Thursday May 23, 2024

Learning from the Marshall Plan

By Dr Murad Ali
June 05, 2020

The writer holds a PhD from Massey University, New Zealand. He teaches at the University of Malakand.

Since the launch of the Belt and Road Initiative (BRI) by President Xi of China, international observers and policy analysts have labeled the project as the Marshall Plan of Beijing, which aims at promoting and accomplishing multifaceted foreign policy objectives under Xi's leadership.

Due to this, although the BRI was endorsed by numerous countries in Asia, Africa and Europe (particularly Nordic countries), it was also bluntly rejected by major powers like the US, EU, Australia, India and Japan. While there is no doubt that President Xi’s signature policy plan has foreign policy goals, there are many elements that distinguish the BRI from the Marshall Plan.

The first key difference is that the former was launched in the post-World War II backdrop aimed at rebuilding a war-ravaged European economy. There was nothing of the sort when the BRI was officially unveiled in 2015. It must be recalled that under George C Marshall’s eponymous plan, the US provided $13 billion in economic assistance (approximately $150 billion in 2017 dollars) to its European allies to rebuild their war-battered economies. On April 13, 1948 President Truman signed the act and after the approval of the Congress, the US disbursed 2-3 percent (excluding military aid) of its GNP under the initiative during the six years 1948-53.

Another distinctive feature of the Marshall Plan is that all the funding provided under this initiative was entirely on a grant basis. In the case of the BRI (and its key artery in the form of CPEC in Pakistan), there is no such unconditional generosity from Beijing. Unlike traditional or Western aid donors, in the case of China’s development financing, “aid, trade, and investment are seen as interconnected”. Hence, the boundaries between aid per se and trade and investment are blurred in Chinese model of economic aid.

That said, it must not be construed that there is no grant element in Chinese foreign aid or in the BRI model of financing. China has journeyed from an aid recipient to an aid donor and has provided about $10 annually in development assistance and about $350 billion in concessional loans and other forms between 2000 and 2014. To implement the BRI projects, which some estimates suggest that “at $1.4 trillion and still growing, China’s stated financial commitment to these projects is eleven times the size of the Marshall Plan, restated in current dollars”, there are various financial instruments and mechanisms.

Two prominent ones are the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund. On October 24 2014, 21 Asian countries signed an MoU on establishing the AIIB in Beijing, to finance and facilitate infrastructure construction for Asian countries.

Similarly, at the APEC Summit held in Beijing in November 2014, Xi pledged that China would contribute another $40 billion to “set up a Silk Road Fund to provide investment and financial support to carry out infrastructure, resources, industrial and financial cooperation and other projects related to connectivity for countries along the Belt and Road”. In addition, the China Investment Corporation, Export-Import (Exim) Bank of China and China Development Bank are other major actors to finance interventions under the BRI.

Regarding the grant element, at the BRI Summit in May 2017, President Xi announced that his country would contribute an additional 100 billion yuan ($14.5 billion) to the Silk Road Fund and would provide assistance worth 60 billion yuan ($8.7 billion) to developing nations and international organizations participating in the initiative to launch more development projects. In a nutshell, not entirely on a grant basis like the Marshall Plan, there is a significant component of aid in the BRI funding mechanisms.

With regard to foreign policy objectives, in the case of the Marshall Plan there was an imminent danger of the spread of communism in the post-World War II landscape. The Marshall Plan had also clear foreign policy objectives: the containment of communism in Europe and beyond. Rather, it is argued that the implementation of the Marshall Plan led to the beginning of the cold war between the US and its close European allies in the capitalist bloc and the USSR and its allied socialist republics in the communist camp.

By then, the USSR had cemented its position in much of Eastern and Central Europe and had established communist regimes there. To avoid antagonizing the Soviet, the US declared that its aid is purely humanitarian in nature aimed to help war-ravaged Europe and even offered economic assistance to communist regimes in the east.

One commonality between the Marshall Plan and the BRI is their significance for the respective economies of the US and China. In the case of the Marshall Plan, it immensely contributed to the US economy as the money would be used to purchase American goods and products. It led to a massive demand for reconstruction material to be transported to Europe. In addition, all the acquired stuff would be shipped across the Atlantic via US merchant vessels. Hence, the benefits to the US economy were tangibly visible.

This is the same in the case of the BRI as there are various domestic imperatives behind the Chinese ‘project of the century’. Besides foreign policy and strategic objectives, the main elements behind the BRI are “economic and commercial drivers, creating new markets for Chinese companies or addressing challenges facing the Chinese economy such as industrial overcapacity or excessive holdings of US dollars”.

In contrast to the BRI, countries that were involved in the Marshall Plan had multiple common fundamentals. The participating countries – Austria, Belgium, Denmark, France, West Germany, Great Britain, Greece, Ireland, Italy, Luxemburg, the Netherlands, Norway, Sweden, Switzerland and Turkey – had a considerable knowledge and industrial base, entrepreneurial expertise, basic infrastructure and above all a strong political will to re-emerge. Due to this, the Plan greatly contributed to the rapid renewal of Western European chemical, engineering and steel industries.

Thus, unlike other aid programmes that followed the Marshall Plan, it was an extremely successful enterprise and played a significant role in the restoration of the war-torn European economy. By most accounts, the Marshall Plan was a successful initiative, as by the end of 1951, industrial production for participating countries had increased by 64 percent and gross national product (GNP) had risen by 25 percent.

Keeping in view these facts, time will tell how China is going to successfully implement the BRI in vastly different countries with different socio-cultural, economic, political, technological and governance structures. As per the BR Index developed by researchers using internationally comparable data sources, economic potential, demographic advantage, infrastructure development, institutional effectiveness, market accessibility and resilience to natural disasters of the participating countries vary significantly across different regions.

It will be a huge challenge for China to successfully navigate and implement projects in countries plagued by political instability, lack of good governance and institutional capacity like Afghanistan, Syria, Yemen, Iraq, Pakistan, Tajikistan, Uzbekistan and the like.

It is beyond any doubt that both the Marshall Plan and the BRI have numerous conspicuous differences and similarities. But there are a number of lessons that China and countries participating in the BRI must learn from the Marshall Plan. It is vital for BR countries including Pakistan to focus on the quality of human development and enabling environment in terms of doing business and institutional effectiveness.

In order to harvest the true potential of the BRI, it is fundamental for all participating countries to ensure adherence to rule of law, provision of better education for their people, eradication of corruption and enhancement of the government management capacity and credibility of state institutions.