CONTINUED and intensified government intervention, above all the system of uniform and group prices, the new profit-control measures, combing-out, and rationalization stimulated the process of concentration of capital. All measures leading to concentration are frequently termed ‘rationalization’ in the German literature. A closer analysis of this term is thus advisable.
Five different problems are usually encompassed by the term ‘rationalization,’ a term of which the Germans are very fond. It means: (a) scientific management in factories; (b) the simplification of social and economic controls; (c) the installation of labor-saving devices; (d) the standardization of commodities; (e) the physical concentration of plants, that is, transfer of quotas from less efficient to more efficient plants. Within these five categories, two different types of rationalization must be distinguished. We might call them: inner-entrepreneurial, and supra-entrepreneurial rationalization.
The first is confined to one specific plant, enterprise, or combine, and is usually the outcome of competitive compulsion. It is, thus, unplanned; that is, it is carried out, or not carried out, according to the demands of competition. Considerations for the whole of the economy do not enter into such rationalization policies. Inner-entrepreneurial rationalization is stimulated by the regimentation of the Nazi economy. Rigid price control, i.e. the lowering of cartel prices, compels the enterprises to increase their profits by rationalization. Scarcity of raw materials compels the elimination of waste. Scarcity of labor is probably the greatest stimulus to scientific management and the installation of labor-saving devices. We need hardly add that by this very token, centralization and concentration are furthered. The capital requirements for installing labor-saving devices tend to increase, so that only rich enterprises can afford to do so and, among them, vertical combines are still in the most favorable position to do so.
While this aspect of rationalization presents no new problems, it is the second, the supra-entrepreneurial one which has come to the fore under Nazism. However, this encounters serious obstacles, unless the control of business is total. Rationalization of a whole branch of industry or of the whole industrial apparatus would have been inconceivable in the Weimar Republic.
The obstacles to a nation-wide rationalization will disappear when the business organizations are absolutely stable and nobody can leave them, and when no outsider can threaten the once-made rationalization agreement. Both conditions have been fulfilled by National Socialism. The compulsory cartel act, compulsory membership to the Groups, and the leadership principle have created that security under which monopolies could come to such agreements.
The task of supra-entrepreneurial rationalization rests with a number of agencies, among them the Four Year Plan Office. Göring has made Funk Commissioner General for Rationalization—merely a formal appointment. Funk has transferred these powers to W. Zangen, leader of the National Group Industry. The real power to rationalize rested originally with the General Deputies in the Four Year Plan.1 Other equally important agencies for rationalization are the National Boards for Raw Material Control. They have enacted in innumerable cases prohibitions and orders. The use of certain materials or the manufacture of certain goods was prohibited, or manufacturers were ordered to use certain material and certain compositions.
In 1921 private combines and the government established the National Board for Efficiency (Reichskuratorium für Wirtschaftlichkeit) to promote rationalization and to advise business how best to carry out rationalization measures. The various trade associations within the peak associations established a number of Normenausschüsse, standardization committees, which from time to time recommended to their members specific measures regarding scientific management, labor-saving devices, and the standardization of goods. All economic and many of the trade and sub-trade groups now possess such committees, which continue to work in this direction. Their recommendations, however, could not be translated into legislation until, in 1939, the Minister of Economics enacted a decree authorizing him to declare them valid for all producers, wholesalers, and retailers. As a consequence, a large number of such decrees have been issued by the Minister of Economics. There is hardly a field, especially in the civilian sector of the economy, which has not been affected by the standardization committees of the Groups.
The most important agencies today for the rationalization of combat material and related commodities are the main committees and industrial rings, discussed above. One can say today that the main committees and rings have assumed exclusive responsibility for the standardization of commodities in the military sector of the economy. They have also responsibility for the concentration of production in more efficient plants. Since the foundation of the five Reichsvereinigungen, these national associations have become very important in the field of rationalization.
All the above-mentioned agencies surveyed in standardization have now been integrated into the Deutsches Normenwerk. The interests of the various government agencies in this body are represented by a newly created Ministerial Committee for Standardization.
Within the whole sphere of rationalization, the concentration of plants, the closing of inefficient factories, and the transfer of their machinery and quotas to more efficient plants are of utmost importance and therefore deserve special mention. Two aspects must be distinguished in this field. Concentration has been going on in German industries for many decades and has taken a very rapid turn under National Socialism. It is the outcome of the structure of the German economy and is not the result of orders imposed upon the economy by the German government. This aspect of the concentration has been discussed on pp. 274-94, and will be amplified below.
There are industries, like the textile industry, where closing down has little effect because of the absence of large-scale industrial plants. In such cases the full utilization of existing plants, even of small ones, is of great significance. To achieve this purpose, the productivity of the smaller plants has to be improved. One means of doing this was the establishment of ‘model factories,’ Leitbetriebe, namely factories whose output exceeds that of their competitors. The model factories are compelled to assist the other plants by giving them technical advice and making accessible to them technological achievements. In return, the model factories obtain preferential treatment in regard to raw materials, machines, and labor.
The compulsory cartel act of 15 July 1933 vested in the Minister of Economics the power to establish compulsory cartels, etc. (see pp. 263-73).2
On other direct measures see pp. 282-3.
Sharply distinguished from these decrees under the Four Year Plan are the decrees closing handicraft and retail shops issued under the Labor Mobilization Decree of 27 January 1943. In this case, the execution of the decree rests with the National Defense Commissars (the Gauleiter), who order the Economic Groups to make proposals and who execute the proposals or amend them according to their discretion. The main purpose of the labor mobilization decree of 1943 is to win additional labor supply. There is a sharp difference between the above-mentioned measures of 1939 and those of 1943. The 1939 measures aim at excluding the purged retailer and handicraft men definitely from economic life. The labor mobilization act, however (so at least official statements maintain), is merely a temporary measure. The retailers, wholesalers, and handicraft men purged under the decree of 1943 have been promised restitution of their businesses after the war. Legal enactments therefore provide that the firm name should not disappear. While the purge of 1939 did not provide support (some kind of mutual aid) for the closed-down retailers and handicraft men, the Labor Mobilization Act of 1943 and executive decrees do provide for such assistance.
The Labor Mobilization Act of 1943 does not affect industry proper because the process of industrial concentration has been much more severe than that of trade and handicraft concentration. It had started with vigor in the spring of 1942 when the reorganization of the German economy was undertaken. The procedure for the closing down preserved originally the rights of the smaller industrialist. A complicated machinery had to be put in motion in order to obtain a closing-down order. But later in 1943, when air warfare against Germany rose to new heights, the whole protective machinery was scrapped and the power to close down vested in the main committees while the power to order the transfer of plants to safer regions was given to the big quota claimants (army, navy, air force, etc.).
Shut-down industrial plants are authorized to obtain aid (Gemeinschaftshilfe)3 collected by the National Group Industry from among its members and given to the victims for repair and maintenance of buildings and machinery, for heating, light, rent, insurance premiums, and the guarding of the plants. It is clear that the assistance does not amount to much.
(a) Combines. The combines have experienced a further growth. It is impossible to record this process, but a few random examples may suffice to demonstrate its magnitude. The main result is the disappearance of ‘free’ coal mines with the acquisition of the Gelsenkirchen mines by Krupp. While in 1914 still 50 per cent of all mines were free, today less than 10 per cent are so; the huge bulk is owned by the combines—not only the steel combines, but also by I. G. Farben, which has become not only a chemical but also a heavy-industry trust. The following transactions are worth recording.
Klöckner acquired from Göring combine the Simmering-Pauck-Grazer works. Krupp acquired the Gelsenkirchen mines from Wintershall combine. The two combines also agreed on common policy. A new combine is the Michel corporation, which has succeeded in consolidating its holdings in ignite and coal mines. The Stolberger Zinc extended its holdings. The General Electric (AEG) merged with the Corporation for Electric Enterprises (Gesfürel). The Elin and Schorch corporations in Vienna merged and became the fourth largest electrical combine. The Fendel and Rhenania inland navigation combines were consolidated.
(b) Corporations and Self-financing. The process of concentration finds but an inadequate expression in the corporation statistics. A survey in Wirtschaft und Statistik4 shows that the founding of new enterprises diminished throughout Greater Germany during 1942. In that year 14,180 new commercial firms were registered (including Ostland), as against 15,764 during the previous year, and 11,429 in 1940. By far the greater number are organizations with individual responsibility, and only 1,093 firms (1,193 in 1941) are limited corporations. On the other hand, 201 (318 in 1941) corporations were converted into firms with personal responsibility. Only 41 (46) stock companies were founded, while 170 (221) were dissolved and 19 (35) became individually owned firms. In all, 226 companies have refinanced their capital from foreign currency to German Reichsmark. The total number of enterprises at the end of 1942 amounted to 353,373, as against 347,061; 342,477; and 337,243, respectively, for the preceding 3 years.
The stock companies show an increasing trend toward the concentration of capital. In 1938 there were 5,518 stock companies with a total capital of 18.75 billion Reichsmark, and an average capital of 3.4 million. By 1941 the number of such companies had fallen to 5,418, while their total capital had risen to 24.91 billion and the average capital to 4.6 million. At the end of 1942 there were only 5,404 stock companies, with a total capital of about 29 billion, and an average capital of 5.4 million. Many concerns have undergone ‘purges’ and many branch firms were merged with the mother concern.
Naturally the total capital has been affected by the policy of capital increases, whereby up to the middle of 1943 a total number of 1,256 stock companies increased their capital by an average of 48½ per cent, from 9,020 to 13,397 million Reichsmark, at the expense of the open and secret reserves; in addition, there were true capital increases in 1942 amounting to 1,293 (954) million Reichsmark. The extent of the concentration of capital can be seen from the fact that 107 (89 in 1941) stock companies, with Rm. 50 million of stocks, control about half of the total stock capital.
Under war conditions, only large enterprises can survive, for they can raise their own finances when the capital market is almost entirely taken up with government needs. Aside from advance payments, which today average only about 1.5 billion Reichsmark per month, as against a former average of 5 billion, the Reich also contributes to industrial financing to the extent of about 1.5 or 2 billion Reichsmark by making available machinery owned by the Reich. This amount is compensated by the lowering of prices, which gives the Reich an annual saving of about Rm. 2 billion. In spite of the enormous demands which the war economy makes on industry, the total of industrial indebtedness has increased only slightly above the 1939 level. From the end of 1939 to the end of 1941, the circulation of industrial loans and kindred obligations in Germany has gone up from 3.2 billion to 3.9 billion Reichsmark. (It stood at 4 billion in 1940.) Of this amount only 647 million are in the form of foreign loans, while in 1939 foreign loans amounted to 827 million. The overwhelming majority of all wartime investments was thus covered by industry’s own financing, and not by recourse to the capital market or to the Reich itself (see for closer analysis pp. 316-26). Table 1 shows the development of joint-stock corporations in Germany. Three-fourths to four-fifths of the capital of all corporations is today held by large shareholders and the combines.
(c) Limited Liability Companies and Partnerships. A similar development took place with regard to the limited corporations. Many armament firms adopted this form of organization in order to evade the obligatory publicity. At the end of 1942 there were in Germany 23,498 (23,195 the year before) limited companies with original capital totaling 7.3 (6.1) billion Reichsmark. The tendency toward larger limited companies is evident from the fact that 1,091 new firms in 1942 had a total capital of 335 million Reichsmark, as against the previous year when 1,193 new firms had a total capital of 255 million.
The following list presents but a modest selection of the limited liability companies either newly founded or transformed from joint stock corporations:
Mittelstahl (Flick combine), capital 50 million
Godulla (Schaffgotsch combine), capital 40 million
Tobis-Tonbild Syndikat, capital 5.4 million
Deutsche Wollmanufaktor
Demag (machine building)
Bank für Industriewerte
Mannesmann affiliates
Among the older companies in GmbH form is the Röchling combine.
Other corporations have preferred the still more personal partnership or limited partnership. The outstanding example is that of the biggest German combine, that of Friedrich Flick, outstanding ‘finance’ capitalist and close friend of Göring. He transformed his holding corporation, the Siegener Eisenindustrie, into the limited partnership Friedrich Flick KG, which owns 99 per cent of the Mittelstahl (now a limited liability) Company, which in turn owns machine and locomotive factories, 90 per cent of the Maximilianshütte, coal mines, and lignite mines.
His competitor, Alfred Krupp, found even a better way. Hitler himself, in 1943, issued a decree giving the Krupp family the right to divest themselves of the form of the joint-stock corporation, to determine the line of succession, and to maintain the enterprise henceforth as a family enterprise. Young Krupp, Alfried Krupp von Bohlen und Halbach, now owns the Krupp works as a hereditary estate.
The reasons for the preference of the limited liability company and the partnership are not far to seek. It is to avoid public control—a vital consideration in a time when the power of the combine grows and the small businessman is purged. Besides, the joint stock corporation becomes unnecessary when internal financing has reached such proportions as to make appeals to the capital market unnecessary.
This is what small industrialists think of the process of capital concentration.5 This letter, addressed to a German newspaper, in reply to an article on ‘The Giants,’ explains better than a statistical analysis the changes in Germany.
Some months ago six industrialists—owners of small and medium-sized plants—were sitting together in a Russian fox hole north of Smolensk—almost all of them had volunteered—and talking about what would become of them, or at least of the plants they owned or managed, after the war. I was reminded of the long and serious discussion among these men, all of whom were fundamentally activistic optimists (they had proved this by the reconstruction or extension of their plants in the years between 1918 and 1939), when I set eves on your article The Giants. In the first place it should be stated that no private and responsible industrialist who is possessed of his task (and you had to be that all through the last years if you wanted your enterprise to stand up against the pressure of the giant combines and the bureaucracy of the economic administration) would ever demand measures for his protection against big enterprise and combines. This would contradict his basic conceptions of the equal justification and equal value of all economic activities, which is an essential assumption. On the other hand, he demands emphatically identical treatment for all, meaning that there should be no onesided sponsoring and furtherance of big industry as it actually exists, if not de jure, certainly de facto.
We, who are soldiers at present, but follow with open eyes the recent economic developments, recognize very clearly the inevitable consequences of the decrees and measures of the last years, and we understand them better now that we are sufficiently aloof. Whether we deal with the closing down of plants, or the appointment of leaders of the industrial rings, or the extension of the function and powers of certain economic groups, or the founding of Reichs organizations—again and again we find that we deal with measures which in the last analysis run counter to the interests of the small- and medium-sized enterprises. Or, has anyone ever heard that, when an unprofitable enterprise has been closed down, its machines, labor, and orders have been assigned to a medium or small plant? Or that the leader of an industrial ring has allotted interesting and profitable work to small and medium-sized plants and less profitable work to large-scale enterprises? It serves no purpose to talk about it. Above all, we are at war and our personal desires must end in this war. Secondly, the men who work on the so-called economic self-administration are only human . . .
There is not one sensible industrialist who will deny that the existence of large-scale enterprise is necessary and justified, and we are in full agreement with you when you write that in many important fields of production the large enterprise is the only possible solution. But it is quite different with the combine. We have all gone with open eyes through Russia and have seen the horrible result of the elimination of the independent entrepreneur. Moreover, it is uncontested that a great many products, machines, and tools can be produced technically better and more economically in the small and medium-sized enterprises. From this it follows that all forms of enterprise are of equal value and that they will continue to exist if they all receive equal and just treatment.
However, all this will be possible only after the end of the war. We believe, in spite of this, that the political leadership has, at present, an opportunity to use for its ends the whole activism and idealism, the positive constructiveness and the fanatical drive to work, the great energy and the will for unconditional self-responsibility of the small and medium entrepreneur. It could use them in the reconstruction of the East. This is where the political leadership has a great chance. At the same time, the real entrepreneur could prove that his existence is still justified.
Is it absolutely necessary that the new Russian plants, which are being built up in the form of sponsored enterprises, must again become affiliated to large combines and big enterprises? And do the responsible authorities think that employees of large-scale enterprises, theoretical economists, and lawyers, can accomplish the pioneering task facing us in a better way than we, the entrepreneurs? We believe that many industrialists who owned or managed closed-down plants and who are at present employed in large-scale enterprises would be very happy if they could further this reconstruction through their knowledge, experience, ability, and energy, while they regard their present duties as mere slave labor . . .
It may be argued that only a large-scale enterprise or combine can guarantee rapid reconstruction as it is necessary today. To this we reply that the responsible entrepreneur, through his great adaptability and his ability to adjust himself quickly to new situations, is practically always superior to the employee of large-scale enterprises. He will also be content with a much smaller staff than the employee of big industry who is used to red tape . . .
(d) Control of Shares. A decree of 26 February 1942 provided that shareholders had to register their holdings of shares acquired between 1 September 1939 and 15 March 1942, that is since the outbreak of the war, if their total market value according to quotations on 31 December 1941 exceeded Rm. 100,000. Purchases of shares after 15 March 1942 must be reported to the Reichsbank if the total value of shares acquired by a person since the outbreak of the war reaches or exceeds 100,000 Reichsmark. Registered shares and newly acquired shares of this category may be sold only after they have been offered to and refused by the Reichsbank. The Reich Minister of Economics was given the right to requisition the registered shares; payment at the official quotations of 31 December 1941 to be made in Treasury Bonds deposited with the Reichsbank and the sale of these bonds to be allowed only on good grounds. Since market prices advanced noticeably after 31 December 1941, the requisitioning would necessarily cause losses to the holders.
In June 1942 it was announced that the government would now proceed to requisition registered shares, considering each case on its merits. The acquired shares would be used to manipulate the trend of quotations or would be released in small quantities for investment purposes.
The registration affected only 5 per cent of all shares, according to official statement. The percentage of shares held in fixed possession used to be estimated at 80 per cent, and, as a rule, these holdings were not subject to registration, since it can be assumed that they were acquired before the war. It follows that the object of the measure was not to assure for the state control of the industry, but that it had in view only the speculator who wanted to escape the devaluation of the currency by purchase of equity values. In fact, the measure rather affected the small capitalist, because the acquisition of a majority holding after outbreak of the war would probably be considered justifiable. The established control of majority holders over corporations was rather strengthened by making large-scale share acquisitions impossible. On the other hand, the sale of requisitioned shares by the Reichsbank opened various possibilities to exercise favoritism, influence the distribution of control, etc. The measures resulted in a substantial reduction of the trading volume on the stock exchange, but it became necessary nevertheless to put a price stop on all share dealings inside and outside the market. This price stop was introduced on 29 September 1943. It indeed succeeded in stabilizing the quotations. The policy testifies, however, to the failure of the Dividend Surrender Decree of 1941. This decree limited dividends to 6 per cent, but allowed corporations to increase their capital and to distribute the 6 per cent on the increased capital. It was hoped that the capital increases would supply the market with new stock, would thus alleviate the scarcity of stocks and shares, and that the new shares would be taken up by private investors. This, however, did not happen. We have already shown to what extent German corporations resorted to capital increases, but the overwhelming amount of new stock was absorbed by the large shareholders and combines. Wherever there was any danger that the new shares would be taken up by private investors, no capital increases were made, especially not by I. G. Farben, navy heavy industry, electrotechnical and heavy engineering combines, or, of course, by the limited liability companies (the shares of which cannot be traded on the exchange) and the partnerships.
1. See pp. 249-51.
2. See A. Gurland, O. Kirchheimer, and F. Neumann, The Fate of Small Business in Nazi Germany (United States Senate Committee to Study Problems of American Small Business), Government Printing Office, 1943, for details on the whole problem.
3. Decree of 19 February 1940, Reichsgesetzblatt, 1, p. 395.
4. From Neue Zürcher Zeitung, 4 May 1943.
5. Deutsche Allgemeine Zeitung, 16 November 1942.