The Marshall Plan — the world’s most successful aid project — revived post–World War II Europe by fostering entrepreneurs and local businesses. William Duggan, the co-author of The Aid Trap, says this Marshall Plan model could work in Africa, too.
Duggan spent more than two decades in development work in Africa as an economist and international development specialist, with the Ford Foundation, the U.S. Agency for International Development (USAID), the World Bank and the U.N. Development Program (UNDP).
Currently a senior lecturer in business management and strategy at Columbia University in New York, Duggan says that local business is the key to meaningful, long-term economic growth and development.
“Most people don’t know that the world’s most successful aid project — which everyone recognizes as the Marshall Plan — was specifically and explicitly a mechanism to support the local business sector in the postwar countries of Europe,” he said. “That was its purpose.”
Duggan said most people think the Marshall Plan — which lasted only four years (1947–1951) — provided food, clothing and shelter for the war-ravaged countries of Europe, but that was done by the U.N. Relief and Rehabilitation Administration, which ended operations the year before the Marshall Plan was created.
“Some people think the Marshall Plan was a public works project to rebuild ports, roads, railways and hospitals. Well, that was not the Marshall Plan either,” Duggan said.
Instead, the Marshall Plan — which was named after U.S. Secretary of State George Marshall — was a “very, very clever mechanism” that made infrastructure both dependent on and a spur to the development of the local business sector. “The Marshall Plan figured that out,” he said.
In its most basic form, Duggan explained, the Marshall Plan provided a variety of loans ($115 billion in today’s dollars) to local businesses.
“When the local businesses repaid the loans, the Marshall Fund or the Marshall administrator essentially forgave the loans if the local government would spend that money on commercial infrastructure to help the local business sector.”
“So that was the purpose of the Marshall Plan and how railways, ports and other needed infrastructure projects were built, from loan money repaid by the business sector,” Duggan said.
“This is a wonderful discipline,” he said. “It is not just ‘Here is a lot of money to rebuild your port,’ but ‘The money to rebuild your local port came because your local business sector repaid their loans, so now you can have that money’” to invest.
“It was a brilliant discipline that would have been a wonderful idea for the poor countries in Africa starting in the 1960s, and it still would be a wonderful idea today,” Duggan said.
Any Marshall Plan for Africa would be necessarily different from the original plan in Europe, Duggan said. “Europe in 1950 is not the same as Africa in 2010. Some things are going to change.”
For example, he said, the infrastructure needed in Africa goes beyond ports and roads to include educational and training institutions. One key institution that Africa lacks in adequate supply, he said, is business schools.
Aid agencies usually focus only a small part of their budget on local business. With the original Marshall Plan, support for local business was the aid program.
“So if you agree that the local business sector is the key to prosperity and democracy as well, then let’s spend 50 percent of the aid budget on that,” he said.
Spending 50 percent of the aid budget for Africa on local business would “totally transform” the continent, Duggan said.
In many of the world’s poorest countries, he said, some local governments act as obstacles to local business development by imposing bureaucratic barriers, high fees and taxes and fostering a corrupt environment that retards business development.
Duggan noted that Africa is going through a commodity boom right now, and it is important to understand who is benefiting from those higher prices.
Many times it is the local government, which is charging big fees for foreign companies to come in and develop those resources, he said. But this seldom translates to doing much for the local community or local business.
There is a political calculation involved, Duggan said. Successful businesses, given room to develop, often start getting ideas — for example, supporting opposition candidates against the government’s wishes.
In the original Marshall Plan, Duggan said, a government only qualified for funds if it had enacted the correct policies to allow its local business sector to operate. “That is very, very important,” he said. The first step in any aid program should be the requirement that “the local government receiving it be totally open to nurturing local business.”
While some financing or microcredit does exist for business development at the village level in Africa, there is nothing to help small businesses expand into what Duggan calls the “missing middle,” and therefore the successful small business has no room to grow.
All U.S. businesses, Duggan explained, no matter how big they are today, started small, and all small businesses need a clear path for expansion.
In Europe and the United States, he said, infrastructure followed the industry. “It is not as if a government came into power, built lots of roads and then developed. It is quite the opposite. If you look at the history of where roads go and where railroads go, they go where the economic activity is, so the economic activity precedes the infrastructure.”
Looking out his office window in New York City, Duggan said, “Walk down Broadway — those are all local businesses” on either side of the street. “It is so normal in America, Europe, South Korea, Japan, China or India. Everybody knows this. There is no alternative to local business when it comes to achieving meaningful economic growth and development.”