by Edwin Black
Heidinger adjourned the meeting in a stalemate. Next, he decided to either cash out of the company, or pressure IBM into essentially walking away from its subsidiary. The stakes were immense for Germany.
Hess’ office was not the only one determined to ensure the complete cooperation of Dehomag. Other key Party advisors to der Fuhrer’s office, soon to emerge, also had plans for IBM’s equipment. But the strategic alliance with IBM was too entrenched to simply switch off. Since the birth of the Third Reich, Germany had automated virtually its entire economy, as well as most government operations and Nazi Party activities, using a single technology: Hollerith. Elaborate data operations were in full swing everywhere in Germany and its conquered lands. The country suddenly discovered its own vulnerable over-dependence on IBM machinery.
Millions of cards each week were needed to run the sorters. Indeed, the military alone employed some 30,000 people in their Hollerith services. Adding other governmental and commercial clients, at any given time, thousands of operators were working at Holleriths. Watson presses printed all the cards these people needed moment to moment. IBM’s paper and pulp supply lines extended to mills throughout the world. IBM owned the patents for the unique paper stock the Holleriths required. At the same time, Germany’s war industry suffered from a chronic paper and pulp shortage due to a lack of supply and the diversion of basic pulping ingredients to war propellants. Only four specialized paper plants in Germany could even produce Hollerith card stock—all were on contract to IBM. The few paper houses in France were running low on coal and cellulose supplies, hence their deliveries could never be assured for more than a month or two at a time. IBM was constantly pooling its global paper resources, including its abundant North American suppliers, to meet the ever-increasing demand. The Reich could not tap into the vital North American paper markets. Holleriths could not function without IBM’s unique paper. Watson controlled the paper.17
Printing cards was a stop-start process that under optimal conditions yielded 65,000 cards per eight-hour shift. The Third Reich consumed cards at an almost fantastic rate. In 1938, more than 600 million per year were consumed from German sources alone. In 1939, that number almost doubled to 1.118 billion. Projected use by 1943 was 1.5 billion just within the Reich. Building a printing press was a six-month process at best, much longer when the metals were not available. Dehomag clients typically stockpiled a mere thirty-day supply of finished punch card paper. Holleriths could not function without cards. Watson controlled the cards.18
Precision maintenance was needed monthly on the sensitive gears, tumblers, and cogs on thousands of machines that syncopated millions of times each week throughout Nazi Europe. Building new factories might take six months to a year just for the first machine tools to arrive from specialized machine tool works. Long tool manufacturing lead times were always needed. In 1937, IBM ordered three inclinable power presses for planned factory expansion; delivery times for the power presses required ten or eleven months. Three six-spindle drill presses required eight to twelve months. A three-spindle drill required sixteen months. A radial arm drill required twelve months. Two plain milling machines and a vertical miller required twenty-four months. Even working at peak capacity in tandem with recently opened IBM factories in Germany, Austria, Italy, and France, Nazi requests for sorters, tabulators, and collators were back-ordered twenty-four months. Hollerith systems could not function without machines or spare parts. Watson controlled the machines and the spare parts.19
Watson’s monopoly could be replaced—but it would take years. Even if the Reich confiscated every IBM printing plant in Nazi-dominated Europe, and seized every machine, within months the cards and spare parts would run out. The whole data system would quickly grind to a halt. As it stood in summer 1941, the IBM enterprise in Nazi Germany was hardly a stand-alone operation; it depended upon the global financial, technical, and material support of IBM NY and its seventy worldwide subsidiaries. Watson controlled all of it.
Without punch card technology, Nazi Germany would be completely incapable of even a fraction of the automation it had taken for granted. Returning to manual methods was unthinkable. The Race and Settlement Office of the SS was typical of those Nazi agencies frustrated over their long-back-ordered Holleriths. The Race and Settlement Office was a marginal agency that functioned as a marriage-assistance bureau for SS officers, and therefore did not merit its own Hollerith. While it was waiting, Race and Settlement department heads complained in one typical statistical report that the office simply could not keep up with its prodigious raceology responsibilities without a punch card system. “At least 7,000 applicants,” the report conceded, “who fulfilled the [racial] requirements for marriage have been waiting years for their Certificates of Approval from the Reichsfuhrer-SS.” What’s more, 50,000 additional applicants were also waiting for further documentation reviews, the report continued, and more than 100,000 applicants had only been provisionally accepted into the SS until the office could properly “complete their family trees back to 1800.”20
“I have determined,” wrote the SS Race and Settlement Office’s statistical chief, “that the Hollerith punch card system, which is being used successfully by the Reich Statistics Office, Reichsbahn, Reichspost, Reichsbank, etc, as well as various research facilities… is necessary and would serve our interests best.”21
The Race and Settlement statistical chief succinctly explained the Hollerith difference in these words: “The [manual] way in which the files are [currently] stored, makes any quick and efficient survey impossible. It would require months of work looking through individual files to answer even one [racial] question.” He added, “For every single one of the additional future tasks, months of tedious clerical work would be necessary just to determine how many and which [racial] petitions are involved. The punch card system would be able to determine this easily, quickly to the desired date…. Therefore, card indexing is indispensable.” The SS statistician concluded that the high cost of the IBM equipment was justified because this was the “exact instrument for complete surveillance both on a large scale and down to the smallest detail.”22
The SS Race and Settlement Office was finally allocated its Hollerith, but only in 1943, two and a half years after inaugurating the collection of the marriage data it sought to automate.23
With punch card technology so vital to German operations, it was no wonder that after Watson ostentatiously returned Hitler’s medal, Reich planners suddenly worried about their entire Hollerith infrastructure. Berlin launched the same struggle for autarky, that is, national self-sufficiency, already underway for armaments and raw materials, such as rubber. Outraged Nazi leaders became determined to replace IBM technology with a punch card system they could control. It was a matter of Nazi necessity. It was a matter of Nazi pride.
The quiet effort began in France, which had fallen to German domination in mid-June, just days after Watson returned the medal. Nazi engineer and Dehomag-trained punch card specialists from Berlin quickly began pilfering the machines of IBM’s French subsidiary, bringing them back to Germany for urgent assignments. No longer bound to honor Watson as a business partner, Reich agents categorized the machines as “war booty” that could simply be seized.24
Next, Hermann Goering’s circle purchased a majority control of the tiny Powers operation in France, hoping to merge it into a Germanized cartel. Nazi representatives even brought in for examination a rival machine produced by a small fledgling French company called Bull, which enjoyed about 25 percent of the fragmented French market. Plans were already underway to purchase a majority control of Bull, which had wielded no mass manufacturing operation but offered a replicable design. Watson had long tried to neutralize the tiny Bull operation with patent litigation, buy-out offers, employee raids, and even outright purchases of Bull’s operations in Switzerland. But Bull, even though dwarfed by IBM, still had a number of machines in operation. And its machinery was considered as good as any Hollerith.25
But
Berlin really didn’t know what to do. They stole some IBM machines in France, purchased control of a Powers subsidiary, and brought in Bull machines, all envisioning a new cartel. None of it was coordinated, but something had to be done to counteract Germany’s dependence on IBM.
From the Reich’s point of view, Watson and IBM clearly possessed an insider’s understanding of virtually everything Germany did and indeed all of its advance planning. That had to stop. Argue as they might, IBM NY officials were unable to convince Nazi officials otherwise, even when New York emphasized that only non-American IBM employees possessed access to the Reich’s most sensitive secrets. Watson’s Berlin attorney, Heinrich Albert, offered a written opinion summing up the problem. “The military authorities are greatly concerned with the whole matter,” wrote Albert shortly after the Dehomag revolt began. “Not only are most military agencies and offices equipped with these special machines but the authorities are also afraid that via the majority of IBM in the Dehomag, the USA [itself] might get a far-reaching insight into the activities not only of Dehomag itself, but also of the big German rearmament plants and the German economic structure as a whole. This fear is based on the particular organization of the business of Dehomag and is not quite as unfounded as it might appear from the very beginning.26
“The Dehomag does not sell its machines,” Albert continued, “but lets them out on lease. Before concluding a contract of lease, a thorough study of the [client] company, or business enterprise which wants to have the machines, is made from the point of view whether the use of the machines fits into the system of the prospect, whether the use of them is advantageous, and how the business must be organized to use the machines to the greatest possible advantage. There can be no doubt that this method… secures to the Dehomag a contact and insight into the big business of the nation superior to any other company.”27
Albert added that IBM’s counterarguments and rationales were simply not credible to the authorities. “It is no use to argue that this fear is absolutely theoretical and has no foundation [in fact] whatever in practice, as not only no American citizen is employed in this part of the business… [or that] these studies are kept most confidential and secret according to the strictest general rules and regulations. There the objection and the handicap is and must be taken into consideration.”28
From IBM’s point of view, the struggle to create an alliance with Nazi Germany had been too great and the potential for continuing profits too rewarding to simply walk away. Nor would Watson tolerate competitors—existing or newly created—invading IBM’s hard won territory. Since the dusty horse-and-buggy days of National Cash Register, Watson had learned not to compete, but to eliminate all competition—no matter how marginal—by any pernicious tactics necessary.
IBM Geneva troubleshooter, P. Taylor, in an August 1940 letter to the New York headquarters, worried openly about the threat should the Third Reich develop Bull machines or an ersatz hybrid—even though it would take years to switch. “The danger of this is, of course, that the Bull machines do exactly the same as Dehomag’s,” wrote Taylor, “whilst also having alphabetic and printing units, and [if obtained] they can easily be exchanged to replace Dehomag machines.”29
Heidinger had obtained a one-week travel permit and on August 15, 1940, he visited Taylor in IBM’s Geneva office to lodge his threats and demands. He was not subtle.30 “Foreign partnerships in German companies are not very much liked,” Heidinger told Taylor, “particularly where the foreign interest is a majority. The IBM majority in the Dehomag was not very helpful, but did not cause too much harm—up to now. The situation is entirely changed by the step of Mr. Watson giving back his German decoration and writing a letter to the Fuhrer published in the American press. That step is considered as an insult of the highest degree not only to Hitler, but to each individual German. What could be the consequences? Each customer or prospect will try to avoid getting punched card machines from a company which proved or at least appears to be hostile to Germany. Therefore an already existing or a new-formed German company taking up the manufacture and sale of such machines will have excellent chances. Dehomag’s business would no longer exist.”31
Exaggerating how easy it would be for any new competitor to emerge, Heidinger asserted, “Patent difficulties do not exist [and] if necessary it would be easy to get a compulsory license for a modest royalty of say five percent instead of twenty five percent which [now] Dehomag pays [to IBM NY]. No difficulties would exist to get experts for such a system: workmen, engineers, salesmen, managers.”32
Heidinger threatened to call for a vote of employees as loyal Germans, whether they would continue working with an IBM subsidiary or a newly formed German one. “The IBM should consider what result a vote within Dehomag would have,” said Heidinger menacingly. “Who of the Dehomag people is willing to continue working for the Dehomag of which a majority is owned by a hostile IBM or who is willing to work for a new German company?”33
There were more complications. All the open undercurrents against Dehomag as an American business with German management were now confirmed. IBM’s subsidiary had been unmasked as a non-Aryan business—something many always knew but begrudgingly overlooked. Now many in Berlin were preparing for the day when the U.S. would join England against the Third Reich. In such a case, explained Heidinger, Dehomag would be considered enemy property, a custodian would be appointed to run the business and make all decisions. “Such [a] trustee would be the only manager,” continued Heidinger, “while the rights of the old managers and the board are suspended. The consequences would be disastrous. One of the several possibilities is… [that] the trustee would discover that our profit and therefore the prices are too high. He certainly could and probably would reduce at once the prices. There would practically be no possibility to raise the prices again in normal times. Supposing the Dehomag pulled through this crisis—the return to shareholders could then only be very modest.34
“With or without the entry of the U.S.A. into the war,” stressed Heidinger, “the danger of the total ruin of the Dehomag is immediately present. No member of the board of directors or management could assume the responsibility of passively awaiting events.”35
Heidinger offered IBM several ultimata. One: sell the entire subsidiary to the Germans at a negotiated price. Two: use the millions of surplus profits in Dehomag’s blocked accounts to double investment in the subsidiary. Issue new shares, but all the new voting rights would be held by Germans, either Dehomag managers or an Aryan committee. IBM would still retain its majority ownership, but lose its control. Three: In a complicated scheme, IBM NY buys out some of the captive stock held by Heidinger, Rottke, and Hummel and transfers that stock to employees.36
Whatever Watson decided, insisted Heidinger, Dehomag must now be allowed to exercise further control. “The advice I give you now is of more value than any advice given in the past,” Heidinger told Taylor. But he would not wait for the protracted decision-making process Watson was known for. He demanded that Taylor cable the threats and options to Watson. Heidinger would wait in Geneva for an immediate response.37
Taylor cabled Heidinger’s remarks to New York with his observation that “a plan exists already for the formation of a new [rival] German company.”38 Whatever Watson did now to enrich its local managers or relinquish control, eventually IBM would be dethroned. At the same time, IBM people understood it was far easier to talk about replacing IBM than to actually do so. Harrison K. Chauncey, Watson’s top emissary in Berlin, reported after one key meeting with a ranking Nazi official, “We are threatened with possible elimination of Dehomag through competition which may be sponsored by the authorities.” But he followed by countering, “The government at the present time needs our machines. The army is using them evidently for every conceivable purpose.” He added, “During the war it would be very difficult for competition to get started, unless they used the French Bull manufacturing plant.” W. C. Lier, another senior IBM auditor negotiating in Berlin, commen
ted on the prospect of Germany not allocating raw materials for machines manufactured by IBM’s subsidiary in occupied France. Lier wrote to Chauncey, “the whole point is—who will manufacture since the Dehomag is not in a position to deliver most of the units before one or even two years?” Lier underlined his rhetorical question, adding, “[who] will produce the machines which are indispensable to the German war economy?”39
Since 1933, Watson had refused all opportunities to restrain or disassociate from Dehomag, or even reduce IBM’s breakneck expansion program for the Third Reich. Yet now, in August 1940, as never before, Watson was confronted with one genuine last chance—perhaps the most decisive chance—to walk away.
If Watson allowed the Reich—in a fit of rage over the return of the medal—to oust IBM technologic supremacy in Nazi Germany, and if he allowed Berlin to embark upon its own ersatz punch card industry, Hitler’s data automation program might speed toward self-destruction. No one could predict how drastically every Reich undertaking would be affected. But clearly, the blitz IBM attached to the German krieg would eventually be subtracted if not severely lessened. All Watson had to do was give up Dehomag as the Nazis demanded. If IBM did not have a technologic stranglehold over Germany, the Nazis would not be negotiating, they would simply seize whatever they wanted. For Watson, it was a choice.