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August 28, 1991
"Buckets of Money aren't the Answer"
San Jose Mercury News

By Timothy Taylor
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WITH TIME, the Marshall plan of U.S. assistance to Western Europe after World War II has taken on a rosy can-do glow. "If we can rebuild Europe and put a man on the moon," the optimists say, "surely we can rescue the Soviet economy and abolish world poverty. It's just a matter of making the commitment."

Germany, France and Italy have been strongly supporting a large financial aid package for the Soviet Union, and British prime minister John Major has called for a meeting this week of representatives from the industrialized powers to talk it over. When the U.S. Congress returns to Washington next week, such talk will be in the air.

But the historical experience of the Marshall plan actually makes a case against aid to that disorganized chaos still known, at least this week, as the Soviet Union.

It's not that the economic situation of the Soviet Union is all that different from western Europe in the second half of the 1940s. During the war, western Europe had accepted central economic planning as a necessity, including consumer rationing, price controls, and government direction of imports, raw materials, finance, transport facilities, and construction.

By the end of the war, the industrial equipment of western Europe was heavily focused on producing defense-related goods. Since maintenance and repairs had been deferred throughout the war, much of the plant and equipment was obsolete, often held together by string and spit. Inflation and unemployment were looming.

But thanks to bold action by the Europeans themselves, a market economy was restarting and economic recovery was already under way before the Marshall plan started in April 1948. European industrial production (excluding Germany) rose 13 percent in both 1947 and 1948, and continued to grow at that astounding pace into the early 1950s.

Marshall plan assistance was intended to solve a particular problem. It was argued that since the economies of western Europe had been largely cut off from foreign trade during the war, especially U.S. trade, they might face a "dollar shortage," and be unable to purchase certain imports vital for expanding production.

The funds needed for this limited problem were substantial, but not enormous. Marshall aid totaled $12.4 billion from 1948 to 1951, which would work out to about $16 billion per year if adjusted into today's dollars. During that time, Marshall aid was equal to about a quarter of total imports, and two-thirds of imports where U.S. dollars were needed to make the purchase. There is some dispute over how vital these imports actually were, and whether Marshall plan aid was even necessary.

At any rate, the Marshall plan set conditions for aid. Each country that wanted Marshall aid had to lay out a four-year plan, explaining its intended economic transition. The governments also had to set aside "counterpart" funds which, at least in theory, U.S. administrators could tell them how to spend. These conditions were severe enough that the Soviet Union turned down Marshall plan aid when it was offered, on the grounds that it would constitute too much foreign interference in the Soviet economy.

Marshall-sized aid to the Soviets is not trivial, but it would be financially feasible, especially were it split into thirds, say, between Europe, the United States and Japan. After all, the U.S. budget deficit will be about $300 billion this year; borrowing an extra few billion would hardly be noticed.

But would the money do any good? Even this capsule description of the historical Marshall plan shows why conditions aren't ready for a repeat.

Far from being ready to lay out a four-year plan for economic transition, Mikhail Gorbachev has for years been unable to commit to any firm plan at all for economic reform. Now, it's not clear that Gorbachev even has the power to draw up a meaningful plan; perhaps the job has to be left to each separate republic.

While Marshall plan aid helped boost a booming economy over the hump of a temporary dollar shortage, the Soviet economy has been contracting.

But it's not at all clear that the Soviet Union has suffered from a shortage of capital. Central economic planning encouraged people to save a great deal, partly by not offering them much to buy. Where the system failed was in channeling those savings into economically viable investments.

This most severe problem for the Soviet economy is also the most obvious difference with Western Europe in the late 1940s. Although the nations of western Europe had largely suspended their market economies to fight World War II, they still had a tradition of markets. After seven decades of communism, the Soviet Union does not. Thus, the most useful assistance from the West at this time is to send bankers, antitrust experts, business managers, economists and others who can offer technical assistance in setting up a market economy.

Last week's failed coup offers no reason to rush ahead on financial assistance for the Soviets. After all, the coup leaders were not motivated by a belief that Gorbachev is a poor international fund-raiser. Does anyone think the republics will call off their drive for independence in exchange for a few billion dollars in Western loans?

Residents of what is now the Soviet Union, under one form of government or another, will need to do the lion's share of rebuilding their economy, just as western Europe did after World War II and Poland, Czechoslovakia and the rest of eastern Europe is doing now. Outside money isn't enough. Even fertilizing an economy with tens of billions of dollars isn't enough to assure that economic roses will sprout, as Brazil, Argentina, and Mexico have conclusively demonstrated in recent years.

However, the failed coup itself does offer one possible benefit for Soviet economic reform. The substantial economic change that is needed will bring dislocation in the short run, and a country is only politically able to cope with the pain of such reforms if it feels a sense of unity.

Poland has its Solidarity movement. Czechoslovakia had its "velvet revolution." With luck, the coup that failed will help build a sense of togetherness and momentum that make it possible for Soviet citizens, in one confederation or another, to tread the painful but necessary path of economic reform.

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