MarshallPlanessay - 2. What was the Marshall Plan? What...

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2. What was the Marshall Plan? What were its short term effects on economic recovery? The destruction wrought by World War II was not limited to human casualties, but also devastated European economies. The failed post-World War I reconstruction efforts that resulted in political and financial chaos would not be repeated, however, as the recovery after 1945 would exhibit rapid and sustained growth. The successful economic recovery after World War II can be attributed partly to the short term effects of the Marshall Plan, which, I contend, helped restore financial stability, increased production through the elimination of bottlenecks, and encouraged European economic integration by changing the political economy towards market orientation and the free play of market forces. Marking a dramatic departure from the isolationism that the United States had embraced after WWI, the Marshall Plan (officially the European Recovery Plan) extended a substantial amount of financial resources, totalling approximately $13.2 billion by the end of the program in 1951, to a group of West European nations. The ultimate goal of this four year recovery program was "the acheivement by the countries of Europe of a healthy economy independent of extraordinary outside assistance" (ECA 1948, Section 102 (a)). Although the Marshall aid had been offered to the Soviet Union and Eastern Europe, none accepted, and as became apparent by the end of the program, the pure altruistic motives behind the transferring of over 5% of U.S GDP were supplemented by a desire to balance the growing communist threat in Europe. Although Marshall Plan did not initiate the post-WWII "growth miracle", I argue that it helped sustain growth and increase productive capacity by elimitating bottlenecks. The growth per capita GDP for recipient economies in the three years preceding the ERP averaged 6.5% of yearly growth, while during the Plan (1948-1951) it averaged a healthy 4.4% of yearly growth (Alvarez-Cuadrado 2008). While growth was well under way by the commencement of aid in 1948, productive capacity had encountered several bottlenecks that obstructed further performance. After the war, coal, cotton, petroleum, and several other materials were in short supply, but the ERP provided hard currency in a dollar-scarce world enabling Europe to obtain imports that would relieve bottlenecks. Italy, for instance, was able to import 24% more coal during the Marshall Plan, relieving not only the coal bottleneck, but secondary bottlenecks in steel production, refining, and transport (De Long & Eichengreen 1991; 28-30). With the elimination of short-term bottlenecks, Western Europe's combined GNP was able to increase more than 30% from 1948-1951 (Wexler 1993; 150) The Marshall Plan also facilitated the restoration of internal financial stability through conditions attached to the funds. In post-WWII Europe, financial instability was pervasive as inflation restricted producers from bringing their goods to market and workers devoting their full effort to market work (D & E
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MarshallPlanessay - 2. What was the Marshall Plan? What...

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