountered as program developed also brought into clearer
focus other important obstacles to the emergence of an economically
free, strong and secure Europe, ^jnong these problems, with wide variations fran country to country, were those of: internal distribution -

i'

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- l u it being found that the benefits of increased production did not necessarily or automatically "trickle down" to all economic groups - inept industrial management - - low labor productivity - -weak labor

unions in some areas and, in others, unions vdth a primarily political
orientation - - agrarian inequities, especially as regards land tenure
- - inequitable tax structures or weak enforcement of tax lav;s - low or unproductive public and private investment - - inadequate development of natural resources - - lag in reassessment of colonial
economic policies.

Relevant problems in U.S. policy - -

e.g. European dollar earning impeded by necessity of hurdling u.S.
tariff barriers,
EGA experience in relation to these problems:

to what extent

were they recognized? - - how were they analyzed? - - what steps, if
any, x-jere taken to deal wi^h them? - - what was learned in the process?
In summary, what evolution took place in the conception and goals of
European recovery - as reflected in actual nrogramming?

or in the

thinking of the most qualified participants and observers?
Impact of Korea and the resultant defense programs - - budgetary
efiects accentuated by soaring military costs and disproportionate rise
in prices of raw materials - - diversion of attention and energies
in Congress, in the Executive Branch - - effect of reorientation upon
economic programming and planning - - partial submersion of many longerrange objectives.

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-15 -

Tentative conclusions: initial conception of European Recovery
Program sound
goals

progress outstanding in relation to shorter-range

but European problems too deep-seated to be resolved by

these measures alone
quired

broader and more fundamental measures re-

continuing progress toward unification imperative but

itself no panacea

insights gained into character of further mea-

sures needed for the building of a strong and healttxy European economy,
genuinely free from dependence upon extraordinary external assistance
pursuit of these longer-range objectives, despite added burdens of defense, essential to the economic health and security of the free world.
Chapter lU.

European Initiative

Difficulty of understanding adequately problems faced by the
Europeans - - dead weight of past wars and rivalries - - current
external and internal dissensions and fears - - trade and other barriers - - a house divided - - the communist danger - - the American
offer of aid made contingent upon European initiative - - conception
of external aid as essential, but basic remedy only from within - would Europe act? - - initiative shown in response to the Marshall
speech, establishment of CEEC, cooperative programming of European
efforts to be undertaken and analysis of U.S. assistance needed - initiative in development of OEEC, EPU. The Schuman Plan - developed
entirely on European initiative.

Role of European governments in develop-

ment of NATO.
Coxmtry aid programs also dependent upon foundations of self-help
and cooperation.

Illustrations, in individual countries, of initiative

ƒ

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- 16 ~

shown in tackling both short- and long-range goals - through planning
and adoption of specific programs, and through changes in governmental
policies. Illustrations should throxir light on types of internal and
external difficulties encountered, and how they were met.
Aim of this chapter: to bring out as clearly as possible the basic
and crucial expansion of European initiative, indicating the character
and dimensions of the efforts actually put forward by the Europeans as
a background essential to an intelligent understanding of American aid
and participation.
Chapter l5«

Forposes and Technics of American Participation

Place of the Marshall Plan in U.S. post-war foreign relations reflecting, in economic sphere, trend from isolationism toward greater
acceptance of responsibilities of free world leadership - - some notable innovations in declared foreign policy objectives - - but viith
essential continuity in underlying purposes - - stimulus toward, and
support for, ERP seen as resultants of the whole complex of prevailing
influences affecting and determining U.S. policies during this period
importance of these influences being recognized - - misleading effects of
capsule phrases. Basic trend during these years (without implying overeasy assumptions as to its permanence, or minimizing cross-currents) seen
as being toward a widening conception of interdependence between U.S.
national interest and the economic-political health and security of the
rest of the free world, with emphasis on Western Europe - - the Marshall
Plan, with strong bi-partisan support, as an outstanding embodiment of
this trend.

/

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- 17 -

Central aim of U.S. Government, in supporting ERP: to serve the
interest of the U.S., in this larger sense, by strengthening the
economies and the democratic political fabric of free Europe
of European situation which precipitated ERP

gravity

internal efforts signi-

ficant but not adequate - - need for massive external aid - - but problems too deep to be solved by dollars and goods alone (see Chapter 13)
scope and significance of U.S. interests involved.

Central and

collateral purposes as seen by ERP planners, as stated in U.S. authorizing legislation, and as reflected in bilateral agreements, were broad
these ends included (in language of Congress) "a plan of European recovery," "a strong production effort," "progressive elimination of trade
barriers," "economic unification," "mutual security," "the freedom of
Europe," - all to be supported with aid while safeguarding the "economic
stability of the United States."

Hope for major results in Europe, and

freedom from extraordinary external assistance, within four years.
Contriving of means for forwarding these objectives led to the
setting up of intermediate goals, policies and institutions

more

disagreement over subsidiary goals and methods than over primary objectives

illustrations. Importance of policy determinations by ECA

and Executive Branch within the framework of Congressional authorizations

participation of working staffs in policy formation

role

of OSR and missions. Dependence upon mutual consent between U.S. and
participating countries.

Successes and failures in interpreting U.S. aims

and policies at home and abroad.

ƒ

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- 18 -

The great innovation of the Marshall Plan and resultant programs,
not so much in the ends pursued as in the means adopted - - i.e., the
conscious use of foreign aid and accompanying negotiations, to an extent
never before envisaged in peacetime, as a primary instmment of U.S.
foreign policy in seeking to attain specific constructive goals. This
foreign-aid instrument actually a whole "kit of tools" which made possible the transformation of policy objectives into cooperative working
prograrus - - and the tackling of basic problems in practical xjays without
waiting for critical exigencies to arise. Vuhat vrere the methods or
technics thus introduced into the conduct of U.S. foreign economic
policy, and how were they employed?
a) Invitation to participating countries, individually and
collectively, to state what they proposed to do in order to
regain economic stability and strength, and to assess the
character and extent of external aid required to enable them
to attain these objectives - - work of the CEEC and OEEC - individual country submissions,
b)

Effort to understand the economic situation within each
recipient country - - the "country studies" of 19U8-U9,
analyzing: war impactj extent of reconstruction; resources
smd their use (production, productive efficiency, consumption,
investment, exports); financial situation and policy; balance
of payments; recovery needs and programs (in agriculture,
industry, transport, communications, raw materials development);
internal and external financing required; political and social
factors - - more refined analyses as programs advanced.

c) Consultation and negotiation to establish bases of agreement
respecting recovery goals and policies and the character of aid
to be provided - - bilateral agreements and continuing negotiations.
d)

Development of aid programming based primarily upon technical
economic (vs. political) approach
close collaboration between EGA and country technicians - - basic consideration in
programming: effects of projected subsidies upon total economies of recipient countries. Introduction and refinement of
programming technics: analysis of GNP, internal accounts.

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- 19 -

balance of payments; basing of projections upon given levels
of consumption and investment and assumptions re countryperformance; estimation of total aid requirements; breakdown
into major sectors — agriculture, industry, transport, etc.;
methods of analyzing priority needs and requirements in each
sector; determinations respecting grant and loan assistance;
putting results into manageable and appropriate form for
presentation to Congress. Advantages and limitations in the
programming technics developed.
Encouragement, through country missions, to employment of the
latest principles and technics of good production management and adoption of tested methods for achieving increased productivity. Collaboration between mission and country specialists
in agriculture, industry, mining, transport, power, etc. - understanding problems faced by local administrators - - a
two-way educational process - - difficulties encountered - illustrations of results in individual country programs.
(Fuller treatment of production problems and technics in a
subsequent chapter.)
Initiation and expansion of technical assistance programs
- - discovery that "know-how cannot be exported, it can only
be imported" - - fallacy of tacit assumption of U.S. technological leadership in all fields - - the setting up of TA
projects - - "productivity teams" and other specialists to
the U.S. for observation and training - - U.S. specialists to
participating countries and overseas territories - - illustrations showing variable results. Special problems encountered
in technical assistance programming, and in selection, orientation and adaptation of outgoing and incoming personnel - problem of integrating technical assistance effectively with
functional and area programming - - and of coordination irdth
other U.S. and international agencies. Growth of emphasis
upon productivity. Illustrations of gains achieved during
ECA period - - indicators of cumulative effects in the longer
run.
Use of project procedure, especially in modernization or
expansion of basic industries, and in the development of overseas territories - - aims of project procedure: to provide
increased opportunity for channeling aid in accordance m.ta
agreed priority objectives, and to ensure, especially where
new technologies and expensive equipment are involved, sound
planning, efficient management and economic utilization of
equipment, problems, variations and refinements in project
procedure - - accomplishments illustrated - - advantages,
limitations, lessons gained.
Consultation and persuasion, in favor of adoption of specific
progrcims or policies - - factors in effectiveness of such

- 20 -

suasion: personal element, practicality of measures advocated,
clarification of both national and U.S. interest, political
insight. Advantages in conduct of such discussions through
other than formal foreign-office channels.
i)

Use of aid and counterpart to influence policy
e.g., in
Italy, in relation to import, fiscal and investment policies
in France, in relation to fiscal measures recognized as
urgently needed in order to save the franc, but politically
difficult of attainment
results in each case - - other
instances in Greece, Belgium, etc. - - contrast with situation
in UK where counterpart policy remained relatively fixed.
Grounds for, and dangers in, such intervention - - lessons
gained - - e.g., pitfalls in any cavalier or impetuous use of
such economic influence - - "leverage" through control of aid
appeared effective only when associated vath a "fulcrum"
within the country, i.e., an able group believing in and
favoring a given policy as being reasonable and necessary in
the national interest - - illustrations of failure in efforts
to achieve results in absence of such indigenous leadership - use of dollar assistance as incentive - as e.g., in cases of
"conditional aid" or project procedure, contrasted with threat
of aid cut-off as, e.g., in Kem amendment. Does EGA experience
point to the desirability of continuing use of such influence:
If so, by what means, under what conditions, and with what
safeguards?

j) Encouragement of, and participation in, proposals and institutional developments contributory to E.UjCPpean unification,
(Special and more detailed consideration of this theme in a
later chapter.)
To x-Jhat extent were the above forms of U.S. participation essential
to the accomplishment of agreed objectives?

To what extent vjere they

regarded by the participating countries as reasonable and necessary
accompaniments of U.S. assistance?

I'Jhat notable mistakes were made in

the course of these collaborative efforts?

'v\niat were some of the signi-

ficant insights gained as regards the technics of economic cooperation?
Did this experience through the Marshall Plan operation contribute
to a better understanding of:

the role which the United States must

- 21 -

continue to play if economic stability and advancement in the free
world are to be achieved?

the attitudes that contribute to, or stultify,

confidence abroad in America's trustworthiness and capacity for world
leadership?

the internal policy changes (such as the lowering of tariff

barriers) that are needed?

the means whereby the U.S. can most efficient-

ly continue to strengthen its friends and allies abroad without gravely
impairing the domestic economy?
Chapter 16. The Expansion of Production
Massive increase in production seen, in 19U8, as foundation-stone
for European recovery and closing of the dollar gap. Focusing of attention chiefly upon basic industries (including power, mining and transport) and agriculture.
Interdependence of elements in European industrial system - partial recovery between 19U5 and 19U8 - - many plants restored, but
raw material inventories still inadequate. Fundamental need for capital
expansion and increased productivity - - immense interest and drive on
European side - - stage reached in 19U8 where possible for parts of
Europe to expand industrial plant substantially if marginal aid could
be made available

e.g., a $$ or $6 billion continental investment

program for power development considered feasible if U.S. could provide
approximately $300 million worth of essential thermal power generating
equipment

other illustrations. OEEC and EGA studies

compatibi-

lity of rate of capital investment with financial and monetary stability
- - need for selective and balanced investment of amount (roughly 20
percent of gross production) considered available for capital formation.

- 22 First emphasis on power production - - other major investment channels
special features of overseas investment for raw materials development.
Corollary aims in industrial programming:

elimination of industrial

bottlenecks; development of facilities capable of making greatest contribution to balance-of-payments objectives; improvements in productive
efficiency and use of available manpower.

Evolution in programming tech-

nics and procedures employed by industrial officers and commodity specialists - - factors entering into final determination of industrial requirements.
liaising of industrial efficiency and resultant output per man-hour
sought as a key to the attainment of ultimate recovery goals

in-

creasing emphasis on productivity objective through improved plant and
industrial management, increased labor efficiency, etc.

aim of

producing types and quality of goods and machinery capable of meeting
European needs and world competition.
Role and scope of technical assistance programs
"productivity teams" to the U.S.

sending of

sending of American specialists,

upon request, to the participating countries - - illustrations by industry
and by country - - the productivity drive in 19^1 - - some lessons gained
in the technical assistance program.
Net increases in industrial capacity and output in field of electric power, coal-mining, petroleum, steel, non-ferrous metals, lumber,
and manufacturing industries
production per man-hour.

fundamental test of gains: rise in

Parallel developments in railway, port,

highway and air transport, and in communications.

Vigorous efforts

r

-23shown on 'European side

U.S. contributions mainly through provi-

sion of marginal but crucial eauipment and supplies, cooperation in
programming, getting technicians together, and stimulating interest
in new methods and developments.
i.griculture presented a different range of problems
"-Europe normally a heavy importer of food

^'estern

reouirements increased

by 10 percent growth in population since prewar

goal of agricul-

tural recovery program not self-sufficiency for Europe, but expanding
production by Europe's l6 million farmers to improve dietary levels
and lessen excessive dependence on external sources - - funds thus savr:d
could reduce payments deficit or finance industrial or other import
reouirements.
Close collaboration between U. '^. specialists and local agricultxiral authorities in pro^raiaming of measures to cope with weak spots
m

each country's agriculture and to advance production - - illustra-

tion in Holland - - consideration of short-and long-run needs with empha
en the former. Technical measures which proved particularly effective
(with illustrations from country programs)— increased application
of lime and fertilizer - - wider use of improved seeds - - steps to
obtain larger yield from grasslands - - advances in haymaking and
silage

improved feeding and breeding of livestock - - prevention

of "aste throuyli better food storage, transport and preservationo
Increased importation and manufacture of farm machinery - - wide
variations in degree of mechanization - - combining of fields for
mechanical cultivation - - increase in cooperative and pri-^'ate raacliin'-jTY center",

jevelopment and use of extension services - - results

-2i;-

illustrated in Germany

practical demonstrations

grotrth of

farmers' clubs. Employment of counterpart funds for agricultural
research, extension work and reclamation.

Contrast in effectiveness

of programs in, e.g., France and Holland.

Among needs not adequately

met: industrial products as incentives to agricultural production;
expansion in farm credit facilities; trade liberalization to assure
greater outlets for agricultiiral produce.
Most enduring contributions to agricultural improvement seen in
terms of practical applications of scientific knowledge - - in many
cases, basic scientific information first discovered by Europeans - e.g., hybrid corn to Austria, electric fences to Germany, Holland
tendency in some countries to concentrate on pure agricultural science
- - effects of contact with improved farming practices - - scope and
value of technical assistance in agriculture.
Economic and political significance of the dependent overseas
territories - - imtapped resources in scarce and increasingly costly raw
materials - - internal shortage of net economic resources and basic
services - - long range investment programs for territorial development
variations in colonial economic policies - - illustration of balanced
programming in the Congo - - dependence of Europe on BOT's for wide
range of raw materials
earners and savers

importance of such materials as dollar
need for basic materials accentuated after

Korea - - measures taken to increase output —
of pressures to trade with East Europe

partial offsetting

dangers in excessive

emphasis upon extractive industries and supporting

services

- 25 -

without compensating internal economic development.
Effects of Korea and the defense programs - - difficulties in
meeting both militarj'' and civilian requirements - - necessity for allocating financial, material and manpower r.esoiirces aóco;rdi'ng:. to priorities
- - increased emphasis on productivity.
Obstacles to further massive increases in production, including:
shortages and high prices of many raw materials; continuing trade restrictions and exchange and payments difficulties as factors limiting regional
specialization and advances in mass production; lag, in some areas, in
modernization of equipment and production methods; low purchasing power
in some sectors of the population and in overseas territories where industrial products are especially needed; and U.S. trade barriers.
Note: The approach to be taken in the remaining chapters
has not yet been developed in detail. The following notes
therefore, provide only a rough indication of the range of
questions contemplated for consideration in these chapters.
Chapter 17.

Impetus and Steps toward European Unity

The purpose of this chapter is to trace the main contributing factors in the growing impetus toward economic unification in Europe as an
alternative to sauve qui peut national economic policies - - and as a
development regarded by many as essential to the defense of democratic
civilization against totalitarianism - - doubts and reservations in some
quarters - - the issues involved as seen in Congress, EGA and the participating countries - - special position of UK and the sterling bloc - advances toward unification during the period of the Marshall Plan - especially through the OEEC, measures for trade liberalization, limited
regional agreements, the Intra-European Payments Plan and the European

- 26 Payments Union

significance of each of these developments, intrin-

sically, and in giving added impetus to the trend toward greater integration

relation of EGA and OEEC to other developments in European

cooperation:

the Schuman Plan, the Iron and Steel Community, NATO,

SHAPE, plans for EDF, etc, - - need and potentialities of further integration as seen at end of the Marshall ELan period

relation of

European economic unification to the larger problem of integration iwithin
the Atlantic community and with other parts of the free world.
Chapter 13.

Economic Progress and Military Security

Delayed impact of Korea and the defense program
materials in short supply

competition for

resultant rise in raw material prices

technological advances and military costs

staggering burden of re-

armament realized as impact of the defense programs became more fully
apparent

efforts to assimilate the cost without serious setbacks in

living standards - - materials controls - - buttressing the financial
structure

intensified productivity programs

reappearance never-

theless of a serious balance of payments problem in Europe

mounting

of inflationary pressures in Europe and the U.S.
Insights gained during the Marshall Plan years regarding measures
necessary to enable the free world to carry the rearmament program for
a prolonged period if necessary, without disastrous economic consequences
further efforts needed:

to promote intensive development and produc-

tion of raw materials, enlisting greater participation of private investment; to invigorate further the drive for increased productivity; to
continue unremitting efforts toward trade liberalization in Europe, and
in the Atlantic community including the U.S.: to achieve economies

- 27 -

through greater standardization of military production, etc.

in-

creased recognition of interdependence of military, economic and social
factors and consequent need for increased skill in use of subsidies to
safeguard economic and social gains while advancing basic defense objectives
dangers revealed in underestimating magnitude of defense task and necessity for greater sacrifices and increased coordination and efficiency.
Chapter 19. Promoting the Advancement of Newly Developing Areas
Forerunners of Point Four - - lessons derived from earlier efforts
through IIAA, UWRRA, interim aid programs, etc,

notable features in

the EGA experience in China, Korea, the Philippines, Burma, Indo-China,
Thailand and Indonesia, and in the European dependencies in Africao
Evolving rationale of the programs in Asia
revolutionary and nationalistic forces

recognition of

dangers in Communist pene-

tration and propaganda - - increasing awareness of counter-measures
needed

rapprochement xvO-th both leaders and people

focused upon, and adapted to, locally felt needs

programs

working from

within - in cooperation with, and support of, indigenous leaders - emergency impact programs

technics in developing effective aids to

increased production - - confronting the triple problem of need for
reforms; inexperience (and at times corruption) of local administrations;
and nationalistic resistance to external influence
arm's-length approach to this problem
interest and agreement

cooperative versus

discovering areas of mutual

the "principle of jointness" applied in a

manner to safeguard local sovereignty and avoid violation of national
sensibilities

the Joint Commission for Rural Reconstruction in China

- 28 -

and Formosa - - technical assistance as a means of providing aid, on
request, according to carefully established criteria but without stigma
of external dictation - - the effort to assist in developing efficient
and modern governmental institutions - - and in promoting urgently
needed agrarian and fiscal reforms. Assessment of experience and lessons
gained.
Different type of problem faced in relation to dependent overseas
territories where major responsibility for aid in development and advsmcement rested upon European powers - - U.S. assistance marginal and
provided only upon request from participating countries in Europe - major focus in EGA aid upon sound development projects and balanced programming of investment for basic services and materials development
wide divergencies in European colonial policies - - illustrations of
this - - political aspects rendered more acute by developments in Asia
and the Kiddle East - - Commvmist propaganda - - lack of common ideology
among the democracies regarding Vjestern relations with underdeveloped or
newly developing areas generally
this problem

economic and political facets of

continuing development of these areas deemed essential

- - lack of investment resources in Europe, making necessary continuing
U.S. participation - - risks involved - - possibilities of increasing
rapprochement with European powers on economic policies vis-a-vis underdeveloped areas.
Chapter 20. The harshall Plan in the Contest for Kinds
Economic objectives and impact of the Harshall Plan intimately
related to the epic East-West contest for "the minds and hearts of men»"

- 29 -

Psychological and political gains of international corranunism in Asia and
Europe, under conditions of economic distress and insecurity as a major
reason for initiating the economic aid programs - - recognition of the
necessity for an economic answer to communism - - to engender new hope
and confidence - - to sustain and strengthen the social and political
fabric in areas of dislocation and tension - - and to foster a grovrLng sense
of free world cooperation and unity. Boldness of the Plan in conception
and execution - - releasing a new tide of hope and strength to meet and
press back the ideological tide of communism.

Dramatic initial results

in Europe - - economic advancement and increasing sense of security.
Effects in Asia less marked and more difficult to assess - - effort to
evaluate.
New phase in the contest precipitated by the invasion of South Korea
- - crucial test of free world determination and capacity for united
action

psychological effects in Asia

stimulation of vast defense

program which diverted energies and resources from purely economic objectives and progressively threatened recovery gains - - reeraergence of
serious payments problems - - nev; inflationary pressures - -• the issue
again joined on the economic front.
Growing realization, during later phases of the economic aid programs, of the total character and resourcefulness of the communist
challenge to the V/est - - use of military pressure - - the generating
of mounting economic strains - - unceasing propaganda - - fostering of
national and international divisions and enmities. Role of EGA, in

- 30 -

cooperation with other agencies, in activities beyond the scope initially
intended

activities dictated by the Xiridening character of the contest

with communism (and approved by Congress)
ly to military support requirements

relating of aid increasing-

encouraging greater defense efforts

in participating countries. The fostering of changes and reforms needed
to strengthen the internal political and social fabric of friendly nations.
Broadening of public information program.s in conformity with expanded
U.S. objectives. Insights gained into the enlarged scope and dimensions
of the contest for minds. Areas of weakness, in relation to this struggle, in the recovery program - - character of the sustained economic and
associated efforts still required before the broader purposes underlying
the Marshall Plan could be attained.
Chapter 21. How Great a Milestone?
This final chapter is tentatively planned as a summation, based on
the foregoing sections of the volume, of: (a) the extent to which the
Marshall Plan operation can be considered a success in relation to its
initial primary objectives and terms of reference^ and (b) the major
problems which remained unsolved at the time of transition to the Mutual
Security Program.