The Marshall Plan and the Road to Recovery: Learning from the Past Crises

The Role of the Strategist State

Prof. Claude Rochet Athens, Mars 5th 2014

Before the Marshall Plan: The Morgenthau Plan

Deindustrialization Weak Political power = a clear intention of destroying a country => Fostering a negative
synergy among ALL European countries

2
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

The Malthusian consequences of a Morgenthau plan

No industry => Malthusian trap

No industry => economic collapse

No industry => Negative synergies, recession for all

3
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Rediscovering the traditional mercantilist wisdom

Town and industries are at the heart of economic synergies as engines of wealth creation

Speech by G. Marshall June 5th 1947

4
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

What the Marshall Plan was NOT?

Only a massive transfer of monetary ressource to finance imports from the US Just a political operation to contain communism The catalyst of European recovery Monetary orthodoxy Free market orthodoxy

5
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

What it was:

Strong public intervention: Govt failures are always preferable to market failures Alleviation of war controls on prices and quotas, exchange rate stability, BUT under mixed economies redistributional systems Priority to productive investments Considering the economy as a whole and not specific firms as market mechanisms would do + Knowledge transfer => Strong multiplier effect Political consensus on welfare state Bretton-woods system: no currency straitjacket

6
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

A key issue neglected by the folk vision of the Marshall plan:

Knowledge transfer accounted for 1,5% of the total cost of the plan (20bnUS$) 4-6 weeks study tours were organized in the US to learn management methods Productivity solutions suited to local conditions Workers Unions supported the plan under the condition that productivity benefits will be shared between owners, workers and consumers This resulted in dramatic productivity increase of 25-50% with no increase in fixed assets, and an historic increase of TFP

7
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Why it succeeded?: Applying the old recipes

All activities are not alike and growth is an uneven process

Prodty increase in the absence of a manufacturing sector

Searching for synergies between economic activities Increase the technological content of products and labour

8
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Play it again, Sam!

As Time Goes by, the fundamental things apply
Why did the plan worked: - Linking agriculture and industry - Creating free-trade zone, BUT within symmetrical partners - Relying on technologies and activity specific sectors

These are the principles formulated by F. List in 1841

The preconditions for wealth, democracy and political freedom are all the same: a diversified manufacturing sector

9
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Troka policies are akin to Morgenthau plans (1)

De-industrialization as a massive destruction weapon.

10
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Troka policies are akin to Morgenthau plans (2)

with a particular emphasis on Greece

Morgenthau plan in action

11
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Troka policies are akin to Morgenthau Morgenthau plans (2) plan in action
Investment (% GDP)

A process of primitivization: Loss of skills and emigration Retrogression to primitive state

Unemployment (% GDP)

12
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

Lessons from the past:

Development is an uneven process Activities are not alike Wealth is not valued by hours of work but with knowledge Infant activities protection is needed to preserve the first mover advantage High quality activities spill over all the society => civic humanism

The issue of Good and strong Govt is still topical as a condition for growth
Clisthenes principles: isotopia, isonomia, isocratia
Allegory of the Good Governement, Sienne Town Hall, by A. Lorenzetti

13
05/03/2014 Claude Rochet The road to recovery: Learning from the past crises

What is the role of a strategist state?

1. 2. 3. 4.

5. 6.

A strategic vision borne by sovereign state Power and plenty are linked Understanding the role of high quality activities Modernization of public administration and political strategy are closely intertwined Promoting the entrepreneurs and fighting the rentiers Keeping a tight rein on finance Since 1720, financial follies are alike

14

05/03/2014 Claude Rochet

The road to recovery: Learning from the past crises

Thank you!
Claude.Rochet@univ-amu.fr http://claude-rochet.fr

15