These failures would not have been surprising had policy-makers looked more critically at the initial Marshall Plan experience. If massive government spending could work anywhere, it was in Europe in 1948: Human capital was largely intact, the rule of law had a long history, and the customs of a commercial society were readily recoverable. The only thing lacking was physical plant, since so much had been destroyed during the war.
Even in these circumstances, however, there is no convincing evidence that the Marshall Plan caused Europe’s growth. For instance, U.S. assistance never exceeded 5% of the GDP of the recipient nations. As Cowen points out, “The assistance totals were minuscule compared to the growth that occurred in the 1950s.”
Moreover, receipt of aid did not track with economic recovery. France, Germany and Italy began to grow before the onset of the Marshall Plan, while Austria and Greece expanded slowly until near the programÂ’s end. Great Britain, the largest aid recipient, performed most poorly.
Far more important for EuropeÂ’s growth was policy reform. In occupied Germany, for instance, the Allied Control Commission maintained Nazi-era economic controls and imposed new ones, such as a ban on trade. Only in mid-1948 were these counterproductive regulations lifted and sound money established. In contrast, Belgium acted right after its liberation, and therefore started growing well before American aid.
Ironically, the Marshall Plan, like so much later foreign aid, did not encourage economic freedom. Rather, U.S. officials advocated high taxes, extensive public spending and Keynesian economics. It was the end of U.S. assistance that most encouraged recipient nations to adopt reforms.