Geiger 8

INTERVIEW WITHPROFESSOR THEODORE GEIGER

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INT: Well, the last area I wanted to cover with you was the importance of the Marshall Plan in removing trade barriers. Could you reflect on that for us?

TG: Right. The importance of the Marshall Plan to Europe, I would say, in the short run and in the long run, but particularly in the short run, was fourfold. Firstly, tMarshall Plan enabled the Europeans to acquire supplies of food, fuel, industrial raw materials which they did not have the money to buy on their own. That was the relief effort. The second important part of the Marshall Plan was that it broke bottle-necks. Some economists recently have taken the position that Marshall Aid was a very small percent in terms of what it contributed to European GNP, and that's perfectly true, so you can't argue in a quantitative sense that... that European... subsequent European growth was due to the Marshall Plan because of the total input of resources into Europe financed by the Marshall Plan. What counted was the breaking of bottle-necks, and particularly in production and in transportation. That is, a key machine tool imported from the United States would enable a factory to be productive, whereas the absence of that machine tool would have brought the whole work to a stop, as in the case of Fiat, for example. And so, for a small amount of money, an enormous amount of production effort was acquired, because that particular bottle-neck was broken. That's the second important way. The third important way is with respect to trade and the financial flows - and I'll come back to that in a minute. And let me mention the fourth important way, and that was the recovery of European morale. From rapidly declining morale in Europe, and hopelessness about the future, hopelessness about their own situation, which was so prevalent in the spring of 1947; and by the fall of ninety-seven... '47, before a single Marshall Plan-financed product got to Europe, there was a turn-around. The fact that the Americans were now behind them, that the Americans were going to provide the money for European recovery and so on, that help in European recovery, was an enormous factor. It gave them hope for the future, it gave them a sense of confidence, and... so that was the fourth. Now, to come back to the third. What Europe needed, in addition to the... equipment and the food and the fuel and so on, was more effective use of what Europe already had in terms of its production facilities, because most of the products which were consumed in Europe, even in '47-'48, and subsequently, were produced in Europe; it wasn't imported from the Marshall Plan - only a marginal addition was made. The problem, though, was that surpluses of one commodity in one European country could not be exported to another European country because of the payment situation and because of the trade barriers. And the trade barriers were erected during and after the war in Europe, not so much at that point to protect local industry from imports, but to keep local production at home, because it was needed, rather than letting it be exported to some other country. But where there was a surplus, any individual European country was only willing to export it for dollar payments, because it needed dollars to buy... in the dollar area - US, Canada, other countries that had not been involved in the war - only dollars were the currency that was acceptable, because dollars were freely converted into any other currency. So if France wanted to buy something from Belgium, France had to pay Belgium in dollars, you see, or work out a barter deal with Belgium. Well, barter deals only go so far, you see. And it was therefore, in many ways, the most important long-term effect of the Marshall Plan, was that... the programme to reduce trade and payments barriers. And this was done in various ways, by using Marshall Plan dollars which were not allocated to any particular country, but a special fund to enable a clearing system to be set up in Europe, which was called the European Payments Union, under which countries freely exchanged goods and paid for them in their local currencies, but once a m

INT: Could I ask you to summarise that, then, because it might be an end to a programme, about what was the lasting contribution, or the degree to which the removal of trade barriers and inconvertible currencies, to what degree that was the lasting...?

TG: Well... Yes. The lasting benefit of the initial... and all trade barriers were not removed at one stroke - this was a gradual process of lowering trade barriers, abolishing quantitative restrictions on exports and imports and so on, which went on over the four-year period and on into the Fifties, so it was a gradual process. But that enabled Europe to start on the path to become a single market, in which goods and money flowed freely across national boundaries. And the first step beyond the Marshall Plan was the formation of the Customs Union at the beginning of 19 - what? - '59 was the formation of the European Economic Community, and the completion of the Customs Union by the end of the Seventies; and then the additional lowering of barriers, of non-tariff barriers which began to occur in the Seventies. Now this is what made a major contribution to the rise in growth rates in Western Europe, because during the Fifties, from the early Fifties on, growth rates in Western Europe in the Fifties and Sixties averaged about five and a half per cent a year in real terms. That's an enormously high growth rate for a developed country to have, and that growth rate was sustained in good part - not completely, but in large part - by the fact that Europe was becoming more and more of a single market, more and more competitive single market, in which French manufacturers competed against German, against Italian, and so on, which made for increasing efficiency and that sort of thing. And without that, I doubt whether Europe would have enjoyed... it was a necessary although not a sufficient condition for the very high growth rates which Europe enjoyed from the beginning of 1949 and ending only with first oil crisis in 1973.

INT: How much would you rate the Marshall Plan as being the instrument which freed up European currencies and removed trade barriers?

TG: Well, it's always been my conviction, and particularly as an economic historian, which is what my PhD is in, that the Europeans have... going back to the late Middle Ages... have been basically mercantilist, in a broad sense of the term, and that is that they have always relied on trade barriers, on cartels, and monopolies of various kinds. Su, there was a period in the 19th century in which free trade was supposed to be fashionable, but only the UK practised real free trade in the 19th century; the rest had kind of modified free trade. And the great danger was, as we saw it in the United States, after World War II, that Europe would go back to that kind of a trading system. A great deal of trade is taking place, but restrictions on competitive imports, at least government tolerance of private monopolies and cartels, even if not government promotion of them, and restrictions on capital exports, capital flows and so on. And I think it was due to the insistence of the Americans, and to some extent with strong British support - I will say that - in... and it was mainly the continentals who resisted... on the removal of trade barriers and the development of a multilateral financial clearing system, which was responsible for the trend toward freer and freer trade in Europe, and freer and freer monetary flows. Now, once that process was underway, as it was by the late Fifties, the Europeans then took it up on their own, in the formation of the European Economic... the Customs Union and the European Community...

INT: But earlier on, was...

TG: Earlier on, I think without the American insistence on it, it probably would not have happened.

INT: Can I just ask you to say that... to rephrase it, so: "the American insistence on removal of trade barriers..."? Can I just ask you again... the contribution, if you could describe the contribution of the Marshall Plan to removing trade barriers?

TG: Yeah, I would say that one of the major contributions of the Marshall Plan was the removal of trade and payments barriers.

INT: Thank you very much.

(A bit of talk in b/g. Cut.)

TG: OK, are we... should I talk?

(Cue)

TG: I was the seventh employee of what was destined to be a very small organisation, and it...

INT: Say that again. Give us an idea of how early on you're in, what sort of... Peter's just adjusting the microphone... Just give us the scale, and that you were in on the foundation. So if you could tell us how soon you were absorbed into the organisation.

TG: Yeah. Well... I was... I joined the Marshall Plan, or joined the ECA, the agency that administered the Marshall Plan for the United States, right at the beginning. I was the seventh employee hired, and so I know what happened in the organisation right... almost from the first days. And it was destined to become a very small organisation. If I can paraphrase Churchill's famous remark of "So few... Never before have so many owed so much to so few" - I would say that as far as the ECA is concerned, never before in the history of the United States Government have so few people spent so much money without... with so little corruption, black marketeering, and so on and so forth. That's because the agency, although it was very small, brought into it the best and brightest that America could provide in those years.

INT: Thank you.