The Atlantic Report on the World Today: Aid to Europe

Two years ago, when the European Recovery Bill was introduced, the Soviet Union, by the Communist coup in Czechoslovakia, supplied a pressing incentive for its passage. Last year Mr. Hoffman’s case for the second installment of aid was bulwarked by the heartening statistics on economic recovery in the various countries of Western Europe.

But this year the case is different. This year, the area of Soviet pressure of which the Congress is most conscious is not Czechoslovakia, nor Berlin, but Formosa —on the other side of the world. And the phase of the European economic problem now claiming attention is not the graphic and easily compassed restoration of war damage, but the far more subtle economic necessity of accommodating old patterns of Western European supply, production, and sales to a post-war world.

Americans have expressed great disappointment at the minor progress made by the participating European countries this past year toward integrating their economies along with the restoration of their productive power. Small-scale production in Europe is inevitably high-cost production. It severely limits sales in a competitive world market, and it forces European domestic populations to go without goods. The economic and political satisfaction of these groups is important to the free world’s stability.

Behind both British concern about the dollar gap and American disappointment at the lack of progress in European reconstruction is a factor mentioned so rarely that its importance is obscured. Political realities have permitted participation by only part of Europe. The granaries of the East, which formerly fed important sections of the manufacturing populations of the West, have been doublelocked against Western access. Without them, European integration is deprived of most of its complementary features. The necessary search for other sources of supply has exacerbated the currency situation and will increasingly sharpen Western Europe’s competition as restored economies get into a race for world markets and the overseas purchasing power that follows the earning of foreign exchange. Nothing can currently be done about this blocking of the natural trade channels that the Marshall Plan sought to clear, but that does not alter the extent of the resulting diversion of flow.

Out-of-date plants can’t compete

Most European production is essentially nineteenth-century production. In many cases the machines are nineteenth-century machines; even when improvements have been made since grandpa’s day, they are more likely to have been additions to old facilities than unified new layouts. In practically all lines there are certain plants, the cream of the industry, that compare favorably with their American opposite numbers; but the cream doesn’t go very far down into the bottle, and the milk at the bottom is very blue indeed. By and large, the industries have seen no objection to keeping prices at levels which enable the blue-milk producers to stay in the game. Yet they must compete in a world which includes the United States.

The average British manufacturer, exhorted by his government to get into the dollar market, views the prospect with misgiving. He doesn’t like change. lie is not set up to produce an enormous number of units; yet the principle of cheaper by the dozen is the principle that gets contracts from Sears Roebuck, Montgomery Ward, and Macy’s.

The British manufacturer is well aware that there is an old, tried, and satisfied customer in the sterling area ready and waiting for every gadget he is currently set up to produce. Moreover, neither the British manufacturer nor the British workman likes to cut into the reputation for quality that has given the word sterling a special meaning. They like craftsmanship, and craftsmanship has little in common — either in output or in price — with mass production. Yet the British specialty goods, the tweeds and the socks and the leather goods and the whiskey, which command the prices that craftsmanship makes necessary are not by themselves going to be enough to plug the dollar gap.

The main outlines of the British story apply to most of the other nations participating in Marshall aid. Each story is a little different. In France, to the story of nineteenth-century production must be added the story of a divided nation, in which the relationship between management and labor is reminiscent of the United States in the years before the idea that purchasing power, widely distributed through high wages for high productivity, creates large and steady markets.

For over a decade, there has been no collective bargaining in France. Institutions are lacking for joint labormanagement approach to the installation of machinery and new methods; labor resists changes which it expects to be stretch-outs, and management insists that such changes, and the division of the resulting gains, are exclusively its affair.

Can Europe pay its way?

The Marshall Plan can doubtless be defended as a security measure, with its cost written off in terms of the strength it has brought to the West. But can comparable expenditures be justified indefinitely when an alternative exists — when sales in dollar markets would enable Western Europe to earn its way, though with some related adjustments in American production ?

What can be done to get the program moving again? Few people question the rightness of its objectives. What methods of moving toward them will work?

Something can be done on a number of levels. One is the level of the individual firm that moves into a new situation with imagination and knowhow. While the hearings on ECA were going on, the Nash-Kelvinator Company was showing, in selected cities across the country, a prototype of a proposed new car, to sell for about $1000. The car, if it is made, will use European engines—Fiats from Italy or Standards from Britain.

The making of the chassis and body, assembly, sales, service and parts, would be handled by existing NashKelvinitor agencies.

Such an arrangement would put on the market something that people want to buy; it would use capital equipment already in existence; and, especially in the case of Italy, it would provide work for trained labor that is currently unemployed, and whose employment would give dollar purchasing power to one of ECA’s participants.

A second level for initiating useful change is that of the joint management-and-labor British productivity teams that have visited the United States under ECA auspices to view American methods and see which ones are adaptable to British circumstances. The report on the steel industry, issued last autumn, offers ideas ready-processed by Britons immediately engaged in the industry; and the ideas have the additional advantage of being presented jointly by labor and management. The score or so of such teams that have visited the United States include both the private and the nationalized sectors of British industry.

Living on transfusions

There is a grave possibility that the very purpose the Marshall Plan was created to serve may become a liability in its later phases. The reasoning behind the Plan was that unless citizens of Western Europe felt that their countries had a future and they themselves had a chance, the promises of the Kremlin might seem attractive alternatives. The Plan worked.

Now the problem is to give the peoples of Western Europe a sense of urgency to move from a situation which is tenable, for a short time, only because of a constant economic transfusion from the United States, to arrangements that are tenable for the long run.

In Britain, last autumn, in spite of the fact that the pound stood one day at. $4.04 and the next at $2.70, there was a pervasive lethargy —not among top administrators, nor among the economic leaders in close touch with national affairs, but among people in general; among the larger group who form public opinion and can either make a government act or make a climate in which it is possible for a government to act.

Hoffman’s warning to us

Exactly because the first phases of the Marshall Plan created a sense that things are better, the officials associated with its further progress have to be self-starters if that progress is to take place. ECA officials have grasped this situation. At the same time that they are asking for next year’s funds, they are prepared to convey a dual warning: one to the American Congress and one to the participating governments grouped in OEEC.

Congress will almost certainly propose further cuts in ECA’s requests. But when a certain point is reached, Mr. Hoffman sees it as his function to warn: Better nothing than too little; better to cause a full-scale crisis now by cutting off aid in midpassage than to supply just enough money to make countries believe that they can keep their heads above water if they scramble for individual self-sufficiency and dollar-grabbing.

A second pertinent counsel, repeating that given by ECA last year, concerns Congressional temptation to earmark the appropriation that is made. ECA is not a program to move American surpluses.

Hoffman’s warning to Europe

ECA’s warning to Europe was given before Congress came into session. Suggestions were made to coöperating governments as to the minimum performance on their part which would seem to justify the appropriation of adequate American funds. Four specific actions were urged: an end to dual pricing, by which countries have been selling the same commodity at higher prices abroad than to domestic consumers; formation of new arrangements for intra-European payments; reduction in quantitative restrictions — quotas and the like —on broad categories of trade among the participating countries; and, perhaps most important, an increase in the stature of OEEC.

To date, OEEC’s function has been economic analysis at the technical level, where the task of the international civil servant is to point out difficulties and pitfalls. But now we need decisions which are political as well as economic.

Can a relationship be worked out between Western Germany and the rest of the West that will permit German production to be brought into use without permitting Germany to resume her previous efforts to dominate the area? Such questions are not questions for technicians; the technicians cannot get to work until a directive issued at top levels indicates the objective toward which their calculations should move.

If OEEC were to be made into an instrument to work with governments on the formation of such directives, a new dynamic would be applied against the brakes now slowing economic change.

On January 31, Dr. Dirk U. Stikker, Foreign Minister of the Netherlands, was elected by OEEC to the post of “political conciliator.” Both Mr. Hoffman and Averell Harriman had urged the election of Paul-Henri Spaak, former Premier of Belgium. But the British vetoed Spaak and gave their support to Stikker, who plans to continue in his present post and to give OEEC only part of his time.