A Marshall Plan for Ukraine?

The Marshall Plan is widely regarded as the greatest achievement of postwar US foreign policy. But do calls for a new Marshall Plan for a postwar Ukraine make sense?

Photo of war damage in Kyev by Jade Koroliuk on Unsplash.
Click the picture for a large image. Back arrow to return to this page.

At the end of World War 2, Europe was suffering from destruction, hunger, and political disarray. Following the implementation of the Marshall Plan (MP) over the four-year period from 1948-52, economic output in the 16 European MP countries recovered by some 60 percent.

The MP was of gigantic proportions. The 16 MP economies received from the US some $13.2 billion over the four years, mainly in the form of grants. This represented 2.6 percent of recipient countries’ GDP and 1.1 percent of US GDP. In current US dollars, the MP spending would equal about $160 billion. Moreover, if the US were to launch an MP today, based on 1.1 percent of GDP, the spending would amount to close to one trillion dollars.

Since the recovery of the MP economies followed the MP spending, most commentators have attributed European economic recovery to the MP. Moreover, the MP is widely considered to be an initiative of great American generosity.

As Benn Steil argues, the most enduring aspect of the MP is the now-predictable cry for a new MP following virtually every international crisis or conflict, such as the European financial crisis, the Arab Spring, the Syrian war, African poverty, or climate change. And, of course, today, there are many calls for an MP for Ukraine.

But the original MP has never been replicated. And when the US invested on a massive scale for the post-war reconstruction of Iraq and Afghanistan, there were no positive results.

Postwar context for the Marshall Plan

The US and the USSR were allies during World War 2, with the Soviets arguably playing a greater role in the defeat of Nazi Germany. But it was an alliance based on misunderstandings. The Soviets believed that the Americans would go home after the war, just as they had after World War 1.  At the same time, Roosevelt thought that Stalin would be happy within his newly expanded borders. Moreover, Stalin believed, based on Marxist logic, that the US economy was destined for decline.

These glorious misunderstandings started collapsing after the war ended, especially after the announcement of the MP. These former allies became adversaries, and a Cold War between them began.

The US was indeed keen to “bring the boys home” after the war.  At the war’s end in 1945, the US had over 3 million troops in Europe. But the US was also keen to avoid the pitfalls of the post-World War 1 Treaty of Versailles, which planted the seeds for renewed conflict. Could the US secure its interests in Europe without boots on the ground?

Designing the Marshall Plan

Despite the apparent great generosity of the MP, the underlying philosophy was that America’s economic and physical security depended on having strong and independent allies abroad.

In his March 1947 “Truman Doctrine” speech, the US President foreshadowed some components of the MP. He argued that the US could no longer stand by and allow the forcible expansion of Soviet totalitarianism into free, independent nations because this also represented a threat to American national security. Truman laid the foundation for the MP in arguing that American help should be primarily through economic and financial aid, which is essential to economic stability and orderly political processes, rather than offering military assistance. The MP’s goal was to protect America’s interests in Europe without going to war.

Securing Congressional approval for the MP was no easy task. Truman, a Democrat, had to battle with the Republican-dominated Congress, which was keen to reduce military spending and withdraw from Europe. So rather than calling the initiative the “Truman Plan”, which would have been the kiss of death, the President decided to call it the Marshall Plan, after Secretary of State, General George Marshall. Truman believed, correctly, that Congress would never reject a plan named after the General!

More than money in the Marshall Plan

The many calls for new MPs seem to assume that the best way to solve a problem is to throw a lot of money at it. But despite the colossal financial sums involved in the MP, most serious analysis suggests that the impact of MP money was modest. The rebound of the European economies was driven more by private investment.

Indeed, there were a number of other elements that were key to the significance of the MP and the postwar shape of Europe.

First, the US abandoned the plan of US Treasury Secretary Morgenthau to deindustrialise West Germany such that it would no longer have the wherewithal to attack its neighbours. Much to the chagrin of the French, who were keen to extract reparations from Germany, the US insisted on putting an industrialised West Germany in its natural place at the centre of the European economy. The US was motivated to create strength, stability, and order in the face of the communist threat.

The US made economic and political integration of Europe the centrepiece of the MP, against French wishes, giving birth to what became the European Union. The EU was not created to screw the US, as Donald Trump argued, it was actually an American idea. The US also created the European Payments Union to underwrite trade between European countries.

NATO

Britain and France were against the priority accorded economic integration. They preferred to prioritise self-sufficiency, believing that being dependent on trade with other European economies represented a security risk. So they argued that economic interdependence needed to be balanced by a security guarantee – not only against the USSR but also a resurgent Germany.

Thus the North Atlantic Treaty Organisation (NATO) was born in 1949 as a counterpart of the MP economic integration agenda. And Truman’s plan to withdraw the US military from Europe was stymied. Contrary to many contemporary perceptions, NATO was not something foisted on Europe by the US.  It was a European initiative.

The Americans faced many challenges in dealing with the French and the Italians. But they managed to insist that MP assistance was conditional on the communists being kicked out of the French and Italian coalition governments. The freshly minted CIA’s first major covert action was a propaganda campaign against the communists in Italy’s 1948 elections.

US’s postwar leadership

Overall, the immediate postwar period was historically unique. The US dominated the world economically and militarily like never before or since. It was also a period of great American geopolitical genius in the form of President Harry Truman, diplomat George Kennan who advocated the strategy of “containing” the USSR, and Republican Senator Arthur Vandenberg, who helped Democrat President Truman by facilitating the MP legislation through Congress.

This period was also one of hard-headed and unsentimental realism. So while Czechoslovakia and Poland wanted to be part of the MP, the US did not react when Stalin instigated a communist coup in Czechoslovakia. The US did not want to risk another war, and Czechoslovakia and Poland were sacrificed for 40 years.

Indeed, the philosophy of the MP was that America’s security required creating a belt of strong, independent, sovereign, democratic, and capitalist allies that would remain friends through thick and thin. The grand project of integrating Europe economically, politically, and militarily was the most important component of the new American geostrategy of “containing” the Soviet Union.

These halcyon days of American leadership also saw the creation of all the important institutions of the liberal world order – United Nations, IMF, World Bank, GATT/World Trade Organisation. Steil also argues that neither NATO nor the European Union would exist today without the Marshall Plan.  They were critical offshoots.

A Marshall Plan for Ukraine?

Needless to say, the geopolitical landscape today is vastly different from the days of the Marshall Plan. The US no longer dominates the world as it did then, and we live in a multipolar world. But when peace returns to Ukraine, a plan for reconstruction and revival of Ukraine will be necessary, even if it is not a replica of the Marshall Plan.

As with the Marshall Plan, large financing will be necessary for a post-conflict plan for Ukraine, with estimates by the World Bank and others suggesting reconstruction requirements going north of $400 billion.

However, perhaps more than money, Ukraine’s economic future and political resilience, will depend on developing the policy and institutional framework for a competitive market economy – an area where European Union membership is key. The cases of Afghanistan and Iraq highlight how money can be wasted when countries lack the domestic capacity to manage reconstruction.

Above all, Ukraine will require a security guarantee, as did Marshall Plan countries through the creation of NATO – something which was again lacking for the reconstruction of Afghanistan and Iraq. That could be done through NATO membership or another bilateral or plurilateral arrangement. But it must be a hard security guarantee.

Bottom Line

In conclusion, Steil’s important book highlights that the Marshall Plan was a very specific initiative, in a unique context and at a particular period of time. While it may provide inspiration for the rebuilding of postwar Ukraine, it does not offer a template.