Speech

Speech delivered on Occasion.of the Commemoration of tjie_^rd_ of May Polish Constitution Patterson Park, Baltimore, Maryland THE EUROPEAN RECOVERY PROGRAM One of the most important actions that Congress has taken in recent years is the passage of the Foreign Assistance Act of 194-8, which became • aw.on April.3. The central feature of this Act is the authorizing of an • couT ^,300,000,000 to be used in a program of helping European ntries along the road to full economic recovery. More importantly, as ouT* !r °f PrinciPle> Congress by this Act recognized the importance of 'taking bold economic and financial measures in order to maintain con- ations abroad in which free institutions can survive. ever/"3? understanding of the background of this program is essential to tif• ^merlcan' Because the airplane and radio and other recent scien- the1--+Vel0pmentS haVG m de the Vorld so much smaller than it used to be, our ^ .?ation in foreign countries is becoming mora and more important in aaq* + llves# Furthermore, the expenditure of large sums for foreign anrt luQCe i3 boUnd t0 have effects ori domestic financial situation, these two have to be taken into account. -^•lleedjTor .Production ,Jhe :Jain problem that has to be met in Europe, if that continent is to 'the e s®lf-suPP°rting again, is the problem of reviving and increasing i-edP> nCti0n °f goods' lJhile the European Recovery Program,-as author- m; . V°ngress> iS ezPressed primarily in terms.of giving financial and te mini f /±SS1StanCe to Eur°Pean countries, the great problem in the ad- cessf 10n °f thiS ProSraiTi vil1 be to see that the assistance is suc- tiv*+ USed by the £ur°Pean countries in order to rebuild the produc- lty and efficiency of their own industries. to ai?hG production problem in Europe assumes a very special importance selv ?f US because it affects not only the European countries them- es but also the countries of Latin America and other parts of the Worl court*• F°r exanPle> the economic development programs of Latin American and th1GS were•interrupted during the war because both the United States trie + equiPment-producing countries of Europe had converted their indus- Amer-3 the Producti°n of war materials. For the same reason, Latin dustr-50? C0Untries fel1 behind in the maintenance of their existing in- cannot^ plants* railways, etc. The equipment needs of these countries a weir fully met excePt as production becomes available from European s normaV aS U* S* sources* At the same time, the countries of Europe are eral imP°rtant markets for Latin American agricultural and min- reai r°dUCtS- F°r ail these reasons, it is impossible to achieve any oasic stability in other parts of the world as long as Europe is' in 03 present state of uncertainty. ^-Sggblem of Paying for Imports . , / in thT° maintain the economic life of any country, in Europe or elsewhere e world, requires goods and services of many different kinds, some of which can be produced in the country's own farms and mines and facto- ries, and some of which must be imported from outside. No country in the present-day world can be entirely self-sufficient. In order to pay for the kinds of goods that have to be imported, the country must be able to produce other°kinds of goods in excess of its own needs, and must be able to export and sell these goods abroad. Some countries have also helped out by selling services, such as shipping services, to other countries - a sort of "invisible export" - which serves the same purpose as exporting goods. If a country does not have enough exports to pay for the imports that it needs, its first remedy is to increase its domestic production. This, as I have said, is Europe's present problem. Another alternative is xor a country to reduce its domestic consumption. For Europe, however, tnis would be in general a most undesirable solution, since any further reduc- tion from present levels of consumption would reduce both the willingness and the ability of their working populations to work, and thus lead to a vicious circle of increasing inefficiency in production, and ultimately to social unrest or economic breakdown or both. One might say that a maw objective of American aid under the European Recovery Program is to European countries from the necessity of making further reductions in tne^ domestic consumption in order to achieve a balanced trade position. Countries can also pay for foreign goods that they need by selling gold or other assets that they have accumulated during past periods of prosperity, but it must be obvious that countries, like individuals, can only do this for limited periods. Many of the European countries have been doing this during the last two years, and their holdings of such re- sources are being rapidly depleted. Finally, countries can obtain im- ported goods that they need by obtaining either loans or gifts from the governments of other countries or from private investors or contributors in other countries. It is the purpose of the ERP to provide such loans gifts during a temporary period while European countries are increasing their own production and developing self-supporting economies. European Postwar Difficulties riiV The postwar difficulties of European countries have arisen from a c • bination of different causes. At the end of the war,many countries haa widespread physical damage to be repaired. By now a large part of the ^ rect damage to factories, railways, and the like has been repaired, but , some extent the effects of this damage still continue. There was also spread deterioration of equipment due to wartime wear and inability to replacements. This will take years to make up in full, and meanwhile, is an important factor in preventing maximum efficiency m production. Another ouite different factor in the present difficulties of .some European countries is the fact that they have lost or.have had to liqui ^ large amounts of foreign investments, or have lost large parts of thei ^ chant shipping fleets.' They have thus lost sources of income thathaa erly helpted to pay for imports of foreign goods. In addition most ^ pean countries have faced a great problem of re-orienting their foreign * This has arisen because some of the areas that had previously supplied* ^ to them have also suffered war dislocations. As a result European coun must rely on Western Hemisphere suppliers to a greater extent than bei the war, and, in order to pay for larger imports from this hemisphere, they must endeavor to direct more of their exports here. Finally, almost all European countries have been faced with monetary and fiscal problems which have caused serious dislocations throughout their economic and social structures. It has been clear that^European_ countries would not be able to get their production going again at maxi- mum levels until they could restore adequate incentives to working men i,o give their best efforts, incentives to business men to produce efficiently, and a regular flow of suoplies for industry and agriculture. 1his has in- volved political and social as well as economic problems. Where adequate currency reforms and other anti-inflationary measures have oeen taken, they have been very helpful, but in some cases, the underlying political and social difficulties have proved to be more deep-seated than was at first apparent, and the full solution of these problems is taking longer than might have been hoped. In addition to the dislocations within individual countries, all of Europe has suffered from insufficient coordination between countries. It is clear that greater efficiency can be obtained if each country arranges its production programs and the development of its resources in coopera- tion with neighboring countries. However, international cooperation of this kind is more difficult to achieve than appears on the surface, es- pecially when the countries concerned are only in the first precarious stages of recovery and are anxious to avoid disturbing their reviving domestic industries. Postwar Progress Even before the end of the war, the United States Government had be- gun to lay plans for the giving of necessary postwar assistance to coun- tries in Europe and other parts of the world. One step m these plans was cooperation in organizing the United Nations Relief and Rehabilita- tion Administration - U1IRRA - for taking care of the most urgent needs of the populations in war-devastated countries. Congress also increased the lending power of the Export-Import Bank by almost 3 billion dollars, and the Bank has now used most of this increase to extend rehabilitation loans to European countries. In addition large amounts of credit were extended to European and other countries to buy United States war surplus materials that could be of use in their civilian economies. Finally, to meet the special problems of the United Kingdom in ^ ^ E1^0^1^1:. tion after the war, Congress approved a special loan oi ^3,750,000,uuu to that country. As a result of these contributions by the U. S. Government, combined with very real efforts brought to bear by the European countries them- selves, almost every country in Europe has made substantial economic prog- ress since the end of the war. The United Kingdom has succeeded in bring- ing its industrial output to levels above those of the prewar period. France and. Italy and the Netherlands have all restored their heavily- damaged transportation systems to a fair degree of efficiency and have made important progress in industrial recovery. Belgium has been able not only to place her econorny on a self-supporting basis, but also to extend assistance to neighbor countries. Norway has succeeded m replenishing its merchant fleet to almost its prewar tonnage. Only Germany has shown 82 very little evidence of recovery, largely as the result of the shattering effects of the war upon its physical plant and the morale of its people. At the same time, eastern European countries, notably Poland and Czechoslovakia, have made great progress in restoring the productivity of their industries. In particular, the large increases in coal production in Poland put that country in a position where it could make important contributions to industrial recovery in other countries. On the other hand, because of political developments which interfered with coordination between eastern and western Europe, both groups of countries have failed to achieve the full degree of progress that might have been expected. It became apparent, however, during 1947, that further economic as- sistance on a large scale by the United States to European countries would be necessary. Notwithstanding the substantial strides that had been made, with American help, toward general economic recovery, it be- came clear that the disruptions of the European economy were so wide- spread that substantial further strengthening would be needed. Further financial aid had to be provided if these countries were to keep on ob- taining needed goods from the U. 3. and other foreign sources. At the same time, if dollar aid were given to European countries for this pur- pose, it would help Latin American and other countries which try to earn dollars through sales to Europe in order to meet their own dollar needs. Development of the ERP In June, therefore, the Secretary of State announced the concern of the United States regarding the economic problem of Europe — of the en- tire continent, including the Soviet Union. The British and French for- eign ministers then proposed a general European conference to take up the subject, and proposed that the Soviet Government join in this project. When it appeared that agreement could not be reached, the British and French foreign ministers nevertheless issued invitations to all other European countries (except Spain) to send representatives to a meeting in Paris. In the end, however, not only Russia but also the other coun- tries which have fallen under its domination refrained from sending rep- resentatives. The Committee of European Economic Cooperation was then formed by the 16 remaining European nations, consisting mainly of the countries of western Europe. This Committee drew up and presented in September, a four-year pro- gram designed to restore Western Europe to a self-supporting basis. The Committee's report called for closer cooperation among European countries and it also gave estimates of the external assistance that would be re- quired in order to carry out such a program. The proposals made by this Committee were given the most thorough study in the United States Government. After critical review, they were accepted as a reasonable starting point in formulating our government's estimates of the amount of United States aid that is needed. However, the Committee's estimates were scaled downward where they appeared to be higher than necessary. They were also scaled downward where it appeared that the amounts of goods that were called for would not actually be aval able in the world markets, or where it appeared that the provision of these amounts would involve undue demands upon goods that are in short supply in the United States. It was after careful consideration of all these factors that Con- gress determined to authorize v5*3 billion of aid to Europe for the first year of the recovery program* A program of four and a quarter years is contemplated, although this is subject to annual review by Congress. There have been tentative estimates that the total amount of aid needed over this period might be vI7 billion, but it is clear that estimates of European requirements more than a year or so in advance must be of a rather uncertain nature. In approving the Program, Congress authorized the creation of the ECA — Economic Cooperation Administration — as the agency to carry out the responsibilities of the United States under the program. As Admin- istrator of the program, the President immediately appointed dr. Paul Hoffman, one of the country's outstanding business executives, who has been president of the Studebaker Corporation. Mr. Hoffman is recruiting a staff of experts to assist hin in Washington, and he is also a member of the National Advisory Council on International Monetary and Financial Problems, vhich coordinates the policies of all government agencies en- gaged in foreign financial transactions. The Act also provides for a roving ambassador to represent the Administrator in Europe and this post is to be filled by Averell Harriman, who has been Secretary of Commerce and who had previously served in important government posts abroad. There will be a special mission in each of the participating countries tc supervise the operation of the program. Although the ECA is still in the process of being organized, an allocation of £21 million for the five most needy countries was made within one week after the passage of the Act. Further supply programs for all the participating countries are be- ing established, and shipments of goods under the program have commenced. Objectives of the Program The program of assistance from the United States is directed toward genuine economic recovery in the participating countries of Europe (in- cluding western Germany). It is not in any sense intended to be merely relief. The program provides for food requirements and for supplies of fuel and raw materials. But also, and more importantly, it provides for capital equipment to assist Europe in the task of building up its own productive capacity. The program contemplates that the European coun- tries will take vigorous steps to assure that all the assistance they re- ceive from the U. S. will be used efficiently to further the objective of full recovery. This includes the taking of financial and other meas- ures to stabilize their currencies ana prices and generally to restore confidence in their monetary systems, and to cooperate with each other in increasing the exchange of goods and services among European countries, all with the objective of achieving the greatest possible efficiency in the use of their own resources to increase their production. To the extent that European countries appear able to repay this country for the help that they receive, the assistance will be extended in the form of a loan calling for repayment. Where it does not appear that repayment will be possible without jeopardizing the long-run objec- tives of the program, assistance will be given on a grant basis instead. While attention has been concentrated on ^urope in recent months, the needs of other areas of the world have not been ignored. Part of the 5 Oh dollars supplied to European countries under the ERP will be spent by them in Canada or Latin America. In this way, our aid to Europe will also serve to provide Canada and Latin America with large-, amounts of dollars that they in turn can use to pay for the goods that they need from the United States. In addition the Export-import Bank and the International Bank for Reconstruction and Development, in Washington, .are prepared to make loans to finance sound development projects in Latin America as well as in other parts of the world. As for China, while present political conditions make it impossible to plan any real economic recovery in that country, the Foreign Assist- ance Act of 19A8 includes million for economic assistance to China, in addition to vl£5 million that can be used for military aid. It is contemplated that this relief assistance should enable China to hold its "own in an economic sense until its political difficulties are settled. In Japan the relief assistance which has been supplied since the end of the war may soon be supplemented by more far-reaching aid designed to put that country back on its feet within a measurable period of time. Thus, the European Recovery Program is only one element, even though the largest; in this country's plans for foreign economic cooperation. Meeting the Cost of ERP It must be recognized that all of these programs impose a very real burden upon the United States — a financial burden upon our Federal bud- get and an economic burden upon our people who are called upon to export to foreign countries far .lore goods and services than are received in ex- change. These programs have been decided upon, however, in the light of very careful studies of our capacity to bear this burden. The conclusion* to be drawn from these studies are that the foreign aid programs contem- plated for the coming year will not impose any greater drain upon United States resources than has occurred during the past year; that this drain will not significantly affect the standard of living of the American peo- ple; and that its initial inflationary impact can be held in check by ap- propriate domestic measures. The most important of these domestic meas- ures is fiscal policy; it is supremely important that Government expend!" ,, tures including those on foreign aid be covered to the maximum extent p ble within a balanced budget. If this practice is followed, the purchase power created by these expenditures will be withdrawn from the market through taxation. At the same time, in view of the inflationary pressure arising from domestic as well as foreign sources, it is important to earn out a monetary policy designed to restrain undue expansion of bank credit An expanded defense program is now being considered in Congress, and this program, if adopted, could add around U. billion to Government ex- penditures during the next fiscal year and perhaps greater amounts in the future. This will cause additional upward pressure on prices. This de- velopment makes it even more imperative that anti-inflationary measures applied in a strong and thorough manner. If we pursue vigorous anti-in- flationary policies in the fiscal and monetary fields, we may be able to avoid reimposing direct controls upon the allocation and movement of goo in the domestic economy. There can not be any assurance in advance that the European Recovery Program will be a success. The European countries will have real probio A to surmount in order to be fully self-supporting at the end of the four- year period. The increasing political tension between eastern and west- ern Europe tends to worsen the economic prospects of both groups of coun- tries. Nevertheless, I feel most strongly that the ERP represents a wise policy on the part of the United States. The cost in money is large, but is well within the capacity of this country. And by such a bold^and ambitious program, directed toward the economic health of key countries of Europe, we'can exert a powerful influence toward the maintenance of peaceful conditions in the world. When and as the countries of western Europe achieve the economic health that this program envisages, we can confidently expect one result to be improvement in the economic condi- tion of other countries and progress toward the ultimate goal of a peace- ful and prosperous world.

M.S. Szymczak (1948, May 1). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19480502_szymczak

@misc{wtfs_speech_19480502_szymczak,
  author = {M.S. Szymczak},
  title = {Speech},
  year = {1948},
  month = {May},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19480502_szymczak},
  note = {Retrieved via When the Fed Speaks corpus}
}