France Launches the Monnet Plan

Date March 17, 1946

With the adoption of Jean Monnet’s economic plan, France moved toward a mixed economy, engaging in consensual, cooperative economic planning to promote growth and modernization, while maintaining the independence of the private sector. While the details of the system were debated and modified afterward, the basic concept of a mixed economic model became a permanent feature of the French postwar economy.

Also known as First French four-year plan; Plan de Modernisation et d’Equipement

Locale France

Key Figures

• Jean Monnet (1888-1979), French businessman, technocrat, and first head of the Commissariat Général du Plan
• Charles de Gaulle (1890-1970), head of the French provisional government, 1944-1946, and later president of France, 1959-1969
• Étienne Hirsch (d. 1994), French businessman, technocrat, and second head of the Commissariat Général du Plan

Summary of Event

At the end of World War II, most political groups in France blamed the rapidity of the nation’s 1940 defeat by Germany on France’s economically backward position in the 1930’s. Both among Vichy collaborationist groups and within the Free French movement headed by General Charles de Gaulle, there grew a conviction that the social and political divisions of the 1930’s should be mended in order to rebuild a new and stronger France. Both groups saw economic overhaul as the key to French renovation. Only if France modernized its economy could it become again a leader in Europe and the world.

Economic planning by the government was proposed as the means to promote modernization. During the German occupation, Vichy and Resistance planners alike drew up plans for postwar modernization. At the end of the hostilities, a political will to plan was clearly present. The only potentially hostile group was the business community, but at the end of the war it was on the defensive, as accusations of businesses’ collaboration with the Germans gained credence.

Although there was agreement that some sort of plan was necessary, groups disagreed about the type of plan to be adopted. Maintenance of political consensus was important, and planning could not appear to be inspired primarily by socialist principles, as such an appearance would alienate the middle class. For that reason, de Gaulle, head of the provisional government at the end of the war, endorsed the scheme put forth by Jean Monnet. Monnet’s plan had the virtue of maintaining consensus and driving away any fears of an impending socialization of the French economy. Monnet moved France toward a mixed economy, that is, one in which the government engaged in central planning while still maintaining private enterprise.

Monnet had started out as a businessman and had a businessman’s appreciation of the practical conduct of business affairs. During the war, he had witnessed both in Great Britain and in the United States how government-led wartime mobilization could be organized in the context of a market system. He had become convinced that the same methods could be applied in peacetime to channel resources and capital for French modernization. From the Americans in particular, Monnet had absorbed an optimistic belief in continued economic growth, a view that stood in stark contrast to prewar France’s pessimistic attitudes about the growth potential of the French economy.

Monnet surrounded himself with a youthful team of economic experts including Étienne Hirsch, who had been a chemical industry manager in the 1930’s. This team began work in the fall of 1945 and prepared a document that described the most immediate needs of the French economy. The report emphasized the need to modernize industrial plants during the reconstruction process. De Gaulle approved the Monnet team’s work and in early 1946 created, through a decree, the Commissariat Général du Plan (CGP), an agency reporting directly to the head of the government that would direct the preparation of a Plan de Modernisation et d’Equipement (PME; modernization and equipment plan). The plan was the first government effort to utilize the econometric technique of input-output analysis.

A first draft of the PME was prepared hastily in early 1946 and was presented March 17 so that it could be of immediate use to the French government as a basis for negotiating a loan from the United States. French economic experts were well aware that France’s modernization plans could not be carried out without substantial foreign credit. France lacked necessary raw materials and equipment, and it did not have the financial means to import them. Monnet was one of France’s first policy makers to realize that the United States would be the primary financial resource for French modernization. For that reason, Monnet took care to prepare a plan that would address American concerns about France’s ability to put American loans to profitable use. Monnet’s efforts in aiding his government to obtain loans succeeded. Later, he helped France to obtain large shares of Marshall Plan aid.

The first completed plan was ready by the end of 1946. It called for massive investment in basic sectors of electricity, coal, steel, transportation, and agricultural machinery. Investment in consumer-goods industries was postponed. The plan’s first goal was to eliminate bottlenecks in the basic sectors, thus increasing production and productivity. The planners argued that inflation would abate as consumer demands were satisfied. Full employment would be achieved, and standards of living would rise. Inflation, however, failed to respond appreciably.

Monnet had to provide a planning formula that would maintain a consensus favoring planning. He and Hirsch found such a formula by forming modernization commissions. These were large committees composed of representatives from different areas. The representatives included businesspeople, trade union representatives, administrators, farmers, and consumers. They would discuss what needed to be done concerning each sector of the economy, then reach an agreement.

Because of the consensual nature of this planning, Monnet believed that each segment of French society would be committed to carrying out the plans formulated at modernization commission meetings. This approach served the purpose of maintaining political consensus and eliminating the coercive features that economic plans can present. The system also allowed for effective coordination of programs that had been prepared by various French ministers without creating the impression that Monnet and his team were infringing upon the ministers’ work. Moreover, with this system, Monnet managed to bypass politically risky parliamentary discussions of France’s economic plans.

The Monnet Plan was later adapted in 1948 to fit criteria for economic expansion all across Europe, according to American requests. The adaptations were part of Marshall Plan requirements that aid recipients devise economic plans to put American aid to the most efficient use possible. France’s plan was praised by the U.S. government and used as an example for other European countries.

Significance

The Monnet Plan had a major impact on French reconstruction. At a time when private capital was scarce, the plan managed effectively to channel public resources toward breaking production bottlenecks in sectors such as electricity, coal, and steel. In turn, increased production and productivity in those sectors aided the recovery of private investment. The plan prevented, through its consensual system, waste of scarce resources that might have occurred without an overall sense of direction had ministries and the private sector competed with one another. The ministries and the private sector, moreover, might have opted to finance outdated plants rather than investing in new equipment and facilities, had the plan not guided them to do so.

Some errors certainly were made. Some of the plan’s targets were unrealistic and had to be modified. The primary error by planners lay in the assumption that once production bottlenecks had been eliminated and productivity increased, inflation would be checked through the plan’s ability to satisfy demand. Such a situation never materialized; the capital requirements of the plan instead probably worsened inflation. The governmental budget ran into periodic crises and had to be rescued through injections of Marshall Plan aid throughout 1948-1950. Investment expenses played an important part in keeping France’s finances under pressure.

The consensus for planning that Monnet skillfully built in 1946 and 1947 began to falter toward the end of 1947. International political circumstances had changed. French leftists, who had dominated the political scene at liberation, were now losing ground. France’s Cold War choice to join the Western camp played an important part in this transition. The business community, which had been on the defensive between 1945 and 1947, reorganized and became more vocal in support of its interests. Old links between business and government circles were reestablished. As a consequence, business leaders began to feel free to attack Monnet’s plan. The business community as a whole, however, never adamantly opposed Monnet’s brand of planning.

Initially, the business community had expressed approval of the Monnet Plan, realizing that private business alone could not drive the country toward rapid reconstruction and modernization. Beginning late in 1947, however, business began openly to attack aspects of the plan. First, private business expressed concern that too many PME resources were channeled to the nationalized sectors of the economy, particularly electricity and coal. Second, the plan drew criticism for promoting excessive levels of investment that endangered the country’s financial position. Several business representatives advocated a balanced budget.

Finally, there were pointed references to the PME as temporary. It served the purpose of setting the French economy on the right track after the war, but many business leaders perceived that it should disappear once “normal” conditions had returned. Conservative provincial businesspeople still saw their needs in terms of 1938 production levels, in stark contrast to the plan’s expansionary aims. At times, such conservatism worked to the advantage of more dynamic entrepreneurs. As one example, the steel group USINOR was assigned more PME funds at the expense of the Wendel group, because the latter was unwilling to risk investing in the latest technologies.

Despite criticisms from the business community, however, there never was an outright attempt to undo the plan itself. It appears that business criticism was often motivated by envy of the nationalized sector. The entrepreneurs wanted a larger portion of PME funds and wanted French planners generally to use market criteria in allocating those funds. The latter desire was granted, as the focus of the PME shifted. In the early years of the PME, the primary focus was on investment in the basic sectors. By the early 1950’s, the focus of the second four-year plan, the Hirsch Plan, had shifted to lighter and more consumption-oriented industries. By then, the basic sectors were well on their way to recovery and, in many cases, self-sufficiency.

Underlying business criticism of the plan was a fear that some political groups in France, particularly the Left, might try to transform the planning mechanism into an instrument of what entrepreneurs considered to be excessive governmental intervention in the economy. In other words, although it was acceptable to plan when decisions were made in a collegial fashion and with the participation of business leaders, planning would antagonize businesspeople if it became a form of strict business regulation. The Monnet Plan never sought to drive the French economy toward socialization, however. To the contrary, French planners managed to create a type of planning compatible with free enterprise. French planning was born as, and continued to be, a flexible mechanism that could adapt itself to changing market circumstances. Planning remained as a permanent feature of France’s economic policymaking, helping to maintain France as a major international industrial competitor.

Bibliography

Baum, Warren C. The French Economy and the State. Princeton, N.J.: Princeton University Press, 1958. Still the most detailed and informative account of all aspects of French state intervention in economic affairs after World War II. Describes how the Monnet Plan was elaborated, its investment targets, and its methods of execution.

Ehrmann, Henry W. Organized Business in France. Princeton, N.J.: Princeton University Press, 1957. Still the most thorough and informative book on the French business community from the 1930’s to the mid-1950’s that has appeared in the English language.

Fransen, Frederic J. The Supranational Politics of Jean Monnet: Ideas and Origins of the European Community. Westport, Conn.: Greenwood Press, 2001. Analyzes Jean Monnet’s economic and political policies and explains how they became the model for the development of the European Community and the European Union.

Kuisel, Richard F. Capitalism and the State in Modern France: Renovation and Economic Management in the Twentieth Century. New York: Cambridge University Press, 1981. The best, most comprehensive study of twentieth century French capitalism. Kuisel traces the evolution of French state-capital relations from the late nineteenth century to the early 1950’s, explaining in masterly fashion how France arrived at its postwar mixed economic model.

Lynch, Frances M. B. France and the International Economy: From Vichy to the Treaty of Rome. New York: Routledge, 1997. Comprehensive account of postwar French economic development, includes discussions of the Monnet Plan as it relates to the Marshall Plan and as it affected French agriculture in particular.

Shennan, Andrew. Rethinking France: Plans for Renewal, 1940-1946. Oxford, England: Clarendon Press, 1989. Part 1 offers a general introduction on the spirit of renewal present in France during and after World War II. Chapters 10 and 11 of part 2 tackle economic issues directly and offer an interpretation different from Kuisel’s Capitalism and the State in Modern France. Shennan sees fewer elements of continuity between pre- and postwar state intervention in the economy.

Wall, Irwin M. The United States and the Making of Postwar France, 1945-1954. New York: Cambridge University Press, 1991. Chapter 6 of this comprehensive survey of Franco-American relations after World War II offers an analysis of the implementation of the Marshall Plan in France and its links with France’s economic policy. Gives a well-documented account of France’s 1946 negotiations for a loan from the United States to cover modernization expenses.