Business and Politics in Europe, 1900-1970: Essays in Honour of Alice Teichova (Cambridge Studies in Early Modern British History)

Business and Politics in Europe, 1900–1970

There has been increasing interest in recent years in establishing connections between the political history and the business history of Europe in the twentieth century. This book includes new research on the interactions of politicians, businessmen and their institutions in eight countries, with particular focus on the highly charged inter-war period. Fourteen essays cover subjects under four main headings: the business–politics paradigm; banking finance; business and politics in the National Socialist period; and the business community and the state. Together they form a fitting tribute to the academic scholarship and inspiration offered by Alice Teichova. In her distinguished career, and in particular since the publication of her path-breaking book An Economic Background to Munich in 1974, she has done much to stimulate a collaborative approach to international comparative work in the field of economic, political and business history. The case studies presented here demonstrate her considerable legacy to the subject.            is Director of the Business History Unit, London School of Economics and Political Science.

Professor Alice Teichova and Dr Mikul´asˇ Teich

Business and Politics in Europe, 1900–1970 Essays in Honour of Alice Teichova Edited by

Terry Gourvish

          The Pitt Building, Trumpington Street, Cambridge, United Kingdom    The Edinburgh Building, Cambridge, CB2 2RU, UK 40 West 20th Street, New York, NY 10011–4211, USA 477 Williamstown Road, Port Melbourne, VIC 3207, Australia Ruiz de Alarcon ´ 13, 28014 Madrid, Spain Dock House, The Waterfront, Cape Town 8001, South Africa http://www.cambridge.org
C

Cambridge University Press 2003

This book is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2003 Printed in the United Kingdom at the University Press, Cambridge Typeface Plantin 10/12 pt.

System LATEX 2ε []

A catalogue record for this book is available from the British Library ISBN 0 521 82344 7 hardback

Contents

List of figures List of tables List of contributors Preface 1

Part I 2

3

4

Part II 5

6

Introduction: the business–government relationship           

page vii viii ix xi 1

The business–politics paradigm Business and government in twentieth-century Sweden: a tale of income redistribution and rent-seeking?            

17

An economic background to Berchtesgaden: business and economic policy in Austria in the 1930s          

42

Business, politics and revolution in early twentieth-century Ireland               

63

Banking finance Bankers and politics in Belgium in the twentieth century            -           Central bank co-operation and Romanian stabilisation, 1926–1929           

89

106

v

vi

Contents

7

Government, the banks and industry in inter-war Britain         

145

Part III Business and politics in the National Socialist period 8

German business and the Nazi New Order        .   

9

‘Aryanisation’ in Central Europe, 1933–1939: a preliminary account for Germany (the ‘Altreich’), Austria and the ‘Sudeten’ area             ,                          

10

11

Part IV

The Gildemeester Organisation for Assistance to Emigrants and the expulsion of Jews from Vienna, 1938–1942         Deutsche Lufthansa and the German state, 1926–1941      

171

187

215 246

The business community and the state

12

Government and industry in Austria in the 1930s               -    

269

13

Business and politics: the state and networks in Greece              

289

14

Economic efficiency and nationality: the Siemens subsidiary Elektrotechna in the first Czechoslovakian Republic             Appendix Index

Alice Teichova: a select bibliography

307

325 333

Figures

3.1 3.2 4.1 10.1

Austrian GDP, 1920–37, at 1937 prices page 46 Unemployment in Austria, 1919–39 53 Ireland at partition (December 1920) 69 Departmental structure of the Gildemeester office at No. 7 Wollzeile, Vienna, 1938 223 10.2 Departments and activities of the Auswanderungshilfsaktion fur ¨ nichtmosaische Juden in der Ostmark, 1940 236

vii

Tables

3.1 Macro-economic indicators during the Great Depression, 1929–33 3.2 Austrian GNP by sector, 1929–37 3.3 Components of Austrian GDP, 1913–44 3.4 Index of aggregate foreign trade 3.5 The balance of trade by sector, 1924–37 3.6 Budgetary expenditure on ‘productive unemployment relief ’, 1935–7 4.1 Trade of the Irish Free State, 1924–30 6.1 Indices of Romanian inflation, 1913–28 11.1 Scheduled operational and financial performance of Deutsche Lufthansa and Imperial Airways/BOAC, 1924–41 14.1 Nationality of salaried employees in the Elektrotechna companies, 1 January 1932

viii

page 47 48 49 50 51 57 65 108

248 312

Contributors

        , University of New Orleans and Economics University, Vienna             , Max Planck Institute for European Legal History, Frankfurt, and Technical University of Dresden            , University of Leicester               , University of Patras               -     , Austrian State Archives, Vienna            , London School of Economics and Political Science            -           , Free University of Brussels             , Stockholm School of Economics       , University of Nottingham           , Economics University, Vienna          , University of Reading                , University of the West of England           , Ruhr-University of Bochum        .    , King’s College London              , Technical University, Dresden             , Ruhr-University of Bochum

ix

Preface

I should like to thank all those who so generously helped me to prepare this volume in honour of Alice Teichova, and in particular the many colleagues and friends who contributed to and supported ‘AT80’, the appreciation symposium organised by the Business History Unit and held at the London School of Economics in September 2000. The support of sponsors was itself a tribute to Alice’s international reputation. I should like to thank the Austrian Embassy in London, the British Academy, ING-Barings and the European Association for Banking History for their assistance. A number of people worked behind the scenes to ensure that the event, and its aftermath, the preparation of a volume for publication, were a success. I owe a particular debt to Alice’s husband, Mikul´asˇ , who encouraged and supported me at all stages. Sonia Copeland organised the symposium with characteristic warmth and efficiency, and Francis Goodall offered me his considerable skills in copy-editing and proofreading. Last, but certainly not least, Bill Davies at Cambridge University Press tried to keep the project and its editor on a steady course. Responsibility for the final product, is, of course, mine. The academic career of Alice Teichova, celebrated in this volume, has been both eclectic and yet systematic. Her historical writings have progressed logically in seamless vein from the dynamics of international capitalism and cartel-building to the impact of multi-national enterprise, the significance of universal banking, and issues of economic integration and nationality. Throughout this process the interaction of ‘business’ and ‘politics’ has been an enduring theme. Alice clearly enjoys an undisputed reputation as an international economic historian. For over thirty years she suffered from the tragedies which Nazism and communism brought to Europe but, an inveterate survivor, she emerged relatively unscathed, and with her quiet determination produced a large number of outstanding books. No-one has been more assiduous than she at giving her fellow historians instructive lessons in the value of teamwork in international comparative ventures. This she did by arranging conferences, giving papers and forming a superb network of scholars, young and old alike. xi

xii

Preface

It is not too much to talk of an ‘Alice mafia’: an organisation which stretches way beyond the confines of this book. She has also written at length about events which she experienced personally, notably the Munich agreement in 1938 and the fall of the Dubˇcek government in August 1968. Central and Eastern Europe have often formed the backcloth for this work, where Alice’s command of languages and the support of her husband, Mikul´asˇ Teich, a distinguished scholar in his own right, have proved invaluable. I first remember meeting Alice at Cley next the Sea in North Norfolk in 1971. She had just joined the economic history department of the University of East Anglia, where I was a young lecturer. In Norwich Alice achieved much in broadening the horizons of many of her more parochial colleagues. As an embedded scholar of modern British economic history I was introduced by her to the stimulating challenge of comparative work, first in Darmstadt, then in Uppsala, and latterly in Vienna, Prague, Budapest and Crete. Her academic career was interrupted and challenged by the Second World War and its Cold War aftermath, but she emerged from her experiences in Vienna and Prague, not to speak of Exeter and Leeds(!), undaunted. Not only did she prosper in British academic life after 1968, but she offered her more insular colleagues instructive lessons in the value of collaborative research projects bridging Eastern and Western Europe. Alice has been at the centre of research and writing in the economic history of twentieth-century Europe for over thirty years. I value her encouragement and support as a fellow historian and as a friend. Her intellectual vitality has been truly amazing, putting the rest of us to shame. Alice, we salute you!           

1

Introduction: the business–government relationship Terry Gourvish

Research on the political history and research on the business history of twentieth-century Europe frequently run in parallel, without making the important connections between them. A major example in business history has been the neglect, in Alfred D. Chandler’s Visible Hand and Scale and Scope paradigms, of the role of government in corporate development.1 In a great deal of historical work, accounts of corporate decision-making largely ignore the political process and, equally, in much political history it appears as if politicians shape economic and industrial policy in something of a vacuum. Of course, there is also a countertradition, a less abundant but growing literature that seeks to reveal the complex interactions between political institutions and economic institutions. Over the last forty years, indeed, in the academic lifetime of Alice Teichova, whom we honour in this volume, determined efforts have been made to explore the appropriate linkages, even if the results so far have been patchy and incomplete. As early as 1957, for example, Henry Ehrmann explored the role of organised business in France, focusing on the activities of employers’ associations, and raising the question of the attitudes of business to the Vichy government.2 In 1974 both Arthur Knight and Neville Abraham juxtaposed private enterprise and public intervention, with Knight referring to the experiences of the textile giant Courtaulds over the period 1962–70.3 In the same year, Alice Teichova herself revealed the economic and business considerations underpinning the political ‘settlement’ at Munich in 1938.4 More recently, Robert Boyce’s British Capitalism at the Crossroads and Clemens Wurm’s Politics and Industrial Relations have emphasised the complex, intricate interplay of the political and the business in the economic history of modern Europe.5 There has also been a growing literature on the role of business at times of political crisis: for example, in relation to the hyperinflation of the 1920s – note in this context the work of Peter Lyth and Niall Ferguson6 – and the rise of the fascist states in Europe – cf. the contributions in English of Henry Turner Jr., Harold James, Peter Hayes, Volker Berghahn and Richard Vinen, among others.7 Moreover, while 1

2

Terry Gourvish

the writings of Marx and Hilferding may no longer possess the intellectual clout they did in the 1960s and 1970s, the connections they made between political economy and economic polity remain highly relevant for the history of twentieth-century Europe. The modern literature on ‘corporatism’ and ‘governance’, for example, raises issues of ‘business’ and ‘state’ in relation to competitive stability, industrial relations, social policy and the environment. The lessons to be drawn from this very brief literature review are that the business–politics interaction has been approached from a variety of positions, and analysed in a variety of ways. Thus there is research, exemplified by Teichova’s Munich book, which shows how economic forces influenced and combined with political elements to influence political outcomes. Then there is work from a government perspective presenting businessmen as exogenous factors impacting on the political process. Finally, there is a body of literature which presents the reverse side of the canvas, with business institutions at the centre, and where the interventions and attempted interventions of political institutions are viewed as exogenous. In this volume the intention is to honour Alice Teichova by presenting new work on aspects covered in her distinguished and varied, multi-national and inter-disciplinary career. Many of the contributions were first presented at ‘AT80’, the Alice Teichova Appreciation Symposium organised by the Business History Unit and held at the London School of Economics on 21–23 September 2000. There can be no pretence at providing an exhaustive analysis of all the research issues for an entire continent. Rather the intention is to provide a coherent set of case studies, drawing on new research, much of it exploiting hitherto untapped materials. Part I provides three very different ways of illuminating the government–business relationship, not only in contrasting locations, but also in countries which are often neglected in the broad sweep of writing on European history, namely Sweden, Austria and Ireland. In H˚akan Lindgren’s macro-economic review of Sweden’s experience since industrialisation, the emergence of the ‘Swedish model’ of political economy in the 1930s is at centre stage. After a series of industrial conflicts between employers and workers, a ‘middle way’ emerged: a co-operative compact between business and labour–dominated governments which persisted into the 1970s, and in which ‘power-sharing’ and ‘social engineering’ replaced the ‘blind man’s buff’ of the market. There were limits to this consensus, of course. There were lively debates in the 1950s and 1960s about the boundary between the public and private spheres, about macroeconomic control mechanisms and centralised wage-bargaining. In the crisis-ridden climate of the 1970s the model began to break down. Structural weaknesses in Swedish industry, which were by no means unique,

Introduction: the business–government relationship

3

were aggravated by domestic economic policies. Sweden’s experience has some resonance with other countries, not least the UK, but in this instance both the ‘welfare economy’ and the subsequent, painful retreat from it were distinctive. The ‘Swedish model’ reached its apogee with the 1975 scheme for ‘collective wage-earner funds’, a plan to transfer the ownership and control of firms to the unions, which threatened the very basis of capitalist organisation and encouraged a strong counter-reaction from the employers and the right. Herbert Matis draws inspiration from Teichova’s work on Central Europe, in which the economic background to the political decline of Central-Eastern European states during the inter-war period receives due emphasis. In her Economic Background to Munich she highlighted the importance of the growing rivalry between Western European (British, French, Dutch and Belgian) and German business and financial groups for control of the Czech economy. But Czechoslovakia was an exception, since in most of the successor states of the Habsburg Empire the infant democracies which followed the Treaty of Versailles were dismantled before the beginning of the Second World War. Matis shows that, in Austria, the history of the First Republic clearly demonstrates the important connections between economic decline and political destabilisation, on the one hand, and the loss of national independence, on the other. His review of the circumstances leading to the ‘Anschluss’ with Hitler’s Germany in 1938 reveals that Austria, with its chronic economic problems, inferiority complex and inflexible macro-economic policies, became an easy target for the German Reich. Austria’s politicians failed to cope with the challenge of inflation and unemployment, and their enthusiasm for strict monetary policies encouraged social unrest and political polarisation, which intensified after the emergence of a ‘corporatist’ government in 1933. The role of business leaders in this unhappy story is not a central concern of Matis’s chapter. However, he does point out that from 1932 businessmen, frustrated with the government’s failure to master the problems of the Great Depression, were drawn to National Socialism. This, it should be noted, applied to owners of both large and small businesses. Philip Ollerenshaw’s piece on the interplay between political aspirations and economic interests in Ireland in the 1920s is a further demonstration of the key issues of economic viability and political discord in the wake of the First World War. The battle between the overwhelmingly Catholic south and Protestant north-east, which culminated in the partition of the country in 1920 and the establishment of the Irish Free State in 1922, has been examined by others, of course. What is distinctive about Ollerenshaw’s research is his focus on the impact on business enterprises of the intensifying struggle between the two sides. Ulster businessmen

4

Terry Gourvish

often found membership of the UK extremely advantageous and were prominent in the organisation and financing of militant unionism, which led ultimately to partition. Businessmen in the south tended to be more cautious and feared that partition would marginalise them in a largely agricultural economy. They supported dominion status for Ireland within the British Empire, but opposed partition. Ollerenshaw provides a concrete example of the way in which businesses were caught up in this major political upheaval. The boycott of Belfast and other northern businesses, supported by many in the new Dublin government, was a response to the expulsion of several thousand Catholics from their workplaces and homes in 1919 and early 1920. Aimed primarily at the distributing trade and the Belfast-based banks, the boycott had uneven results, although it gathered pace as political divisions widened and had long-term effects on north–south trade. Republicans produced black lists of firms with whom they were forbidden to deal, and white lists of firms with whom customers might trade. War and economic crisis played a significant role as a destabilising force and a solvent of ideas and attitudes in the three countries, and all demonstrate a ‘business dilemma’ during the inter-war years. In Ireland Ollerenshaw reveals the very real dilemmas for firms across the political and religious divide. In Austria, as Matis indicates, there was the impact of a more dramatic ‘divide’ – the collapse of the Habsburg Empire, compounded for business by the restrictive economic policies pursued by a ‘corporatist’ state and the attractions of fascism. For Sweden Lindgren’s canvas is much broader, but he too shows the importance of external shocks – and in particular the post-war deflationary crisis of the early 1920s. In Part II we address an area where governments and businessmen were often engaged in intense debate, namely banking and financial regulation. Ginette Kurgan’s contribution on Belgian bankers charts the changing relationship between banks and political institutions in Belgium over the twentieth century. With so many prominent private bankers serving in parliament and even acting as ministers, and many parliamentarians serving on the boards of the joint-stock banks, the ‘banking interest’ was a strong one. The Soci´et´e G´en´erale may have removed its formalised links with politics after the First World War, but elsewhere the influence of leading bankers remained high, reaching a peak with the ‘government of the bankers’ of 1934–5.8 The failure of this government’s deflationary policies greatly damaged the reputation of bankers as macro-economic managers. Thereafter, banking reform became a major political preoccupation, and the standing of the major banks was further sullied by their relationship with the occupying Germans during the Second World War. The banking interest continued to exert an informal influence over

Introduction: the business–government relationship

5

government, for example in determining the regulatory environment, but mergers and internationalisation produced further solvents of the relationship. Here, as elsewhere, the two world wars produced decisive turning-points. Philip Cottrell writes about another fascinating aspect of inter-war banking and politics – the challenge of monetary stabilisation in Central and Eastern Europe after the Treaty of Versailles. Here the approach is meticulous. From a detailed examination of the Bank of England’s archives the author outlines the efforts of the Banque de France to play a greater part in orchestrating European stabilisation measures after the franc had been stabilised in December 1926. This aspiration naturally brought it into potential conflict with the Bank of England, and there were lively exchanges about Romania, notably between the respective governors, Montagu Norman and Emile Moreau. The rivalry between London and Paris, and Romania’s economic and political instability, threatened central-bank co-operation, and the United States was drawn into the dispute via the Federal Reserve Bank and Benjamin Strong. The issue also threatened to divide Europe into two financial blocs. Matters were resolved in the course of 1928. The French led a stabilisation loan package for Romania, and the Fed was happy to be a passive participant in the arrangements. The loan was a close-run thing, however. A change of government in Romania was followed by a challenge to French involvement and, with British participation limited, only the intervention of the Swedish Match Company saved the day. Cottrell also indicates how important infrastructure projects – notably the revitalisation of the railway network – were prejudiced by these struggles between financial rivals. Lucy Newton’s chapter on ‘Government, the banks and industry in inter-war Britain’ assesses the economic and political views of the British banking community during this challenging period as they were revealed in the trade press, and in particular the Bankers’ Magazine. The unsurprising impression given is that of a defensive, reactionary and right-wing industry. Its leaders and advocates reacted angrily to public criticisms of anti-competitive tendencies – concentration and cartelisation – and fiercely opposed socialism and increased state intervention in the economy. However, this was also a period of changing attitudes. Bankers began to concede that some conciliatory moves should be made in the direction of what today would be termed ‘stakeholder and customer care’. And they proved sensitive to another common allegation: that, unlike their counterparts on the continent, they were failing to provide adequate support to British manufacturing industry. On this crucial issue of bank–industry relations, a subject successfully advanced on an international stage by Alice Teichova,9 Newton examines both the contemporary justifications

6

Terry Gourvish

of bankers and the recent reassessments of revisionist historians. She concludes that the British clearing banks were far from timid in their support of domestic industry, and they played a full part in rationalising industries whose capacity far exceeded demand. The banks were not deficient suppliers of finance to industry; rather it was the industrialists themselves whose demand for financial support was weak. And if the rationalisation drive of the 1930s was insubstantial, then British governments must share the blame for the failure to provide a more positive response. Her findings confirm the results of recent case studies, such as Ackrill and Hannah’s Barclays Bank and, in Scotland, Richard Saville’s Bank of Scotland.10 Part III comprises four new essays on the complex, often elusive ramifications of business and politics under the Third Reich, and here fresh perspectives emerge, thanks largely to the materials in newly opened archives in both Eastern and Western Europe. Our contributors, Richard Overy, Dieter Ziegler, Harald Wixforth and Jorg ¨ Osterloh, Peter Berger and Peter Lyth, refer at times to the comparative neglect of this topic until recently. But such is the way interest in history lurches that a veritable outpouring of recent writing has replaced the earlier silence. There is now a fairly substantial literature on the significance of the new regime in shaping business strategies, and in particular in confining the role of Jewish entrepreneurs in the economy. The plight of the Jews, the mechanisms by which they were disenfranchised and disappropriated, and the role of business institutions and individuals in the pursuit of Nazi policies of expropriation and in Schindler-esque rescue missions, have all been re-evaluated.11 Here, our contributions provide examples of the range of such historical interest. Overy examines the historiography of the relationship between German business and the National Socialist regime, and provides a much more balanced assessment. Three proponents are identified: those who see the relationship as a political device enabling crisis-torn German capitalism to survive; those who see Hitler’s government imposing its totalitarian economics on an impotent business sector; and those who emphasise the continuity of policies before and after 1933. Overy dismisses the extremes evident in such positions. He points out that many big businessmen were far from enthusiastic about Hitler’s party (though there was more support from the SMEs). He also refers to the evidence revealing the underlying continuity in economic impulses and personnel before and after the war. But ultimately Hitler’s Germany is viewed, not as a New Economic Order, since many of its economic policies were reactive, but rather as a racially driven corporatist state, following historians such as Michael Burleigh.12 The violent economic imperialism, mass expropriation and slave labour of the regime may have been part of a utopian vision for Europe, but they were manifestations

Introduction: the business–government relationship

7

of the essentially political motivations of this command economy: racist, corrupt, vicious and, thankfully, unsuccessful. Ziegler et al. examine the policies of ‘Aryanisation’, not only in Germany (the ‘Altreich’), but also in two areas often neglected by scholars: Austria and the ‘Sudetenland’ (the annexed portion of Czechoslovakia), following the ‘Anschluss’ and political settlement of 1938. In Germany the story was one of progressive disqualification and expropriation, beginning with the exclusion of Jews from the civil service and professions. German business was necessarily bound up in the process; the banks were among the first to dismiss employees, for example. And although Jewish enterprises with a strategic value in the economy were not affected for some time after 1933, and there was no wholesale assault on Jewish property before 1938, more indirect pressure was applied to Jewish-owned department stores and small businesses, where anti-semitism was often used as a competitive weapon in a difficult market. After 1938 the policy became much more aggressive, embracing state-orchestrated confiscation, a situation in which the banks and other businesses played a full part in effecting the sale of Jewish assets to Gentiles in a buyer’s market. The newly acquired territories were caught up in these more extreme measures. In Vienna, for example, spontaneous rioting, looting and confiscations accompanied the ‘Anschluss’ in March 1938, and the Kristallnacht pogrom in November was felt as severely in Vienna as anywhere else. A more organised repression followed, and the close co-operation between German government officials and Austrian business through its trade associations ensured that the rate of Jewish economic exclusion was rapid. In the Sudetenland, ‘Aryanisation’ was equally swift, but the authorities were able to exert much more control over the process (and profit accordingly). The authors therefore conclude that exclusion was determined by: (1) whether the regime was firmly in control; and (2) whether or not a substantial part of the Gentile population expected to participate in the distribution of the ‘booty’. This explains the tentative application of the policy in Germany proper in 1933–7, the disorderly expropriations in Vienna and Teplitz-Schonau ¨ in 1938, and the co-ordinated persecutions in the Sudetenland in 1939. Berger’s absorbing case study also deals with Austria, but in this instance focuses on the attempts of Frank van Gheel Gildemeester to orchestrate the successful emigration of Jews from Austria. The son of a Protestant clergyman, Gildemeester was a Dutch humanitarian who derived inspiration from the Quakers in the United States and worked for the American relief mission in Vienna in 1918. He returned to Vienna shortly before the ‘Anschluss’ in 1938. His agency, the

8

Terry Gourvish

Gildemeester Auswanderungshilfsaktion fur ¨ Juden, appears as a rather ambivalent institution. On the one hand, it appears to have collaborated fully with the Nazi regime and acted as an agent of ‘cleansing’ Austria of Jews. On the other hand, it enabled about 30,000 Jews to escape in 1938–9, and by requiring richer Jews to contribute to an emigration fund offered many poorer ‘non-Aryans’ an escape route they would not otherwise have had. Gildermeester himself remains a rather shadowy figure. He had helped imprisoned Nazi supporters in pre-Anschluss days, and is sometimes portrayed as a racketeer rather than a philanthropist. In Berger’s account he appears as a utopian dreamer whose vision of the mass emigration of Jews to a homeland in Ethiopia was doomed to fail. The Gestapo closed the Gildermeesteraktion in January 1940, and the institutional apparatus was later deployed in executing the ‘final solution’. Peter Lyth’s research on the German airline Deutsche Lufthansa is a very different piece. In an industry where the financial support of governments was critical in its formative period, Lufthansa received strong backing from successive German governments and grew to become Europe’s dominant airline in the 1930s. Most of the major airlines in the inter-war years were exemplars of flag-carrying ‘national champions’ and ‘technonationalism’. Unsurprisingly, then, the influence of the National Socialist government on the commercial and investment decision-making of the company after 1933 was profound. Hitler was an enthusiastic flyer, as was former pilot Goring, ¨ and their ambitions were seen in the fact that the company came close to establishing a European airline to rival Pan American. The company’s large investments in South America represented a flexing of German economic and political muscle in a region held to be the preserve of the United States, while aircraft procurement was managed in such a way as to provide the Luftwaffe with a camouflaged R&D facility. This work on business collaboration with, and/or opposition to, the National Socialist government in Germany forms a useful complement to research conducted by other associates of Alice Teichova, namely Gerald Feldman and Harold James. James’s path-breaking work on Deutsche Bank, in the book written by Lothar Gall, Feldman and others, and Feldman’s case study of Allianz has followed Hayes’s work on IG Farben in examining the business history of Hitler’s regime. James’s analysis of the relationship between the bank and the dictatorship reveals a more complex web of motivation than mere profit-seeking, a theme taken up in more detail in his recent account of the bank’s role in expropriating Jewish property. The bank suffered a serious erosion of its traditional banking activities, but offered little in the way of direct resistance to the regime.13

Introduction: the business–government relationship

9

Feldman’s lengthy case study of Allianz steers a measured course between co-operation and conflict, noting the technical and professional support given by this major insurance company to the regime, but also identifying areas of disagreement and opposition.14 There is also Neil Forbes’s Doing Business with the Nazis, which explores the relationship between business and Hitler’s Germany from a British perspective. Continuity and pragmatism, rather than discontinuity and idealism, characterised AngloGerman economic and financial relations, which were exemplified by the personal friendship of Montagu Norman and the German Minister of Economic Affairs, Hjalmar Schacht. Finally, James and Tanner’s edited volume on Enterprise in the Period of Fascism in Europe, broadens the debate, with its contributions from Amatori and Segreto on Italy and Cabrera and del Rey on Spain.15 It also contains an indispensable review of the arguments about ‘Industry under the Swastika’ from Peter Hayes, which reiterates the thesis that the majority of German businessmen were ambivalent about, though complicit in, the regime’s activities.16 The contributions in this book, especially Lyth’s on Lufthansa, anticipate further work to be done on the rebuilding of German capitalism after the war. Much has been written about the role of American intervention and Marshall Aid,17 but the internal efforts at image cleansing and recovery deserve equal attention, as Holtfrerich’s work on Deustche Bank and the recent book by Jonathan Wiesen on the period 1945–55 admirably demonstrate, if a little one-sidedly.18 Part IV concludes the volume by examining the relations between the business community and the state in Austria, Greece and Czechoslovakia. These chapters reveal elements where the business–politics relationship is critically important, e.g. in corporate governance and regulation, and emphasise the difficulties which firms have in seeking to maximise profits when political disequilibrium is paramount. Gertrude Enderle-Burcel examines the relationship between the industrial community and the Austrian state in the 1930s, and in particular the reactions of business leaders to changing economic policies in the wake of the Great Depression. Successive governments demonstrated a patent contradiction between theory and practice. Espousing the Hayekian credo of private enterprise and the autonomy of the market, they exercised a wide-ranging economic intervention, particularly with the ‘corporatist’ government of 1934–8. Always more intrusive in agriculture and trade, intervention was nevertheless also important in industry. However, economic policymaking was conducted without the active participation of business leaders and their institutions. Austrian industry offered only a fragmented, disunited lobby, with a heterogeneous collection of industry associations representing SMEs. Burcel explores the limited contacts this industrial

10

Terry Gourvish

interest made with political parties, governments, the civil service and individual politicians. She finds that there was a disjunction between the government’s deflationary, tariff-building thrust and industry’s demands for assistance in the form of export subsidies and organised cartels. The corporatist government’s new economic institutions of 1934–8, and in particular those aimed at eliminating ‘subversive’ elements from the private sector, merely aggravated an already tense relationship. Attempts to introduce legislation to establish a regime of cartelisation were a failure. Thus the economic difficulties served to provide Austrian governments with an excuse to tackle problems in an increasingly dictatorial way. In the long run, industrialists who had steadily supported the establishment of Austrian fascism in 1934–8 failed to achieve any substantial improvement in their basic conditions and their general environment. Margarita Dritsas’s review of Greek business elites and their relationship with their governments indicates a growing intimacy over the twentieth century. In the late nineteenth century local entrepreneurs such as Theodore Retsinas sought political influence and participation. After the First World War the process gathered momentum, led by businessmen associated with the ‘Zurich Circle’, founded by former students of the Zurich Polytechnic. The influence of businessmen in government was clearly evident by the time of the second Venizelos government of 1928–32 and they were fully involved in the right-wing Metaxas government of 1936–7. The role of exiled ‘diaspora’ businessmen was necessarily less dominant, but there were exceptions (notably Prodromos Athanasiades) and after the Second World War this section of the Greek business elite became more closely involved in domestic politics, as Greece moved from being a ‘developmental’ to an ‘entrepreneurial’ state. Finally, Christoph Boyer’s illuminating case study of a subsidiary company of the German giant Siemens in Czechoslovakia provides a pertinent illustration of the way in which business strategies were influenced by political exigency, and in particular by the determination of the new Czechoslovak state (founded in 1918) to remove foreign capitalist influences in its industrial life, a special form of ‘nationalisation’. Actions were taken to eliminate German-based companies in the economy and to replace foreign salaried staff with Czech nationals. Elektrotechna was founded in 1930 to supply the Czechoslovak market with low-voltage engineering products and, in particular, telephonic equipment. Siemens hoped to defuse nationalist sentiment by making the subsidiary 51 per cent Czech-owned, and by moving production progressively into Czechoslovakia. Some progress was made in this regard, but Hitler’s assumption of power raised the temperature and, notwithstanding a reorganisation giving the Czechs greater control, Elektrotechna’s viability

Introduction: the business–government relationship

11

was affected by the State Defence Act of 1936, which reserved state contracts for domestic companies in strategic industries. The position of the company’s Sudeten German workforce also became more precarious. However, the superiority of German technology, and support from the domestic banks, the workforce and customers such as the Post Office, served to prevent a more radical assault on Elektrotechna, and it was not difficult for Siemens to reassert control after the Munich agreement and the annexation of the Sudetenland. The essays in this volume, which range widely from Great Britain and Ireland to Czechoslovakia, from Belgium and Germany to Austria, and from Sweden to Greece, point the way to on-going and future research on the complexities of the government–business relationship. Some are contributions to areas which have seen sustained research by scholars, for example in the fields of finance and banking, and on the subject of the relationship between politics and economics in shaping both macro- and micro-economic policy during the inter-war period. Others point the way to themes to be tackled in greater depth should the archives permit it. For example, there is much to be done in charting the way in which firms translated extremes of economic policy (for example, in fascist states in the 1930s) into organisational changes in the workplace, in assessing the impact of cartel-building and cartel management as a stabilising force in times of economic uncertainty, and in evaluating the role of employers’ associations in broader policy-making, and especially in areas such as protection and taxation. Most, if not all, of the themes explored in this book are a response to the path-breaking work undertaken by Alice Teichova in her distinguished and fruitful academic career, and to the collaborative networks of scholars she created. Her extensive and wide-ranging bibliography, which demonstrates the value of these networks, ranges from an early interest in medieval history and feudalism to modern economic, social and political history, taking up events which Alice experienced personally, notably the Munich agreement in 1938 and its aftermath, and the changing fortunes of Czechoslovakia, and in particular the fall of the Dubˇcek government in August 1968. Her interests have encompassed the workings of international business, with particular reference to capital markets and cartels (finance capitalism);19 multi-national enterprise, notably in the book edited with L´evy-Leboyer and Nussbaum;20 and, latterly, economic integration and issues of nationality.21 Central and Eastern Europe have often formed the backcloth for this work. Her efforts have done much to stimulate the study of the aftermath of the collapse of the Habsburg Empire, and the modern economic history of Austria, Czechoslovakia and Hungary. But she has also organised successful collaborations in Western Europe, Scandinavia and further

12

Terry Gourvish

afield. Many distinguished historians, some sadly no longer with us, have at various times been members of the network. Not all of them could be contributors here. They include, for example, in the United States, Iv´an Berend, Alfred D. Chandler, Jr., Gerald Feldman, Elena FrangakisSyrett, David Good, Harold James, John Lampe, William N. Parker and Gavin Wright; in Britain, John Bloomfield, Forrest Capie, Peter Gatrell, Michael Kaser, Peter Mathias, Roger Munting, Alan O’Day, Sidney Pollard and Richard Wilson; in France, Albert Broder, Youssef Cassis, Fran¸cois Crouzet, Eric Bussi`ere, Patrick Fridenson and Maurice L´evyLeboyer; in the Czech Republic Drahomir Janˇc´ık, Zdenek Jindra, Eduard Kubu, ˚ Vlastislav Lacina, Milan Myˇska, Jiˇr´ı Novotny, Jaroslav P´atek, ˇ sa; in Slovakia Jozef Faltus and Roman V´aclav Prucha ˚ and Jiˇr´ı Souˇ Holec; in Germany, Wolfram Fischer, Peter Hertner, Jurgen ¨ Kocka, Hans Mommsen, Helga Nussbaum, Akos Paulinyi, Manfred Pohl, Verena Schroter, ¨ Martin Vogt, Volker Wellhoner, ¨ Bernd Jurgen ¨ Wendt and Ulrich Wengenroth; in Austria, Karl Bachinger, Leonard Bauer, Ernst Bruckmuller, ¨ Markus Cernan, Peter Eigner, Peter Feldhauer, Gernot Heiss, Karl Haas, Hannes Hofbauer, Hans Kernbauer, Herbert Knittler, Andrea Komlossy, Michael Mitterauer, Alois Mosser, Albert Muller, ¨ Charlotte Natmeßnig, Andreas Resch, Roman Sandgruber, ˇ Anton Staudinger, Dana Stefanov´ a, Karl Stuhlpfarrer, Hannes Stekl, Dieter Stiefel, Fritz Weber and Andreas Weigl; in Sweden, Bo Gustafsson, Ragnhild Lundstrom and Jan Ottosson; in Australia, Chris Lloyd; in Belgium Herman Van der Wee; in Canada, Scott Eddie; in Denmark, Per Hansen; in Norway, Sverre Knutsen, Even Lange, Helge Nordvik and Harm Schroter; ¨ in Hungary, Elisabeth Boross, Agnes Pog´any, Gyorgy ¨ Kov´ ¨ er and Gyorgy ¨ R´anki; in Spain, Gabriel Tortella; in Japan, Toshio Suzuki and Takeshi Yuzawa; and many more. This book, with a theme which captures much of Alice Teichova’s research interests, is an attempt by just a few of the historians with whom she has worked to honour her.     1. Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977), and Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990), and cf. the review colloquium in Business History Review, 64 (Winter 1990), 690–735, and the criticisms of Richard R. John in ‘Elaborations, Revisions, Dissents: Alfred D. Chandler, Jr.’s The Visible Hand after Twenty Years’, ibid., 71 (Summer 1997), 151–206. 2. Henry W. Ehrmann, Organized Business in France (Princeton, N.J., 1957). 3. Arthur Knight, Private Enterprise and Public Intervention (London, 1974); Neville Abraham, Big Business and Government: The New Disorder (London, 1974).

Introduction: the business–government relationship

13

4. Alice Teichova, An Economic Background to Munich: International Business and Czechoslovakia 1918–1938 (Cambridge, 1974). 5. Robert Boyce, British Capitalism at the Crossroads (Cambridge, 1987); Clemens Wurm, Politics and Industrial Relations (Cambridge, 1993). 6. Peter J. Lyth, Inflation and the Merchant Economy: The Hamburg Mittelstand, 1914–1924 (Oxford, 1990); Niall Ferguson, Paper and Iron: Hamburg Business and German Politics in the Era of Inflation, 1897–1927 (Cambridge, 1995). 7. Henry A. Turner, Jr., German Big Business and the Rise of Hitler (Oxford, 1985); Harold James, The German Slump: Politics and Economics 1924–1936 (Oxford 1986); Peter Hayes, Industry and Ideology: IG Farben in the Nazi Era (Cambridge, 1987); Richard Vinen, The Politics of French Business, 1936–45 (Cambridge, 1991); Volker Berghahn (ed.), Quest for Economic Empire: European Strategies of German Big Business in the Twentieth Century (Princeton, N.J., 1996). 8. On the Soci´et´e G´en´erale see Herman Van der Wee and Monique Van der Wee-Verbreyt, ‘Belgian Banking in the Nineteenth and Twentieth Centuries: The Soci´et´e G´en´erale and the G´en´erale de Banque (1822–1997)’, in Richard Sylla, Richard Tilly and Gabriel Tortella (eds.), The State, the Financial System, and Economic Modernization (Cambridge, 1999), pp. 53–72. 9. See Harold James, H˚akan Lindgren and Alice Teichova (eds.), The Role of Banks in the Interwar Economy (Cambridge, 1991); Philip L. Cottrell, H˚akan Lindgren and Alice Teichova (eds.), European Industry and Banking between the Wars. Review of Bank–Industry Relations (Leicester and New York, 1992); Alice Teichova, Terry Gourvish and Agnes Pog´any (eds.), Universal Banking in the 20th Century: Finance, Industry and the State in North and Central Europe (Aldershot, 1994). 10. Margaret Ackrill and Leslie Hannah, Barclays: The Business of Banking 1690–1996 (Cambridge, 2001), pp. 90–9; Richard Saville, Bank of Scotland: A History 1695–1995 (Edinburgh, 1996), pp. 567, 577. 11. Cf. Peter Junk and Martina Sellmeyer, Stationen auf dem Weg nach Auschwitz: Entrechtung, Vertreibung, Vernichtung: Juden in Osnabr¨uck, 1900–1945 (2000), cited in Panikos Panaji, ‘Everyday Life in a German Town’, History Today, 52 (9) (September 2002); Ronald Zweig, The Gold Train (London, 2002). 12. Michael Burleigh, The Third Reich: A New History (London, 2000); Michael Burleigh and Wolfgang Wippermann, The Racial State: Germany 1933–1945 (Cambridge, 1991). 13. Harold James, ‘The Deutsche Bank and the Dictatorship 1933–1945’, in Lothar Gall, Gerald D. Feldman, Harold James, Carl-Ludwig Holtfrerich and Hans E. Buschgen, ¨ The Deutsche Bank 1870–1995 (London, 1995), pp. 277–356; Harold James, The Deutsche Bank and the Nazi Economic War Against the Jews: The Expropriation of Jewish-Owned Property (Cambridge, 2001). 14. Gerald Feldman, Allianz and the German Insurance Business, 1933–45 (Cambridge, 2001). 15. Neil Forbes, Doing Business with the Nazis: Britain’s Economic and Financial Relations with Germany 1931–1939 (London, 2000); Franco Amatori, ‘The

14

16. 17.

18. 19. 20. 21.

Terry Gourvish Fascist Regime and Big Business: The Fiat and Montecatini Cases’, Luciano Segreto, ‘Entrepreneurs and the Fascist Regime in Italy from the Honeymoon to the Divorce’, and Mercedes Cabrera and Fernando del Rey, ‘Spanish Entrepreneurs in the Era of Fascism: From the Primo de Rivera Dictatorship to the Franco Dictatorship, 1923–1945’, in Harold James and Jakob Tanner (eds.), Enterprise in the Period of Fascism in Europe (Aldershot, 2002), pp. 43ff. Peter Hayes, ‘Industry under the Swastika’, in James and Tanner, Enterprise, pp. 26–36. Cf. for contrasting views, Michael J. Hogan, The Marshall Plan: America, Britain and the Reconstruction of Western Europe, 1947–1952 (Cambridge, 1987), Werner Abelshauser, ‘American Aid and West German Economic Recovery: A Macroeconomic Perspective’, and Knut Borchardt and Christoph Buchheim, ‘The Marshall Plan and Key Economic Sectors: A Microeconomic Perspective’, in Charles S. Maier (ed.), The Marshall Plan and Germany: West German Development within the Framework of the European Recovery Program (New York and Oxford, 1991), pp. 367–451. For more recent, also contrasting, work on American influence see, inter alia, T. R. Gourvish and N. Tiratsoo (eds.), Missionaries and Managers: American Influences on European Management Education, 1945–60 (Manchester, 1998), M. Kipping and O. Bjarnar (eds.), The Americanisation of European Business (London, 1998), J. Zeitlin and G. Herrigel (eds.), Americanization and its Limits (Oxford, 2000), and Matthias Kipping and Nick Tiratsoo (eds.), Americanisation in 20th Century Europe: Business, Culture, Politics, vol. II (Lille, 2002). S. Jonathan Wiesen, West German Industry and the Challenge of the Nazi Past, 1945–1955 (Chapel Hill, N.C., 2001). E.g. Alice Teichova and Philip L. Cottrell (eds.), International Business and Central Europe 1918–1939 (Leicester and New York, 1983). Alice Teichova, Maurice L´evy-Leboyer and Helga Nussbaum (eds.), Multinational Enterprise in Historical Perspective (Cambridge, 1986). Eric Bussi`ere, Michel Dumoulin and Alice Teichova (eds.), L’Europe central et orientale en recherche d’int´egration e´conomique (1900–1950) (Louvainla-Neuve, 1998); Alice Teichova, Herbert Matis and Jaroslav P´atek (eds.), Economic Change and the National Question in Twentieth-Century Europe (Cambridge, 2000); Alice Teichova and Herbert Matis (eds.), Nation, State and the Economy in History (Cambridge, 2003).

Part I

The business–politics paradigm

2

Business and government in twentieth-century Sweden: a tale of income redistribution and rent-seeking? H˚akan Lindgren

Business and government as political economy: some principles When Alice Teichova’s book An Economic Background to Munich was published in 1974, it justly attracted much favourable attention. Analysing a traditional political question, the 1938 agreement between Hitler and Chamberlain in Munich, from an economic perspective, was both original and revolutionary. In clarifying how economic forces influenced (and combined with) the international political developments that resulted in the dismemberment and subsequent German occupation of Czechoslovakia, Alice Teichova adhered to a tradition within social science research that was deeply embedded in classical economic analysis.1 Indeed, the emerging science of economics was long referred to as ‘political economy’ and, until the ‘Jevonsian-Walrasian revolution’ of the late nineteenth century, it was characterised by a wide scope and a remarkable reliance on historical methods. With the neo-classical breakthrough, however, formal ceteris paribus modelling came to dominate the analysis, and the academic discipline of economics moved further and further away from the inductive approach. During the twentieth century, this shift in the discipline’s methodological approach has been reflected in a corresponding shift from professorships in ‘political economy’ to ones in ‘economics’. During the twentieth century, economic history as a scholarly discipline made inroads precisely because it deals with the questions of longterm economic development on which classical economists such as Adam Smith, David Ricardo, John Stuart Mill and Karl Marx focused their attention. Nonetheless, during the 1960s and early 1970s economic history faced a challenge from economics. Starting in the United States, where economic history research is centred in university departments of economics, there emerged the ‘New Economic History’. This placed more stringent methodological demands on economic historical research. Conclusions were to be based on the formalised testing of hypotheses 17

18

Håkan Lindgren

derived from explicitly stated postulates and assumptions. In her analysis of the economic aspects of the Munich agreement, Teichova demonstrated the existence of a growing rivalry between Western European (British, French, Dutch and Belgian) and German business and financial groups for control of the Czech economy. It is a striking example of the strengths of the historical inductive method. Without simplifying the complex causal relationships, she integrated various levels of analysis in a way impossible using only neo-classical economic abstractions. Explaining why governments regulate business activity has been a central concern of economic science ever since The Wealth of Nations. During the 1980s and 1990s, however, it has been particularly prominent on the research agenda. Riding the neo-liberal wave, the public choice approach has become increasingly popular. No doubt it has been scientifically productive. Applying the tools of economic analysis to problems in political science has raised new questions and facilitated new interpretations. The public choice approach assumes self-interest to be the totally dominant determinant of human behaviour. Legislators and cabinet ministers are assumed to be rational actors, who strive to maximise votes with the principal goal of being re-elected.2 Organised interest groups and personal networks are formed in order to, as Vilfredo Pareto dramatically put it, ‘usurp the national wealth’.3 These various groups compete in the political arena to advance their interest at the expense of others. Each tries to gain an advantage in the debate by having their particular interest masquerade as the public interest. Thus their proclaimed motives seldom coincide with their true motives. The utilisation of ‘interest group theories’ to explain political events and developments has also spread to the non-economic social sciences. Concern for inequalities in power and the political struggle over income distribution, for example, can clearly be discerned behind the theories of elites that in recent decades, inspired especially by Pierre Bourdieu, have made headway within social history and economic sociology.4 In the various public choice approaches, the role of ideology is ambiguous. Ideas and social visions can be seen as an independent force, but they can also be linked to private and special interests. When a person wishes to present a course of action as logical and principled, both for himself and for others, it is certainly possible to make ideology and advantage go hand in hand.5 Determining exactly where disinterested ideology ends and the self-interest of individuals and groups begins, however, remains an insoluble problem. This chapter presents a broad summary of the relationship between business and government in Sweden during the twentieth century. Little attention, however, is paid to individual political decisions or specific political processes. Rather the purpose is to determine the role that rent-seeking behaviour can play in

Business and government in Sweden

19

explaining structural developments (at the macro level). To what extent can the Swedish experience be seen as a case of rent-seeking; that is, as a struggle among special interest groups organised to ‘usurp the national wealth’? Indeed, do governments ever represent a general public interest? In order to provide perspective on the century’s alternation between market and planned resource allocation, this chapter begins with a review of the dissolution of mercantilistic policy-making and the liberal breakthrough of the nineteenth century. This is followed by a discussion of the Swedish ‘middle way’: the emergence of the welfare state ideology and the new ‘rules of the game’ in the relationship between business and government that were introduced during the 1930s and 1940s. The section entitled ‘The decades of growth’ presents the Swedish model’s golden age during the post-World War II period. The chapter concludes with a discussion of the hardening of positions between the business and the political elites that occurred in the 1970s, as well as the role played by the proposal for ‘collective wage-earner funds’ in the neo-liberal resurgence of the 1980s and 1990s. The concluding section then evaluates, and balances, the role of rent-seeking behaviour in determining the evolving relationship between business and government over the twentieth century. The liberal revolution as a re-regulation process (1840–1920) That government and business, as well as politics and economics, interact at various levels and in various areas is hardly a controversial assertion. How this interaction actually functions, and, even more so, how it should facilitate economic efficiency and renewal, however, is the subject of great controversy and conflicting conclusions. As a consequence of the triumphal march of the market and economic liberalism in the nineteenth century, it has long been customary to view the preexisting mercantilistic economic regulations (often incorrectly treated as an economic political system) as being a powerful curb on individual initiative and entrepreneurship.6 Only after individual property rights were recognised and legally guaranteed, the rules concerning guilds and government-favoured ‘manufactories’ abolished, and the factors of production gradually liberated from the bonds that had prevented their free movement, were the positive forces leading to long-term economic growth and continuously improving material welfare let loose.7 There is, of course, much to be said for such an interpretation. At least in the long run, those countries that broke with tradition and introduced a growth-inducing incentive structure did in fact experience a considerable

20

Håkan Lindgren

growth in economic welfare.8 This is the case whether welfare is measured in terms of income or in terms of indicators such as infant mortality, life expectancy, housing standards or protein consumption. Two unwarranted conclusions, however, are seductively easy to draw. The first of these is the erroneous belief that the mercantilist state, with its economic policies, was totally a rent-seeking system. All interest groups are seen as competing for government-granted privileges which protect them from competition, and benefit them at the expense of other groups. The modern view of mercantilism, of course, is largely coloured by the views of Adam Smith and others, who in the eighteenth and nineteenth centuries found its regulations to be outdated and inhibiting. Seeing mercantilism from the perspective of the time when the guilds and the privileged trading companies were established, however, distinctly moderates the ‘rentseeking’ aspect.9 The other incorrect conclusion is that the triumph of economic liberalism constituted a deregulation process that freed the economy from government intervention in the economic sphere. The ideal that the hegemony of neo-classical theory instilled in the minds of twentieth-century men and women is that of competition among independent and profit-maximising economic actors, each striving for resources in a free and atomistic market. Even though the concept of a market has evolved into something very different in modern social science research (including economics), this ideal picture persists. At least implicitly, it continues to influence current views of reality as a kind of benchmark.10 In the nineteenth century modern industrial society was established on a broad front in Western Europe and North America. New sources of energy were utilised, work was organised in new ways and the factory system replaced workshops and cottage industry. Simultaneously, at least as profound a transformation was occurring within trade and product distribution. The market’s role as an information and distribution system increased as the population’s source of income shifted from agriculture to industry. The application of market principles to labour resulted in increased mobility and greater productivity thanks to specialisation and a more intensive division of labour. These changes, however, also resulted in externalities that were perceived as undesirable and, indeed, unacceptable. People lost the static security of the self-sufficient agrarian society. With all its hardship, that society had provided a degree of security not present under industrialism with its monetary economy. In the long run, the anonymous market mechanism certainly generated increased economic welfare, but it also brought with it cyclical and structural unemployment, inhumane working conditions and vulnerability to illness and work injuries.11 It is hardly surprising that new institutions

Business and government in Sweden

21

and organisations intended to deal with the problems resulting from this transformation of society saw the light of day. In Sweden, the parliament of Estates was replaced by a two-chamber parliament in 1866. While the franchise for the directly elected second chamber was strictly limited, party groups emerged in the parliament. These were largely organised around economic (e.g. tariffs and taxes) and defence modernisation (e.g. universal conscription) questions. The rapidly growing newspapers became important instruments for the mobilisation of political opinion, while the parliament crafted economic policy. Social policy became a major topic of Swedish public debate during the 1880s and 1890s. Inspired by the German example, the foundation of the future social insurance system was then laid. The Factory Safety Act of 1889 (lag om skydd mot yrkesfara i fabriksarbete) created a factory inspection system. The Sickness Funds Act of 1891 (sjukkasselagen) provided government subsidies to private mutual sickness insurance funds, and employers were given the opportunity to reinsure their accident insurance in the National Insurance Fund (Riksf¨ors¨akringsanstalten) established in 1902. A national pension scheme was introduced just before World War I. Unlike its foreign predecessors, it was not limited to the particularly vulnerable groups of factory workers. Instead, the Pension Act of 1913 (lag om allm¨an pensionsf¨ors¨akring) established the principle of general participation by providing for payment, equal within each age group, to all persons over the age of sixty-six.12 Public policy thus became an important instrument for correcting the perceived ‘dark side’ of industrialism. In Sweden, the Conservatives, with their deeply rooted patriarchal attitudes, and the Liberals, with their strong social sympathies, joined together to support worker protection and social legislation. It is worth noting that the Pensions Act of 1913 was enacted by the Liberal government of Karl Staff, with broad parliamentary support including farmers, manufacturers and workers. The long-standing Swedish tradition of bureaucracy and centralisation helped give the national government a new role. The self-regulating market mechanism was not allowed free room to operate. New rules of the game were instituted and, instead of competitive capitalism, something that might be called ‘organised capitalism’ or ‘association liberalism’ emerged. Which term is chosen depends on whether emphasis is placed on the corporative elements, co-operation among the government, business and the unions (organised capitalism), or on the voluntary or popular characteristics of the new organisations that replaced the guilds and the village communes (association liberalism). During the late nineteenth century, there arose, to use John Kenneth Galbraith’s terminology, ‘countervailing forces’ that, together with the national government, would in time form a powerful

22

Håkan Lindgren

force for regulating conditions in the labour market.13 The Swedish trade unions achieved national unification, even if somewhat belatedly, around the turn of the twentieth century. The so-called ‘December compromise’ of 1906 between SAF (the employers’ central organisation) and LO (the national labour federation) granted the unions the freedom to organise in return for their recognition of the employers’ right to ‘control and assign work’. In summary, increased production and rising incomes offered new opportunities, while the change from an agrarian to an industrial society created new challenges. Institutional change was required in order to meet people’s basic needs for food, shelter and a social safety net over their life cycle. Thus the liberal breakthrough did not result in the national government abdicating its mercantilistic and regulating activities. Rather it assumed new functions: re-regulating rather than de-regulating. The national government and its political bodies became the arena for an income distribution struggle.14 Moreover, as part of the general increase in the scope of political decision-making that accompanied the emergence of an industrial society, the national government became involved in new aspects of economic policy. The state assumed the role of leader and chief backer of a gigantic modernisation project, largely motivated by a sense of nationalism. Public expenditure increased dramatically, particularly for infrastructure investments. The construction of railways in a sparsely populated country such as Sweden required a major capital mobilisation effort. Here the national government participated in two ways. First, it constructed and operated a national network, to which private branch lines could be connected. Second, the government took charge of the borrowing of foreign capital. In addition, it invested in the postal, telegraph and telephone networks. As to the government’s forestry holdings, in 1875 a new agency, the Forest Administration (Skogsstyrelsen, today called Dom¨anverket) was created. It laid the basis for the government-owned forestry industry that was developed during the inter-war period. Monetisation and the growth of the credit market resulted in a need for new central bank functions. The recurrent financial crises, especially the severe episodes of 1856–7, 1878–9 and 1907–8, led to the government and the Central Bank (the Riksbank) sharing the role of lender of last resort. The old Riksbank, owned by parliament and reaching all the way back to 1668, was gradually transformed into a modern central bank with a note-issuing monopoly and the ability to pursue an active monetary policy. Also intimately associated with the emergence of industrialism was increased government intervention to regulate various types of economic activity. The intention was to accelerate modernisation and so prevent

Business and government in Sweden

23

Sweden from falling behind internationally. Sweden’s accession to the West European free trade system in 1865, made possible amid great political turbulence only by the great political authority of Finance Minister J. A. Gripenstedt, did not last long.15 It became a short hiatus in the otherwise protectionist policy that characterised the period of Swedish industrialisation. The severe economic crisis of the late 1870s gave the protectionists new support. After a long and bitter struggle, tariff protection on agricultural goods was introduced in 1888 and on industrial products, such as machinery, equipment and tools, during the 1890s. Sweden’s rapid industrialisation during 1895–1913, concentrated in the engineering industry, took place behind a tariff barrier that averaged approximately 15 per cent.16 Regulations were very quickly introduced into the newly emerging financial markets. The new commercial banks were entrusted with the right to administer deposits from the public. In exchange, however, they had to accept a degree of public regulation. The note-issuing private (enskilda) banks, which operated with unlimited owner liability, had always required a government charter to operate. In 1903, government control over bank establishments was extended to include joint-stock banks. Over time, the banking laws became increasingly detailed and came to include minimum capital and liquidity requirements, as well as more stringent capital administration rules. Thus, for example, the 1886 Banking Act forbade banks from trading in, or holding, corporate shares. As early as 1868, a position for the enforcement of the banking laws had been created in the Finance Department. In 1876 a bank department, headed by a bank inspector, was established. By 1907, the increased need for bank inspection activity caused this department to be reorganised as an independent Bank Inspection Authority.17 Limitations on the right of foreigners to own and control property in Sweden were introduced during World War I. An Act of 1916 forbade foreign persons, legal as well as physical, from owning land or mines in Sweden. It also allowed corporate by-laws to ban foreign share ownership. This law remained in effect until 1983 when it was replaced by the socalled Corporate Purchase Act (F¨oretagsf¨orv¨arvslagen). The latter legitimised various classes of shares, with or without foreign ownership.18 The Swedish ‘middle way’: creation of the welfare state (1920–1950) Throughout the industrialised world, the deep economic crises of the inter-war period became a crisis for the market system. Its entire role as an allocative mechanism was put into question, and market imperfections

24

Håkan Lindgren

became the focus of public debate. In developed countries, the introduction of parliamentary democracy and universal suffrage proved to be decisive for changing the direction of economic policy. The rules of the gold standard became difficult to follow when the attempt to reduce credit and purchasing power resulted in massive unemployment. The needs of the population were to take precedence over market rules. Democracy also meant that the new economic elite, which had pushed economic modernisation before World War I, now faced political competition from yet newer groups. The political influence of the economic elite was questioned, and reduced, when the labour movement emerged as an organised, democratic force. From a power elite perspective, there was an economic elite based on private business organisations and an emerging political elite, resulting from democratisation and based on well-organised worker movements.19 Developments shifted away from reliance on the market. In a number of countries, including the United States and Sweden, agriculture was walled off from market forces, thus becoming a protected economic sector. Tariffs were introduced and protectionism spread. After the international financial crisis, and the resulting collapse of the gold standard in 1931, free international capital movements practically ceased. Most countries introduced foreign exchange controls of some sort. Planning was to replace ‘the blind market’. Social engineering celebrated great victories, and key economic sectors were nationalised. Planning and regulation received scientific legitimacy from the Keynesian revolution in economic theory that occurred after World War II. In Sweden, the socalled ‘Stockholm School’ of economists, which included Gunnar Myrdal and Bertil Ohlin and which in some respects was more advanced than Keynes himself, quickly endowed Keynesian economic theory with intellectual legitimacy. With agriculture in perpetual crisis and close to a quarter of all industrial workers unemployed, political pressure in most countries forced a search for remedies outside the market system.20 One approach was the fascist corporatism practised in Germany. In the Soviet Union, strict economic planning based on the nationalisation or collectivisation of the means of production was introduced. In the United States, a ‘New Deal’, involving substantial government economic intervention designed to alleviate the Depression of the 1930s, was attempted. During the inter-war period, Sweden was a full participant in this ideological turbulence. Compared with other countries, however, the Swedish experience seems relatively peaceful, characterised by co-operation between business and the labour-dominated government. A prerequisite for the so-called ‘Swedish model’ was the organising of special interests

Business and government in Sweden

25

during the pre-World War I period. Democratically structured organisations emerged to legitimately work to advance the interests of their members. This was particularly the case in the labour market, where the central organisations – SAF and LO – were established around the turn of the twentieth century. During the first two decades of the century, relations between the employers (SAF) and the workers (LO) were characterised by hostility. This was expressed in the general strike of 1909, as well in as bitter conflicts over wages and the eight-hour day during the inflationary 1910s. The unions tried to protect their members’ jobs by opposing rationalisation and other measures which the employers considered essential for increased productivity. The severe deflation in Sweden in the early 1920s, an economic crisis that more than any other deserves the designation ‘trial by fire’, was of great importance in ameliorating these attitudes. The mass unemployment, corporate bankruptcies and eradication of old private fortunes constituted a traumatic experience that left a lasting impression on workers, entrepreneurs and capitalists alike. This concern with crises was further strengthened by the Depression of the 1930s. Workers and employers had dramatic proof that they were all in the same boat. For a small, export-dependent economy like Sweden, industrial efficiency and the ability to compete were crucial for income levels and the standard of living. These experiences caused the unions to cease their opposition to rationalisation, and they began to adopt the same goal of greater productivity as the employers. This reorientation marked the start of a spirit of co-operation which has characterised the Swedish labour market since the 1930s and which has became one of the pillars of what was termed the ‘Swedish model’.21 In concrete terms, the new co-operation between Swedish labour and capital began with the ‘Saltsjobaden ¨ Agreement’ between the LO and SAF in 1938. In the face of government threats to legislate against labour market conflicts affecting third parties, LO and SAF entered into a series of agreements in the period 1938–48. For several decades, these created a unique spirit of co-operation in the Swedish labour market. This co-operation, which reached its peak during the 1950s and 1960s, would hardly have been possible had not the political wing of the labour movement established itself as the dominant political party during the 1930s. Following a 1933 agreement with the Farmers’ Party (Bondeforbundet), ¨ the Social Democratic Party was able to muster a parliamentary majority for a policy in many ways reminiscent of the New Deal. Thus agriculture was insulated from the market, and a labour market policy characterised by loan-financed public works was instituted. For almost a half-century, until 1976, all Swedish governments were led by the Social Democrats,22 working closely with the highly centralised

26

Håkan Lindgren

unions. During their long stay in power, the Social Democrats developed their own version of the good society – the welfare state (‘Folkhemmet’). As the future Prime Minister Per Albin Hanson expressed it in a famous speech in 1928, solidarity was to be the basis for national cohesion. The experience of the inter-war period, as well as World War II, contributed to the legitimisation of the policy of intervention pursued by the Social Democrats. The party received almost 54 per cent of the votes cast in the 1940 election. A powerful motivation for the business elite to choose the path of co-operation was their conviction that the Social Democratic political hegemony would not be easy to break. It was better to have ‘inside’ influence than no influence at all. Social measures were expanded and, after World War II, became a general welfare state policy – a kind of ‘socialism in Swedish’.23 The Swedish model became more than just a system for resolving labour market conflicts. Indeed, the universal provision of social welfare benefits without means-testing today seems to be its true hard core in the eyes of most Swedes. Already during the 1930s, and even more so during the Cold War, the Swedish model seemed to be, and was advertised as, a successful middle way between competitive capitalism and central planning.24 Its lodestar was scientific rationalism. According to Gunnar and Alva Myrdal, and others, rational planning, as a type of ‘social engineering’ under public control, was to replace the ‘blind man’s buff’ of the market.25 The decades of growth (1950–1970) In retrospect, the economic growth of the 1950s and 1960s, in Sweden as in most industrialised countries, shimmers like a golden age. The country witnessed remarkably smooth and rapid economic growth. The gradual expansion of the publicly administered general social insurance system produced, with one major exception, widespread political support. That exception was the introduction of the supplementary, income-related, pension system in 1957. A Social Democratic proposal supported by the unions, it brought to a head the question of the proper limits of the general welfare system. Its passage, although by the slimmest of margins, was a victory for that system, even in the long run. Generally speaking, however, these happy decades were characterised by the absence of strong political conflicts in Sweden. Rather, there was a high degree of practical co-operation between business and government on the basic questions of Swedish social development. At least for the time being, the long-standing Social Democratic demands for central planning and the nationalisation of the means of production were shelved. The existing ownership structure was preserved, and the continuation of the economic system created

Business and government in Sweden

27

by industrialisation was guaranteed. In many regards, especially taxation, the Social Democratic economic policy favoured big business and encouraged further corporate consolidation.26 Co-operation between business and government – both between individuals of both camps and between business organisations, the unions and the ruling Social Democratic Party – had been greatly strengthened by Sweden’s isolation during World War II. The government had vastly increased its power and had invited business and the unions to participate in the multitude of boards and commissions created to deal with problems of supply and rationing. Post-war developments strengthened this tendency towards corporatism. The various interest organisations, especially SAF and LO, came to be represented on most national and local government agencies, as well as on all-important parliamentary committees. This was the case with the universities, environmental agencies, radio and TV, as well as the ever more powerful Labour Market Administration (AMS). The latter had been founded in 1948 to implement an active labour market policy and to increase labour mobility.27 Power sharing, in the sense that organised special interests entered into local and national government bureaucracies, as well as into the system of official policy commissions, was thus a characteristic of the Swedish model. Ideological conflicts were put aside in favour of pragmatic co-operation on policy questions. New alliances and personal networks were established. These, in turn, developed an interest in maintaining the existing corporative social structure. Research, particularly by political scientists, has stressed how this corporative aspect simultaneously gave power to the interest organisations and legitimised and facilitated the implementation of political decisions.28 Nonetheless, this idealised picture of co-operative and peaceful social advancement, free of political conflict about the economy, should not be exaggerated. In fact, the period was by no means problem-free, and there was a continuous and lively debate concerning economic policy questions. The government’s plans to steer developments and to accelerate economic growth, as well as economic growth itself, created its own problems. These were perceived by the actors in the political and economic arenas to be at least as decisive as either those of the inter-war years or those of today. The boundary between the public and private spheres was never firmly established. Instead it was the object of an on-going political struggle. Despite their participation in the corporatist decisionmaking system, business leaders retained their suspicions concerning the long-term goals of the Social Democrats. Through their representatives in parliament and other elective bodies, as well as their crucial role in the Swedish system of policy commissions, the business community had a

28

Håkan Lindgren

direct influence on political decision-making during the early decades of the twentieth century. This influence, however, greatly receded later on, thus shifting the income redistribution struggle from elected bodies to the media and the universities. Starting in the late 1930s, the country’s economic elite and the organised business community increasingly tried to influence public opinion. Financial support was provided to the nonsocialist press and to newly established research and public relations institutes. The hope was to increase public acceptance of the market economy and the functioning of the capitalist system.29 The first test of the business community’s ability to rally public opinion came with the election of 1948. An effective campaign against the government’s far-reaching economic planning programme resulted in heavy Social Democratic losses and, consequently, in a policy retreat. One of the chief topics of public debate during the decades of growth was the thorny problem of inflation. Rising prices were very much an international phenomenon and a persistent feature of full employment policies throughout the Western world. In time, inflation began to affect the behaviour of economic actors and thus inflationary expectations were built into the system. This, in turn, contributed to a long-run tendency towards accelerating inflation. As noted above, Swedish agriculture was converted from a market-dominated to a sheltered economic sector during the 1930s. During and after World War II, a number of other protected sectors gradually evolved: housing was increasingly divorced from the market through the building regulations that were first introduced and then successively expanded. During the 1950s, large parts of the credit market were subjected to planning. These credit market regulations had distinct ‘Keynesian’ characteristics. In public discussion, they were justified by the difficulties encountered in handling accelerating price inflation. The volume of investment had to be controlled, it was argued, to prevent inflation generated by excessive total demand. Even though wartime price controls were still in effect during the early 1950s, under the influence of the Korean War boom domestic Swedish prices rose by almost 30 per cent during 1951 and 1952. In the aftermath of the upturn, and two years of frozen wages, there followed a veritable wage explosion: 40 per cent in two years. The Korean War boom was followed by some years of weak investment and slow productivity growth in Swedish industry. These developments help explain the new political goal of fighting inflation and cooling off the economy through government control of investment, the credit market and, to a lesser degree, private consumption. During the early 1950s, a series of new tools for regulating and stabilising the economy in the Keynesian spirit were introduced.

Business and government in Sweden

29

These were intended to shift resources towards prioritised sectors, such as housing and public expenditure. Traditional monetary policy was almost totally shelved. Until 1955, the Riksbank followed an extreme low interest policy, mainly designed to hold down, in conjunction with mortgage lending restrictions, housing and farm prices. New methods for directly regulating and allocating credit were introduced in February 1952. These included liquidity controls for the banks and bond issuance controls. Fees on private investments, except for housing, were introduced during 1951–2. In 1955, government control over the investments of individual firms was further strengthened by legislation concerning investment funds. These untaxed funds were to be kept in the Riksbank, with the proviso that their utilisation was subject to government approval.30 The control of investment, however, was weakened to the extent that firms could finance their investments through retained earnings. Thus, one way of making the corporate sector more sensitive to stabilisation policy was to squeeze profits, and thereby to reduce the degree of selffinancing investment. Measures to achieve this end accorded well with the wage policies of the labour movement during the 1950s and 1960s. Included in the theoretical underpinnings of this approach was the socalled ‘wage solidarity’ principle. It was intended to encourage industrial rationalisation and restructuring, and thus to accelerate economic growth without inflation. This ‘Rehn–Meidner’ wage theory – named after Gosta ¨ Rehn and Rudolf Meidner, two eminent LO economists of the period – nicely encompasses the growth decades’ unbridled faith in the possibilities of social engineering. Indeed, in many important regards, developments during the following decades accorded well with the model’s recommendations. These included falling profit margins, increased debt–equity ratios and increased collective savings. The basic idea was that an aggressive ‘wage solidarity’ policy could reduce corporate profits and savings. Restrictive monetary policy would prevent firms from raising prices to compensate for their rising labour costs, allowing national savings increasingly to be concentrated in the public sector. At the same time, wage pressure would force firms to rationalise and help to eliminate those that remained inefficient. Finally, the national government, together with AMS, the Labour Market Administration, would maintain full employment through planning and selective labour market policies.31 Centralised wage negotiations, encompassing the entire LO/SAF sphere, lay at the heart of the model. It not only made possible peaceful industrial relations and a responsible division of power and accountability; it also promised an ‘equitable’ division of wage increases in accordance with the wage policy of solidarity. The government, for its part, agreed to keep its hands off

30

Håkan Lindgren

the labour market as long as the parties behaved responsibly. Centralised wage negotiations were tested in 1951/2, and they were then applied regularly starting in 1955. The Swedish model of the 1950s and 1960s thus contained elements of systems designed both to resolve labour market conflicts and to increase general welfare. It received legitimacy from its connection to Keynesian economic theory, which endowed the government with special responsibility for economic stabilisation, income distribution and growth. To these ends, extensive regulation of various economic activities was practised. At the same time, a historically unique ‘socialisation of consumption and incomes’ was accomplished through large, centrally organised, transfer systems. Regulation was especially far-reaching in the financial, housing and farming sectors. The effective corporate tax burden, especially on large and capitalintensive firms, was reduced during the 1950s.32 Moreover, an important change in the economic principles governing corporate tax policy occurred at the same time. Established during the 1930s, these principles had been intended to encourage corporate savings and strengthen resistance to economic downturns. After World War II, however, the great problem became inflation and a shortage of resources. In order to limit the volume of private investment and to favour high priority sectors, such as housing and energy supply, the freedom of corporations to decide the depreciation rate on new investments was curtailed in 1955. The intention was to reduce their hidden reserves and limit their savings, thus making it easier to control investment levels.33 The long retention of the wartime regulations concerning construction and foreign exchange can also be seen as an expression of the government’s determination to influence the structural evolution of the economy. While construction controls were gradually liberalised during the 1950s, they were partially reintroduced during the boom of 1964–5. As to foreign exchange, most barriers to current payments abroad were gradually eased, and then totally eliminated in 1963. Capital transactions, such as the purchase and sale of securities and the placement of loans abroad, however, continued to require official permission. In several regards, the 1960s represented the high tide of Swedish industrial expansion, at least in its traditional form. Although employment in Swedish-owned foreign industrial enterprises continued to increase after 1965, industrial employment within the country peaked in that year. Industrial production did continue to increase, but at a slower rate. Despite the continued growth of exports and an increased dependence on trade, Sweden’s share of world trade declined after 1965. During the economic downturn of 1966–7, many older and less efficient production units were eliminated. This occurred even in expansive sectors such as

Business and government in Sweden

31

engineering and plastics. Industrial merger activity, which had been relatively dormant during the 1950s, picked up speed during the 1960s, reaching a peak at the end of the decade. The costs of growth, in the form of increased work intensity, job insecurity and worker relocation, became increasingly obvious and a subject of debate. Industry’s response to its increasing profitability problems was hardnosed rationalisation, severe pressure on costs and increased merger activity. During the 1930s and 1940s, both profitability and business savings had been rising. Financial solidity had improved over time, technically in the form of hidden inventory valuation and depreciation reserves. This long-standing upward trend was reversed after the Korean War boom of the early 1950s. Increasing foreign competition, together with a growing tax burden and rising wage costs, squeezed profit margins further during the 1960s. A continued high level of industrial investment, focused on productivity growth, led to a further deterioration of balance sheets. Thus the investment and wage policy, designed to squeeze firms and increase the efficacy of stabilisation policy, created its own problems. In the short run, the ability of firms to resist a serious economic downturn, should the stabilisation policy fail, was reduced. More serious from a long-run perspective, and perfectly obvious starting in the mid-1960s, however, was the increasingly negative effect on economic development and renewal. Firms instead concentrated on simple survival and the rationalisation of existing activities. A model in decline (1970–2000) During the 1970s, Swedish industry experienced a structural crisis that constituted the deepest and most drawn-out economic downturn since the 1930s. The Swedish economy’s increasing international dependence, especially with regard to fuel imports and industrial exports, was demonstrated with a vengeance by the oil price shocks of 1973–4 and 1979–80, as well as by the intervening lengthy depression. The initial dramatic increase in oil prices by OPEC in 1973 resulted in an international crisis in sea-borne transport. The Swedish shipyards, and their numerous parts suppliers, were seriously affected, their problems being compounded by the growing and increasingly fierce competition from Japanese and Korean yards. Although changing trade patterns and increasing foreign competition in the market for iron ore, as well as for iron and steel, had been underway since the early 1960s, the sudden market collapse of the mid-1970s came as a nasty surprise.34 One important reason why the underlying structural problems of basic Swedish industries were so mercilessly exposed at this time was that domestic economic policy was out of phase with the rest of the world.

32

Håkan Lindgren

During the upturn of the early 1970s, Swedish economic policy had contributed to rising prices and costs and led to a substantial increase in business liquidity. When the 1974 oil-price-induced international downturn arrived in Sweden early the next year, it was met with an extremely ambitious, expansive policy response. The hope was to ‘skip over’ the recession. Meanwhile, however, the other industrialised countries pursued strict monetary policies intended to restrain the inflationary effects of higher oil prices. The result of the so-called ‘bridge’ policy of 1975–7 was a dramatic deterioration in the international competitiveness of Swedish industry, thus glaringly exposing the limits of Keynesian stabilisation policy. Given fixed exchange rates – following the collapse of the Bretton Woods system, the krona had principally been tied to the Deutschmark through membership of the so-called ‘currency snake’ – the ability of a small, open country to carry on an economic policy at variance with the rest of the world without creating serious imbalances was very slim indeed. Excess liquidity and massive profits in Swedish business during 1974 paved the way for a veritable wage cost explosion over the following two years. Wages increased by some 40 per cent. High relative costs, in turn, caused a dramatic decline in exports and a deterioration in the balance of trade. It became increasingly clear that the cyclical downturn coincided with a long and profound structural crisis. The overvaluation of the krona forced no less than five devaluations (three during 1976–7, one in 1981 and the superdepreciation of 1982), amounting in total to about 40 per cent. As for the currency snake, Sweden abandoned it in connection with the depreciation of the krona in August 1977 and tied the krona to a basket of the most important foreign-trade currencies.35 In the mid-1970s, when the growth trend had been broken and problems had piled up, the social welfare society faced a crisis unequalled since the inter-war period. Uncertainty increased when markets collapsed, and industries that had supported much of the post-war expansion were threatened. The ‘system-wide’ debate of the 1930s once again flared up. The left saw the crisis as an expression of the market’s inability to function in an efficient and socially acceptable manner. Other groups, including a growing number of economists, instead questioned the reliance on social engineering. Could economic growth really be produced through political and administrative controls? Indeed, was the Swedish model actually the reason why the country’s economic growth was starting to lag behind that of comparable countries such as Holland, Belgium and Austria? Criticism from market advocates became increasingly vocal when the non-socialist government of 1976 tried to deal with the crisis by massive

Business and government in Sweden

33

subsidies and interventions, thus actually increasing the government’s role in the economy. Following the Vietnam War and the 1968 student rebellion, the Social Democrats had found it increasingly difficult to defend their mixed economy policies from radical critics. Thus the foundation of the Swedish model, wherein the business community and the dominant political party respected and acknowledged each other’s legitimate interests, was put in jeopardy. Instead the old question of the concentration of economic power and private ownership re-emerged on the political agenda. During the 1970s, the gradual radicalisation of the union movement that had started in the late 1960s found expression in LO’s increasing reliance on the Social Democratic Party to gain an advantage in the labour market. Instead of compromising with the employers at the negotiating table, the unions pushed for legislation, especially in the area of labour law. They thus set aside one of the basic principles of the Swedish model: that labour market questions were to be resolved by the parties themselves. As a signal that the long-standing co-operative model was no longer operative, LO in 1976 cancelled the classic, basic agreement of 1938.36 The most important element in the unions’ political offensive, however, was the 1975 proposal for ‘collective wageearners’ funds’ (‘l¨ontagarfonder’). This proposal was devised by the LO economist Rudolf Meidner, and was approved by the 1976 LO congress. In its original form, it was a gigantic socialisation scheme. Ownership and control of the largest, and most profitable, firms would gradually have been transferred to the local and national unions. Not surprisingly, the response was a historic mobilisation of Swedish capitalist and business interests. Supported by a very extensive public relations campaign directed by SAF, the opponents of the funds took to the streets in massive demonstrations. These were led by a majority of the principal representatives of the Swedish business community. The radical, left-wing assault on the existing economic order exhausted itself on this question. When the Social Democrats next formed a government in 1982, they instituted the ‘third-way’ economic policy. Priority was to be given to improving the conditions for industrial growth and full employment, thereby combating stagflation and the growing budget deficit. The wage-earner fund legislation adopted by the Riksdag in 1982 was only a shadow of the original proposal. Nonetheless, immediately upon returning to power in 1991, the non-socialist government abolished the funds. The symbolism was unmistakable.37 The wage-earner fund debate brought latent ideological conflicts into the open. The good-will that had united the economic and political elites in the Swedish model was exhausted. The employer organisations adopted a more political tone. They began to demand that the labour

34

Håkan Lindgren

market should be just that: a market. Greater wage differentials and the elimination of legal obstacles to labour mobility were advocated. They also ceased participating in the corporatist decision-making system, withdrawing from most ‘bipartisan’ boards of public and semi-public bodies. The co-operation between the unions and the political wing of the workers’ movement was also less smooth than in the past. Even within the Social Democratic Party, disagreements concerning the size of the public sector, and which activities should be government-administered, began to appear. The party had lost its dominant position in Swedish politics. A growing wing of the party, many with academic degrees, argued for deregulation and a greater scope for private initiatives. Neo-liberal ideas began to influence the ideology. A deregulation process, especially affecting the financial markets, was initiated. Finally, in 1989, the remaining foreign exchange regulations were totally abolished. The insight was growing that increased global integration made the degree of national insulation required by both Keynesian economic policies and the Swedish model no longer feasible. Centralised wage negotiations, which starting in the early 1970s also included public employees, continued for a while, but labour market conflicts increased markedly during the 1980s. When the engineering industry abandoned co-ordinated negotiations in 1988, this aspect of the Swedish model also ceased functioning. The importance of organised special interests and systemic shocks The relations between business and government in Sweden during the twentieth century have been characterised by the same ideological swings as in the rest of the Western world. Even before the new social groups formed by industrialisation had achieved any substantial influence over the government or policy, a movement away from the market had begun. New institutions and intrusions in the free market were required with the shift from agriculture to industry. Swedish modernisation during the late nineteenth and early twentieth centuries had a pronounced nationalistic bent. The country had to be developed to prevent it falling behind the rest of the world. Political intervention in the economy was partly motivated by the market’s need for new rule systems in order to function properly and partly by the desire to provide a social safety net. Social insurance was developed in the public sector, and the national and local governments took on a greatly increased responsibility for infrastructure in the areas of city planning, transport and communications. The breakthrough of democracy and universal suffrage gave the well-organised workers’ movement two ways to advance its interests.

Business and government in Sweden

35

Once the struggle for the right to organise and bargain collectively had been won, the unions could negotiate with employers over working conditions and wages. In addition, political decisions concerning the distribution of income could be influenced through elective bodies. The first Social Democrat-led Swedish government took office as early as 1920, and during the 1930s the workers’ political movement established itself as the dominant political party and the political elite par excellence. The business community retained a strong influence over economic policy throughout the 1920s. This was partly due to the political participation of individual business leaders and partly through their organisations, which dominated the system of commissions examining policy matters. Only when these vehicles were lost did the business community change tactics. In a democracy, the key was to mobilise public opinion and votes. The political struggle shifted to the media and the universities. The economic elite utilised their organisations and foundations increasingly to support research and public relations activities. While the struggle over income distribution between labour and capital can be clearly discerned in the relations between business and government, there were also important aspects of co-operation and powersharing. These were particularly prominent in Sweden and their manifestation has come to be known as the ‘Swedish model’. The characteristics of the Swedish social pact of the twentieth century were: (i) centralised negotiations to avoid labour market conflicts; and (ii) publicly administered, general social insurance schemes. With the single exception of the supplemental pension scheme, the Swedish social insurance system was built up with overwhelming political support during the 1940s, 1950s and 1960s. Two circumstances explain this agreement. On the one hand, the decades of growth created the wealth needed to finance this series of expensive programmes and, on the other hand, private ownership and the basic interests of the business community were not threatened. Even if the conclusion that the Swedish model ceased functioning when economic growth stopped during the 1970s is too strong, it still contains an element of truth. Yet a number of others factors, political and ideological, domestic as well as foreign, appeared at the same time and contributed to the demise of the co-operative and compromising model. The Swedish model assumed a far-reaching regulation of the economy: a regulation that received its scientific legitimacy from the hegemony of Keynesian economics. When inflation accelerated during the 1970s, at the same time as unemployment was increasing (what economists quickly termed stagflation), the Keynesian paradigm began to be questioned, while supply-side and neo-liberal ideas gained adherents. Both the Keynesian policies and the Swedish model also assumed a kind of national

36

Håkan Lindgren

economic insulation, which became harder and harder to preserve as economic internationalisation accelerated during the 1960s. The post-1968 political radicalisation caused the Swedish unions to increase their belligerency. If LO did not succeed in its negotiations with the employers, then the government was called upon to legislate the desired changes. The LO proposal for collective wage-earner funds threatened the very basis of the market economy: the private ownership of the means of production. The mutual good-will and tolerance that held the Swedish model together ran out, and the pendulum swung back towards an increased acceptance of market-based solutions. The Swedish example clearly illustrates how organised special interests, at least on the general level of this chapter, have been important combatants in the income distribution struggles of the twentieth century. It also demonstrates, however, how such organisations, when they encompass a large share of the population, may take the general interest into account. That is, they behave so that the entire economy functions well, not just today and tomorrow, but even the day after that. As Mancur Olson has pointed out, it is clearly in the self-interest of large interest groups to follow a responsible policy that leads to long-term maximisation of production and incomes.38 The Swedish model, with its emphasis on co-operation and compromise, was based on such responsible behaviour. It is worthwhile once again to stress that while the evolution of the relationship between business and government in Sweden in general terms closely followed the international pattern, the characteristics of that pattern were especially pronounced in Sweden. The importance of external shocks for the reorientation of established relationships and the opening up of new alternatives is striking. During the inter-war period it was the perceived system-wide crisis – the inability of the market to deliver what people felt to be necessary for a socially acceptable life – that laid the foundation for the belief that planning and social engineering constituted a superior system of resource allocation. At the very least, rational planning was needed to support the market system by eliminating imperfections and increasing efficiency. For Sweden, the severe economic crisis of the 1920s, much more than that of the 1930s, was a system-shattering ‘external shock’. The future social pact between business and labour, to a considerable extent, became feasible because the crisis of the early 1920s had convinced the centralised unions that the efficiency of industry, and its ability to compete, were decisive for incomes and the standard of living in a small, export-dependent country such as Sweden. In an ironic reversal, the second serious systemic shock, the structural crisis of the 1970s, resulted in deregulation. The crisis served as

Business and government in Sweden

37

a wake-up call. The Swedish model was questioned, and new remedies for the problems created by economic planning were sought. It became clear that regulations led to further regulations and that the law of unintended consequences could not be repealed. Protected by the Swedish model, the country’s industrial sector had become a world leader in concentration, both in terms of firm and of ownership structure. Important sectors of the economy, such as agriculture, housing and finance, were insulated from market forces. ‘Iron rings’ were established, made up of strong organised interest groups, political parties and public bureaucracy, having ownership or regulative interests in big oligopolistic firms operating mainly in the national market.39 Entrepreneurship was rare, and small and medium-sized firms were notable by their absence. Thus, the question originally posed by this chapter concerning the relative roles played by special interests and by the struggle over income distribution in shaping the relationship between business and government – between the economic and the political elite and between the market and public enterprise – in Swedish society during the twentieth century can be answered. A basic conflict between the organised groups representing the business community, on the one hand, and blue- and white-collar workers, on the other hand, no doubt existed. However, just as under mercantilism, it was not a pure rent-seeking system. In the long run, the self-interest of organisations representing a large share of the population forces them also to consider what is of benefit to the country. Thus, over time, these organisations, whose aim is to take responsibility for the nation as a whole, will increasingly adapt to what is thought to constitute the general interest. Indeed, the Swedish model itself is an excellent example of this effect. Experiences of external shocks and systemic crises play a major role in determining which road is chosen, but it can lead either towards government intervention or towards deregulation, depending on the prevailing economic and political situation.     1. Alice Teichova, An Economic Background to Munich: International Business and Czechoslovakia, 1918–1938 (Cambridge, 1974), pp. 377–82. This paper was presented at the Alice Teichova Appreciation Symposium sponsored by the Business History Unit, London School of Economics, 21–2 September 2000, and as part of the Second Workshop on Globalisation and European Capitalisms held at the Stockholm School of Economics, 16 February 2001. I wish to thank all the participants for their comments. In particular, the contributions of Gabriel Tortella and Ulf Jakobsson made possible a substantial clarification of the concepts used and a sharpening of the arguments.

38

Håkan Lindgren

2. A good summary of the basic assumptions of the public choice approach is presented in Swedish by G. A. Bruhner, Dagspressens politiska ekonomi (Stockholm, 1998). The trend towards shorter and shorter time horizons in decision-making, encouraged by the increasing importance of shortterm vote maximisation, has been emphasised, among others, by C. J. Åberg, Ett sv˚arsk¨ott pastorat: hur f¨ornya svensk politik (Stockholm, 1997), pp. 73–95. 3. V. Pareto, The Rise and Fall of Elites: An Application of Theoretical Sociology (New Brunswick, N. J., 1991 edn), p. 36; G. S. Becker, ‘A Theory of Competition Among Pressure Groups for Political Influence’, Quarterly Journal of Economics, 97 (3) (1983), 371–96. 4. P. Bourdieu, The State Nobility. Elite Schools in the Field of Power (Cambridge and Oxford, 1996). Sven Steinmo, in his seminal historical-comparative study of the American, Swedish and British tax systems, rejects the idea of a rational pursuit of short-term self-interest on empirical grounds. In Sweden the Socialists, who have dominated Sweden for so long, have not taxed their own constituencies lightly and the corporate sector heavily. See S. Steinmo, Taxation and Democracy. Swedish, British and American Approaches to Financing the Modern State (New Haven and London, 1993), pp. 3–7. Also relevant to the topic of government and business in Sweden is the recent work of, among others, Jan Glete and Niklas Stenl˚as. They have analysed the evolution of Swedish society from a power elite perspective. They see a dichotomy between two elites, one economic and one political, which have divergent ¨ goals. See J. Glete, ‘Agarkoncentrationen och den politiska demokratin’, in R. Eidem and R. Skog (eds.), Makten o¨ ver f¨oretagen (Stockholm, 1991), pp. 209–10; N. Stenl˚as, Den inre kretsen. Den svenska ekonomiska elitens inflytande o¨ ver partipolitik och opionsbildning 1940–1949 (Lund, 1998), pp. 20–31. 5. D. C. North, Institutions, Institutional Change and Economic Performance (Cambridge, 1990), pp. 48–51; M. Olson, The Logic of Collective Action (Cambridge, Mass., 1965). 6. The best-known interpreter of mercantilism as a power system to strengthen the external power of the state, not the individual, is, of course, Eli F. Heckscher, Mercantilism (London, 1955), e.g. pp. 20–9. In these respects his conclusions have been re-evaluated by L. Magnusson, Mercantilism. The Shaping of an Economic Language (London, 1994), pp. 210–16. 7. See, for example, C. Stego, ¨ Systemskiftet. En 1800-talshistoria (Stockholm, 1993), pp. 28–58, and J. Myhrman, Hur Sverige blev rikt (Stockholm, 1994), pp. 102–6. 8. R. H. Steckel and R. Floud, ‘Conclusion’, in Steckel and Floud (eds.), Health and Welfare during Industrialization (Chicago, 1997), pp. 423–38. 9. B. Gustafsson, ‘The Rise and Economic Behaviour of Medieval Craft Guilds’, in Gustafsson (ed.), Power and Institutions. Reinterpretations in Economic History (Aldershot, 1991), pp. 97–103; H. Lindgren, ‘Marknaden i historien’, in M. Sohlman and S. Viotti (eds.), Vem styr – politikerna eller marknaden? (Stockholm, 1997), pp. 30–5. 10. The great variation in the actual functioning of various markets depends not only on the number of participants, barriers to entry and the characteristics of the product, but also on existing norms, conventions and values. These

Business and government in Sweden

11.

12. 13. 14. 15. 16.

17. 18.

19. 20. 21. 22. 23. 24.

25.

26.

39

arise, and evolve, through the social process involved in the exchange of resources between persons. This is why institutional economists, historians and sociologists often refer to the market as being ‘socially embedded’. See, for example, G. M. Hodgson, Economics and Institutions. A Manifesto for a Modern Institutional Economics (Cambridge, 1988), pp. 178–9, and Economics and Evolution. Bringing Life Back into Economics (Cambridge, 1993), pp. 176–7. The state of things was expressively described by Karl Polyani in his classic work The Great Transformation: ‘now [the labouring] man was detached from home and kin, torn from his roots and all meaningful environment’: K. Polanyi, The Great Transformation (Boston, Mass., 1957 edn) [1944], p. 83. Polanyi here captures many of the dubious social and moral consequences of the market mechanism’s conquest of the English labour market during the ‘Great Victorian boom’ (roughly 1850–73). H. L. Zetterberg and C. J. Ljungberg, V˚art land – den svenska socialstaten: slutrapport fr˚an ett forskningsprogram (Stockholm, 1997), pp. 69–79. J. K. Galbraith, American Capitalism: The Concept of Countervailing Power (Boston, Mass., 1956), p. 137. Cf. Pareto, note 3 above. P. T. Ohlsson, 100 a˚ r av tillv¨axt. Johan August Gripenstedt och den liberala revolutionen (Malmo, ¨ 1994), pp. 169–82. U. Olsson, ‘Industrilandet Sverige. Hundrafemtio a˚ r av omvandling’, in ¨ Aventyret Sverige. En ekonomisk och social historia (Stockholm, 1993), pp. 53–60. M. Larsson, Staten och kapitalet – det svenska finansiella systemet under 1900talet (Stockholm, 1998), pp. 59–63, 83–101. The legislation has since been revoked in order to conform to EU rules. Share classes with voting differences of 1 to 1,000, however, still exist in certain Swedish companies, notably the major telecommunications company L. M. Ericsson. ¨ Glete, ‘Agarkoncentrationen’, pp. 205–15. Olsson, ‘Industrilandet Sverige’, p. 86. A. L. Johansson, Tillv¨axt och klassamarbete – en studie av den svenska modellens uppkomst (Stockholm, 1989), pp. 52–60. With the exception of a few months in 1936. Zetterberg and Ljungberg, V˚art land, p. 70. The Swedish model was lauded by the US author and journalist Marquis W. Childs as a prototype for the peaceful development of a welfare society in his widely read 1936 book, Sweden: The Middle Way (New Haven, Conn., 1936). The extremely abbreviated description of the shift away from the market mechanism during and after the crisis of the 1930s presented here is based on L. Magnusson, Sveriges ekonomiska historia (Stockholm, 1996), pp. 401–6, 445–7, U. Olsson, ‘Planning in the Swedish Welfare State’, Studies in Political Economy, 34 (Spring 1991), 147–71, and Olsson, ‘Industrilandet Sverige’, pp. 79–83, 97–101. M. Henrekson and U. Jakobsson, ‘Where Schumpeter was Nearly Right – the Swedish Model and Capitalism, Socialism and Democracy’, Stockholm SSE/EFI Working Paper in Economics and Finance, no. 370 (March 2000), 8–11.

40

Håkan Lindgren

27. Magnusson, Sveriges ekonomiska historia, pp. 469–70. 28. See, for example, N. Elvander, Intresseorganisationerna i dagens Sverige (Lund, 1966), pp. 272ff, and B. Rothstein, Den korporativa staten. Intresseorganisationer och statsf¨orvaltning i svensk politik (Stockholm,1992), pp. 20, 59 ff. 29. Stenl˚as, Den inre kretsen, pp. 336–50. 30. Unless otherwise noted, the general description of the structural changes that occurred during the 1950s and 1960s is based on A. Lindbeck, Swedish Economic Policy (London, 1975), pp. 63–152 and A. Lindbeck, The Swedish Experiment (Stockholm, 1997), pp. 31–49, 61–81; B. Carlsson, E. Dahm´en et al., Teknik och industristruktur: 70-talets ekonomiska kris i historisk belysning ¨ (Stockholm, 1979), pp. 36–44, 54–63; M. Josefsson and J. Ortengren, ‘Priser och omvandling i svensk industri’, in E. Dahm´en and G. Eliasson (eds.), Industriell utveckling i Sverige. Teori och verklighet under ett sekel (Stockholm, 1980), pp. 279–327, and E. Lundberg, Ekonomiska kriser f¨orr och nu (Stockholm, 1983), pp. 112–53. 31. J. Ullenhag, Den solidariska l¨onepolitiken i Sverige. Debatt och verklighet (Stockholm, 1971), pp. 63–91. 32. S. J. Davis and M. Henrekson, ‘Industrial Policy, Employer Size and Economic Performance in Sweden’, in R. B. Freeman, R. Topel and B. Swedenborg (eds.), The Welfare State in Transition (Chicago, 1997), pp. 364–72. 33. P. Hanner, ‘The Rise, Decline – and Ultimate Fall? – of the Hidden Reserve’, European Journal of Accountancy, 1 (1969); H. Lindgren, Bank, investmentbolag, bankirfirma. Stockholms Enskilda Bank 1924–1945 (Stockholm, 1988), pp. 178–80. 34. The brief description of the economic background to the growing conflict between the business community and the government during the 1970s is based on Lundberg, Ekonomiska kriser f¨orr och nu, pp. 146–72, and M. Larsson, En svensk ekonomisk historia 1850–1985 (Stockholm, 1991), pp. 123–49. 35. L. Jonung, ‘Rivstart eller snedt¨andning?’, in Jonung (ed.), Devalveringen 1982 – rivstart eller snedt¨andning? Perspektiv p˚a svensk devalveringspolitik (Stockholm, 1991), pp. 10–13. 36. Good surveys of the process through which the Swedish model was gradually demolished can be found in Lindbeck, The Swedish Experiment, pp. 72–81, in Steinmo, Taxation and Democracy, pp. 179–92, in Olsson, ‘Industrilandet Sverige’, pp. 104–9, and in Magnusson, Sveriges ekonomiska historia, pp. 473–99. The summary presented here largely follows the analysis of Olsson and Magnusson, possibly with a somewhat greater emphasis on the debate concerning the wage-earner funds as a turning-point. This debate, though it had a profound ideological impact, is not mentioned by Steinmo at all. 37. Henrekson and Jakobsson, ‘Where Schumpeter was Nearly Right’, pp. 22–3. 38. M. Olson, Power and Prosperity. Outgrowing Communist and Capitalist Dictatorships (New York, 2000), pp. 198–9. Mancur Olson’s interpretation seems to me more realistic than the fundamental explanation put forward by Sven

Business and government in Sweden

41

Steinmo, when he argues that the constitutional system adopted in Sweden (proportional representation for the lower chamber, and conservative electoral system for the upper chamber), as a guarantee against a government that would be too responsive to the will of the mass, was the basic cause for developing corporatist institutions and a government that could dominate, but not monopolise, the political agenda. See Steinmo, Taxation and Democracy, pp. 8–9. 39. U. Jakobsson (ed.), V¨agen till v¨alst˚and. SNS Ekonomir˚ads rapport (Stockholm, 1999), pp. 51–3.

3

An economic background to Berchtesgaden: business and economic policy in Austria in the 1930s Herbert Matis

As an academic teacher, Alice Teichova was always convinced that we could learn from historical experiences. Her knowledge of the circumstances which in the long run led to the catastrophe of World War II encourages us to pay more attention to the inter-relationship of economic and political factors in general. The economic background to the political decline of the Central European states during the inter-war period has been Alice Teichova’s main field of research ever since she took up her doctoral studies at the Charles University of Prague.1 However, one question has remained an open one until the present: why were nationalist and fascist regimes – Czechoslovakia being the remarkable exemption – able to destroy most of the infant democracies which emerged from the Habsburg Empire’s dissolution after World War I? The economic history of the First Austrian Republic serves as an example which clearly demonstrates the connections between economic decline, political destabilisation and the abandonment of national independence.2 From its very beginning the Austrian Republic suffered from an inferiority complex, which must be attributed to psychological rather than rational economic factors. For most Austrians the dissolution of the common economic area of the Habsburg Monarchy meant that the small Austrian successor state – for many ‘the state which nobody wanted’ – was, speaking from an economic point of view, unable to exist. The economic misery of the inter-war years, notably the period of postwar inflation and the following latent economic crisis of the 1920s, seemed to confirm this assumption. In spite of quite favourable preconditions, Austria did not succeed in solving the problems of disintegration and adaptation. This was not only a consequence of political mismanagement but also of unfavourable global economic conditions. The Austrian government under Chancellor Seipel was able to stop post-war hyperinflation with the help of a League of Nations loan but, thanks to a strict monetary regime which advantaged only foreign capital, it failed to initiate economic growth. This policy, also encouraged by the League of Nations 42

An economic background to Berchtesgaden

43

commissioner in Austria, contributed to growing social conflict as well as political antagonism. Many contemporaries considered Austria’s integration into a larger economic area, be it the Danubian Confederation or the ‘Anschluss’ with the Weimar Republic, the only solution. These tendencies increased during the economic crisis of the 1930s. Although the authoritarian Austrian Corporatist State attempted to steer an independent course in order to gain credibility as the ‘better Germany’, it lacked the support of its own population. This was the result of the polarisation of its domestic political life, the opposition of the labour movement and trade unions, and the failure of the government’s economic policies to master the severe economic crisis as well as to fight the rising unemployment rate of the 1930s. By the time Chancellor Kurt Schuschnigg was pressured into making a number of political concessions during his meeting with Hitler at Berchtesgaden, Austria was already in an advanced stage of demoralisation as a result of economic exhaustion, civil war and ‘Austrofascism’. The concessions made at Berchtesgaden, de facto, paved the way for the Nazi takeover in Austria, the ‘Anschluss’ of 13 March 1938. The background of the ‘Anschluss’ is still very much the subject of public debate because of Austria’s involvement in Nazi Germany’s persecution policy, slave labour and war atrocities. The question remains: was Austria the ‘first victim’ of German aggression or its ‘willing ally’? There exists enough historical evidence to show that Austria was occupied illegally and against the will of the existing Corporatist State and that of the vast majority of her population. While in a legal sense the Austrian state ceased to exist after the ‘Anschluss’, it is evident that many Austrians welcomed the unification with Germany or were even personally involved in Nazi crimes. The question of ‘how’ seems to overshadow the question of ‘why’ so many people opted for the ‘Anschluss’. One has to take into account the economic background of the Berchtesgaden agreement in order to understand fully the Austrians’ unpreparedness to defend their own state. Austria during the Great Depression In the inter-war period Austria’s economy experienced a phase of contraction. During this time the average national income fell appreciably behind that of other industrial countries. This was the result of the severe interruptions to economic growth after World War I, during the immediate post-war period, and even more during the Great Depression of the 1930s. Even the short ‘recovery’ of the mid-1920s was relatively weak in Austria.3 Subsequently, the long-term slump during the 1930s was

44

Herbert Matis

more persistent than in other countries. In contrast to the German Reich, which followed a policy of forced rearmament from the mid-1930s – thereby mobilising all its economic resources – the situation in Austria was dominated by the traumatic experiences of the Depression until 1937–8. The Depression was of great significance for the future of Austria. It can rightly be stated that the economic policy, and even the thought, of the Second Austrian Republic were greatly influenced by the experiences of the 1930s. Many ideas concerning the maintenance of Austria’s economic growth and employment, its budgetary and exchange policy, and its economic relations with other countries, have to be considered within the context of its economic history.4 The economic world order and even the numerous efforts to achieve economic integration after World War II have also to be regarded as consequences of the experiences of the inter-war period. The long-term slump, triggered off by the crash of the New York stock market on 24 October 1929, became apparent in the Austrian economy as early as 1931, and by 1933 the effects were significant. In comparison with 1929, GDP had shrunk by 28.5 per cent in real terms. Industrial production fell by as much as 38 per cent and the output of the construction industry dropped by as much as 53 per cent over the same period. By 1933 the unemployment rate of the Austrian workforce had increased to 27.2 per cent of all employees, or 16 per cent of the total labour force. A period of persistent depression followed the crisis of 1931. Although the Austrian economy experienced a slight recovery from 1934 onwards, it was, compared with other countries, in a state of stagnation until the end of the 1930s. In 1937, GDP reached only 86.5 per cent of its 1929 level, or 90.9 per cent of that in 1913. The banking crisis of 1931 gave the Great Depression its special characteristics in Austria. The insolvency of the Creditanstalt, in particular, meant a shock for the banking system inside and outside Austria, especially in the countries of Central Europe. It triggered off a series of far-reaching economic and political reactions. International financial diplomacy, in co-operation with the Austrian government, attempted to introduce the necessary measures of support which were needed in order to limit the damage, as well as prevent the further spread of the international financial and currency crisis. These attempts clearly revealed the nexus of political and economic, and public and private interests.5 The banking crisis was, in the long run, a consequence of the thorough reorganisation of the Austrian credit system. This had been brought about by a process of contraction resulting in the survival of only two of the former eight big Viennese banks: the Central European L¨anderbank and the Creditanstalt-Wiener Bankverein, which had merged in 1931. The share capital was taken up by foreign investors, the Austrian state and the

An economic background to Berchtesgaden

45

Austrian National Bank. Both the Austrian state and the Austrian National Bank guaranteed the big banks’ debts up to 1,000,000 Austrian Schillings in 1931 and 1934. After the ‘Anschluss’ the National Bank had to facilitate the ‘Germanification’ of Austria’s biggest bank, i.e. the takeover of the majority of its share capital by the Deutsche Bank. This marked the ultimate failure of the Austrian banks’ Central European Grossraum strategy, which they had continued to pursue after the First World War. Although Austrian investment had remained in the Habsburg Monarchy’s successor states, the multi-national nature of day-to-day credit operations had finally disappeared. Looking at the long-term development of real GDP, with 1913 as the benchmark year, one can see that only three years in the interwar period (namely 1928, 1929 and 1930) topped the benchmark line (see figure 3.1). The best year, 1929, exceeded the 1913 level by only 5.1 index points. Even at the end of the 1930s, this peak was not surpassed. Thus the ‘dynamics of contraction’ became the essential feature of the Austrian economy. In general, it was a characteristic of the 1930s Depression that falling demand for goods and services caused prices to fall. Falling demand usually affected capital goods first. The employment rate in this sector fell, resulting in decreasing income levels on a large scale. Consequently, the demand for consumer goods fell. Producers of consumer goods cut their investments and the demand for capital goods decreased, thus creating a vicious circle of economic problems. From 1936 onwards, a certain degree of relaxation could be felt. The aggregate production index (1913 = 100; 1929 = 121.9) had already reached 104.8 and in June 1937 (129.2) the level of 1929 was clearly exceeded. But in 1936 the producer goods sector still lagged behind the peak of 1929 by about 25 per cent. Only in 1937 (120.7) did the annual average exceed the level of 1929 but only by a slight amount. However, this recovery of the producer goods sector was primarily the result of the post1933 rearmament drive of Germany. The development of the consumer goods sector was even less favourable. Further losses were recorded in 1935 and compared with 1929 the index in 1937 remained comparatively low (1937: 79.4; 1929: 119.2). The lack of any forward planning in Austria’s economic policy made the situation particularly problematic. This naturally affected opinion among domestic investors. Investment fell during the Great Depression by a far higher rate than GNP or other production indices. This, of course, was considered a very negative indicator of confidence in business. Austrian industry did not succeed in carrying out the urgently needed modernisation spurt on its own. Thus the opportunity to adapt to changed market conditions was missed, the clear indication being the fact that investments were cut drastically. In the years from 1924 to 1937 – the period

120 100 80

GDP

60 40 20 0 1919

1920

1921

1922

1923

1924

1925

1926

1927

1928

1929

1930

1931

1932

1933

1934

1935

1936

1937

1938

Figure 3.1 Austrian GDP, 1920–37 (1913 = 100), at 1937 prices ¨ Source: Institut fur ¨ Wirtschaftsforschung (ed.), Osterreichs Volkseinkommen 1913–1963, Sonderheft 14 (1965), p. 38; Felix Butschek, Statistische Reihen zur o¨ sterreichischen Wirtschaftsgeschichte. Die o¨ sterreichische Wirtschaft seit der ¨ industriellen Revolution (Vienna, 1993), Abt 5.1; Butschek, Osterreichische Wirtschaft, p. 217.

An economic background to Berchtesgaden

47

Table 3.1 Macro-economic indicators during the Great Depression, 1929–33 Year

Real GNP∗

%

Investment∗

%

Unemployed

%

1929 1930 1931 1932 1933

11.4 11.0 10.2 9.1 8.8

100 97 89 80 76

1.138 1.007 0.813 0.544 0.459

100 88 71 48 40

283,000 358,000 444,000 557,000 598,000

100 124 157 197 211

∗ million

Austrian Schillings in 1937 values ¨ Source: Siegried Mattl, ‘Die Finanzdiktatur. Wirtschaftspolitik in Osterreich 1933–1938’, in Emmerich T´alos and Wolfgang Neugebauer (eds.), Austro¨ faschismus. Beitr¨age u¨ ber Politik, Okonomie und Kultur 1934–1938 (Vienna, 1988), p. 133; Butschek, Statistische Reihen, Abt. 3.3.

from Austria’s currency stabilisation to the end of its independence – the average rate of investment amounted to only 7 per cent of the aggregate supply of domestic goods and services, compared with 14.3 per cent in 1913. Over the period 1929–33 overall investment fell by as much as 60 per cent (see Table 3.1). New investment simply replaced obsolete plant, and the real value of plant and machinery was therefore maintained at its existing level.6 The onset of the worldwide slump made evident, once more, the structural problems of the Austrian economy, which had temporarily been blurred by the short-lived boom of the 1920s. The economic blizzard brought serious setbacks, especially for those sectors of industry which had, to some degree, managed to adapt to the changed market conditions after the First World War. A further serious effect of the economic crisis – exacerbated by the economic policies of the Austrian Corporatist State after 1933 – was the retardation of the economy’s structural development.7 Economic disintegration after the First World War had sometimes led to atavistic tendencies. Structural backwardness increased during the Depression. For example, agriculture’s share of GNP grew appreciably during the economic crisis, whereas that of industry shrank. At the same time branches of industry that cannot be considered ‘leading sectors’ became more important: raw materials, semi-finished goods and energy (cf. table 3.2). Structural deficiencies in the Austrian economy The endemic crisis in Austria’s economic development during the interwar period led de facto to an interruption of industrialisation.8 This

Table 3.2 Austrian GNP by sector, 1929–37 (in thousands of 1937 Austrian Schillings) Year

GNP

Agriculture

Industry

Handicraft

Construction

Energy supply

Banking and trade

Other

1929 1933 1937

11,358 8,803 9,822

1,332 1,307 1,407

2,896 1,800 2,275

1,631 1,289 1,301

416 197 268

242 246 284

2,760 2,040 2,303

2,081 1,924 1,984

¨ Source: Butschek, Osterreichische Wirtschaft, p. 55.

An economic background to Berchtesgaden

49

Table 3.3 Components of Austrian GDP, 1913–44 (%) Agriculture and forestry

1913 1920 1924 1929 1933 1937 1940 1944

Manufacturing industry

Services

Current prices

Constant 1937 prices

Current prices

Constant 1937 prices

Current prices

Constant 1937 prices

45.0

49.3 41.5 43.0 45.7 40.1 42.0

43.8

14.6 12.8 14.9 14.3

11.2 10.9 12.2 11.7 14.8 14.3 10.4 7.8

39.5 47.6 44.8 42.6 45.1 43.7

45.0 46.5 39.0 42.0

40.4 40.7 46.1 43.7

¨ Source: Institut fur ¨ Wirtschaftsforschung, Osterreichs Volkseinkommen, pp. 37f.

becomes clear as soon as one looks at the components of GDP (see table 3.3). Agriculture’s share of aggregate output rose from 11.2 to 14.3 per cent in real terms from 1913 to 1937. On the other hand, the manufacturing sector’s share fell from 49.3 to 42.0 per cent over the same period. Only after Austria’s integration into the ‘Greater German economic area’ and the onset of a new spurt of industrialisation can a clear reverse trend be observed.9 The world economic crisis furthered the global trend towards protectionism, which had a particularly negative impact on countries which depended on exports. This is especially true of the Austrian economy. The volume of Austrian foreign trade decreased faster than that of world trade. The Austrian Republic, which had been part of a more or less autarkic economic area before the war, experienced a high degree of dependence on foreign trade after the break-up of the Habsburg Monarchy. Many of the former domestic trade patterns were transformed into foreign trade relations. Consequently, structural problems which had been ameliorated by the Dual Monarchy’s protective tariffs became serious problems for the Austrian Republic. Furthermore, as the successor state with the highest level of industrialisation, Austria was confronted with the prohibitive measures of the other successor states. The latter introduced trade barriers in order to ensure their own economic development. The situation was made even worse by the fact that Austria, as a small state, had to import ‘complementary’ goods such as raw materials and food, whereas its exports, which consisted mainly of ‘dispensable’ manufactured goods, were affected by the other countries’ trade barriers. Under

50

Herbert Matis

Table 3.4 Index of aggregate foreign trade (1929 = 100)

World Austria

1929

1932

1933

1934

1935

1936

1937

100.0 100.0

74.5 53.1

75.5 50.9

78.0 53.8

82.0 56.6

85.5 57.3

n.a. 67.9

¨ Source: Monatsberichte des Osterreichischen Instituts f¨ur Konjunkturforschung, vol. XII, p. 53.

these conditions Austria’s trade balance remained decidedly negative after the First World War and Austria’s external economic relations were highly unbalanced.10 ¨ The ‘Osterreichische Institut fur ¨ Konjunkturforschung’ (Austrian Institute for the Research of Business Cycles) used a ‘quantum index’ for measuring movements in the volume of foreign trade (table 3.4). Here it can be seen that Austria’s trade followed world trends, declining after 1929, though at a steeper rate. Export volumes matched the overall trend, both in aggregate and in relation to individual sectors (except finished goods). Nevertheless, exports were not the central point of the foreign trade dilemma. Compared with other countries, Austria enjoyed an impressive export level per capita, which was significantly higher than those of the other successor states of the Habsburg Monarchy. The negative balance of trade resulted from the considerable import surplus in food and coal, which a very positive trade balance in finished goods was unable to counteract (table 3.5). However, a reduction in the size of the trade deficit was achieved by 1933 and the volume of foreign trade increased slightly. But the levels of 1929 were not to be reached (imports: 3.3 billion Schillings, exports: 2.2 billion Schillings; trade deficit approximately 1.1 billion Schillings). The economic crisis caused long-lasting structural changes in foreign trade. Imports and exports fell to 35 per cent of 1929 levels. Nevertheless, the trade deficit was reduced substantially after 1933. From 1933 to 1937 exports rose by 57.4 per cent and imports by only 26.5 per cent. This was achieved by a general reduction in consumption via the introduction of various restrictive measures, such as currency restrictions, high protectionist tariffs and the devaluation of the Schilling in 1933. In addition, the Depression led to a decrease in demand for energy and in government efforts to improve agricultural productivity, as well as a tighter regulation of the economy. On the other hand, exports were stimulated by a boom in the international trade in arms, although this led to a problematical reorientation of Austria’s export industries, which

An economic background to Berchtesgaden

51

Table 3.5 The balance of trade by sector, 1924–37 (in millions of Austrian Schillings) Sector Food, drink and tobacco Mineral fuels Other raw materials and semi-finished goods Finished goods Balance of trade

1924

1929

1933

1937

−1112.9 −282.5 −380.5

−913.0 −262.7 −228.2

−340.1 −119.9 −121.5

−353.8 −102.2 −154.1

298.5 −1477.0

330.2 −1074.0

204.9 −376.6

373.3 −236.8

¨ Source: Osterreichs Volkseinkommen 1913–1963, Sonderheft der Monatsberichte ¨ des Osterreichischen Instituts fur ¨ Wirtschaftsforschung (Vienna, 1965), pp. 67f.

shifted towards raw materials and semi-finished goods to the detriment of finished goods. However, the terms of trade moved in Austria’s favour. As had been the case in the second half of the 1920s, world market prices for raw materials and food tended to decline, whereas prices for manufactured goods remained relatively stable. This trend was favourable for Austria’s export industries.11 On the whole, there were positive developments on the current account. In 1937 a surplus of approximately 37 million Schillings was achieved. Despite temporary German economic sanctions (the 1,000 Mark spending limit, 1933–6), the improvement in the balance of payments was due to a substantial share of the tourism industry. Austria’s foreign trade was, to some extent, successfully diversified during the 1930s, although Germany remained the most important single trading partner, as it had been since the 1920s. However, trade relations with other authoritarian countries, especially Hungary and Italy became increasingly important for the Austrian state. During the two decades of the First Republic tourism became an important economic factor, even though it was susceptible to foreign political influences. In the years of post-war inflation many foreign visitors from hard-currency countries were attracted by low prices. This Austrian ‘sale’ was stopped by the stabilisation of the currency. After the currency reform, the Austrian government made great efforts to promote tourism on a more solid basis by investing in culture (the Salzburg and Vienna festivals) and infrastructure (roads, cable cars, hotels). Consequently, the number of tourists visiting Austria rose by 82 per cent from 1923 to 1929/30. Of course, the onset of the world economic crisis stopped this favourable development. Tourism proved highly sensitive to the effects of recession. Declining incomes and various kinds of currency

52

Herbert Matis

and travel restrictions – the result of balance of payments difficulties – took their toll on Austria’s tourism industry. Hitler’s introduction of the ‘1,000 Mark limit’ in 1933, aimed at restricting German tourists’ expenditure in Austria, was intended to further the destabilisation of Austria’s crisis-ridden economy and thus prepare the way for the National Socialist takeover.12 In 1935, due to the recovery of the European economy, an improvement set in, which was furthered when Germany lifted its sanctions in July 1936. In the tourist season of 1936–7 the number of tourists staying overnight was the same as in the season of 1929–30, which contributed substantially to a balance of payments surplus in that financial year. The economic crisis of the 1930s led to major structural changes. The share of domestic Austrian tourists rose to 66.8 per cent of total tourism (measured by numbers of overnight stays) and was significantly higher than before (1929–30 = 57 per cent). Although German tourists made up the greatest number of visitors to Austria (24.2 per cent compared with Czechs 19.4 per cent, Hungarians 10.5 per cent and British 8.5 per cent), Germany’s position was far less dominant than in 1929–30, when its share amounted to 51.2 per cent. On the other hand, there were scarcely any changes in the seasonal distribution of Austrian tourism. In spite of an advertising campaign for winter tourism, by the end of the First Republic approximately 80 per cent of the tourists staying overnight still preferred the summer season. Mass unemployment and its political impact The dramatic rise of mass unemployment in Austria was a particularly severe element in the economic crisis. The failure to solve this problem can be clearly attributed to the collapse of the First Republic. Compared with Western Europe, Austria’s demographic development showed regressive elements. The birth-rate fell during the inter-war period and Vienna in particular experienced a decline in its population. One cause of the falling birth-rate was the rise in the ratio of older people (aged fifty-five and over) to the total population, which also had negative effects on inner migration and local mobility and furthermore led to a declining demand for goods. In the period 1918–37 more than 80,000 Austrians emigrated for economic reasons. Most of them went overseas but a few took up jobs as seasonal workers in Germany and France. The phenomenon was even supported by Andreas Thaler, Minister of Agriculture, who organised a large-scale emigration to South America. The peak of emigration was reached in the 1920s, since as a result of the Great Depression most countries drastically restricted immigration. Another strategy in the war on unemployment was ‘internal colonisation’,

An economic background to Berchtesgaden

53

700 600 500 400 300 200 100 0 1915

1920

1925

Figure 3.2 Unemployment ’000s) Source: Monatsberichte des forschung, vol. XII (Vienna, Abt. 3.3.

1930

193 5

1940

in Austria, 1919–39 (annual average in ¨ Osterreichischen Instituts f¨ur Konjunktur1938), p.70; Butschek, Statistische Reihen,

whereby unemployed workers cultivated waste land, constructed small cottages to live in and produced their own agricultural products. In 1929 Austria’s total population amounted to approximately 6.7 million, with a third living in Vienna. The number of people in dependent employment was about 1,998,000. Thus the proportion of people in dependent employment out of the total population was about 30 per cent. This indicates that in Austria, as in many other countries, the level of ‘unemployment’ (amounting to 192,000 even in 1929) was already quite high in the 1920s, well before the onset of the Great Depression (see figure 3.2). This high level may be attributed to conditions prevailing at the onset of the Depression, such as the political and socio-economic consequences of the First World War, the effects of rationalisation and the severely depressed mass purchasing power resulting from inflation. But once structural and cyclical unemployment coincided, the shattering effects of mass pauperisation caused the ‘big crisis in a small country’ (Dieter Stiefel).13 In 1929 the unemployment rate was fairly high (average 8.8 per cent), and it reached its absolute peak of 25.9 per cent in 1933. However, as late as 1937 it stood at 21.7 per cent. According to the estimates of the Institute for Cyclical Research the highest proportion of unemployed, who did not receive unemployment benefits, was 40 per cent.14 However, the pro-cyclical policy of the Austrian government was the most important cause of unemployment from 1933 onwards. The huge

54

Herbert Matis

army of unemployed people was hardly reduced at all during the years of the Corporatist State.15 The average number of people looking for a job amounted to 321,000 in 1937 (in contrast to 406,000 at the height of the economic crisis in 1933). But these numbers do not reflect the actual conditions of the labour market, since, for instance, neither schoolleavers nor the ‘Ausgesteuerten’ – people who, after reaching a certain age, were entitled to only a minimal amount of benefit in the form of a pension – were included. Also women whose maternity leave had ended, and who consequently were no longer entitled to unemployment benefit, were not registered as unemployed. Taking this ‘invisible unemployment’ into account, the number of unemployed was still over half a million in 1937 and approximately 300,000 in 1938. Unemployment was the most serious economic, social and political problem in Austria in the inter-war period. Failure to master this problem contributed decisively to the demise of both the Corporatist State and the First Republic. Even in 1937 every fifth blue-collar or white-collar worker was still out of work and the economic policies pursued scarcely left hope for improvement.16 In 1933 the sociologists Paul Lazarsfeld, Maria Jahoda and Hans Zeisl published their highly acclaimed book, The Unemployed of Marienthal, which has since become a classic work of empirical social research. They analysed the destructive and demoralising consequences of long-term unemployment in a cotton-spinning community near Vienna.17 The failure of Austrian democracy When the economic crisis deepened, the democratic system of Austria came to an end in 1933. On 4 March, all three presidents of the Austrian parliament resigned in a panic reaction after a formal error during a vote. Consequently, the parliamentary session could not be closed, a situation that had not been foreseen in the constitution. Three days later Chancellor Engelbert Dollfuss declared that the parliament had dismissed itself, and he established an authoritarian Corporatist State. One cannot simply draw the conclusion that the collapse of the Austrian democratic system was only a result of the economic situation. However, there is no doubt that the economic problems had a negative effect and accelerated the decay. The financial and monetary policies pursued by the Corporatist State were not altered and they remained inadequate. The restructuring of the Austrian banking system contributed to a great extent to the weakening of the government’s financial resources. This was carried out by the government providing subsidies – a move justified with the phrase ‘socialisation of losses’ – which resulted in extremely negative

An economic background to Berchtesgaden

55

consequences for the Austrian economy. Partly due to the strong pressure exerted from abroad, the state and the bank of issue took on liabilities totalling approximately 1 billion Schillings, which made up about 10 per cent of current GNP. The idea of a huge national debt had a negative effect on public opinion, which again had a negative impact on the economic policy of the 1930s.18 The most important problem was the restructuring of the Austrian banking system. The reconstruction of the Creditanstalt was carried out, resulting in two agreements: the first one agreed by the federal state and the National Bank in August 1932 (the ninth Creditanstalt law) and the second one, which was without doubt a very poor arrangement, agreed by the Creditanstalt’s foreign lenders in January 1933. Due to the progress in consolidation the government was able to withdraw from its guarantee of the Creditanstalt’s deposits in July 1934. The closing chapter of this crisis was written in 1936, when a new arrangement was negotiated with the bank’s foreign lenders. The new agreement laid down that the original debt plus interest was to be reduced by about a half. But as a result of the economic crisis, the other two large Viennese banks, the Wiener Bankverein and the Niederosterreichische ¨ Escompte-Gesellschaft, had got into increasing difficulties. The federal government had to bail them out too. Consequently, an ‘Audit and Trustee Administration Society’ was established. The federal government and the Austrian National Bank participated in the establishment of a guarantee fund of 140 million Schillings and paid 100 million and 40 million Schillings respectively. The Audit Society was able to take over new shares of the Niederosterreichische ¨ Escompte-Gesellschaft and the Wiener Bankverein worth 25.3 million and 6.2 million Schillings respectively. Despite these considerable amounts, the desired success did not materialise, as the banks’ businesses continued to contract and, despite drastic cuts in employees’ salaries and pensions, bank charges remained too high in relation to the reduced amount of business. Thus it was decided to complete the process of banking concentration. The Wiener Bankverein and the Creditanstalt were merged on equal terms and the Creditanstalt-Wiener Bankverein came into being. At the same time, the new bank took over the banking business of the Niederosterreichische ¨ Escompte-Gesellschaft, whose industrial investments were transferred to ¨ the holding company Osterreichische Industriekredit AG.19 The gradual transformation of the banking system into a monopoly, and the negative impact on the insurance sector caused by the bankruptcy of the Phoenix Insurance Company in 1936,20 may be attributed, in the long run, to the consequences of the general economic crisis. As in the 1920s, Austrian economic policy aimed only at dealing with the effects of the Depression

56

Herbert Matis

instead of dealing with its causes. Economic policy attempted to prop up the tottering house of the Austrian economy instead of trying to dam the elemental flood which threatened to wash it away. This happened at a time when effective actions to overcome the crisis were already being taken in other countries. However, in Austria, a kind of ‘pseudo-liberalism’ dominated economic thought. By raising taxes, reducing state expenditure and sticking to an unrealistically high exchange rate the government contrived to exacerbate the effects of the deflationary course. Thus Austrian financial and monetary policy represented a continuous spectrum of ‘pure liberal’ economic ideas as propagated by renowned Austrian economists such as Mises, Hayek, Machlup and Morgenstern.21 Budgetary matters were treated accordingly. The politicians responsible for devising the state’s budget followed the same rules that applied to the budget of a private household: ‘The principle of order in the national budget remains unshakeable, expenditure is limited to income.’22 There was absolutely no sympathy for actively stimulating the economy through fiscal measures. A largely restrictive lending policy was maintained and consequently deflationary pressures, with all their social and economic disadvantages, were intensified. Austria went on saving and rationalising and preferred to put up with massive unemployment rather than jeopardise the newly won stability of its currency by expanding the credit supply.23 On the other hand, the effects on the monetary and financial sector were ‘positive’. A balanced budget had been achieved and consequently the Austrian Schilling was regarded as one of the hardest currencies in the world (‘Alpendollar’). The currency reserves (gold and foreign currency backed by gold) were increased from an average of 193 million Schillings in 1933 to an average of 362 million in 1937 and consequently the cover ratio rose from 18.5 to 31.1 per cent. Another positive effect was the elimination of the balance of payments deficit in 1936/7, for the first time during the inter-war period. However, this was brought about at the cost of continuing unemployment and a further loss of economic strength. This kind of financial policy was carried out in the interests of foreign capital, which was represented by the League of Nations’ Dutch finance commissioner, Meinoud Rost van Tonningen, who had been appointed to his post in Vienna in the wake of the League’s Lausanne loan, and who personally sympathised with the Nazi movement.24 The inability to overcome the economic misery as well as the feeling of hopelessness prevailing amongst Austria’s population provided populist catch-phrases for the National Socialists’ agitation for the ‘Anschluss’. From a political point of view the Corporatist State did whatever was

An economic background to Berchtesgaden

57

Table 3.6 Budgetary expenditure on ‘productive unemployment relief’, 1935–7 Type of expenditure Total (in million Schillings) Distribution (%): Labour service Agriculture, irrigation Road construction Defence Railways Other

1935

1936

1937

227

173

208

9.7 13.1 23.6 12.0 16.5 25.1

4.1 5.8 18.3 20.1 24.6 27.1

1.8 5.8 21.3 44.9 12.2 14.0

¨ Source: Monatsberichte des Osterreichischen Instituts f¨ur Konjunkturforschung, vol. XII, p. 53.

feasible to reject National Socialist advances. But its misconceived economic policies further paralysed the population’s spirit of resistance. Even the ‘productive unemployment relief’ (see table 3.6) (the ‘Employment Battle’ of 1935), introduced by the government in order to counteract National Socialist propaganda, remained an improvisation. The only item of the budget that was continuously increased up until 1938 was expenditure on defence and the police. One of the most disastrous consequences of the government’s failure to master the severe economic crisis was the subversive ‘Nazification’ of the old middle class in the course of the Great Depression. From 1932 a large number of businessmen became members of the so-called ‘Notgemeinschaften’, which organised a series of mass demonstrations against the Corporatist State’s policy. Some of them made closer contact with the ‘NS-Handels- und Gewerbering’ which had been established in Vienna a year earlier. In the Alpine provinces the ‘Hagenbund’, representing the traditional small business class strongly influenced by the former pan-German movement, also moved towards National Socialism. When the NSDAP (Nationalsozialistische Deutsche Arbeiterpartei) was declared illegal by the Corporatist State, businessmen lost their shop concessions when found guilty of being a member of the forbidden party. Nevertheless, since the agreement of July 1936 more and more groups of the former Christian Socialist-oriented small business class were attracted to the NSDAP.25 Of even greater importance was the Nazis’ influence on leading Austrian industrialists. Since the mid-1930s prominent entrepreneurs and managers financed and even joined the illegal NSDAP,26 whereas some members of the leading group of the ‘Hauptverband

58

Herbert Matis

der Industriellen’, which officially supported the policy of the Corporatist State, were organised in the so-called ‘SA-Industriesturm’,27 which collected money for the illegal party and acted as the ‘fifth column’ in Austrian industry. In contradiction to long-standing interpretations that German bankers and industrialists had had a substantial influence on the Austrian economy, as, for instance, was emphasised by Norbert Schausberger and Karl Stuhlpfarrer,28 German capital holdings represented no more than 10 per cent of the total share capital of industrial firms (with the exception of electricity and mining) and about 8.5 per cent of the share capital of banks. In 1937 Germans held a majority stake in only 8.8 per cent of the total number of large firms (firms with more than 1,000 employees).29 However, counting firms is only an approximate yardstick for mea¨ suring influence. The Osterreichische Alpine Montangesellschaft, the most important company of Austria’s heavy industry, was controlled by Dusseldorf ¨ Vereinigte Stahlwerke AG from the 1920s. The Alpine, the Vienna branch of Siemens Schuckert AG, and the Reichsbahn, which owned Schenker’s forwarding company as well as the Mercur Bank, were considered to be outposts of Nazi penetration during the mid-1930s. Nonetheless, it seems that in general no significant ‘Germanification’ of the Austrian economy took place before the final ‘Anschluss’ on 13 March 1938. Due to the large national debt and the liabilities of the big banks, initiatives concerning employment remained limited in scope. Influenced by foreign examples, the government initiated three employment programmes, accompanied by considerable propaganda, between 1933 and 1937. However, these remained more or less ineffective measures to fight mass unemployment. Although they were financed through orthodox means by domestic loans, the main part of the revenue raised was not used productively but went on servicing the national debt. In 1937 it could be asserted with perfect accuracy and unconcealed satisfaction that Austria’s economic policy had resisted every temptation to break its agreements with foreign creditors in order to create more jobs.30

As late as early 1938, when the loss of Austria’s independence seemed inevitable, the existing economic dogmas were unflinchingly followed. Thus, on 24 February 1938, Chancellor Kurt Schuschnigg, speaking before the Bundesrat, the second chamber of the federal legislature, declared once more the government’s intention to ‘preserve the full freedom and independence of the Austrian fatherland with all our power’. He went

An economic background to Berchtesgaden

59

on to confirm the validity of the principles of Austria’s monetary and financial policies: The government is resolved to hold fast to its constructive economic policy. There is a good basis for doing so. The Austrian budget, which is fully under the control of public scrutiny, is balanced. Our debts to foreign creditors have been more than halved in the past five years. The foreign currency and gold reserves of the National Bank rose by 57 million Schillings in 1937 . . . The financial and monetary policies which Austria has pursued during the past five years have therefore proved highly successful. They have led us upwards in difficult times. These policies will remain substantially unchanged.31

In a series of articles, the German economic historian Knut Borchhardt examined the question of ‘scope of action’ during the economic crisis.32 He pointed out that the scope for alternative courses for German economic policy was rather limited. Felix Butschek arrived at analogous conclusions concerning the Austrian situation: ‘Changes in detail may have been possible but not in the main thrust of policy.’33 However, the emphasis on ‘irresistible forces’ has to be modified for the period after 1933. In contrast to Germany, the basic orientation of Austria’s economic policy was not changed at all by its corporatist-authoritarian government. The same was true of its commitment to a balanced budget and a stable currency.34 Ernst Wagemann, head of the Berlin Institute for Cyclical Research, apart from his German propaganda, was right in his withering condemnation of the Austrian Corporatist State: While other countries made use of the state’s borrowing capacity to ameliorate suffering and unemployment, Austria was obliged to its foreign creditors to limit government expenditure to the bare minimum. But what the foreign creditors demanded was to a large extent identical with what Austrian governments themselves considered to be the most appropriate economic policies between 1932 and 1938.35

It was in the long run due to economic stagnation and mass unemployment that Austria became an easy target for the psychological and physical offensives of National Socialism. In the autumn of 1937 Gottfried Kunwald, economic adviser to the former Chancellor Ignaz Seipel, stated that there were ‘higher goods than economic goods, the safety of the country’s money and the reliability of its financial values’. He thus referred to ‘the economic connection of the individual with the state’. But at a time when the state was waging war ‘against its own population’, statements like his remained of only peripheral impact. Due to its misconceived economic policies the Austrian government had lost the battle for its own people long before 1938.36

60

Herbert Matis

    1. See Alice Teichova, An Economic Background to Munich. International Business and Czechoslovakia 1918–1938 (Cambridge, 1974). 2. See Hans Kernbauer, Eduard M¨arz and Fritz Weber, ‘Die wirtschaftliche ¨ Entwicklung’, in Erika Weinzierl and Kurt Skalnik (eds.), Osterreich 1918–1938. Geschichte der Ersten Republik (Graz, 1983), pp. 343–80; Felix Butschek, Die o¨ sterreichische Wirtschaft im 20. Jahrhundert (Stuttgart, 1985), pp. 28–58. 3. See Peter Berger, ‘The Austrian Economy, 1918–1938’, in John Komlos (ed.), Economic Development in the Habsburg Monarchy and the Successor States (New York, 1990), pp. 270–84. 4. Karl Bachinger and Herbert Matis, Der o¨ sterreichische Schilling. Geschichte einer W¨ahrung (Graz, Vienna and Cologne, 1974), p. 147. 5. Dieter Stiefel, Finanzdiplomatie und Weltwirtschaftskrise – Die Krise der CreditAnstalt im Jahre 1931 und ihre wirtschaftlich-politische Bew¨altigung (Frankfurt, 1988), p. 4. 6. Karl Bachinger, ‘1918–1945’, in K. Bachinger, H. Hemmetsberger-Koller and H. Matis (eds.), Grundriss der oesterreichischen Sozial- und Wirtschaftsgeschichte von 1848 bis zur Gegenwart (Vienna, 1987), p. 59. 7. Karl Bachinger and Herbert Matis, ‘Strukturwandel und Entwicklungsten¨ denzen der Montanwirtschaft 1918–1938’, in Osterreichisches Montanwesen, Festschrift for Alfred Hoffmann (Vienna, 1974), pp. 106–43. 8. The Great Depression was indeed a worldwide phenomenon, though its effects were variable. Austria’s GNP fell to 20 per cent below the level of 1913, whereas even in the worst year the United States’ GNP remained 9 per cent above the pre-war level. 9. Bachinger, ‘1918–1945’, p. 59. 10. Ibid., pp. 67f. 11. Ibid., p. 68. 12. Gustav Otruba, ‘Die große Wandlung im osterreichischen ¨ Fremdenverkehr als Folge der 1000-Mark Sperre’, in Paul W. Roth (ed.), Beitr¨age zur Handelsund Verkehrsgeschichte (Graz, 1978), pp. 187–217. ¨ 13. Dieter Stiefel, Die große Krise in einem kleinen Land. Osterreichische Finanzund Wirtschaftspolitik 1919–1938 (Vienna, Cologne and Graz, 1988). ¨ 14. Monatsberichte des Osterreichischen Instituts f¨ur Konjunkturforschung, vol. II (Vienna, 1938), p. 45. 15. Bachinger, ‘1918–1945’, p. 51. 16. Dieter Stiefel, Arbeitslosigkeit. Soziale, politische und wirtschaftliche Auswirkun¨ gen – am Beispiel Osterreichs (Berlin, 1979), p. 29; Wolfgang Russ, ‘Zwischen Protest und Resignation. Arbeitslose und Arbeitslosenbewegung in der Zeit ¨ der Weltwirtschaftskrise’, Osterreichische Zeitschrift f¨ur Geschichtswissenschaft, 2 (1990), 23–54. 17. Maria Jahoda, Paul Lazarsfeld and Hans Zeisel, Die Arbeitslosen von Marienthal. Ein soziographischer Versuch [Leipzig, 1933] (new edition, Frankfurt, 1975). 18. Bachinger, ‘1918–1945’, p. 78.

An economic background to Berchtesgaden

61

¨ 19. See Stiefel, Finanzdiplomatie, passim; Hans Kernbauer, ‘Osterreichische W¨ahrungs- Bank- und Budgetpolitik in der Zwischenkriegszeit’, in Emmerich T´alos et al. (eds.), Handbuch des politischen Systems. Erste Republik 1918–1938 (Vienna, 1995), pp. 552–69; Aurel Schubert, The Credit-Anstalt Crisis of 1931 (Cambridge, Mass., 1991). 20. Isabella Ackerl, ‘Der Phonix-Skandal’, ¨ in Das Juliabkommen von 1936. Vorgeschichte, Hintergr¨unde und Folgen (Vienna, 1977), pp. 241–79. 21. See Franz Baltzarek, ‘Ludwig von Mises und die osterreichische ¨ Wirtschaftspolitik in der Zwischenkriegszeit’, Wirtschaftspolitische Bl¨atter, 29 (1982). ¨ 22. Der Osterreichische Volkswirt, 19 December 1936, p. 239. 23. Hans Kernbauer, W¨ahrungspolitik in der Zwischenkriegszeit. Geschichte der Oesterreichischen Nationalbank von 1923 bis 1938 (Vienna, 1991), passim. 24. Peter Berger, Im Schatten der Diktatur. Die Finanzdiplomatie des Vertreters des ¨ V¨olkerbundes in Osterreich Meinoud Marinus Rost van Tonningen 1931–1936 (Vienna, Cologne and Weimar, 2000). 25. Stefan Eminger and Karl Haas, ‘Die Nazifizierung von Handel, Gewerbe ¨ und Industrie in den 1930er Jahren in Osterreich’, in Alice Teichova, Herbert Matis and Andreas Resch (eds.), Business History. Wissenschaftliche Entwicklungstrends und Studien aus Zentraleuropa (Vienna, 1999), pp. 269–87, especially pp. 270ff; Peter G. Fischer, ‘Die osterreichischen ¨ Handelskammern und der Anschluß an Deutschland. Zur Strategie der “Politik der kleinen Mittel” 1925–1934’, in Das Juliabkommen von 1936, pp. 299–314. 26. Among them were Fritz Hamburger (former president of the ‘Industriellenbund’), Lorenz Rhomberg (Vorarlberg textile industry), Anton Apold (CEO of the German-owned Alpine-Montangesellschaft), Gottfried SchenkerAngerer (Schenker forwarding company), and Philipp Schoeller of the wellknown banking dynasty. 27. Eminger and Haas, ‘Nazifizierung’, pp. 274–8; Herbert Matis, ‘Die Spedition Schenker & Co w¨ahrend der NS-Zeit’, in Teichova, Matis and Resch, Business History, p. 296. ¨ 28. Norbert Schausberger, Der Griff nach Osterreich (Vienna, 1978); Karl ¨ Stuhlpfarrer and Ludwig Steurer, ‘Die Ossa in Osterreich’, in L. Jedlicka and R. Neck (eds.), Vom Justizpalast zum Heldenplatz (Vienna, 1975), pp. 35–64. ¨ 29. Franz Mathis, Big Business in Austria. Osterreichische Großunternehmungen ¨ in Kurzdarstellungen (Vienna, 1987); Radomir Luˇza, Osterreich und die Großdeutsche Idee in der NS-Zeit (Vienna, 1977), p. 332. 30. Josef Dobretsberger, quoted by Bachinger, ‘1918–1945’, p. 81. ¨ ¨ 31. Kurt Schuschnigg, Osterreich muß Osterreich bleiben. Die große Rede des Bundeskanzlers und Frontfuhrers ¨ Dr. Kurt Schuschnigg am Bundestag. ¨ Quoted in Monatsberichte des Osterreichischen Instituts f¨ur Konjunkturforschung, vol. III (Vienna, 1938). 32. See also Alice Teichova, ‘Die Wirtschaftspolitik der kleinen Nationen in Mittel- und Osteuropa. Sachzw¨ange und Handlungsspielr¨aume in der Zwischenkriegszeit’, in Wolfram Fischer (ed.), Sachzw¨ange und Handlungsspielr¨aume der Wirtschafts und Sozialpolitik der Zwischenkriegszeit (St Katherinen, 1986) , pp. 116–41.

62

Herbert Matis

33. Felix Butschek, ‘Die wirtschaftspolitischen Alternativen in der Stagnationsperiode 1933 bis 1937’, Wirtschaftspolitische Bl¨atter (1984); Felix Butschek, ¨ Osterreichische Wirtschaft im 20. Jahrhundert (Stuttgart, 1985), p. 58. 34. Fritz Weber, ‘Staatliche Wirtschaftspolitik in der Zwischenkriegszeit’, in T´alos et al., Handbuch, pp. 531–51. 35. Quoted by Bachinger, ‘1918–1945’, p. 81. ¨ 36. See Reinar Matthes, Das Ende der Ersten Republik Osterreich. Studien zur Krise des parlamentarischen Systems (Berlin, 1979).

4

Business, politics and revolution in early twentieth-century Ireland Philip Ollerenshaw

Exploration of the relationships between business and politics in early twentieth-century Ireland offers the opportunity to examine how businessmen responded to widespread violence and partition of the country in 1920. The emergence of modern paramilitary groups, most notably the Ulster Volunteer Force (UVF) in 1913 and the Irish Republican Army (IRA) from about 1918, had important implications for business activity. Business enterprise operated in an environment sometimes characterised by the rule of law, sometimes by lawlessness. An increasingly common feature of this period, especially in the north-east, was workplace violence, the repercussions of which were national in scope and which thus affected business in all parts of Ireland. Moreover, some of the themes so often discussed by historians of continental Europe after the First World War find an echo in Ireland: the significance of borders and borderlands; the economic viability of new political units; plebiscites; business boycotts; the treatment of minorities; the establishment of new parliamentary institutions and their relationship to more violent methods. The interaction of business, politics and governments has been a major research area for Alice Teichova for decades. One of her most recent books1 examines the relationships between economic change and nationalism in twentiethcentury Europe and the present chapter might be seen as a contribution to that subject. The problem of north-east Ulster The nature of economic relations between Britain and Ireland, and within Ireland itself, was a major influence on both unionism and nationalism.2 For unionist businessmen, full membership of the United Kingdom provided them with raw materials and financial services from Britain, as well as access to British and imperial markets. In the most important centre of industry, the north-east, much of the labour force subscribed to the Union because it seemed more likely to provide work. For nationalists, by contrast, the Union had exposed Ireland to open, unfair competition 63

64

Philip Ollerenshaw

and had caused industrial decay which only a Dublin government with tariff-raising powers could begin to resurrect.3 In the north-east, business interests had played a critical role in the organisation and finance of militant unionism.4 Although they preferred that all of Ireland remain within the United Kingdom, several factors – religion, fears over taxation, demands for protection of the Irish economy, the political dominance of agrarian interests, and suspicion of the British government – eventually combined to push unionist businessmen in the north-east towards a partitionist solution. In the south, where unionist business interests were much weaker, hopes were placed in Dominion Home Rule which might spare Ireland from partition and keep the country within the Empire. The Irish Dominion League, founded in 1919, judged that this was the only way that ‘antagonisms between Ireland and Great Britain and between North-East Ulster and Ireland might be amicably solved’. Early in August 1920 a deputation of businessmen from Cork lobbied Lloyd George for a Dominion settlement for all of Ireland.5 To a large extent this move was prompted by the rising levels of violence within Ireland which so many firms felt was inimical to their business. As the Dublin Chamber of Commerce put it, the choice was no longer between the Act of Union and Home Rule; rather it was ‘between any form of constitutional government and no government at all’. It called for ‘complete self-government’ for Ireland subject only to the qualifications that it remained within the Empire and that there should be no coercion of Ulster.6 At the same time an influential southern unionist, Godfrey Fetherstonhaugh, a barrister and formerly MP for North Fermanagh, called for ‘independence in the fullest measure’, the north-east remaining part of the United Kingdom but with no separate legislature. The close economic ties between Britain and Ireland would guarantee good relations, while imperial precedents suggested that there was no reason why self-government should not bring ‘peace and loyalty’. The north-east, he forecast, would soon seek reunion with the rest of Ireland.7 By this stage, however, neither the all-Ireland Dominion nor the recommendations and expectations of Fetherstonhaugh had any hope of realisation. Partition introduced a political, and from 1923 a fiscal, boundary between the Irish Free State and Northern Ireland.8 Official data produced shortly after partition, outlined in table 4.1, illustrate just how closely Free State trade depended upon the United Kingdom. In value terms between 1924 and 1930 roughly two-thirds of imports into the Free State came from Britain and at least 10 per cent from Northern Ireland. In exports the dependence on Britain was higher still, at least 80 per cent, while the Northern Ireland market accounted for some 11 per cent of the total. Within exports, agricultural produce predominated. This pattern

Table 4.1 Trade of the Irish Free State, 1924 –30 (including re-exports and parcel post) (£ million) Imports from

% of imports from

Exports to

% of exports to

Years

All countries

Great Britain

Northern Ireland

Great Britain

Northern Ireland

All countries

Great Britain

Northern Ireland

Great Britain

Northern Ireland

1924 1925 1926 1927 1928 1929 1930

68.89 62.95 61.29 60.82 59.85 61.30 56.74

48.03 44.19 39.88 40.61 40.50 41.76 39.64

7.85 6.85 6.47 6.44 6.15 6.12 5.76

70 70 65 67 68 68 70

11 11 11 11 10 10 10

31.38 44.38 41.96 44.85 46.30 47.87 45.73

43.13 36.16 34.87 37.83 39.23 38.94 36.92

7.46 6.48 5.70 5.13 5.32 5.23 4.86

84 83 83 84 85 81 81

14 15 14 11 11 11 11

Source: Empire Marketing Board, Production and Trade of the Irish Free State (London, 1931), p. 18.

66

Philip Ollerenshaw

of trade and dependence had long been evident and had influenced nationalist thought on the economy since the later nineteenth century.9 The need to rebuild an industrial base and strengthen direct trade links with countries other than Britain had long been part of Sinn F´ein thinking. As early as June 1919 the first D´ail debated how a new state might generate trade and industrial growth and wean itself from dependence on Britain. Among various suggestions was the need to counter the operation of English commercial agents in Ireland, to establish a network of distribution warehouses, to explore the potential of waterpower and to provide support for existing industries in the home market. It was also proposed that an industrial bank be established, together with an Industrial Commission to collect data on natural and industrial resources.10 The emphasis on trade was demonstrated by the grant of £10,000 to establish an Irish consular service, first in New York (September 1919), and then in other major trading centres such as Berne, Antwerp, Genoa, Paris and Rotterdam.11 Arthur Griffith, the founder of Sinn F´ein, who participated in many of the early D´ail debates, has been described as ‘an almost Stalinist’ industrialiser, though one quick to denounce the moral and material evils of factory production and large-scale urbanisation. Diffused, small-scale industry should enable Ireland ‘to reconcile production with village life’.12 As has recently been remarked, Griffith’s particular vision was state-led industrial development based on protection, ‘minus the evils of capitalism, materialism and urbanisation’.13 This line of thought was encapsulated by Sinn F´ein writer Aodh de Blacam, in 1921. Arguing that Britain had held back Irish industry, dominated the railways and shipping, influenced the banks and intimidated Irish capital, de Blacam went on to praise Griffith for his ideas on industrial regeneration and Irish resources. However, he was at pains to stress that ‘every Irish social thinker envisages the Gaelic polity as a rural polity. The great crowded cities of Britain and America are regarded in Ireland generally as horrible perversions of the natural order.’14 Such views were bound to colour attitudes to industrial Ulster in general and to Belfast in particular. Moreover they were reinforced by the view that in smaller industrial towns and villages Catholics were deliberately marginalised. An example of this was Bessbrook, ‘a colony planted in the heart of Armagh’, where most of the houses were owned and employment was dominated by the large Bessbrook Spinning Company. There was no town council, but social events at the private town hall were confined to only one section of the local population: ‘the mere Catholic Irish are made to slink along in silence or else they are expelled from the “model village” ’.15

Business, politics and revolution in Ireland

67

In so far as Sinn F´ein had a positive view of Belfast, it was as the cradle of republicanism whose liberty-loving tendencies had been suppressed by sectarianism fomented by the British government. Such a policy had transformed ‘Republican Belfast’ in a few generations into ‘a city the most reactionary, the most lawless, the most disorderly, the most intolerant that is inhabited anywhere by white men’.16 The logic of this view was of course that once ‘external interference’ has ceased, Belfast would rediscover its republican past. Despite its victories elsewhere in Ireland in 1918, Sinn F´ein failed to make much headway in the Belfast region, where most of the Catholic population placed its faith in Joseph Devlin’s more moderate brand of nationalist politics. Moreover, in complete contrast to Ulster unionism, few Sinn F´ein leaders had any experience of large-scale industry or of industrial society and their efforts to put together a programme with more appeal to the Protestant working class were less than half-hearted.17 Eamon de Valera, president of Sinn F´ein between 1917 and 1926, rejected the view that people in the ‘north-east corner’ had any genuine desire for autonomy; rather, British manipulation explained their behaviour: ‘the so-called Ulster difficulty is purely artificial as far as Ireland is concerned. It is an accident arising out of the British connection and will disappear with it.’18 However, there were also occasions when he declared that if Ulster blocked the way to Irish freedom, then ‘it should be coerced’.19 There were always dissenting voices from this view. Father Michael O’Flanagan, vice-president of Sinn F´ein, was averse to coercion, since it would fail just as British coercion of Ireland had failed. He also compared Ireland to France, Italy, England and the USA, all of which had their industries concentrated in the north or north-east, but did not use this as a reason to cut their countries in two. Partition, he claimed at a republican rally in Derry in May 1921, would be a serious inconvenience to Belfast business since it would disrupt trade with the twenty-six counties and in view of this he wondered where the north-east would find alternative markets.20 If de Valera believed that the British connection perpetuated the ‘Ulster difficulty’, there were others who thought that the main reason for the north-east’s adherence to Britain derived from economic self-interest. This enduring line of argument was exemplified by Se´an O’Faolain’s comment in 1940 that ‘Orangeism has never been associated with anything that did not pay’, a remark which was designed to point up the contrast with self-sacrificing nationalists.21 It was a view reiterated in the same year by J. J. O’Kelly, who had formerly been Minister for National Language. Editor of the Catholic Bulletin, president of the Gaelic League and vehemently anti-semitic, Kelly pointed out that industry in the north-east

68

Philip Ollerenshaw

was dependent on Britain and could be brought to a standstill by her if she so chose: Certain it is that in ‘Ulster’ they will do Britain’s bidding while they are pampered through patronage of a hundred kinds, particularly in war-time, through a fluctuating linen industry, through shipyards which England, if she so willed, could convert into a dumping ground strewn with dockweeds, orange blossoms and the fungus which is the fruit of filth.22

The Dail ´ and the Belfast boycott In the early history of the D´ail, the most significant debate on the northeast concerned the economic boycott of Belfast and other northern towns. According to P. S. O’Hegarty, an early historian of Sinn F´ein, the origins of the boycott lay with a number of northern nationalists who had been forced to leave their businesses in Belfast after sectarian rioting there in 1919. On arriving in Dublin they ‘forgot everything except their thirst for revenge upon Belfast’. The boycott apparently started in Tuam, Co. Galway, early in 1920 where local traders and others made a collective decision to boycott commercial travellers from, and goods made in or distributed from, Belfast.23 At this stage of the boycott the aim was simply to secure the reinstatement of those nationalists who had been forced to leave. In the following months, however, with rising unemployment, sectarian violence in the north-east became much more serious and one of the most enduringly significant manifestations of this was the expulsion of several thousand, mainly Catholic, workers from shipyards and elsewhere from July 1920.24 Given that earlier sectarian riots had already led to a sporadic and unco-ordinated boycott of Belfast goods, it might have been expected that some more organised response would follow the expulsions of July 1920. Even The Times, which noted the ‘bitter feeling in the South’ generated by the Belfast unionists’ ‘declaration of war’ on local nationalists in the workplace, wrongly considered it unlikely that Sinn F´ein would encourage ‘any policy of retaliation’.25 In fact it was these expulsions that provoked the first major debate on the north-east in the D´ail. Belfast-born Se´an MacEntee, deputy for Monaghan South, presented a memorial from nationalists in his home city which drew attention to the ‘war of extermination now being waged against us’. More specifically the memorialists noted the expulsion of 5,000 workers and appealed to the D´ail ‘to take up this straight challenge and fight Belfast, the spearhead of British power in Ireland’. Aware that an unofficial boycott of Belfast goods had already started, it called for

Business, politics and revolution in Ireland

69

Figure 4.1 Ireland at partition (December 1920)

the boycott to be stringent and national in scope. Of course the boycott of many Belfast products, especially ships, would hardly have been a major threat, but the memorialists shrewdly identified two areas where their proposed campaign could have real effect: the distributing trade and the banks. If the D´ail responded positively to the idea of a boycott the memorialists argued that they could depend on the support of all the

70

Philip Ollerenshaw

nationalist people in Belfast. Specific in its aims and also its methods, the memorial was careful to stress that: Protestants in other parts of Ireland are not to be molested in any way on account of the actions of their co-religionists in Belfast. But, of course, those of them who are in business must be given to understand clearly that if they continue to get their goods from Belfast that they cannot dispose of them to Sinn Feiners.26

Clearly the boycott, if made official, could be extended to all parts of the north-east and also to British goods. In these circumstances it could have major implications for political as well as economic relations between what the memorialists called ‘the North-Eastern Pale’ and the rest of Ireland. For MacEntee the July expulsions in Belfast were much more than a serious sectarian incident. Indeed, they had acquired a symbolic significance as the ‘first direct attack’ and ‘first open act of rebellion’ against the Irish Republic. In these circumstances he moved that all trade and commerce between Belfast and the Republic should cease until such time as the government and legislature decided otherwise. Although the motion was seconded by another Ulster deputy, Paul Galligan of Cavan West, the nature of the opposition reveals the diversity of opinion on the north-east within the D´ail. Most prominently, Lisburn-born Protestant Ernest Blythe argued that a general economic boycott would end the possibility of union with the north-east and, further, that a boycott of the Belfast-based banks could not achieve its desired goal. Since the D´ail was there as a government they ‘could not afford to range any section of the citizens against them’ and so any boycott had to be strictly limited to those individuals who could be identified as having been behind the July expulsions. Countess Markievicz, Minister of Labour, would support a ‘blockade’ if it could be made effective but doubted whether it could be; in any case it would provide a perfect excuse for partition. She in fact suspected a trap by London to ‘cut off trade with Belfast and make Ireland into two trading centres’. For Terence MacSwiney, member for West Cork, the answer to workplace violence lay in the establishment of co-operative factories to provide employment for those republicans ‘who could be induced to settle in Belfast’. In a brief contribution to the debate Michael Collins, as Minister for Finance, was clearly aware of the damage a boycott could do to the banks, but criticised the attempt by the Ulster deputies to ‘influence the passions’ of their colleagues, and concluded by denying that there was an Ulster question. Imposition of a boycott raised the question of alternative sources of supply, and for many goods this would simply mean having to buy from Britain, which for some deputies was even worse

Business, politics and revolution in Ireland

71

than buying from Belfast. In the end the D´ail declared it illegal to impose any religious or political test as a condition for industrial employment in Ireland and authorised action which would halt such tests.27 This debate had shown that the D´ail wanted to respond to the Belfast nationalists’ plea for help to stop religious and political tests, but that there was no unanimity on whether a boycott was either desirable or could be effective. In one form or another, the boycott lasted until the end of the civil war and thus it continued against the rapidly evolving political background of the Anglo-Irish war, the Government of Ireland Act and partition, the Truce and the Treaty. During this period it was extended to some British goods and there were signs too that it spread to the USA.28 By late autumn 1920 the National Council of the Friends of Irish Freedom resolved that no Irish organisation in the United States should trade with ‘the enemy in Belfast’ and should place orders with American firms instead.29 One of the earliest analyses of the boycott, in the London-based economic journal The Statist, declared that the barrier separating Belfast from the rest of Ireland, which had previously been political, had now ‘taken on an economic character’. Echoing the argument of Ernest Blythe in the original debate on the boycott, it pointed out that since the D´ail claimed to represent the entire Irish nation, ‘it would naturally be slow to counsel a policy likely to be interpreted as inclining towards intimidation of a section of that nation’. However, at least a boycott would serve to remind Belfast that the economic links between the city and the rest of the country were stronger than it preferred to believe. Even if the boycott could not bring down the banks, it did have the power to do considerable damage to internal trade and to credit facilities, especially since Sinn F´ein could count on the support of most of the county, urban and rural district councils ‘and the numerous trade and political societies’ throughout the country. The article pleaded for restraint and concluded by wryly pointing out that the Belfast unionist workers’ slogan of ‘refusing to work with a rebel’ looked very strange ‘in view of the expressed attitude of the Ulster leaders towards the Imperial Parliament in the event of a certain emergency. Between actual rebels and “contingent” rebels there is not a very wide gulf, since a new combination of circumstances would readily reverse their respective positions.’30 This article was probably written by J. J. McElligott, who had been an Irish Volunteer, had taken part in the Easter Rising, and had been interned and subsequently imprisoned in Stafford gaol along with others including Michael Collins. On release he had become a freelance financial journalist and worked for The Statist. Indeed, he became acting editor in July 1920 and managing editor in March 1922, which might explain why this journal carried a substantial

72

Philip Ollerenshaw

number of informed articles on the economic dimension to the Irish question to 1922.31 In September 1920 the D´ail was told that the boycott against Belfast was being ‘stringently felt’, particularly by the banks, and that a meeting of representatives of both Labour and republicans in Belfast had decided upon a plan of action.32 Michael Staines, deputy for St Michael’s Dublin, was appointed to put the plan into action, acting as co-ordinator from Dublin.33 The General Council of Irish County Councils recommended ‘a cessation of trade’ with Belfast and encouraged public bodies to cease their custom of the Belfast-based banks which provided the credit to firms which had imposed religious or civil tests on employees, ‘had permitted their employees to attempt to apply them, or expelled employees who had refused to bow to the tests’.34 At a local level there is no doubt that the boycott had an almost immediate impact on established trading patterns. In many western and north-western towns, commercial travellers from Belfast were unable to secure orders. In early September traders at Waterford signed a pledge not to trade with Belfast; Athlone, too, cut its commercial links with Belfast and carters there would not deliver goods from any industrial centre in the north. To give effect to this action, local vigilance committees were formed. At a cattle fair in Leitrim it was reported that while Protestant firms from Ulster were prevented from buying, ‘permits were given to northern Roman Catholic purchasers’.35 Reports such as these illustrate not only the spread of the boycott of Belfast goods to those from elsewhere in the north-east, but also the extent to which it could be perceived simply as an attack on Protestant firms. However, for the unionist Irish Times the main result of the boycott was that the entire country was suffering, providing ‘cogent proof of the essential oneness of the Irish people. It is because Belfast is as much a part of Ireland as Cork that the reaction on one city of events in the other have been so terribly prompt and far reaching’.36 The boundary question Until the end of 1920 the boycott and the debate upon it took place in a constitutionally undivided island. The passage of the Government of Ireland Act on 23 December entirely altered the context of Irish politics, not least because it formally introduced partition. In the D´ail the boycott was pursued with greater urgency than before and indeed from March 1921 a boycott of certain British goods was implemented. The effect of this policy was to increase demand for Irish-made goods, and led to optimism about the potential for a ‘complete industrial transformation’.37 For leading Catholic clergy like Joseph MacRory, bishop of Down and

Business, politics and revolution in Ireland

73

Connor, the boycott had been supported since it would help to prevent partition.38 After the Act had been passed, MacRory hoped that the boycott would be pursued with greater vigour with a view to demonstrating the unviability of the ‘nameless satrapate of the six amputated counties’. In an appeal to Catholics in the USA for financial aid to enable Belfast Catholics to establish their own industries, MacRory suggested that partition might well result ‘in a sort of political and commercial gangrene’ that would be fatal to the prosperity of Belfast.39 He was well aware that neither linen nor shipbuilding would be damaged by the boycott within Ireland, but he contemplated an alliance of Catholic countries, including Belgium, France and South American states, against Belfast if the latter ‘persisted in refusing to come to terms with the rest of Ireland’.40 The first debate in the D´ail on the boycott after the passage of the Government of Ireland Act heard Sean MacEntee complain that not everyone was as fully committed to the boycott as they should have been. Whereas in Waterford the boycott was effective, it was least successful in Kilkenny City and County. He candidly accepted that the most difficult task was to stop people from buying Belfast goods, but urged them to recognise the logic of the boycott: ‘they could not reduce Belfast by force of arms, but they could bring her to reason by economic force’. Indeed, MacEntee noted that one important practical problem was the impossibility of placing ‘anyone with Republican sympathies’ at railway booking offices or goods despatch offices who might monitor the destination of Belfast goods. This might have been because railway companies made greater efforts to ensure that only politically loyal workers had responsibility for managing freight operations. A new departure for the D´ail to improve the organisation of the boycott was a vote of £1,500 for three months particularly to employ agents at strategic towns such as Derry, Clones and Dundalk, together with a further £1,000 for propaganda and publicity. In proposing this, Michael Collins, whose enthusiasm for the boycott had grown considerably in the previous months, suggested that Joseph MacDonagh be appointed Substitute Minister for Labour with overall responsibility for co-ordinating action.41 Attempts to strengthen the boycott by increasing expenditure on a million circulars and 50,000 posters, as well as a sustained newspaper campaign, were made in the spring and summer of 1921. However, it was clear that the effectiveness of the boycott continued to be uneven, although some particularly zealous counties like Clare, Cork, Limerick, Tipperary and Waterford were singled out for special praise in the D´ail. Several deputies, including Arthur Griffith, continued to have serious misgivings about extending the boycott to towns where it could not be proven that nationalist workers had been driven out of their homes and

74

Philip Ollerenshaw

workplaces. Joseph MacDonagh was one who cautioned against extension of the boycott to all six north-eastern counties, since it was preferable to aim at one goal rather than five or six, it would be unjust and ‘it would be a recognition on their part of the Partition Act’.42 The impact of the Belfast boycott could be exaggerated by its supporters since it had coincided with the onset of cyclical economic depression,43 but there is no doubt that individual businesses in a whole range of industries were hard hit.44 However, if one aim of the boycott was to demonstrate the interdependence of different economic regions in Ireland, and the logic of unity, then it may have been counter-productive by reinforcing already hardline unionist attitudes, not least along the border. In parts of Fermanagh, sectarian violence had increased strongly in the spring and summer of 1921, the Royal Irish Constabulary county inspector placing much of the responsibility for this on the Belfast boycott.45 Sometimes boycott activity could reach spectacular proportions. In April 1921, for example, a freight train was held up a few miles from Monaghan in the early hours of the morning by ‘several hundred people’. They destroyed all forty-one wagons containing Belfast merchandise and a vanload of mail, and damaged the locomotive.46 Further extension of the boycott came with the D´ail circular in early June 1921 to mayors and chairmen of public bodies in Ireland that ‘in view of the convening of the Partition Parliament in Belfast’ no notes or cheques of any of the Belfast-based banks were to be accepted under any circumstances from the 7th of that month.47 The opening of the Belfast parliament by King George V on 22 June gave its MPs the opportunity to respond to the boycott. Those most vocal in demanding urgent action were from Fermanagh and Tyrone: William Coote and James Cooper. Coote, a Cavan-born woollen manufacturer and leading Orangeman, judged that the boycott was already a serious problem, becoming worse by the day, and the cause of unemployment in a range of industries. In view of this he suggested that ‘whether our enemies like it or not . . . steps should be taken in order that our people may get restored to their employment’.48 He identified the root cause of the problem as sacerdotalism, or the direction of government in Southern Ireland by ecclesiastical authority. He saw the boycott as an attack on the liberties not only of Ulster but also of the British Empire as a whole, and went so far as to implicate the Catholic church by claiming that not Sinn F´ein but ‘the forces behind Sinn F´ein’ must take responsibility.49 For James Cooper, ex-UVF, member of the B-Special constabulary, Orangeman and key figure in Fermanagh unionism in the 1920s, the concern was less with the alleged power of the Catholic church over the hearts and minds of Sinn F´ein. Rather, he was most concerned about those businesses in his own area that were on Sinn F´ein’s ‘white list’ and

Business, politics and revolution in Ireland

75

therefore not subject to the boycott. The D´ail’s publicity campaign on the boycott, which had been better financed and more intensive during the summer and autumn of 1921, raised questions about the political allegiance of individual businesses. Cooper raised this formally in the Northern Ireland House of Commons in a question to Richard Dawson Bates, Minister of Home Affairs. In circulars dated 10 September, Catholics in Enniskillen were threatened with ‘severe penalties’ if they persisted in dealing with certain firms. However, contained in the circular was a white list of fifteen firms including Liptons, the Enniskillen Co-operative Society Ltd, Tylers Ltd, Dicks Ltd, Kerr & Co., and J. B. Dillon, with which it was acceptable to deal. Cooper, a solicitor himself (as indeed was Bates), queried whether firms on the white list were parties to intimidation or whether they had entered into an illegal conspiracy. He pointed out that three of the firms did considerable business with Belfast and with Britain, while the proprietors of two of those named were justices of the peace. Bates’s reply was that he would need further evidence to be able to prove a criminal conspiracy but would refer the matter to the Attorney General if such could be proved.50 The hardening of unionist attitudes along the border was further increased by the speeches of leading southern republicans. One of the best instances of this occurred in September 1921 when Michael Collins and Eoin O’Duffy addressed a massive republican rally in Armagh. O’Duffy, one of the most senior figures in the IRA, told his audience that although it was not right to use force ‘against the North’, should Belfast continue to show allegiance to the ‘enemies of this country’ it might be necessary to cut the city off from the rest of the country, in which case it would be deserted within three months. He suggested that: the position of Ulster was altogether different from the position of Ireland. Ireland was a nation. Nobody ever said Ulster was a nation . . . The people of Belfast and the people in the north-east corner . . . should not be allowed to stand in the march of a nation [sic]. Those people were acting there as a bridgehead for the British government in this country.

Collins addressed his most significant remarks to the agricultural community in the north-east who, he said, had much more to fear from a regional government dominated by Belfast industrialists than they had from an all-Ireland government where agriculture would be dominant. In an Irish parliament the agricultural representatives of the south would be ‘the real safeguards of the agricultural North against the Industrial North’.51 From the Truce in July 1921 through to the Treaty of 6 December, the boycott was the principal weapon used by Sinn F´ein to demonstrate the folly of partition. Although an all-Ireland republic remained the goal,

76

Philip Ollerenshaw

during the Truce period the D´ail came under increasing pressure from nationalists in the north-east to ensure that if there had to be partition in the short term then as much of the north-east as possible should be transferred to Dublin jurisdiction with minimum delay. Areas most prominently affected by this were Derry City, Fermanagh, Tyrone, south Armagh and south Down. These areas would continue to dominate discussion of the border between the six and the twenty-six counties down to the report of the Boundary Commission in 1925. As early as August and September 1921 nationalists from these areas had lobbied de Valera for their exclusion from Northern Ireland. He told them that there was no justification for excluding any county from the Irish nation, since to do so ‘would be a manifestation of the tribalistic interpretation of the principle of self-determination, reducing it to an absurdity’.52 More dramatically, public bodies in border areas began to declare allegiance to the D´ail, rather than to the Belfast parliament. On the eve of the Treaty of 6 December Tyrone County Council, and Lisnaskea Board of Guardians and Rural District Council decided to forward minutes of their proceedings to the D´ail rather than to Belfast, while Omagh Board of Guardians moved a resolution to sever all links with the Local Government Board.53 Such declarations were bound to unsettle unionists who had not been party to the official discussions leading up to the Treaty. Clause Twelve of the Treaty, however, had provided for a Boundary Commission to ‘determine in accordance with the wishes of the inhabitants, so far as may be compatible with economic and geographic conditions’, the shape of the border between Northern Ireland and the Free State.54 Imprecise though this wording was, it implied at least the possibility of local plebiscites and border rearrangement. The sense of unionist insecurity created by the Boundary Commission was greatest in the year after the Treaty was signed.55 The contemplated rearrangement of the border had been envisaged by Sinn F´ein as far-reaching. Collins himself declared that Lloyd George had told him that the Commission would transfer south Tyrone, Fermanagh, parts of south Down and south Armagh, a prospect which helps to explain Sir James Craig’s refusal to be represented on the Commission.56 Two weeks after the Treaty, the northern Minister of Labour, businessman J. M. Andrews, in a speech at Maze, Co. Antrim, declared that the Treaty itself had been ‘a panic surrender to Sinn F´ein’ and that ‘the boundary question will be fought to a finish by the Northern government. Tyrone and Fermanagh must remain part of their Ulster.’57 Emphatic though Andrews and Craig were, there remained a possibility that Ulster unionists excluded from the six-county area, who had suffered considerably during the Truce period, might force a reconsideration by the Belfast government. Of these, there were 35,000

Business, politics and revolution in Ireland

77

in Donegal, 18,000 in Monaghan and 17,000 in Cavan who often claimed that they were the main victims of the boycott: They are compelled to buy their household necessaries only at the shops of Nationalists and Sinn F´einers, and the businesses of Unionist tradesmen are being ruined by intimidation which drives the Unionist population to deal only with their opponents. The awards of compensation for the murders and burnings they have suffered are void of effect because the duty of paying the compensation is thrown on the county councils, and these bodies are controlled by Sinn F´ein and decline to take any steps to levy the compensation.58

The high and rising numbers of sectarian murders led to efforts to bring the leaders of republicanism and the Ulster unionists together. By the time Michael Collins met Sir James Craig in January 1922 the D´ail debate on the Treaty was over and anti-Treaty deputies, led by de Valera, had walked out. Among the various clauses in the first Craig–Collins Pact was the latter’s undertaking to halt the boycott with immediate effect and Craig’s undertaking to ‘facilitate in every possible way the return of Catholic workers to the Belfast shipyards, without tests, when the economic climate improves sufficiently for the unemployed to be taken on’. The boundary would be decided by one representative from the Free State and one from Northern Ireland, reporting to Collins and Craig respectively. The agreement was widely welcomed, though doubts were rightly expressed as to whether the shipyard workers would be reinstated. Indeed, given the levels of sectarian violence and the advent of partition, even if there had been a sufficiently strong rise in demand to increase employment at the shipyards it is very doubtful whether Catholics in any numbers would have been taken on. Even so, the pact was welcomed because of the stimulus given to trade and industry throughout Ireland, while ‘the reappearance of the Northern commercial traveller’ in the south and west of the country would have ‘an indirect but important influence on the political situation’. Moreover, the rethink on the Boundary Commission would do at least as much as the end of the boycott by bringing the Belfast and Dublin governments into friendly contact.59 To a large extent, the positive reception given to the agreement was based on an assumption that Collins’ writ ran further than it actually did. Anti-Treaty forces did not recognise the end of the boycott, and for Craig the Free State government was much preferable to anti-Treaty republicans. Indeed, Craig told the Ulster Unionist Council that his meeting with Collins should reassure loyalists in the south and west who should now ‘rally’ to the Free State which was ‘endeavouring to restore order and stave off separation and the republic’.60

78

Philip Ollerenshaw

Relations between the Free State and Northern Ireland continued to be subject to serious strain not least because of frequent armed attacks, often by women, on goods from Northern Ireland carried by cross-border trains. These goods included newspapers from Derry and Belfast destined for Counties Donegal and Louth.61 The kidnapping of more than forty unionists in the Fermanagh/Tyrone area and the killing of special constables in Clones in February 1922, together with the occupation of Belleek and Pettigo by southern republicans in May all contributed substantially to unionist fear and reprisals.62 No border unionist was more outspoken on these issues than William Coote. The kidnappings and other IRA activity in the six counties ‘had settled once and for all any tinkering with the boundaries question’, he declared in a speech in the Tyrone village of Aughnacloy in February, while four months later he called for the killing of three members of Sinn F´ein for each member of the crown forces killed.63 The inability of Collins to enforce the end of the boycott was compounded by the failure of the second Craig–Collins Pact of 31 March 1922. Anti-Treaty IRA activity in Ulster became more evident from early April. Thus on 1 April the officer commanding the 1st Brigade Western Division IRA issued a statement ‘reimposing the trade boycott of Belfast and the six Northern Counties in the brigade area’ from 10 April. ‘In order to protect themselves’ traders were instructed to provide a list of goods from the six counties already in stock.64 The boycott effectively came to an end with the civil war in the Free State. By that stage a belated counter-boycott had been organised by the Ulster Trades Defence Association (UTDA), whose manifesto criticised the Provisional Government for failing to stop the ‘wanton destruction and looting of Ulster goods’ in the Free State. It observed that ‘the closing down of all firms in Dublin having any connection with Belfast is now practically complete, the Provisional Government having declined to protect Belfast firms having premises in Dublin’. The UTDA called for traders and dealers to refuse to buy produce from the twenty-six counties and to dispose of current stock as quickly as possible, adding, however, that it did not intend to pursue the ‘looting and burning tactics’ characteristic of the south.65 The boycott had a long-term impact on cross-border trade, but much more on trade from north to south than vice versa.66 The boycotted banks certainly came under some pressure and occasionally their records were stolen, thereby enabling the IRA to identify and punish customers who had defied the boycott. Shortly after the civil war one of them, the Belfast Banking Company, sold its branches in the Free State, giving as the official reason that it did not do business in ‘any Dominion, Colony or foreign

Business, politics and revolution in Ireland

79

country’.67 Neither of the other Belfast banks followed this withdrawal. However, the boycott failed in its original aim to force the reinstatement of expelled Catholic workers in Belfast. For P. S. O’Hegarty, the most articulate Sinn F´ein critic, the boycott had been counter-productive since it recognised and established real partition, spiritual and voluntary partition, before physical partition had been established . . . It inflicted more harm upon the Nationalists of Ulster, who had to suffer while theorists here howled hatred and boycott from a safe distance outside . . . It is a wholly shameful episode in the history of Sinn F´ein.68

If the boycott failed in its original objective, it did strengthen the siege mentality in Northern Ireland and the same was true of the Boundary Commission. The boundary clause had been important in enabling the Irish delegation to sign the Treaty, since it lent credibility to the argument that the Treaty was a stepping stone to the all-Ireland republic. By the same token, while the border was under discussion, unionists always feared substantial territorial loss and a consequent weakening of their economic base. For this reason, the raising of the border question by the Free State government was profoundly irritating to Belfast. As the Marquis of Londonderry told the Northern Ireland Senate in March 1922, his government had ‘every reason to feel ourselves aggrieved’ by this and placed the blame on the British government.69 Shortly after the end of the civil war, William Cosgrave rightly claimed that his government was coming under pressure, not only from northern nationalists, but also from his own supporters, especially in the army, to reopen the border question.70 The Boundary Commission took evidence from a great many unionists and nationalists in border areas, and even if its report was eventually suppressed and the border unchanged, the submissions to it throw much light on the political economy of these areas in the early 1920s. Large employers such as the Bessbrook Spinning Company in south Armagh and Herdmans of Sion Mills in west Tyrone judged that transfer of their counties into the Free State would cause very great inconvenience, raise costs, increase unemployment and probably lead to the closure of their firms. Their connections were with Belfast, not the Free State. Bessbrook thought that transfer to the Free State would lead to political prejudice from other firms in Northern Ireland which preferred to deal with unionist firms within their own area.71 This view was echoed by the unionist president of the Newry Chamber of Commerce, who also noted that most of the working class in his locality were ‘absolutely Republican’. Similarly, Frank Fisher, a Newry merchant, believed that transfer to the

80

Philip Ollerenshaw

Free State would certainly damage local textile firms: ‘the linen people are very bigoted people. They would not touch the Free State – in fact they have told us that.’72 Herdmans argued that more than half their workforce was Catholic, but that there were no ‘religious dissensions’, nor had there been any serious labour disputes for more than thirty years. Transfer into the Free State would cause violence and bloodshed.73 Apart from strong arguments of electoral demography, the Free State government employed economic arguments to support the transfer of a number of places from the jurisdiction of Northern Ireland. Villages close to the border such as Aughnacloy in Tyrone and Pettigo in Fermanagh had suffered very great inconvenience from the border and the wish of most of their inhabitants was for transfer. Similarly Derry City had been ‘arbitrarily cut off from the area for which it was the natural port and distributing centre’ and Strabane, the key part of the Donegal Light Railway system, was now on one side of the border, while almost all that railway system was on the other.74 The view that Derry should be transferred was supported by a ‘commercial and industrial group’ from Co. Donegal who argued that the border as currently drawn ‘offends against the canons laid down by the Treaty for the determination of the border’, and that their county needed the port facilities only Derry could provide.75 Free State Senator John McLaughlin, shirt manufacturer in Donegal and owner of Ormonde Woollen Mills in Kilkenny, reinforced these arguments. Although taxation and postage were higher in the Free State than in Northern Ireland, that simply reflected the costs of the civil war and they would return to comparable levels under peaceful conditions. He pointed out that not one of the 105 Irish MPs had voted for the Government of Ireland Act and that economic integration of Derry with Donegal had been violated by the ‘unnatural and artificial’ border. He invited the Boundary Commission to contrast the appalling treatment of Catholics in Northern Ireland with that of Protestants in the Free State. Gerrymandering and the abolition of proportional representation in local elections in 1922 had serious effects on Catholic representation. In Tyrone, for example, one non-Catholic vote was judged to be equal to five or six Catholic votes. McLaughlin also cautioned against the transfer of any part of Donegal to Northern Ireland: ‘The Catholics of Donegal who fought and made such sacrifices to get rid of British rule are not going to tamely submit to have that rule supplanted by a tyranny still more abhorrent. They will part with their lives rather than become the slaves of the bigots of Belfast.’76 Further support for the transfer of Derry to the Free State came from those involved in cross-border trade. The most significant of these was Charles O’Neill, head of a large distributing business, a Senior Deputy

Business, politics and revolution in Ireland

81

Lieutenant, former High Sheriff and president of the local Chamber of Commerce. O’Neill complained about the deliberate reduction by Belfast of Derry’s political status ‘to that of a village’. All the economic arguments were in favour of a transfer which would give the city new hope of prosperity. Like McLaughlin he confirmed that the majority of the city’s inhabitants would favour a transfer to the Free State ‘even though that majority through political intrigue is at present deprived of its municipal and parliamentary representation’.77 During the 1920s and 1930s it became usual to attribute the decline of Derry City to the problems caused by the border.78 It also became usual thereafter to point to Derry as a case study in unionist political sharp practice. However much valuable evidence the Boundary Commissioners heard, and whatever nationalist hopes or unionist fears the Commission itself raised, the fact was that in 1925 the Dublin, Belfast and London governments ratified the existing border. It has been shown how the D´ail debate on the Boundary Agreement ‘marked the open and public repudiation by the government of their responsibility for northern nationalists’ and a withdrawal ‘into a wholly Free State context’.79 For this reason, it left northern nationalists who had originally asked for the Belfast boycott and had expected so much from the Boundary Commission, facing an unchanged border and no end to partition.80 Politically, there was little choice but to distance themselves from the Free State government and to take up the border issue with de Valera and his new Fianna F´ail Party from 1927.81 For the latter, however, economic and other problems normally took precedence over the border, and all too often the politics of ‘unimaginative negativism’82 towards Northern Ireland characterised the following decades. At the same time, de Valera’s electoral victory in 1932 and the constitution of 1937, which rejected not only the Government of Ireland Act and the Treaty but the boundary settlement too, served to perpetuate unionist insecurity and provided Stormont with yet further justification for its uncompromising stance towards the border and the substantial nationalist minority within Northern Ireland.83     1. Alice Teichova, Herbert Matis and Jaroslav Patek (eds.), Economic Change and the National Question in Twentieth Century Europe (Cambridge, 2000). This collection contains a valuable essay by Alan O’Day on ‘Nationalism and the Economic Question in Twentieth Century Ireland’. 2. A helpful recent survey of the late nineteenth- and early twentieth-century background to partition is Ged Martin, ‘The Origins of Partition’, in Malcolm Anderson and Eberhard Bort (eds.), The Irish Border: History, Politics, Culture (Liverpool, 1999), pp. 57–111.

82

Philip Ollerenshaw

3. For some interesting reflections on this theme see David Johnson and Liam Kennedy, ‘Nationalist Historiography and the Decline of the Union: George O’Brien Revisited’, in Sean Hutton and Paul Stewart (eds.), Ireland’s Histories: Aspects of State, Society and Ideology (London, 1991). 4. For a general discussion see Philip Ollerenshaw, ‘Businessmen and the Development of Ulster Unionism, 1886–1921’, Journal of Imperial and Commonwealth History, 28 (2000), 35–64. 5. The Irish Dominion League Official Report (Dublin, 1921), pp. 7–8. 6. The Times, 30 July 1920. 7. Ibid. 8. A pioneering essay on this is David Johnson, ‘Partition and Cross-Border Trade in the 1920s’, in Peter Roebuck (ed.), Plantation to Partition: Essays in Ulster History in Honour of J. L. McCracken (Belfast, 1981), pp. 229–46. 9. Mary E. Daly, Industrial Development and Irish National Identity, 1922–39 (New York, 1992), ch. 1, esp. pp. 7–9, offers an excellent overview. For statistical confirmation that, apart from food and drink, ‘the south was virtu´ ada, ally without industries’ in the early twentieth century, see Cormac OGr´ Ireland: A New Economic History, 1780–1939 (Oxford, 1994), pp. 312–13. ´ 10. D´ail Eireann, 17 June 1919, in Minutes of Proceedings of the First Parliament of the Republic of Ireland, 1919–1921: Official Record (Dublin, 1921), p. 113. ´ 11. The Constructive Work of D´ail Eireann, no. 2 (Dublin, 1921), pp. 31–2. 12. Tom Garvin, Nationalist Revolutionaries in Ireland, 1858–1928 (Oxford, 1987), ´ pp. 131–2. See also George O’Brien, ‘Industries’, in Saorst´at Eireann Official Handbook (London, 1932), p. 138. 13. Daly, Industrial Development and Irish National Identity, pp. 5–12. 14. Aodh de Blacam, What Sinn F´ein Stands For (Dublin, 1921), p. 151. 15. Frontier Sentinel, 7 February 1920. 16. Irish Bulletin, 31 August 1921. ´ 17. Arthur Mitchell, Revolutionary Government in Ireland: D´ail Eireann, 1919–22 (Dublin, 1995), pp. 166–7; Eamon Phoenix, Northern Nationalism: Nationalist Politics, Partition and the Catholic Minority in Northern Ireland 1890–1940 (Belfast, 1994), ch. 2. 18. Frontier Sentinel, 5 February 1921. See also Clare O’Halloran, Partition and the Limits of Irish Nationalism (Dublin, 1987), pp. 23–4. 19. Paul Bew, Conflict and Conciliation in Ireland, 1890–1910: Parnellites and Radical Agrarians (Oxford, 1987), p. 218. 20. Frontier Sentinel, 21 May 1921. 21. O’Halloran, Partition and the Limits of Irish Nationalism, p. 47. ´ 22. J. J. O’Kelly, Partition: D´ail Eireann Comes of Age (Dublin, 1940), p. 13. On O’Kelly’s career see Mitchell, Revolutionary Government in Ireland, p. 94. 23. P. S. O’Hegarty, The Victory of Sinn F´ein (Dublin, 1924), pp. 51–2. 24. The best study of the boycott remains David Johnson, ‘The Belfast Boycott, 1920–22’, in J. M. Goldstrom and L. A. Clarkson (eds.), Irish Population, Economy and Society: Essays in Memory of K. H. Connell (Oxford, 1981), pp. 287–307. See also Emmet O’Connor, A Labour History of Ireland, 1824–1960 (Dublin, 1992), pp. 175–8. 25. The Times, 30 July 1920.

Business, politics and revolution in Ireland 26. 27. 28. 29. 30.

31.

32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43.

44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56.

83

´ D´ail Eireann, 6 August 1920, in Minutes of Proceedings, p. 192. Ibid., pp. 192–4. ´ On the British boycott see The Constructive Work of D´ail Eireann, p. 36. Frontier Sentinel, 23 October 1920. The Statist, 4 September 1920, pp. 394–5. Note also the criticism of Lloyd George for allowing the ‘Orangemen of Ulster’ to disobey the law, while denying the people of the other three provinces ‘the right to look for even ordinary justice to their Government’. Ibid., 21 February 1920, p. 343. Maurice Moynihan, Currency and Central Banking in Ireland 1922–1960 (Dublin, 1975), p. 505; Ronan Fanning, The Irish Department of Finance, 1922–58 (Dublin, 1978), pp. 59–60. See the valuable articles on Irish politics and trade in The Statist, 20 November 1920, p. 804; 28 May 1921, p. 1007; 23 July 1921, p. 137. ´ D´ail Eireann, 17 September 1920, in Minutes of Proceedings, p. 212. Ibid., p. 233. The Times, 18 August 1920. Ibid., 4 September 1920. Ibid., 6 September 1920. ´ The Constructive Work of D´ail Eireann, p. 31. Phoenix, Northern Nationalism, pp. 91–2. Frontier Sentinel, 1 January 1921. Ibid., 25 June 1921. ´ D´ail Eireann, 25 January 1921, in Minutes of Proceedings, pp. 255–7. ´ D´ail Eireann Official Report, 18 August 1921, pp. 17–19. An example was the sharp decline in the wholesale business of Robinson & Cleaver, whose loss of £31,592 in 1920–1 contrasted with a profit of £78,436 in 1919–20 and was attributed to the boycott. See Frontier Sentinel, 15 October 1921. See the detailed discussion in The Times, 13 June 1921. Brian Barton, Brookeborough: The Making of a Prime Minister (Belfast, 1988), p. 41. The Times, 25 April 1921. Ibid., 11 June 1921. Debates of the Northern Ireland House of Commons, vol. I, 23 June 1921, col. 33. Ibid., 29 November 1921, col. 311. Ibid., 4 October 1921, col. 251. Frontier Sentinel, 10 September 1921. Irish Bulletin, 20 September 1921. The Times, 5 December 1921. The text of the Treaty is reprinted in Tim Pat Coogan, Eamon De Valera (New York, 1996 edn), pp. 737–42. Patrick Buckland, The Factory of Grievances: Devolved Government in Northern Ireland, 1921–39 (Dublin, 1979), p. 68. Michael Hopkinson, ‘The Craig–Collins Pacts of 1922: Two Attempted Reforms of the Northern Ireland Government’, Irish Historical Studies 27 (1990), 145–58.

84

Philip Ollerenshaw

57. The Times, 19 December 1921. 58. Ibid. Good studies of the experience of Protestants in the south of Ireland at this time are Dennis Kennedy, The Widening Gulf: Northern Attitudes to the Independent Irish State, 1919–49 (Belfast, 1988), esp. ch. 7, and Peter Hart, ‘The Protestant Experience of Revolution in Southern Ireland’, in Richard English and Graham Walker (eds.), Unionism in Modern Ireland (1996), pp. 81–98; Peter Hart, The IRA and its Enemies (Oxford, 1998), esp. ch. 12. A recent article has emphasised the violence against Protestants in a number of areas including north Leinster and south Ulster: Paul Bew, ‘Moderate Nationalism and the Irish Revolution, 1916–23’, Historical Journal 42 (1999), esp. 740–1. 59. The Times, 23 January 1922. 60. Ibid., 28 January 1922. 61. See, for example, the list of ‘crimes of violence’ including destruction of Belfast and Derry newspapers in Dundalk, Letterkenny and Raphoe in ibid., 7 April 1922. 62. Barton, Brookeborough, ch. 3. 63. The Times, 11 February 1922; Michael Farrell, Arming the Protestants: The Formation of the Ulster Special Constabulary and the Royal Ulster Constabulary, 1920–27 (London, 1983), p. 158. 64. The Times, 1 April 1922. 65. Ibid., 18 May 1922. 66. Johnson, ‘Belfast Boycott’, pp. 305–6. 67. Noel Simpson, The Belfast Bank, 1827–1970 (Belfast, 1975), pp. 246, 254. 68. O’Hegarty, The Victory of Sinn F´ein, pp. 52–3. 69. Debates of the Northern Ireland Senate, vol. I, 14 March 1922, cols. 12–13. 70. Keith Middlemas (ed.), Thomas Jones Whitehall Diary, vol. III: Ireland 1918–25 (Oxford, 1971), p. 223. 71. Evidence of the Bessbrook Spinning Company Ltd, Boundary Commission Papers (hereafter BCP), CAB 61/32, Public Record Office (PRO). 72. Evidence of Newry Chamber of Commerce, BCP, CAB 61/115, PRO. A detailed case for the inclusion of Newry, south Down and south Armagh in the Free State was also made by representatives of ‘public bodies, harbour authorities, commercial and professional interests’, at a meeting on 27 January 1922: Statement on Behalf of the Inhabitants of the Towns of Newry, South Down and South Armagh to the President and Minister of Finance of D´ail ´ Eireann (Newry: Newry Telegraph, 1922), D921/4/2/1, Public Record Office of Northern Ireland (PRONI). 73. Evidence of Herdmans of Sion Mills, BCP, CAB 61/71, PRO. 74. Memorandum of the Government of the Irish Free State, BCP, CAB 61/17, PRO. 75. Statement of Committee of Donegal Commercial and Industrial Group, BCP, CAB 61/50, PRO. 76. Evidence of Senator John McLaughlin, BCP, CAB 61/93, PRO. 77. Deposition of Charles O’Neill to the Boundary Commission, D868/4, PRONI. 78. O’Halloran, Partition and the Limits of Irish Nationalism, p. 10; Philip Ollerenshaw, ‘The Business and Politics of Banking in Ireland, 1900–43’,

Business, politics and revolution in Ireland

79. 80.

81. 82.

83.

85

in P. L. Cottrell, Alice Teichova and Takeshi Yuzawa (eds.), Finance in the Age of the Corporate Economy (Aldershot, 1997), p. 70. Sligo and Newry were also judged to have suffered as a result of the border: see Denis Gwynn, The Irish Free State 1922–27 (London, 1928), pp. 13–14. O’Halloran, Partition and the Limits of Irish Nationalism, pp. 69–71. On the settlement see Bryan A. Follis, A State Under Siege (Oxford, 1995), pp. 178–9. The confirmation of an unchanged boundary provoked widespread disbelief and anger in nationalist communities along the border and a sense that those communities inside Northern Ireland had been deserted by the Free State government. For some representative reaction see the Frontier Sentinel, 12, 19 and 26 December 1925. Phoenix, Northern Nationalism, p. 397. See also Richard Dunphy, The Making of Fianna F´ail Power in Ireland, 1923–48 (Oxford, 1995), pp. 69–70. This phrase is used by Tim Pat Coogan, ‘Southern Policy Towards “The Six” since 1921: Myth and Reality’, in Eamon Phoenix (ed.), A Century of Northern Life (Belfast, 1995), p. 94. See also Henry Patterson, ‘Se´an Lemass and the Ulster Question, 1959–65’, Journal of Contemporary History, 34 (1999), 145–59 and the excellent study by John Bowman, De Valera and the Ulster Question, 1917–73 (Oxford, 1982). On the impact of these developments see Brendan O’Leary and John McGarry, The Politics of Antagonism (London, second edn 1996), pp. 135–41.

Part II

Banking finance

5

Bankers and politics in Belgium in the twentieth century Ginette Kurgan-van Hentenryk

When considering the relationship between the worlds of banking and politics in Belgium during the twentieth century, we cannot fail to be struck by the abrupt changes triggered by the two world wars. Consequently, we shall first consider bankers and politics on the eve of World War I. Second, we shall analyse how the war resulted in a leading role for bankers in Belgian politics in the inter-war period. Finally, we will attempt to understand their low profile in politics since World War II. Bankers and politics on the eve of World War I It must be remembered that during the nineteenth century, under the property qualification for voting rights in force until 1893, parliament was a centre of power fought over by Liberals and Catholics, in which the business world was determined to gain a foothold. The adoption of universal suffrage (mitigated by plural votes) in 1893 did little to alter the situation, insofar as the Catholics were able to keep an absolute majority and remain in power from 1884 up to the First World War. The relationship between the worlds of banking and politics can be analysed on two levels. On the one hand, private bankers, though few in number, were beginning to secure election. A seat in parliament was an essential feature of social prominence, especially in the provinces. Most of them were Liberals. On the other hand, the joint-stock banks automatically reserved several seats on the board for members of parliament – influential ones if possible – or, even better, for former ministers. While the Banque de Bruxelles was a Liberal preserve since its foundation, the Soci´et´e G´en´erale paid more attention to the ebb and flow of political power. It was careful to keep the right political balance between its directors. However, although professionalisation of the management was taking place, the interest of the bank shifted to embrace former Catholic ministers from the end of the nineteenth century. Joseph Devolder, who was close to King Leopold II, Paul de Smet de Naeyer and G´erard Cooreman, who belonged to the high bourgeoisie of Ghent, were politicians who 89

90

Ginette Kurgan-van Hentenryk

had close links with the business world. All of them kept their seats in parliament and remained influential in their party. The circumstances in which Emile Francqui joined the board reflected the Soci´et´e G´en´erale’s anxiety to preserve the right political complexion. Because Francqui was thought to be a Liberal and a freemason, the bank preferred Edmond Carton de Wiart, a former secretary to Leopold II, as the successor to Joseph Devolder in 1910. He then had to wait for another two years before succeeding the Liberal L´eon Barbanson. When the Soci´et´e G´en´erale decided to expand as a deposit bank, it developed, with the assistance of local businessmen and dignitaries, a network of joint-stock banks in provincial towns around the country. Family links and political mandates were again instrumental in recruiting the members of the managing boards of the banks established by the Soci´et´e G´en´erale. Since Brussels was the national and international centre of the Belgian banking system, some foreign banks were established on the Belgian model. Thus the German founders of the Banque Internationale de Bruxelles recruited a Catholic politician, the lawyer Victor Fris, as the chairman of its board. Antwerp and Li`ege were also active banking centres, albeit more local ones. In Antwerp, dynasties of merchants and shipowners, most of them belonging to a German colony, sat with private bankers on the board of the joint-stock banks although they were not much involved in politics. Li`ege was similar to Brussels in that the boards of the joint-stock banks were exclusively made up of members of the industrial and banking dynasties of the region. Most of them had a political position at either a local or a national level. Thus the Cr´edit G´en´eral Li´egeois, Li`ege’s foremost bank, had both Liberal and Catholic politicians on its board. On the eve of World War I, political links were useful in building bankers’ networks. However, professionalisation was gaining ground. The power of parliament had been scaled down during the thirty years of Catholic government and the need for a majority of parliamentarians on bank boards had correspondingly declined. Politics was no longer a determining factor in recruiting bank managers. The liberalisation of the Belgian economy from the last third of the nineteenth century had been responsible for that evolution, as well as the close links of many Catholic and Liberal politicians with influential family and business networks. From World War I to World War II: the climax of banking influence The First World War wrought a profound disruption in the Belgian economy. The industrial base was in large measure looted or destroyed, and the

Bankers and politics in Belgium

91

state’s financing needs provoked a shift of resources from commercial and industrial banking toward the public sector. Inflation, penury and lack of investment swelled bank deposits, while the country became poorer in real terms. During the war, the Soci´et´e G´en´erale led the bankers’ consortium for state loans and Treasury bills. As such it became the main interlocutor of the German occupying authorities. Jean Jadot, its governor, was at the core of the negotiations between the Germans and the Belgian civil authorities on monetary matters and war taxation. Moreover, the Germans were hostile to the Banque Nationale, and they entrusted the issue of their banknotes to the Soci´et´e G´en´erale. The Soci´et´e G´en´erale also played a key role in the Comit´e National de Secours et d’Alimentation (CNSA), an organisation dispensing food and general aid all over the country. Emile Francqui, one of its directors, who had business with Herbert Hoover in China, became the linchpin of the CNSA. This organisation became largely responsible for feeding the Belgian people thanks to the funds Hoover collected in the United States. Under Francqui’s strong leadership, the CNSA had become essential to the proper functioning of the country. As a consequence, the nation rallied behind the Soci´et´e G´en´erale, while Jadot and Francqui were considered to be national authorities in both business and political circles. Francqui was a long-standing supporter of universal suffrage. He was among the advisers of King Albert I, who suggested its adoption immediately after the war, and he wanted fresh elections and new leaders. The introduction of universal suffrage in 1918 shifted the political balance by bringing a massive influx of Socialists into parliament. Proportional representation had been the rule since 1899 and Belgium entered a period of political instability, with a succession of coalition governments. New political leaders emerged. One of them was the lawyer and conservative Catholic politician Henri Jaspar, a friend of Francqui’s. He became a key member of many governments during the inter-war period. Other financiers, like Edouard Empain and George Theunis, played an important part in helping the war effort of the Belgian government abroad. The latter was asked to be the main expert and negotiator of the war reparations for Belgium. At the end of the war, the role of banks changed radically. The general features of their evolution was a reorientation toward the reconstruction of the national economy, the concentration of industrial and banking enterprises under the leadership of powerful financial groups and the substitution of colonial investments in Congo for capital exports abroad. The Soci´et´e G´en´erale played a dominant part in this process and defeated its main rival, the Banque de Bruxelles, after a very severe struggle. Thanks to the influence of its leaders and its identification with the national cause

92

Ginette Kurgan-van Hentenryk

during the war, the Soci´et´e G´en´erale embodied the climax of bankers’ influence in Europe during the 1920s. After the war, its board was entirely professionalised and depoliticised and there was no director with a parliamentary seat. However, as far as ideology went, the Catholics were in the majority. But this ending of the active involvement of members of parliament, far from denoting an estrangement from the political sphere, actually reflected a shift in the balance of power from parliament to the cabinet which was already under way before the war. In contrast to the depoliticisation of the Soci´et´e G´en´erale’s entire board, the Banque de Bruxelles was eager to keep some official connections with the political world. Thus, during the inter-war period, the board was successively chaired by Maurice Despret, a Liberal senator, and Baron Maurice Houtart, a Catholic parliamentarian and former Finance Minister. When Houtart died in 1939, the bank chose another former Finance Minister, Max-L´eo G´erard, who had contributed to the banking reform. In the banking circles of Li`ege, the tradition of holding a seat in parliament continued as well. Thus, L´eon de Steenhault de Waerbeek, the manager of the Bank Nagelmackers, one of the oldest private banks in Li`ege, was a Catholic senator from 1920 to 1936. On the other hand, Emile Digneffe, director of the Cr´edit G´en´eral Li´egeois was elected as a Liberal senator for Li`ege in 1919 and he presided over the Senate from 1932 to 1934. He also played an active part in the merger of the Cr´edit G´en´eral Li´egeois with the Banque de Bruxelles in 1928. Undoubtedly the influence which certain eminent financiers such as Georges Theunis and Emile Francqui had gained through their wartime activities led to their being called upon to take part in government during the economic and financial crisis. Thus, George Theunis served as Prime Minister from 1921 to 1925. Thanks to their network of overseas contacts, and especially to Emile Francqui’s prestige, the private bankers had the upper hand over the Banque Nationale in the negotiations over German reparations. They undermined the attempt at stabilising the franc made by the minister Albert-Edouard Janssen, a scion of the Banque Nationale. This failure contributed to the collapse of the first Christian-Democrat/Socialist coalition cabinet in 1926. Both the governor Jean Jadot and Emile Francqui, then deputy governor of the Soci´et´e G´en´erale, intervened strongly in the crisis. Jadot wanted a government of non-parliamentarians, all experts. His wishes were not followed for fear of encouraging social protest. However, a cabinet of National Unity, led by Henri Jaspar, called upon two bankers. Maurice Houtart, head of a private bank, deputy of Tournai, and a Banque de Bruxelles board member, was appointed Finance

Bankers and politics in Belgium

93

Minister. Francqui, encouraged by the king, entered the cabinet as Minister without Portfolio, and later became Treasury Minister. Within six months, Francqui led a vigorous effort to ensure the recovery of public finance and monetary stabilisation. By privatising the state railways, Francqui succeeded in consolidating two-thirds of the floating debt. He also concluded a stabilisation loan of $100 million thanks to his special relationship with English and American bankers. The Belgian franc was stabilised at 175 francs to the pound, compared with a rate of 106 set by the previous government. Meanwhile, Francqui took advantage of his position in the government to reduce the Banque Nationale’s function as a source of credit and to extend the influence of the private banks over it. Francqui, nicknamed ‘the viceroy of Belgium’, returned to the Soci´et´e G´en´erale, but remained the financial adviser to most of the ensuing governments. He also represented Belgium at all the international conferences on reparations and monetary problems. During his short time as minister, he founded the inter-ministerial committee of the Treasury for revising government expenditure, and he remained its linchpin until his death in 1935. In 1932, he succeeded Jadot as the governor of the Soci´et´e G´en´erale. Such was his influence in the numerous government crises of that period, and in forming cabinets, that, during the financial crisis of 1934, he was at the core of the negotiations that led to ‘the government of the bankers’ headed by Georges Theunis. That government was formed in November 1934 to deal with the Boerenbond crisis, as will be seen below. One of the most striking innovations of the inter-war period was the growth of banking groups out of the political and social movements engaged in the struggle for the emancipation of the working class and the Flemish people. These movements had founded credit co-operatives and savings banks before the war. After the hostilities they became an instrument of power in party politics, under the influence of their promoters who were also prominent politicians. Their leaders had been seduced by the model and practices of the joint-stock mixed banks, which were prevalent at the time. Therefore they participated actively in the financing of industry and the takeover of other banking institutions. This evolution was not unanimously approved inside the party or social movement to which they belonged. It raised many conflicts, which came into the open when these same banking groups crashed during the crisis of the 1930s. Notwithstanding their different ideological trends, we may, however, note some similarities in their rise and fall. On the socialist side, Edouard Anseele, one of the founders and most influential leaders of the Belgian Workers’ Party, was a strong partisan

94

Ginette Kurgan-van Hentenryk

of co-operative action to promote workers’ welfare and change capitalist society. He had a very long political career. He sat in parliament for fortytwo years, from 1894 to 1936, and was twice a minister during the 1920s. Founder of the co-operative Vooruit in Ghent, he developed out of a modest bakery a network of producers’ co-operatives before World War I. Vooruit was at the core of the system and Anseele decided to fight capitalism with its own weapons. Thus, without consulting anyone, he created a financial institution to support the building of an industrial empire controlled by the workers. In 1913, the Banque Belge du Travail (BBT) was set up as a joint-stock bank with Vooruit as its main shareholder. Anseele’s authority and power in the party silenced any clear discussion about the adoption of capitalist methods. After the war, Anseele built an empire of ‘red mills’, with resources chiefly made up of deposits from working men’s organisations, co-operatives, mutual benefit societies, trade unions and the Belgian Workers’ Party. Although some party members criticised the BBT, in 1931 it became the sole banking institution of the party after the conclusion of an agreement with its main competitor inside the labour movement, the co-operative Comptoir de D´epots ˆ et de Prˆets. The ambiguous relationship of the Belgian Workers’ Party with the bank proved harmful to its credibility when the BBT crashed in March 1934. Besides the burdens of the economic crisis, the bank had made bad investments and carried heavy stocks. The authoritarian rule of Anseele, who claimed to rely on competent managers, was revealed to have been disastrous through mismanagement and embezzlement. When it emerged that the BBT was unable to repay the depositors, its rescue became a political issue. Nonetheless, the socialist bank was left to its fate after the Catholic and Liberal parties refused to come to its assistance. While the failure of the BBT provoked some exclusions from the Workers’ Party, Anseele was beyond reach. In the end, the party created Coop-D´epots, ˆ a co-operative savings bank, thus breaking with its experience of uncontrolled capitalistic banking. The second experience was very broad. Under the control of the Flemish Catholic agricultural organisation, the Boerenbond, a banking group was built up which by 1932 ranked second in the Belgian banking system. In similar fashion to the socialist case, the Boerenbond banking group was born out of the initiative of a Catholic Party leader, Professor Georges Helleputte, who belonged to the Flemish Christian Democrat wing. As a partisan of a modern corporatism to emancipate the Flemish people, he had founded before World War I two kinds of cooperatives: a credit co-operative for shopkeepers and artisans, the Volksbank van Leuven, and credit co-operatives in rural areas on the model of the German Raiffeisenkasse. These were affiliated to a central credit

Bankers and politics in Belgium

95

co-operative, the Middenkredietkas, controlled by the Boerenbond. Both institutions expanded after the war by creating or acquiring banks and became involved in industrial investments. Progressively the links between the two networks became closer, mostly because the policy of the Volksbank group had become that of a mixed bank relying on the resources of the rural areas collected by the Middenkredietkas. As early as 1928, some of these banks were in trouble. Following numerous mergers, they fell under the control of the Middenkredietkas of the Boerenbond. Several prominent Flemish Catholic leaders were involved in the process, such as Alois Van de Vyvere, Frans Van Cauwelaert and Gustaaf Sap. Other Catholic politicians, like the engineers and industrialists Fernand Van Ackere and Alfons Van Coillie, who were members of parliament for several years, were deeply involved in the lower-middle-class movement and founded credit institutions for small businesses in their constituencies. They also transformed their credit co-operatives into joint-stock companies in the 1920s. Regardless of their political differences and rivalries, these Catholic politicians disagreed on how the credit system built to support the economic growth of Flanders should be managed. Gustaaf Sap, well known in Flemish financial circles and a member of parliament from 1919 to 1940, had been recruited by Georges Helleputte for his expertise. Under his influence, the Volksbank was transformed in 1921 into a joint-stock bank. But Sap failed to warn Helleputte about the misconduct of the Volksbank and its allies. As a consequence of their rupture, Sap was evicted from the management of the Boerenbond banking group. When he became Minister for Agriculture and the Middle Classes in 1932, then Finance Minister in 1933, he refused to prevent the collapse of the Boerenbond. The Boerenbond crash hastened the downfall of the Catholic–Liberal cabinet and was central to the negotiations for setting up the next cabinet, nicknamed ‘the government of the bankers’, at the end of November 1934. While the Boerenbond denounced the role of Sap, one cannot but note that the causes of the failure were very similar to those of the Banque Belge du Travail. In both cases, given their links with political parties, rescuing them and ensuring proper management had become a subject of furious polemic. However, there were two main factors that influenced their fate: the extent to which the failure of the Boerenbond group might destabilise the whole banking system; and political mobilisation to preserve the existence of a Flemish bank. Thus the Boerenbond system was reorganised under the auspices of several public credit institutions, as a result of pressure exerted by the Catholic church and Flemish Christian Democrat circles, which were reluctant to lose a banking network which supported the development of Flemish

96

Ginette Kurgan-van Hentenryk

enterprise. Some of its parts were amalgamated into a new deposit bank, the Kredietbank voor Handel en Nijverheid, set up in February 1935. All the former directors were removed, as in the case of the Banque Belge du Travail. Flemish public figures deemed worthy of trust were called upon to constitute the board of directors. From the start, this new bank pursued an independent policy and promoted the development of the Flanders economy. In most Western countries, the banking crisis of the 1930s triggered public intervention and reform of the banking system. In the countries where mixed banking had developed, the crisis revealed the dangers of combining deposit banking with industrial investment. Public authorities thus took measures designed to separate short-term credit operations from industrial investment. The reform of Belgium’s banking system illustrates this turning-point in exemplary fashion, although recent research on the history of the Soci´et´e G´en´erale displays the determining part played by the bankers in the legal reforms of 1934/5. The royal decree of 22 August 1934, signed by Finance Minister Gustaaf Sap, compelled the mixed banks to segregate their deposit banking operations from their investment banking activity. From the archives of the Soci´et´e G´en´erale and recent studies, it would appear that the decree was inspired by Emile Francqui to conceal and water down the bank’s heavy losses. The segregation would allow the restructuring of the balances without alerting public opinion. Moreover, a plan for amalgamating its banking network and concentrating all its deposit activities in a new bank, the Banque de la Soci´et´e G´en´erale, founded in December 1934, was presented as a result of the reform. In fact, the plan was ready before the royal decree was signed. The failure of the ‘government of the bankers’’ deflationary policies, which were aimed at keeping the Belgian franc within the gold standard, forced it to give way to the cabinet of National Unity headed by the vice-governor of the Banque Nationale, Paul van Zeeland. Van Zeeland implemented a ruthless devaluation which gave a boost to the economy. Using its special powers, this cabinet instituted the royal decree of 9 July 1935, which further reformed the banking system. Not only did this confirm the cleavage of functions of the universal banks, but it also submitted all institutions with bank status to the control of a new body, the Commission Bancaire (Banking Commission). The fall of the ‘government of the bankers’ was followed by a violent press campaign denouncing collusion between finance and politics. It gave way to the creation in 1936 of a parliamentary committee of inquiry. As a consequence, private bankers retired from public affairs while retaining great influence behind the scenes. In this respect, the banking reform is a revealing case.

Bankers and politics in Belgium

97

The banking reform of 1935 was seen at the time as a victory for the proponents of state intervention in the economy. A closer examination of the creation and content of the royal decree reveals the close collaboration between the Liberal Minister of Finance, Max-L´eo G´erard, and the bankers. Moreover, in their anxiety to restore public confidence and avert the socialist threat of nationalisation, the banks themselves were the main force behind the reform. They accepted a regulation of banking activities only with a close eye on the preservation of their own interests. Thus it is not surprising to find Max-L´eo G´erard called upon to accept the presidency of the executive committee of the holding company Brufina in 1937, or that he succeeded Maurice Houtart at the helm of the Banque de Bruxelles two years later. According to article 185 of the royal decree of 1935, a ‘bank’ was now allowed to collect deposits repayable over a maximum period of two years and to use them for short-term operations. It was forbidden to acquire interests in industry. As the demand for short-term credit for industrial firms was not very great, the banks were very soon compelled to channel their resources into state borrowing. Even before the war, Belgian banks had taken on the characteristics of deposit banks: a small element of shareholders’ funds in their resources; a reduction in advances to private enterprise; a growth in short-term loans to the state; and the development of investments made up of government stocks. At first, the bankers were relieved by the new banking statute, which sheltered them from public control of their long-term operations and industrial investments. They assumed that a competent and positively inclined application of the rule would not hinder their activities. However, they were soon dissatisfied with the way in which the Banking Commission exercised its control. Their discontent increased further when, following the split of the mixed banks, the regulation on the incompatibility between managing banks and managing holding companies or industrial enterprises was strictly applied. Thus, when Alexandre Galopin, the governor of the Soci´et´e G´en´erale, became in 1939 president of the Union Mini`ere du HautKatanga, he had to give up his position as president of the Banque de la Soci´et´e G´en´erale. On the eve of the Second World War, the links between the financial groups and the deposit banks born of the banking reform were still very close. Thus, when Germany invaded Belgium on 10 May 1940 and the government decided to leave Brussels, Prime Minister Paul-Henri Spaak and Finance Minister Camille Gutt called for the three key men of Belgian finance: the governor of the Soci´et´e G´en´erale, Alexandre Galopin, and the presidents of the Banque de Bruxelles and the Kredietbank, MaxL´eo G´erard and Fernand Collin. Their meeting on 15 May was followed

98

Ginette Kurgan-van Hentenryk

by a bitter controversy about the mission entrusted by the ministers to the financiers, which had significant consequences for the relationship between bankers and politics after the war. Undoubtedly, the ministers gave the bankers a mandate to pay civil servants’ salaries during the occupation. What is less clear is whether the ministers gave the bankers the task of representing big business in dealings with the German occupiers. The question was controversial since, during its exile in London, the government disagreed with the policy of ‘moindre mal’ (lesser evil) carried out by the Belgian business world under the leadership of the committee of prominent financiers and industrialists headed by Galopin. Galopin’s doctrine was to carry on with industrial production with the aim of feeding the population and maintaining manpower in Belgium while seeking to avoid supporting the German war effort. This policy came to a dead end and produced a harsh controversy. Thus, at the end of the war, the position of the Soci´et´e G´en´erale and other banking groups had been weakened and they had to face campaigns from the left for the nationalisation of banks and industry. While the leaders of the Soci´et´e G´en´erale had emerged from the First World War as glorious patriots and national mentors, things had dramatically changed at the end of World War II. Bankers and politics after World War II: a reversal of the relationship During the war, Socialist and Christian trade unions, employers and the Ministry of Labour initiated long, secret negotiations leading to a social solidarity pact laying down the foundation of post-war social relations. Its principles were carried through the integrated social security system for wage-earners (1944) and the laws relating to ‘the organisation of the economy’, both of which institutionalised industrial relations. Belgium then entered a mixed economy era. Though the Galopin committee members were reluctant to endorse the social pact, the financial groups and their related banks had to keep a low profile, given the left-wing orientation of the government, as highlighted by the Socialist and Communist membership of cabinets until 1947. With respect to the banks, the Second World War resulted in a strengthening of the system introduced in 1935. In October 1944, so-called ‘operation Gutt’ was an attempt to rehabilitate the currency by freezing bank assets and the conversion of notes issued by the Banque Nationale. Although it created a psychological shock, it did not quite manage to curb inflation. It was then followed in 1946 by a ruling by the Banking Commission imposing banking ratios aimed at securing a cheap supply of finance for the public authorities. In addition

Bankers and politics in Belgium

99

to liquidity and solvency ratios, banks were required to provide adequate cover for deposits in the form of treasury bonds, which might amount to 65 per cent of their commitments. For ten years or so, interest on this short-term debt was kept at a reduced rate of 1.15 per cent, which limited the ability to remunerate deposits. Thus, for twenty years, the private commercial banks enjoyed a stable environment protected by regulations mainly aimed at stability. Meanwhile, public credit institutions were rising to prominence in the Belgian banking system. The war also deeply altered the relationship between banks and the public authorities, with the pre-war de facto supremacy of private concerns giving way to a close co-operation between banks and the public authorities. The banks protected their interests through two existing bodies, the Consortium of the Banks and the Association Belge des Banques. The Consortium, which had existed since 1912, was the representative of the Belgian banks when the state wanted to call on the capital market. After the Second World War, most private banks were members of the Consortium, since credit to the public sector had become the main banking activity. The banks’ underwriting capacity was proportional to their ability to absorb or distribute bonds to their customers and was regularly revised. As the underwriting share of the Banque de la Soci´et´e G´en´erale represented more than a third of the total, from the beginning the bank held the presidency and the secretaryship of the Consortium. In its role as financial backer of the state, the Consortium tried to use its close relationship with the government to influence financial and monetary policy. When negotiating a loan, the chairman could obtain privileged information on the government’s financial programme and advise the Treasury on loan issues. It is, however, difficult to evaluate the influence of the Consortium on public authorities. On the one hand, it was criticised for abusing its monopolist position, while the state was building up debt, and for the large fees extracted for issuing loans. On the other hand, it contributed to keeping most of the state’s debt in the hands of Belgians and in Belgian currency. The activities of the Consortium came to an end in 1989–90 when the government decided to undertake an active management of the public debt by restoring some elements of competition between the financial institutions. The second body created by the bankers to protect their interests was the Association Belge des Banques (Belgian Banking Association). It was promoted by Alexandre Galopin in 1936. Chairman until his death in 1944, Galopin fought strongly the growing influence of the Banking Commission and the Banque Nationale on monetary and financial policy. After the war, the bankers feared nationalisation and were opposed to increasing credit control. The Belgian Banking Association adopted new tactics

100

Ginette Kurgan-van Hentenryk

by clinging to the plain principles of article 185 of the 1935 royal decree. During the 1960s, the commercial banks suffered from ever-increasing competition. The Belgian Banking Association persuaded the public authorities to make the rules more flexible. This resulted in a progressive deregulation of the banking system, responding both to a reduction in specialisation and to globalisation, while setting new rules to deal with the changes in the issuing of credit. The relationship between banking and politics failed to improve, as may be seen in the arguments about the autonomy of banks vis-¯a-vis their controlling holding companies and the high concentration of the banking system. Thus, the 1970s were a period of deep distrust between bankers and the political world, during which the bankers tried to cast off the yoke of their controlling shareholders. Another contrasting feature with the inter-war period is the shift in the role played by politicians on banks’ boards, as will be explained below. Since the end of the Second World War, political circles have been in favour of capping the stakes of shareholdings in commercial banks to 25 per cent, with the aim of engineering the autonomy of the banking sector. However, it took fifteen years for the Banking Commission to negotiate a first agreement: the protocol with the two main holding companies, the Soci´et´e G´en´erale and Brufina, related to ‘the autonomous exercise of the banking function’ (1960). This protocol was based on the following principles: recognition of the public role of the banks; stability of the shareholding structure; diversity in membership of the board of directors; and greater autonomy for the executive committee. The application of these principles proved unsatisfactory, mainly with regard to the holding companies’ control of the banks. It became a political issue in 1969 when Brufina sold a large stake in the Banque de Bruxelles to the Dutch bank ABN without informing the Banking Commission. The matter generated fierce debates in parliament, and the government set up a commission for reform of the banking legislation. During the long and difficult negotiations, banking autonomy became a political issue because of the disputes about the appropriate form of regulation. While the Socialists recommended legal intervention, the Christian Democrats favoured a new protocol system negotiated by the bankers with the Banking Commission. Once the protocol system was implemented, bankers had to struggle vigorously against government intervention in appointing the bank managers. After much political unrest, a new protocol was signed in 1974 by the Banking Commission, the three largest banks and their main shareholders under the strong leadership of Robert Henrion, the chairman of the

Bankers and politics in Belgium

101

Soci´et´e G´en´erale de Banque. According to its main provisions, the banks were henceforth independent and free from all external influences that could impede their management or contradict the monetary or financial policy of the authorities. To preserve the banks’ stability, modifications to the shareholding structure had to be communicated in advance to the Banking Commission, which could temporarily suspend operations. The governance was divided between the board of directors and the executive committee whose independence was strengthened. The rule of the ‘three thirds’ – representatives of the management, of the majority shareholders and the wider economic environment – was set to promote diversified and balanced boards. Thus the chairman of the board could not be a member of the executive committee and the chairman of the executive committee was the ‘manager’ of the bank. In spite of socialist pressure, the bankers succeeded in preventing public interference in appointing the manager of the bank. The concentration problem in banking is also evidence of the deep change in the relationship between Belgian finance and politics after World War II. During the 1920s, the big banks played a leading part in merging banking and industrial companies, while obtaining tax exemptions for these operations. After the banking reform of 1935, bank merger policy was primarily inspired by prudential supervision. For twenty years after the Second World War, the Banking Commission tended to prevent the three major banks from absorbing others, although it allowed smaller banks to merge to strengthen their market position. However, from 1960 the Banking Commission, under pressure from other rising credit institutions, the emerging European market and competition from the United States, changed its policy towards major bank mergers. It did not prevent leading socialist members of the government from opposing the proposed merger of the Banque de la Soci´et´e G´en´erale with the Banque d’Anvers, a subsidiary, and the Solvay-founded Soci´et´e Belge de Banque, which took place in 1965. However, a few years later, in the aftermath of the political unrest aroused by the Brufina affair in 1969, the authorities did not oppose the 1975 merger of the Banque de Bruxelles and the Banque Lambert, respectively the second and fourth largest banks in the country. Another significant feature of the shift in relations between bankers and politics after the Second World War was the role of politicians on the banks’ boards of directors. During the inter-war period, private bankers were frequently called to fill prominent posts in the cabinet. This became exceptional after 1945. From 1952 to 1954, Albert Janssen, a former banker and Finance Minister, was called back as Finance Minister in

102

Ginette Kurgan-van Hentenryk

the Christian Democrat cabinet to balance the budget and fund the debt. The appointment of Robert Henrion as Finance Minister in the Christian Democrat–Liberal government of 1966 to 1968 was the only instance in which a private banker took a technical government job. At the time, Robert Henrion was vice-president of the board of the Soci´et´e G´en´erale de Banque and an eminent professor at the Universit´e Libre de Bruxelles. As a minister, Henrion contributed to the modernisation of banking legislation. Returning to the banking sector, he played a leading role as the spokesman of the private bankers in the negotiation of the 1974 protocol by strongly defending the bankers’ autonomy. Subsequently he took the helm of the Soci´et´e G´en´erale de Banque until his retirement in 1976. He then re-entered politics as a Liberal senator. During the inter-war era, as we have seen, several banks recruited politicians as members of their boards. While the Soci´et´e G´en´erale group stuck to the depoliticisation of the bank boards it controlled until the late 1970s, other banks were eager to entrust prominent positions to former influential ministers with the aim of taking advantage of their experience and wide political and financial networks. Thus, after the war, Camille Gutt retired from politics and became the first director-general of the IMF. When he came back to Belgium, he joined the managing board of the Banque Lambert and from 1951 to 1964 sat on the board of numerous companies which it controlled. Paul van Zeeland, Minister of Foreign Affairs from 1949 to 1954, was very close to Baron Paul de Launoit, the head of the Brufina holding company and the Banque de Bruxelles. When he left public life in 1956, de Launoit gave him a prominent position on the executive committee of the Banque de Bruxelles, and the presidency of its subsidiary, the Banque Belge d’Afrique. Lower down, Maurits Naessens, who was closely identified with the Socialist Party, became the head of the Belgian branch of the French Banque de Paris et des Pays-Bas with the warm approval of his political friends. From 1950 he promoted the bank’s development with efficiency for a quarter of a century. The new trend in the relationship between bankers and politics was most noteworthy in the Kredietbank case, where very close links with the Flemish Christian Democrat Party were maintained. Thus, former Prime Minister Gaston Eyskens was chairman of the bank from 1973 to 1980. Owing to his political experience, Eyskens played an active part in the negotiation of the 1974 protocol with the Banking Commission. His successor Andr´e Vlerick, who had sat on the Kredietbank board since 1953, was deeply involved in the expansion of the Flemish economy. Initially Secretary of State for Regional Economy from 1968 to 1972, he became Finance Minister in the Eyskens government of 1972–3. He kept his seat in the

Bankers and politics in Belgium

103

Senate, where he was chairman of the Finance Committee until 1977. After leaving office he became president of the Kredietbank from 1980 to 1989. As a result of the merger wave and the internationalisation of the Belgian banking system from the 1990s, links between banks and Belgian politics have been losing significance. Moreover, the privatisation of public credit institutions has accelerated that process. Indeed, two of the major Belgian banks, G´en´erale de Banque and Banque de Bruxelles, underwent major control changes. In 1988, the Soci´et´e G´en´erale, the main shareholder of the G´en´erale de Banque, fell under the control of the French Suez group after the failure of Carlo de Benedetti’s takeover bid. On the other hand, the Groupe Bruxelles Lambert, controlled by the financier Albert Fr`ere, was eager to get rid of its major stake in the Banque de Bruxelles at the best price. In these circumstances, the financial groups were deeply frustrated with the protocol on banking autonomy and tried to negotiate a revision of the 1974 protocol with the Banking Commission. Their pressure appeared to be successful. In 1992, a new protocol admitted a closer involvement of the majority shareholders in bank management. As a consequence, there was no obstacle to the sale of the Banque de Bruxelles to the Dutch ING in 1997 or to the 1998 transfer of control of the G´en´erale de Banque to the Belgo-Dutch insurance group Fortis, which had already taken over two Belgian public credit institutions. While these takeovers depended on the approval of the Banking Commission, the role of politics was rather weak. Hence Banque Nationale governor Fons Verplaetse, though well connected in government circles, failed in his attempt to create a great Belgian bank by merging the G´en´erale de Banque and the Banque de Bruxelles. The plan was thwarted by the Suez group. When ING decided to take over the Banque de Bruxelles, the chairman informed the Belgian Prime Minister, who merely acknowledged the decision. In the battle for control of G´en´erale de Banque, the government discreetly supported the board backed by Fortis’ main shareholders Suez and Maurice Lippens against the executive committee favouring the ABN-Amro counter-bid. By this time, political influence had become virtually meaningless when faced with the weight of capitalist interests. The agreement of the political leaders of the Belgian municipalities to reduce to 25 per cent their stake in the Dexia group, formed by the merger of the public Cr´edit Communal and the French Cr´edit Local de France, also underlines how financial interests have come to supersede national or local concerns. It is likely that the fragmentation of power resulting from the federalisation of the Belgian

104

Ginette Kurgan-van Hentenryk

state from the 1980s did contribute to accelerating the diminishing influence of political leaders in a Belgian economy increasingly dependent on foreign investment. Conclusion To conclude, the evolution of the relationship between bankers and politics in Belgium during the twentieth century followed a winding path. Although professionalisation was gaining ground on the eve of World War I, links between banking and politics had remained very close. Many bankers or members of the board of joint-stock banks had a seat in parliament. With the climax of professional banking management after the war, the most influential bankers entered politics at a government level. The mixed bank model was praised and imitated beyond the banking establishment as a tool to develop the interests of less-favoured classes. The world crisis and the failure of the socialist and Boerenbond experiences led to the banking reform and the eventual containment of bankers’ influence on politics. In contrast with the aftermath of the First World War, bankers had to adopt a low profile after World War II. They were no longer called upon as members of the government, and top bank managers were now recruited from among former prominent politicians after their retirement from public life. The influence of national politics has faded away alongside the deep changes to the Belgian banking system over the last few years. BIBLIOGRAPHY Baudhuin, F., Histoire e´conomique de la Belgique (1914–1939), 2 vols. (Brussels, 1944). Bussi`ere, E., La France, la Belgique et l’organisation e´conomique de l’Europe 1918–1935 (Paris, 1992). Crombois, J.-F., Camille Gutt. Les finances et la guerre (Brussels, 2000). Delvaux, B. and Michielsen, S., Le bal des empires. Les dessous du capitalisme belge (Brussels, 1999). Henau, B., Paul van Zeeland en het monetaire sociaal-economische en Europese beleid van Belg¨ıe 1920–1960 (Brussels, 1995). Janssens, V., Le franc belge. Un si`ecle et demi d’histoire mon´etaire (Brussels, 1976). Kurgan-van Hentenryk, G., ‘Finance and Financiers in Belgium 1880–1940’, in Y. Cassis (ed.), Finance and Financiers in European History (Cambridge and Paris, 1992), pp. 317–35. Kurgan-van Hentenryk, G., Gouverner la G´en´erale de Belgique. Essai de biographie collective (Brussels, 1996). Kurgan-van Hentenryk, G., ‘La Soci´et´e G´en´erale 1850–1934’, in E. Buyst et al., La G´en´erale de Banque 1822–1997 (Brussels, 1997), pp. 63–285.

Bankers and politics in Belgium

105

Kurgan-van Hentenryk, G., ‘Entre tradition et modernit´e: le patronat bancaire en Belgique de 1850 a` 1950’, in M. Merger and D. Barjot (eds.), Les entreprises et leurs r´eseaux: hommes, capitaux, techniques et pouvoirs XIXe–XXe si`ecles. M´elanges en l’honneur de Fran¸cois Caron (Paris, 1998), pp. 457–70. Kurgan-van Hentenryk, G., Jaumain, S. and Montens, V. (eds.), Dictionnaire des patrons en Belgique. Les hommes, les entreprises, les r´eseaux (Brussels, 1996). Nefors, P., Industri¨ele ‘collaboratie’ in Belg¨ıe, de Galopindoctrine, de Emissiebank en de Belgische industrie (Leuven, 2000). Ranieri, L., Emile Francqui ou l’intelligence cr´eatrice, 1863–1935 (Brussels, 1985). Stengers, J., ‘Robert Henrion’, Acad´emie Royale de Belgique. Annuaire, 166 (2000), 53–77. Thielemans, M.-R., La grande crise et le gouvernement des banquiers. Essai (Institut de Science Politique, Brussels, 1980). Van der Wee, H. and Tavernier, K., La Banque Nationale de Belgique 1918–1940 (Brussels, 1975). Van der Wee, H. and Verbeyt, M., Mensen maken Geschiedenis. De Kredietbank en de Economische Opgang van Vlaanderen 1935–1985 (Brussels, 1985). Van der Wee, H. and Verbeyt, M., La G´en´erale de Banque. Un d´efi permanent (Brussels, 1997). Van Molle, L., Chacun pour tous. Le Boerenbond Belge 1890–1990 (Louvain, 1990). Vantemsche, G., ‘De val van de regering Poullet-Vandervelde: een samenzwering der bankiers?’, Revue Belge d’Histoire Contemporaine, 9 (1–2) (1978), 165–214. Vantemsche, G., ‘L’´elaboration de l’arrˆet´e royal sur le controle ˆ bancaire (1935)’, Revue Belge d’Histoire Contemporaine, 11 (3) (1980), 389–437. Vantemsche, G., ‘De politieke en economische context van de Belgische bankwetgevingen van 1934 en 1935’, Revue de la Banque, 14 (8–9) (1980), 31–50. Vantemsche, G., ‘Preciseringen omtrent het verloop van de politiek-financi¨ele krisis van 1926’, Revue Belge d’Histoire Contemporaine, 16 (1–2) (1985), 107–28. Vantemsche, G., ‘Des caisses d’´epargne r´egionales a` Coop-D´epots’, ˆ in E. Witte and R. De Preter, Histoire de l’´epargne sociale a` travers l’´evolution de la banque Codep et de ses pr´ed´ecesseurs (Brussels, 1989). Vantemsche, G., ‘La Banque de 1934 a` nos jours’, in E. Buyst et al., La G´en´erale de Banque 1822–1997 (Brussels, 1997), pp. 287–536.

6

Central bank co-operation and Romanian stabilisation, 1926–1929 Philip Cottrell

The collapse of the gold-exchange standard has been attributed to a wide range of factors, monetary and real. Some scholars have emphasised the progressive waning of central bank co-operation over the late 1920s.1 One attenuating force arose from the incompleteness of European monetary reconstruction after the Banque de France de facto stabilised the franc in December 1926. This was rapidly accompanied, not unexpectedly, by a strengthening of its reserves, and immediately sparked an aspiration within its management to employ their institution’s regained stature in securing a leading part in concluding European stabilisation. They were motivated by a number of perceptions. It was thought that the Bank of England had gained advantages from its premier role in previous stabilisation plans in which they now wished to share, together with obtaining the prestige that accrued. Furthermore, many of the states still to reestablish a gold parity – especially Poland and Romania – were regarded as lying within the French sphere of influence. This outlook had gained further weight through the Petite Entente’s transformation from an alliance directed against a revanchist Hungary into a quasi-Eastern European security pact for France.2 French designs for reconfiguring central bank co-operation met with the aspirations of political leaders in Poland and Romania. There was long-standing antipathy within Romania to foreign capital playing a major role within the country’s affairs. Furthermore, Romania had been a wartime associate of the Entente and, in the mid-1920s, the leadership of the dominant Liberal Party expressed great repugnance to its country being subjected to a League of Nations-supervised stabilisation process comparable to those previously undergone by its former enemies Austria and Hungary. These attitudes gave the Banque de France’s senior management an opportunity for gaining ascendancy in the leu’s stabilisation. The Banque’s schemes, pursued by Emile Moreau, its Governor, not only introduced competition for undertaking reconstruction but also, at least in the view of Bank of England officials, turned upside down established procedures for addressing the problems of Europe’s 106

Central banks and Romanian stabilisation

107

new and reconfigured states, beginning with Austrian stabilisation in 1922/3.3 Apart from sidelining the League of Nations’ Financial Committee, they involved primarily the private issue of long-term loans but made more marketable by associated collective central bank credits. This was regarded in Threadneedle Street as associating the good name of central banks with stabilisations not rigorously assessed and over which there was inadequate control. Furthermore, Moreau deliberately employed his Romanian stabilisation initiative as a test case for placing his bank in a new relationship of equality with the Bank of England. This caused considerable strain between the two institutions, and initiated a near crisis in relations between Montagu Norman, Governor of the Bank of England, and Benjamin Strong, Governor of the Federal Reserve Bank of New York, which had been the linchpin in the development of central bank co-operation from 1921. This affair has been considered by other scholars, who have based their accounts primarily upon Moreau’s autobiography and the papers of the Federal Reserve Bank – in particular, the Strong–Norman correspondence.4 Here, the opportunity has been taken to reconsider Moreau’s challenge from the perspective of the Bank of England, employing especially Governor Norman’s own files. Furthermore, this relatively new viewpoint is rounded out by also considering the affair within the context of Romanian developments, both economic and political. Romanian reconstruction As table 6.1 indicates, Romania experienced severe inflation in the period to 1923, but exchange rate and price stability were achieved by the mid-1920s. Indeed, in November 1926, League of Nations official Sir Arthur Salter considered that the National Bank had sufficient gold reserves – equivalent to £10 million – for stabilising the leu ‘somewhere near its present rate of exchange’. The suppression of inflation had commenced with fiscal reform in May 1922. From 1922/3 the budget was nominally balanced; more importantly, state expenditure was progressively reduced, and from 1925 this became an explicit deflationary policy. The underlying aim of the powerful Liberal Party of the ruling Bratianu family was to restore the leu’s pre-war parity as a matter of national prestige. Monetary stabilisation was therefore, as elsewhere in Europe, conceived by leading domestic politicians as a question of ‘returning to 1914’, although not so much in terms of a ‘return to normalcy’ but as an expression of national economic pride, achieved by the country from within itself.

Table 6.1 Indices of Romanian inflation, 1913–28

Exchange rate, dollar : leu Cost of living:

1913

1919

1920

1921

1922

1923

1924

1925

1926

1927

1928

1929

100 100

11.24a —

10.20 —

6.3 1,305

3.6 1,633b

2.5 2,400b

2.6 2,026

8.9 1,804

8.9 1,527

8.9 1,563

8.9 1,566

8.9 1,566

Source: Indices calculated, and recalculated, from R. Notel, ¨ ‘International Credit and Finance’, in M. C. Kaser and E. A. Radice (eds.), The Economic History of Eastern Europe 1919–1975, vol. II: Interwar Policy, the War and Reconstruction (Oxford, 1986), table 12.2, p. 178; and table 12.4, p. 182. Notes: a January 1920 b July

Central banks and Romanian stabilisation

109

Post-war reconstruction, as framed by Romanian politicians, came to have two aims: the second, alongside monetary reconstruction, being to overhaul and restructure the transport network. This problem was acute since, in 1919, there had only been 198 serviceable locomotives for the Regat’s (the Old Kingdom’s) considerably disrupted 3,500-km railway network. Severe transport difficulties were compounded by Romania’s post-war territorial enlargement and the increasing need to weld the new state together. Greater Romania (Romˆania Mare) of 1918 was 127 per cent bigger in area than the Regat, through the additions of Bessarabia, Bukovina, Southern Dobruja and Transylvania. Romanian governments from at least 1926 gave a higher priority to obtaining foreign resources for physical reconstruction, as opposed to achieving monetary stability, and this, in some respects, further complicated negotiations for a ‘stabilisation’ loan. The Bratianus’ Liberal Party, which openly took power on 17 December 1921, was prepared to negotiate foreign loans since they believed that this involved a clear recognition of Romanian sovereignty. However, such borrowing was only acceptable when the disbursement of the receipts was solely a matter for Romanians. This stance was part of the Liberals’ strong, long-standing antipathy to foreign investment playing any major role in Romanian development.5 Their insistence on the achievement of industrialisation ‘through ourselves’ necessarily imposed severe constraints upon foreign companies and foreign governments seeking to pursue any policy smacking of ‘business imperialism’. With this nationalistic fervour, nostrification legislation had been rapidly passed on 25 May 1919. It was applied to augment the state’s stake in the economy, although some activities were contracted to private enterprise through concessions. The development of a ‘mixed economy’ was furthered by the Ministry of Mines and Oil, which led to domestic interests in the oil industry increasing from a pre-war level of 6 per cent to 12–15 per cent by 1922. Banking was also nostrified, in particular reducing the German equity interest in the Banca Generale Romana from 60 to 20 per cent, and it then became the Banca Generala a Tariii Romanesti. Similarly, Hungarian capital in Transylvanian banks was replaced by equity from Bratianu-owned institutions. The presence of other foreign – Western – investment in banking was tolerated, while in other areas – such as aircraft manufacture – ‘know-how’ was actively sought. Nonetheless, Romania under the Liberals remained strongly nationalistic, as became clear with the new constitution of 29 March 1923. Designed in its political dimensions to ensure Liberal supremacy, it also stipulated that all natural resources were state property, and new mining laws were passed during 1924. Henceforth concessions, primarily for

110

Philip Cottrell

oil, were only granted to local joint-stock companies in which Romanian citizens held 60 per cent of the capital.6 The City and Romanian loans The greater post-war stakes in the Romanian economy gained by some French banques d’affaires stemmed from the expectation, shared by both the banks’ managements and by French officials and ministers, that they would undertake the government’s external banking business in place of German institutions. However, initiatives by the Banque de l’Union Parisienne during the mid-1920s made no headway.7 Italian banks had more success, managing consolidation issues, but failed to attain the German banks’ pre-war position in Romanian state debt. Rather, the field for issuing fresh loans was left open to the dominant London and New York markets. Schroders had a stake in Romanian finance, having headed a panEuropean flotation in 1913. However, furthering this business was undercut by the Romanian government’s continuing refusal, under article 297B of the Treaty of Versailles, to acknowledge bonds held by ‘enemy nationals’, primarily Germans. Furthermore, the government maintained that this clause applied to bonds which it considered had been held by German investors, identifiable since they had not been subsequently recognised by the Romanian Stamping Commission. Nonetheless, it would appear that it was impossible to trace all British-held 1913 bonds (to the extent of some £130,000). One French financial expert later attributed this to Schroders having, during the 1913 loan’s flotation, passed a portion of its London tranche to the Berlin market. Schroders disputed the Romanian government’s interpretation of the Treaty of Versailles, considering it fraudulent to deny the rights of current 1913 bond holders on the basis of their bearer securities’ possible past ownership. Banque de France staff later asserted that this stance had less reputable origins, maintaining that Schroders acquired unstamped bonds during the early 1920s at 1 per cent of their nominal value ‘and then making a virtue of compromising at something below 100%’. This contention accompanied an allegation that Montagu Norman had encouraged Schroders to assume the place previously held by German banks in Romania.8 Whatever its cause, the dispute over 1913 bonds came to involve the London Stock Exchange, its committee removing the 1913 loan from the Official List in 1924. This situation was unresolved when the Romanian government began to seek to raise a ‘stabilisation’ loan during the spring of 1926.9

Central banks and Romanian stabilisation

111

Approaches to the London market included discussions with Norman, whose attitude was somewhat ambiguous. On the one hand, he emphasised his long-standing policy of the Bank of England only assisting the ‘execution of a scheme prepared and approved by the League of Nations’. On the other, in its absence, ‘the Roumanian Government should apply to their normal financial advisers in London’. This caused Romania to reapply to the Italian market, especially as Norman had subsequently advised potential City issuers that the question of unstamped 1913 bonds was first to be resolved to the satisfaction of the Stock Exchange Committee.10 Romania’s discussions with London issuers convinced Norman that the leu was to be stabilised on gold. Consequently, he searched for information on the country’s condition, although the Bank of England had had formal relationships with the National Bank of Romania since late 1921.11 Norman was aided by Sir Arthur Salter, who had visited Romania briefly in November 1926.12 Salter had found that only two government ministers favoured stabilisation so as to encourage a capital inflow. These policies had no support from either Lapredatu, the Minister of Finance, who Salter thought might be a Bratianu nominee in the Averescu cabinet, or by Dimitri Burilleanu, Governor of the National Bank, where the Bratianus had a hold over senior staff. Rather, the Bratianus and their Liberal Party sought to revalue the leu by continued domestic deflation, and they opposed employing foreign capital, which Salter attributed not only to ideology but also to the post-war imperialism of international oil groups involved in Romania. With his insistence on the independence of central banks, Norman may have found more worrying Salter’s appraisal of the National Bank. Arising from its seamy relationships with the Bratianus, it had no control over the capital market, because at least 60 per cent of its portfolio was frozen. In Salter’s view, this arose from connections with the larger commercial banks and, thereby, indirectly with industrial groups. Furthermore, there was a shared belief that ‘the first necessity is the prevention of bankruptcies even of the most unreal concerns’, primarily owned by the Bratianus or their supporters. More generally, Salter considered that Romania’s economy suffered from ‘extremely inadequate . . . available capital’, while its supply was disorganised. There was also ‘a necessity for considerable re-adaptation to the new conditions’ prevailing since 1918/19. The additional territories had been ‘imperfectly assimilated’, whereas industries in the Regat had not adjusted to the post-1918 market. The economy was also beset by agricultural problems, marked by falls in both the production and export of cereals, Romania’s staple. Salter attributed these to the effects of both the war and land reform,

112

Philip Cottrell

with the break-up of large estates having produced small unviable units. The state of agriculture was compounded by the ‘disastrous effect’ of export taxes, so much so that Salter queried whether stabilisation should be attempted while they remained. If it were to go ahead without tariff changes, he thought that the leu’s gold parity would require a compensating margin, providing some allowance for both the government eventually losing an important revenue source and the consequent rise in the cost of living. Salter’s findings confirmed Norman’s view that stabilisation could only be executed through the League. Consequently, he used his influence over the winter of 1926/7 to ensure that likely London issuers only undertook a loan related to a League-approved reconstruction plan. Norman persevered with this in discussions with Burilleanu, but made no headway. The Romanian representative maintained that ‘public opinion was so strong that no Roumanian Government, present or future, could take the question of a loan to the League’. He argued that there was no precedent ‘except in the case of enemy countries’. Burilleanu also reiterated his government’s arguments – in terms of the Treaty of Versailles and the distinction between enemies and allies – over the settlement of 1913 bonds. These, in his view, made it equally impossible to conclude an arrangement under the League’s auspices.13 Romania’s implacable approach wore Norman down to the extent that he remarked: Now we must perhaps stop crying for the moon, for Roumania will go to Germany and America rather than to the League: and so I have told Messrs. Schroder that they are perfectly free as to the conditions of any Roumanian business they have in mind.14

However, this was only a temporary change of mind, with the ‘perhaps’ being an indication of the Governor’s underlying attitude. Nonetheless, it was a source of future embarrassment, with his French opposite numbers later maintaining that Norman had once considered allowing Romania to avoid the League. Following the receipt of the Governor’s apparent dispensation, Schroders acted. Frank Tiarks gained Burilleanu’s agreement to appointing experts, who would discharge functions ‘similar [to] those exercised by the League of Nations in the case of Bulgaria’. However, the negotiations broke down over how holders of 1913 bonds should be treated. Romania’s representatives turned to Lazards, but once more the discussions failed when Norman reiterated that pre-war debts had first to be settled before a new loan could be floated.15

Central banks and Romanian stabilisation

113

The last act of the Averescu cabinet was to open negotiations with Germany over financial issues stemming from the war.16 If successful, they would largely clear the way for Romania to return to German banks for raising a loan, as Norman feared. A new context for stabilisation The Bratianus again openly took power on 22 June 1927 but within a deepening economic and political crisis. They faced a concerted parliamentary opposition – the National Peasant Party – formed by the merger of aggrieved Transylvanian Romanians and alienated Regateni, who opposed the new electoral law that sanctioned ‘rigging’ through the device of ‘bonus’ seats, together with the way that the Bratianus had utilised Averescu once more as a fa¸cade. The Bratianus’ hold was further undercut by, first, the death on 20 July of their covert supporter, King Ferdinand, and, second, within a further four months, the unexpected demise of Ionel Bratianu, the powerful head of the political clan. Vintila Bratianu attempted to overcome this through an election deal with the National Peasants. They rejected it, insisting on unrigged elections and, during the first half of 1928, turning to mass demonstrations to secure this goal. Mounting political instability was accompanied by deepening economic problems caused by harvest failures. These had widespread adverse ramifications, including exposing the underlying outflow of capital Romania had experienced since 1924.17 The likelihood of a stabilisation loan was somewhat advanced by informal discussions at a League meeting in October 1927. Otto Niemeyer, a Bank of England director and member of the League’s Financial Committee, concluded that ‘Roumania is less opposed to a League Plan . . . whether because of what we may [have] said or because of difficulties experienced without such a Plan’. However, other Western financial advisers, including Harry Siepmann of the Bank of England’s new central banking department, and Charles Rist, Deputy Governor of the Banque de France, did not share this glimmer of optimism. Among the reasons were the lack of progress in German–Romanian talks, and Italy pressing Romania.18 Rist, along with Pierre Quesnay, was part of the Banque de France’s new managerial team, headed by Governor Emile Moreau, which had brought about the franc’s de facto stabilisation. Furthermore, Rist and Quesnay were responsible for their institution playing a role in Polish stabilisation during 1927: the inception of a Gallic challenge to the Bank of England’s international position. This was accomplished through Jean

114

Philip Cottrell

Monnet, a member of the League’s secretariat until 1923, and thereafter the French representative of Blair & Co., an American banking house. Monnet brought in transatlantic funds. Then, after a personal reconciliation between Moreau and Horace Finaly, directeur-g´en´eral of the Banque de Paris et des Pays Bas (henceforth Paribas), Paribas and the Banque Franco-Polonaise agreed, somewhat reluctantly it must be said, to assume a symbolic French part in what was essentially an American financial affair.19 As with Romania, Norman sought a Polish stabilisation plan involving League control for several years, with the related loan issued on a number of financial centres. His approach was given some credence by an earlier, unsuccessful attempt ‘to show that they [the Poles] need rely upon no one but themselves’.20 The French-inspired scheme was based upon an assessment by the American expert, Professor Kemmerer, but the Polish leader Marshal Pil
sudski was subsequently able to ensure that Charles S. Dewey, the American adviser to the Polish government, had no real influence over policy. In all this Norman’s hand had been forced, particularly during a European visit by George L. Harrison the Deputy Governor of the Federal Reserve Bank of New York. With Benjamin Strong’s backing, the Deputy Governor obtained the agreement of Norman and Hjalmar Schacht, the German Minister of Economic Affairs, to their respective institutions joining twelve others in furnishing a $20 million central bank credit to Poland in support of the Franco-American scheme.21 Retrospectively, one Bank of England official attributed French intervention in Polish stabilisation to ‘political reasons’, while ‘rather than cause an open breach in the solidarity of Central Banks, the Bank of England took part, with many misgivings, which were expressed at the time to other leading participants, in a joint credit to the Bank Polski’.22 French involvement in Polish stabilisation was followed by a comparable initiative for Greece, over which international control – through the International Financial Commission – was well established. However, France refused at the League to consent to the IFC being associated with a League-backed loan, maintaining that outstanding questions first required settlement. This gave the French government time to bring Greek politicians and French bankers together in a stabilisation initiative once more involving primarily American funds. A Bank of England official later maintained that these discussions were intended ‘to result . . . in an operation by which the national interests of France would be promoted with the support of American capital under French influence’. However, they failed because Greek representatives found French proposals unacceptable but, thereafter, French banks refused to participate in a Greek League loan.23

Central banks and Romanian stabilisation

115

The French initiative During the autumn of 1927, Moreau also took the initial steps for launching Romanian reconstruction. Building upon a meeting between Rist and Vintila Bratianu, he suggested that the Romanian government should follow Poland’s course, thereby avoiding the direct involvement of Norman and the League. Initially, this was not taken up in Bucharest; the Bratianu cabinet continuing to extend feelers to London, while approaching Germany and Hungary to resolve political problems. However, by November, Bucharest was responding to Moreau’s overtures. As staff at Threadneedle Street later learnt, these also involved the Banque de France becoming ‘committed to making it the test question in a dispute, which, sooner or later, was bound to declare itself between the Bank of England and the Banque de France’.24 The negotiations marshalled by the Banque de France were pursued by Victor Antonescu, the Finance Minister designate. Moreau’s scheme appealed to the Bratianu government because it closely conformed to its own perspective for stabilisation, while offence had been taken at the past attitudes of some members of the League’s Financial Committee. Significant headway was made during mid-December, when Antonescu again visited Paris seeking a loan of Ff500 million for monetary reconstruction and also the rebuilding of the railway system. Paribas agreed to participate in issuing the loan, while the Banque de France would act as the intermediary in discussions with other central banks.25 The loan’s basis was to be established solely by French experts, a point on which Romanian representatives had been insistent. Their findings would be developed by Liberal ministers and their officials into a reconstruction plan. Although the Romanian government was prepared to accept a French adviser for the National Bank, it would not tolerate League involvement or be subject to any external ‘pressure or suggestion’. What was sought was the ‘Polish model’ for stabilisation rather than a replication of the League scheme for Hungary. The first expert involved was Gaston J`eze, chief engineer of the Nord Railway Company, a University of Paris law professor and an old friend of Vintila Bratianu. He rapidly reported that the proposed operation’s success was assured.26 That it was a railway engineer who began the execution of Moreau’s initiative is a clear indication that the Romanian government’s prime objective was to gain funds to rebuild the communications network. As the New Year opened, Moreau’s initiative further unfolded. The National Bank issued a formal invitation for Quesnay to visit Bucharest although in narrowly defined terms with only passing mention made of a ‘programme’ and a ‘plan’. These faint allusions were coupled with a

116

Philip Cottrell

formal request for the Banque de France to organise a central bank credit to accompany the projected loan. Illness delayed Quesnay’s departure but Pierre Denis and Monnet, on behalf of Blairs, arrived in Bucharest on 17 January.27 The future for Anglo-American co-operation Norman only began to appreciate the progress of the French initiative in mid-January 1928, after Siepmann reported on his visit to the Banque de France, from which he had concluded that: The Roumanian problem was essentially different from that of Poland. It is to restore the credit which Roumania once enjoyed and now forfeited. Therefore, action was required, internally and spontaneously, before external help can be of any avail. The party feud has to be composed and a national policy adopted which gives some prospect of social and political stability; and, in the second place, there has to be tangible evidence of a willingness to abandon the traditional policy of the Liberals to external commitments and obligations. Outstanding disputes, financial and political, with other countries need to be settled instead of being left for ever in suspense. This has to be done by the Roumanians themselves, if there is to be any sure basis for the grant of further external help. To engage in discussions before these things have been done, about the form which such external help might take is to encourage the illusion that it may not be necessary after all to make a settlement, internally and externally, of the past; and the longer this illusion is maintained, the longer such a settlement is likely to be postponed.28

Uncertainties in London over the French initiative grew. Despite the somewhat conflicting information being received, Norman decided to act upon Siepmann’s Paris conversations by sending Niemeyer to discuss the situation with Benjamin Strong, providing a copy of Siepmann’s report to give context. Norman told Strong that he considered the ‘support of the League . . . was particularly needful in the case of Roumania’29 due not only to the country’s ‘disturbed conditions’ but also to its continuing political problems with Germany and Hungary. He added that ‘I . . . hope that the Polish case may not be made a precedent for a central bank credit based on the negotiations of Private Bankers’. Within four days, Norman reinforced his implicit plea: ‘I am disappointed at the way in which these affairs seem to be tending, not only because the support of the Financial Committee of the League . . . is likely to be avoided but also because financially, if not politically, Europe seems to be splitting up into groups.’30 After privately canvassing opinion in New York and Washington, Niemeyer had two lengthy conversations with Harrison and a convalescing Strong. Jeremiah Smith, the newly appointed American member of

Central banks and Romanian stabilisation

117

the League of Nations Financial Committee, attended the first, when Niemeyer disputed the impression of hostility towards the Financial Committee that he had gained in New York and from the Federal Reserve Board. He attributed this antipathy to League schemes being misguidedly regarded as ‘one hard and fast strait waistcoat for all patients’, involving external control over domestic finance, together with the Committee largely being considered a political organisation. Nonetheless, Niemeyer, true to his outlook, emphasised that ‘control was a fact’ and ‘very necessary in most cases’ although ‘subject to many qualifications’.31 Strong was not personally opposed to League control; rather his difficulty lay in the political context of the Financial Committee’s activities. It acted for a political body – the League Council – where the United States had no seat. Consequently, he ‘always had to think of the danger that, if he got allied’ with the Committee’s schemes, the Federal Reserve Bank might ‘be accused of conducting policy behind the back of, and perhaps contradictory to, the United States government’. This could lead to the Fed’s ‘power of aiding reconstruction, whether through the League . . . or otherwise, [being] severely clipped’. Generalities became specific, with Strong instancing Norman’s attempt to use Polish stabilisation for also settling Polish–German political relationships. Niemeyer argued that political influences ‘should not be unduly exaggerated’, and gained Strong’s implicit acknowledgement, through a grin, to his converse point that ‘in a sense politics came in to all reconstructions, as [he] believed that Central Banks had also found in their independent reconstructions’. Returning to the Financial Committee, Niemeyer pointed out that it was not composed of ‘Government representatives or even (with a single exception) Government officials’. Furthermore, its discussions were ‘little influenced by politics’, whereas its reports were made public before they went to the League Council, which neither edited nor suppressed them. It would appear that, by the conclusion of their first discussion, Niemeyer had made some headway. Although Strong insisted that he ‘must be able to say that his hands were free’ through not being ‘bound by undertakings’ subject to League supervision, ‘privately he was benevolent’. His attitude was nonetheless constrained by having ‘to consider Congress’. In the case of Poland, which had opened something of a breach with Norman, he argued that it had been ‘settled on its particular circumstances’ and, so, did not lay ‘down any general principle’ nor prejudice ‘any other case’. In their second round of conversations, Niemeyer attempted to be reassuring over some aspects of the Polish episode – ‘I believed the political fears of the Poles about the League (Corridor etc.) were not well founded. The Financial Committee would certainly not have raised these points and had

118

Philip Cottrell

indeed been anxious to avoid raising them.’ Strong was equally reassuring by maintaining that the Franco-American stabilisation plan for Poland had not been ‘a decision in principle’. Indeed, had ‘other things been equal’, he ‘would even [have preferred] a League scheme’, admitting its advantages.32 Having secured some general agreement, Niemeyer turned to more particular issues. He pointed out that no League-sponsored scheme had involved a central bank credit. This raised the attendant question: ‘would a League . . . connection necessarily rule out a central bank credit with Federal Reserve Board participation?’ Strong remained a pragmatist in what was becoming the establishment of a catechism for further co-operation. France or Norway or Spain were not considered by him as being ‘prima facie League of Nations cases’ but he ‘was disposed so to regard Portugal and Roumania and smaller Eastern countries’. They agreed that ‘everything depended on the natural administrative powers in a country and on the range of its difficulties’. To forward the discussion, Niemeyer maintained that the Financial Committee’s involvement gave a stabilising country advantages. First, the Committee had greater impartiality than private bankers through its interest being essentially reconstruction as opposed to marketing the related loan. Its members ‘could negotiate with greater authority both in their own consciences and in the mind of the patient’. Second, the Committee had gained great experience – superior to that of private bankers. Third, a League scheme gave greater publicity for the country concerned, which produced a fourth advantage – that League good-will resulted in the client country obtaining a better issuing price for the stabilisation loan. Strong acknowledged that this was the case on the American market, adding that it might often be convenient for ‘the League . . . (rather than central banks) to bear whatever odium of political interference there might be’. Finally, Niemeyer pointed out that the Financial Committee ‘frequently had the power to arrange financial matters between two clients, e.g. Greece and Bulgaria, from the mere fact that both were clients’. A rapprochement appeared to have been reached; all that remained were the practicalities for enabling it to function. For Strong, the critical issue in future stabilisations was to be kept informed, particularly ‘before matters crystallized’. Niemeyer hoped that this could be accomplished through his contacts with Jeremiah Smith and Harrison. However, he had to point out that, generally, ‘a case came up [at Geneva] and had to be settled within a week’, and the Financial Committee ‘have to be trusted to do our best in the light of our general conditions here’. Strong agreed with Niemeyer’s further development of this point: ‘I imagine that in any circumstances it would be better not to mention, as part of a

Central banks and Romanian stabilisation

119

League report, a central bank credit which (if it arose) would remain for the Bank of Issue in the country concerned to negotiate independently.’ The discussions ended with Niemeyer’s appraisal of the two major problems facing the reconfirmed Anglo-American central bank alliance. First, citing Greece and Poland as examples, he maintained that: world leaders in England, the United States or where ever it might be, were often in touch with local Opposition parties . . . This was a trouble we had had in many cases in recent years. As a rule we could persuade the saner elements in the reconstructing country to avoid the pitfalls of these gentry and we must hope so to continue.

Second, he focused upon the evolution of programmes by pointing out that ‘some years ago only the League . . . [could] make a weak country marketable’ but ‘now another umbrella had been discovered in central banks’. He was concerned about the dangers if central banks gave their name not to impartially constructed schemes but to ex hypothesi interested schemes and if a central bank which did not like a scheme had to choose between supporting it or failing to co-operate with other central banks. I [hope] this alternative would not often face us.

This was a veiled illusion to the French initiative for Romania. The last phase of the talks, concentrating upon Romania, took place between Niemeyer and Harrison.33 Niemeyer had concluded that Strong ‘will be very reluctant to support non League schemes in most of the cases now likely to come to the League [Bulgaria, Portugal, Spain and Yugoslavia] and in particular in the case of Roumania’. Yet the real question was the robustness of the relationship between Norman and Strong, and, with their poor health, their physical abilities to sustain it. Norman, although back in harness at the Bank of England, was still ‘overtired’. Harrison thought that Strong’s condition had recently ‘so much improved’ that he still planned to sail for Gibraltar in late February, giving rise to a possible meeting with Norman. Whatever his colleague’s condition, Harrison expected to come to Europe during late April. During the talks, the Fed received a ‘long letter’ from Moreau, which, while concerned with generalities, indicated the Banque de France’s possible interest in a Romanian stabilisation scheme. Niemeyer came to understand that Harrison had replied in terms of the Fed’s lack of familiarity with Romanian conditions and, consequently, his awaiting more information before fully responding. Although essentially a ‘holding’ response, Harrison argued that, due to Romanian economic and political conditions, monetary reconstruction required more complete control than

120

Philip Cottrell

could come from central banks, so implicitly raising League intervention. Strong had been involved in drafting this reply, and personally preferred a League scheme for Romania but, in Niemeyer’s view, was not prepared ‘to fight for it’. Norman’s partner was only willing to hint at League involvement, which became very evident when Niemeyer saw Strong again on 10 February. Then he considered Romania to be ‘European business’ since no-one in the United States knew anything about the country. The maintenance of central bank co-operation was far more important for Strong. He hoped that the French initiative for Romania would collapse either as a result of the private bankers failing to agree terms for the loan, or through further discussions between the Bank of England and the Banque de France. Niemeyer considered that the latter would not produce Strong’s desired outcome, since the Bank of England was ‘suspect and in the worst possible position to talk’.34 Since it seemed that Strong was unwilling to go further than possibly dropping another hint over Romania to Moreau, all Niemeyer could do was to suggest that Harrison advanced his European visit. While Niemeyer continued his discussions in the United States, Siepmann concluded that the immediate purview for further AngloAmerican co-operation had been restricted by recent French policy initiatives. These, he thought, might soon encompass Czechoslovakia and Yugoslavia. In this respect, he considered that The French attitude in these questions is not supported by any readiness or ability to provide, or even in any appreciable measure to contribute to, the capital required for financial reconstruction. On the contrary the French government, even now that the prohibition against the export of capital has been suspended, imposes discriminatory taxation against foreign loans which is prohibitive, except in the rare cases where special exemption is granted. The net result of deflecting these countries from the League is therefore not at all to enlarge the resources available for reconstruction but simply to achieve French national and political ends to the disadvantage both of the League and of the borrower, with the help of American capital which otherwise would be equally available in the more general interests of Europe.35

The immediate, pressing question in Siepmann’s view was: Whether . . . it can be made an established practice to deal with such financial questions cooperatively and unpolitically through the League, instead of competitively and nationally . . . it will be serious if the direction originally given to financial reconstruction by the League and the Central Banks together is abandoned in favour of a policy of hegemony. It is not easy to foretell what would be the reactions in America when this new orientation became apparent. With the private banks whose money is made available for such purposes it is impossible to quarrel, because they are largely concerned with profit-making, and with

Central banks and Romanian stabilisation

121

reconstruction only in so far as it may contribute to that end. But with a member of the League the case is different, and it is not too much to say that the present attitude of the French Government towards the financial reconstruction of Europe is incompatible with loyalty to the League.36

Whether France would gain financial sway over the Petite Entente was a question that may have implicitly been raised in Norman’s mind by a letter from Burilleanu. It summarised the unfolding French initiative but also sought Norman’s ‘powerful support’ for Moreau’s organisation of ‘a system of international collaboration on behalf of the National Bank of Roumania on whatever lines seemed most suitable to him’. This caused Norman to attempt to open a correspondence with Moreau. On the one hand, he may have been heartened by the news that Romania’s negotiations with Blairs appeared to have collapsed. Yet, on the other, Burilleanu remained sanguine over raising an international loan to stabilise the leu at its current exchange rate. Once more, the necessary political conditions were to be achieved through Nicholas Titulescu, the Romanian Foreign Minister, meeting his German counterpart, Gustav Stresemann, while Burilleanu was indicating to the Bucharest diplomatic community that the loan would require Bank of England approval. It also appeared that the Romanian government was seeking it not only to replenish its treasury but also as a defence against the growing attacks of the National Peasant Party.37 The ‘two sisters’ Moreau replied by announcing that he would come to London on 21 February.38 He had already established his position through a discussion with French Prime Minister Raymond Poincar´e on the 6th: on the question of the imperialism of the Bank of England. I explained . . . that England, having been the first European country to regain a stable currency after the war, took advantage of this to establish the foundations of real financial domination in Europe . . . England is thereby completely or partially established in Austria, Hungary, Belgium, Norway and Italy. It will establish itself in Greece and Portugal. It aims to find a base in Yugoslavia and it is insidiously fighting us in Romania.39

However, the timing of Moreau’s planned confrontation with Norman was complicated by Norman’s further ill-health. Although Rist was prepared to postpone, Moreau insisted on maintaining the arrangement – to face either Norman or Cecil Lubbock, the Deputy Governor.40 Indeed, it later became known that, if Lubbock ‘had felt unable to give an immediate reply’, Moreau was prepared to stay ‘in London until, by some

122

Philip Cottrell

means or another, an official and formal reply could be given’. His insistence and impatience were fed by anger at Strong’s telegrams arising from Niemeyer’s American visit, together with a misguided perception that Norman was attempting to delay Anglo-French talks until the British government announced a credit arrangement for Romania.41 Norman was unable to participate in the talks which finally took place on 22 February between Moreau, Lubbock, Sir Henry Musgrave Harvey, comptroller of the Bank, and Siepmann. At the outset, Moreau attributed his pressing for the meeting to the need for a mutual consideration of ‘almost urgent questions’ and the ‘dangerous points of friction [frottement]’ that had developed between the two central banks. He was seeking a clear acknowledgement of the Banque de France’s regained strength following the franc’s stabilisation, which he considered had brought in train an increase in his bank’s ‘responsibilities’. This he put graphically: ‘Banque de France wished to be regarded not only as a sister, but as a twin sister, whereas the Bank of England still appeared to treat the Banque de France as a younger sister who does not count.’42 More specifically, he insisted that the Banque de France should have ‘a fair proportion of the Central Bank balances which resulted from stabilisation’, ‘access to the information that reached the Bank of England from stabilised Central Banks’ and equal representation ‘with the Bank of England in the foreign countries where Controllers or Advisers are appointed’. Moreau cited the recent Italian stabilisation, when he maintained that ‘He was given no information whatever and was excluded from the negotiations, but he consented in advance to take part in anything on which the Bank of England and the Federal Reserve Bank of New York were agreed.’43 It was now a question of ‘reciprocal treatment by the Bank of England in return’. It also meant arriving at ‘preliminary . . . agreement’ over future cases whether they ‘required treatment through the League’ or not. Such ‘principles’ would be tested ‘in the near future’ in ‘three concrete instances’: Romania, Turkey and Yugoslavia. For Moreau, Romania was the critical issue since Norman now insisted on the necessity of Roumania going to the League and apparently this insistence was directly due to the initiative taken by the Banque de France, for the Governor was of a different opinion a year ago . . . this was an important question, because it involved not only this particular instance, but the future relations between the Bank of England and the Banque de France [c’est l’avenir de nos relations qui est en jeu]. The answer might determine whether in future the Banque de France could work with the Bank of England or not.44

Moreau received a somewhat ambiguous response from Lubbock. On the one hand, ‘The Bank of England could not have any opinion about a

Central banks and Romanian stabilisation

123

scheme which they had not examined, and it was not unreasonable that they should reserve their rights to study the situation before committing themselves to a conclusion.’ On the other, ‘If the Banque de France and the Federal Reserve Bank of New York were to recommend . . . a scheme agreed between themselves for the financial reconstruction for Roumania, the Bank of England would be prepared to endorse it.’ Where Lubbock could clearly agree was over consultation ‘in all future cases of stabilisation’. He also explained that his Bank had not gained particular advantages from previous stabilisations. It had ‘seldom or never intervened’ in the appointment of advisers while ‘As regards information [it] was probably no better off than the Banque de France but was quite prepared to pool its resources so far as possible.’ More difficult was the question of the Banque de France sharing in post-stabilisation reserve balances, as this ‘would directly conflict with the principle of exclusive relations [with other central banks], a principle on which the Bank of England insisted in the general interests of Central Bank control [over the London market]’. After receiving these explanations, Moreau appeared to accept that, with regard to the appointment of advisers, ‘he was asking for nothing more than a recognition of technical capacity’, whereas over reserve balances he ‘seemed content to let the point drop’. Moreau thought he had received the ‘quite precise and . . . wholly satisfactory reply’ that he had sought, and immediately reported this to the board of the Banque de France.45 Lubbock equally gave the impression of a satisfactory outcome, explaining over tea, which closed their meeting, ‘the symbolic meaning of bread which is broken in common’.46 However, much had gone unsaid, as neither party had fully expressed their attitudes towards, and objectives in, the negotiations for Romanian stabilisation. The underlying reality became very apparent over the following days. The only real gain made by the Bank of England was through Niemeyer receiving an expos´e from Quesnay of the position of Moreau’s Romanian initiative.47 He attempted to explain that what was at issue was a technical, as opposed to a political, problem. Quesnay considered that Romania required a $75 million loan, employed in equal proportions for monetary reconstruction and railway development. The related Romanian-devised stabilisation programme, which he considered ‘not bad’, envisaged writing off the country’s pre-war gold deposits in Berlin and Moscow, although it contained no provisions for the settlement of either German-issued war leu or German-held pre-war bonds. Whereas the gold-franc basis of Romanian debts to France was to be nominally maintained, these obligations were in practice to be substantially depreciated. The Bratianus’ grip over the National Bank was to be replaced by ‘a considerable participation by the State in order to preserve the independence

124

Philip Cottrell

of the Bank’. Otherwise, should the National Peasants’ mounting pressure to form the government be successful, the bank would be nationalised. Lastly, contrary to London’s understanding that negotiations with Blairs were near collapse, Quesnay maintained that he would shortly depart for New York, should Moreau approve his report on his recent investigations in Romania.48 The precise meaning placed by Lubbock on his statements to Moreau was made evident in his communications with Strong. He had only indicated an acceptance of a Franco–American scheme for Romania by presuming ‘you would get the situation examined with the Romanians at least as rigorously as with the Italians’.49 But it was more than that since the Bank of England considered the Romanian case not to be directly analogous to the Italian, with the important differences being: the prior settlement of Romania’s international debts; private bankers desiring to obtain the hallmark of the central banks for the connected loan; and the funds raised not being totally earmarked for stabilisation. In the Bank’s view, only the League ‘could frame a scheme commanding general confidence or impose the necessary controls’. Subsequently, his letter was regarded within the Banque de France as a ‘very energetic intervention’ in New York that constituted an ‘act of bad faith’.50 Siepmann replied to Quesnay in similar vein: We have agreed to come in blind on any scheme recommended jointly by you and the Federal Reserve Bank of New York. We have not, however, disinterested ourselves to the extent to which Moreau disinterested himself in the case of Italy . . . We . . . reserve to ourselves the right not only to abide by our established opinion but also . . . to advocate these opinions so that they may have a fair hearing before any conclusion was reached.51

Furthermore, Norman asked Burilleanu whether he had ever ‘wavered in my definite opinion that the financial and monetary reconstruction of Roumania be an international and cooperative enterprise conducted through the League’.52 Here the Governor’s memory was faulty, since in spring 1927 he had allowed Schroders, and then Lazards, to hold discussions on the basis that the proposed loan need not be related to a League scheme. Because of the ‘perhaps’ letter at least Niemeyer had then been aware of this, but eleven months later the ‘perhaps’ had long gone.53 A copy of Norman’s rebuttal to Burilleanu was passed, via Siepmann and Quesnay, to Moreau. Again, it was considered as constituting ‘very energetic intervention’ that was an ‘act of bad faith’, while the very method of the copy’s transmission caused Gallic outrage.54 The Siepmann and Norman letters caused ‘surprise’ within the Banque de France since they seemed to contradict the ‘precise engagement’

Central banks and Romanian stabilisation

125

given on 22 February. Quesnay could only comprehend this in terms of the Bank of England seeking to meet the City’s interests by having the question of unstamped 1913 bonds settled through the Romanian stabilisation scheme. Consequently, he wanted Siepmann immediately to confirm that: the Bank of England reserves the right to draw our attention to the existence of certain special problems on the London market in order that we may see to it that the programme prepares the way for their settlement. For the rest, the Bank of England leaves the matter in the hands of the Banque de France, which has been officially approached, and without attempting to take up the question again in Bucharest in New York or elsewhere, will await the communications which we shall not fail to make at the proper time.55

It was an olive branch but, should Siepmann refuse to accept it, then: If before receiving our proposals, the Bank of England, while expressing readiness to endorse the Franco-American plan, were to go on attempting to obstruct the course of action on which we have entered, we should have to conclude that the meeting in London resulted in no agreement and that in these circumstances both parties must resume their liberty of action.56

Before Quesnay’s letter arrived at Threadneedle Street, Lubbock wrote to Moreau, giving the views of his still indisposed Governor. Its underlying message was quite blunt and challenging. Because the Romanian case differed ‘in many important respects’ from the Italian one, it required League control. Furthermore, Norman felt that ‘the Bank of England must retain their freedom to promote as far as they can, the only solution which seems satisfactory to them’.57 Siepmann and Quesnay attempted to heal the growing breach. Quesnay armed himself by preparing his own minutes of the 22 February meeting. After Siepmann’s ‘hasty reading’, they disagreed over only one major point – Strong’s role – with Quesnay’s record implying ‘something even vaguer than acceptance: the scheme was simply to be made known to Governor Strong [connu]’.58 Yet, bad became worse when Quesnay received in French from Siepmann the four points in his instructions. When shown to Moreau, he disagreed with every one. Co-operation, in Moreau’s opinion, was now proved to be nothing more than an empty phrase, and therefore the Banque de France would, indeed must, proceed independently. Moreau intended to ‘treat the interpretation of Wednesday’s discussion [in London] as a question of good faith’. Siepmann thought the Bank of England was consequently to expect ‘non-cooperation, not retaliation’. Moreau intended ‘to be away and inaccessible to us for at least three weeks’, when Quesnay would visit the Fed to discuss Romania, which Moreau ‘was quite determined to

126

Philip Cottrell

go through with . . . alone if necessary’. Furthermore, Quesnay had been given immediate instructions to become involved in Yugoslavian stabilisation, from which the Banque de France had previously abstained ‘out of loyalty’ to central bank co-operation.59 After reviewing the history of the Romanian affair, when Quesnay had dominated their discussion, the French official then alleged that: the London market claims a monopoly to which it is no longer entitled, and that the Financial Committee is used as an instrument for maintaining this monopoly. On this question . . . it is quite certain that the Federal Reserve Bank stands with the Banque de France and not with the Bank of England.60

Siepmann later appreciated that Moreau shared this view in terms of the Financial Committee devising stabilisation schemes ‘to serve the interests of the London market’. He thought that Moreau had no quarrel with the Committee ‘as a body of independent experts’ but considered that ‘it has no business to supervise’ stabilisation programmes ‘devised in the past to secure the exclusion of French interests’.61 In order to make progress, Siepmann suggested that they should agree to differ over Romania, while anticipating co-operation over Turkey and Yugoslavia. But Quesnay indicated that Moreau was implacable, regarding Romania as a ‘fair’ test of relationships with the Bank of England. Quesnay accepted Siepmann’s view of the outcome: Inevitably the Banque de France will be driven in course of time to the logical conclusion of its actions and not content with an open breach with the Bank of England, will organize the whole rival group of Central Banks analogous to the political groupings of Europe. We shall have two conflicting systems with Germany, England and Italy on the one hand, enclosing a French bloc consisting of France, Czechoslovakia, Poland, Roumania and, if the French can arrange it, Jugoslavia.62

The Fed’s position That Moreau was set upon his course was made plain by the departure to America from Paris on 3 March of a Romanian delegation seeking to raise a $300 million loan.63 Siepmann appreciated that the Bank of England’s position depended upon Strong’s attitude.64 However, the American central banker had been relying upon positive talks between the Bank of England and the Banque de France, while not declaring a firm opinion until after his own discussions with the Banque’s representatives. This was because Strong felt ‘unable to take any initiative or leadership in a situation so remote from our own interests and experience’. The only grain of comfort for the Bank of England was that Fed

Central banks and Romanian stabilisation

127

participation would depend ‘upon a thorough-going exploration of the whole situation, monetary, fiscal, financial and economic generally, as we could not approve any plan which was not complete and did not promise to be adequate in all respects’.65 Just as there had been confusion over prospects for the Frenchsponsored Romanian loan during the opening weeks of February, so uncertainty arose again during early March. It was believed in Bucharest that either the Fed was not supporting Blairs, or the loan negotiations had become bogged down. These impressions seemed to have greater substance than in February with the announcement in Bucharest that Romanian representatives Prince Barbu Stirbey and Mr Veith were to visit London.66 They were coming because Blairs were only guaranteeing the issue of the Romanian loan’s first tranche. In Whitehall, this appeared to presage a repeat of Yugoslavia’s experience, when the American banking house had defaulted on floating subsequent parcels of a loan. Were this to happen with Romania, British officials concluded that it would prejudice the country’s ‘position with the finance market generally and the League of Nations in particular and delay indefinitely the reconstruction of her railways’.67 There were certainly problems in the negotiations. It would seem that, as in November 1927, the Bratianu cabinet was split, resulting in parallel approaches by different factions in London and New York. However, on 21 March, Moreau once more took a hand by directing Antonescu to Paribas. This gave the necessary impetus, and resulted in Paribas agreeing to head a French banking group for issuing a tranche of a Romanian stabilisation loan.68 With regard to the associated central bank credit, the Bank of England was kept abreast of discussions between the Fed and the Banque de France by a parallel series of cables. Quesnay and Rist read the constituents of one before their despatch, while the other comprised confidential commentaries to ‘clear up any possibility of misjudging our [Strong’s and Harrison’s] position’.69 By 23 March, the Banque de France’s approval of the Romanian stabilisation programme required only ‘some further consideration as to details’.70 Consequently, Strong and his colleagues ‘wanted [from London] any further facts for us to consider’. The American central banker continued to maintain that ‘the benefits of cooperation were superior to other considerations’, while he was ‘not assum[ing] initiative or joint leadership’. The private explanation was that: Matters seem to have developed so that we may appear to you to be between two conflicting parties and thus may be embarrassed by whatever decision we make . . . Having pointed out that we would not accept responsibility for a Roumanian programme and having reserved complete freedom of action

128

Philip Cottrell

regardless of what the programme might be or by whom proposed, it now seems necessary for us to decide upon that basis whether we shall participate in a credit at the invitation of the Banque de France . . . We hope therefore to hear fully and frankly from you in reply to our [cable] 75 in which we have endeavoured to express the situation fairly before any commitments are made. Finally and privately we wish to be certain that you and Norman realise (a) that we are not a bit embarrassed (b) that we are rooting for Central Bank cooperation and that we still love you.71

With the Fed a passive participant in the central bank credit, the Bank of England lost its last effective check upon Moreau’s initiative. Furthermore, with Norman’s continuing illness, Lubbock felt exposed and consequently only replied to Strong and Harrison after consulting some senior Bank directors. He gained Lord Revelstoke’s approval for both his ‘open’ and ‘private’ cables, but Sir Charles Addis, although agreeing to their content, preferred one ‘open’ transmission of the Bank’s views. The need to generate a collective opinion delayed the Bank’s response, but no punches were pulled in the resulting ‘open’ telegram. Lubbock made his Bank’s participation in the central bank credit conditional upon ‘further examination and endorsement’, while querying whether it was ‘technically necessary’. The latter was a more general point since ‘We have been discouraging the fashion and have in mind pending cases such as Greece and Jugoslavia.’72 These points and others were extended in a parallel, ‘strictly confidential’ cable. Some of this further commentary put in writing what previously may only have been either said or thought to be common ground. Romania’s ‘unsettled state’ was a reason for delay, with Lubbock drawing on recent private information from the governor of the Banca d’Italia, who had concluded that ‘this may not be the moment at which stabilisation can safely be undertaken’.73 His opinion soon gained further support; Victor Brauneis of the Austrian National Bank commented that ‘The Roumanian scheme had better wait a year or so until one could see clearly whether the death of Ionel Bratianu was not fatal to political stability.’74 More generally, as with the recent Polish experience, Lubbock felt that ‘we cannot participate in a plan which we should not be satisfied to recommend’ to other central banks looking to the Bank of England for guidance. This proved to be no idle gesture of opposition because the Bank was soon approached by other central banks, whose managements wished to follow its lead. Finally, there was the risk of the misuse of central banks’ names to aid the marketing of a loan based upon a plan of which central bankers had had ‘insufficient evidence’.75 Despite the Bank of England’s clearly expressed reservations, on 31 March Harrison, acting in the place of a once again ailing Strong,

Central banks and Romanian stabilisation

129

accepted the Banque de France’s invitation to participate in a collective central bank credit to the National Bank of Romania. However, the Bank of England was soon aware of Schacht’s opposition due to unsettled issues between Germany and Romania. It also quickly became apparent that the stabilisation loan’s flotation would probably not occur for at least a further six months.76 Moreau and Norman Through the negotiations in New York, Moreau gained the position in Romanian stabilisation that he had sought – outright leadership and the Fed’s passive participation in a central bank credit. To secure his ultimate goal, he also wanted to obtain the involvement of the Bank of England and the Reichsbank on the same terms.77 He appreciated the long-standing, close relationship between Norman and Schacht. Consequently, Moreau invited Norman to Paris but, as in February, was insistent upon their meeting not complicating his other personal commitments – his mayoral candidacy. His obstinacy was maintained despite Norman having returned to the Bank solely because Lubbock was ill and expected to be absent for one to two months.78 On the afternoon of 27 April, in Siepmann’s opinion, his Governor was subjected to ‘what amounted to a cross-examination’ by Moreau. During this ordeal, Norman stood by Lubbock’s previous exchanges, and indicated that his own recent absence meant that he could not address new questions without first consulting his colleagues. Nonetheless, Norman reiterated that Romanian stabilisation should take place through the League, while still holding to central bank co-operation, which meant that he wished ‘to work in harmony with the Banque de France’. This cut no ice with Moreau since the ‘Banque de France was now so deeply engaged that there could be no turning back, and the [Romanian] scheme would be proceeded with at all costs’. Furthermore, the Bank of England’s failure to participate would be regarded ‘as an unfriendly act and as confirming the suspicions which it was possible to entertain about the motives and methods of the Bank of England, not in this but also in other questions’. After Quesnay and Siepmann attempted a reconciliation, the Bank of England official felt that the Banque de France’s senior staff were contemplating ‘non-co-operation’ rather than retaliation. However, Moreau now hinted at possible reprisals by expounding upon his past policy of drawing gold from America as a service rendered to the Bank of England. It might be that ‘he would . . . have no further regard to the interests of the Bank of England and would always act with an eye solely to the advantage of the Banque de France’.79 He also wanted it understood that his

130

Philip Cottrell

Romanian initiative had no political considerations: ‘the Quai d’Orsay, so far from initiating, had, as usual, been rather behind with its information and knew nothing about the whole affair until it had reached a comparatively advanced stage’. That the loan was purely a market-orientated proposal was stressed in Moreau’s details for the $20 million issue, planned for mid-June. He had advised the syndicate that the contract should not involve any ‘questions of commercial privileges or concessions’, and the loan should be floated on all markets on equal terms. In this, Moreau implied that the Bank of England’s position had been impaired by one of its director’s business interests – Tiarks of Schroders. Norman demurred, arguing that the Bank of England’s attitude in this particular respect arose solely from the Romanian 1913 loan having been struck from the London Stock Exchange’s Official List. ‘It would be most difficult for the Bank . . . to ignore these facts and to take an opposite attitude. Monsieur Moreau could do as much as anybody to promote a solution of this difficulty and the Governor appealed to him to do so.’ Later, Norman expounded upon this problem as follows: The difficulty of the 1913 loan arises from the fact that London is an international market which has to help in maintaining certain standards in the common interest of all international markets; it has nothing to do with the claims of British bondholders as such.

Norman’s appeal gave Moreau the opening he sought to gain Bank of England participation. The next day, he tried to expand it by offering London a tranche of the Romanian stabilisation loan, but it was a fly to which Norman did not rise. Following Norman’s refusal to inform Schacht and Bonaldo Stringher, Governor of the Banca d’Italia, that he no longer insisted upon League involvement in Romanian stabilisation, and his querying of points of general and technical detail in the Banque de France’s proposals for undertaking the central bank credit, the meeting once again became inflamed by mutual recriminations. It ended, nonetheless, with Moreau inquiring whether the Bank of England wished to be invited formally to participate in a central bank credit for Romania. In reply, Norman suggested that this should come only after he had written a personal letter to his French colleague.80 That was soon sent. After expressing his disappointment that Romanian stabilisation would not involve the League, Norman agreed in principle to contribute to a $20 million central bank credit. However, this was made conditional upon resolving the 1913 loan question, involving all bonds being fully serviced and no discrimination between bonds should the loan be converted.81

Central banks and Romanian stabilisation

131

The central bank credit With Norman’s letter, Moreau had secured his goal but his initiative still required the resolution of a range of outstanding problems. The central bank credit depended upon not only settling Romania’s pre-war indebtedness on the London market but also bringing about a comparable arrangement with Germany, a compact which would have to encompass other issues stemming from the war and the peace treaties. There was also the problem of floating the loan over a number of markets. This agenda was well established but it was extended from spring 1928 by a new difficulty – the National Bank of Romania’s growing shortage of foreign exchange due to harvest failures. This was first met by the Banque de France, together with the Bank of England, making an advance to the National Bank.82 When Moreau contacted the Reichsbank, Schacht, not unsurprisingly, produced a list of problems requiring the Romanian government’s prior attention. These comprised in the first place renouncing, in common with other governments, the right given to the Allied and Associated Powers to make any kind of reprisals against Germany in the case of voluntary default. There was also the settlement of financial issues: the pre-war Romanian bank deposits in Germany, the war leu problem not regarded by Romania as settled by the Dawes Plan, and the position of German holders of Romanian pre-war bonds. He later added to the slate the resolution of wartime wheat transactions.83 In Schacht’s view, it was a matter of the Romanian government being bound ‘to bring their international financial affairs into line with the accepted principles of justice’, and he looked to Moreau to give ‘a hint . . . to the Roumanian Government and the Roumanian National Bank’ which, if acted upon, would also secure ‘the participation . . . of those money markets which at present are still holding aloof despite their former close connection with Roumania’ – those of Belgium, the Netherlands and Switzerland.84 Whether as the result of a hint or not, on 26 May Norman received a very embarrassed Oscar Kiriacescu, Vice-Governor of the Romanian National Bank, who feared the Governor’s anger over Romania having turned to France. However, Norman was reassuring and Kiriacescu, in return, stated that ‘the opportunity would be taken now of establishing [his bank] in a position of real and complete independence, and that political considerations would not again be allowed to influence monetary policy’.85 He knew that this would receive the Governor’s approbation as it was one of Norman’s long-standing tenets of central banking. However, Kiriacescu’s real purpose was to seek advice over settling the 1913 bonds question. Norman urged his personal intervention as a ‘man of

132

Philip Cottrell

affairs’, rather than that of Romanian Treasury officials. He also made it clear that a concord with the City would not be a precedent for Berlin, although ‘there are related questions elsewhere which involve the same principles as those which govern the questions to be settled in London’. When following Norman’s lead, Kiriacescu rapidly found that resolving the 1913 bonds question involved two major problems. One arose from the discovery that a fifth of the English tranche, following stamping, was being serviced in leu. With the likelihood of a new Romanian loan, English bondholders were displaying no willingness to sell their bonds cheaply, while discovering these holders’ identities proved to be laborious. The second arose from a third of the English tranche not having been serviced since 1914, which gave rise to the further question of whether the necessary composition, involving accumulated arrears being met by the new loan, would be sufficient.86 These difficulties, and others, were eventually settled in outline by the end of June, although the London Stock Exchange insisted upon the final agreement being ratified by the Romanian parliament, which took a further month.87 The Banca d’Italia decided in late May to take a limited participation in the collective central bank credit.88 This was based upon Stringher’s ‘cursory examination of the Romanian plan’, which he had informed Moreau was ‘somewhat vague’. Consequently, he made his bank’s contribution conditional upon Romania successfully raising a loan but one in which Stringher would play no part.89 The success of the flotation was again very doubtful. There had been discord between Blairs and Paribas since late February over leadership that thereafter spread to the choice of other European issuers. Blairs’ Dutch partners, Hopes, refused outright to co-operate with the Nederlandsche Handel Maatschappij, Paribas’s Amsterdam associates. Furthermore, by early June, Schroders, with Barings and Rothschilds, had decided to take no part and consequently Monnet, at Schroders’ suggestion, turned to Hambros and Lazards as potential London issuers.90 However, initially, the new combination was also uncertain because it was considered that Lazards’ connection with Chase, also a Blair associate, would mean that they would not be prepared to work with Paribas. Concurrently, the National Bank of Romania’s need for hard currency increased, deepening the gravity of the situation. By mid-June, the Romanian central bank had drawn down £0.75 million of the credit provided jointly by the Bank of England and the Banque de France, and therefore requested its increase to £2 million.91 The possibility of a London tranche further diminished when Hambros and Lazards found the stabilisation scheme unsatisfactory. They maintained that the proposed foreign adviser should not only be a National Bank director and act as a representative of the Fiscal Agents, but

Central banks and Romanian stabilisation

133

should also ensure that railway expenditure was properly undertaken. The London bankers wanted thereby to make certain that all potential suppliers of railway materials, domiciled in countries where the loan was to be issued, would have access to arising contracts. Other major problems arose from the 1922 sterling consolidation issue. First, this loan was held in large blocks, sold whenever there was an appreciable rise in its market price. This particular difficulty, it was thought, could only be overcome by future market management to maintain a less attractive yield on 1922 bonds than on those of the prospective loan. Second, the 1922 loan was secured on a mortgage having a first charge on Romania’s resources, which necessitated, in the view of the London merchant bankers, a separate and distinct security for the new loan – say, composed of the revenues generated by the Romanian customs and state monopolies, coupled with those arising from the railways. Since improving the railway system was one of the proposed loan’s objects, this could be incorporated in its structuring through bondholders having a charge upon the network.92 Tying together the various external financial aspects of Romanian stabilisation commenced in early July, when Quesnay drafted letters of invitation for the central bank credit. The Banque de France wished to be able to state the prior agreement of the Banca d’Italia, the Bank of England and the Fed. When approaching Siepmann, he made it clear that ‘he realised himself that the Bank of England had done everything to bring the negotiations to a successful conclusion, but that on account of M. Moreau’s state of mind, it was most desirable that the Bank of England should appear not to make any further conditions’.93 None were raised, with the Bank of England only requiring, before the provision of its contribution, the stabilisation loan’s flotation and the restoration of the 1913 loan to the Official List. Four enabling laws, passed on 27 July, established the necessary Romanian legislative basis. These, variously, authorised the National Bank to undertake credit agreements for supporting the leu’s stabilisation; empowered the government to raise externally an associated loan of $250 million that would also provide working and development capital for the railway system; and ratified the London and Paris agreements with existing foreign bondholders. The compacts with Romania’s external private creditors were rounded out by the Berlin agreement of 10 November 1928. The Banque de France planned for a central bank credit totalling $20–25 million to which it, together with the Bank of England, the Fed and the Reichsbank, would each contribute $4 million. By mid-July, the central banks of Belgium, Czechoslovakia, Italy, the Netherlands, Poland and Sweden had agreed to participate. This success was matched with some apparent progress in the loan negotiations, achieved by transfer of

134

Philip Cottrell

the National Bank’s illiquid portfolio to a specifically created new body – the Caisse Autonome – which would also liquidate the state’s floating debt.94 The necessary legislation would also abolish the legal upper limit on the National Bank’s circulation. However, the passage of the stabilisation plan’s statutory framework, expected a month earlier, had still not occurred, while there were difficulties in finding a foreign adviser, whom Vintila Bratianu wished to be in post as soon as possible. Moreau was insistent upon a French national filling the position and ultimately Auboin, a former director of research within the French Cabinet Secretariat, was appointed. The National Bank’s continuing adverse foreignexchange position was further assisted by a renewable, three-month $12 million advance, made against the loan’s proceeds, by the Banca Commerciale Italiana, Paribas’s Italian partner. It was to be mobilised only when Romania was not accruing foreign exchange from other sources, such as the export proceeds of the summer’s harvest. However, the 1928 crop proved as disastrous as that of the preceding year. Meanwhile, the advance complicated the situation for both the stabilisation loan and the 1922 consolidation issue since it was also secured on gold within the National Bank’s reserve.95 Rist was in Bucharest during late July, to be present when the loan’s draft contract was initialled and, more importantly, to attempt to sustain Romania’s negotiations with Germany, which had broken down a month earlier. He was there to impress ‘the need for a conciliatory attitude’. Rist found that the Romanians ‘honestly fail to realise what the maintenance of credit abroad means and involves’. This incomprehension may have played a part in the central banks of both Denmark and Finland taking a non-committal attitude towards participating in the central bank credit, whereas the Japanese central bank refused outright.96 The French project’s success was also challenged by the National Peasant Party, which seceded from the parliament on 26 July.97 Nonetheless, Moreau continued to build up the central bank credit consortium. By early October, he had gained the agreement of fourteen central banks and expected an early positive conclusion of the talks in Berlin. Outstanding issues with Switzerland were to be met by the despatch of a Romanian representative but there was no progress over settlements with either Belgium or the Netherlands.98 Difficulties between Romania and Germany were finally resolved on 20 October, when Moreau announced that the Romanian government had adopted a definitive stabilisation programme which ‘conforms to that approved by all participating banks in Polish stabilisation’.99 Moreau’s success in arranging the central bank credit was not matched by the loan syndicate. Difficulties between Paribas and Blairs had reached

Central banks and Romanian stabilisation

135

such a head during mid-August that Finaly of Paribas thought it might be necessary to reconstitute totally the various market arrangements developed over the past five months. However, these were ultimately undone by the failure of a Bulgarian loan on the American market in September, which caused Chase to withdraw from the Romanian issue, although the pretext given was the forthcoming American presidential elections. Following the loss of its major partner in the United States, the Blair-led American group announced that its participation in the Romanian issue would be consequently reduced from about $60 to $10 million.100 The French scheme was once more in jeopardy since the central bank credit contract required the initiation of the stabilisation and the issue of its attendant loan to be undertaken by 15 December. Raising the loan Moreau encountered a further major setback on 3 November, when Vintila Bratianu resigned the premiership. The National Peasants’ evergrowing militant opposition finally resulted in Iuliu Maniu taking the reins of government. His succession was confirmed by elections on 12 December, which were ‘free’ for the first time since 1918. The democratic change of government not only removed Moreau’s ‘friends’ from power but also brought in an administration that had made it known that it would not honour Vintila Bratianu’s foreign loan negotiations.101 Outwardly, Moreau was untroubled. He merely informed Norman that the Romanian chamber’s dissolution meant it was ‘improbable’ that the still required legislation for the stabilisation plan and its loan would be ready for 15 December, the terminal date of the central bank credit contract. Furthermore, Moreau continued to expect that, following fresh elections, the new parliament would pass a budget for 1929 by the close of 1928 and then, or in early January 1929, give legislative sanction to the stabilisation programme.102 Despite Moreau’s confidence, the National Peasant government created a totally new situation, but the Bank of England informed the Banque de France that it would not at any stage intervene in French negotiations with Romania.103 However, during early December, the new government approached Schroders. Niemeyer advised Tiarks that the timetable for League meetings meant that, should the new government turn in that direction, an approach would have to be made within days to have a scheme soon in place.104 Niemeyer warned Salter of this possibility while indicating to Tiarks that he was ready to ‘guide the Romanians if and when they have taken the plunge’.105 The change of government also increased the volatility of the leu on the exchanges, which necessitated its

136

Philip Cottrell

support on the New York market.106 The National Bank had repaid the advance from the Bank of England but, from early December, once again drew on the facility and with increasing frequency. This situation, both financial and political, also caused the National Bank to request an extension of the finalisation of the central bank credit contract to 15 March 1929.107 The National Peasants’ success also brought ‘practically [to a] stop’ the Paris discussions over the loan. On 12 December, one principal negotiator, Buzdugan, left for Bucharest, maintaining that the only way forward was Romania approaching the League. Indeed, Titulescu at Lugano had received instructions to prepare the ground for a request for a League-supervised stabilisation programme. Moreau’s initiative was saved by Swedish Match’s intervention. Initially promising a participation of $16–20 million, and finally taking a share of $30 million at par, Kreuger & Toll allowed Paribas to take forward the syndicate for issuing a $102 million loan. However, Swedish Match’s involvement came at a price – the Romanian match monopoly – that the Romanian government was prepared to pay. It is unclear why the National Peasant cabinet so readily acceded to these terms, which marked a major change in Romania’s attitude to foreign monopolies.108 On the one hand, the leu was under considerable pressure, while, on the other, charting a new course through a League stabilisation programme would have meant delay in gaining long-term funds – until spring or summer 1929 at the earliest. News of a successful conclusion to the Paris loan negotiations may have been responsible for an improvement in foreign-exchange market conditions that allowed the National Bank’s drawings on the Bank of England, which totalled £1.11 million by 21 December, to be repaid from 24 December.109 After Swedish Match joined the loan syndicate, the Banque de France expected the Romanian loan – the 7 per cent Monopolies Institute Stabilisation and Development loan – to be issued in late January, but the contract was not signed until 11 February. Within a day the French tranche of Ff561.638 million, just over a fifth of the total of $101 million, was issued at 92 under Paribas’s management, and other markets followed on 14 February. The small English tranche of £2 million ($9.72m) at 88 was undertaken by Hambros and Lazards in conjunction with Higginson & Co.110 The American portion was only somewhat greater ($10m) and, indeed, the loan was generally marketed piecemeal, involving partial issues on a further nine markets. As had been previously agreed, the largest part – $30 million – was taken at par by Swedish Match. Their bonds were to be held off the market for three years, any prior release requiring the consent of the loan’s American, English and French banks. The

Central banks and Romanian stabilisation

137

new Romanian monetary law had been published a week earlier, which allowed the collective central bank credit to be activated. However, the loan proceeds only enabled the Romanian budget to be stabilised and the leu’s gold parity to be supported. The remaining balance was insufficient for reconstructing the transport system. Furthermore, the loan contract’s terms had given the Blair–Paribas group first option on issuing any further loan – for infrastructure development or any other purpose. The consequences The unfolding of the French initiative for Romanian stabilisation reveals a gritty determination on the part of Moreau to triumph at almost any cost. He attained his goal of the Banque de France heading a collective central bank credit to aid monetary stabilisation, while a French banque d’affaires – Paribas – led the syndicate for the long-term stabilisation loan. Romanian stabilisation took place with the assistance of French experts in both its design and execution; it was supported by a long-term loan, for which a French bank managed the issue of 28 per cent of the publicly marketed bonds; and it had the safety net of a collective central bank credit arranged by the Banque de France. By achieving this, Moreau gained the equality for the Banque de France with the Bank of England that he had sought when embarking upon the endeavour. In the Romania of the Bratianus he had chosen the most receptive country for his ‘test case’ with Montagu Norman, given the largely unwavering opposition of the country’s leadership to the League or any other major form of foreign involvement. It would appear that the National Bank of Romania’s shortage of foreign exchange during the second half of 1928 meant that Maniu’s democratic National Peasant cabinet had little other option from November than to complete the negotiations in the form and substance initiated by Vintila Bratianu. The prior Franco-American scheme for Polish stabilisation had erected the necessary bridge between Paris and New York – between the Banque de France and the Fed – even if, ultimately, Monnet’s connection with Blairs was to prove an uncertain link for issuing a Romanian loan. Furthermore, in the case of Polish (and also Italian) stabilisation, there were substantial immigrant groups within the United States as well as other domestic reasons why Strong and the Fed should be interested in further particular European reconstruction schemes, whether with Moreau, as in the case of Poland, or with Norman with respect to Italy. However, Romania did not have such strong transatlantic connections and so Strong could consider it a country of which he and his close banking colleagues personally knew little. His prime interest, in failing health, was to

138

Philip Cottrell

maintain the principle of central bank co-operation and this became during his closing days, from the end of February 1928, his sole motivation. The retreat of the Fed at the close of February 1928 from its previous insistence on a prior, rigorous examination of the Franco-Romanian stabilisation plan removed for the Bank of England the substantial possibility of continuing to mount any effective opposition to Moreau’s initiative. Furthermore, with Norman’s and Lubbock’s continued ill-health during the first half of 1928 – what Niemeyer called ‘our domestic calamities’ – the Bank of England lacked the effective and determined leadership required to sustain further resistance to Moreau’s Romanian plan. After Norman’s own heated personal encounter with Moreau over the affair, he followed Strong’s dying wishes by passively acting in concert with the Banque de France to sustain the fa¸cade of central bank co-operation. In so doing, there were gains – the settlements reached for financial and other disputes between Romania and a range of countries that had their origins in the war and had persisted for most of the 1920s. But these were minor compared with the continuing lack of concord between the Bank of England and the Banque de France that was to be disastrously revealed during the Austrian financial and monetary crisis of spring and early summer 1931.111 French-aided stabilisation did produce within Romania some of the results that Norman might have anticipated from a League-supervised scheme. In March 1929, state monopolies were converted into autonomous bodies, more responsive to market forces and less under the sway of Liberal politicians and the Liberal Party. This was one expression of the National Peasants’ view that primacy should be given to agriculture while economic transformation should be accomplished with the aid of foreign capital – financial and physical. Consequently, the 1924 mining laws were revised in April 1929 to allow further international investment. Similarly, export duties on agricultural products were abandoned, while tariffs on agricultural equipment and items of peasant consumption were reduced.112 Throughout the discussions for a Romanian stabilisation loan, it had been clear that a prime objective of the Bucharest government was to raise funds for infrastructure development. This continued to be a major aim of Maniu’s National Peasant cabinet. Approaches were made to Lazards during late 1930 over floating a £6 million development loan, of which £4.5 million would be applied to Romania’s roads and railways. However, a stumbling block was Romania’s commitment to the 1929 stabilisation loan syndicate that held the securities required to back any further flotations.113 After Blair & Co. and Chase Securities Corporation declared their lack of interest in marketing the balance – $200 million – of

Central banks and Romanian stabilisation

139

the 1929 loan, Paribas, with ‘officious political intervention’ took the matter up during the opening months of 1931. But market conditions were now unfavourable. Schroder’s Romanian adviser pointed out that, since the 1929 loan was yielding 7.85 per cent, it was difficult to see how Paribas could contemplate floating further bonds, whether at 7 per cent with an issue price of 88 or at 7.5 per cent at 82.114 Norman made the same point to the Foreign Office by maintaining that, with market yields on its bonds at over 10 per cent, Romanian international credit was bad. This he attributed bluntly to three reasons: Romania could not be trusted politically or morally; the country was surrounded by enemies; and its past government had chosen to treat financial reconstruction on political lines and, consequently, in the view of London banks had ‘sold themselves to the French’.115 Paribas was able to issue publicly Ff575 million of a Ff1,325 million Romanian Monopolies Institute Development loan in March 1931 at a price of 86 12 . Other bonds were taken up – to the extent of Ff1.07 million – by French and other European and American banks involved in the 1929 floatation, whereas Stockholm Enskilda Bank agreed to acquire Ff246.75 million on the completion of a road contract with a Swedish firm. Given the National-Peasants’ policy emphasis upon the importance of agricultural development, Ff400 million was earmarked for this sector while Ff200 million was to provide the Treasury with a working capital fund. With respect to other disbursements, Ff250 million was intended for the repair and development of the railway system. But despite the long-cherished objective of railway development, there was no significant physical extension of the network following the 1931 loan’s issue. The volume of freight traffic increased from 1933 as the worst effects of the ‘Great Slump’ abated, but passenger traffic stagnated until 1938, and this was not offset by any greater use of motor vehicles, either privately or commercially, within Romania throughout the 1930s.116     I am grateful to the Governor and Company of the Bank of England for permission to use the Bank’s archives. The underlying research could not have been accomplished without the very considerable assistance of the staff of the bank’s archives: Henry Gillett, Sarah Millard and Roy Harris. Equally, I am grateful to the Research Committee, Faculty of Social Sciences, University of Leicester, for the provision of a grant. I am also indebted to Francesca Pino, Banca Commerciale Italiana, for her painstaking aid in trying to resolve some Italian aspects of Romanian borrowing. Last, but certainly not least, I have been greatly assisted in the preparation of this chapter by the perceptive comments of my colleagues Dr B. Attard and Claire Wapler Edwards, who is

140

1. 2.

3.

4.

5. 6.

7.

8. 9.

10.

Philip Cottrell preparing a doctoral thesis on the relations between the Bank of England and the Banque de France, c. 1900–38. Continuing errors and lacunae remain, of course, my responsibility. B. Eichengreen, Golden Fetters. The Gold Standard and the Great Depression, 1919–1939 (Oxford, 1992), pp. 209–10, 220–1. See C. P. Kindleberger, ‘The International Monetary Politics of a Near-Great Power: Two French Episodes, 1926–1936 and 1960–1970’, in Kindleberger, Keynesianism vs. Monetarism and Other Essays in Financial History (London, 1985); and J. L. Kooker, ‘French Financial Diplomacy: The Interwar Years’, in B. M. Rowland (ed.), Balance of Power or Hegemony: The Interwar Monetary System (New York, 1976). ¨ C. Natmeßnig, Britische Finanzinteressen in Osterreich. Die Anglo¨ Osterreichische Bank (Vienna, 1998); A. Orde, British Policy and European Reconstruction after the First World War (Cambridge, 1990); G. P´eteri, Revolutionary Twenties. Essays on International Monetary and Financial Relations after World War I (Trondheim, 1995); N. Pietri, La Soci´et´e des Nations et la reconstruction financi`ere de l’Autriche (Geneva, 1976); and A. Teichova, ‘Versailles and the Expansion of the Bank of England into Central Europe’, in N. Horn and J. Kocka (eds.), Law and the Formation of Big Enterprises in the 19th and Early 20th Centuries (Gottingen, ¨ 1979). The seminal work is S. V. O. Clarke, Central Bank Cooperation 1924–1931 (New York, 1967). See also R. Meyer, Bankers’ Diplomacy. Monetary Stabilisation in the Twenties (New York, 1970). See J. Rothschild, East Central Europe Between the Two World Wars (London and Seattle, 1983 edn), p. 293. G. R´anki and J. Tomaszewski, ‘The Role of the State in Industry, Banking and Trade’, in M. C. Kaser and E. A. Radice (eds.), The Economic History of Eastern Europe 1919–1975, 3 vols. (Oxford, 1986), vol. II: Interwar Policy, the War and Reconstruction, pp. 7, 9, 38–9. See also C. Bichi, ‘Foreign Banks in Romania: A Historical Perspective’, in K. P. Kostis (ed.), Modern Banking in the Balkans and West-European Capital in the Nineteenth and Twentieth Centuries (Aldershot, 1999), p. 35; and Rothschild, East Central Europe, pp. 296–8. E. Bussi`ere, ‘The Interests of the Banque de’Union Parisienne in Czechoslovakia, Hungary and the Balkans, 1919–30’, in A. Teichova and P. L. Cottrell (eds.), International Business and Central Europe, 1918–1939 (Leicester and New York, 1983), p. 409. Note of a conversation in Paris, 1 March 1928 [?Siepmann], Bank of England Archive [hereafter BoE], G1/384, f. 53. R. Roberts, Schroders: Merchants and Bankers (Basingstoke, 1992), pp. 147, 199. £1.98m of the 1913 £9.9m 4.5 per cent gold loan was issued in London, the remainder in Belgium, Holland, Germany and Romania. See T. Skinner, The Stock Exchange Year-Book for 1914, Additional notices, etc., p. 2233; Note of conversations held in Paris on 27 and 28 April 1928, 2 May 1928, f. 92, BoE G1/384. Extract of a conversation with E. J. Castiglione, 19 May 1926, and [note, interview with Carlton, Carlton, Grieg & Co.], 9 Nov. 1926, BoE, G1/384, ff. 1–2.

Central banks and Romanian stabilisation

141

11. See P. L. Cottrell, ‘Norman, Strakosch and the Development of Central Banking: From Conception to Practice, 1919–1924’, in P. L. Cottrell (ed.), Rebuilding the Financial System in Central and Eastern Europe, 1918–1994 (Aldershot, 1997), p. 39; and BoE, OV114/1 and 19. I am particularly grateful to Sarah Millard for the latter references. 12. Roumania (enclosure), Sir A. Salter, BoE, G1/384, n.f. 13. Additional sub-file: Roumanian Government Bonds, Norman to Niemeyer, 31 March 1927, BoE, G1/384, f. 9; and extracts from an interview between the Governor and Burilleanu, 30 March 1927, f. 4. 14. Norman to Niemeyer, 31 March 1927 (my emphasis). 15. Extract from Governor of Bank of Romania and F. C. Tiarks, 6 April 1927; and extracts from a memo re. conversation with Lazards, 13 July 1927, f. 9, BoE, G1/384, f. 4A. 16. German–Roumanian loan negotiations, Report by Finlayson, 8 June 1927, BoE, G1/384. 17. Rothschild, East Central Europe, pp. 286, 290–1, 299–300; and Z. Drabek, ‘Foreign Trade’, in Kaser and Radice, Economic History of Eastern Europe, vol. I, p. 424. 18. Note, Niemeyer to governor, 15 October 1927; Conversation with M. Quesnay, Paris, 19 November 1927, f. 9; and Extract from British Legation, Bucharest, to Sargent, Foreign Office, 22 November 1927, BoE, G1/384, f. 8. 19. E. Moreau, Souvenirs d’un gouverneur de la Banque de France (Paris, 1954), pp. 191, 213–14; J. Monnet, M´emoires (Paris, 1976), p. 123; and E. Bussi`ere, Horace Finaly, Banquier 1871–1945 (Paris, 1996), pp. 328–30. 20. Financial reconstruction [?H. A. Siepmann], 4 February 1928, BoE, G1/384, f. 34. 21. On British aspects see Orde, British Policy, pp. 302–7; and, more generally, Z. Landau, ‘The Relationship between the Bank of Poland and the Government during the Interwar Period’, in Cottrell, Rebuilding the Financial System. 22. Financial reconstruction [?H. A. Siepmann], 4 February 1928. 23. Ibid. 24. Siepmann, Conversations, Paris, 18 January 1928; Note of a conversation in Paris on 1 March 1928 [?Siepmann], f. 53; Note of conversations held in Paris, 27 and 28 April 1928, 2 May 1928, f. 92, BoE, G1/384, f. 20; and Bussi`ere, Finaly, p. 330. 25. Financial reconstruction [?H. A. Siepmann], 4 February 1928; and Siepmann to Waley (Treasury), 8 March 1928, BoE, G1/384. See also Conversation with Quesnay, Paris, 19 November 1927, n.f.; and Note of conversations held . . . on 22 February 1928, Siepmann, 23 February 1928, f. 42. 26. Siepmann, Conversations, Paris, 18 January 1928; Burilleanu, Bucharest, to Norman, 8 February 1928, BoE, G1/384, f. 20; and Bussi`ere, Finaly, pp. 330–1. 27. Siepmann, Conversations, Paris, 18 January 1928. 28. Ibid. 29. Norman to Strong, 21 January 1928, BoE, G1/384, f. 21. 30. Norman (SS Olympic), to Strong, 24 January 1928, BoE, G1/384, f. 22.

142

Philip Cottrell

31. League relations with USA (1 February 1928), Niemeyer, 22 January 1928, BoE, G1/384, f. 27. 32. League relations with USA (2 February 1928), Niemeyer, BoE, G1/384, n.f. 33. Harrison to Norman, 2 February 1928, BoE, G1/384, f. 28. 34. Niemeyer, note, 22 February 1928, BoE, G1/384, f. 38A. 35. Financial reconstruction [?H. A. Siepmann], 4 February 1928, §9. 36. Ibid., §10. 37. Burilleanu, Bucharest, to Norman, 8 February 1928; and copy, Greg (Bucharest), to Chamberlain (FO), 17 February 1928, f. 40, BoE, G1/384, f. 35. 38. Moreau to Norman, 15 February 1928, BoE, G1/384, n.f. 39. Moreau, Souvenirs, p. 488, translation as in A. Plessis and O. Feiertag, ‘The Position and Role of French Finance in the Balkans from the Late Nineteenth Century until the Second World War’, in Kostis, Modern Banking in the Balkans, p. 226. 40. Norman to Moreau, n.d.; Rist to Lubbock, n.d., n.f.; and Moreau to Lubbock, 20 February 1928, n.f. See also Note of a conversation in Paris on 1 Mar. 1928 [?Siepmann], f. 53, BoE, G1/384, n.f. 41. Note of a conversation in Paris on 1 March 1928 [?Siepmann]. 42. Note of conversations held . . . on 22 February 1928, Siepmann, 23 February 1923, BoE, G1/384, f. 42. 43. Ibid.; and for the detail of the negotiations over Italian stabilisation, see P. L. Cottrell, ‘Norman, the Bank of England and Europe during the 1920s: Case Studies of Belgian and Italian Stabilisation’, in E. Bussi`ere et M. Dumoulin (eds.), Milieux e´conomiques et int´egration europ´eenne en Europe occidentale au XXe si`ecle (Arras, 1998), pp. 76–83. 44. Note of conversations held . . . on 22 February 1928, Siepmann, 23 February 1923. 45. Note of a conversation in Paris on 1 March 1928 [?Siepmann]. 46. Quesnay to Siepmann (translation), 1 March 1928, BoE, G1/384, f. 56. 47. Quesnay to Siepmann (translation), 27 February 1928, BoE, G1/384, f. 49. 48. Note of conversations held . . . on 22 February 1928, Siepmann, 23 February 1923. 49. Lubbock to Strong, 23 February 1928, BoE, G1/384, f. 43. 50. Note of a conversation in Paris on 1 March 1928 [?Siepmann]. 51. Siepmann to Quesnay, 24 February 1928, BoE, G1/384, f. 45. 52. Norman to Burilleanu, 24 February 1928, BoE, G1/384, f. 44. 53. See conversation with Nathan (the Banca d’Italia’s London representative), 24 March 1928, BoE, G1/384, f. 46. 54. Note of a conversation in Paris on 1 March 1928 [?Siepmann]. 55. Quesnay to Siepmann, 27 February 1928. 56. Ibid. 57. Lubbock to Moreau, 28 February 1928, BoE, G1/384, f. 50. 58. Note of a conversation in Paris on 1 March 1928 [?Siepmann]. 59. Ibid. 60. Ibid.

Central banks and Romanian stabilisation

143

61. Romania. Summary of what seems to be the present position [?HAS], n.d., BoE, G1/384, f. 59. 62. Note of a conversation in Paris on 1 March 1928 [?Siepmann]. 63. Romania, Siepmann, 2 March 1928, BoE, G1/384, f. 58. 64. Romania. Summary of what seems to be the present position. 65. Strong to Lubbock, 24/5 February 1928, BoE, G1/384, f. 47. 66. Grey (Bucharest), 6 March 1928, BoE, G1/384, f. 69. 67. Orme Sargent to Grey, n.d., BoE, G1/384, f. 72. 68. Bussi`ere, Finaly, p. 331. 69. Strong and Harrison, Confidential, to Lubbock, 23 March 1928, BoE, G1/384, f. 74. 70. Strong to Lubbock, 23 March 1928, Cable 75, BoE, G1/384, f. 73. 71. Strong and Harrison to Lubbock, 23 March 1928. 72. Lubbock to Strong, 26 March 1928 (Cable 62), BoE, G1/384, f. 75. 73. Romania, Siepmann, 29 February 1928; and Nathan to Lubbock, 5 March 1928, f. 63, BoE, G1/384, f. 51. 74. Siepmann, 28 March 1928, BoE, G1/384, f. 78. 75. Lubbock to Strong and Harrison (strictly confidential), 26 March 1928 (Cable 63), BoE, G1/384, f. 76. 76. Sheppard Morgan, Office for Reparation Payments, Berlin, to Siepmann, 10 April 1928; and Sheppard Morgan to Siepmann, 13 April 1928, f. 89, BoE, G1/384, f. 88. 77. Note of conversations held in Paris on 27 and 28 April 1928, 2 May 1928, BoE, G1/384, f. 92. 78. Moreau to Norman, 14 April 1928; and Norman to Moreau, 19 April 1928, f. 91, BoE, G1/384, f. 90. 79. The problems for the Bank of England caused by the conversion of the Banque de France’s sterling holdings into gold from May 1927 are considered by R. W. D. Boyce, British Capitalism at the Crossroads 1919–1932 (Cambridge, 1987), pp. 144–6; Eichengreen, Golden Fetters, pp. 211–13; and D. E. Moggridge, British Monetary Policy 1924–1931. The Norman Conquest of $ 4.86 (Cambridge, 1972), pp. 134–6. 80. Note of conversations held on 27 and 28 April 1928, 2 May 1928. 81. Norman to Moreau, 4 May 1928; and A. H. Campbell to Norman, 3 May 1928, f. 96, BoE, G1/384, ff. 95 [draft], 97. 82. Norman to Moreau, 30 May 1928, BoE, G1/384, f. 109; and Moreau to Norman, 1 June 1928, f. 113, BoE, G1/385. 83. Conversations at Geneva, Niemeyer, 2 June 1928, BoE, G1/385, f. 114. 84. Schacht to Moreau (copy), 5 May 1928; Quesnay to Siepmann, 13 July 1928, f. 162; and Conversations in Paris, 6 October 1928, Siepmann, f. 167, BoE, G1/384, f. 104. 85. Note of a conversation between the governor and Monsieur Oscar Kiriacescu, 26 May 1928, BoE, G1/384, f. 107. 86. Conversation with Kiriacescu, 1 June 1928, BoE, G1/385, f. 112. 87. Siepmann to Quesnay, 28 June 1928, BoE, G1/385, f. 140. 88. Stringher to Norman, 28 May 1928, BoE, G1/384, f. 108. 89. Conversation with Nathan, 4 June 1928, BoE, G1/385, f. 116.

144

Philip Cottrell

90. Siepmann to Quesnay, 7 June 1928; Monnet to Norman, 12 June 1928, f. 123, BoE, G1/385 , f. 120; and Bussi`ere, Finaly, pp. 332, 334. 91. Siepmann to Quesnay, BoE, G1/385, f. 133. 92. Hambros to Monnet, 21 June 1928, BoE, G1/385, f. 138. 93. Memorandum, Siepmann, 5 July 1928, BoE, G1/385, f. 148. 94. Quesnay to Siepmann, 13 July 1928, BoE, G1/385, f. 162. 95. Information from Quesnay, 24 August 1928, BoE, G1/385, f. 164. 96. Conversations in Paris, 25 and 26 July 1928, Siepmann, BoE, G1/385, f. 163. 97. Rothschild, East Central Europe, p. 299. 98. Conversations in Paris, 6 October 1928, BoE, G1/385, f. 167. 99. Moreau to Norman, 19 October 1928, BoE, G1/385, f. 169. 100. Bussi`ere, Finaly, pp. 334–5. 101. Rothschild, East Central Europe, pp. 229–301. 102. Moreau to Norman, 10 Dec. 1928, BoE, G1/385, f. 179. 103. File note, n.d., BoE, G1/385, n.f. 104. Niemeyer, 3 December 1928, BoE, G1/385, f. 176. 105. Niemeyer to Tiarks, n.d., BoE, G1/385, n.f. 106. Siepmann to Leith-Ross, BoE, G1/385, f. 177. 107. Moreau to Norman, 10 December 1928; and Norman to Moreau, 22 December 1928, BoE, G1/385, f. 185. 108. Siepmann, 27 December 1928, BoE, G1/385; Bussi`ere, Finaly, pp. 335–6; and U. Wikander, Kreuger’s Match Monopolies 1925–1930. Case Studies in Market Control through Public Monopolies (Stockholm, 1979), pp. 32–3. 109. Norman to Moreau, 22 December 1928 and Norman to Moreau, 1 January 1929, f. 187, BoE, G1/385, f. 185. 110. Moreau to Norman, 14 February 1929, BoE, G1/385, f. 189. 111. See P. L. Cottrell, ‘The Bank of England and Credit-Anstalt’s Collapse, Spring 1931’, in K. Bachinger and D. Stiefel (eds.), with C. Natmeßnig, Auf Heller und Cent. Beitr¨age zur Finanz und W¨ahrungsgeschichte (Frankfurt and Vienna, 2001). 112. Rothschild, East Central Europe, pp. 301–2. 113. Vansittart (FO) to Norman, 9 December 1930, BoE, G1/385. 114. Schroders’ confidential adviser in Romania to Tiarks, 13 January 1931, BoE, G1/385, f. 199E. 115. Norman to Sir Victor Wellesley (FO), 13 January 1931, BoE, G1/385, f. 199D. 116. B. R. Mitchell, European Historical Statistics 1750–1970 (London, 1975), tables G1, p. 587; G2, p. 597; G3, p. 609; and G6, p. 642.

7

Government, the banks and industry in inter-war Britain Lucy Newton

The period from the end of the ‘Great War’ to World War II saw immense change and upheaval in the British economy and in British banking. The post-war economic boom quickly ended in 1921 and was followed by years of depression and the painful readjustment of the staple industries. Britain returned to the gold standard in 1925 and came off it again in 1931 – a year of international financial crisis. Unemployment soared and overall economic recovery was not seen until the mid-1930s. Depression was therefore a key feature for most of the inter-war period and it profoundly affected Britain at all levels, ‘provoking a further revaluation of . . . political, social and economic beliefs and of the economic institutions they sustained’.1 The Depression increased political consciousness and inspired the growth of the Labour Party. There was dissatisfaction with established classical economic theories and of market mechanisms, most vividly displayed by the spread of the theories of Keynes. The period was one in which disillusionment with Britain’s traditional principles of competition, laissez-faire and limited state guidance resulted in rising support for an increase in state intervention in the economy. The banks operating in this economic environment also underwent adjustments. The year 1918 saw the culmination of the amalgamation movement whereby the country’s banking sector became very concentrated, mainly in the form of the ‘Big Five’ clearing banks. Political and public concern about such concentration stimulated a government investigation by the Colwyn Committee, the first investigation into banking and credit during the period.2 Further government scrutiny resulted from public criticism of the banking system, in particular the lack of provision of credit to Britain’s struggling industrial sector. These debates culminated in the appointment of the Balfour Committee to consider industry and trade, and the Macmillan Committee to investigate finance and industry. Banks were also criticised over their unwilling participation in the ‘rationalisation’ movement, a development encouraged by the state in an attempt to reorganise Britain’s failing staples. The debates surrounding banking concentration and industrial finance may be classified as political 145

146

Lucy Newton

in nature. No longer was banking and finance merely the preserve of the experts. Government, government regulation, the public and politics all played a role in the discourse relating to inter-war banking and its relationship with the nation’s economy. The economic health of the country affected everyone and was increasingly an issue on which political parties fought for votes. The aim of this chapter is to examine the reaction of the bankers to increasing political and public criticism of their profession, their judgement and their decisions. These professionals were accustomed to some degree of censure in the public domain with regard to their business conduct, but the level of public and political debate in the inter-war period reached unprecedented levels. How did Britain’s bankers react to this condemnation and to the intervention of politics into their business lives? This will be examined by looking at the opinions of bankers as expressed in the Bankers’ Magazine, the Journal of the Institute of Bankers, and The Banker, the ‘trade’ publications for the banking industry and, in particular, the clearing banks. The results of the various government inquiries will also be examined. The following analysis will, given the sources consulted, reflect the very particular view of British bankers, but the perspective of these professionals in a time of economic and political upheaval is one that is valid and illuminating and, it is to be hoped, of interest to financial historians. Concentration in the banking sector The amalgamation movement in Britain gathered pace from the 1880s onwards and witnessed an upsurge during the First World War. During this time, reservations about excessive banking concentration were expressed repeatedly by those outside the profession. The most obvious result of such misgivings was the appointment of the Colwyn Committee in 1918, whose report summarised the main areas of unease: the potential reduction of competition resulting from amalgamations and the danger of the concentration of the entire banking facilities of the country into one powerful institution.3 Such a banking combine was referred to as a ‘Money Trust’ and the Committee were vocal in their opposition to its potential formation due to the power it could place in the hands of a few. However, bankers repeatedly countered such criticism, maintaining that amalgamations had led to increased competition by the opening of numerous new branches and that banking competition was more intense among the remaining banks.4 They also argued that larger banks were best able to meet the needs of post-war industrial recovery and the demands of industrial concerns which were increasing in size. Bankers believed that the big banks could provide a better service to their

Government, the banks and industry in Britain

147

clients, especially large-scale industrial customers, due to a large capital base, widely spread connections and by being ‘better conducted, better inspected, more satisfactorily “run” altogether’.5 In addition, bankers argued that big clearing banks had the advantage of ensuring that ‘areas in surplus are linked with areas of deposit scarcity’.6 In his evidence to the Colwyn Committee, Sir Edward Holden, chairman of the Midland Bank, asserted that: There is no doubt in my mind that those Banks which have become large and powerful by amalgamation will be in a much better position to aid the industries than they would have been had they preserved their individuality. It is a fallacy to assume that the small Banks will be able to do very much.7

A crucial result of the Colwyn Committee was the necessity of Treasury approval for every bank amalgamation that took place after 1918. Bank amalgamations still occurred after 1918, but there was no combination among the ‘Big Five’. Amalgamations tended to involve the absorption by the large clearing banks of the few remaining private institutions. British bankers had been allowed to undertake a process of concentration in their industry but this was largely over when the Colwyn Committee ensured that consequent fusions would be regulated and supervised. By examining the amalgamation movement, and criticisms of it, two important developments are highlighted – the increase of state intervention and public scrutiny of the banking industry. The two issues are closely inter-related and are considered in the following sections, beginning with the role of the state. Banking, politics and state intervention The attitude of British bankers towards state intervention in their profession tended to be hostile. In general, those involved in British commerce and industry in the inter-war period favoured a policy of laissez-faire and saw government intervention in the wartime economy as an aberration. Bankers in particular valued their autonomy. In discussing developments in foreign banking sectors, the Bankers’ Magazine illustrates such opinions. In 1922 the Magazine noted that, in addition to the lack of branch banking in the United States: Another great difference between the banking systems of the two countries lies in the relatively stringent statutory restrictions under which American bankers conduct their operations, such restrictions being entirely absent on this side. Upon such matters as the granting of loans, investment of funds and the proportion of reserve to liabilities, there is very definite legislation to which American bankers must conform, while in this country the traditions, experience and judgement of bankers themselves are relied upon to a greater extent.8

148

Lucy Newton

In 1931 the Magazine discussed the attempts of the German government to strengthen the banking sector: To the British mind, the idea of Government supervision of any private undertaking, and particularly in financial business, may sound strange, but the whole organisation of banking in Germany is so widely different from our own system that the disclosure of private affairs to the Government is not questioned as it might be in this country.9

Harry Goschen, chairman of the National Provincial Bank, was also critical of such an intervention: ‘The whole policy of constant State interference and the exertion of an increasing State authority of the parental order is an influence far from stimulating to individual enterprise and activity.’10 Such examples illustrate the overall tone of the profession in their antipathy towards state intervention in finance and the economy. Bankers were clearly advocates of classical economics, individual enterprise and the unfettered free market in a period when such theories were coming under question. Some elements in the Labour Party were proposing that the state should intervene in banking in a new and more extreme way, by nationalising the entire sector. The Labour Party had suggested nationalising the Bank of England at its annual conference in 1924, in an attempt to ensure ‘that the control of credit is exercised in the public interest’ and that clearing banks should not be controlled and run for the benefit of a wealthy elite.11 The response of the Bankers’ Magazine was to liken such a policy to one found in the Communist Manifesto and argue that currency control should be kept separate from ‘Government abuse’.12 Further arguments against nationalisation of the commercial banks included a defence of the current banking system in which small shareholders held the majority of paid-up capital in the ‘Big Five’ banks, the average size of shareholding being calculated at only £219. The author argued that this demonstrated that banks were not owned by rich capitalists, as was implied by the pro-nationalisers, and he warned against ‘the danger of State ownership leading to the control of the banking system for political purposes’.13 Nationalisation of the clearing banks did not occur, but other forms of state intervention in the broader economy were introduced. Following the fall of the Labour government in 1931 and the international economic crisis that took place in the same year, the new National Government introduced tariff protection for British industry, finally succumbing to the pressure to abandon free trade principles. The Import Duties Advisory Committee was consequently established. Leslie Hannah argues that the introduction of tariffs had an important impact upon Conservative members of the National Government ‘in their effect on the psychology of

Government, the banks and industry in Britain

149

intervention, for . . . more positive government pressure on industry was legitimised’.14 However, they appeared to have little impact in changing the views of bankers. Despite the increasing involvement of the state in Britain’s economy and the ideas of Keynes and his supporters, the interwar period remained one in which commitment to a capitalist system of privately owned free enterprise, preferably free of state intervention, held fast. Classical economics remained the ideal for many in political and commercial life and the bankers were no exception. The profession also declared itself to be against the intervention of the state in social as well as in business life.15 Bankers were not only against state interference in economic and social matters but also opposed what was perceived by them to be a political agenda. In 1928 a contributor to the Bankers’ Magazine decried the situation whereby Britain’s financial and economic problems were, in his opinion, ‘dominated by politics’.16 In 1929 the MP Stanley Baldwin declared that ‘no one rejoices more than I do to see these industrial problems taken out of the hands of politicians, who have never been fit to handle them’.17 This represented an important strain of belief in the Conservative Party. The arguments were essentially an extension of those against state intervention in general and in favour of the free market. More recently, Hannah has commented thus upon the politics of free-market economic beliefs: ‘The contemporary political debate on capitalism versus socialism generated myths and dogmas strengthened by the uncritical adherence of the right to a belief in unfettered private enterprise.’18 Tiratsoo and Tomlinson concur: ‘the Conservatives, more than the Liberals, were committed to the sanctity of private property and free enterprise’.19 In contrast, the Labour Party was, as is well known, in favour of increased state intervention in the economic and social life of Britain. Bankers, however, repeatedly declared that they had no political motivation and were not biased in favour of any particular political party: ‘Readers of the Bankers’ Magazine scarcely need to be assured that this journal has nothing to do with party politics.’20 Yet even a brief reading of banking journals reveals that such a declaration is essentially disingenuous. Numerous articles were published which, though covering topics of economic and financial relevance, spent no time in examining what were, essentially, political issues of the day. In particular, contributors to the Bankers’ Magazine and its editors repeatedly published tracts that decried what they perceived to be ‘the march of Socialism’.21 It is unsurprising to find that the political opinions of bankers were essentially conservative in nature and often in agreement with the policies of the Conservative Party, yet they continued to deny any political bias. The bankers may have argued that they were merely discussing issues of economic relevance to the

150

Lucy Newton

financial and banking community, but in doing so they clearly strayed into areas of political doctrine and dogma. An article published in the Bankers’ Magazine in 1932 was particularly vehement in its attacks upon left-wing political ideology. The author describes the Labour Party as making ‘no pretence of concealing its intention of endeavouring . . . to bring about the downfall of the capitalist system and the nationalising of banking and industry’.22 The new president of the Bankers Institute in his inaugural address in 1933 gave credit to some of the Labour Party’s suggestions, yet later in the same speech he went on to decry the politics of the Left and their opposition to the clearing banks ‘as symbols of the so-called “Capitalist system” to be destroyed, and they provide thus a useful target for diatribes against wealth as such’.23 Tiratsoo and Tomlinson have stressed the inaccuracy of these opinions: Labour’s continued adherence to pre-1914 radical internationalism, involving support for free trade, the gold standard and financial conservatism, was not a framework likely to produce the necessary re-orientation of British economic policy. Equally, the leadership of the Labour Party desired neither to overthrow capitalism nor to lose its claim to political responsibility by adopting unorthodox economic doctrine.24

In fact, economic orthodoxy spanned all the political parties and the fears of the banking profession were much exaggerated. Despite a rejection of party politics by contributors to the banking press, the actual links between banking and politicians remained strong.25 In 1923 two ex-Chancellors of the Exchequer sat on the boards of the ‘Big Five’ banks: Reginald McKenna, chairman of the Midland Bank, and Sir Robert Horne, a director of Lloyds Bank. Midland Bank historians Holmes and Green argue that the appointment of McKenna as chairman in 1919 indicated an awareness of the changing perception of banking in public and political circles: indeed that the bank ‘foresaw the advantages of a chairman who would be familiar with the workings of Westminster, Whitehall and Fleet Street’.26 Yet McKenna was not representative of contemporary bankers. He differed from his colleagues in being a keen supporter of Keynes, particularly in arguments against the return to the gold standard in 1925. Holmes and Green observe that he was not popular with his fellow bankers and that part of this may have been due to his previous political career; rather ‘the ancient gulf between Whitehall and the commercial banks’ persisted.27 The majority of views expressed in the banking press may be characterised as belonging to those held by the political right. Yet it is difficult to categorise such political dogma along party political lines; even members of the Labour Party were essentially conservative in their beliefs with regard to the economy during this period. It is important to remember

Government, the banks and industry in Britain

151

the context of these comments. Although the bankers expressed conservative views, they operated in an era that was only slowly adjusting to the changing political landscape. They may have resisted these changes, and lagged behind in any mainstream acceptance of them, but in this they were in the company of many in the British ‘establishment’, be it financial, economic or political. Banking and the public The inter-war period was one in which banks increasingly became objects of critical scrutiny from the world of politics but also from the public. Such scrutiny had increased during the war. Holmes and Green argue that ‘Public anxiety over business conduct had . . . been sharpened by the controversy over war-profiteering and, although the banks had not been involved in that debate, they were feeling the weight of press and public opinion against major bank amalgamations.’28 The depression and ensuing unemployment increased the country’s interest in and awareness of economic issues. In 1928 the Bankers’ Magazine wrote: ‘With the depression writ large over many of our leading industries, and with unemployment figures once more assuming formidable dimensions . . . the next General Election might be fought very largely upon questions of finance.’29 Indeed, public and political censure were necessarily interrelated. The president of the Institute of Bankers acknowledged that public disapproval towards the banking professions ‘may be associated with political ideas’,30 but, more directly, politicians increasingly canvassed for votes with reference to financial and economic issues. The recognition by the Midland, with the appointment of McKenna, of the importance of dealing with public and press scrutiny has already been mentioned. However, in the banking journals the overriding reaction to public condemnation was defensive. A general tone may be discerned that bankers knew their profession best and that politicians and members of the public were not qualified to condemn their practices. The Bankers’ Magazine frequently referred to the public’s ignorance with regard to financial matters.31 Indeed there is a prevailing arrogance in many of the statements it made: In a Journal such as this, nothing could be gained by attempting any exhaustive reply to the attacks for the simple reason that readers of the Bankers’ Magazine are fully aware of the fact that the charges made are groundless, while the more ignorant section of the public, which is too often misled by such attacks, is not likely to be found among the readers of this article.32

The Association of British Chambers of Commerce issued a statement supportive of bankers in 1933. The editorial in the Bankers’ Magazine

152

Lucy Newton

argued that such a view differed from those of the usual ‘violent critics’ of the banks due to the Association’s membership of businessmen ‘with the facilities and mental equipment necessary for examining the question’.33 The implication appears to have been that only those involved in business and/or finance could understand the problems therein. In their defence, it should be added that it was not only bankers who disliked the increasing public scrutiny of their operations. Those in the wider business community also resented such attention.34 Despite such sensitivity with regard to public criticism, the clearing banks increasingly took action during the period to seek greater publicity for their organisations and their products, as managements gradually became aware of the benefits of advertising and public relations. This in itself generated public interest. Speeches by the chairmen of the major banks at annual general meetings received greater publicity. The climate in which banks ‘rarely discussed their business in public’ was ‘no longer possible after the banks had come under closer scrutiny in the later stages of the amalgamation movement’.35 It could be argued that the banks could not ‘have it both ways’: more publicity but an uncritical public. By the 1930s, a changing tone may be found in statements by bankers with regard to their profession’s public image. In 1933 the newly appointed president of the Institute of Bankers, Francis Bland, conceded that some of his colleagues preferred to ignore public censure, but he advocated a more measured approach. In these days of extended education when men are apt to think for themselves, I believe that it is safer to acknowledge adverse thought when you realise its existence, and meet it sympathetically, offering explanation where you can appropriately rather than rely on the pontifical attitude which may have availed in the past but is very clearly resented to-day. Bank services in one form or another now affect the personal lives of so many of our fellow citizens that we should do well to see how far we can ensure the authoritative propagation of facts rather than leave those interested to absorb the fallacious rubbish that is put about.36

In the same speech he went on to advocate the advisability of courting the good-will of the public. Bland’s statement differed greatly from the majority of previous proclamations on this topic. Although he remained somewhat patronising in tone, his recognition of the value of public opinion, and the necessity to provide information to the public, was a radical departure from previous statements that derided public intelligence and susceptibility to political persuasion. The banking press were keen to highlight positive aspects of public perceptions of banking institutions. In 1932 the Bankers’ Magazine discussed the large increase in the number of small accounts opened with

Government, the banks and industry in Britain

153

the clearing banks, citing this as an indication of public confidence in these institutions.37 Bland referred to the ‘millions of small people’, both shareholders and account holders, ‘interested in banking’ and who, he claimed, supported the banking system: ‘they are not unappreciative of the fact that while the very foundations of the financial world have been crumbling elsewhere British Banking has stood foursquare to the economic storm’.38 Thus it appears that, by the 1930s, banks were aware of the need to present themselves in a positive light in the public domain. This was particularly the case when they came under increasing attack for the perceived lack of financial support of domestic industry during the inter-war years. Banking and industry By the late 1920s the complaint that the clearing banks were insufficiently courageous in their lending to manufacturing industry had become almost compulsory to any discussion of the economy.39

Bank–industry relations were thus a much debated topic in Britain during the inter-war period. Comparisons were made with European counterparts, especially Germany, where the involvement of banks in industry and a tradition of long-term lending to the sector contrasted with a relatively more conservative and distant relationship in Britain, with an emphasis on short- and medium-term lending.40 Criticisms of the clearing banks’ industrial lending policies by contemporaries have been continued by historians, and unfavourable comparisons with the German system have frequently been made.41 The banking journals presented the arguments of bankers in defending their practices from such criticisms. In 1922 Robert Cowie, an agent of the Royal Bank of Scotland, claimed that: It is essential to note that banking must carefully avoid identifying itself too closely with industry through locking up an undue proportion of its funds. The banker had no call ‘to help the lame dog over the stiles’ unless reasonable security could be provided. The premier duty of the banks is to establish in the minds of the community complete confidence in their own soundness . . . If there are any real merits in any claim for financial support, our widespread and keenly competitive system of banking will assuredly result in such a claim being favourably received in some quarter or another.42

Ten year later, another banker reiterated these points: ‘our banking system is not designed to co-operate with industry except in a detached way’.43 The bankers’ journals repeatedly emphasised that the first responsibility of a bank was to its depositors, rather than its borrowers.

154

Lucy Newton

In following a policy of ‘safety first’, the banks were heavily criticised for neglecting their borrowers, especially those involved in industry. Yet articles were published in which bankers obviously prided themselves on such a reputation, arguing that their solidity and duty to depositors constituted ‘the chief reply to the cheap criticisms which are offered from time to time with regard to bankers’ charges to customers, and their readiness to make advances to trade’.44 Indeed, the banking system in Britain during the inter-war period avoided any liquidity crises, unlike those in Germany and America. This may have been a result of a conservative banking policy, which in turn could have hampered industrial performance, but British industry was facing structural problems that had begun many years before the 1920s. Furthermore, the country benefited from financial and economic stability. Such benefits were highlighted by contemporary bankers and have been recognised by historians. Ross has argued that the policy of ‘safety first’ was a legitimate strategy: the large clearers were operating ‘a rational and risk-averse banking system’.45 In discussing the finance of industry, albeit up to 1914, Cottrell concurs: ‘The English banking system may have contributed just as much to economic growth through pursuing a type of banking which did not lead to financial crisis, as the German banks did by facilitating industrial capital formation and the export of manufactures.’46 Bankers’ journals were also quick to highlight that banks had given some financial support to Britain’s business community. In 1924, the Bankers’ Magazine praised ‘our mammoth banking institutions in England, which have done so much to aid commercial enterprise, both previously and since the war’.47 The chairmen of the District Bank and Martin’s Bank, both of which operated mainly in industrial regions, defended the record of the banks, arguing that many of the causes of the Depression in the UK were out of the control of bankers and that the Depression was international in nature. The chairman of the Westminster Bank (Robert Tennant) declared in 1929 that ‘what we are facing is not a temporary slump due to passing causes, but a permanent and profound change in the world’s economic scheme, and of Britain’s place within it’.48 Bankers also protested against the idea that ‘quite apart from the financial aid which is constantly given, it falls somehow to the function of the banker to actually take hold of the situation and improve conditions’.49 Articles in the banking press occasionally referred to the bad debts incurred as a result of heavy industrial borrowing in the immediate post-war boom and subsequent Depression. Such ‘frozen debts’ provide an added explanation for consequent caution in the supply of industrial credit. Indeed, supporting their industrial customers during the 1920s had cost the banks dear and the experience was not easily forgotten.

Government, the banks and industry in Britain

155

In the 1930s, as the volume of lending by the clearing banks declined and their profits were adversely affected, these institutions were not inclined to relax their credit controls. A historian of Lloyds Bank argues that it followed a very cautious lending policy during the 1930s, despite the need to attract more borrowers.50 In following a traditionally cautious approach in assessing the creditworthiness of industrial customers, bankers thus ensured that traditional lending outcomes were maintained. Historians of Barclays found caution in the extension of credit but also support for borrowing customers. They argue that the bank wrote off very little in the way of bad debts, implying that ‘Barclays chose its borrowers carefully and did not withdraw facilities in hard times’.51 Public criticism, the prolonged depression in British industry and high unemployment led the government to form a committee of inquiry into the relations between banking and industry in 1929. The reaction from bankers to such scrutiny was hostile: ‘Just as in the political world we are finding that the onus is thrown upon the Government of the day of finding work or maintenance for everyone, so apparently the domain of banking is to be invaded.’52 They were also very unhappy about the terms of reference for the inquiry, which they believed to ‘convey the underlying suggestion that hitherto industry has been insufficiently served by the banker’.53 Having carried out its investigation, the Macmillan Committee saw no reason to change the existing system of banking in Britain and no radical amendments were proposed. However, it did identify a deficient provision of long-term finance to small and medium-sized businesses, which became known as the ‘Macmillan gap’: ‘Great difficulty is experienced by smaller and medium-sized business in raising the capital which they may from time to time require, even when security offered is perfectly sound.’54 It should be emphasised that the lack of credit available to small business in the UK, as identified by the Macmillan Committee, was not merely a result of bank deficiencies but has since been identified as arising from difficulties in acquiring funds from the UK capital market as a whole. Yet the origins and identity of the ‘Macmillan gap’ were not agreed upon by those on the Committee itself and have subsequently been the source of much debate by historians.55 A lack of credit provision for industry by the banks became an acute problem during the Depression in the 1920s. The problem was exacerbated by post-war developments whereby the informal capital market was no longer adequate for the borrowing needs of industry, and companies became more dependent upon the formal capital market and banks, which had not traditionally served small and medium-sized companies. Ziegler stresses that any consequent adaptation to the needs of such businesses was problematic in the UK

156

Lucy Newton

due to the highly developed London money market, which had evolved successfully over centuries and did not welcome changes in its practices.56 British banks, as further potential suppliers of credit, placed a high degree of importance upon liquidity, and such risk aversion militated against long-term financial provision to industry, a highly risky and illiquid form of lending. British banks’ emphasis on liquidity was encouraged by the Bank of England and through bankers’ experiences of financial crisis in the nineteenth century. In Britain, theoretically, it was the job of clearing banks to provide short-term working capital rather than longer-term finance for fixed capital investments. Bank failure threatened the provision of such vital funding for day-to-day business.57 It has also been argued that the quest for liquidity increased during the amalgamation movement, as provincial joint-stock banks became branches of major London clearing banks and experienced directives for more restrictive lending practices from the directors in the London head office.58 Following the publication of the Macmillan Report in 1931, much comment was to be found in the banking press as practitioners responded to the issues raised. Responding to the ‘Macmillan gap’, the president of the Institute of Bankers, a professional who had worked in both private and joint-stock banks, declared that the old private banks ‘dealt with small businesses on much the same lines’.59 Rather, he argued, it was the larger industrial rivals of small firms that were to blame for their difficulties, not the banks. Other bankers defended their lending policies with small-scale customers even before the report was published. In his annual chairman’s speech in 1929, McKenna had justified the record of the Midland and produced figures for the bank’s lending during the previous six months in order to support his arguments. Credit had been extended to 180,000 borrowers, with an average value of £1,200, and the largest borrower had been in the textile industry. Breaking down the advances into sectors, McKenna declared that 11 per cent had been made to ‘Building and Land loans’; just over 11 per cent to ‘wholesale and retail traders’; nearly 8 per cent to the heavy industries; 6.5 per cent to agriculture; and 6.5 per cent to private and professional customers. Of the loans to ‘wholesale and retail traders’, there were 31,000 in total, averaging £330 per loan.60 Bankers also countered the criticism of their lending policy with accusations of a lack of demand from industry: ‘An abundant supply of loanable resources and readiness on the part of banks to lend does not necessarily lead to business.’61 Rather, the Depression was blamed for causing a lack of demand from industry. One article in the Bankers’ Magazine went so far as to argue that the period ‘has been far more indicative of over-lending than under-lending to industry’.62 The chairman of the

Government, the banks and industry in Britain

157

Westminster Bank argued that ‘the initial impetus must come from the side of industry’ rather than from the banks and, furthermore, that if the banks extended the supply of credit before demand, inflation would follow.63 Bankers were also not averse to blaming others. The chairman of Barclays Bank declared in 1930 that ‘where a business fails to make progress it may be found that the primary reason is not a shortage of capital but the handicap of inefficiency as compared with other similar businesses either at home or abroad’.64 Indeed, the performance of British industry was not blameless. Oliver Sprague, economic adviser to the Bank of England, gave a speech in the same year as the Macmillan Report was published. He rejected ‘the theory that the lack of adequate and cheap credit facilities’ was principally responsible for the slump, rather believing that there was ‘ample credit available to those who have the confidence to use it’. Sprague acknowledged that banks had ‘a very definite part to play in the revival of industry’ and to this end central banks should ‘maintain easy money conditions, and stand ready to supply additional reserve credit as a basis for expansion by the commercial banks’.65 Thus, although bankers were still defending their record of financial provision to industry, there appears to have been some acknowledgement that banks had a role to play in industrial recovery. In terms of industrial lending as a proportion of total lending by the clearing banks, the Macmillan Committee found that the average figure in 1929 stood at about 49 per cent.66 Holmes and Green argue that, with the Midland Bank advancing over 50 per cent of credit to ‘industry and trade’ in 1929, totalling £210 million, the bank’s support for British manufacturing was ‘far from timid’ and was larger than the same type of lending undertaken by the other major clearing banks.67 In evidence to the Macmillan Committee, the other main clearers claimed to be, on average, placing 50 to 60 per cent of their deposits in the form of advances to both industrial and non-industrial customers.68 More recent figures provided by Capie and Collins refute this. They find that it was only in the period 1928–30 that the banks actually advanced more than 50 per cent of their deposits, and the figure actually declined to 41.2 per cent in the period 1936–38. In the same period the volume of advances also fell from £959 million to £914 million.69 Figures for Barclays provide a similar picture, with 52 per cent of deposits used for advances in 1929, falling to 39.2 per cent in the early 1930s and rising to 46.1 per cent in 1938.70 Yet figures for lending do not reveal the complete picture. Many banks became heavily involved with their industrial customers during the years of depression. Credit supplied by banks, no matter what the volume, could ensure the survival of a business through periods of hardship.71 Problems

158

Lucy Newton

faced by industry during this economic downturn raised the issue of the non-repayment of loans, something the banks obviously wished to avoid. Thus banks would often become more actively involved with industrial customers in order to ensure the continued survival of a company and consequently to ensure repayment. Such involvement was strongly encouraged by the Bank of England and by pressure from the public to help Britain’s industry. Indeed, historians have found many examples of the clearing banks supporting industrial customers through substantial financial provision and/or involvement in the reorganisation of industrial customers.72 Holmes and Green point out that the banks had difficulty in demonstrating their support for industry and countering the criticism levelled at them. Apart from publishing aggregate data, such as their proportion of advances to manufacturing, qualitative information could not be used in their defence due to issues of customer confidentiality and the unwillingness to provide information that competitors could exploit.73 Histories of Barclays have shown that the bank repeatedly renewed overdrafts, thus supplying long-term credit, despite the fact that in evidence given to the Macmillan Committee bankers insisted that only short-term facilities were provided. Ackrill and Hannah argue that this was due to the ‘understandable wish of banks not to appear soft targets to existing and would-be borrowers who hoped for or intended to delay in repaying advances’.74 From a purely business perspective, banks realised that as their volume of lending declined during the early 1930s, their profits were adversely affected. Banks were concerned about providing credit to industry as it comprised a considerable proportion of their lending activity. It was not in the interest of the banks to withhold credit to industry to an extent that harmed their business. The Midland Bank undertook an analysis of its industrial lending, demonstrating that it was concerned about the decline in credit supplied to business customers.75 Yet there would also have been costs incurred in the assessment of small and unknown manufacturing customers and the banks would have had to consider if such lending would generate sufficient returns. Bankers were aware that their lending decisions could have a direct impact upon businesses and therefore employment, and they realised that such decisions were causing controversy. Yet in their reactions they remained defensive, asserting that refusals of credit that could impact negatively upon the future success of a business and its employees would be ‘quickly seized upon as a fresh weapon for attacking the banks’.76 Such a statement demonstrates something of a siege mentality amongst the banking profession, which could have been due to arrogance but also to the effects of accumulated criticisms over economic issues about which they did not have complete control.

Government, the banks and industry in Britain

159

In addition to defending their record of financial provision to industry, the clearing banks also took active steps to quell their detractors. Even before the Macmillan Committee had published the results of its inquiry, the Bank of England and the clearing banks had begun to act. In an initiative led by the governor of the Bank of England, Montagu Norman, the Securities Management Trust was established in 1929 as a subsidiary of the Bank of England. Its task was to act as an adviser to the industrial reorganisation schemes in which the bank had an interest. In the following year the influential powers of Norman convinced the clearing banks and other financial institutions to found the Bankers’ Industrial Development Company (BIDC). The capital for this venture was provided by the Bank of England and the clearing banks and its aim was to provide advice and finance for industrial reorganisation schemes, particularly those involving the staple industries and amalgamations.77 Established before the report from the Macmillan Committee, it has been argued that the establishment of the BIDC was an attempt by the banking community to stave off government intervention in the financing and reorganisation of industry.78 The ‘Big Five’ were thus keen to be seen to be taking positive action to help industry, even if such ventures were not a wholehearted success. Following the Macmillan Committee, the Charterhouse Investment Trust was established in 1934 in order to provide long-term finance to small-scale business. It was backed by the Prudential Assurance Company and two of the ‘Big Five’ banks, Lloyds and the Midland, which subscribed 5 and 2 per cent of the capital respectively.79 Ross, however, is cynical about the support of the large clearers in this initiative, arguing that the motivation of the banks was ‘a desire to be seen to be doing something in this field while being unwilling to commit themselves to a venture which their superior market knowledge indicated was unlikely to be successful’.80 From a position of hindsight, Ross has defended the performance of the clearing banks in relation to their provision of funds to small and medium-sized companies. He argues that if market failure had resulted in a ‘Macmillan gap’, then the market would have automatically responded by providing institutions to fill the gap. Yet those institutions that were developed failed to find adequate creditworthy small and medium-sized enterprises to which to lend, an indication that existing financial intermediaries were already providing an efficient system of borrower assessment. Alternatively, the credit system as a whole could be blamed for the ‘Macmillan gap’, rather than merely the banks that were a part of it. Ross refutes this argument also by using the German universal banking system as an example. The German system provided funds and support to industry but was skewed in favour of large-scale concerns and therefore

160

Lucy Newton

would not have provided the answer to Britain’s ‘Macmillan gap’. Ross and Ziegler extend this argument to assert that Germany had its own Macmillan gap.81 Elsewhere Ross has also argued that the clearing banks were far more willing to provide long-term credit than has previously been recognised. He surmises that: ‘Economic historians seeking an explanation for the size of the “Macmillan gap” should perhaps concentrate on the quality of the demand for funds rather than on the inefficient supplier.’82 Ackrill and Hannah found much evidence for the unofficial provision of long-term advances by Barclays in the form of renewed overdrafts. They also assert that ‘Almost all the evidence points . . . to absence of new demand’ from industry.83 Such arguments exactly mirror those used by bankers themselves during the inter-war period. A positive outcome of the Macmillan Committee report was the increase in co-operation between the clearing banks themselves and between these institutions and the Bank of England: ‘there was a new willingness to collaborate and share information as a contribution to the reorganisation schemes which played so prominent a part in the interwar industrial scene’. Many industrial reorganisation schemes were only possible through such collaboration.84 This leads to a consideration of another important aspect of inter-war bank–industry relations: the ‘rationalisation’ movement. The ‘rationalisation’ of industry In addition to the findings of the Macmillan Committee, inter-war economic debate also focused upon the issue of industrial reorganisation or ‘rationalisation’ and the role of banks in such developments. The rationalisation movement can be broadly defined as the reorganisation of industry, through amalgamations and the introduction of new production and managerial methods, which aimed to improve productivity. Not only was it an important step in the increase of state intervention in the economy but it proved to be a contentious issue for the banks. Once again, the major clearing institutions came under attack from the public and politicians for their lack of participation in, and enthusiasm for, rationalisation schemes. There was certainly political will for the increasing intervention of the state in industrial policy in the form of the rationalisation movement: ‘increasing industrial difficulties, and particularly the high and increasing level of unemployment, created a disposition in both business and government to view the rationalisation movement with favour’.85 Those in government, by and large, supported a programme of rationalisation and mergers, as did large sectors of the public, who sympathised with

Government, the banks and industry in Britain

161

the attempts of business to solve their economic difficulties. Many such schemes were ultimately unsuccessful but a majority in business, finance and government realised at the time that action had to be taken, and had to be seen to be taken.86 There was concern amongst bankers that by supporting reorganisation schemes they would be supporting inefficient businesses. The chairman of Barclays Bank was anxious that such schemes ‘might simply involve good money being thrown after bad’.87 In 1930 the chairman of Lloyds Bank, ‘very properly’, according to the Bankers’ Magazine, stated that: ‘it is not [original italics] the function of the banker to initiate the reorganisation of industry, and still less to dictate the steps which should be taken in that direction’.88 He was a supporter of the rationalisation movement, yet did not believe that the banks should have a leading role in it. General managers of the Midland also believed that reform should come from within industry itself and were ‘opposed to dictation to our customers what they should do’.89 Yet, despite reservations, the period witnessed banks becoming more heavily involved with their manufacturing customers, particularly through rationalisation, even though the responses of bankers to such schemes were not always positive and their involvement was not always willing. From the perspective of industry, Hannah has argued that rationalisation often took place against the wishes of the owners of manufacturing concerns.90 Although the banks denied accusations of forcing debtors to merge, they did take part in some enforced reconstruction schemes, such as the merger between Bolckow Vaughan and Dorman Long, opposed by the former company but upon which renewal of their £1 million overdraft depended.91 The threat of the withdrawal of a company’s overdraft if they did not comply with amalgamation schemes was a common tactic utilised by the clearing banks.92 On the other hand, many industrialists favoured the intervention of bankers rather than government in bringing pressure to merge industrial concerns. The business community still feared the extension of government control, an outcome that could potentially be a consequence of accepting government finance. Thus, more trust may have been placed by businesses in the banks, the traditional suppliers of credit and those with a record of limited interference, than in government.93 The clearing banks thus participated in reorganisation schemes but contemporaries and historians alike have criticised them for not taking a more active role in such ventures or for not exerting a greater influence upon their manufacturing customers to change. Capie and Collins argue that, despite involvement in industry via the rationalisation movement, there was little ‘fundamental change in attitudes or policy towards the

162

Lucy Newton

provision of industrial finance’.94 Banks continued with their policy of retaining a high level of liquidity and preferring short- and medium-term to long-term lending: ‘Overall . . . continuity and conservatism are more evident in the deposit banks’ general position than any sign of radical shift in policy to cope with the variety of problems facing British industry.’95 They conclude that the result was a loss of market share and a reduction in the contribution to lending in the private sector. Ross argues that banks were only prepared to intervene when they believed their depositors’ funds to be at risk.96 In such cases merely providing funds was not enough and intervention became necessary. Ackrill and Hannah also point out that Barclays, like the other clearing banks, ‘intervened in individual firms when things went wrong’.97 However, Ross goes on to defend the behaviour of the banks by analysing the context in which they operated. Essentially, British bankers operated in a marketorientated system, as opposed to the bank-orientated system that existed in many European countries. One of the key differences between these two systems is the possession by commercial banks of equity holdings in industrial customers that can be found in bank-orientated systems. British banks did not possess such holdings. Ross concludes that criticism of the banks is misguided: ‘To argue that British banks should have used their position as well-informed creditors in the interwar years to enforce changes in industrial structure is to confuse creditor status with ownership obligations.’98 The British banking system was clearly unlike the bank-orientated system that existed in many continental countries and it was unreasonable to expect British bankers to undertake an ownership role for which they had no precedent in their long history. Thus, argues Ross, given the traditional relationship between banks and industry, it is not surprising that closer participation was not immediate or fully accepted. Inter-war bankers would probably concur. Indeed, the arguments of Capie and Collins echo those of inter-war bankers in defence of their practices and, essentially, their remit. They ask the questions: Why should banks have broken with tradition, developed new expertise and undertaken (what was for them) the extraordinary risk associated with the task of managing and financing a restructuring of the industrial base? . . . If an ‘industrial transformation’ was required in the period, is it not more reasonable to argue that the function lay with industrialists themselves?99

Was rationalisation a success? On the whole, it was not. Tiratsoo and Tomlinson argue that state intervention in the form of rationalising industry was a concept that remained anathema to the Conservative Party. They argue that the schemes were largely defensive in nature, and even those initiated and supported by the Liberal and Labour parties had a

Government, the banks and industry in Britain

163

limited impact. Indeed, British industry, on the whole, did not revive until the economic upturn in the mid-1930s. They conclude that: ‘In the circumstances of the 1930s it is difficult to escape the conclusion that the administration’s role was largely unhelpful to any notion of a statesponsored industrial modernisation.’100 If this was the case, then it was not only the banks that were to blame for the failure of British manufacturing industry. The state, and more especially those in industry, were responsible, along with the banking profession. Conclusions The inter-war period was an era of tremendous economic, political and social change. From the perspective of banking, these changes involved concentration in their sector; depression in trade and industry; increasing state intervention in economic affairs; and mounting public and political scrutiny of their actions. On the whole, bankers reacted defensively and conservatively to these developments and criticisms. This has been illustrated by examining the opinion of bankers as expressed in their trade press. For the historian, these defensive and conservative responses often make unattractive reading. Sometimes bankers were aggressive and their arguments could contain an element of paranoia. Banking practitioners who contributed to the journals were often patronising in their attitude to the general public. Public or political interference in the banking industry was clearly unwelcome; bankers believed that they should be left alone to do what they felt they did best. Probably the least favourite interest group in the eyes of the banking fraternity were those on the political left, especially the Labour Party. Some change of attitude by bankers can be found during the period. There was a realisation that the general public constituted their customers and shareholders and that efforts should be made to take account of their opinions. However, in terms of politics, the Labour Party continued to be barely acceptable to the bankers and this group of professionals remained conservative in nature and Conservative in party attachment, despite their denials of party political bias. Two key issues dominated discussion of financial provision during the period: concentration in the banking sector and the relationship between banks and industry. Bank/industry relations were of special concern due to the search for a reason and/or remedy for Britain’s ailing economy, in particular its ‘declining’ staple industries. The behaviour of the clearing banks towards industry in the inter-war period has generated some persuasive revisionist literature by late twentieth-century/early twenty-firstcentury historians. These authors have defended the performance of the

164

Lucy Newton

‘Big Five’, rejecting the traditional thesis of bank failure with regard to industrial finance, and have provided convincing evidence to substantiate such a standpoint. Rather than being deficient suppliers, it has been argued that there was insufficient demand from industry itself. In terms of involvement in industrial reorganisation, the revisionists have provided evidence for substantial bank involvement in industrial rationalisation. Moreover, they have questioned the expectation of British banks becoming more involved in such schemes, given their long tradition of a relatively distant relationship with industry, the supply of short/medium-term credit and no ownership role in industry. In defending the performance of the British banks in the period such authors provide an uncanny echo of the arguments and analysis of banking practitioners of the inter-war era. The bankers may have been reactionary, conservative, defensive, and at times paranoid but, with hindsight, they might just have been right when assessing the business and remit of banking in Britain between the wars.    

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

16.

I would like to thank Edwin Green and Sara Kinsey (HSBC Group Archives) and the staff of the Guildhall Library for their help in researching this topic. I am also grateful to Phil Cottrell, Duncan Ross, the participants of the symposium for Alice Teichova and of the Business History Conference, April 2001, for comments on the initial drafts of the paper. All errors and omissions remain my own. Leslie Hannah, The Rise of the Corporate Economy (London, 1983), p. 29. The year 1918 also saw the investigation by the Cuncliffe Committee into currency and finance. ‘The Report of the Treasury Committee on Bank Amalgamations’, Bankers’ Magazine [BM], 105 (1918), 49–50. BM, 108 (1919), 618. BM, 117 (1924), 683. Ibid., 685. HSBC Group Archives: Sir Edward Holden’s Statement to the Standing Committee on Bank Amalgamations, 12 June 1918, p. 11. BM, 114 (1922), 620–1. BM, 131 (1931), 543. BM, 129 (1930), 353. BM, 118 (1924), 574. Ibid., 574. BM, 119 (1925), 843–4. Hannah, Corporate Economy, p. 50. Many bankers attacked the policy of providing welfare payments. For example, in 1937 a banker wrote that ‘free social services lead to communism’ (BM, 138 (1937), 381). BM, 126 (1928), 325.

Government, the banks and industry in Britain

165

17. Financial News, 7 January 1929, p. 7. 18. Hannah, Corporate Economy, p. 46. 19. N. Tiratsoo and J. Tomlinson, Industrial Efficiency and State Intervention: Labour 1939–51 (London, 1993), p. 2. 20. BM, 126 (1928), 319. 21. BM, 131 (1931), 18. 22. BM, 134 (1932), 616. 23. BM, 136 (1933), 802. 24. Tiratsoo and Tomlinson, Industrial Efficiency, p. 13. 25. More detailed consideration of this issue can be found in P. Cain and A. Hopkins, British Imperialism: Crisis and Deconstruction 1914–1990 (London, 1993). 26. A. R. Holmes and Edwin Green, Midland. 150 Years of Banking Business (London, 1986), p. 156. 27. Ibid., pp. 155, 176. 28. Ibid., p. 156. 29. BM, 126 (1928), 320. 30. BM, 136 (1933), 801. 31. For example, BM, 134 (1932), 620. 32. Ibid. 33. BM, 135 (1933), 35. 34. Hannah, Corporate Economy, pp. 128–9. 35. Holmes and Green, Midland, p. 189. 36. BM, 136 (1933), 802. 37. BM, 134 (1932), 620. 38. BM, 136 (1933), 805. 39. Holmes and Green, Midland, p. 178. 40. Some acknowledged that this put British industry at a disadvantage compared with its German counterpart, but it was not a view that was widely held. Indeed, the editor of the Bankers’ Magazine added, after an article expressing such an opinion, that ‘Signed articles do not necessarily represent the views of the Bankers’ Magazine’. BM, 134 (1932), 366. 41. E.g. M. Best and J. Humphries, ‘The City and Industrial Decline’, in B. Elbaum and W. Lazonick (eds.), The Decline of the British Economy (Oxford, 1986), W. P. Kennedy, Industrial Structure, Capital Markets and Origins of British Economic Decline (Cambridge, 1987), S. Newton and D. Porter, Modernisation Frustrated: The Politics of Industrial Decline in Britain (1988). 42. BM, 114 (1922), 658. 43. BM, 134 (1932), 366. 44. Journal of the Bankers Institute, 56 (1935), 378. 45. D. M. Ross, ‘The “Macmillan Gap” and the British Credit Market in the 1930s’, in P. L. Cottrell, Alice Teichova and Takeshi Yuzawa (eds.), Finance in the Age of the Corporate Economy (Aldershot, 1997). 46. P. L. Cottrell, Industrial Finance 1830–1914: The Finance and Organisation of Manufacturing Industry (London, 1979), p. 244. 47. BM, 117 (1924), 209. 48. BM, 127 (1929), 355.

166

Lucy Newton

49. BM, 125 (1928), 368. 50. J. Winton, Lloyds Bank 1918–1969 (Oxford, 1982), p. 64. 51. M. Ackrill and L. Hannah, Barclays. The Business of Banking 1690–1996 (Cambridge, 2001), p. 94. 52. BM, 128 (1929), 794. 53. Ibid., 795. 54. Macmillan, Report of the Committee on Finance and Industry, Cmnd. 3897 (1931), para. 404. See R. Coopey and D. Clarke, 3i: Fifty Years Investing in Industry (Oxford, 1995). 55. D. Ross, ‘The Clearing Banks and Industry – New Perspectives on the Interwar Years’, in J. van Helten and Y. Cassis (eds.), Capitalism in a Mature Economy: Financial Institutions, Capital Exports and British Industry, 1870–1939 (Aldershot, 1990); Ross, ‘The Macmillan Gap’, and D. Ziegler, ‘The Origins of the “Macmillan Gap”: Comparing Britain and Germany in the Early Twentieth Century’, in Cottrell; Teichova and Yuzawa, Finance in the Age of the Corporate Economy. 56. Ziegler, ‘Macmillan Gap’, pp. 189–90, 193. 57. Ackrill and Hannah, Barclays, p. 95; M. Collins, ‘The Banking Crisis of 1878’, Economic History Review, 2nd series, 42 (1989); D. Ziegler, ‘The Crisis of 1878: Some Remarks’, Economic History Review, 42 (1992), 142. 58. Cottrell, Industrial Finance, pp. 236–44; Holmes and Green, Midland, pp. 109–12; F. Lavington, The English Capital Market (London, 1921, repr. 1968), p. 143; L. Newton, ‘Concentration and Internationalisation in Banking, 1880–1920’, in S. Kinsey and L. Newton (eds.), Banking in an Age of Transition (London, 1998); R. S. Sayers, Lloyds Bank in the History of English Banking (Oxford, 1957), p. 121; Ziegler, ‘Macmillan Gap’, pp. 191–3. Not all agree with such an interpretation, however. Wale and Newton argue that the amalgamation movement and consequent concentration did not necessarily lead to separation from local constituencies or more restrictive lending practices that were detrimental to local industry: J. Wale, ‘What Help Have the Banks Given British Industry? Some Evidence on Bank Lending in the Midlands in the Late Nineteenth Century’, Accounting, Business and Financial History (2) (1994), 329–31; L. Newton, ‘Trust and Virtue in Banking: The Assessment of Borrowers by Bank Managements at the Turn of the Twentieth Century’, Financial History Review, 7 (2) (October 2000). 59. BM, 136 (1933), 809. 60. BM, 127 (1929), 355. It may also have been significant that McKenna was a member of the Macmillan Committee. 61. BM, 134 (1932), 621. 62. Ibid. 63. BM, 127 (1929), 359. 64. BM, 129 (1930), 346. 65. BM, 132 (1931), 86–7. 66. W. A. Thomas, The Finance of British Industry, 1918–76 (London, 1978), pp. 76–9. 67. Holmes and Green, Midland, p. 179.

Government, the banks and industry in Britain

167

68. T. Balogh, Studies in Financial Organisation (Cambridge, 1947), p. 83. 69. F. Capie and M. Collins, The Interwar British Economy: A Statistical Abstract (Manchester, 1983), pp. 92–9. 70. Balogh, Studies, pp. 79–80. 71. Ackrill and Hannah, Barclays, p. 94. 72. R. A. Church, Herbert Austin: The British Motor Car Industry to 1941 (London, 1979); J. Foreman-Peck, ‘Exit, Voice and Loyalty as Responses to Decline: The Rover Company in the Interwar Years’, Business History, 23 (2) (1981); E. Green and M. Moss, A Business of National Importance. The Royal Mail Shipping Group, 1892–1937 (London, 1982), chs. 7–8. 73. Holmes and Green, Midland, p. 180. 74. Ackrill and Hannah, Barclays, p. 95 and A. W. Tuke and R. J. H. Gillman, Barclays Bank Limited 1926–1969: Some Recollections (London, 1972), p. 48. 75. D. M. Ross, ‘Bank Advances and Industrial Production in the UK: A Red Herring?’, in P. L. Cottrell, H. Lindgren and A. Teichova (eds.), European Industry and Banking between the Wars: A Review of Bank–Industry Relations (Leicester, 1992). 76. BM, 134 (1932), 621. 77. See Coopey and Clarke, 3i. 78. Hannah, Corporate Economy, p. 64. Further institutions were established in the 1930s but they did not operate on a scale large enough to plug the ‘Macmillan gap’. 79. Balogh, Studies, p. 302; L. Dennett, The Charterhouse Group, 1925–1979. A History (London, 1979). 80. Ross, ‘Macmillan Gap’, pp. 212–13. 81. D. M. Ross and D. Ziegler, ‘Problems of Industrial Finance between the Wars’, in C. Buchheim and Redvers Garside (eds.), After the Slump. Industry and Politics in 1930s Britain and Germany (Frankfurt, 2000), p. 166. 82. Ross, ‘Macmillan Gap’, pp. 222–3 and see also Ross, ‘Clearing Banks and Industry’, and D. M. Ross, ‘The Clearing Banks and the Finance of British Industry, 1930–59’, Business and Economic History, 20 (1991). 83. Ackrill and Hannah, Barclays, pp. 95, 97. 84. Holmes and Green, Midland, pp. 182–6; R. S. Sayers, The Bank of England 1891–1944 (Cambridge, 1976), pp. 325–7. 85. Hannah, Corporate Economy, p. 47. 86. See J. Bamberg, ‘The Rationalisation of the British Cotton Industry in the Interwar Years’, Textile History, 19 (1) (1988) and S. Tolliday, Business, Banking and Politics: The Case of British Steel 1918–1939 (Cambridge, 1987). 87. BM, 129 (1930), 346. 88. Ibid., 344. 89. Holmes and Green, Midland, p. 182. 90. Hannah, Corporate Economy, p. 64; Ackrill and Hannah, Barclays, p. 97. 91. J. C. Carr and W. Taplin, A History of the British Steel Industry (Oxford, 1962), p. 449 and Tolliday, Business, Banking and Politics, pp. 67–9. 92. Hannah, Corporate Economy, p. 65. 93. Ibid., p. 49.

168

Lucy Newton

94. F. Capie and M. Collins, ‘Deficient Suppliers? Commercial Banks in the United Kingdom, 1870–1980’, in Cottrell, Teichova and Yuzawa, Finance in the Age of the Corporate Economy, p. 170. 95. Ibid., p. 173. 96. D. M. Ross, ‘Information, Collateral and British Bank Lending in the 1930s’, in Y. Cassis, G. Feldman and U. Olsson (eds.), The Evolution of Financial Institutions and Markets in Twentieth-Century Europe (Aldershot, 1995), p. 288. 97. Ackrill and Hannah, Barclays, p. 97. 98. Ross, ‘Information, Collateral’, p. 290. 99. Capie and Collins, ‘Deficient Suppliers?’, p. 176. 100. Tiratsoo and Tomlinson, Industrial Efficiency, pp. 6–7.

Part III

Business and politics in the National Socialist period

8

German business and the Nazi New Order Richard J. Overy

Interpretation of the relationship between German business and the National Socialist regime is in flux. There have always been profound disagreements between those who see the relationship in terms of a political device to allow a crisis-ridden German capitalism to survive the world slump and control its working class, and those who argue that National Socialism imposed a populist totalitarian economics on a powerless business community. There is now a third area of interpretation that sees the German economy in the 1930s in relative terms, with clear areas of continuity with pre-1933 policies, and evident convergence with economic policy pursued elsewhere. On this account, the long-term development of the German business community and of German economic policy is of more significance than the short-term disruption of the dictatorship. The first of these interpretations is the oldest, derived from Marxist analysis of the nature of fascism in the 1920s. The National Socialist regime was widely regarded as the direct offspring of the deep crisis affecting German capitalism. Marxists saw the slump of 1929–32 as evidence that the liberal-bourgeois economic order was in terminal decay.1 At the 17th Congress of the Soviet Communist Party, Stalin told delegates that they were witnessing ‘the general crisis of capitalism’, a ‘depression of a special kind’.2 Its political consequences were looked upon as selfevident: ‘the ruling classes in the capitalist countries are zealously destroying or nullifying the last vestiges of parliamentarianism and bourgeois democracy . . . they are resorting to open terroristic methods to maintain their dictatorship’. This explanation accounted for the rise of Hitler and German fascism. The fascist state was defined by the Communist International at its 13th plenum as ‘the open terrorist dictatorship of the most chauvinistic and most imperialist elements of finance capitalism’.3 German Marxists played an important part in establishing an analytical framework that clearly set National Socialism in the context of this general crisis. Alfred Sohn-Rethel, a communist working in Berlin for a business 171

172

Richard J. Overy

research group in the early 1930s, explained the relationship between the slump and the rise of Hitler in the following terms: the class structure of Nazi fascism becomes comprehensible only from a theoretical analysis which derives the setting up of a fascist dictatorship in Germany from the reaction of monopoly capital to the collapse of its own effectiveness in the world-wide economic crisis of the 1930s.4

Under ‘Nazi fascism’ (sic) the state took over entrepreneurial and managerial functions to safeguard private capital and to ‘abet monopoly capital in its state of peril’. This resulted in what Sohn-Rethel called a ‘dysfunctional capitalism’. This argument was elaborated in the work of the e´ migr´e German labour lawyer, Franz Neumann, whose study of National Socialism, Behemoth, was published during his exile in America in 1942. Neumann saw the National Socialist regime as a consolidation of ruling-class groups obsessed with power and profits, and cemented by fear of the working class. The economic system was, he argued, a hybrid form of capitalism which he termed ‘totalitarian monopoly economics’. Under the protection of a violent and coercive regime, industrial capital consolidated its position by building a rigidly monopolistic and cartelised structure to maintain profitability and to protect markets. The National Socialist economy played into the hands of ‘the most powerful and aggressive group in modern society’, the ‘industrial monopolists’.5 This interpretation of the German economy under Hitler was perpetuated after the war in a number of different contexts. In the German Democratic Republic it was axiomatic to see the period from 1933 to 1945 as a period of monopoly capitalism in its most acute and dangerous form. German economic imperialism and territorial conquest were both seen as elements in a strategy of crisis management operated by the state on behalf of its leading capitalist circles. According to SohnRethel, ‘the near entirety of German finance capital had coalesced by the end of 1932 on a policy bent on violent expansion and war’.6 Once the Hitler government embarked on rearmament, greater state regulation became necessary but, as one East German account put it, ‘the monopolistic bourgeoisie orientated itself in the face of the armaments boom to a rather far-reaching state control of the economy’, hoping for ‘gigantic profits through armaments (and finally also through the seizure of foreign wealth in the conquered lands)’.7 A paler and more intellectually subtle version of this analysis also surfaced in Western historiography. Based on an assumption about the ‘primacy of economics’ in explaining historical processes, the rise of Hitler was portrayed as something consciously manipulated, endorsed and financed by German big business. The motive of big business was

German business and the Nazi New Order

173

to find an alternative to the failed parliamentary system of the Weimar Republic, which would be able to limit working-class influence (and high wage demands) and secure healthier market conditions for German capitalism. The resulting political system was not everything that businessmen wanted, but it did preserve private capitalism and emasculate workingclass institutions. Rising profitability in the heavy industrial sectors due to rearmament helped to unite, so the argument goes, the interests of the key elites from German business, the German military leadership and the National Socialist Party.8 Since capitalist survival depended on a strong interventionist state, the economic form under National Socialism has often been defined as a system of ‘state capitalism’. This apparent oxymoron was explained by one of Neumann’s expatriate colleagues, the political scientist Fritz Pollock: under National Socialism the principal feature of a capitalist system – the generation of private profit – survived within a system of close state control established precisely to stabilise the economic order.9 Little of this interpretation has stood the test of time. The conspiracy theory has effectively been undermined by the detailed reconstruction of business politics in the two or three years before Hitler was appointed Chancellor. The evidence shows that most German ‘big businessmen’ were no more enthusiastic about the Hitler movement than they were about other right-wing parties, and in many cases a good deal less so. Far from a collective rallying of business opinion in support of National Socialism, business groups became more divided on economic policy as the slump deepened, and more politically fragmented. Important sections of big business wanted a conservative, even an authoritarian solution, but one that was based around the revival of the bourgeois ‘centre’. It was German small and medium-sized businesses, not the ‘monopolistic bourgeoisie’, that were most enthusiastic for Hitler, and largely because of the National Socialists’ reputation as a critic of unfettered corporate capital.10 It is without question the case that some prominent entrepreneurs and managers did welcome the new regime and collaborated freely with it, but the degree of influence that German capitalism could exert over the dictatorship, even if businessmen had been capable of operating along coherent and unitary class lines, was far short of deterministic or hegemonic, and became slimmer as the regime consolidated its position and insisted upon extensive and coercive economic regulation. Business leaders remained an important presence from the very nature of their function and responsibility. They had their own economic and social interests to protect, even in the face of political pressure to act otherwise.11 The relationship between the National Socialist regime and German business

174

Richard J. Overy

was not all one-way. Businessmen responded to political circumstances, as did most other professional groups, on a spectrum that stretched from rosy enthusiasm through shades of opportunism, resignation, uncertainty and hostility. Yet the belief that German business was capable of operating collectively to manipulate the dictatorship, or that it collectively conspired to launch wars of aggression as a way out of economic crisis, now appears as little more than historical fancy. ‘State capitalism’ is also a problematic concept. Pollock’s definition rested on the argument that the National Socialist system was not socialist in any conventional sense of the word, and therefore must be a form of capitalism. The pursuit of profit is certainly a primary feature of any description of a capitalist system, but that definition relies on much more besides. There is nothing in Hitler’s view of the economy to suggest that the apparatus of controls was elaborated in the 1930s simply to protect the generation of profits. In a well-known speech in the Reichstag in January 1937 Hitler signalled to the business community that ‘National Socialism vigorously combats the opinion which holds that the economic structure exists for the benefit of capital’.12 In Hitler’s view, which was widely shared by the party faithful, the search for profits for their own sake was sheer economic egoism, incompatible with a system based on the strengthening and survival of the racial community. Under National Socialism the market came to play a largely subordinate role once the full apparatus of state controls and party influence was in place. There did not exist a free price mechanism once prices were permanently controlled from November 1936 under the Four-Year Plan; nor did there exist a market for labour in the sense that workers could negotiate the sale of their labour. Access to foreign markets was entirely controlled by the state so that it might conform with military priorities; producers could not produce what they liked, where they liked, under conditions of their choice. In a speech given to the ‘Eastern Fair’ in Konigsberg ¨ in August 1938, the recently appointed Economics Minister, Walther Funk, told his audience: ‘in a state-controlled economy in which monetary [policy] and capital investments are especially closely controlled, the stock exchange quotations have not the importance which they have in an economy which is free to find its own level’.13 National Socialism suspended the normal operation of the capitalist system rather than operating it on behalf of ‘industrial monopolists’. The emphasis was on national service, not individual gain. ‘The regulating principle’, wrote one Nazi economist, ‘is not profitability but a victory at arms [Waffensieg].’14 It was the absence of true market mechanisms that persuaded the German school of neo-liberal economists that National Socialist statist

German business and the Nazi New Order

175

economics was functionally inadequate and morally repugnant. In September 1945 Alfred Muller-Armack, ¨ a leading neo-liberal who had joined the NSDAP in 1933 because he believed the system would produce a more rational capitalism, but became disillusioned with its progressive dirigisme, told an audience in Munster ¨ that Germany must introduce ‘market forces as the only mechanism to organize large masses of people into economically useful work on the basis of their own self-interest’.15 The distinctive feature of market capitalism is free choice for producers, consumers and workers and it is this feature that economic policy under the Third Reich deliberately stifled. Nonetheless, there were many like Muller-Armack ¨ who looked for some way out of the crisis in 1933. If the response of German capitalism to the slump was neither as coherent nor as manipulative as the Marxist model suggests, a serious crisis did exist, and the German business community and German politicians were profoundly affected by it. The sense that one era of economic development was giving way to a new, as yet ill-defined one reflected a deeper sense of fin de si`ecle that pervaded German society throughout the crisis. The German writer Kurt Renatus entitled his study of the causes of recession, published in 1932, The Twelfth Hour of Capitalism. Renatus argued that without a collective, state-based programme of recovery there would be an endless condition of massive unemployment and shrunken economies worldwide. The belief in the traditional liberal, free-market economy, already under siege in the 1920s, was shattered by the slump. Not only in Germany but throughout the developed world, there was a widespread expectation that a new economic order was in the making.16 It is the common experience of the slump and of efforts to counter its effects that has led to a gradual contextualisation of the German economy in the 1930s. It is possible to see the economy under National Socialism as one variety of the many forms of crisis management devised to cope with the social and economic fall-out from the crisis, rather than as an expression of a distinct economic form. The brief span of the Third Reich is alone a compelling argument against the idea that the economic system could have been transformed substantively in the 1930s. A modern German industrial system evidently did survive under dictatorship. The institutional structures of the Third Reich disappeared in 1945 without trace, and five years later the western zones of Germany had developed an industrial capitalism modelled closely on the West.17 It could also be argued that much of what the state did to the economy during the 1930s and the war was a product of circumstances rather than a strategy driven by ideological imperatives. The economic recovery, the rapid rearmament of the late 1930s, and the operation of the war economy were governed

176

Richard J. Overy

by practical considerations as much as by ideology. Even the growth of state controls over the economy has been seen as a consequence of economic pressures generated by economic revival in an unfavourable world market, and of the shift towards high levels of rearmament. The recent characterisation of the German economy in the late 1930s as a ‘military command economy’ suggests a response to necessity, not an experimental economic system.18 This view of National Socialist economic policy as a response to circumstances rather than the product of clear ideological intentions and imperatives is consistent with the view that over the long run the dictatorship made little difference to the development of the German economy. Viewed from the longer perspective of German economic modernisation from the mid-nineteenth century, the years 1933 to 1945 become just one decade among many. The economy under Hitler could be seen as a brief parenthesis, but scarcely a caesura. The structural changes evident from the previous century – the transfer from agriculture to industry, from industry to tertiary employment, the application of modern technology and management systems, the evolution of the modern large-scale corporation – were none of them suspended or diverted significantly by the dictatorship, but were in most cases accelerated by it. Even after the destruction wrought by bombing and invasion, the German industrial economy had a larger stock of capital equipment in 1945 than in 1936.19 Industrial and technological modernisation was not reversed (war indeed made it more imperative than ever), and Hitler had no ruralist qualms about pressing forward the pace of technical change. Mathematical models of the behaviour of the German economy over time confirm a remarkable continuity in key indicators. The real shock came in the period 1914 to 1924.20 Continuities can be demonstrated in other ways. Harold James has suggested that the economic initiatives taken after 1933 to produce the economic revival mainly pre-dated Hitler’s appointment, and that the package of economic regulations imposed on the economy were at least consistent with Weimar economic policy.21 The same might be said of National Socialist economic ideology, since little of it was original. National Socialist economics drew ideas from the wide discussion in pre-1933 Germany about the future of the market economy and the international economic order, and about appropriate forms of economic organization in a post-liberal world.22 Even ideas of economic imperialism or the pursuit of living-space (Lebensraum) were widely current before 1933, even before 1914, and among the most respectable intellectual and political circles.23 Hitler’s eventual decision to seize living-space by armed might and to tear up the existing economic and political order in Europe

German business and the Nazi New Order

177

went far beyond what most advocates in the 1920s saw as the solution to Germany’s economic plight, but it was not inconsistent with it. The economy of the Third Reich also merges clearly with the reconstructed economic systems that emerged in Germany after 1945. The ‘economic miracle’ of the German Federal Republic owed a great deal to resources inherited from the National Socialist experience. The famous Volkswagen, which was sold in millions worldwide in the 1950s and 1960s, was the fruit of Hitler’s utopian vision of a technocratic German future. The company began its post-war renaissance in bombedout buildings erected by the German Labour Front, whose foundation stone was laid by Hitler himself. During the war the Volkswagen city, designed to be a model industrial city in the future New Order, housed thousands of forced labourers and camp prisoners, who worked, and died, producing weapons for the war effort.24 This legacy made little difference to the success of the car abroad; even the name was kept despite the unfortunate resonance of the term Volk, which had strong associations with German radical nationalism. State investment and export subsidies in the 1950s, mimicking the policy of the late 1930s, turned Volkswagen into the leading German car manufacturer, as it would have become under Hitler.25 This kind of contextualisation avoids the danger of looking at the National Socialist economy as something divorced from the economic and political forces that shaped its origins and its legacy. It is part of the effort to ‘normalise’ the Third Reich, in the sense that much of the day-to-day economic activity under the dictatorship was not that different from what preceded it or followed it. The changed political balance in the Third Reich, which favoured state and party at the expense of business and labour, did not appear to alter greatly either economic institutions or the composition of the economic elite and economic bureaucracy, which both emerged in 1945 capable of reviving the economy once again. Agents who had served one system went on to serve in the next. Hermann Abs, head of the Deutsche Bank from 1947 to 1967, joined the board in 1938 as an expert on foreign business at exactly the time that Germany embarked on territorial expansion and war. Despite the close links between the bank and the regime’s policy of German capital penetration in occupied Europe, Abs survived the process of de-Nazification and emerged as one of the dominant figures in the banking system of the Federal Republic (where both the Deutsche and Dresdner banks flourished regardless of their clear involvement in economic crime during the dictatorship).26 Karl Blessing, a Reichsbank director under Walther Funk in the late 1930s, became head of the Bundesbank in the 1960s. Ludwig Erhard, who first became Economics Minister in the Adenauer cabinet

178

Richard J. Overy

in 1949, and then German Chancellor in 1963, worked during the Third Reich at the Nuremberg Commercial College in an institute specialising in market research. In 1942 he left to found his own industrial research centre funded by major German concerns, who paid him to think about the post-war economy. Like Abs he was not a party member, and he remained hostile to the strategy of state intervention. Erhard saw the Third Reich as a temporary period of crisis on the road to a social market economy first conceptualised in the 1920s. But, had Hitler won in 1945, both Abs and Erhard might well have been helping to build the new German economic order in Europe.27 Finally it is possible to contextualise the National Socialist economy in terms of the international economic and political crisis. Not every state affected by the inter-war economic malaise embraced authoritarian dictatorship, though many did. But most states adopted similar instruments to regulate their crisis-ridden relationship with the world economy. The collapse of the multi-lateral trade and payments system in the 1930s forced most major economies to adopt a programme of economic nationalism – protective tariffs, self-sufficiency, controlled trade, a managed currency – and to increase the degree of economic management and macro-economic steering. German economists coined the term ‘the managed economy’ (die gelenkte Wirtschaft) to describe the cluster of macro-economic controls (over trade, the capital market, foreign currency, prices, wages and raw material supply) that emerged in the 1930s.28 The same term is now used to describe the British experience before 1939, and the American New Deal and the German recovery have often been compared as varieties of crisis management in the face of high unemployment and low investment.29 This second historiographical tradition places the relationship of economy and regime in a plausible context, and avoids the problems posed by interpretations based on economic determinism. What it cannot do is to supply an explanation for why the regime embarked on a programme of violent economic imperialism, mass expropriation and slave labour. These were all central elements in the economic policies pursued by the dictatorship. Ultimately they derived from political rather than economic priorities, and they were driven by the National Socialist Party leadership rather than by the state apparatus or the business elites, though both became agents in their enforcement. The German economy in the 1930s and 1940s became the instrument of a radical, militaristic nationalism whose goals were ruthlessly pursued in the face of economic rationality. The direct consequence of what Tim Mason called ‘the primacy of politics’ was not to provide helpful conditions for the later economic miracle of the 1950s but to plunge Germany into a downward spiral of conquest,

German business and the Nazi New Order

179

looting, mass murder, ultimate defeat and territorial dismemberment. The revival of the post-war German economy self-evidently utilised the existing capital stock and skilled labour previously exploited by the dictatorship, but it was entirely dependent on the political will and intentions of the four Allied powers that occupied the shattered remains of the Third Reich. Though continuities certainly exist, 1945 was a real caesura because it decisively broke the violent effort to construct a utopian new order in continental Europe. Much of the recent historiography on the German economy has begun to focus on just such questions – the use of forced and camp labour, the looting of gold and capital resources, the fantastic geo-political plans for the East, the crass opportunism of businesses which complied with the economic racism of the party leadership. The question remains whether the mix of political ambitions concerning expansion, race and internal reconstruction amounted to a distinctive National Socialist economic system whose structure and goals were in the long run different from the pre-1933 economic order which in some respects it clearly resembled. The National Socialist movement itself claimed to represent some kind of ‘third way’ between corrupt liberal capitalism and egalitarian socialism. Economic policy was instrumentalised to comply with ideological imperatives right from the start, and it came to be dominated within a matter of years by a party elite and its allies among the managerial and entrepreneurial community. State intervention amounted to something qualitatively distinct under Hitler because it was designed not simply to heal the economy and restore living standards but to pave the way for wars of conquest and the construction of a racial utopia.30 The regime clearly did have ambitions that were conventionally economic as well. The economic revival after 1933 was important for its own sake as well as a means to achieve the political consolidation of the regime and as a springboard for later warfare. Nor was there a clear economic blueprint in 1933. The National Socialist Party was a coalition of differing ideological positions, from anti-capitalists and social revolutionaries on one side to social conservatives on the other, who were happy to regulate the economy, but had no strong desire to transform or distort it. The economic system changed slowly as the dictatorship became embedded in German society, and Hitler became a more confident dictator. He certainly had an economic conception, as Rainer Zitelmann has demonstrated. However, it was strongly influenced by his political prejudices, which included the construction of a ‘classless’ social utopia in which labour had somehow been won back from Marxism, the building of an imperial infrastructure – roads, giant buildings, model cities – and the winning of living-space appropriate to a numerous and ‘culture-creating’

180

Richard J. Overy

race.31 For Hitler the economy was not an abstraction but a weapon in his political armoury. He wrote in Mein Kampf in 1924 that the economy was ‘the servant of the state’. In power in 1936 he spelt out this relationship in the strategic memorandum that became the basis of the Second Four-Year Plan in September that year: ‘The nation does not live for the economy, for economic leaders, or for economic and financial theories: on the contrary, it is finance and the economy, economic leaders and theories, which owe an unqualified service in this struggle for the self-assertion of our nation.’32 The economy after 1933 was progressively subverted to serve these political aims. In 1935 Hjalmar Schacht, the conservative banker who became Minister of Economic Affairs in September 1934, and who represented one of the principal links with the pre-1933 economy, complained: ‘we are operating not under the primacy of politics, but under the coercion of politics’.33 There is much to recommend the view that the National Socialist state developed its own form of state-directed economy, with perhaps more in common with Stalin’s Soviet Union than with other developed states. Few historians would now contest the argument that the dictatorship gradually assumed the political position (and certainly had by 1936/7) from which it could direct the different elements of the economy to conform to the regime’s priorities. There emerged a form of command economy: macro-economic development was steered from the centre by the Economics Ministry working with Hermann Goring’s ¨ Four-Year Plan, while the micro-economy was regulated and controlled by the Reichsbank, the offices of the Price Commissioner set up in 1936, and the numerous planning agencies and offices for raw materials, trade and military production.34 So extensive was this regulatory apparatus that the iron and steel industrialist Fritz Thyssen, who had initially welcomed National Socialism in 1933 because he thought it would eradicate social conflict, fled from Germany in 1939 and was quoted in ghost-written memoirs a year later that soon Hitler’s Germany would ‘not be any different from Bolshevik Russia’.35 Extensive state control, however, does not constitute a new economic order. The ideological imperatives were reflected in other more substantial changes which produced here, as elsewhere in the system, what Hans Mommsen has called a ‘cumulative radicalisation’. An often neglected, but important, aspect of this change was the corporatism of the regime. The party line was that corporative organisations would help to break the grip of class society. The most important was the vast labour corporation, the German Labour Front (DAF), set up under the party leader Robert Ley in 1933. At its peak it incorporated 25 million German workers, from humble labourers to managers and engineers. For farmers there

German business and the Nazi New Order

181

was the Reich Food Estate, also under a party leader, Walther Darr´e; for industrialists the Reich Chamber of Industry; for artisans a chamber of handicrafts; and so on. As the economy recovered, the shift towards a more party-based economic leadership was accelerated. The Reichsbank was taken over by Walther Funk, a prot´eg´e of Joseph Goebbels and a party hack on economic issues; the process of macro-economic planning came under the offices of the Four-Year Plan, as did extensive responsibility for rearmament. This removed the military economy from the army and placed it under closer party supervision. During the war the Armaments Ministry was held successively by two of the party’s leading technocrats, the engineer Fritz Todt and, from 1942, the architect Albert Speer. During the war labour policy was directed by a party Gauleiter, Fritz Sauckel, while the planning of the Eastern economy and the exploitation of camp labour were directed by SS officials operating under Heinrich Himmler, party leader and head of state security. These changes were not cosmetic. The temporary alliance of interest in 1933 that saw men like Thyssen welcome the new government was ended in the mid1930s with the progressive ‘partification’ of the political and administrative apparatus directing the economy. The fall of Hjalmar Schacht in 1937, when he was forced to resign as Economics Minister in protest at the extraordinary powers granted to Goring ¨ (described in Hitler’s decree as complete authority (Vollmacht) over anything connected with the Four-Year Plan), represented a decisive shift in economic priorities.36 It is no accident that the declining influence of Schacht and his conservative supporters coincided with the onset of massive rearmament, large-scale expropriation of Jewish capital and assets and the fantastic plans for the remodelling of Germany’s built environment. The distortion and corruption of the economy under Hitler was intimately linked with the regime’s racial and foreign policies. The extent to which the economic conception of the party was racial in intent has been widely overlooked in the economic history of the period. Yet the party line was explicitly racist. The 1932 Economic Programme of the party described the economy ‘as one of the most fundamental life functions of the race . . . The economy is not to be separated off from the race, but belongs to the race.’ The concept of a ‘people’s economy’ (Volkswirtschaft), independent and race-enhancing, was contrasted with a ‘world economy’ (Weltwirtschaft) which bound the race to an international, Jewish-dominated system.37 Economic nationalism was a racial issue, and was expressed in this way by Hitler and others after 1933. Economic revival was to strengthen the racial community, not to bolster capitalism or to preserve the principles of private property on which it rested. Expropriation became a matter of state policy. Foreign currency

182

Richard J. Overy

and gold supplies had to be handed over to the state from 1936 on pain of severe punishment. Businessmen who refused to collaborate with rearmament priorities found their businesses nationalised. Economic sabotage became a capital offence. Economic racism manifested itself above all in the dispossession of the Jews. Over 100,000 Jewish businesses were closed down, transferred to the state or put into the hands of private German owners.38 This expropriation was ruthlessly and systematically extended to the Jewish population of occupied Europe after 1939. Millions of Jews were murdered and their clothing and gold teeth taken as racial booty. Millions were forced to give their labour for nothing until they were worked to death, not only in the SS camps set up for the purpose, but in camps and barracks set up by private companies as well. The Hasag concern produced ammunition in Poland using Jewish labour held in its own private camps, which it exploited every bit as savagely as the SS.39 By 1944 around half the 500,000 camp prisoners, largely Jews, Russians and Poles, worked for firms in the private sector as businesses responded to pressures to produce by taking on cheap labour from the state.40 The policy of economic exclusion, followed by the diversion of scarce resources of manpower and transport to carry out deportation and extermination, and the large-scale loss of manpower through extermination, ‘destruction through work’ and the relative inefficiency of forced labour, can only be explained as a consequence of ideological imperatives which overrode economic rationality. Michael Burleigh and Wolfgang Wippermann’s characterisation of the Third Reich as a ‘racial state’ carries within it the persuasive implication that there was also a ‘racial economy’.41 Ideology and economy were inextricably entwined in the imperialism of the regime as well. From 1936 Hitler explicitly adopted a crude neomercantilist view of the economy in which the requirements for food, raw materials and living-space could only be found, not by raising the productivity of the domestic economy, but through creating a German-ruled economic area in the East which would become a kind of siege economy, self-dependent or ‘autarkic’.42 These plans, which included the incorporation of the resources of Austria, Czechoslovakia, Poland and Romania, finally focused on seizing the rich grain, iron-ore and oil-producing areas of the Soviet Union. The fantastic visions of Eastern living-space, which had historical roots going back to before 1914, were consummated in the notorious Generalplan Ost which promoted the complete economic, social and demographic remodelling of Eastern Europe under German imperial domination.43 Hitler’s answer to the problems of the post-slump economy was to seize resources and territory and to remodel the European market to make the German race the most economically advantaged in

German business and the Nazi New Order

183

Europe. The so-called ‘New Order’, dominated by German national priorities and run by National Socialist leaders and party technocrats, was conceived by its architects as the successor to the outmoded economic forms of the liberal economic age. In reality the New Order was corrupt and vicious. Party satraps such as Hans Frank in Poland, Hinrich Lohse in the Baltic states, or Erich Koch in the Ukraine turned their new patrimonies into private fiefdoms, sustained by booty and expropriation. The New Order relied on forced labour, and was intended to do so even after a German victory. The brutal, often fatal, exploitation of forced labour closely reflected the racial priorities and colonial character of the new system, and the extent to which this was not simply a response to wartime circumstances.44 War, genocide and empire-building produced an exceptional distortion of the German and European economies based on a cluster of what Hitler described as ‘national tasks’ to which the narrow concerns of entrepreneurs, wage-earners and consumers were necessarily subordinate. For National Socialists the economy became a function of the wider exercise of imperial power and racial supremacy, in which economic rationality was overturned in favour of a world characterised by economic crime, personal corruption and national aggrandisement. German business was sucked into this new economic order, and accepted its new rules. If Germany had won in 1945, the resulting economic order would have defied conventional description. Comprehensive defeat made possible the resuscitation of industrial capitalism in the western zones and of modernising socialism in the Soviet zone, but these outcomes should not mask the probability that the relationship between a victorious National Socialism and the German economy would have resulted in a very different version of economic modernity.     1. R. B. Day, The Crisis and the Crash: Soviet Studies of the West 1917–1929 (Ithaca, N.Y., 1984), pp. 202–11. 2. Report on the Work of the Central Committee to the 17th Congress of the CPSU, 26 January 1934, in J. Stalin, Problems of Leninism (Moscow, 1947), pp. 456, 460–1. 3. K. E. McKenzie, Comintern and World Revolution (New York, 1964), p. 144. 4. A. Sohn-Rethel, Economy and Class Structure of German Fascism (London, 1978), pp. 128–9. 5. F. Neumann, Behemoth: The Structure and Practice of National Socialism in Germany 1933–1939 (London, 1942), pp. 239–40, 264, 384. 6. Sohn-Rethel, Economy and Class Structure, p. 89. 7. W. Krause, Wirtschaftstheorie unter dem Hakenkreuz (Berlin, 1969), p. 89.

184

Richard J. Overy

8. See, for example, A. Schweitzer, Big Business in the Third Reich (Bloomington, Ind., 1964); A. Schweitzer, ‘Profits under Nazi Planning’, Quarterly Journal of Economics, 60 (1946). See, too, D. Abraham, The Collapse of the Weimar Republic (Princeton, 1981). 9. F. Pollock, ‘Staatskapitalismus’, in H. Dubied and A. Sollner (eds.), Wirtschaft, Recht und Staat im Nationalsozialismus: Analysen des Instituts f¨ur Sozialforschung, 1939–1942 (Frankfurt/Main, 1981), pp. 81–106. 10. See especially H. A. Turner, German Big Business and the Rise of Hitler (Oxford, 1985); on the role of small and medium-sized businesses there is an interesting account in C. C. Szejnmann, Nazism in Central Germany: The Brownshirts in ‘Red’ Saxony (Oxford, 1999), ch. 4. 11. See the historiographical review in V. Berghahn, ‘Big Business in the Third Reich’, European History Quarterly, 21 (1991), 97–108; P. Hayes, ‘Polycracy and Policy in the Third Reich: The Case of the Economy’, in T. Childers and J. Caplan (eds.), Re-evaluating the Third Reich (London, 1993), pp. 190–210. This conclusion is reinforced by some recent case studies. See G. Mollin, Montankonzerne und ‘Dritten Reich’: der Gegensatz zwischen Monopolindustrie und Befehlswirtschaft in der deutschen R¨ustung und Expansion (Gottingen, ¨ 1988); N. Gregor, Daimler-Benz in the Third Reich (New Haven, 1998). 12. N. Baynes (ed.), Hitler’s Speeches, 2 vols. (Oxford, 1942), vol. II, p. 935, speech to the Reichstag, 30 January 1937. 13. Public Record Office, London, FO 371/21677, ambassador Henderson to Lord Halifax, 24 August 1938, p. 4. 14. Statistiches Reichsamt memorandum, ‘Wehrwirtschaftliche Planung’ (n.d. but 1939), p. 1, Bundesarchiv Berlin, R3102/3005. 15. Cited in A. J. Nicholls, Freedom with Responsibility: The Social Market Economy in Germany 1918–1963 (Oxford, 1994), p. 137. 16. K. Renatus, Die zw¨olfte Stunde der Weltwirtschaft (Munich, 1931), published in Britain as The Twelfth Hour of Capitalism (London, 1932), esp. ch. 7. 17. See, for example, V. Berghahn, The Americanization of West German Industry 1945–1973 (Leamington Spa, 1986); see also R. J. Overy, ‘The Economy of the Federal Republic since 1949’, in P. Panayi and K. Larres (eds.), The Federal Republic of Germany since 1949 (London, 1996), pp. 3–34. 18. R.-D. Muller ¨ et al., Das Deutsche Reich und der Zweite Weltkrieg, vol. IV (Stuttgart, 1983), ch. 3. 19. W. Abelshauser, ‘Germany: Guns, Butter and Economic Miracles’, in M. Harrison (ed.), The Economics of World War II: Six Great Powers in International Comparison (Cambridge, 1998), pp. 165–9. 20. A. Sommariva and G. Tullio, German Macroeconomic History 1880–1979 (London, 1987). On national income growth, see A. Ritschl and M. Spoerer, ‘Das Bruttosozialprodukt in Deutschland nach den amtlichen Volkseinkommens- und Sozialproduktstatistiken 1901–1995’, Jahrbuch f¨ur Wirtschaftsgeschichte, no. 2 (1997), 51–2. 21. H. James, ‘Innovation and Conservatism in Economic Recovery: The Alleged “Nazi Recovery” of the 1930s’, in W. Garside (ed.), Capitalism in Crisis: International Responses to the Great Depression (London, 1993), pp. 70–95.

German business and the Nazi New Order

185

22. See H. Janssen, National¨okonomie und Nationalsozialismus: Die deutsche Volkswirtschaftslehre in den dreissiger Jahren (Marburg, 1998), esp. ch. 2. 23. See the discussions in A. A. Kallis, ‘Expansionism in Italy and Germany between Unification and the First World War: On the Ideological and Political Origins of Fascist Expansionism’, European History Quarterly, 28 (1998), 435–60: G. Stoakes, Hitler and the Quest for World Dominion (Leamington Spa, 1986). 24. On this see C. Schneider, Stadtgr¨undung im Dritten Reich: Wolfsburg und Salzgitter (Munich, 1979), pp. 29–54; on labour, H. Mommsen, Das Volkswagenwerk und seine Arbeiter im Dritten Reich (Dusseldorf, ¨ 1997), pp. 711–39, 859–75. 25. S. Reich, The Fruits of Fascism: Postwar Prosperity in Historical Perspective (Ithaca, N.Y., 1990), ch. 5; F. Vogl, German Business after the Economic Miracle (London, 1973), pp. 111–13. 26. On Abs see L. Gall, G. Feldman and C.- H. Holtfrerich (eds.), The Deutsche Bank 1870–1995 (London, 1995). 27. Nicholls, Freedom with Responsibility, pp. 73–6, 116–21. 28. W. Krause, Wirtschaftstheorie unter dem Hakenkreuz (Berlin, 1969), pp. 139–77. For a contemporary account see Wirtschafts-Hochschule Berlin, Probleme der gelenkten Wirtschaft (Berlin, 1942), especially F. Dorn, ‘Einrichtungen und Mittel der Witschaftslenkung’, pp. 7–27. 29. See, for example, P. Temin, ‘Socialism and Wages in the Recovery from the Great Depression in the US and Germany’, Journal of Economic History, 50 (1990), 297–308; J. A. Garraty, ‘The New Deal, National Socialism and the Great Depression’, American Historical Review, 78 (1973), 907–44. 30. See, for example, A. Barkai, Nazi Economics: Ideology, Theory and Policy (Oxford, 1990); H. Kahrs, ‘Von der “Grossraumwirtschaft” zur “Neue ¨ Ordnung” ’, in H. Kahrs (ed.), Modelle f¨ur ein deutsches Europa: Okonomie und Herrschaft im Grosswirtschaftsraum (Berlin, 1992), pp. 9–26. 31. See especially R. Zitelmann, Hitler: The Policies of Seduction (London, 1999), pp. 198ff. Zitelmann calls Hitler’s politico-economic conception his ‘central objective’. 32. W. Treue, ‘Der Denkschrift Hitlers uber ¨ die Aufgaben eines Vierjahresplan’, Vierteljahreshefte f¨ur Zeitgeschichte, 3 (1954), 206. 33. Cited in F. Marx, Government in the Third Reich (New York, 1936), p. 150. 34. For details see R. J. Overy, ‘The Four-Year Plan’, European Yearbook of Business History 3 (2000), 87–106. 35. F. Thyssen, I Paid Hitler (London, 1941), p. 187. 36. On the Vollmacht see Bundesarchiv Koblenz, R26 IV/4, Sitzung des kleinen Ministerrats, 21 October 1936, p. 2 and Reichsgesetzblatt, 1936, part I, p. 887. 37. O. Wagener, Das Wirtschaftsprogramm der NSDAP (Munich, 1932), p. 8. 38. A. Barkai, From Boycott to Annihilation: The Economic Struggle of German Jews 1933–1943 (Hanover, N.H., 1989), pp. 113–14, 154–5. There is a growing literature at last on Aryanisation. See, for example, F. Bajohr, ‘Arisierung’ in Hamburg: die Verdr¨angung der j¨udischen Unternehmer 1933–1945 (Hamburg, 1997); L. M. Stallbaumer, ‘Big Business and the Persecution of the Jews: The

186

39. 40.

41. 42.

43.

44.

Richard J. Overy Flick Concern and the “Aryanization” of Jewish Property before the War’, Holocaust and Genocide Studies, 13 (1999), 1–15. F. Karay, Death Comes in Yellow: Skarzysko-Kamienna Slave Labor Camp (Amsterdam, 1996), pp. 235–47. M. K´arny, ‘Das SS-Wirtschafts- und Verwaltungshauptamt’, in Hamburger Stiftung zur Forderung ¨ von Wissenschaft und Kultur (ed.), ‘Deutsche Wirtschaft’: Zwangsarbeit von KZ-H¨aftlinge f¨ur Industrie und Beh¨orden (Hamburg, 1991), p. 97. M. Burleigh and W. Wippermann, The Racial State (Cambridge, 1992). There is a large literature on this. See A. Teichert, Autarkie und Grossraumwirtschaft in Deutschland 1930–1939 (Munich 1984); B.-J. Wendt, Grossdeutschland: Aussenpolitik und Kriegsvorbereitung des Hitler-Regimes (Munich, 1987); for a contemporary account see H. Kremmler, Autarkie in der organischen Wirtschaft (Dresden, 1940). See, for example, R.-D. Muller, ¨ Hitlers Ostkrieg und die deutsche Siedlungspolitik. Die Zusammenarbeit von Wehrmacht, Wirtschaft und SS (Frankfurt/Main, 1991). On this see U. Herbert, ‘Labour and Extermination: Economic Interest and the Primacy of Weltanschauung in National Socialism’, Past and Present, 138 (1993), 144–95, and the essays in U. Herbert (ed.), Europa und der ‘Reichseinsatz’: ausl¨andische Zivilarbeiter, Kriegsgefangene und KZ-H¨aftlinge in Deutschland 1938–1945 (Essen, 1991).

9

‘Aryanisation’ in Central Europe, 1933–1939: a preliminary account for Germany (the ‘Altreich’), Austria and the ‘Sudeten’ area Dieter Ziegler, Harald Wixforth and J¨org Osterloh

Despite its political importance, the history of the European Jews between 1933 and 1945 was for decades after the Second World War a largely neglected area. German public opinion during the 1950s and 1960s was almost unanimous in rejecting the responsibility of the German people for the crimes which were committed against the Jews ‘in the German name’. While only a small minority flatly rejected the murder of about 6 million Jews and while German war crimes (including the Holocaust) were offset only under the surface against the bombing of German cities by the Anglo-Saxons and the expulsion of the German population from Poland and Czechoslovakia after the war, the Nuremberg War Tribunal was largely regarded as ‘Siegerjustiz’ (victors’ justice) and the German courts were very negligent when it came to sentencing German war criminals. The German public during the 1950s was even more concerned about the perpetrators in prison than about the victims and their right to compensation. Such an atmosphere scarcely allowed the mainstream historical sciences in (West) Germany to scrutinise the full extent of the involvement of the German people in the plunder, expulsion and murder of the Jewish population in Germany and in the German-occupied areas. But during the late 1960s and 1970s the situation changed. A new generation of historians began to be interested in German–Jewish history – not only before, but also during the Nazi era. The so-called ‘Aryanisation’ (that is, the exclusion of Jews from the public services and certain professions as well as the transfer of ‘Jewish’ assets into the hands of either private Gentile individuals or the German state) was the last taboo that began to be lifted in the 1980s and 1990s. Concerning the ‘Aryanisation’ of Jewish enterprises, the long-lasting neglect was in part due to the very restrictive access policy of many German business archives up to the mid-1990s. The end of the Cold War, however, opened up the archives to scholars from both sides of the Wall. Second, German business changed its 187

188

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

policy of entrenchment, partly under pressure from legal cases against certain German companies in the USA, and partly because a new generation of managers wanted to know what had happened. In many cases professional historians were hired to scrutinise the history of particular firms without any reservations and with full access to all available files. For this reason, by the turn of the century, our knowledge of the extent and methods of the plunder of the Jewish population in Germany had substantially increased, so that a comparison with the situation in the formerly German-occupied area was possible from the German side of the story. Unfortunately, despite the fact that the post-war political order was largely a result of the liberation by the Allied forces, especially by the Red Army, post-war historical research into the history of occupied Europe both in Poland and in Czechoslovakia, and similarly in East Germany, was almost entirely concentrated on national and working-class resistance, while Western researchers were not granted access to the important archives in Eastern Europe. For this reason there are only a few studies of the Jews in former Czechoslovakia in general, and about the Nazi politics of persecution in the Protectorate of Bohemia and Moravia in particular. The history of the Jews in the German-annexed Sudeten area has been completely neglected in both German and Czech historiography, and a comprehensive study of the ‘Aryanisation’ in the ‘Reichsgau Sudetenland’ is still lacking. Almost the same is true of Austria. The post-war state myth of Austria having been the ‘first victim of Hitler’ prevented almost any serious discussion about the involvement of both the German-Austrian elites and the ‘ordinary Austrian’ in the crimes committed ‘in the German name’ during the war. The Waldheim affair of the 1980s was a telling example of Austrian self-deception. On the other hand, it also marked a turning-point, since from then on many Austrian historians began to lift the taboos and to destroy the myths (see Berger, chapter 10). ‘Aryanisation’ in the ‘Altreich’ Anti-Jewish rioting in Germany began a few weeks after the seizure of power by the Nazis in early 1933. Although the party leadership was as anti-semitic as the majority of the ordinary members and the storm troopers, it faced a problem. On the one hand, large parts of the ‘movement’ demanded fundamental social changes in German society. On the other hand, it was quite clear to the Nazi–conservative coalition that their first task was to stabilise the regime. A substantial reduction in the massive unemployment was expected by those who had voted for the coalition in

‘Aryanisation’ in Central Europe, 1933–1939

189

the election of March 1933, and if the government failed to fulfil this expectation, the regime would be in trouble, in spite of all the resources of a ‘modern’ police state. This meant that the economy had to be stimulated but not disturbed. It was not the time to satisfy the ‘socialist’ dreams of many ‘old soldiers’ in the storm troop. The functioning of society had to remain intact; the underprivileged had to stay at the bottom of the social hierarchy and those who had responsibility for the public administration, the economy, the military forces etc., had in general to remain in place. In this situation at first glance anti-semitic rioting seemed to be a red herring for the frustrated social ambitions of the ‘old soldiers’. The problem was, however, that orgies of violence horrified much of the German population, including large parts of the middle and upper classes. In addition, the foreign press reported the rioting extensively, so that an effective boycott of German goods and services abroad became a possible threat to economic recovery. On the other hand, it was impossible to deprive the storm troopers of power as long as the Reichswehr and the police were not yet Nazified, while the labour movement was, in theory, still in a position to organise effective resistance to the regime. For that reason the regime organised an ‘orderly’ one-day boycott of Jewish shopkeepers, in order to satisfy those elements of the radical mob who were dissatisfied with the tempo of the National Socialist ‘revolution’.1 Simultaneously, any kind of unauthorised spontaneous action was prevented, and those party members who prolonged the rioting, especially those who openly demanded their share of the booty, were severely punished and expelled from the party. This policy was often misunderstood by contemporary observers who still believed in the rule of law in Germany. For that reason the large majority of the 525,000 German Jews who lived in Germany in early 1933 did not panic and were not at all willing to leave the country.2 The seeming concern for law and order was, however, no sign that the Nazi leadership was more temperate than the radical mob. Instead of rioting it preferred a legal method of persecution. Several laws and decrees were passed in April 1933 which began to cut the ground from under the feet of the Jews in several professions in order to induce them to emigrate. The most important was the Law for the Restoration of the Professional Civil Service, which was in the first place meant to remove democrats and other political opponents to the regime from the civil service. A side effect was the so-called ‘Aryan paragraph’, which enacted that ‘civil servants from non-Aryan origins are to be pensioned off ’.3 This law affected government officials and administration employees, as well as judges and prosecution attorneys, doctors in public service, pastors (where twenty-nine baptised persons from Jewish families were affected),

190

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

school teachers, university lecturers and professors. A few days later the term ‘non-Aryan’ was legally defined as ‘those who are descended from non-Aryan, especially from Jewish, parents or grandparents. It is sufficient if one parent or grandparent is non-Aryan.’4 However, at this stage the Nazis still had to show consideration for their conservative coalition partners and especially for President Hindenburg, who demanded a qualification of the ‘Aryan paragraph’ to ensure that those civil servants who had actively fought during the First World War (‘Frontk¨ampferklausel’), and those who were already in service in 1914, were exempted. This qualification clearly reflected the anti-semitic prejudices of the (conservative) German middle classes. They believed that Jews, who were generally regarded as cowards, had had such a strong position in the various German elites that they had been able to escape from the front line in large numbers, while during the ‘system period’ of the Weimar Republic they had made use of their power to co-opt their co-confessionals into the higher ranks of the administration. The logic was that the few Jewish exceptions who had not benefited from this conspiracy were to be spared the retaliation. Although the proportion of old-established Jewish civil servants and front-line soldiers among those affected by the law was much larger than anti-semites might have expected, the Jewish presence within the German civil service was relatively small. Both during the Kaiserreich and during the Weimar Republic, Jews were largely under-represented in the civil service because the traditional anti-semitism among the German administrative elite was known to block the careers of Jewish civil servants. The only sector of the public service where Jewish representation was significant was the university. By the end of 1933 at least 1,200 Jewish lecturers and professors had been dismissed.5 The anti-Jewish side effect of the law became even more critical when, in May 1933, it was extended to those enterprises with a majority state interest. In this case only a few political opponents were affected, but there were a large number of Jews, especially in the banking sector. The leading banks and some larger provincial banks had come under state control after the banking crisis, and since Jews were largely over-represented among bank employees, several hundred Jewish employees were dismissed in the ensuing weeks.6 Notwithstanding these immediate effects of the Restoration Law, its indirect effects were even more important for the fate of the Jews in Germany, because the law formed the basis for all the persecutions to come. Because of the above-mentioned reluctance to enter the civil service, most Jewish law graduates had become lawyers (instead of civil servants such as judges) and were thus not affected by the law. On the other hand, rioting during the ‘revolutionary period’ was not only directed at

‘Aryanisation’ in Central Europe, 1933–1939

191

small businessmen and shopkeepers, but also at lawyers in the courtroom. This was of course unacceptable and a legal way had to be found to remove Jewish lawyers from the courts. The method was very similar to that used in the civil service. While rioting was stopped, a decree was passed preventing Jewish lawyers from being called to the bar. The difference was, however, that the proportion of Jewish lawyers – almost a fifth of all lawyers practising at this time – was so large that an immediate dismissal of all those who were not exempted by the ‘front-line soldier clause’ presented a risk for the functioning of the judiciary. Nevertheless, of the 4,500 Jewish lawyers practising in early 1933 1,400 (or about 30 per cent) had lost their licences by June 1933.7 In addition, the Nazis could expect a serious loss of business for those Jewish lawyers who remained. Hardly any Gentile person would take the risk of going to court accompanied by a Jewish lawyer. The situation with doctors was very similar. For similarly pragmatic reasons their disqualification was, however, postponed altogether. More than 10 per cent of all German doctors had been Jewish, but thousands of Jewish doctors meant, despite all the alleged racist prejudices, tens of thousands of Gentile patients. In order to prevent dissatisfaction among patients and bottlenecks in medical care, the measures taken were confined to doctors working in hospitals run by the public health insurance companies.8 In order to prevent young Jews becoming lawyers or doctors the number of Jews admitted to schools and universities was limited. This last ‘April Law’, with the innocuous title ‘Law against the Overcrowding of German Schools and Universities’, decreed that Jews could not make up more than 1.5 per cent of the intake of schools or universities and that the aggregate number of Jews at each institution should not exceed 5 per cent. Exceptions were only possible in those cases where the parents lived in a ‘mixed marriage’, provided that the marriage had been entered into before the passing of the law.9 In September 1933 a second wave of ‘cleansing’ the professions of Jews was launched. First, Jews were forbidden to own farms or to farm and, second, a ‘Reich Culture Chamber’ was founded in order not only to control cultural life, but also to exclude Jews from professions such as art, journalism and publishing by denying them membership of this compulsory institution. Thus, despite the fact that some measures, such as those against the doctors, were still half-hearted, the dismissal of Jews from those professions which demanded high qualifications and were well paid – professions in which they were traditionally over-represented – had begun, and it proved to be only a matter of time before these actions were stepped up and finally concluded. Before the war the persecution of the Jews was largely focused on emigration. But only some of those who were dismissed

192

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

utilised their compensation or cashed in their pensions in order to fund emigration. The majority seemed to adapt to the situation, obviously hoping that it could not become worse and that the whole Nazi regime would in the near future turn out to have been only a nightmare. The number of emigrant Jews was from the point of view of German racists not at all impressive. In 1933 only 37,000 left the country, and in the period 1934–7 the average number was less than 25,000 emigrants per year. In early 1938 there were thus almost 360,000 Jews still living in Germany. One reason for the small number of emigrants was the fact that until 1938 the personal property of Jewish individuals was hardly affected, while those businessmen and entrepreneurs who had suffered from the loss of Gentile customers or the decline in government orders were not willing to sell their businesses at a seemingly unfavourable moment. In fact, the later the selling decision was taken the more meagre the proceeds were. Until recently historians were convinced that there was a ‘honeymoon period’ for Jewish businesses between 1934/35 and 1937, which might explain the low level of emigration. Later research has shown, however, that the ‘honeymoon period’ is a myth.10 It is true that legislative measures against Jewish businesses were not taken during this period, and the ‘cleansing’ of certain professions was largely undertaken during the first year of Nazi rule. The major exception was the Reich Citizenship Law of 1935, which defined the ‘Aryan paragraph’ in a rather different way.11 It brought about the withdrawal of the exemption clauses of the Law for the Restoration of the Professional Civil Service for civil servants and – although mainly without a specific legal basis – for related professions also. But even without anti-Jewish laws for private business, the pressure on Jewish firms and businessmen continued. Even the most sensitive department of the ‘Jewish sector’ in the economy, the private banking sector, not only came under pressure in 1933, but remained so, at least as far as the smaller businesses were concerned, for the entire period up to 1938.12 Although only about one-quarter of the Jewish population had left the Reich by early 1938, the wealth of German Jewry, which was estimated at between 10,000 and 12,000 million Reichsmarks in early 1933, had been reduced by about a half.13 On the other hand, until 1938 the pressure was fairly unevenly distributed. As a general rule, the closer to the private consumer and the more dependent on government orders the stronger the pressure. Thus, the manufacturers of consumer goods (e.g. ‘Aryan’ moisturising cream for ‘Aryan’ skins in the case of Beiersdorf) were under a more immediate ‘Aryanisation’ threat than the manufacturers of producer goods, provided that they were not directly involved in the arms trade or production. However, the strongest pressure was exerted on small shopkeepers and,

‘Aryanisation’ in Central Europe, 1933–1939

193

in particular, on department stores. The breakdown of private purchasing power during the Depression had eliminated any reservations on the part of many Gentile shopkeepers about using anti-semitism as a competitive strategy. From their point of view, it was not sufficient to ‘Aryanise’ department stores; they should be destroyed altogether. Again, despite its middle-class ideology, the Nazi leadership was not at all prepared to allow such a radical intervention in the economy. Many ‘people’s comrades’ were customers of department stores and many ‘people’s comrades’ were employed by department stores. ‘Aryanisation’ of the department stores was thus a compromise which was compatible with an important segment of the anti-semitic ideology, but only marginally harmful to the functioning of the economy. An important concession to the economic demands of the radical middle classes was the fact that the ‘Aryanisation’ affected all levels of department store employment, so that many unemployed ‘Aryan’ clerks, party members in the first instance, could move into jobs formerly occupied by Jews.14 In the case of small shops owned by Jewish proprietors, the sour poison of anti-semitism and in many cases deceptions of loyal Gentile customers eroded the substance of many businesses. Where the decreasing turnover produced by anti-semitism was added to an already reduced turnover because of the Depression, the outcome was very often the end of any business activity. Such shops and businesses were in the main not ‘Aryanised’ but liquidated. The liquidation of ‘Jewish’ businesses, however, helped ‘Aryan’ businesses by reducing the intense competition caused by over-supply (in relation to demand). A completely different attitude was taken towards those businesses which were regarded as important for the proper functioning of the economy. In particular, those enterprises enjoying excellent relations with foreign partners were largely spared anti-semitic pressures. To finance the import of raw materials the Reich needed foreign exchange and those businesses which were in a position to provide this were much too important to be hindered in their business activities merely because the proprietor was a Jew. This was particularly true of the big private banks with close contacts with financial centres abroad, which were often reinforced by family relationships. For that reason, and in spite of the propaganda against the ‘rule of international financial capital’, even in 1934 the majority of the member banks of the Reich Debt Syndicate were ‘Jewish’. These banks were ‘Aryanised’ or liquidated later on, mostly in 1937 and 1938.15 Notwithstanding the serious pressure put on German Jews throughout the period 1933–7, a new phase in the persecution of Jews began in 1938. The first sign was Hitler’s address to the party conference in September 1936. For the first time in a major public speech Hitler attacked ‘world

194

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

Jewry’ for being the enemy of mankind from the days of early Christianity and the puppet-master behind bolshevism. By this time full employment had been achieved, and some important successes in foreign policy had not only stabilised a regime based to a certain extent upon terror, but had also established consent from a majority of the (Gentile) population. Consideration for the liberal press abroad or for the rest of the liberal German bourgeoisie was no longer as important as during the first months after the seizure of power. It was a time when the character of the regime became more aggressive, not only towards opponents inside the country, but also towards its neighbours. It was a time when preparation for war became the first priority. The major institutional innovation was the Four-Year Plan organised by Hermann Goring, ¨ which aimed at complete autarky from imports of raw materials for the armament industry. From the very beginning of the Plan Hitler was convinced that the private fortunes of German Jews had to be called in to fund the enormous expenditure required for the autarky programme. As early as 1936 the government had planned to take advantage of the assassination of the Swiss Nazi leader Wilhelm Gustloff to impose a collective ‘fine’ on German Jewry. But when the trial of the assassin came to an end, the ministries involved had not yet clarified the details, so that the matter had to be postponed until the next ‘occasion’. The deferment was very much appreciated by Goring, ¨ because he feared that the visible expropriation of the Jews’ property by a special tax would do too much harm. Business partners abroad might react in a negative way so that the reserves of foreign exchange would be further depleted, with the most critical consequences for the Reich’s efforts to be ready for war in 1940, as Hitler had demanded.16 Nevertheless, preparatory steps for a future expropriation were taken, but since the Reich did not clarify how the booty was to be distributed, it was the private individual, party members in particular, or private enterprise which profited most from the ‘Aryanisation’ of Jewish businesses. The first step was the legal definition of a ‘Jewish business’. Every business where at least one proprietor or legal representative was Jewish was labelled a ‘Jewish enterprise’. In addition, every business that was ‘under the dominating influence of Jews’, that is, businesses with a Jewish minority interest of at least 25 per cent, was also regarded as ‘Jewish’. In view of the high degree of state regulation in all aspects of market transactions, such labels virtually excluded these enterprises from the rest of the economy. Under these circumstances even those joint-stock companies which up to this point had protected their Jewish directors by shunting them off to the supervisory board were forced to ‘clean’ the board and dismiss their former colleagues altogether. The second step was a decree that forced Jews to register their

‘Aryanisation’ in Central Europe, 1933–1939

195

private fortunes. Since many Jews still believed in the rule of law, they did not try to hide parts of their fortune. Na¨ıvely – from an ex-post point of view – they believed that only those parts of their fortune that were not properly registered would be confiscated, because they lacked a legal existence. In reality it was the other way round. The tax offices now knew very precisely what and how much was to be confiscated, when the instruction came. By mid-1938 many Jewish businessmen had realised that they had no future in Germany and hastily tried to sell their businesses in order to provide the funds necessary for emigration. A race for ‘Aryanisation’ assets started, in which the German banks took on the task of bringing together Jewish sellers and Gentile buyers. The profits derived from this mediation activity have not yet been seriously calculated; only wild estimates exist to date. Nevertheless, it is clear that the banks were very much interested in this business, as the establishment of an ‘Aryanisation department’ at the Dresdner Bank clearly demonstrates.17 There was, however, no free market. The first problem was that certain businesses, where Jewish representation had been particularly high, such as clothing shops or cattle trading, flooded the market, so that even ‘market’ prices fell into an abyss. Second, even if a Gentile buyer was prepared to pay a fair price for the business, the contract was subject to the approval of the local party economic adviser. If the adviser had the impression that either the price was ‘too high’ or that the buyer regarded himself as a front man with the Jewish proprietor remaining behind him, he refused approval and the seller had to find a new buyer. Such cases were, however, the exception. The rule was scarcely concealed greed, whereby the ‘Aryan’ buyer exploited the situation of the Jewish victim. An insufficient knowledge of the business concerned, or insufficient capital even with a low price, did not persuade the party economic adviser to reject a contract, particularly since the savings banks, the co-operative banks and the large banks were all prepared to supply credit to buyers. In the beginning the government scarcely profited, and even the party only obtained a small share of the booty, in the form of an ‘Aryanisation duty’ paid by the buyer.18 Although this duty opened the way to corruption, it is quite clear that the buyer profited most. The state came in at a different stage. When the Jewish seller decided to emigrate, the state confiscated a large part of his property via a Reich flight tax and by foreign exchange regulations. It is estimated that those who emigrated at the end of 1938 were able to transfer less than 10 per cent of their former wealth. In October 1938, when after the Munich conference the regime had reached its overall climax before the war, the assassination of a German

196

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

diplomat in Paris by a despairing Jew provided the opportunity to start the open expropriation of Jewry postponed in 1936. First, a new stage of radicalisation was introduced by the November pogrom, the so-called ‘Kristallnacht’ which affected every German town and even villages, and which was stage-managed by the party as a collective action by the German people against the ‘Jewish world conspiracy’. During the following weeks several laws and decrees were released aiming at the complete exclusion of Jewry from business and social life in Germany. The Decree for the Exclusion of Jews from German Economic Life ordered that Jews were no longer allowed to run shops, workshops and other businesses. Similarly, as regards joint-stock companies Jews were no longer allowed to hold leading positions. The Decree for the Mobilisation of Jewish Assets ordered the compulsory Aryanisation of the remaining businesses by authorised trustees. Securities, jewellery and other valuables could no longer be sold freely by Jews, but had to be offered to authorised agents only. Securities had to be deposited at a limited number of banks. By the Decree for the Restoration of the Appearance of the Streets around Jewish Enterprises, shopkeepers, businessmen and house owners who had suffered from the destruction of their property during the pogrom were not entitled to receive any compensation from their insurance company, but were obliged to meet the cost themselves.19 Finally, an ‘atonement tax’ was introduced as a collective fine of 1,000 million Reichsmarks to be paid by German Jewry.20 The Austrian ‘Anschluss’ and the radicalisation of economic persecution During this second and radicalised phase of persecution the German government achieved its outstanding foreign affairs success: the building of Greater Germany by the annexation of Austria (March 1938) and parts of Czechoslovakia (October 1938) without military confrontation. With this expansion many more Jews came under the jurisdiction of the Nazis, who were very quick to import anti-Jewish legislation into the annexed areas. However, the importation of laws and decrees was one thing, the practice of persecution was another. It depended largely on the German Gentile population in these areas. According to the census of March 1934, almost 200,000 denominationally Jewish persons were living in Austria. In Vienna alone their number amounted to more than 175,000 persons, or about 10 per cent of the population. The Jewish community in Vienna was the largest in the entire German-speaking world.21 The Austrian Jews had of course looked closely at the fate of their co-confessionals in Germany, and so

‘Aryanisation’ in Central Europe, 1933–1939

197

they were aware of the fact that their personal security and social standing depended on the existence of an independent Austrian state. Antisemitism and anti-Jewish agitation was a common experience for many Jews in Austria too, but they had been accustomed to these kinds of discrimination. From the German experience, however, they knew very well that the radical anti-semitism of a Nazi government would cause a tremendous deterioration in their personal situation. Consequently, they were most anxious about the negotiations between the Austrian Chancellor Schuschnigg and the Reich Chancellor Hitler in February 1938 on the future of Austria. When Schuschnigg announced that he would hold a plebiscite about Austria’s future, the Viennese Jewish community decided to support the Chancellor by financing his campaign, thus demonstrating their loyalty to the Austrian state. The existence of an independent Austria had become a crucial element in the security and survival of the Austrian Jews.22 During the election campaign the position of Schuschnigg’s government was steadily weakened and undermined by National Socialist agitation and propaganda, so that it was expected to fall within a few days. In the evening of 11 March several demonstrations of power by Austrian National Socialists took place in the streets of Vienna, and the occupation of Austria by German troops seemed inevitable. In this situation of power vacuum two developments were set in motion. On the one hand, many Jews realised that Austria was lost and began to organise their emigration. On the other hand, an outburst of brutal aggression by Gentile Austrians against the Viennese Jews started. This shocked foreign observers, who characterised these events as a pogrom on a scale not yet seen even in Germany. During the night of 11–12 March groups of Austrian National Socialists marched through the streets of Vienna, plundered Jewish shops, broke into Jewish houses and ‘confiscated’ goods and property. Over the following days ‘old soldiers’ from the local NSDAP or from the storm troopers, as well as ‘ordinary’ Austrian shopkeepers and artisans, expelled former proprietors, installed themselves as the new managers or directors and took money from the tills or seized goods for themselves and their associates. It is estimated that by the end of April the Jewish owners of about 7,000 businesses had had to close their doors due to lack of stock. During Sabbath prayers Jews were pulled out of the synagogues by storm troopers, who forced them to sweep the streets, clean toilets with their hands and remove the slogans of the old Schuschnigg government from walls and pavements with tooth-brushes. As a reward for the support of Schuschnigg’s plebiscite campaign a ‘contribution’ of 500,000 Reichsmarks was imposed upon the Jewish religious community (‘Israelitische Kultusgemeinde’) which was monitored by SS Security Service officer Adolf Eichmann.23 The

198

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

aggregate value of Jewish property ‘confiscated’ during the first week of the German occupation can scarcely be estimated, but it is quite certain that it amounted to several million Austrian Schillings.24 Like the new German government in early 1933, the newly installed Austrian government under Governor (Reichsstatthalter) Arthur SeyßInquart and party leader Josef Burckel ¨ was not at all pleased with this unco-ordinated kind of anti-Jewish aggression and the first wave of unauthorised Aryanisations of Jewish property. On the contrary, clearly shocked by the violence, both the German government in Berlin and the Viennese party leader warned the inhabitants of the Austrian capital not to participate in unauthorised and ‘wild Aryanisations’ or in any kind of violent action against Jews. A special task force was organised to take action against the ‘mob’ and to arrest persons involved in ‘wild Aryanisations’.25 The Viennese Nazi leaders feared that anti-Jewish actions could not be controlled by the authorities and might endanger public order. They intended to prevent any trouble in view of the forthcoming plebiscite, which they wished to present as a ‘normal and legal’ election. Finally, and probably most importantly, Burckel ¨ intended to confiscate most of the Jewish property for the benefit of the state and not for the benefit of private individuals.26 In order to halt further uncontrolled confiscations of Jewish property by unauthorised, mostly self-employed ‘commissars’, fixed regulations for ‘Aryanisation’ in Austria seemed inevitable. For some weeks, however, the government was unable to prevent ‘wild Aryanisations’ and the autocratic behaviour of the ‘commissars’. It was a month after the ‘Anschluss’ before a Law Concerning the Appointment of Commissarial Administrators and Supervisory Personnel in Jewish Companies was enacted,27 by which time the German Governor in Austria had finally gained control over the unauthorised ‘commissars’ and their practices. In addition to the independent actions of the Austrian Nazis, the situation had also got out of control because the SS had become equally active. A special SS task force had already come to Vienna in the wake of the German troops in order to organise the first wave of arrests. Political enemies of the new regime, prominent Jewish businessmen such as Baron Louis Rothschild, and representatives of the Jewish community in Vienna were all deported without any legal basis. It immediately became clear that the whole range of persecution measures against the Jews required a legal foundation as a matter of urgency.28 When Burckel ¨ was appointed Commissioner for the Unification of Austria with the German Empire at the end of April 1938, a new phase of anti-Jewish repression began. The political leadership was now concerned with the confiscation of Jewish property. The pogrom-like ‘wild’ and unauthorised ‘Aryanisations’ of the early phase of German rule were

‘Aryanisation’ in Central Europe, 1933–1939

199

stopped. The intention was to stop ‘the elimination of Jews from the Austrian economy and the Aryanisation’ from becoming ‘a specific form of enrichment for incompetent members of the NSDAP and its branches’, as Hermann Goring ¨ pointed out later. On 13 March Austria became part of the German Empire, so that the German government in Berlin assumed legislative responsibility for Austria. In addition, it was decreed that those German laws enacted after that day applied also to Austria, or – as it was now called – the ‘Ostmark’.29 As explained above, by this time several laws and decrees had been passed in the ‘Altreich’ aimed at the social isolation and occupational persecution of Jews, and it was one of the most prominent tasks for those responsible for the ‘harmonisation’ of the Austrian legislation with the ‘Altreich’ to incorporate the anti-Jewish laws. Thus, on the very first day of German rule in Austria it was announced that Jewish ambulance men and other Jewish members of the health service would be replaced by ‘Aryan’ persons. Two days later Seyß-Inquart ordered that all civil servants had to swear allegiance to the ‘Leader of the German Empire and People, Adolf Hitler’. Since it was forbidden to swear in Jews or Jewish ‘half-castes’, this meant that these persons had to leave the service by the end of May, when they were pensioned off.30 Like the German Law for the Restoration of the Professional Civil Service in the ‘Altreich’, its Austrian offspring not only affected the civil service but also the legal profession and the universities. Moreover, Jewish journalists, actors, musicians and other artists were excluded from their professions. Finally, Jews were excluded from the judiciary, and they were taken off the list of lawyers. They were only allowed to carry on their profession in Austria until the end of December.31 In April 1938 a numerus clausus was introduced for Jewish students, while from May 1938 Jewish students could no longer register at Austrian universities. At the same time Jewish pupils had to leave the state schools, so that from then on they could only be educated at special Jewish schools.32 In Vienna about 16,000 pupils were affected by this decree. In August 1938 Jewish doctors lost their certification, while Jewish medical staff were restricted to Jewish hospitals or special Jewish departments of the general hospitals.33 It is difficult to estimate how many Jewish employees were dismissed by Austrian enterprises after the ‘Anschluss’. For the moment we lack data, because detailed studies on the role of Austrian enterprises during the Third Reich have not been published so far. On the other hand, we have evidence that the Viennese Association of Industrialists (Wiener Industriellenverband) informed its members in a confidential circular in summer 1938 that Jews, Jewish half-castes or persons married to Jews should be dismissed in order to ‘push them out of firms as soon as

200

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

possible’. Although this demand was revoked by order of the Governor a few weeks later, it is not known how many Jewish employees had been dismissed in the meantime, because despite the intervention Gentile businesses were not asked to undo any notices. The somewhat chaotic character of the persecution of Jews employed in private businesses as well as the ‘Aryanisation’ of Jewish enterprises can be explained partly by disputes over respective areas of responsibility between the ‘revolutionary’ Seyß-Inquart and the more legalistic Burckel, ¨ and partly by the fact that even in the ‘Altreich’, with its five years’ experience of anti-Jewish legislation, the legal basis for these areas of persecution had not yet been concluded. For the purpose of a ‘controlled Aryanisation’ in Austria Hans Kehrl, a senior official in the Four-Year Plan Office and Goring’s ¨ general adviser, required lists from the Austrian Association of Industrialists containing the names of the most important Jewish firms and other commercial undertakings which might be ‘Aryanised’ in the near future. Simultaneously the Association of Industrialists and the ‘Reichsgruppe Industrie’ were to list the names of those persons, institutions and enterprises that were interested in these Jewish businesses. In addition to the intended informational exercise a correct estimation of these properties was to be carried out by a special trust company.34 All these measures were to be undertaken in collaboration with the Austrian Ministry of Economy and Labour in order to reach a higher degree of concentration and modernisation of the Austrian economy by ‘Aryanisation’ and the liquidation of smaller enterprises. Special commissions for ‘Aryanisation’ organised by Austrian trade associations were to assist the trust company in order to regulate the whole procedure and to prevent ‘Jews willing to sell their properties’ from receiving ‘any amount of money higher than necessary’. The co-operation between different institutions was also intended to prevent firms from the ‘Altreich’ acquiring too large a portion of the booty. In addition, a decree was issued aimed at limiting German influence in the ‘Aryanisation’ of Austria.35 But this did not prevent institutions from the ‘Altreich’ such as the Dresdner Bank and its Viennese daughter, the Mercur Bank (later the L¨anderbank), attempting to get involved in this process as soon as possible. Only a week after the ‘Anschluss’ the Dresdner Bank sent a circular to all branches, in which it offered its advice and assistance to those of its customers in the ‘Altreich’ who were interested in acquiring Austrian Jewish companies.36 Despite the on-going ‘Aryanisation’ in the ‘Altreich’ itself a large number of firms was interested in acquiring Jewish businesses in Austria. Unfortunately, files about the role of the German banks in the ‘Aryanisation’ process in Austria and about the profits derived are not available, and it is not certain

‘Aryanisation’ in Central Europe, 1933–1939

201

whether banks played as important a role in Austria as they did in the ‘Altreich’. The reason for the banks’ possibly minor role was a particularly Austrian institutional arrangement which aimed at controlling the ‘Aryanisation’ process. According to a decree for the Registration of Jewish Property introduced in April 1938, Jews had to register all assets and property values exceeding 5,000 Reichsmarks. Moreover, the sale of commercial or agricultural undertakings required authorisation if a Jew was involved in the deal. The institution where Jewish properties had to be registered and which permitted their sale and purchase was the Property Transfer Office (Vermogensverkehrsstelle, ¨ VVST), which had been established in May 1938 and which was affiliated to the Austrian Ministry of Economy and Labour. This institution, which was headed by Walter Rafelsberger, the party economic adviser in Vienna, gained control over the whole process of elimination of the Jews from the Austrian economy. In November 1939 the VVST was renamed the ‘Clearing Office’ (Abwicklungsstelle) and later it was incorporated into the administration of the German Governor in Vienna (Reichsstatthalterei in Wien) as ‘Referat III Entjudung’.37 The establishment of the VVST guaranteed that the practice of unauthorised ‘Aryanisations’ finally came to an end. Through the direct involvement of both the ‘State and Economy’ Department of the Governor’s Office and the Ministry of Economy and Labour, the state asserted control over the ‘Aryanisation’ process, a situation very different from that in the ‘Altreich’. This does not mean, however, that the formerly unauthorised ‘confiscations’ of Jewish property were revoked. On the contrary, the majority of cases were a posteriori legalised by the VVST. Moreover, the VVST continued to sell ‘Aryanised’ property to ‘meritorious’ party members under the most favourable conditions.38 Another important institution in the state-regulated Austrian ‘Aryanisation’ was the Kontrollbank fur ¨ Industrie und Handel and its ‘Aryanisation department’, which was established by a decree of the Ministry of Economy and Labour. This bank had to organise the transfer of large Jewish companies into ‘Aryan’ hands. Contrary to the situation in the ‘Altreich’, where the buyer paid the price directly to the Jewish seller on the basis of a contract between the two which was only subject to approval by the local party economic adviser, the Kontrollbank sold the company to the applicant for the market value and paid the Jewish proprietor only the proceeds or gains from liquidation. The difference, less the Kontrollbank’s fees, was credited to the Reich.39 In the case of Jewish private banks the same task was pursued by the Wiener Giro- und Kassenverein, which organised the administration and liquidation, and in some cases the sale, of these banks.40 However, by November 1938 the situation was again out of

202

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

control. At least twenty-seven Jewish men were killed during the pogrom in Vienna, which contributed almost a third of all ‘Kristallnacht’ murder victims. Local Nazis arrested hundreds of Jewish businessmen and looted nearly all the still-existing Jewish shops, regardless of whether they were administered by commissars or figured in the process of ‘Aryanisation’. Burckel ¨ himself estimated the number of ‘Jewish businesses’ that were closed as a result of these excesses at some 5,000.41 In February 1939 Rafelsberger presented the results of his ‘Aryanisation’ and liquidation activities. According to his report there were about 26,000 Jewish companies in March 1938. By early 1939 about 4,000 companies had been ‘Aryanised’ and some 13,500 had been liquidated. A large number of Gentile industrialists, artisans and shopkeepers (very often, but not exclusively, members of the NSDAP), institutions of the Nazi government, prominent Austrian and German enterprises and banks had enriched themselves by this process.42 As a result, the tight co-operation between the institutions of the Nazi government in Austria, especially the VVST, and several associations of commerce and industry, as well as the unlimited profit-seeking of the greater part of Austrian ‘Aryan’ middleclass industrialists, ‘guaranteed’ a quicker exclusion of the Jews from the economy in Austria than in the ‘Altreich’. To a certain extent Austria had even anticipated certain developments which were introduced in the ‘Altreich’ only later. This was particularly true of the registration of Jewish property and the enforced ‘Aryanisation’ by authorised trustees.43 Institutions like the VVST and the Kontrollbank were not established in the ‘Altreich’, probably because by November 1938 there were too few Jewish businesses left, so that the time for creating such institutions had passed. The Sudeten area and the ‘Austrian lesson’ At about the same time as the persecution of the Jews in the ‘Altreich’ neared its pre-war climax, at a conference in Munich in September 1938 Germany, Italy, Britain and France agreed to separate the so-called ‘Sudetenland’ from Czechoslovakia. This consisted of those border areas of Czechoslovakia which were predominantly populated by Germans. As specified by the so-called Munich agreement German troops occupied the Sudeten area in early October. Like Austria, this borderland of nearly 29,000 square kilometres and more than 3.6 million inhabitants was then immediately annexed by the German Reich.44 The number of Jews affected by these events can only be estimated. In 1930 the last census in the First Czech Republic listed 27,073 Jews living in those areas which later became the ‘Sudetengau’. Between 1930 and 1938 the number of Jews

‘Aryanisation’ in Central Europe, 1933–1939

203

probably did not change substantially. As with the ‘Altreich’ and Austria an unknown number of persons must be added to the 27,000 members of the Jewish religious community who were defined as ‘non-Aryans’ by the ‘Aryan paragraph’ of the Law for the Restoration of the Professional Civil Service and the Reich Citizenship Law respectively, but who had been baptised or had left the Jewish community for other reasons.45 In addition, an unknown number of German (‘Reichsdeutsche’) and Austrian Jews lived in the border areas in 1938. They had fled their home country after the seizure of power by the Nazis.46 However, for these persons Czechoslovakia was only a transit country before emigration to countries which were supposed to be safe. The majority of Jews in the Sudeten area considered themselves Germans and the occupational and social structures of the Jews corresponded to those in the ‘Altreich’. A contemporary memorandum reported: ‘As to occupations, [the Jews are] industrialists, merchants, lawyers, physicians and white-collar employees; other occupations are only poorly represented. Generally the Jews are an urban element.’47 Even before the Munich agreement the plight of the Jews in the Czech borderlands had deteriorated. The latent anti-semitism of many Sudeten Germans had been inflamed by the propaganda from the ‘Altreich’, so that discrimination against Jewish citizens turned at times into violent excess. During the summer of 1938 anti-semitic riots sprang up regularly. In Eger, Karlsbad and Asch Jewish shops were demolished and the towns of Warnsdorf and Komotau were declared ‘free of Jews’.48 For that reason, and because of the fate of their Austrian co-confessionals, many Jews had fled from the borderlands into central Czechoslovakia in the expectation of a German occupation. The terror, which started immediately after the ‘Anschluss’, induced the majority of the remaining Jews to flee to the remaining territory of Czechoslovakia, leaving most of their property behind. In May 1939 only 2,300 Jews were registered in the Sudeten area.49 In October 1938 the terror in the annexed former Czech borderlands was first directed at Czech nationalists and other political opponents of the ‘Anschluss’. Very soon, however, the remaining Jewish population became an object of persecution too. At this time measures were still directed towards emigration. There is evidence from several towns that in October the Gestapo were forcing Jewish citizens to sign a declaration containing an obligation to leave the territory of the ‘Reich’ within six days. The pressure was intensified by police and Gestapo raids connected with ‘subversive elements’ and ‘stolen goods’. In cases of ‘suspicion’ Jewish citizens were handed over to the ‘Gestapo-Leitstelle’. Those who survived the arrest often fled the country within hours, leaving everything behind.50

204

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

As in post-‘Anschluß’ Austria, the Minister of Interior ordered that those German laws and decrees enacted after 10 October applied to the Sudeten area also. Other laws were then speedily introduced, with antiJewish laws being among the most prominent. As soon as the German civil service was installed, the Decree for the Introduction of the Press Law in the Sudeten German Areas was issued.51 From then on only ‘Aryan’ journalists were allowed to remain in their profession. In a similar manner the Reich Chamber of Culture was introduced from which Jewish artists were excluded. The Decree for the Introduction of the Nuremberg Laws in the Sudeten Area of December 1938 formed the basis for the persecution of Jews on all levels including business. During the following months several executive orders specified the sectors of business and social life from which Jews were excluded. In May 1939, for example, executive orders under the Reich Citizenship Law cancelled the licences of doctors, veterinary surgeons and pharmacists.52 Compared with both the ‘Altreich’ and Austria the ‘cleansing’ of those occupations where Jews were said to have been over-represented was extremely rapid. There were three reasons for this. First, the ‘cleansing’ was undertaken twice so that the risks to the functioning of certain services or business sectors could be assessed properly. Second, and contrary to the former cases, a large majority of Jews had already left the country before the anti-Jewish legislation had been applied, so that many professions were already almost ‘free of Jews’. Third, decrees such as that for the Exclusion of Jews from German Economic Life, which had been issued in the ‘Altreich’ after the pogrom of November 1938, and which were introduced in the Sudeten area at the same time,53 eased the way for the elimination of Jews from business and social life in the Sudeten area at the earliest possible stage, whereas in the ‘Altreich’ it had taken more than five years. Simultaneously with the exclusion of Jews from certain professions the ‘Aryanisation’ of Jewish businesses started. Even before the whole territory was occupied, the leader of the Sudeten German Party in Karlsbad said that the disappearance of all Jewish shops in the town was desirable.54 By this time, however, the vision had to a large extent become a reality. Unlike in the ‘Altreich’ and Austria in the early period of Nazi rule, many Jewish shopkeepers and businessmen had fled the country and left their businesses behind. The fact that the property appeared ownerless substantially facilitated its takeover.55 This can be exemplified by the situation in Teplitz-Schonau. ¨ About 3,200 Jews lived in the town before the ‘Anschluss’. Many were entrepreneurs and shopkeepers: 89 industrial enterprises (out of 213) and the majority of the shops belonged to Jews or Jewish families. A few days after the occupation many firms were

‘Aryanisation’ in Central Europe, 1933–1939

205

abandoned and 511 villas and houses were empty, because the Jewish proprietors had left the country.56 In the following days and weeks ‘wild Aryanisations’ started. Members of the Sudeten German Party in particular tried to take possession of Jewish property. ‘Old soldiers’ regarded this enrichment as compensation for their commitment during the ‘Kampfzeit’. From the experience in Austria the German government knew very well that it had to step in at an early stage in order to control the situation. In addition, the party’s reputation had seriously suffered thanks to the ‘self-service’ of the ‘old soldiers’. Thus, the Minister of Interior instructed the leader of the Sudeten German Party, Konrad Henlein, that any illegal steps against Jewish enterprises, including the unauthorised appointment of trustees and the freezing of bank accounts, must be stopped immediately and even revoked if necessary. The leaders of the party were personally held liable for the fulfilment of the order. However, by the Decree for the Exclusion of Jews from German Economic Life of November 1938 the process was radicalised. Henlein ordered in January 1939 that ‘commissars’ had to be appointed for those Jewish enterprises in the Sudeten area where the proprietor and the management were absent, or where for other reasons a proper management was not guaranteed. As this condition held for almost all Jewish enterprises, at the end of 1939 about 150 businesses in the district of Troppau, about 800 in the district of Aussig and about 1,000 in the district of Eger were run by such ‘commissars’.57 In addition, those ‘commissars’ who had been appointed during the first weeks after the ‘Anschluss’ were recognised by the presidents of the respective district administrations. By this means early ‘wild Aryanisations’ were legalised, but unauthorised steps in future were prevented. The way was thus paved for a ‘well-ordered’, that is, a state-controlled and seemingly ‘legal’, economic persecution. District administrations took control of private property too, a decree of early December 1938 ordering Jewish property to be registered at the district level. Wilhelm Sebekovsky, president of the Eger district, brought this decree to bear by obliging Jews living in the district to register their private property between 1 December 1938 and 31 January 1939. When the registration process was concluded a systematic expropriation began. The regional parliaments (‘Landr¨ate’) were responsible for the ‘Aryanisation’ of the retail trade in their counties. Governor Henlein and the presidents of the districts ‘Aryanised’ the other branches with the exception of those items which were confiscated by the Gestapo and assigned to the tax offices in Karlsbad or Troppau.58 In January 1939 Wilhelm Sebekovsky introduced the following guidelines for the treatment of Jewish businesses:

206

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

a. Retail businesses and mail-order firms had to be closed on principle. b. Factories, wholesale traders, hotels and spas should be run by ‘Aryan’ businessmen only. c. Applicants from the ‘Altreich’ required permission from the Reich Economics Ministry to take possession of Jewish enterprises in the Sudeten area.59 Those persons who were interested in the ‘Aryanisation’ of a Jewish enterprise but could not afford to buy it were able to apply for credit, a so-called ‘Aryanisation credit’. In September 1939 the party economic adviser in the Sudeten area, Wolfgang Richter, reported the rules by which such credits were granted. First priority was given to the political assessment of the applicant, while entrepreneurial skills or business experience were less important.60 In order to pretend legality, formal juridical rules were considered. The Chamber of Commerce of the Sudeten area, for example, ‘recommended’, in January 1939, that ‘with regard to the Aryanisation of all industrial enterprises it is necessary on principle that the Jew or his authorised agent signs a contract with the applicant for the sale of the enterprise’. In those cases where signed contracts did not exist, the president of the district had to appoint a trustee or re-establish the former ‘commissar’. The trustee had to run the business and organise the sale according to the guidelines. However, this legalistic procedure scarcely prevented the uninhibited enrichment of ‘old soldiers’ because, in the case of smaller businesses in particular, the trustee, the applicant and the buyer were often the same person.61 As in Austria, with the medium-sized and larger businesses only a few Sudeten German entrepreneurs finally succeeded in taking over Jewish enterprises. As Wolfgang Richter pointed out, the ‘Aryanisation’ of industrial enterprises started only slowly, because Sudeten German applicants were lacking.62 The main reason for this reluctance was the fact that until mid-1938 Czechoslovakia had not yet overcome its economic crisis, so that entrepreneurs lacked the resources for larger investments. In this respect applicants from the ‘Altreich’ and to a certain extent even from the former Austria were in a better position. The problem was, however, that Nazi propaganda had regarded ‘Aryanisation’ as some sort of restitution for the Sudeten German population. From this point of view the booty could not be distributed among ‘Aryan’ citizens of the new Reich, but among native Sudeten Germans only. The reality was, however, different. The Ministry of Economy and Goring’s ¨ Four-Year Plan Office were particularly concerned about keeping big business going, especially in the case of the armaments industry. For that reason the principal banks and big business from the ‘Altreich’, which were in a position to guarantee the

‘Aryanisation’ in Central Europe, 1933–1939

207

least friction, profited most from the ‘Aryanisation’ of medium-sized and large enterprises – apart of course from the tax offices. On the other hand, many Sudeten Germans complained quite openly about the ‘neglect’ of their interests, as the Security Service of the SS in the Sudeten area repeatedly reported.63 Only about a year after the occupation the process of ‘Aryanisation’ and liquidation of Jewish businesses in the Sudeten area seems to have been concluded. The Department of Restitution and Aryanisation (Wiedergutmachungs- und Arisierungsabteilung) had finished its work by late September 1939.64 Unfortunately, a statistical statement similar to the Rafelsberger report in Austria does not exist. According to Swiss sources which cited the Jewish Record, a New York periodical of 1940, expropriated Jewish property had been worth about 870 million Reichsmarks. Given the aggregate Jewish property of 12,000 million RM in the ‘Altreich’ in 1933, this estimate is probably too high. Other calculations which estimate the ‘Aryanised’ property in the Sudeten area at about 400 million RM seem more realistic.65 Regardless of the absolute size, the estimated share of 12 per cent (48m of 400m RM) apparently taken by Sudeten Germans is a telling example of the importance of ideology in this process. But even if Sudeten Germans received only a small share of the booty, many businessmen or enterprises profited indirectly from the persecution of their Jewish (and national Czech) competitors, since the majority of these businesses was liquidated and competition consequently decreased. Although we lack data, it seems probable that the distribution between ‘Aryanised’ and liquidated businesses was very similar to the Austrian case, where the Rafelsberger report had counted about 75 per cent as liquidated businesses. Since these liquidated businesses were mostly small firms, the long-term effect of ‘Aryanisation’ and liquidation of Jewish enterprises was a modernisation of the economic structure of the Sudeten area, which was quite different from the middle-class ideology of the Nazi movement. The allocation of the booty This comparison of the exclusion of Jewry from business life in Germany, Austria and the annexed part of Czechoslovakia has tried to show that the radicalisation of the process was largely determined by, first, whether or not the regime was firmly in the saddle, and second, whether or not a substantial part of the Gentile population expected to participate in the distribution of the booty. In the early years after the seizure of power by the Nazis in Germany uninhibited enrichment was not at all socially tolerated behaviour even towards Jewish businessmen. Such conduct was

208

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

at this time largely confined to social outsiders, like many of the ‘old soldiers’. At the same time the regime was still not firmly established, so that first it had to compromise with the conservative old elite, and, second, any setback in the process of economic recovery had to be prevented at all costs. This particular situation resulted in a certain restraint as regards anti-Jewish legislation after the ‘revolutionary’ year of 1933. However, the ‘Aryanisation’ threat from below prevented the stabilisation of many ‘Jewish’ businesses even when the economic crisis had been overcome in large parts of the rest of the economy. For different reasons (such as anti-semitism, cut-throat competition or simply opportunism) a ‘Jewish sector’ of the economy was created in the first place by business partners and customers and not by legal device. As soon as such a sector was created and isolated from the rest of the economy, it was no longer a risk to close it down altogether, especially since full employment had been achieved by 1936, while almost all neighbouring countries were still suffering from the Depression. The reluctance of the state and the polycratic chaos of responsibility for the exclusion of Jewry from the economy, however, facilitated the start of a race for ‘Aryanisation’ run by private individuals. The exchange of ‘ordinary’ business standards for uninhibited enrichment by a large part of the German population was the ‘model’ which was radicalised immediately after the ‘Anschluss’, both in Austria and in the Sudeten area. This model was, however, neither the result of plans by bureaucrats nor of orders from Berlin, nor, as Hans Safrian has recently put it, did it ‘spring out of the head of technocrats like the goddess Athena from the head of Zeus. To be sure, plans did exist . . . [but] these plans were utilised as a cover for policies that had to reconcile the outcome of the massive spoliation’ on the part of both old Nazis and many ‘ordinary’ civilians.66 Since plans scarcely mattered, the state profited only partly from the ‘Aryanisation’ of ‘Jewish businesses’. The government had to prepare for war and consequently it had to stop the enthusiasm of ‘people’s comrades’ in order to regain the initiative. This occurred only after the end of 1938, when the ‘Aryanisation’ of business in the ‘Altreich’ and in Austria was already almost concluded. In this sense, the six months in which the Sudeten area followed after Austria was crucial. Here, the state’s share of the booty was exceptionally large.     1. R. Bessel, Political Violence and the Rise of Nazism. The Storm Troopers in Eastern Germany, 1925–1934 (New Haven, 1984), p. 107; A. Barkai, Vom Boykott zur ‘Entjudung’ (Frankfurt/Main, 1988), p. 33; I. Kershaw, Der NS-Staat (Reinbek, 1988), p. 184; L. Herbst, Das nationalsozialistische Deutschland

‘Aryanisation’ in Central Europe, 1933–1939

2.

3.

4. 5.

6. 7.

8.

9. 10. 11.

12.

209

(Frankfurt/Main, 1996), p. 73; P. Longerich, Politik der Vernichtung (Munich, 1998), pp. 30–4. For the boycott see Barkai, Boykott, pp. 26–35; G. Plum, ‘Wirtschaft und Erwerbsleben’, in W. Benz (ed.), Die Juden in Deutschland 1933–1945 (Munich, 1993), pp. 272–80; Longerich, Politik der Vernichtung, pp. 34–9. H. A. Strauss, ‘Jewish Emigration from Germany. Nazi Policies and Jewish Responses’, in Leo Baeck Institute Yearbook [LBYB], 25 (1980), 326; J. Wetzel, ‘Auswanderung aus Deutschland’, in Benz, Juden, p. 414; S. Friedl¨ander, Das Dritte Reich und die Juden. Die Jahre der Verfolgung 1933–1939 (Munich, 1998), pp. 27, 75. Gesetz zur Wiederherstellung des Berufsbeamtentums, Reichsgesetzblatt (RGBl), 1933 Nr. 34, p. 175; see also H. Mommsen, Beamtentum im Dritten Reich (Stuttgart, 1966), pp. 39–61; S. Muhl-Benninghaus, ¨ Das Beamtentum in der NS-Diktatur bis zum Ausbruch des Zweiten Weltkrieges (Dusseldorf, ¨ 1996), pp. 27–55. Erste Verordnung zur Durchfuhrung ¨ des Gesetzes zur Wiederherstellung des Berufsbeamtentums, RGB1, p. 195. D. Niederland, ‘The Emigration of Jewish Academics and Professionals from Germany in the First Years of the Nazi Rule’, LBYB, 33 (1988), 291; S. Friedl¨ander, ‘The Demise of the German Mandarins. The German University and the Jews 1933–1939’, in C. Jansen et al. (eds.), Von der Aufgabe der Freiheit. Fs. Hans Mommsen (Berlin, 1995), p. 69. D. Ziegler, ‘Die Verdr¨angung der Juden aus der Dresdner Bank’, Vierteljahrshefte f¨ur Zeitgeschichte, 47 (1999), 187–216. Gesetz uber ¨ die Zulassung zur Rechtsanwaltschaft, RGBl, 1933 Nr. 36, p. 188; see also D. Blasius, ‘Zwischen Rechtsvertrauen und Rechtszerstorung. ¨ Deutsche Juden 1933–1935’, in D. Diner (ed.), Zerbrochene Gesellschaft (Frankfurt/Main, 1991), p. 130; K. Jarausch, ‘Jewish Lawyers in Germany, 1848–1938. The Disintegration of a Profession’, LBYB, 36 (1991), 181–2. ¨ Verordnung uber ¨ die Zulassung von Arzten zur T¨atigkeit bei den Krankenkassen, RGBl, 1933 Nr. 42, pp. 222–3; Verordnung uber ¨ die Zulassung von Kriegsteilnehmern zur a¨ rztlichen T¨atigkeit bei den Krankenkassen, RGBl, 1933 Nr. 49, p. 260; see also Friedl¨ander, Drittes Reich, pp. 42–3. ¨ Gesetz gegen die Uberf ullung ¨ der deutschen Schulen und Hochschulen, RGBl, 1933 Nr. 43, p. 225. H. Genschel, Die Verdr¨angung der Juden aus der Wirtschaft im Dritten Reich (Berlin, 1966), pp. 60–96, 120–38; Barkai, Boykott, pp. 65–121. Reichsburgergesetz, ¨ RGBl, 1935 Nr. 100, p. 1146; see also B. Losener, ¨ ‘Als Rassereferent im Innenministerium’, Viertelsjahrshefte f¨ur Zeitgeschichte, 3 (1961), 264–313; J. Noakes, ‘Wohin gehoren ¨ die Judenmischlinge? Die Entstehung der ersten Durchfuhrungsverordnung ¨ zu den Nurnberger ¨ Gesetzen’, in B. Buttner ¨ (ed.), Das Unrechtsregime, vol. II (Hamburg, 1986), pp. 69–89. A. Fischer, ‘Judische ¨ Privatbanken im “Dritten Reich” ’, Scripta Mercaturae, 28 (1994), 1–54; C. Kopper, Zwischen Marktwirtschaft und Dirigismus. Bankenpolitik im ‘Dritten Reich’ 1933–1939 (Bonn, 1995), pp. 220–91; K. Ulrich, Aufstieg und Fall der Privatbankiers (Frankfurt/Main, 1998), pp. 320–32.

210

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

13. Strauss, ‘Emigration’, p. 342; A. Barkai, ‘ “Schicksalsjahr 1938”. Kontinuit¨at und Versch¨arfung der wirtschaftlichen Ausplunderung ¨ der deutschen Juden’, in Buttner, ¨ Unrechtsregime, p. 48. 14. The best general overview of the ‘Aryanisation’ process is still Barkai, Boykott. See also F. Bajohr, ‘Nationalsozialismus und Korruption’, Mittelweg, 36 (1) (1998), 57–77; F. Bajohr, ‘Verfolgung aus gesellschaftsgeschichtlicher Perspektive. Die wirtschaftliche Existenzvernichtung der Juden und die deutsche Gesellschaft’, Geschichte und Gesellschaft, 26 (2000), 629–52. For big business see P. Hayes, Big Business and ‘Aryanization’ in Germany 1933–1939’, Jahrbuch f¨ur Antisemitismusforschung, 3 (1994), 254–81; and among the large number of regional studies F. Bajohr, ‘Arisierung’ in Hamburg (Hamburg, 1997), is outstanding. 15. H. Wixforth and D. Ziegler, ‘Deutsche Privatbanken und Privatbankiers im 20. Jahrhundert’, Geschichte und Gesellschaft, 23 (1997), 231. 16. Barkai, Boykott, pp. 126–7; Friedl¨ander, Drittes Reich, pp. 257–8. 17. B. Lorentz, ‘Die Beteiligung der Commerzbank an der “Arisierung” im Altreich’, mimeo, 2000; D. Ziegler, ‘Die wirtschaftlichen Verfolgungsmaßnahmen gegen die deutschen Juden (1933–1938) und die deutschen Großbanken’, mimeo, 2000. 18. D. van Laak, ‘Die Mitwirkenden bei der “Arisierung”. Dargestellt am Beispiel der rheinisch-westf¨alischen Industrieregion 1933–1940’, in U. Buttner ¨ (ed.), Die Deutschen und die Judenverfolgung im Dritten Reich (Hamburg, 1992), pp. 231–57; F. Bajohr, ‘ “Arisierung” als gesellschaftlicher Prozeß. Verhalten, Strategien und Handlungsspielr¨aume judischer ¨ Unternehmer und “arischer” Erwerber’, in Fritz Bauer Institute (ed.), ‘Arisierung’ im Nationalsozialisimus (Frankfurt, 2000), pp. 15–30; see also G. Kratzsch, Der Gauwirtschaftsapparat der NSDAP. Menschenf¨uhrung – ‘Arisierung’ – Wehrwirtschaft im Gau Westfalen-S¨ud (Munster, ¨ 1989). 19. Verordnung zur Wiederherstellung des Straßenbildes bei judischen ¨ Gewerbebetrieben, RGBl, 1938 Nr. 189, p. 1581; see also G. Feldman, ‘Reichskristallnacht and the 11. Verordnung zum Reichsburgergesetz. ¨ The Politics of Damage Control’, mimeo, 2000. 20. Verordnung uber ¨ die Suhneleistung ¨ der Juden deutscher Staatsangehorigkeit, ¨ RGBl, 1938 Nr. 189, p. 1579; see also Barkai, Boykott, pp. 150–1. ¨ 21. J. Moser, ‘Die Katastrophe der Juden in Osterreich 1938–1945, ihre ¨ Voraussetzungen und ihre Uberwindung’, in Studia Judaica Austriaca, vol. V (Eisenstadt, 1977), p. 67; E. Weinzierl, ‘Christen und Juden nach der ¨ NS-Machtergreifung in Osterreich’, in R. Neck and A. Wandruszka (eds.), Der Anschluss 1938. Protokoll des Symposiums in Wien am 14. und 15. M¨arz 1978 (Munich, 1981), p. 197; H. Witek, ‘Arisierungen in Wien. Aspekte nationalsozialistischer Enteignungspolitik 1938–45’, in E. Talos, E. Hanisch and ¨ W. Neugebauer (eds.), NS-Herrschaft in Osterreich 1938–45 (Vienna, 1988), p. 200. 22. Friedl¨ander, Drittes Reich, p. 264; W. H¨ausler, ‘Das Jahr 1938’, in Dokumentationsarchiv des osterreichischen ¨ Widerstands (ed.), Der ‘Anschluss 1938’. Eine Dokumentation (Vienna, 1988), p. 86. 23. H. Safrian, Die Eichmann-M¨anner (Vienna, 1993), p. 36.

‘Aryanisation’ in Central Europe, 1933–1939

211

¨ 24. Weinzierl, ‘Christen und Juden’, p. 202; J. Moser, ‘Osterreichs Juden unter der NS-Herrschaft’, in E. Talos et al., NS-Herrschaft, p. 187; H¨ausler, ‘Das Jahr 1938’, p. 87; see also the report of an eye witness: G. E. Geyde, Die Bastionen fielen. Wie der Faschismus Wien und Prag u¨ berrannte (Vienna, 1947), pp. 291ff. 25. The Reich Plenipotentiary for Austria, Wilhelm Keppler, was instructed by the Reich Economics Ministry on 21 March 1938 as follows: ‘Wie mir der Herr Reichswirtschaftsminister mitteilt, werden in Wien judische ¨ Gesch¨afte teils durch wilde Gruppen geschlossen, teils von NS-Hago-Stellen und a¨ hnlichen Stellen als von ihnen weitergefuhrt ¨ bezeichnet. Auch sonst finden wilde Arisierungen von Firmen . . . statt. Der Herr Reichswirtschaftsminister hat mich daher gebeten, Sie zu ersuchen, gegen dieses unbefugte Vorgehen einzuschreiten und dafur ¨ Sorge zu tragen, dass derartige Arisierungen un¨ terbleiben. Die erforderlichen Massnahmen gegen die Uberfremdung des Wirtschaftslebens werden nach der Volksabstimmung durch den Herrn Reichswirtschaftsminister auf gesetzlicher Grundlage getroffen werden.’ Already before this an order had been released by the party leader Burckel ¨ on 14 March 1938 that ‘Beschlagnahmungen, Enteignungen oder Verhaftungen durch Parteigenossen oder SA-M¨anner sind, sofern sie nicht unter ausdrucklicher ¨ Zustimmung des Gauleiters oder SA-Gruppenfuhrers ¨ von Wien erfolgen, auf das Strengste untersagt. Eigenm¨achtige Zuwiderhandlungen werden bestraft.’ Dokumentationsarchiv, Der ‘Anschluss 1938’, pp. 424, 439. 26. Witek, ‘Arisierungen in Wien’, p. 226. ¨ 27. Gesetzblatt f¨ur das Land Osterreich, 80 (1938). 28. See Befehl des Reichsfuhrers ¨ SS und Chefs der deutschen Polizei, Hein¨ rich Himmler, betreffend den Sonderauftrag Osterreich, vom 11. 3. 1938, in Dokumentationsarchiv, Der ‘Anschluss 1938’, pp. 313–14; see also Weinzierl, ‘Christen und Juden’, pp. 202–3; H¨ausler, ‘Das Jahr 1938’, p. 89. ¨ 29. Gesetz uber ¨ die Wiedervereinigung Osterreichs mit dem Deutschen Reich vom 13. M¨arz 1938, in RGBl, 1938 Nr. 21, pp. 237–8; Erster Erlass des Fuhrers ¨ und Reichskanzlers uber ¨ die Einfuhrung ¨ deutscher Reichsgesetze in ¨ Osterreich vom 15. M¨arz 1938, in RGBl, 1938 Nr. 25, pp. 247–8. 30. RGBl, 1938 Nr. 24, pp. 245–6; and Verordnung zur Neuordnung des ¨ Osterreichischen Berufsbeamtentums vom 31.5.1938, in RGBl, Nr. 87, 1 June 1938, p. 607. 31. Funfte ¨ Verordnung zum Reichsburgergesetz ¨ vom 27. September 1938, RGBl, 1938 Nr. 165, p. 1403. 32. Verordnung uber ¨ Angelegenheiten der Rechtsanw¨alte, Verteidiger, Notare ¨ und Patentanw¨alte in Osterreich, RGBl, 1938 Nr. 47, pp. 353–4; see also Kundmachung des Rektorats der Universit¨at Wien vom 25.4.1938; Kundmachung des Rektorats der Universit¨at Wien vom 2.5.1938; Erlass des osterreichischen ¨ Unterrichtsministeriums vom 13.5.1938; Weinzierl, ‘Christen und Juden’, p. 203; H¨ausler, ‘Das Jahr 1938’, p. 90. 33. Vierte Verordnung zum Reichsburgergesetz ¨ vom 25. Juli 1938, RGBl, 1938 Nr. 122, p. 969; see also Weinzierl, ‘Christen und Juden’, p. 203.

212

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

34. Streng vertrauliches Rundschreiben des Wiener Industriellen-Verbandes vom 29.6.1938, in Dokumentationsarchiv, Der ‘Anschluss’ 1938, p. 565. 35. Verordnung uber ¨ die Beschr¨ankung der Errichtung von gewerblichen Un¨ ternehmungen und Betrieben im Lande Osterreich vom 19. M¨arz 1938, RGBl, 1938 Nr. 30, p. 264. These limitations were at first meant to last until 30 September 1938. See also the letter of Hans Kehrl, General Secretary for Austrian Economic Affairs, to the Reich Economics Ministry, 24 March 1938, RGVA (Rossiskij Gosudarstvennyj Voennyj Archiv), File 1458-2-17, ¨ pp. 21–2; S. Heim and G. Aly, ‘Die Okonomie der Endlosung’, ¨ in Beitr¨age zur nationalsozialistischen Gesundheits- und Sozialpolitik (Berlin, 1987), p. 21. 36. Circular of the Dresdner Bank head office to all branches, 22 March 1938, Historisches Archiv der Dresdner Bank, Aussenstelle Berlin, Konsortial¨ Abteilung, Ordner 19, Arisierungen in Osterreich. ¨ 37. Gesetzesblatt f¨ur das Land Osterreich, 80 (1938), p. 406; see also Witek, ‘Arisierungen in Wien’, p. 203. 38. Witek, ‘Arisierungen in Wien’, pp. 204–5; P. Longerich, Politik der Vernichtung (Munich, 1998), p. 163; W. Kastner, Mein Leben, kein Traum (Vienna, 1982), p. 108. 39. ‘Bald nach Beginn der Entjudungst¨atigkeit in der Ostmark zeigte sich, dass in manchen F¨allen, gerade bei besonders grossen Unternehmungen, deren Erhaltung unbedingt wichtig war, keine Bewerber zu finden waren. Es tauchte daher der Plan auf, fur ¨ diese Unternehmungen ein Auffanginstitut zu verwenden, welches im Auftrag der Behorden ¨ diese Unternehmungen vorl¨aufig in eine Art treuh¨anderisches Eigentum und sp¨ater im Einvernehmen mit den Behorden ¨ zu einem angemessenen Kaufpreis an einen geeigneten Bewerber weiterver¨aussern sollte . . . Als dieses Auffanginstitut wurde im Einvernehmen mit allen zust¨andigen Behorden ¨ der Ostmark . . . die osterr. ¨ Kontrollbank fur ¨ Industrie und Handel, welche zu diesem Zwecke eine eigene Abteilung C errichtete, bestimmt. Anfang August 1938 werde angeordnet, dass alle zu entjudenden Unternehmungen, welche einen Jahresumsatz von ¨ mindestens RM 500.000 haben, zur Uberpr ufung ¨ der finanziellen Grundlage der Kaufvertr¨age an die Kontrollbank gehen sollen’. Clearing Office (Property Exchange Office) to the Reich Economics Ministry, 10 February ¨ 1940, in Osterreichisches Staatarchiv/Archiv der Republik, Burckel-Materie, ¨ 2165/2/9. 40. H. Fischbock, ¨ ‘Das Bankwesen der Ostmark’, Die Deutsche Volkswirtschaft 1940, no. 12, p. 384; Anon., ‘Neue Bankfirma ubernimmt ¨ Rothschild-Wien’, Die Bank, 33 (1940), vol. 14, 223. 41. H. Safrian, ‘Expediting Expropriation and Expulsion: The Impact of the “Vienna Model” on Anti-Jewish Policies in Nazi Germany, 1938’, Holocaust and Genocide Studies, 14 (2000), 400. 42. State Commissar for the Private Economy, Report on the Elimination of Jews ¨ from the Ostmark, Vienna, 1 April 1939, in: OStA/AdR, Burckel ¨ Materie, 2160/00; see also minutes of the conference about the Jewish question headed by Hermann Goring ¨ of 12 November 1938, published in ‘Der Anschluss’ 1938, pp. 575–6. 43. Safrian, ‘Expropriation’, pp. 396–8.

‘Aryanisation’ in Central Europe, 1933–1939

213

44. V. Zimmermann, Die Sudetendeutschen im NS-Staat. Politik und Stimmung der Bev¨olkerung im Reichsgau Sudetenland (1938–1945) (Essen, 1999), pp. 64–7. 45. Ceskoslovensk´a statistika, vol. 98.6: Sc´ıtan´ı lidu v republice Ceskoslovensk´e ze dne 1. Prosince 1930, pt. 1 (Prague, 1930), pp. 82–108; E. SchmidtHartmann, ‘Tschechoslowakei’, in W. Benz (ed.), Dimension des V¨olkermords. Die Zahl der j¨udischen Opfer des Nationalsozialismus (Munich, 1991), pp. 354–6. 46. P. Becher and P. Heumos (eds.), Drehscheibe Prag. Zur deutschen Emigration in die Tschechoslowakei 1933–1939 (Munich, 1992); W. A. Iggers, ‘Die Emigration der deutschen und osterreichischen ¨ Juden in die Tschechoslowakei’, in J. Hoensch et al. (eds.), Judenemanzipation – Antisemitismus-Verfolgung in ¨ Deutschland, Osterreich-Ungarn, den b¨ohmischen L¨andern und in der Slowakei (Essen, 1999). 47. Memorandum der judischen ¨ Kultusgemeinde Prag zur Verfolgung der Juden durch die Henlein-Bewegung in den sudetendeutschen Gebieten, August 1938, cited in P. Heumos, Die Emigration aus der Tschechoslowakei nach Westeuropa und dem Nahen Osten 1938–1945 (Munich, 1989), p. 278. 48. R. Wlaschek, Juden in B¨ohmen. Beitr¨age zur Geschichte des europ¨aischen Judentums im 19. und 20. Jahrhundert (Munich, 1997), p. 68; R. Gebel, ‘Heim ins Reich!’ Konrad Henlein und der Reichsgau Sudetenland (1938–1945) (Munich, 1999), p. 78. 49. Zimmermann, Sudetendeutschen, p. 387. 50. L. Kocourek, ‘Das Schicksal der Juden im Sudetengau im Licht der erhaltenen Quellen’, in M. K´arn´y et al. (eds.), Theresienst¨adter Studien und Dokumente 1997 (Prague, 1998), pp. 86–7. 51. Verordnung uber ¨ die Einfuhrung ¨ des Schriftleitergesetzes in den sudetendeutschen Gebieten, 19.10.1938, RGBl, 1938 Nr. 171, pp. 1447–8. 52. Verordnung uber ¨ die Einfuhrung ¨ des Reichskulturkammergesetzes in den sudetendeutschen Gebieten, 19.10.1938, in RGBl, 1938 Nr. 171, p. 1447; Verordnung uber ¨ die Einfuhrung ¨ der Nurnberger ¨ Rassegesetze in den sudetendeutschen Gebieten, 27.12.1938, in Verordnungsblatt fur ¨ die sudetendeutschen Gebiete 1939, p. 37; Verordnung uber ¨ die Einfuhrung ¨ der Vierten und Achten Verordnung zum Reichsburgergesetz ¨ in den sudetendeutschen Gebieten, 5.5.1939, RGBl, 1939 Nr. 86, p. 880; see also U. Adam, Judenpolitik im Dritten Reich (Dusseldorf, ¨ 1972), pp. 188–91. 53. Verordnung zur Ausschaltung der Juden aus den deutschen Wirtschaftsleben, 12 November 1938, in Verordnungsblatt fur ¨ die sudetendeutschen Gebiete 1938, p. 168. 54. Zimmermann, Sudetendeutsche, p. 388. 55. F. Svatosch, ‘Das Grenzgebiet unterm Hakenkreuz. Die soziookonomischen ¨ Ver¨anderungen Nord- und Nordwestbohmens ¨ w¨ahrend der ersten Phase der hitlerfaschistischen Okkupation (Oktober 1938 bis Mitte 1942)’, Ph.D. thesis, University of Potsdam, 1969, p. 305. 56. P. Wanie, ‘Die Chronik der Stadtgemeinde Teplitz-Schonau ¨ nach der Heimkehr des Sudetenlandes ins Großdeutsche Vaterland’, Statn´ı okresn´ı Archiv Teplice, inv. c. 462, kniha 473, p. 419.

214

Dieter Ziegler, Harald Wixforth and J¨org Osterloh

57. W. Braumandl, Die Wirtschafts- und Sozialpolitik des Deutschen Reiches im Sudetenland 1938–1945 (Nuremberg, 1985), p. 295. 58. Zimmermann, Sudetendeutsche, p. 205. ¨ 59. Judische ¨ Unternehmen. Ausloschung ¨ oder Uberleitung, in Die Zeit. Sudetendeutsches Tageblatt, 25.1.1939, Bundesarchiv Berlin 25.01/3344, Bl. 25. 60. Weisung des Gauwirtschaftsberaters K-4/39, Reichenberg, 3.4.1939, Archiv ´ ı nad Labem, Nacistick´e organizace okresu Ust´ ´ ı nad Labem Mesta Ust´ 1934–1945, kt. 8. 61. Anzeiger der Industrie- und Handelskammer in Eger, Reichenberg und Troppau 16 (1939), H. 5, 1.2.1939, p. 28, cited in Svatosch, ‘Grenzgebiet’, p. 307. 62. Weisung des Gauwirtschaftsberaters K-7/39, Reichenberg, 8.5.1939; St´atn´ı oblastn´ı archiv ve Litomericich, ZV NSDAP, inv. c. 24, kt. 29. 63. M. K´arn´y, ‘Der Holocaust und die Juden in Bohmen ¨ und M¨ahren’, in R. Maier (ed.), Tschechen, Deutsche und der Zweite Weltkrieg (Hanover, 1997), p. 48; Zimmermann, Sudetendeutsche, pp. 198–203. 64. Zimmermann, Sudetendeutsche, p. 205. 65. Svatosch, ‘Grenzgebiet’, pp. 311–12; Zimmermann, Sudetendeutsche, p. 205. 66. Safrian, ‘Expropriation’, p. 404.

10

The Gildemeester Organisation for Assistance to Emigrants and the expulsion of Jews from Vienna, 1938–1942 Peter Berger

Austrian historian Hans Safrian, in his book Eichmann’s Men, is highly suspicious of the subject of this chapter.1 According to Safrian, the Vienna-based Gildemeester Organisation for Assistance to Emigrants (Auswanderungshilfsaktion Gildemeester or Gildemeesteraktion) ‘allegedly’ assisted impoverished Jews in their efforts to leave Germanoccupied Austria.2 It is quite obvious that Safrian shares a feeling of distrust, widespread amongst commentators after 1945, towards philanthropic associations operating on behalf of the Jews on German soil before and during the Holocaust. In our case, scepticism seems the more warranted as Francis (Frank) van Gheel Gildemeester, founder of the agency which afterwards bore his name, initially negotiated deals between rich Jewish families and the German authorities in Austria. These deals, enabling the Jews to leave the territory of the Reich, required them to donate a share of their wealth to a ‘Gildemeester fund’, promoting emigration from Austria of poor ‘non-Aryans’. This clearly smacked of profitable business exploiting the plight of refugees, but under the cloak of charity.3 The purpose of this chapter is to discuss in some detail the motives, achievements and shortcomings of the Gildemeesteraktion.4 To this end I have utilised material from archives in Israel, the United States, Austria and the Netherlands. While this chapter was being prepared, the government of Austria initiated a historical research project to inquire into the ‘precise amount and structure of Jewish fortunes handled under the auspices of Gildemeester’s organisation, between spring 1938 and the beginning of 1941’.5 Such a venture seems highly justified in the context of Austrian policies aiming at the restitution of financial losses incurred by the victims of ‘Aryanisation’ in 1938. Here, however, I will focus on aspects other than expropriation, i.e.: 1. Gildemeester’s personality and the possible reasons for his involvement in helping Jews; 2. the way ‘Gildemeesteraktion’ was organised and its performance before and after a restructuring process in early 1940; 215

216

Peter Berger

3. the obvious discrepancy between Gildemeester’s dream of organised large-scale Jewish settlement in Ethiopia, and the actual fact of Jewish refugees from the Reich ending up in places scattered around the world, without any preconceived scheme. Largely against their will Gildemeester and his collaborators were compelled to contribute to an emerging new diaspora instead of becoming the founding fathers of an African Jewish homeland; and 4. the pressure brought to bear upon the exclusively Jewish staff of an ‘Organisation for Assistance to Non-Religious Jewish Emigrants’, the legal successor of the Gildemeesteraktion from February 1940. This agency had to serve as an instrument of Nazi extermination policies when Jewish emigration became practically impossible by the end of 1941. The philanthropist In December 1938 Frank van Gheel Gildemeester, born on 5 February 1881 at Kattendijke, Holland, wrote about his ancestral roots to a Gestapo officer in Berlin called Berndorf: The proof of myself being an Aryan dates back to the first decree of nobility, issued to my family in 1451 by the Emperor of Austria as Sovereign of the Austrian Netherlands. In 1573 the last female bearer of the name Van Gheel married a certain Gildemeester of Amsterdam, who in turn stemmed from the German Gildemeester dynasty at Bremen. From all this you will see that my work is performed in the vein of the German Reich’s government.6

We can assume that the author of this statement wished to gain the favour of the Gestapo in order to proceed with his philanthropic schemes. Therefore it would be a gross misjudgement to conclude from his claim to ‘racial purity’ that he was a Nazi. Moreover, his references to the family tree were obviously false. Documents at the Central Bureau of Genealogy in The Hague, as well as the Dutch biographical handbook Nederlandsch Patriciaat, tell us that in 1782 a certain Hendrik Gildemeester (chief officer of the Dutch ‘Trading Company to the Levant’) married Albertina Frederika van Gheel.7 A son of the couple, who later became a brewer, Cornelis Jan was by royal decree of 1825 granted the right to use the combined name of Van Gheel Gildemeester. The brewer had three sons, two of whom (George and Theodore) married a pair of sisters from the Twiss family. George became father of a son (Francis) and Theodore father of a daughter (Catherina Quirina). In 1877, these cousins were wed and subsequently had nine children, the third of whom was our Frank van Gheel Gildemeester.

The Gildemeester Organisation

217

Around the turn of the century, Frank’s father Francis seems to have been the most prominent member of a dynasty dispersed over Holland and northern Germany. Having accomplished his studies of Protestant theology at the age of twenty-three he assumed the post of parish priest at Wilhelminadorp. Later he moved to Dalfsen and finally, in 1883, to The Hague.8 After his sudden death in 1929 he was remembered as a gifted, if somewhat controversial, preacher. He had aroused protests among the faithful when in the early 1920s he quoted approvingly from the Protocols of the Wise Men of Zion, a dubious anti-semitic tract fabricated by the Russian secret service. The Jews, according to father Gildemeester, indeed strove to dominate the world.9 It seems one of history’s strange twists that the son of a clergyman who believed in such conspiracy theories, and preached them to his flock, emerged as a benefactor of Viennese Jews in 1938 and 1939. One may only guess about Gildemeester’s motives for devoting his life to humanitarian goals. It is a matter of fact that theological and social professions were frequent among members of his family.10 Also, some significance may be attributed to his early involvement with the Quaker community, probably starting when he lived in Chicago in 1915. Quakers belonged to the pioneers of charitable work in the course of World War I and after. Their agency, called the American Friends’ Service Committee (AFSC), earned worldwide recognition by feeding undernourished Austrians and Germans after the armistice.11 It is no longer possible to find out whether the AFSC was responsible for dispatching Gildemeester to Vienna in 1918, but no doubt he worked there as a member of the relief mission led by future American President Herbert Hoover. Gildemeester’s own testimony that he, ‘from 11th November 1918 onward, contributed to the freeing of political prisoners from Siberia to Cayenne’,12 accords with the memoirs of Dutch journalist Willem Bekaar, written down in 1968. Bekaar recalls Gildemeester’s concern about prisoners shortly after the war ended.13 Nothing is known, however, about his activities during the 1920s and early 1930s. All one can find in the archival sources is that on 4 April 1926 he married a woman named Selita Jacobi, nineteen years younger than himself. The couple were divorced by an officer of the magistracy of Breslau, Germany, as early as 1928.14 There is no later reference to Gildemeester’s brief conjugal episode. Shortly before the incorporation of Austria into Germany (‘Anschluss’) Gildemeester reappeared in Vienna. This fact elicited comments from various witnesses, notably Norman Bentwich of the ‘Council for German Jews’, and the Dutchman Bekaar. To quote Bentwich: ‘A well-meaning but eccentric Quaker, Gildemeester, gained the favour of the Nazis

218

Peter Berger

when he befriended Austrian Nazis gaoled during the Social Democratic regime.’15 Besides committing the gaffe of confusing Austria’s nearfascist leadership with the Social Democrats, Bentwich does not provide much relevant information. Bekaar is more precise when he recalls Gildemeester’s assistance to Austrian National Socialists imprisoned by the Schuschnigg government (but without being certain about its extent).16 Yet another contemporary witness, Jonny Moser, leaves us in no doubt that Gildemeester acted, up to March 1938, as a spokesman of detained Nazi supporters: ‘In the era of the Catholic Corporate State, he went to see Nazis in their prison cells and defended their rights in front of the Austrian authorities.’17 Moser has two sources to back up his claim: one is Gildemeester’s letter to Regierungsrat Berndorf in Berlin, in which the Dutchman mentions 34,000 National Socialists enjoying his help before Austro-German unification. The other document is a handwritten note from Anton Rintelen, a former governor of the province of Styria and participant in the abortive Nazi coup against Austrian Chancellor Dollfuss in 1934. Rintelen expressed his gratitude towards Gildemeester, who apparently consoled him while he was in jail in Stein, Lower Austria, but could not convince the government to release one of its most dangerous opponents.18 It is unclear who incited Gildemeester to offer his good services to beleaguered followers of Hitler. Possibly there was a link to an initiative undertaken by the German Mennonite Benjamin Unruh. Unruh tried to convince the Austrian Quaker network to distribute large sums of money among needy families of imprisoned Nazis. He never disclosed where the money came from – most probably from secret funds of the German government – and the Quakers were therefore hesitant to embrace the scheme. However, the idea of supporting National Socialists prosecuted by the Austrian regime gained increasing popularity in Quaker circles. Many ‘friends’ pointed to the fact that leftist opponents of the Dollfuss government had also received Quaker assistance after the abortive Socialist uprising in February 1934.19 Quakers in Berlin were considering a public appeal to Austrian Chancellor Schuschnigg for the release of all political prisoners. It certainly cannot be ruled out that similar ideas led Gildemeester to intervene on behalf of Anton Rintelen and others of the same political creed. The catastrophe The German occupation of Austria on 12 March 1938 ended the plight of Hitler’s Austrian partisans, but it threw 165,000 Viennese Jews and some 15,000 in other parts of the country into sudden misery. An anti-semitic

The Gildemeester Organisation

219

mob went to ‘work’ without delay: Jews were chased out of provincial towns and villages. In Vienna, they were rounded up to brush anti-Nazi slogans off walls and pavements, under the eyes of amused bystanders. Thousands were driven into jail and at least 213 into suicide,20 while innumerable instances of ‘spontaneous Aryanisations’ (thefts of Jewish property by self-appointed functionaries of the Nazi Party) occurred. On 26 March, Hermann Goring, ¨ at a mass rally at Vienna’s North-Western railway station, asserted the wish of Hitler’s regime to ‘systematically’ expel the Jews.21 Meanwhile, the German authorities closed down all Jewish organisations on former Austrian soil, among them the Jewish Community of Vienna (‘Israelitische Kultusgemeinde Wien’/IKG). Leading figures of the Community went to Viennese prisons and on 1 April were transferred to the Dachau concentration camp. Among the first to be jailed in March were industrialists Moritz and Stefan Kuffner, founders of the well-known Ottakringer brewery and owners of a fortune estimated at 12 million Austrian Schillings.22 A banking firm in which the Kuffner brothers had a stake, Reitler & Co., played a decisive part in initiating the Gildemeesteraktion. The Reitler Bank was a joint venture of foreigners and Austrians. Among the former, Banque Gaston Dreyfus in Paris stood out in importance. It was the Dreyfus bank which, shortly after the German invasion of Austria, hired a lawyer named Dr Heinrich Gallop to lend assistance to Reitler’s domestic Jewish stakeholders. This latter group seems to have found yet another lawyer, of whom only the last name, Pollak, is known. In witnesses’ testimonies after 1945 both Gallop and Pollak were credited with having had the idea to offer German authorities a special contribution amounting to 10 per cent of the Jews’ total assets. The remaining 90 per cent was to be handed over to a trustee appointed by the Reich. As a reward for this, Jewish owners of Reitler & Co. (as well as important clients of the bank) would receive authorisation to leave Germany, and also obtain permission to return occasionally for brief stays, during which urgent business matters could be settled.23 Gallop (or Pollak) obviously presented this scheme to the Ministry of the Economy and Labour, and to the ReichsStatthalterei, and both were enthusiastic about it. The Germans agreed to start with some test-cases, the Kuffners being one. As a result, Moritz and Stefan were released from a Gestapo jail and allowed to depart from Germany, but only after protracted bureaucratic procedures.24 Another outstanding Austrian industrialist was less fortunate. This was Arthur Kuffler, former president of the board of the Mautner textile concern. Kuffler, whose name is sometimes mistaken for Kuffner due to the similarity of spelling, remained in Vienna until he died late in 1940. In the weeks following the Anschluss he belonged to a small but active circle

220

Peter Berger

of prominent Jewish Viennese seeking to find ways to escape not only for the wealthy but also for Jews who possessed little or nothing. Documents in the Austrian State Archives and the results of research undertaken by Jonny Moser suggest that Kuffler obtained permission from the Minister of the Economy, Hans Fischbock, ¨ to attend the international conference on refugees at Evian (6–15 July 1938).25 There he probably met two delegates of a Viennese ‘Committee for non-Aryan Emigration’, Heinrich von Neumann (a famous ear specialist) and Berthold Storfer.26 Their committee sought to establish contacts with Western Jewish institutions such as JOINT or HICEM and to find out about their preparedness to subsidise Austrian e´ migr´es. Kuffler and his friends shared ideas about an organised Jewish exodus from Austria, which, from the outset, closely resembled the concept of lawyers Gallop and Pollak: Efforts were to be directed at providing passports for wealthy Jews who wished to leave Germany. Besides valid IDs and certificates to prove that their taxes had been paid in full, these emigrants sometimes also needed entry visas for countries overseas. In exchange for these documents they would be required to waive all claims to their property, destined to be ‘aryanised’ by the German Reich. 10 percent of the rich Jews’ property would flow into an emigration-fund. By means of this fund, the exodus of poor Jews from Austria was to be financed.27

It seems to have been Arthur Kuffler who acquainted Gildemeester with the plans for a fund for mass emigration. How the industrialist came to know the Dutchman is unclear. But certainly Gildemeester was able to arouse high hopes with Kuffler, because – as a result of his former charitable work – he had excellent relations with leading Nazi figures (Goring, ¨ Fischbock, ¨ Eichmann). Moreover, he boasted of his opportunities to provide overseas immigration permits for a large number of Jews, wealthy and poor alike.28 It seems that as early as March 1938 Gildemeester met Gallop, mentioning again his ability to make foreign visas available.29 At this point, all the separate initiatives to promote Jewish emigration from Vienna merged into one single coherent plan, which was quickly put into practice after the Reich’s Commissioner in Austria (Secretary of State Wilhelm Keppler) and the Ministry of Economy and Labour (State Counsellor Otto Eberhardt30 ) had signalled their approval. Two initial requirements were to be met before the scheme could start to operate. A fund provided with a legal status had to be set up, to handle the 10 per cent special contribution requested from wealthy Jewish emigrants. Moreover, a trustee in charge of remaining Jewish assets had to be appointed by the German authorities. Trusteeship in this case was particularly delicate. The trustee would be responsible to the government for payment in full of all taxes and fees owed by e´ migr´es, amongst others a

The Gildemeester Organisation

221

25 per cent ‘refugee tax’ (Reichsfluchtsteuer) and a 20 per cent tax on Jewish property (Judenverm¨ogensabgabe). He was also expected to assume subsidiary liability for unpaid arrears of Jewish income, property and trade taxes.31 Given these facts it is not surprising that several large banks, when offered the function of trustee, politely declined. One of them was the Viennese L¨anderbank, with whom attorney Gallop negotiated, but in vain: The Bank obviously feared that emigrants after their departure would revoke declarations concerning their assets under trusteeship, claiming they were extracted from them by force. It further suspected that foreign courts would be prone to view such matters in a way different from German legal practice. Moreover, there was the fact of Jewish companies being placed under provisional management of non-Jews. This increased the risk of a trustee who assumed liabilities but was unable to rely on solid predictions of business returns.32

Finally, Bank Krentschker & Co. from Graz (Styria) was appointed trustee for the purposes of the Gildemeesteraktion, by a decree of the State Commissioner for the Private Economy, Walter Rafelsberger, issued on 30 May 1938. This banking firm did not share the doubts of the L¨anderbank, or decided to ignore them in view of the excellent profit opportunities. For Jewish fortunes of up to 300,000 Reichsmarks the trust fee was 3.5 per cent, amounts exceeding 300,000 earning a fee of 3 per cent. However, one technical difficulty arose in connection with real estate abandoned by Jewish emigrants, for the management or sale of which the bank did not wish to take direct responsibility. In order to avoid interference from third parties, two members of the board, Moritz Krentschker and Walter Pramberger, founded a real estate agency. They and two other men, Alexander Rischner and Bernhard Wokaun, were the shareholders, and each of them was supposed to receive 25 per cent of the commission earned on future real estate transactions.33 In concluding agreements with emigrants, Krentschker & Co. availed itself of the services of attorneys at law who, again, were entitled to a proportion of all Jewish assets (1–1.5 per cent). For a short period, Heinrich Gallop acted as the Krentschker Bank’s legal adviser. But soon a partner in Gallop’s law offices, Erich Rajakowitsch (who was a son-in-law of Anton Rintelen), pushed Gallop aside and handled the Gildemeester cases in co-operation with another attorney called Hugo Weber.34 According to a 1946 estimate, the sum total of Jewish assets transferred to trustee accounts at Krentschker Bank by lawyers Rajakowitsch and Weber amounted to 25.7 million Reichsmarks.35 The ‘Gildemeester fund’ to hold special contributions by wealthy emigrant Jews was created more or less simultaneously with Krentschker’s

222

Peter Berger

appointment as trustee, and at any rate before the end of May 1938. The fund possessed at least one bank account, at the Mercur Bank in Vienna, but there were probably others. One of State Secretary Wilhelm Keppler’s prot´eg´es, an SS officer called Fritz Kraus, was appointed as Fondsf¨uhrer. In this capacity Kraus, a native of Vienna who had been a Nazi Party member since 1933, gained control over an estimated 1.7–8 million Reichsmarks.36 The organisation During the earliest stages of the ‘disorderly’ Jewish emigration from Vienna, ending with Gauleiter Burckel’s ¨ creation of the Central Office for Jewish Emigration (Zentralstelle fur ¨ judische ¨ Auswanderung) in August 1938,37 Gildemeester ran a small office in Kohlmarkt, a street in Vienna’s first district. He used stationery displaying the letterhead Gildemeester Auswanderungshilfsaktion fur ¨ Juden (Gildemeester Organisation for Jewish Emigration), and his drawers were probably stuffed with concepts for a large-scale transfer of destitute Austrian ‘non-Aryans’ to Australian and African territories.38 But for the moment he could do no more than deal with a handful of rich e´ migr´es and some impoverished baptised Jews who received money from the Gildemeester fund.39 Matters changed in early September 1938, when an official press release notified Viennese Jews of the existence of an agency called Gildemeesteraktion. This agency, the note said, was to help indigent Jewish emigrants to finance their departure, but also to assist Jews owning 100,000 Reichsmarks or more who wished to leave Austria and were willing to dedicate 10 per cent of their wealth to the aforementioned purpose.40 The Nuremberg laws of 1935 made no distinction between religious Jews and unbelieving ‘racial’ Jews, nor was there any mention of Gildemeester activities being restricted to the latter. This was to become an issue later on. Persons who wished to contact Gildemeester’s office were advised to go to Number 7, Wollzeile, Vienna I, new premises into which Gildemeester had moved in the previous month. In his new Gildemeesterhaus he established a remarkably structured bureaucratic apparatus (figure 10.1). The presidents of the Gildemeesteraktion were Frank van Gheel Gildemeester himself and Arthur Kuffler, who as a formerly influential Jewish figure in Vienna was probably expected to attract rich contributors to the Gildemeester fund. When this aspect lost importance in the course of time, Kuffler was reduced in rank and charged with overseeing the people’s canteen and other charitable activities run by Gildemeester’s organisation. The office manager was Hermann Furnberg. ¨ Born in 1897 in the small town of Eggenburg, Lower Austria, Furnberg ¨ possessed an

The Gildemeester Organisation

223

President Secretary-General OfficeManager

a.Assetmanagement b.IncorporationofnonAryanassetsintothe Gildemeesteremigration fund

Preparingpassportsand documents: a.Saleofquestionnaires andotherforms b.Preliminarycheckof documentsforCentral OfficeofJewish Emigration(Eichmann) c.Preparationsatthe Devisenstelle:transportof luggageandmovable property

Engineersandtechnicians toprepareEthiopian settlementproject

a.Staffmanagement b.Janitor c.Bookkeeping d.Cashier e.Correspondence f.Registry

Documentsconcerning: a.PrisonersatDachau andBuchenwald b.Charitableactivities forJewsinprotective custody

Printingofbrochures andflyers Houserepair Canteen

a.Guidancetoemigrantsin general,dependingon countryofdestination b.Guidancetodoctors wishingtoemigrate c.Housemaidsgoingto England d.Children’stransports e.Applicantsfortravel subsidies

ExternalDepartmentforthe authorisationofdocuments attheCentralOfficefor JewishEmigration,Palais Rothschild,Vienna

Coursesforpracticalskills Homefortheaged Children’sasylum

Figure 10.1 Departmental structure of the Gildemeester office at No. 7 Wollzeile, Vienna, 1938 Source: Leo Baeck Institute New York, Collection Hermann Furnberg ¨ A 17/4.

engineer’s diploma and worked periodically as a farmer, but his interest must have focused on Jewish mass emigration from Europe ever since Hitler seized power in Germany.41 According to the Nuremberg Laws Furnberg ¨ was Jewish, a handicap he tried to conceal by keeping the other Jews on Gildemeester’s staff somewhat arrogantly at arm’s length. Later on we will return to plans he pursued together with Gildemeester for a Jewish settlement in the province of Harrar, Ethiopia. As early as June 1938, Viennese-born businessman Joseph Galvagni became secretary-general of the Gildemeesteraktion. His signature

224

Peter Berger

constantly appears on the organisation’s letters, which illustrates his preponderant influence there. After the war Galvagni’s widow, Anna, told a Dutch journalist that her husband had met Adolf Eichmann at the Central Office for Jewish Emigration almost daily, in order to intervene on behalf of Jewish emigrants. She also said that these Jews had always remained grateful to her husband, even when the war was over, as he had never taken advantage of their suffering: Today I would be a rich woman, if my husband had accepted everything the Jews offered him, just to be allowed to escape quickly. Terrible things happened in Gildemeester’s office. I went there only once. People waited in a line extending from the office door down the stairs almost into the street [Wollzeile]. Furniture, paintings, incredible amounts of money, everything they offered us. The Jews also started trading with Gildemeester’s application forms.42

These application forms were questionnaires needed by applicants for passports, and were sold by the Gildemeesteraktion at a price of 5 Reichsmarks per document. Thus Gildemeester’s office engaged in trading, but, contrary to Mrs Galvagni’s allegations, its Jewish clients did not. Would-be emigrants were expected to answer questions about their date and place of birth, school careers and language proficiency, and to indicate their preferred country of refuge. Filling in the questionnaire was for all those who desired to leave the first stage of an extended bureaucratic procedure. If all went well, it ultimately led to what official documents called ‘preparing the emigrant’ (Fertigstellung des Emigranten). In this process the many staff members of the Gildemeesteraktion – paid employees and volunteers alike – lent the applicants a helping hand. Exceptions were made only for some very wealthy Jewish families whose affairs were dealt with by Secretary-General Galvagni, though occasionally they were seen by staff from the department dealing with asset management and the takeover of non-Aryan assets.43 Most of Gildemeester’s collaborators were considered Jewish in the sense of the Nuremberg Laws. While working in the office at No. 7 Wollzeile they wore a triangular-shaped blue-white badge with ‘Gildemeester’ printed on it. This practice was, however, outlawed by the Nazi authorities in December 1938.44 A list of employees’ names dated 11 January 1939 leaves some doubts about the actual size of the staff, which seems to have fluctuated between eleven and twenty-five. More specific documents from a later period count ninety-six salaried staff members and forty-seven volunteers.45 The bulk of these volunteers seem to have worked as lecturers in courses that taught emigrants professional skills, applicable in their future host countries. Being employed by Gildemeester carried advantages for many ‘non-Aryans’. They could assist

The Gildemeester Organisation

225

friends and relatives in organising their escape, and sometimes even find privileged escape routes for themselves. There was also the possibility of taking more of one’s personal belongings abroad than was usually permitted. This appears to have happened with Maximilian Kohl, who taught shoemaking to a class of Jewish emigrants. Kohl’s father had run a shoemaker’s shop in Vienna’s ninth district. Immediately after the Anschluss this shop was ‘Aryanised’. Thanks to the efforts of the Gildemeesteraktion, the Property Transfer Office (Vermogensverkehrsstelle) ¨ at the Ministry of Economy and Labour was persuaded to hand back to Maximilian his father’s shoemaking equipment, which was then used for teaching purposes. Agreement in principle was reached over three old leather-sewing machines to be included in the younger Kohl’s movable property upon his emigration.46 Erich Fasal, a Gildemeester employee from the earliest days of the organisation, who was appointed office manager in 1940, did not benefit from his position, and could not even save his own life. In October 1942 the Nazis deported him to Theresienstadt and thence to Auschwitz.47

Victims Individuals who decided to emigrate and sought the assistance of the Gildemeesteraktion fell into two different categories. The first category comprised wealthy ‘non-Aryans’. Karl J. Tambornino, a former executive of Krentschker Bank charged with its de-nazification after 1945, remembered eighty-eight rich Jewish families (eighty-three from Vienna, three from Graz) enlisted as Gildemeester clients. All but one of them safely left the German Reich.48 Answering questions from Austrian public prosecutors after the war, Tambornino described what steps had to be taken by the Jews in order to accelerate their departure. To begin with, they were sent to attorneys Weber and Rajakowitsch, who took note of their preparedness to recognise Krentschker Bank as trustee of their assets. This involved having 5 per cent of their wealth placed under trusteeship as a commission to Krentschker and its lawyers. Ten per cent was to go to the Gildemeester fund, subsidising the emigration of indigent Jews. Such stipulations were laid down in a letter of agreement (Gedenkprotokoll), but not in the usual deed of trust. After the war, attorney Rajakowitsch maintained that the legal form chosen actually helped Jews to save contract fees.49 Dr Rajakowitsch then prepared letters to the Gestapo on behalf of his Jewish clients, asking for their admission to the Gildemeesteraktion. The next step was to send the Jews to Krentschker & Co.’s office, where an inventory of their assets

226

Peter Berger

was prepared. The Bank drew up these detailed inventories, and issued orders and dispositions necessary either for the safeguarding or liquidating of Jewish property. Cash balances, bank deposits and equity holdings were transferred to the Krentschker Bank. Real estate was partly placed under new management, and partly sold. In the case of companies or firms previously run by the Jews, and now under administration by newly appointed ‘commissioners’, the latter received orders from Krentschker on how to proceed further with the business. Jewellery, etc. was deposited in the vaults of the Krentschker Bank, and removers were instructed to send household effects abroad. One precondition for the granting of emigrants’ visas was that Jews should prove that they had satisfied all domestic tax obligations. To this end, they required a certificate of non-objection issued by the fiscal authorities [Steuerliche Unbedenklichkeitsbescheinigung] . . . Where Gildemeester clients lacked sufficient means in cash to settle their tax arrears, Krentschker Bank helped with credit or made itself answerable for the outstanding debts. As soon as all their valuables were handed over by the Jews, and the certificate of non-objection was issued by the tax offices, news of this went to the lawyers who in turn informed the Gestapo that exit visas could now be granted.50

Leopold, Johanna and Irene Herz possessed enough wealth to be included in the group of privileged Gildemeester clients. On 5 October 1938 they signed a letter of understanding at Weber and Rajakowitsch’s law office. They then moved their assets into the Krentschker Bank: part of the valuables thus transferred consisted of Austrian construction bonds and 7 per cent state investment bonds, worth 5,000 Swiss francs. The Herzs’ total wealth must have amounted to approximately 306,000 Reichsmarks, since we know that a sum of 30,600 Reichsmarks (10 per cent) was ‘donated’ by them to the Gildemeester fund. To cover the cost of ‘asset administration, realisation, and attorneys’ fees’, Leopold Herz was charged 15,300 Reichsmarks. In 1968 Simon Wiesenthal cited the Herz case in a lawsuit filed against him by Rajakowitsch, to prove that this attorney had used his powers to unjustly enrich himself after the German annexation of Austria.51 By their contribution to the Gildemeester fund people like the Herz family acquired a claim to the assistance of a semi-official organisation in collecting the many documents needed for emigration. The same assistance (including the chance to get some money for the passage abroad) was soon offered to impoverished Jews, as the Gildemeester fund came to hold more resources than it needed for the eighty-eight initial emigration cases mentioned above. What the German bureaucracy termed as ‘procurement of documents and passports’ was in fact an extremely humiliating procedure for the Jewish emigrants involved.52 The list of public agencies which issued obligatory certificates with hitherto unknown names to ‘non-Aryans’ was very long. First, one had to go to the Central Registration Office (Zentralmeldeamt), which issued the Small

The Gildemeester Organisation

227

Certificate of Domicile (Kleiner Meldenachweis). Then followed the Office of the District Commissioner, the Accounting Department of the Vienna City Hall, and the tax office of the emigrant’s residential district. Once he or she had managed to get the certificate of non-objection issued by the local tax office, an application for partial release of the emigrant’s frozen assets could be filed at the Foreign Currency Office (Devisenstelle) in Vienna. A sub-department of that office had to give permission to emigrants to move personal belongings abroad. Police agencies involved in the process of preparing emigration were: the Department for the Issue of Certificates of Conduct (located at the Viennese police president’s office); the Passport Department for Foreigners (dealing with Jewish holders of Nansen (refugee) and foreign (i.e. non-German) passports); and finally ‘Department IV’, with the ominous title ‘Passamt fur ¨ Juden’. There, travel documents for Austrian Jews were issued or modified, families received collective passports, and sometimes visas were granted for temporary sojourns within the German Reich after the passport-holder’s actual emigration.53 It is probably inappropriate to imagine that the help Gildemeesteraktion extended to emigrants rendered superfluous all their visits to the offices and agencies mentioned above. But, as a matter of fact, Gildemeester’s employees, on behalf of their Jewish clients, went to the police for certificates of conduct, filed applications for the release of blocked accounts with the Foreign Currency Office, and provided impoverished emigrants-to-be with certificates of indigence which could serve as a means to unblock existent, but ‘Aryanised’ bank accounts. When in August 1938, Eichmann’s Central Office for Jewish Emigration was set up to handle the emigration issues of religious Jews, Gildemeester and Galvagni frequently intervened on behalf of emigrants for whom they felt personally responsible. In December 1938, the Gestapo, resenting constant interference by the Gildemeesteraktion with matters considered to rest solely within Eichmann’s field of activity, produced the following division of labour between the Zentralstelle and the Gildemeesterhaus: Gildemeesteraktion will from now on be incorporated into the Central Office for Jewish Emigration, as an organisation to assist only racial Jews [Volljuden] of nonmosaic religion. However, exceptions can be made for [religious] Jews possessing more than 100,000 Reichsmarks, to be dealt with by the Gildemeester fund.54

In fact, before this statement was issued, the Gildemeesteraktion received orders to operate its own department for the verification of documents on the premises of the Zentralstelle (the former Rothschild palace in Vienna’s Prinz Eugenstrasse). Among those who received Gildemeester help, prisoners of the Dachau, Buchenwald and Oranienburg concentration camps formed a

228

Peter Berger

special group. Many were deported from Austrian soil in the first days or weeks after the Nazi takeover, in spite of the fact that they possessed valid passports for emigration, and sometimes settlement permits for foreign countries or affidavits from the USA. In North America, affidavits had been a legal requirement for immigrants since 1917. Signed by US citizens, who promised to cover the living costs of a refugee friend or relative, affidavits served as a guarantee to the government that immigrants would not live on American taxpayers’ money.55 Josef Geringer, a member of the Vienna Philharmonic Orchestra, who was born in 1892 and taken to Dachau immediately after the Anschluss, continued to hope for legal emigration to the United States due to his valid affidavit. Friedrich Kreisky, nineteen years younger than Geringer and a doctor of chemistry, suffered imprisonment in Dachau’s camp No. 3, block 30, but possessed all the papers required for emigration to Shanghai, China. In such cases Gildemeester’s office always employed the same interventionist strategy. Relatives of the person placed in protective custody (Schutzhaft) were asked to fill in a form containing questions about the detainee’s profession, date of arrest and the existence of a valid entry permit issued by a foreign state, or of an affidavit. In the questionnaire space was reserved for the entry of merits acquired by the prisoner while serving Germany or Austria (for instance during World War I). Also relevant was the number of family members or other persons living on the income of the detainee. Everyone who used Gildemeester’s questionnaire for prisoners of concentration camps (mostly wives and children of the arrested) was asked to pay 60 Reichsmarks as a contribution to the expected cost of future emigration.56 After a while, submitting applications for the release of prisoners to the Gestapo became an important and financially rewarding activity for the Gildemeesteraktion. Both the Gestapo head office in Vienna and the Central Office for Jewish Emigration under Adolf Eichmann disapproved of this development. In December 1938, the German authorities told Galvagni that they ‘did not consider it a duty of Gildemeester’s organisation to act on behalf of Jews in protective custody, i.e. to file applications for their release with the Gestapo head office against pay or at no charge’.57 For a whole host of reasons it is hard to tell how many Jews or ‘nonAryans’ emigrated thanks to the Gildemeesteraktion. Employees of the organisation tended grossly to exaggerate when asked for figures, motivated by the wish to underline their indispensability in Hitler’s programme of ‘clearing the Ostmark of Jews’. Another difficulty in assessing its impact results from the fact that emigrants sometimes availed themselves of the services of several philanthropic agencies at a time, in order to increase their chances of escape. Therefore it is almost impossible to

The Gildemeester Organisation

229

ascribe cases of successful emigration to a single agency. The simultaneous involvement of more than one organisation in helping an emigrant was often required for technical reasons. When Jews needed foreign exchange to pay for a passage overseas, Gildemeesteraktion could only subsidise travel costs in Reichsmarks, and it became imperative for people otherwise helped by Gildemeester to turn to the Quaker Society of Friends or the Swedish Mission in Vienna, which both had access to foreign currencies.58 Another source of statistical confusion were the courses in practical skills offered by both Gildemeesteraktion and the Jewish Community of Vienna, which was reopened by the Germans in May 1938. Many ‘non-Aryans’ followed parallel courses in both institutions, and were thus registered as Gildemeester clients and as dependants of the Jewish Community. A similar problem emerged in the case of the cabaret actor and writer of surrealistic poetry, Peter Hammerschlag. Hammerschlag’s name can be found on the list of participants in a Gildemeester course in the ‘tailoring of women’s dresses and coats’, approved by the Viennese police authorities in October 1939.59 Later he seems to have become a matter of concern both for the Gildemeesteraktion and the Israelitische Kultusgemeinde, which was called into action by Gildemeester staff member Erich Fasal. In September 1941 Hammerschlag obviously possessed an immigration permit for Argentina, and a cabin was reserved for him on the steamship Cabo de Hornos scheduled for Buenos Aires. However, he lacked a valid passport to leave, and for that reason needed the Jewish Community’s help. Efforts to assist him, if they were made at all, remained unsuccessful, and Hammerschlag died in a concentration camp.60 Given the absence of more reliable data, our estimate of the number of people assisted by Gildemeester’s office is based upon a report which Secretary-General Galvagni submitted to Alois Brunner, Eichmann’s chief aide at the Central Office of Jewish Emigration, in December 1939. At this time, there were already clear signs that Gildemeester’s organisation would not continue to exist in its original form, for reasons to be discussed later. Therefore Galvagni’s report was drawn up, whether consciously or not, as some sort of final assessment of what the Gildemeesteraktion had achieved over the past one-and-a-half years. According to Galvagni, between May 1938 and November 1939 the organisation sold 24,500 questionnaires to emigrants: 8,378 Jews received a sum total of 905,936 Reichsmarks as subsidies for their travel costs (excluding passport fees and taxes paid in connection with the transportation of several children to Holland and England). Some 20,000 emigrants had come to Gildemeester’s office only to be told that the agency responsible for them

230

Peter Berger

was the Jewish Community of Vienna. However, Galvagni claimed that at least part of the success of their emigration was attributable to his own office. All in all, Galvagni maintained that 30–50,000 Jews had left the German Reich due to the assistance extended in some form or another by the Gildemeesteraktion.61 It is possible to test the plausibility of that figure by looking into various daily reports from Gestapo sources, drawn up in 1938–9. They reveal that 2,675 ‘non-Aryans’ left Vienna before 21 October 1938. All of them seemed to have received Gildemeester assistance. By 11 January 1939, the number had increased by 8,528 (the last quarter of 1938 showed a peak in emigration to Britain caused by the more tolerant attitudes of British police authorities following the Nazi pogrom of 9–10 November).62 It seems one is justified in asserting that until the end of 1939 the Gildemeester organisation was able to help at least 30,000 people to cross German borders into safety. Utopian dreams One reason for the initial benevolence German authorities displayed in their dealings with Gildemeester was the Dutchman’s promise to provide overseas immigration opportunities for large numbers of Jews.63 In December 1938 the Gestapo openly showed disappointment with Gildemeester for the first time. By this time it was clear that his organisation had failed to perform better than other philanthropic agencies in procuring immigrant visas for Austrian refugees. This should hardly have surprised anyone, in view of the reluctance, known since the Evian conference, of all foreign states to welcome German immigrants. But Gildemeester and his staff had not remained inactive, despite all the odds being against them. Building upon the earlier ideas of Hermann Furnberg, ¨ the manager of Gildemeesteraktion, a scheme for Jewish mass settlement in the Ethiopian province of Harrar was worked out during summer 1938.64 Projects for Jewish homelands outside Europe (and Palestine) emerged repeatedly in the period between the wars, and even during World War II. All but a few quickly fell into oblivion.65 To this extent Gildemeester and Furnberg’s ¨ plan may be seen as fitting into a pattern, but it certainly did not lack originality. One important precondition for its success would have been a political arrangement with Germany’s ally, Italy – because Ethiopia, under the name of Africa Orientale Italiana, had in 1936 become a territory governed by Rome. The basic features of the Ethiopia project, officially submitted by Galvagni to the Italian Ministry of African Colonies in October 1938, may be summarised as follows. About 13,000 ‘non-Aryan’ European settlers and their families were to be given plots of land by the Italian

The Gildemeester Organisation

231

government round Lake Tana in the Abyssinian province of Harrar. The indigenous population of Harrar, made up of Jewish Fallashas, were expected to give newcomers of the same religious faith a friendly welcome. The settlers would bring along agricultural machinery purchased on their behalf in Germany. By offering the Nazi authorities an opportunity to sell technical equipment for foreign exchange, Furnberg ¨ and Gildemeester hoped to increase their willingness to let thousands of emigrants leave for Africa. In order to finance Abyssinian colonisation, loans raised in Western countries were envisaged. Their proceeds were to be deposited with a ‘Gildemeester Bank Ltd’, to be established in the City of London. Subscribers would be offered collateral security consisting of the Jewish emigrants’ assets actually under the control of the German Reich, but soon to be handed over to a Vienna-based branch of Gildemeester Bank Ltd.66 Furnberg ¨ and Gildemeester had very clear ideas of what their colonisation project would cost: 25 million Sperrmarks (marks in blocked accounts) and £0.5 million sterling would suffice for the beginning. An Italian-based Gildemeester Colonial Enterprise would formally take over 300 square kilometres of the Harrar district from the African Ministry in Rome, and assume responsibility for its distribution among the settlers. The same company would build farms and agricultural processing plants. An explosion of economic growth in Harrar accompanied by a huge increase in taxable income would provide the rationale for the Italian government’s backing of the project. The other countries of the world, spared from an influx of large numbers of Jewish refugees from Germany and, consequently, a rise in indigenous anti-semitism, would not need to reinforce legal barriers against ‘non-Aryan immigration’.67 Both Gildemeester and Furnberg ¨ completely ignored the possibility that a clash between Ethiopia’s Fallasha population and the immigrant Europeans would endanger the success of the colonial experiment. Fears of this kind were not an issue before 1939, and later warnings came not from Gildemeester circles but from well-intentioned outsiders.68 Moreover, Gildemeester, Furnberg ¨ and Galvagni disregarded the fact that Mussolini, on whom the success of their plans ultimately depended, had never shown any signs of earnestly considering Jewish settlement within the bounds of his colonial empire. On the contrary, when asked by Roosevelt and Chamberlain in January 1939 to comment upon the German refugee problem, he squarely rejected the American President’s suggestion of a Jewish settlement in Ethiopia. Instead he demanded that Jews be given land in North America, the Soviet Union or Brazil.69 Nonetheless, preparations for a large-scale emigration of Jewish refugees from Germany to Ethiopia, via the ports of Trieste and Genoa, were intensified after August 1939. Furnberg ¨ travelled to Rome and rented

232

Peter Berger

office space in 66, Via Nazionale for a new agency called ‘European Gildemeester Organisation for Assistance to Emigrants’. Soon after opening the office he established contacts with a group of approximately 1,000 German and Austrian refugees in Genoa, trapped there with no more than temporary Italian visas and insufficient means to survive, despite some financial help from the local Jewish community. A spokesman for the group was the former Austrian industrialist Rudolf Schroter, ¨ who had worked for the Viennese Skoda Works – Wetzler Aktiengesellschaft – and whose father had been a long-time friend of Arthur Kuffler. Furnberg ¨ encouraged the Genoese emigrants to register for settlement in Abyssinia, by simply sending one postcard per applicant to the Gildemeester office in Rome. These postcards would then be forwarded to the Italian Ministry of the Interior to give the authorities an incentive to extend the refugees’ residence permits (soggiorni) until the date of their prospective departure to Harrar. Not only the Genoese group, but also other German and Austrian Jews stranded in Italy, received promises from Furnberg ¨ that their residence permits would be extended by registering for Ethiopia and paying a small advance in lire into a Gildemeester account with the American Express Bank in Rome. Meanwhile, in the first week of October, Gildemeester arrived in Rome to assist Furnberg’s ¨ efforts with his personal prestige as a philanthropist.70 A circular letter was drafted and sent out with the aim of reaching all German emigrants with temporary Italian addresses. It resulted in more than 500 registrations for the Harrar project arriving in the Via Nazionale.71 One registrant was Hermann Strauss of Milan, son of Ludwig Strauss, a renowned lawyer and co-founder of the Viennese Commercial College (Hochschule fur ¨ Welthandel). Before his departure from Austria, Strauss Jr. worked for the companies Osram and Philips, and a patent for the electric lighting of house-number plates was licensed under his name. After the Anschluss he first fled to Switzerland, and then to Hungary. Neither country allowed him to stay. He had arrived in Milan in April 1938, and now hoped Ethiopia would be the last stage of his nerve-racking odyssey. Soon the word spread to Vienna of the existence of a new Italian Gildemeester organisation capable of extracting benefits for emigrants from the fascist authorities. There is no other explanation for a letter sent to Gildemeester’s Rome office by Friedrich Adler, retired vice-president of the Viennese police department, in December 1939. Adler, who was married and had a son of twenty-eight years, was the author of a practical handbook for Austrian police officers of the First Republic. Now he asked Gildemeester to intervene on behalf of his family with the Italian Home Office. The Adlers were in possession of an American affidavit, and desired to spend the time between leaving Austria and receiving their visas

The Gildemeester Organisation

233

from the USA on Italian soil, without having to fear for their personal safety. Such pleas for help, which obviously had nothing to do with the Lake Tana project, were no singular occurrences. Gildemeester’s fame as a humanitarian activist sufficed to attract a stream of requests from desperate Jews. Mostly they urged the office in Via Nazionale to assist them, or impoverished relatives or friends, in dealing with Italian bureaucracy. In other instances, Gildemeester was asked to grant small credits for the purchase of travel tickets to the Americas,72 or sometimes just to receive and cash in cheques sent to poor emigrants by caring relatives abroad. A special case was that of an Austrian emigrant couple stranded in Genoa, named Nadel. Salvatore Nadel owned half of a Viennese condominium building and 100 per cent of the shares of a company called Canada Tiefbohrger¨ate Fabrik that produced drilling machines for construction sites. The factory had been ‘Aryanised’, i.e. taken over by the Nazis, but before 1938 it had entertained business relations with the Italian Ansaldo group. Ansaldo ran an office in Genoa and offered Nadel a pro-forma job for the time of his involuntary stay in Italy. Nadel summed up these facts in a letter to the ‘European Gildemeester Organisation’ in Rome. At the same time he asked the Gildemeester office for help, since the family’s Italian visas were about to expire. Replying to the Nadels, Furnberg ¨ advised them to subscribe to the Abyssinian project. On receipt of their applications he would ask the Viennese authorities about the possibility of selling the condominium, on Vienna’s Gumpendorferstrasse, and transferring part of the revenue abroad. Furnberg ¨ also promised to contact the Italian passport authorities for visas. Before this could happen, however, he expected Nadel to donate ‘a significant amount of money’ to the Gildemeester office in Rome. This somewhat surprising request was based on a reference to the salary the emigrant was receiving from Ansaldo.73 Most of the activities of the ‘European Gildemeester Organisation’ were staged after the German attack on Poland, and thus at a time when few realistic spectators believed the Ethiopian settlement project could still materialise. Furnberg, ¨ in his correspondence of mid-October 1939, mentions a meeting scheduled with Galeazzo Ciano, Italy’s Foreign Minister. Its results are unknown, and there seem to have been no more negotiations in the ensuing weeks. A plan to ask Camillo Castiglioni, the Triestine multi-millionaire with long-standing connections with Vienna, to help revive talks with Italian government agencies was briefly considered and quickly discarded.74 Although prospects looked gloomy, Furnberg ¨ made an effort to enlist for Harrar former Gildemeester staff from Vienna who were in a British refugee camp. To Walter Finkler of Camp Kitchener, Richborough, Kent, he wrote: ‘You will be despatched

234

Peter Berger

to Ethiopia in the first half of January.’ Furnberg ¨ urged Finkler to hurry to Rome, together with five other former employees in the same camp. Their names were Bortstieber, Sommer, Rubin, Schwarz and Mayer.75 But despite these desperate last moves, time for the Italian branch of the Gildemeesteraktion was definitely running out. Tolerating its existence in wartime meant diplomatic trouble for an Italian regime allied with Hitler. Furnberg ¨ had planned a fact-finding mission to Ethiopia, but the Italian authorities ordered him to cancel it. Among Jewish candidates for emigration to Harrar there was mounting unrest. One of many expressions of a feeling of betrayal came from Arthur Schubert, who had shown an early interest in Africa. He wrote to Furnberg: ¨ Finally, I cannot refrain from telling you this: Your stories about the settlement and the opportunities for refugees it would entail have not only raised hopes among us for a safe life, maybe in a near future. They have, in addition, brought us some expenses, which are relevant in these days of a low standard of living, even if you did not ask for much money.76

Shortly before the end of 1939, the Italian authorities refused to grant new residence permits to Gildemeester, Furnberg ¨ and their staff of three at the Gildemeester office in Rome. Furnberg ¨ and two of the employees left Italy on 6 January 1940, aboard the passenger ship Vulcania sailing from Naples to Lisbon. Upon his arrival in Portugal, the untiring proponent of Jewish settlement in Abyssinia, now suffering from a hernia, was interned for months in a prison hospital.77 Gildemeester initially planned to return to Vienna. But on 26 January the German police authorities denied him an entry visa. It was argued that his Vienna-based organisation to assist emigrants had been closed down by the Gestapo on 1 January, and that therefore his presence in the German Reich was unnecessary.78 Indeed the Gestapo had liquidated the Gildemeesteraktion. Its motive was the distribution of a flyer by Gildemeester’s Rome office calling upon Jewish organisations all over the world to create a united platform to ‘solve the Jewish and emigration questions’. The flyer’s text referred, among other things, to ‘non-Aryans starving in the territory of the German Reich’.79 That was considered a capital offence by the Nazi authorities. Consequently, Galvagni, as the highest-ranking staff member of Gildemeesteraktion present in Vienna in the autumn of 1939, received orders to close the office and to prepare statutes for a new agency of similar scope. But unlike the Gildemeesteraktion it should be completely subordinated to Eichmann and his Central Office for Jewish Emigration, and it should have no relation whatsoever with Gildemeester’s personal activities abroad. After a protracted tug-of-war involving Eichmann,

The Gildemeester Organisation

235

Galvagni and Fritz Kraus (the man in charge of the Gildemeester fund), a new Organisation for Assistance to Non-Religious Jewish Emigrants (Auswanderungshilfsaktion fur ¨ nichtmosaische Juden) was officially registered in January 1940.80 While all this was happening, Gildemeester himself seems to have stayed in Rome. According to his own testimony, he did not return to Holland before February 1940.81 An entry in the Dutch population register of 11 March shows him to be resident in The Hague. Gildemeester survived World War II in the Netherlands. In 1946 he attracted public attention with a plan to move displaced Jews from Austria to Kenya, where he wanted them to found a colony. The scheme was hardly more promising than the old Abyssinia project,82 but it had the remarkable side effect of bringing its creator back to Vienna, where he lived for two years (20 February 1947 – 2 February 1949). Gildemeester died in The Hague on 28 September 1952, at the age of seventy-one.83 Forced collaboration Emigrants in need of help, who in the first weeks of 1940 entered the Gildemeesterhaus in Vienna, found only this notification attached to a wall: ‘The Gildemeesteraktion voluntarily ceased to operate on 31st December 1939. Non-religious Jews of the Ostmark have to turn to the “Auswanderungshilfsaktion fur ¨ nichtmosaische Juden”, Vienna I, Habsburgergasse No. 2.’ What appeared as a mere change of name was in fact equivalent to the complete elimination of Frank van Gheel Gildemeester’s influence upon his former agency, which lost whatever independence it had enjoyed to Eichmann’s Central Office of Jewish Emigration. For a brief period after the reorganisation of the Gildemeesteraktion (a term still in common use), Joseph Galvagni kept the confidence of Eichmann and Kraus, and thus was allowed to continue in his position. With him, many Jewish employees and volunteers who had worked for the Wollzeile office also remained in their jobs. That created the impression of far-reaching continuity. In fact, the beginning of 1940 was a significant break with the past. Listing the activities of his new organisation in a report he sent to SS functionary Fritz Kraus on 17 February 1940, Galvagni mentioned ‘registration of all non-religious Jews’ in the first place. This fits remarkably into the picture of National Socialist strategies of segregation and stigmatisation of ‘non-Aryans’, applied as early as 1939, to prepare the ground for the ensuing mass deportations. Referring to the process of registration already under way, Galvagni wrote:

236

Peter Berger

At the moment we have compiled 10,254 record cards, to be further interpreted in different ways. Moreover, we have 3,500 addresses of individuals who must be summoned for interviews. As our organisation lacks the means to apply force [sic!], calls for interviews must be repeated several times, and sometimes interrogations will have to take place at people’s private homes. Such activities require at least two employees perfectly familiar with their duties.84

In 1940 it was still possible to emigrate from Austria, for both religious Jews and individuals considered to be of Jewish race. However, the ongoing war reduced the choice of escape routes. The crowd of applicants for passports lining up every day in front of the new Gildemeester office was smaller than it used to be at the Wollzeile, but far from insignificant. Between 12 and 29 February 1940 the Auswanderungshilfsaktion received 120–30 visitors per day at its premises, and sold 177 questionnaires for emigrants. Ninety individuals were sent on to the Central Office of Jewish Emigration, their documents being checked beforehand, and 114 applications for the unfreezing of emigrant’s assets were submitted to the Foreign Exchange Office. In forty-two cases Galvagni’s agency was asked for means to finance boat or train tickets out of the Gildemeester fund (the name of which had been changed to Emigration Assistance Fund A – Auswanderungshilfsfonds A).85 In order to perform efficiently, the organisation had five departments, as shown in figure 10.2. Jews who in early 1940 still lived in Vienna lacked all means of subsistence, or at any rate were exposed to an irreversible process of pauperisation. An emigration agency like the new Gildemeester office therefore had Advisory department Emigrants are informed about preparations to be made and documents to be collected Sale of questionnaires Questionnaires required by emigrants are sold to them Calculation of fees Consultations on how questionnaires were to be filled in; inquiries into the emigrant’s financial situation; decision on the amount of passport fee payable by the applicant Subsidies and Applications for travel subsidies; purchase of foreign procurement of exchange (against Sperrmarks) from the Quakers’ foreign exchange Society of Friends and the Swedish Mission Other interventions All kinds of interventions with state agencies to ‘prepare the emigrant’: police, Gestapo, Devisenstelle, Vienna magistrate, tax offices Figure 10.2 Departments and activities of the Auswanderungshilfsaktion fur ¨ nichtmosaische Juden in der Ostmark (1940) Source: CAHJP, A/W 2719, Galvagni to Kraus, 17 Dec.1940; A/W 2717 (2), Wochenberichte der Auswanderungs-Hilfsaktion 1940–1942: Bericht, 6 May 1940.

The Gildemeester Organisation

237

to engage in charitable activities, although Galvagni in the beginning received strict orders from German authorities not to do so.86 The solution found to satisfy all parties was to split off the charitable work from the assistance to emigrants in a stricter sense, and to entrust a separate body with performing it. Consequently such activities as teaching children at a Jewish elementary school with eight classes, running a Jewish old-age asylum in the ninth district of Vienna (Seegasse No. 16), or continuing to offer courses in practical skills for emigrants were out-sourced.87 An important aspect of charity was the feeding of the poor at a canteen on the third floor of the former Gildemeester building at 7 Wollzeile, and registered under the name Sonderaktion Kuffler. Until 1942 this canteen, for a fixed price of 25 Reichsmarks per month, sold twenty-eight ‘lunches without bread’ to visiting ‘non-Aryans’. (In the course of 1942 additional lunch packs were prepared for home consumption.) Guests of the canteen were expected to hand over their food rationing cards to the management, which in turn used them to buy ingredients for the meals. If the value represented by the cards proved insufficient to supply the canteen with what it needed, guests were called upon to deliver any foodstuff they might have at home.88 Meanwhile the stream of emigration administered by the Auswanderungshilfsaktion was reduced to a trickle. A list of those seeking advice at the office at No. 2 Habsburgergasse in December 1940 comprised no more than thirty-four names. Between 23 and 27 December, only three individuals emigrated, to Shanghai, Argentina and Yugoslavia, respectively. Another list of names of ‘emigrants, possessing foreign exchange’, cabled to Berlin in May 1941 by Erich Fasal, featured twentytwo entries. One referred to Hans Paschkies, brother-in-law of the composer Franz Leh´ar. Edith Kuffler, one of Arthur Kuffler’s two sisters, was also registered, for departure to South America. When it came to booking passage for emigrants, the Auswanderungshilfsaktion closely cooperated with the Jewish Community of Vienna (IKG), which sent a certain Robert Prochnik to Berlin to buy ship tickets from travel agents there. The letters exchanged between Erich Fasal (who had replaced Galvagni as head of the new Gildemeester agency, probably in March 194089 ) and Robert Prochnik of the IKG during the summer of 1941 illustrate the schizophrenic state of mind of Jewish functionaries in the service of Nazi-controlled administrative bodies. For instance, in a letter dated 19 July, Prochnik complained about the emigrants’ disregard of German foreign-exchange regulations and about their nervous breakdowns following the loss of pieces of luggage or train tickets. But then, unexpectedly, he finishes with a sigh of relief: ‘What really matters is, the people were helped one step further, and things worked out at least partly.’90

238

Peter Berger

During the last stage of Jewish emigration from Vienna deportations of Jews to the Polish Generalgouvernement started, and the process of segregating the remainder of Vienna’s Jewish community from the ‘Aryan’ population reached new peaks with the introduction of the yellow badge ( Judenstern) in September 1941, and the concentration of Jews and partners of mixed marriages (Mischehen) in houses especially assigned to them (from May 1941 onwards). Not only the Jews, but their organisations too, were ‘locally concentrated’. As a consequence, Fasal was ordered to close the Gildemeester office in the Habsburgergasse, and transfer its activities to a building in Vienna’s first district, No. 5 Marc Aurelstrasse, which also housed the Palestine office (Pal¨astina-Amt). It is unclear how many people went there to collect information concerning emigration. Reports from the first half of 1941 mention up to 740 visitors per week, but no more than fifteen or twenty of them actually applied for a passport. Only a few destinations remained accessible to emigrants: Shanghai (via routes across Russia and Iran, but only until the Germans attacked the Soviet Union on 22 June 1941), the USA (via Portugal), Brazil, Argentina, Uruguay and Cuba. On rare occasions visas were issued by Spain, Sweden, Belgium, Switzerland and Hungary. On 30 December 1941 authorities informed all Vienna-based institutions assisting Jewish emigrants that no further migration to overseas countries was possible, due to ‘changes in international relations’. This formula was a cloaked reference to America’s entry into the war. Fasal received two final applications for passports, from people who wanted to move to Hungary. Both were passed on to the Central Office for Jewish Emigration.91 Unable to fulfil its original task of helping Jewish emigrants, the Auswanderungshilfsaktion was compelled to lend itself to the implementation of National Socialist policies of genocide. To speak of compulsion seems justified in this context: only obedience to Nazi orders left the staff members and their relatives (still eighty-one persons in 1942) a small opportunity to escape from being deported.92 The price paid for this marginal chance was high. Employees of the Auswanderungshilfsaktion had to work at the infamous Sammellager in Vienna’s Sperlgasse, a place of departure for extermination camps like Sobibor. Also, Fasal’s people continued their job to register ‘non-religious Jews in Vienna and elsewhere’. On one day in 1942, which cannot be defined with certainty but was probably in the first half of the year, the following numbers were reported: 3,316 Jews wearing the yellow badge; 4,321 nonreligious Jews married to Aryans (of whom 870 lacked ‘privilege’, 2,757 enjoyed ‘privilege’); 694 divorced or widowed spouses, having children not considered Jewish; and 580 non-religious people of Jewish appearance (Geltungsjuden).93

The Gildemeester Organisation

239

Another duty the Auswanderungshilfsaktion had to fulfil was to inform ‘non-Aryans’ about legal discrimination directed against them. Restrictive rules, often to the point of outright prohibition, practically excluded Jews from public entertainments and cultural institutions, shopping, access to recreational areas like parks, and from listening to radio programmes.94 The most serious infringement of personal rights, however, was the pressure put upon Jews to leave their houses and apartments, and move into a de facto ghetto located in Vienna’s second district. Fasal and his organisation were responsible for the forced relocation of married couples, of which one partner was Jewish and the other ‘Aryan’, upon the orders of the Central Office of Jewish Emigration. One such order was issued for the Deutsch family, made up of a Jewish husband, Karl Deutsch, his Christian wife and two children. They were supposed to move into rooms in a ‘Jew’s house’ at 23 Czerningasse, abandoned by the former tenant, a Jewess called Mendelsohn. Prior to her departure to Cuba, Mrs Mendelsohn had, however, expressed the wish that her apartment be given to her Aryan housemaid Paula Munz. Fasal’s office ignored this, and prepared the rooms for takeover by the Deutsch family. But before this could happen, the District Party Bureau of the NSDAP intervened on behalf of Paula Munz, proclaiming her to be the lawful tenant. In a report submitted by Fasal to the Central Office for Jewish Emigration, the concierge of 23 Czerningasse was named as the person to have called the Nazi Party into action.95 Another case described in the files of the Auswanderungshilfsaktion is that of a Jewess, Mrs Herzog, and her Aryan husband, living in Vienna’s second district at No. 1 Glockengasse. The Herzogs were ordered to share their apartment with yet another ‘racially mixed couple’ (Mischehepaar). But when functionaries of the Auswanderungshilfsaktion and the Jewish Community of Vienna came to do the preliminary paperwork, Mrs Herzog denied them access to her rooms. Later it became clear that she and her husband had already invited Jews to live with them, but had not asked for official authorisation. Fearing disclosure of this, Mrs Herzog asked a lieutenant of the Wehrmacht, who lived next door, to assist her in fending off Fasal’s men. The lieutenant, however, did not want to get involved, stating that he was a loyal National Socialist. As a result, Mrs Herzog gave up her resistance and on the same day she and her husband, at the instigation of the Central Office for Jewish Emigration, were forcibly removed from No. 1 Glockengasse. During April and May 1942 the Auswanderungshilfsaktion assisted in evacuating some eighty dwellings owned by Jews, to be assigned to Mischehepaare. Fasal and his staff exchanged letters with janitors, despatched informants to find out about the condition of rooms,

240

Peter Berger

and arranged for the removal of furnishings by an organisation called the Furniture Resale Office for Jewish Movable Property (Mobelverwertungsstelle ¨ von judischem ¨ Umzugsgut).96 By mid-1942, the last activities of the Auswanderungshilfsaktion – formerly Gildemeesteraktion – ceased. With a few exceptions,97 Vienna was devoid of Jewish inhabitants. Frank van Gheel Gildemeester, when seeking permission from the Nazis to set up his emigration agency, might not have been aware of the possibility of a Holocaust. Those who continued his work in Vienna after 1940 got tragically involved in carrying it out.     1. I am grateful to my university, Wirtschaftsuniversit¨at Wien, for financial assistance facilitating research in archives abroad. Also, I thank Charlotte Natmessnig and Giles Pope for their valuable comments and help in translating this paper into English. 2. Hans Safrian, Die Eichmann-M¨anner (Vienna, 1993), p. 36. 3. The author of a study about the Quakers under Nazi rule refers to statements of witnesses about Frank van Gheel Gildemeester, ‘whom some contemporaries identified as a philanthropist while others viewed him as a racketeer who primarily protected Jews who could pay for his services’. Hans A. Schmitt, Quakers and Nazis: Inner Light and Outer Darkness (Columbia, Mo., 1997), p. 137. 4. The most relevant study published so far is Jonny Moser, ‘Die GildemeesterAuswanderungshilfsaktion’, in Dokumentationsarchiv des o¨ sterreichischen ¨ ] Jahrbuch 1991, pp. 115–22. Moreover, Gildemeester is Widerstandes [DOW mentioned in some historical works, e.g. Gerhard Botz, Nationalsozialismus in Wien. Macht¨ubernahme und Herrschaftssicherung 1938/39 (Vienna 1988), pp. 250ff; Herbert Rosenkranz, Verfolgung und Selbstbehauptung. Die Juden in ¨ ¨ (ed.), J¨udische Schicksale. Osterreich 1938–1945 (Vienna, 1978), passim; DOW Berichte von Verfolgten (Vienna, 1992), passim. ¨ 5. Historikerkommission der Republik Osterreich, press notice, 22 October 1999, p. 6. ¨ 6. DOW, E 21.481, Gildemeester to Regierungsrat Berndorf, 5 December 1938. 7. Het Nederlandsch Patriciaat, Deel 6 (1915), pp. 126ff. 8. Centraal Bureau voor Genealogie (The Hague), Familiedrukwerk Van Gheel Gildemeester, and file Van Gheel. 9. Cf. J. W. van Hulst, Kerkelijk Antisemitisme: enkele voorbeelden uit Nederland en Duitsland 1920–1945 (Sliedrecht, 1990). 10. For this information I am grateful to Dr Sierk Plantinga of the Algemeen Rijksarchief in The Hague. 11. According to later estimates, the Quakers in Vienna distributed food to 64,000 children under six years of age. The person in charge of Quaker charity was American-born Emma Cadbury (1875–1965), who after the Austrian Civil War of 1934 extended relief activities to imprisoned Social Democrats.

The Gildemeester Organisation

12. 13. 14. 15.

16. 17. 18. 19.

20.

21. 22.

23.

24.

25.

26.

27. 28.

241

Schmitt, Quakers and Nazis, pp. 84ff. See also D. Elton Trueblood, The People Called Quakers (New York, 1966), p. 258. ¨ DOW, E 21.481, Gildemeester to Regierungsrat Berndorf, 5 December 1938. Willem Bekaar (Bonn) to Jules Huf (Vienna), 11 November 1968 (copy in my possession). Centraal Bureau voor Genealogie, The Hague. Norman Bentwich, ‘The Destruction of the Jewish Community in Austria 1938–1942’, in Josef Fraenkel (ed.), The Jews of Austria. Essays on their Life, History, and Destruction (London, 1967), p. 469. Bekaar to Huf, 11 November 1968. Moser, ‘Gildemeester-Auswanderungshilfsaktion’, p. 115. ¨ DOW, E 21.481, Rintelen to Gildemeester, 2 March 1938. ‘The logic of Quaker commitment precluded the exclusion of any group from the benefit of their humanitarian concerns.’ Schmitt, Quakers and Nazis, p. 89. Rosenkranz, in Verfolgung und Selbstbehauptung, p. 40, claims that the figure of 213 suicides in March 1938 is from official statistical sources. Unofficial estimates are much higher, and speak of approximately 1,700 suicides. Botz, Nationalsozialismus in Wien, pp. 161f. Nederlands Instituut voor Oorlogsdocumentatie, Amsterdam (NIOD), 270d/2, Proces Raja: Ausfuhrung ¨ des Wahrheitsbeweises durch Simon Wiesenthal, Beschuldigter im Ehrenbeleidigungsprozess gegen Erich Raja(kowitsch), 5 February 1968. The wealth of the Kuffner family is illustrated by the fact that Moritz von Kuffner, who was an amateur astronomer and alpinist, ‘financed the construction of Austria’s most important private observatory, and endowed it with first-class instruments and an ex¨ cellent library’. Osterreichisches Biographisches Lexikon 1815–1950, series 16 (1966). NIOD, 270d/1, Dossier Gildemeester: Zeugenvernehmung Dr. Heinrich Gallop, 29 October 1948. Ibid., Aktenvermerk in Sachen Wiesenthal-Raja, 23 April 1968. Preparing one’s emigration took several months. Stefan von Kuffner did not get his tax certificate of non-objection, required by passport-issuing authorities, until August 1939. Central Archives for the History of the Jewish People (CAHJP), Jerusalem: Archive IKG Wien (A/W), 2730 (3), letters exchanged between Gildemeesteraktion and Krentschker Bank. ¨ ¨ Osterreichisches Staatsarchiv, Archiv der Republik (OstA-AdR), Vermo¨ gensverkehrsstelle, Vermogensverzeichnis ¨ Arthur Kuffler mit Beilagen: Notiz F. van Gheel Gildemeester, 25.6.1938. Moser, ‘GildemeesterAuswanderungshilfsaktion’, p. 117. ¨ OstA-AdR, Burckel-Akten ¨ 1762/3: Vorschl¨age zur Regelung der judischen ¨ Auswanderung. Schreiben des Komitees an Carl Graf Chorinsky, 26 July 1938. On Storfer, cf. Doron Rabinovici, Instanzen der Ohnmacht (Frankfurt/Main, 2000), pp. 184ff. Moser, ‘Gildemeester-Auswanderungshilfsaktion’, pp. 115f. B. A. Sijes, Studies over Jodenvervolging (Assen, 1974), pp. 17f.

242

Peter Berger

29. NIOD, 270d/1, Dossier Gildemeester: Aktenvermerk in Sachen WiesenthalRaja, 23 April 1968. 30. Until 3 May 1938 Eberhardt was officially in charge of the Gildemeesteraktion. After that date, Walter Rafelsberger, head of the Property Transfer Office (Vermogensverkehrsstelle), ¨ took responsibility. CAHJP, A/W 2730/4, note from Rafelsberger, 30 May 1938. 31. NIOD, 270d/2, Proces Raja: Vernehmung des Zeugen Karl Huber in der Strafsache gegen Dr. Erich Rajakowitsch, 20 December 1952. 32. NIOD, 270d/2, Dossier Gildemeester: Zeugenvernehmung Dr. Heinrich Gallop, 29 October 1948. 33. NIOD, 270d/1, Dossier Gildemeester: Das Bankhaus Krentschker & Co. und die angeschlossenen Konzernunternehmungen, Bericht des offentlichen ¨ Verwalters des Bankhauses Krentschker & Co., Karl Josef Tambornino, 20 September 1946. 34. In 1948 Gallop recalled the manoeuvres of his fellow lawyers: ‘One day before the Gildemeesteraktion gained official authorisation, I was informed that my participation in the scheme was unwelcome. Dr Rajakowitsch was the person who told me, and when I asked the Krentschker Bank I found out that they considered me “politically unacceptable”.’ NIOD, 270d/1, Dossier Gildemeester: Zeugenvernehmung Dr Heinrich Gallop, 29 October 1948. 35. NIOD, 270d/1, Bericht Tambornino, 20 September 1946. 36. CAHJP, A/W 2507 (3). ¨ 37. OstA-AdR, Burckel-Akten: ¨ Zentralstelle fur ¨ judische ¨ Auswanderung, Erlass uber ¨ die Grundung, ¨ 20 August 1938. 38. Most of these concepts were the brainchildren of Gildemeester’s assistant Hermann Furnberg, ¨ to whom we will return later. ¨ 39. DOW, E 21.481, Gestapo-Leitstelle Wien, Tagesrapport No. 9, 20 and 21 December 1938. ¨ 40. OstA-AdR, Burckel-Akten: ¨ Zentralstelle fur ¨ judische ¨ Auswanderung, Entwurf einer Pressenotiz fur ¨ das Inland, 1 September 1938. 41. Leo Baeck Institute, New York (LBI), Collection Hermann Furnberg ¨ A 17/4-6, Box II, Correspondence. 42. Jules Huf, Bericht nach einer Unterredung mit der Witwe des Joseph Galvagni, November 1967. Copy in my possession. 43. A case in point was the Strakosch-Patzau family, whose members in December 1938 approached the Gildemeesteraktion, and Joseph Galvagni in particular, to hand over their assets of approximately 20 million Reichsmarks. ¨ DOW E 21.481, Galvagni to Fritz Kraus, 12 December 1938. ¨ 44. DOW, E 21.481, Gestapo-Leitstelle Wien, Tagesrapport No. 9, 20 and 21 December 1938. 45. CAHJP, A/W 2714 and 2715: Personnel of Gildemeesteraktion. 46. CAHJP, A/W 2718 (2). 47. Moser, ‘Gildemeester-Auswanderungshilfsaktion’, p. 117. 48. According to Tambornino, the family in question could have escaped, but hesitated too long with necessary preparations. The Gildemeesteraktion was not to be blamed for this, Tambornino said. NIOD, 270d/1, Dossier Gildemeester: Bericht des Karl Josef Tambornino, 20 September 1946.

The Gildemeester Organisation

243

49. NIOD, 270d/1, Dossier Gildemeester: Aktenvermerk in Sachen WiesenthalRaja, 23 April 1968. Surviving Jewish victims of such malpractices after 1945 objected to Rajakowitsch’s argument. When using letters of agreement instead of formal trust deeds, lawyers were entitled to ask for separate power of attorney from their clients to represent them in their dealings with the state. Once explicitly given power of attorney, Rajakowitsch and Weber could, among other things, sell real estate on behalf of the rightful owners, and thus act as their legal representatives, as well as those of Krentschker Bank and the Gildemeester fund. After 1945, several lawsuits produced evidence that Rajakowitsch had exploited the advantage provided by his several positions to the detriment of Jewish emigrants. 50. NIOD, 270d/1, Dossier Gildemeester: Verfahren Erich Raja gegen Simon Wiesenthal wegen Ehrenbeleidigung, Ausfuhrung ¨ des Wahrheitsbeweises, 5 February 1968. 51. Ibid., copy of a letter from Krentschker & Co. to Heinrich and Ren´ee Kiwe, attorneys in Vienna, 9 October 1958. 52. Ibid. 53. CAHJP, A/W 2719, Korrespondenzen Gildemeesteraktion, 1940. ¨ 54. DOW, E 21.481, Gestapo-Leitstelle Wien, Tagesrapport No. 9. 55. CAHJP, A/W 2598, Einwanderer-Informationsblatt des US-Generalkonsulats Wien, 1938. ¨ 56. DOW, E 21.481, Gestapo-Leitstelle Wien, Tagesrapport No. 9. 57. Ibid. As early as July 1938 the Gestapo complained to Rajakowitsch about eight interventions of the Gildemeesteraktion on behalf of prisoners of concentration camps. Following this, Rajakowitsch warned Gildemeester’s staff that it was not their duty to ‘submit petitions on behalf of Jews in prisons, but to keep in mind the broader objective of expelling all destitute Jews from Vienna. A few cases of people in protective custody are nothing compared to ¨ the masses of emigrants to be dealt with’. DOW, E 21.481, Rajakowitsch to Gildemeester’s office, 20 July 1938. 58. CAHJP, A/W 2723 (5), Fahrtkosten 1940. 59. CAHJP, A/W 2918, Bericht an das Pr¨asidium der Gildemeesteraktion. 60. CAHJP, A/W 2518 (4), Korrespondenz Gildemeesteraktion-IKG Wien, 1940–1. 61. CAHJP, A/W 2507 (3), Bericht uber ¨ die bisherige T¨atigkeit der Gildemeesteraktion, 4 December 1939. 62. Moser, ‘Gildemeester-Auswanderungshilfsaktion’, pp. 120f. 63. Herbert Rosenkranz writes that in June 1938 Gildemeester informed the Reichskanzlei about a permission he obtained from the ‘Prime Minister of Southern Australia’ to found a Jewish colony on the fifth continent: 20,000 Jews should be persuaded to migrate to Australia. See Rosenkranz, Verfolgung und Selbstbehauptung, pp. 83f. 64. LBI, Collection Hermann Furnberg, ¨ A 17/4, Box II, Correspondence: letter from Max Stoessel to Furnberg, ¨ wherein Stoessel mentions a project concerning Jewish emigration to Ethiopia, prepared by Furnberg ¨ and himself in 1937, in the town of Wiener Neustadt. 65. ‘Exotic proposals for Jewish refugee settlement in a number of improbable places, among them North-west Australia, Eritrea, Ethiopia, and the

244

66.

67.

68. 69.

70.

71. 72.

73. 74. 75. 76. 77.

78. 79. 80.

Peter Berger Mindanao area of the southern Philippines, flourished briefly in the official files, and were speedily consigned to the oblivion of the archives.’ Bernard Wasserstein, Britain and the Jews of Europe 1939–1945 (London, 1979). For details about how the two Gildemeester banks were to come into ¨ being, and their mode of operation, see DOW, E 21.481: Entwurf fur ¨ eine Umsiedlung der deutschen Nichtarier, Memorandum der GildemeesterAuswandererhifsaktion, August 1938. As early as August 1938 Gildemeester and Furnberg ¨ used the following arguments to plead for Jewish refugee colonies, and against unco-ordinated emigration to places scattered around the world: ‘Unfortunately one can already notice indications that countries whose capacity to absorb immigrants was overestimated in the past, now will try to counteract non-Aryan immi¨ gration with measures of utmost severity.’ DOW, E 21.481, Memorandum, August 1938. LBI, Collection Hermann Furnberg, ¨ Box II, Correspondence: Fritz Philipsborn, Amsterdam, to Furnberg, ¨ Rome, 25 October 1939. Malcolm Muggeridge (ed.), Ciano’s Diary 1939–1943 (London, 1947), p. 4. See also Documents on British Foreign Policy, 1919–1939, third series, vol. III (London, 1950), p. 519. Gildemeester seems to have been responsible for the publicity given to his Rome office by leading European newspapers such as the Algemeen Handelsblad (Netherlands), and Basler Nachrichten (Switzerland). LBI, Collection Hermann Furnberg, ¨ Box II, Correspondence: Philipsborn to Furnberg, ¨ 25 October 1939. ¨ LBI, Collection Hermann Furnberg, ¨ Athiopien-Kartothek. Several times Hermann Furnberg, ¨ acting as chairman of the European Gildemeester Organisation, declined to grant credits to emigrants for the booking of passages to China. To justify this, he maintained that certain death awaited Jews on their way to Shanghai. At the same time, Furnberg ¨ offered those who abandoned their Chinese plans immediate registration for Ethiopia. LBI, Collection Hermann Furnberg, ¨ Box III, Correspondence: applications by Jokl and Heller, 23 October and 10 November 1939. Ibid.: exchange of letters Nadel–Furnberg, ¨ 8 and 13 November 1939. Ibid.: exchange of letters Furnberg–F ¨ urth, ¨ 6–22 September 1939. Ibid.: exchange of letters Furnberg–Finkler, ¨ 19 September – 4 November 1939. Ibid.: Arthur Schubert (Milan) to Furnberg ¨ (Rome), 19 December 1939. Having reached New York after a troublesome journey, Furnberg ¨ resumed his efforts for a Jewish refugee settlement in Harrar in 1942. In the course of 1943 and 1944 he worked out a detailed concept to be submitted to the king of Ethiopia, Haile Selassie. LBI, Collection Hermann Furnberg, ¨ Materials Gildemeester, 1942–4. CAHJP, A/W 2719 (2), IKG, Korrespondenz Polizei und Vermogensver¨ kehrsstelle. LBI, Collection Hermann Furnberg, ¨ Box I, Flyers on Gildemeester. CAHJP, A/W 2807, Galvagni to the Zentralstelle fur ¨ judische ¨ Auswanderung, 29 January 1940.

The Gildemeester Organisation

245

81. D. Gilthay Veth and A. J. van der Leeuw, Rapport Weinreb, I (The Hague, 1976), p. 1224. ¨ 82. ‘Kenya als Auswanderungsziel osterreichischer ¨ Juden’, in Neues Osterreich, 26 March 1946. 83. Centraal Bureau voor Genealogie, The Hague: Residence certificate Frank van Gheel Gildemeester. 84. CAHJP, A/W 2719: Galvagni to Kraus, 17 February 1940 85. CAHJP, A/W 2507 (1), Korrespondenz AuswanderungshilfsaktionZentralstelle, 1940. 86. CAHJP, A/W 2807, Galvagni to Eichmann, 29 January 1940. 87. CAHJP, A/W 2719 (2), Korrespondenz mit Polizeistellen, Devisenstelle, etc.: Galvagni to the president of the Viennese police, Steinh¨ausl, and vicepresident of the police, Fitztum, 20 February 1940. 88. CAHJP, A/W 2713, Ausspeisung, June 1941 – August 1942. 89. The obvious reason for appointing a new head of the Auswanderungshilfsaktion was the Germans’ intention to ‘centralise’ all agencies dealing with Jewish matters. This strategy implied that Josef Lowenherz, ¨ ‘Direktor’ of the Vienna Jewish Community (‘Kultusgemeinde Wien’), was considered by the Nazis as the spokesman not only of religious Jews, but of all ‘non-Aryans’. Galvagni’s position became untenable, and he quit to resume his business career. For a discussion of Lowenherz’s ¨ duties see Rabinovici, Instanzen der Ohnmacht, p. 212. 90. CAHJP, A/W 2518 (4), Prochnik to Fasal, 19 July 1941. As a young man Prochnik was among the very few Jews in Austria who joined a nationalistic students’ association with members engaging in sabre duels. After 1945, he was accused of far-reaching collaboration with the Nazis. Cf. Rabinovici, Instanzen der Ohnmacht, passim. 91. CAHJP, A/W 2717 (1), Wochenberichte 1940–2, Antr¨age 8–12, December 1941. 92. CAHJP, A/W 2716, Liste von Mitarbeitern und Familienmitgliedern, die bis September 1942 gebraucht werden. 93. CAHJP, A/W 417, 1942. For a discussion of the status of ‘privileged Jews’ see Rabinovici, Instanzen der Ohnmacht, pp. 247ff. 94. CAHJP, A/W 2712, Merkblatt, 14 May 1941. 95. CAHJP, A/W 2724 (2), Wohnungsangelegenheiten, December 1941 – February 1942. 96. CAHJP, A/W 2727, Einweisung Mischehepaare in ger¨aumte H¨auser. 97. Moser mentions a few Mischlinge, Jews working in hospitals or old age asylums ¨ run by the Altestenrat der Juden, and Jewish partners in mixed marriages. Jonny ¨ Moser, ‘Osterreichs Juden unter der NS-Herrschaft’, in T´alos Emmerich, ¨ Ernst Hanisch and Wolfgang Neugebauer (eds.), NS-Herrschaft in Osterreich 1938–1945 (Vienna, 1988), p. 196.

11

Deutsche Lufthansa and the German state, 1926–1941 Peter Lyth

‘Airlines and politics have collided with each other from the beginning. The airlines, as they changed the shape of the world, were also locked into the ambitions of nations’ (Anthony Sampson).1

In its eighty-year history, the international airline industry has been funded by aircraft manufacturers, shipping companies, banks and starryeyed entrepreneurs, but by far the largest and most consistent source of support has been national governments; airlines, to a degree unmatched by any other transport mode, are children of the state. The reason for this close relationship is that air transport has had a political importance independent of its commercial possibilities. Three prominent features have virtually guaranteed that the state takes an interest in airline activities. First, international air transport, in contrast to transport by land or sea, intrudes without hindrance into a nation’s hinterland – enters, in the jargon of the trade, its ‘air space’ – and therefore airline operations have always had strategic implications. Second, because airlines rely on the most advanced technology in modern manufacturing, the state, owing to techno-nationalistic concerns, is highly prone to interfere in their management and aircraft procurement decisions. Third, there is the question of prestige. The major international airlines which were formed in the 1920s and early 1930s, i.e. KLM, Sabena, Imperial Airways, Deutsche Lufthansa, Pan American Airways, Swissair and Air France, were ‘flagcarriers’. They were granted monopolies on international airmail and passenger services by governments which, in return, expected them to implement national civil aviation policies and represent their country abroad – literally, ‘to carry the flag’. Of these seven flag-carriers, the German airline Deutsche Lufthansa is in several ways the most interesting for historians. It was typical of European airlines in that it was expected to pursue national goals in carrying out air transport policy and that it was dependent for its existence upon government subsidies. However, it was untypical in other respects. For example, alone among the seven, Deutsche Lufthansa represented a 246

Deutsche Lufthansa and the German state, 1926–1941

247

defeated power after the First World War and a country burdened by the provisions of the Versailles Treaty. This chapter considers the history of the airline, how it became Europe’s largest pre-war carrier – indeed how it became the pre-eminent ‘European’ airline – and what the role and purpose of the German state was in that achievement. German civil aviation in the Weimar Republic National industrial policy-making, as Frank Dobbin has noted in the context of the railways, ‘begins when nations identify collective problems that demand public solutions’.2 In air transport the problems arose quickly in the 1920s. The First World War had demonstrated the enormous potential of aircraft and there was no shortage of advocates – mainly pilots and aircraft manufacturers – willing to plead the cause of aviation’s civilian future. What the fledgling airlines showed, however, was that they could not fly on their own. Demand for passenger services was weak and the available transport aircraft were incapable of covering their operating costs. In Europe governments identified this problem with noticeable speed, and by the mid-1920s all the main European airlines were receiving some kind of state subsidy. Even in the United States there was implicit acceptance of the need for subsidy in the generous airmail contracts awarded to airlines by the Post Office after 1925.3 It was not just economic factors, however, which led the state to take an early interest in the airline industry. Because of the factors mentioned above, governments in Europe devoted an increasing amount of effort and resources to aviation. In Britain and other countries with colonies in Asia and Africa, it was seen as the key to reviving the imperial idea, as well as extending political and strategic power ‘on the cheap’.4 The French were unstinting with government subsidies and the state supported a number of French carriers, flying on separate routes.5 The British, the largest military air power at the end of the war, were initially opposed to aiding air transport companies, but the heavy losses of the start-up airlines in 1920 and 1921 led to a reversal in policy, and after the formation of Imperial Airways in 1924 the state subsidised a private monopoly for the remainder of the inter-war period6 (see table 11.1). For the Germans solving the air transport ‘problem’ involved a special factor. Germany had demonstrated in the war that in the new science of aeronautics it was probably the most advanced nation in the world. In drafting the Versailles Treaty, therefore, the Entente powers had been at pains to forbid Germany any kind of air force and to cripple its aircraft industry. They had prohibited the construction of airframes and engines, initially for a period of six months after the signing of the treaty, renewing the ban at

Table 11.1 Scheduled operational and financial performance of Deutsche Lufthansa and Imperial Airways/BOAC, 1924–41 Kilometres flown Europe (Millions)

Deutsche Lufthansa 19241 19251 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 Imperial Airways 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 19364 19374 19384 19394 BOAC 1940 1941

1.58 4.95 5.97 8.88 9.59 8.99 9.06 8.68 7.73 8.92 9.61 10.57 13.61 16.88 17.73 N/A 5.20 6.97 1.13 1.29 1.18 0.98 1.28 1.25 1.08 1.00 1.05 1.22 1.22 2.02 2.42 2.34 2.48 1.72

Intercont.2

0.02 0.19 0.65 0.95 0.85 1.05 1.35 2.11 2.79 3.41 4.69 6.05

Passengers carried Europe (Thousands)

13.42 55.18 84.59 102.68 110.00 87.01 76.89 82.99 86.58 94.87 130.76 163.99 232.06 277.35 254.71

Intercont.2

1.11 2.28 2.70 2.96 3.94 4.41 5.26 9.78 16.36 22.20 26.47

95.00 111.00

0.17 0.19 0.37 0.68 1.05 1.73 1.87 2.49 4.54 5.28 6.79 7.46 4.64

Mail Europe (Tons)

188 274 318 367 438 364 354 429 703 1,311 2,047 3,296 5,289

Revenue subsidy

Operating income

(RM millions) 1

2

1+2

8.29 7.37 10.56 18.04 22.85 25.29 30.31 33.66

4.68 8.96 17.95 30.04 30.50 29.22 24.45 26.14 22.50 27.87 38.69 42.50 46.50 55.25 57.11

Intercont.2

5 11 22 35 36 37 65 103 141 282

17.85 15.13 17.31 20.65 19.65 21.21 24.94 23.45

2,480 3

12.63 13.16 18.19 19.72 26.72 28.54 23.07 21.87 24.19 42.89 45.35 48.64 54.27 52.35 52.44 41.59

0.83 1.56 3.39 3.29 1.10 2.05 5.09 5.59 7.10 8.50 8.01 9.66 8.21

12.06 12.87

15.14 18.47

58 73 79 91 84 75 69 60 59 34 38

3 9 16 27 76 107 155 178 204 254 267

2.79 2.79 3.12 4.80 4.71 7.45 6.95 9.55 11.13 11.11 11.47 8.71 7.80

Source: Germany: Gerhard Voss, Die Subventionierung des deutschen Luftverkehrs (Konigsberg, ¨ 1934), p. 25; Wirtschaft und Statistik, No. 15 (18 August 1927), p. 667; Deutsche Luft Hansa, AG (Deutsche Lufthansa after 1934), Jahresberichte 1926–38; Der Lufthanseat, vol. IV, Hft. 5, May 1940, ‘Luftbrucken ¨ nach neutralen L¨ander’; Berliner Tageszeitung, 19 January 1941, ‘Gunstiges ¨ Ergebnis der Lufthansa fur ¨ 1941’. Britain: Robin Higham, Britain’s Imperial Air Routes, 1918 to 1939 (London, 1960), pp. 346, 348; Civil Aviation Statistical and Technical Review (Air Ministry, 1937); Cadman Report, HMSO, Cmd. 5685, 1938; Imperial Airways Limited, Report of the Annual General Meeting, 1927–38; BOAC, Annual Report and Accounts, 1940–1. Notes: 1 Figures for 1924 and 1925 are for German air transport, largely Deutsche Aero-Lloyd and Junkers-Luftverkehr AG. 2 Non-European operations by DLH were mainly on the South Atlantic route, the figures for which until 1931 included non-paying passengers. In addition there was some traffic to China after 1933 and a shuttle service to Bremerhaven for the North Atlantic steamer route. 3 Conversion rate for the £ sterling is set at RM 20.43 to the £ (the average rate for 1934). 4 After 1935 British Airways Ltd joined Imperial Airways in providing European mail and passenger services.

250

Peter Lyth

the time of the London Ultimatum in 1921. Ironically this measure probably strengthened the German aircraft industry. Prevented from making military aircraft, like its rivals in Britain and France, it had no alternative to devoting all its resources to civil aircraft production. Certainly the two leading German manufacturers, Junkers and Dornier, produced pathbreaking aircraft like the Junkers F-13 and the Dornier Wal flying-boat (in Italy, Scandinavia and Switzerland to circumvent the ban on domestic production) which sold well in Europe as well as in North and South America, and were used in commercial operations all over the world.7 There were of course alternatives to German aircraft available to airlines in the 1920s – Dutch Fokkers or British de Havillands were examples – but nonetheless Germany led the field in civil aircraft construction and it is a reasonable assumption that without the restrictions imposed by the Entente in 1921 German manufacturers would have dominated the world aircraft market in the 1920s.8 Another determinant of the German response to the challenge of air transport was her lack of colonies, the few she had had in 1914 having been taken from her at Versailles. Unlike Britain, France, Holland and Belgium, Germany was not distracted into establishing long and tenuous air links with outposts in Africa and Asia. Instead it concentrated on Europe. The problem with this approach was that air transport needs long distances to be cost-effective or profitable, and the Germans did seek out long-haul destinations, settling on the Far East and, in particular, South America. A further factor in the German situation was the federal structure of Weimar Germany. The country had a number of major centres, besides Berlin, which could all lay claim to being important hubs in any future air transport network. In similar fashion to the United States but in contrast to Britain or France, Germany developed an elaborate domestic network in addition to international connections. These centres – Bremen, Cologne, Dusseldorf, ¨ Frankfurt, Hamburg, Hanover, Leipzig, Mannheim, Munich, Stuttgart, and many smaller cities besides – were anxious to take a stake in any airline enterprise as municipal stockholders. The ‘state’, in the German case therefore was the federal government plus a large number of municipal regimes across the length of the country. When German air transport began in 1919 it did so without state support. The Deutsche Luftreederei (DLR), founded in 1917 by the electrical giant AEG and the HAPAG shipping line, with the support of the Deutsche Bank, started a regular service with two aircraft in February 1919, carrying mail, newspapers and the occasional passenger between Berlin and the new assembly at Weimar. A few months later Sablatnig began a service from Berlin to Warnemunde ¨ on the Baltic coast, following it with the first German international air service to Copenhagen. Other

Deutsche Lufthansa and the German state, 1926–1941

251

companies sprang up quickly, many of them aircraft manufacturers such as Junkers, Rumpler or Albatross, which launched transport companies to market their products. Some airlines were started by local authorities in order to connect their city to what they perceived to be a growing transport network, just as they had competed for rail links seventy years earlier.9 By the end of the year no less than forty-eight firms had received licences to fly commercial air transport routes in Germany from the newly founded Reichsamt fur ¨ Luft- und Kraftfahrtwesen within the Reich Transport Ministry.10 Many of these airlines were poorly financed, many flew only short routes connecting a single town to another network, some did not even fly at all, and quite a few quickly went bankrupt. In the next five years the German government began to subsidise the industry and the inevitable process of fusion and consolidation took place. By 1921 Germany had already built up the largest air transport sector in the world. ‘Germany leads civil aviation’, noted the French newspaper Le Figaro with some alarm. ‘Firstly it has the most extensive network, secondly it flies the most miles, and thirdly it has the most and best aircraft.’11 At home the Germans saw aviation as the key to economic recovery and political rehabilitation in Europe. It is also striking how civil aviation attracted many former military flyers with a common attachment to right-wing or nationalist beliefs.12 Amongst the aircraft manufacturers there was a strong conviction that private industry should work closely with the government to promote the new enterprise; the state should recognise and embrace aviation’s special importance and potential: The appearance of German aircraft abroad, the establishment of German air transport organisations in those markets where the German merchant seeks trade or German industry wants to establish itself, where Germany has political goals, seems more effective and promising of success than any other means of propaganda available to the German people.13

By 1923 the consolidation process had yielded two competing airline groups: the Deutsche Aero Lloyd (DAL), which had emerged out of a fusion between the two main protagonists of the ‘north German shipping interest’, i.e. the DLR and the Lloyd Luftdienst (a group formed out of the air transport interests of HAPAG’s rival, the Norddeutsche Lloyd);14 and the Junkers Luftverkehr AG, the transport arm of the aircraftmanufacturing enterprise founded in Dessau by Professor Hugo Junkers. The DAL and Junkers were very different concerns. The DAL was a pure transport undertaking backed by shipping lines, banks, the AEG, Siemens, Thyssen, the Deutsche Petroleum AG and the Zeppelin company. The latter was the world’s foremost builder of airships, which also happened to control about a third of Junkers’ chief rival, Dornier. The

252

Peter Lyth

common element in DAL’s growth was the crucial role of the Deutsche Bank, from whose midst the airline’s first chairman, Kurt Weigelt, was selected.15 The DAL was an early exponent of what became the classic operating characteristic of European flag-carriers, namely a strong preference for co-operation and collaboration with other European airlines, and a distrust of ‘wasteful competition’. It was an early member of the International Air Traffic Association (IATA), an airline cartel, and a strong advocate of the practice known as ‘pooling’, by which European airlines formally agreed to share the capacity and revenue on international routes.16 Politically, DAL represented what one might call ‘Stresemann Germany’, i.e. it was close to the German People’s Party (DVP) and anxious to see the country restored to a position of full economic and political equality in Europe. By contrast, Junkers had a different style and tradition. Where DAL was collaborative, Junkers was competitive; where DAL favoured ‘pools’, Junkers sought to create a ‘union’ system across Central Europe that was primarily intended to help the company sell its aircraft.17 The Junkers aircraft company had opened its air transport department under the former air ace and Free Corps leader Gotthard Sachsenberg in 1921. Then, in August 1924, the separate Junkers Luftverkehr AG was formed. The separation of the air transport company from the aircraft and engine concern took place against the backdrop of the stabilisation period in Weimar Germany; the main company was facing bankruptcy as a result of rising wage costs in aircraft construction and had to turn to the German government for financial support.18 The diversification into air transport was a deliberate strategy to tie airlines to Junkers’ products and thereby secure its market. In October 1923 the Trans-Europa Union was founded in Munich and the Nord-Europa Union in Finland, both groups of subsidiaries being run by Sachsenberg. By 1925, when the two groups were merged to form the Europa-Union, Junkers controlled sixteen European airlines flying nearly 100 Junkers aircraft, nearly all of them F-13s.19 The differences between DAL and Junkers led to friction and route duplication, and their rivalry made a single national air transport policy, such as was being developed in Britain or Holland, more difficult to achieve. Nonetheless the Germans admired the trend towards monopoly formation elsewhere in Europe and wanted to copy it. Writing in 1926 Kurt Weigelt looked back and saw Imperial Airways’ formation in 1924 as the ‘forerunner [Vorl¨aufer] of what we have achieved with the formation of Luft Hansa’.20 The Deutsche Bank, moreover, had an interest in both DAL and Junkers and was unhappy about the competition between them.21 At DAL, Weigelt pushed for a merger; costs would be saved and Germany could ‘not afford to allow the resources of a new enterprise

Deutsche Lufthansa and the German state, 1926–1941

253

[air transport] which is still dependent on subsidy, to be frittered away on wasteful competition’.22 Besides Weigelt, the Deutsche Bank director most concerned with air transport, Emil Georg von Stauss, also wanted to see a fusion between the two companies. Weigelt and Stauss saw Junkers as poorly managed, by dilettantes like Sachsenberg, and as a company which was concerned only to market its costly aircraft projects. For its part Junkers was set against any merger with DAL, but it was in a very weak position. In 1925 it was practically insolvent, partly as the result of failed aircraft production in the Soviet Union, and it had to be rescued by the state from financial collapse. More or less in state ownership and dependent on the government for aircraft contracts, Junkers had little room for manoeuvre.23 The government had an obvious interest in pushing the two into a ‘forced marriage’; like the British government at the time of Imperial Airways’ creation, it believed that there was no economic sense in subsidising competing airlines which would ultimately go bankrupt at taxpayers’ expense. Civil aircraft were still a long way from being able to cover their costs and air transport would be dependent on public financing for the foreseeable future. Thus the limitations of the available technology determined the role of the state. The merger took place in January 1926 and the result was Deutsche Luft Hansa (DLH).24 The new company took over the air transport interests of the two constituent airlines, its aircraft, its routes and its differing commercial philosophies. It was not an operational monopoly in itself; rather it had a monopoly on subsidies from the Reich government. However, the regional interest in air tranport did not end and although the Reich took a 26 per cent interest in DLH through its near total ownership of Junkers, the German L¨ander took 19 per cent and the regional airlines another 27.5 per cent (the remaining 27.5 per cent was held by the private capital behind DAL).25 DLH began regular services in April and celebrated with a new route from Berlin via Cologne to Paris, operated in pool with the French airline Lignes Farman. The operational philosophy (i.e. pooling) was drawn from DAL; the aircraft were from the Junkers factory. During the course of its first year, DLH’s aircraft fleet rose from 100 to 120 planes – larger than any other airline in Europe – and its staff strength from 934 to 1,527.26 Analysing DLH’s performance between its creation in 1926 and the Nazi seizure of power seven years later, is complicated by the unhelpful character of its annual reports, although this is a feature it shared with other airlines such as Imperial Airways. One looks in vain in the annual report for 1926 for an explanation of the ‘gross surplus’ (Roh¨uberschuss) of 6.92 million Reichsmarks, which is balanced against costs of 1.247 million RM and depreciation of 5.666 million RM in the profit and loss

254

Peter Lyth

account. DLH’s aircraft and engines were worth 11.32 million RM, so the depreciation seems very high. On the other hand, this was a time of rapid technological change in aeronautics and there was a high rate of aircraft replacement amongst all the airlines. The high gross surplus in the balance sheet reminds us that actual earnings from passenger and freight services played a minor role; the most important income came from Reich and L¨ander subsidies. In particular, DLH received substantial sums from participating cities and L¨ander for setting up and operating specific air services. Although there is no way of telling from the accounts, one estimate reckoned that income from passenger and freight probably came to no more than 30 per cent of the total income for DLH in 1926.27 What we do learn from DLH’s reports up to the onset of the Depression in 1929 is something of the airline’s objectives as the new German flagcarrier. Three were clearly important. First, there was an urgent need to rationalise the largely duplicated domestic routes of DAL and Junkers. The airline needed to reduce their number so that it was less dependent on municipal subsidies, which were conditional on the provision of unprofitable local services, and instead to expand those international services within Europe which received an unconditional Reich subsidy. A second goal was the development of long-distance routes to the Far East and across the Atlantic to Brazil, Argentina and ultimately the United States. As early as 1926 it was accepted in German aviation circles that the Atlantic represented the main chance for air transport to prove itself commercially. The ocean had no competition from surface transport and it had the promise of the world’s largest passenger market in the United States. However, what was needed were aircraft with the range to cover the distance carrying a reasonable payload, and for this DLH would have to wait another thirteen years. In the meantime, and this was the third goal, the airline had to modernise and rationalise its aircraft fleet. With the merged fleets of DAL and Junkers it had too many different types and it faced a hopeless task when it came to their maintenance and the provision of spares. The men responsible for guiding DLH to these objectives were, from the constituent companies, Otto Merkel and Martin Wronsky of DAL, and Erhard Milch of Junkers. Wronsky represented DLH in negotiations with other airlines and had been a co-founder of IATA while at DAL. Merkel was designated to take charge of commercial affairs, while Milch, like Sachsenberg an ex-pilot and Free Corps member, was technical director. In fact it was Milch who proved to be the best manager, and the chairman of the DLH board, Stauss, manoeuvred him into the position of managing director by dispatching Merkel on a long trip to the United States. With Milch at the helm DLH began a period of expansion and

Deutsche Lufthansa and the German state, 1926–1941

255

development. In Europe the network was expanded south and eastwards, and DLH pioneered the first night flights when it began an airmail service from Berlin to London in May 1929. In 1931 it crossed the Alps with the first passenger services from Munich to Venice and Rome. In the same year it also introduced the giant thirty-four-seat Junkers G-38 into service on the Berlin–Amsterdam–London route.28 In aircraft procurement DLH brought monopsonist stability to the German aircraft industry, creating volume and specialisation within the different firms, and encouraging competition between them. Until 1930, however, it was not its own boss in placing orders, as its subsidies were partly paid in kind as aircraft, which were ordered by the Reich Ministry of Transport. Milch’s relations with his former employer at Junkers were now strained, and dealings between the airline and Germany’s leading aircraft manufacturer remained tense and difficult. Hugo Junkers was a brilliant engineer and his planes laid the technological foundation of DLH. However, he was never reconciled to its creation and initially he tried to boycott the airline, refusing to work with Milch on the development of new aircraft. To make matters worse the volatile Sachsenberg, the former director of Junkers Air Transport, was now a Reichstag deputy and agitating against DLH’s monopsonist position. The politicised nature of the relationship between the German state and the national airline at the beginning of the 1930s, manifest through the highly contested territory of funding for new technology, is clear from the clashes over DLH in the Reichstag. Only when Junkers was hit by a further crisis at the onset of the Depression was it ready to develop a new airliner, resulting in the legendary Ju.52, which was of great importance to the airline’s expansion in the 1930s, not to mention the vital role it was to play as a military transport for the Luftwaffe.29 The Depression hit DLH immediately through the umbilical cord of Reich subsidies. The airline had already made over 30 per cent of its staff redundant in 1928 when, in April 1929, the Reich subsidy to DLH was cut without warning by 50 per cent as part of a measure to make savings in the national budget. Further job cuts and short-time working were introduced and the airline’s expansion plans were put on hold.30 DLH responded by lobbying the Reichstag and seeking to win over deputies to its position. The Nazi member Hermann Goring ¨ (another former air ace) was the target of its efforts and after 1928 he received substantial sums from DLH to represent its interests in parliament.31 Although the full effect of the subsidy cuts did not make itself felt until 1930 (see table 11.1), the atmosphere at DLH was sour. Milch complained that DLH was ‘losing its lead to the foreign airlines’, although there is little evidence of this and the crisis actually brought benefits in so far as it forced

256

Peter Lyth

the abandonment of loss-making short-haul passenger services within Germany in favour of more mail and express cargo services.32 Up until 1928 DLH had written off up to 15 per cent of its fleet per annum in order to take delivery of the aircraft that were supplied to it as a subsidy from the Reich Transport Ministry. After 1929, with the need for fleet rationalisation overwhelming, it was able to reduce the size of its fleet and introduce fewer but larger types; thus in 1929 it had 191 aircraft, in 1932 it had 147.33 A further gain from the crisis was that after 1929 the practice of awarding the Reich subsidy annually was discontinued and instead a fixed award was made until 1932. This allowed DLH greater latitude for long-term route planning, while the legislative change ended the habit of supplying aircraft from the ministry; henceforth the formal responsibility for aircraft orders would lie exclusively with the airline.34 Thus the German flag-carrier was already ‘leaner and meaner’ as the Nazis came to power. Deutsche Lufthansa and the Nazi state The Nazi seizure of power in January 1933 had profound consequences for the future of DLH, eventually leading to its total destruction in 1945. Initially, however, the National Socialist government was a blessing for the German flag-carrier. Hitler was an enthusiastic flyer and DLH had placed an aircraft more or less entirely at his disposal during his nonstop campaigning in 1932. Goring, ¨ the former pilot, had ambitious plans for German aviation and in one of the first acts of the new regime he was appointed to head a new Reichsluftfahrtministerium (Air Ministry). At DLH, Stauss was enchanted by the prospect of a government which would support the airline wholeheartedly and allow it to plan its finances on a more long-term basis without parliamentary interference. He now encouraged Milch to take up Goring’s ¨ offer of the position of State Secretary in the new ministry and when Milch accepted, DLH gained a guardian angel on the inside of the Nazi political establishment.35 Milch went on to become the single most important figure in the development of the Luftwaffe and, as Goring’s ¨ deputy, the ‘real architect’ of German air power in the 1930s.36 However, it is with his continued role as a director of DLH that we are concerned here. With Milch in a senior position in government, the airline entered a period of uninterrupted expansion and innovation. Table 11.1 reveals a number of indices of the airline’s growth and compares them with the British flag-carrier Imperial Airways. The data are not entirely comparable and the method of collection differed in Britain and Germany, but they were both sole recipients of state subsidies at the time (Imperial Airways until 1936, after which it had competition

Deutsche Lufthansa and the German state, 1926–1941

257

for subsidies from British Airways Ltd), and the figures do allow us some conclusions about the trend and direction of civil aviation in the two countries. The dimensions of DLH’s achievement are clear not only from the fact that it was Europe’s biggest airline, but that it was the biggest by a very large margin. DLH flew seven times as far as Imperial on European networks in 1938 and even exceeded the British airline on intercontinental routes (i.e. on its services in South America and Asia) that year, despite the fact that Imperial had the longest route network in the world. In passenger numbers, DLH’s lead was equally impressive. In 1938 it carried over a quarter of a million passengers on European services alone, which, while not quite equal to American trunk carriers like United Airlines, is nonetheless suggestive that the German airline was approaching the level of a mass carrier in Europe. Its airmail operations, including its famous night services, were also noteworthy. In 1937 it carried over 3,000 tons of mail in Europe, compared with only 38 tons by Imperial. (Imperial was by this stage concentrating wholly on its Empire Air Mail service on which it carried 267 tons that year.) Financially DLH was an altogether bigger operation than Imperial and, as can be seen from column 1 of ‘Revenue’ (table 11.1), its subsidy was consistently higher. Unfortunately it is difficult to detach operating income from subsidy for Imperial Airways, although we know that the British airline did achieve, or at least claimed to have achieved, a lower subsidy-to-operating-income ratio than other European airlines.37 In any case, DLH received a larger grant and also managed to push its operating income as a proportion of subsidy over the 50 per cent mark in 1935. By 1938 the ratio of operating income to subsidy was 59:41, which suggests, should one be tempted to speculate, that by 1950 (had there been no war) DLH could have been a profitable and commercially independent airline. In practice it is doubtful if profitability was ever a serious objective for the DLH board in the 1930s.38 Such was the degree to which DLH became a political entity under Milch’s leadership – the civilian twin of the Luftwaffe – that other criteria took priority. Of these, three were clearly of importance: fostering the development of new aircraft; opening new routes and airline subsidiaries abroad; and serving as a vehicle for propaganda (a goal it shared with all European flag-carriers). Milch, who appreciated the value to an airline of a standardised aircraft fleet, had already begun the process of rationalising the DLH fleet before the Nazis assumed government and the wide range of different aircraft it owned was being reduced. The airline now concentrated on specific types for specific jobs, so that maintenance work was reduced and fewer spares needed to be held in stock. In 1932 it introduced the tri-motored

258

Peter Lyth

Junkers Ju.52, which carried seventeen passengers and was the European equivalent of the ubiquitous Douglas DC-3. The Ju.52 was very much a DLH creation. Indeed, it was Milch who persuaded Junkers to power it with air-cooled radial engines produced by BMW under a licence from the American Pratt & Whitney company, instead of Junkers’ own engines.39 The Ju.52, affectionately known as the ‘Tante Ju’, was the most produced civil aircraft in pre-war Germany and by 1935 was flying on 85 per cent of the DLH network. Meanwhile, the airline’s other pressing task – carrying the mail – needed a smaller, faster aircraft and this requirement was met with a new generation of high-speed machines. In 1934 DLH brought the streamlined Heinkel He.70 Blitz into service, flying mail and three or four passengers between Berlin, Hamburg, Cologne and Frankfurt at up to 290 k.p.h.40 The He.70, and its Junkers rival the Ju.160, represented an attempt to catch up with the Americans and particularly with fast new models like the Lockheed Orion. They exemplified the second strand of the prevailing aeronautical trend in the 1930s, namely greater speed; what remained to be accomplished by the German manufacturers was to combine speed with the greater passenger capacity of the Ju.52. DLH functioned more or less openly as a research and development arm for new aircraft and the nascent German air force during the Nazi period. In a debate on civil air transport in the House of Commons towards the end of the Second World War, Edgar Granville, MP for Eye, echoed a widely held view when he noted that ‘Germany’s great effort was made largely behind the shield of the Luft Hansa. She was producing civil prototypes, and we know now that these were in many ways the basic design of some of the bombers she produced for the present war.’41 Given that German production of military types was still prohibited when the Nazis came to power (although the ban on civilian production had been lifted in 1926), this should have come as a surprise to no-one. In any case, Germany was not the only country where civil airliners were designed and built with a military use in mind – this was true of Britain, France and the United States. Nor was it the only country where technological advances in civil types were of immediate benefit to the construction of bombers and fighters.42 DLH was frequently used as a camouflage for Luftwaffe experiments, for example the purchase by the airline in 1934 of two American Boeing 247s. This was a highly advanced aircraft at the time and both Junkers and Heinkel were eager to study its advanced control surfaces, radio installation, de-icing equipment and supercharged engines. The German twin-engined aircraft which resulted from DLH’s trials with the Boeing were the diesel-powered Junkers Ju.86 and the Heinkel He.111, both of which were easily converted into bombers and in the latter case became the workhorse of the Luftwaffe’s wartime bomber force.43 In

Deutsche Lufthansa and the German state, 1926–1941

259

addition to their suitability for conversion into bombers, these ten-seat aircraft were also DLH’s first modern types, bridging the gap referred to above between the speed of the He.70 and Ju.160, and the capacity of the Ju.52. They entered service with the airline in 1936, replacing the high-speed machines, although not the Ju.52s.44 DLH’s route policy under Nazi management was a continuation of the initiative begun during the Depression to reduce the number of domestic routes, at the same time ‘thickening’ the remaining links with higher frequencies and increased passenger capacity.45 As the Nazis centralised the German state and weakened the power of the L¨ander, so the financing of DLH was gathered into the hands of Goring’s ¨ Reichsluftfahrtministerium. In the Weimar period many of DLH’s routes existed only because little towns wanted to be connected to the air network and, flying from one major centre to the next, an aircraft could expect to stop at every community that was financing it along the route. In the 1920s, when aircraft range was severely limited, this was not such an inconvenience, but in the 1930s aircraft became bigger and faster and such interruptions were plainly uneconomic. The move to fewer but longer and thicker routes (more frequencies and more passengers) was a first step towards the building of an ‘intercity’ network in Germany such as we associate with the modern Lufthansa. The Nazis presided over a period during which the Germans established the first major domestic air transport system in Europe, a development which was helped by the fact that more business people were flying between German cities in the 1930s and the real cost of a DLH air ticket was falling.46 DLH also expanded the more profitable long-distance and overseas routes. In Europe it expanded north into Scandinavia and the Baltic states, south-east into the Balkans and south-west towards the Iberian peninsula – all important markets or trading partners of the new Nazi Grossraumwirtschaft. In fact Spain had been a DLH destination since 1928 when the German airline had founded the Spanish carrier Iberia as a first step towards a through service to South America. Germany had fostered ties with South America since the end of the First World War, and in the 1920s German capital, aircraft and pilots had established air transport undertakings in countries such as Bolivia, Brazil, Colombia and Ecuador.47 It is not surprising, therefore, that while the colonial powers were extending their air links into Africa and Asia, Germany was trying to accomplish the more ambitious feat of crossing the South Atlantic ocean and reaching its ‘German colony’ in South America. The hub of the system there was the Brazilian Condor Syndicate, which was controlled and financed by DLH. The Germans poured money into Condor during the Nazi period so that by 1941, according to an American source, Condor

260

Peter Lyth

had cost DLH nearly US$3 million in losses, despite a subsidy from the Brazilian government.48 Crossing the South Atlantic from West Africa to the Brazilian coast was an enormous technological and logistical challenge, the equal of anything being attempted by Imperial Airways or Pan American Airways in the early 1930s, and the prestige value of establishing a regular service across the ocean – if only for mail – was keenly appreciated by DLH’s Nazi propagandists.49 In doing so DLH supported flying-boat development by the Dornier company and introduced a novel system of catapulting the Dornier Wals from stationary ‘mother ships’ anchored off the African and Brazilian coasts. In 1934 the airline began a regular weekly airmail service to Brazil and Argentina and by 1939 it had crossed the South Atlantic nearly 500 times.50 A much bigger challenge than the route to Brazil was the North Atlantic. On the southern ocean DLH only faced competition from the French and Italians, but on the North Atlantic everyone was interested because it was the one international long-haul route on which profitable operations could be expected. Unfortunately the North Atlantic was also extremely long and bedevilled with foul weather, and crossing it with an economic payload was beyond the capabilities of aeronautical technology until just before the outbreak of the war. The Germans had started to experiment with North Atlantic crossings as early as 1928 when a Heinkel He.12, with a load of mail, was catapulted from the liner Bremen 400 kilometres short of New York. In the next few years DLH increased the number of catapulted airmail deliveries on the North Atlantic and had carried out over 200 by 1935.51 In 1936 the catapult idea was replaced with the ‘mother ship’ concept, pioneered on the South Atlantic, and Dornier flying-boats carried out trials on the route from Lisbon (via the Azores) to New York. In 1937 the Dorniers gave way to four-engined Blohm & Voss Ha.39 flying-boats and in 1938 twenty-eight Atlantic crossings were carried out.52 However, although DLH now felt it had the record and experience to begin scheduled airmail services to and from the United States, the Americans, for reasons which appear to have been political, denied them the concession. The DLH director Walter Luz was clearly contemptuous of American motives when he wrote in the Voelkischer Beobachter: Although Germany has shown the world that it is capable of flying scheduled mail services from Germany to the United States, the overwhelming evidence of this fact does not seem to satisfy the politicians on the other side of the ocean, who persist with their anti-progressive attitude [den Fortschritt hemmende Haltung].53

The final triumph for DLH before the outbreak of the war was the introduction of four-engined landplanes into scheduled passenger service. In

Deutsche Lufthansa and the German state, 1926–1941

261

August 1938 the twenty-six-seat Focke-Wulf FW.200 Condor appeared and in 1939 it completed a non-stop flight from Berlin to New York in 24 hours.54 As one commentator has put it, ‘for the Germans the long debate over whether long-haul transport aircraft should be landplanes or flying-boats was ended in favour of the former’.55 Thirty FW.200s were on order for DLH in 1939 and they would have been a major factor in the ‘battle of the Atlantic’ between the major airlines, had the war not intervened. As it was, further development of the civil version of the FW.200 was halted and the aircraft served out its days during the war in a longrange reconnaissance role. The other four-engined airliner ordered by DLH was the Junkers Ju.90 which, with seating for forty passengers, was equal in capacity to the American four-engined types introduced during the war, i.e. the Douglas DC.4 and the Lockheed Constellation. The propaganda value of these German aircraft, as well as the pioneering role of DLH on the Atlantic, was widely exploited by the Nazi government. It was, after all, a regime fascinated by the novelty and power of aviation, as the slogan Fliegen heisst Siegen! (‘Flying is Victory!’) suggests. DLH considered its duty was ‘to arouse, deepen and foster the spirit of air consciousness among the German people’, as well as serving ‘as the chief customer and pioneer for the products of the German aircraft industry’.56 For the aviation publicist J. B. Malina, both DLH and German aircraft were the ideal ‘visiting cards’ for German industry: ‘every aircraft and every airship [was] proof of the spirit of growth [Aufbaugeist] of National Socialist Germany . . . every German aircraft with the swastika on its tail, is a fanfare to German willpower.’57 Malina’s rhetoric may sound facile to modern ears, but there is little doubt that DLH accomplished an important task for the Nazi regime in the years before the Luftwaffe was fully established. The airline instilled aviation consciousness in the German people and performed the role of a proxy airforce. DLH aircraft took crowds of German school children on summer joy-rides in the late 1930s and many more Germans, who would not normally have flown, enjoyed round trips to holiday resorts organised by the KdF (‘Strength-throughJoy’) movement. With the outbreak of war German air space was closed and DLH’s operations interrupted, but the pause lasted only as long as the military campaign in Poland and by the last week of September 1939 the resumption of services had begun, starting, appropriately enough, with a service 58 Henceforth the airline was to from Berlin via Danzig to Konigsberg. ¨ perform a more clearly defined ‘national’ role and many of its aircraft were commandeered or chartered by the Luftwaffe as transports. However, many were not and DLH’s European network was restored to a remarkable degree during the early part of the war. In the first eight months

262

Peter Lyth

of 1940 DLH carried 60,000 passengers despite the fighting in the west. Indeed, the fact that war had forced a lot of people onto the move, particularly those in or connected with the German armed forces, seems to have increased demand for airline seats and it was only shortage of capacity that prevented DLH from carrying more.59 By the spring of 1941 the airline had rebuilt a star-shaped network radiating out from Berlin to northern Norway, Finland, Moscow, the Balkans, Rome and Lisbon; only its pre-war routes in Western Europe were missing. DLH now had an overwhelming predominance in European air transport and although it co-operated with nine other European airlines, including Swissair and the Swedish carrier ABA, it was approaching the position of a monopolist on the continent.60 In 1941 passengers numbers rose to 111,000 – a figure in excess of the 1933 level (see table 11.1). Conclusion DLH’s wartime success was, of course, short-lived and the airline’s fortunes during the remainder of the war mirrored those of Nazi Germany itself. By the spring of 1945 it had lost most of its aircraft and had few destinations left to which it could fly. Its last scheduled flight arrived in the ruins of Berlin from Spain in mid-April; the company finally went into liquidation in 1951. The obvious conclusion that can be made from looking at the history of Germany’s first flag-carrier is that DLH was Europe’s first ‘European’ airline. And there is considerable irony in the fact that it was Deutsche Lufthansa during the Nazi regime that came close to creating what many European air transport executives and functionaries dreamed of achieving in the 1950s, namely a single European airline with the power and resources to match Pan American Airways.61 A more speculative conclusion which might be drawn from the story of DLH concerns the relationship between international airlines and the projection of national power. Mention has been made of DLH’s large investment in the airlines of South America. This took the form not only of financial support for fledgling airlines in the regions of that continent where surface transport was poor, but also the supply of German aircraft, German pilots, German ground crew and even German accountants. The scale of this investment in South America exceeded anything achieved, for example, by the British with Imperial Airways in Africa or India in the 1930s. It is not surprising therefore that some people were disturbed by what they saw as a German ‘invasion’ of South America, and this was particularly so in the United States. In a widely read article which appeared in the journal Foreign Affairs in January 1941, it was claimed that the presence of German capital and aeronautical know-how

Deutsche Lufthansa and the German state, 1926–1941

263

in the airlines of South America was not only an obstacle to the expansion of American enterprise there (a traditional US concern), but also posed ‘a definite threat to the security of the United States’.62 In other words, DLH’s planes were on a collision course with the Monroe Doctrine. Were the Americans right to be concerned? With the benefit of hindsight we might view their fear that the Panama Canal was menaced by German paratroopers hidden in the Ju.52s of the Condor Syndicate as far-fetched, although we have to remember that the article was written only a few months before the Japanese attack on Pearl Harbor. It is interesting, however, to consider how the Americans would have reacted to DLH’s activities in South America, had it been the flag-carrier of a democratic Germany – of the Weimar Republic, in fact – instead of what they saw as a weapon in the hands of a fascist dictator. This goes to the heart of the link between international air transport and the exercise of state power. In the inter-war years commercial air transport was still a novelty and its potential was both exaggerated and misunderstood. Few people saw airlines as commercial entities in the way that we view them today, largely because, being dependent on state support, they did not operate according to commercial rules. It was easy then to see them as an extension of the national air force, or as a propaganda vehicle, but not as an innocent transport enterprise. It is perhaps noteworthy that the new West German airline, which arose from the ashes in 1955 under the old name of Lufthansa, operated according to much more commercial principles than its famous predecessor. The first aircraft it bought were American Convairs and Lockheed Constellations.     1. A. Sampson, Empires of the Sky: The Politics, Contests and Cartels of World Airlines (London, 1984), p. 19. 2. Frank Dobbin, Forging Industrial Policy. The United States, Britain and France in the Railway Age (Cambridge, 1994), p. 20. 3. T. A. Heppenheimer, Turbulent Skies: The History of Commercial Aviation (New York, 1995), pp. 5–36. 4. See David Edgerton, England and the Aeroplane: An Essay on a Militant and Technological Nation (Basingstoke, 1991). 5. See, for example, R. Esperou, Histoire d’Air France (Paris, 1986), Emmanuel Chadeau (ed.), Histoire de l’aviation civile (Vincennes, 1994). 6. See Eric Birkhead, ‘The Financial Failure of British Air Transport Companies, 1919–1924’, Journal of Transport History, 4 (1960), 133–45, Robin Higham, Britain’s Imperial Air Routes, 1918–1939 (London, 1960), Peter J. Lyth, ‘The Changing Role of Government in British Civil Air Transport, 1919–1949’, in Robert Millward and John Singleton (eds.), The Political Economy of Nationalisation in Britain, 1920–1950 (Cambridge, 1995), pp. 65–87.

264

Peter Lyth

7. The Junkers F-13 was the first successful airliner, and 314 were sold to thirtyone airlines in the decade between 1919 and 1929; see R. E. G. Davies, Lufthansa: An Airline and its Aircraft (New York, 1991), pp. 14–15. For a general account of Junkers’ achievement, see Gunther ¨ Schmitt, Hugo Junkers und seine Flugzeuge (Stuttgart, 1986). 8. For an account of the early German aircraft industry, concentrating on the military side, see Lutz Budrass, Flugzeugindustrie und Luftr¨ustung in Deutschland 1918–1945 (Dusseldorf, ¨ 1998), pp. 21–232. 9. Peter Supf, Das Buch der deutschen Fluggeschichte, vol. II (Stuttgart, 1958), pp. 545–9, Heinz Orlovius, ‘Das Werden der deutschen Luftfahrt’, in H. Orlovius and E. Schultze, Die Weltgeltung der deutschen Luftfahrt (Stuttgart, 1938); Bernd-Maniem Appel, Entwicklungsbedingungen f¨ur Luftverkehrsunternehmen in Deutschland, 1919–1926 (Frankfurt/Main, 1993). 10. Der Flieger, no. 56 (1976), 46. 11. 5 November 1921, quoted in Supf, Fluggeschichte, p. 554. 12. Peter Fritzsche, A Nation of Flyers: German Aviation and the Popular Imagination (Cambridge, Mass., 1992). 13. Memorandum from Verband Deutscher Luftfahrzeug-Industrieller, Ev., 24 January 1924, Reichswirtschaftsministerium, Luftverkehr, R-3101/7370, Bundesarchiv, Berlin. 14. Included in this group were the aircraft manufacturers Sablatnig and Albatross. 15. In a typically German arrangement, two-thirds of the voting rights were controlled by the Deutsche Bank: Appel, Entwicklungsbedingungen, p. 113. For the role of the Deutsche Bank in Deutsche Lufthansa’s foundation, see Harold James, ‘Die Fruhgeschichte ¨ der Lufthansa: Ein Unternehmen zwischen Banken und Staat’, Zeitschrift f¨ur Unternehmensgeschichte, 42 (1) (1997), 1–10. 16. In 1923 DAL opened a pool service with the British carrier Daimler Air from Berlin, for Hamburg, Bremen and Amsterdam to London. 17. Martin Wronsky, in the ten-year Deutsche Lufthansa edition, Die Luftreise: Zeitschrift f¨ur Luftverkehr, Lufttouristik und Flugsport, January 1936, p. 15. 18. Gerald D. Feldman, The Great Disorder: Politics, Economics and Society in the German Inflation 1914–1924 (New York and Oxford, 1993), p. 843. 19. For the formation of Junkers-Luftverkehr AG in 1924 see Appel, Entwicklungsbedingungen, pp. 118–24. 20. Hamburger Fremdenblatt, 18 May 1926, ‘Der deutsche Luftverkehr vor neuen Aufgaben’. 21. Harold James, ‘Die Fruhgeschichte ¨ der Lufthansa: ein Unternehmen zwischen Banken und Staat’, Zeitschrift f¨ur Unternehmengeschichte, 42 (1) (1997), 4. 22. Kurt Weigelt, Zusammenschluss in Luftverkehr (originally 1925, reprinted by Lufthansa, Cologne, 1965), p. 39. 23. Hans Bongers, Es lag in der Luft: Erinnerungen aus f¨unf Jahrzehnten Luftverkehr (Dusseldorf, ¨ 1971), p. 60. 24. Lufthansa was spelt as two words until 1935. 25. The strong interest of the German municipalities in air transport was reflected in the scores of municipal officials who were now brought onto the new

Deutsche Lufthansa and the German state, 1926–1941

26.

27. 28. 29. 30.

31.

32. 33. 34. 35. 36. 37.

38.

39. 40. 41. 42.

265

DLH board (Aufsichtsrat). It had forty-seven members including the mayors from many cities who wanted to make sure that their towns were included in the future DLH network. Deutsche Luft Hansa Aktiengesellschaft zu Berlin, Gesch¨aftsbericht f¨ur das Jahr 1926. Wirtschaft und Statistik, August 1927, p. 667. There is no comprehensive economic history of the pre-war Lufthansa, although a number of books are useful, e.g. Rudolf Braunburg, Kranich in die Sonne. Die Geschichte der Lufthansa (Munich, 1978), Hans Bongers, Deutscher Luftverkehr: Entwicklung, Politik, Wirtschaft, Organisation: Versuch einer Analyse der Lufthansa (Bad Godesberg, 1967), Deutsche Lufthansa AG, Die Geschichte der Deutschen Lufthansa (Cologne, 1980), Joachim Wachtel, The Lufthansa Story (Lufthansa, Cologne, 1980). ‘Die Finanzierung des Luftverkehrs’, Magazin der Wirtschaft, 26, 30 June 1927. Deutsche Lufthansa, Betriebsmitteilungen, no. 7, vol. 2, July 1927; Deutsche Lufthansa, AG zu Berlin, Gesch¨aftsberichte 1927, 1928, 1931. Budrass, Flugzeugindustrie und Luftr¨ustung, pp. 245–50. In mitigation of this move the Reich undertook to pay the interest on loans that DLH had taken out. Presentation of the annual report of Deutsche Luft Hansa reported in Berliner B¨orsen Zeitung, 28 September 1929, speech by Milch. David Irving, Die Trag¨odie der deutschen Luftwaffe: Aus den Akten und Errinerungen von Feldmarschal Milch (Frankfurt/Main and Berlin, 1970), p. 45. Milch, DLH annual report, Berliner B¨orsen Zeitung, 28 September 1929. Budrass, Flugzeugindustrie und Luftr¨ustung, p. 274. Gerhard Voss, Die Subventionierung des deutschen Luftverkehrs (Konigsberg, ¨ 1934), pp. 27, 32. James, Zwischen Banken und Staat, 8–10. Richard Overy, Why the Allies Won (London, 1995), p. 219. In 1933 Imperial reckoned that ‘no other Company has such a low subsidy, as a percentage of total receipts, as Imperial Airways [i.e. about 50 per cent] . . . according to unofficial information the subsidies granted to the German Company – the Deutsche Luft Hansa – amount to about 63% of their total revenue’: Future of Civil Air Communications of the Empire, 1933, a memorandum submitted by the board of directors of Imperial Airways to HMG, p. 19, AVIA 2/636, Public Record Office. The tenth-anniversary brochure produced by DLH in 1936 does not have a single financial statistic – no figures for revenue, costs, profits or losses, and no mention of subsidies. The whole publication, while celebrating Nazi achievement in civil aviation, reads as if financial considerations, or impediments, no longer existed. 10 Jahre Deutsche Lufthansa, 1926–1936 (Deutsche Lufthansa, Berlin, 1936). Budrass, Flugzeugindustrie und Luftr¨ustung, pp. 274–81. Deutsche Luft Hansa, Gesch¨aftsbericht f¨ur das Jahr 1934 (DLH, Berlin). Parliamentary Debates (Commons), vol. CCCXCVII, 29 February 1944, col. 1344. Budrass, Flugzeugindustrie und Luftr¨ustung, pp. 226–7.

266

Peter Lyth

43. Rudolf Braunburg, Die Geschichte der Lufthansa: Vom Doppeldecker zum Airbus (Hamburg, 1991), p. 122. 44. Report of the annual general meeting by Staatsrat E.G.v. Stauss, Berliner B¨orsen-Zeitung, 15 June 1937, ‘Deutsche Lufthansa’. 45. Luftwelt, 2 (7) (July 1935); ‘Unser Luftverkehr!’, Bericht der Deutschen Luft Hansa AG u¨ ber das Gesch¨aftsjahr 1932 (Berlin, 1933). 46. Carl Pirath, Konjuntur und Luftverkehr (Berlin, 1932), pp. 42–8. 47. The best history of South American airlines is R. E. G. Davies, Airlines of Latin America since 1919 (London, 1984). 48. Henry Ladd Smith, Airways Abroad: The Story of American World Air Routes (Washington D.C., 1991), p. 66. 49. DLH’s tenth-year anniversary edition celebrated the achievement as the most important event of 1934 – ‘the first transoceanic air transport route in the world’. 10 Jahre Deutsche Lufthansa, p. 68. 50. The Dornier Wals were replaced with the larger Do.18s. Hans Bongers, Es lag in der Luft: Erinnerungen aus f¨unf Jahrzehnten Luftverkehr (Dusseldorf, ¨ 1971), p. 110. 51. Georg Brutting, ¨ Das Buch der deutschen Fluggeschichte, vol. III (Stuttgart, 1979), pp. 99–101. 52. By contrast Imperial Airways and Air France had carried out only two each in 1938, Pan American six in 1937. Brutting, ¨ Fluggeschichte, p. 109, Braunburg, Geschichte, pp. 329–30; DHL, Gesch¨aftsbericht f¨ur das Jahr 1938. 53. Voelkischer Beobachter, 30 January 1939, ‘Luftbrucken ¨ in der Welt’. 54. DLH, Gesch¨aftsbericht f¨ur das Jahr 1938. 55. Pan American finally opened regular transatlantic passenger services in the summer of 1939 with Boeing 314 flying-boats. Brutting, ¨ Fluggeschichte, pp. 111–12. 56. 10 Jahre Deutsche Lufthansa, p. 6. 57. J. B. Malina (ed.), Deutschland Fliegt! Der Ausbau der deutschen Luftfahrt seit 1933 (Berlin, 1935), pp. 36–7. 58. Die Luftreise, September/October 1940, ‘Der Deutsche Luftverkehr im ersten Kriegsjahr’. 59. BZ, 24 January 1941, ‘Wirtschaftlich befriedigende Ergebnisse der Deutschen Lufthansa’. 60. Die Post, Munich, 20 December 1941, ‘W¨ahrend die Bomben fallen’. 61. In the 1950s and early 1960s there was a plan to unite the flag-carriers of France, Germany, Italy and Belgium in an undertaking known as ‘Air Union’. See Peter Lyth and Hans-Liudger Dienel, ‘Introduction’, in Dienel and Lyth (eds.), Flying the Flag: European Commercial Air Transport since 1945 (Basingstoke, 1998), p. 1. 62. Melvin Hall and Walter Peck, ‘Wings for the Trojan Horse’, Foreign Affairs, 19 (2) (January 1941), 348.

Part IV

The business community and the state

12

Government and industry in Austria in the 1930s Gertrude Enderle-Burcel

Austrian economic policy in the 1930s was characterised by conflicting attitudes. On the one side, the increasingly authoritarian state paid lip service to the private sector and its ‘autonomy in the management of the economy’.1 On the other side, the state intervened increasingly in wide-ranging branches of the economy. In the aftermath of the world economic crisis, intervention in the economy – both from state and business – reached unprecedented proportions.2 ‘Peasants and capitalists’ as well as ‘the powers of high finance’ demanded state intervention in the economy with ‘surprising openness’. These interventions were regarded as a temporary measure to cope with current difficulties. However, a ‘free economy’ remained an ideal, unattainable at a time of economic crisis.3 There was a wide gulf between theory and practice, an inherent characteristic of Austrian economic policy in the 1930s. The most prominent representative of the Austrian School of political economy, Ludwig Mises, rejected ‘categorically any state intervention in the economy that would go beyond traditional duties’.4 The advocates of liberal economic theory, such as Mises, Friedrich Hayek and Oskar Morgenstern, as well as advocates of diffuse concepts of corporatist policies, were faced with numerous ‘market regulatory’ interventions from the state. Apart from the special development of state banks, where strong financial support was not unusual, the state intervened most effectively in agriculture and trade, but intervention was also not insignificant in industry. Concepts such as ‘market regulation’, ‘interventionism’ or even ‘planned economy’ have been used indiscriminately to define the economic measures of the Austrian governments of the 1930s. Yet the only constant feature of the economic policy of Karl Buresch, Engelbert Dollfuß and Kurt Schuschnigg was the stabilisation of the currency within the framework of a balanced budget.5 These governments did not have much scope for fundamentally changing their deflationary policy, as Austria was under obligation severely to restrict her state expenditure to meet her foreign creditors’ demands.6 However, the Austrian governments did not even attempt to develop a purposeful economic policy 269

270

Gertrude Enderle-Burcel

within this restrictive setting.7 On the contrary, they constructed a ‘policy of mechanical curbs on imports’ and ill-conceived budget restraints. The economic difficulties served the Buresch and Dollfuß governments as an excuse to solve pending problems in an increasingly dictatorial way by resorting to war emergency legislation of 1917: that is, the Empowerment Acts (Erm¨achtigungsgesetze), involving the exclusion of parliament.8 Concurrently many European states – such as Germany, Czechoslovakia, Yugoslavia, Hungary, Switzerland, France, Italy, Spain, Lithuania and Estonia – and the USA drew on ‘the government’s right to emergency decrees’ to a varying extent.9 In Austria state intervention ceased to be subject to any control once parliament was excluded in March 1933 and social democracy and the trade unions were smashed in February 1934. In line with the ruling regime even the traditional employers’ associations were transformed under the cloak of ‘reconstruction of professional life’ or provided with ‘a pyramid of functionaries conforming to the system’.10 The period of ‘politicisation and ideological influence on the economy’ according to the gospel of the ruling regime had arrived.11 The ‘agrarian programme’ of the government Agriculture – hard hit by the Depression – was, in Austria as in all Central European countries, one of the areas where state intervention in the economy was most profound. While many European states restricted their influence to the grain economy, in Austria almost all branches of agricultural production were subject to government regulation. The market regulatory measures – the so-called ‘agrarian programme’ of the government, pursued in close collaboration with agriculture’s representative organisations – did not find favour with the rest of the economy, and especially not with industry. In their view the government was giving preferential treatment to agriculture. In fact, state intervention embraced direct subsidies (1930–1), new tariffs (1931), import bans (1932), regulations affecting the transportation of milk, cattle and wood, price-fixing, compulsory management of cultivation, the introduction of licence fees for fodder, and actions affecting property consolidation and the reduction of debt. Governmental measures were not only confined to the creation of a framework of legal controls; indirect means were applied to control the volume of output and the price of agrarian products.12 It was argued that the crisis in European agriculture and the failure of the liberal-capitalist economic system required the elimination of economic liberalism in the agrarian sector. State intervention was also justified as necessary to combat the ‘extreme pursuit of profit’ and ‘harmful forms of competition’. At the same time, the authoritarian style of government facilitated the easier implementation of interventions in the economy. No plan was followed

Government and industry in Austria in the 1930s

271

in introducing regulatory measures in the agrarian sector but they came about, by and large, as reactions to newly occurring problems. Thus, the far-reaching protectionist measures in the agrarian sector could not prevent losses in Austrian agriculture during the economic crisis. Moreover, they had an increasing impact on the entire situation of Austrian trade. Governmental influence on the transformation of trade policy As the world economic crisis gathered pace a reorientation of Austria’s entire trade policy occurred. During this transformation Austrian governments employed instruments similar to those applied on an international scale in the 1930s. This they perceived to be necessary particularly in view of the failure of the plan for a German–Austrian Customs Union in 1931. The crisis ‘accelerated the transition from the remainder of a free market to increasing controls of production and markets, to state interventionism and protectionism’.13 Austrian governments reacted by abandoning the most-favoured-nation treatment, the crux of free trade. Increases in customs duties and bans on imports constituted the instruments of trade policy. With the Fifth Amendment to the Customs Tariff Bill in July 1931 the construction of a protective customs system was completed. In order to effect high tariffs existing trade agreements were annulled and replaced by quota and preference agreements. From April 1932 no fewer than twenty-three bans on imports were decreed,14 which, in conjunction with a comprehensive procedure of import permissions, were designed to confine imports to those from countries which bought Austrian products in return. This complicated system of managing and controlling foreign trade together with foreign exchange control by the Austrian National Bank15 can at best be described as a mosaic of wishful thinking.16 Austria did not succeed in building up a system of bilateral trade as, for instance, Germany constructed with Yugoslavia, Bulgaria, Hungary and Romania.17 In addition, the attempt in March 1934 to organise a larger economic area under the framework of the Rome Protocols ended in failure. The elements of control built into the Austro-Italian flow of goods were contradictory, incompatible and questionable.18 Equally unsatisfactory from the point of view of industry was the failure to establish a reconciliation of interests between industry and agriculture. The failure to do so also extended to trade policy. Individual measures taken by the state in trade policy were neither taken in agreement with the respective sectors of industry nor did they reach the same scale as in agriculture. At no point was Austrian industry, heavily dependent on exports, satisfied with government intervention in foreign trade. Tariffs and lists of banned imports often conflicted with individual interests and

272

Gertrude Enderle-Burcel

impaired the desired expansion of exports.19 Although cabinet ministers paid a great deal of attention to measures supportive of exports in their discussions,20 Austrian governments continuously rejected proposals for export subsidies from the public purse. Direct export grants, premiums, subsidies or the provision of cheap credit were not compatible with deflationary policy.21 The relationship between industry and government Neither the unsatisfactory development of trade policy for the Austrian export industry nor the contradictory contacts between government and industry led to an economic policy in support of industry. This situation was the result of the behaviour of both Austria’s industrial associations and its governments. The use of the concept ‘Austrian industry’ is somewhat questionable, however.22 Due to the great fragmentation of Austria’s industrial enterprises – in both sectoral and regional terms – there existed a profusion of divergent firm and sector interests.23 Furthermore, the question of ‘big business’ or ‘large enterprise’ in Austria does not provide a useful starting-point for research. In the First Republic only forty-nine large enterprises – with more than 1,000 employees – could be found in the critical year 1937.24 Taking the number of employees as a measure of size, ‘there was only one big concern of European dimensions, namely the Alpine Montangesellschaft’.25 Since Austrian industrial enterprises mainly comprised medium to small firms – Otto Bauer defined them as a ‘collection of groceries’26 – their influence on politics was generated, above all, by industrial associations whose number sometimes ran into hundreds. However, these interest groups were often too small to lobby effectively in parliament, or influence successfully parties and administrations and thus, ultimately, governments.27 At the time of the dissolution of all free entrepreneurial associations in 1934 their number was estimated to have been eighty.28 In these circumstances Austrian industry, consisting of medium and small enterprises in sixteen industrial sectors,29 located in nine federal districts (Bundesl¨ander), attempted to represent its interests vis-`a-vis the state through its equally fragmented associations. On only a few general issues, presented to the government by the Central Association of Industry, was it possible to reach agreement.30 A comprehensive investigation into industrial interest organisations in Austria had failed to materialise, not least because of this multitude of enterprises and associations. With a programme of reductions in expenditure on public administration and of reform – in the sense of reduction – of taxes and social

Government and industry in Austria in the 1930s

273

expenditure, as well as a revision of the Austrian customs tariffs of 1924, it was believed that industry would be able to obviate the difficulties of the 1920s.31 The demands of the 1930s included the reduction of production costs and the rate of interest on credit, as well as the expansion of market opportunities. They were repeatedly voiced in Die Industrie, the organ of the Central Association of Industry. As the world economic crisis accelerated, liberal and protectionist interests clashed within the Association.32 Lobbying for measures in support of exports, increased public orders and economic planning outweighed its earlier interventionist demands.33 There is insufficient research on how the lobbying of industry in general – for decades almost always represented by the Central Association of Industry – and its divergent enterprise-based and sectoral interests in particular, was managed and how precisely it was presented to members of parliament, political parties, civil servants and ultimately governments. The network of relationships and interests between individuals, firms, associations, politicians and elites in the public service can only be unravelled case by case. Contacts between industry and politics Although the network of business organisations and political parties/governments is considered to be one of the most important at the level of the state,34 only the fundamental outlines of these connections have so far been explored. The areas of contact with parties, politicians and governments provide the basis for structuring this extremely complex theme. Contacts with political parties During the last twenty years research has been carried out on the contacts of business with parties and politicians as well as on the financing of parties and military associations.35 The resulting literature repeated to a large extent what was already well known and rarely offered new research results. Here we outline the main activities of the Central Association of Industry. First, the Association attempted to influence public opinion via press campaigns. Second, specific funds were established to finance direct action in the field of industrial relations. There is convincing evidence that, following a decision of the Association’s executive board in 1922, a central fund was established to finance the Heimwehr:36 armed paramilitary units which were increasingly used as a counterweight to workers’ organisations. Then an additional political fund was established in 1925, the Technische Nothilfe, conceived as a strike-breaking organisation.37

274

Gertrude Enderle-Burcel

Finally, financial support was provided during election campaigns. The Association made only limited attempts to establish its own political representation. The founding of a political party was not a priority, and the attempt by one Viennese industrialist to create a party – the Burgerlich¨ demokratische Partei – remained an isolated episode.38 No more than three or four candidates got on the civil electoral list, and these failed to establish any lasting influence. In the period before the elimination of parliament in March 1933 the results of the Association’s efforts to intervene in politics were meagre. Karl Haas concludes: In spite of election subsidies and the partial successes of industrial interventionism, industry did not succeed in persuading the governments of the B¨urgerblock [right-wing coalition] to pursue an industrial policy. As far as can be judged, the Association’s leadership did not employ its full political weight as a lever against these governments, and certainly not against the Christian Social Party, to realise its general political aims. For this the leadership was subjected to outspoken criticism during the internal conflicts in the Association in 1932–3.39

Part of this conflict was due to the fact that the Styrian and Carinthian industrialists wanted a stronger German nationalist policy.40 Peter Berger concludes on the attitude of Austrian industry: ‘The political behaviour of entrepreneurs in the inter-war period can easily be defined as a search for new protectors. Direct rule by industrialists or even bankers was not considered a serious option at any time between 1918 and 1938.’41 One of the reasons for this may have been due to the fact that the interests of Austrian industry were too heterogeneous and that ‘the representatives of the interests of industry distinguished themselves by their disunity’.42 Contacts through individual players While the general framework of the interventionist policy of the Central Association of Industry to 1933/4 is described in the literature, very few names of individuals – whether as ‘interventionists’ or ‘recipients’ (targets) – are mentioned. The names of persons are usually given without specifying in detail whether their activities as ‘interventionists’ or ‘recipients’ took place over any length of time. At the level of the Association frequent mention is made of the same leading officials: men who were engaged in pursuing relevant contacts with parliament, the civil service and ministries.43 However, the extent of their relationships and interventionist activity still requires more detailed examination. The number of industrialists who were members of parliament was ‘never higher than four’.44 Their meagre representation in the parliament of the First Republic was repeatedly deplored by the organisations of

Government and industry in Austria in the 1930s

275

entrepreneurs. In a list of occupational origins of 165 Austrian members of parliament in 1930 only twenty-one belonged to the group ‘Commerce, Trade and Industry’, whereas there were twenty-one farmers and seventyeight civil servants.45 And, of course, with the elimination of parliament in March 1933 this far-from-successful parliamentary activity by industry came to an abrupt end.46 In addition to the four members of parliament, who are frequently mentioned in the literature, representatives of industry were, at times, also members of the government.47 However, the nature of their active participation in mediating the relevant interests or their place in the rank order of the politico-industrial network remains largely a mystery. A more detailed analysis, which would more closely examine the Association’s industrial elites, has yet to be done. Such an analysis would also have to include those members of parliament and politicians whose original profession was not connected with industry or the economy but who regularly appeared as ‘interventionists’ on behalf of economic interests. As systematic research on elites with regard to all Austrian members of parliament as well as all members of the governments is still lacking, the complex network of interactions on this level remains to be examined.48 While the economic activity or interconnection of members of parliament and of governments has not been studied systematically, neither has the political engagement of industrialists in leading entrepreneurial associations. A more comprehensive approach leading to a better understanding would be needed, which would include, for example, personal and family relationships, school or lifelong friendships, and connections through students’ organisations (e.g. the Cartellverband, the Association of Catholic Students in Austria). Moreover, comprehensive research is lacking on the susceptibility of industrial elites to National Socialism. In the current literature only two names occur: Anton Apold, director ¨ of the Osterreichische Alpine Montangesellschaft, and Philipp Schoeller, president of the Schoeller-Bleckmann Stahlwerke AG. On the basis of the research results so far, industrial interest policy in Austria appears to have been pursued through associations and their prominent officials rather than through politicians. Contacts with governments With regard to the relationship between industry and government it is generally accepted that bourgeois politicians lacked economic competence.49 The question has not been posed whether they actually understood the complicated interconnections between politics and the economy. An examination of only a few points in passing presents a more differentiated picture.

276

Gertrude Enderle-Burcel

The statistical data on the business connections of all members of the governments of the First Republic were collected from the annual directory of directors, Compass Finanzielles Jahrbuch, for 1933. The results were as follows. Of the 123 members of Austrian governments still living in 1933 – the total since 1918 was 135 – forty-eight held directorships on the boards of joint-stock companies. Of these forty-eight members, twenty held one directorship each, while thirteen had two, six were directors in three, and nine in four or more companies. The same exercise was undertaken for 1925 with similar results. In this connection the question should be asked whether membership of a board of directors constitutes ‘economic competence’. A discussion of the literature on individual contacts and conversations between representatives of industry and members of government would go beyond the scope of this chapter50 but it is clear that there still is a gap in our knowledge on this subject. In general, certain governments may be identified as more ‘business-friendly’ than others, such as the cabinets of Ernst Streeruwitz (May to September 1929) and Johannes Schober (September 1929 to September 1930).51 In pushing through extraordinary powers to resolve the economic crisis Chancellor Buresch (1931–2) was an important partner.52 In the literature, references are generally made to a growing alienation between industry and the conservative parties after the outbreak of the Great Depression and, therefore, the elimination of parliamentary democracy constituted no problem for Austrian industry.53 All research work on industrial interest politics ends with the elimination of parliament in March 1933 and the establishment of Austro-fascist rule. It is maintained that industrial circles supported the governments of Engelbert Dollfuß (1932–4) and Kurt Schuschnigg (1934–8) but that the measures introduced by these governments did not lead to a substantial improvement in industry’s general situation. Karl Haas concludes that ‘however much industry had contributed to paving the way for an uncompromising policy of pushing through bourgeois class interests and however much the dictatorial regime had accommodated industry by eliminating the organised working class movement and by rigorously dismantling the social welfare system, industry was unable to achieve decisive economic improvements even under the Austrian dictatorship’.54 Industry in the corporatist state The years 1933 and 1934 brought about a thoroughgoing change in mediating society’s interests in general and industry’s interests in particular. Parties and parliament were forcibly dissolved and thus disappeared

Government and industry in Austria in the 1930s

277

as targets of industrial interest policy. Furthermore, the system of industrial associations experienced extensive change. However, in their endeavour to create corporatist business organisations, the government met with greater difficulties than expected because entrepreneurs were wholly satisfied with their existing associations and representations.55 Thus, a confusing co-existence of old associations – such as chambers of commerce – and newly established corporatist federations was produced.56 By October 1934 about eighty existing business organisations were consolidated in the Federation of Austrian Industrialists.57 In view of the disappearance of traditional recipients and of the radical changes in the all-important system of business associations the problem of how industrial interest policy developed between 1934 and 1938 needs to be examined thoroughly. The deputies of the organs of the corporatist state – the Council of State, the Federal Cultural Council, the Federal Economic Council and the Council of the Lands (L¨anderrat)58 – appointed in place of the democratically elected members of parliament played no part as mediators of industrial policy. Even the continuity in the leadership of the newly created Federation of Austrian Industry – such as Ludwig Urban, who remained president in the corporatist institution and was also member of the Council of State – could not bring about a change in the bodies which functioned as a pretext for democracy. Economic associations became ‘essentially executive, respectively auxiliary organs of economic policy of the leadership of the authoritarian state’.59 Attempts to pursue an industrial interest policy did not take place in the framework of the newly created sham parliamentarism. Theodor Putz’s ¨ thesis ‘that the economic and social crisis of 1929 and the following years called for the strengthening of politico-economic interventionism’60 begs the question of the nature and forms of industrial interest policy in authoritarian Austria from 1934 to 1938. With the end of the parliamentary state and the transformation of a well-established system of entrepreneurial associations into individual corporate occupational bodies, long-standing and tried interventionists and targets lost their importance. Industry and the civil service As a constant factor in interventions of all kinds the civil service gained increasingly in importance with regard to the relationship between industry and government. Although the ministerial bureaucracy,61 ‘above all that of the Finance Ministry but also that of the Trade and Social Services Departments’,62 is frequently mentioned in the literature, little detailed information exists about the actual interaction between industry

278

Gertrude Enderle-Burcel

and the bureaucracy. The Finance Ministry is generally presented as the main source of influence and the Ministry of Trade, and in particular its minister, is described as a preferred target as well as a reliable lobbyist. In singling out contacts with the Ministries of Finance and Trade names of ministers are cited as successful targets, such as Emanuel Weidenhoffer (Minister of Finance from October 1931 to May 1933) and Guido Jakoncig (Minister of Trade from May 1932 to May 1933).63 Contacts between industry and the Ministers of Finance and Trade could be more thoroughly investigated with the help of archive material on ‘inquiries’ (Ausk¨unfte) or ‘items of inquiry’ (Auskunftsposten). It seems that this archival deposit has so far escaped the notice of researchers, probably because of the somewhat misleading labelling ‘Ausk¨unfte’. In fact this material consists of information and interventions – occasionally also letters of thanks for performed interventions – addressed to the Ministers of Finance and Trade by business associations, individual firms or entrepreneurs and lobbyists from all walks of life, such as politicians, lawyers and representatives of paramilitary organisations. Without elaborating on the first research results arising from this archival material, the documents show that the volume of interventions rose sharply after 1931. Interventionist activity reached its peak at the administrative level during the years 1932–5. The documents create the impression of a comprehensive, well-established intervention system in both the ministries which were chiefly entrusted with politico-economic measures. Beyond this, the material points to a system of contacts encompassing all ministries to which information/interventions were passed on.64 However, to date insufficient research has been carried out to verify the value and reliability of this archival material in gauging the importance of intervention through administrative channels. Results of contacts between industry and government The well-established interventionist system was confronted with government efforts to gain increasing control over the economy. After the National Socialist putsch of July 1934 a State Commissioner General for Extraordinary Measures was appointed to combat subversive and anti-government activities in the private sector.65 This instrument of state control met with immediate resistance in the economy but also with rejection from some of the members of the government, such as the then Minister of Trade. The State Commissioner General, Emil Fey – a controversial representative of the Heimwehr – had at his disposal commissioners appointed by the government. In addition to ¨ a special Government Commissioner for the Osterreichische Alpine

Government and industry in Austria in the 1930s

279

Montangesellschaft, there were commissioners for the Federal Lands of Carinthia, Styria, Tyrol, Vorarlberg, Upper Austria and Salzburg. The State Commissioner General and his staff of government commissioners wielded wide authoritarian power which they could employ against firms and entrepreneurs but also against workers and employees. They were empowered to withdraw trade licences, prohibit professional practice, investigate firms suspected of subversive activities and demand declarations of loyalty as well as the payment of penalties.66 Big businesss was able successfully to resist the so-called Austrification policy of the State Commissioner General.67 Above all, he failed to gain control of the management of enterprises where the majority of shares were in German hands. In addition, the intended nationalisation of the ¨ Osterreichische Alpine Montangesellschaft, which had been of continuous concern to the Cabinet of Ministers, did not succeed. The activities of the State Commissioner General were not confined to enterprises with high German direct capital participation, which manifestly demonstrated their abundant contacts with the German Reich as well as the Austrian National Socialists, but were also directed against purely Austrian firms. Thus, the Cabinet repeatedly dealt with the government contracts given to Hardtmuth, the producer of pencils, because, in one case, a single family member was suspected of being a National Socialist and, in another case, the firm had placed an advertisement in a left-orientated newspaper in Czechoslovakia. Both incidents were sufficient to cancel all such contracts. The instigator of this action might well have been the firm Brevillier & Urban, which was interested in taking over the work. Only after complicated legal procedures were the measures against the firm of Hardtmuth suspended. The Hardtmuth case demonstrates that by deviating only slightly from the political course of the government speedy action could be taken with the help of the state apparatus in favour of firms loyal to the government.68 Apart from individual actions the plans of the State Commissioner General were much more extensive. In January 1935, following an order from the State Commissioner General, an inquiry was started in the Federal Land of Upper Austria which was to collect information about all industrial enterprises, their owners, shareholders, leading employees and workers, as well as their domestic and foreign capital relations. Furthermore, there was an attempt by the State Commissioner General to construct a mosaic of all industrial and larger trade enterprises and, among other things, a catalogue of data on their bank contacts and affiliations to holding companies. These measures would have had a far-reaching impact on the enterprises’ business interests and they immediately met with resistance from industrial associations.69

280

Gertrude Enderle-Burcel

The appointment of the State Commissioner for Extraordinary Measures to combat subversive and anti-governmental activities in the private sector of the economy was rejected from the outset, not only within the government but also within industry. Under pressure from the latter, the powers of the State Commissioner General and his government commissioners in the Federal Lands were curbed step by step until, in October 1935, Emil Fey was removed from the government. In a letter of thanks to the Minister of Trade the president of the Federation of Austrian Industrialists wrote in December 1935: ‘The insertion of an intermediary between their profession and the responsible minister, which has always been regarded as unjustified by industrialists, is now eliminated.’70 From another note enclosed with the letter of thanks it emerges that ‘doubts were expressed in connection with the government commissioners’ handling of loyalty payments made to them from private firms’. This information is remarkable in several ways. In the first place it can be deduced that such payments from enterprises ended up in the hands of the government commissioners of the Federal Lands. The documents also contain data on an actual payment from Carinthia with precise instructions what was to be expected from the enterprises: apart from other pledges on commitments, in particular regarding personnel changes in the firms, declarations of loyalty and suchlike, statements were demanded in which they pledged to make donations (obligatory tithes) through which they were to demonstrate their patriotic engagement. Considering the extent of the interventions carried out by the State Commissioner General it is understandable that industry strove for the elimination of this institution. Equally hostile was industry’s attitude towards an ‘economic adviser in the Federal Chancellor’s Office’. In this case it concerned the appointment of a consultant for economic affairs in the Federal Chancellor’s Office of Felix Feest who held this post from May 1935. In a letter from the president of the Federation of Industrialists, Ludwig Urban, to the then Minister of Trade, Fritz Stockinger, ‘the insertion of a new factor between the power of the government, as embodied by ministries, and the advisory activities of professional groups’ was held to be incompatible with the constitution.71 On the whole, these examples show that in the Austrian corporate state during the period 1934 to 1938 the additional institutions created by governments aggravated the complex industry–government relationships. Politico-industrial legislation The question of how efficient contacts between industry and governments were can be assessed in connection with a small number of laws which

Government and industry in Austria in the 1930s

281

belong to the sphere of industrial policy. In 1932–3 the crisis reached its peak in Austria. Apart from export-dependent industries, which called for special export subsidies, industry in general demanded the reduction of wages, taxes and duties as well as the dismantling of social rights. The elimination of the so-called ‘revolutionary rubbish’ was at the centre of the catalogue of demands.72 It emerges that, in the long run, neither the course of ‘emergency decrees’ of the Dollfuß government, nor the elimination of parliament and the dictatorship of the corporate state under Kurt Schuschnigg – although supported by Austrian industrial circles – fulfilled their expectations.73 Dollfuß’s and Schuschnigg’s government measures pertaining to rights of labour, safety at work, collective agreements, working hours and social security had led to the constant deterioration of workers’ rights.74 But, at the same time, they failed to eliminate crisis conditions in Austrian industry. Accordingly, Austrian industry, with no programme of its own, became increasingly dissatisfied with public policy. It criticised the state’s investment policy, the ‘dictatorship of deflation’, and the interference with business autonomy, seen, for example, in the efforts of the State Commissioner General to combat ‘subversive and anti-government activities’ in the private sector.75 The economic policy of the Austro-fascist regime was decisively attacked as ‘palaeo-liberalism’ which had no understanding for the regulative tasks of the state and had relied on the inherent tendency to upswing in capitalist cycles.76 Industry demanded from government decisive protectionist measures in the form of forced cartelisation and industrial embargoes77 at the same time as there was no agreement on a common course within industry itself. Referring to the Trades Embargo Act (Bundesgesetzblatt 53, 12 March 1933) the glass industry asked for a ban on the founding of new firms. Opinions in the Central Association of Industry were divided. One part considered the request to be justified ‘because it cannot be accepted that the competitiveness of existing industrial enterprises is to be harmed by speculative foundations or by the setting up of inadequately financed establishments’ and it was asserted ‘that the measure at hand was only of temporary nature, therefore of short standing’.78 However, the dissent¨ ing part of the industry prevailed. In Der Osterreichische Volkswirt, the most important economic periodical of the First Republic, it was conjectured that the case of the investment industries won the argument, since their ‘interests would be negatively affected by every embargo on a foreign branch of industry and who themselves are only exceptionally threatened by new domestic competition’.79 In a letter to the Ministry of Trade in September 1933 the Central Association of Industry came to the conclusion ‘that in spite of recognising the plight of the glass industry

282

Gertrude Enderle-Burcel

which, regrettably, is suffering in exactly the same way as a large number of industries, it could not deviate from its fundamental viewpoint and has unconditionally and categorically to declare itself opposed to every imposition of embargo which is directed against the establishment of new industrial enterprises in any branch’. The Ministry of Trade fully agreed with the industry’s viewpoint.80 The demand for embargoes on industrial goods and for cartel legislation had not ceased. Austrian industry recognised the Austrian governments’ failure to produce a purposeful economic policy and assessed the linkage between deflation and high unemployment as an increasing obstacle to economic recovery. With reference to Keynes – as opposed to the official economic policy – demands were made for public orders.81 By 1935 the Federation of Industrialists had changed its view on cartels and on embargoes, judging these restrictions to be a form of partial economic planning. In April 1935 a proposal for a federal law on forced cartelisation and industrial embargoes was prepared and submitted to the Ministry of Trade. According to the Federation’s own account, the decision on this legislation was not arrived at easily, as it signified a further departure from the principle of a ‘free economy’. With reference to the world economy, and to the statement that ‘different times also require different methods’, state intervention was sought as a last resort (ultima ratio). However, state intervention was only permissible and was to be implemented if a three-quarters majority of the entrepreneurs concerned submitted a corresponding proposal. In exceptional cases of emergency a cartel committee could lower the majority from three-quarters to twothirds. The regulation of production, markets and sales was designed to save ailing industries from ruin and prevent unscrupulous competition. This legislative proposal came unequivocally from the initiative of industry, which was primarily concerned with securing a legal basis from the state for cartelisation and industrial embargoes. Legislation on cartels and industrial embargoes did not come into being in Austria until 1938, although this would have been in line with the European trend.82 In 1937 there was merely a law on exceptional measures for controlling the development of prices (Bundesgesetzblatt 105 of 10 April 1937), which enabled state intervention. Legislation on cartels and industrial embargoes failed due to opposition from the Federation of Labour and agriculture and government circles. There were numerous arguments against it, such as that formation of cartels is usually bound up with increasing prices and weakens the ability of the population to consume, on which agriculture depends. In this way agriculture would become dependent on cartels. At a conference of the presidents of Austria’s main agricultural corporations it emerged that a cartel law would only have been

Government and industry in Austria in the 1930s

283

acceptable to them under the following conditions: if the government approved cartels; if the government had the right to dissolve cartels; if each cartel were controlled by a government commissary; if the government retained a controlling influence over price formation; and if the cartel agreements were published. To a large extent the Austrian government concurred with these arguments, not least for political reasons. Lack of consumer protection and rising prices could ‘put an effective weapon into the hands of illegal subversive propaganda’ – meaning the National Socialists.83 In the matter of the desired legislation on cartels and industrial embargoes the initiative and freedom of action would have rested with industry, whereas the government was expected to play only a supporting role. In the public’s view, however, the government would always have been held to be jointly responsible. Whilst a whole system of state interventions was constructed in the framework of agricultural, commercial and trades policies, fundamental doubts regarding the ‘industrial protection law’ carried a certain weight – such as, for instance, that this law would have constituted a further step toward ‘interventionism’ or in the direction of a ‘planned economy’. In the end the law was not passed, since important groups of industrialists continued to have reservations about the project.84 Austrian industry, fragmented through strongly divergent individual interests, constantly complained about the public’s hostile attitude towards it and always felt neglected in comparison with other economic branches,85 paradoxically because state intervention was not as pronounced in this sector of the economy. In the long run, industrialists who had steadily supported the establishment of the Austro-fascist ruling system in the period 1934–8 failed to achieve any substantial improvement in their basic conditions and their general situation.     1. ‘Staat und Wirtschaft von Bundeskanzler Dr. Kurt von Schuschnigg’, Wiener Wirtschaftswoche (Christmas 1936), 1. 2. Dieter Stiefel, Finanzdiplomatie und Wirtschaftskrise. Die Krise der Credit-Anstalt f¨ur Handel und Gewerbe 1931 (Frankfurt/Main, 1989), p. 129. 3. Benedikt Kautsky, ‘Moglichkeiten ¨ und Aussichten der Planwirtschaft in ¨ Osterreich’, Der Kampf , 24 (December 1931), 520f. On the issue of a planned economy see also Gertrude Enderle-Burcel, ‘ “Planwirtschaft” als Krisenbek¨ampfung. Aspekte osterreichischen ¨ Staatsinterventionismus 1930 ¨ bis 1938’, Mitteilungen des Osterreichischen Staatsarchivs, 46 (Horn, 1998), 31–42. 4. Eduard M¨arz, ‘Zwei Bruder ¨ aus Lemberg’, Das j¨udische Echo (September 1984), 102. See also in detail Ludwig Mises, Liberalismus (Jena, 1927).

284

Gertrude Enderle-Burcel

5. Hans Kernbauer, Eduard M¨arz and Fritz Weber, ‘Die wirtschaftliche En¨ twicklung’, in Erika Weinzierl and Kurt Skalnik (eds.), Osterreich 1918–1938, vol. I (Graz, Vienna and Cologne, 1983), pp. 343–79. 6. Hans Kernbauer and Fritz Weber, ‘Von der Inflation zur Depression. ¨ Osterreichs Wirtschaft 1918–1934’, in Emmerich T´alos and Wolfgang ¨ Neugebauer (eds.), ‘Austrofaschismus’. Beitr¨age u¨ ber Politik, Okonomie und Kultur 1934–1938 (Vienna, 1984), p. 22. 7. Kernbauer, M¨arz and Weber, ‘Die wirtschaftliche Entwicklung’, p. 373. 8. See the brief summary by Dieter Stiefel, Die große Krise in einem kleinen Land. ¨ Osterreichische Finanz- und Wirtschaftspolitik 1929–1938 (Vienna, Cologne and Graz, 1988), pp. 109–19. On the process of the elimination of parliament and the establishment of a corporate regime in detail, see Gertrude EnderleBurcel (ed.), Protokolle des Ministerrates der Ersten Republik, Abteilung VIII, Kabinett Dr. Engelbert Dollfuß, 7 vols. (Vienna, 1980–6), and Abteilung IX, Kabinett Dr. Kurt Schuschnigg, 5 vols. (Vienna, 1988–2001). These volumes cover the period from April 1932 to March 1936. 9. For an overview of emergency decrees in these countries see ‘Das Recht der Regierung auf Notverordnung’, Wiener Wirtschafts-Woche (22 March 1933), 7–13. 10. Karl Haas, ‘Zum Problemkomplex “Wirtschaftsverb¨ande und St¨andestaat” ’, in Ludwig Jedlicka and Rudolf Neck (eds.), Das Juliabkommen von 1936, Vorgeschichte, Hintergr¨unde und Folgen. Protokoll des Symposiums in Wien am 10. und 11. Juni 1976 Ver¨offentlichungen des Theodor-K¨orner-Stiftungsfonds und des Leopold Kunschak-Preises zur Erforschung der o¨ sterreichischen Geschichte der Jahre 1927 bis 1938 (Vienna, 1977), p. 336. 11. Ibid., p. 334. 12. See Enderle-Burcel, ‘ “Planwirtschaft” als Krisenbek¨ampfung’, pp. 34f; see also in detail the published volumes of Ministerratsprotokolle der Ersten Republik der Regierungen Dollfuß und Schuschnigg. 13. Alice Teichova, ‘Die Wirtschaftspolitik der kleinen Nationen in Mittelund Osteuropa. Sachzw¨ange und Handlungsspielr¨aume in der Zwischenkriegszeit’, in Wolfram Fischer (ed.), Sachzw¨ange und Handlungsspielr¨aume in der Wirtschafts- und Sozialpolitik der Zwischenkriegszeit (St Katharinen, 1985), p. 131. 14. On the ban edicts up to 1937, see Ernst Haas, Die Außenpolitik der ehemaligen ¨ Republik Osterreich (Wurzburg, ¨ 1939), pp. 42ff. 15. Stiefel, Die große Krise, pp. 243–60, 346–63. 16. Dr Felix Klezl, ‘Gibt es eine allgemeine Volkswirtschaftspolitik?’, Der ¨ Osterreichische Volkswirt, 15 (10 January 1931), 387. 17. Alice Teichova, Kleinstaaten im Spannungsfeld der Großm¨achte. Wirtschaft und Politik in Mittel- und S¨udosteuropa in der Zwischenkriegszeit (Vienna, 1988), p. 189. 18. See in detail Peter Enderle, ‘Die okonomischen ¨ und politischen Grundlagen der Romischen ¨ Protokolle aus dem Jahre 1934’, dissertation, University of Vienna, 1979. 19. Bund der osterreichischen ¨ Industriellen, Bericht u¨ ber das Jahr 1935 (Vienna, 1936), p. 24; Bericht u¨ ber das Jahr 1936 (Vienna, 1937), p. 12.

Government and industry in Austria in the 1930s

285

20. See numerous examples in the published volumes of Ministerratsprotokolle der Ersten Republik der Regierungen Dollfuß und Schuschnigg. ¨ 21. See numerous articles in Der Osterreichische Volkswirt – among others, ‘Exportzuschusse’, ¨ 29 (20 April 1935), 558; ‘Kampf um die Exportforderung’, ¨ 36 (8 June 1935), 697; ‘Ziele und Wege der Exportforderung’, ¨ 39 (29 June 1935), 767–70; ‘Vorfinanzierung von Exportauftr¨agen’, 40 (6 July 1935), 776f. ¨ 22. Karl Haas, ‘Industrielle Interessenpolitik in Osterreich zur Zeit der ¨ Weltwirtschaftskrise’, in Osterreichische Gesellschaft fur ¨ Zeitgeschichte, Jahrbuch f¨ur Zeitgeschichte 1978 (Vienna, 1979), p. 97. ¨ 23. Peter Berger, ‘Okonomische Macht und Politik’, in Emmerich T´alos, Herbert Dachs, Ernst Hanisch and Anton Staudinger (eds.), Handbuch ¨ des politischen Systems Osterreichs, Erste Republik 1918–1933 (Vienna, 1995), p. 402. 24. Franz Mathis, Big Business in Austria, vol. II: Wachstum und Eigentumsstruktur der o¨ sterreichischen Großunternehmen im 19. und 20. Jahrhundert. Analyse und Interpretation (Vienna and Munich, 1990), pp. 24f. ¨ 25. Berger, ‘Okonomische Macht und Politik’, p. 2. On the special development of the Alpine Montangesellschaft, see Barbara Schleicher, Heißes Eisen – Zur ¨ Unternehmenspolitik der Osterreichisch-Alpine Montangesellschaft in den Jahren 1918–1933 (Frankfurt/Main, 1999). 26. ‘Summe von Greißlereien’, cited in Kernbauer, M¨arz and Weber, ‘Die wirtschaftliche Entwicklung’, p. 362. ¨ 27. Karl Ucakar, ‘Die Entwicklung des Verb¨andewesens in Osterreich’, in Heinz ¨ Fischer (ed.), Das politische System Osterreichs (Vienna, 1974), p. 400. 28. ‘Berufsstand Industrie’, Der christliche St¨andestaat, 48 (4 November 1934), 20f. 29. Franz Mathis cites mining and mineral oil, iron and metal production, including foundries, stone and ceramics, glass, chemicals, paper, wood and its processing, food and beverages, leather and its processing, mechanical engineering and steel, automobiles, iron and metal products, electrical industry, ¨ textiles and clothing. See Mathis, Big Business in Osterreich, vol. II, p. 25. On the further sub-division of industry, see also Haas, ‘Industrielle Interessenpolitik’, p. 103. ¨ 30. Berger, ‘Okonomische Macht und Politik’, p. 402. On the history of the association see Gerald Sturmayr, ‘Industrielle Interessenverb¨ande: Ringen um ¨ Einheit’, in Handbuch des politischen Systems Osterreichs, pp. 339–52. See also Ernst Zeiner, ‘Die osterreichischen ¨ Unternehmerverb¨ande, ihr Verh¨altnis zum Staat und ihre Stellung im Staat, Geschichte, Strategien und Rolle ¨ der zentralen Kapitalorganisationen in Osterreich’, dissertation, University of Vienna, 1989. 31. Haas, ‘Industrielle Interessenpolitik’, pp. 99ff. 32. Ibid., p. 109. 33. On this issue there is an abundance of articles in Die Industrie, the mouthpiece of the Hauptverband der Industrie. 34. E. T´alos, ‘Interessenvermittlung und particularistische Interessenpolitik in der Ersten Republik’, in T´alos et al., Handbuch, p. 372.

286

Gertrude Enderle-Burcel

35. See the fundamental essay by Karl Haas, ‘Industrielle Interessenpolitik’, pp. 97–126. 36. On the role of the president of the Hauptverband der Industrie, Ludwig Urban, in financing the militia see Sturmayr, ‘Industrielle Interessenverb¨ande: Ringen um Einheit’, p. 349. 37. Karl Haas, ‘Aspekte industrieller Interessenpolitik in der Ersten Republik’, in Alice Teichova, Alois Mosser and Jaroslav P´atek (eds.), Der Markt im Mitteleuropa der Zwischenkriegszeit (Prague, 1997), p. 359. 38. See Gertrude Enderle-Burcel, ‘Lobbyismus von Interessengruppen der osterreichischen ¨ Industrie in den dreißiger Jahren – unter Berucksichtigung ¨ der Ver¨anderungen bei der Durchsetzung industrieller Interessenpolitik in den zwanziger und dreißiger Jahren’, in Alice Teichova, Herbert Matis and Andreas Resch (eds.), Business History. Wissenschaftliche Entwicklungstrends und Studien aus Zentraleuropa (Vienna, 1999), pp. 247–68. 39. Haas, ‘Industrielle Interessenpolitik’, p. 112. 40. For more detail see Enderle-Burcel, ‘Lobbyismus von Interessengruppen’, pp. 251f. ¨ 41. Berger, ‘Okonomische Macht und Politik’, p. 396. 42. Stiefel, Die große Krise, p. 355. 43. On the role of Gustav Weiß-Wellenstein (secretary-general), section head Robert Ehrhart (executive vice-president) and Ludwig Urban (president of the Central Association of Industry for many years), see Enderle-Burcel, ‘Lobbyism von Interessengruppen’, p. 252. ¨ 44. Berger, ‘Okonomische Macht und Politik’, p. 403. 45. T´alos, ‘Interessenvermittlung’, p. 373, note 19 on p. 390. ¨ 46. Berger, ‘Okonomische Macht und Politik’, p. 403. 47. See, for example, Ernst Streeruwitz (member of parliament [Nationalrat]/ official of the Association/Federal Chancellor), Emanuel Weidenhoffer (member of parliament/Association official/Minister of Finance), Eduard Heinl (member of parliament/Association official/several times Minister of Trade), Friedrich Schuster (Association official/Minister of Trade) and Hans Schurff ¨ (member of parliament/Minister of Trade/Minister of Justice). For more detail see Enderle-Burcel, ‘Lobbyismus von Interessengruppen’, p. 254. 48. On the attempt at a collective biography see Herbert Matis and Dieter Stiefel, Der o¨ sterreichische Abgeordnete. Der o¨ sterreichische Nationalrat 1919–1979 – Versuch einer historischen Kollektivbiographie (Vienna, 1982). 49. Haas, ‘Aspekte industrieller Interessenpolitik’, pp. 350f. 50. Cf. the work of Karl Haas, Peter Berger, Emmerich T´alos and Gerald Sturmayr. 51. Sturmayr, ‘Industrielle Interessenverb¨ande’, pp. 346f. 52. Haas, ‘Industrielle Interessenpolitik’, p. 114. ¨ 53. Berger, ‘Okonomische Macht und Politik’, p. 409. 54. Haas, ‘Aspekte industrieller Interessenpolitik’, p. 377. ¨ 55. Eduard Ludwig, Osterreichs Sendung im Donauraum. Die letzten Dezennien o¨ sterreichischer Innen- und Außenpolitik (Vienna, 1954), p. 139. ¨ 56. Alois Brusatti, Osterreichs Wirtschaftspolitik vom Josephinismus zum St¨andestaat (Vienna, 1965), p. 126.

Government and industry in Austria in the 1930s

287

57. ‘Berufstand Industrie’, Der christliche St¨andestaat, 48 (4 November 1934), 20f. 58. See Gertrude Enderle-Burcel (in collaboration with Johannes Kraus), Christlich-st¨andisch-autorit¨ar, Mandatare im St¨andestaat 1934–1938. Biographisches Handbuch der Mitglieder des Staatsrates, Bundeskulturrates, Bundeswirtschaftsrates und L¨anderrates sowie des Bundestages (Vienna, 1991). 59. Haas, ‘Zum Problemkomplex “Wirtschaftsverb¨ande und St¨andestaat” ’, p. 328. 60. Theodor Putz, ¨ ‘Die Bedeutung der Wirtschaftsverb¨ande fur ¨ die Gestaltung der osterreichischen ¨ Wirtschaftspolitik’, in Verb¨ande und Wirtschaftspolitik in ¨ Osterreich (Berlin, 1966), p. 154. 61. Haas, ‘Industrielle Interessenpolitik’, p. 110. ¨ 62. Berger, ‘Okonomische Macht’, p. 404; Sturmayr, ‘Industrielle Interessenverb¨ande’, p. 346. 63. Sturmayr, ‘Industrielle Interessenverb¨ande’, p. 346; on the activity of Emanuel Weidenhoffer see also Stiefel, Die große Krise, pp. 245, 355, and Finanzdiplomatie, numerous references in the index of persons. 64. On the first assessment of this archival collection see Enderle-Burcel, ‘Lobbyismus und Interessengruppen’, pp. 260–8. 65. For more detail see Gertrude Enderle-Burcel, ‘Historische Einfuhrung’, ¨ in Protokolle des Ministerrates der Ersten Republik, Abteilung IX. 29. Juli 1934 bis 11. M¨arz 1938, Kabinett Dr. Kurt Schuschnigg 30. Juli 1934 bis 26. Oktober 1934, vol. I (Vienna, 1988), pp. xxiiff. ¨ 66. See Karl Stuhlpfarrer, ‘Zum Problem der deutschen Penetration Osterreichs’, in Das Juliabkommen von 1936, pp. 320f. 67. Stuhlpfarrer cites the Bausparkasse Wustenrot ¨ in Salzburg, a branch of the Luwigsburg parent company, and the Siemens-Schuckertwerke in Vienna, where the attempt to influence the management of the firms failed. Ibid., pp. 322ff. 68. For more detail see Enderle-Burcel, ‘Historische Einfuhrung’, ¨ Protokolle des Ministerrates, Kabinett Schuschnigg, vol. I, p. xxiv. 69. Stuhlpfarrer, ‘Zum Problem der deutschen Penetration’, pp. 324f. ¨ 70. Osterreichisches Staatsarchiv, Archiv der Republik, Bundesministerium fur ¨ Handel und Verkehr, Auskunfte, ¨ Zl. 2.595/1935. 71. Ibid., Zl. 1.649/1935. ¨ 72. Eduard M¨arz and Fritz Weber, ‘Osterreichische Wirtschaftspolitik in der Zeit der großen Krise. Burgerliche ¨ Strategie und sozialdemokratische Alternative’, in Der 12. Februar 1934. Ursachen, Fakten, Folgen. Beitr¨age zum wissenschaftlichen Symposion des Dr. Karl-Renner-Institutes, abgehalten vom 13. bis 15. Februar 1984 (Vienna, 1984), pp. 15–33, here 18. 73. Haas, ‘Industrielle Interessenpolitik’, pp. 121ff. 74. See the published volumes of Ministerratsprotokolle der Ersten Republik der Kabinette Dollfuß und Schuschnigg. ¨ 75. Siegfried Mattl, ‘Die Finanzdiktatur, Wirtschaftspolitik in Osterreich 1933–1938’, in Emmerich T´alos and Wolfgang Neugebauer (eds.), ‘Aus¨ trofaschismus’, Beitr¨age u¨ ber Politik, Okonomie und Kultur 1932–1938 (Vienna, 1984), p. 136.

288

Gertrude Enderle-Burcel

76. See the published volumes of Ministerratsprotokolle der Ersten Republik der Kabinette Dollfuß und Schuschnigg. 77. Haas, ‘Wirtschaftsverb¨ande und St¨andestaat’, pp. 336f. ¨ 78. ‘Industriesperre’, Der Osterreichische Volkswirt, no. 5 (28 October 1933). 79. Ibid. ¨ 80. Osterreichisches Staatsarchiv, Archiv der Republik, Bundesministerium fur ¨ Handel und Verkehr, Karton 3482, Signatur 5811, GZl. 101.837/22 September 1933. 81. Bund der osterreichischen ¨ Industriellen, Bericht u¨ ber das Jahr 1936, 13 (Vienna, 1937), pp. 16 and 22. 82. Between 1930 and 1933 cartel legislation was introduced in several countries, including Italy, Poland, Hungary and Czechoslovakia. See Dr Franz ¨ Hauser, ‘Kartellrecht und Wirtschaft’, Der Osterreichische Volkswirt, no. 37 (12 June 1937), pp. 727f; see also Alice Teichova, Kleinstaaten im Spannungsfeld der Großm¨achte. Wirtschaft und Politik in Mittel- und S¨udosteuropa in der Zwischenkriegszeit (Vienna, 1988), pp. 165–73. In Czechoslovakia cartels were a legally recognised part of the economic structure. See Alice Teichova, Wirtschaftsgeschichte der Tschechoslowakei 1918–1980 (Vienna, Cologne and Graz, 1988), p. 44. 83. On the material concerning cartel legislation and industrial embargoes, see ¨ Osterreichisches Staatsarchiv, Archiv der Republik, Bundesministerium fur ¨ Handel und Verkehr, Karton 3572, Signatur 569, GZl. 100.003/1935. 84. ‘Schutzgesetz fur ¨ die Industrie’, Wiener Wirtschafts-Woche (8 May 1935), 1f. ¨ 85. Der Osterreichische Volkswirt, no. 35 (29 May 1937), 680f.

13

Business and politics: the state and networks in Greece Margarita Dritsas

Introduction In this chapter I shall attempt to explore the relationship between business and politics by focusing on the role of Greece as a developmental and entrepreneurial state. Looking at networks allows us to observe relations between the real agents of power, i.e. businessmen and politicians, and to assess changes in the degree of complementarity between economic interests (and economic power) exercised by various groups, on the one hand, and political authority embodied by the modern state, especially by the government and its agencies, on the other. The cases presented are intended to highlight the changing relationship between business and politics arising out of the evolution of the Greek state at different moments during the last 100 years. The nature of networks is also explored, both as mechanisms of adjustment and as channels of influence and power. References are made, following the history of the growth of the Greek state, to two main periods, namely: the end of the nineteenth century; and the inter-war years. Some analogies are also drawn with regard to recent developments.

The state and networks in the Balkans Starting with the recent period, reference should be made to the role of the Greek state in relation to business expansion and its consequences within the framework of growing internationalisation in the Balkan region. Economic diplomacy provides abundant instances for testing the hypothesis that today private economic and state interests are increasingly more complementary. Even a superficial look would confirm that economic diplomatic activity is no longer exercised solely by states. Bilateral or international treaties and contracts less and less frequently promote general national interests only. Rather, agreements concerning foreign trade relations, foreign capital movements, technological and even cultural links between countries, which have spawned national and increasingly 289

290

Margarita Dritsas

supra-national legislative and regulatory bodies, are mostly negotiated and utilised by institutions, many of them business firms. This area of economic activity lies way beyond the national level of decision-making and its institutional arsenal (parliament, government departments). But it is also true that this influence, exercised on an international level, has direct consequences for the life of nations. The fluid space becomes a locus where national and private economic interests are conflated and national agreements, which have in the past been a prerogative of the state, are now increasingly prepared and negotiated jointly by state officials and by representatives of business organisations including individual influential entrepreneurs. The latter, by expanding their business interests, acquire international power, and by doing so they increase globally their overall economic influence. Moreover, new collective supra-national institutions, such as, for example, the European Round Table of Industrialists, are proliferating. Indeed, it can be argued that among the biggest beneficiaries of inter-state agreements are those entrepreneurs who often themselves serve, or commit the services of their associates (staff), as advisers for various bilateral and international deals. Simple observation of the composition of state delegations suggests that the frequency of such instances is increasing. Over the last ten years, as a result of political realignments in the Balkans, Greece has played an important – if not always evident – role in economic affairs. On the margin of political meetings, concerted efforts were made by the Greek government to align with the official view (and policy) influential entrepreneurs who had already indicated their interest in expanding the scope of their business activities in the region. Explicit illustrations of co-operation between the state and private business may be obtained by observing the proliferation of meetings – and the items on the agendas – arranged between various government departments and particular businessmen.1 By reinforcing the presence of Greek businesses in the Balkan region, the Greek government (and any other national government, for that matter, be that Italy, France, etc.) automatically assumes the status of regional power; this in turn results in the upgrading of its international prestige. Boosting Greek interests abroad has other collateral benefits at the national level, since it also enhances safer and smooth collaboration at home. It is a well-known fact that all governing elites seek the active support of the business community for various government projects, especially those related to social and welfare policies. Since 1996, when such meetings began, at least 2,000 Greek firms have developed important activities in several Balkan and other South European and Eastern European countries (Bulgaria, Yugoslavia, the Former Yugoslav Republic of Macedonia, Romania, Albania, the Ukraine, Russia, etc.). They range

The state and networks in Greece

291

from establishing factories and/or distribution outlets to founding banks, opening construction projects, mining and shipping activities, and setting up private hospital and health facilities. Among these firms some of the biggest Greek business groups are well represented. They are not, however, alone in the region, since Italian, German, French, other European, American and Japanese businesses are also active. It is natural that the more antagonism grows among the different countries for portions of the new markets, the closer co-operation becomes between the Greek state and Greek businesses for the negotiation of favourable terms and conditions. At the same time the state is no longer alone in its function as negotiator. Apart from growing numbers of advisers at all levels of the executive political authority, it is also noted that every visit by Greek government officials means that several businessmen are included in the political entourage. Moreover, these businessmen owe their privileged position to their effective networking activity, which largely transcends party affiliations. One could argue in this sense that the democratic processes of selection, representation and decision-making are adulterated.2 This development constitutes a new feature of Greek politics, which is radically different from earlier experience. For instance, before the Second World War, the Balkan Conference – an institution founded in the 1930s with the purpose of fostering international peace in the region also through economic deals – was made up only of members of the political system, i.e. ministers, members of parliament and trade unionists. It was also made clear (explicitly in minutes of such meetings) that the forging of economic ties between the Balkan countries was strictly a prerogative of the state. Such activity encompassed the development by the state of transport and communication systems. It also included measures of mutual protection of exports vis-`a-vis other third – in the case of Greece, non-Balkan – countries, through the use of propaganda common to all neighbouring countries. Other issues dealt with production regulation, exchange agreements, freedom of movement and work in the countries stipulated in the agreements. In other words, the extension of the Balkan market was entrusted to the states through specific government action.3 Such projects were discussed extensively in parliamentary meetings throughout the inter-war period. Aspirations, however, for safeguarding peace through economic integration remained illusory as the Second World War, the ensuing civil war in Greece and post-war political developments in the region have shown. Free communication and cooperation in the Balkans have always left a lot to be desired. Today, a real rapprochement is more than ever visible, based once again almost exclusively on forging economic and business co-operation and not so much on strengthening political ties between democratic (parliamentary) systems.

292

Margarita Dritsas

The rapprochement is, moreover, mostly entrusted to private business groups, which are assisted by their respective governments. Frequent references in the Greek press reveal the participation of non-government expert negotiators who often work for or are closely connected with particular firms, banks, industries and high-technology businesses. All of them have invested heavily in the countries already mentioned in the last ten years and/or are planning to increase their share of these markets. Coincidental with these developments is the increasing frequency of takeovers, the transformation of national firms into multinationals and of previously state-run utilities into private multi-nationals. Obvious targets are the effective control of smaller or larger shares of the market, achieving economies of scale and increasing profit shares for the foreign agents. This cross-border business activity in the area during the last few years is consistent with more general world trends. It has been recorded in UN statistics that in the period 1986–92 over two-thirds of capital inputs in developed countries were used for the financing of crossborder mergers and acquisitions.4 Such trends in the case of Greece are facilitated by geographic proximity, perhaps also by certain cultural affinities and by the character of these new markets.5 A specific history of entrepreneurial activity, which goes back to the eighteenth, nineteenth and early twentieth centuries helps put the present success into perspective. Traditional entrepreneurial activity in the region – especially as regards trade and banking – was dominated by Greek merchants and was based on specific organisational arrangements exemplified by what has been called ‘networking’. Trading – often combined with shipping – and banking firms established branches in most commercial centres of the Balkans, then still part of the vast Ottoman Empire.6 These offices were usually headed by family members or peers with complementary economic interests enjoying a high degree of trust and ensuring the necessary flexibility at times of radical and/or rapid changes, or overcoming the rudimentary state of communications, in an environment characterised, moreover, by very low regulation. The developmental state and networks in the nineteenth century The foundation of the Greek state in 1830 enhanced the power of these ethnic networks by offering political support (and protection) to them and the organisations they represented. State support, however, was based not only on ideological affinity within the dominant discourse of nationalism but on economic complementarity. Political (party) bonds were not as strong since the Greek political system was based largely on patronage, on traditional parties and on rather fluid institutions. Power originated at the

The state and networks in Greece

293

local level where there were patrons and clients. At the base of the pyramid there were farmers/voters, and at the top the patron/politician distributed favours downwards through several levels of intermediate clients who also acted as patrons to other clients further down. The basis of this system was economic power in the form of landownership and trade. Economic development in Greece was, until the end of the nineteenth century, based on the promotion of agriculture and trade, and was seriously hindered by the lack of foreign capital inputs. Great importance was therefore attached to the export trade of agricultural products and the maintenance of a healthy trade balance. Those Greek businessmen operating in the Balkans and beyond ensured the ever increasing export of Greek produce and the import of industrial goods from abroad. Moreover, these groups (merchant/banking offshore bourgeoisie) had strong bonds with families living in Greece, either through marriage alliances or through recruiting their employees in their towns of origin. Not only were contacts maintained with the state through these links, but a high degree of identification occurred between those dominant economic interests and the Greek state. The mesh of economic and social relations left strong marks of the Greek presence on the whole region, whilst a distinctive business culture evolved based on trust and networks of personal connections rather than on any impersonal bureaucratic structure of advanced institutions and organisations. International antagonism eventually pushed these offshore business networks to seek more active support from the Greek state. In the late nineteenth century, as capitalism developed in Greece itself, and foreign antagonism increased in south-east Europe and the Ottoman Empire, bonds between the Greek state and the entrepreneurial community started to crystallise and become tighter. Networks quickly adjusted to the new situation whereby Greece was now borrowing heavily on foreign capital markets. Members of these networks, especially financiers, offered their services to the Greek state through a variety of business organisations such as local banks and merchant and shipping houses, but also via the National Bank of Greece (NBG) with which they were usually connected.7 The bank was from its inception a ‘high-level entrepreneur’8 occupying a pivotal position; an institution that swiftly established an important, multi-dimensional network on a national scale – also extending beyond the borders to important Greek overseas communities.9 The NBG and those businessmen (merchants, early industrialists, shipowners, landowners and politicians) associated with it as shareholders, members of its board, members of regional committees, etc., eventually started functioning as a cohesive network which acquired the character of a sort of pressure group. The NBG’s influence increased gradually through a process of bargaining with the government over monetary policy and

294

Margarita Dritsas

public finance.10 Many ‘spin-off’ networks developed at the same time. The case of Theodore Retsinas offers an interesting example. An influential industrialist, Retsinas was the founder of the largest cotton enterprise in Piraeus, which soon became the biggest in the country. He was elected mayor of Piraeus (1887–95) and a member of parliament. He was also a director of the NBG, whilst with the help of his family, through a system of marriage alliances, he became linked with other important entrepreneurial families in Piraeus, among them bankers, merchants and landowners. Following a pattern common at the time, he was also a director of several important firms in shipping, banking, industry and trade. His election as mayor coincided with the intensification of his economic power in Piraeus, and from 1888 to 1891 he acquired and reopened five plants, which had earlier been made bankrupt. To consolidate his local influence, he strove to strengthen the autonomy of Piraeus as an industrial and commercial centre, minimising Athenian – i.e. central – control and influence. He launched an ambitious programme of public works, but he also favoured his friends. His policies of road building became highly controversial since they resulted in vast indemnities for expropriated land, which benefited landowners/friends of his and other businessmen. Retsinas was able to affirm his power through a network of supporters and partners who themselves headed a number of important institutions in the town, thereby controlling important portions of the electorate, especially recently integrated immigrants. His strategy secured him a large and safe reservoir of votes, which guaranteed his long political career. Retsinas was a supporter of Harilaos Trikoupis, the liberal Prime Minister whose time in office coincided with the introduction of modern reforms in Greece and with the acceleration of the capitalist process. He based his politics, however, on local power and the extensive economic and political network he had built. He maintained and benefited greatly from his connections with the NBG, especially as the latter’s network proved more resilient until at least 1927, when it lost some of its functions, especially the right of issue. It survived the political and economic crises of the era, and being the only institution with knowledge and human resources capable of conducting international financial negotiations, it forged a special relationship with the state. The appointment of officers from bank directorates to government departments and vice versa became common practice. If the movement of officers between institutions, as in the case of the NBG, and the government points to a reasonably high degree of direct participation in politics of economic personalities and national businessmen, the situation was different for the groups of overseas Greek entrepreneurs. Their direct political involvement was reduced, although not

The state and networks in Greece

295

altogether absent.11 Rather, they strove to maintain a high social profile by systematically moving among the higher echelons of the elite where politicians, bankers, diplomats and important businessmen were to be found. Their limited familiarity with the way political activity was conducted in Greece – still dominated to a large extent by local power – constrained their opportunities to pursue a political career or acquire direct political control. Their influence, however, began to grow during the last quarter of the nineteenth century, favoured by the attitude/policies of the Trikoupis Liberal governments (1870s–90s). An outward-looking European mentality, a laissez-faire ideology, an aspiration to intensify contacts with other countries and with overseas Hellenism, and a determination to stress the Western profile of the nation, became dominant. Among the immediate priorities of the new personnel was also to curtail local power by strengthening the organisation of the central administration. An appreciation of and reliance on the abilities and resources of overseas business for some of the ambitious developmental projects (the Corinth Canal, railways, road building, etc.) also contributed to an increase in their influence. On the other hand, the favourable climate and conditions rendered any potential inclination by overseas businessmen to become directly involved in national politics redundant. Besides, the economic resources of such businesses had been accumulated mostly outside Greece and, therefore, did not depend for growth primarily on Greek legislation and institutions. They benefited more by filling lacunae of national policy and by helping Greek governments to satisfy social demands, especially for projects which did not carry high priority (compared with defence, or foreign policy, or internal affairs). Their indirect involvement legitimated their business activities abroad, conferring prestige and a humane profile, and building a new base for an enhanced economic and, indirectly, political role. Last but not least, it should also be mentioned that during this period the state also began to act as a client distributing concessions for supplies and paying commissions for a variety of transactions, in addition to presiding over the construction of public works (roads, railways, port improvements, etc.). All these presented opportunities for entrepreneurial activity and increasingly patronage began to encompass the sphere of business too. The trend was intensified during the inter-war period. The twentieth century From the beginning of the twentieth century, developmental efforts were also directed inwards and industry gathered momentum. The developmental profile of the state began to grow further. Even though there were

296

Margarita Dritsas

mixed results, the consolidation of important capitalist firms (and their founders) was actively supported and encouraged, along with a series of reforms affecting major sectors of the economy and society.12 New industries were created and relatively large joint-stock firms started to develop. The role of the state was becoming more and more important and with it came a need for expertise on the one hand, and information on the other. The relationship between business and politics became tight and was institutionalised. With the help of foreign loans that the National Bank had negotiated with the League of Nations and foreign banking houses, a series of large infrastructure projects was undertaken, whilst state supplies of Greek products and imported goods were increased. Apart from irrigation, reclamation, road building, port improvement, etc., from 1923 the effort of rehabilitating and housing the Asia Minor refugees acquired major importance. The construction industry continued to grow and has remained one of the pillars of Greek development ever since. New men, not necessarily belonging to the old (locally powerful) political families, had come to power since the beginning of the century and the new entrepreneurs who emerged were not directly – or primarily – connected with landownership. They formed their own new networks based on a community of educational, professional and social qualifications and sought to integrate important political figures too.13 As state interventionism grew throughout the 1920s, they functioned as a pressure group trying to induce concessions and benefits from the state and exert influence for the introduction of a coherent industrial policy. Part of their strategy was to create a strong association, the Federation of Greek Industries, and through it to demand the enactment of an industrial policy.14 Having the NBG as their ally helped, whilst, in contrast with the past, direct participation in politics was now pursued more energetically. The government, on the other hand, anxious to carry the developmental effort further, was obliged to use its expertise and its foreign connections. The strengthening of the networking process also allowed better management of the growing political uncertainty of the pre- and post-First World War period; improved responses to the many irrationalities of state policy, in areas affecting business performance; and the provision of informal channels of information. Instances of the direct involvement of businessmen in politics became more frequent than in the past. In 1924, the new constitution, which added a second House to the legislature, the Senate, gave this trend official legitimacy albeit with corporatist features. It established combined representation of the economic classes by elected and nominated members. Throughout the inter-war period, but especially during the second Venizelos government of 1928–32, traffic from the corridors of power to

The state and networks in Greece

297

the boardroom suites was intensified. Networking between politics and business bolstered this relationship and ensured the smooth adjustment of the institutional framework. The new developmental state was effectively integrating the emerging economically powerful forces. Historical research has supported the hypothesis.15 What emerged from the findings was an almost constant circulation between business and politics, the intensity of which grew, especially during the 1930s. If ever the dominant social classes in Greece, and especially the indigenous ‘bourgeoisie’, felt they had to develop any programme of domination, then it was during this period that such a proposition found full expression. It should be remembered that during the inter-war period Greek politics became very volatile. New social groups emerged, socialist forces increased their appeal and organised refugees began to be radicalised. This radicalisation, especially in view of the chronic unemployment of the period, was perceived as a serious threat to the status quo, thereby causing a conservative reaction on the part of the dominant class, as was the emergence of socialist forces.16 It has already been stated that direct participation was not as common among non-indigenous entrepreneurs, although their influence was substantial. During the inter-war period, and especially after the Asia Minor Disaster, the case of Prodromos (Bodosakis) Athanasiades stands out as an illustration of the new alliance. It also shows the willingness of the state – regardless of which party was in control – to find new allies (especially among the newcomers who had no local support base in Greece) by embracing their entrepreneurial initiatives. In this, the National Bank of Greece and its network worked almost as an apparatus of the state. Prodromos Athanasiades was a newcomer to Greek business and politics. He was born in Asia Minor where he had risen from modest origins to become a leading businessman. Starting with the family’s flour mill in Mersina he became a supplier of the Turkish and German armies during the First World War. From then on, he diversified into other supplies and he acquired valuable experience in dealing with state authorities. In 1918 he owned a prestigious hotel in Constantinople. His co-operation with the firm of Phillip Holzmann of Frankfurt and the Deutsche Bank also introduced him to the international scene. After 1922, he transferred his business to Greece, and was able to associate himself with the important Greek chemical firms. He also maintained connections with German capital which would soon be making headway in the Balkans, while he gradually started to diversify and modernise the modest armament sector he had also acquired. By 1940 the industry was in a position to supply both the Greek and the allied armies. Winning the trust and support of the National Bank of Greece was important for his immediate and

298

Margarita Dritsas

long-term plans. He needed finance and a passport to politics, and the bank was willing to oblige if he would agree to turn around firms in the NBG’s portfolio that had accumulated bad debts. Athanasiades acquired and reorganised a number of those firms. His power grew after 1934 when the populist party came to power, and particularly after 1936 when Ioannis Metaxas took over, although he kept his connections with British industry too. Throughout the period, his firms supplied government agencies almost exclusively with a variety of goods produced by his factories (cotton and wool industries, fertilisers, spirits, glass, etc.). Greek government support was also used for the modernisation of his plants with new machines and equipment bought through the system of German–Hellenic trade and clearing agreements. On the eve of the Second World War, Athanasiadis controlled over thirty-five important firms. Throughout his career in Greece, he had contributed generously to the political campaign of several politicians, but when he tried to get directly involved in politics himself he had little success. During the war and occupation years, he fled to the USA and after 1945 with capital from Marshall Aid he was able to restructure his industrial empire, now with a strong export orientation. The core of his activities remained in mining, metallurgy and armaments, and around these activities revolved a number of chemical, fertiliser, glass, wool, shipping and insurance companies. Throughout his stay in Greece he also did his share of good works and he left all of his property to a foundation which is still active in educational and cultural affairs. In 1935, The Times of London estimated that grants by Athanasiades amounted to £200,000.17 This example may be seen as a typical case of the business opportunism of the period, although in the early 1920s political participation by businessmen followed, to a certain extent, the polarisation of the system into Liberals and Republicans on the one hand, and Conservatives and Monarchists on the other. In the 1930s, however, the lines became blurred and generally businessmen did not hesitate to switch from Liberal Republican sympathies to Conservative Monarchist affiliations. Some also attempted to form their own political parties.18 Political opportunism reached a climax in the mid-1930s, when they explicitly identified and supported the semi-fascist dictatorship of Ioannis Metaxas. In an emotional passage from the editorial of the inaugural issue (1934) of Industrial Review (associated with the Federation of Greek Industries), the political stance of the business world was indisputably clear: ‘The industrial class was psychologically ready to make whatever sacrifice was needed to contribute to the moral cleansing and rebirth of the country . . . The industrial world united stands with the government . . . in positive

The state and networks in Greece

299

collaboration, identity of perceptions, common goals and reasonable solidarity’. The network had come of age, passing from pressure group activity to the core of politics as a mechanism of class identity and strategic planning. On the whole, it was during this period that the passage from the sphere of politics to business, and vice versa, became commonplace and crossparty economic patronage paralleled political patronage. Businessmen were thus able to establish access to important financial resources, domestic and foreign, and they were also able to enter the highly profitable space controlled by the state of public construction and infrastructure projects, and to forge new – and not always legal – ways of transacting business. In their efforts to extract concessions from the government they became involved in several scandals involving favouritism, if not plain corruption, which showed that there was a high degree of collusion between political authority and economic power. Three cases illustrate the point very well. (1) In the 1920s the Galanis Construction Co. was recommended by the Minister of Transport, B. Karapanayotes, for a contract of 70 million drs. for the construction of roads in Mytilene, the capital of the island. Those contenders for the bid who lost brought charges of illegality against the winners and in the subsequent court case it was revealed, and widely publicised in the press, that three brothers of the minister (who by then had moved to internal affairs) and his brother-in-law were associates of the Galanis firm. The minister of course denied the accusations, claiming that his brother-in-law only became an associate at the time he himself was moving to the new ministry. The Prime Minister, Eleftherios Venizelos, reacted by writing a letter to Karapanayotes, in which he stated that he did not consider it illegal for the minister’s relatives to be businessmen: ‘but I do not think it is right for a Minister to use the power vested in him by the public in order to grant his close relatives such a bid, while he is the supreme overseer of the project. It is incompatible with the political ethos which public opinion, rightfully, demands from statesmen.’ Venizelos suggested that Karapanayotes should bring charges against his defamers if what was published in the press was incorrect. Eventually the minister resigned from his post, to the satisfaction of the opposition as well as a certain portion of the majority who disagreed with Karapanayotes’ past actions. He had been an army lieutenant in 1922, and by 1929 had become a close collaborator of Venizelos. He had also been a member of the military court which had condemned to death the ‘Six’, i.e. six members of the political and military establishment found guilty of high treason after the 1922 defeat of Greece by Turkey in Asia Minor. Rumours

300

Margarita Dritsas

had it in 1929 that Karapanayotes as Minister of Transport would not sign contracts unless he received hefty commissions.19 (2) In 1931 Venizelos all but sacked the governor of the Central Bank, A. Diomedes, on the pretext that he had made an advance payment of 7 million French francs to the Papastratos brothers, who were important tobacco industrialists and his personal friends. During the years of the crisis, on the instructions of Venizelos, foreign exchange was advanced, although no regulation had yet been introduced, by the governor to businessmen friends of his. According to contemporary commentators, it was assumed that Diomedes was trying to help his friends smuggle their capital out of Greece. Venizelos apparently used this as a pretext to show his dissatisfaction over the incapacity of the Bank of Greece and its governor to anticipate the impact of the 1929–32 economic crisis. References in the press about other scandals were frequent and were invariably used for political purposes. (3) Towards the end of the inter-war period, the Aviation Minister, Alexander Zannas, authorised a larger than necessary supply of petroleum, including products inappropriate for use by aeroplanes, with the aim, it was alleged, of providing business for the Zannas– Mavrogordatos Company in Thessaloniki. This was a firm in which he was a shareholder until 1930, and in which his brother continued to be a partner. The firm was acting as an agent in Greece for several foreign petroleum companies at the time of the deal. The newspaper which revealed the scandal was not charged by the court and Zannas never resigned from the ministry. Zannas was also involved, with several members of his family, in a series of construction deals for refugee housing in Thessaloniki and was one of the central figures in inter-war business networks. In the absence of institutions that might have dealt efficiently with problems that the world of business encountered in their relations with the state, business networks allowed access to resources and ad hoc solutions. On the other hand, overlapping also indicated that private business deals – and not only those connected with public finance – were useful to the state, and interesting for incumbents of political and administrative power who often considered them lucrative sources of revenue and power. Equally important was the political dimension, as already mentioned. The post-Second World War period Many of the elements of the process already outlined survived into the post-war period, and are more evident than ever today. Complementary

The state and networks in Greece

301

interests between business and the state may be detected in old and new areas such as the provision of culture, education, research and health.20 Non-profit organisations seem to be the dominant form – not specific only to Greece – more generally related to the growth of modern enterprises in the twentieth century. Through them a variety of goals are achieved more effectively than simply through public relations departments. They also manipulate public opinion by presenting a more humane profile of business. The process has intensified since the 1970s, but today the pivotal role seems to be located in large business groups that own media outlets and industries. Creating and diffusing social images and messages is today a central component of business strategy both on a national and on a global level. With the advent of modern mass-media techniques and power, there has been a qualitative change in the process of communication and information (often bordering on deviant tactics), which essentially exerts pressure on politics, especially governments, and further dissolves the democratic fabric of the political system. It is no coincidence that in Greece today major Greek businesses control most of the non-state TV/radio networks and substantial portions of the press, as well as most of the sports clubs. They have also begun investing in the culture and entertainment industries as well as in the communications sector.21 Equally important is a parallel process, whereby the methods and types of programmes promoted by private media are copied – with only minor adjustments – by the state-controlled sector. After the Second World War the Greek state assumed greater entrepreneurial functions. As a result, a new public sector emerged in which overlapping between politics and business became over the years extremely problematic. The sector comprised mainly utilities, banks and strategic branches of industry. This area continued to grow so that by the mid-1980s it accounted for 55 per cent of production. The new element was intervention by the state and party bureaucracy. Since then, new patterns of business culture have emerged whereby the qualifications of managers tend to coincide with those of a party bureaucrat or activist. Almost always the political future of such managers was guaranteed, and after a few years as trade union representatives or managers of public companies they were able to secure a position on the party election ticket for general or local elections. Networks operating nationally and globally have now become important mechanisms of integration. Often, civil servants, state officials, private officials and managers move between sectors and it is in the intermediate ‘grey’ zones that networking may also acquire negative characteristics, bordering on corruption. Although no systematic studies yet exist about the public sector and the

302

Margarita Dritsas

overlapping of power and interest, the general impression obtained, at least from journalistic accounts, is that the result of such a confusion of roles has often been disastrous both for efficiency and for the economy as a whole. More thorough analysis of this issue is urgently needed. However, it lies outside the scope of this chapter and the foregoing remarks may be seen only as a starting-point in the discussion. The recent trend pursued by Greece over the last decade to privatise the public sector, although indicating a supposed major reorientation in state policy, is riddled with problems and confusion. Despite the rhetoric in favour of privatisation, there are serious doubts that any Greek government would sincerely and wholeheartedly proceed to dismantle the extensive public sector, which took almost a whole century to build. A couple of years ago it was decided that firms such as OTE (telecommunications) or DEH (energy provision) would not be sold but only a small number of shares, not exceeding 15 per cent of their value, would be floated, whilst management would be maintained under public control. Obviously it is believed that the overlapping of power has much still to offer both to the state and to the private business community. Conclusion This chapter has argued that it is possible to observe power – economic and political – by looking at the real agents and by focusing on networks integrating businessmen and politicians. Network relations have been analysed against the changing role of the state (a developmental and entrepreneurial state with various degrees of intervention in the economy) and the specificity of the Greek case (the existence of successful ethnic bourgeois communities operating overseas). It was found that these relations had strategic importance but at the same time also entailed risks. Networks and links appeared to change over time as state intervention increased; they substituted for the lack of institutions which in other European countries ensured the social and economic collaboration of business groups, labour and the state (social partners).22 Complementary interests were observed between the private community and the state, whereas the flow of power was bi-directional. Private agents of economic power exercised influence, but holders of state power equally exerted power on the business world. Networks integrating the two sides functioned as channels of power and loci of homologous interests. They adjusted to change by becoming more cohesive when social classes became more articulate and by extending their scope when the degree of fluidity of Greek society grew.

The state and networks in Greece

303

    1. A case in point was a meeting called by the Minister of Development in December 1996, to which some of the most dynamic Greek businessmen – Socrates Kokkalis, Vardis Vardinogiannis, Spyros Latsis, Georges Kopelouzos – were invited in order that state and business could find common forms of action for making the presence of Greek business in the Balkans more efficient and profitable. 2. An example is provided by the case of S. Kokkalis, an entrepreneur who has invested heavily in telecommunication services and material and is interested in all Balkan deals. Another example is John Mytilineos, who has invested in mining activities around Skopje. The protective relationship with the state becomes obvious when such entrepreneurs encounter problems, as in the case of Mytilineos and the Kosovo mines. Mytilineos originally signed deals for the exploitation of mines in the Kosovo area with the Yugoslav authorities. After the war, however, the new regime in Kosovo refused to recognise those agreements, and it was the Greek government which was called on to renegotiate the deals and find a way out of the impasse. 3. See the monthly publication of the Balkan Conference Les Balkans (here, vol. 5 (3–4), March–April 1934, 203–9). It was published under the aegis of the Balkan Conference and financed by the Carnegie Foundation for Peace with the purpose of bringing about an inter-Balkan rapprochement by studying all aspects of Balkan issues. Also see Conf´erence Balkanique, Documents Officiels, 1932. 4. J. Tolios, Capital Concentration (Athens, 1999), p. 24. 5. These affinities with neighbouring Balkan countries, especially for northern Greece, were already perceived in a positive way in the 1930s, when efforts were made to reach a Balkan rapprochement. They were tinged with negative connotations in the post-war period and are resurfacing now to bolster the new expansion of Greek firms in the north. 6. This group has been defined as a merchant/banker bourgeoisie: cf., for example, K. Tsoukalas, D´ependance et Reproduction. Le rˆole social des appareils scolaires en Gr`ece (Paris, 1975); G. Dertilis, The Banking Question (Athens, 1980); and Dertilis (ed.), Banquiers, usuriers et paysans (Paris, 1988); N. Mouzelis, Modern Greece, Facets of Underdevelopment (1978). It continued to reside outside the frontiers of the new state and operated as ethnic minorities within multi-national imperial settings (the Ottoman Empire, the Austro-Hungarian Empire, Russia, etc.) 7. Facets of these activities have been analysed by Margarita Dritsas, ‘Networks of Bankers and Industrialists in Greece in the Interwar Period’, in Alice Teichova, Terry Gourvish and Agnes Pog´any (eds.), Universal Banking in the Twentieth Century: Finance, Industry and the State in North and Central Europe (Aldershot, 1994); G. Harlaftis, A History of Greek-Owned Shipping (London, 1996). 8. I borrow the term from Mark Casson, ‘Entrepreneurial Networks in International Business’, Business and Economic History, 26 (2) (1997). 9. The bank was founded in 1841 by foreign bankers (such as Jean Eynard) and Greeks residing abroad. George Stavros from Vienna ensured the early operation of the institution and became its first governor. Once established in

304

10.

11.

12.

13.

14.

15.

16.

Margarita Dritsas Greece, the bank sought to integrate into its network important national and regional merchants (other high-level entrepreneurs) as well as politicians. Ever since, the bank has played a crucial role not only in designing and enacting economic policy but also in political affairs. Prominent politicians held seats on its board, and its governors were invariably also political personalities who served as ministers in various departments. National policy and the interests of the NBG went hand in hand for a long time. It was only in the 1930s, along with greater specialisation in the banking sector, that the NBG lost some of its functions and along with them some of its direct political involvement. Margarita Dritsas, ‘Monetary Modernisation in Greece: Bimetallism or the Gold Standard 1833–1920’, Journal of European Economic History, 28 (1) (1999), 9–48. Notable exceptions were Emmanuel Benakis, a wealthy and successful businessman from Egypt and a close friend of Charilaos Trikoupis, Andreas Syngros, Konstantinos Varvakis, Vassilis Sivitanidis and others. A developmental state is supposed to protect home markets, in order to allow domestic industries to grow, and ensure high levels of employment and a relatively equal distribution of income to enlarge the extent of the domestic market for manufactured goods, to provide industry with a highly educated labour force and to generate state-of-the-art technologies and the resulting mass-produced goods. Margarita Dritsas, ‘Networks of Bankers and Industrialists in Greece’, pp. 229–45. This group was named ‘the Zurich Circle’ after the Polytechnic of Zurich where the founders met, became friends and started recruiting their partners. During this period new legislation was introduced. The first Act on the development of industry (2948) was passed in 1922, that on the foundation and extension of industries in 1935 and 1937. Import restrictions were enforced (5426) in 1932 affecting the imports of machinery and raw materials. Entry barriers to industry were introduced in 1938 (E.L.1366). A new tariff was introduced in 1926, amended in 1937, and an Act dealing with the operation of banks was passed in 1930. In total thirty-four acts and directives were issued between 1920 and 1940 concerning industry, the bulk of which (twenty-nine) were passed between 1929 and 1940. Of a sample of approximately 300 persons who combined a business and a political career and lived between the 1890s and the 1950s, over twenty were chief executive officers in Greek banks, the majority serving in the National Bank of Greece. A similar tendency, if somewhat weaker, was observed in other banks too. Of the sample of 300, fifty-five of those who also became involved in politics were industrialists, twelve were shipowners and merchants. The sample was taken from entries in K. Vovolinis, Great Biographical Dictionary (Athens, 1958), a reliable database for the nineteenth and the first half of the twentieth century. The special ‘Idionymo’ Act was introduced by the Venizelos government in 1929. Although it purported to protect the state from subversive activities, in reality it functioned as an anti-labour Act.

The state and networks in Greece

305

17. For many of the details about Bodosakis Athanasiades, cf. Hadjiossif, The Waning Moon; S. Tsotsoros, The Emergence of Industrial Capital in Greece, 1898–1939, vol. II (Athens, 1994); M. Dritsas, ‘Cultural Specificity and Business: The Case of the Jewish Networks’, Symposium on Greek Jewry, Athens, 1999. 18. Andreas Hadjikyriakos, founder of the Zurich Circle and of the cement industry in Greece, long-time chairman of the Federation of Greek Industries, was Minister of National Economy in the Venizelos government (1922–4) and later in the first Metaxas regime government (1936–7). Epaminondas Harilaos had a successful career in trade, was chairman of the Trade Association of Piraeus, and also a banker (chairman of the Bank of Industry, in which other prominent entrepreneurs also participated in 1918). He went farther than his associates and formed the short-lived ‘Political Coalition Party’ with the purpose of bringing together supporters with similar economic interests. Among other prominent political personalities who combined high office in the economy and enjoyed power in the business world was Emmanuel Tsouderos, a Liberal Party member, several times Minister of the Economy, deputy governor of the National Bank of Greece, and later governor of the Central Bank (Bank of Greece). During the occupation of Greece by German forces in 1941, he led the government in exile. Another important associate of Venizelos was Alexander Diomedes, an economist who headed commissions for the settlement of the national debt in the mid-1920s and the signing of foreign loans under the guarantee of the League of Nations. He also served as governor of the National Bank of Greece, before assuming the same post at the Bank of Greece where he remained until he resigned in 1931. His successor, I. Drossopoulos, also served briefly as Minister of the Economy in 1926. When the tables were turned and the People’s Party came to power, members of that party and more generally of the extreme right-wing camp assumed the leadership of the National Bank, e.g. D. Maximos, and later A. Koryzis. 19. G. Daphnes, Greece between the Wars, vol. II (Athens, 1955), pp. 34–7. 20. Only brief mention is made here of the foundations established by important economic magnates such as Bodosakis, Onassis, Niarchos, Lambrakis, Kostopoulos, and Latsis. Note especially the Foundation of Greater Hellenism – of obvious nationalistic aspirations – created by J. Emfietzoglou, and the Botsis Foundation. 21. A case in point is S. Kokkalis, a relatively new entrepreneur who controls a group of firms in telecommunications supplies, computer products, mobile telephones, software, the technological support of lotteries, construction of public works, insurance, data bank services, publishing and radio/TV networks, professional sports teams, etc. In recent years Kokkalis has also expanded into Eastern Europe and the Balkans, while also involving himself in what might be the biggest business of the century, the 2004 Olympic Games. Kokkalis has also established a foundation in the USA offering prestigious scholarships for studying at Harvard University and MIT. 22. Special institutions in some European countries like the UK and Sweden ensured the systematic linking of the state administration and the production

306

Margarita Dritsas agents (the tripartite Royal Council in Sweden, special advisory bodies, commissions, etc.: e.g. the National Council for Industrial Production and the Economic Planning Council in Britain). In Greece, it was only in 1947 that the Council of Productive Classes was founded within the Ministry of Coordination with the purpose of studying which measures should be taken to promote production. In 1955, for the first time, the Advisory Council of Social Policy was introduced (Act no. 3239) in order to analyse and study issues of social insurance and labour policy. In 1959 a Commission from the Ministry of Co-ordination included selected (by the government) members of the business community in addition to civil servants. None of these bodies ever functioned, nor did they make suggestions for reforms and planning.

14

Economic efficiency and nationality: the Siemens subsidiary Elektrotechna in the first Czechoslovakian Republic Christoph Boyer Introduction

Efforts to complement the political independence gained in 1918 with economic independence were a constant preoccupation in the history ˇ of the first Czechoslovakian Republic (CSR). The economy experienced only an average level of industrial development,1 and therefore it was necessary for the Republic not only to be aware of the productive effects of economic relations with foreign powers, but also to remain alert to dangers to its political freedom of action which might arise from their ˇ economic strength. Since the CSR feared, in particular, the economic hegemony of the German Reich as a precursor of political annexation, economic relations with Germany were in many respects characterised by conflict. This certainly applied to bilateral trade relations. However, it also applied in particular to the activities of subsidiaries of German Reich enterprises in Czechoslovakia, which were located mainly in technologically advanced industrial sectors such as electrical engineering, metal-working and chemicals. It is almost impossible to present a statistically corroborated picture of Germany’s investments in Czechoslovakia, since these stood in contradiction to Czechoslovakia’s political leaning towards the Western powers and were often not made public. In contrast, French, British and American capital participation2 did not run counter to the raison d’´etat of the First Republic, which owed its existence to the new international constellation after the First World War. The frequent dependence on German experts, patents and licences3 was felt to be incompatible with the new state’s ˇ prestige. Not least from the point of view of state security, the CSR’s dependence on German know-how in the armaments industry, as well as in sectors connected with armaments, was a matter of delicacy. These problems4 were endemic throughout the whole twenty-year lifespan of the First Republic, from its founding in October 1918 to its end as a result of ‘Munich’ in September 1938. The intensity of the conflict ran 307

308

Christoph Boyer

particularly high during the 1930s when the Republic’s very existence was threatened by the rise of National Socialism. The Czechoslovakian policy of nationalisation – as a response to the ‘German challenge’ – included an extensive parcel of measures aimed at strengthening the Czech position in those enterprises in the Republic which were considered to be German.5 Influence was exerted through taxation policy, the allocation of state contracts, the investment by Czech national banks in the capital of German subsidiaries, and by the appointment of representatives of Czech national parties – the National Democrats, the People’s Socialists and the Agrarian Party6 – to their Verwaltungsr¨ate (administrative boards). A source of controversy in this context was also the ‘national conditions’ (n´arodnostn´ı pom˘ery) in industrial plants, above all with regard to technical and administrative experts and executives. The over-representation of German engineers and managers – both native Germans with Czechoslovakian citizenship and German nationals – was a matter of serious concern. It inspired the sometimes serious, sometimes – for example, during election campaigns – populistic suspicion that this represented a case of conspiratorial and unfriendly ‘remote control’ of the Czechoslovakian national economy in the service of German economic and military interests. The question of ‘national conditions’ first became important in the context of ‘nostrification’,7 which the Prague government invoked from 1918 in an attempt to force enterprises located within the Republic’s territory but managed from abroad – mainly from Vienna, the old metropolis of the Habsburg Monarchy – to move their headquarˇ ters to the CSR. This nostrification went hand in hand with the expansion of Czech capital influence and the attempt to alter the ‘national conditions’. The following study examines the activities of German Reich enterˇ prises in the CSR, taking as an example the Siemens subsidiary Elektrotechna, founded in 1930. This subsidiary supplied the Czechoslovakian market with low-voltage engineering products. It was the First Republic’s major supplier in the field of telephone infrastructure. We are not concerned here with an histoire totale of Elektrotechna. Rather our direct interest is in a specific expression of ‘political entrepreneurship’ which developed in a politically inspired economic environment. The analysis intends to show that, contrary to first appearances, the motives of the actors were in no sense one-dimensional. It is true that economic nationalism was the leitmotiv of Czechoslovakian economic policy. In the 1930s this was combined with the security interests of the young national state, its main advocate being the Defence Ministry and the Czechoslovakian National Council, the umbrella organisation of the

Elektrotechna in the first Czechoslovakian Republic

309

national associations which co-operated closely with military circles.8 Also pressing for the reduction, or even elimination, of German influence were enterprises which competed with Elektrotechna. An entirely opposite attitude was taken by Czech investors, native personnel, who had an interest in making the enterprise prosper, and by consumers. Military and civil government interests – the latter supported by the postal and railway administrations – in a technically advanced communication infrastructure repeatedly came into conflict. This chapter examines the hostility and conciliation in these diverging interests in three periods: (1) from the founding of the enterprise and first aspirations to nationalisation; (2) the phase of heightened conflict following the Nazis’ seizure of power in the German Reich; and (3) the high point of the debate as a consequence of the State Defence Act of 1936. The Foundation of Elektrotechna and the first ‘nationalisation’ efforts The automation of the telephone network was one of the pressing matters after the First World War in Czechoslovakia, as it was in the rest of Europe. Since the country could not provide efficient domestic expertise in the field of low-voltage engineering, the main companies considered as partners for the necessary transformation were Germany’s Siemens & Halske and the British company Western Electric. The territorial cartel ˇ of these two enterprises allocated the territory of the CSR to Siemens’ sphere of influence. In 1921 the post office decided on the system offered by Siemens. On this basis the contract for the first automatic telephone network in the Republic, in Prague, was placed. Production began in Vienna and Berlin. As a partner of Siemens, Telegrafia had participated in the contract. This Czech national enterprise, which began life as a repair workshop in the Postal Ministry, was a prot´eg´e of Siemens, where the blueprints were worked out and the technicians trained. Siemens had agreed to this cooperation in view of the pressure from the post office administration for the nationalisation of production. When in March 1927 disagreements – of which no details are known – led to the dissolution of this business relationship, Telegrafia went on to a politically less precarious co-operation with partners from other Western countries: it made a licensing contract with British Marconi’s Wireless Telegraph Co. Ltd, on the basis of which it received an order for the automatic headquarters in Ostrava. Western Electric then acquired a third of Telegrafia’s shares; it offered licences and technical support in the production of its ‘Rotary’ telephone system. For some larger telephone exchanges the postal administration bought the

310

Christoph Boyer

´ ı and some smaller exchanges Telegrafia Siemens system; in Brno, Ust´ was used. The enforced foreign expansion of German Reich enterprises in the prosperous years of the Weimar Republic caused a wave of anti-German fears in Czech national circles. The growing German economic strength 9 ˇ as a result of the wave of concentration was closely followed in the CSR. The national democratic N´arodn´ı politika accused Germany of wanting to sabotage Versailles via the economy; in this perspective, Poland was to be conquered by force and Czechoslovakia at least by economic penetration.10 It was against this background that a wave of criticism broke out when Siemens took over the Czech company Kˇriˇz´ık.11 That the company was situated in the heart of Prague, on Wenceslas Square, marked the symbolic side of the scandal. The German ‘war goal’ was, beyond its existing hegemony in coal and chemistry, control of all industry important to defence. It was said that German government officials in charge of secrets working there had already undermined the military value of the Czechoslovakian army. From the very beginning the spotlight of public attention was focused on the ‘national conditions’ of the Kˇriˇz´ık enterprise. According to N´arod, the evening counterpart of the N´arodn´ı listy newspaper and closely aligned to the National Democratic Party, in September 1927 Germans could be found in large numbers in the construction offices of the Prague telephone exchange, while the training of native workers was being overlooked. The foreigners could not speak the Czech language, with the result that the government, still the largest customer, was forced to conduct negotiations in German. In the Postal Ministry even an expert lecture with discussion was given in German.12 In October 1927 a report in N´arodn´ı osvobozen´ı alleged that Siemens had, during German–Czechoslovakian trade negotiations, pressurised the German leadership to assert a guarantee of right of resˇ idence for German Reich personnel in the CSR. The report was used as an opportunity by the employees’ committees representing whitecollar staff in the metal industry to attack not only the company but also the Germans in the metal industry in general and specifically in the large companies close to the German border.13 On several occasions the Economic Commission of the Czechoslovakian National Council, in consultation with the relevant professional groups, asked for foreign engineers to be replaced. The Commission was gathering ‘incriminating material’ and demanded that the Defence Minister, Udrˇzal, discuss such conditions, which were considered dubious in the context of state security.14 Although the Czech national press often looked askance at the significant position of Siemens and the authorities’ practice of placing public

Elektrotechna in the first Czechoslovakian Republic

311

contracts with the German concern, the Postal Ministry did not budge from the Siemens system, which technically was by far the best. Here, logic maintained the upper hand over national politics. However, a large contract in April 1927 – the final 20,000 connections for the Prague office – carried with it the politically inspired condition that at least part of the production be moved into Czechoslovakia. In order to take the wind out of the sails of resistance from Czech nationalists, Siemens founded the Elektrotechna company for low-voltage engineering, which began its activities in July 1930. The capital of 16 million crowns was divided as follows: the Agr´arn´ı banka (Agrarian Bank),15 closely connected with the Agrarian Party, 25.5 per cent; the Moravian Bank, which had close connections to the Clerical Party, 25.5 per cent; and Siemens & Halske, 49 per cent. While the enterprise was to be managed from Berlin, a Czech controlling stake was made a condition. A change in the fixed proportions via increases in capital was not allowed, and the Czech majority could not be altered without government agreement. A condition of approval by the Ministry of Trade was that the enterprise would gradually move production into Czechoslovakia and change over to using domestic raw materials. The latter was controlled by examining stocks and ledgers; the authorities also made sure that parts were not sourced solely from abroad.16 Elektrotechna bought the domestic company ‘Radiozenit’, which continued as ‘Radiotechna’ in the interests of retaining the qualified personnel in the company. In Prague, Elektrotechna took over a plant for the production of medical instruments and acquired licences for the construction of air defence systems, the production of which was integrated in TEPAS (Technick´y prumysl ˚ a.s., i.e. Technical Industries).17 At its first meeting on 22 July 1930 the twenty-two-strong administrative board invited the former minister Josef Dolansk´y to be its chairman. The board included a director of the Siemens concern in Berlin, and Karel Svoboda, the Oberdirektor (chief director) of the Agrarian Bank. The largest customer, the state, was represented by an Obersektionsrat (senior departmental councillor) of the Ministry for Posts and Telegraphy and a Sektionsvorstand (departmental director) of the Ministry of Transport. The Czech lawyer Adolf Kr´ysa was chief executive of the enterprise and contact person with the authorities. His friendship with Sektionschef (head of department) Strnad from the Postal Ministry formed the basis of all large contracts.18 To begin with, turnover and production at Elektrotechna developed satisfactorily, one reason being that Siemens passed it large orders; the extensive deliveries for the automatic telephone exchange in the Saare region secured work for several months. In 1931, however, the economic crisis made itself felt in a lack of orders.19

312

Christoph Boyer

Table 14.1 Nationality of salaried employees in the Elektrotechna companies, 1 January 1932 Czechoslovakian citizens

Foreigners

Czechs Germans Others Total

Reich Germans Austrians Others Total

ET 152 TEPAS 15 RT 18 Total 185

81 1 2 84

1 — — 1

234 16 20 270

3 3 — 6

3 — — 3

2 — — 2

8 3 — 11

Note: ET – Elektrotechna; RT – Radiotechna; TEPAS – Technick´y prumysl ˚ a.s.

The progress in ‘nationalising’ the enterprise was a cause for optimism, according to the postal administration. The domestic share of production grew continually: in the new telephone exchanges in Jablonec and Nisou this amounted to about 95 per cent. In the area of private domestic orders Elektrotechna exceeded the prescribed domestic share of 75 per cent at the beginning of 1932. At first, parts which could only be manufactured at acceptable prices by mass production abroad were still imported. This was rational economically, and was supported by Obersektionsrat Frantiˇsek Schneider, the representative of the Postal Ministry on the administrative board.20 Of the 630 blue-collar workers in the three enterprises, 611 were Czechoslovakian and 19 were native Germans.21 The ‘national conditions’ of white-collar employment on 1 January 1932 are shown in table 14.1.22 The interpretation of this finding was controversial, however. While the Postal Ministry took the information as indicative of a change in the ‘Czechoslovakian spirit’, the Office of the President of the Republic saw it as evidence of the scandal that in some areas companies important for defence were still largely in the hands of foreigners or under the influence of national minorities. According to this perspective, Elektrotechna was a striking example of a refined and systematic penetration by German industry; it aspired to a monopoly of the low-voltage engineering market and the suppression of new domestic industry. The change of name to Elektrotechna allowed Siemens to expand further than ever. Any liberation from German influence had taken place on paper only. Elektrotechna and Radiotechna had no access to either laboratories or construction offices; many parts continued to be imported and were only assembled in the country. The foreigners listed in the personnel summaries that were submitted, although few in number, all held leading positions.23

Elektrotechna in the first Czechoslovakian Republic

313

However, this nationalistically tinged view was corrected by Schneider’s more realistic alternative presentation: only global concerns such as Siemens and Bell, and not the domestic low-voltage radio and telephone industries, could be independent; even Telegrafia ultimately depended on foreign partners. In the light of the fact that co-operation with Siemens was inevitable with regard to know-how, the pragmatists in the postal administration believed that the only realistic solution was a gradual transformation to domestic production or the step-by-step replacement of foreign executives by domestic experts.24 The ‘incrementalist path of nationalisation’ seemed to be a success. In 1932, by order of the state, telephone parts were produced almost exclusively in Czechoslovakia using domestic raw materials. In 1933 only eight of the 263 employees (three of them Germans, three Austrians) did not have Czechoslovakian citizenship and the 580 workers – the number of staff had plummeted during the crisis – were almost exclusively native; according to the Postal Ministry the leadership of the enterprise had been advanced ‘in the spirit of Czechoslovakian national thinking’.25 Intensification of the conflict after 1933 The seizure of power in the German Reich thrust Czechoslovakia into profound insecurity; it also served to augment the hostility of the public to the German minority resident in the country. The German population in ˇ the CSR had never been able to completely shrug off its reputation of being disloyal to the state. In the 1930s, and in particular the second half, the Germans appeared to be doubly suspect under the ever growing shadow of the Reich as its potential ‘fifth column’. This was further compounded by the rise of the Sudetendeutsche Heimatfront (Sudeten German Home Front or SHF) under the leadership of Konrad Henlein and its successor, the Sudetendeutschen Partei (Sudeten German Party, SdP). From the beginning, significant elements of the National Socialists’ world view were central to the Henlein movement’s programme; the differences were reduced to mere nuances. The party’s agitation during the Czechoslovak parliamentary elections of May 1935, in which the SdP became the strongest political grouping in the Republic, was characterised by an only barely concealed irredentism; the electoral success of the party, which now reduced its declarations of loyalty to the Republic to the absolute minimum, was generally understood as a plebiscite for Germany. The tense domestic political situation and the rising waves of Czech–German conflict in general had an effect on the position of the German Reich concerns in the economy of the Republic as well as on Elektrotechna, which was still considered to be a German company.

314

Christoph Boyer

ˇ First of all, there were the attacks by the journal Ceskoslovensk´ a obrana (Czechoslovakian Defence). These attacks appeared to be somewhat paranoid; with monomaniacal insistence they chastised Elektrotechna as public enemy no. 1. Elektrotechna had wanted to buy the periodical, published by a former Siemens employee, from its owner but had then distanced itself due to his exorbitant demands. An action alleging defamation and unfair competition against Telegrafia, whose accomplices were ˇ thought to be Ceskoslovensk´ a obrana, led to a house search in the competing enterprise as well as a search of the paper’s editorial offices. However, since no evidence of incitement by Telegrafia could be found, the proceedings were terminated.26 In the prelude to the parliamentary elections of 1935 attacks against the businesses and the ‘token Czechs’ on their administrative boards reached such extremes of ferocity that the Berlin company headquarters asked the German Foreign Office for diplomatic intervention by the German mission in Prague. However, their confirmation that Elektrotechna was in all respects a Czech national enterprise, produced a dilemma: any support by German diplomacy was necessarily understood as confirmation of the reproaches that Elektrotechna was a covert German Reich enterprise. As no end could be seen to the tirades of ˇ the Ceskoslovensk´ a obrana, which even according to Czech representatives on the administrative board were capable of causing the enterprise great harm, director Richard Diercks, the representative of the Berlin parent company on the administrative board – notably supported by the salaried employees’ and the workers’ committees of Elektrotechna – referred on 5 April to the ‘national conditions’. The workforce was now almost exclusively Czech and the administrative board was more than two-thirds Czech. With the exception of the business director Karl Markgr¨afe, all leading positions were now held by Czechs. Diercks justified the fact that Germans were still working in the country by the need for their technical expertise: the transfer of technology, which also profited the Czechoslovakian economy, made permanent close contacts between Berlin and Prague inevitable.27 ˇ More dangerous than the attacks from Ceskoslovensk´ a obrana, which was situated on the lunatic fringe of the Czech national landscape, was the attack made towards the end of 1935 by General Josef Dvoˇra´ k, the head ˇ of military telecommunications of the CSR, and a member of the administrative board of Telegrafia. As the number of orders during the world economic crisis – which hit Czechoslovakia particularly hard – had fallen, the competition between Elektrotechna and Telegrafia had increased. Technical deficits and ‘rationalisation gaps’ in production and administration were responsible for the Czech national enterprise’s lack of competitive advantage.28 Dvoˇra´ k urged Diercks to remove the German Reich

Elektrotechna in the first Czechoslovakian Republic

315

employees remaining in the country; in consequence, Siemens recalled all Germans apart from Berlin’s confidant Karl Markgr¨afe. At the end of 1935 the native German Sch¨afer, a Czechoslovakian citizen, was invited – this being a ‘second-best solution’ for Siemens and a compromise with the Czech side – to join the technical board; German Bohemians trained in Berlin or Vienna held other key positions.29 However, since the telephone system was regarded as a highly sensitive military area and since Elektrotechna was still treated as a German concern, Diercks’ fears that Telegrafia would continue using nationalist arguments to try to prevent Elektrotechna from receiving public contracts could not be placated. In a renewed plea for help addressed to the German mission in Prague Diercks argued that it was not possible in the ‘present somewhat nervous time’ to see everything from the point of view of national security. The large telephone systems were all internationally known anyway; the state-approved experts who would be required for maintenance and repair work in case of war were all available at Elektrotechna. The mission intervened with the Foreign Office but without success, in view of the domestic political turbulence that followed the resignation of President Masaryk.30 The struggle for state contracts was, according to Markgr¨afe, conducted with methods with which we were not able to compete in character or education, until we had learnt from the Czechs to hide our true thoughts from them and, without any consideration, to do the opposite of what had just been said in order to escape the constant intervention and sabotage. A particular burden for the Reichs-German when dealing with the cunning of the Czechs was always his harmless honesty and openness.31

Notwithstanding this ‘Czech cunning’ the officer in charge of coordination between the Defence Ministry and the Foreign Ministry, Jaroslav Ostˇriˇzek, a colonel on the general staff, explained to all concerned a few days later that Dvoˇra´ k regarded Elektrotechna, despite all the nationalisation measures, and regardless of the commitment of the Czech banks and the representation of political parties and ministries on the administrative board, as a Siemens subsidiary. The deficits produced by Elektrotechna’s price-dumping on the Czechoslovakian market would be covered by the Siemens headquarters in Berlin; it accepted such costs as the price of obtaining information about objects important ˇ to defence in the CSR. At a secret inter-ministerial meeting, therefore, the decision was taken to reserve state contracts for domestic companies.32 Information provided by the Prague police, however, does not so easily match Dvoˇra´ k’s interpretation. According to them, in December 1935

316

Christoph Boyer

only five foreigners held leading positions in Elektrotechna – two of them Reich Germans, one Austrian. None of these expressed themselves politically; while the police regarded them all as Hitler supporters, they had to admit that there was no incriminating material.33 Nevertheless, this was a fierce blow against Elektrotechna. In this situation, the main support – and the main opposition to Dvoˇra´ k – came from his own Czech national camp: representations from blue-collar and white-collar employees of the firm, who had already given their support to Diercks at the meeting of the administrative council on 5 April and who sensed behind Dvoˇra´ k’s attack a manoeuvre by the competing company which he represented. They declared their acceptance of the military argument, but at the same time made it clear that liquidation of the enterprise would mean unemployment and – since the dependence on foreign licences would remain – an increase in imports, higher prices or lower product quality.34 The Ministry of Social Security regarded the exclusion of Elektrotechna from the market as fatal from the point of view of the workers as well as to consumer interests.35 The Foreign Ministry argued that if the enterprise were broken up it would not be possible simply to integrate the individual departments with a similar degree of efficiency into other companies, especially since not all the employees could be taken over by competitors at the above-average wages paid by Elektrotechna. There were no signs of an entrepreneur, a bank or an authority willing to take over the company as a whole. On the other hand, a total liquidation of Elektrotechna would scatter and disqualify the experts concentrated there. Moreover, the enterprise was technically without competition in the production of certain military equipment and therefore of great significance for the Czechoslovakian state’s ability to defend itself.36 Regardless of this intervention and regardless of the massive conflict of interest within the ‘Czech camp’, the unfavourable political set-up had already begun to reflect itself in the company’s results. While the general improvement in the economic situation meant that Elektrotechna ended the financial year with a modest profit of c. 50,000 crowns, there was a significant drop in the number of orders from the post office and railway administrations, which together amounted to just over 2 million crowns.37 The final escalation of nationalist tensions The conflict came to a head with the State Defence Act of 1936. The growing sense of menace from Czechoslovakia’s aggressive National Socialist neighbour speeded up work on this Act, which had already been

Elektrotechna in the first Czechoslovakian Republic

317

proposed in the 1920s. The areas of the national economy ‘important for defence’, which were now under special state control, and whose leadership and personnel were to be cleansed of ‘unreliable elements’ included the whole of the low-voltage sector. Public contracts were from now on to be placed only with ‘reliable companies’.38 Elektrotechna reacted to the new set-up with a reorganisation aimed at allowing business with the authorities to continue and at the same time creating a ‘safety net’ for the exposed Reich German and Sudeten German employees. The stipulation that not only the German Reich members of the administrative board but also all employees of German nationality – including those with Czechoslovakian citizenship – would be declared ‘unreliable persons’ could no longer be resisted. It was also demanded that capital participation of the Czech banks be increased to a minimum of 80 per cent.39 The negotiations held with the Ministry for National Defence concerning restructuring were concluded at the start of September 1936. The departments working for the Defence Ministry, and the postal and railway ministries, remained with Elektrotechna. Business with private companies – telephone rentals, sales of medical instruments and Radiotechna’s fields of business – was concentrated in TEPAS, which no longer conducted business with the government, but moved into the development of additional private markets. In its capital structure TEPAS was a pure Siemens dependency. The share of the two Czech banks in the capital of Elektrotechna – still 16 million crowns – was raised to 32.5 per cent each, and the Siemens share was consequently reduced to 35 per cent. The latter holding was taken over by TEPAS, which secured the influence of the parent company – but in an indirect way. This reorganisation included a reshuffling in the administrative board as well as in the management. Chief executive Kr´ysa, the ‘token’ Czech, stepped down in favour of a ministerial appointee from the Postal Department, but he remained connected with the enterprise through a contract as legal adviser and lawyer for a further two years.40 That this reorganisation, which transformed Elektrotechna into an indirect Siemens subsidiary, had not brought the enterprise out of the line of fire became clear at the end of September 1936 when the Czechoslovakian Home Office, referring to ‘unreliable’ foreign workers, demanded that the enterprise be completely excluded from business with the post office.41 Defence Minister Machn´ık42 had already voiced his approval of the restructuring and had fixed 12 October as the date for the lifting of the boycott on contracts. On 13 October Karel Svoboda, the deputy chairman of the administrative board, who had led the negotiations for Elektrotechna, was informed that the military now wanted the complete

318

Christoph Boyer

termination of Siemens’ participation. The reason for this change of policy was the coincidental illness of one of the generals who favoured Elektrotechna. Added to this was an error with the following background. Siemens, in founding Elektrotechna, had committed itself to buy up the stake of the Czech banks if they wished to terminate their investment; to cover the risk, the purchase price had been deposited at the banks. Since the banks did not have any independent expert knowledge concerning technical production issues, the company had also provided a profit guarantee. After a slip within the general staff revealed that these agreements meant that the Czech national banks need not expect any losses due to a liquidation of Elektrotechna, resistance to such a measure disappeared.43 Nevertheless, a total liquidation did not come about, even under the now prevailing, extremely unfavourable conditions. However, if the general level of orders in 1936 was better than in the previous year, due to an improvement in the general economic situation, orders from the defence and postal departments now amounted to nothing more than a trickle. In December, under pressure from the Defence Ministry to end the placing of state contracts, the Postal Ministry imposed an unconditional veto on all post and telegraph headquarters with regard to business relations with Elektrotechna. The representative of the Postal Ministry on the administrative council then sought permission to resign, which was granted by the minister on 14 December.44 Although only private business could now be conducted, the longterm conflict with the authorities continued under the threat of the State Defence Act until the end of the First Republic in September 1938. The Defence Ministry demanded that reporting back to the Reich be terminated; in addition, Elektrotechna’s telephone conversations were tapped. When a Czech manager criticised this, the military demanded his dismissal (this, however, was mitigated and the manager was removed to Radiotechna). Minister President Hodˇza’s agreement, given in ‘top-level talks’ with Carl Friedrich von Siemens in the autumn of 1937 to have the ‘Elektrotechna complex’ investigated came to nothing in the light of the now ever increasing tension.45 Henlein’s letter to Hitler in November 1937, which openly formulated the goal of ‘annexation of the Sudeten German territory, even the whole Bohemian–Moravian–Silesian territory into the Reich’, marked the last phase of German–Czech relations before ‘Munich’.46 After ‘Munich’ the cautious attitude of the Siemens concern changed completely. In view of the ‘recently established conditions’ and of the close economic ‘co-operation’ to be expected between the Reich and the

Elektrotechna in the first Czechoslovakian Republic

319

Second Czechoslovakian Republic, a concentration of Siemens interests, this time openly controlled by the Berlin headquarters, was considered. Capital participation and transfer of technology now went hand in hand with the deployment of German workers.47 Against the background of the annexation of the Sudetenland, which exposed what Hitler contemptuously called ‘Rest-Tschechei’ (the remaining Czechoslovakia) to the stranglehold of the Nazi regime, it is not surprising that now the ministerial council of the Second Republic agreed to Elektrotechna’s involvement in state contracts.48 Conclusion The efforts to control German Reich enterprises in the economy of the First Republic were caught up in the conflict between efficiency and ‘nationalism’. It can be assumed that state interventions such as the condition to move production into the interior, the use of domestic raw materials, the enforced increase in the number of domestic workers and/or the suppression of foreigners at the executive level of the enterprise caused a decrease in efficiency.49 This unfavourable effect – for Elektrotechna as well as for the Czech national economy as a whole – was caused by Czechoslovakian security interests. Presumably Siemens went along with the permanent pressure to compromise (i.e. to allow participation of domestic capital and political interventions), because the company kept its eyes firmly fixed on its interests in south-eastern Europe; Elektrotechna was an important stepping stone on the way there.50 Elektrotechna’s control of high-quality technical know-how and its superior production efficiency were clearly insufficient, in the extreme conditions of the 1930s, to secure the volume of public contracts against the security interests of the Czechoslovakian state. However, the longterm interests of the domestic banks, the workforce and the large official customers inhibited too drastic an intervention in the performance and productivity of the enterprise. Here the ‘invisible hand’ was at work. If allowing the capital participation of Czech national banks was originally meant to intensify political control over Elektrotechna and to suppress the German element there, its de facto effect was to increase the interest of Czech capitalists in a non-frictional course of production. The involvement of the banks worked against the impetus for an abrupt change in the ‘national conditions’. Moreover, the constitutional state of the First Republic did not altogether prevent the authorities from wilful interventions, such as unlawful dismissals and measures to control and supervise, but it did so to a great extent – even under the auspices of the State Defence Act.

320

Christoph Boyer

Here, as so often in German–Czechoslovakian economic relations during the First Republic, pragmatism at least dampened national-political conflicts. Abbreviations AA ADAP AKPR AMZV ANB

BArch-B ˇ CSR DHI

ET LNN MD MF MNO MPaT MSP MV MZV N´aL NR PA PMR PT RMWi RT

Foreign Office Files on German foreign policy Archiv kancel´arˇe prezidenta republiky (Archive of the Office of the President of the Republic) Archiv ministerstva zahraniˇcn´ıch v˘ec´ı (Archive of the Czechoslovakian Ministry for Foreign Affairs) Archiv n´arodn´ı banky (now Archiv cˇ esk´e n´arodn´ı banky) (Archive of the National Bank (now Czech National Bank)) Federal Archive, department Berlin ˇ Ceskoslovensk´ a republika (Czechoslovakian Republic) Deutscher Hauptverband der Industrie in der Tschechoslowakei (German Association of Industry in Czechoslovakia) Elektrotechna Prague Leipziger Neueste Nachrichten (Leipzig newspaper) Ministerstvo dopravy (Ministry for Traffic) Ministerstvo financ´ı (Ministry of Finance) Ministerstvo n´arodn´ı obrany (Ministry for National Defence) Ministerstvo poˇst a telegrafu˚ (Ministry for Post and Telegraphy) Ministerstvo soci´aln´ı peˇce (Ministry for Social Security) Ministerstvo vnitra (Ministry of the Interior) Ministerstvo zahranicn´ıch v˘ec´ı (Ministry for Foreign Affairs) N´arodn´ı listy (National Paper) N´arodn´ı rada cˇ eska/ˇceskoslovensk´a (Czech/Czechoslovakian National Council) Political archive of the Foreign Office, Berlin Pˇredsednictvo ministersk´e rady (presidency of the National Council) Prager Tagblatt (Prague daily paper) Ministry of Economy of the German Reich Radiotechna

Elektrotechna in the first Czechoslovakian Republic

SAA SdP ´ SUA TEPAS

321

Siemens archive files (in the archive of the Siemens AG, Munich) Sudeten German Party St´atn´ı ustˇ ´ redn´ı archiv (national central archive) Technick´y prumysl ˚ a.s. (akciov´a spoleˇcnost/corporation)

    1. Eduard Kubu˚ and Jaroslav P´atek (eds.), M´ytus a realita hospod´arˇsk´e vysp˘elosti ˇ Ceskoslovenska mezi sv˘etov´ymi v´alkami (Myth and reality of Czechoslovakia’s economic development level between the wars) (Prague, 2000). 2. Its importance has been demonstrated by Alice Teichova in her groundbreaking investigations, and notably An Economic Background to Munich (Cambridge, 1974). 3. Kubu˚ and P´atek, M´ytus a realita, p. 227. 4. On the problem as a whole cf. Christoph Boyer, Nationale Kontrahenten oder Partner? Studien zu den Beziehungen zwischen Tschechen und Deutschen in der ˇ Wirtschaft der CSR, 1918–1938 (National enemies or partners? Studies on ˇ the relations between Czechs and Germans in the economy of the CSR, 1918–1938) (Munich, 1999). 5. It is not possible here to discuss further the fact that the national classification of enterprises, and the distancing of the German economy from the Czech economy, provide difficult problems of definition: see for further information Boyer, Nationale Kontrahenten, p. 4. 6. See ibid., p. 21. ˇ 7. See Vlastislav Lacina, Formov´an´ı Ceskoslovensk´ e ekonomiky (The development of the Czechoslovakian economy) (Prague, 1990), p. 91; Vlastislav ˇ Lacina, ‘Nostrifikace podniku˚ a bank v prvn´ım desetilet´ı Ceskoslovensk´ e republiky’ (The nostrification of enterprises and banks in the first decade ˇ y cˇasopis historick´y, 92 (1994), of the Czechoslovakian Republic), in Cesk´ 77–93. 8. Cf. Boyer, Nationale Kontrahenten, p. 23. 9. The Prague daily newspaper (Prager Tagblatt) reported on a hundred company mergers in Germany in the first half year of 1926. PT , 4 June 1927. 10. BArch-B, RMWi, Prague Embassy to AA, 31 August 1927. 11. See for background LNN, 10 September 1927. 12. N´aL, evening issue of N´arod, 16 September 1927. ´ 13. N´arodn´ı osvobozen´ı, 12 October 1927 – SUA, MSP, box 1586, E 2/1–2/1/ 1927–28, working commission of white-collar employees’ factory committee of the metal industry in the Czechoslovakian republic to MSP, 9 November 1927. ´ ˇ 14. SUA, NRC-N, box 414, report for the meeting of the national economic department of the N´arodn´ı rada (National Council) on 17 February 1928. ´ Whether and when such a meeting took place is not clear from the files – SUA, ˇ NRC-N, box 413/2/236–7, meeting of the national economic commission of

322

15.

16.

17. 18.

19. 20. 21. 22. 23.

24. 25. 26.

27.

28.

Christoph Boyer the N´arodn´ı rada (National Council) on 18 October 1928, Report on the activity of the national economic commission of the N´arodn´ı rada (National Council) for the meeting of 29 November 1928. For the Agrarian Bank and its relations to the Agrarian Party see Jiˇr´ı Novotn´y ˇ sa, Banka v znamen´ı zelen´eho cˇtyˇrlistku. Agr´arn´ı banka 1911–1938 and Jiˇr´ı Souˇ (1949) (The bank with the clover sign. The Agrarian Bank 1911–1938 (1949)) (Prague, 1996). ANB, AB, S X-40/2, memo on the syndicate agreement, 28 January 1930; PA, R 78 954, Siemens & Halske Berlin to AA, 13.3.1935, expos´e on the ET ´ in the enclosure; SUA, MF, box 239, 119/38, MPaT and MF, 18 December 1933; Economic service Hamburg, 8 August 1930; AKPR, T 182/22, box 84, Report of the Obersektionsrat Frantiˇsek Schneider on the conditions at Elektrotechna, 25 February 1932; SAA-68/Li 470, History of the ET AG Prag, prepared by Director Markgr¨afe; AMZV, section IV, box 744, folder 1, protocol of the administrative council meeting on 5 April 1935, Kr´ysa’s speech on the founding of the company. Schneider’s report on the conditions at ET; Markgr¨afe, History; Economic service Hamburg. Economic service Hamburg; B¨orsen-Courier, 15 June 1930; Markgr¨afe, History; ANB, AB, S X/40–4, meeting of the administrative council of the ET ´ on 22 July 1930; MNO to Agrarian Bank, 22 July 1930; SUA, MF, box 239, 2624/36, MPaT to ET, 16 December 1931; MPaT to MF, 16 December 1931. ´ Schneider’s report; SUA, MF, box 239, 2624/36, MPaT to PMR, 12 July 1932. ´ MF, box 239, 2624/36, MPaT to MF, 16 December 1931; Schneider’s SUA, report. Ibid. Schneider’s report. AKPR, T 182/22, box 84, memo AKPR, o.V., 13.2.1932 and Chancellor of ˇ the President of the Republic to Ministerial Councillor Clupek, 25 March 1932. ˇ Ibid., KPR/Memo Clupek, 7 June 1932; comment by Schneider, 3 May 1932. ´ ´ SUA, MF, box 239, 2624/36, MPaT to PMR, 27 July 1933. SUA, MF, box 239, 119/38, MPaT to MF, 18 December 1933. The journal appeared from June 1931 to December 1934. See for the background PA, R 78 954, German Embassy Prague to AA, 28 March 1935; Markgr¨afe, History. PA, R 78 954, Siemens and Halske Berlin to AA, 13 March 1935; ibid., German Embassy Prague to AA, 28 March and 4 April 1935; MZV, section IV, box 744, folder 1, protocol of the administrative council meeting on 5 April 1935. The profits from the postal business were based on excessively high prices; where competition reigned, the enterprise slipped behind. In such cases security was assured through dumping which, however, produced losses. For this reason the company’s assets fell in value by 14 million crowns between 1930 and 1937, and the relationship between internal and external financing shifted significantly over the same period of time (the bank debt rose from

Elektrotechna in the first Czechoslovakian Republic

29. 30.

31. 32. 33. 34.

35. 36. 37. 38. 39. 40.

41. 42.

43. 44.

45. 46. 47.

48.

323

´ roughly 900,000 to almost 7.5 million crowns): see SUA, MF, box 128, 1712/38, MD to PMR, 27 October 1938. Markgr¨afe, History. PA, R 78 954, communiqu´e, 23 November 1935 from Director Diercks to the mission in Prague, and see also the description in Diercks’s expos´e, 19 October 1936; Markgr¨afe, History. Markgr¨afe, History. AMZV, section IV, box 744, file 1, Ostˇr´ızˇ ek to Siemens and Halske, Telefunken and ET, 26 November 1935. Ibid., police headquarters Prague to MV, 27 December 1935. ´ SUA, PMR, box 3535, 814/103/36, communiqu´e of the white- and bluecollar workers’ committee on the danger of the liquidation of Elektrotechna, 25 November 1935. ´ AMZV, section IV, box 744, folder 1, MSP to MPaT, 28 January 1936; SUA, MSP to MNO, 28 February 1936. AMZV, section IV, box 744, folder 1, ‘Liquidation of the plant of the Elektrotechna Corporation’ (no author), 22 November 1935. ´ SUA, MF, box 239, 2624/36, MPaT to MF, 12 August 1936. See Boyer, Nationale Kontrahenten, p. 351. PA, Trade policy IV a, Economy 13, Czechoslovakia, vol. 1, Siemens & Halske Berlin to AA, 20 June 1936. ANB, AB, S X-40/4, submission to the administrative council of ET, 9 September 1936. According to Markgr¨afe’s report, Kr´ysa was only engaged until 1934, when, after nationalist attacks and a tax scandal, he could not be retained. However, he did maintain contact after his departure and continued to be of use: see Markgr¨afe, History. ´ SUA, PMR, box 3535, 814/103/36, MV to MPaT, 29 September 1936. Frantiˇsek Machn´ık, a politician in the Czech Agrarian Party, was Defence Minister in 1933–8 and the author of the much criticised – but scarcely implemented – Machnik decree of 28 January 1936. This made it a condition in German companies that the percentage of Czechoslovakian whitecollar employees must correspond to at least the percentage of Czechoslovakian blue-collar workers and this must in turn correspond to the number of Czechoslovakians in the total population of the region; foreign workers were to be replaced wherever possible. PA, R 78 954, expos´e by Diercks, 19 October 1936; Siemens & Halske Berlin to AA, 20 October 1936. ´ SUA, PMR, box 3535, 814/103/36, MPaT to all post and telegraph head´ quarters, 14 December 1936; SUA, box 239, 119/38, MPaT to MF, 3 November 1937. Markgr¨afe, History. ADAP, series D, vol. 2, document no. 23, P. 45, 47, Henlein to von Neurath, 19 November 1937, enclosing ‘Report for the Fuhrer’. ¨ PA, Trade policy IV a, Economy 12, Czechoslovakia, vol. 1, prepared by Siemens-Halske, Berlin, 12 October 1938; PA, German Embassy Prague, I/3b, vol. 1, prepared by Siemens, 9 November 1938. This was decreed according to a handwritten memo dated 25 November (no author), on the quoted document PA, German Embassy Prague, I/3b, vol. 1,

324

Christoph Boyer

prepared by Siemens AG, 9 November 1938; MNO to Elektrotechna, 26 January 1939. 49. This is a plausible hypothesis, but the sources on the company’s internal economic affairs are insufficient to confirm it. It would also scarcely be possible to separate the decreased efficiency caused by political interference from the damage caused by the world economic crisis. 50. See Wilfried Feldenkirchen, Siemens 1918–1945 (Munich and Zurich, 1995), p. 281; Harm Schroter, ¨ ‘Siemens and Central and South-East Europe between the Two World Wars’, in Alice Teichova and Philip Cottrell (eds.), International Business and Central Europe, 1918–1939 (Leicester, 1983), pp. 173–92.

Appendix Alice Teichova: a select bibliography

BOOKS Kapitoly z dˇejin evropsk´eho feudalismu (Chapters on the history of European feudalism) (Prague, 1954). Prameny ze stˇredovˇek´ych dˇejin z´apadn´ı Evropy (Sources on the medieval history of Western Europe) (Prague, 1961). Dˇejiny stˇredovˇeku (History of the Middle Ages), 2 vols. (Prague, 1968). Editor and author of chapters from the twelfth to the fifteenth centuries in vol. II. An Economic Background to Munich: International Business and Czechoslovakia 1918–1938 (Cambridge, 1974). ed. with Philip L. Cottrell, International Business and Central Europe 1918–1939 (Leicester and New York, 1983). Author of introduction and chapters 2 and 5. ed. with Maurice L´evy-Leboyer and Helga Nussbaum, Multinational Enterprise in Historical Perspective (Cambridge, 1986). Author of introduction and chapter 25. Several reprints: Spanish (Madrid, 1991); Japanese (Tokyo, 1991). The Czechoslovak Economy 1918–1980 (London and New York, 1988). Kleinstaaten im Spannungsfeld der Großm¨achte Wirtschaft und Politik in Mittel- und S¨udosteuropa in der Zwischenkriegszeit (Munich, 1988). Die Wirtschaftsgeschichte der Tschechoslowakei 1918–1980 (Vienna, Cologne and Graz, 1988). ed. with Maurice L´evy-Leboyer and Helga Nussbaum, Historical Studies in International Corporate Business (Cambridge, 1989). Several reprints: paperback (2002); Spanish (Madrid, 1991); Japanese (Tokyo, 1991). ed. with H˚akan Lindgren and Margarita Dritsas, L’entreprise en Gr`ece et en Europe XIXe–XXe si`ecles (Athens, 1991). Author of chapter 4. ed. with Harold James and H˚akan Lindgren, The Role of Banks in the Interwar Economy (Cambridge, 1991). Paperback (2002). Author with Alois Mosser of chapter 9. ed. with Philip L. Cottrell and H˚akan Lindgren, European Industry and Banking between the Wars. A Review of Bank–Industry Relations (Leicester and New York, 1992). Author of chapter 2. ˇ Mezin´arodn´ı kapit´al a Ceskoslovensko v letech 1918–1938 (International capital and Czechoslovakia) (Prague, 1994). ed. with Terry Gourvish and Agnes Pog´any, Universal Banking in the Twentieth Century. Finance, Industry and the State in North and Central Europe (Aldershot and Vermont, 1994). Author of introduction. 325

326

Appendix

¨ ed. with Herbert Matis, Osterreich und die Tschechoslowakei 1918–1938: Die wirtschaftliche Neuordnung in Zentraleuropa der Zwischenkriegszeit (Vienna, Cologne and Weimar, 1996). Author of introduction with H. Matis and chapter 1.5 with Josef Faltus. ed. with Ginette Kurgan-van Hentenryk and Dieter Ziegler, Banking, Trade and Industry. Europe, America and Asia from the Thirteenth to the Twentieth century (Cambridge and New York, 1997). Author of introduction and chapter 12. ed., Central Europe in the Twentieth Century: An Economic History Perspective (Aldershot and Brookfield, 1997). Author of introduction and chapter 1. ed. with P. L. Cottrell and Takeshi Yuzawa, Finance in the Age of the Corporate Economy: The Third Anglo-Japanese Business History Conference (Aldershot, 1997). ed. with Alois Mosser and Jaroslav P´atek, Der Markt im Mitteleuropa der Zwischenkriegszeit (Prague, 1997). Author of introduction and chapter 1, part II. ed. with Eric Bussi`ere and Michel Dumoulin, L’Europe centrale et orientale en recherche d’int´egration e´conomique (1900–1950) (Louvain-la-Neuve, 1998). Author of introduction and chapter 1. ed. with Herbert Matis and Andreas Resch, Business History Wissenschaftliche Entwicklungstrends und Studien aus Zentraleuropa (Vienna, 1999). ed. with Herbert Matis and Jaroslav P´atek, Economic Change and the National Question in Twentieth-Century Europe (Cambridge, 2000). Author of introduction. ed. with Herbert Matis, Nation, State and the Economy in History (Cambridge, 2003). Author of introduction.

MONOGRAPHS ‘Structural and Institutional Change in the Czechoslovak Economy 1918–1938’, Papers in East European Economics, 6 (Oxford, February 1972). ‘Concentration, Combination and Cartelization in Central and Southeast Europe since 1920’, Papers in East European Economics, 19 (Oxford, August 1972). ‘Was There an ‘Economic’ Munich?’, Papers in East European Economics, 27 (Oxford, February 1973). ‘Industry in Eastern Europe’, Papers in East European Economics, 44 and 45 (Oxford, March and August 1974). ‘Internationale Grossunternehmen Kartelle und das Versailler Staatensystem in Mitteleuropa’, Institut f¨ur europ¨aische Geschichte Mainz Vortr¨age, no. 82 (Stuttgart, 1988). ‘Rivals and Partners. Banking and Industry in Europe in the First Decades of the Twentieth Century’, Uppsala Papers in Economic History, 1 (1988). ‘Eastern Europe in Transition: Economic Development during the Interwar and Postwar Period’, Ume˚a Papers in Economic History, 3 (1991). ‘Nˇemeck´a hospod´arˇsk´a politika v cˇ esk´ych zem´ıch v letech 1939–1945’ (German Economic Policy in the Czech Lands 1939–1945), Studie z hospod´arˇsk´ych dˇejin, 1 (1998).

Alice Teichova: a select bibliography

327

E D I TO R O F S P E C I A L I S S U E S O F J O U R N A L S Die Inflation der 1920er Jahre, Beitr¨age zur historischen Sozialkunde, 4 (Vienna, 1986). Economic Concepts and European Thought in Historical Perspective, History of European Ideas, 9 (2) (Oxford, 1988). Banking and Industry in Scandinavian Countries, Scandinavian Economic History Review, 29 (3) (Lund, 1991). ¨ Banken und Kapital, Osterreichische Zeitschrift f¨ur Geschichtswissenschaften, 4 (4) (1993). with Alois Mosser and Richard Tilly, Geld und Kapital: Jahrbuch der Gesellschaft f¨ur mitteleurop¨aische Banken- und Sparkassengeschichte: Alice Teichova (ed.), Geld und Kapital: Banken, W¨ahrung und Politik in Mitteleuropa zwischen den Weltkriegen, 1 (1997); Harald Wixforth (ed.), Sparkassen in Mitteleuropa im 19. und 20. Jahrhundert, 2 (1998); Richard Tilly (ed.), Bankenkrisen in Mitteleuropa in 19. und 20. Jahrhundert, 3 (1999); Harald Wixforth (ed.), Finanzinstitutionen in Mitteleuropa w¨ahrend des Nationalsozialismus, 4 (2000).

C O N T R I B U T I O N S TO B O O K S A N D J O U R N A L S ‘Hospod´arˇsk´e koˇreny protihitlerovsk´e politiky britsk´e burˇzoasie v pˇredveˇcer druh´e svˇetov´e v´alky’ (The economic roots of the anti-Hitler policy of the British bourˇ geoisie on the eve of the Second World War), Ceskoslovensk´ y cˇasopis historick´y ˇ ˇ (CSCH) (1954). ‘O v´ydˇeleˇcn´e cˇ innosti cˇ lenu˚ poslaneck´e snˇemovn´ı ve volebn´ım obdob´ı 1929–1935’ (Business activities of Czechoslovak members of parliament durˇ CH, ˇ ing the session from 1929 to 1935), CS 1 (1955). ˇ ‘Pˇr´ıspˇevek k pozn´an´ı zahraniˇcn´ıch spoju˚ finanˇcn´ıho kapit´alu v Ceskoslovensku’ (Foreign relations of finance capital in Czechoslovakia), Sborn´ık Vysok´e sˇkoly pedagogick´e, Filosofie-Historie, 1 (1957). ¨ ‘Uber das Eindringen des deutschen Finanzkapitals in das Wirtschaftsleben der Tschechoslowakei vor dem Munchener ¨ Diktat’, Zeitschrift f¨ur Geschichtswissenschaft, 5 (6) (1957). ‘Britsk´a zahraniˇcn´ı politika a anglo-francouzsko-sovˇetsk´a jedn´an´ı v roce 1939’ (British foreign policy and Anglo-French–Soviet negotiations in 1939), Sborn´ık Vysok´e ˇskoly pedagogick´e, Historie, 2 (Prague, 1959). ‘Die burgerliche ¨ Tschechoslowakei im System des Imperialismus (1928–1938)’, Geschichte in der Schule, 6 (1959). ‘Die geheimen britisch-deutschen Ausgleichsversuche am Vorabend des Zweiten Weltkrieges’, Zeitschrift f¨ur Geschichtswissenschaft, 7 (4) (1959). ‘German Cartel Policy in Czechoslovakia (English, Czech, German and Russian)’, in Kdo zavinil Mnichov, Die Hintergr¨unde des M¨unchener Abkommens (The background to the Munich Agreement) (Prague and Berlin, 1959). ‘Great Britain in European Affairs’, Historica, 3 (Prague, 1961), 239–336. ‘Zur Außenpolitik Großbritanniens am Vorabend des Zweiten Weltkrieges’, Zeitschrift f¨ur Geschichtswissenschaft, 9 (6) (1961). ¨ ‘Uber die Beziehungen des deutschen Imperialismus zur deutschen Minderheit in der Tschechoslowakei (1918–1933)’, Wissenschaftliche Zeitschrift der

328

Appendix

Friedrich-Schiller-Universit¨at, Jena, Gesellschafts- und sprachwissenschaftliche Reihe, 2 (1965). ‘Zur Verflechtung der monopolkapitalistischen innen- und außen-politischen Interessen in der vormunchener ¨ Tschechoslowakischen Republik’, in Monopole und Staat in Deutschland 1917–1945 (Berlin, 1966). ‘Pozn´amky k pusoben´ ˚ ı cˇ eskoslovensk´eho zˇ elez´arˇsk´eho kartelu na Slovensku mezi obˇema svˇetov´ymi v´alkami’ (Notes on the activity of the Czechoslovak iron and steel cartel in Slovakia between the two world wars), in Probl´emy pr˚umyslov´ych oblast´ı v´ychodn´ıho Slovenska (Problems of industrial regions in Eastern Slovakia) (Koˇsice, 1967). ‘Die Rolle des Auslandskapitals in der Berg- und Huttenwerks-Gesellschaft ¨ AG in der Tschechoslowakei 1918–1938’, Tradition, 3 (1967), 393–415. ‘Die Rolle des Auslandskapitals in der Stahl- und Eisenindustrie der vormunchener ¨ Tschechoslowakei’, Historica, 17 (Prague, 1968), 199–234. ‘Structural Changes in the Economy of Czechoslovakia’, in Protocol of the Fourth Congress of the International Economic History Association, Bloomington, Ind., 1968. ‘Vznik a rozvoj mˇest v Evropˇe’ (Origin and rise of towns in Europe), ‘Partikularismus v It´alii a v nˇemeck´e rˇ´ısˇ i’ (Particularism in Italy and in Germany), ‘Pos´ılen´ı panovnick´e moci a v´yvoj k vytv´arˇen´ı centralizovan´ych monarchi´ı v z´apadn´ı Evropˇe’ (The growth of sovereign power and the development of centralized monarchies in Western Europe), in Dˇejiny stˇredovˇeku (History of the Middle Ages), vol. II (Prague, 1968), chapters 2–4 (pp. 36–109). ‘The Development of Business during the Period of Early Industrialization in the USA’, in Papers of the Sixteenth Annual Business History Conference, and Nebraska Journal of Economics and Business (Lincoln, 1969). ‘Internationale Kartelle und die chemische Industrie der vormunchener ¨ Tschechoslowakei’, Tradition – Zeitschrift f¨ur Unternehmensgeschichte, 17 (1972), 143–75. ‘Konzentrationstendenzen in der Industrie Mittelost- und Sudosteuropas ¨ nach dem Ersten Weltkrieg’, in Hans Mommsen, Dieter Petzina and Bernd Weisbrod (eds.), Industrielles System und politische Entwicklung in der Weimarer Republik (Dusseldorf, ¨ 1974), pp. 135–53. ‘Die deutsch-britischen Wirtschaftsinteressen in Mittelost- und Sudosteuropa ¨ am Vorabend des Zweiten Weltkrieges’, in Friedrich Forstmeier and Hans-Erich Volkmann (eds.), Wirtschaft und R¨ustung am Vorabend des Zweiten Weltkrieges (Dusseldorf, ¨ 1975), pp. 275–95. ‘Besonderheiten im Strukturwandel der mittelost- und sudosteurop¨ ¨ aischen Industrie in der Zwischenkriegszeit’, in Dirk Stegmann, Bernd-Jurgen ¨ Wendt and Peter-Christian Witt (eds.), Industrielle Gesellschaft und politisches System (Bonn, 1978), pp. 131–50. ‘Les investissements directs fran¸cais en Tchecoslovaquie entre les deux guerres’, in Maurice L´evy-Leboyer (ed.), La position internationale de la France (Paris, 1978). ‘Munich 1938, une r´eappreciation e´ conomique’, in Munich 1938: Mythes et R´ealit´es, Revue des e´tudes slaves, 52 (1–2) (1979), 153–68.

Alice Teichova: a select bibliography

329

‘Versailles and the Expansion of the Bank of England into Central Europe’, in N. Horn and J. Kocka (eds.), Recht und Entwicklung der Großunternehmen im 19. und fr¨uhen 20. Jahrhundert (Gottingen, ¨ 1979), pp. 366–87. ‘Structural Change and Industrialization in Interwar Central-East Europe’, in P. Bairoch and M. L´evy-Leboyer (eds.), Disparities in Economic Development since the Industrial Revolution (London, 1981). with Robert Waller, ‘Der tschechoslowakische Unternehmer am Vorabend und zu Beginn des Zweiten Weltkrieges’, in Waclaw Dlugoborski (ed.), Zweiter Weltkrieg und sozialer Wandel (Gottingen, ¨ 1981), pp. 288–302. ‘Aspects of Capital Accumulation in Interwar Central-East European Industry’, History of European Ideas, 3 (1) (1982), 79–93. ‘Changing Political Constellations and the Anglo-American–German Cartel Relations in the Chemical Industry in the First Decade of the Interwar Period’, in Gustav Schmidt (ed.), Konstellationen internationaler Politik (Bochum, 1983). ‘A Comparative View of the Inflation of the 1920s in Austria and Czechoslovakia’, in Nathan Schmukler and E. Marcus (eds.), Inflation through the Ages: Economic, Social, Psychological and Historical Aspects (New York, 1983), pp. 531–67. ‘The Mannesmann Concern in East Central Europe in the Interwar Period’, in Alice Teichova and Philip L. Cottrell (eds.), International Business and EastCentral Europe 1918–1939 (Leicester and New York, 1983), pp. 103–37. with P. L. Cottrell, ‘Industrial Structures in West and East Central Europe during the Inter-war Period’, in International Business and East-Central Europe 1918–1939, pp. 31–55. with Penelope Ratcliff, ‘British Interests in Danube Navigation after 1918’, Business History, 27 (3) (1985), 283–99. ‘Industry’, in M. C. Kaser and E. R. Radice (eds.), The Economic History of Eastern Europe, vol. I (Oxford, 1985), chapter 5 (pp. 222–322). ‘Die Wirtschaftspolitik der kleinen Nationen in Mittel- und Osteuropa. Sachzw¨ange und Handlungsspielr¨aume in der Zwischenkriegszeit’, in Wolfram Fischer (ed.), Sachzw¨ange und Handlungsspielr¨aume in der Wirtschafts- und Sozialpolitik der Zwischenkriegszeit (St Katarinen, 1985), pp. 116–41. ‘Multinationals in Perspective’, in A. Teichova, Maurice L´evy-Leboyer and H. Nussbaum (eds.), Multinational Enterprise in Historical Perspective (Cambridge, 1986), pp. 362–73. ‘Die Tschechoslowakei 1918–1980’, in Wolfram Fischer, Jan A. van Houtte, Hermann Kellenbenz, Ilja Mieck and Friedrich Vittinghoff (eds.), Handbuch der europ¨aischen Wirtschafts- und Sozialgeschichte, vol. VI (Stuttgart, 1987), pp. 598–639. ¨ ‘Der Aufbau der Wirtschaftsbeziehungen Osterreichs zu den Nachfolgestaaten 1918–1926. Vom geschutzten ¨ Binnenmarkt zur Konkurrenz am Weltmarkt’, in Ferenc Glatz (ed.), Economy, Society, Historiography (Budapest, 1989), pp. 237–53. ‘Economic and Social Policies of East European States’, in P. Mathias and S. Pollard (eds.), Cambridge Economic History of Europe, vol. VIII (Cambridge, 1989), pp. 887–983. Italian (1992).

330

Appendix

‘Bilateral Trade Revisited: Did the Southeast European States Exploit National Socialist Germany on the Eve of the Second World War?’, in F. Glatz (ed.), Modern Age – Modern Historian. In memoriam Gy¨orgy R´anki (1930–1988) (Budapest, 1990), pp. 193–209. ‘The Debate about the Causes of the Crisis 1929–33’, in The Banking Project, The Network of Financial Capital, Uppsala Papers in Economic History, 9 (1990), 7–16. ‘A Legacy of Fin-de-Si`ecle Capitalism: The Giant Company’, in Mikul´asˇ Teich and Roy Porter (eds.), Fin de Si`ecle and its Legacy (Cambridge, 1990), pp. 10–27. with A. Mosser, ‘Investment Behaviour of Industrial Joint-Stock Companies and ¨ Industrial Shareholding by the Osterreichische Credit-Anstalt: Inducement or Obstacle to Renewal and Change in Industry in Interwar Austria’, in Harold James, H˚akan Lindgren and Alice Teichova (eds.), The Role of Banks in Interwar Europe (Cambridge, 1991), pp. 122–57. ‘Trials and Errors in Monetary Stabilisation during the Financial Crisis of the 1930’s’, in Alice Teichova, H˚akan Lindgren and Margarita Dritsas (eds.), L’entreprise en Gr`ece et en Europe XIXe – XXe si`ecles (Athens, 1991), pp. 51–67. ‘Creditanstalt’, in Peter Newman, Murray Millgate and John Eatwell (eds.), The Palgrave Dictionary of Money and Finance (New York, 1992), article 0936. ‘Foreign Capital in Interwar Czechoslovakia Revisited’ and ‘Direct Foreign Capital Investment in Eastern European Industry between the Two World Wars’, in Estudios Latinoamericanos. Contemporary Societies in a Comparative Perspective: Eastern Europe and Latin America in the 20th Century, part 2 (Warsaw, 1992), pp. 249–63, 265–74. ‘Die Grenzen der Planwirtschaft in der Tschechoslowakei’, in H. Matis and D. ¨ Stiefel (eds.), Der Weg aus der Knechtschaft, Probleme des Uberganges von der Planwirtschaft zur Marktwirtschaft (Vienna, 1992), pp. 123–51. ‘Interwar Capital Markets in Central and Southeastern Europe’, in John R. Lampe (ed.), Creating Capital Markets in Eastern Europe (Baltimore and Washington D.C., 1992). ‘Rivals and Partners: Reflections on Banking and Industry in Europe, 1880–1938’, in P. L. Cottrell, H. Lindgren and A. Teichova (eds.), European Industry and Banking Between the Wars (Leicester and New York, 1992), pp. 17–27. ‘Staat und Wirtschaft in der Tschechoslowakei der Zwischenkriegszeit’, in Sidney Pollard and Dieter Ziegler (eds.), Markt, Staat und Planung. Historische Erfahrungen mit Regulierungs- und Deregulierungsversuchen der Wirtschaft (St Katarinen, 1992), pp. 215–27. ‘For and against the Marshall Plan in Czechoslovakia’, in Comit´e pour l’Histoire Economique et Financi`ere (ed.), Le Plan Marshall et le rel`evement e´conomique de l’Europe (Paris, 1993), pp. 107–18. ¨ ‘Kontinuit¨at und Diskontinuit¨at: Banken und Industrie’, Osterreichische Zeitschrift f¨ur Geschichtswissenschaften, 4 (4) (1993), 527–41. ‘Austria’, in Handbook on the History of European Banks (Aldershot, 1994), pp. 1–18.

Alice Teichova: a select bibliography

331

‘Continuity and Discontinuity: Banking and Industry in Twentieth Century Central Europe’, in David Good (ed.), Economic Transformations in East and Central Europe: Legacy from the Past and Policies for the Future (London and New York, 1994), pp. 63–74. ‘Commercial (Universal) Banking in Central Europe – from Cisleithania to the Successor States’, in Martin M. G. Fase, Gerald D. Feldman and Manfred Pohl (eds.), How to Write the History of a Bank (Aldershot and Brookfield, 1995), pp. 125–35. ‘International Finance 1929–1939’, in W. Feldenkirchen, F. Schonert-R ¨ ohlik ¨ and G. Schulz (eds.), Wirtschaft, Gesellschaft, Unternehmen: Festschrift f¨ur Hans Pohl zum 60. Geburtstag, vol. II (Stuttgart, 1995), pp. 1156–78. ˇ ‘Velk´e prumyslov´ ˚ e podniky v Ceskoslovensku po roce 1948. Historick´y n´astin struktur´aln´ıch a organizaˇcn´ıch zmˇen’ (Large industrial enterprises in Czechoslovakia after 1948. An attempt at estimating structural and organizational change), in Daniel V´ana ˇ (ed.), Syst´em centr´aln`ı pl´anovan´ych ekonomik v zem´ıch stˇredn´ı a jihov´ychodn´ı Evropy a pˇr´ıcˇiny jeho rozpadu (The system of centrally planned economies in Central and south-east European countries and the causes of its collapse) (Prague, 1995), pp. 130–53. ‘Economic Thought in the Czech Lands at the Turn of the Nineteenth Century’, in Csato´ Tam´as, Buza J´anos and Gymesi S´andor (eds.), Challenges of Economic History: Essays in Honour of Iv´an T. Berend (Budapest, 1996). with Josef Faltus, ‘Die Nachkriegsinflation. Ein Vergleich’, in A. Teichova and H. ¨ Matis (eds.), Osterreich und die Tschechoslowakei 1918–1938 Die wirtschaftliche Neuordnung in Zentraleuropa in der Zwischenkriegszeit (Vienna, Cologne and Weimar, 1996), pp. 131–66. ‘Banking and Industry in Central Europe, Nineteenth and Twentieth Century’, in A. Teichova, G. Kurgan-van Hentenryk and D. Ziegler (eds.), Banking, Trade and Industry Europe, America and Asia from the Thirteenth to the Twentieth century (Cambridge, 1997), pp. 214–28. ‘Czechoslovakia: The Halting Pace to Scope and Scale’, in Alfred Chandler Jr., Franco Amatori and Takashi Hikino (eds.), Big Business and the Wealth of Nations (Cambridge and New York, 1997), pp. 433–61; 2nd edn, 1999. ‘Instruments of Economic Control and Exploitation: the German Occupation of Bohemia and Moravia’, in Richard Overy, Gerhard Otto and Johannes Houwink ten Cate (eds.), Die ‘Neuordnung’ Europas NS-Wirtschaftspolitik in den besetzten Gebieten (Berlin, 1997), pp. 83–108. with Alfred D. Chandler Jr. and Takashi Hikino, ‘International Economy and Large Industrial Enterprise in the Twentieth Century’, in Margarita Dritsas and Terry Gourvish (eds.), European Enterprise Strategies of Adaptation and Renewal in the Twentieth Century (Athens, 1997), pp. 19–48. ‘Interwar Capital Markets in Central Europe’, in A. Teichova, A. Mosser and J. P´atek (eds.), Der Markt im Mitteleuropa der Zwischenkriegszeit (Prague, 1997), pp. 81–91. ‘Introduction’ and ‘Eastern Europe in Transition Economic Development during the Interwar and Postwar Period’, in Alice Teichova (ed.), Central Europe in the Twentieth Century: An Economic History Perspective (Aldershot and Brookfield, 1997), pp. 1–21.

332

Appendix

‘Der tschechische Unternehmer in der Zweiten Tschechoslowakischen Republik und im “Protektorat Bohmen ¨ und M¨ahren”’, in Herbert Matis (ed.), Historische Betriebsanalyse und Unternehmer: Festschrift f¨ur Alois Mosser (Vienna, 1997). ‘Wiens wechselhafte Rolle als Finanzzentrum in Europa w¨ahrend des 20. Jahrhunderts’, in A. Teichova (ed.), Geld und Kapital. Jahrbuch der Gesellschaft f¨ur mitteleurop¨aische Banken und Sparkassengeschichte (Vienna, 1997), pp. 23–44. with Mikul´asˇ Teich, ‘Zwischen der kleinen und großen Welt: ein gemeinsamer Lebensausschnitt’, in Franz X. Eder, Peter Feldbauer and Erich Landsteiner (eds.), Wiener Wege der Sozialgeschichte (Vienna, Cologne and Weimar, 1997). ˇ ‘Meze pl´anovan´eho hospod´arˇstv´ı v Ceskoslovensku’ (Limits of the planned economy in Czechoslovakia), in Gernot Heiss, Alena Miˇskov´a, Jiˇr´ı Peˇsek and ¨ Oliver Rathkolb (ed.), Osterreich und die Tschechoslowakei nach 1945 An der ˇ Bruchlinie/Na rozhran´ı svˇeta Rakousko a Ceskoslovensku po 1945 (Vienna, 1998), pp. 425–40. ‘The Protectorate of Bohemia and Moravia (1939–1945): The Economic Dimension’, in Mikul´asˇ Teich (ed.), Bohemia in History (Cambridge, 1998), pp. 267–305. ‘Vienna’s Changing Fortunes as Financial Centre in Twentieth Century Europe’, in Eric Bussi`ere, Michel Dumoulin and Alice Teichova (eds.), L’Europe centrale et orientale en recherche d’int´egration e´conomique (1900–1950) (Louvainla-Neuve, 1998), pp. 13–30. ‘Vorwort’, in Boris Barth, Jozef Faltus, Jan Kˇren and Eduard Kubu˚ (eds.), Konkurrenzpartnerschaft. Die deutsche und die tschechoslowakische Wirtschaft in der Zwischenkriegszeit (Essen, 1998); also in Czech: ‘Pˇredmluva’ (Prague, 1999), pp. 13–23. ¨ ¨ ‘Uberlegungen zur wirtschaftspolitischen Lage Osterreichs im Mitteleuropa der ¨ Zwischenkriegszeit’, Mitteilungen des Osterreichischen Staatsarchivs, 5 (2000), 219–27. ‘From the Danube to the Cam’, in Pat Hudson (ed.), Living Economic and Social History: Essays to Mark the 75th Anniversary of the Economic History Society (Glasgow, 2001), pp. 368–71. ‘Peripetien des Finanzzentrums Wiens’, in Karl Bachinger and Dieter Stiefel (eds.), Auf Heller und Cent. Beitr¨age zur Finanz- und W¨ahrungsgeschichte (Frankfurt and Vienna, 2001), pp. 529–37.

Index

Abs, Hermann 177, 178 Abyssinia 231 Ackrill, Margaret 158, 160, 162 Addis, Sir Charles 128 Adler, Friedrich 232–3 Africa 222, 247, 250, 259, 260, 262 airline industry 246–63 companies ABA 262 Air France 246 Beiersdorf 192 British Airways 257 Deutsche Aero Lloyd (DAL) 251–3, 254 Deutsche Lufthansa (DLH) 8, 9, 246–63 Deutsche Luftreederei (DLR) 250, 251 Iberia 259 Imperial Airways 246, 247, 252, 253, 256–7, 260, 262 Junkers Luftverkehr 251, 252–3, 254, 255 KLM 246 Lignes Farman 253 Lloyd Luftdienst 251 Lufthansa 263 Pan American Airways 8, 246, 260, 262 Sabena 246 Swissair 246, 262 United Airlines 257 Albania 290 American Friends’ Service Committee 217 Amsterdam 132, 255 Andrews, J. M. 76 Anseele, Edouard 93–4 anti-semitism 7, 67, 188, 189, 190, 193, 197, 203, 217, 218 Antonescu, Victor 115, 127 Antrim 76

Antwerp 66, 90 German colony in 90 Apold, Anton 275 Argentina 229, 237, 238, 254, 260 Armagh 66, 75, 76, 79 ‘aryanisation’ 187 see individual countries Asch 203 Asia 247, 250, 254, 257, 259 Asia Minor 296, 297, 299 Association Belge des Banques 99–100 Association of British Chambers of Commerce 151–2 Athanasiades, Prodromos 10, 297–8 Athlone 72 Auboin, Roger 134 Aughnacloy 78, 80 Aussig 205 Australia 222 Austria 2, 3, 4, 9, 32, 42–59, 106, 121, 215 agriculture in 47, 49, 50, 269, 270–1, 282 and ‘aryanisation’ 188, 196, 198–202, 219, 225, 227, 233 and ‘Austrification’ 279 and expropriation of the Jews 7–8, 197–8, 219 and ‘Germanification’ 45, 58, 182 and industrial relations 281 and Jewish business 200, 219–20, 225, 233 and Jewish professional class 199 and 1931 banking crisis 44 Anschluss, 1938 3, 7, 43, 45, 56, 58, 196, 198, 199, 200, 203, 205, 208, 217, 218, 219, 225, 226, 228, 232 balance of payments 51, 52, 56 business in 3, 9–10, 57–8, 272 and German business 58 cartels 282 Christian Social Party 274 civil service and business 277–8

333

334

Index

Austria (cont.) ‘commissars’ 205 construction industry in 44 corporatist government 3, 4, 9, 10, 43, 47, 54–5, 56, 57, 59, 218, 270, 276–7, 281 Department IV (Passamt fur ¨ Juden) 227 emigration 52 Jewish 197, 215, 219, 220–35, 237–8 First Republic 3, 42–59, 232, 272, 276, 281 foreign trade 49–51, 269, 271–2 glass industry 281–2 government–industry relations 272–83 industrialists as MPs 274–5 investment in 45–7 macro-economic trends in 44, 45, 49 manufacturing in 49 monetary stabilisation 269 National Socialism in 3, 43, 56, 57–8, 59, 197, 278, 283 NSDAP in 57, 197, 199, 202, 239 ‘old soldiers’ 197, 205 political economy of 3, 9, 44, 55–6, 58–9, 269–83 protection in 49, 270, 281 rationalisation 53 Second Republic 44 SMEs in 6, 9, 57, 272 socialism in 218 SS, the 198, 222, 235 State Commissioner General for Extraordinary Measures 278–80, 281 tourism in 51–2 Trades Embargo Act, 1933 281 trade unions in 43, 270, 282 unemployment in 3, 43, 45, 52–4, 56, 57, 58, 59 violence in 197 women in 54 Austrian Association of Industrialists 200; see also Central Association of Industry, Federation of Austrian Industrialists Austrian School of Political Economy 269 Baldwin, Stanley 149 Balfour Committee 145 Balkan Conference 291 Balkans 259, 262, 289–92, 293, 297 Baltic states 183, 259 Banker, The 146 Bankers’ Magazine 5, 146, 147–8, 149–50, 151–3, 154, 156, 161

banks and banking 4–6 concentration 5, 55, 145, 146–7, 156 in Austria 44–5, 54–5, 201, 269 in Belfast 4, 70, 72, 74, 78–9 in Belgium 4, 5, 89–104, 133, 134 in Britain 5–6, 116–26, 128–34, 136–7, 145–64 in Czechoslovakia 133, 311, 318, 319 in Denmark 134 in Finland 134 in France 5, 102, 103, 110, 113–16, 121–6, 127–8, 129–39 in Germany 7, 8, 110, 126, 129, 133, 148, 153, 154, 159–60, 192, 195 in Greece 114, 291, 293–4, 300 in Ireland 66, 133 in Italy 110, 126, 132 in Japan 134 in the Netherlands 100, 103, 132, 133, 134 in Poland 133 in Romania 5, 109 in Sweden 22, 23, 29, 133 in Switzerland 134 in the United States 5, 114, 116–20, 126–8, 135, 136–7, 147, 154 relationship with industry 5–6, 153–63 banks, companies and financial institutions ABN 100 ABN-Amro 103 Agr´arn´ı banka 311 American Express 232 Audit and Trustee Administration Society (Austria) 55 Austrian National Bank 44, 45, 55, 59, 128, 271 Banca Commerciale Italiana 134 Banca d’Italia 128, 132, 133 Banca Generale Romana 109 Banca Generaala a Tariii Romanesti 109 Bankers Industrial Development Company 159 Bank Nagelmackers 92 Bank of England 5, 106–7, 111, 113, 114, 115, 120, 121, 122–7, 128–34, 135–6, 137, 138, 148, 156, 157, 159, 160 Securities Management Trust, 1929 159 Bank of Greece 300 Bank of Scotland 6 Bank Polski 114 Banque Belge d’Afrique 102 Banque Belge du Travail 94, 95, 96 Banque d’Anvers 101

Index Banque de Bruxelles 89, 91, 92, 97, 100, 101, 102, 103 Banque de France 5, 106–7, 110, 113–14, 115, 116, 119, 120, 122–7, 129–38 Banque de la Soci´et´e G´en´erale 96, 97, 99, 101 Banque de l’Union Parisienne 110 Banque de Paris et des Pays-Bas (Paribas) 102, 114, 115, 127, 132, 134, 135, 136, 137, 139 Banque Franco-Polonaise 114 Banque Gaston Dreyfus 219 Banque Internationale de Bruxelles 90 Banque Lambert 101, 102 Banque Nationale (Belgium) 91, 92, 93, 96, 98, 99, 103 Barclays Bank 6, 155, 157, 158, 160, 161, 162 Barings 132 Belfast Banking Co. 78–9 Blair & Co. 114, 116, 121, 124, 127, 132, 134, 135, 137, 138 Boerenbond 94–5 Bundesbank 177 Central European L¨anderbank 44 Chase Securities Corp. 132, 135, 138 Creditanstalt 44, 55 Creditanstalt-Wiener Bankverein 44, 55 Cr´edit Communal 103 Cr´edit G´en´eral Li´egeois 90, 92 Cr´edit Local de France 103 Deutsche Bank 8, 9, 45, 177, 250, 252, 253, 297 District Bank 154 Dresdner Bank 177, 195, 200 Enskilda Bank 139 Federal Reserve Bank of New York 5, 114, 117, 119, 122, 123, 125, 126–8, 129, 133, 137–8 Federal Reserve Board 117, 118 G´en´erale de Banque 103 Hambros 132, 136 Higginson & Co. 136 Hopes 132 ING 103 Kontrollbank fur ¨ Industrie und Handel 201 Kredietbank voor Handel en Nijverheid 96, 97, 102–3 Krentschker & Co. 221, 225–6 L¨anderbank 200, 221 Lazards 112, 124, 132, 136, 138 Lloyds Bank 149–50, 155, 159, 161

335 Martin’s Bank 154 Mercur Bank 58, 200, 222 Middenkredietkas 95 Midland Bank 147, 150, 151, 156, 157, 158, 159, 161 Moravian Bank 311 National Bank of Greece 293–4, 296, 297–8 National Bank of Romania 107, 111, 115, 121, 123, 131, 132, 133, 134, 136, 137 National Provincial Bank 148 Nederlandsche Handel Maatschappij 132 Niederosterreichische ¨ Escompte-Gesellschaft 55 Raiffeisenkasse 94 Reichsbank 129, 131, 133, 177, 180, 181 Reitler & Co. 219 Riksbank (Swedish Central Bank) 22, 29 Rothschilds 132 Royal Bank of Scotland 153 Schroders 110, 112, 124, 130, 132, 135, 139 Soci´et´e Belge de Banque 101 Soci´et´e G´en´erale de Banque 101, 102 Soci´et´e G´en´erale (de Belgique) 4, 89, 90, 91–2, 93, 96, 97, 98, 100, 102, 103 Volksbank van Leuven 94–5 Westminster Bank 154, 157 Wiener Bankverein 55 Wiener Giro- und Kassenverein 201 Barbanson, L´eon 90 Bauer, Otto 272 Bekaar, Wilhelm 217, 218 Belfast 4, 66, 67, 68, 72, 74, 77, 78, 79 Belgian Workers’ Party 93, 94 Belgium 32, 73, 121, 131, 238 airlines 250 and relations with Germany 3, 4, 90, 91, 92, 97–8 bankers and politics in 4, 89–104 banking reform in 96–7, 98–9, 100–1 Boerenbond crisis 93, 95–6 co-operatives 93, 94–5 Comptoir de D´epots ˆ et de Prˆets 94 Coop-D´epots ˆ 94 Middenkredietkas 95 Volksbank van Leuven 94–5 Vooruit 94 economic policy in 93

336

Index

Belgium (cont.) ‘government of the bankers’, 1934–5 4, 93, 96 inflation in 91 investment 91 savings banks 93 socialists 91, 93, 98, 100, 102 universal suffrage 89, 91 Belleek 78 Bentwich, Norman 217–18 Berchtesgaden 43 Berger, Peter 274 Berlin 110, 123, 133, 171, 198, 199, 216, 218, 237, 250, 253, 255, 258, 261, 262, 309, 311, 314, 315 Berndorf 216, 218 Berne 66 Bessarabia 109 Bessbrook 66 Bland, Francis 152–3 Blythe, Ernest 70, 71 Bohemia and Moravia 188 Bolivia 259 Borchhardt, Karl 59 Bourdieu, Pierre 18 Bratianu family 107, 109, 111, 113, 115, 123, 127 Ionel 113, 128 Vintila 113, 115, 134, 135, 137 Brauneis, Victor 128 Brazil 231, 238, 254, 259, 260 Brazilian Condor Syndicate 259–60 Bremen 216, 250 Breslau 217 Bretton Woods 32 Britain 4, 5, 67, 229, 307 airlines 247, 250, 252, 256–7, 258, 262 and Ireland 63, 64, 66, 68 and relations with Germany 3, 9 and socialism 5, 149 bank–industry relations 153–63 banking opinion in 5, 146, 147–53, 154, 156–7, 161, 163 Labour government, 1929–31 148 Munich agreement, 1938 1, 11, 17, 18, 195, 202 National Government, 1931 148, 180 protection in 148–9 rationalisation 6, 145, 160–3 state intervention 147–9 unemployment in 145, 151, 155 Brno 310 Brunner, Alois 229 Brussels 90, 97

B-Special constabulary 74, 78 Bucharest 115, 116, 127, 134, 136 Buenos Aires 229 Bukovina 109 Bulgaria 112, 118, 119, 135, 271, 290 Burckel, ¨ Josef 198, 200, 202, 222 Buresch, Karl 269, 270, 276 Burilleanu, Dimitri 111, 112, 121, 124 Burleigh, Michael 182 businesses, see companies and firms business–government relationship 2, 9–11, 63, 171–2, 183, 246–7, 251, 255–6, 272–83, 289–302; see also individual countries regulation 9, 22, 23, 28–9, 30, 50, 173, 174, 270–1 Butschek, Felix 59 Buzdugan, M. 136 Camp Kitchener, Richborough 233 Capie, Forrest 157, 161–2 Carinthia 280 Cartellverband (Austria) 275 Carton de Wiart, Edmond 90 Castiglioni, Camillo 233 Catholics and Liberals in Belgium 89–90, 92, 95 and Protestants in Ulster 3, 4, 66, 67, 68, 73, 77, 79 Cavan 70, 74, 77 Central Association of Industry (Austria) 272, 273–4, 281 and Heimwehr 273 Technische Nothilfe 273 ˇ Ceskoslovensk´ a obrana 314 Chamberlain, Neville 17, 231 Chandler, Alfred D. Jr. 1 Charles University, Prague 42 Chicago 217 China 91, 228 Ciano, Galeazzo 233 Clare 73 Clones 73, 78 Collin, Fernand 97 Collins, Michael 70–1, 73, 75, 76, 77, 78 Collins, Mike 157, 161–2 Cologne (Koln) ¨ 250, 253, 258 Colombia 259 Colwyn Committee, 1918 145, 146–7 Comit´e National de Secours et d’Alimentation 91 Commission Bancaire (Banking Commission) 96, 97, 98, 99, 100–1, 103

Index companies and firms AEG 250, 251 Albatross 251 Allianz 8, 9 Ansaldo 233 Bell 313 Bessbrook Spinning Co. 66, 79 Blohm & Voss 260 BMW 258 Boeing 258 Bolckow Vaughan 161 Brevillier & Urban 279 Brufina 97, 100, 101, 102 Canada Tiefbohrger¨ate Fabrik 233 Charterhouse Investment Trust 159 Convair 263 Courtaulds 1 DEH 302 de Havilland 250 Deutsche Petroleum AG 251 Dexia 103 Dicks 75 Dillon 75 Dorman Long 161 Dornier 250, 251, 260 Douglas 258, 261 Dusseldorf ¨ Vereinigte Stahlwerke AG 58 Elektrotechna 10–11, 308–20 Focke-Wulf 261 Fokker 250 Fortis 103 Galanis Construction Co. 299 Groupe Bruxelles Lambert 103 HAPAG 250, 251 Hardmuth 279 Heinkel 258, 260 Herdmans 79, 80 IG Farben 8 Junkers 250, 251–2, 253, 258, 261 Europa-Union 252 Junkers Luftverkehr 251 Nord-Europa Union 252 Trans-Europa Union 252 Kerr & Co. 75 Kreuger & Toll 136 Kˇriˇz´ık 310 Liptons 75 Lockheed 258, 261, 263 Marconi 309 Mautner 219 Norddeutsche Lloyd 251 Nord Railway 115 Ormonde Woollen Mills 80 Osram 232

337 ¨ Osterreichische Alpine Montangesellschaft 58, 272, 275, 278, 279 ¨ Osterreichische Industriekredit AG 55 OTE 302 Ottakringer 219 Philips 232 Phillip Holzmann 297 Phoenix Insurance Co. 55 Pratt & Whitney 258 Prudential Assurance Co. 159 Radiotechna 311 Radiozenit 311 Rumpler 251 Sablatnig 250 Schenker 58 Schoeller-Bleckmann Stahlwerke AG 275 Siemens & Halske 10, 251, 308, 309–10, 311, 312, 313, 314, 315, 317, 318, 319 Siemens Schuckertwerke AG 58 Sion Mills 79 Suez Group 103 Swedish Match Company 5, 136 Telegrafia 309–10 TEPAS 311, 317 Thyssen 251 Tylers 75 Union Mini`ere de Haut-Katanga 97 Western Electric 309 Wetzler Aktiengesellschaft (Skoda) 232 Wireless Telegraph Co. 309 Zannas-Mavrogordatos Co. 300 Zeppelin 251 see also airline industry, banks concentration camps 228, 229 Auschwitz 225 Buchenwald 227 Dachau 219, 227, 228 Oranienburg 227 Sobibor 238 Theresienstadt 225 Congo 91 Conservative Party (Britain) 148–9, 150, 162, 163 Consortium of (Belgian) Banks 99 Constantinople 297 Cooper, James 74–5 Cooreman, G´erard 89 Coote, William 74, 78 Copenhagen 250 Corinth Canal 295 Cork 64, 70, 72, 73 corporate governance 2, 9

338

Index

corporatism 2 Cosgrave, William 79 Cottrell, Philip 154 Cowie, Robert 153 Craig, Sir James 76, 77 Craig–Collins pacts, 1922 77, 78 Cuba 238, 239 Czechoslovakia 3, 9, 11, 42, 120, 126, 188, 203, 206, 270, 279 Agrarian Party 308, 311 and ‘aryanisation’ 7, 188, 203–7 and expropriation of the Jews 205–7 and Jewish business 204–7 and Jewish professional class 204 and ‘nostrification’ 10, 308 and relations with Germany 307–20 and telecommunications 10, 308, 309, 310 Clerical Party 311 First Republic 307–20 Foreign Ministry 316 German occupation of 17, 182, 196 industry in 307 Ministry for National Defence 308, 317, 318 Ministry for Posts and Telegraphy 310, 311, 312, 318 Ministry of Social Security 316 Munich agreement, 1938 1, 11, 17, 18, 195, 202, 307, 318 National Democratic Party 308, 310 nationalisation 308, 313, 314, 319 ‘Old Soldiers’ 206 rivalry for dominance in 3, 18 Siemens in 10–11, 308, 309–10, 311, 312, 313, 314, 315, 317, 318, 319 Socialists 308 SS, the 207 State Defence Act, 1936 316, 318, 319 Sudetenland, the 7, 11, 202, 318 ‘aryanisation’ in 188, 203–7 Sudetendeutsche Heimatfront 313 Sudetendeustchen Partei 313 violence in 203 Czechoslovakian National Council 308 Economic Commission 310

Derry 67, 73, 75–6, 78, 80–1 de Smet de Naeyer, Paul 89 Despret, Maurice 92 Dessau 251 de Steenhaut de Waerbeck, L´eon 92 Deutsch, Karl 239 de Valera, Eamon 67, 76, 77, 81 Devlin, Joseph 67 Devolder, Joseph 89, 90 Dewey, Charles S. 114 Diercks, Richard 314, 315, 316 Digneffe, Emile 92 Diomedes, A. 300 Dobbin, Frank 247 Dolansk´y, Josef 311 Dollfuss, Engelbert 54, 218, 269, 270, 276, 281 Donegal 77, 78, 80 Donegal Light Railway 80 Down 72, 76 Dublin 68, 72, 78 Dublin Chamber of Commerce 64 Dundalk 73 Dusseldorf ¨ 250 Dvoˇra´ k, General Josef 314, 315, 316

Dafsen 217 Danzig 261 Darr´e, Walther 181 Dawson Bates, Richard 75 de Benedetti, Carlo 103 de Blacam, Aodh 66 de Launoit, Baron Paul 102 Denis, Pierre 116

Fasal, Erich 225, 229, 237, 238, 239 Federation of Austrian Industrialists 277, 282 Federation of Greek Industries 296, 298 Feest, Felix 280 Fermanagh 64, 74, 76, 78, 80 Fetherstonhaugh, Godfrey 64 Fey, Emil 278, 280

Eberhardt, Otto 220 economic crisis, early, 1920s 1, 4, 25, 36, 43, 145, 176 economic crisis, early, 1930s, see Great Depression Ecuador 259 Eger 203, 205 Eggenburg 222 Eichmann, Adolf 197, 220, 224, 227, 228, 229, 234, 235 Empain, Edouard 91 Enniskillen 75 Co-operative Society 75 Erhard, Ludwig 177–8 Estonia 270 Ethiopia 8, 216, 223, 230–4 European Round Table of Industrialists 290 Evian 220, 230 Eye 258 Eyskens, Gaston 102

Index Fianna F´ail 81 Figaro, Le 251 Finaly, Horace 114, 135 financial institutions, see banks Finkler, Walter 233 Finland 252, 262 Fischbock, ¨ Hans 220 Fisher, Frank 79–80 Foreign Affairs 262 France 5, 52, 67, 73, 106, 118, 120–1, 270, 290, 291, 307 airlines 247, 250, 253, 258, 260 Munich agreement, 1938 202 relations with Germany 3 Frank, Hans 183 Frankfurt 250, 258, 297 Franqui, Emile 90, 91, 92, 93, 96 Fr`ere, Albert 103 Fris, Victor 90 Funk, Walther 174, 177, 181 Furnberg, ¨ Hermann 222–3, 230, 231, 232, 233–4 Galbraith, John Kenneth 21 Galligan, Paul 70 Gallop, Dr Heinrich 219, 220, 221 Galopin, Alexandre 97, 98, 99 Galvagni, Anna, 224 Galvagni, Joseph 223–4, 227, 228, 229–30, 231, 234, 235–6, 237 General Council of Irish County Councils 72 Geneva 118 Genoa 66, 231, 232, 233 G´erard, Max-L´eo 92, 97 Geringer, Josef 228 German Labour Front 177, 180 German People’s Party (DVP) 252 Germany 52, 270, 291 Adenauer government 177 airlines 8, 246–63 and Austria 43, 51, 52, 58, 182 and Britain 3, 9 and Czechoslovakia 3, 182, 187 and Poland 182, 183, 187, 233 and Romania 115, 116, 182 as corporatist state 6, 24, 180–1 Federal Republic 177 Gestapo 8, 203, 205, 216, 226, 227, 228, 230, 234 Luftwaffe 8, 255, 257, 258, 261 Munich agreement, 1938 202 National Socialism in 3, 8 and airlines 256 and ‘aryanisation’ 7, 43, 187, 188–96 and business 6, 7, 9, 171–83, 255

339 and economic nationalism 178 and expropriation of the Jews 6, 7, 8, 178, 181, 182, 187, 194–6 and Jewish business 6, 7, 182, 189, 192: department stores 193 and Jewish emigration 191–2, 231 and Jewish professional class 189–91, 192: in banking 190, 192, 193; in law 190–1; in medicine 191; in universities 190 and rearmament 44, 172, 173, 175, 181 and regulation 173, 174, 176, 178, 180 and the Volkswagen 177 Central Office for Jewish Emigration 227, 228, 229, 234, 236, 238, 239 extremism 178–9 Four-Year Plans 174, 180, 181, 194, 200, 206 Lebensraum 176 neo-mercantilism 182 Price Commission 180 racism 179, 181–2 NSDAP in 175 ‘Old Soldiers’ 189, 208 research and development in 8, 258 SMEs in 173 Jewish 192, 193 structural change 176 trading relations 271 unemployment in 178, 188 violence 189 Weimar Republic 43, 173, 176, 190, 247–56, 259, 263, 310 working class in 171, 173 Germany, Eastern 188 Ghent 89, 94 Gibraltar 119 Gildemeester, Frank van Gheel 7, 8, 215, 216–18, 220, 222–40 Hendrik 216 Cornelis Jan van Gheel 216 Francis van Gheel 216, 217 Gildemeester Auswanderungshilfsaktion fur ¨ Juden (Gildemeesteraktion) 8, 215, 221, 222–40 Ethiopian Jewish settlement scheme 230–4 European Organisation, Rome 232–4 new organisation, 1940 235, 237, 238–40 Sonderaktion Kuffler 237 staff in British refugee camp 233–4

340

Index

Gildemeester fund 215, 221, 222–40 Goebbels, Joseph 181 gold standard 24, 106, 145, 151–2 Goring, ¨ Hermann 8, 180, 181, 194, 199, 200, 206, 219, 220, 255, 256, 259 Goschen, Harry 148 Government of Ireland Act, 1920 71, 72, 80, 81 Granville, Edgar 258 Graz 221, 225 Great Depression 3, 9, 24, 25, 43–7, 49, 50, 51, 52, 54, 57, 93, 139, 148, 156, 171, 175, 255–6, 269, 271, 276, 300, 314 Greece 9, 10, 114, 118, 119, 121, 128 agriculture 293 and Balkans 290–2 and defeat by Turkey 299 and relations with Britain 298 and relations with Germany 297 and ‘Zurich Circle’ 10 business elite in 10, 294 business–government relationship 289–302 civil war in 291 Conservative-Monarchists 298 foreign trade 293 housing 296, 300 Liberals and Republicans 298 merchants 292 networks 289, 292, 293–4, 296–7, 299, 300, 301–2 Metaxas government 10, 298 non-profit organisations 301 overseas entrepreneurs 294–5 public sector 301 public works 295, 296 shipping 294 Trikoupis governments 294, 295 unemployment in 297 Venizelos government, 1928–32 10, 296, 299, 300 Green, Edwin 150, 151, 157, 158 Griffith, Arthur 66, 73 Grippenstedt, J. A. 23 Gustloff, Wilhelm 194 Gutt, Camille 97, 102 Haas, Karl 274, 276 Habsburg Empire 3, 4, 45, 50, 308 collapse of 11, 42, 49 Hague, The 216, 217, 235 Hamburg 250, 258 Hammerschlag, Peter 229

Hannah, Leslie 148, 149, 158, 160, 161, 162 Hanover 250 Hanson, Per Albin 26 Harrar 223, 230, 231, 232 Harrison, George L. 116, 118, 119–20, 127–8 Harvey, Sir Henry Musgrave 122 Hayek, Friedrich 269 Heimwehr (Austria) 273, 278 Helleputte, Prof. Georges 94, 95 Henlein, Konrad 205, 313, 318 Henrion, Robert 100, 102 Herz family (Leopold, Johanna, Irene) 226 Herzog, Mrs 239 Hilferding, Rudolf 2 Himmler, Heinrich 181 Hindenberg, President Paul von 190 Hitler, Adolf 3, 6, 8, 9, 10, 17, 43, 171, 172, 173, 174, 176, 177, 179–80, 181, 182, 183, 188, 193–4, 197, 199, 218, 223, 228, 255–6, 316, 318 Mein Kampf 180 ‘New Order’ 183 Hodˇza, Milan 318 Holden, Sir Edward 147 Holland, see Netherlands Holmes, A. R. 150, 151, 157, 158 Hoover, Herbert 91, 217 Horne, Sir Robert 150 Houtart, Baron Maurice 92, 97 Hungary 51, 106, 109, 115, 116, 121, 232, 238, 270, 271 Import Duties Advisory Committee 148 India 262 Industrial Review 298 Industrie, Die 273 inflation 1, 3, 28, 32, 42, 53, 91 International Air Traffic Association (IATA) 252 International Financial Commission 114 Iran 238 Ireland 2, 3–4, 63–81 American support for 71, 73 and Dominion status 4, 64 Boundary Commission 76, 77, 79–81 business boycott 4, 63, 68–79 businessmen in 4, 63, 64, 67, 79–81 civil war in 78, 80 constitution 1937, 81 D´ail 66, 68–71, 72, 73, 74, 76

Index foreign trade 64–6 Free State, 1922 3, 64 nationalism 63, 68 partition, 1920 3, 4, 64, 67, 70, 71, 72, 75–6, 77, 79 Treaty, 1921 71, 75, 76, 79, 81 Truce, 1921 71, 75, 76 violence 63, 64, 68, 74, 77, 78 role of women in 78 see also Ulster Irish Dominion League 64 Irish Republican Army 63, 75, 78 Irish Times 72 Israel 215 Italy 9, 51, 67, 113, 121, 250, 270, 271, 290, 291 airlines 260 and Ethiopan Jewish settlement scheme 230 monetary stabilisation 122, 137 Munich agreement, 1938 202 Jablonec 312 Jacobi, Selita 217 Jadot, Jean 91, 92, 93 Jakoncig, Guido 278 James, Harold 176 Janssen, Albert-Edouard 92, 101 Japan 31, 263, 291 Jaspar, Henri 91, 92 J`eje, Gaston 115 ‘Jevonsian-Walrasian revolution’ 17 Jewish Community of Vienna (Israelitische Kultusgemeinde Wien) 219, 229, 230, 237, 239 Jewish Record 207 Jews 187–208, 215–40 ‘final solution’ 8, 216, 238 in Austria 7–8, 196 in Vienna 196, 218–20, 224–30, 236–40 in Czechoslovakia 7, 187 in the Sudetenland 202–3 in Germany 7, 182, 188–96 in Poland 187 Journal of the Institute of Bankers 146 Junkers, Prof. Hugo 251, 255 Karapanayotes, B. 299–300 Karlsbad 203, 204, 205 Kattendijke 216 Kehrl, Jans 200 Kemmerer, Professor Edwin 114 Kenya 235 Keppler, Wilhelm 220, 222

341 Keynes, John Maynard 24, 145, 149, 150, 282 Keynesianism 24, 28, 30, 32, 34, 35–6 Kilkenny 73, 80 King Albert I 91 King Ferdinand I 113 King Leopold II 89, 90, 93 Kiriacescu, Oscar 131–2 Koch, Erich 183 Kohl, Maximilian 225 Komotau 203 Konigsberg ¨ 174, 261 Korea 31 Korean War 28, 31 Kraus, Fritz 222, 235 Kreisky, Friedrich 228 Krentschker, Moritz 221 ‘Kristallnacht’ pogrom, 1938 7, 196, 202, 230 Kr´ysa, Adolf 311, 317 Kuffler, Arthur 219–20, 222, 232, 237 Kuffler, Edith 237 Kuffner, Moritz and Stefan 219 Kunwald, Gottfried 59 Labour Party (Britain) 145, 148, 149, 150, 162, 163 Lake Tana 231 Lapredatu 111 League of Nations 42, 56, 106, 112, 113–14, 115, 116, 117, 118, 119, 120, 124, 125, 127, 135, 136, 296 Leh´ar, Franz 237 Leipzig 250 Leitrim 72 Ley, Robert 180 Liberal Party (Britain) 162 Liberal Party (Romania) 106, 107, 109, 111, 115, 138 Li`ege 90, 92 Limerick 73 Lippens, Maurice 103 Lisbon 234, 260, 262 Lisburn 70 Lisnaskea Board of Guardians and Rural District Council 76 Lithuania 270 Lloyd George, David 64, 76 Lohse, Hinrich 183 London 5, 98, 110, 115, 127, 132, 133, 156, 255 London Stock Exchange 110–11, 130, 132 Londonderry, see Derry Londonderry, Marquis of 79 Louth (Ireland) 78

342

Index

Lubbock, Cecil 121, 122–3, 124, 125, 128, 129, 138 Lugano 136 Luz, Walter 260 MacDonagh, Joseph 73, 74 Macedonia, Former Yuogslav Republic of 290 McElligott, J. J. 71–2 MacEntee, Se´an 68–70, 73 Machn´ık, Frantiˇsek 317 McKenna, Reginald 150, 151, 156 McLaughlin, John 80 Macmillan Committee 145, 155, 156, 157, 158, 159, 160 ‘Macmillan gap’ 155, 156, 159–60 MacRory, Joseph 72–3 MacSwiney, Terence 70 Malina, J. B. 261 Mannheim 250 manufacturing industry in Austria 49 in Britain 5, 153, 157 Margr¨afe, Karl 314, 315 Markievicz, Constance, Countess 70 Marx, Karl 2, 17 Communist Manifesto 148 Marxism 171, 175, 179 Masaryk, Tomas 315 Mason, Tim 178 Maze 76 Meidner, Rudolf 29, 33 Mendelsohn, Mrs 239 mercantilism 19, 20 mergers and concentration 31, 37, 44, 55, 101, 103, 145, 146–7, 156, 161, 292 Merkel, Otto 254 Mersina 297 Metaxas, Ioannis 298 Milan 232 Milch, Erhard 254–5, 256, 261 Mill, John Stuart 17 Mises, Ludwig 269 Mommsen, Hans 180 Monaghan 68, 74, 77 Monnet, Jean 113, 116, 132, 137 Moreau, Emile 5, 106, 113, 114, 115, 119, 120, 121–3, 124, 125–6, 127, 129–31, 133, 134, 135, 136, 137–8 Morgenstern, Oskar 269 Moscow 123, 262 Moser, Jonny 218, 220 Muller-Armack, ¨ Alfred 175 Munich 250, 252, 255

Munster ¨ 175 Munz, Paula 239 Mussolini, Benito 231 Myrdal, Alva 26 Myrdal, Gunnar 24, 26 Nadel, Salvatore 233 Naeseens, Maurits 102 Naples 234 N´arod 310 National Council of the Friends of Irish Freedom 71 Netherlands 3, 32, 131, 215, 216, 217, 229, 235 airlines 250, 252 Neumann, Franz 172, 173 Behemoth 172 Neumann, Heinrich von 220 Newry 79 Chamber of Commerce 79 New York 44, 66, 110, 116, 117, 124, 127, 129, 136, 137, 207, 260, 261 Niemeyer, Otto 113, 116–20, 122, 123, 124, 135, 138 Nisou 312 Norman, Montagu 5, 9, 110–13, 114, 116, 117, 119, 121, 122, 124, 125, 128, 129, 130, 131–2, 135, 137, 138, 139, 159 North America 231, 250 Northern Ireland see Ulster Norway 118, 121, 262 ‘nostrification’ in Romania 109–10 Nuremberg Commercial College 178 Nuremberg Laws, 1935 204, 222, 223, 224 Nuremberg War Tribunal 187 O’Duffy, Eoin 75 O’Faolain, Sean 67 O’Flanagan, Michael 67 O’Hegarty, P. S. 68, 79 Ohlin, Bertil 24 oil crisis 1973/4 31, 32 1979 31 oil industry 110 O’Kelly, J. J. 67–8 Olson, Mancur 36 Omagh Board of Guardians 76 O’Neill, Charles 80–1 ¨ Osterreichische Volkswirt, Der 281 Ostrava 309 Ostˇriˇzek, Colonel Jaroslav 315 Ottoman Empire 292, 293

Index Panama Canal 263 Papastratos Brothers 300 Pareto, Vilfredo 18 Paris 5, 66, 115, 126, 129, 133, 137, 196, 219, 253 Paschkies, Hans 237 Pearl Harbor 263 Pettigo 78, 80 Pil
sudski, Marshal Josef 114 Piraeus 294 Poincar´e, Raymond 121 Poland 106, 117, 119, 126, 182, 183, 188, 261, 310 monetary stabilisation 113, 114, 116, 117, 118, 134, 137 Poles, treatment of 182 Pollak 219, 220 Pollock, Frederick 173, 174 Portugal 118, 119, 121, 234, 238 Post Office (United States) 247 Prague 309, 310, 311, 314, 315 Pramberger, Walter 221 Prochnik, Robert 237 Property Transfer Office (VVST) 201, 202, 225 public choice 18 Putz, ¨ Theodor 277 Quakers 217, 218, 229 Quesnay, Pierre 113, 115, 116, 123–4, 125–6, 127, 129, 133 Rafelsberger, Walter 201, 202, 207, 221 railways 5, 22, 66, 73, 74, 78, 80, 93, 109, 115, 127, 133, 138, 139, 251, 295 Rajakowitsch, Erich 221, 225, 226 Rehn–Meidner wage theory 29 Reich Chamber of Industry 181 Reich Citizenship Law 192 Reich Debt Syndicate 193 Reich Flight Tax 195 Reich Food Estate 181 Reichsgruppe Industrie 200 Reichs-Statthalterei 219 Reichswehr 189 Renatus, Kurt 175 rent-seeking behaviour 18–19, 20 Retsinas, Theodore 10, 294 Revelstoke, Lord 128 Richter, Wolfgang 206 Rintelen, Anton 218, 221 Rischner, Alexander 221 Rist, Charles 113, 115, 121, 127, 134 Romania 106–39, 290

343 agriculture in 111–12, 131, 134, 138, 139 and relations with France 110, 123 and relations with Germany 109, 113, 123, 129, 131, 134, 182, 271 Averescu government 111, 113 constitution, 109, 180 finance 110–39 inflation in 107 Maniu government 135–6, 137, 138 monetary stabilisation 5, 107, 123–4, 130, 131, 133, 136–7 National Peasant Party 113, 121, 124, 134, 135–6, 138 reconstruction in 5, 109–10, 115, 127, 138 territorial enlargement of, 1918 109, 111 Rome 230, 231, 232, 234, 235, 255, 262 Roosevelt, Franklin D. 231 Ross, Duncan 154, 159–60, 162 Rost van Tonningen, Meinoud 56 Rothschild, Baron Louis 198 Rotterdam 66 Royal Irish Constabulary 74 Russia 290 Saare 311 Sachsenburg, Gotthard 252, 253, 254, 255 Safrian, Hans 208, 215 Salter, Sir Arthur 107, 111–12, 135 Saltsjobaden ¨ Agreement, 1938 25, 33 Salzburg 51 Sap, Gustaaf 95, 96 Sauckel, Fritz 181 Scandinavia 250, 259 see also individual countries Schacht, Hjalmar 9, 114, 129, 130, 131, 180, 181 Schneider, Frantiˇsek 312, 313 Schober, Johannes 276 Scholler, ¨ Philipp 275 Schroter, ¨ Rudolf 232 Schubert, Arthur 234 Schuschnigg, Kurt 43, 58–9, 197, 218, 269, 276, 281 Sebekovsky, Wilhelm 205 Seipel, Ignaz 42, 59 Seyß-Inquart, Arthur 198, 199, 200 Shanghai 228, 237, 238 shipbuilding industry 31, 68, 73, 77 Siemens, Carl Friedrich von 318 Siepmann, Harry A. 113, 116, 120–1, 122, 124, 125–6, 129, 133

344

Index

Sinn F´ein 66, 67, 68, 71, 74, 75, 76, 78, 79 ‘White List’ 74, 75 Smith, Adam 17, 20 The Wealth of Nations 18 Smith, Jeremiah 116–20 Sohn-Rendel, Alfred 171–2, 183 South America 8, 52, 73, 237, 250, 255, 259, 262, 263 Soviet Union 24, 180, 182, 231, 238, 253 Communist Party Congress 171 Spaak, Paul-Henri 97 Spain 9, 118, 119, 238, 259, 262, 270 Speer, Albert 181 Sprague, Oliver 157 Staff, Karl 21 Stafford 71 Staines, Michael, 72 Stalin, Joseph 171, 180 state intervention 5, 147–9, 246–7, 251, 269–83, 319 Statist, The 71–2 Stauss, Emil Georg von 253, 254, 256 Stirbey, Prince 127 Stockholm 139 Stockholm School (economists) 24 Stockinger, Fritz 280 Storfer, Berthold 220 Strabane 80 Strauss, Hermann 232 Strauss, Ludwig 232 Streeruwitz, Ernst 276 Stresemann, Gustav 121, 252 Stringher, Bonaldo 130, 132 Strnad, Josef 311 Strong, Benjamin 5, 114, 116, 117–20, 122, 124, 125, 126–8, 137–8 student demonstrations, 1968 33 Stuttgart 250 Styria 218 Sudetenland Chamber of Commerce 206 Svoboda, Karel 311, 317 Sweden 2, 4, 18–37, 238 agriculture and forestry in 22, 23, 24, 25, 37 airlines 262 and ‘collective wage-earners’ funds’ 33, 36 and telecommunications 22 business–government relationship 27–8, 33–4, 35 deregulation in 34, 36 engineering industry in 23, 31, 34 foreign trade 30 industrial relations in 2, 22, 25, 29–30

inflation in 28, 32, 35 investment in 22, 28–9 Liberal government 21 political economy of 21–3, 26, 27–9, 30, 33 protection in 23, 24, 28 rationalisation in 29, 31 shipbuilding industry in 31 Social Democratic Party in 25–7, 33, 34, 35 and business 26–8 Swedish Mission (Vienna) 229 ‘Swedish model’ (middle way) 2, 3, 23, 24, 25, 26, 27, 30, 32, 33, 34, 35–6, 37 trade unions in 21, 22, 25, 27, 33, 34–5, 36 unemployment in 24, 25, 35 ‘wage solidarity’ principle 29–30 welfare legislation (welfare state) in 21, 23, 26, 32, 35 Switzerland 131, 232, 238, 250, 270 Tambornino, Karl J. 225 Teichova, Alice 1, 2, 3, 5, 11, 18, 42, 63 An Economic Background to Munich 2, 3, 17 Tennant, Robert 154 Teplitz-Schonau ¨ 7, 204–5 Thaler, Andreas 52 Thessaloniki 300 Theunis, George 91, 92, 93 Thyssen, Fritz 180, 181 Tiarks, Frank 112, 130, 135 Times, The 298 Tipperary 73 Tiratsoo, Nicholas 149, 150, 162–3 Titulescu, Nicholas 121, 136 Todt, Fritz 181 Tomlinson, James 149, 150, 162–3 Tournai 92 Transylvania 109 Trieste 231 Trikoupis, Harilaos 294, 295 Troppau 205 Tuam, Co. Galway 68 Turkey 122, 126, 299 Twiss family 216 Tyrone 74, 76, 78, 79, 80 County Council 76 Udrˇzal, Frantiˇsek 310 Ukraine 183, 290 Ulster 63, 64, 66, 67–8

Index militant unionism in 4, 64, 71 Orangemen 67, 74 unionist businessmen 3, 64, 79–80 Ulster Trades Defence Association 78 Ulster Unionist Council 77 Ulster Volunteer Force 63, 74 Unemployed of Marienthal, 1933 54 United Kingdom, see Britain United States 5, 7, 8, 17, 24, 67, 91, 101, 117, 137, 172, 188, 215, 228, 233, 238, 254, 270, 291, 298, 307 airlines 247, 257, 258, 262–3 and Marshall Aid 9, 298 New Deal 178 1929 crash 44 Universit´e Libre de Bruxelles 102 University of Paris 115 Unruh, Benjamin 218 Urban, Ludwig 277, 280 Uruguay 238 ´ ı 310 Ust´ Van Ackere, Fernand 95 Van Cauwelaert, Frans 95 Van Coillie, Alfons 95 Van de Vyere, Alois 95 Van Gheel, Albertina Frederika 216 Van Zeeland, Paul 96, 102 Veith 127 Venice 255 Venizelos, Eleftherios 299, 300 Verplaetse, Fons 103 Versailles, Treaty of 3, 5, 110, 112, 247, 250, 310 Vienna 7, 51, 52, 53, 54, 56, 57, 58, 196, 197, 198, 199, 201, 202, 215, 217, 219, 222, 225, 229, 232, 235, 308, 309, 315 Sammellager 238

345 Vienna Philharmonic Orchestra 228 Viennese Association of Industrialists 199 Viennese Commercial College 232 Vietnam War 33 Vlerick, Andr´e 102–3 Voelkischer Beobachter 260 Wagemann, Ernst 59 Waldheim affair 188 war, as destabilising force 4, 89 Warnemunde ¨ 250 Warnsdorf 203 Washington 116 Waterford 72, 73 Weber, Hugo 221, 225, 226 Weidenhoffer, Emanuel 278 Weigelt, Kurt 252–3 Wiesenthal, Simon 226 Wilhelminadorp 217 Wippermann, Wolfgang 182 Wokaun, Bernhard 221 World War I 3, 4, 10, 21, 23, 24, 42, 45, 53, 89, 90–1, 104, 146, 190, 217, 228, 247, 259, 297, 307, 309 World War II 3, 4, 10, 24, 26, 27, 28, 30, 89, 97–8, 104, 230, 235, 261–2, 291, 298, 301 Wronsky, Martin 254 Yugoslavia 119, 120, 121, 122, 126, 127, 128, 237, 270, 271, 290 monetary stabilisation 126 Zannas, Alexander 300 Zeigler, Dieter 155, 160 Zitelmann, Rainer 179 Zurich Polytechnic 10