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Implementing the Marshall Plan: Chapter 4 – Monograph Collection

   
Publisher: George C Marshall Foundation




Compelling reasons exist for performing careful historical autopsies on
nations that once benefited from Marshall Plan aid. After all, dis-
tances between intention and effect, as well as between concep-
tion and execution, need to be understood. But what countries to select for
study? Singled out were ones with the greatest resonance for the challenges
of postwar reconstruction and stabilization today. In the first place, three of
the four nations chosen had been ravaged by World War II, with two being
vanquished enemies in need of political reinvention and economic stability.
The third struggled, simultaneously, to rebuild itself, pursue economic
development, and fight a bloody civil war against Communist insurgents.
The relevance of the fourth was its non-Christian, non-Western culture
co-existing with a commitment to modernization. The case studies also pos-
sessed the virtues of variety—a western European, two southern or Medit-
erranean European, and an essentially Middle Eastern society—which
promised to reveal the Marshall Plan’s practical limits along with the ways
weakness could be strength. Finally, all shared at least one characteristic:
they experienced “economic miracles” in the 1950s.
The four Marshall Plan countries selected for close examination—
Greece, Italy, Turkey, and West Germany—once posed distinctive chal-
lenges and special problems to the American specialists whose assignments
were to expand their economic production and stabilize their politics. In
multiple aspects, each is a reminder of two truths: first, in searching for his-
torical generalizations nothing is quite so universal as the particular; and
second, particularism’s tendency to run riot must be checked for the sake of
the “big picture.” The countries will be analyzed on a continuum from the
Plan’s mixed results in Greece to its outstanding success in West Germany.
Greece then straddled the cultural divide between West and Middle East,
as it does today. To a country of eight million people with a feeble political
center, Marshall Plan aid was fundamental to national survival. It had to be
rescued from both economic collapse and internal aggression. Paul R. Porter,
one-time head of ECA’s Athens mission, thought that “without American eco-
nomic and military aid, Greece would have spent the next forty years on the
wrong side of the Iron Curtain.” The former chief of the mission’s Import
Program Office agreed: “Greece would have gone down the tube.”1
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Barry Machado
In Italy, a nation securely in the West and with a strong political center,
any possibility of a violent overthrow of the government ended in the elec-
tions of April 1948. By then, the Italian economy was, despite high unem-
ployment, on a generally sound footing. How to rapidly develop a society of
forty-five million inhabitants split between a modern north and a tradition-
al south, and against the will and fears of a pro-American government, was
the ECA’s central dilemma. The difficulty faced in Turkey, a secular Islamic
country aspiring to be Western, but one that also remained on the sidelines
as a neutral during World War II and experienced no destruction, was how
to modulate the economic ambitions of Turkish authorities. As a vital mili-
tary ally in the Cold War, facing intimidation by the Soviet Union, twenty
million Turks needed a stronger, more modern economy. For Marshall
Planners, pursuing a national security goal with economic means had its
bumper crop of unintended consequences.
Unlike Greece, Italy, and Turkey, which quite often turned out to be con-
tests of ingenuity and will, pitting the ECA mission and the local government
against each other over methods or money, West German and American offi-
cials generally saw eye-to-eye about reintegrating the Federal Republic back
into the European mainstream. As in Athens, from September 1949 until
1952 the ECA dealt with a semisovereign government in Bonn. For the prior
fifteen months its relations with the American military governor of Bizonia
probably qualified as the most trying in Marshall Plan annals. The reason
was simple. The stakes there were the greatest, for the fate of ECA’s vision
of a “new Western Europe,” economically self-sufficient and politically sta-
ble, hinged on the outcome of its policies towards World War II’s villain. In
the design of the Marshall Plan’s elaborate structure, West Germany fit as the
ironic but critical keystone.
Greece
In a chronology of postwar assistance to Greece, the Marshall Plan stood
third in line, a Johnny-come-lately. Before the ECA Mission to Athens
arrived in the summer of 1948, UNRRA and the American Mission for Aid to
Greece, or AMAG, had been extending a helping hand. UNRRA adminis-
tered, in effect, first aid, while in 1947 AMAG, a combined military and civil-
ian mission formed under the Truman Doctrine, connected Greece to a life-
support system that barely sustained arguably the most devastated country
to emerge from World War II. Under the direction of Dwight Griswold, for-
mer Governor of Nebraska, AMAG was a full-blown aid program with a
$300,000,000 congressional appropriation. Upon finally shutting down, its
projects and most of its personnel transferred to ECA Athens. The Marshall
Plan’s first Chief of Mission in Greece, John Nuveen, described the transition
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Implementing the Marshall Plan
succinctly: “I inherited [Griswold’s] staff.” By August, when Griswold
departed, Nuveen was assembling his own. During the rest of the mission’s
first year a large turnover in division directors took place, with AMAG
holdovers later distinguishing themselves in service to the Marshall Plan.2
Despite UNRRA’s and AMAG’s best efforts, Greece was still bankrupt and
convulsed by civil war when they turned their economic and technical assis-
tance programs over to Marshall Planners. Driven by its supreme can-do atti-
tude, ECA strove to transform a basket case living hand-to-mouth into a
showcase. The year before ECA replaced AMAG, Greece had attained just
40% of its prewar national income.3 Seventy percent of all Greeks were then
one-crop farmers. The country had virtually no industry, foreign exchange,
or exports of manufactured goods. Just eight million arable acres, a token
infrastructure, rampant inflation, almost no bank deposits, capital flight, and
a currency distrusted by everyone meant that American money was wagered
on a long shot. A pervasive national fear worsened the odds. Greece’s dread
of the future had a golden color and the shape of a British sovereign, pre-
ferred by its people over the drachma. Undaunted, Marshall Planners provid-
ed Greece with $700,000,000 in grants over the next four years. (See
Appendix D.) That was half West Germany’s allocation, amounting to 5.5%
of all ECA assistance and making Greece the sixth largest recipient.
In spite of some glaring failures, the country mission beat the unfavor-
able odds, accomplishing more structural reform than ever seemed possible.
Moreover, a stabilization program, bent on controlling inflation and halting
the sale of gold sovereigns, started in earnest in late October 1951, as the
Marshall Plan wound down. The following year, after ECA lost its independ-
ence, American-sponsored currency reform finally stabilized Greek
finances, ushering in fifteen years of a respected drachma and the so-called
“Economic Miracle” of the 1950s and 1960s. Remarkably, Greece’s rate of
real national per capita income growth rivaled West Germany’s over that
span. There was a catch, however. American achievements raised Greek
expectations unrealistically, laying a groundwork for bitter disappointment
ahead. Delayed in its billing, the Marshall Plan’s hidden cost was a heavy toll
in Greek goodwill.
Like Greece’s resistant political culture, inheritances of World War II
made ECA’s successes problematical from the start. That catastrophe left
America’s wartime ally in shambles. A former State Department official
regarded Greece as the “most thoroughly destroyed, disorganized, and
demoralized country in Europe” at war’s end. After a half century, a like-
minded European historian revised only slightly the sad appraisal: Greece
“probably suffered more war damage than any other European economy
except Russia.” Occupied simultaneously by three Axis powers for four
years, the Greek people were truly star-crossed, on a par perhaps with the
hapless citizens of Warsaw and Manila. Not only did 8 to 10% of its citizens
perish in World War II, but when the Germans, Italians, and Bulgarians
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Barry Machado
finally retreated, they imitated Vandals and Huns, destroying or looting
everything they could. Bridges, canals, railroads, tunnels, and harbor facili-
ties lay in ruins. Infrastructure, like the port of Piraeus serving Athens and
the three-mile-long Corinth Canal, a shipping artery, was left unusable.
Bulgarians added a final indignity. To get their Greek booty home, they built
a railroad. When they finished pillaging, they dismantled the railroad and
took it across the border.4
By the time of Secretary George Marshall’s Harvard speech, the situation
in Greece was uniquely tragic. A fierce civil war raged, compounding the suf-
fering already inflicted by massive wartime destruction. Since April 1946,
when Communist-led insurgents launched an uprising backed actively by
Yugoslavia’s Marshal Tito, the very survival of a fragile Athens government
was in doubt. Calling themselves the Democratic Army of Greece (DSE),
rebels had a fighting force of around fifteen thousand and supporters num-
bering seven hundred thousand, compounded of peasants, workers, intellec-
tuals, and retail merchants. At the end of 1947 one of their Moscow-trained
military leaders announced creation of a “free” government that contested
the constitutional monarchy’s legitimacy.5
Why the formidable strength of the Communist insurgency? First of all,
World War II had conferred its usual postwar halo on Communists for lead-
ing the Resistance movement against the Germans and Italians. But, fore-
most, with only a tiny middle class, combustible disparities of wealth sepa-
rated the few and the many in Greece, an injustice exacerbated by wide-
spread tax evasion by the well-to-do. Substantial contributors to the insur-
gency, principally as aids in recruitment, were also defects in the constitu-
tional monarchy. “Incompetent, reactionary and obstructive,” an American-
supported, royalist regime alienated a sizeable minority of the population at
a time when Embassy personnel regarded Greek politics as national sport,
even a wonderland. Actually, it was deadly serious, with the well-being of
extended families hanging in the balance. The parliamentary system in
place, with its proportional representation and 354 members in a single
chamber, rendered effective governance and needed reforms nearly impos-
sible. Amidst an excess of democracy and empty political speeches, thirty to
thirty-five splinter parties commonly held parliamentary seats. Queen
Frederica confided to George Marshall that her nation’s political leadership
was simply “hopeless.” Like the Corinth Canal, legislative channels in
Athens were impossibly clogged after the war, not by debris but by internal
dissensions which left holders of power out of touch with most people out-
side the capital.6
The upshot was acute political instability and incapacity to solve funda-
mental economic problems, particularly the drachma’s demise. Between
1944 and the end of 1951, twenty-six different governments held power in
Greece, with some ruling coalitions surviving just days or weeks. The dizzy-
ing merry-go-round and dance of the cabinet ministers always taxed the
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057112Chap4Implementing-5_1
Implementing the Marshall Plan
Clearing the Corinth Canal, April 9, 1948.
patience and fortitude of ECA’s chiefs of mission and their staffs. Paul R.
Porter, who served after Nuveen as Chief for fifteen months, recalled the
extra burden he carried in trying to meet Marshall Plan objectives. During his
tenure he had to deal with no fewer than seven different governments. The
political situation in Athens encouraged disrespect in Washington and Paris.7
Remaking Greece depended on a secure environment. Pacification came
first. Not until October 1949, with Communists defeated and civil war over,
did Marshall Planners shift their highest priority from assisting the war effort
and providing for the security craved by people in the countryside to recon-
struction, reform, and development. In the meantime, even though ECA
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Barry Machado
tempered its ambitious economic agenda, the country team operated on two
tracks and tackled numerous problems. ECA strove to improve economic
conditions as the fighting worsened. The mission regulated imports, boosted
exports, improved public health, and ameliorated labor relations.
Surrounded by hit-and-run guerrilla attacks, and with the Greek
National Army (GNA) commanding a huge chunk of the national budget, the
Food and Agriculture branch and road-building corps performed wonders.
Mission officials visited villages all over the country coaxing increased pro-
duction through improved farming methods. For the crop year ending
August 31, 1949, farmers produced more food, feed, and fibers than they had
averaged during the prewar period, 1935–38. American agricultural special-
ists also started to mechanize the plains areas of Greece, lowering costs and
expanding output. Between 1947 and 1951 over 5,000 tractors were import-
ed under ECA auspices. At the end of World War II only 420 operated in the
entire country. Marshall Planners were unsung heroes in keeping a 200,000-
man National Army well fed and highly mobile in the field.8
The Athens mission was likewise instrumental in solving an enormous
refugee problem spawned by civil war, a crisis born of two fathers. An unan-
nounced goal of the Communists in fighting was to eliminate private owner-
ship of farms preparatory to eventual collectivization of agriculture. In this
objective their destruction of pro-government villages received unsolicited
help from the National Army. Its own deliberate policy of clearing the coun-
tryside of potential sources of food, animals, intelligence, and recruits for
the DSE led to forced evacuation of thousands of villages. Tactics on both
sides left 25% of the population homeless, set in motion a huge internal
migration, and bred anarchy in rural areas. In all, between 670,000 and
700,000 villagers were uprooted and relocated out of the war zone and into
refugee camps at Lamia and other centers. In the winter of 1948–49 an esti-
mated 2,500,000 Greeks depended on government support of some kind.
Two months before fighting ceased, 178,000 farmers, along with their fami-
lies, still lived in various relocation facilities. By June 1950, just 5,000 had
yet to be resettled or repatriated.
Caring for refugees with food rations that included millions of cans of
evaporated milk, providing resettlement allowances, and then speedily
returning rural folk at great expense to their old villages commanded ECA’s
biggest commitment during the insurgency. Its valuable work certainly
enhanced, indirectly, the war effort and did not end until the camps emptied
of all displaced people. It meant too that ECA’s efforts were, in a large way,
engaged in 1948, 1949, and early 1950 with issues of food, clothing, and
housing—and other necessities for refugee survival. About 50% of all coun-
terpart funds during the life of the Marshall Plan went for “care and housing
of refugees,” social welfare programs on their behalf, and work relief when
they returned home. An all-out attack on Greece’s seemingly insoluble
macroeconomic problems awaited the last provision of humanitarian relief.
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Implementing the Marshall Plan
Greek workmen grade the street in front of new housing
constructed with the help of Marshall Plan funds
Delay had its unfortunate consequences because it put a premium on haste
in the Marshall Plan’s remaining years.9
If the country mission’s role in the civil war’s outcome has been under-
appreciated, the military performance of the National Army and the adviso-
ry role of the American Army under General James Van Fleet have been gen-
erally overplayed. An official American version at the time, that “the Greek
people . . . drove Communism from their land,” was both misleading and
oversimplified. Among decisive factors in the Communist defeat were two
internal decisions, along with an equal number made well beyond the bat-
tlefield. Changes in tactics and command by insurgents helped to doom
their cause. Pressured against his better judgment by Nikos Zahariadis,
leader of the Greek Communist Party (KKE), the insurgency’s experienced
military head since the fall of 1946, Markos Vafiadis, switched from effective
guerrilla tactics to conventional warfare that played disastrously into the
GNA’s strength in firepower. A second mistake was replacing Vafiadis with
Zahariadis, a slavish Stalinist whom historian John Iatrides has described as
“much more a Soviet agent than a Greek.” Both errors left the rebels highly
vulnerable to outside events: Stalin’s break with Tito, who was expelled from
the Cominform, and a revised Cominform line that Macedonia would be a
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Barry Machado
separate nation at the close of hostilities. Unintended consequences of these
distant decisions also abbreviated hostilities.10
The influence of Tito’s heresy on the Greek civil war was probably not as
pivotal as the Cominform’s new position on the Balkans. When Zahariadis
and the KKE eventually sided with Stalin, who first denounced Tito in late
June 1948, they in effect committed suicide in Greece’s northern mountains.
Tito’s revenge and retaliation proved as destructive as the new GNA strategy
under Field Marshal Alexander Papagos. By shutting the Yugoslav-Greek bor-
der in June 1949, denying the rebels sanctuary, and stopping all aid to the
insurgents, Tito accelerated their defeat. Neither Albania nor Bulgaria could
replace what was lost in materiél. Besides the unexpected actions of the
“Luther of the Communist World,” the equally surprising announcement in
January 1949 by Zahariadis that the KKE favored the Moscow line on an inde-
pendent Macedonia, one incorporating Greek lands, sealed the fate of his
Communist forces. It was, for good measure, a final ruinous blunder, precip-
itating desertions, weakening morale, and fracturing the revolutionary move-
ment. Opposed to the Macedonian autonomy scheme, a pro-Tito Vafiadis was
expelled from the KKE. Its public disclosure transformed a civil war still going
badly for the Athens government into a holy, national crusade to save the pat-
rimony, galvanizing Greek patriotism and nationalism. Nine months later,
what remained of the revolt fled into Albania and Bulgaria.11
Without a switch in enemy tactics and command, and sans back-to-
back deus ex machinas in the first half of 1949, protracted warfare now
seemed likely. When Prime Minister Themistocles Sophoulis announced
enthusiastically in late August 1948 “the end of the battle of Greece,” he
was thirteen months premature. As late as December, insurgents still held
the upper hand. ECA personnel could not travel more than twenty miles
outside Athens without military escort. “By the end of 1948 and the begin-
ning of 1949,” according to Field Marshal Papagos, commander of national
forces in the conflict’s final stage, “the whole situation was deteriorating.”
Neither Papagos nor General Van Fleet, who headed the American military
advisory group, Joint U.S. Military Advisory and Training Group
(JUSMAPG), after February 1948, ever gave credit where credit was due.
Both always denied the importance of external decisions, simply disregard-
ing the Macedonian factor. Van Fleet viewed closure of the Yugoslav border
as a Communist admission of defeat, not a cause of their failure. The claim
that Tito’s “defection” assured GNA victory struck him as “ridiculous.”
While JUSMAPG upgraded the training of Greek soldiers, modernized their
weaponry, and elevated their morale, such improvements had limited
effect. Despite Papagos’s and Van Fleet’s denials, the Marshall Plan in
Greece may never have progressed very far beyond pacification had it not
been for fortuitous events in the Communist world. They led, after all, to
denial of safe haven to the insurgents in their military operations and the
KKE leadership’s implosion at rebel headquarters. Once again, the United
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Implementing the Marshall Plan
Workmen repair a bombed bridge in Macedonia.
States drew a wild card from the Cold War deck, one with “Uncle Joe’s” pic-
ture on both sides.12
With the civil war finally won, internal security achieved, and a little over
two years left in the life of the Marshall Plan, ECA turned its full, undivided
attention at last to nation building, whose foundations were equated with a
modern transportation and communications infrastructure, scientific agri-
culture, public health and power, a balanced economy, collective bargaining,
a sound currency, equitable taxes, and American-style democracy. The mis-
sion was in an understandable rush to uplift Greece by, in effect, grafting the
New Deal onto an old political economy. Some programs now given priority,
like rebuilding Greece’s transportation system, had been started by AMAG in
collaboration with the U.S. Army Corps of Engineers, with most construction
contracted out to American companies on cost-plus bases. Rebuilding and
expanding roads, railways, bridges, canals, airports, and port facilities “grew
directly and largely out of military needs” but merged with or folded into ECA
activities. Picked up and completed by the Athens mission, transportation
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Barry Machado
projects were “mammoth”: 13,000 kilometers of roads, with 3,500 rebuilt
and paved. New unpaved roads ended forever the isolation of Greek villages.
250 highway bridges were also reconstructed. When completed, Greece’s
highways formed an integrated national system for the first time. Its damaged
railroads were also restored. In all, 2,000 kilometers of trackage were
repaired or replaced but with one odd feature: in the drive to completion and
in deference to local preferences, three different track gauges were adopted.
Another first in Greek history, a genuine national market for farmers and busi-
nessmen depended on these major improvements in land transportation.13
The Marshall Plan’s greatest contribution to Greece’s modernization was
not, however, upgrades in transportation. Development of a national, state-
owned electric power grid earned that honor. A few Marshall Planners consid-
ered it a “carrot,” or at worst, “nearly a boondoggle,” an expensive means to
get the Athens government to cooperate on other, more essential matters. But
electrification promised to greatly spur economic growth and to diversify the
Greek economy, especially by encouraging needed light industry. Inspiration
for development of water power resources and production of cheap energy
was, of course, the New Deal’s Tennessee Valley Authority. Guiding forces
behind the $100,000,000 project were AMAG alumnus Ken Iverson and
Walker Cisler, President of Detroit Edison, whose advisory role also laid the
groundwork for Greece’s Public Power Corporation, created in 1951.
The original ECA plans in 1949 called for five major hydroelectric gen-
erating stations to end Greece’s dependence on expensive oil and coal
imports. In July 1950, a scaled-back proposal for a 150,000-volt transmis-
sion system for distributing power from four new generating plants—three
hydroelectric (cut from five) and one coal-fired—was approved with the
main contract given to an American firm, EBASCO. The Greek government
was required to defray one-third the cost of the project. Construction got
underway the same year. In December 1952 the first power plant came on
line. Four months later, a second joined the system. Both did so ahead of
schedule. When the whole net was finally completed by 1956, a basic pre-
condition for future Greek industrialization was in place. Electrification
ranked as a priceless Marshall Plan legacy and an extraordinary engineering
feat as well.14
In keeping with its aim of balancing industry and agriculture in an over-
whelmingly rural country, the country mission brought Greek farming out of
the middle ages and into the second half of the twentieth century. Looking
back on his time as a field adviser and head of the Food and Agriculture
branch, Brice Mace felt proudest about successfully introducing an
American-style agricultural extension service throughout the country. Using
the U.S. Department of Agriculture’s long-established program as a model,
ECA did not offer it as a quick fix but rather phased it in over a two-and-a-
half-year period. Its gradual acceptance and adoption guaranteed its perma-
nence in Greek life. The whole undertaking demonstrated yet again that
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Implementing the Marshall Plan
patience in a traditional society is a cardinal virtue. Ultimately, the Greek
parliament in 1950 created another government agency to house agricultur-
al extension agents who embodied a novel, imported concept. Its creation
fixed a highwater mark in promoting self-help, a virtue more forgotten than
remembered in the Athens mission. Mace’s accomplishment was exceptional
because he overcame the customary self-image of Greek bureaucrats that
government officials were “public masters” rather than “public servants.”
The crucial breakthrough for Mace and his colleagues was persuading a reluc-
tant Greek Minister of Agriculture to do the unthinkable: take to the fields to
personally demonstrate proper planting techniques, uses of fertilizer, artifi-
cial insemination, and other applications of scientific knowledge. As hoped,
the greater agricultural productivity that resulted did benefit all Greeks.15
While ECA’s well-drilling program qualified as a big success in the coun-
tryside, providing villages with potable water, cooperative marketing proved
a major failure, largely because long-established buyers controlled markets
and resisted reform. Americans did achieve lasting fame and a permanent
memorial, though, by bringing to Greek farming practically a brand-new
crop. Walter Packard, the mission’s irrigation and production specialist and
veteran of the California Irrigation Service, is credited with the so-called
“Rice Miracle.” Under his supervision, ECA undertook a major land recla-
mation program, converting 82,000 acres of previously worthless, salty
soils in river basins and deltas into rice culture. The Marshall Plan turned
salt flats into paddies and farmers, whose rice output had been negligible,
into producers of a surplus for export. National production expanded from
4,000 metric tons in 1935–38 to 75,000 in 1952. Until Packard’s exploits,
Greece had imported most of its rice. In the village square of Anthili in cen-
tral Greece a bust was subsequently erected to honor Packard for his excep-
tional service to the nation’s agriculture. Brice Mace has long deserved one,
too.16
Seemingly with maximum economic leverage at their disposal, ambi-
tious Marshall Planners prodded Greek politicians to rewrite their income
tax laws and reform their governance. Exposing a conception of the social
contract very different from their own, their attack on an unfair and unen-
forceable tax system, and the maldistribution of wealth it shielded, ended in
failure. They also targeted national and local political structures, as well as
the electoral system. Their push for better government—which meant more
decentralized, democratic, and efficient—is a curious story of temporary
success, Greek backsliding, and American disappointment, although a few
transformations of note did occur. Long-postponed municipal elections, for
example, were finally held in April 1951. And parliamentary representation
eventually switched from a proportional to a district system with majority
rule, a new arrangement that reduced somewhat the chronic instability at
the top. The status of some municipal government officials—village presi-
dents and city mayors—also changed from appointive to elective.
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Barry Machado
Paul Hoffman (center), the Greek government ECA liaison (left), and
C. Tyler Wood (right) view a Marshall Plan publicity display, October 1950.
After John O. Walker joined ECA’s Civil Government branch in Athens
in late 1948, the only division of its kind in the entire Marshall Plan set-up,
he and Russell Drake spearheaded an effort to modernize and revitalize local
government by decentralizing authority. Emboldened by ECA’s other suc-
cesses, reformers pressed forward at the grassroots, launching an assault on
the nomarch system next. Their campaign turned into a battle of wits with
defenders of the status quo, interminable delays, and a bewildering
encounter with Athenian “psychology” and its allergy to plain speaking.
Pre-Walker Greece had been broken up into forty-seven political divi-
sions, each called a “nomos,” roughly comparable to an American county. All
were administered by governors, or “nomarchs,” who were usually hacks
appointed by the Ministry of Interior in a giant spoils auction befitting New
York’s storied Tammany Hall. With cooperation from sympathetic politicians
who passed, after much procrastination, a civil service law in 1952, Walker
and Drake managed to depoliticize nomarchs temporarily. Younger, well-
trained career men were then appointed on the basis of merit, but fatal flaws
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Implementing the Marshall Plan
in ECA-sponsored legislation soon became apparent. First, cabinet ministers
controlling counterpart funds denied the new breed of nomarchs control over
public expenditures, weakening thereby the value of decentralization.
Second, and more Machiavellian, politicians created a new class of political
appointees called governors-general. By placing them directly over
nomarchs, Athens checkmated the Americans. Old political habits were
indeed resilient, as the toppled patronage system slowly reconstituted itself.
In December 1952, government appointees replaced once again elected may-
ors. Two years later, the Ministry of Interior rescinded the “career nomarch”
legislation, dismissing careerists and reviving the spoils system. In the end,
reform backfired, leaving behind two stifling layers of centralization instead
of one. The civil service remained woefully bloated and inefficient. And
American-style democracy was still an elusive goal. Perhaps Greece’s central
statistical bureau, which facilitated reliable agricultural and national census-
es and made possible the first national budget on record, qualified as ECA’s
most lasting achievement in governmental and administrative reform. One
imposing monument to America’s four-year presence was scientific budget-
ing. Like the agricultural extension service and the big rice crop, it had never
been a feature of Greek life prior to the Marshall Plan.17
Also transforming traditional ways of transacting business in Greece
were non-Communist trade unions, masterminded largely by a former offi-
cial of the United Auto Workers, Douglas A. Strachan. Head of the Labor and
Manpower Division and AMAG holdover, Strachan stood apart as the mis-
sion’s senior member. Since his hiring in July 1948, he worked tirelessly for
four years, with partial success, to build “a real labor movement.” To
Strachan, an old Socialist, “real” meant anti-Communist and independent.
A hatred in Greece for Communist labor organizers insured him substantial
local cooperation. Once again, Communists behaved as their own worst
enemy. Prior to the outbreak of civil war, and in preparation for an eventu-
al takeover of government, they had assassinated well over one hundred
trade union leaders. “Real” also meant that Strachan strove to organize his
fledgling Greek unions in the image of America’s AFL and CIO—and on the
basis of their antiideological, bread-and-butter philosophy. Despite his per-
sistence, Greece’s labor movement rid itself of Communist influence but not
of its government control.18
One other extraordinary American achievement and legacy involved the
Public Health Division’s four-year campaign against malaria, which ended in
the 100% eradication of the mosquitoes carrying the parasites that caused it.
Later a villain of the environmental movement in the United States, the real
hero then was DDT. The antimalaria campaign began under UNRRA and was
inherited by ECA. Before the disease was targeted by UNRRA and the mis-
sion team headed by Dr. Oswald Hedley, another AMAG alumnus, roughly
half the Greek population suffered from its periodic attacks of chills and
fever. Although they failed to reform health care administration, public
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Barry Machado
health officials battled tubercu-
losis, launched a nursing pro-
fession, and modernized hospi-
tals and clinics.19
When time ran out on the
Marshall Plan, Greece still had
a worthless currency and an
unemployment rate around
17%—and was nowhere near
the goal of a self-sustaining
economy. But the changes in
Greek society were immense
nonetheless. The Plan helped to
derail a Communist revolution,
Greek Army minesweeper.
promoted market farming,
improved agriculture and public health, rebuilt infrastructure, brought elec-
trical power to the country, improved to some degree political structures
and administration, founded a non-Communist trade movement, and pro-
vided more aid per capita than in any other Marshall Plan country.
Moreover, chances for homegrown development turned especially favorable
in 1952 when currency stabilization succeeded in dulling at long last the
British gold sovereign’s luster. Between 1953 and 1968 Greece experienced
“almost the highest rate of real per capita economic growth of any country
in the OECD, save Germany and Japan.”20 Why, then, were so many Greeks,
both leaders and plain folk, either ambivalent about Americans or else
downright anti-American, by the mid-1950s?21
An American aid official in Greece from 1947 until l949, John O.
Coppock, has shed light on the paradox. In his judgment Marshall Planners
lost their way and abandoned their credo in Greece. A violation of George
Marshall’s First Commandment—Europe Shall Save Itself—was committed
inasmuch as the Plan functioned as the “main driving force” it was never
supposed to be. For one thing, the Yankee presence was simply too big, too
visible, too intrusive, and too deeply involved in governmental affairs to con-
stitute a genuine partnership. Statistics reveal the magnitude of American
domination: its aid was 25% of Greece’s GNP, financing 67% of all Greek
imports.
The sheer bulk of the Athens mission on Churchill Street reflected its
oversized influence. To a gathering of ECA mission chiefs in February 1949,
John Nuveen avowed that “by a strange anomaly I represent the smallest
country but the largest mission.” His country team fluctuated in size between
183 Americans (and 523 Greeks) inherited as civilian personnel from AMAG
and 131 a year later. But at the time Paul R. Porter replaced him in
September 1949, with the civil war’s end in sight, the American staff had bal-
looned to 240 people, three times the size of the Italian mission and nearly
70


057112Chap4Implementing-15_1
Implementing the Marshall Plan
five times its Turkish counter-
part. The passage of fifty years
apparently fogged Porter’s memo-
ry, for in 1998 he wrote that “at
the peak” ECA Athens employed
181 Americans and 48 Greeks.
He was mistaken. Even in ECA’s
last year of operation, 1951, its
staff continued to number 215
Americans and 410 locals, pre-
senting an overwhelming physi-
cal reminder of a sovereignty
more forfeited than abridged.
Greek Army engineers repair a road.
Such mass and visibility were
never Washington’s intention.
The report which called forth
AMAG had recommended a mission of “modest size,” with no more than 50
people plus a single chief. Its author, Paul A. Porter, proved prescient. “The
Greek public, whatever its initial reaction, would probably not take kindly,”
he predicted, “to an overly large group of Americans.” Except for the single
chief, nobody heeded his advice.22
To Coppock, the Athens mission evolved as “a thing apart,” described by
some as either a shadow government or how one of many ambivalent Greek
officials during the Marshall Plan years, the Minister for Coordination and
Economic Planning, Spyros Markezinis, referred to it: “an American super-
government.” Another member of the American team likened his role to
that of a proconsul. Many years later, Coppock’s boss swept aside
euphemisms, downplaying the genuine partnerships personified by Packard,
Mace, and other missionaries from across the Atlantic. What Greece experi-
enced from 1948 until 1951, in John Nuveen’s opinion, was “the four-year
dictatorship of an American junta,” composed of the American Ambassador,
the head of JUSMAPG, and ECA’s chief of mission. By replacing euphemism
with exaggeration, the Chicago investment banker missed a key point.
American domination was as much perception as reality, for in truth a tem-
porary deal or bargain had been struck. ECA Athens never wielded plenary
powers. Instead of usurping authority, desperate Greeks thrust it upon
Americans in a national emergency. In the lawful provisions of the bilateral
ECA treaty, a member nation diminished its own sovereignty to avoid its
own financial disintegration and a Communist takeover. Constantin Tsatsos,
a critical Greek government official, was correct: “everything the Americans
wanted was given.”23
As terms of the deal, highly visible Marshall Planners did exercise indi-
rect and partial control over exports and imports. They modified prices for
major commodities and interest rates on loans. They also oversaw currency
71


Barry Machado
and money supply, and ratified bank credits. The American steamroller even
ran government bureaus, including finance, foreign trade, and public works.
Before Paul R. Porter’s tenure as mission chief ended, he had removed all but
two Americans overseeing government bureaus. By then, though, consider-
able damage to Greek pride and self-respect had already been inflicted. The
public, as Paul R. Porter once foretold, had not “taken kindly.” But the
extent of offended sensibilities and ill will can be overstated. Greece had a
long history of political intervention by outsiders. “Greece is by her nature
a dependent country,” observed an American journalist in 1949, “a poorer
south Italy without north Italy to draw on.” What probably mattered most
were the elevated expectations which America’s proconsulship instilled in
many Greeks. Fulfilling its end of the bargain entailed a new role as godfa-
ther, or “nonos,” with unspecified future responsibilities for Washington.24
In his memoirs Paul R. Porter fondly remembered the remarkable
improvements and transformations that occurred during his time in Greece.
He also expressed regret that the ECA was guilty of a serious misjudgment.
Americans should have been more patient in fostering self-help among
Greeks. They did way too much, breaking George Marshall’s bedrock rule
that “only Europeans can save Europe.” No matter what American motives
were, a heavy-handedness characterized the treatment of host by guest.
Threats of withholding or cutting off Marshall Plan aid actually forced gov-
ernment resignations, toppling Prime Minister Sophocles Venizelos and his
cabinet in 1950. In a letter to George Marshall, dating the nadir of Greek-
American relations under the Marshall Plan, Queen Frederica accused
Ambassador Henry Grady of “imposing” on her people the “unspeakably
awful” government of Nikolaos Plastiras as Venizelos’s successor.25
With the sterling intentions of do-gooders in a hurry, the Athens mission
overreached itself, compromising national sovereignty and providing
unfriendly Greek politicians with an all-purpose “American card.”
Thereafter, it could always be played when their chronic failings required a
handy scapegoat. Bent on liberating Greeks from economic and political
backwardness, as well as ending the rule of a swollen bureaucracy and its bad
administration, Marshall Planners eagerly accepted an invitation to rebuild
and defend a shattered nation. They hoped to make Greece over “in their
own image.” Indeed, Greece provided the setting for the most comprehensive
effort to Americanize a European nation under Marshall Plan auspices.
But Greek culture strongly resisted American-sponsored change. Its
Byzantine politics, for example, was simply unfathomable. Its methods for
outfoxing foreign missionaries like John O. Walker and Russell Drake could
be ingenious. More Eastern than Western, some Greeks even equated aid
with domination, obviating any appreciation on their part. Trying to come
to terms for the first time with a country straddling West and East, Marshall
Planners unwittingly planted seeds of anti-Americanism. In late 1954 and
1955, when Washington failed to discharge its duties as “nonos” by siding
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Implementing the Marshall Plan
with London on the Cyprus Question, America reaped the whirlwind. Its
opposition to a union of Cyprus with Greece, or “enosis,” crushed Greek
anticipation of a special relationship with the country of the Marshall
Planners. Thereafter, a popular sentiment of betrayal exposed, tapped into,
and magnified latent resentments. A patron state had entitlements, but to
clients in Athens disloyalty was not among them. The Plan’s creators had
neither wanted nor expected what Will Clayton once belittled as “hosannas
of gratitude.” But they never imagined the nationalist backlash that swept a
society historian William McNeill discovered in the mid-1950s as, supposed-
ly, full of “anarchists and individualists at heart.”26
“We were guilty,” remembered James Warren, “of a little bit of hubris.”
His open confession is a “bit” of an understatement. Arriving in Greece
knowing “very little of Greek society” and almost nothing of the Greek lan-
guage, Americans still felt that the American Way was the “only acceptable”
solution to Greece’s problems. A local government specialist in the Athens
mission, Harold Alderfer, decided belatedly that “the real Greece cannot be
understood in Western terms.” As a result, Greek sensitivities about their
culture, traditions, and history went frequently unrecognized. In an especi-
ally revealing comment in his rich oral history, Warren admitted that
Americans were “tied umbilically to our interpreters who were with us in
every circumstance.” Supposedly to minimize misunderstanding, profes-
sional interpreters handled all ECA business. Since the American embassy
provided no Greek language training, Marshall Planners who wished to cut
the umbilical cord hired tutors at their own expense. Apparently, not many
did. Understanding was thus compromised.
A striking weakness of the ECA in Greece was its lack of individual lan-
guage facility, which elevated local interpreters into wielders of inordinate
power. Of necessity, reality was almost always mediated by a third party and
seldom experienced directly. One Greek official thought that the Americans
were “surrounded too much by [Greeks] who had a language advantage” but
were without the best knowledge or good judgment. The same problem sur-
faced in Turkey. The head of the Turkish Central Statistics Office also com-
mented on the tyranny of English wherever the ECA operated. He detected
“a tendency to [hire] very nice fellows speaking English” while the ablest
men went unutilized. Badly needed, American clones of Vernon Walters
remained in short supply. Genuine appreciation of the characteristics of an
older civilization suffered as a result.27
Italy
In the Italian case, ECA revealed greater flexibility than it did in Greece,
adapting its goals to Italy’s priorities and peculiarities. Italy perhaps best
illustrated the Marshall Plan’s basic heterogeneity. Its ordering of specific
73


Barry Machado
objectives varied from recipient to recipient, with their selection depending
on each country’s distinctiveness. The Procrustean bed into which Greece
was tucked proved the exception, for no other Marshall Plan country except
West Germany was as acutely vulnerable to a fundamental makeover as was
Greece. By contrast, the Italian government, much better able to uphold and
defend its sovereignty, tested the limits of America’s cooperative spirit.
Generally a keen first-hand observer of postwar European affairs, Theodore
White did distort an episode in his autobiography, claiming that “Italy was
then one of the most docile and obedient partners in the Marshall Plan.”
Rather, Rome understood fully well that in Washington support for an enthu-
siastically anti-Communist regime took precedence over unwanted econom-
ic reforms. A recent wartime enemy thus received $1,500,000,000 in
Marshall Plan aid, 12% of total disbursements, largely on its own terms, not
like Greece, as a semiresentful supplicant. Stalemated, the ECA mission did
not get very far in pushing its reform agenda in Italy.
Like Greece, Italy’s domestic politics and a pervasive fear presented big
hurdles that had to be overcome. Alcide de Gasperi’s Christian Democrats
(DC), the party of a sound lira, financial stability, the Vatican, women, the
elderly, and the middle class, greatly feared inflation’s destructive power.
The country’s terrible postwar inflation, when wholesale prices surged to
more than fifty times their 1938 levels, was not capped until 1947. The
experience left its scars and instilled a dread among centrist politicians
equal to their anxiety over internal Communist subversion. As a direct con-
sequence, they were loathe to use counterpart funds for large-scale develop-
mental purposes advocated by ECA. Italian-American disagreement on this
subject resided in the marrow of economics. To the ruling Christian
Democrats, as well as the International Monetary Fund, the greatest good
was in stabilizing the lira, controlling inflation, and regulating money in cir-
culation. Marshall Planners disagreed. Each side regarded the other as tak-
ing or advocating serious missteps. Italian historian Vera Zamagni has
revealed that ECA Rome “notoriously distrusted the Italian administration”
for rejecting reforms tied to Keynesian measures.
Postwar Italian industry provoked a debate about the appropriateness of
the Keynesian tools favored by Americans. Surplus capacity coexisted dur-
ing those years with sluggish production and high unemployment.
Surprisingly, World War II had destroyed only about 8% of Italy’s industrial
plant, sparing Milan, Turin, and Genoa heavy damage and leaving untouched
its electric power network. The surviving 92% meant that, unlike other bel-
ligerents, its industrial capacity prior to ECA’s creation already surpassed
1938 levels by 37%. The rub was that industrial production still remained
43% below prewar output. To ECA’s Rome mission, the country’s economic
problems could never be solved without recourse to Keynesian countermea-
sures, particularly greater investment in productive industries that raised
GNP and reduced worrisome unemployment figures. Amidst excess plant,
74


057112Chap4Implementing-19_1

Implementing the Marshall Plan
ECA Administrator Paul Hoffman meets with Italian
Prime Minister Alcide de Gasperi, October 1950.
two million Italians went jobless, 10% of the labor force. “About just as many
workers [were] unproductively underemployed” as well, in historian Federico
Romero’s estimation. At twice its prewar level in October 1948, Marshall
Planners tagged unemployment as Italy’s Number One Problem.28 However,
to de Gasperi’s financial advisers, especially Giuseppe Pella, rapid industri-
alization, higher wages, and lower unemployment risked another round of
uncontrollable inflation. That was unacceptable. In the view of Italian
banker and delegate to the OEEC Giovanni Malagodi, ECA policy was wrong-
headed and a “mistake,” especially in light of Italy’s “enormous pressure of
population against resources.”29
Over a barrel, given the Christian Democrats’ otherwise impeccably pro-
American, anti-Communist credentials, Marshall Planners adjusted and
accommodated to Rome’s deflationary policies. Faced with an Italian gov-
ernment accepting of high unemployment and stagnant wages, Marshall
Planners turned to indirect methods for broadening the country’s consumer
base and battling unemployment. They pressured, for instance, for the elim-
ination of both gasoline and horsepower taxes. They also encouraged Fiat to
develop and market a car for the Italian masses—small and inexpensive. But
they were at their most philosophical in encouraging large-scale emigration.
75


Barry Machado
In the early days of the Marshall Plan the Italian government expressed
concern about its “surplus population with no opportunities to emigrate,”
classifying it as a vexation “with no foreseeable solution.” By 1949, ECA was
publicly defining overpopulation as a “most basic problem in Italian eco-
nomic life.” Galloping population growth in southern Italy produced “too
many people for the number of jobs,” necessitating emigration on a “mass
scale.” In deference to Catholic sensibilities on the part of Protestant poli-
cymakers and a Jewish Chief of Mission, James D. Zellerbach, birth control
as a long-range answer was never discussed.30
As promising locations for an Italian exodus, Americans pointed to
Argentina and Brazil in South America. The United States, however, never
offered itself as a destination. Limits to American generosity and congres-
sional cooperation existed. In solving this particular question, Marshall
Planners chose not to get out in front and lead by example, honoring the
Plan’s purpose to promote European cooperation within a regional frame-
work. Without ECA lobbying, Congress left America’s annual immigration
quota for Italians at a paltry 5,800, refusing to revise it upwards, despite
pressure from the Italian government. Existing legal restrictions on Italian
entry into the United States troubled de Gasperi’s advisers “very much.”
Giovanni Malagodi thought the Americans should have increased their quota
tenfold, to 50,000 per year. To him, opposition on Capitol Hill was “unjusti-
fied.” In December 1949 Averell Harriman and Milton Katz met with Finance
Minister Guiseppe Pella in Paris to discuss the matter. Pella recommended a
bilateral approach, a “Special American-Italian Commission” to study the
problem, but was rebuffed. Harriman and Katz wanted instead a strictly
European solution worked out at the OEEC rather than a unilateral
American one that defeated the Marshall Plan’s rationale. They had not for-
gotten their intention to be “catalytic agents” of change.31
Since shipping was then inadequate, and commercial aviation still in its
infancy, ECA did agree to fund more Italian shipbuilding to break the bottle-
neck and help move surplus nationals overseas. Initial results from dumping
the jobless abroad were encouraging. Between 1947 and 1949, interconti-
nental emigration figures trebled, reaching 150,000 in 1949. By 1951, how-
ever, an American correspondent in Italy reported that “today no foreign
country seems willing to absorb Italian labor.” Denied greater access to the
American labor market and with the flow of intercontinental emigration
peaking in the mid-1950s, the Italian government adopted an intra-
European remedy. Italy’s single, male, unemployed workers became a source
of manpower for nearby construction, mining, and manufacturing industries
in France, Belgium, and Switzerland. Sanctioned by bilateral agreements, a
system of quotas, temporary contracts, bans on permanent settlement, and
unregulated remittances came into existence. Throughout the 1950s Italy’s
national emigration policy, deemed “a vital necessity,” fell consistently short
of its goal of 200,000 net emigrants per year. By decade’s end, its unemploy-
76


Implementing the Marshall Plan
ment problem seemed as intractable as ever, but its predicament had
become a regional concern.32
For the first two years of the Marshall Plan, an American goal of higher
standards of living for the Italian people through economic development was
put on hold. To temper the inflationary potential of their primary objectives,
Marshall Planners pushed instead for industrial expansion that generated
increased foreign trade. Rather than national growth driven by increases in
domestic demand and consumption flowing from more employees with high-
er wages on the American model, boosting GNP would depend on liberalized
intra-European trade and greater international demand for competitive
Italian products.33
Until 1950, when economic growth accelerated, caution and a hard-
money policy prevailed. Frustrated by governmental stubbornness and fears
about runaway inflation thought to be unreasonable, the ECA substituted
words and images for actions in its quest for worker and peasant support. To
the average Italian whose standard of living remained largely unchanged
during the Marshall Plan’s first two years, the Information Division preached
a gospel of rising expectations. Unable either to reduce unemployment or to
raise wages, ECA elevated hopes instead. To Andrew Berding, a man equal
to his task, went the assignment to monetize expectations.
Out of the Rome mission, the forty-six-year-old Berding ran the
Marshall Plan’s biggest and best propaganda operation, and the one most
highly respected by Alfred Friendly, his first boss. Berding came to his
position with ideal qualifications. A graduate of Cincinnati’s Xavier
University, he studied at Oxford for two years, receiving his BA and MA in
English literature before moving to Europe, where he lived for the next five
years. In 1933, the Associated Press hired him as a correspondent and
then as Chief of its Rome bureau, a position he held until 1937. That year
he returned to the States as chief Associated Press correspondent cover-
ing the State Department.
Before the United States entered World War II, Berding had been a news-
paperman for nearly a decade, had lived in England for two years, and on the
continent for nine more, including four in Italy where he acquired fluency
in Italian. During the war he joined the Office of Strategic Services (OSS),
rising to Chief of Counterintelligence in both Italy and Germany with his
intelligence duties taking him regularly to London. Experienced in the ways
of Europe, Berding quickly set the bar for other information divisions. His
innovations included a daily survey of the local press, working arrangements
with all media agencies, a documentary film capability, contracts with the
national radio network for weekly broadcasts, a mobile film unit, and even
a traveling puppet show. With Moscow subsidizing every Communist news-
paper in Italy, then roughly 20% of the country’s press, and with the Italian
Communist Party (PCI) publishing four dailies in Rome alone, Berding’s nov-
elties exploited his adversary’s weaknesses. David Ellwood has inferred that
77


057112Chap4Implementing-22_1
Barry Machado
Reclaiming land near Svona, Italy, using Marshall Plan–supplied equipment.
the PCI “failed to understand in time that audio-visual mass media [the cin-
ema] possessed capacities of communication and penetration far superior to
those of the printed page.”34
Berding’s education, background, language proficiency, and professional-
ism recommended him as the ideal person to sell the Marshall Plan’s mes-
sages to the struggling Italian in the village, the factory, and the field. Instead
of elites, he targeted workers, women, and children. Knowledgeable about
the local culture and people, particularly about pockets of illiteracy among
the masses throughout the country, he turned to the visual arts rather than
the written word as his most effective medium of persuasion. In a subversive
strategy that reached millions at the grassroots, Berding organized a mass
program that carried Marshall Plan messages and slogans right to the people
and over the heads of those resistant to significant reform—the national gov-
ernment, big businessmen, and large landowners.
Berding commanded a vast arsenal of visual propaganda weapons: the
radio (a mighty conjurer of mental images), photographs, posters, newsreels,
documentaries, displays, and exhibitions. His most creative instrument was
the mobile cinema show with its “fleet of twenty-six mobile projection
units” that played Marshall films in the remotest villages. Others included
concerts, cartoon strips, puppet shows, and animated films. Beginning with
the Bari Fair that stretched over seventeen days in September 1948, the
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Implementing the Marshall Plan
ECA participated with exhibits in every local fair in Italy. With a million vis-
itors from around Europe, the Milan Fair eclipsed all others in importance.
Berding had a special ECA Exhibit housed there in its own pavilion. He
invested his greatest faith, however, in conventional documentaries. A dis-
proportionate number of Marshall Plan films were authorized for Italian
audiences. Indeed, the largest percentage was made about Italy, the most
heavily targeted country in Europe, with forty out of a grand total of three
hundred films, or 13%. Subjects ranged, for example, from land reclamation
in Apulia to land reform in Calabria; from the reconstruction of shipping,
rail lines, and an oil refinery in Trieste to construction of Rome’s new rail-
road station and the reconstruction of Monte Cassino. And regional films
highlighted Sicily, Tuscany, Emilia, and Maniago.35
Linking much of the subject matter were Berding’s themes. Economic
prosperity and growth would transform Italians into freer Europeans. The
Marshall Plan translated into a higher standard of living, maximum employ-
ment, greater production, and a more credible government. By his various
methods of communication, Berding estimated that he had reached thirty
million Italians after two years of selling the Marshall Plan. By then, 52% of
all Italians favored the Plan while only 11% opposed it. Salesman Willy
Loman in his prime could not have done much better.36
Berding’s campaign of outreach was supplemented by the work of the
mission’s Labor Division, which also swam against a powerful current in
Italy. The Labor Division’s difficulty was akin to the Information Division’s.
Without help from the central government, how does one contain or weak-
en labor radicalism when throughout the Marshall Plan years Italy’s jobless
remained around two million, averaging over 8.5% annually and the highest
rate in Europe?37 Keeping with larger objectives of enfeebling the
Communist-dominated World Federation of Trade Unions (WFTU), regarded
as an “instrument of Soviet foreign policy,” and creating a new anti-
Communist international organization, the strategy adopted was to split the
Italian labor movement to isolate the Communists. The Rome mission’s
euphemism was “special expanded activities.” Leading the American effort
was a lieutenant colonel in the U.S. Army on loan to ECA and fluent in
Italian, Thomas Lane. Averell Harriman thought Lane irreplaceable. In early
1949, he even wrote personally to Secretary of Defense James Forrestal,
requesting that Lane’s reassignment be rescinded. Forrestal complied and
changed his orders; in late 1951 the colonel was still detailed to the Labor
Division. By then, he had been promoted to head.38
In Italy at the end of World War II, Lane had befriended Giulio Pastore and
other anti-Communist trade unionists who he now sought to use to loosen the
Communist grip on Italian workers. He needed their help, and they enthusi-
astically cooperated. In April 1949 Lane and his labor information officer,
James Toughill, along with Pastore, Giovanni Canini, and Appio Rocchi, visit-
ed the United States for talks with the leadership of the AFL and CIO about
79


Barry Machado
the benefits of American labor-management relations. Important contacts
were made and, subsequently, American money poured into Pastore’s coffers.
Lane and Pastore, both devout Catholics, made an effective team and were
midwives at the birth of non-Communist, nonpolitical labor organizations that
rejected class struggle and embraced collective bargaining.39
Using a large budget made possible by the 5% levy on counterpart funds,
Toughill attacked Communist unions in his own media offensive. His princi-
pal targets for propaganda were industrial workers in Turin and Milan. Every
month his staff in Rome published its own trade union journal, while also
broadcasting five programs per week over state-run radio. In addition, he
released a documentary film every month for commercial distribution
around the country in local cinemas. To tout the virtues of greater produc-
tivity and assail the vice of class hatred, Toughill’s office arranged for visits
from American labor leaders and their representatives. People-to-people
diplomacy helped to win some converts away from the Red banner, but
Communist solidarity generally absorbed the assault.40
ECA’s efforts on the labor front bore considerable fruit among Catholic
workers. At the end of 1948 the Communist-dominated labor organization,
the CGIL, had 6 million members, while the non-Communist but sectarian
LCGIL had 1.5 million members. After creation of the new non-Communist
CISL in May 1950, with Pastore as its general secretary, the former preemi-
nence of the Communist unions weakened into mere dominance of the
Italian labor movement. By 1953, the CGIL membership was cut in half,
down to 3 million followers while CISL counted 1.75 million supporters. The
rank-and-file laborer in Italy was still likely to wave red flags until the end of
the 1950s, but an earlier stranglehold had been broken by the Marshall Plan.
ECA’s partial success, though, owed nothing to the fiscal and labor policies
of the Christian Democrats.
In crucial aspects, ECA’s labor activities failed. Besides weakening
Communists, Marshall Planners aimed to advance industrial democracy in
Italy and promote a “New Deal” for its working class. That goal was not real-
ized. Their legacy was not a unified, non-Communist national union, but
three separate labor federations, a greatly strengthened big business, and
virtually no improvements in traditional labor-management relations.
Unintentionally, they ushered in a long era of fragmented, ineffectual
unions, together with low wages and the authoritarian management prac-
tices that usually accompany them. Italy’s chronically large labor surplus
only sapped the old vitality of the labor movement further. Between 1950
and 1960, unionization of Italian industry fell from 47% to 19%, which coin-
cided with CGIL’s demise. By 1965, the Communist-led union had lost 50%
of its 1950 members. Higher company profits, as well as competitive goods
in world markets, flowed from labor’s loss of power on the shop floor.41
Beginning in 1950, the Italian government—prodded at times publicly
by Leon Dayton, second Chief of Mission—increasingly utilized its counter-
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057112Chap4Implementing-25_1
Implementing the Marshall Plan
Italian apartment building developed by Marshall Plan funds.
part funds for major development projects. Indicative of ECA’s persistent
flexibility, Rome was allowed to make large-scale investments without ben-
efit of the requisite four-year master plan. Back in June 1948 Italian officials
had told Harriman in a private meeting that they intended to use the “lira
fund” for soil conservation, irrigation in the South, hydroelectric power,
shipbuilding, and railroad improvements. Their intentions were never for-
malized in a coherent plan, as called for in the bilateral agreement. But by
the end of the Marshall Plan one-fifth of the fund had been invested in agri-
culture and one-fourth in modernizing the rail system.42
As the Christian Democrats overcame their deep-seated fears of runaway
inflation, and undertook some basic reforms long recommended by the
Americans, they found themselves whipsawed by the Left and the Right. The
ECA had churned up their political lives. Caught in the middle between
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Barry Machado
The power plant at Lardarello, Italy.
Communists bent on “perpetual unrest” and agitation against the govern-
ment and the hostility of the “wealthier classes” upset that their “special
interests” were disregarded by reformers and do-gooders, the Christian
Democrats soon understood the high political price of greater social justice.
Especially disturbing was the fact that some of their strident opponents on
the Right controlled Italy’s non-Communist newspapers. Harriman regarded
the political fallout stemming from ECA pressure as a “tragedy.” In perhaps
a self-congratulatory outburst, the multimillionaire railed against the “short-
sightedness” of wealthier Italians on the Far Right who refused to bear the
financial burden “equitably” and thus lent credibility to Togliatti and the
Communists.43
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Implementing the Marshall Plan
Probably the most controversial of the economic developments was an
agrarian reform and regional development program that failed. Initially, Chief
of Mission Zellerbach opposed it as worsening Italy’s inefficient production.
Since half the Italian population engaged in agriculture, an understandably
keen interest existed in how the Marshall Plan might improve the lot of farm-
ers and peasants, especially in the country’s southern region known as the
“Mezzogiorno.” The largest chunk of the Food and Agriculture Division’s budg-
et went for land reclamation projects, particularly swamp drainage. But a sig-
nificant amount of the Lire Fund helped to finance creation of an unprece-
dented public agency whose express purpose was regional development. Its
potential impact on village life was enormous. In August 1950, Cassa per il
Mezzogiorno (CASA, the Southern Fund) was established and given a ten-year
assignment to close the economic gap between the industrial North and the
poor, agricultural South. An American correspondent described the country’s
sectional split in the late 1940s thusly: “Northern Italy creates all Italy’s wealth
[while] Southern Italy parasitically consumes it.”44
ECA Rome’s technicians and economic analysts, particularly a future
Chief Economist at the World Bank, Hollis Chenery, played leading roles in
planning an end to the Mezzogiorno’s poverty, parasitism, and backward-
ness. Lincoln Gordon had recruited Chenery out of Harvard’s doctoral pro-
gram. His mentor, Wassily Leontief, subsequently won a Nobel Prize in
Economics for pioneering the “input-output” method. The thirty-year-old
graduate student, who received his Ph.D. while on ECA’s payroll, looked
upon southern Italy as an ideal place to test his training in input-output
analysis. From 1950 until 1952 he expounded a system for how best to
invest counterpart funds in development projects that also improved Italy’s
overall balance of payments situation. To continue his methods, Chenery
organized a team of young Italian economists to apply Leontief’s principles
to economic problems in the Mezzogiorno after his American disciple left
Rome.
Wisely, Chenery and his protégés realized that CASA could be no quick
fix. Beginning with improvements in infrastructure—roads, water lines, sew-
ers, railroads—it also offered tax incentives and low-interest loans to com-
panies to invest in the South. After six years, CASA had not narrowed the
per capita income gap between the two regions. In 1964 the Italian writer
Luigi Barzini referred to the Mezzogiorno as “still by far the most miserable
region” of Italy. “In spite of the vast sums invested by the government over
the past decade,” he observed, its poverty was only slightly better than
North Africa’s. Unfortunately, by the early 1980s the verdict had not
changed. CASA had “fail[ed] to solve the unemployment problem in the
South,” necessitating the safety valve of large-scale emigration to northern
Europe. By the 1990s poverty and unemployment rates were both three
times those of northern Italy. Not only had the spread in per capita GDP
between North and South actually widened, it was greater in fact than the
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057112Chap4Implementing-28_1
Barry Machado
Repairing the road to Palermo.
separation in the 1950s when Marshall Planners first proferred a remedy for
Italy’s biggest economic headache. An award-winning theory ultimately
flunked its test.
With Marshall Planners pressuring for an expansion in the ranks of small
landholders, the Italian parliament passed two laws in May and October
1950 authorizing expropriation, reclamation, and transfer of uncultivated
lands. In the Sila Highlands and nearby Ionian territories peasants received
land from the breakup and redistribution of big estates by the government.
In all, 800,000 acres were expropriated. Roughly 500,000 were resold to
peasants who obligated themselves to pay for their acquisitions in thirty
year installments. By mid-1956, 100,000 Italian peasants had been allotted
small holdings linked together in a network of marketing cooperatives.45
In hindsight, the Marshall Plan constructed both intentionally and acci-
dentally a strong foundation for Italy’s subsequent economic prosperity.
Though the Rome mission thought the Italian government’s fear of hyperin-
flation unrealistic, prices were stabilized and inflation was successfully con-
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Implementing the Marshall Plan
tained from 1947 until 1952. Italian budget deficits were shrunk. In the cru-
cial first year of its existence, the Marshall Plan paid for 40% of Italy’s
imports, releasing funds for other purposes. Well before its Greek counter-
part, the drachma, the lira gained respect and bank deposits grew after 1947.
By committing itself to trade liberalization, mainly abolition of quotas with
other EPU countries, and upholding thereby the Marshall Plan principle of
multilateralism, Italy promoted its own economic growth through expanded
exports. Between 1951 and 1962 Italy’s annual rate of growth surprised
almost everyone, reaching 6%.
During the Marshall Plan, Italy imported American technology in its oil,
automobile, and textile industries. With Fiat, the country’s largest employer,
in the lead, industrial production doubled between 1938 and 1953. Car pro-
duction, in fact, broke all records. New American-style industrial practices,
especially conveyor-belt technology, spurred productivity, which, according
to Anthony Carew, “rose faster in Italy in the 1950s than in almost any other
Western economy.” Then again, breaking with a sluggish past had its down-
side. Increased productivity and profits were not accompanied by either
higher salaries, increased domestic consumption, or lower tariffs. Italian
mass production and mass consumption were not yet in tandem. With 15%
unemployment in metal working and big layoffs in the steel industry, and
with workers’ wages lagging behind, foreign sales drove the economy. These
were imbalances that post–Marshall Plan policymakers needed to address.46
America’s promotion of increased productivity and economic growth did
not translate into an automatic embrace of American attitudes and values by
Italians. The Marshall Plan in Italy was a partnership of expedience rather
than genuine preference. A Stalinist menace and a shared anticommunism
muted serious reservations that Christian Democrats held about American
ideas. As Pope Pius XII’s “political arm” and beholden to an authoritarian
church, the DC’s attachment to American-style democracy was question-
able. When critics referred to it as the “American Party,” they used words
more for their emotive than their descriptive power. Cultural and religious
tensions often unsettled Italian-American relations. Like the Greeks,
Italians were ambivalent about the gospel of the American missionaries.
Like the hierarchy of France’s Catholic Church, Italian bishops scorned cap-
italism, considering its materialism as un-Christian.
Guided by the teachings of a Catholic Church as suspicious of Protestant
America and its liberal, secular culture as it was of Soviet communism,
Italians generally resisted what they regarded as Hollywood values. The
Vatican believed that “a godless ideology” shaped the American Way. Indeed,
the Italian writer Luigi Barzini could yet remark in the mid-1960s that “the
contemporary capitalistic world is still almost incomprehensible to most
Italians” even though they seemed reconciled to it by then. Beneath ECA
fanfare the Christian Democrats of Alcide de Gasperi, a former Vatican
librarian, were committed primarily to traditional Catholic values and
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Barry Machado
teachings, and to a Catholic “Third Way,” an alternative to Moscow and
Washington. During the Marshall Plan years much about American culture
was unwelcome in Italy, a country that exhibited no shortage of un-American
traits. Consider, for example, just two: ridiculing Catholicism or publicly
insulting the Pope were then crimes in Italy, and Protestant evangelicals,
especially members of the Church of Christ, were persecuted for their faith
by authorities. Italian authorities did gratefully accept $1,500,000,000 in
American assistance, 94% of it in grants, but they also kept Americanization
at bay as long as they could.47
Turkey
After World War II, the Soviet Union demanded bases and privileges from
Turkey. Sharing both the Black Sea and its eastern border with the Russians,
Ankara refused to be intimidated. Throughout 1946 the Turkish Army mobi-
lized for war because of recurring threats to its eastern provinces. To bolster
resistance, “interim” American military and economic aid, authorized under
the Truman Doctrine, arrived the following year. As in Greece, when the
Marshall Plan commenced operations in Turkey in mid-1948, it was a tack-
on to an existing aid program. In fact, an American military commission had
already begun a $5,000,000 road construction project for purely defensive
reasons.
Unlike Italy and Greece, American fears that led to Turkey’s inclusion in
the Marshall Plan were aroused solely by an external Communist threat.
Foreign Minister Necmeddin Sadak informed Washington officials through-
out the late 1940s that domestic communism posed no significant internal
danger. While Socialist parties were outlawed in late 1946, a politically sta-
ble Turkey imposed no similar ban on Communist Party activities. “In
Turkey,” a visiting American noted, “it was not and is not safe to be known
as a Communist.” More than Islam, Turkish nationalism provided a power-
ful social adhesive, and a labor force near full employment also acted as a
deterrent to Communist inroads. A Department of State “Policy Statement”
in May 1949 described Turkey as the “only country” in the area in which
communism “has made no headway.” Turkey’s general suspiciousness of
outsiders, and its opposition to too many foreigners in residence, were cul-
tural facts of life to which Marshall Planners had to adapt.48
When Russell Dorr, a New York lawyer, member of the Council on Foreign
Relations, and diplomat took up residence in Ankara for a nearly four-year
appointment as Chief of the ECA’s fifty-man mission, OSR in Paris expected
that Turkey would not require much economic aid. As George Harris has
noted, “the Marshall Plan was not designed to deal with Turkey’s particular
situation.” After all, no “recovery” or “reconstruction” of wartime damage
was needed. Unlike Western Europe, Turkey struggled with neither a balance
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Implementing the Marshall Plan
of payments problem nor a dollar gap. Ankara, however, strongly disagreed.
Latter-day disciples of Kemal Ataturk did not want to squander an opportu-
nity for Westernization which promised creation of a unified home market.
Despite over 40,000 villages tied to a subsistence economy and 60% of its
population still illiterate—weak foundations to support either economic
development or democratization—Turkish officials had great expectations.
Insisting that their costly position in the Cold War’s front lines warranted
substantial American subsidies and technical assistance, leading politicians
and newspapers soon established a pattern that persisted for the life of the
Marshall Plan. On July 1, 1948, President Ismet Inonu told C. L. Sulzberger
of the New York Times that his country was “getting a very stingy allotment
under the Marshall Plan.”49 With the amount of ECA aid as well as its appor-
tionment, the Turks were chronically disappointed. In their initial dealings
with Turkish authorities, Marshall Planners operated under a major con-
straint: all neutrals in World War II were ineligible for grants. It was a “clear
rule” of policy that Washington revised in later years to accommodate the
Turks. Nevertheless, the Istanbul press served up allegations of American
stinginess as common fare. Its general unhappiness intensified after Ankara
dispatched combat units to Korea, a brigade of 4,500 men that suffered large
casualties.
Because a typical aid package was 90 to 10, grants-to-loans, and because
loans generated no counterpart, Turkey received considerably less econom-
ic stimulus per dollar than nearly all other OEEC members. Only Ireland’s
and Portugal’s packages were less attractive. (See Appendix D.) In the
Marshall Plan’s first year, for instance, instead of outright grants—the
American stock-in-trade—Turkey received 100% of its $35,000,000 in loans
carrying a 2.5% interest rate. In the second year its allocation more than
doubled, with 50% in the form of loans. Aid for the third year amounted to
$50,000,000, and the percentage of loans continued to drop, down to 33%.
Much of Turkey’s grant money was also conditional, requiring negotiation of
drawing rights with western European exporters. Thus, notwithstanding
receipt of over $225,000,000 in aid by June 1952, 62% in grants, Ankara
always felt shortchanged by Washington. In truth, they were treated differ-
ently. From their point of view, they were entitled to see themselves as sec-
ond-class participants in the Marshall Plan.50
Towards the end of his long tour of duty, a perplexed Russell Dorr looked
back and described the Marshall Plan in Turkey as the target of a “continu-
ous campaign of belittling” and “ignoring [its] very real benefits.” He even
condemned some editorial attacks as “insidious.” The principal complainers
had been the Turkish press and high-ranking government officials, particu-
larly Prime Minister Adnan Menderes and Foreign Minister Fatin Zorlu. Son
of a trustee of Istanbul’s Robert College, who implanted in him a love of the
country, Dorr never supposed that as an agent of its modernization his task
would be a largely thankless one.51
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Barry Machado
As a result of Turkey’s unusual circumstances, Dorr presided over a
development program mainly consisting of capital goods, with primary
emphasis on modernizing agriculture. He adopted different criteria for
determining success, with economic “viability”—in all its ambiguity—high
on his list. Means to its attainment were cultivation of new lands; develop-
ment of mining and mineral resources, particularly strategic metals like
chromium; promotion of private enterprise and foreign investment for man-
ufacturing; and new farming methods and machinery, along with easy cred-
it for farmers. This is what the Ankara Mission meant by a more balanced,
diversified, productive Turkish economy. Initially, $35,000,000 were ear-
marked for a broad range of improvements, a figure that grew under con-
stant Turkish complaints to over $225,000,000 before MSA absorbed ECA.52
Fortunately, Dorr and Turkish authorities did agree that agriculture
deserved highest priority in the aid program. In 1948–49, 50% of ECA’s allo-
cation went for agricultural machinery. Between 1948 and 1952, agriculture
obtained 60% of all assistance. The reason was fairly obvious. Farmers com-
prised 80% of the nation’s population and their habits and techniques were
centuries old. Their three to four months of idle time, as well as ox carts and
wooden plows dating to the Hittites, mystified Americans. Dorr’s top-level
understanding conveniently ratified ECA’s fundamental thinking about how
to integrate Turkey into the larger western European economy. OSR Paris
expected Ankara to target farm commodities and raw materials for export to
other Marshall Plan countries. Turkey’s economy, in other words, was to be
“complementary,” a policy predicated on the classical liberal concept of
comparative advantage. Heavy emphasis on agriculture and raw material
exploitation fostered the impression by some Turks, particularly in the
press, that the United States wished to confine Turkey to a mercantilist sys-
tem, a mere producer of foodstuffs and minerals for an industrialized west-
ern Europe. Over the years, criticism mounted that mercantilism had
returned under a new name. Their country, some nationalists claimed, still
served as an economic colony for a western European metropolis. Such
oversimplifications appealed to many Turks unable to forget the so-called
Ottoman capitulations to the European powers.53
In its agricultural work, the Ankara mission went straight to the grass-
roots, where raising and diversifying output per man and per acre competed
strenuously. But its overriding aim was to dramatically increase total agri-
cultural supply through various means. New and reclaimed lands, principal-
ly marginal areas in the dry central Anatolian plateau, were brought under
wheat cultivation. For the first time on record Turkey harvested an
exportable surplus of wheat. In the Marshall Plan’s second year it also pro-
duced the largest cotton crop in its history, and increases in cotton produc-
tion were labeled “phenomenal.”54
One mission official attributed the remarkable gains “almost wholly to
the increased land” being farmed. For better harvests, however, consider-
88


057112Chap4Implementing-33_1
Implementing the Marshall Plan
Explaining new equipment to Turkish farmers
at Ankara Agricultural School.
able credit must go to the adoption for the first time of farm machinery.
Marshall Plan tractors played their role in expanding wheat output. By 1950,
Turkey had imported from the United States over 4,000 tractors, 2,000 disc
harrows, and around 500 combines. Another 400 tractors originated in
England and Germany. Under the Plan’s auspices the number of tractors
increased from 2,200 in 1948 to 26,000 in early 1952, more than one for
every two villages. A significant turning point occurred in early 1949 when
Turkish officials also asked for American technical assistance and training.
They, too, proved valuable. Russell Dorr later extolled ECA’s agricultural
program as a great success, as did most Turkish politicians. In fact, accord-
ing to Dorr, “in a way [it was] too successful,” because the host government
allegedly went on to overextend the objectives of Marshall Planners. Dorr’s
praise calls for other qualifications. His own program, it should be admitted,
was as much Potemkin Village as it was agricultural miracle.55
Ironically, before the country team invested broadly in Turkish agricul-
ture, two published reports already circulated in early 1949 with warnings
of potential dangers. The Twentieth Century Fund had commissioned an
extensive economic survey of Turkey by a team of American specialists head-
ed by Max Thornburg, a no-nonsense oilman in charge of Standard Oil of
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Barry Machado
California’s Middle East operations. Among his many pointed observations,
Thornburg reminded would-be agricultural reformers about the “heavy costs
of mistaken planning” in Turkey’s past. Back in 1946, for example, “thou-
sands of tons of cereals had to be left rotting in the central plateau” because
railroads gave priority to coal and ore shipments at farmers’ expense. The
Ankara mission also had available its very own country study which spot-
lighted past inefficiencies in Turkish agriculture, particularly in marketing
cereals. ECA’s research had revealed that waste and spoilage often con-
sumed an astounding 50% of total output in years of good harvests. It iden-
tified two principal culprits: a primitive transportation network, with which
Thornburg agreed, and an inferior system for grading, packing, and storing
grains. Silos and grain elevators had also been in short supply. Both reports
clearly implied that any major push for greater yield, expanded irrigation,
and mechanization among grain farmers carried big risks unless Marshall
Planners carefully coordinated their separate projects.56
Forewarned, ECA decided to hang its reputation on the many agricultur-
al technical assistance programs that proliferated in Turkey. By the end of
1952, twenty such projects were still underway with the “Big Story” being
the acclaimed work of internationally famous Elmer A. Starch, Chief of the
Agricultural Advisory Group at the Ankara Mission, and his team of eight
agricultural specialists. Before the farm economist with the perfect
Dickensian name headed off for his Turkish assignment, he had established
himself in the United States as an expert on the semiarid American West,
acquiring within the U.S. Department of Agriculture the nickname “Mr.
Great Plains.” Arriving in February 1950 as one of the country team’s high-
est paid members, Starch worked out of the “Technical Assistance Division,”
which stood apart from the “Food and Agriculture Division.” In a radio and
television address in early March 1952, President Harry Truman spoke of a
“veritable agricultural revolution” that had occurred in Turkey during the
previous three years. Grain production, the President boasted, had risen by
over 50% and cotton yield had tripled. Truman lionized a homespun miracle
worker as simply “Elmer Starch of Lincoln, Nebraska.” The President’s was
a deft, understated riposte to fellow Nebraskans Howard Buffett and Kenneth
Wherry, who had earlier condemned ECA in Congress as “Operation
Rathole.” While certainly priceless publicity for the Marshall Plan in Turkey,
the White House reference was also highly selective in its disclosures.57
Amidst recollections of his years in Turkey as American Ambassador,
George McGhee made a point that Turkish farm experts contributed in
equally important ways to the agricultural revolution. He especially remem-
bered the Turkish cotton specialist as more knowledgeable than his
American counterpart. And he cautioned, as if providing a belated rejoinder
to President Truman’s 1952 televised speech, that Americans must “avoid
exaggeration” in talking about the exploits of Nebraska’s Elmer Starch and
his team of reputed revolutionaries. His was excellent advice.58
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Implementing the Marshall Plan
What actually happened during the “agricultural revolution” was more
complicated than President Truman’s radio and television audience realized.
There was, to be sure, an increase of four million tons of wheat, but as an
inducement to greater production the Turkish government had set and paid
a price well above the world market rate. Worse, a baffling and abysmal lack
of coordination by the Ankara mission caused great waste. Increases in grain
production, in Brice Mace’s informed view, were “nothing more or less than
the utilization of hitherto unexploited fertile and abundant agricultural
lands.” Putting plow to virgin soil was the central feature of the success
story. An equally significant aspect—what President Truman omitted and
Ambassador McGhee hinted at—was that in new wheat regions that were
opened up, a disturbing amount of what was harvested never made it to the
consumer. Neither the road system nor the available trucks could handle
greatly expanded output. What managed to get to market found inadequate
storage facilities. The result was a debacle: a perishable commodity stored in
Ankara’s unfinished Parliament building, buried underground, or else
deposited behind false partitions at railroad depots. A national transportation
infrastructure of roads and rail lines was not yet finished when bumper crops
made their appearance. Turkey could not distribute and market much of
what it now grew in abundance: 1946 had repeated itself. That next round of
waste and spoilage that Max Thornburg and ECA Ankara once feared eventu-
ally materialized. Turkish agricultural progress thus had its illusory quality.
Apparently, the legendary Professor Starch—he chaired Montana State
University’s Economics Department in the 1930s—and his band of experts
operated outside the Ankara mission’s strict control and without any sense
of déjà vu. A “unique situation” was allowed to develop. The celebrated
“Starch Group” affiliated itself in effect with Turkey’s Ministry of Agri-
culture, undertaking projects financed by counterpart funds. With a nose for
lemons as well as grains, Brice Mace has described him as “the perfect
absent-minded professor.” The maverick director’s administrative skills
were so poor that he “never knew from one day to the next what his group
was up to.” Starch earned high marks from Mace only in the art of self-pro-
motion and for his considerable accomplishments in self-dramatization back
at ECA Washington.
The final component of Mace’s critique involved the trade-offs that
accompanied modernizing Turkish farming. In his report to the Twentieth
Century Fund, Max Thornburg had also cautioned about the risks of both
mechanization and losing sight of crucial bottlenecks. “The use of tractors,”
he explained, “requires facilities for their repair, which are to be found
nowhere in Turkey today.” Instead of buying tractors, Turkey needed, first
and foremost, to develop reliable transportation and communication sys-
tems. Thornburg’s caveat constituted a second instance of prophecy
spurned. By mid-1951, Turkish farmers operated around 10,000 tractors. Of
those, Turkey imported 136 different makes, for which there then existed in
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Barry Machado
the entire country commercial service
for just 4 models, and nationwide main-
tenance for only two foreign manufac-
turers. After four years of the Marshall
Plan, Turkey experienced acute imbal-
ances in the agricultural sector of its
economy, despite the Plan’s original
purpose to promote balanced econ-
omies in recipient nations. Agricultural
production had raced ahead of infra-
structure, even though road building
was a definite ECA priority. A “Road
Revolution” simply failed to keep pace
with an “Agricultural Revolution.”
Paul Hoffman (right) confers with Consumption of farm machinery had
Turkey’s Minister of Agriculture, also outpaced its service and mainte-
Ankara, October 1950.
nance.59
In 1948, with fewer than 380 miles
of asphalt roads and the rest impassable after rain, Turkey really had no
state roadway system. Its highway to the future started practically from
scratch. Launched for military purposes the prior year as part of the Interim
Aid package, Turkey’s “Road Revolution” was the handiwork of American
civil engineers and Turkish laborers. The U.S. Public Roads Group designed
new roads, and road-building machinery purchased in the United States was
essential to their construction. Under the Marshall Plan, road building was
regarded as absolutely vital to homegrown economic development.
Ultimately, 20% of all dollar aid to Turkey went into expanding, improving,
and linking roads. They were perceived as liberators of farmers, arteries by
which their improved crop yields flowed into a single national market and
their purchasing power multiplied. Not only did all-weather highways
increase to around 10,000 miles, but the entire network of roads expanded
from just 1,500 miles to between 25,000 and 30,000 miles under Marshall
Plan direction. Committed to sustaining such physical improvements,
Turkish authorities sent many of the nation’s best engineering students to
the United States under the technical assistance program to study road-
building methods. The editor of the Istanbul newspaper Vatan thought that
“the road program made a country” out of Turkey.60
The Marshall Plan pushed industrialization in Turkey on a smaller scale
than in most recipient countries and only on condition that it “contribute to
general European recovery.” Regionalism and multilateralism certainly
operated as Dorr’s guiding principles. But with two large-scale white ele-
phants, Turkey possessed disincentives all its own. In the giant Zonguldak
coal complex and Karabuk steel plant the Ankara mission encountered ill-
advised industrial installations dating from before World War II. An ineffi-
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Implementing the Marshall Plan
cient layout, absurdly high production costs, wasteful management, and
domestic subsidies left Zonguldak an economic mess producing coal unable
to compete in the world market. After inspecting Karabuk, the country’s
only steel mill, Max Thornburg called it an “economic monstrosity” and
“industrial moloch.” Under the circumstances, ECA Ankara seems to have
struck a compromise about industrial development: help salvage Zonguldak,
put Karabuk basically off-limits, and promote small projects on their
prospects for “assist[ing] the other participating countries.”
Except for Zonguldak, the litmus test for American approval was
whether projects were advantageous for Turkey as well as “directly or indi-
rectly helpful” to other Marshall Plan nations. Though Turkish officials want-
ed better steel mills as much as better harvests, ECA extended only token
aid to Karabuk. To help with local construction projects, ECA did fund, for
example, a new cement plant in Izmir and expanded an old one in Istanbul.
But for many other projects, Harriman referred the Turks to the World Bank,
recommending that they make “full use” of its services. Prior to the out-
break of the Korean War, however, the World Bank turned down loan
requests from the Turkish government because it refused to put up its gold
reserves as collateral. Without gold backing, bank officials invoked their own
catch-22, deeming any loan as too risky because of Turkey’s proximity to the
Soviet Union. More promising, Harriman suggested that a favorable invest-
ment climate would attract private American capital.61
In mining, the Ankara mission made some notable exceptions. Plagued
by cost overruns, its big-ticket items involved modernizing and improving
productivity at Turkish mines through joint Turkish-American ventures.
Because Turkey was an aberration in the Middle East, without a single pro-
ducing oil field, coal remained the nation’s monarch of energy. Conse-
quently, for improvements in equipment, port facilities, and washeries the
Marshall Plan invested $16,000,000 in the government-run Zonguldak min-
ing complex on the shores of the Black Sea. Americans paid $12,000,000 of
the $55,000,000 cost for upgrading the nation’s biggest coal mines and
$4,000,000 of the $9,000,000 for improving its harbor installations.
According to a World Bank report, salvaging Zonguldak ranked as “probably
the largest investment project ever undertaken in Turkey.” Iron ore and lig-
nite mines attracted additional American investment, while ECA money
funded oil drilling in south-central Turkey.
Public power never acquired the prominence on ECA’s agenda in Turkey
that it did in neighboring Greece, even though in the late 1940s Turkey had
a per capita use of electricity lower than Greece and Bulgaria. In all, rough-
ly $25,000,000, or one-fourth Greek expenditures, went for power-related
developments. Russell Dorr considered as “essential” a major long-range
project, the Sariyar Dam and hydroelectric power station on the Sakarya
River. With transmission lines to Istanbul and Ankara, its 80,000 kilowatts
of electricity promised accelerated economic growth in northwest Anatolia.
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Barry Machado
To the projected final cost of $47,000,000, ECA contributed $27,000,000, or
57%. Although hampered by frustrating delays, with its date of completion
rescheduled from 1953 to 1955, the six-year Sariyar Project served as cen-
terpiece and symbol of Turkey’s ambitious plans for Western-style develop-
ment and as the envy of nationalists throughout the Middle East.62
Long before the Korean War, Averell Harriman justified Marshall Plan aid
to Turkey on the grounds that by strengthening its economy, Ankara could
support a large military establishment. He wanted a more prosperous Turkey
as an “effective deterrent to Soviet aggression.” “They must expand their
economy to support their Army,” Harriman insisted in early 1949, “princi-
pally in agriculture and mining.”63 But what was acceptable expansion?
When Turkish authorities submitted an overly ambitious investment pro-
gram to Chief of Mission Dorr a year later, one that threatened to unbalance
the government’s budget, Dorr exercised his veto on the counterpart fund to
restrain them from expanding their economy too quickly. Frustrated, the
Turkish government grumbled, and its sense of mistreatment simmered.64
On the front lines of the Cold War, Turkey in the late 1940s and early
1950s spent around half its national budget on defense and was sensitive to
the special burden it alone carried. Very much aware that other Marshall Plan
countries not bordering the Soviet Union appropriated considerably less for
their security than Turkey did, Turkish officials fully expected economic
rewards commensurate with their sacrifices. Foreign Minister Sadak bluntly
informed Averell Harriman and Paul Hoffman at the Turkish Embassy in Paris
in February 1950 that Belgium spent only 8% of its budget on national
defense and France around 18%, far less than did Turkey. For fiscal year
1950–51, Italy spent 4.4% on defense; the U.K., 7.5%; and the Netherlands,
10%. All twelve NATO countries spent, on average, 6.6%. Turkey was not only
at the head of the ECA class, it was clearly in a class by itself. In early 1951,
with its press again attacking the supposed close-fistedness of Marshall
Planners, Turkey requested $100,000,000 in additional economic aid. Russell
Dorr in Ankara approved $75,000,000, but ECA Washington refused at first
to support more than $30,000,000 for fiscal year 1951–52. Ultimately, Turkey
received $70,000,000. Its self-image guaranteed disappointment and resent-
ment whenever Washington provided less than they felt they deserved.
Instead of forming a “bond” between Turkey and the United States, the
Marshall Plan turned into a point of “grievance and misunderstanding.”65
Unlike Greece, where political life approached the pathological, Turkey was
a country of political stability throughout the Marshall Plan years. Dictatorship
was Turkey’s long political tradition rather than an excess of democracy.
Turkey faced and weathered its toughest political test in May 1950 when, after
a revision in election laws, the political party of the revered Kemal Ataturk, the
People’s Party, lost in the national election for the first time since 1923. The
incumbent President, Ismet Inonu, was ousted in an unexpected landslide that
put a new party, the Democratic Party, in control. The peaceful transfer of
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Implementing the Marshall Plan
power staggered Russell Dorr. “The only case I know in history,” he declared,
“where a dictatorship has voluntarily accepted a transition to democracy.”66
According to Leon Dayton, Dorr’s replacement as Chief of Mission, it was
really the Marshall Plan that made possible the victory of the darkhorse
challenger. Its candidates had put ECA programs to good advantage, promot-
ing policies impossible without American aid. The ECA’s Information
Division in Ankara took a low-key approach to the demise of the Inonu dic-
tatorship. “We [didn’t] want to be over-dramatic toward building up democ-
racy,” the division head later explained. When the new party came into
office, its leaders enlarged the Marshall Plan’s benefits to the Turkish people.
When the ECA first arrived in Turkey, most businesses were state-owned.
The victorious Democratic Party promoted private enterprise and improved
the climate for foreign investment. The Marshall Plan’s influence on Turkey’s
political culture remains one of the lesser-known by-products of using eco-
nomic aid to deter Soviet ambitions.67
Narrowly interpreted, the Marshall Plan as “catalyst” was a great eco-
nomic success in Turkey. GNP surged, increasing 7% annually, on average,
and jumping 21% from 1948 until 1951, and 40% from 1950 until 1952. By
then, cotton had replaced tobacco as the nation’s most valuable export, and
Turkey promised to supplant eastern Europe as western Europe’s breadbas-
ket. With ECA help, imports also grew 45%.68 Prior to the Marshall Plan,
Turkey’s economy was a curious blend of state socialism and free enterprise,
with a great income gap between the far western part of the country and
other regions. Afterwards, more free enterprise, greater free trade, and a
more prosperous agriculture could be detected. Like Italy, the sectional dis-
parity persisted. Perhaps the administration of national government under-
went the most exceptional changes. Permanent legacies of the four-year
ECA presence were six new government bureaus: Bureau of Reclamation,
Market Research Agency, Ports Administration Authority, Public Roads
Bureau, Agricultural Extension Service, and the emblem of modernity, the
Central Statistics Bureau.69
Along with the latest IBM equipment and reliable censuses, Marshall
Planners left behind new values that undermined a traditional society.
According to the head of Turkey’s Central Statistics in the 1950s, Sefik
Bilkur, they taught Turks to be “data-minded” and “statistics-minded.” To
preserve a new approach to governance, the Marshall Plan paid for Turkish
students in statistical fields to study in the United States. The
Westernization of Turkey, the true legacies of Kemal Ataturk and the
Marshall Plan, would be a continuous process. Between 1948 and 1952
America’s first serious encounter with a Middle Eastern state aspiring to be
Western revealed just how easily mutual misunderstanding afflicted good
intentions. In March 1950, an old Turkish friend told an American journal-
ist on his visit to Ankara that “the Americans were not too popular” is his
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Barry Machado
country. If past is prologue, then gratitude was the improbable reward await-
ing future outside agents of macroeconomic change in Turkey and disagree-
ment the probable essence of Turkish-American relations.70
Bizonia and West Germany
In contrast to Turkey, an undamaged wartime neutral devoid of guilt,
West Germany’s ascent from postwar hopelessness to economic dynamo left
its politicians and people profoundly grateful for the Marshall Plan’s contri-
bution to their remarkable turnaround. Indeed, it might be argued that, both
then and ever since, Germans have overwhelmed their American partners
in recovery with an appreciation nearly as puzzling as the underwhelming
thankfulness of the Turks. More so than other recipients, West Germany’s
state of mind during the Marshall Plan years was paramount. Hence, the
Federal Republic’s leaders in Bonn grasped the economic, political, and psy-
chological nature of George C. Marshall’s countervision, judging its political
and psychological aspects as its most valuable assets. How different mental-
ities and perceptions were in Adana and Istanbul. Turkey’s elite approached
the Marshall Plan as essentially a glorified bazaar.
For three years after its unconditional surrender, a vanquished Germany
paid an additional grievous price for its military failure. Although students of
Greece’s postwar misery might object, the historian Michael Hogan has reck-
oned economic conditions in Germany “the worst in Europe.”71 Dismem-
berment and partition into four zones of Allied military occupation—
American, British, and French in the west and Soviet in the east—traced out
a victors’ harsh peace. Poland received German land east of the Oder and
Western Neisse rivers, an amputation of the nation’s traditional breadbasket
that imposed great hardship. In all, Germany lost one-fourth of its former ter-
ritory, compelling the western zones to import 40% of their food requirements.
As domestic markets stopped working, normal food distribution broke
down. Shortages and undernourishment became commonplace. As millions
of refugees and expellees flooded into a truncated country, homelessness
taxed resources as well. Thanks chiefly to GARIOA, Government and Relief
in Occupied Areas, a relief fund set up by Congress in 1946 and adminis-
tered by the War Department, the wolf of starvation was barely kept in the
wild. Prior to arrival of Marshall Plan aid in mid-1948, GARIOA provided
$840,000,000 in food, medicine and fuel for the hungry, sick, and needy. In
fact, America’s first safety net for the German people cost $1,600,000,000 by
1950, exceeding ECA aid of $1,500,000,000 by 1952.72
Primitive conditions of barter, hoarding, and black markets also spread
widely after the surrender. And because the Soviets debased a loser’s curren-
cy by printing mountains of virtually worthless reichsmarks in their zone, a
modern absurdity humiliated a proud people: cigarettes substituted for legal
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Implementing the Marshall Plan
tender. With its monetary system in shambles, its inflation terrible, its econ-
omy debilitated and makeshift, its governance segmented, and its mood
grimly fatalistic, Germany’s problems and demoralization seemed insoluble.
As long as the dire situation persisted, it encouraged Josef Stalin’s belief that
he might split the West over Germany. A first halting step towards recovery
and reconstruction finally occurred on January 1, 1947, when British and
American zones merged into Bizonia, a single economic area with forty mil-
lion people. The following year, the French zone incorporated itself econom-
ically into Bizonia. Not until June 20, 1948, however, was a true turning
point reached, at last. On that day western Germany crossed a “demarca-
tion line.” Once on the other side the German people positioned themselves
to use Marshall Plan aid effectively.73
Placed in charge of Bizonia was the commander of American forces in
Europe, head of OMGUS (Office of Military Government, U.S.) and former
military governor of the American zone, General Lucius Clay. As an Army
engineer, the military’s most political branch, Clay understood how
Congress worked. His appointment surely attested to one individual’s impor-
tance in history and to just how much personalities count. Milton Katz, who
had known him since their days together at the War Production Board, once
attempted to take the measure of the professional soldier. The general struck
him as an exceptional public servant with a first-rate mind but also a “fiery
man who sometimes seemed to run an emotional temperature of 104.”
“Resolved on a course of action,” Lincoln Gordon later marveled, “he was
like a D-8 bulldozer.”74
A career officer with wartime experience in supply and logistics, but not
combat, Lucius Clay operated without any helpful precedents. Before 1945,
America had never occupied a defeated world power whose central govern-
ment had simply dissolved. The military governor also discharged his duties
without benefit, in his own words, of “a clear definition of policy,” leaving
voids which he filled. His was a broad mandate from the War Department.
Consequently, and by his own admission, Bizonia emerged as largely his
“show,” a constant challenge to his powers of improvisation and his sense of
right and wrong. On his economic chief, Major General William Draper, he
came to depend heavily. Wielding enormous discretionary authority, at least
the equal of General of the Army Douglas MacArthur’s in occupied Japan,
General Clay found himself in the middle of chronic interagency conflicts as
well as inter-Allied feuds in exercising his powers.
In hindsight, OMGUS’s assignment was infinitely more difficult than
MacArthur’s in Japan. Three tributaries fed a river of friction and quarrels
that regularly jumped its banks in postwar Germany. The first originated in
Clay’s discordant instructions formulated in and forwarded from
Washington. Truman’s administrators refused to speak with one voice on
how to deal with a prostrate Germany. The source of the second was the
intolerable conduct of a one-time ally carrying out Josef Stalin’s nonnego-
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Barry Machado
tiable orders about how to treat
a fallen enemy. The third stream
sprang from undiminished hatred
for Germany in European coun-
tries overrun, subjugated, and
brutalized by Hitler’s armed
forces and Gestapo. They opposed
rebuilding an aggressor, fearing
German revanchism.
Until his showdown with
Averell Harriman in early 1949,
Clay’s official guidelines for
administering postwar Germany
embroiled him in recurring mil-
itary-civilian controversy. His
boss, the U.S. Army, and its
State Department rival dis-
agreed fundamentally about his
priorities, rendering JCS 1067
a divisive blueprint for its
executor. Clay understood his
top responsibilities to be his
zone’s rapid restoration to eco-
nomic self-sufficiency and
elimination of the financial At the Deutsche Werft Shipyard in Hamburg, a
burden on American taxpayers shipyard worker shades his eyes as he uses a
as soon as possible. Unfortun- welding tool. In the background are two new
ately, his original charge was ships under construction.
conceived in theories that later
ran aground of unforeseen
European realities. If applied literally, they threatened to undermine the
multilateralism and regional planning on which the Marshall Plan was based.
OMGUS and the State Department battled specifically over how long and at
what cost Americans should prop up Bizonia. By relaxing the cap imposed
on German output so as to expand their revenue-generating exports, Clay
felt he was doing what was best for both Germans and Americans. Western
Europe was simply not his worry. In this spirit, he instituted in August 1947
a new “level of industry” plan, lifting Bizonia’s industrial production ceiling
from 50% to 75% of prewar levels while cutting the number of plants to be
dismantled from 1,800 to 858. Clay’s order exposed a profound dilemma in
American foreign policy.75
Unlike Clay, State Department officials worried chiefly about how best to
devise a peaceful future for a western Europe with western Germany its
peaceful economic powerhouse. Especially did they dread an unpunished
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Implementing the Marshall Plan
and unbowed industrial phoenix
rising quickly from war’s ashes,
threatening once again its neigh-
bors. Ultra-sensitive to French
anxiety over her postwar securi-
ty and economic ambitions, con-
cerns enmeshed with Paris’s
domestic political tensions, they
perceived a hasty German revival
as strengthening a growing
Communist movement inside
France. As Prime Minister
Georges Bidault liked to educate
his listeners that “we have 180
Communists in the French
Parliament who say ‘the Marshall
Plan means Germany First.’ ”
French sensibilities could be eas-
ily bruised on the subject of
Germany. Thus, in 1947 and
again in 1948 General Clay
Deutsche Werft Shipyard was reconditioned received explicit directives that
with the help of Marshall Plan aid.
the German standard of living
could not exceed France’s.76
State wanted protections in place, and a “level of industry” restraint,
which Clay proposed to scrap entirely, was its most trusted safeguard. Besides,
economic improvement in Germany had to wait its turn behind political
reform. Ironically, the decision to reshape the former enemy’s political culture
from the bottom up was Clay’s. On his own authority, and sans guidance from
Washington, he turned over villages, towns, and cities under his control almost
immediately to local citizens to elect their own officials. State and national
elections required more preparation. The State Department preferred more
time for seeds of democratic governance which OMGUS itself had planted to
germinate and root securely. At that point they then expected economic
growth to solidify political gains. Denazification and supplanting totalitarian
institutions with democratic ones took precedence and time. Traditional polit-
ical parties, like the Christian Democratic Union (CDU) and the Social
Democratic Party (SPD), had to be revived. A whole new national system had
to develop from the grassroots. State’s Charles Kindleberger, who worked on
German affairs after World War II, condensed his department’s policy towards
defeated Germany, identifying its “first objective” as “building a solid base for
political democracy.” For its proponents, only economic measures politically
acceptable to other Europeans should be adopted in Frankfurt by OMGUS. In
a rush, Clay had other constituents, ideas, and problems to worry about.77
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Barry Machado
Clay’s troubles with the Russians sped up his “chipping away” at State’s
alternate German policy. Moscow simply ignored provisions in the Potsdam
Conference accords, refusing to play by the rules of summitry. In seizing
reparations from their eastern zone, the Soviets not only dismantled and
removed plants and machinery without any accounting, as required, but
they also demanded immediate transfer of their share from the western
zones, regardless of consequences for German recovery. In Clay’s view,
Stalin had transformed reparations gathering into plundering. On his own
authority, in mid-1946 he stopped shipments out of his zone to the East of
all new commitments while continuing the old ones. Avoiding public con-
frontation was never his personal style.
When arguments with his own State Department and Soviet authorities
were not bedeviling Clay’s staff, Bizonia’s economic woes were. From war’s
end until mid-1948 western Germany needed desperately a sound currency.
In June, OMGUS gambled on a socially risky experiment, resorting to a
“drastic contraction of the money supply”: 93.5% of the old currency was
withdrawn from circulation. Brainchild of Edward Tenenbaum, a brilliant
twenty-five-year-old lieutenant in the Army Air Forces and Special Assistant
to OMGUS’s Finance Adviser, the switch from reichsmark to deutschmark
involved slashing bank deposits and personal savings accounts to 6.5% of
their original value. Especially hard hit, workers who had entrusted their
savings to safekeeping had them wiped out in a changeover that seemed to
offer a choice between national prosperity and social equality. In truth, only
those Germans foolish enough to have kept savings in paper currency rather
than goods suffered. Moreover, although the changeover briefly raised real
prices, it greatly aided the poor by wiping out inflation, an extra tax on all
their purchases.
More in theory than in practice, the effect of reform appeared fundamen-
tally unfair because “it took away liquid assets” while treating more consid-
erately factory owners and large real estate owners with illiquid assets. Their
personal sacrifices were, in fact, minimal. For a larger good, some Germans
did voluntarily empty their pockets and further tightened their belts in the
short run only to benefit in the long run. One can perhaps date West
Germany’s economic resurgence from the moment Bizonia’s trade unions
under Hans Boeckler’s leadership made peace with a necessary but radical
measure. The remarkable success of currency reform owed much to the
absence of a militant response by labor.78
Despite its inequities, currency reform had an immediate “tonic effect.”
The deutschmark, after all, had purchasing power. Black markets and hoard-
ing largely ceased. Industrial output and supplies of retail goods rose dramat-
ically. Such rapid improvements resulted in part because OMGUS had the
good economic sense to time its hardening of the currency with a much larg-
er liberalization program masterminded by Ludwig Erhard, then head of
Bizonia’s economic administration and a virtual one-man trauma team from
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Implementing the Marshall Plan
Bavaria. To their mutual benefit, “a purely American measure” combined with
an unconventional German economist’s wide array of reforms. Together, they
set in motion forces accelerated by the Marshall Plan and culminating in the
1950s in West Germany’s “economic miracle.” Returning to classical liberal
ideas about how markets function, Erhard, who never attended college, reject-
ed Keynesian orthodoxy for laissez faire doctrines. In agreement with General
Clay, he emphasized limiting government’s role in the marketplace.79
Some of Erhard’s most important non-Keynesian methods included freer
trade, reductions in individual and corporate income taxes, abolition of
price controls and rationing, tax incentives to boost savings and wring
greater production out of existing capabilities, lower tax rates on reinvested
profits, and a credit freeze to fight inflation. His incentives generated the
predicted surge in levels of private investment. Of course, the supreme irony
in this homespun package of economic reforms was, according to German
historian Holger Wolf, that its German author “favored supply-side policies
that often were the direct antithesis of the postwar Keynesian recipe for
rapid growth,” an orthodoxy prevailing among Marshall Plan economists in
Washington and Paris.
It would be a big mistake, however, to attribute the subsequent “econom-
ic miracle” exclusively to the admixture of OMGUS’s monetary reform and
supply-side economics, albeit in an extra-large dose. Each made its heavy
contribution as inspired jolts to an ailing economy. Each was essential prepa-
ration for the Marshall Plan’s constructive impact, establishing the requisite
stable economic foundation on which it built. The “miracle” was, in truth, a
compelling example of polygenesis. Internal and external determinants were
many. Holger Wolf has even suggested that fortuitous events, both inside and
outside Germany, were vital contemporaries of those celebrated reforms, one
external stimulant being ECA after mid-1948. Amalgamated, they all steadi-
ly boosted West German industrial production: to 51% of prewar levels in
1948; 72% in 1949; 94% in 1950, and 167% by 1955.80
Maybe the luckiest occurrences from which Erhard’s policies benefited
were supply-and-demand shocks that complicate judgments about the effi-
cacy of a purely supply-side cure for West Germany’s economic malaise. In
the first place, a painful but valuable transfer of human capital took place
during the late 1940s. Ten million refugees and released prisoners of war
flooded into the western zones. Czechoslovakia expelled a few million
Sudetens. Hungary kicked out their Swabians. Also pouring in were East
Prussians, Pomeranians, Upper Silesians, and East Germans. Among the mil-
lions of displaced workers filling Bizonia’s manpower pool, an estimated
twenty thousand newcomers were highly trained engineers and technicians.
Exactly when their production took off, industrialists had available a sur-
plus of skilled and motivated laborers with an ethic of hard work and a
demand for a high standard of living. With their productivity outpacing their
real wages for the next few years, workers energized national recovery.
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Barry Machado
Moreover, the bulging labor market, with its chronically high unemployment
rates, helped to suppress trade union militancy. The years 1948 to 1952
were marked by wage moderation, acquiescent union behavior, and a deem-
phasis of the Social Democrats’ redistribution schemes, all of which further
encouraged business investment. Unlike in France, relatively peaceful labor-
management relations characterized the era. Thus, a serious potential for
instability and extremism manifested instead as a boon, indeed a godsend,
for German industry.81
General Clay’s decision to extend the new deutschmark to West Berlin
provoked Josef Stalin into another ill-advised Cold War escalation that uni-
fied his squabbling adversaries. With Stalin’s timely antics, and American C-
54s taking off from its airport every three minutes, who needed the German-
born Lothar Wolff and his creative Documentary Film Division at Frankfurt’s
ECA headquarters? The best propaganda for the Marshall Plan now filled
morning newspapers in Munich and Cologne. A Soviet military blockade of
West Berlin, and the lengthy American and British airlift, lasting from June
1948 until May 1949 and involving over 275,000 flights, not only convinced
the German people of America’s seriousness of purpose but, in a symbolic
sense, terminated their pariah status in the eyes of their former western
European victims. Whereas currency reform hardened Germany’s legal ten-
der, the Berlin Blockade hardened its anticommunism while at the same
time softening anti-German feelings in the West. As General Clay remem-
bered the crisis, hardly a western German was brave enough to be a
Communist in public after the Soviet siege.82 Enhanced American credibili-
ty translated into a more resolute German political will to reconstruct on
democratic foundations. Another upshot was a greater readiness on the part
of the French and British to put the painful recent past to rest. In their deal-
ings with West Germany, both proved more cooperative thereafter. About a
year after Stalin ended his futile gambit, the Korean War erupted. Its out-
break sped up rearmament in NATO countries, ultimately triggering in West
Germany an export boom which absorbed excess manufacturing capacity.
Afterwards, a Cold War–driven movement to defend the West boosted
demand for German finished goods even further.83
The final major assurance of the long-term success of currency reform and
Erhard’s supply-side innovations was the Marshall Plan itself. Like paddles to
an arrhythmic heart, OMGUS and Erhardian stimuli restored Bizonia’s heart-
beat to near normal. The Marshall Plan then improved the patient’s health in
several ways. From his perspective as Counselor at the Marshall Plan Ministry
in Bonn, Hans-Georg Sachs believed that currency reform risked stillbirth had
it not taken place on the eve of ECA assistance. The two, he argued, reinforced
one another. As a supporter of the polygenetic interpretation, Sachs shares
company with numerous economic historians and economists.84
When the Marshall Plan finally arrived in the summer of 1948, its imple-
menters also inherited two unenviable predicaments: how to reconcile
102


057112Chap4Implementing-47_1
057112Chap4Implementing-47_2
Above: Entire families form crews of builders working on an ECA-aided block
of apartments in Berlin. Below: Housing under construction in Nürnberg.
103


Barry Machado
OMGUS and State Department versions of America’s German policy and,
excepting Moscow and its satellites, how to reconcile Germany’s wartime ene-
mies to a new democratic West Germany. For fifteen months, until General
Clay and OMGUS turned their authority over to a civilian organization, the
U.S. High Commission for Germany, or HICOG, in the summer of 1949,
ECA’s search for solutions to its twin dilemmas produced for a time one last
interagency clash in occupied Germany, noisily pitting OMGUS against ECA.
The overlap of OMGUS and ECA witnessed a messy organizational over-
load. “At first,” Milton Katz observed,” relations were “confused and mud-
dled and full of tensions.” The two agencies labored until early 1949 at cross-
purposes, with General Clay bent, foremost, on “liquidating World War II”
by reducing the “dollar load” on his occupation administration. In vintage
Harvard law professor diction, Katz classified the bureaucratic tangle as “an
intricate problem of interrelationship.” More plainly put, a cantankerous
military governor, used to getting his way, resented civilian interlopers
telling him how to run his European command post. To defend his authori-
ty, he treated ECA personnel heavy-handedly, resisted their separate mis-
sion and policies, and often seemed more foe than friend or fellow American.
Because Clay resented ECA’s presence in Bizonia, he demanded the
impossible: that Averell Harriman serve as Chief of Mission in Frankfurt.
Refusing to leave OSR, Paris, Harriman sent instead a representative,
Norman Harvey Collisson, to run ECA operations as de facto head of mis-
sion. For many months, Collisson endured Clay’s displeasure and lack of
cooperation, forced to conduct business without administrative support
staff. Denied independent means of communications, his cables passed
through OMGUS headquarters. He was also barred from formulating zonal
policies, being consulted only after their establishment. Nor was Harriman’s
man permitted contact with German officials. Collisson was, in other words,
hamstrung in conducting Marshall Plan affairs.85
After humiliating their delegate, General Clay embarrassed Harriman
and Hoffman in the eyes of their European partners. Such conduct should
have come as no surprise, since the military governor had already rebuffed
the CEEC’s attempt to review Bizonia’s recovery plans. In August 1948,
amidst the tense Berlin Blockade, Clay refused to accept OEEC’s proposed
allocation of $364,000,000 to Bizonia. According to Lincoln Gordon, “he
raised the roof” over the amount. Grumbling about its inadequacy and
unfairness, he accused the organization’s member countries of “still
look[ing] upon Germany as an enemy.” Like the Soviets in their confronta-
tion with Clay, the OEEC blinked too, upping his share another $50,000,000.
Unlike Stalin, the general had important friends and supporters in the
Pentagon and on Capitol Hill. Perhaps they instilled an overconfidence
because he soon overreached himself, lecturing Harriman that Europeans
were content to let Uncle Sam “support Germany indefinitely,” an attitude
he refused to abide. As a result of Clay’s misbehavior, the comment that “the
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Implementing the Marshall Plan
least cooperative member of the OEEC was the US occupation zone in
Germany” circulated widely in official Washington.86
As historian Thomas Schwartz has pointed out, Clay regulated econom-
ic affairs in his occupation zone in such a way as to “sharply discourage
European trade with Germany.” This was anathema to OSR Paris. The gen-
eral wanted to receive payment in dollars, raise export prices, and limit dol-
lar expenditures to “essentials,” undermining thereby the broader purpose
of promoting intra-European dependency. ECA was always more troubled by
the total dollar load in western Europe. Before 1948 ended, Clay and the
ECA clashed over two more issues: East-West trade and the price of Bizonian
coal. ECA policy, established in November, called for restrictions on trade
between Marshall Plan recipients and eastern Europe countries. When Clay
ignored ECA by entering into agreements with several Communist countries
in violation of the “permissible volume” stricture, Harriman erupted. The
two squared off in a test of wills. Prickly and defensive, Clay responded to
Harriman’s attack on his independence with pointed reminders. His first
retaliatory blow was that Bizonia was not Europe’s “whipping post” solely
because Clay would not permit it. The second, a most powerful counter-
punch that rocked a pillar of the Marshall Plan, was that he took his orders
from the Secretary of the Army, not ECA.87
During the holiday season Clay further blackened Harriman’s mood by
depositing an overpriced lump of coal in his Christmas stocking. Their dis-
pute over pricing German coal exports brought matters to a head. It spot-
lighted how Marshall Planners always walked a tightrope strung across
Europe. For some time Clay had been “disgusted” with ECA over its attitude
towards both the Ruhr Authority and the conversion of sterling balances. In
turn, Harriman simmered over the fact that Clay wanted German coal
exported throughout Europe for dollars instead of for local currencies. But
since the coal sold at the low price of ten to fifteen dollars per ton, Harriman
bit the bullet. In late December, however, he swallowed the cartridge. That
month an increase of five dollars per ton in the price of coal, authorized by
the Secretary of the Army and scheduled to take effect on New Year’s Day,
was announced by Clay as a purported means to reduce OMGUS’s costs of
occupation. Projections indicated that the price rise would generate an addi-
tional $80–100,000,000 annually in Bizonian revenues.
The central problem with Clay’s coal policy was its conflict with ECA’s
policy that low-priced Ruhr exports would facilitate a greater western
European recovery. Whereas Clay wanted Bizonians and American taxpay-
ers to benefit from German production, Harriman’s interests were not near-
ly so narrow. A higher German price came at the expense of France,
Luxembourg, the Netherlands, Italy, and Austria. In Harriman’s view, it
guaranteed a “devastating effect.” Why? Because the cost of steel and trans-
portation throughout western Europe would then jump, triggering a general
inflation as well as undercutting ECA’s efforts to lower the price of coal in
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Barry Machado
the United Kingdom. In addition, OMGUS had tossed political dynamite
westward, lending plausibility to Allied charges of favoritism—that the
United States put recovery of World War II’s perpetrator ahead of its victims.
With so much emotion churning, Harriman advised Secretary of State
Marshall during his last days in office that ECA planned to reduce aid to
Bizonia the exact amount that the price rise generated as well as increase
aid to coal-importing countries, like France, as compensation for their added
costs. The net result would be yet another American payment to France for
not obstructing German recovery.88
As his next countermove in his struggle with Clay, Harriman appealed to
Marshall’s right-hand man, Robert Lovett, for redress of grievance.
Complaining that Washington had allowed Bizonia’s “economic management”
to get out of sync with ECA’s overall European design, he called for limitations
on Clay’s powers and responsibilities. Eventually, the showdown ended with
Harriman victorious and private German management running mines in the
Ruhr. After Harriman’s old friend and World Bank president, John J. McCloy,
was chosen in June 1949 as U.S. High Commissioner in Germany, and agreed
to wear two hats in Bonn, doubling as ECA’s Chief of Mission, peace and coop-
eration at long last marked interagency relations in West Germany. Economic
difficulties did not disappear, however. Akin to the Italian workplace, the most
intractable problem faced by McCloy’s staff until late 1950 was mass unem-
ployment. The jobless rate shot up in late 1948 in the aftermath of the
Erhardian reforms and the huge influx of refugees. From 4.5% it climbed inex-
orably to its zenith of 12% in March 1950, dropping to 11% at year’s end. At
one point, a troubled McCloy even threatened Chancellor Konrad Adenauer
and Economics Minister Ludwig Erhard with suspension of Marshall Plan aid
unless they modified their laissez faire policies to lower their unemployment
figures. In 1951, West Germany’s surging export economy started absorbing
surplus workers. The jobless rate then steadily plunged until 1960, when it
reached 1.3%. Erhard’s non-Keynesian faith was vindicated.89
In its very first country study in February 1949, after the donnybrook
with OMGUS, ECA Washington publicly described its purposes in “Western
Germany” as, in order, “avoid[ing] the political dangers which might well
resolve from economic distress” and “enabl[ing] it to become economically
self-supporting.”90 Seldom have institutional aims so grand in conception
been so blandly represented. Germany, in fact, occupied the nucleus of
Hoffman’s and Harriman’s thinking about postwar Europe. Harriman confid-
ed to Ludwig Erhard that his government attached “great importance” to
German economic integration into western Europe because its success
meant that there was a good chance that political integration would follow.
Marshall Planners envisioned a reconstructed West Germany as “workshop
for Europe’s recovery.” They wanted revitalization of its economy in order
to substitute West Germany for the United States as “main supplier of the
capital goods needed for [European] recovery.” Besides lifting the onus from
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057112Chap4Implementing-51_2
These German coal miners
were a key link in West
Europe’s energy economy.
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Barry Machado
the American taxpayer, a German rebound meant that America no longer
had to supply “food to Germany, capital goods to Western Europe, and dol-
lars to all of them.” Their strategy’s linchpin was encouragement to industri-
alists to give exports primacy in the marketplace. The workings of the Plan
then “enabled Germany to commit itself to free trade and to stick to this
commitment.” In myriad ways, in fact, the Marshall Plan functioned as the
Great Enabler in West Germany’s revival, which in turn made possible west-
ern Europe’s economic self-sufficiency and political stability.91
The Marshall Plan moved Bizonian revival along in several stages. It first
targeted the “food bottleneck” and near starvation. After the war the daily diet
in the American and British zones averaged only 1,300 to 1,400 calories per
person, even less in the French zone. German nutrition had improved but lit-
tle by the time the inaugural shipments of grain, canned beef, and potatoes
arrived in June 1949. By year’s end, 78% of all ECA exports—valued at
$478,000,000—were food. Raising per capita caloric intake above the danger
level was the Frankfurt mission’s overriding humane concern. By joining GAR-
IOA in relief efforts, ECA immediately reduced hunger and malnutrition while
removing one obstacle to greater worker productivity. Because of essential
food purchases, Bizonia under OMGUS had run a large trade deficit with the
Western Hemisphere. ECA food imports helped to balance dollar accounts.
Only later in the year did deliveries of vital raw materials, like cotton, swell
the flow of imported commodities. Overall, the Marshall Plan impacted west-
ern Germany’s economy with $1,400,000,000 in commodities and services
and another $1,350,000,000 in counterpart funds. The initial release of coun-
terpart followed the emergence in September 1949 of the Federal Republic of
Germany with Konrad Adenauer, a Christian Democrat, as Chancellor. In
1949, counterpart constituted 5.8% of West Germany’s aggregate fixed invest-
ment, rising to 7.8% the following year before dropping back to 4.1% in 1951.
The infusions proved invaluable to a robust national recovery.92
Ten million refugees in a population of forty-seven million constituted a
second humanitarian crisis in need of full attention. In early 1950, at a din-
ner with Averell Harriman and Vernon Walters, Vice Chancellor Franz
Blücher referred to their “present misery” as a “tremendous” problem
which threatened his country’s social and political stability and was there-
fore “very serious for all of Europe.” He advised Harriman that expanded
domestic production in Germany was the best permanent solution to the
unfortunate situation. In response, OSR, Paris pursued both short-term
relief and long-run remedies.93
To reduce human suffering, refugee assistance commanded a consider-
able slice of both regular and counterpart monies. Resettlement and hous-
ing construction, particularly in Schleswig-Holstein, Lower Saxony, and
Bavaria, were heavily subsidized. In the February 1949 country study,
Marshall Planners had already identified housing as the German people’s
“most acute need.” In all, ECA funds built 125,000 dwellings throughout
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West Germany. Marshall Plan officials also created a “refugee bank” for pro-
viding credits and loans with 127,000,000 deutschmark in counterpart. The
rest of the counterpart fund was directed into investment rather than debt
payment. Americans focused on West Germany’s transportation and com-
munication infrastructure, along with its industrial plant. But their biggest,
most ambitious, and wisest investment went into electric generating capac-
ity, the “power bottleneck” limiting future industrial expansion and which
was beyond the capability of private capital markets to break. Eighteen per-
cent of the over $1,000,000,000 in counterpart, or around $240,000,000,
ultimately financed power development. With its most publicized in West
Berlin, ECA sponsored energy projects nationwide. They encompassed
sixty-seven new power stations supplying nearly one-fourth of the country’s
electricity requirements. Railroad reconstruction and coal mines in the
Ruhr were two other specific beneficiaries. Railway transport received over
1,500 new locomotives and 70,000 freight cars. Improvements in mining
depended on nearly 10% of counterpart funds. All answered, in effect,
Blücher’s call for expanded domestic output. According to the head of
Kreditanstalt bank, the Marshall Plan also enabled West Germany “to nego-
tiate its debts, including both the pre-war debts . . . and the postwar debts.”94
Surprisingly, West Germany received more Marshall Plan aid in propor-
tion to GDP than did Great Britain. Such a statistic can be misleading.
Because Germany’s economic recovery was already underway (an industri-
al plant, like Italy’s, less damaged than imagined), and because of the rela-
tively modest amount of assistance—annual percentage of national income
ranged from a high of 5.3% in 1948 to a low of 1.6% in 1951—the Plan’s
direct economic impact was probably minor. At least one significant indirect
benefit spurred economic growth. Holger Wolf has concluded that “by prod-
ding more interventionist governments towards liberalization,” Marshall
Planners “increased the payoff to the liberal policies adopted by Germany”
in advance of ECA programs.95 Decisive political and psychological
antecedents to the “economic miracle” of 8% annual growth, on average,
throughout the 1950s can be traced straight to the Marshall Plan. Leading
German public officials have thought so. Soon after the Plan expired, Vice
Chancellor Franz Blücher dwelled on the interrelatedness of economic and
political factors. Besides permitting West Germany to purchase badly need-
ed raw materials while directing counterpart into productive investments,
ECA had rechanneled an outcast nation back into the European main-
stream. Apparently, international respectability, especially the West’s reac-
ceptance of the German people, rivaled currency reform as a national
“demarcation line.”96
Twelve years later, former Information Officer at the Marshall Plan Min-
istry in Bonn, Gustav Sonnenhol, and former Chancellor Konrad Adenauer
underscored Blücher’s final point. Sonnenhol stressed the great psychologi-
cal value of the Federal Republic’s first postwar diplomatic missions—to the
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Barry Machado
OEEC in Paris and the ECA in Washington—and its first postwar treaty, a
1949 bilateral agreement with ECA. Adenauer noted his countrymen’s
improvements in mood and morale that followed, telling an interviewer that
ERP supplied “hope” along with “provisions.” In his estimation, “extension
of the Marshall Plan to Germany was first of all a deed of extremely great
political significance” because “in spite of her past, Germany was placed . . .
on an equal footing with other suffering countries.” Equality of treatment
had an “extraordinarily good psychological effect.” The clearest evidence of
a new “European solidarity,” according to Karl Albrecht of the Marshall Plan
Ministry, was the “$120 million in credits . . . granted to Germany by the
European countries [EPU in 1950] without US participation.” The Marshall
Plan had returned a nation’s self-respect, a precondition for the economic
achievements, extraordinary prosperity, and a new European order that
ensued.97
Marshall Planners succeeded politically and psychologically in their
German policy. By situating West Germany within a framework of western
European economic cooperation, interdependence, and mutual benefit, they
diluted anti-German feelings and tamed French security fears. Generous
Marshall Plan aid to both France and Britain also staunched a hemorrhaging
Bizonian economy, eliminating a powerful disincentive to rebuild by helping
to silence demands for a continuation of war reparations.98 In belatedly
unleashing German industrial might within an existing regional system of
mutual assistance, most clearly demonstrated in the enlightened policies of
the OEEC and European Payments Union during Bonn’s balance of pay-
ments crisis of 1950–51, and with some unintentional help from Josef Stalin,
they solved the difficult “German Question.” What had poisoned relations
between OMGUS and the State Department, and among the western Allies,
lost its potency. The antidote was the Marshall Plan.
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PART TWO:
A CONTINGENT AND RELEVANT PAST