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Benn Steil on the Marshall Plan and Donald Trump

Octavian Report: What drew you to the Marshall Plan as a subject? Why now?

Benn Steil: I confess that at the time I decided to write this book, I had no idea that the contemporary atmosphere would be what it is.

This is a book I decided to write about six years ago when I was finishing up my last book, which was called The Battle of Bretton Woods. That dealt with an earlier period, the 1944 Bretton Woods International Monetary Conference. The Marshall Plan played an important cameo in that book.

I think when I got to writing that cameo I had an epiphany that this was really a fundamental rejection of the one-world vision that FDR’s foreign and economic policymakers had about the post-war world.

FDR had premised his vision on four assumptions. First, that the British Empire could be peaceably dismantled; second, that the Soviets could be co-opted into a permanent peacetime alliance with the United States; third, that Germany could be profitably dismembered and deindustrialized (that was the so called Morgenthau Plan); and finally, that a globally integrated economy could be rebuilt on the basis of short-term loans to countries with balance of payments difficulties. This was really the idea behind the IMF.

All those elements turned out to be wrong. By the time we get to 1947, the British Empire is collapsing violently because of Britain’s impending bankruptcy. The Soviets were not going to cooperate with the United States in Europe or elsewhere. They were pressing territorial claims in Iran and Turkey throughout 1946. Germany was descending into chaos and disorder; the United States realized that the occupation was going to be long and painful and expensive unless they reversed policy. And finally, nobody wanted to borrow from the IMF. They preferred to maintain inconvertible currencies and simply not open up their trading regimes. So all these premises turned out to be wrong.

By the spring of 1947, you have Dean Acheson — Marshall’s Deputy Secretary of State — concluding that these four elements that FDR had taken for granted were based on “misconceptions of the state of the world around us, both in anticipating post-war conditions and in recognizing what they actually were when we came face-to-face with them. Only slowly,” he said, “did it dawn upon us that the whole world order that we had inherited from the 19th century was gone and that the struggle to replace it would be directed from two bitterly opposed and ideologically irreconcilable power centers.”

This is a story I wanted to tell at the time — the repudiation of the Bretton Woods one-world vision. As I sat down to write it, I really had no idea that it would have the sort of contemporary relevance I think it does now, given the fundamental changes in foreign policy philosophy that we are currently going through with the Trump administration.

OR: The Marshall Plan itself is well-known in very general terms. What were its actual constituent elements and motivating ideas?

Steil: We need to begin with Truman to explain that. There’s a myth about Harry Truman. He had a very different view of what post-war U.S. relations with the Soviet Union should be like than FDR did; some argue that Truman therefore bears a lot of responsibility for the Cold War. I think that’s inaccurate.

I think as a personal diplomat, there’s no doubt he was very different from FDR. He had far less patience with Stalin’s machinations than FDR, but after he became President in April 1945, he was really fundamentally determined to carry out FDR’s post-war vision — including trying to maintain good cooperative relations with the Soviet Union.

But as I mentioned earlier, Stalin had a very different game plan. Stalin had said rightly at the Tehran Conference in 1943 that “the best friendships are those founded on misunderstandings.” And there’s no doubt that he and FDR managed to maintain good relations during the war on the basis of willful misunderstanding.

In particular, FDR believed or wanted to believe that the Soviets after the war would effectively contain themselves. And Stalin believed or wanted to believe that the Americans would disengage from Europe just as they had after World War I.

Neither of those things turned out to be true. When Truman saw that Stalin was determined to expand his borders and his influence after the war, when the British, in February of 1947, announced that they could no longer support militarily or financially the regimes in Ankara or Athens, Truman decided that he had to find a way to contain the Soviet Union.

But the idea behind the Marshall Plan was that the U.S. needed a way to counter Soviet conventional-force dominance in Europe with something other than military force. There were several reasons for this. First of all, it was clear that there were parts of Europe under Soviet military domination and that the U.S. had no real prospect of changing this without using atomic weapons. Secondly, Truman was actually determined to fulfill FDR’s pledge of withdrawing the troops from Europe within two years after the war. This was really seen as a political imperative at the time because the American population was not going to tolerate an extended large-scale occupation of Europe.

So the idea the State Department developed was that it would use American economic dominance — at its all-time high after the World War II — to counter the Soviets’ conventional-force dominance in Europe. We would use our economic might to provide massive financial aid for those countries that were not under Soviet domination in order to create a powerful belt of strong, independent, democratic, capitalist allies who could effectively fend for themselves without having to rely on the American military.

As I explain in the book, that vision was only partially fulfilled on its own. It wasn’t completely fulfilled until 1949 when the United States reluctantly committed to the creation of the North Atlantic Treaty Organization to provide Marshall aid with what was effectively a military escort.

In fact, the State Department came to refer to NATO as “a military ERP.” ERP as in European Recovery Program, the official name of the Marshall Plan.

OR: What were the big obstacles the Plan faced at home and abroad?

Steil: Let’s start at home. Truman was faced with a hostile Republican Congress that was demanding a peace dividend. There was great skepticism in the country broadly, but particularly within the Republican Party, about the effectiveness of economic aid in the early post-war years.

It’s largely been forgotten, but the United States dedicated many billions of dollars in financial aid to Europe and elsewhere in the two years after the end of World War II and before the Marshall Plan was launched. But most of that aid went through a U.N. organization, the UNRRA. It was not under American control. That aid was seen as largely ineffective both in reviving the European economy and in containing an increasingly hostile Soviet Union.

So in order to get this enormous aid plan through Congress, Republicans had to be convinced that this was necessary and it was going to be effective to counter Soviet authoritarianism in Europe. That if we made this commitment to providing massive U.S. aid to the Western Europeans they would be able to defend themselves against Soviet subversion and maintain themselves as strong capitalist democracies.

The hero on the Republican side who made this all possible was the head of the Senate Foreign Relations Committee, Arthur Vandenberg. A one-time isolationist, Vandenberg sacrificed his own presidential ambitions in order to collaborate with Truman and Marshall and to push this massive aid program through Congress. It was really a remarkable story of legislative triumph, one I spend a lot of time detailing in my book.

In terms of foreign policy, this was truly the beginning of the Cold War. It wasn’t until Marshall’s announcement of this proposed aid plan at Harvard in June of 1947 that Stalin concluded that collaboration with the United States — collaboration on his terms, that is — was effectively over. If he didn’t take strong, effective, immediate action to clamp down on Central and Eastern Europe and to make sure that they were not tempted to participate in the Marshall Plan and fall into the U.S. orbit, then he was going to lose this invaluable security buffer he had created for the Soviet Union in the immediate aftermath of the war.

Here’s one example of how consequential Marshall’s speech was. In May, just before the speech, Stalin had actually directed a Soviet negotiating delegation to reach agreement with the Americans on the creation of an interim unified government in Korea (provided that sufficient representation would be given to so-called leftist groups in southern Korea).

It was only after the announcement of the Marshall Plan that he ceased cooperation with the Americans entirely. As for the Americans, Marshall had written off cooperation with the Soviets entirely in April of 1947. He had spent six straight weeks negotiating with Stalin and his foreign minister Vyacheslav Molotov in Moscow about the possibility of reunifying Germany and ending the occupation. The discussions ended in complete stalemate and Marshall was convinced at that point that the Soviets were actually trying to precipitate economic collapse not only in Western Germany but in Western Europe more broadly.

At that point he determined that it was fundamentally necessary for the United States to abandon the Yalta-Potsdam vision of cooperation with the Soviet Union and to take firm unilateral action in order to secure Western Europe as part of the democratic capitalist orbit.

OR: Could anyone other than Truman and Marshall and Acheson and Kennan have done this?

Steil: No, I think their personalities mattered very much. The people who were making foreign economic policy in the Truman administration were much wiser and much more capable than those who were doing it in the FDR administration.

The two central players in FDR’s regime were Treasury Secretary Henry Morgenthau, who certainly was no economist and was not a great intellect. His plan for post-war Germany, the so-called Morgenthau Plan to deindustrialize it was an utter disaster. It created a humanitarian crisis in Europe.

His deputy Harry Dexter White was, we found out only many decades later, a Soviet agent. He had taken rather astounding actions in order to support Soviet policy ambitions within the United States. The people that Truman empowered to make policy at the State Department after he took over were people who had basically been conscientious objectors during the FDR administration.

You mentioned Dean Acheson and George Kennan. They were certainly major players. George Kennan was the one who framed the Marshall Plan as a geostrategic blueprint, but there were others involved who were extremely important. The one I would highlight most strongly would be Will Clayton, who was General Marshall’s Undersecretary for Economic Affairs.

It was Clayton who had the vision of integrating Western Europe economically and politically, effectively federating it in order to make recovery quicker and to institutionalize economic and political cooperation.

I think that Clayton actually deserves quite a bit of credit in terms of being one of the fathers of the European Union. People don’t realize, but the French in particular had to be brought into this idea of European federation kicking and screaming. They were as determined as the Soviets, in the immediate aftermath of the war, to extract maximum repatriations from Germany, to rip up its industry and retransplant it into France and keep Germany down as an industrial power so it could never threaten France again.

It was the United States that convinced France that Western Germany’s economic recovery was vital to France’s own recovery and that the United States could provide France with effective physical security so that they did not need to worry about a revived Germany ever again becoming a threat to France.

OR: Can you talk about the inclusion of West Germany in the plan — and why it was so controversial?

Steil: The policy that the U.S. had in the immediate aftermath of the war toward Germany was the Morgenthau Plan, which was the polar opposite of the Marshall Plan. We weren’t going to revive Germany, we were going to do the opposite. We were going to rip up its factories and distribute them to its victims.

We were going to make sure that it would never be an industrial power again. We were effectively going to turn into a giant pastureland. Since Germany had not been an agricultural country for hundreds of years, to fulfill this vision would have created mass starvation in the country.

Not only that, but this notion that you could transplant German industry wholesale — not just manufacturing, but the coal industry, for example — to other parts of Europe was really fantastical. It could never have been done.

So when the State Department realized that they could in fact revive Germany quickly and turn it into the industrial engine of a new, revived Western Europe, this became the centerpiece of the Marshall Plan.

OR: Is there an E.U. at all without the Plan?

Steil: My answer would be no. The French would never have agreed to that sort of economic and political integration with Germany without fundamental security guarantees from the United States.

The United States, I should emphasize, really had to twist the arm of France to get it to participate. France was raising some very cogent objections. They said, “Look, if we participate in your vision and we become part of an integrated European economic federation, this means we’re going to be giving up our self-sustainability. That is, we won’t be able to take care of ourselves without having to rely on others and this is a danger because we’re going to be faced imminently with a hostile Soviet Union that is supporting violent labor strikes all over France, that is funding the Communist Party in France.” And — as we found out from the Soviet archives later — it was also willing to arm that party militarily.

The French pointed out that the Germans, unless someone was going to take responsibility for containing them (mainly the United States), were always going to be a mortal threat to France. So these objections were very cogent.

The Americans insisted to the French that they would provide for their security, but beyond that, the French were going to have to cooperate in the economic confederation aspect of the Marshall Plan. Because if they continued to pursue a strategy of extracting reparations from Germany, the United States was going to block it.

The United States was very clever in the way it handled Marshall aid to Germany, which was enormous. Marshall aid to every other country was in the form of grants, but for Germany it was in the form of loans. And this is not because the United States believed that it would ever be paid back. The United States didn’t even want to be paid back, but it wanted to make itself the lead creditor. So it could say to all of Germany’s other creditors, “Nobody gets paid back a dime until we get paid back. And since we’re never going to get paid back, you’re never going to get paid back. If you need economic assistance, you’re going to have to take it on our terms.”

The French eventually bought into this.

OR: Can you talk about what the macro-strategic response of the U.S.S.R. was to the unfolding of the Plan?

Steil: Before the Marshall Plan, Eastern Europe wasn’t under complete communist control. Stalin had been willing to tolerate coalition governments in Poland, in Hungary, in Romania and Bulgaria and Czechoslovakia. He was not dogmatic about the brand of socialism that each of these countries pursued.

The only thing he demanded was fealty to Moscow on foreign policy. And when the Marshall Plan proposal was put to the Central and Eastern Europeans by the United States, it was very attractive to them.

Czechoslovakia in particular showed, shall we say, excessive interest in participating. Even after Stalin told the Czechs that this would be impermissible, the democrats who dominated the coalition government still refused to stop talking about it.

What you have over the course of 1947 and 1948 is Stalin subverting one coalition government in Central and Eastern Europe after another. The most dramatic of these diversions was in Czechoslovakia, where he effectively instigated a Communist coup in February of 1948.

The Marshall Plan pushed Stalin to crack down in Eastern Europe and in those parts of Central Europe that he controlled to make sure that they could not participate in the plan. So the Iron Curtain truly becomes iron after announcement of the Marshall Plan.

OR: How did the Truman administration think about the economic element of soft power?

Steil: They did see the importance of the economic side of soft power. There has been no other period in history in which the United States was so dominant on the world stage economically.

After World War II, in the immediate aftermath, the U.S. accounted for about half of world manufacturing output. And though the details of the plan were eventually taken over by the Keynesian economists in the State Department, the idea behind using economics as a tool of soft power did not emerge from the economists.

It emerged, in fact, from military men in the administration. People like Henry Stimson, who was FDR’s Secretary of War; Kenneth Royall, who was Truman’s Army Secretary; James Forrestal, Truman’s Navy and Defense Secretary. Forrestal, who was a hawk, described Marshall aid as “far less expensive than standing isolated and alone in an unfriendly world.” Royall told Congress very forthrightly that unless Congress passed the Marshall aid legislation, he was going to need to demand an immediately 20 percent increase in the military budget.

It was the military that saw the urgent need for economic intervention. I would point out in a contemporary context that there are still elements of this thinking in the Pentagon that live on even in the Trump administration. Secretary Mattis, in fact, has consistently contradicted Donald Trump’s calls to slash the diplomatic budget. He warned a while back, and I’m quoting him, “If you don’t fund the State Department fully, then I need to buy more ammunition.” These were almost the exact words that Army Secretary Kenneth Royall used before Congress when he demanded a $2.25 billion boost to the military budget if Marshall aid did not go through.

OR: Should we have had a Marshall Plan analogue to deal with the economic fallout of the dissolution of the U.S.S.R? Would such a plan have worked?

Steil: The Marshall Plan has a remarkable legacy, but perhaps the most striking part of it is the endless effort to repeat it.

Just in the last 10 years alone, we’ve had high-profile proposals from Western statesmen and celebrity philanthropists for new Marshall Plans in Ukraine and Greece and southern Europe and North Africa and the Arab Middle East, as well as Marshall Plans for global warming and global unemployment. But nothing like the Marshall Plan has ever emerged. It’s never even been badly imitated.

That doesn’t mean that we have not tried the idea of massive reconstruction aid as a means of shaping other countries’ politics. We have: it’s just worked very badly. In the cases of Iraq and Afghanistan, for example, we have already spent over 50 percent more in current dollars on reconstruction aid in the two countries than we spent on the entirety of Marshall aid. Yet we have virtually nothing to show for it.

The most important reason is the lack of internal and external security in those countries. The Marshall Plan would never have been effective without a military escort, i.e. NATO, to provide this essential physical security to the recipient countries.

In the immediate aftermath of the collapse of the Soviet Union, security was really a fundamental political concern in the country. Russia’s security buffer was collapsing very rapidly back to borders that it hadn’t seen since the 18th century. And without that sort of security, I don’t think it would have been possible to use economic aid as a viable means of shaping Russian politics. In fact, and this I would emphasize very strongly, we were pushing Russia in the other direction.

As you know, President Gorbachev and then President Yeltsin after him relentlessly pressed the United States not to expand NATO eastward. They both emphasized that this would give rise to strong nationalist sentiment in Russia and would set back Russia’s political reforms. Yet we did it anyway. We didn’t fund it adequately, which I think puts us in an extremely dangerous position today. But we did relentlessly expand NATO right up to Russia’s borders. And Vladimir Putin has made absolutely clear that this is the number-one source of tensions, from his perspective, between the United States and Russia.

In a personal conversation that he had with Shimon Peres, which Peres recounted for Tablet magazine in 2016 shortly before he died, Putin emphasized this. He said, “What do the Americans need NATO for? The Soviet Union doesn’t exist, the Warsaw Pact was dismantled. Why do they need Georgia in NATO, why do they need Romania in NATO? Do you think I didn’t know that Crimea is Russian and that Khrushchev gave it to Ukraine as a gift? I didn’t care until they needed the Ukrainians in NATO. What for? I didn’t touch them. They wanted to go to Europe, I said great, go to Europe. But why did they need them in NATO?”

This is not the language of an ideologue, this is the language of a pragmatist — and not even a particularly ruthless one, by Russian standards. Gorbachev, for example, agreed with Putin over the occupation of Georgia and the annexation of Crimea.

Not only did we not use economic aid as a tool for trying to shape Russia, we pushed very much in the other direction by expanding NATO.

OR: You wrote an op-ed over the summer arguing that an internationalist outlook on economic matters, as opposed to a nationalist and protectionist outlook, is the real “America First” policy. It’s an intriguing thought — can you expand on it?

Steil: I don’t think we should obsess so much about the financial aid element of the Marshall Plan. That had its role in the context of the early post-war years, but there are elements of this thinking about the use of economics in soft power that we have applied very well in a contemporary context.

Perhaps the best example is NAFTA. Put aside for the moment the economic impact of NAFTA and just focus on the political aspect. Relations between the United States and Mexico, at least up until Donald Trump’s election, had improved immeasurably over the decade since NAFTA was passed.

There’s no doubt that NAFTA played a major role because it was the first time in our two countries’ mutual history that from the Mexican perspective, the United States had treated Mexico as a sovereign, independent power whose politics the United States would respect and whose territorial integrity the United States would always respect.

After all, you don’t go into a fundamental free trade agreement with a country unless you respect its sovereignty. I think one of the very unfortunate aspects of the current unraveling of NAFTA is going to be a material deterioration in the quality of U.S.-Mexican political relations.

It may very well lead to the election in Mexico of an anti-American firebrand, Manuel Lopez Obrador.  Thinking about trade agreements purely in a zero-sum economic way is devastating to our political interest. I think, for example, abandoning the TPP is a gift to China. It’s allowing China to shape the rules for economic cooperation in the region, which will eventually, unless we counter it intelligently, lead to China growing its political influence and dominance in the region in ways that are antithetical to our own interests.

OR: Are there other major lessons that contemporary American citizens and policymakers can and should learn from the Plan and its success? Do you think our current administration might pick up on these lessons, given enough time?

Steil: There’s clearly a war going on within the administration right now about precisely what the policy meaning of Donald Trump’s “America First” vision should be. I think that tension is reflected, for example, in the President’s so-called national security strategy.

If you actually read the document, there are elements — they’re very hazy — but there are elements of internationalist thinking of the type that we saw in the Marshall Plan. In fact, there are several positive references in the document to the Marshall Plan itself.

But I think perhaps the most important insight of the Marshall Plan we need to remember today is that the prevailing global order was built on the understanding that having allies, as opposed to colonies or tributaries, necessarily meant ongoing compromise with other sovereign wills. The United States must now decide whether such compromise is worthwhile to preserve that order or whether we’re instead going to just slug it out with China and Russia for the affections of other nations and blocs.  I think we will be competing from a position of weakness if we abandon these alliances and this mutual dedication to long-term common interests and common values.