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Marshall Aid: Germany became a superstate, we became a Welfare State


WHEN it comes to national interests, intergovernmental negotiations can be knotty. 

On Friday, I wrote how the sudden death of US President Franklin D Roosevelt in April 1945 left his successor Harry Truman facing a welter of issues. Among them was FDR’s 1941 Lend-Lease programme, which Truman cancelled after the Second World War ended in September 1945. 

As Congress had not authorised goods still in transit to be gifted, they were sold at around 90 per cent discount and the sale converted into loans (our share was around £1billion, but Britain was not the only country in this scheme). 

That was generous, but the abrupt shutoff still left us facing bankruptcy (the US may not have realised this): We had been using sale of those goods to pay for food and other essentials, and our war-oriented economy had restricted our ability to earn from exports. 

The British economist John Maynard Keynes was sent to Washington to ask for a grant or gift, on the moral ground that we had held the fort against fascism until the US joined us. He was disabused of this optimism, as Sir Christopher Meyer explains in this 2007 BBC documentary. 

Whatever Truman’s personal feelings may have been, he had to work with (or against) a Congress dominated by the ‘Conservative coalition.’ 

FDR’s 1944 State of the Union address had looked forward to guaranteeing everyone ‘useful and remunerative work’, a decent home, health treatment, a good education, social security and so on – like the ambitions of the British Labour Party.  

Congress’s conservatives opposed costly, freedom-limiting paternalism (Churchill had warned that a Labour election victory would lead to loss of liberty, enforced by ‘some form of Gestapo’) and for a time it looked as though Keynes’s mission would fail altogether.  

However, the threat of Soviet communism, with its tyrannical nature and empire-building, was now becoming clearer. And, much as Washington had been surprised and upset by Churchill’s defenestration by the British electorate in July 1945, socialism was preferable to Stalinism.  

So in 1946 the Anglo-American Loan was agreed – around five billion dollars (some of it from Canada) at two per cent interest for 50 years (in practice, until 2007.)  

However, the problems didn’t stop there: A condition of the loan was that sterling had to become convertible into other currencies. Eventually this led to a run on the pound which Britain’s war-reduced gold and other reserves couldn’t defend, so forcing a 30 per cent devaluation in 1949 (and, since the loan was in dollars, increasing the real value of the debt!) 

In 1948, Congress passed the Economic Co-operation Act, aka the Marshall Plan. This was not merely to support and rebuild ruined Western European economies, but to counter communism – the latter aim not stated baldly, but the preamble refers to ‘the maintenance of conditions abroad in which free institutions may survive.’  

The assistance was even offered to Russia and its satellites, but was refused – partly because hated Germany was included in the plan, but also because it threatened interference in Soviet domestic affairs.  

Influential in the formulation of American policy towards Europe and the Soviet Union was a State Department official named George Kennan, of whom more later. For now, let us look at how the Marshall Plan bore more fruit for some than for others. 

How come Britain, despite all this fresh money, lagged behind its Continental competitors in the following years? Writing on the BBC’s history website, historian Correlli Barnett argues that it was wasted on trying to hold on to the Empire, and on a Welfare State we could not afford, rather than being invested in the modernisation of British industry.  

Some may agree with the first part, though the hurried partition of India led to large-scale bloodshed; but as to the Welfare State, Labour had promised it, the people wanted it and felt they had earned it.  

In October 1943, Labour MP Tom Driberg had his BBC contract cancelled for saying on his radio programme: ‘People in this country are determined not to tolerate anything savouring of a return to the pre-war years of mass unemployment.’  

The 1945 election result should not have come as a shock: ‘If not now, when?’ As well as blaming working-class agitation, we might consider Britain had long failed to reinvest in businesses, their workforce skills and technology. The common people were not prepared simply to ‘grin and bear it’ again, after all they had gone through from 1914 on.  

Germany, although it received less from the Marshall Plan than Britain, benefited from other factors: The NATO defence umbrella that saved Germans paying their full share; the boost from American and British service personnel’s spending there; and, says author and political commentator David Frum, ‘the U.S. acquiesced in the undervaluation of the deutschmark and yen to aid German and Japanese recovery.’  

More importantly perhaps, Germany had invested in superior technical education in the 19th century, with ‘an extensive system of university and polytechnic education with close ties to industry that allowed them becoming the largest industrial power in Europe by the beginning of the 20th century.’  

As the war in Europe drew to a close, the Russians, British and Americans were scouring German forests for scientists, papers and prototypes to develop their own missile and other technology; unfortunately, we no longer had enough money to offer the German boffins attractive packages in Britain. 

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Rolf Norfolk
Rolf Norfolk
Rolf Norfolk is a former teacher and retired independent financial adviser.

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