Growth of International Trade and the Marshall Plan: A Historical Analysis
Why International Trade Grew in the Nineteenth and Twentieth Centuries
The internationalization of the world economy reached its peak between the late 19th century and World War I (WWI), a period often labeled as the first globalization. This era witnessed not only an increasing volume of cross-country trade and financial flows but also a convergence of prices, wages, and even per capita income in some cases. National economies became increasingly interconnected and interdependent, relying on international trade.
Industrialization and internationalization were closely linked. Industrialization fueled market needs, leading to increased domestic and international trade. Conversely, the expansion of international trade fostered the division of labor, specialization, and more efficient resource allocation, resulting in greater economic efficiency and growth. Industrialization spurred trade, and trade, in turn, boosted production, creating a positive feedback loop. The growth of national economies was both a cause and a consequence of the development of the international economy.
The first globalization (1850-1914) was driven by government policies promoting openness, leading to reduced tariff barriers, and by technological advancements that significantly lowered transportation time and costs. This period, characterized by free capital movement, saw the expansion of free trade and significant migration, facilitated by the absence of government immigration controls.
From a social perspective, the first globalization yielded positive results. However, from 1914 to 1950, this trend was reversed due to the destruction caused by the two World Wars, the abandonment of the gold standard, the adoption of protectionist measures (especially tariffs), and the imposition of restrictions on cross-border flows and migration. These factors hindered globalization.
After 1945, particularly from 1950 onwards, a second wave of globalization emerged. Borders began to reopen, resembling the pre-1914 era. The dismantling of the Bretton Woods system in 1973, replaced by a floating exchange rate regime, revitalized capital markets and led to the gradual abolition of exchange controls. These developments laid the foundation for a new globalization process that unfolded over 50 years and continues to accelerate, driven by technological advancements in communication and information technology. These advancements, exemplified by the internet, are shaping a new global economy.
Reasons for the Marshall Plan and the Isolation of the USSR
The Marshall Plan (officially the European Recovery Program or ERP) was a U.S. initiative with two primary objectives: the reconstruction of European countries after World War II and the containment of communism. The plan was named after U.S. Secretary of State George Marshall and was primarily designed by the Department of State.
The reconstruction plan was proposed at a summit of European states in 1947. The Soviet Union and Eastern European states were invited, but the conditions (subjecting their internal and external economic controls to an integrated European market) were incompatible with their economic systems and ideological principles. Moscow pressured countries that had expressed interest (Poland and Czechoslovakia) to decline participation. The plan spanned four fiscal years from July 1947. European states that joined the Organisation for European Economic Co-operation (OEEC), the precursor to the OECD, received a total of $13 billion and technical assistance. By the end of the plan, the economies of all participating countries, except West Germany, had surpassed pre-war levels. In the following two decades, Western Europe experienced unprecedented growth and prosperity. The extent to which the Marshall Plan contributed to this growth is debated. The plan is also seen as a catalyst for European integration, as it created institutions for economic coordination at the European level. Additionally, it led to the systematic introduction of management techniques.
In recent years, historians have questioned both the motivations and effectiveness of the Plan. Some argue that the benefits stemmed from new free trade policies (laissez-faire), which allowed markets to stabilize through economic growth. For example, Eurostat, while distributing aid, also promoted free trade and the elimination of tariff barriers.
The Soviets were invited to participate because they were a major power and a victor in the war. The invitation was intended to avoid appearing distrustful. However, U.S. State Department officials knew that Stalin would likely refuse and that Congress would not approve substantial aid to the Soviet Union.
In a 1947 speech to the United Nations, Soviet Vice Minister for Foreign Affairs Andrei Vyshinski stated that the Marshall Plan violated UN principles. He accused the U.S. of imposing its will on independent states and using aid as a tool for political pressure.