Discussion: How did Britain actually use its Marshall Plan Aid

Thomas1195

Banned
Britain was one of the biggest recipients of Marshall Plan Aid. However, the consensus is that unlike Germany and France, Britain did not really spend the aid received to fund industrial modernization, but to maintain its imperial postion, prop up defense spending (over 10% of GDP by late 1940s), as well as Labour's welfare state project. And this was attributed as one of the main reason for British economic decline post-war (together with other factors like poor management, anti-competitive policies, inefficient subsidies, lack of vocational education, ridiculous union power...).

But, let's just concentrate on Marshall Plan aspect. So, among those expeditures, which one of them stood out as the most expensive for the Brits during the early postwar period?
 
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In my opinion, despite what some commentators say, the issue wasn't that Britain didn't spend the aid received on "industrial modernization". More state owned or directly funded factories wasn't going to lead to a massive acceleration in productivity. It's important to bear in mind that Britain was relatively wealthy and productive in 1945-55 (at least by Western European standards) so lower productivity growth than the Western European average was to be expected (conditional convergence). Having said this, relative to other Western European countries Britain devoted a large share of its government spending to "unproductive" ends, namely defence spending and this diverted productive capacity away from sectors in which competitive pressure would lead to productivity improvements. Spending on defence was different from social security spending because the former directly absorbed productive capacity whereas the latter was mostly transfer payments, affecting which private sector agent got to spend the money (of course taxes are distortionary and there was waste, but these are second order issues).

In my opinion, British industrial failure (if such a thing occurred) had little to do directly with Marshall plan aid but is more to do with the deeper issues you hint at, especially as the aid was only available for about 5 years and Britain lost ground compared to other Western European countries until the early 1970s (when, in no particular order, it joined the EEC, opened up to international competitive pressures, changed various domestic policies, possibly just reached a new steady state relative to the technological frontier, or even just saw its position stabilise as the growth rate in other Western European countries fell independently of any British actions).
 
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