Corporations and the Nazi regime

It is apparent, 90 years after the beginnings of the Nazi period, that large corporations played an important and lamentable role in Nazi power and administration, and the implementation of the atrocities of slave labor and mass murder. This is true for domestic German industries, like I.G. Farben and Siemens; and it appears to be true for some multinational companies with subsidiaries in Germany, including the major automobile companies such as General Motors and Ford Motor Company. In his important book Industry and Ideology: I. G. Farben in the Nazi Era Peter Hayes summarizes the involvement of I.G. Farben in these terms: "By 1943, the concern's 334 plants and mines across Germany and occupied Europe were turning out more than 3 billion marks' worth of goods and earning net profits of more than 0.5 billion. Nearly 50% of IG's 330,000-person work force had come to consist of conscript or slave laborers, among whom were some of the perhaps 30,000 inmates of Auschwitz who eventually died in the company's new factory and mines near the camp" (xxi-xxii). And one of its subsidiaries was the industrial source of Zyklon B, the extermination gas used to kill more than a million concentration camp victims.

There are two important questions to address here. First is the question of involvement and complicity itself: what was the extent of the involvement of major companies in the Nazi genocide and slave labor system, and were their executives and governors aware of the crimes to which their corporate resources were being devoted? This is an enormously important question, given that the likelihood of significant moral complicity in the crimes of the Nazi period by companies and large organizations. 

But the second question is, if anything, more important and more difficult. What were the features of corporate organization that led to knowing participation in these monstrous crimes by executives, leaders, and other operatives? Is this fundamentally the result of corporate and organizational dysfunction, beyond the reach of individuals within those organizations? Or is it possibly the indication of direct, personal evil-doing by executives, managers, and boards: a knowing and continuing engagement in evil relationships, leading to slave labor and mass murder, for the purpose of corporate business success and profitability? Were corporate leaders of industrial enterprises in Germany themselves fervent Nazis, committed to Hitler's ideology? Consider Peter Hayes' assessment of the question of ideological support by corporate leaders in the foreword to the new edition of Industry and Ideology: "Very few studies still posit enthusiasm for or even general acceptance of Nazi economic policy among the nation's industrial and banking elite during the late 1930s" (x). Perhaps; but certainly there were committed Nazi supporters among German's executive class, including Willy Heidinger, director of IBM's German subsidiary Dehomag (mentioned below).

Rather than ideology, Hayes emphasizes "business rationality" as the motivating factor for business executives during the period. And he cautions that these same motivations may recur in many other contexts.

The amoral pragmatism and professionalism that propelled Farben's executives dwell within all large-scale organizations, whether they be corporate or political, whether they seek to maximize power or profits, whether they claim to serve the individual, a class, or a race. These drives make Farben an instructive case study in the plasticity of private interests and the consequences of permitting any single-minded doctrine to grasp the levers of a state. Lest that point be lost and readers distance themselves too far and easily from Farben's behavior, I have emphasized here the specious rationality of the concerns's deeds and largely let the self-evident wickedness of some of them speak for itself. (xxvi)

Hayes argues that there was a parallel organizational motivation at work leading executives to conform their business practices to the will of the Nazi regime a kind of accommodating instrumental rationality:

No one who grapples henceforth with the role of industry in the initiation and intensification of the Nazi forced-labor system will be able to do without the terms devised by Lutz Budrass and Manfred Grieger to describe a "clandestine entrepreneurial ethic," a "morality of efficiency," that came to dominate industrial decision making during the war years more than concern for profit or fear of punishment. (xi-xii)

It would appear that this "morality of efficiency" involves a truncated worldview that looks something like this: "We make X (synthetic oil, punchcard machines, automobiles, ...); our organizational goal is simply to design and manufacture these goods as efficiently as possible, without concerning ourselves about the uses that others will put them to (and perhaps without regard to the origin of the resources, including labor) that the regime puts at our disposal to facilitate the process". A "morality of efficiency", then, is a deliberate form of tunnel vision or myopia, in which the product and process are the sole object of attention, whereas the uses and intentions of the state are not.

Since 1998 there have been numerous investigations of corporate behavior during the Nazi period, stimulated by class-action lawsuits concerning liability for slave labor. These lawsuits have led a number of corporations to open their archives to independent historians for careful scrutiny. One of the fruits of this new wave of research on corporate behavior under Nazi dictatorship is a volume edited by Christopher Kobrak and Per Hansen, European Business, Dictatorship, and Political Risk, 1920-1945. The book confines itself largely to the question of the business environment created by the rise of the Nazi dictatorship and the power of Nazi party organizations in the control of industry, and its editors are cautious about offering normative judgments about corporate behavior during this period. (I will return to this point below.) Currency controls, direct government mandates, and attractive contracts with large German government agencies all served to create a distinctive business environment for multinational enterprises.

In particular, many of the contributors to the volume pay special attention to the degree to which companies doing business in Germany had latitude to make decisions steering their companies away from the increasingly clear goals of the Nazi regime. Mira Wilkins focuses on the separation of ownership and control that was a crucial organizational fact for numerous multinational corporations in this period:

Owners may not (and usually do not) have full control over managers. The principal-agent problem is multiplied many times over within MNEs. Information is asymmetrical. "Control" is always constrained, but in different manners. Increasingly, I find the concept of managerial control in a purely domestic context elusive, but far more so in an international one. Under dictatorship, rules and regulations limited the decision-making of outward and inward MNEs (and domestic enterprises) in varying degrees. Managers of an affiliate within the host country may understand, interpret, or follow the rules and regulations in accord with the parent company's interests or with their own separate agenda. (23)

Here is Wilkins' summary of the situation of multinational enterprises with subsidiaries in Germany in the 1930s:

Ford in Germany encountered a similar quandary. Sir Percival Perry, head of the British Ford company and until 1937 chairman of the board of the German Ford affiliate, sent Edsel Ford in the United States in 1933 numerous letters on German government interventions. "The Nationalist Socialist Party -- Nazis -- interfere with everything and although their interference is not exactly officially Government, yet it is political and very influential," he reported in June 1933.... Like it or not (and many executives in IG Farben did not like it), IG Farben managers came to recognize that business and politics in Nazi Germany were closely bound. So, too, Ford officials realized that they had to take steps to adjust to certain political realities. What seems increasingly clear are the restraints on corporate choices and the differences that developed within individual MNEs between financial, legal, administrative, and operational strategies and structures. (26)

Wilkins does indeed describe a quandary: Ford (or Farben) would harm or even destroy its business in Germany if it refused to cooperate with German political imperatives. But some of those imperatives should have been refused nonetheless.

Lars Heide explores this "principal-agent" problem between parent and subsidiary in greater detail with regard to the example of IBM and its German subsidiary Dehomag. Heide argues that Dehomag, under the direction of the management of Willy Heidinger, had achieved almost complete autonomy with respect to IBM's corporate management in the United States. Heide takes this evidence to refute the arguments made by Edwin Black in his controversial book about IBM during the German dictatorship. Heide argues that the US-based executives could do very little to control Heidinger's decisions and actions. (Heide also documents that available research does not support Black's claim that IBM punchcard technology was used by German authorities to identify Jews for deportation (171).)

While Heide argues that IBM's US-based corporate leaders had little effective control over the IBM subsidiary, the company continued to profit from the business success of Dehomag in the Third Reich. Dehomag became "IBM's most successful affiliate" (150), with a very extensive business involvement in the Nazi war machine. And Heide makes it clear that Heidinger was himself a vocal supporter of the Nazi dictatorship. The issue of control vs. ownership came up again in the case of IBM and Dehomag:

Simultaneously, the German campaign in May-June 1940 provoked pressure on IBM's relation with its German subsidiary. The conquest of Benelux and France caused Thomas J. Watson of IBM to return a German decoration that he had received in Berlin in 1937 while Chairman of the International Chamber of Commerce working for appeasement with Nazi Germany. From June 1940, this act triggered a Heidinger Putsch to regain majority control of Dehomag, apparently supported by the German authorities. However, the IBM majority ownership was rescued by the introduction of enemy company custodianship when the U.S. entered the war. The custodianship gave Heidinger's management free hands, which implied that he had regained his company but for the ownership. (168)

A note is needed concerning the stance the editors and contributors have taken towards the question of moral responsibility of corporations:

For a long time, business and other historians, working on the interwar period and dictatorships, have concentrated on the question of what business contributed to the rise of dictatorships and why. For understandable reasons, the ethical and moral questions have had a rather high priority. With a great deal of justification, there has been no shortage of condemnation of companies and business managers who profited from cooperating with the dictatorships of the interwar period. However, moral condemnation of historical actors and events is not really the role of historians. It is more important to try to understand what happened and why. Moreover, we want to extend the analysis of how this period affected the strategies and structures of modern business.... (x)

But contrary to this sentiment, I believe that the moral question is central for historians of this period: in what ways should the current generation hold business organizations of the past to account for egregious actions such as use of slave labor and facilitation of the extermination of Europe's Jewish population? It is of course relevant to know the context of decision-making and latitude that was available to corporate decision-makers. But we also need to be very clear in our judgments of the business decisions that were made: some were perfectly legitimate business decisions, some were regrettable but understandable compromises with an almost impossible situation, and others were wholly unacceptable crimes. Is it too "present-ist" to maintain that multinational corporations like IBM, General Motors, or Ford should have ceased business operations altogether in Germany once Hitler's crimes became apparent? 

Of interest in this context is a 1962 article by the progressive American historian Gabriel Kolko, "American Business and Germany" (link), published only a few years after the end of the Nazi regime. Kolko offers a detailed treatment of both the US business press and the business behavior of a number of major US corporations with respect to issues of war and dictatorship in the 1930s, and he finds that the "official views" of the business community (the business press) do not align closely with the actual behavior of US corporations. A key point in the article has to do with multinational cartels and agreements:

American business' functional role in world affairs in the decade or so preceding the war found expression in cartel and contractual agreements between key American firms and German industry. The economic significance of the involved companies is much greater than their numbers. Although only twenty-six of them could be found among the top one hundred industrial corporations fo 1937, together these twenty-six accounted for over 60 per cent of the total assets of the hundred. More important, these corporations generally were the largest in their respective industries, and as such were price and policy leaders. (718)

He also makes several observations about I.G. Farben and its role within the Nazi dictatorship:

The existence of both the Nazi party and I.G. Farben was, from the point of view of the expansionist goals of both, a fortuitous coincidence. The United Steel Works had a strong Nazi group among its top executives, centered about Fritz Thyssen, from its inception. German industry was naturally extremely conservative and alarmed by the growing strength of the Social Democrats and Communists. The unification of I.G. Farben and the cartels with the Nazis was not forced by any means. When the Nazis came to power the essential cartel structure was maintained as the economy was divided into eight major national units, continued under the same leadership, and guided only insofar as unified national production and price policies were concerned. (718-719)

And further:

American companies not only knew of I.G.'s relationship to the Nazis, but to other American concerns as well. This was inevitable, for I.G. made a large number of exclusive agreements with American firms which bound companies not formal partners to their restrictions. Du Pont, to cite one case, was forced to recognize the agreements of I.G. and Union Carbide and Carbon in certain fields and to keep out of them. By making innumerable similar arrangements I.G. was able to prevent many major American chemical and metal firms from following independent commercial and development policies and building the productive facilities which were later to become vital to the prosecution of the war.... It is almost superfluous to point out that the motives of the American firms bound to contracts with German concerns were not pro-Nazi, whatever else they may have been. The arrangements with German firms were stimulated by a fear of international price and market competition and a desire for predictable economic conditions as a basis for business planning. (720)

Kolko concludes the article with these lines:

In their public relations roles the large American corporations inextricably bound to German industry declared their sympathy for the public's antagonism to strategic aid to Germany after 1936, but in their actual behavior these firms pursued a course whose dominant objective was to satisfy their private interests. The export philosophy of General Motors, the agreements for postwar re-establishment of cartel arrangements, the conscious disinterest in the political implications of strategic materials sales by Dow, Standard Oil, and others, suggest that the guiding values of business were distinctly class values. Such conflicts between the business community's actions and the business press indicate the limited usefulness of considering only the business press and corporation press releases in attempting to evaluate the historic relationship of American business to foreign affairs. Equally important, the basic policies of large corporations on the international scene in the 1930s were motivated less by the attraction of new trade frontiers and markets than by their desire for the economic stabilization and predictability which only cartels and market agreements could create. The basis of such "anti-imperialism" by American business was not altruism, but its recognition that its aim of profits with stability could best be attained by international business solidarity. (728)

There is much more to be said about the conduct of corporations during the German dictatorship, and later posts will discuss some recent research on Daimler-Benz, General Motors, and other multinational corporations with respect to the use of slave labor and possible involvement in management of the extermination of Europe's Jewish population.