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

by Diarmuid Jeffreys

  This left the bourgeois parties of the center right and center. The most worthy of consideration was Gustav Stresemann’s German People’s Party (Deutsche Volkspartei, or DVP). In many ways Stresemann was IG Farben’s model politician. Statesmanlike, moderately conservative, but liberal in his attitudes toward big business, he believed in working toward solutions gradually and in restoring German power through patient negotiation. He was also one of the concern’s greatest supporters, at one time famously declaring, “Without IG and coal I can have no foreign policy.” But unfortunately, though he served in ten coalition administrations (once, briefly, as chancellor in 1923 and thereafter through nine successive terms as foreign minister), his party was never able to command enough support to form a government on its own. Clearly, if the IG was to see its interests protected and advanced it would have to spread its largesse across some the Reichstag’s other centrist groups—such as the liberal-minded Democratic Party (Deutsche Demokratische Partei, or DPP) and the Catholic-influenced German Center Party (Deutsche Zentrumspartei, or Zentrum)—and hope they could maintain a stable alliance.

  Carl Duisberg had begun the process of political engagement back in the last days of the old Interessen Gemeinschaft, setting up an informal committee (carried over into the new concern in 1925) with responsibility for coordinating political donations and influencing the legislative agenda. Among its members—all drawn from the Aufsichtsrat—were several well-connected parliamentarians. Two of them, William Kalle and Paul Moldenhauer, belonged respectively to the left and right wings of Stresemann’s DVP. Another member, Hermann Hummel, was a deputy for the Democratic Party from 1924 to 1930, while a fourth, Clemens Lammers, sat in the Reichstag for the Center Party. With Duisberg and Bosch at the helm, this group of IG executives handled the IG’s political links from 1925 until 1932, dispensing quite large sums of money in the form of annual grants and donations, such as RM 200,000 a year to the DVP and RM 70,000 to the Center Party. Smaller, ad hoc sums were given to other groups and individuals as necessary.*

  Party donations were not the only way to influence political opinion, of course. The press came in for attention, too, albeit with mixed results. In 1922, for example, the premerger Interessen Gemeinschaft invested two million marks in the launch of Die Zeit, in the hope that the newspaper might provide an outlet for Stresemann’s views, although little actually came of the venture because the politician severed his connections to the publication within a couple of years. A much smaller grant, made in 1925 to a highbrow economic and political periodical, the Europäische Revue, was more rewarding in the sense that some of the combine’s senior figures were subsequently invited to write essays for it on business subjects, but the journal’s limited circulation meant that its impact on national affairs was minor. More was expected of an investment made in February 1929, however. As public opinion began to radicalize, Carl Bosch spent RM 1.4 million of his discretionary funds to acquire a 35 percent share of the Frankfurter Zeitung, one of the country’s leading liberal dailies. The paper was in financial difficulties and Bosch hoped (wrongly, as it turned out) that keeping it going would help strengthen public support for the probusiness programs of the democratic center and center-right parties. A few months later the IG also bought three-quarters of the shares of the Frankfurter Nachrichten, a paper closely associated with the DVP. This was followed by smaller investments in the Deutsche Allgemeine Zeitung, two syndication and wire services, and the UFA movie studios.

  The effectiveness of these activities is debatable. Had the IG’s sole aim been to shore up the moderately conservative elements of Germany’s democratic system, then its efforts were clearly a failure. The political donations were sizable enough and no doubt extremely welcome to the recipients, but in the end they did little to stop the erosion of support for bourgeois parties or the drift of public opinion to extremes. The investments in newspapers, even the later ones, were of similarly questionable value because in reality the IG exercised little control over the papers’ editorial policies. But, of course, the combine’s engagement in politics wasn’t purely altruistic. Its main purpose—during the relatively stable third quarter of the 1920s, at least—was to ensure that the IG’s voice was heard along Berlin’s corridors of power and that its interests were protected. On that score its activities were more fruitful because they bought influence, which reinforced the IG’s behind-the-scenes lobbying of ministers and civil servants and cemented its leading role in pressure groups such as the Chemical Industry Association (Verein zur Wahrung der Interessesen der chemischen Industrie Deutschlands), chaired by Duisberg until 1924 and by Bosch from 1927 to 1933.

  When business conditions began to deteriorate, however, the IG was forced to take political affairs more seriously. In 1928–29 an agricultural and industrial recession hit home and then the Wall Street crash triggered the most serious economic crisis in German history. For a business that was laboring to bring a hugely expensive synthetic fuel project into profitability, the Great Depression couldn’t have happened at a worse time. How the government responded to the crisis was of the utmost importance.

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  GERMANY’S ECONOMIC RECOVERY after the great inflation of 1923 had been largely financed by foreign loans, especially from the world’s biggest economy, the United States. Even though most of these loans were short-term, the flood of readily available cash had tempted many in German industry into borrowing huge sums to finance their expansion and mechanization. German banks got into the act, too, drawing on foreign credit to finance their own investments back home and relying on the growing economy to provide the necessary revenue to service the debt.

  In 1928 the taps were turned off. In the face of a burgeoning recession, the major industrialized nations, led by the United States, began to impose strict monetary restrictions, cutting back on their foreign lending to protect their gold reserves—at that time the basis for financial stability and international currency values. Businesses around the world felt the effects, especially in countries like Germany that were dependent on a flow of external capital to keep their economies moving. As investment dried up, industrial production slowed, unemployment began to grow, and tax revenues shrank. The German administration found it increasingly difficult to raise money through selling bonds (the usual recourse for governments in financial difficulties), because of concerns about the return of inflation.

  Then in October 1929, a bad situation suddenly became much worse. An outbreak of panic selling on the New York Stock Exchange turned into a flood: share prices began to plummet—more than $10 billion was wiped off the value of U.S. businesses on October 29 alone—which triggered yet more panic selling. American companies tumbled into insolvency, drawing the financial institutions that had invested in them down as well. As the banks’ exposure to this domestic emergency grew, they began calling in their short-term foreign loans to bridge the gap. Germany, already suffering from a sharp reduction in incoming investment, now experienced a massive outflow of capital.

  The effects were swift and devastating. Within months the country was in the grip of a deep depression. Businesses failed as owners and managers were unable to fund production. Unemployment rose to extraordinary levels, climbing to five million within a year and six million a year later. By 1932 one worker in three was out of a job, with around thirteen million people (if all their dependents are taken into account) thrown into desperate straits. Farmers lost their land as government subsidies were cut and the banks foreclosed on the loans that had kept the farms going; some half a million white-collar workers—clerks, technicians, civil servants—suddenly found themselves on the dole; even lawyers and doctors struggled to survive. Those who managed to hang on to their jobs had to accept savage cuts in their wages as employers reduced their hours to adjust to the collapse in demand. Government finances, already weak, buckled under the strain, as an unemployment benefit system that had been intended to provide temporary relief for three-quarters of a million claimants at any one t
ime now had to cope with seven or eight times that number and for much longer periods than anyone had anticipated.

  Day after day, month after month, the crisis deepened. Crowds of young men took to Germany’s roads hunting for work. Others hung listlessly about town and city centers, hustling for spare cash from passersby, and it became commonplace to come across men with placards around their necks pleading for a job. The signs of economic catastrophe were everywhere to be seen—boarded-up shops and factories, ragged and malnourished children, soup kitchens, beggars, prostitution, and spiraling criminality. In many working-class urban areas there was an atmosphere of palpable menace and despair. German society seemed to many to be on the verge of collapse, its leaders apparently helpless and bereft of solutions. If any situation was likely to turn people toward the political extremes, this was it.

  IG Farben, now far and away Germany’s largest company, was theoretically better placed than most to cope with financial problems: it had large cash reserves and a substantial part of its income came from overseas. But no business could remain unaffected by an economic collapse on this scale, especially not one that had mortgaged much of its future to develop an expensive and highly speculative new technology. By the time the Depression, coupled with the discovery of new oil reserves, sent oil prices tumbling, the IG had already sunk hundreds of millions of marks into its synthetic fuel project. Its capacity to absorb these huge R & D costs was dependent to a large part on the profits it earned from its other products, most notably synthetic nitrogen, which as recently as 1926–27 had contributed over 40 percent of the concern’s sales revenue. But by late 1928 the synthetic nitrogen market had begun to fall apart. Now prices fell as international demand for commodities slumped. With the enormous capital costs for the development of the IG’s high-pressure facilities at Oppau and Leuna still on the books, the concern’s vast new headquarters at Frankfurt still to be paid for, and a massive wage load for its 120,000-strong workforce to meet, something had to give.* In such circumstances, even the injection of cash the IG had received from the sale of synthetic fuel rights to Standard Oil was going to make little difference.

  As Carl Bosch and the IG’s management team began casting around for ways to weather the crisis, their options seemed fairly limited. The company was rich in assets that might be sold but in such an economic climate there would obviously be few takers. Efforts could be made—and were made—to trim nonessential expenditures and managerial salaries, to cut R & D spending to the bone, and to make production more cost-effective. It was now that Bosch drew up plans for dividing the IG into separate production Sparten, to organize the concern more efficiently. But mass layoffs were unavoidable. Between 1929 and 1932 the concern shed 46 percent of its workforce—dwarfing the 33 percent fall in the German workforce as a whole. The social consequences of this move, which disproportionately affected blue-collar workers, were appalling. In Ludwigshafen and Oppau, employee numbers fell from over twenty-six thousand people in 1928 to around twelve thousand four years later—putting impoverished families on the breadline and sending the already battered local economy into freefall. The company attempted to mitigate some of the worst effects of the crisis by setting up workshops for the unemployed and dispensing free food and medical care, but, though well meant, this assistance made little difference to the dreadful situation many loyal former IG Farben employees now found themselves in. Not that those who kept their jobs were much better off: by December 1930, 85 percent of the remaining workforce saw their working hours, and therefore their wages, severely reduced.

  The IG survived the Depression in better shape than most German companies; sales of dyes and pharmaceuticals had continued to generate some export revenue and had seen the business through the worst years. Still, its losses were considerable. By 1932, most, if not all, of the gains it made as a result of the merger had been wiped out. The IG had liquidated much of its cash reserve, sales had slumped to 85 percent of what they had been in 1926, and overall profits diminished by more than half (although in such circumstances it is remarkable that the company made any profits at all). Perhaps more importantly, however, the crisis refocused the IG’s attention away from overseas sales toward its internal markets. The dye and pharmaceutical sales could not be relied on forever. Protectionism and tariffs were going to feature strongly in the post-Depression era, and then all exports, of whatever sort, would suffer. Carl Bosch was convinced that the IG would have to look to its domestic market to provide a much greater share of future revenue and that this would be forthcoming only if the concern was making something Germany could not afford to do without. Inevitably, therefore, his attention turned once again to synthetic fuel.

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  EVEN IN BETTER times, Bosch had only just managed to stave off the complaints of others in the firm who thought fuel hydrogenation a colossal waste of time and money. As the depression ate into the company’s financial security these critics became harder to ignore, especially when Carl Duisberg took up their cause and declared his open hostility to the project. To him it seemed absurd that Bosch was still throwing resources at a scheme that now seemed unlikely to ever show a profit, especially when there was good money to be made from dyes and drugs. Surely, he protested, the money would be better spent on developing new products in these areas, which would have a better chance of success.

  Quarrels between the IG’s two leading figures were much less frequent than they might have been given the disparity in their temperaments, and it was a sign of how bad the situation had become that their difference of opinion now threatened to break out into a full-scale row. The dispute reached its height when Duisberg used his authority as chairman of the Verwaltungsrat, the administrative council of the Aufsichtsrat, to commission a report on the future of synthetic fuel. A group headed by Friedrich Jaehne, IG Farben’s chief engineer, was asked to examine the prospects for the project and in February 1931 concluded that the only way to continue fuel hydrogenation at Leuna was with large government subventions. As most senior people in the combine immediately understood, this evaluation was tantamount to saying that the whole project should be abandoned, because it had always been an axiom of faith at the IG that public subsidies would unacceptably compromise the concern’s independence. As Jaehne put it in his report, public funding would “necessarily lead to influence by the state. It would be better to close down the plant.”

  But Bosch, supported by his principal allies, Carl Krauch and Hermann Schmitz, wasn’t so easily outmaneuvered. After another fierce debate in the Vorstand he managed to get an alternative evaluation under way, this time led by his old friend Fritz ter Meer. As expected, ter Meer and his team loyally arrived at a different conclusion from that of Jaehne. To shut the project down would slice over RM 161 million from the company’s asset sheet and throw many thousands more people out of work. It would also substantially increase the costs of making nitrogen (the engineering components of the various Haber-Bosch-Bergius manufacturing processes were so closely intertwined that closing one would seriously affect all the others), and it would deprive the IG of its best chance of generating income and jobs when better times returned.

  The resulting stalemate was actually a short-term victory for Bosch because it meant that fuel production at Leuna limped on. It is hard, nevertheless, to understand what made him so stubborn about a venture that posed such a serious risk to the whole of the IG. Perhaps his mulishness grew out of the many battles he had fought and won at BASF over synthesizing indigo and fixing nitrogen, reinforcing his conviction that the fuel project was just another problem to be overcome with patience and hard work. He may also have drawn strength from the Nobel Prize for Chemistry that he received jointly with Friedrich Bergius in 1931, “in recognition of their contributions to the invention and development of chemical high-pressure methods.”* Bosch was the first engineer to win the award and it made him, yet again, something of a national hero. But such extraordinary validation can do powerful things to a man’s ego—even
that of someone as unassuming as the IG boss—and it may have inspired him to hold his nerve. After all, the prize confirmed that the world’s top scientists considered high-pressure chemistry and fuel synthesis to be of supreme importance. If they could see its value, why couldn’t his colleagues?

  Typically, Bosch pressed ahead. In May 1931, determined to find a way out of the deadlock, he decided to lobby the government for substantial tariff increases on natural petroleum imports. Either Bosch was lucky or his political antennae were very finely tuned, because his timing couldn’t have been better. The Grand Coalition—of Social Democrats (SPD), the People’s Party, the Center Party, and the Democratic Party—which had been in power since 1928, had collapsed in March 1930 after the SPD refused to continue serving in government with conservative parties committed to reducing public spending by slashing unemployment benefits. Chancellor Heinrich Brüning of the Center Party led the new minority coalition administration that followed, in which the small far-right Economy Party took up the place vacated by the Social Democrats. Although it was undermined by internal rivalries and was to become infamously authoritarian in its brief term, the new government seemed full of promise. To Bosch and to Duisberg (who rated Brüning as the best German leader since Bismarck), the new chancellor seemed to have a grasp of the economic fundamentals that had escaped his immediate predecessors. At the time of Bosch’s approach, Brüning and his finance minister, Hermann Dietrich, were preparing a series of radical deflationary measures, including big cuts in government expenditure, to try to bring the economy back under control. But it seemed they weren’t averse to a bit of protectionism either. Heavily influenced by the IG boss’s appeals, the Brüning cabinet issued an emergency decree on June 5 that raised German customs duties on imported oil products by 70 percent and then, to Bosch’s delight, went on to block imports of nitrogenous fertilizers as well.*