Hell's Cartel_IG Farben and the Making of Hitler's War Machine

by Diarmuid Jeffreys

  As it happened, this feeble affair was the last coup attempt against the Weimar Republic. When the extreme right next reached for power it would use more sophisticated tools. In the meantime, Stresemann and his successors were finally free to concentrate on more mundane matters, such as wrestling with inflation and revitalizing the Germany economy. In 1924, a new agreement with the Allies, called the Dawes Plan, made the reparations burden more manageable, and newly elected governments in Britain and France began to adopt a less hostile tone. In November, the Franco-Belgian occupying force withdrew from the Ruhr. Stability, of a sort, was returning.

  Germany’s chemical industry was also beginning to regroup. The companies of the Interessen Gemeinschaft had been battered by blows that should have crippled them beyond recovery: a huge growth in foreign competition, the loss of vital patents and assets, the debacle at Versailles, the flu pandemic, the constant political uncertainty, the occupation, hyperinflation, the explosion at Oppau—the list was painfully long. Yet somehow the industry had managed to survive. Indeed, on balance, the industry’s accounts for the period contained a surprising number of positive entries. Against all expectations the inclusion of dyestuffs and fertilizers in the Allies’ list of reparations goods had actually helped created a secure export market for the IG’s goods in tough trading years. The collapse in the value of the mark had paradoxically made many products cheaper and more attractive to foreign consumers, and in those nations where the IG companies had been able to reestablish their sales operations, a healthy increase in profits was the welcome result. Even the hyperinflation had had its upside, allowing the industry to repay for a pittance the massive wartime loans it had gotten from the government and banks for factory expansion.

  But survival wasn’t enough. Piecemeal deals with individual rivals, such as Bayer had concluded with Sterling, would not in the end hold other competitors at bay. Temporary benefits gained during currency depreciation would diminish as the mark was stabilized. Technology needed updating, new products had to be invented, and somehow new capital had to be found. Unless the IG companies came to grips with these issues and changed the way they organized their business, they would have to accept that the future belonged to others. If they were ever going to reassert their global dominance they would have to do something many of them had shied away from until now—come together in one all-powerful, financially secure group and meet the opposition head-on.

  * * *

  CARL DUISBERG HAD always been the most fervent supporter of full union. In 1904 and in 1916, he had tried to get his peers to accept the idea that salvation lay in togetherness but had had to settle for less ambitious agreements on purchasing, financing, insurance, and legal affairs instead. In truth, the wartime Interessen Gemeinschaft had never really developed into more than a loose federation of related businesses. It allowed their bosses to present a united front to the outside world when necessary and to help one another when confronted with extraordinary events such as the Oppau explosion, but it also left them free to act autonomously when their interests diverged. In the difficult months and years immediately after the war, the firms had frequently taken independent action as they sought to maintain their relative position in the industry and to avoid layoffs and factory closures. IG companies had even found themselves fiercely competing for orders again. But by 1924, faced with the bitter new reality, the industry’s leaders were finally beginning to accept that autonomy was a costly luxury. It might have been expected, then, that Duisberg would have seized this moment to force through the full coalition he had always dreamt of. That year he became chairman of the IG General Council for the second time in his career and he certainly had all the necessary authority to bang heads together had he so wished.

  But, strangely, Duisberg began to get cold feet. Now in his early sixties, he was becoming more cautious, and something made him balk at the prospect of totally subsuming his beloved Bayer into a larger organization. Possibly it was because he had seen too many grand designs come apart in the war or maybe he just disliked the idea of ceding control to younger men. Whatever his motives, he now decided that a full merger was no longer required. All that was needed, he declared, was a new central holding company to manage sales and investments—a slightly more powerful Interessen Gemeinschaft than had existed before.

  Carl Bosch felt otherwise. Thirteen years younger than Duisberg, he had been running BASF for only four years and where the older man saw difficulties he saw opportunities. The tax system in Germany had just been made more favorable to amalgamation and he believed that a merger could significantly reduce costs. Though he had previously been reluctant to relinquish BASF’s independence, he could see that there was now too much duplication of effort, too many unnecessary staff. Duisberg was correct in targeting sales as an area where efficiencies could be introduced (overseas, for example, the IG companies were represented by eight separate and competing sales agencies) but Bosch was certain much more could be achieved. He had visited the United States in late 1923 and, just as Duisberg had done twenty years earlier, returned with the conviction that a single unified corporation was the best foundation for success. The IG companies needed to recapitalize to finance a new range of products—in particular an extraordinary new project for developing synthetic fuel that he had up his sleeve. The best way to do so was by offering investors a chance to get in on the ground floor of something with momentum and critical mass, a single company that would dwarf its opponents and be able to dictate terms to the marketplace and the banks.

  Thus, the two godfathers of the IG took up positions directly contrary to those they had held only a few years before, with the rest of the IG companies lining up behind them according to their bosses’ individual prejudices and ambitions, the smaller firms in the antimerger camp, the larger ones—with the exception of Duisberg’s Bayer—in favor of total fusion. The arguments began in early 1924 and continued throughout the year, culminating in a two-day conference in November at Duisberg’s extraordinary house.

  The location was deeply symbolic of all the grandiosity of the old days, of the age of commercial barons and their great aspirations. The industry owed its early success to the entrepreneurial talents and commercial ingenuity of the men who had started dyestuff companies along the banks of the Rhine in the nineteenth century. Some had fallen by the wayside, but those who had survived and those who followed on their heels had achieved much through their single-mindedness and determination. Now that individualism was being pressed to give way to corporatism. For men who had spent their lives in the comfortable embrace of small, sometimes family-dominated enterprises, the prospect of abandoning their identities and merging into one indivisible union was disconcerting, to say the least: they were anxious about gambling all their past achievements on one uncertain project. Those who had always been skeptical of the merits of a merger were now pleased, if a little confused, by the sudden appearance of Duisberg as an ally. Those who had supported the idea in the past couldn’t understand why he had changed his mind, especially as the economic climate was much more conducive to a full union than it had ever been before.

  From the outset it was obvious that the pro-merger camp had all the best arguments. Carl Bosch was a convincing and persuasive advocate, and he was supported by a clever group of rising BASF stars, including Carl Krauch, who had rebuilt Oppau, and Hermann Schmitz, the company’s finance director. They were on hand with compelling statistics and diagrams to support their chief’s case that a merger would produce significant cost savings, increase the industry’s collective influence over pricing and supply, and make it easier to raise investment capital. Gradually Bosch began to win the waverers over, to the fury of Duisberg, who had always seen himself as the Interessen Gemeinschaft’s natural leader. To be outargued and outmaneuvered in his own home was maddening. By the time Duisberg’s guests sat down to dine on the evening of November 13, the discussion had degenerated into personal squabbles and name-calling. After the meal, Duisberg, with
friends from the Kalle and Cassella companies, retired to the billiard room in a rage; Bosch and his supporters from Hoechst, Weiler-ter-Meer, Agfa, and Griesheim went off to shut themselves in a downstairs bar, and for the rest of the evening mediators ran up and down the stairs trying to get them all to see reason. The next day, in a hardly more positive vein, the discussions continued until it became clear that opposition to a merger had all but dissipated and only Bayer’s boss was holding out. When a vote confirmed this near unanimity, Duisberg was devastated and resigned his chair in favor of his opponent. Just before he left that evening, Bosch took his host to one side, assured him of his everlasting respect, and tried his best to smooth things over by promising to appoint Duisberg’s son Curt to an important job in the new IG. But that was scant compensation. Although Duisberg had no choice but to concede defeat, the rejection of his authority was a massive blow.

  It would be over a year before the details of the deal agreed in principle at Leverkusen were completely hammered out. In early 1925 Carl Bosch fell ill and negotiations were stalled for a while. Then there was haggling over what the new organization was to be called. Bosch wanted to lose the IG designation because an Interessen Gemeinschaft (or community of interests) would not properly reflect the status of the new company. Duisberg felt that the commercial value of the IG name was too great for it to be abandoned entirely, and it was vital that it be included in the new identity. In this at least he got his way, winning the unanimous support of the other businesses’ heads. They decided the new entity would be known as the IG Farbenindustrie Aktienge-sellschaft, or, as everyone soon began calling it for short, IG Farben.

  On December 2, 1925, representatives from BASF, Bayer, Hoechst, Agfa, Weiler-ter-Meer, and Griesheim signed the deal. The two smaller IG businesses, Kalle and Cassella, remained legally distinct but wholly owned subsidiaries of the new company. To assimilate the rest, BASF, as the previously largest single firm, increased its capitalization to equal that of the five other signatories, exchanged its stock for theirs, and legally assumed the new entity’s name.* IG Farben headquarters would be at Frankfurt am Main. Thirty-nine directors of the various contracting firms joined BASF’s existing board to form a new supervisory board, the Aufsichtsrat, and Carl Duisberg was elected its first chairman with a brief to look after broad policy. The actual day-to-day running of the company was entrusted to the Vorstand, a managing board led by Carl Bosch. For all intents and purposes he was now chief executive of the new enterprise and, insofar as anyone could be said to be in overall control of such a massive organization, his word carried the most weight.

  And so IG Farben was born. Sixty years after the first German synthetic dye concerns opened for business, the bulk of the nation’s chemical industry had at last resolved all their differences and joined together in a single corporate body. It was to become one of the mightiest companies in the world.

  5

  BOSCH’S PLAN

  Although a quiet and unassuming man, Carl Bosch was not someone to shy away from obstacles. He had made his reputation by finding an engineering solution to one of chemistry’s most intractable problems—the mass production through hydrogenation of synthetic ammonia—and he had burnished it in wartime by helping his embattled nation find a way to make explosive-grade nitrates. Time and again throughout his career he had shown that he had the patience and determination to leap the highest hurdles. But now, at the age of fifty-two, he faced a truly monumental challenge: to devise an organizational structure that would turn IG Farben into something more than the sum of its parts.

  There were plenty of positives to build on. The firms that had joined the combine all came from the same industry, made many of the same products, and shared many of the same customers. Their bosses had agreed to set aside old rivalries, to pool the science and technology they had once jealously guarded and work harmoniously toward economies of scale that would yield higher output at lower costs. All that mattered now, they declared, was the furtherance of the common good.

  Yet it would take more than goodwill and grand declarations to make IG Farben successful. There were still considerable differences among the combine’s constituent firms, which could not be swept away overnight. Each business had its own board of management whose members’ egos needed to be massaged; each had its unique traditions and areas of specialist expertise. The companies used different procedures for bookkeeping, purchasing, paying taxes, and applying for patents and had separate agreements with trade unions about pay and conditions, all of which had to be brought into line with those of their partners. For plants and factories used to operating as semiautonomous entities, responsible for their own production and research processes, coordinating their work, or at least avoiding too much duplication, would require an unprecedented degree of planning. The firms had entered into the agreement as equals—notwithstanding the legal mechanics that had seen BASF acquire their stock—and time was needed to come to terms with the new reality of being just part of a greater whole.

  That whole was vast, multifaceted, and already rapidly expanding. On the day the merger deal was concluded IG Farben was capitalized at RM 646 million. Just one year later the figure had grown to almost RM 1.2 billion as the German public, the banks, and international financial institutions rushed to invest in the new industrial giant. Within a few more years this mountain of capital was financing a program of acquisitions that saw the IG take stakes in chemical, steel, coal, and fuel firms such as Dynamit AG, Rheinische Stahlwerke AG, Köln-Rottweil AG, the Westfalische-Anhaltische Sprengstoff AG, and the Deutsche Gasolin group. By 1929 it employed over 120,000 people who worked in 106 different plants and mines, producing 100 percent of Germany’s dyes, 85 percent of its nitrogen, 90 percent of its mineral acids, 41 percent of its pharmaceuticals, a third of its rayon, and nearly all its explosives. The IG’s growing product range would eventually include a number of other inorganic and organic intermediate chemicals, glues and industrial adhesives, detergents, bleaches, insecticides and pesticides, fire-retardant materials, photographic supplies, artificial fibers, plastics, cellophane, synthetic rubber, and light and nonferrous metals. It had the second-largest brown coal holdings in the country and controlled around 15 percent of Germany’s lignite supply and a substantial share of its briquette production. The combine’s portfolio also included strategic investments in banking, high-pressure chemistry, and oil research and sales; minority interests in newspapers, shipping, and transport; and a slew of partnerships with, and holdings in, chemical businesses overseas.

  Finding a management recipe to meld this disparate collection of ingredients was never going to be easy. Even the most basic issues of corporate governance were complicated by the necessity of keeping the various stakeholders happy. For the first four years of IG Farben’s existence Bosch was content to go along with a blueprint suggested by Carl Duisberg. This approach followed the federal model of the old Interessen Gemeinschaft, with a few tweaks here and there to allow for a centralized sales operation and the allocation of specific markets and areas of production to individual factories or regional groups of factories. These “work groups,” as they were called, were based on the old individual company identities and their geographical location. The Lower Rhine, Central Rhine, and Upper Rhine work groups thus corresponded to Bayer (Cologne/Leverkusen), Hoechst (Frankfurt am Main), and BASF (Ludwigshafen and Oppau).* But while Duisberg’s plan recognized autonomy and individual responsibility—good principles in a business so dependent on innovation—it also established a pattern of informal, and at times uneasy, collegial leadership that dogged IG Farben’s operations for some years to come. Without a clear chain of command (an issue that would never be properly resolved), decision making was sometimes painfully slow, mired in committee procedure and bureaucracy. The more impatient or more independently minded managers were occasionally moved to act on their own initiative, which threatened to undermine the coherence of the business as a whole.

  By 1931, however, Bosch
had begun to implement a new organizational structure (see diagram). His most important decision was to create three product divisions, or Sparten, into which all of the IG’s main technical and commercial groupings were placed. Sparte I, chaired initially by Karl Krekeler and then by Bosch’s protégé Carl Krauch, was responsible for everything to do with high-pressure hydrogenation chemistry, including the combine’s synthetic nitrogen installations, coal mines, and oil interests. Sparte II, under Fritz ter Meer, was responsible for most of the company’s traditional product range—its dyes, pharmaceuticals, solvents, and various other inorganic and organic chemicals. Sparte III, run by Fritz Gajewski, looked after the manufacture of explosives, photographic materials, and specialized paper products, artificial fibers, and cellophane—most of which were produced in Berlin and central Germany.

  Given their disparate manufacturing priorities and markets, each Sparte had its own unique identity, as well as its own way of conducting business, coordinating policy, and setting goals. This work was usually conducted through dozens of project-specific subcommittees before it was passed to larger divisional management committees for assessment and review. In Sparte II, which had the widest and most complex product range and the biggest number of plants and feeder subsidiaries, this supervisory role was divided among three powerful bodies—the Chemicals Committee, the Dyes Committee, and the Pharmaceuticals Committee. In the other two Sparten the structure was more straightforward, with smaller coordinating committees to set production targets. All three Sparten, however, also had to coordinate their work with two companywide bodies—the Commercial Committee and the Technical Committee. Of these, the latter was the more important. Attended by the IG’s most senior technical specialists and by engineers and managers of key plants, its meetings examined production plans, research and development initiatives, and requests for construction funds put forward by more than three dozen subcommittees. Two further organizational changes completed Bosch’s shake-up. The first involved the creation of five separate sales and marketing groups, known as “combines”—for dyestuffs, chemicals, pharmaceuticals, photographics and fibers, and nitrogen and oil. The second saw the expansion of a complex of satellite departments (first established in 1927), which were known collectively as Berlin NW7 after their postal-code district in Germany’s capital. These departments would handle press relations, market research, legal and tax matters, economic negotiations with foreign customers and partner firms, and contacts with the government.