ourEconomy: Opinion

International solidarity needs actions as well as words

The Marshall Plan provides a model for a global response to the pandemic. But it is essential that we learn the right lessons.

Richard Kozul-Wright
24 April 2020, 8.23am
German Defence Minister Ursula von der Leyen and her US-counterpart James Mattis on the occasion of the 70th anniversary of the 'Marshall Plan' in, Germany, 28 June 2017.
Sven Hoppe/DPA/PA Images

In recent weeks, the Spanish and Italian prime ministers, the European Commission president, the head of the OECD and the US Senate minority leader have all turned to the Marshall Plan to frame the fight against the coronavirus pandemic and its devastating economic consequences.

The historical touchstone is used to infer ambition and an intent to tackle a big problem with bold solutions. But much of this discussion takes place with little or no appreciation of the original design.

While historians continue to debate the role and impact of the Plan on post-war European reconstruction, there are some key “how to” lessons that resonate with todays’ crisis.

First, Marshall planning can’t be done on the cheap; in rolling out the Plan, the United States committed over one per cent of its national income each year over a four-year period. Second, Marshall planning can’t be done under the deadweight of debt; Marshall aid consisted largely of grants on the clear recognition that heavy debt-servicing obligations would hold back the investment needed for recovery and longer-term growth. Three, Marshall planning can’t be advanced through piecemeal assistance or by imposing solutions on a devastated population; respecting national sensibilities and preferences as well as drawing on local knowledge and expertise were key ingredients of success.

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These lessons are particularly important when thinking about a global health recovery plan today given that its focus will be on delivering relief and building resilience in the developing world.

There is no doubt about scale and urgency of the challenge facing developing countries. Economic shockwaves from the pandemic have already hit these countries hard. In the two months since the virus began spreading beyond China, developing countries have seen a massive reversal in capital inflows, dramatic currency depreciations and a haemorrhaging of export earnings including from falling commodity prices, declining tourist revenues and reduced remittances. And with countries now beginning to shut down to contain the health threat the economic damage is certain to multiply.

Many of these countries are already very heavily indebted with repayments on sovereign borrowing estimated at between 2 and 3 trillion dollars over this year and next. And with a fiscal squeeze unavoidable in most countries, progress towards meeting the Sustainable Development Goals has been halted and will most likely be reversed.

The United Nations and the G20 have sketched out the elements needed to meet the immediate health emergency in the developing world but if the mission is, as it should be, to ensure resilience to future health shocks, relief cannot be separated from related policy challenges around sanitation, food security, precarious work and housing conditions.

So what should today’s Marshall Plan for a global health recovery look like? First, talk of international solidarity must carry matching financial commitments. If the generosity of the United States, more than 70 years ago, is too high a target, it should not be too much to expect the donor community to finally meet the 0.7% Official Development Assistance (ODA) target for the next two years. Doing so would generate something in the order of $380bn above current commitments. An additional $220bn mobilised by the network of multilateral and regional financing institutions could complete a $600bn support package over the next 18 to 20 months; this will require a boost to their capital base, made possible through transfers from the bank’s shareholders, augmented by borrowing on international capital markets, with a measured relaxing of their fidelity to financial sobriety.

Second, the money should be dispersed largely as grants but with some room for zero interest loans, the precise mixture determined as the emergency response evolves. The looming developing country debt crisis will have to be dealt with through complementary actions, including an immediate standstill on debt payments followed by restructuring and cancellation

Finally, given the multi-faceted nature of the recovery effort, a dedicated agency, drawing, like the Marshall Plan, on the personnel of existing agencies as well as from the private sector, with local expertise and coordination involved from the outset. Much like the original, a central financing and oversight agency linked to national public agencies through a regional coordination mechanism remains a model to follow.

Self-interest as well as genuine humanitarian considerations motivated the original Marshall Plan. That remains true today. If the virus takes hold in the South, contagion will blowback on countries that had thought the epidemic was under control. Just as importantly, as the advanced countries move from relief to sustained recovery, ensuring the South play its role in a repaired international division of labour and trading system will be critical, albeit on better terms than was the case before the crisis.

Back in 1947, George Marshall worried that their remoteness from the suffering could dampen the willingness and responsibility of the American people to do whatever it would take to prevent a dangerous vicious circle taking hold in Europe and help restore its confidence and capacity to forge ahead on its own terms. Marshall’s leadership ensured the Plan delivered both.

It is imperative that today’s international leadership not only repeat his words but also the actions that still makes the original Marshall Plan a model worthy of emulation.

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