Business Collaboration within the Nazi War Machine: Corporations and the State in the Austrian Semiperiphery.
The ambitious Nazi plans for a total war economy could not be fulfilled by government alone. Business investment, bank credits, and production for war industries were needed and had to be provided by investor-owned, profit-making enterprises. The acceleration of German war production depended on large businesses cooperating with the state and changing their accustomed patterns of investments and operations. Conflicts resulting therefrom had to be negotiated, fitting into and, at the same time, redefining patterns that I conceptualize as modes of business collaboration between large businesses and the Nazi regime.
This article centers on four ideal types of business collaboration in fascist and authoritarian states: the traditional, coercive, managerial nationalist, and competitive investment collaborative modes. Through four historical case studies, I document the interactions between leaders of organizations that exemplify each of the collaborative modes and show how they are a function of the degree of resource dependence of the Nazi state on large businesses. I locate the interactions historically and in power relations, and contextualize them in a semiperipheral location in the world system.
The interactions in elite networks over state conglomerates and large corporations absorbing smaller firms help shape, and are shaped by two conflicting structural patterns of war industry in a capitalist society: state ownership versus investor ownership (also termed as "for-profit"; I avoid using "private" as a synonym for investor-owned; Hooks 1991:1-41). The varied relationships that can arise between the state and large businesses are addressed by historians of Nazi Germany, and are clarified next by theories of the state in advanced capitalism.
THEORIES OF THE STATE AND BUSINESS-STATE COLLABORATION
Modes of business collaboration are patterns of relations between large corporations and state institutions. Leading historians such as Gerald Feldman, Richard Overy, Adam Tooze, and Tim Mason have examined the historical record to fathom the differences and similarities in the strategies, orientations, and interests of the top leaders of big business and the Nazi state. Hayes, for example, has portrayed the conflicts of interest between the Nazi state bent on breakneck rearmament for war, and IG Farben's pursuit of its internationalist commercial future (Hayes 2001:173). Tim Mason (1996) conceptualizes dominant state power in the Nazi period as the "primacy of politics." Overas (1994) summary is "the business community was characterized by a defensive opportunism in the face of state power" (pp. : 17-18; Hayes 2001:218; see Lo 1982 for a contrast to the United States). Theories of the capitalist state and the world system can clarify and systematize these historical interpretations.
The interests of state institutions and the interests of large corporations have been analyzed by Gold, Lo, and Wright (1975), Barrow (1993:147), and Mizruchi (2013). Relations between capitalists and the state are decisively shaped though war (Tilly 1990). In turn, those relations affect whether the state or profit-making business gains the lead in the ownership, finance, and operation of armaments factories. As Hooks (1991:130-51) and Mann 2012:423-56) analyze, during World War II the necessities of business enrollment in a war economy shaped societies. In the United States, state power expanded through military production, much of it owned by the Federal government in military arsenals and the Defense Plants Corporation, which together owned $16 billion worth of industry (Hooks 1993:44; Reichswerke Hermann Goring in Germany was an RM 5 billion government-owned and operated industrial complex). Hooks points out that even as the state gained power in the United States, institutions also arose to guarantee a preeminent role for investor-owned capital in the wartime economy and the Cold War that followed. (In Germany, IG Farben AG, a stockholder company, after the war possessed assets of $3 billion; Linder 2008:6). Hooks (1993:43-48) discusses JP Morgan's role in the marketing of U.S. war bonds, the leadership of "dollar a year" executives from large businesses, and the return to business hands or the dismantling of government Defense Plant Corporation factories after the war.
In order to gain a middle-range explanation of business and state institutions, Hooks (1993:40) tests the relative explanatory power of three theories of the state that he considers separate and distinct: instrumental, structural Marxist, and statist. I argue that instrumental action and structure should not be competing theories but should be integrated. In the case studies that follow, "agency" (Korom 2014:126), observable in disagreements over policy, can contribute to structures (Prechel 2000:16-19; Sewell 1992) that in turn constrain and facilitate further actions of agents (Clegg 1989). Actions and interaction by a firm seeking to acquire another, for example, are conditioned by larger patterns of business collaboration with the state. Then too, strategic actions by large firms also shape an institutional balance between large corporations and state owners like Reichswerke.
Historian Hayes (2008) captures the interplay between structure and agency: "Nazi economic policies structured opportunities and thus corporate executives' choices. Did businessmen retain free will? Of course, they did. Was their autonomy intact? I think not" (p. 41). In short, wartime collaboration can establish institutional compacts of collaboration between state and capital demarcating spheres of operation (Block 1987), whereby a business enterprise actively adapts its production to state requirements, in return for keeping control over production processes and significant flows of capital. These compacts can sometimes be secret, informal, or even implicit, but being normed they can be enforced by the state's and also business's strategic action and reaction (Lo 2017). Institutional compacts of collaboration end up affecting the mix of businesses, state, and military ownership of war industries.
In Nazi Germany, the patterns of business-state collaboration that necessitate new theorizing arose at a crucial moment in the life history of the Nazi regime--in 1938. That was when Hitler and the Nazi top leaders, having discarded their previous stated goal of economic recovery, were implementing a plan to convert the German economy to produce for a future world war (Milward 1965; Overy 1994:233-56; Tooze 2008:288, 293, 311). The Nazi regime needed to develop mechanisms for business-state collaboration because the regime, at this crucial historical juncture, needed resources from investor held corporations.
CRUCIAL YEAR 1938: THE LIMITS OF THE WAR ECONOMY
To avoid printing money or otherwise causing a ruinous inflation as in 1918 to 1923 (Balderston 2002; Feldman 1997), armaments spending required high taxes (Lo 1975). By 1939, the Nazi state had levied a 40 percent tax on corporations (Hayes 2001:165; but see Schweitzer 1965:345 for an accelerated depreciation benefit). The regime severely restricted corporate stock issuance and investments other than government bonds (Ziegler 2013). The Nazi regime sold bonds in several drives, but in November 1938, its fourth loan of RM 1.5 billion failed as one-third of the bonds remained unsold (Tooze 2008:295).
Some of the production for war directly came from state-owned enterprises and state investments. Hermann Goring personally oversaw a state-owned industrial concern, Reichswerke Hermann Goring, holding 500 companies with assets of RM 5.4 billion (Overy 1994:16,167, 247). But Reichswerke amounted to only around 5 percent of a RM 98 billion German economy. Although in 1933 to 1935, the state financed 55 percent of total industrial investment in Germany (Hayes 2001:154), profit-oriented businesses needed to provide roughly the other half. In the United States, wartime investment in the metals, machinery, coal, oil, and chemical industries was $3.4 billion from the public sector compared to $3.3 billion from corporate (Hooks 1991:129; Prechel 1990).
The limits of state financing meant that the Nazis needed capital investments and loans from banks and other for-profits. In 1938, although public investment was RM 10.6 billion, business investment was still a significant RM 7.9 billion (Schweitzer 1965:346-47). Between 1933 and 1939, investments could come from retained earnings (Ziegler 2013:142) and RM 2 billion worth of stock shares issued (albeit down from RM 4.7 billion between 1924 and 1929). For-profit banks extended RM 4.4 billion in credits to business (Wirtschaftskredite) in 1938 (Lurie 1947:86-87, 94). To prepare for global war, the Nazi state needed further collaboration.
CRUCIAL LOCATION: AUSTRIA AND THE WORLD-SYSTEM SEMIPERIPHERY
Collaborative compacts arose in a crucial time, and also in a pivotal location: the Austrian semiperiphery, which played a key role in the hierarchies of the world system (Arrighi 1985, 1990). For the Nazis to wage the world war, Germany, situated in the lower tier of the "great power" core nations, had to intensify its domination of Austria, as it did after the 1938 Anschluss (annexation). Nazi state enterprises and German firms sought to take over, develop, and use Austrian businesses for war preparations (Dritsas, Eigner, and Ottosson 1996:179; Feldman 2015:61-62; Gross 2015:53-54, 61-62, 143; Overy 1994:315-39). It was also necessary for industries and investment banks in Austria to increase their ownership and direction of industrial plants throughout Southeastern Europe (Gross 2015). Core Germany dominated Austria, which dominated the periphery.
The dominated, yet domineering, role for Austria in the Nazi four-year plan of 1936 was an extension of the semiperipheral role that Austria had been playing in the region for decades. Austria (Komlosy 2004:143; 172-73; Verdery 1979:382), particularly its western portion, played a dominant role in less-developed areas of south and east (Korom 2014:131), while at the same time functioning in a subordinate role to core powers, England and the United States, and after 1933, Germany (Korom 2014:132). Komlosy (2004:175), Aldcroft (2006:63), and Dunaway and Clelland (2017) identify Austria even in 1960 as nation in the western semiperiphery.
The Nazi plans for a key role for the semiperiphery in a war economy created the need for further business-Nazi collaboration. To clarify these significant historical developments in Nazi dominated Central and Southeast Europe, I next offer a general definition of a mode of business collaboration. I then proceed to sketch four such modes, comparing and contrasting them and grounding them in the Nazi state's need for resources. Following sections of this article portray one illustrative case for each of the modes.
IDEAL-TYPE COLLABORATIVE MODES: TRADITIONAL, COERCIVE, MANAGERIAL NATIONALIST, AND COMPETITIVE INVESTMENT
Modes of business collaboration are distinctive patterns of relations between large corporations and state institutions characteristic of a specific regime. Interactions and conflicts result in compacts, sometimes informal or implicit, between Nazi war planners and large corporations.
These ideal-type categories are not meant to be universally exhaustive. They are historically specific and comprehensive to the rapid Nazi rearmament of 1936 to 1940. While something of the collaboration patterns existed before Nazism, the patterns were significantly redefined and put to new uses in the era of Nazi rearmament. Furthermore, the categories are not mutually exclusive. Instances of Nazi-business collaboration, including the four case studies presented below as examples of one ideal type, are likely to display other types as well.
Immediately below, the sketches of the four modes of collaboration will begin with the mode's distinctive characteristics, social relations, and legitimating ideology. I will then show how each mode of collaboration is driven by a different degree of the state's dependence on resources from large businesses (column A in Table 1). The state's dependence produces power for business (column B) for its interactions in networks-power that could advance a business's own definition of interest (Column F). I will also discuss how the prevalence of each mode is shaped by its location in the world system (column C). Finally, each sketch will mention how the mode of collaboration fit with the historical dynamic of the Nazi regime.
The first pattern, traditional collaboration (see row 1, Table 1), in its outward form displays hierarchic deference and compacts of mutual obligation, sometimes very formal (Manchester 1968:241), based on reciprocal dependence. Such forms can be found in Fascist and authoritarian regimes seeking to legitimate themselves by invoking feudal (Weber 1946:82-93, 221-59) and patriarchal concepts (Mann 2004:31-91; Stanley 2018:23, 78-92). Appeals to traditionalism intensified when European fascist regimes came to power immediately after, and enabled by, conservative nationalist leaders. Traditional collaboration occurs at every level of the world system: in peripheral regions where the society is built around mutual obligation; in core nations with an aristocratic legacy that was resolved in an anti-democratic direction (Moore 1966); and in semiperipheral nations like Austria.
Underlying Krupp traditionalism is the mutual interdependence between Krupp and Nazi regime. Traditional collaboration (and also competitive international collaboration) can occur when the state has a relatively high need for contributions from business corporations, and thus is dependent on those corporations. Theories of resource dependency (Aldrich and Pfeffer 1976; Davis and Cobb 2009; Emerson 1962; Pfeffer and Salancik 1978) suggest that the dependence of one group (the Nazi state) upon a second group (business) produces uncertainty for the first group. Thus, the Nazi state seeks to reduce its uncertainty by advancing modes of collaboration that minimize advantages the second group (business) might gain. High state dependence on businesses contrasts to the case of newer industries that "needed the state more than the state needed them," leading to state control of business and coercive collaboration (Hooks 1991:126-27; 1993:41 for World War II in the United States).
Military mobilization necessitates production and supply chains located in areas that are secure from adversaries, requiring the state to impose autarchic plans. This conflicts with what large corporations exist to do, and actually do to some degree, even in war: pursue export and import trade and profitable investments around the world (Lo 1975). Traditional collaboration is one possible compromise between war mobilization and business globalism, leaning toward war mobilization. Traditional collaboration will be exemplified by the first case study, an analysis of the bargaining during Krupp's purchase of the Berndorf, Austria, metal-working factory.
In coercive collaboration (the second mode, row 2 in Table 1) compared to other modes, the state uses higher degrees of overt violence, as well as force (i.e., removing a subordinate's ability to choose to comply or not; Lukes 2005), coercion, threats, and manipulation. Coercive collaboration can be contrasted to legitimate authority such as tradition or rational legality (see "Austrian Managerial Nationalism and Creditanstalt's Collaboration" section). Examples of coercion-enforced collaboration include the use of violence against Jewish managers and their dismissal, Nazi dictation over investor-owned businesses against their established practices, and the arbitrary authority exercised within state enterprises, punctuated by accusations of economic sabotage and treason.
Coercive collaboration of the Nazi era tended to occur when the state had the least need for certain businesses to increase their production, in contrast to the high need in traditional (and competitive investment) collaboration. Needing fewer resources from business, the state is less inclined to grant advantages to business. Although coercion is characteristic in this mode of collaboration, coercion is also present in other modes as well.
The historic and world-system location for Nazi coercive collaboration is the world-system core from the very beginnings of the Nazi party. Anti-Semitism, violent repression, forced labor, starvation, and death camps became widespread as Nazi rule spread to semiperipheral Austria, then to areas in the Southeastern Europe periphery, and finally to the super-exploited areas of Nazi conquest in Western Europe and the U.S.S.R. (Mazower 2008). The second case study in this article examines Reichswerke Herman Goring's acquisition of Alpine Montan mines in Austria, as an example of coercive collaboration.
The third mode, managerial-nationalist collaboration, is articulated through an ideology of professionalism that developed in core nations during the early twentieth century (Noble 1977). In managerial-nationalist collaboration, the Nazi state's need for resources from corporations (compared to the low levels in coercive) is more pressing, leading to more business power (than under coercion). Yet the level of state dependence is less than the high levels in traditional collaboration, so that business does not have a strong hand in bargaining to the point where it gains significant advantages. In managerial-nationalist collaboration, the arrangements for settling disputes are less ritualized (as in traditional) or institutionalized (as in competitive investment, the fourth case).
In managerial nationalism, the necessary middling levels of state need for business are likely to occur in the semiperiphery compared to the periphery, leading to more power for semiperipheral businesses compared to peripheral). The Nazi rearmament program needed from the Austrian semiperiphery contributions whose value, in relative surplus value terms, was greater than the slave labor and food requisitions that comprised the absolute surplus value drawn from the periphery. Professionalism took a particular form among managers in semiperipheral Austria. There, managerial nationalism was a commitment to some development that advanced Austria, in addition to the priorities of a dominant core nation. In the periphery, however, as the Nazi empire devolved from a "soft" to a "hard" empire (Gross 2015), professionalism was transformed into a coercive form.
But just as the semiperiphery experiences less coercion than the periphery, the semiperiphery has more coercive collaboration compared to the core. The semiperiphery had less to contribute to the Nazis than the large German corporations of the core. Accordingly, the treatment of the semiperiphery lacked the sense of Nazi obligation to its vassals as in the traditional collaboration of Krupp. Semiperipheral collaboration was punctuated with coercion. Semiperipheral businesses also lacked, as I will argue, the power that led to the competitive investment collaboration of IG Farben. The case study of managerial-nationalist collaboration focuses on the Osterreichische Creditanstalt-Wiener Bankverein (hereafter Creditanstalt, the largest investment bank in Austria) and its role in the Nazi rearmament program.
The final pattern, competitive investment collaboration, is based on for-profit investments negotiated between top corporate and Nazi state officials (Neumann 2009 :79, 367-69). Competitive investment collaboration is more likely to arise in situations of high corporate-state interdependence, which increased the probability of mutually respectful relations, unlike in coercive collaboration.
Although the Nazi state depends on business in both traditional and competitive investment modes, the two modes differ substantially. In the competitive mode, large corporations such as IG Farben sought friendly relations with the most efficient commercial plants around the world, through acquiring, investing, colluding, managing, or suppressing the competition. In competitive investment collaboration, corporations advocate that military mobilization should be pursued through businesses owning and/or using production lines that meet global efficiency standards, hence creating investments with lasting value.
Competitive investment collaboration tends to arise in a particular location of the world system--in the lower ranks of the core that are upwardly mobile--specifically, Germany. Although traditional collaboration is more common earlier in Nazi regime life history during the transition from conservative nationalist regimes, competitive investment collaboration is more frequent as the regime's economic development increases. In this article, competitive investment collaboration is illustrated by a case study of IG Farben acquiring the Austrian chemical company Skoda Werke Wetzler.
In each case study that follows, I will first demonstrate how the specific dependencies of the Nazi state on large corporations led to collaboration patterns where the bargaining power of those corporations increased. Next, I will detail how actions and interactions in the cases are guided by patterns of collaboration and, at the same time, reformulated collaboration. Finally, I will examine how the four modes of collaboration led to business ownership, and/or Nazi state ownership (cf. U.S. state ownership by the Defense Plants Corporation and government run arsenals; Hooks 1991:134-41, 154-58). The case studies (Barrow 1993:148) provide material to focus on the common factors in multiple cases that may be theoretically linked.
TRADITIONAL COLLABORATION: THE KRUPP PURCHASE OF BERNDORFER METALLWARENFABRIK, 1938
Traditional collaboration is evident in the relationship between the Nazi state and the armaments and steel making corporation Friedrich Krupp AG, headed by Gustav Krupp von Bohlen und Holbach. The Nazi state was more dependent on Krupp as its principal arms supplier, and less dependent on the other Ruhr industries for their iron and steel, which could be produced elsewhere. High state dependency on Krupp for armaments produced a long-standing mutual accommodation between the German state and Krupp, predating the Nazis. This favorable traditional treatment for the Krupp firm enabled it to use its familial networks and business associations to pursue its interests in acquiring the Austrian firm Berndorfer Metallwarenfabrik.
Traditional collaboration was based on the long-standing dependence of the German state on arms from Krupp (Manchester 1968:91, 112-16), exemplified by the meeting, September 9, 1916, between Gustav Krupp with Generals Paul von Hindenburg and Erich Ludendorff about fulfilling the military's needs during World War I. Krupp's war orders then totaled 4.2 billion RM, including 24 million tons of ammunition (Leitz 1998:135; Manchester 1968:279; Tenfelde 2005, 536-37).
Immediately after the Armistice, Krupp relocated arms production and established a shipyard in the Netherlands more because of elite alliances with militarily strategic nations (less because of productive efficiency between rivals as with IG Farben). Krupp also located gun production for the Dutch army in neutral Sweden (Tenfelde 2005:544-45). The ultimate judgment of Krupp's production was performance in the battlefield rather than the marketplace.
Both traditional collaboration and competitive international collaboration arose when there was close interdependence between the militarized state and big businesses. In the traditional collaboration of Krupp, the state continued to enforce geopolitical and military requirements (with less consideration of international cost and competition). Between the wars, Krupp arms production (Leitz 1998:136) originated with top brass setting procurement requirements (Overy 1994:135-39; James 2012:181-84), a pattern repeated in arms exports (Leitz 1998:141, 151) and the mobilization for World War II. Even in the traditional collaboration of Krupp, though, managing competition played some role. A self-governing organization of businesses coordinated arms exports, reducing competition between German firms (Leitz 1998:143). Gustav Krupp was concerned that even as a favored military contractor, expanded production facilities required by war buildup would later be underutilized, creating a drag on profits (James 2012:177, 184) tarnishing his machinery and his competitive standing in the industry. Krupp accordingly demanded more state subsidies to stay in business (as IG Farben did in similar circumstances).
During the Nazi military buildup Gustav Krupp was chosen Fuhrer der Wirtschaft (leader of the economy) in the "alter kruppscher Tradition" (old Krupp tradition) and later pledged not to offend Nazism (Manchester 1968:354, 367). In response to Nazi demands, Krupp increased its military production from RM 50 to 150 million between 1937/1938 to 1940/1941 (Manchester 1968:369; Overy 1994:136-38). Gustav Krupp personally lobbied Hitler between 1941 and 1943 for a special law that would change the Krupp Aktiengesellschaft corporation into a family enterprise that would pay no capital gains tax (which would have been RM 70 million) when Gustav Krupp passed ownership on to his heir (Overy 1994:140). In return for the family tax exemption, increased depreciation (raising profit, James 2012:202; 207), and interest-free state loans, Krupp was willing to have his armaments production determined by Nazi officials. The Nazis, dependent on Krupp, were glad to see collaborative arrangements reducing the uncertainties (Pfeffer and Salancik 1978) of military supply (Overy 1994:137,139, 140).
The Nazi state's needs for armaments also gave Krupp some leeway to pursue its business strategies to reacquire Berndorfer Metallwarenfabrik, a metal products producer in Austria, back into the traditional Krupp fold (Feldman 2015:15-16). Gustav Krupp sought to regain Berndorf because it had previously been a long-standing holding of the Krupp family, rather than for what it provided technically or financially for the Krupp conglomerate (Manchester 1968:371).
The 1938 Anschluss did not automatically mean that Krupp would be given control of an Austrian enterprise. Rather than freely dispensing Austrian businesses to large German corporations as favor, the Nazi state was focused on fulfilling a much larger ambition, building a network of state-owned industries, the Reichswerke Hermann Goring (Dritsas et al 1996:186; Korom 2014). With Reichswerke pursuing other priorities, Krupp could get Berndorf by mobilizing through its networks.
The reliance of the Nazi state on Krupp meant that Krupp had more power through its networks from family to banks and to the Nazi patrimonial state (Feldman 2015: 62-71; James 2001:214 for competition for political influence). The Krupp campaign to acquire Berndorf started from the head patriarch, Gustav Krupp von Bohlen und Halbach, who had married Krupp heiress Bertha and thereupon as the husband of the heiress, took control of the family enterprise (Manchester 1968:239-44, 253). Also taking leadership was Tilo Freiherr von Wilmowsky, another husband of a Krupp daughter, who had a seat on the Krupp supervisory board. He was president of the Mitteleuropaische Wirtschaftstag dedicated to German expansion into Southeastern Europe (Gross 2015).
Von Wilmowsky used family connections to contact Nazi leaders like Arthur Seyss-Inquart, and bankers such as Hans Pilder (director, Dresdner Bank), to arrange a meeting with Josef Joham (director of Creditanstalt, Berndorfs owner) on March 21, 1938. Joham initially resisted the sale (motivated by managerial nationalism as I will argue in the third case study). Pilder also enrolled Hermann J. Abs (who knew Wilmowsky and Krupp heir Claus von Bohlen). Abs sat on the Creditanstalt executive committee and as a member of the Deutsche Bank executive committee, pressured Joham to sell (Deutsche Bank owned a one-half stake in Creditanstalt; James 1995:307).
Wilmowsky also contacted other Nazi officials, including Wilhelm Keppler, the Reich Commissioner in Austria, and an advisor to Goring (Feldman 2015:62-65). Keppler obtained Goring's approval of Krupp's acquisition (Keppler to Wilmowsky 2 April 1938, International Military Tribunal 1950,Volume 8:477). The Nazis thus made an exception to their own rule that German businesses were limited in their acquisitions of Austrian firms. The Nazis instituted these rules in order to gain support from Austrian nationalists. (Williams [1979:145] further contends that Nazi leaders gave instructions to Berndorf to sell only to Krupp.) The sales price paid by Krupp may have reflected an advantage gained by Krupp's contacts (Manchester 1968:378; Williams 1979:145; "Dissenting opinion of Judge William J. Wilkins concerning Berndorf-Krupp, Austria, July 31, 1948, Trials of War Criminals, EX, 1455-58." Feldman 2015:27, 69-71; Overy 1994:139, 319). The traditional collaboration of Krupp enabled it to use its networks to gain favors from the Nazi state, in return for the firm's honorable subordination of some of its business interests, and its willing acceptance of the military imperatives of the war buildup.
COERCIVE COLLABORATION: REICHSWERKE HERMANN GORING ACQUIRES ALPINE MONTANGESELLSCHAFT
Of the two Austrian iron and steel firms, Berndorf and Alpine Montan, the first as I have shown, was acquired by the private firm Krupp in the context of the Nazi state's dependence on Krupp for arms. The second firm, Alpine (the largest steel producer in Austria employing 12,500; Dritsas et al 1996:182), was acquired directly by the state-owned conglomerate Reichswerke Hermann Goring. The existing owners of Alpine's ore mines, the Vereinigte Stahlwerke AG based in the Ruhr Valley, Germany (hereafter Vestag or Ruhr steelmakers), were treated more harshly because the Nazis did not need them for a planned ramp-up of steel production. The Nazi war machine did, however, need the ore from Alpine's mines, and got it by taking Alpine from Vestag (Overy 1994:100).
Goring's Reichswerke had been coercive to the Ruhr-based Vestag going back to 1936, when the Ruhr steelmakers openly opposed the creation of the Reichswerke and argued against plans to use low-grade domestic ores for steel production for the military. Rather, the Ruhr steelmakers sought to import high-grade ore, paying with profits and foreign currency reserves earned through exports (much like IG Farben's business model of efficient production in global markets, see the fourth case study). After Goring in 1937 learned though wiretaps and hidden microphones of the Ruhr steelmakers' opposition to Reichswerke, Goring sent the leading executives of the steel industry threatening telegrams, causing all opposition to collapse. Less state dependency on the Ruhr businesses led Goring to use coercion against them. Gustav Krupp von Bohlen, however, received a different telegram promising him traditionalist collaboration: that the new Reichswerke would be of "special significance" for Krupp. Goring confided: "I intend to work out together with you a great plan for German armament. I have already made representations about this to the Fuhrer" (Overy 1994:105).
Reichswerke taking state ownership of Alpine Montan in 1939 had a coercive character not found in the Nazi treatment of Krupp (or IG Farben, as will be demonstrated). Vestag, an investor-owned conglomerate that was the largest producer of steel in Europe, owned 56 percent of Alpine Montan, used it as an ore reserve, and hence was unwilling to sell. Goring proceeded to gain a 14 percent hostile holding in Alpine (Lachmann 1942:398 estimates one-third) and compelled it to increase production, lower prices, and make investments with its own funds, making Alpine unprofitable for investor-owned Vestag, or any other profit-making corporation. Although Vestag after the sale received a contract for ore supplies from the Alpine mines for 30 years and was given a 10 percent stake in the new Reichswerke factories in Linz, the Nazi state reneged on both pledges (Overy 1994:109).
Goring's state power enabled him to use enhanced practices of shareholder power to get Vestag to do, what it ordinarily would not do, is coercion (Lukes 2005; for other coercion, see Hayes 2008; Overy 1994:147; Walker 1986:185). A state takeover of ownership, however, is not coercive in every instance, for example, a subsidized bailout and restoration of a failed bank such as Creditanstalt. In Alpine Montan, however, the Nazis imposed state interests of autarchic military production against Vestag, allocating the iron ore from Alpine Montan's Erzberg facility to the new Reichswerke facilities in Austria, rather than to the Vestag industrialists (Overy 1994:104-105; Tooze 2008:238).
Vestag giving up Alpine to Reichswerke shows that Vestag had less power with the state compared to Krupp (or IG Farben), which gained acquisitions. The Ruhr steel industry made existing products through existing processes and, less needed by the state, could be coerced. In contrast, the Nazi state relied upon IG Farben to make products for the war effort through new synthetic processes (Overy 1994:108-109,148, 319). The competitive investment collaboration of IG Farben with the Nazi state, as I will argue, yielded technologically more advanced production for the Nazis, and more bargaining power and internationally competitive investments for IG Farben.
Different modes of collaboration could result in more centralized ownership, control, production, and finance of war industries, either in the state or in investor hands. Although the state conglomerate Reichswerke coercively acquired Alpine, family-owned Krupp and, as I will show, investor-owned IG Farben gained as they acquired other Austrian firms. Although the investor-owned Creditanstalt bank lost Alpine to state control, it retained many others under its investor control. Even when Creditanstalt lost ownerships to Reichswerke, it and other for-profit banks provided financing (Feldman 2015:323-24). Creditanstalt took the lead in granting more than half of RM 25 million credits from for-profit banks to Alpine in 1941 (Feldman 2015:324; Henisch 1961). State resources alone could not suffice in the Nazi war program (Overy 1994:339).
In addition to financing, the Nazi rearmament program needed plant and enterprise managers from the for-profit manufacturing and banking sectors. Among the new executives of Alpine Montan were some German Nazi leaders like Paul Pleiger, the director of Alpine Montan and co-founder and director of Reichswerke Hermann Goring. But other managers like Hans Malzacher, the general director of Alpine Montan (Neues Wiener Tagblatt 1929), were Austrian nationalists who ended up collaborating with the German Nazis. Although Malzacher was deputy director of the German Nazi-run Reichswerke, he had been educated at the Technischen Hochschule (Technical College) at Graz, Austria, and had been a member of the Heimwehr, a conservative nationalist militia that stood for an independent Austria, as opposed to the pan-German Nazi Party. His work and talents led him to hold high positions in Austria; he was solicited to be the chair of the Creditanstalt executive committee. After World War II, he served on Austrian supervisory boards and held executive positions in Austrian firms (including vice president of Steyr-Daimler-Puch AG; Virtual International Authority File 2018).
Vestag was subject to coercive collaboration leading it to give up Alpine to a state conglomerate. But the managers at Alpine and other enterprises needed to be motivated to collaborate as well. The next section analyzes a third mode of collaboration, managerial nationalism. I examine the Creditanstalt bank's collaborative funding of Austrian war industries, with particular attention to the role of Austrian nationalists in the bank's management.
AUSTRIAN MANAGERIAL NATIONALISM AND CREDITANSTALT'S COLLABORATION
In coercive collaboration, as I have argued, the state had relatively little need for what business could supply, which led the Nazi state after 1936 to treat the Ruhr steelmakers coercively. In professional nationalist collaboration, what the state needs from business is somewhat more, allowing nationalist managers to play a limited role to develop semiperipheral countries. Yet with professional nationalism, what business supplies is not so critical so as to give business the upper hand in bargaining, as in traditional (as well as competitive investment) collaboration in core nation states. In the context of medium levels of the Nazi state's resource dependency on the semiperiphery, professionals at the largest investor-owned Austrian bank, Creditanstalt, were well positioned to pursue managerial nationalism in its holdings of Austrian industrial firms. Reciprocally, the managerial nationalists in Creditanstalt collaborated extensively in financing the German war effort.
To achieve production increases in Austria away from Allied bombing, the Nazis needed managerial expertise of the sort possessed by Creditanstalt director Josef Joham and Alpine Montan Director-General Hans Malzacher, both of whom could collaborate with Nazis when the collaboration entailed some respect for their professional norms. For the Nazi state to rely mainly on coercion and occupation here would interfere with Austrian businesses supplying needed resources.
Rather than relying on tradition, professional nationalists were modernizers, seeking to improve Austria's position in the world system (Mason 2007:215-16; Teichova and Cottrell 1983:45-46; for comparable actors in peripheral Romania see Chirot 1976:148-49; Costinescu 2018). Some Austrian nationalists were swayed to cooperate with the Nazis through German military purchases and investments of 700 million schilling (Wessels 2003). Nazis had to be sensitive to the managerial nationalists' notions of an Austrian nation united around Catholicism, versions of which were articulated in Austrofascism (see Gedye 1936 for a portrait of a prominent business collaborator) and the Christian Social Party, which gained popular support from civil servants, the military, the highly educated, and the upper-middle to upper classes (Mann 2004:207-36).
Josef Joham of Creditanstalt, who initially refused to negotiate with the Krupps (or with IG Farben) had a long career at Creditanstalt extending through several regimes, exemplifying managerial-nationalist collaboration. Joham distinguished himself in mergers that developed the hydroelectric industry in the Austrian provinces, fostered the loan businesses of Creditanstalt branches, and built up Austrian provincial banks. He worked to restore Creditanstalt after its collapse in 1931 and became its General Director in 1936. While still a Creditanstalt official in Nazi-occupied Austria, Joham provided critical intelligence to the advancing Allied armies at the close of World War II, thereby risking his life. Joham gained international professional recognition, leading to his continued holding of high positions after the war (Feldman 2015:389-91).
The Creditanstalt had a long history of fostering professionalized Austrian management due to its ownership and supervision of large industrial firms in Austria and Central Europe (as Arrighi [1994:267] generally portrays; Good 1984:215). With its industrial investments, Creditanstalt gained seats on supervisory boards (Good 1984:217; Teichova and Cottrell 1983:35) and the most central position in the 1938 Austrian network of director interlocks (Dritsas et al 1996:184). By 1937, Creditanstalt was a creditor to and/or owner of 142 enterprises (Balderston 2002:92-99; Feldman 2015:10-14), and its activities continued after Deutsche Bank purchased 51 percent of Creditanstalt's shares in March 1938 (Feldman 2015:30, 46-47; James 1995:230-39). (1)
Even when large German corporations were acquiring Austrian firms, Creditanstalt and other Austrian banks still had a role to play as agents, reorganizers, management consultants, and financiers (Feldman 2005; Gross 2015:53-54, 61-62, 143). Creditanstalt invested in and loaned to military-related manufactures, both investor-owned and state-owned (Hooks 1993). Among the state-owned and operated enterprises funded by Creditanstalt were Alpine Montan (RM 25 million), Steyr-Daimler-Puchwerke (RM 13.5 million, see Dritsas et al 1996:188; Feldman 2015:321), and Nibelungen tank works (25 million, Feldman 2015:323, 330, 332).
Creditanstalt, the Nazi state, and German big business met again to determine the future, this time of the Austrian chemical industry, which in 1938 became important for both Nazi war strategy and IG Farben's business strategy. Competitive investment collaboration was the result.
IG FARBEN BUYS SKODA WETZLER FROM CREDITANSTALT 1927-1938
The Nazi state's dependence on large corporations led to traditional collaboration in the case of Krupp. Such dependence can also lead to competitive investment collaboration, whereby Nazis enrolled large corporations, exemplified by IG Farben, Germany's leading firm for chemicals, pharmaceuticals, fertilizer, and explosives. Just as with Krupp and Creditanstalt, state-business collaboration in the IG Farben case strengthened the institutions of business for-profit investments (Hooks 1993:43-45). Between 1936 and 1939, IG Farben invested 693 million marks from its earnings. Although three-fifths of this investment was to produce for war, IG Farben was the sole owner of the investments and used them to generate a stream of earnings for its shareholders. The respectful interactions between the Nazi state and IG Farben (and Krupp) stand in sharp contrast to how Vereinigte Stahlwerke and other Ruhr steel producers were coerced.
Since the Nazi state depended on IG Farben and Krupp, the two cases have some similarities in that both firms gained power, yielding subsidies protecting each company (James 2012:184; Overy 1994:137) from a slowdown following the war buildup. Because the Nazi state depended on IG Farben for new synthetic rubber and gasoline plants, the company was granted loans, lump sum payments, tax exemptions, and a 2 percent fee for rubber sold (Hayes 2001:190).
IG Farben's competitive investment collaboration differed from the traditional collaboration of Krupp, in that IG Farben was governed more by international economic competition and trade, and less by Nazi officials' schedule for rapid buildup. Krupp, as I have argued above, was more governed by military-dictated alliances and priorities, moving toward war production even when Germany was formally restrained by the Versailles treaty.
Whereas Krupp was moved by multigenerational family loyalty to serve the war needs of the German state, the Nazi strategy of military conquest and global economic integration under the Third Reich was not IG Farben's preferred strategy. Instead, the firm had its own strategy for world economic domination. Under the Nazis, IG Farben pursued the "policy of the diagonal" (Hayes 2001:211), the resultant of irresistible state demands and IG Farben's dogged pursuit of furthering its international commercial interests. With more civilian market possibilities compared to Krupp, IG Farben took advantage of its size and complexity to hide from the Nazi state the extent to which it was pursuing civilian production such as dyes and drugs (Hayes 2001:185, 215).
Because of its much needed contributions to war production, IG Farben had the power to strive to become the most efficient producer of high value-added, new products using technologically advanced processes (Lindner 2008:12-35). IG Farben continued to form cartels and make strategic acquisitions to fix prices and/or production volume, and otherwise restrict competition to its advantage (Schroter 1996, 2010; Steckel 1990; cf. Arrighi 1994:286-88, 293-94 on the limitations of expansionism through cartels; Hayes 2001:156, 175-78; 217). IG Farben's corporate strategy was complex and varied, but its main line was clear: investing to maximize its competitiveness in international commerce (Polanyi 1944).
The imperatives of the Nazi military buildup collided with international business competitiveness, and the forces of Austrian managerial nationalism, as well. This collision can be seen in the case study next, focusing on IG Farben's takeover of Pulerfabrik Skoda Werke Wetzler AG (hereafter Skoda Wetzler), the largest chemical company in Austria, 83.3 percent owned by the Creditanstalt bank.
In its pursuit of competitive superiority (Hayes 2004:15), IG Farben was aggressive, yet strategic. Where other firms were small and noncompetitive, as they generally were in Austria before 1929, IG Farben felt no need to organize cartels with or against them (Hayes 2001:219; Overy 1994:337). In 1928 to 1929 however, IG Farben, through establishing a marketing cartel involving Skoda Wetzler, continued to dominate world markets selling dyes and pharmaceuticals, with Skoda Wetzler handling less valuable and heavier industrial chemicals. Austria was thus allowed some dependent development, strictly controlled by the dominant German firm, a logic very different from autarchic military production in Germany (Hayes 2001:220; Schroter 1983:145).
Before the 1938 Anschluss, when some Austrian development could be on the agenda, an Austrian government policy to encourage the production of synthetic nitrogen led Skoda to plan such a facility. It was possible, that if unchecked, the Austrian state and businesses could advance more development, even from a semiperipheral position. Immediately seeing this as a competitive threat to its nitrogen exports to Austria, IG Farben tried to stop Skoda Wetzler's independent project and offered the company technical assistance (amounting to dependency) for a price. Then, faced with a purchase offer for Skoda from IG Farben's rival, Aussiger Verein of Czechoslovakia, IG Farben in 1936 bid RM 3 million for a controlling interest in Skoda Wetzler. After being rebuffed, IG Farben threatened to stop its technical assistance to Skoda's nitrogen plant. Skoda countered by soliciting help for the project from Aussig and two other competitive firms, Montecatini (Italy) and Salomon (England) (Feldman 2015:16; Hayes 2001:221-22).
IG Farben sought "to prevent General- direktor Pollack of the SWW [Skoda-Werke Wetzler] in this way from seeking closer connections with other chemical industries, in particular with [our rivals] Aussig or Montecatini, and to deter him from pushing his plans-either alone or jointly with one of those groups-for the industrialization of the chemical industry in Austria" ("Extracts from the Minutes of the Meeting of Farben's Commercial Committee, September 10, 1937," International Military Tribunal 1950, Volume 7:1393-94).
The contest between IG Farben (wanting to limit production in Austria it could not control) versus Skoda Wetzler and Creditanstalt (wanting to expand Austrian controlled production) was joined after the Anschluss on the Skoda side by the Nazi state (wanting increased explosives production and in rhetoric, Austrian national development). Increased nitrogen production, though, for IG Farben would be in direct competition with its Dynamit subsidiary (Hayes 2001:223). State ownership of Skoda was another very unwelcome possibility for IG Farben. Thus, the top executives of IG Farben's Commercial Committee met and decided on a quick preemptive move, that "the acquisition of the majority of Skoda-Wetzler ... is resolved upon." IG Farben turned to the Nazi state and obtained the requisite approvals ("Extracts from the Minutes of the Meeting of Farben's Commercial Committee, 23 March 1938," International Military Tribunal 1950, Volume 7:1397-98).
The treatment of Skoda was not a pure ideal type of IG Farben's competitive investment collaboration, but also contained elements of coercive collaboration because of the widespread persecution of Jewish persons. Isadore Pollak, the Jewish general director of Skoda Wetzler who had bargained hard with IG Farben, was arrested, released, and then removed from office. Shortly later he was killed by the Gestapo during a search of his home. It has not been definitively determined to what extent Pollak's murder was motivated by IG Farben's desire "to prevent General-Direktor Pollack" from acting, or was simply rampant Nazi anti-Semitism. Franz Rottenberg, president of the executive committee of Skoda and a director of Creditanstalt, was also removed from office (Feldman 2015:11, 16-21, 71-72; Tooze 2008:274-84 on anti-Semitic persecution).
Austrian leaders, thinned of their nationalist and professional ranks, no longer had the power to protect the Austrian ownership of a firm called into question because it had been led by Jewish executives. The coercive removal of Pollack and Rottenberg in the aryanization campaign led to the creation of vacancies in top Skoda Wetzler management that were filled by IG Farben and could include German corporation and/or Nazi loyalists (U.S. Army, Office of Military Government U.S. 1946:235, citing a statement by Dr. von Schnitzler). The opposition of Creditanstalt to Skoda's sale was similarly weakened when Joham too was arrested and released, then demoted (Feldman 2015:28, 34). Some weakened Austrian managers saw collaborating with Nazi war production as a way of modernizing Austrian industry. Creditanstalt director Joham agreed to sell Skoda Wetzler to IG Farben (Feldman 2015:71; Haefliger to Joham, March 29, 1938, International Military Tribunal 1950, Volume 7:1399-400).
Although Austrian managerial nationalism faced defeats in the field of business practice, the notion retained some heft as a rhetorical standard. IG Farben's taking over an Austrian firm could run afoul of pledges that Nazi leaders had made: that Austrians would be preferred for responsible positions in Austria (Feldman 2015:72-74; Hayes 2001:145-47). Accordingly, IG Farben had to demonstrate to the Nazis that some of its personnel sent to oversee Skoda were "Austrian gentlemen" ("Confidential Notes of Defendant Haefliger, April 6, 1938," International Military Tribunal 1950, Volume 7:1402).
From the point of view of the Nazi state, the IG Farben acquisition of Skoda Wetzler benefitted the rearmament program because of IG Farben's promised "big" (see the quote below) capital investments and its applications of explosives and ammunition technology in the less-developed areas of Austria and Central Europe. "[T]he existing plants, some of which are completely obsolete, require not only to be modernized and coordinated with the chemical industry of the Altreich [Germany in 1937], but also to be extended to a considerable degree.... For this purpose, moreover, big investments of capital are required; and the Austrian plants ... cannot afford to make these from their own [corporate] resources" (Letter to the Reich Ministry of Economics, July 18, 1938, International Military Tribunal 1950, Volume 7:1413). IG Farben's project of centralization of production through international acquisitions and cartels was useful to the Nazis as an economic base to produce the weapons of war.
IG Farben's purchase of Skoda Wetzler had many of the characteristics of IG Farben's acquisition six months later of the Czech chemical company Osterreichischer Verein fur Chemische und Metallurgische Produktion (hereafter Aussig), the fourth largest chemical company in Europe. Both acquisitions were to prevent competing enterprises from gaining assets. The solution was IG Farben owning Skoda, and in the Aussig case, a joint ownership agreement between IG Farben and a competitor (Hayes 2001:232-41).
The tension (Lo 1975) between international economic competitiveness and autarchic military production played itself out through negotiated business deals. IG Farben ordinarily would not pursue ambitious war production plans (Lukes 2005). In the corporation's collaboration, which included acceptance of coercive anti-Semitism, IG Farben's overarching goal was to be a dominant international producer. The mutual dependency of IG Farben and the state meant that production was ramped up in investor-owned plants already centralized in IG Farben's realm, rather than in state-owned factories as with Reichswerke Hermann Goring. IG Farben increased its share of Austrian chemical production from one-fourth in 1937 to a peak of just less than half (Feldman 2015:75, 324-26; Hayes 2001:220-31; Overy 1994:318).
The case studies of Krupps' acquisition of Berndorf, Reichswerke's takeover of Alpine Montan, Creditanstalt's managerial nationalism, and IG Farben's expansion using Skoda Wetzler, illustrate the interactive processes of collaboration. Collaboration emerges from the negotiations where the state and large corporations pursue their differentiated interests. The interest a corporation pursues can be the interest of a prominent family in honoring its duties to the state and handing down its business empire (Krupp), the interest of a bank in keeping the supply of capital and investment decisions in its hands (Creditanstalt), and the interest of a corporate cartel in acquiring the most efficient production facilities by global standards (IG Farben). Collaboration with Nazis, even by powerful large corporations, contained an element of coercion. The goal of the Nazi state was maximizing war production under its direction and plan, but doing so required large businesses to have a somewhat independent role in management, finance, and production. The balance of power and even respect between business and the state depended on the urgency of the state's need for resources that remained in the hands of for-profit firms despite the Nazi mobilization for total war.
Two sectors of war production (Hooks 1993) developed in the Nazi war machine: state-owned and operated facilities (Reichswerke) and large, investor-owned corporations that were heavily regulated and subsidized (IG Farben, Creditanstalt, Krupp). The Nazi state did succeed in using its power to significantly alter the investment of German firms. But at the same time, the institutions of business property and profit were largely maintained. German and Austrian businesses participated in the Nazi preparations for war because Nazi edicts were in line with the general interests of investor-owned corporations, which seek to accumulate capital by expanding production. The largest for-profit corporations in Germany continued to guide sizable flows of investment, and used their economic and political power to gain an advantageous position in their future supply, finance, and export channels, leading to their revival during the Korean War (Lo 1978).
Institutions collaborated in waging World War II, and although the most heinous Nazi leaders were punished, the norms of an entire generation of business leaders were shaped by the uneasy compromise between ultimate state assertion, the structural power of business control of production and finance, and the professional standards of managers, engineers, and bankers (Korom 2014:132). The major enterprises of the Reichswerke were destroyed by Allied bombing, and the German military was sharply curtailed. But the postwar corporatist regime of Austria continued the institutional legacy (Bellak 1997) of capitalism, state regulation, and Austrian managerial nationalism (Sethur 1960:250-51), with a prominent role for state ownership that produced one-quarter of Austria's GNP (Henisch 1969:172 for the nationalized Creditanstalt 1946-1957; Korom 2014:113 for "Austrifizierung"; Walker 1986:187).
Before and even during World War II the frame of reference for large businesses was what they had experienced in years past, during the "Hundred Year's Peace" of Polanyi (1944)--peacetime production and world trade. However, after World War II, there would be no complete return to peacetime. The war permanently altered the character of economic life and the underlying technologies, so that henceforth what was competitive globally would become militarized for the 50-year Cold War, the war against terrorism, and the other wars that follow.
Some of the conflicts that arose between business and the Nazi regime over globally inefficient autarchic production may be minimized in the twenty-first century, as self-sufficient, industrial mass production is no longer needed for war. With today's electronic battlefield, drones, miniaturized specialized production to common standards, and global networks and infrastructure, the state and businesses became mutually dependent in new ways. Each needs the other to invest and develop dual-use technology (Hooks and McLauchlan 1998; Levine 2018).
Future research could determine if such convergence and mutual dependence will make new articulations of competitive investment collaboration more common, perhaps legitimated by novel concepts and images of hi-tech managerial nationalism such as cyberwar. Coercion may assume new forms to discipline collaboration. New research should examine militarized corporations collaborating with authoritarian, one-party, repressive states, as such regimes spread from the semiperiphery and the BRICs, and possibly to the core democracies.
CLARENCE Y.H. LO
University of Missouri
The author wishes to thank the journal editor and referees, the editors of this special issue, Darlaine Gardetto for her comments, and Michael Schwartz for his comments on earlier work. Justin Yates provided bibliographic assistance, funded by the Sociology Department of the University of Missouri at Columbia. Jeff Stilley provided research assistance, funded by the Dean of the College of Arts and Sciences.
Clarence Y.H. Lo, Sociology Department, Middlebush Hall 312, University of Missouri, Columbia, MO 65211. E-mail: email@example.com.
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(1.) For a parallel analysis of U.S. finance capitalists and the contradictions of rationalizing management in industry, see Prechel (1978:10-16,101-108).
Table 1 Four Modes of Collaboration A B C D State need for Power: business World-system Purchaser business in interaction location Modes (1) Traditional collaboration High High All Krupp (2) Coerced collaboration Least Least Semiperiphery Reichswerke periphery (3) Managerial-nationalist collaboration Medium Medium Semiperiphery Creditanstalt core (4) Competitive investment collaboration High High Core IG Farben A E F State need for Ownership, control Major aim of purchaser business of capital, finance during Nazi rearmament Modes (1) Traditional collaboration High Family-controlled firm Arms production for Germany, and export (2) Coerced collaboration Least State conglomerate Nazi four-year plan, autarchy (3) Managerial-nationalist collaboration Medium Investment bank Austrian development investor owned 50% by Deutsche Bank (4) Competitive investment collaboration High Investor-owned Dominate international company/cartel production, trade civilian markets
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|Author:||Lo, Clarence Y.H.|
|Publication:||Canadian Review of Sociology|
|Date:||Nov 1, 2019|
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