Alex Singleton | Journalist and political commentator

Europe’s high-end hi-fi industry has long had an excellent reputation. But in the past 30 years, European manufacturers have found it difficult to compete against cheaper products from Asian manufacturers. European manufacturers that have chosen to be “patriotic” and keep production at home have often found themselves going out of business. But Europe’s hi-fi industry has seen successes too. Audio Partnership plc, which bought up a range of European hi-fi brands like Cambridge Audio and Mordaunt-Short loudspeakers, moved production to Asia while creating high-wage research and development jobs in the UK. The lower cost of manufacturing frees up money for research and development, making future generations of product more competitive and keeping the business sustainable. This is an excellent example of a European company properly taking advantage of globalisation.

Trade unions don’t like it when companies offshore production. They seem to want a Europe that lives in the past, where workers are doing jobs that have become commoditised. The simple fact is that we Europeans cannot rely on commodity manufacturing jobs. Those jobs do not pay enough. Instead, we should allow specialisation throughout the world economy, creating high-wage jobs here and allowing those who place more value on commodity jobs to take them. Far from being squeamish about offshoring, policymakers should welcome it as an essential part of creating new and better jobs in Europe.

The New Yorker has an article in its August 27th issue which asks: “How much did the Marshall Plan really matter?”. Niall Ferguson, its author, writes:

[A] significant number of eminent economic historians - notably, the British scholar Alan Milward - have questioned just how vital Marshall Aid really was for Europe’s postwar recovery. According to Milward, recovery was under way well before the advent of the Marshall Plan, and reconstruction of damaged infrastructure was far advanced before the funds reached Europe. The program was also too small to have a significant effect on Europe’s capital stock. The total aid package was equivalent to less than three per cent of the recipient countries’ combined national income, and it represented less than a fifth of their gross investment…

If there had been no Marshall Plan, would Western Europe’s economies have failed to recover from the postwar crisis? It would seem not (though there would probably have been more currency volatility and more labor unrest). Under the Marshall Plan, grants and loans were received by sixteen different countries. Britain received more than twice the amount given to West Germany. Yet no European economy performed more dismally in the postwar period than Britain’s. A crucial difference between the two was the success of the German currency reform of 1948, which saw the birth of the enormously successful Deutsche Mark, compared with the ephemeral stimulus of the British devaluation of 1949, the first of several vain attempts to revive the U.K. economy by cheapening exports.

In other words, it is policy that principally matters, rather than the amount of aid a country gets. After World War 2, a free-market policy programme was central to West Germany’s success. The country had been following stringent economic controls, encouraged by much of the thinking on development coming from places like Britain and America. Fortunately, a man named Lugwig Erhard - later finance minister and then Chancellor - was appointed director of the Economic Council for the joint Anglo-U.S. occupation zone.

Erhard subscribed to a German school of free-market economics known as Ordoliberalism. In the summer of 1948 he pursued a policy of removing price and wage controls, which had been introduced by the Nazis and which the Allies, stupidly, had resolved to keep in 1945. Along with the abolition of wage and price controls, 1948 also saw the introduction of a soundly-managed currency. Tax rates were cut significantly: the marginal income tax rate for a median-income German fell from 85 percent in 1948 to 18 percent in 1950. Free-market policies were pursued and the country thrived.

David Henderson in the Concise Encyclopedia of Economics also discusses whether the German revival can be attributed mainly to the Marshall Plan:

The answer is no. The reason is simple: Marshall Plan aid to Germany was not that large. Cumulative aid from the Marshall Plan and other aid programs totaled only $2 billion through October 1954. Even in 1948 and 1949, when aid was at its peak, Marshall Plan aid was less than 5 percent of German national income. Other countries that received substantial Marshall Plan aid had lower growth than Germany.

Moreover, while Germany was receiving aid, it was also making reparations and restitution payments that were well over $1 billion. Finally, and most important, the Allies charged the Germans DM7.2 billion annually ($2.4 billion) for their costs of occupying Germany. (Of course, these occupation costs also meant that Germany did not need to pay for its own defense.)