Is post-war Greece a model for today's poorest nations?

The Aid TrapIn The Aid Trap: Hard Truths About Ending Poverty, R. Glenn Hubbard and William Duggan argue that a new Marshall Plan is needed for many African nations and other countries mired in poverty. Aid, as it has been doled out and managed by NGOs and foreign governments, has not improved conditions and should be redirected to the local business sector.

In their chapter, “Chase the Devil: Details for a Marshall Model,” Hubbard and Duggan examine the case of postwar Greece, which was one of the poorest European countries after World War II. The Marshall Plan, as the authors show, benefited from money going directly to Greek businesses and farmers. While they acknowledge differences, Hubbard and Duggan point to war-torn Greece’s poverty and unstable government as sharing similarities with today’s poor nations.

In the book, the authors propose a new Economic Cooperation Assocation (ECA), similar to the one created for the Marshall Plan to help nations get out of poverty by strengthening local business. Hubbard and Duggan write:

Over the four years of the Marshall Plan, Greece spent less than half of its counterpart funds (45 percent), thus leaving a healthy balance for the future. Like most other war-torn Marshall Plan countries, what Greece did spend went first for physical reconstruction: housing, public buildings, roads, railroads, and ports (31 percent). Unlike other Marshall Plan countries, because of its ongoing civil war, Greece spent a good share of its counterpart funds on refugee relief (29 percent). As a poor country, it also spent a good share on agriculture (13 percent), especially land reclamation, the purchase of livestock, and a research and extension system. And it made further loans to private Greek businesses of all kinds (7 percent). Next came sanitation and public health (3 percent), including a malaria campaign.

This spending pattern of counterpart funds shows that most of the money helped business: agricultural and commercial infrastructure, including a direct re-lending program for businesses. Not only did the Marshall Plan turn aid into effective financing for the whole Greek business sector, but it made Greek public spending dependent on the volume of business. If Greek business thrived, it bought more inputs and paid more money into the government counterpart fund. That fund in turn spent most of the money to support more business. All these elements carry over intact to the new ECA.

The authors conclude:

From Washington to Greece these myriad details start to point the way for how the new ECA might work. Many details will differ: For example, there won’t be tractors and flour from America. But the structure and mechanisms of the old and new will be essentially the same—the same software, different hardware, for a different time and a different place. In that way the Marshall Plan remains timeless and universal, and the best hope to fight poverty in the poor countries of the world.

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