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A Marshall Plan is not what Africa needs [International Herald Tribune]

12/29/2004

From the International Herald Tribune

Fervent appeals for a "Marshall Plan for Africa" are growing. Aid campaigners, from Bono to Archbishop Desmond Tutu, have been making such pleas for years. But the idea is gaining ground in influential quarters, most recently within the British government, which will be chairing the Group of Eight summit meeting in 2005 and pushing to double aid to poor countries.

The premise is that the success of America's assistance to Europe after World War II can be replicated. But despite the tempting parallels, the Marshall Plan is simply not a blueprint for helping Africa.

History credits U.S. aid with laying the foundation for Western Europe's postwar peace and prosperity. Given the victory in what Secretary of State George Marshall called the fight against "hunger, poverty, desperation and chaos," it is easy to surmise that we could do it all again for Africa, if only we could muster a similar effort.

The Marshall Plan did indeed involve an unprecedented amount of foreign aid. The U.S. government transferred $13 billion - about $85 billion in today's dollars - to Europe from 1948 to 1951, mostly to Britain, France, Italy and Allied-occupied Germany. But even at its peak, the flows never amounted to more than 3 percent of any recipient economy.

By comparison, Africa is already relatively flooded with aid. The continent as a whole receives development assistance worth almost 8 percent of its gross domestic product. Exclude South Africa and Nigeria, and aid jumps to more than 13 percent of GDP - or more than four times the Marshall Plan at its height - for the other 46 African countries. (It's true that the United States now gives less as a share of its own economy, but that's a measure of donor generosity rather than help to a needy country.)

In addition, postwar aid to Europe was also very short-lived - almost all of the funds were disbursed within just four years - but in Africa, where many countries are entering their fifth decade of aid dependence, there is little prospect for a drastic scale-down anytime soon.

Another crucial difference is that aid to Europe was for reconstruction. It covered temporary food shortages and helped repair the infrastructure and industry that had already given Europeans a high standard of living. Even if Europe's physical capital was in ruins, its deep human capital and experience with markets was still intact. Aid for Africa is mostly for building, not rebuilding. This is a long-term task and quick results shouldn't be expected.

In hindsight, money may not have even been the most important thing Europe received under the Marshall Plan. By the time most of the funds actually arrived in 1948, the European economy was well on its way back. The most important benefit was probably the restoration of financial stability and confidence, along with the strict conditions attached to the aid dollars. American demands for pro- market reforms and fiscal discipline helped set up Europe for three decades of rapid economic growth.

Unfortunately, there's little evidence that the current international aid system is successfully promoting similar virtues in Africa. Aid itself is a source of volatility and donors have mostly abandoned overt conditionality.

Rather than a Marshall Plan-style big push, a more appropriate aid model may be other low-income countries that have graduated from aid. Countries like South Korea received modest amounts of assistance over a sustained period. Crucially, aid supported sensible macroeconomic policies that encouraged competition rather than creating disincentives for reform. As a result, aid to South Korea helped to generate long-term export-led expansion. This suggests that immediate exponential increases, like doubling aid, are probably unwarranted for most of Africa and possibly detrimental.

Africa's battle against poverty will ultimately depend on its own people and leaders. The international community can support them through more open trade, greater private investment and better development assistance. Evoking an idealized Marshall Plan may be good politics, but it exaggerates the value of aid - and suggests an approach that is inappropriate for Africa's development challenges.