Rebuilding German Steel

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THE United States has contributed more to German rehabilitation than to the reconstruction of any Western democracy except Britain and France. In a gesture of forgiveness unparalleled in history, the ex-enemy was granted about the same amount of financial aid as our two former allies — roughly one billion dollars a year.

On paper, the effect has been spectacular; in practice, it has been far from satisfactory.

True, the crushing defeat left Germany stunned, maimed, too weak to work, and too poor to feed herself. But the greater physical damage cannot alone explain why in 1949 the German over-all production index was next to the lowest among all Marshall Plan nations. Germany’s index hovered around 90 (taking 1936 as 100) while Britain had climbed to 125, France to 128, and Norway to 140.

Why has Germany not done as well as the other countries?

Aside from the colossal physical damage, several special elements which did not exist elsewhere have retarded economic recovery in Germany. Occupation by four powers which oftentimes insisted on conflicting policies has been a serious handicap. Now there are even two German governments, one for the Eastern and one for the Western Republic. Political uncertainty and cold war have caused many a serious difficulty. Also, about 10 million refugees had to be absorbed.

Perhaps nobody—least of all the Germans — could have changed the course of world events and the policies of the big powers since 1945. But despite all these obstacles, the Germans could have done much better had they been willing to rid themselves of the poison of the past, the traditions and institutions of the Nazis and of Imperial days, the paralysis of the mind which has slowed down the pace of progress.

Shelter, food, “blood transfusions,” and “plastic surgery” were certainly badly needed, but the patient was also in need of psychiatric treatment. Unfortunately, only one or two per cent of Military Government’s budget was allowed for education. There can be hardly any doubt that a little less for physical reconstruction and a little more for psychological rehabilitation might have speeded economic progress in the long run and saved money.

As it is, workers and industrialists, farmers and consumers, civil servants and political leaders, still live in the past. They cling to a system which brought misery and catastrophe to their own country as well as to their neighbors. They have not learned their lesson from the mistakes which led to the disastrous collapse of 1945. They have not turned a leaf; they want to continue on the same page that lists yesterday’s blunders. They have opposed and sabotaged Allied plans to reform and to modernize their agriculture which would permit production of much more food. They have insisted on reviving the old cartels and the old pattern of their industrial production which re-emphasizes the armament potential, builds up “strategic industries” for war, and neglects or even throttles organic growth of a normal economy. Such an economic pattern needs artificial support either in the form of ruinous state subsidies or through conquest of new areas of exploitation. It leads eventually to regimentation, dictatorship, and aggression, as amply evidenced in the past.

During the war the Allies decided they would make Germany change her ways. It was therefore agreed at Yalta and later at Potsdam to dismantle part of her heavy industry, to destroy what was purely for armament production, and to distribute among the devastated countries what was considered expendable for a peaceful Germany. At the same time the country was stripped of its armed forces and — in order to prevent another secret rearmament —forbidden to maintain aviation, synthetic rubber, synthetic gasoline, and other industries which are vital for war. A level-of-industry order put ceilings on production in certain fields.

In the course of the cold war and under the pressure of German propaganda, the United States on several occasions demanded and received the consent of its European allies for revision of these reparation and dismantling agreements in order to improve the German situation. Finally, last November, at the Paris conference, dismantling was practically stopped and revival of several formerly forbidden industries was announced.

It has been argued that this was necessary because these factories are allegedly vital for Germany and for the recovery as well as the security of Western Europe. Thus the huge Thyssen steel mill and other plants were reprieved, with the result that Western Germany alone — not to mention the Russian-occupied area — has a steel capacity of roughly 17 million tons. Great Britain has no more and France has 50 per cent less.

Much to the disappointment of the German political and industrial leaders, the steel industry is not allowed to produce at full capacity; the present ceiling is 11.1 million tons. There has been a good deal of propaganda intended to prove that Germany will be unable to recover unless she is permitted a higher steel output. Here are the facts. The present quota of 11.1 million tons grants the Western German Republic as much steel per capita as Nazi Germany produced in 1936, which was two years after Hitler started his gigantic armament program and one year after he had mustered enough military strength to occupy the Rhineland by force. This makes it clear that the present quota is more than ample for a country which is forbidden to have an army or even a national police. Finally, steel production at its post-war peak last summer fell 15 per cent short of the permissible 11-millionton limit. Since then production has even dropped sharply because demand failed to catch up with supply. This makes it rather obvious that the objective of the propaganda for a bigger and better steel production is not the economic welfare of the nation but the revival and welfare of the big Ruhr industrialists who have been the traditional symbols of German aggressiveness.

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THE sad story of steel is only a part of the larger pattern of the failure in Germany. When the Allied armies took over occupation five years ago, it was planned and hoped that in the rebirth of the country the German people would get away from the idolatry of steel and renounce that adoration of power which has poisoned the nation from the time of Frederick the Great to Bismarck, to Hitler, and, unfortunately, beyond.

There is more hope for a satisfactory solution of the equally important and equally big task of decartelization, a task which was also marked by four years of bungling. A few months ago the voluminous and fully documented report of the Ferguson Committee — appointed by the U.S. Secretary of War — told the whole story of the dangerous activities of Germany’s huge cartels and the no less dangerous failure of Military Government to break them up. Here are a few highlights from that report stressing the power, danger, and viciousness of these giant trusts which preceded, supported, and survived Hitler.

I. G. Farben, the famous dye trust of Frankfurt, in whose undamaged headquarters the United States Military Government has reigned since 1945, delayed production of strategic material in the United States through its control over production here of synthetic gasoline and oil, dyestuffs, explosives, synthetic rubber, menthol, cellophane, and other products by virtue of its major voice in the world-wide distribution and sale; and through keeping the United States entirely dependent on Germany for the most modern electrical equipment required by the acetylene arc process.

The Frederic Krupp Combine formed a patentholding company in the United States in 1928. During the next fourteen years Krupp permitted only ten patents to go to American producers. But its subsidiary kept the German government informed concerning tonnage statistics, including United States government orders, right up to the outbreak of the war, and controlled the price of tungsten carbide, an important material in machine-tool production.

The Robert Bosch Corporation had achieved a virtual world-wide patent monopoly in the production and distribution of fuel injection equipment which is essential in operation of all Diesel engines and high-powered aircraft. When Hitler took over, the American Robert Bosch Company was refused permission to reduce royalty payments on fuel injection equipment although this was seriously retarding the use of Diesel engines in the United States. Later, after the outbreak of war, the American Bosch was refused permission to sell fuel injection equipment in various European countries from which the German firm was barred by the war. The German Bosch was charged with industrial espionage in the United States before the war. The walkie-talkie, the intertank and groundair radio connection system, and the short-wave sets used by the German Army during the war are Robert Bosch developments, very similar to, if not actually modeled after, American products. In 1941, when the United States Navy wanted a second source for fuel injection equipment, the American Bosch Company felt obliged to ask the consent of the German firm to issue a license.

The same monopoly principle existed in German banking. Six institutes divided among themselves virtual control over all financial operations of the entire nation. In the words of the Financial Adviser of United States Military Government: “We found that the banking system of Germany was like nothing we had ever seen or heard of in any other country and certainly not in the United States. We found that there was concentrated in the hands of these banks through their series of branches that extended throughout all of Germany . . . the power of life and death over industry and the financial and economic life of the whole country.”

This banking octopus was quickly killed and split up by Allied occupation authorities. But not one of the cartels has been broken up, not a single unit of any cartel has been offered for sale nearly five years after the end of the war. The Ferguson Report charges several of the most influential American Military Government officials with acting against instructions and official United States policy. There has been no further investigation of these charges, no disciplinary action. But within the nine months since the release of the Ferguson Report all those officials have left Military Government; and High Commissioner John J. McCloy definitely committed himself to the destruction of the cartels in one of his first press conferences on October 25, 1949. “ I think we should always bear in mind,” he said, “that in our own experiment in the United States, the time between original decree and the actual establishing of a competitive condition in industry is frequently a long one. In the Standard Oil case, I believe, it was thirty years after the original court decision before Standard Oil was actually broken up in the fashion which had been ordered. We are trying to do the same thing in Germany in a far shorter time, and I think we will.”

The failure to solve the big problem of democratization in industry casts its black shadow not only on the prospects of the new Western Republic, but also on the daily life of the average German. True, he gets enough to eat; but not because agriculture is doing so well. His caloric intake is only slightly lower than before the war—merely because Uncle Sam supplies about one third of it and pays for it, too. German agricultural output is about 15 per cent below the insufficient 1936 level. Worse than that, the average farmer’s productivity per man and hour is almost 50 per cent short of his 1936 accomplishments.

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AGE-OLD political propaganda has depicted Germany as the Volk ohne Lebensraum (people without living space) and tried to justify every act of aggression with the need for food and raw materials. But even the mutilated Western Germany of today has more crop land and more arable land, yet fewer people to feed, than Great Britain. Unfortunately, the German leaders have failed to draw the logical conclusions, to learn from others who are worse off, and to make the best of a bad situation.

For example, Bavaria, the largest and richest state of the United State zone, was made to promulgate a very modest Land Reform Law in September, 1946. But the German leaders have stalled for three long years. To quote from an official Military Government report of last October: “Many officials were indifferent or hostile to the program. Funds allocated to the Land Settlement Agency were pitifully inadequate.” After more than three years, only 66,000 of the 175,000 acres involved in the project had been transferred to the Land Settlement Agency and only 52,000 had been actually distributed for cultivation. There was a total of 33,560 applications for full-time farms, but only a measly 1020 full-time farms and commercial gardens were established. There were 28,000 applications for subsistence farms, but only 530 had been set up by October, 1949.

Why has the program failed to produce results? An official spokesman of the United States Military Government recently supplied the answer in a broadcast over German radio stations. “It is very much in the public interest,” he said, “to note two chief obstacles to the carrying out of the law. One obstacle has been the delay caused by the appeals of landowners to the courts. The courts have been very slow in acting on their appeals. . . . The second major obstacle is that the Settlement Associations have very limited funds. This difficulty is also related to the lack of legal action, for the associations cannot get commercial credits on land that may be subject to law suits. . . . These are serious obstacles. But a really determined effort by the State governments would undoubtedly go far toward overcoming them. In each State a test case could be carried through the courts to obtain a clear-cut, unchallengeable verdict on the legal question involved. This would help to solve the financial problems. The State authorities could also take the lead in looking for ways to ease credit restrictions so that land settlement activities could become recognized objects of credit.” They could, but they don’t because the old spirit and the old cliques survived in the civil service and in the executive and legislative branches of the government, as well as in the courts.

Implementation of these reforms would improve considerably Germany’s economic situation. American agricultural experts have also worked out a detailed program which would eliminate mistakes of the past and within about eight years could boost the German food production roughly 20 per cent. This would reduce the excessive reliance on industry and industrial exports for payment of the national grocery bill. Being unreconstructed politically, the German leaders have opposed such plans. The people are helpless and unreconstructed themselves. Military Government could have carried out such important reforms if Washington had been willing to act instead of pleading in vain.

For example, money is again an object of value because Military Government, for once, deviated from its own “observe, advise, and assist” policy and imposed a currency reform which wiped out 90 per cent of the worthless bills overnight. Production has increased, hoarding has stopped.

Stores are stocked with goods again. But the little man cannot buy them because he does not have the money to pay the comparatively high prices. It is true, the volume of industrial production is by far greater than four years ago. But at that time output was merely 25 per cent of the 1936 level while industrial capacity remained only slightly impaired despite bombing and war. Therefore, production was bound to climb again as time went on, just as it did in other war-torn countries. With American financial aid and advice it increased rapidly from year to year and has now leveled off at around 90 per cent. But the productivity of the average laborer per work-hour is not much over two thirds of the pre-war mark. Consequently, costs are high, wages low; unemployment has increased by 50 per cent within twelve months and keeps 10 per cent of all wageand salary-earners idle today.

The real national income per capita is lower than during the depression, in 1932. Thus, the domestic market cannot even absorb the present substandard production. War damage and the influx of about 10 million German refugees and expellees have caused appalling housing conditions. There is a shortage of nearly 5 million apartment units. The crying need for new homes, offices, and plants is obvious. But unemployment in the building trade is greater than in any other business sector. Brick production has increased roughly fivefold during the past three years— though it is still 40 per cent below capacity; but demand has lagged so far behind supply that huge brick surpluses resulted even at the height of the building season last summer.

What retards German recovery is not lack of tools, materials, and resources, but the failure to make full use of available tools, materials, and resources. This is as much an economic problem as it is a psychological problem. The ancient Romans were wise to pray for a healthy mind in a healthy body. Modern medicine tells us why: an unhealthy mind affects the health of even a resourceful body. Ever since the end of the war the United States has struggled to expose the Communist hoax of “economic democracy” in an undemocratic state. It seems that the time has come to prove this point in our own administration of Germany, by acting in accordance with the sound principle that there can be no economic democracy without political democracy.