NCPA - National Center for Policy Analysis

Models For Economic Recovery

June 5, 1997

On this 50th anniversary of the Marshall Plan, we might ask how societies turn their markets into modern efficient economies. Some economists point out that the Marshall Plan, which is credited by many with reviving post-World War II Western Europe, may not be the model for other economic disaster areas.

Russia, Eastern Europe, Latin America and other regions did not become economic basket cases through war, but through socialist economic models which devastated them as much as any conflict. Some historians point to three models to explain why some nations thrive and prosper, and others don't.

  • Seventeenth century Holland flourished as Europe's trade leader after it became a haven of religious tolerance and attracted wealthy victims of persecution who thrived with solid property rights and relatively free trade and financial innovation.
  • The modern-day economic miracle of Taiwan and Hong Kong, some experts say, rests on law and order, private property rights and immigration --which have attracted the most talented entrepreneurs.
  • Establishment of a strong and stable currency, talented immigrants fleeing Poland and East Germany, lowered tariffs and reduced taxes fueled the strong recovery of West Germany following World War II -- more so, some experts claim, than the impact of Marshall Plan foreign aid.

Here are two particulars of the West German example:

  • In the decade-and-a-half following the war, West Germany accepted 12 million mostly well-trained immigrants from the east, followed by hard workers from Mediterranean countries after the Berlin Wall was erected and eastern immigration ceased.
  • In 1948, tax-rate reductions began which brought them down from a 95 percent top rate at only $15,000 to a 50 percent bracket on incomes over $42,000 by 1955.

Source: Reuven Brenner (McGill University), "The Makings of an Economic Miracle," Wall Street Journal, June 5, 1997.

 

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