Lessons from the Marshall Plan for Modern Development Aid

In efforts to support small business development across the world, there is often a hope that infusing technology is a key to success. But rather than decide “there’s an app for that” or rely on high-tech machines to modernize production processes, Michela Giorcelli suggests a more old-fashioned approach.

Giorcelli, a SCID Graduate Student Fellow, took a look at post World War II Europe to find that skill-building training can have more of an impact in a developing country than newfangled machinery alone.

Giorcelli researched a unique component of the Marshall Plan, called the U.S. Productivity Plan, in which managers from European countries were invited to learn modern management skills through study trips to the United States that lasted two or three months. This was part of America’s efforts to help Europe recover after the war and to prevent the much-feared spread of communism in the 1950s.

Visiting Italian managers participated in formal trainings and seminars in addition to more informal visits to U.S. firms to shadow managers. The productivity program also gave Italian firms loans to purchase state-of-the-art machines from the United States.

Benefitting from 20 years of archival data on a subject where data is typically scarce, Giorcelli began to distinguish between the impacts of management practices and technology transfer.

Giorcelli found that businesses participating in the productivity program boasted increased sales and productivity, and stayed in business longer than comparable companies that were not part of the program. Yet the trainings boosted firms’ success much more than the newer machines. While the machinery purchases did make firms more productive, the effects only lasted about 10 years – the plausible lifespan of a machine. Without local know-how to repair foreign machines, it seems likely that malfunctions and disrepair spelled the end of their benefit.

“Just giving machines without the human capital needed to support them is not enough to support growth over time,” Giorcelli explains. “Management practices had larger and more persistent effects than technology.”

In contrast, the trainings had a compounding effect on business success, with impacts increasing over time and persisting even 15 years after the program ended. She believes the program helped managers make better investment decisions – investing in new plants or new machines, for example – which made their production more efficient. The result was a virtuous cycle of higher profits and profit-enhancing investments.

Giorcelli sees parallels for development aid now, noting that income levels in Italy post-World War II are similar to some of today’s developing countries. As nongovernmental and international organizations seek to spur economic growth through support to small businesses, computer literacy or financial management training may prove much more effective in lifting people out of poverty than just giving them the latest bit of technology.