BRITAIN AND THE MARSHALL PLAN Also by Henry Pe/ling *THE ORIGINS OF THE LABOUR PARTY THE CHALLENGE OF SOCIALISM AMERICA AND THE BRITISH LEFf *LABOUR AND POLITICS, 1900-1906 (with Frank Bealey) THE BRITISH COMMUNIST PARTY MODERN BRITAIN, 1885-1955 AMERICAN LABOUR *A HISTORY OF BRITISH TRADE UNIONISM *SOCIAL GEOGRAPHY OF BRITISH ELECTIONS, 1885-1910 *POPULAR POLITICS AND SOCIETY IN LATE VICTORIAN BRITAIN BRITAIN AND THE SECOND WORLD WAR *WINSTON CHURCHILL *THE LABOUR GOVERNMENTS, 1945-51 *A SHORT HISTORY OF THE LABOUR PARTY • Published by Palgrave Macmillan Britain and the Marshall Plan Henry Felling Fellow of StJohn's College, Cambridge M MACMILLAN PRESS © Henry Mathison Pelling 1988 Softcover reprint of the hardcover 1st edition 1988 978-0-333-46780-0 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended), or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 33-4 Alfred Place, London WClE 7DP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1988 Published by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world Typeset by Wessex Typesetters (Division of The Eastern Press Ltd) Frome, Somerset British Library Cataloguing in Publication Data Pelling, Henry Britain and the Marshall Plan. 1. Western Europe, Economic development. Financial assistance by United States, 1947-1951 I. Title 338.91'73'04 ISBN 978-1-349-19611-1 ISBN 978-1-349-19609-8 (eBook) DOI 10.1007/978-1-349-19609-8 Contents List of Plates vi Special Abbreviations used in the Text vii Preface viii 1 The Origins (to June 1947) 1 2 Formulation and Enactment (June 1947-April1948) 11 3 ECA and OEEC: The First Year 27 4 The London Mission: The First Year 44 5 Europe and the Sterling Problem (1948--49) 64 6 'Dollops of Dollars' (1949-50) 87 7 The Beginning of the End (Late 1950) 103 8 The Aftermath 115 9 Conclusion 125 Appendix A: US Economic Co-operation Act, 1948 129 Appendix B: Economic Co-operation Agreement 153 Between the Governments of the United Kingdom of Great Britain and Northern Ireland and the United States of America, with Annex and Note, London, 6 July 1948 Special Abbreviations Used in Notes and References 166 Notes and References 167 Index 182 v List of Plates 1 General Marshall greets Ernest Bevin at the United Nations Assembly, Paris, September 1947 (BBC Hulton Picture Library) 2 Bevin signs the Bilateral Agreement, July 1948 (Photo Source) 3 Averell Harriman, Special Representative, ECA, with Thomas Finletter in London, December 1948 (US National Archives) 4 Paul Hoffman, Administrator, ECA, addresses British Foundry Team in Washington, April1949 (US National Archives) 5 Bevin signs the North Atlantic Treaty in Washington, April1949. Behind his right shoulder is Sir Oliver Franks, the British Ambassador (Photo Source) 6 The Sterling Crisis, July 1949: a Session at Downing Street ends. Sir Stafford Cripps (centre) with John Snyder, US Treasury Secretary (left) and Harold Wilson, President of the Board of Trade (right) (US National Archives) 7 W. John Kenney takes oath of office as Finletter's successor, Washington, July 1949 (US National Archives) 8 Dean Acheson, Ernest Bevin and Robert Schuman at the start of three-power talks in London, May 1950 (BBC Hulton Picture Library) 9 Paul Hoffman pays a farewell visit to Attlee at the end of his Marshall Plan service, October 1950 (US National Archives) vi Special Abbreviations used in the Text AACP Anglo-American Council on Productivity AFofL American Federation of Labor CEEC Committee for European Economic Co-operation CIO Congress of Industrial Organisations ECA Economic Co-operation Administration EEC European Economic Community EPU European Payments Union ERP European Recovery Program(me) MSA Mutual Security Agency NATO North Atlantic Treaty Organisation OEEC Organisation for European Economic Co-operation TUC Trades Union Congress UN United Nations WFTU World Federation of Trade Unions vii Preface For the present work my principal debt is to the custodians of official papers both in Great Britain and in the United States. In Britain most of my research has been undertaken at the Public Record Office at Kew; in the United States at the National Archives in Washington DC or the Federal Records Center at Suitland, Maryland. The Federal Records Center contains the papers of the Economic Co operation Administration's headquarters in Washington and its princi pal outstation, the Office of the Special Representative in Paris. In addition, I am very grateful to Mr Rhea Johnson, Director of the Office of Public Inquiries at the Agency for International Development, for enabling me to see the papers of the London Mission of the ECA, and for providing me with a spare desk in his office for this purpose over a period of two months. I also offer my thanks to the staff of the Harry S. Truman Library at Independence, Missouri, where many of the papers of members of the Truman administration are housed, together with numerous transcripts of interviews; and to Dr Lewis Heib, Head of Special Collections at the University of Arizona, for access to the Lewis Douglas Papers. Mr W. John Kenney, the second Chief of the London Mission, was good enough to see me and to discuss his role in 1949-50. Charles Bourne and Mary Page Gready both undertook research assistance in the United States. My Cambridge colleague Dr P. F. Clarke kindly read the entire manuscript before it went to press, and I have benefited from his suggestions. For the whole of the period of my work on the book I have been a Fellow of StJohn's College, Cambridge, and have had the advantage of residence and commensality there. But my task was also materially assisted by a four-month grant from the Woodrow Wilson Inter national Center for Scholars at Washington, DC. I must add that the statements and views expressed herein are not necessarily those of the Wilson Center. HENRY PELLING viii 1 The Origins (to June 1947) 1 It is sometimes thought that the economic weakness of Britain in the era after 1945 was due to her exceptional efforts in the Second World War. In fact, however, the decline in her position can be dated much earlier. The competition of other industrial powers - particularly Germany and the United States-had already made itself felt in the late nineteenth century, although British exports reached a peak in the years just before the First World War. Between the wars the staple export industries, in particular coal and cotton, suffered severely, and as the official war historians pointed out, 'the nation, even in advance of war, was already beginning the process of overseas disinvestment'. 1 A balance was maintained only on the basis of income from the remaining investments and other 'invisible' assets, notably shipping. On the other hand, the British Treasury was greatly concerned about the capacity of the country to survive another long war. One major problem was that the United States, Britain's major supplier in the First World War of food and munitions, had passed neutrality legislation to prevent her involvement in the affairs of Europe. When war broke out in 1939, the British Treasury at once secured powers to mobilise foreign investments, so that they could be used if necessary for the purposes of the war effort. 2 The self-governing countries of the Commonwealth, with the exception of Canada which was financially too closely tied to the United States, but with the addition of India, Egypt, the Irish Republic and all the British colonies except Hong Kong, agreed to impose a similar control. They thus found themselves components of a currency pool known as the 'sterling area'. Committed as nearly all of them were to the British cause in the war, they supplied goods and services to the United Kingdom, for which they expected repayment partly by supplies from Britain, and partly by the realisation of British assets. Much of the payment, however, was necessarily postponed until after the end of the war: by the end of 1945 the sterling and dollar balances had built up in London to the total of £3500 million.3 1