The Marshall Plan in Austria

Anton Pelinka, Gunter Bischof, Anton Pelinka, Dieter Stiefel

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9781351303507
• Topic: History
• Subtopic: European History
• Index: History

Perhaps no country benefitted more from the Marshall Plan for assistance in reconstruction of Europe after World War II than Austria. On a per capita basis, each American taxpayer invested $80 per person in the Plan; each Austrian received $133 from the European recovery program, more than any other of the sixteen participating countries. Without the Marshall Plan, the Austrian economic miracle of the 1950s would have been unthinkable. Despite this, contemporary Austria seems to have forgotten this essential American contribution to its postwar reconstruction. This volume in the Contemporary Austrian Studies series examines how the plan affected Austria, and how it is perceived today.The political context of the Marshall Plan in Austria is addressed in essays by Jill Lewis and Matthew Berg. Dieter Stiefer describes the vast Soviet economic exploitation of their Austrian occupation zone. Andrea Komlosy shows how the Marshall Plan helped complete the division of Europe. Siegfried Beer suggests the secret involvement of the CIA in the Marshall Plan, while Hans J³rgen Schr÷der analyzes the effectiveness of Marshall Plan propaganda programs in Germany and Austria.The macroeconomic impact of Marshall Plan funds on Austrian economic policy is outlined by Hans Seidel. Kurt Tweraser, Georg Rigele and G³nter Bischof suggest the microeconomic importance of funds for the steel, electricity and tourist sectors of the Austrian economy. Wilhelm Kohler's sweeping analysis compares the American transfer of funds to postwar Europe with current debates about the cost of European Union enlargement. The legacy of the Marshall Plan is addressed by former Austrian Finance Minister Ferdinand Lacina. Kurt Loffler and Hans Fubenegger summarize the activities of the Economic Recovery Program Fund. Coming on the heels of the fiftieth anniversary of the Marshall Plan, this compelling overview of the Plan and its impact will be important for historians, those interested in international politics, and Austrian scholars.G³nter Bischof is professor of history and associate director of Center-Austria at the University of New Orleans; Anton Pelinka is professor of political science at the University of Innsbruck and director of the Institute of Conflict Research in Vienna; Dieter Stiefel is professor of social and economic history at the University of Vienna and executive secretary of the Schumpeter Society in Vienna.This volume offers a collection of articles, mostly by contemporary Austrian-born historians, touching on various phases of the Marshall Plan administered through the European Recovery Program (ERP) and its successors counterfunds' assistance to the present. A splendid introduction followed by the key thirteen articles on the plan is augmented by several nontopical essays and book reviews, along with a survey of Austrian politics in 1998. A number of articles emanated from a 1998 conference at the University of New Orleans. Both novice and specialist will appreciate this book."-The Historian

III. MACRO – AND MICROECONOMIC IMPACTS

Austria’s Economic Policy and the Marshall Plan

Hans Seidel^•

Introduction¹

“How long should we subsidize this outfit and get them to fight the Russkis when they are, in the long run, licked?” (Kindleberger, August 1946)²

The scientific community has repeatedly analyzed the Marshall Plan in general and its importance for individual countries. Their findings differed in many respects. Eichengreen and Uzan (1992) offered the following classification: The authors of the first generation³ predominantly welcomed the Marshall Plan; the next generation thought it was not very effective or was even redundant;⁴ the third generation found that the Marshall Plan had a lasting effect although for different reasons than the first generation.⁵ Generally speaking, the authors of the third generation underrated the transfer of real resources initiated by the Marshall Plan.⁶ They emphasized the creation of new institutions and the shift in economic policy that the Marshall Plan brought about.

The international literature has uncovered many facts and relationships that help to understand the role of the Marshall Plan for Austria. However, one must not forget: Austria was in a especially bad, some would even say desperate, situation both politically and economically. Kindleberger, during his visit to Vienna in the summer of 1946, regarded the Austrian case as almost hopeless. Milward (1984, p. 82) mentioned that his critique of the European countries did not include Austria.

The United States acknowledged the “special case” by providing Austria with more aid (per capita or per unit of output) than most other countries. The objection of some scholars that the Marshall Plan was not large enough to have sizeable macroeconomic effects does not apply to Austria. Foreign aid was important compared with macroeconomic magnitudes such as GDP, imports or investment. Therefore, it seems to be justified to diverge from the contemporary research and to focus this paper on the transfer of real resources.

The transfer of resources from a donor to a receiving country can be seen in two ways: First, foreign aid provides the receiving country with foreign exchange. Hence, this country can spend more dollars than it earns. Second, if the goods are sold in the domestic market foreign aid provides the receiving country with investible funds in local currency. Consequently, it can invest more than it saves. In the case of Austria—it will be demonstrated—both the “dollar side” (dollar gap) and the “schilling side” (savings gap) of the Marshall Plan mattered.

The Dollar Gap

“…no amount of domestic effort will immediately produce the needed imports of food and certain crucial commodities.” (Allan W. Dulles, 1948).⁷

Pre-ERP Aid

The Marshall Plan did not start before the middle of 1948. In the first three years after the war, Austria had to rely on foreign aid from other sources. The Marshall Plan differed from the aid received before in various aspects. It emphasized rehabilitation rather than relief. It offered a medium-term perspective and it was still available when production surpassed the prewar level. Nevertheless, for many purposes it is useful to stress the continuity of aid.⁸ Since aid was flowing continuously there was no “market-shock”⁹, neither when the Marshall Plan was announced nor when deliveries started.

The ad hoc programs in the first three years and the subsequent Marshall Plan provided Austria over a period of seven years with $ 1.6 billion dollars in foreign aid, mostly from the United States. At purchasing power parities that was almost six times as much as the international loan Austria got after World War I in order to stop hyperinflation (Nemschak, 1955, p. 22). Moreover, the postwar foreign aid was given almost exclusively as grants. Austria had not to repay the principal and was not obliged to pay interest. Serving a debt of $ 1.6 billion at 11 percent interest (the rate of the international loan of 1922) would have required yearly interest payments of $ 176 million or öS 4.58 billion (3.2 percent of GDP). Austria would have been an early candidate for a debt crisis if it would have had to carry such a burden in addition to the obligations of the State Treaty after 1955.

Although this paper is primarily concerned with the Marshall Plan a few remarks on pre-ERP aid appears to be useful. The younger generation often asks with an ironic undertone: Would the Austrians have died of famine without the Marshall Plan? Probably not. At that time, a larger set of opportunities was already available. However, in the immediate postwar years, there was a real danger that malnutrition would lead to chaos. In the industrial districts in Lower Austria, food rations for some time did not exceed 900 calories per day. Domestic supplies covered only 40 percent of the meager food rations of the non-farm population. The survival of the Austrian population depended crucially on help from outside.

Immediately after the war, the occupying forces provided some food out of military stocks in their zones in order to prevent “disease and unrest.” Beginning in April 1946, the United Nations Relief and Rehabilitation Administration (UNRRA) delivered food and some other goods essential for survival, like pharmaceuticals. In the fall of 1946, a critical situation developed. The UNRRA support ended in the first half of 1947, the domestic harvest was very poor, and little food could be expected from commercial trade with neighboring countries (some of them also received UNRRA aid).

The tensions between the Austrian government and the Allied Military Council grew.¹⁰ The Council criticized Austria, saying that it was not doing enough to organize production and distribution of food. It asked for a four year plan with short notice. The Austrians complained that they could not use their resources fully, that the country was divided in four-zones, and that military personnel were engaged in black market transactions.¹¹

In this critical situation, the United States (and the Britain) decided to provide substantial financial assistance to Austria. As early as August 1946, Kindleberger, in his letters from Vienna, mentioned the intention of the U.S. administration to help (Kindleberger, 1989, p. 82). Various estimates tried to sort out how much help Austria needed (Bischof 1989, pp. 484–495). Strategically important was the so-called Dort-Plan or R-Plan, drafted by a group of U.S. and British economists. Starting from the import requirements and the export prospects they estimated a trade deficit of $200 million for 1947, only a small part of which could be covered by the remaining UNRRA deliveries.¹² The R-plan became a reference model for the subsequent Austrian estimates of the trade deficit before the Marshall Plan. The Notprogramm (emergency import plan) for 1948 explicitly was called a modified version of the R-plan.¹³

In 1947, the United Kingdom, although burdened with grave economic problems, gave Austria a credit of £10 million mainly in order to buy raw materials. A large part of it was later declared grant. The U.S. War and State Department provided Austria with the most needed food and some free dollars, mainly to buy coal in Europe. In the first month of 1948, an “interim aid” helped Austria to bridge the gap until the beginning of the Marshall Plan. Including military surplus goods, Austria received more $600 million foreign aid before the Marshall Plan.¹⁴ In other words, pre-ERP aid was flowing at a rate of $200 million per year.

The decision of the United States and Britain in the fall of 1946 to help Austria as a whole (and not just their occupation zones) provided not only the most needed food and coal. What was at least as important: it made the Austrians confident that the West is ready to help. But the donor countries will do so directly (and not via UN organizations) with all the implications connected with this commitment. The occupation zones of Austria might have drifted apart, if the United States and Britain would have just cared for their zones.¹⁵

Two Stages of Reconstruction

The Austrians argued that the pre-ERP aid just sufficed to prevent the population from starving and to operate the economy at a subsistence level. In order to initiate a reconstruction process, substantially more foreign aid was needed. The setback of the Austrian economy in the extreme cold winter 1946/47 seemed to confirm this pessimistic view. However, after the spring of 1947 industrial production expanded very strongly. Hence, rehabilitation was well under way before the Marshall Plan started. The “folk image” (De Long and Eichengreen, 1993, p. 194) that the European economy was on the edge of collapsing before the Marshall Plan was not even true in the case of one of its weakest parts.¹⁶

Obviously, the distinction between relief and rehabilitation was not sharp. The Austrians began reconstruction immediately after the ceasefire. The first steps to be take were straightforward. Almost everybody helped to remove the rubble from the bombing and fighting. The public utilities restored systems of transportation and communication, at least on a minimum scale. Workers and entrepreneurs patched damaged buildings and factories in order to prevent further decay. For this pick and shovel work not much additional foreign equipment was necessary, except for spare parts from Germany. This held especially true since the industrial capacity of Austria reached its prewar level, notwithstanding the damages by bombing and the dismantling of machinery and equipment by the Soviet Union.

In line with the repair of physical capital, human capital was built up. As in other countries suffering from war, the Austrian government hesitated to force labor into jobs where additional workers were most needed, notably in agriculture, forestry, and mining. Incentives in the form of additional food rations were only partly successful. Those who happened to survive the atrocities of the war were determined to build up their own careers irrespective of the short-term pressing needs of the economy.¹⁷ These investments in human resources contributed to future economic growth, but delayed recovery in the short run.¹⁸

The crucial point is the following: Austria was only able to invest in human and physical capital because the United States provided food and coal. The import of these goods, contrary to a widespread belief, was highly productive.¹⁹ Of course, the question arises: How did the Austrian policy makers know that foreign assistance would be forthcoming? The answer was, they did not. Nevertheless, they embarked on a reconstruction path that could only be maintained with foreign aid. In the language of some of the conservative critics of the Marshall Plan, Austria was “overspending” and manoeuvered the United States in a position where they could not refuse to provide help.

Was there an alternative? A “survival” program with no or only limited foreign aid would have been much tougher to design and implement—perhaps too tough for a democratic government. It is not very difficult to sketch the outline of such a survival program. Compulsory labor recruitment,²⁰ concentration of industrial production in few units running at full capacity,²¹ and continued overcutting of woods would be some of the necessary measures to be taken, not to mention the sale of art treasures.

To understand the attitude of the Austrian government, one has to consider that it felt only partly responsible for the gloomy economic situation of the country. Without the burden of the ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Introduction
• I. ECONOMIC LEGACIES
• II. POLITICS, IDENTITY, PROPAGANDA
• III. MACRO- AND MICROECONOMIC IMPACTS
• NON-TOPICAL ESSAYS
• BOOK REVIEWS
• ANNUAL REVIEW
• LIST OF AUTHORS