The Impact of the Marshall Plan on the United Kingdom

1947-1951


Korean Minjok Leadership Academy
International Program
Roh, Yong Ho
Term Paper, AP World History Class, May 2007



Table of Contents


I. The Year 1947
I.a) The Concept of the Marshall Plan (European Recovery Program)
I.b) The Condition of the British Economy in 1947
I.c) The Committee of European Economic Cooperation (CEEC)
I.d) Assessment
II. The Year 1948
II.a) The Organization for European Economic Cooperation (OEEC)
II.b) The Economic Cooperation Administration (ECA)
II.c) The Bank for International Settlements (BIS) in Basel
II.d) The Condition of the British Economy in 1948
II.e) Assessment
III. The Year 1949
III.a) The North Atlantic Treaty Council (NATC)
III.b) The Economic Cooperation Administration (ECA)
III.c) The Condition of the British Economy in 1949
III.d) Assessment
IV. The Year 1950
IV.a) The North Atlantic Treaty Council (NATC)
IV.b) The European Payments Union (EPU)
IV.c) The Condition of the British Economy in 1950
IV.d) Assessment
V. The Year 1951
V.a) The Mutual Security Program
V.b) The Condition of the British Economy in 1951
V.c) Assessment
VI. Conclusion
VII. Bibliography



I. The Year 1947


I.a) The Concept of the Marshall Plan (European Recovery Program, ERP)
            The idea of the European Recovery Program (ERP) came to be paid much attention after Secretary of State George Marshall of the US delivered a speech on it at Harvard University. The reconstruction and economic recovery of the European States was to be achieved through aids and loans. Behind the plan were two major motives. First, US wanted to develop post-war Europe as a market into which US companies could export their surplus products. Second, by providing economic help, US tried to counter the trend of European governments adopting socialist policies.

I.b) The Condition of the British Economy in 1947
            In 1947, the Great Britain was suffering from various post-war economic problems. An unusually cold winter in the beginning of the year aggravated the economy. Britain was under high war-debt. Supplies to home consumer were cut severely as the dollar reserves of Britain became exhausted. As the demand of the European countries for American goods increased, the prices of US raw materials rose and British import program turned out to be more expensive than originally expected. Lack of coal and a cut in timber imports led to a housing problem.
Prime minister Attlee was pursuing a policy of building a welfare state, which would add to the strain on the British economy. It is no wonder that Britain, which had to solve these various economic problems, welcomed the Marshall Plan (European Recovery Program)
Britain also went through a Sterling crisis, one of the reasons that Britain remained reluctant to the European economic integration wished by the U.S. government. According to the Anglo-American Loan Agreement, Britain on July 15th 1947 declared the convertibility of the Pound Sterling into any currency. However, Britain had to revoke the convertibility on August 20 as massive demands of Sterling-holders for an exchange of their Sterling holdings into US Dollars rapidly drained the British Dollar reserves.

I.c) The Committee of European Economic Cooperation (CEEC)
            Ernest Bevin, British foreign secretary, in response to George Marshall's address at Harvard, welcomed the concept of the Marshall plan. Furthermore, he played a major role in holding conferences to determine the details and demands of Europe and stimulating the participation of other European countries. Bevin invited representatives of 22 countries to discuss about the plan and was the chairman of the conference held from July 12 to 15. As a result, on July 16, the Committee of European Economic Cooperation (CEEC) was established with 16 members to discuss how to achieve financial and fiscal stability and to promote freer trade among members.

I.d) Assessment
            In 1947, the Marshall plan was not yet in effect. The plan was still in the process of formation. Britain was suffering from various economic problems. Among these, problems of the unbalanced trade with the Dollar area and the high cost of the import program particularly needed external Dollar aid. Also, Britain was economically supporting the British zone of Germany. In this context, Britain had good reason to welcome the Marshall plan and led shaping CEEC and the details of the plan.


II. The Year 1948


II.a) The Organization of European Economic Cooperation (OEEC)
            The United States administration wanted CEEC to be transformed into a permanent organization that would help the implementation of the European Recovery Program (ERP) and the economic integration of Europe in the future. A Conference was held in Paris beginning on March 15 1948. Provisions for the Organization for European Economic Cooperation (OEEC) were signed on April 15. The OEEC had three major tasks. First, it had to discuss means of removing trade barriers to lessen unnecessary trade-deficit and inefficiency among the members. Trade barriers were thought to originate primarily not from international trade regulations and taxations, but from the lack of international credit facilities. This thought led to the idea of an inter-European credit system. Second, it had to determine the distribution of the aid. Both tasks were successfully dealt with by the Paris Council in July and September. The third task was to incorporate economic programs of the various governments. It was to be dealt with in the following years.

II.b) The Economic Cooperation Administration (ECA)
            The Economic Cooperation Administration (ECA) was established by the Economic Cooperation Act, which was approved in April 3, 1948 as an agency of the US government to administer ERP. Paul Hoffman was nominated as the administrator. A first meeting between Hoffman and ERP representatives was held in Paris on July 25th. American ERP missions were sent to each ERP recipient country to collaborate with local officials to deal with ERP.
The fund of the plan consisted of grants and loans. Grants could be used by a recipient not only to import from the U.S but also from other countries. This kind of grants were allocated by the ECA administrator and administered by the Export-Import Bank. This grant was a big help for the UK, used to import wheat from Canada

II.c) The Bank for International Settlements (BIS) in Basel
            It was agreed that multilateral intra-European credits system would be very effective in promoting the trade among OEEC members and the future integration of European economies. Regarding the details of this international credit facility, two major plans collided. A British plan suggested to create an international credit pool with each member's contribution in its own currency. A Belgian plan recommended an intra-European "Dollar" pool by splitting Marshall aid. Under the influence of the both plans, amounts of contributions, drawing rights, US aid allocation for recipients from July 1 1948 to June 30 1949 were fixed in the September meeting of the OEEC council. OEEC members were divided into debtor and creditor countries. Britain began as a main creditor country

II.d) The Condition of the British Economy in 1948
            Though production recovered somewhat, the British economy still was in a problematic situation. Many started to worry that Britain might become, or already was, economically insolvent. The threat posed by Chinese communists in Malaysia, one member of the Sterling bloc, and the continuing fight between Arab and Jewish militias in Palestine led Britain to consider mobilization and rearmament, which would be a burden on the already strained British economy. Unofficial strikes were frequent. Two white papers published in February reported that Britain's budget deficit in 1947 amounted to 675 million Pound Sterling. They also reported that personal income rose much more than production. The Government pursued a wage-restraint policy to fight against inflation. Price and profit were also tightly controlled. Public funds were used to do bulk-purchase. Food subsidies were increased to lower the cost of living. The National Health Act and Insurance Act, in pursuit of a policy aiming at establishing a welfare state, were passed July 5 1948. Sir Stafford Cripps, the British minister for economic affairs, collaborated with Hoffman to create the Anglo-American council on Productivity in August. This organization was intended to help British industry with American experience and strategy. It turned out to be very successful throughout the Marshall plan period.

II.e) Assessment
            Though the Marshall Plan was in its beginning, its impact was not negligible. The fact that ERP was set in detail and was being implemented finally aroused optimism to a certain degree that would enliven the economy. ERP grants through the Export-Import Bank seemed to help Britain especially in its international trade. According to the Britannica Books of the Year 1948 and 1949, the import and export, including re-exports, rose from about 1.8 billion to 2 billion Pound Sterling and from about 1.2 billion to 1.65 billion Pound Sterling respectively. The Anglo-American Council on Productivity was also a notable creation that would create synergy with ERP aid through the following years. However, the ERP achieved only limited success and a limited increase in the British standard of living.


III. The Year 1949


III.a) The North Atlantic Treaty Council (NATC)
            The Treaty of Brussels was signed to establish a military alliance by Belgium, the Netherlands, Luxembourg, France, and the United Kingdom on March 17, 1948. The alliance sought US participation that would give the alliance power to counter the Soviet Union. The alliance, formalized by the North Atlantric Treaty of 1949, was joined not only by the original five states of the Brussels Treaty, but also by the United States, Portugal, Italy, Denmark, Norway, Iceland, and Canada. The UK, as a member of the North Atlantic Treaty Organization (NATO), later got subsidies for rearmament from the U.S. which may be regarded as an extension of the ERP.

III.b) The European Cooperation Administration (ECA)
            Hoffman pleaded for the promotion of a unified European economy and larger US investments abroad and larger US imports of foreign goods. Hoffman suggested the concept of a European multilateral payment system. A part of ERP aid was used to help the creation of this organization. It would be named European Payments Union (EPU) and would replace the former intra-European credit system

III.c) The Condition of the British Economy in 1949
            As it became two years since the implementation of the ERP, the effect of ERP became apparent. As the firm attitude and policies of government, local investment, and the efforts of British people were also factors of development made in 1949, the ERP should not be regarded the only reason for the progress made so far. However, the ERP certainly had taken a magnificent role in helping the recovery of the British economy.
The ERP was especially helpful to lessen financial burden of the Britain in 1949. Britain used almost all of the funds allocated to her, the acquisitions from sales of ERP goods, to pay the war debt. According to the Britannica Book of the Year 1949 and 1950, the gross national debt decreased from 25,727 million Pound Sterling in 1948 to 25,707 million Pound Sterling in 1949. The industrial output revived to 25% above the output level of the years right before the war and recorded almost a historical climax. The equipments were modernized to a substantial degree. The unemployment rate was very low. Britain experienced calm and stable economic circumstances in 1949.
However, unbalanced trade with the Dollar area remained an immense problem. Though the trade was balanced as a whole, it was averse with the Dollar area. Based on Britannica Year Book of the Year 1949 and 1950, the British gold and Dollar reserves decreased from 591 million Pound Sterling in 1948 to 330 million Pound Sterling in 1949. Worries about a potential British economic insolvency continued to exist. On September 18, the British government decided to devaluate the Pound Sterling from U.S. $ 4.03 to U.S. $ 2.80. The devaluation later turned out to be an excellent decision that facilitated the recovery of British economy.

III.d) Assessment
            Compared with the economy in 1948, the British economy achieved remarkable stability in 1949. Though it still suffered from adverse trade with the Dollar area, from the domestic perspective, the problems of productivity, unemployment, and high debt were solved at least to a notable degree. Combined with the continuing aid of the ERP, the devaluation of the Pound Sterling would contribute to the further progress made in 1950.


IV. The Year 1950


IV.a) The North Atlantic Treaty Council (NATC)
            As the Korean War broke out, the burden of the rearmament increased for most European countries. Canadian, French, UK, and US trade ministers recommended closer relationship between the US, Canada, and the OEEC. The NATC began to take responsibility for economic and financial problems arising from rearmament. From July 6, representatives of Canada and the U.S. joined the OEEC council, without vote.

IV.b) The European Payments Union (EPU)
            The ECA in December 1949 suggested the creation of a European Payments Union (EPU). The plan was approved by the OEEC on January 10, 1950. U.S. $ 600 million of Marshall Plan funds were reallocated for the creation of the EPU. As the EPU came into shape around September, it replaced the former intra-European payments scheme to establish a periodic multilateral settlement of net debits and credits among members.
The UK first wanted to be excluded from the EPU. Later, it agreed to join under conditions. The UK provided its quota of credits to the EPU pool, but with right to extend its system of bilateral agreements on transfers of Sterling holdings, at the cost of abandoning the drawing right. The UK, which wanted to protect the Pound Sterling and the Sterling bloc, was very sensitive to the issues of Sterling transfer after it underwent the Sterling crisis and even devaluation. Around the middle of June, the OEEC and the Sterling bloc made a compromise to decide the degree to which the Sterling could be used by Sterling creditors to offset their debits to the EPU.

IV.c) The Condition of the British Economy in 1950
            The devaluation of the Pound Sterling seemed to be cause of the rapidly growing Dollar sales of raw materials in 1950. The foreign exchange position of the U.K. greatly improved. The statistics of the Britannica Book of the Year 1950 and 1951 show that the gold and dollar reserves increased from 603 million Pound Sterling in 1949 to 1,178 million Pound Sterling in 1950. As the British economic situation improved, the U.S. declared its suspension of ERP aid from January 1, 1951.
The resistant attitude toward European economic integration was again showed in the U.K.'s participation in the EPU only under conditions and continuing state trading. The UK considerably imported by bulk-purchasing on government account and thus was able avoid the OEEC regulations set to liberalize private trade.
Sir Stafford Cripps, the minister for economic affairs, resigned this year. Though income tax was kept low to keep the cost of living small, increased tax on gasoline createted the impression of an increase in the cost of living. The breach of the wage-restraint policy by Trades Union Congress, the rearmament program, and the threat of suspension of US aid led to the growth of inflationary fever.

IV.d) Assessment
            The devaluation of the Pound Sterling and ERP aid showed combined effect. ERP aid kept being used to import, pay the debt, provide credit to the EPU, and other purposes. The devaluation succeeded to improve British foreign economic position greatly. The contribution of the ERP to the British economy seemed less obvious this year. However, it is reasonable to think that the success of the British economic recovery owed ERP aid much, considering that Britain faced serious economic difficulties again as soon as ERP aid stopped to flow in.


V. The Year 1951


V.a) The Mutual Security Program
            The ERP, for most countries, ended near the end of June in 1951. As the Cold War developed and the rearmament came to put strains on the OEEC countries, the U.S. felt it desirable to continue the support for them to help their rearmament and necessary further economic recovery. This plan for new aid was implemented under the name "Mutual Security Program" after the first Mutual Security Act was passed by U.S. Congress on October 31, 1951, and the Mutual Security Agency was created. Owing to the program, the UK acquired an aid of about US $ 300 million from 1951 to 1952.

V.b) The Condition of the British Economy in 1951
            As many countries started rearmament, raw materials became expensive. Britain began to reintroduce many quota controls on imports and to limit various capital transfers. Inflation was taking place. The cost of living as well as wages rose. The Dollar gap worsened. As shown in the statistics of Britannica Book of the Year 1951 and 1952, British gold and Dollar reserves fell sharply from 1,178 million to 834 million Pound Sterling. Even though the situation of the British economy worsened, only limited support came from the ERP. For the purpose of developing the oversea dependencies of the UK, the ECA once offered grant of U.S. $ 7,700,000 from its special reserve. Also, Britain which had been main creditor of the EPU, turned into a large debtor in 1951.

V.c) Assessment
            From the very beginning of 1951, the Britain had to pursue economic recovery and rearmament without ERP aid, as announced by the ECA in 1950. Rising prices of raw materials and economic strain caused by rearmament were significant factors that may explain the Britain's economic regression. The halt of the ERP aid for Britain was another significant cause of the regression. The fact that Britain fell into economic difficulties in 1951, when ERP aid for Britain stopped, can be an evidence that the dependency of British economy on ERP aid was considerable.


VI. Conclusion


            The United Kingdom, which was suffering from various post-war economic hardships, welcomed the Marshall plan from the beginning and took a major role in shaping its details. Britain the largest ERP aid recipient throughout the years of the plan.
The aid had various impacts on British economy. Though the details of the impacts varied with years, the main influences were common. The ERP helped Britain import from the Dollar area. The Anglo-American Council on Productivity contributed to the increase of British productivity and industrial output. Part of ERP aid was also used to pay the war debt of the Britain and thus lessened the financial burden. One may even argue that economic support from ERP contributed to the post-war political stability. However, as the Britain regarded the Sterling bloc as basis area for its economic recovery and remained unwilling to participate actively in promoting European economic integration, British did not get much benefit from the European economic integration promoted by the ERP.


IX. Bibliography


1.      Duiker, Spielvogel : World History : West, 1994
2.      Lee Gang Moo : The Western World. World History for Adolescents, Seoul : Duri Media 2002 (in Korean)
3.      Norman Lower, Mastering Modern World History : Macmillan, 3rd edition, 1997
4.      Articles : Organization for European Economic Cooperation, European Recovery Program, Great Britain, from : Britannica Book of the Year 1948
5.      Article Organization for European Economic Cooperation, European Recovery Program, Great Britain, from : Britannica Book of the Year 1949
6.      Article Organization for European Economic Cooperation, European Recovery Program, Great Britain, from : Britannica Book of the Year 1950
7.      Article Organization for European Economic Cooperation, European Recovery Program, Great Britain, from : Britannica Book of the Year 1951
8.      Article Organization for European Recovery Program, Great Britain, from : Britannica Book of the Year 1952
9.      Article : Marshall Plan, from : Wikipedia
10.     Article : Marshall Plan Commemorative Section : The European Response : Primacy of Politics, by David Reynolds, June 1997, from : Foreign Affairs