The relentless revolution: a history of capitalism (46 page)

France, Sweden, and Great Britain chose the indicative option. In a four-year plan, the French government set the direction for economic planning, using subsidies and loans as guide dogs. The British Labour government came into office in 1945 under the banner of eradicating the five giant evils of want, squalor, disease, ignorance, and unemployment. Quickly the government nationalized the railroads, utilities, the Bank of England, coal mines, and steel factories. A national health plan gave “cradle to grave” coverage, and the government invested heavily in public housing. Sweden was the most generous of all industrialized nations, providing universal pensions, health and disability insurance, child and family allowances, poor relief, and subsidized low-income housing. These governments established priorities and pointed out the direction for private enterprise.

The Soviets had a command economy in which almost all enterprises were owned by the state. Central planners set production goals with little attention paid to market signals. Because Europeans had come to prize the private property rights they had wrested from monarchs long ago, many Russians resisted the appropriation of their property, so political repression had accompanied the Soviets’ economic restructuring. After the war, Soviet planners announced new economic goals that made control even tighter. The Soviet government was determined never again to be exposed to a horrendous invasion like that of Hitler’s, so they created a buffer zone comprising the countries of Poland, Hungary, Yugoslavia, Romania, Czechoslovakia, Albania, and Bulgaria. Buffering, as it turned out, involved imposing upon these nations command economies, one-party rule, and subordination to the Soviet Union. Only Yugoslavia avoided the embrace of the Soviet leader Joseph Stalin.

Russian industry had performed magnificently during the war. Its economy recovered prewar production levels within five years. Without the imperatives of war, government planners became less surefooted. Little was actually known about the poor outcome of the Soviets’ successive five-year plans until much later. This left Marxists in Italy, Germany, Britain, France, and even the United States free to agitate for communism in their countries.

American leaders chose the informative option. Not having experienced war at home and without a very strong labor tradition, Americans had little interest in radical programs that allowed the government to direct economic initiatives. Those members of Roosevelt’s New Deal who had favored more political control had been replaced during the war by businessmen, the so-called dollar-a-year men, who won back public confidence by meeting war production goals. Lost during the Depression, this renewed confidence bolstered their arguments against allowing the government’s wartime intervention to become a prelude to more central planning.

The Depression had exposed the two great weaknesses of capitalism: its wayward oscillations between good times and bad and the vastly unequal distribution of the wealth it produced. While American leaders rejected both central planning and central guidance, they recognized the need to moderate these tendencies. There would be no returning to the business mentality of the early twentieth century even if Americans remained loyal to free enterprise. The term itself became freighted with ideological meaning as the differences between the Soviet Union and the United States passed from principles to form the matrix for foreign policies.

American diplomats involved in reviving the prostrate countries of Europe favored letting market forces do the job. America’s great wealth and wealth-making capacity gave its preference preponderant influence, and these were to let loose the efficient operation of markets rather than follow political dictates. But the Depression had left leaders aware of the need to restrain some nationalist impulses for international free trade to operate optimally. The failure of Congress to go along with the League of Nations after the First World War remained a vivid memory. Roosevelt and his advisers began planning for peace while the war raged on. They had learned from experience and secured agreements before their allies could start fiddling with their currencies and protecting domestic industrial and agricultural producers.
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Always alert to the need of bringing the public along with him in formulating policies, Roosevelt gave priority to a conference on food and agriculture, knowing that Americans would feel keenly the need to feed a starving people after the war. Held in 1943, the conference provoked the acerbic British economist John Maynard Keynes to ruminate that Roosevelt “with his great political insight has decided that the best strategy for post-war reconstruction is start with vitamins and then by a circuitous route work round to the international balance of payments!”

When victory seemed certain in 1944, Keynes got his meeting on fiscal matters when 730 delegates with their staffs, representing forty-four countries, arrived on special trains at the newly refurbished Mount Washington Hotel at Bretton Woods, in New Hampshire’s White Mountains and hammered out an impressive agreement to end the nationalistic practices that had scuttled recovery from the Great Depression.
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Two catastrophic wars had crushed the spirit of vengeance. The pervasive influence of the United States carried the day. Hopes for an international trade organization faded, but at least countries were willing to buy into the General Agreement on Tariffs and Trade. GATT negotiations have been functioning ever since, now under the World Trade Organization. At Bretton Woods, the participants established the World Bank and the International Monetary Fund, the first to make the long-term investments in developments that private entrepreneurs balked at and the second to manage loans and monitor currencies. The magnetic center of world trade moved permanently from London to New York. It actually had passed after World War I, just as London had taken over from Amsterdam in the eighteenth century and Amsterdam from Genoa in the seventeenth century. By 1958 the monetary system established at Bretton Woods worked so well that all major European currencies could be converted into dollars.
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Europeans did not experience the immediate prosperity that Americans enjoyed. War had plunged some people back into a primitive past. The winter of 1946–1947, the second since peace returned, was unusually severe, so severe that it ruined the potato crop. In Germany, even when farmers had potatoes to sell, they wouldn’t do so because the value of the currency was too unpredictable. Germany, once at the pinnacle of capitalist development, witnessed scenes of city people going into the countryside with a lamp, chair, or picture frame to sell, returning home with sacks of precious potatoes. The next year brought a record-setting drought. The harvest of 1947 was the worst of the twentieth century. Millions in Germany and elsewhere were homeless, left to wander through the rubble that everywhere marked the destructive power the war had unleashed. Refugee became a common status for men, women, and their children, who had been dislodged or expelled or rescued from prison at war’s end. Several million Jews survived Hitler’s fiendish plans to eliminate them. Now free to move about, refugees took to the road or clustered in new displaced persons camps.

The extraordinary dimensions of need actually prompted an ambitious program for recovery. It started very much as a trial and error operation with a low budget. What the many people battered by war needed at first were the basics—food, clothing, and shelter. Then they faced the challenge of repairing the widespread destruction, and finally they required infusions of money to resuscitate their peacetime economies. Uncle Sam had the money and the will and began dispensing funds through the United Nations or directly from Washington. Canada too mounted a major relief effort. People do learn from experience. American leaders finally recognized the absolute necessity for the United States to accept the responsibilities of world leadership that it had eschewed after the First World War.

General Marshall’s Plan

Despite American and Canadian aid, getting the war-battered nations back on their feet was slow enough to raise doubts about capitalism and even stir sympathy for the Communist alternative to a market economy. In 1947, worried about this, Secretary of State General George Marshall announced a new program. Approved by Congress, the Marshall Plan appropriated dollars in loans and grants for food, seed, and fertilizer to feed the people, followed by money for capital goods, raw materials, and fuel to stimulate productivity. Though invited to participate, the Soviet Union declined for itself as well as its Eastern satellites. Sixteen Western European countries met in Paris to discuss the American offer. They ended their meetings by forming the Committee of European Economic Cooperation. Only Francisco Franco’s Spain failed to receive an invitation to join the group, though five years later right-wing dictatorships were accepted as allies in the fight against communism. Then the United States extended aid to Spain and received permission to establish air force bases there.

Overall, the United States invested eighteen billion dollars in the European Recovery Program between 1948 and 1952, at a time when the typical American clerical job garnered twenty-four hundred dollars a year. The quickness with which the Marshall Plan beneficiaries rebounded made the plan seem like a general panacea for economic backwardness. In 1948 the principles embodied in the Marshall Plan were applied outside Europe in President Harry Truman’s Point Four program for India. The uneven success of this costly effort clearly suggested that economic development required more than money, but this was not a popular conclusion. Many experts spoke, and continue to speak, of market success as a consequence of autonomous laws of nature when history teaches that capitalism functions like other social systems through indeterminate, personal interactions.

Europe in the postwar period is interesting to the history of capitalism because its different trajectory reminds us that there are many ways that enterprise can thrive. After the war it took devastated Western Europe about five years to recover its full industrial power. In 1950 its gross domestic product equaled that of the United States in 1905! That was the last time for such a disparity. The next two decades registered the largest sustained period of economic development ever recorded until that time. In the four years between 1948 and 1952, Western European economies grew an amazing 10 percent each year.

The Allies’ occupation of Germany, vexed by the conflict between the Soviet Union and the United States, resolved itself by splitting the nation into the Russian-occupied East and the western area, which the United States, Great Britain, and France supervised. The Western powers quickly realized that a recovered economy in West Germany, formally recognized as a separate country in 1949, was essential to their well-being. Just replacing the despised Nazi currency with deutsche marks had an impact. West Germans responded with alacrity to a sound currency. Hoarding stopped; shops became well stocked. It was a dramatic entrance for a currency that has maintained its strength for sixty years. So quickly did it happen that people called it an economic miracle, a term soon applied to the rapid recovery of all of Western Europe.
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Catching up put Western European economies into high gear as they moved beyond restoring their industrial plants to incorporating the technological developments of the past two decades. Capital from the United States greased the wheels of the new locomotive of recovery and supplied a model of economic advance. Western European countries already had the skilled labor force, savvy investors, sophisticated banking systems, and world-class educational institutions needed to revive their leading sectors of steel, automobile making, pharmaceuticals, and electric products. Perhaps the most elusive benefits of the Marshall Plan came from the confidence it conveyed and the easing of national rivalries. In the years between 1948 and 1964 the productivity from capital doubled, pretty much closing the gap between Western Europe and the United States.
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In this environment, even Ireland, Spain, Portugal, and Greece prospered.

Continental Western European countries adopted a corporatist economic form. Governments guided growth with fiscal and monetary policies, central banks virtually monopolized venture capital, and unions secured worker representation on corporate boards. Development with stability became the collective goal. This was especially true in Germany, where the Nazi regime had soured just about everyone on a powerful state, including socialists and the grand industrialists. Instead they sought mechanisms to contain the inevitable jostling for advantage among market participants. This system legitimated interest groups and created new institutions to determine the direction of the economy.
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There were obvious trade-offs in the corporatist and free market economies. Few vulnerable members of society fell through the European safety nets, as they did in the United States. While large corporations sponsored excellent research, especially in pharmaceuticals, innovation took a backseat to security in Europe. Groups making decisions for banks, management, labor, and government proved more risk-averse than individual entrepreneurs. Private persons in the United States found it easier to get backing for new ideas, and they were left to succeed or fail on their own. The economy, as a whole, benefited from the entire lot of efforts to build the proverbial better mousetrap.
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But turbulence remained a prominent feature of the American economy.

The immediate postwar agreements led to sustained international cooperation among the worlds industrial leaders, animated by the sense of mutual concerns that had been missing in the interwar period. Most people realized that economic growth was not a zero-sum pie. Nations got richer if their neighbors were rich, as Adam Smith had pointed out years ago. While protective tariffs didn’t disappear, they were moderated considerably from their mid-nineteenth-century highs. Still, all countries backed away from tackling the contentious issue of taking away domestic support from their farmers, a powerful political group everywhere.