Melvyn P. Leffler*
In our ongoing debates about the role of government in contemporary eco-nomic and social life, we are tempted to draw lessons from the Cold War. Taking office in 1989, George H. W. Bush declared, “We know what works. Freedom works. We know what’s right: freedom is right. We know how to secure a more just and prosperous life for man on earth: through free markets, free elections, and the exercise of free will—unhampered by the state.” A little more than a decade later, in the turbulent aftermath of the 9/11 attacks, and in the midst of launching a war on terror, his son, George W. Bush, proclaimed, “The great struggles of the twentieth century between liberty and totalitarianism ended with a decisive victory for the forces of freedom—and a single sustainable model for national success: freedom, democracy, and free enterprise.”1
These extrapolations are profoundly mistaken. It is wrong to celebrate the triumph of capitalism over communism in the Cold War as a simple victory of free markets and free men over totalitarian government and intrusive plan-ning. As we re-examine the virtues of free markets and private enterprise, we must not forget the role of the “state”—the importance of governmental capacity—in creating the conditions for victory in the Cold War. In the
“West,” broadly defined, governmental policies modulated and stabilized the business cycle, nurtured economic growth, provided minimum social
* I am extraordinarily indebted to Stephen Macekura for his research and insights on this chapter.
1George H. W. Bush, January 20, 1989 <http://www.presidency.ucsb.edu/ws/index.php?
pid=16610#axzz1TFP3zpET>; George W. Bush, Introduction to the National Security Strategy Statement, September 17, 2002 <http://georgewbush-whitehouse.archives.gov/nsc/nss/2002/
nssintro.html>.
provision, stimulated innovation, empowered civil society, enhanced living standards, and made consumption the benchmark of modern civilization. The state complemented markets, structured markets, liberated markets, and helped allay the hardships caused by markets.
It is easy to forget what an achievement this was. After two world wars, a great depression, and mass extermination, liberal capitalism was in disrepute.
The magic of the market was not part of people’s vocabulary after the despair of the depression and the misery of war. In 1944, in The Road to Serfdom, Friedrich von Hayek lamented,“If we take the people whose views influence develop-ments, they are now in the democracies all socialists. Scarcely anybody doubts that we must move toward socialism.” A year later, A. J. P. Taylor, the renowned British historian, asserted,“Nobody in Europe believes in the American way of life—that is, in private enterprise.” And even a decade later, Walter Lippmann wrote in The Public Philosophy, “We are living in a time of massive popular counter-revolution against liberal democracy. It is a reaction to the failure of the West to cope with the miseries and anxieties of the twentieth century.”2
US officials were well aware that depression, war, holocaust, and mass expulsions created unprecedented challenges to democratic capitalism. In April 1945, Assistant Secretary of War John McCloy went to Europe and reported to his boss, Henry Stimson, that “There is a complete economic, social and political collapse going on in Central Europe, the extent of which is unparalleled in history.” Stimson, in turn, informed President Harry S. Truman that“pestilence and famine” would afflict Europe during the next winter and that they were likely to be followed by“political revolution and communist infiltration.”3
Everywhere in Europe, communist membership was soaring, the role of the state was mounting, experiments with“nationalization” were spreading, and the enchantment with“planning” was growing. The war, if not the depres-sion, had accustomed people to new roles for the government: if the state had mobilized to kill and destroy, why could it not be administered for the furtherance of justice, the promotion of equality, and the nurturing of indi-vidual opportunity? In France, Italy, and Finland, the Communist Party vote, by 1946, was 20 per cent or more; in Belgium, Denmark, Norway, Holland, and Sweden, it was close to 10 per cent.4 Elsewhere around the globe,
2Quoted in Mark Mazower, Dark Continent: Europe’s Twentieth Century (New York: Vintage, 1998), 203; A. J. P. Taylor,“The European Revolution,” Listener, 34 (November 22, 1945), 576.
Also see Tony Judt, Ill Fares the Land (New York: Penguin, 2010), 55; Walter Lippmann, Essays in the Public Philosophy (Boston, MA: Little, Brown, 1955), 63.
3Quoted in Melvyn P. Leffler, A Preponderance of Power: National Security, the Truman Administration, and the Cold War (Stanford, CA: Stanford University Press, 1993), 35–6, 63–4.
4Donald Sassoon, One Hundred Years of Socialism: The West European Left in the Twentieth Century (London: I. B. Tauris, 1996), 117–66; Adam Westoby, Communism Since World War II (New York:
St. Martin’s Press, 1981), 14–15; Jytte Klausen, War and Welfare: Europe and the United States, 1945 to
revolutionary nationalist movements were forming. They clamored for inde-pendence and sought transformative changes in political economy, national identity, and race relations. Planned economies, many revolutionary nation-alist leaders believed, might propel their emerging nations into modernity and might earn their people the dignity they merited in the international arena.5 President Franklin D. Roosevelt, governing in a country spared of wartime devastation but scarred by years of depression and rife with fears of looming unemployment, grasped the challenges ahead. He understood that the Ameri-can“state” had to act boldly at home so that the United States could exert leadership abroad. In his“State of the Union” message of January 1944, he harped back to the themes of the Atlantic Charter and emphasized, “Individ-ual freedom cannot exist without economic security and independence. . . People who are hungry, people who are out of a job are the stuff of which dictatorships are made.” He then set forth an economic bill of rights: the right to a useful and remunerative job; the right to earn enough for adequate food, clothing, and recreation; the rights of farmers to sell at a fair price and business people to compete on fair terms; the right to decent housing; the right to medical care; the right to a good education; the right to be protected and to escape the fears of old age, sickness, disability, and unemployment.“All of these rights,” Roosevelt concluded, “spell security.”6
To underscore the importance of this mission to reshape America, he repeated these rights in his last“State of the Union” message a year later.
A liberal international economy, he explained, required a strong state at home.“An enduring peace,” he admonished, “cannot be achieved without a strong America—strong in the social and economic sense as well as in the military sense. . . The Federal Government must see to it that these rights become realities—with the help of States, municipalities, business, labor, and agriculture.” He then mapped out how government must buttress private sector efforts to sustain purchasing power, stimulate business, insure liquidity, boost productivity, develop the nation’s abundant natural resources, enhance aviation and transportation, and expand social security, health, and educa-tion programs.7
the Present (New York: St. Martin’s Press, 1998), 1–18; Stephen Padgett and William E. Paterson, A History of Social Democracy (London: Longman, 1991), 12–34.
5David Priestland, The Red Flag: A History of Communism (New York: Grove Press, 2009), xxiv;
Robert Service, Comrades: A History of World Communism (Cambridge, MA: Harvard University Press, 2007), 280–2; Jeffry A. Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century (New York: W. W. Norton, 2006), 271–7, 301–38; Archie Brown, The Rise and Fall of Communism (New York: Harper Collins, 2009), 313–67.
6Franklin D. Roosevelt, State of the Union Message to Congress, January 11, 1944 <http://www.
presidency.ucsb.edu/ws/index.php?pid=16518#axzz1LISzVaUA>.
7Franklin D. Roosevelt, State of the Union Message to Congress, January 6, 1945 <http://www.
presidency.ucsb.edu/ws/index.php?pid=16595#axzz1LISzVaUA>.
Roosevelt was not naïve about the difficulties that lay ahead. The war, he knew, would bequeath fundamental problems for the world economy and the national economy. He, therefore, supported the work of his Treasury and State Department subordinates to create the Bretton Wood institutions of the World Bank and the International Monetary Fund as well as the United Nations. The preamble of the UN charter, in fact, captured the aspirations and yearnings of peoples everywhere to eliminate the scourge of war and to promote social and economic progress“in larger freedom.” In Article 55 of the UN charter, the signatories specifically obligated themselves to promote
“higher standards of living, full employment, and conditions of economic and social progress and development.”8Three years later, in the UN Declar-ation of Human Rights, these universal standards were reiterated:“Everyone . . . has the right to social security”; “Everyone has the right to work”; “Every-one has the right to a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing, and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, [and] old age. . . ”9
These commitments were the legacy of the Great Depression and the Second World War. These commitments were the legacy of nineteenth-century industrialization and of the turmoil wrought by businessfluctuations in free market economies. These commitments were the promises of demo-cratic statesmen to their citizenry for enduring the hardships and misery of two world wars and a great depression.
Yet, in the literature on the international relations and political economy of the Cold War, these commitments receive scant attention. There is much stress on how the United States helped to forge new multinational organiza-tions like the World Bank and the IMF, formulated new initiatives like the Truman Doctrine and the Marshall Plan, practiced containment, embraced the politics of productivity, and struggled tenaciously to curtail the enlarge-ment of the state, to open markets, to combat autarky, and to thwart the drive to nationalization.10 These themes deserve the importance that has been
8For the charter of the United Nations, see <http://www.un.org/en/documents/charter/index.
shtml>.
9“The Universal Declaration of Human Rights” <http://www.un.org/en/documents/udhr/
index.shtml>.
10For a small sampling of the literature, see Lloyd C. Gardner, Economic Aspects of New Deal Diplomacy (Madison, WI: University of Wisconsin Press, 1964); Gabriel Kolko, Politics of War: The World and United States Foreign Policy, 1943–45 (New York: Random House, 1968); Gabriel Kolko and Joyce Kolko, The Limits of Power: The World and United States Foreign Policy, 1945–1954 (New York: Harper and Row, 1972); Fred L. Block, The Origins of International Economic Disorder:
A Study of United States International Monetary Policy from World War II to the Present (Berkeley, CA:
University of California Press, 1977); Thomas G. Paterson, Soviet–American Confrontation: Postwar Reconstruction and the Origins of the Cold War (Baltimore, MD: Johns Hopkins University Press, 1973); Michael J. Hogan, The Marshall Plan: America, Britain, and the Reconstruction of Western
given to them. As we have illuminated these matters, however, we have tended to minimize how, amidst all these efforts, the role of the state grew.
The success of the West inhered in its ability to marry the state with the market, to reconcile the rights of social citizenship with the dynamics of the marketplace, to insure minimal social provision while nurturing private incentives, to socialize key elements of risk-taking (in housing, insurance, and banking) while spurring private entrepreneurship and technological innovation, and to mitigating class conflict while nurturing income equality and championing consumer sovereignty.11Indeed, the Bretton Woods insti-tutions themselves had been organized to reconcile the liberalization of trade and the maintenance of currency stability with the empowerment of national governments to exercise autonomy over their own economic fortunes and social policies.“The role of the state,” writes John Ruggie in a seminal article, was to“safeguard the self-regulating market.”12
In our preoccupations, for example, with US efforts to attach conditions to a postwar loan to Britain and to hem in its imperial preference system, we lose sight of the remarkable creation of the British welfare state. Americans frowned on British nationalization of key industries (civil aviation, telecom-munications, coal, iron, steel, railways, gas, electricity, and the Bank of Eng-land), but the Labour government went ahead nonetheless, passing the Family Allowance Act of 1945 (introducing cash payments to all poor families with children under the age of 15), the National Insurance Act of 1946 (providing sickness benefits to persons unable to work), the National Health Service Act (instituting universal free health care financed by general tax-ation), and the National Assistance Act of 1948 (abolishing the old Poor Law and establishing the National Assistance Board to help indigent persons based on subsistence and housing costs). Social services as a percentage of gross national product (GNP) rose from 11.3 per cent in 1938, to 23.2 per cent in
Europe, 1947–1952 (New York: Cambridge University Press, 1987); Charles S. Maier, “The Politics of Productivity,” reprinted in Charles S. Maier, In Search of Stability: Explorations in Historical Political Economy (Cambridge: Cambridge University Press, 1987), 121–52.
11The ideas expressed here are derived from my reading, among other works, the insightful and provocative books by Victoria de Grazia, Irresistible Empire: America’s Advance Through 20th Century Europe (Cambridge, MA: Harvard University Press, 2005); Elizabeth Borgwardt, A New Deal for the World: America’s Vision for Human Rights (Cambridge, MA: Harvard University Press, 2005).
12John Gerard Ruggie, “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,” International Organization, 36:2 (Spring 1982), 379–
415, quotation on 386; Ivan Berend, An Economic History of Twentieth Century Europe: Economic Regimes from Laissez-Faire to Globalization (Cambridge: Cambridge University Press, 2006), especially 232–4; Anne-Marie Burley, “Regulating the World: Multilateralism, International Law, and the Projection of the New Deal Regulatory State,” in John Gerrard Ruggie (ed.), Multilateralism Matters: The Theory and Praxis of an Institutional Form (New York: Columbia University Press, 1993), 125–56; Frieden, Global Capitalism, 253–300.
1970; total public expenditures rose from 30 per cent of GNP in 1938, to 47.1 per cent in 1970.13
In France, the communist quest for power was thwarted, partially as a result of US aid, but French governments nationalized key industries and instituted massive reforms in social spending and welfare support. Postwar French gov-ernments, writes Philip Nord,“made a pledge” to the nation: “the state would undertake to make a better France for every citizen,” and for the most part the French government did so by insuring citizens“against the perils of sickness and old age,” and also by providing generous family allowances.14
In Italy, with considerable US assistance to the government of Alcide de Gasperi, the communists were also thwarted in the closely contested elections of 1948 and, thereafter, they never garnered the power they yearned for. But successive Italian postwar governments embraced the principles of minimal social provision, welfare assistance, health insurance, and regional develop-ment. From 1950 to 1980, public expenditures as a percentage of gross domestic product (GDP) increased from about 25 per cent of GDP to about 45 per cent;
social expenditures from about 13 per cent of GDP to about 27 per cent.15 In West Germany, Ludwig Erhard, the economics minister, repudiated the Nazi legacy of statism and embraced the free market. To boost individual standards of living, he championed growth, competition, low taxes, monetary stability, and foreign trade, but he could not disregard the clamor for social protection. Erhard and Chancellor Konrad Adenauer updated and expanded the already elaborate pension systems and accident and health insurance laws that went back to the late nineteenth century. By 1953, 20 per cent of the West German population received some kind of state assistance, and, by 1955, perhaps as many as 50 per cent of all German households received govern-ment largesse. The annual real growth rate of social expenditures from 1951 to 1966 was 8.4 per cent annually.16
13Mazower, Dark Continent, 300; for British laws, see Pete Alcock, Social Policy in Britain: Themes and Issues (London: MacMillan Press, 1996), 22; Sassoon, One Hundred Years of Socialism, 138–43;
Richard Perry,“United Kingdom,” in Peter Flora (ed.), Growth to Limits: The West European Welfare States Since World War II, volume 2 (Berlin: Walter de Gruyter, 1986), 155–240; Arthur Gould, Capitalist Welfare Systems: A Comparison of Japan, Britain, and Sweden (London: Longman, 1993), 115 ff.; William Hitchcock, The struggle for Europe: The Turbulent History of a Divided Continent, 1945 to the Present (New York: Anchor Books, 2003), 40–56.
14Philip Nord, France’s New Deal (Princeton, NJ: Princeton University Press, 2010), 382–3; also see Hitchcock, The Struggle for Europe, 75; Berend, Economic History of Twentieth Century Europe, 234.
15Maurizio Ferrera,“Italy,” in Flora, Growth to Limits, volume 2, 388–499, percentages on 393–6.
16Ferrera,“Italy,” 250–96; Jens Alber, “Germany,” in Flora, Growth to Limits, volume 2, 4–154, especially 96–114; A. J. Nicholls, Freedom with Responsibility: The Social Market Economy in Germany, 1918–1963 (Oxford: Clarendon, 1994), 350; Tony Judt, Postwar: A History of Europe Since 1945 (New York: Penguin, 2005), 372; James C. Van Hook, Rebuilding Germany: The Creation of the Social Market Economy, 1945–1957 (Cambridge: Cambridge University Press, 2004), 1–3; Claus Offe, “The German Welfare State: Principles, Performance, Prospects,” in Beverly Crawford and Sarah Elise Wiliarty (eds.), The Postwar Transformation of Germany: Democracy, Prosperity, and Nationhood (Ann Arbor, MI: University of Michigan Press, 1999), 202–24.
In Japan, US occupation authorities worked with Japanese interest groups, not simply to defeat the Left and thwart the radicalization of unions, but also to revamp and modernize the health insurance laws that dated back to the 1920s. Overall, benefits were low, but by the early 1970s “Japan had a social security system which covered virtually the whole population.”17
US politicians may have sneered at the growth of welfare systems abroad, condemned the nationalization of industries, feared the epidemic of plan-ning, worried about the growth of a garrison state, and excoriated“reds” at home. But the American state grew, instituted new monetary andfiscal prac-tices, assumed huge responsibilities for promoting the health and welfare of the American people, and taxed Americans at unprecedentedly high peace-time levels.18In other words, Roosevelt’s aspirations for postwar America were slowly realized despite the conservative reaction that culminated in a Repub-lican takeover of Congress in 1946, the end of wartime controls, the dilution of the Full Employment Act of 1946, and the passage of the Taft–Hartley labor law in 1947. For example, for 16 million veterans, the GI Bill of 1944 provided unemployment benefits, as well as tuition and subsistence allowances for education and training, and loans for farms, homes, and businesses. 5.4 million veterans made use of the unemployment benefits; and 7.8 million veterans availed themselves of the education benefits. Between 1945 and 1966, 20 per cent of all single-family residences werefinanced by GI bills.19 In addition, in 1950, social security was extended to an additional 10 million persons; in 1954, the Agricultural Act brought 3.6 million farm operators and 2.1 million farm workers into the social security system; and, in 1956, disabil-ity insurance was added to old age and survivors’ insurance. Overall, between 1945 and 1960 the number of people receiving Old Age, Survivors, and Disability Insurance increased from 3.1 to 14.8 million. Poverty in the United States fell dramatically, from 51 per cent of the American people in 1935–36, to 30 per cent in 1950, to 20 per cent in 1960, and to 17 per cent in 1965.
17Kojun Furakawa, Social Welfare in Japan: Principles and Applications (Melbourne, Australia:
Trans Pacific Press, 2008), 34–5, 53; for quotation, see Gould, Capitalist Welfare Systems, 36, 44;
Stephen J. Anderson, Welfare Policy and Politics in Japan: Beyond the Developmental State (Chicago:
University of Chicago Press, 1998), 43–55.
18Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War (New York: Vintage Books, 1995); Frieden, Global Capitalism, 297–300. For background, also see Aaron Friedberg, In the Shadow of the Garrison State: America’s Anti-Statism and its Cold War Grand Strategy (Princeton, NJ:
18Alan Brinkley, The End of Reform: New Deal Liberalism in Recession and War (New York: Vintage Books, 1995); Frieden, Global Capitalism, 297–300. For background, also see Aaron Friedberg, In the Shadow of the Garrison State: America’s Anti-Statism and its Cold War Grand Strategy (Princeton, NJ: