The Marshall Plan and Economic Development

When I watch the talks at G8 summits, I always love to hear politicians say that this time, they will get it right on foreign aid. Aid groups are always thrilled and speak of the will to have a "Marshall Plan for Africa". It is often said that the Marshall Plan actually allowed Europe to rebuild itself after the Second World War and provide political support for democratic regimes of the West against the USSR. So why not do it for Africa. The problem is that it did help politically against the USSR, but as for growth, the evidence is - at best - mixed.

First of all, we can see that countries that received the most funds from the Plan had slightly superior economic growth, but they were also countries less devastated (Austria versus France) and Germany reconstructed itself pretty quickly without considerable help. So was it really because of the Marshall Plan or did other factors jumped in?

A good parrallel can be found with the Romans and the United Kingdom in the fifth century. When the Romans left the UK, they left in their wake immense infrastructures of aqueducts, roads and government buildings that soon fell into disrepair because of a lack of knowledge to maintain them. An example of the exact contrary was Europe after the Second World War. Infrastructures in Northern France, southern England, Germany, Central Italy and many other regions of the West were completely devastated. However, the knowledge still existed to rebuild those infrastructures quickly. After all, the war was only a destruction of actual GDP, potential GDP was not considerably changed (human capital still existed, only physical capital had been destroyed). So what the Marhsall Plan did was only feed and shelter individuals, it didnt rebuild Europe at all. In some cases, it is reasonable to argue that it might have actually slowed down economic growth.

So where am I going with that? Well, I am trying to make the point that proposing a Marshall Plan for Africa will just not work, you can’t build exogenously the institutions that allow human capital to accumulate. You can’t make a plan of a society… The only reason Africa is not growing is because we keep interfering, we never left them a chance to create their own markets.