‘All of us know by now that from this war there is no way back to a laissez-faire
order of society, that war as such is the maker of a silent revolution by
preparing the road to a new type of planned order’.
‘The all but general opinion seems to be that capitalist methods will be
unequal to the task of reconstruction’.
‘A lot of us were disappointed in the Britain that we came back to . . .
nobody could make it change overnight into the Britain we wanted’.
Mrs Winnie Whitehouse (in Paul Addison, Now The War Is Over)
‘The remedy lies in breaking the vicious circle and restoring the confidence
of the European people in the economic future of their own countries and
of Europe as a whole’.
George C. Marshall
The sheer scale of the European calamity opened new opportunities. The war changed everything. A return to the way things had been before 1939 was out of the question almost everywhere. This was naturally the view of the young and the radical, but it was just as evident to perspicacious observers of an older generation. Charles De Gaulle, 54 years old when France was liberated and born into the conservative Catholic bourgeoisie of northern France, put the matter with characteristic precision: ‘During the catastrophe, beneath the burden of defeat, a great change had occurred in men’s minds. To many, the disaster of 1940 seemed like the failure of the ruling class and system in every realm.’
But the problems had not begun in 1940, either in France or elsewhere. Anti-Fascist resisters everywhere saw themselves in battle not just with the wartime occupiers and their local surrogates but with an entire political and social system which they held directly responsible for the disasters their countries had undergone. It was the politicians and bankers and businessmen and soldiers of the inter-war years who had brought their countries to catastrophe, who had betrayed the sacrifices of the First World War and laid the ground for the Second. These, in the words of a British pamphlet excoriating Conservative advocates of appeasement before 1940, were the ‘Guilty Men’. They, and their system, were the target of wartime plans for post-war change.
Resistance was thus everywhere implicitly revolutionary. This was inherent in its logic. To reject a society that had produced Fascism led one naturally ‘to a dream of revolution which would take off from a tabula rasa’ (Italo Calvino). In much of eastern Europe the slate was indeed wiped clean, as we have seen. But even in western Europe there was widespread expectation of dramatic and rapid social transformation: who, after all, would stand in its way?
Seen from the point of view of the wartime Resistance movements, post-war politics would be the continuation of their wartime struggle, a natural projection and extension of their clandestine existence. Many young men and women who came to the fore in the wartime underground had known no other form of public life: in Italy since 1924, in Germany, Austria and most of Eastern Europe since the early thirties, and throughout occupied continental Europe since 1940, normal politics were unknown. Political parties had been banned, elections rigged or abolished. To oppose the authorities, to advocate social change or even political reform, was to place your self beyond the law.
For this new generation, politics was therefore about resistance—resistance to authority, resistance to conventional social or economic arrangements, resistance to the past. Claude Bourdet, an activist in the French resistance and a prominent left-wing magazine editor and writer in the post-war years, captured the mood in his memoirs, L’aventure incertaine: ‘The Resistance’, he wrote, ‘turned us all into contestataires in every sense of the word, towards men as much as towards the social system.’ From resisting Fascism to resisting a post-war retreat to the errors of the thirties seemed a natural step. Out of this came the oddly optimistic mood upon which many observers remarked in the immediate aftermath of Liberation. In spite of the destitution all around—indeed, because of it—something new and better was bound to emerge. ‘None of us’ wrote the editors of the Italian review Società in November 1945, ‘recognizes his own past. It seems incomprehensible to us . . . Our life today is dominated by a sense of stupor and by an instinctive search for a direction. We are simply disarmed by the facts.’
The chief impediment to radical change in the aftermath of Hitler’s defeat was not the reactionaries or Fascists, who had thrown in their lot with the dictators and been swept away with them, but the legitimate governments-in-exile, most of which had sat out the war in London planning their return. They saw the local resistance organizations in their countries as a problem rather than as allies: careless youngsters who would need to be disarmed and returned to civilian life, leaving public affairs in the hands of a political class duly cleansed of collaborators and traitors. Anything less would mean anarchy—or else an indefinite occupation by Allied armies.
The wartime resistance groups, organized by 1944-45 into various political movements, were just as suspicious in return. For them, the politicians, functionaries and courtiers who had escaped the Occupation were doubly discredited: by their pre-war errors and by their subsequent absence. In France and Norway the legislators elected in 1936 were disqualified by their actions in 1940. In Belgium and the Netherlands their absence in the intervening five years had cut off the returning governments from any appreciation of local suffering and the change in public mood brought about under Nazi occupation. In central and eastern Europe, with the important exception of Czechoslovakia, the former governments were rendered irrelevant by the arrival of the Red Army (though they were sometimes slow to grasp this).
The returning authorities were quite willing to compromise in matters of policy—in particular on social and economic reforms, as we shall see. What they insisted upon, however, was what De Gaulle and others perceived as an ‘orderly transition’. Since this was also the preference of the Allied occupying forces, West and East, the illusions of the Resistance were soon shattered. In eastern Europe (with the exception of Yugoslavia) it was the Soviets who determined the shape of post-war governments and who directed their actions. In western Europe, provisional authorities took office pending new elections. And in every case the resistance movements were encouraged and eventually forced to hand in their weapons and disband their organizations.
It is striking, in retrospect, how little resistance there was to this restoration of the institutional status quo. In Poland and parts of the western Soviet Union armed partisan groups survived for a few more years, but theirs was a specifically national and anti-Communist struggle. In Norway, Belgium, France and Italy the organized resistance merged peacefully into post-war political parties and unions with only muted protests. In Belgium in November 1944 armed members of the wartime resistance were given two weeks to hand over their weapons. This led to a large protest rally in Brussels on November 25th at which the police opened fire, injuring 45 people. But such incidents were uncommon.17 More typically, 200,000 French resistance fighters were successfully integrated into the regular army when their organization, the Forces Françaises de l’Intérieur, was disbanded without protest.
The demobilization of the resistance was greatly facilitated by Soviet strategy, which favoured the restoration of parliamentary regimes in western Europe (as, nominally, in eastern Europe too). Communist leaders like Maurice Thorez in France and Palmiro Togliatti in Italy played a major role in ensuring the peaceful cooperation of their (sometimes bemused) followers. But many were willing to believe that the energies and ambitions of the resistance would now be channeled into political projects for national renewal.
Contacts made in the Resistance did sometimes survive—the post-war ‘depillarization’ of Dutch society, for example, the breaking down of the centuries-long denominational divide between communities of Catholics and Protestants, began with personal links forged in wartime. But plans for a post-war ‘Resistance Party’ failed everywhere. They came closest to fruition in Italy, where Ferrucio Parri became Prime Minister in June 1945 and promised that his Action Party would pursue the spirit and goals of the Resistance. But Parri was no politician and when he fell, six months later, political power shifted definitively into the hands of the traditional parties. De Gaulle, in France, was a far better political strategist but he, too, abandoned office (one month after Parri) rather than accommodate his wartime ambitions to parliamentary routine—thus paying unintended tribute to his own success in re-establishing the continuity of the Republic.
Rather than being governed by a new, fraternal community of resisters, then, most Europeans in the immediate post-war years instead found themselves ruled by coalitions of left and left-centre politicians rather similar to the Popular Fronts of the 1930s. This made sense. The only pre-war political parties able to operate normally in these years were those with anti-Fascist credentials—or, in Soviet-occupied eastern Europe, those to whom it suited the new authorities to ascribe such credentials at least for the time being. In practice this meant Communists, Socialists and a handful of liberal or radical groups. These, together with the newly-prominent Christian Democratic parties, thus constituted the parties of government in the first post-war years and they brought with them many of the policies and men of the Popular Front era.
The existing parties of the Left had gained immensely by their engagement in the wartime resistance: especially in France, where the Communists’ succeeded in converting their (sometimes exaggerated) wartime exploits into political capital and convinced even dispassionate observers of their unique moral standing—‘the great heroes of the Resistance’ as Janet Flanner described them in December 1944. It is thus not especially odd that the reform programs of post-war European governments echoed and recapitulated the unfinished business of the 1930s.
If experienced party politicians had so little difficulty displacing wartime activists after 1945 this was because, although they shared a common anti-Fascist ethos and a widespread desire for change, the Resistance and its heirs were rather vague on specifics. The Action Party in Italy sought to abolish the monarchy, nationalize large capital and industry and reform agriculture. The Action Programme of the French National Resistance Council had no king to depose, but its ambitions were otherwise similarly imprecise. Resistance units had been too preoccupied fighting, or just surviving, to busy themselves with detailed plans for post-war legislation.
But above all the resisters were handicapped by a lack of experience. Among clandestine organizations only the Communists had practical knowledge of politics, and except in the French case not much of that. But Communists in particular were reluctant to tie their hands with detailed programmatic statements that might alienate future tactical allies. The Resistance thus bequeathed little in the way of post-war projects beyond high-minded statements of intent and broad generalities—and even these, as the otherwise sympathetic François Mauriac noted in August 1944, were ‘hastily typed fantasy programs’.
On one thing, however, all were agreed—resisters and politicians alike: ‘planning’. The disasters of the inter-war decades—the missed opportunities after 1918, the great depression that followed the stock-market crash of 1929, the waste of unemployment, the inequalities, injustices and inefficiencies of laissez-faire capitalism that had led so many into authoritarian temptation, the brazen indifference of an arrogant ruling elite and the incompetence of an inadequate political class—all seemed to be connected by the utter failure to organize society better. If democracy was to work, if it was to recover its appeal, it would have to be planned.
It is sometimes suggested that this faith in planning, the political religion of post-war Europe, derived from the example of the Soviet Union: a planned economy that had ostensibly escaped the traumas of capitalist Europe, withstood the Nazi assault and won the Second World War thanks to a series of detailed Five Year Plans. This is entirely mistaken. In post-war western and central Europe only Communists put their faith in Soviet-style Plans (about which they knew very little), and even they had no notion of how such Plans might be applied to their local circumstances. The Soviet obsession with numerical targets, production quotas and centralized direction was alien to all but a few of the contemporary western advocates of planning. The latter—and they came in many varieties—were drawing on a very different set of sources.
The vogue for plans and planning began long before 1945. Throughout the interwar depression, from Hungary to Great Britain, voices were raised in support of a planned economy of one kind or another. Some of the ideas propounded, notably in Austria and among the British Fabians, derived from an older Socialist tradition, but many more had their origins in pre-1914 liberal reformism. The nineteenth-century ‘caretaker’ state, its attention confined to security and policing, was outmoded, so the argument ran. If only on prudential grounds—to forestall political upheavel—it would now be necessary to intervene in economic affairs to regulate imbalances, eliminate inefficiencies and compensate for the inequities and injustice of the market.
Before 1914 the main emphasis in such reformist projects was confined to calls for progressive taxation, protection of labour and, occasionally, state ownership of a restricted number of natural monopolies. But with the collapse of the international economy and the ensuing war, planning took on a greater urgency and ambition. Competing proposals for a national Plan, in which the state would intervene actively to support, discourage, facilitate and if necessary direct key economic sectors, circulated widely among young engineers, economists and civil servants in France and Germany.
For most of the inter-war years, would-be planners and their supporters languished in frustration at the political margins. The older generation of politicians was deaf to their appeals: to many on the conservative Right and Center state intervention in the economy was still abhorrent, while on the socialist Left it was generally believed that only a post-revolutionary society could plan its economic affairs rationally. Until then, capitalism was condemned to suffer and eventually collapse of its own contradictions. The idea that one might ‘plan’ a capitalist economy seemed to both sides a non-sense. The frustrated advocates of economic planning thus frequently found themselves attracted to authoritarian parties of the radical Right, distinctly more hospitable to their approach.
It was not by chance, therefore, that Oswald Mosley and some other British Labourites turned to Fascism out of frustration at their Party’s inadequate response to the Great Depression. In Belgium Hendrik de Man likewise failed to convince his fellow Socialists of the viability of his ‘Plan’ and began propounding more authoritarian solutions. In France a number of the brightest young leaders of the Socialist Party broke away to form new movements, frustrated at their party’s failure to respond imaginatively to the economic crisis. Many of these and others like them ended up as Fascists.
Mussolini’s cheerleaders in France and Britain, before 1940, envied what they saw as his success in overcoming Italy’s economic disadvantages through state-led planning and the establishment of umbrella agencies for whole economic sectors. Albert Speer, the administrator of Hitler’s New Order, was much admired abroad for his programme of economic direction and regulation. In September 1943, Speer and Jean Bichelonne, Vichy’s Minister of Industrial Production, worked out a system of tariff reductions based on inter-war ‘plan-ist’ ideas that closely anticipated European trading relations and Franco-German economic coordination in later years. In ‘Jeune Europe’, a club founded in 1933 for young thinkers and politicians keen to set a new direction in policy making, the future Belgian statesman and Europhile Paul-Henri Spaak exchanged ideas about an enhanced role for the state with similarly-minded contemporaries from across the continent, including Otto Abetz, the future Nazi administrator of wartime Paris.
‘Planning’, in short, had a complicated history. Many of its advocates got their first experience, as civil servants and business administrators, in wartime occupation regimes—in France, Italy, Belgium and Czechoslovakia, not to speak of Germany and Italy. Britain was not occupied but there, too, it was the war that introduced and domesticated the hitherto rather abstract notion of governmental ‘planning’. Indeed in Britain it was the war above all that placed the government at the heart of economic life. The Emergency Powers Bill of May 1940 authorised the government to direct anyone to do anything in the national interest, to control any property and assign any industrial plant to any national end it chose. In the words of Kenneth Harris, the biographer of Clement Attlee, Britain’s post-war Labour leader: ‘National planning and national ownership, which in the period 1945-51 seemed the result of a Labour government putting socialist principles into effect, were to a great degree the legacy of a state which had been organized to fight a total war.’
Fascism and war were thus the bridge linking heterodox, marginal and often controversial notions of economic planning with mainstream post-war economic policy. Yet this compromised heritage had little impact on planning’s appeal—whatever its associations with far Right, far Left, occupation or war, planning was quite distinctly not associated with the discredited politics of the inter-war years, a point widely held in its favour. What planning was really about was faith in the state. In many countries this reflected a well-founded awareness, enhanced by the experience of war, that in the absence of any other agency of regulation or distribution, only the state now stood between the individual and destitution. But contemporary enthusiasm for an interventionist state went beyond desperation or self-interest. The vision of Clement Attlee, the British Labour leader whose party defeated Churchill’s Conservatives in the dramatic election upset of 1945, nicely captured the contemporary mood: what was needed now were ‘well-planned, well-built cities and parks and playing fields, homes and schools, factories and shops.’
There was a great faith in the ability (and not just the duty) of government to solve large-scale problems by mobilizing and directing people and resources to collectively useful ends. Obviously this way of seeing things was particularly attractive to socialists; but the idea that a well-planned economy meant a richer, fairer and better-regulated society was taken up by a very broad constituency, including the Christian Democratic parties then rising to prominence all over Western Europe. The English historian A. J. P. Taylor told BBC listeners in November 1945 that ‘[n]obody in Europe believes in the American way of life—that is, private enterprise; or, rather, those who believe in it are a defeated party which seems to have no more future than the Jacobites in England after 1688’. Taylor exaggerated as always, he was wrong in the long run (but who isn’t?) and he might have been surprised to learn about the planist enthusiasms of many New Dealers prominent in the contemporary US administration of Germany. But at the time he was broadly correct.
What was ‘Planning’? The term is misleading. What all planners had in common was belief in an enhanced role for the state in social and economic affairs. Beyond this there was great variation, usually a consequence of distinctive national political traditions. In Britain, where very little actualplanning ever took place, the real issue was control—of industries and social and economic services—through state ownership as an end in itself. Thus nationalization—notably of mines, railways, goods transportation and utilities—and the provision of medical services lay at the heart of the Labour Party programme after 1945. The ‘commanding heights’ of the economy, in short, were taken over. But that was all.
In Italy the Fascist institutional legacy—which had brought large tracts of the economy under state oversight—was left largely intact after the war. What changed was the political colour of the parties now benefiting from the industrial and financial power base afforded them by holding companies and state-owned agencies. In West Germany, after 1948, the economy would remain mostly in private hands but with detailed, publicly-approved arrangements for factory management, employer-employee relations and conditions of employment and distribution. In the Netherlands central planning entailed a variable mix of predictive and prescriptive edicts for the use of private enterprise.
Most countries of western Europe had rapidly growing public sectors, when measured by government expenditure or the number of public-sector employees. But only in France did rhetorical enthusiasm for state planning translate into the real thing. Like the British, post-war French governments nationalized: air transportation, banks, thirty two insurance companies, utilities, mines, munitions industries, aircraft manufacturing and the giant Renault concern (as punishment for its owner’s contribution to the German war effort). One fifth of France’s total industrial capacity was in state ownership by May 1946.
Meanwhile, on December 4th 1945, Jean Monnet presented President De Gaulle with his Plan de Modernisation et d’Équipement. A month later the Commissariat Général du Plan was established, with Monnet at its head. In the course of the following months Monnet set up Modernization Commissions for various industries (mining, electricity, transportation, building materials, steel and agricultural machinery; oil, chemicals, fertilizers, shipping and synthetic fibres would later be added) and these in turn delivered proposals and sectoral plans. Exactly one year after its creation, in January 1947, the Commissariat saw its first national Plan approved by the French Cabinet—without discussion.
The Monnet Plan was unique. It was the work of an unusual man.18 But above all it was the product of a political culture already favourably disposed to authoritarian decision-making and consensus building by governmental fiat. Under its auspices France became the first western country to commit itself wholeheartedly to economic growth and modernization as public policy. The Plan depended heavily on assumptions about French access to German raw materials and markets, and thus the story of its success is part of the narrative of France’s relations with Germany and the rest of Europe in the post-war decade: a story of many false starts, constraints and frustrations.
The first Monnet Plan was largely an emergency measure to address France’s post-war crisis. Only later was it extended and adapted to the terms of Marshall Aid. But the basic outline of post-war French economic strategy was present from the start. French planning was never more than ‘indicative’: it only ever set targets, not production quotas. In this respect it was quite unlike Soviet planning, whose characteristic feature (and prime defect) was its insistence upon arbitrary and rigid output figures by sector and by commodity. The Monnet Plan confined itself to providing government with a strategy and levers for actively fostering certain favoured objectives. At the time this was a strikingly original undertaking.
In Czechoslovakia a Central Planning Commission with some Monnet-like features and aspirations was established in June 1946 to guide and coordinate the sizeable public sector nationalized by President Benes in 1945. In the year before the Prague Communist coup of February 1948, 93 percent of all those employed in transport and 78 percent of those in industry already worked for the state. Banks, mines, insurance companies, major utilities, steel and chemical works, food processing industries and all large enterprises had been taken over: 2,119 firms comprising some 75 percent of all manufacturing output.
In the Czechoslovak case nationalization and state planning of the economy thus began well in advance of the Communist take-over and represented the policy preferences of a genuine majority of the electorate—only in February 1949, a year after the Communist coup, was the Planning Commission purged and renamed as the ‘State Planning Office’, with a very different remit. Elsewhere in the region large-scale nationalizations, like those mandated under Poland’s January 1946 Nationalization Law, were the work of coalition governments in which Communists dominated. But here, too, there were pre-Communist roots: back in 1936 the authoritarian government of the pre-war Polish Republic had inaugurated a ‘Four-Year Investment Plan’ with a rudimentary system of centralized directive planning.
The chief purpose of planning in post-war continental Europe was public investment. At a time of acute capital shortage and with huge demand for investment in every sector, government planning consisted of hard choices: where to place the limited resources of the state and at whose expense. In eastern Europe the emphasis was inevitably upon basic expenditure—on roads, railways, factories, utilities. But that left very little over for food and housing, much less medical, educational and other social services; and nothing at all for non-essential consumer goods. This was not a pattern of expenditure likely to endear itself to any electorate, especially in countries that had already suffered years of material deprivation, and it is not surprising that this sort of planning under conditions of dire shortage was almost always accompanied, sooner or later, by authoritarian rule and the police state.
But the situation in the West was not so very different. The British, as we shall see, were constrained to accept years of ‘austerity’ as the price for economic recovery. In France or Italy, where there was almost no long-term private capital market, all major investments had to be publicly funded—which was why the first Monnet Plan was skewed towards capital investment in major industries at the expense of domestic consumption, housing and services. The political consequences of this were predictable: by 1947 France, like Italy, was threatened with strikes, violent demonstrations and a steady increase in support for the Communist Party and its trade unions. Deliberate neglect of the consumer goods sector and the diversion of scarce national resources to a handful of key industrial sectors made long-term economic sense: but it was a high-risk strategy.
The economics of Planning drew directly upon the lessons of the 1930s—a successful strategy for post-war recovery must preclude any return to economic stagnation, depression, protectionism and above all unemployment. The same considerations lay behind the creation of the modern European welfare state. In the conventional wisdom of the 1940s, the political polarizations of the last inter-war decade were born directly of economic depression and its social costs. Both Fascism and Communism thrived on social despair, on the huge gulf separating rich and poor. If the democracies were to recover, the ‘condition of the people’ question must be addressed. In the words of Thomas Carlyle a hundred years earlier, ‘if something be not done, something will do itself one day, and in a fashion that will please nobody.’
But the ‘welfare state’—social planning—was more than just a prophylactic against political upheaval. Our present discomfort with notions of race, eugenics, ‘degeneration’ and the like obscures the important part these played in European public thinking during the first half of the twentieth century: it wasn’t only the Nazis who took such matters seriously. By 1945 two generations of European doctors, anthropologists, public health officials and political commentators had contributed to widespread debates and polemics about ‘race health’. population growth, environmental and occupational well-being and the public policies through which these might be improved and secured. There was a broad consensus that the physical and moral condition of the citizenry was a matter of common interest and therefore part of the responsibility of the state.
As a consequence, rudimentary welfare provisions of one kind or another were already widespread before 1945, although their quality and reach varied widely. Germany was typically the most advanced country, having already instituted pension, accident and medical insurance schemes under Bismarck, between 1883 and 1889. But other countries began to catch up in the years immediately before and after World War One. Embryonic national insurance and pension schemes were introduced in Britain by Asquith’s Liberal governments in the first decade of the century; and both Britain and France established ministries of health immediately following the end of the Great War, in 1919 and 1920 respectively.
Compulsory unemployment insurance, first introduced in Britain in 1911, was instituted in Italy (1919), Austria (1920), Ireland (1923), Poland (1924), Bulgaria (1925), Germany and Yugoslavia (1927) and Norway (1938). Romania and Hungary already had accident and sickness insurance schemes in place before World War One, and all the countries of eastern Europe introduced national pension systems between the wars. Family allowances were a key element in plans to increase the birth rate—a particular obsession after 1918 in countries badly hit by wartime losses—and were introduced first in Belgium (1930), next in France (1932) and in Hungary and the Netherlands just before the outbreak of war.
But none of these arrangements, not even those of the Nazis, represented comprehensive welfare systems. They were cumulative ad hoc reforms, each addressing a particular social problem or improving upon the demonstrated shortcomings of previous schemes. The various pensions and medical insurance systems introduced in Britain, for example, had very restricted benefits and applied only to working men: wives and other dependents were excluded. Eligibility for unemployment benefits in inter-war Britain rested on a ‘Means Test’. This drew on the nineteenth-century Poor Law principle of ‘least eligibility’ and required an applicant for public assistance to demonstrate his virtual destitution in order to qualify. Nowhere was there yet any recognition of an obligation upon the state to guarantee a given set of services to all citizens, whether male or female, employed or workless, old or young.
It was the war that changed all this. Just as World War One had precipitated legislation and social provisions in its wake—if only to deal with the widows, orphans, invalids and unemployed of the immediate post-war years—so the Second World War transformed both the role of the modern state and the expectations placed upon it. The change was most marked in Britain, where Maynard Keynes correctly anticipated a post-war ‘craving for social and personal security’. But everywhere (in the words of the historian Michael Howard) ‘war and welfare went hand in hand’. In some countries nutrition and medical provision actually improved during the war: mobilizing men and women for total war meant finding out more about their condition and doing whatever was necessary to keep them productive.
The post-1945 European welfare states varied considerably in the resources they provided and the way they financed them. But certain general points can be made. The provision of social services chiefly concerned education, housing and medical care, as well as urban recreation areas, subsidized public transport, publicly-funded art and culture and other indirect benefits of the interventionary state. Social security consisted chiefly of the state provision of insurance—against illness, unemployment, accident and the perils of old age. Every European state in the post-war years provided or financed most of these resources, some more than others.
The important differences lay in the schemes set in place to pay for the new public provisions. Some countries collected revenue through taxation and provided free or heavily-subsidized care and services—this was the system chosen in Britain, where it reflected the contemporary preference for state monopolies. In other countries cash benefits were paid to citizens according to socially-determined criteria of eligibility, with the beneficiaries left to purchase services of their own choice. In France and some smaller countries citizens would be expected to pay up front for certain categories of medical provision, for example, but could then claim back much of their expenses from the state.
These differences reflected varying systems of national finance and accounting, but they also signified a fundamental strategic choice. In isolation, social insurance, however generous, was not in principle politically radical—we have seen how relatively early it was introduced in even the most conservative of regimes. Comprehensive welfare systems, however, are inherently re-distributive. Their universal character and the sheer scale on which they operate require the transfer of resources—usually through taxation—from the privileged to the less well off. The welfare state was thus in itself a radical undertaking, and the variations among the European welfare states after 1945 reflected not just institutional procedures but also political calculation.
In eastern Europe, for example, the Communist regimes after 1948 on the whole did not usually favour universal welfare systems—they did not need to, since they were at liberty to redistribute resources by force without spending scarce state funds on public services. Peasants, for instance, were frequently excluded from the social insurance and pension arrangements on political grounds. In western Europe only six countries—Belgium, Italy, Norway, Austria, the Federal Republic of Germany and the UK—introduced compulsory and universal unemployment insurance after 1945. Subsidized voluntary schemes remained in the Netherlands until 1949, in France through 1967, in Switzerland until the mid-1970s. In Catholic Europe long-established local and communal coverage against unemployment probably impeded the development of universal systems of insurance by reducing the need for them. In countries where inter-war unemployment had been especially traumatic—the UK, or Belgium—welfare spending was driven in part by the desire to maintain full or close to full employment. Where it had not been so significant—in France or Italy, for example—this was reflected in a rather different balance of priorities.
Although Sweden and Norway (but not Denmark) were in the vanguard of benefit provision across a broad range of social services, and West Germany kept in place the welfare provisions inherited from past regimes (including Nazi-era programmes aimed at encouraging a high-birth rate), it was in Britain that the most ambitious efforts were made to build, from scratch, a genuine ‘Welfare State’. In part this reflected the unique position of Britain’s Labour Party, which won an outright victory at the elections of July 1945 and—unlike the governments of most other European countries—was free to legislate its entire electoral programme unconstrained by coalition partners. But it also derived from the rather distinctive sources of British reformism.
The social legislation of post-war Britain was based on the justly famous wartime report by Sir William Beveridge, published in November 1942 and an immediate best-seller. Beveridge was born in 1879, the son of a British judge in imperial India, and his sensibilities and ambitions were those of the great reforming Liberals of Edwardian Britain. His Report was at once an indictment of the social injustices of pre-1939 British society and a policy template for root and branch reform once the war was over. Even the Conservative Party did not dare to oppose its core recommendations and it became the moral basis for the most popular and enduring elements in Labour’s post-war programme.
Beveridge made four assumptions about post-war welfare provision, all of which were to be incorporated in British policy for the next generation: that there should be a national health service, an adequate state pension, family allowances and near-full employment. The last of these was not a welfare provision in itself, but it underpinned everything else since it took for granted that the normal situation of a healthy post-war adult was to be in full-time paid work. On this assumption generous provision could be made for unemployment insurance, pensions, family allowances, medical and other services, since these would be paid for by levies on wage packets, as well as by progressive taxation of the working population at large.
The implications were significant. Non-working women with no private health insurance of their own got coverage for the first time. The humiliation and social dependency of the old Poor Law/Means Test system was done away with—on the (presumptively) rare occasion when the citizen of the Welfare State needed public assistance he or she was now entitled to it by right. Medical and dental services were provided free of charge at the point of service, pension provision was made universal, family allowances (at 5/- [25 p] per week for second and subsequent children) were introduced. The main parliamentary Bill legislating these provisions received the Royal Assent in November 1946 and the National Health Service (NHS) Act—the core of the welfare system—was introduced into law on July 5th 1948.
The British Welfare State was both the completion of an earlier cycle of reforms, with its roots in the mid-nineteenth century Factory Acts, and a genuinely radical departure. The contrast between the Britain of George Orwell’s Road to Wigan Pier (published in 1937) and that of Conservative Prime Minister Harold Macmillan’s famous put-down to a heckler twenty years later (‘You’ve never had it so good’) is a tribute to the National Health Service and the provisions for security, income maintenance and employment that accompanied it. It is all too easy, looking back today upon the miscalculations of the first post-war reformers, to minimize and even dismiss their achievement. Within a few years many of the universal provisions of the NHS proved unsustainably expensive; the quality of the services provided has not been maintained across the years; and over time it has become clear that certain of the fundamental actuarial assumptions—including the optimistic prediction of permanent full employment—were short-sighted or worse. But anyone who grew up (like the present writer) in post-war Britain has good reason to be grateful for the Welfare State.
The same is true for the post-war generation all across the European continent, although nowhere outside Britain was comprehensive social coverage attempted on so generous a scale and all at once. Thanks to the coming of welfare states Europeans ate more and (mostly) better, lived longer and healthier lives, were better housed and clothed than ever before. Above all, they were more secure. It is not by chance that most Europeans, when asked what they think of their public services, nearly always speak first of the safety net of insurance and pension provisions which the post-war state has provided for them. Even in Switzerland, a country distinctly under-provisioned by European welfare standards, the December 1948 Federal Old Age and Survivors’ Insurance Act is regarded by many citizens as one of their country’s finest achievements.
The Welfare State did not come cheap. Its cost, to countries not yet recovered from the slump of the thirties and the destruction of the war, was very considerable. France, which devoted just 5 percent of its Gross Domestic Product (GDP) to social services in 1938, was committing 8.2 percent in 1949—a 64 percent increase. In Britain by 1949 nearly 17 percent of all public expenditure was on social security alone (that is, not including the public provision of services and facilities not included under this heading), a 50 percent increase over the 1938 level at a moment of severe strain on the country’s finances. Even in Italy, a much poorer country whose governments tried to avoid carrying high social security costs by diverting services and provisions into the private sector or the workplace, government spending on social services as a share of GDP rose from 3.3 percent in 1938 to 5.2 percent in 1949.
Why were Europeans willing to pay so much for insurance and other long-term welfare provisions, at a time when life was still truly hard and material shortages endemic? The first reason is that, precisely because times were difficult, the postwar welfare systems were a guarantee of a certain minimum of justice, or fairness. This was not the spiritual and social revolution for which many in the wartime Resistance had dreamed, but it was a first step away from the hopelessness and cynicism of the pre-war years.
Secondly, the welfare states of western Europe were not politically divisive. They were socially re-distributive in general intent (some more than others) but not at all revolutionary—they did not ‘soak the rich’. On the contrary: although the greatest immediate advantage was felt by the poor, the real long-term beneficiaries were the professional and commercial middle class. In many cases they had not previously been eligible for work-related health, unemployment or retirement benefits and had been obliged, before the war, to purchase such services and benefits from the private sector. Now they had full access to them, either free or at low cost. Taken with the state provision of free or subsidized secondary and higher education for their children, this left the salaried professional and white-collar classes with both a better quality of life and more disposable income. Far from dividing the social classes against each other, the European welfare state bound them closer together than ever before, with a common interest in its preservation and defense.
But the chief basis of support for state-funded welfare and social service provisions lay in the popular sense that these corresponded to the proper tasks of government. The post-war state all across Europe was a ‘social’ state, with implicit (and often constitutionally explicit) responsibility for the well-being of its citizens. It had an obligation to provide not only the institutions and services necessary for a well-regulated, safe and prosperous land, but also to improve the condition of the population, as measured by a broad and expanding range of indices. Whether it could actually meet all these demands was another matter.
Obviously it would prove easier to achieve the ideals of the social state, ‘from cradle to grave’, in the small population of a wealthy, homogenous country like Sweden than in one like Italy. But faith in the state was at least as marked in poor lands as in rich ones—perhaps more so, since in such places only the state could offer hope or salvation to the mass of the population. And in the aftermath of depression, occupation and civil war, the state—as an agent of welfare, security and fairness—was a vital source of community and social cohesion. Many commentators today are disposed to see state-ownership and state-dependency as the European problem, and salvation-from-above as the illusion of the age. But for the generation of 1945 some workable balance between political freedoms and the rational, equitable distributive function of the administrative state seemed the only sensible route out of the abyss.
The post-1945 urge for change went well beyond the provision of welfare. The years following World War Two were a sort of foreshortened Age of Reform, during which many long-pressing problems were belatedly addressed. One of the most important of these was the matter of agrarian reform, which many well-informed contemporaries saw as Europe’s most pressing dilemma. The weight of the past still hung heavily upon the continent’s peasantry. Only in England, the Low Countries, Denmark, the Alpine lands and parts of France was it possible to speak of a prosperous, independent class of farmers. The overwhelming majority of Europe’s predominantly rural population lived in conditions of indebted penury.
One reason for this was that large tracts of the best arable and, especially, pasture land were still in the hands of a relatively few wealthy landowners, often absent and in many cases adamantly opposed to any improvement in the conditions of their land, their tenants or their workers. Another factor was the long decline in agricultural prices relative to industrial ones, a process exacerbated since the eighteen-seventies by the importation of cheap grain and later meat from the Americas and the British Dominions. By the 1930s European peasants had lived for nearly three generations with this relentless deterioration in their circumstances. Many—from Greece, Southern Italy, the Balkans, central and eastern Europe—had emigrated: to the US, Argentina and elsewhere. Those who stayed behind had often proved easy prey for nationalist and Fascist demagogues. After the war it was thus widely believed, particularly on the Left, that Fascism appealed especially to desperate peasants and that any revival of Fascism in Europe would begin in the countryside. The agrarian problem was thus twofold: how to improve the economic prospects of the peasant and thereby wean him from authoritarian temptation.
The first objective had already been attempted after World War One through a series of land reforms—notably in Romania and Italy but in some measure virtually everywhere—whose goal was to redistribute large holdings, reduce the number of ‘microfundia’ (inefficient plotlets) and give farmers a better chance of producing efficiently for the market. But these reforms failed in their goal—partly because in the disastrous economic circumstances of inter-war Europe, with prices falling even faster than before 1914, the newly ‘independent’ landholding peasants were actually more vulnerable than ever.
After World War Two agrarian reform was once again attempted. In a Romanian land reform of March 1945, one million hectares of land were taken out of the hands of ‘kulaks’ and ‘war criminals’ and distributed to upwards of 600,000 hitherto poor or landless peasants. In Hungary, where the inter-war regime of Admiral Horthy had blocked any significant land redistribution, one-third of the country’s surface area was expropriated from the previous owners, in accordance with the December 1944 Szeged Programme of the provisional post-war coalition government. The wartime Czechoslovak National Front government drew up a similar programme the same year and duly redistributed significant tracts of land—notably farms seized from Sudeten Germans and Hungarians—in the immediate post-war months. Between 1944 and 1947 every east European country saw the creation of a large class of smallholders beholden to the new authorities for their land. A few years later those same smallholders would in their turn be dispossessed by the Communist regimes in their drive for collectivization. But in the meantime whole classes of landed gentry and large farmers, in Poland, East Prussia, Hungary, Romania and Yugoslavia simply disappeared.
In western Europe only Southern Italy saw anything comparable to the dramatic changes further East. Sweeping reform laws in 1950 announced the redistribution of estate land across Sicily and the Mezzogiorno, following land seizures and occupations in Basilicata, the Abruzzi and Sicily. But for all the fuss, little changed—much of the land redistributed from the old latifundia lacked water, roads or housing. Of 74,000 hectares redistributed in Sicily after World War Two, 95 percent was ‘marginal’ or inferior land, unsuited to cultivation. The impoverished peasants to whom it was offered had no money and no access to credit; they could do little with their new holdings. The land reforms in Italy failed. Their stated goal—the solution of the ‘Southern Question’—would only be met a decade later, and then only in part, when the surplus peasantry of the South abandoned the soil and went in search of work to the booming northern cities of the Italian ‘miracle’.
But southern Italy was a hard case. New legal rights for tenant farmers in France and elsewhere gave them an incentive to invest in their smallholdings, while innovative credit systems and rural banks made it possible for them to do so. State-subsidized farm price support systems helped reverse the decades-long decline in agricultural prices by encouraging farmers to produce as much as possible while guaranteeing to purchase their output at a fixed, minimum rate. Meanwhile the unprecedented post-war demand for labour in the cities drained off surplus workers from poorer rural districts, leaving a more efficient farming population with fewer mouths to feed.
The political dimensions of the agrarian problem were indirectly addressed in the broader package of political reforms introduced in the first post-war years. Many of these were constitutional in nature, once again completing the unfinished business of 1918. In Italy, France and Belgium women finally secured the vote. In June 1946 the Italians voted to become a Republic, but the margin was narrow (12.7 million votes in favour of abolishing the monarchy, 10.7 million for retaining it) and the country’s historical divisions were if anything further exacerbated by the outcome: the South, except for the region of Basilicata, voted overwhelmingly for the king (by a ratio of 4:1 in Naples).
The Greeks, in contrast, voted in September 1946 to retain their monarchy. Belgians kept theirs, too, but removed the incumbent, King Leopold III, as punishment for his cooperation with the Nazis. This decision, taken under public pressure in 1950 against the wishes of a slight majority of the population, sharply divided the country along communal and linguistic lines: francophone Walloons voted to remove Leopold from the throne, whereas 72 percent of Dutch-speaking Flamands expressed a preference for letting him stay. The French had no monarch on whom to vent their memory of wartime humiliation, and merely voted in 1946 to replace the disgraced Third Republic with a numerical successor. Like the German Basic Law of 1949, the constitution of the Fourth Republic was designed to eliminate so far as possible the risk of any surrender to authoritarian or caesarist sirens—an aspiration which was to prove singularly unsuccessful.
The Provisional or Constituent Assemblies which promulgated these post-war constitutions, proposed popular referenda on controversial topics and voted major institutional reforms were mostly canted to the Left. In Italy, France and Czechoslovakia Communist Parties did well after the war. In the Italian elections of 1946 the Partito Communista Italiano (PCI) obtained 19 percent of the vote; the Parti Communiste Français (PCF) won 28.6 percent of the vote in the second French elections of that year, its best result ever. In Czechoslovakia, in the free elections of May 1946, the Communists secured 38 percent of the national vote (40 percent in the Czech lands). Elsewhere Communists did not fare so well in free elections, though better than they would ever manage again, ranging from 13 percent in Belgium to just 0.4 percent in the United Kingdom.
The Communists’ initial political leverage in western Europe came from their association with Socialist parties, most of which before 1947 were reluctant to break with the Popular Front-style alliance that had re-formed itself in the resistance movements. Socialist parties in France and Italy did almost as well as the Communists in initial post-war elections and considerably better in Belgium. In Scandinavia the Social Democrats vastly outscored any other party, obtaining between 38 and 41 percent of the votes in Denmark, Norway and Sweden in elections held between 1945 and 1948.
Nevertheless, outside Britain and the Nordic countries the ‘old Left’ of Communists and Socialists was never able to govern alone. In western Europe the balance was always held, and in many cases dominated by, a new political animal, the Christian Democratic parties. Catholic parties were familiar in continental Europe—they had long thrived in the Netherlands and Belgium. Wilhelminian and Weimar Germany had a Catholic Center Party and the conservative wing of Austrian politics has long been closely bound up with the (Catholic) People’s Party. Even ‘Christian Democracy’ itself was not an altogether new idea—its origins lay in early-twentieth-century Catholic reformism and Catholic movements of the political center that tried without success to make their way in the turbulent years following World War One. But after 1945 the situation was quite different and wholly to their advantage.
In the first place, these parties—especially the Christian Democratic Union (CDU) in West Germany, the Christian Democrats (DC) in Italy and the Popular Republican Movement (MRP) in France—now had a near-monopoly of the Catholic vote. In 1945 Europe, that still mattered a lot: the Catholic vote was still heavily conservative, especially on social questions and in regions of high Catholic practice. Traditional Catholic voters in Italy, France, Belgium, the Netherlands and southern and western Germany would rarely vote Socialist and almost never Communist. But, and this was the peculiarity of the post-war era, even conservative Catholics in many countries often had no choice but to vote Christian Democrat, despite the reformist bent of Christian Democrat politicians and policies, because conventional right-wing parties were either under a shadow or else banned outright. Even non-Catholic conservatives turned increasingly to the Christian Democrats, as a bar to the ‘Marxist’ Left.
Secondly, and for related reasons, Christian Democrat parties were the major beneficiaries of women’s votes—in 1952 some two-thirds of practicing Catholic women in France voted for the MRP. No doubt the influence of the pulpit played a role. But a large part of the Christian Democratic parties’ appeal to women lay in their programme. In contrast to the lingering insurrectionary undertone to even the most domesticated Socialist and Communist rhetoric, prominent Christian Democrats—Maurice Schumann and Georges Bidault in France, Alcide de Gasperi in Italy and Konrad Adenauer in the Federal Republic—always emphasised reconciliation and stability,.
Christian Democracy avoided class-based appeals and emphasized instead social and moral reforms. In particular, it insisted upon the importance of the family , a properly Christian theme with significant policy implications at a time when the needs of single-parent, homeless and destitute families had never been greater. Thus Christian Democratic parties were ideally placed to capitalize on virtually every aspect of the post-war condition: the desire for stability and security, the expectation of renewal, the absence of traditional right-wing alternatives and the expectations vested in the state—for in contrast to conventional Catholic politicians of an earlier generation, the leaders of Christian Democratic parties and their more radical younger followers had no inhibitions about enrolling the power of the state in pursuit of their goals. If anything, Christian Democrats of the first post-war years saw free-market liberals rather than the collectivist Left as their main opponents and were keen to demonstrate that the modern state could be adapted to non-socialist forms of benevolent intervention.
As a consequence, in Italy and West Germany Christian Democrat parties secured (with some American assistance) a near monopoly of political power for many years to come. In France—thanks to the corrosive effects of two colonial wars, followed in 1958 by De Gaulle’s return to power—the MRP did rather less well. But even there it remained the arbiter of power until the mid-fifties, with an uncontested claim to certain key ministries (notably Foreign Affairs). Catholic parties of a Christian Democrat bent exercised unbroken power in the Benelux countries for more than a generation, in Austria through 1970.
The leaders of Christian Democratic parties, like Britain’s Winston Churchill, were men of an earlier time: Konrad Adenauer was born in 1876, Alcide de Gasperi five years later, Churchill himself in 1874. This was no mere coincidence or biographical curiosity. By 1945 many continental European countries had lost two generations of potential leaders: the first to death and injury in the Great War, the second to the temptation of Fascism or else to murder at the hands of Nazis and their friends. This shortfall manifested itself in the generally rather mediocre quality of younger politicians in these years—Palmiro Togliatti (who had spent much of the previous twenty years as a political operative in Moscow) was an exception. The special appeal of Léon Blum, who returned to public life in France after imprisonment by Vichy and incarceration in Dachau and Buchenwald, was not just his heroism but also his age (he was born in 1872).
At first sight it may seem rather odd that so much of the rehabilitation of postwar Europe was the work of men who reached maturity and entered politics many decades before. Churchill, who first entered Parliament in 1901, always described himself as a ‘child of the Victorian Age’. Clement Attlee, too, was a Victorian, born in 1883. But it is perhaps not so very surprising after all. In the first place such older men were rather unusual in surviving politically and ethically unscathed from thirty years of turmoil—their political credibility enhanced, as it were, by their scarcity value. Secondly, they all came from the remarkable generation of European social reformers who reached maturity during the years 1880-1910—whether as socialists (Blum, Attlee), liberals (Beveridge, or the future Italian President Luigi Einaudi, born in 1874) or progressive Catholics (De Gasperi, Adenauer). Their instincts and interests were very well suited to the post-war mood.
But thirdly, and perhaps most important, the old men who rebuilt Western Europe represented continuity. The vogue between the wars had been for the new and the modern. Parliaments and democracies were seen by many—and not just Fascists and Communists—as decadent, stagnant, corrupt and in any case inadequate to the tasks of the modern state. War and occupation dispelled these illusions, for voters if not for intellectuals. In the cold light of peace, the dull compromises of constitutional democracy took on a new appeal. What most people longed for in 1945 was social progress and renewal, to be sure, but combined with the reassurance of stable and familiar political forms. Where the First World War had a politicizing, radicalizing effect, its successor produced the opposite outcome: a deep longing for normality.
Statesmen whose experience reached back beyond the troubled inter-war decades to the more settled and self-confident era before 1914 thus had a particular attraction. In the continuity of their person they could facilitate a difficult transition from the over-heated politics of the recent past to a coming era of rapid social transformation. Whatever their party ‘label’, the elder statesmen of Europe were all, by 1945, skeptical, pragmatic practitioners of the art of the possible. This personal distance from the over-confident dogmas of inter-war politics faithfully reflected the mood of their constituents. A post-‘ideological’ age was beginning.
The prospects for political stability and social reform in post-World War Two Europe all depended, in the first place, on the recovery of the continent’s economy. No amount of state planning or political leadership could conjure away the Himalayan task facing Europeans in 1945. The most obvious economic impact of the war was on housing stock. The damage to London, where three and a half million homes in the metropolitan area were destroyed, was greater than that wrought by the Great Fire of 1666. Ninety percent of all homes in Warsaw were destroyed. Only 27 percent of the residential buildings in Budapest in 1945 were habitable. Forty percent of German housing stock was gone, 30 percent of British, 20 percent of French. In Italy 1.2 million homes were destroyed, mostly in cities of 50,000 or more people. The problem of homelessness, as we have seen, was perhaps the most obvious consequence of war in the immediate post-war era—in West Germany and Britain the housing shortage would last well into the mid-1950s. As one middle-class woman expressed it, upon emerging from a Post-War Homes Exhibition in London: ‘I’m so desperate for a house I’d like anything. Four walls and a roof is the height of my ambition.’19
The second area of evident damage was in transport—merchant fleets, railway lines, rolling stock, bridges, roads, canals and tramways. There were no bridges across the Seine between Paris and the sea, just one left intact across the Rhine. As a consequence, even if mines and factories could produce necessary goods they could not move them—many European coal mines were working again by December 1945 but the city of Vienna was still without coal.
The visual impact was the worst: many countries looked as though they had been battered and broken beyond any hope of recovery. And it was true that in almost every European country involved in the Second World War the national economy stagnated or shrunk when compared even with the mediocre performance of the inter-war years. But war is not always an economic disaster—on the contrary, it can be a powerful stimulus to rapid growth in certain sectors. Thanks to World War Two the US surged into an unassailable commercial and technological lead, much as Britain had done during the Napoleonic wars.
And indeed, as Allied surveyors soon realized, the destructive economic impact of the war against Hitler was by no means as total as they had first thought, even in Germany itself. The bombing campaign, for all its human costs, had wrought less economic damage than its advocates expected. Little more than 20 percent of German industrial plant had been destroyed by May 1945; even in the Ruhr, where much Allied bombing had been concentrated, two thirds of all plant and machinery had survived intact. Elsewhere, in the Czech lands for example, industry and agriculture thrived under the German occupation and emerged virtually unscathed—Slovakia, like parts of Hungary, saw accelerated industrialization during the war years and actually emerged better off than before.
The dramatically skewed nature of much of the damage, such that it was people and places that suffered terribly while factories and goods were relatively spared, contributed to an unexpectedly speedy recovery after 1945 of core economic sectors. Engineering industries flourished during the war. The UK, the USSR, France, Italy and Germany (as well as Japan and the USA) all emerged with a larger stock of machine tools than they started with. In Italy only the aeronautic and shipbuilding industries suffered serious damage. Engineering firms situated in the North, and thus out of reach of the heaviest fighting during the Italian campaign, did rather well (as they had in World War One), their wartime output and investment more than compensating for any harm they suffered. As for the machine tool industry in what became West Germany, it lost just 6.5 percent of its equipment through war damage.
In some countries, of course, there was no war damage. Ireland, Spain, Portugal, Switzerland and Sweden all remained neutral throughout the conflict. This does not mean that they were not affected by it. On the contrary, most of the European neutrals were intimately engaged, albeit indirectly, in the Nazi war effort. Germany depended heavily on Franco’s Spain for its wartime supply of manganese. Tungsten reached Germany from Portugal’s colonies, via Lisbon. Forty percent of Germany’s wartime requirements in iron ore were met from Sweden (delivered to German ports in Swedish ships). And all this was paid for in gold, much of it stolen from Germany’s victims and channeled through Switzerland.
The Swiss did more than act as money-launderer and conduit for German payments, in itself a substantial contribution to Hitler’s war. In 1941-42 60 percent of Switzerland’s munitions industry, 50 percent of its optical industry and 40 percent of its engineering output was producing for Germany, remunerated in gold. The Bührle-Oerlikon small arms firm was still selling rapid-fire guns to the Wehrmacht in April 1945. All told, the German Reichsbank deposited the gold equivalent of 1,638,000,000 Swiss francs in Switzerland during the Second World War. And it was Swiss authorities before the outbreak of the conflict who asked that German passports indicate whether their holders were Jewish, the better to restrict unwanted arrivals.
The Swiss authorities, in their defence, had good reason to keep the Nazis friendly. Although the Wehrmacht high command postponed its June 1940 plans for an invasion of Switzerland, it never abandoned them; the experience of Belgium and the Netherlands was a grim reminder of the fate awaiting vulnerable neutral states that got in Hitler’s way. For similar reasons the Swedes also extended their cooperation to Berlin, on whom they were historically dependent for coal. Selling iron ore to Germany was something Sweden had been doing for many years—even before the war half of German iron-ore imports came across the Baltic, and three-quarters of all Swedish iron-ore exports went to Germany. In any case, Swedish neutrality had long been slanted toward Germany out of fear of Russian ambitions. Co-operation with the Nazis—allowing the transit of 14,700 Wehrmacht troops at the start of Operation Barbarossa, as well as German soldiers on leave from Norway passing through on their way home, deferring the draft for Swedish iron mine workers so as to ensure regular deliveries to Germany—was thus not a departure from habit.
After the war the Swiss (though not the Swedes) were initially the object of resentful international suspicion as accomplices to Germany’s war effort; in the Washington Accords of May 1946 they were constrained to offer a ‘voluntary’ contribution of 250 million Swiss francs to European reconstruction, as a final settlement of all claims relating to Reichsbank transactions through Swiss banks. But by that time Switzerland was already rehabilitated as a prosperous island of fiscal rectitude: its banks highly profitable, its farms and engineering industries set to supply food and machinery to needy European markets.
Before the war neither Switzerland nor Sweden had been especially prosperous—indeed they contained significant regions of rural poverty. But the lead they secured in the course of the war has proved lasting: both are now at the top of the European league and have been there steadily for four decades. Elsewhere the path to recovery was a little steeper. But even in Eastern Europe the economic infrastructure at least was repaired with remarkable speed. Despite the worst efforts of the retreating Wehrmacht and the advancing Red Army, the bridges, roads, railways and cities of Hungary, Poland and Yugoslavia were rebuilt. By 1947, transportation networks and rolling stock in central Europe had been brought up to or surpassed their pre-war levels. In Czechoslovakia, Bulgaria, Albania and Romania, where there was less war-related destruction, this process took less time than in Yugoslavia or Poland. But even the Polish economy recovered quite rapidly—in part because the western territories newly seized from Germany were actually more fertile and better supplied with industrial towns and factories.
In western Europe, too, material damage was repaired with remarkable speed—quickest, on the whole in Belgium, somewhat slower in France, Italy and Norway, slowest in the Netherlands, where the worst harm (to farms, dykes, roads, canals and people) had all come in the last months of the war. The Belgians benefited from Antwerp’s privileged status as the only major European port more or less intact at the end of the war, and from the high concentration of Allied troops in their country, pumping a steady flow of hard cash into an economy that had long specialized in coal, cement and semi-finished metals, all vital for reconstruction work.
Norway, by contrast, was considerably worse off. Half the nation’s vital fishing and merchant fleet was lost in the war. Thanks to deliberate German destruction in the course of the Wehrmacht’s retreat, Norway’s industrial output in 1945 was just 57 per cent that of its 1938 level, with nearly a fifth of the country’s capital stock gone. In later years the contrast with Sweden was not lost on embittered Norwegians. But even Norway was able to restore most of its rail and road network by the end of 1946; and in the course of the following year, as in the rest of western and most of eastern Europe, fuel shortages and inadequate communications were no longer an impediment to economic recovery.
To contemporary observers, however, it was Germany’s capacity to recover which seemed the most remarkable of all. This was a tribute to the efforts of the local population who worked with a striking singularity of purpose to rebuild their shattered country. The day Hitler died, 10 percent of German railways were operational and the country was at a literal standstill. A year later, in June 1946, 93 percent of all German rail tracks had been re-opened and 800 bridges had been rebuilt. In May 1945 German coal production was barely one-tenth that of 1939; a year later it had quintupled in output. In April 1945 it seemed to Saul K. Padover, an observer with the advancing US Army in western Germany, that it would surely take the flattened city of Aachen 20 years to rebuild. But within a few weeks he was already recording the re-opening of the city’s tyre and textile factories and the beginnings of economic life.
One reason for the speed of Germany’s initial recovery was that once the workers’ houses had been rebuilt, and the transport networks put back in place, industry was more than ready to deliver the goods. At the Volkswagen works 91 percent of the machinery had survived wartime bombing and post-war looting, and by 1948 the factory was equipped to produce one in every two cars made in western Germany. Ford of Germany was largely undamaged. Thanks to wartime investment, one-third of German industrial equipment was less than five years old in 1945, compared to just 9 percent in 1939. And the industries in which wartime Germany had invested most heavily—optics, chemicals, light engineering, vehicles, non-ferrous metals—were precisely those which would lay the foundations for the boom of the Fifties. By early 1947 the chief impediment to a German recovery was no longer war damage, but rather raw material and other shortages—and, above all, uncertainty over the country’s political future.
The year 1947 was to prove crucial, the hinge on which was suspended the fate of the continent. Until then Europeans had been consumed with repairs and reconstruction, or else were busy putting in place the institutional infrastructure for long-term recovery. In the course of the first eighteen months following the Allied victory the mood of the continent swung from relief at the mere prospect of peace and a fresh start, to stony resignation and growing disillusion in the face of the magnitude of the tasks still ahead. By the beginning of 1947 it was clear that the hardest decisions had not yet been taken and that they could not be postponed much longer.
To begin with, the fundamental problem of food supply was not yet overcome. Food shortages were endemic everywhere except Sweden and Switzerland. Only UNRRA supplies built up in the spring of 1946 kept Austrians from starving in the twelve months that followed. Caloric provision in the British Zone of Germany fell from 1,500 per day per adult in mid-1946 to 1,050 in early 1947. Italians, who suffered two consecutive years of hunger in 1945 and 1946, had the lowest average food levels of all the west European populations in the spring of 1947. In French opinion polls taken in the course of 1946 ‘food’, ‘bread’, ‘meat’ consistently out-paced everything else as the public’s number one preoccupation.
Part of the problem was that western Europe could no longer turn to the granaries of eastern Europe on which it had traditionally depended. For there, too, no-one had enough to eat. In Romania the 1945 harvest failed, through mismanaged land reforms and bad weather. From western Wallachia through Moldavia, into the western Ukraine and the middle Volga region of the USSR, poor harvests and drought led to near-famine conditions in the autumn of 1946, with aid agencies describing one-year old children weighing just three kilograms and sending back reports of cannibalism. Relief workers in Albania described the situation there as one of ‘terrifying distress’.
Then came the brutal winter of 1947, the worst since 1880. Canals froze, roads were impassable for weeks at a time, frozen points paralyzed whole rail networks. The incipient post-war recovery came to a grinding halt. Coal, still in short supply, could not keep up with domestic demand and anyway could not be moved. Industrial production slumped—steel output, having just begun to recover, promptly fell back by 40 percent over the previous year. When the snows melted, many parts of Europe were flooded. A few months later, in June 1947, the continent entered one of the hottest, driest summers since records began. It was clear that the harvest would be inadequate, in some places for the third year running: agricultural yields fell by about a third even over the previous year’s meager crop. The shortfall in coal could be made up in part from American imports (34 million tonnes in 1947). Food, too, could be purchased from America and the British Dominions. But all these imports had to be paid for in hard currency, usually dollars.
Two structural dilemmas underlay the European crisis of 1947. One was the effective disappearance of Germany from the European economy. Before the war Germany had been a major market for most of central and eastern Europe, as well as the Netherlands, Belgium and the Mediterranean region (until 1939, for example, Germany bought 38 percent of Greece’s exports and supplied about one-third of the country’s imports). German coal was a vital resource for French steel manufacturers. But until its political future was resolved Germany’s economy—for all its restored potential—remained frozen, effectively blocking the economic recovery of the rest of the continent.
The second problem concerned not Germany but the USA, though the two were connected. In 1938, 44 percent of Britain’s machinery imports by value came from the USA, 25 percent from Germany. In 1947 the figures were 65 percent and 3 percent respectively. The situation was similar in other European countries. This sharply increased demand for American goods was, ironically, an indication of an upswing in European economic activity—but to buy American products or materials required American dollars. Europeans had nothing to sell to the rest of the world; but without hard currency they could not buy food to stop millions from starving, nor could they import the raw materials and machinery needed to move forward their own production.
The dollar crisis was serious. In 1947 the UK, whose national debt had increased fourfold since 1939, was buying nearly half its total imports from the USA and fast running out of cash. France, the world’s largest importer of coal, was running an annual payments deficit with the US of $2,049 million. Most other European countries did not even have currencies in which to trade. Romanian inflation was at its worst in August 1947. The inflation in neighbouring Hungary, the worst in recorded history and far exceeding that of 1923 Germany, peaked at 5 quintillion (530) paper pengosto the dollar—meaning that by the time the pengo was replaced by the forint in August 1946 the dollar value of all Hungarian banknotes in circulation was just one-thousandth of one cent.
In Germany there was no functioning currency. The black market flourished and cigarettes were the accepted medium of exchange: teachers in DP camps were paid 5 packs a week. The value of a carton of American cigarettes in Berlin ranged from $60-$165, an opportunity for soldiers in the American occupation forces to make serious money converting and re-converting their cigarette allocation: in the first four months of the Allied occupation US troops in Berlin alone sent home $11 million more than they received in wages. In Braunschweig, 600 cigarettes would buy you a bicycle—a necessity in Germany no less than in Italy, as depicted unforgettably in Vittorio de Sica’s 1948 film Bicycle Thieves.
The seriousness of the European crisis was not lost on the Americans. As we shall see, it was one of their main reasons for pressing forward with a solution to the problem of Germany with or without Soviet cooperation. In the opinion of well-informed Presidential counselors like George Kennan, Europe in the spring of 1947 was teetering on the edge. The frustrations of western Europeans, who had initially been led to expect quicker recovery and a return to normal economic conditions, and the hopelessness of Germans and other central Europeans, compounded by the unanticipated subsistence crisis of 1947, could only strengthen the appeal of Communism or else the risk of a descent into anarchy.
The attraction of Communism was real. Although the Communist parties of Italy, France and Belgium (as well as those of Finland and Iceland) remained in governing coalitions until May 1947, through their trade union affiliates and popular demonstrations they were able to mobilize popular anger and capitalize on the failures of their own governments. The electoral successes of local Communists, combined with the aura of the invincible Red Army, made an Italian (or French, or Czech) ‘road to Socialism’ seem plausible and seductive. By 1947 907,000 men and women had joined the French Communist Party. In Italy the figure was two and a quarter million, far more than in Poland or even Yugoslavia. Even in Denmark and Norway, one voter in eight was initially attracted to the promise of a Communist alternative. In the western zones of Germany the Allied authorities feared that nostalgia for the better days of Nazism, together with a reaction against denazification programmes, food shortages and endemic minor crime, could yet turn to neo-Nazi or even Soviet advantage.
The west European states were perhaps fortunate that their Communist parties in the spring of 1947 were still pursuing the moderate, democratic path adopted in 1944. In France, Maurice Thorez was still urging coalminers to ‘produce’. In Italy the British ambassador described Togliatti as a moderating influence on his more ‘hotheaded’ Socialist allies. For his own reasons Stalin was not yet encouraging his many supporters in central and western Europe to exploit popular anger and frustration. But even so, the spectre of civil war and revolution was never far away. In Belgium, Allied observers described communal and political tensions as serious and ranked the country with Greece and Italy as ‘unstable’.
In France the economic hardships of the winter of 1947 were already leading to popular disillusion with the new post-war Republic. In a French opinion poll of July 1st 1947, 92 percent of those questioned thought that things in France were going ‘badly or rather badly’. In Britain the Labour Chancellor Hugh Dalton, reflecting on the punctured enthusiasms of the first post-war years, confided to his diary: ‘Never bright confident morning again’. His French counterpart, André Philip, the Socialist Minister of National Economy, made the same point more dramatically in a speech in April 1947: ‘We are threatened,’ he declared, ‘with total economic and financial catastrophe’.
This sense of hopelessness and impending disaster was everywhere. ‘For the past two months’, reported Janet Flanner from Paris in March 1947, ‘there has been a climate of indubitable and growing malaise in Paris, and perhaps all over Europe, as if the French people, or all European people, expected something to happen, or, worse, expected nothing to happen.’ The European continent, as she had noted a few months before, was slowly entering a new ice age. George Kennan would have agreed. In a Policy Planning Staff paper six weeks later he suggested that the real problem was not Communism, or if so then only indirectly. The true source of the European malaise was the effects of war and what Kennan diagnosed as ‘profound exhaustion of physical plant and spiritual vigour’. The hurdles the continent faced seemed too great, now that the initial burst of post-war hope and rebuilding had drained away. Hamilton Fish, editor of Foreign Affairs, the influential house journal of the American foreign policy establishment, described his impressions of Europe in July 1947:
‘There is too little of everything—too few trains, trams, buses and automobiles to transport people to work on time, let alone to take them on holidays; too little flour to make bread without adulterants, and even so not enough bread to provide energies for hard labor; too little paper for newspapers to report more than a fraction of the world’s news; too little seed for planting and too little fertilizer to nourish it; too few houses to live in and not enough glass to supply them with window panes; too little leather for shoes, wool for sweaters, gas for cooking, cotton for diapers, sugar for jam, fats for frying, milk for babies, soap for washing.’
It is widely believed by scholars today that for all the contemporary gloom the initial post-war recovery and the reforms and plans of the years 1945-47 laid the groundwork for Europe’s future well being. And to be sure, for western Europe at least 1947 would indeed prove the turning point in the continent’s recovery. But at the time none of this was obvious. Quite the contrary. World War Two and its uncertain aftermath might well have precipitated Europe’s terminal decline. To Konrad Adenauer like many others, the scale of European chaos seemed worse even than in 1918. With the precedent of the post-World War One mistakes uppermost in their thoughts, many European and American observers indeed feared the worst. At best, they calculated, the continent was in for decades of poverty and struggle. German residents of the American Zone expected it to be at least twenty years before their country recovered. In October 1945 Charles de Gaulle had imperiously informed the French people that it would take twenty-five years of ‘furious work’ before France would be resuscitated.
But long before that, in the pessimists’ view, continental Europe would collapse back into civil war, Fascism and Communism. When US Secretary of State George C. Marshall returned on April 28th 1947 from a Moscow meeting of Allied Foreign Ministers, disappointed at Soviet unwillingness to collaborate in a solution for Germany and shaken by what he had seen of the economic and psychological state of western Europe, he was clear in his own mind that something rather dramatic would have to be done, and very soon. And judging from the resigned, doom-laden mood in Paris, Rome, Berlin and elsewhere, the initiative would have to come from Washington.
Marshall’s plan for a European Recovery Program, discussed with his advisers over the next few weeks and made public in a famous Commencement Address at Harvard University on June 5th 1947, was dramatic and unique. But it did not come out of nowhere. Between the end of the war and the announcement of the Marshall Plan, the United States had already spent many billions of dollars in grants and loans to Europe. The chief beneficiaries by far had been the UK and France, which had received $4.4 billion and $1.9 billion in loans respectively, but no country had been excluded—loans to Italy exceeded $513 million by mid-1947 and Poland ($251 million), Denmark ($272 million), Greece ($161 million) and many other countries were indebted to the US as well.
But these loans had served to plug holes and meet emergencies. American aid hitherto was not used for reconstruction or long-term investment but for essential supplies, services and repairs. Furthermore, the loans—especially those to the major western European states—came with strings attached. Immediately following the Japanese surrender President Truman had imprudently cancelled the wartime Lend-Lease agreements, causing Maynard Keynes to advise the British Cabinet, in a memorandum on August 14th 1945, that the country faced an ‘economic Dunkirk’. Over the course of the following months Keynes successfully negotiated a substantial American loan agreement to supply the dollars that Britain would need to buy goods no longer available under Lend-Lease, but the American terms were unrealistically restrictive—notably in their requirement that Britain give up imperial preferences for its overseas dominions, abandon exchange controls and make sterling fully convertible. The result, as Keynes and others predicted, was the first of many post-war runs on the British pound, the rapid disappearance of Britain’s dollar reserves and an even more serious crisis the following year.
The terms of the loan negotiated in Washington in May 1946 between the US and France were only slightly less restrictive. In addition to a write-off of $2.25 billion of wartime loans, the French got hundreds of millions of dollars in credits and the promise of low-interest loans to come. In return, Paris pledged to abandon protectionist import quotas, allowing freer entry to American and other foreign products. Like the British loan, this agreement was designed in part to advance the US agenda of freer international trade, open and stable currency exchanges and closer international cooperation. In practice, however, the money was gone within a year and the only medium-term legacy was increased popular resentment (much played upon by the Left) at America’s exploitation of its economic muscle.
By the spring of 1947, then, Washington’s bilateral approaches to Europe’s economic troubles had manifestly failed. The trading deficit between Europe and the US in 1947 would reach $4,742 million, more than double the figure for 1946. If this was a ‘hiccup of growth’, as later commentators have suggested, then Europe was close to choking. That is why Ernest Bevin, the British Foreign Minister, responded to Marshall’s Commencement Address by describing it as ‘one of the greatest speeches in world history’, and he was not wrong.
Marshall’s proposals were a clean break with past practice. To begin with, beyond certain framing conditions it was to be left to the Europeans to decide whether to take American aid and how to use it, though American advisers and specialists would play a prominent role in the administration of the funds. Secondly, the assistance was to be spread across a period of years and was thus from the start a strategic programme of recovery and growth rather than a disaster fund.
Thirdly, the sums in question were very substantial indeed. By the time Marshall Aid came to an end, in 1952, the United States had spent some $13 billion, more than all previous US overseas aid combined. Of this the UK and France got by far the largest sums in absolute amounts, but the relative impact on Italy and the smaller recipients was probably greater still: in Austria, 14 percent of the country’s income in the first full year of the European Recovery Program (ERP), from July 1948 to June 1949, came from Marshall Aid. These figures were enormous for the time: in cash terms the ERP was worth about $100 billion in today’s (2004) dollars, but as an equivalent share of America’s Gross Domestic Product (it consumed about 0.5 percent of the latter in the years 1948-1951) a Marshall Plan at the beginning of the twenty-first century would cost about $201 billion.
Immediately following Marshall’s speech the foreign ministers of Britain, France and the USSR met in Paris, at Bevin’s suggestion, to consider their response. On July 2nd the Soviet foreign minister Vyacheslav Molotov walked out and two days later Britain and France formally invited representatives of 22 European countries (excluding only Spain and the Soviet Union) to discuss the proposals. On July 12th sixteen European states took part in these discussions. All of these—Britain, France, Italy, Belgium, Luxemburg, Netherlands, Denmark, Norway, Sweden, Switzerland, Greece, Turkey, Ireland, Iceland, Austria and Portugal—would be among the eventual beneficiaries. But despite the initial interest shown by Poland, Czechoslovakia, Hungary, Bulgaria and Albania, no future Communist state took part in the European Recovery Programme or received a dollar in Marshall aid
It is worth pausing to consider the implications of this. The fact that the money was to be confined to the West (with Greece and Turkey as honorary west Europeans) undoubtedly made it easier for Truman to secure passage of the ERP through Congress the following year. But by then much had changed and Congress was willing to be convinced that Marshall Aid was an economic barrier to Soviet expansion. In June 1947, however, the offer of aid through Marshall’s new programme was made to all European countries without distinction. Stalin and Molotov were of course suspicious of American motives—the terms Marshall was proposing were quite incompatible with the closed Soviet economy—but their sentiments were not widely shared elsewhere in eastern Europe, in what was not yet a bloc.
Thus Jan Masaryk, Czechoslovakia’s non-Communist Foreign Minister, enthusiastically accepted the joint Franco-British invitation of July 4th. The very next day the Czech Communist Party leader and Prime Minister, Klement Gottwald, was summoned to Moscow and initially instructed to attend the Paris conference. But his orders were clear: he was to use his presence in Paris to demonstrate ‘the unacceptability of the Anglo-French plan, prevent the adoption of unanimous decisions, and then leave the conference, taking as many delegates of other countries as possible.’
Four days later Stalin reconsidered. Gottwald was told to withdraw his country’s acceptance of the invitation to Paris. Meeting with a delegation from the Czech government, including Masaryk, Stalin advised the Czechs that ‘[w]e consider this matter to be a fundamental question on which [Czech] friendship with the USSR depends. If you go to Paris, you will show that you want to cooperate in an action aimed at isolating the Soviet Union.’ The next day the Czech coalition government duly announced that it would not be sending a delegation to Paris. ‘Czechoslovak participation would be construed as an act directed against friendship with the Soviet Union and the rest of our allies. That is why the government unanimously decided it will not take part in this conference.’
Why did the Czechs give way? Their Polish and Hungarian neighbours, with the Communists already in charge and the Red Army in close attendance, had no option but to follow Soviet ‘guidance’. But the Red Army had long since left Czechoslovakia and the Communists did not yet have a monopoly of power. Yet Masaryk and his colleagues buckled at the first display of Stalin’s displeasure. Had the non-Communist Czech parties insisted on accepting Marshall Aid they would have carried the overwhelming majority of their fellow citizens (and quite a few Czech Communists) with them, making it that much harder for Stalin to justify enforcing his will. In the broader context of post-Munich politics the Czech decision to favour the Soviet embrace was understandable; but it almost certainly paved the way for the Communists’ successful coup in Prague seven months later.
Czechoslovakia’s exclusion from the Marshall Aid programme was an economic and political catastrophe for the country. The same is true of the ‘choice’ imposed on every other country in the region, and above all, perhaps, for the Soviet Union itself. His decision to stand aside from the European Recovery Program was one of Stalin’s greatest strategic mistakes. Whatever their private calculations, the Americans would have had no choice but to include eastern Europe in the ERP, having made the offer available to all, and the consequences for the future would have been immeasurable. Instead, the aid was confined to the West and marked a parting of the ways between the two halves of the continent.
Marshall Aid was from the start intended to be self-limiting. Its goal, as Marshall himself set it out in his Harvard speech, was to ‘break the vicious circle and restore the confidence of the European people in the economic future of their own countries and of Europe as a whole.’ Rather than merely offering aid in cash it proposed the provision of goods, free of charge, delivered to European countries on the basis of annual requests formulated as part of a four-year plan by each recipient state. These goods, when sold in each country, would generate so-called ‘counterpart funds’ in the local currency which could be used according to bilateral agreements reached between Washington and each national government. Some countries used these funds to purchase more imports; others, like Italy, transferred them into their national reserves in anticipation of future foreign exchange needs.
This unusual way of furnishing assistance carried innovative implications. The programme obliged European governments to plan ahead and calculate future investment needs. It laid upon them a requirement to negotiate and confer not just with the United States but with each other, since the trading and exchanges implied in the programme were intended to move from the bilateral to the multilateral as soon as possible. It constrained governments, businesses and labour unions to collaborate in planning increased rates of output and the conditions likely to facilitate them. And above all, it blocked any return to the temptations that had so stymied the inter-war economy: under-production, mutually destructive protectionism, and a collapse of trade.
Although the US administrators of the Plan made no secret of their expectations, they left it to Europeans to take responsibility for determining the level of aid and the manner of its distribution. European politicians—accustomed to the blunt self-interest of the US in earlier bilateral loan negotiations—were rather taken by surprise. Their confusion was understandable. Americans themselves were divided as to the goals of the Plan. Idealists in the New Deal mould—and there were many in post-war American administrations—saw an opportunity to reconstruct Europe in the American image, emphasizing modernization, infrastructural investment, industrial productivity, economic growth and labour-capital cooperation.
Thus ‘productivity missions’, funded by the Marshall Plan, brought to the US many thousands of managers, technicians and trade unionists to study the American way of business—five thousand from France alone (one in four of the overall total) between 1948 and 1952. One hundred and forty-five ‘European productivity teams’ arrived in the US just between March and July 1951—in most cases consisting of men (rarely women) who had never before set foot outside Europe. Meanwhile enthusiastic New Dealers in the Organization for European Economic Cooperation (OEEC), set up in 1948 as a conduit for ERP funds, urged upon their European colleagues the virtues of freer trade, international collaboration and inter-state integration.
These American urgings met, it must be said, with limited immediate success. Most European politicians and planners were not yet ready to contemplate grand projects of international economic integration. The Marshall Planners’ greatest achievement in this respect was perhaps the European Payments Union, proposed in December 1949 and inaugurated a year later. Its limited objective was to ‘multilateralize’ European trade by establishing a sort of clearing-house for debits and credits in European currencies. This was designed to overcome the risk that each European country might try to save badly needed dollars by restricting imports from other European countries, to everyone’s eventual disadvantage.
Using the Bank of International Settlements as their agent, European states were encouraged to secure credit lines proportional to their trading requirements. Then, instead of using up scarce dollars they could settle their obligations through an intra-European transfer of credits. All that mattered was not whom you traded with but the overall balance of credits and debits in European currencies. By the time it was wound up in 1958, the Payments Union had quietly contributed not merely to the steady expansion of intra-European trade but to an unprecedented degree of mutually advantageous collaboration—financed, it should be noted, by a substantial injection of US dollars to furnish the initial credit pool.
From a more conventional American perspective, however, free trade and its attendant benefits were themselves a sufficient objective and justification for the ERP programme. The United States had been particularly hard hit by the trading and export slump of the thirties and spared no effort to convince others of the importance to post-war recovery of liberalized tariff regimes and convertible currencies. Like English Liberals’ enthusiasm for free trade in the era before 1914, such American pleas for the unrestricted movement of goods were not altogether un-self-interested.
Nevertheless, this self-interest was distinctly enlightened. After all, as CIA Director Allen Dulles observed: ‘The Plan presupposes that we desire to help restore a Europe which can and will compete with us in the world markets and for that very reason will be able to buy substantial amounts of our products.’ In a few cases there were more immediate benefits: back in the US, organized labour’s backing for the Marshall Plan was secured through the promise that all in-kind transfers from America would be despatched in US-owned ships loaded by American dockworkers unionized in the AFL-CIO. But this was a rare case of direct and immediate advantage. For the most part Dulles was right: the Marshall Plan would benefit the USA by restoring her major trading partner, rather than by reducing Europe to an imperial dependency.
Yet there was more to it than that. Even if not everyone saw it at the time, Europe in 1947 faced a choice. One part of that choice was recovery or collapse, but the deeper question was whether Europe and Europeans had lost control of their destiny, whether thirty years of murderous intra-European conflict had not passed the fate of the continent over to the two great peripheral powers, the US and the Soviet Union. The Soviet Union was quite content to await such a prospect—as Kennan noted in his memoirs, the pall of fear hanging over Europe in 1947 was preparing the continent to fall, like a ripe fruit, into Stalin’s hands. But for American policymakers, Europe’s vulnerability was a problem, not an opportunity. As a CIA report argued in April 1947, ‘(t)he greatest danger to the security of the United States is the possibility of economic collapse in western Europe and the consequent accession to power of Communist elements’.
A Special Ad Hoc group of the State, War and Navy Departments’ coordinating committee spelled the point out more fully in a report dated April 21st 1947: ‘It is important to maintain in friendly hands areas which contain or protect sources of metals, oil and other natural resources, which contain strategic objectives or areas strategically located, which contain substantial industrial potential, which possess manpower and organized military forces in substantial quantities, or which for political or psychological reasons enable the US to exert a greater influence for world stability, security and peace.’ This is the broader context of the Marshall Plan, a lowering political and security landscape in which American interests were inextricably interwoven with those of a fragile and sickly European sub-continent.
The better-informed European recipients of Marshall Aid, notably Bevin and Georges Bidault, his counterpart at the French Foreign Ministry on the Quai d’Orsay, understood this perfectly well. But European domestic interest in the European Recovery Program itself, of course, and the uses to which it was put, varied considerably from country to country. In Belgium, where American assistance was probably least urgently needed, the Marshall Plan may even have had a long-term prejudicial impact, allowing the government to spend heavily on investment in traditional industrial plants and politically-sensitive industries like coal mining without counting the long-term cost.
In most cases, though, Marshall Aid was applied as intended. In the Plan’s first year, aid to Italy was largely devoted to urgently needed imports of coal and grain, together with help for struggling industries like textiles. But thereafter 90 percent of Italian counterpart funds went directly to investment: in engineering, energy, agriculture and transportation networks. In fact, under Alcide De Gasperi and the Christian Democrats, Italian economic planning at the end of the forties rather resembled its east European counterpart, with consumer goods deliberately disfavoured, food consumption held down to pre-war levels and resources diverted to infrastructural investment. This was almost too much of a good thing: American observers became nervous and tried unsuccessfully to encourage the government to introduce more progressive taxes, relax its austere approach, allow reserves to fall and avoid bringing about a recession. Here, as also in western Germany, American Marshal Planners would have liked to see social and economic policies slanted more to the Centre and away from traditional deflationist policies.
In France, Marshall Aid very much served the goals of the ‘planners’. As Pierre Uri, one of Monnet’s associates, later acknowledged: ‘we used the Americans to impose on the French government what we deemed necessary’, ignoring the American desire for liberalization but responding enthusiastically to US exhortations to invest and modernize. ERP dollars—$1.3 billion in 1948-49 and a further $1.6 billion in the next three years—financed almost fifty percent of French public investment under the Monnet Plan during the Marshall years, and the country could never have managed without it. It is thus more than a little ironic that it was in France that the Marshall Plan faced the greatest popular criticism. In mid-1950 only one French adult in three acknowledged having even heard of the Marshall Plan and of these 64 percent declared it to be ‘bad’ for their country!
The Plan’s relatively poor image in France represented a partial public relations success for the French Communists, perhaps their greatest.20 In Austria the local Communists—backed by Soviet forces still occupying the eastern region of the country—never made any dent in the popularity of Americans and their aid; the latter put food in people’s mouths and this was what mattered most. In Greece the situation was clearer still. In the circumstances of a brutal civil war Marshall Aid, extended to Greece in April 1948, made the difference between survival and destitution. The $649 million of American aid to Greece under the ERP supported refugees and staved off hunger and disease: the mere delivery of mules to indigent farmers made the difference between life and death for thousands of peasant families. In 1950 Marshall Aid was credited with furnishing half of the country’s GNP.
How successful was the European Recovery Program? Western Europe indubitably recovered, and precisely over the period (1948-1951) of the Marshall Plan. By 1949 French industrial and agricultural production both exceeded 1938 levels for the first time. By the same criterion sustained recovery was achieved in 1948 by the Netherlands, in 1949 by Austria and Italy, in 1950 by Greece and West Germany. Of those countries occupied during the war, only Belgium, Denmark and Norway recovered sooner (in 1947). Between 1947 and 1951 the combined GNP of western Europe rose by 30 percent.
In the short-term the chief contribution of the Program to this recovery was surely the provision of dollar credits. These underwrote trade deficits, facilitated the large-scale importation of urgently needed raw materials and thus carried Western Europe through the crisis of mid-’47. Four-fifths of all the wheat consumed by Europeans in the years 1949-51 came from dollar-zone countries. Without Marshall Aid it is not clear how the fuel shortages, food shortages, cotton shortages and other commodity scarcities could have been overcome at a politically acceptable price. For while the economies of western Europe surely could have continued to grow without American assistance, this could only have been achieved by repressing home demand, cutting back on newly-introduced social services and further reducing the local standard of living.
This was a risk most elected governments were understandably reluctant to run. In 1947 the coalition governments of western Europe were trapped and they knew it. It is all very well for us to recognize in hindsight that Marshall Aid ‘merely’ broke a logjam born of renewed demand, that Washington’s new approach overcame a ‘temporary’ dollar shortfall. But no-one in 1947 could know that the $4.6 billion gap was ‘temporary’. And who at the time could be sure that the logjam was not sweeping the fragile European democracies over a roaring cataract? Even if the ERP did no more than buy time, that was a crucial contribution, for time was precisely what Europe appeared to lack. The Marshall Plan was an economic program but the crisis it averted was political.
The longer run benefits of the Marshall Plan are harder to assess. Some observers were disappointed at the Americans’ apparent failure to persuade Europeans to cooperate in integrating their planning as much as they had initially hoped. And it is true that whatever collaborative habits and institutions the Europeans did eventually acquire were only indirectly indebted to American efforts, if at all. But in the light of Europe’s recent past, any moves in this direction represented progress; and Marshall’s invitation did at least oblige the mutually-suspicious European states to sit down together and co-ordinate their responses and, ultimately, much else. The Times was not so very wide of the mark when it stated, in a leader on January 3rd 1949, that ‘(w)hen the cooperative efforts of the last year are contrasted with the intense economic nationalism of the inter-war years, it is surely permissible to suggest that the Marshall Plan is initiating a new and hopeful era in European history.’
The real benefits were psychological. Indeed, one might almost say that the Marshall Plan helped Europeans feel better about themselves. It helped them break decisively with a legacy of chauvinism, depression and authoritarian solutions. It made co-ordinated economic policy-making seem normal rather than unusual. It made the beggar-your-neighbour trade and monetary practices of the thirties seem first imprudent, then unnecessary and finally absurd.
None of this would have been possible had the Marshall Plan been presented as a blueprint for the ‘Americanization’ of Europe. On the contrary, post-war Europeans were so aware of their humiliating dependence upon American aid and protection that any insensitive pressure from that quarter would certainly have been politically counter-productive. By allowing European governments to pursue policies that had emerged from domestic compromises and experiences, and by avoiding a one-size-fits-all approach to recovery programmes, Washington actually had to forego some of its hopes for western European integration, at least in the short term.
For the ERP was not parachuted into a vacuum. Western Europe was able to benefit from American help because it was a long-established region of private property, market economics and, except in recent years, stable polities. But for just this reason, western Europe had to make its own decisions and would ultimately insist on doing so. As the British diplomat Oliver Franks put it: ‘The Marshall Plan was about putting American dollars in the hands of Europeans to buy the tools of recovery. ’ The rest—convertible currencies, good labour relations, balanced budgets and liberalized trade—would depend on Europeans themselves.
The obvious comparison, however, was not between American visions and European practices but between 1945 and 1918. In more respects than we now recall, the two post-war eras were uncannily alike. In the 1920s Americans were already encouraging Europeans to adopt US production techniques and labour relations. In the 1920s many American observers saw Europe’s salvation in economic integration and capital investment. And in the 1920s Europeans, too, looked across the Atlantic for guidance about their own future and for practical aid in the present.
But the big difference was that after World War One the US gave only loans, not grants; and these were nearly always supplied through the private capital market. As a result they carried a price tag and were usually short-term. When they were called in at the onset of the Depression, the effect was disastrous. The contrast in this respect is striking—after initial stumbles in 1945-47, American policymakers went to some lengths to correct the mistakes of the previous post-war era. The Marshall Plan is significant not just for what it did but for what it was careful to avoid.
There was one European problem, however, that the European Recovery Plan could neither solve nor avoid, yet everything else depended upon its resolution. This was the German Question. Without German recovery French planning would come to nought: France was to use Marshall counterpart funds to build huge new steel mills in Lorraine, for example, but without German coal these would be useless. Marshall credits with which to buy German coal were all very well; but what if there was no coal? In the spring of 1948 German industrial output was still only half that of 1936. The British economy would never recover while the country was spending unprecedented sums ($317 million in 1947 alone) just to sustain the helpless population of its zone of occupation in northwest Germany. Without Germany to buy their produce the trading economies of the Low Countries and Denmark were moribund.
The logic of the Marshall Plan required the lifting of all restrictions upon (West) German production and output, so that the country might once again make its crucial contribution to the European economy. Indeed, Secretary of State Marshall made clear from the outset that his Plan meant an end to French hopes of war reparations from Germany—the point, after all, was to develop and integrate Germany, not make of it a dependent pariah. But in order to avoid a tragic re-run of the events of the 1920s—in which frustrated efforts to extract war reparations from a prostrate Germany had led, as it seemed in retrospect, directly to French insecurity, German resentment and the rise of Hitler—it was clear to the Americans and their friends that the Marshall Plan would only work as part of a broader political settlement in which French and Germans alike could see real and lasting advantage. There was no mystery to this—a post-war settlement in Germany was the key to Europe’s future, and this was as obvious in Moscow as it was in Paris, London or Washington. But the shape such a settlement should take was an altogether more contentious matter.