The Third Reich

The Third Reich: Role of IBM and Ford Compared

KRISTIN TIMM
Copyright Kristen Timm 2001

Introduction
In 1942, when Iwanowa was seventeen years old, Nazi troops abducted her and transported her to Germany with about 2000 other adolescents. Once in Germany, Ford Werke purchased Iwanowa, and was transported to work in Ford Werke’s plant in Cologne. From 1942 until 1945, Iwanowa was forced to perform heavy labor for Ford Werke and was housed with sixty-five other slave laborers in a hut without heat, running water, or sewage facilities.21
During the 1930s and 1940s, Germany was a place of organized chaos. Adolf Hitler had a vision of a united Germany that ruled all of Europe. His focus was on politics and he annihilated anything that was in his way; everything became part of his process to overtake Europe. International Business Machines (IBM) and Ford Motor Company had operations in Germany during the Nazi regime. Both companies profited from Hitler’s preparation for war through the rearmament of Germany.
History
The beginning of the 1930s was a time of global depression and economic disparity. Unemployment in many countries was at an all-time high. For many in Germany, the situation was worse because of the recent Great War. Not only did Germany have to restore its damaged economy because of the Great Depression, but also pay war reparations. After Germany lost the First World War, the winners punished the German people by making them pay for the reparations of the winning countries while trying to fund their own redevelopment. This was a sore spot for many Germans. The people democratically elected Hitler as the Chancellor of Germany in January of 1933. The people elected him based on his promises to end unemployment and create economic prosperity for everyone, especially the working class.1 Hitler used these feelings of resentment of other countries to help create a more nationalistic feeling in the Germans and to restore the people’s pride for their country. Hitler initially kept his promise of employment for everyone. In fact, at one point, there was a shortage of labor and Hitler brought in people from his conquered countries to work in German factories. He attempted to accomplish his goal of German self-sufficiency by concentrating on rearming Germany in preparation for war.2 Companies built new factories in order to build machines and parts for machines of war. The country remained in a war economy throughout Hitler’s regime, even during the time of world peace.
Hitler’s political aspirations were more important than the type of economic system German utilized. His goal was a self-sufficient Germany. The countries he conquered provided the raw materials as the means to that self-sufficiency. He hired a Minister of Economics, Hjalmar Schacht, an economist who created policies and plans to encourage growth and keep the proceeds from this growth within Germany. He set up an “elaborate network of control over German imports, exports, and foreign trade exchange transactions, and provided a new basis for Germany’s foreign trade by his barter trading [and] blocked-mark accounts.”3 The purpose of the control was to keep German money and profits in Germany so German businesses would grow. Another reason for this economic policy was that during the payment of war reparations the Reichmark (German money) was not dependable internationally currency. To control for falling currency, the economic policy controlled the exchange and export of foreign currency. The state also controlled the money of individuals, so that no one could take more than ten marks out of the country without permission from the government; foreign firms could not remove any of their assets.4 The working class saw results immediately when Hitler took power because unemployment declined, but these results were superficial. These positive results convinced more people to support Hitler. Hitler created jobs by opening new factories to continue the rearmament. To outside countries, it seemed Germany was on the path to recovery because of declining unemployment, but for the Germans this was not the case. The standard of living changed little with the new economic policies.5
Nazi Economics
Hitler’s economy does not fall into one traditional category, even though his party was the National Socialists; the state did not run every business within the German economy. Hitler believed everything including the economy was second to politics. Politics was the basis for every decision and action of Hitler. “The economy was controlled by the Government and subject to the subsidies, retrenchments, plans and controls of the Nazi regime.”6 Albeit the government was in charge of the economy, the individual companies maintained control over their own business. Closer to World War II, the Nazis dominated many of the industries.7
Managers of companies in operation in Germany maintained good relations with Nazi officials so that they could continue to function successfully in Germany. The Nazis started an “Adolf Hitler Fund” for managers of companies to contribute to the cause of the National Socialists. 8 Starting in 1935, companies in collaboration with the Nazis, required their employees to register in labor offices. The Arbeitsbuch told who that person was, their skills and where they had worked.9 Employers would not hire anyone without this book. Before Nazi control, the workers united in trade unions to fight for their rights. The Nazis preached to the workers and gathered their support, but at the same time took away many of their rights. The Deutsche Arbeitsfront (DAF), or German Labor Front, replaced all of the trade unions and working class parties.10 With the DAF, the workers had no rights, their working conditions did not improve and wages remained low or disappeared.
IBM
Dehomag, Deutsche Holerrerith Maschinen Gesellschaft, was the German portion of the American owned IBM. The Nazis subjected all companies in Germany to the laws and policies initiated by Hitler's regime. Their main products during the 1930s and 1940s were tabulating machines. “Banks, financial institutions, and pension funds were among Dehomag’s most important clients.”11 The tabulating machines performed tasks that took humans several days and do them in several hours. The benefits of this technology for governments as well as private companies were incredible. One of the important functions of the tabulating machines was to count people in the census. The more holes the cards had, the more different items the machine could tabulate about each person.13 America, Germany, and other countries used this technology to conduct their census. Many options that had previously been too time consuming, costly, and tedious were now simpler and economical. IBM made the machines specifically for each client's specifications.
Many of the American IBM factories became aircraft and naval fire control instrument factories during the war.14 Thomas Watson, president of IBM during this time, dedicated the labor of his employees to making products for war effort. He supported his employees’ families when they went off to fight in the war and held their jobs for when they returned. His positive image in the US helped his profits. Americans expressed patriotic feelings and support for companies who assisted the war effort. With the same feeling, they boycotted businesses that collaborated with the Nazis. Watson was careful to disguise his attention to Dehomag, lest association with the Nazis might hurt his domestic business. He showed his compassionate side to America. Thomas J. Watson, Jr. says of his father’s business tactics during World War II, “Dad could have made tens of millions on this business, but that didn’t interest him. He was very sensitive about making money from war production, both on moral grounds and out of concern for IBM’s image…so he had a rule that IBM could not make more than one percent profit on munitions.”15 Even without the profits from munitions, IBM profited considerably from the war, not only from its domestic business, but also in Germany and the countries under Germany’s power. The New York Times reported that in 1941, IBM reported net earnings of $13, 217, 217 and that was after taxes and deducting $2,310,926 in blocked foreign profits.16
The Great Depression’s effect on IBM was not as strong as on other companies. IBM’s clients rented the machines and equipment rather than purchasing them. Therefore, during the depression, the clients were still responsible for their payments on the machines and IBM continued to profit.17 They continued this policy on their machines in Germany when they rented the tabulation machines to the Nazis.
The tabulating machines had a greater impact on foreign markets because IBM technology was usually a year or more ahead of the competition. 12 Dehomag was important to IBM, although the profits from Germany were not widely publicized. As a division of IBM, Dehomag paid IBM ten percent over the cost of the machines. They also paid royalties that were twenty-five percent of gross rentals. Not only Germany, but the other locations set up by Dehomag in Denmark, Norway, Sweden and Switzerland brought in money to the parent company.18 Watson demonstrated the importance of IBM international affairs by making numerous trips himself to Berlin to inspect the their offices and performance. After the United States entered the war in 1941, the US outlawed collaboration with the Nazis, which would include having businesses in the area. Americans would see an American business in Germany as supporting the economy of the enemy and sustaining their war efforts. For IBM, this meant Watson had to find another route to micromanage his operations in Nazi Germany. He continued to monitor the actions of Dehomag through IBM’s Swiss office.19
Ford Motor Company
Ford Motor Company produced cars and car parts. Its founder and president during the World War II era was Henry Ford. Ford had one of the first foreign auto presence in Germany when he set up his factory in 1929.20 Ford was one of the first manufacturers to use the assembly line method and it along with the five dollar work day was very profitable. In the domestic Ford plants, all civilian car production stopped in 1942 so that the government could use the factories for war production.22 Through 1934, the Ford plant in Cologne assembled parts for the Model A Ford, V-8 motor, and the “Eiffel”.23 All civilian car production stopped in Germany from 1940 until 1946. The state took over the factories and plants in order to further the war effort.
As the United States focused more on the war, the economy followed. In the United States, government contracts were the basis of the income of Ford. It did not dampen the profits of Ford because the United States needed a great deal of devices to continue the war. Ford had no problem profiting from the war. His goal was to make the most money. One of his ways to make more money was the implementation of the five and then six-dollar day. The idea was to make the employees less stressed by the pressure of providing for a family because with the five-dollar day, they made enough money to clothe and feed their families. Without the outside stress, they could focus more attention on the work that they did in the factory. This was a profitable venture for Ford. The company’s assets were $1,009,092,488 in 1943 up from $813,079,878 in 1942.24
For Ford Werke, the German subsidiary, the problem was winning the government contracts. Being an American company, Ford found it hard and almost impossible to acquire governmental contracts because the German state wanted to sponsor German businesses. From 1920 to 1936, the number of automakers in Germany fell drastically. Two of the thirteen remaining companies were American owned, including Ford. One reason that Ford was able to remain in Germany is that Hitler used many of Ford’s ideas when Hitler wrote “Mein Kampf.” “It was America versus Hitler; and behind America, among others, stood Mr. Ford. Thanks to him and the mass production methods he had pioneered, America was able to match machine for machine against the most formidable threat that had yet appeared to darken history.”30 Hitler established similar practices to Ford to make his factories more efficient. Hitler needed the technology to compete with American technology. Another reason for Ford’s continued presence in Germany is that Hitler believed the auto industry was a driving force behind the growing economy.25 Even though Hitler was a fan of Henry Ford, the battle to keep an enemy company’s profit in Germany was hard. Until 1931, the German economy was remaking itself and becoming more profitable. In 1931, the system collapsed and many companies including Ford began to lose a great deal of money. Part of the problem for Ford was that it was not German owned and imported many of its parts from other areas. The state put an end to importing finished products in 1933 by issuing “certificates of German origin.”26 The certificate endorsed products made in Germany and without it the German people would not buy the products. It could cause a foreign business to fail.
Ford’s investment in a new market, Germany, was a good idea based on their technology and the room for growth and development in the market. It created a strong source of income for the parent company in the United States. Then the war began. Evidence demonstrates that Ford wanted to continue its presence in Germany despite the opposition by several people within the company and disapproval of the Nazis. The net losses for Ford Werke were more than six million Reichmarks in 1932 and even more in 1933.27 However, they fought hard to maintain their plant in Cologne and continued to manufacture products until the state took it over in 1934.
Comparisons
The comparison between the activity of IBM and Ford in Germany during the Third Reich reveals several features of the global system and society. In several ways, each company used Hitler and his regime to further their own capitalist desires. IBM and Ford expanded their business while using Hitler, although they had different techniques. Hitler was a master of manipulation and used both companies to further his regime. He used each company’s technology in similar ways and with different outcomes-. The way in which these companies function above national boundaries demonstrates a need for a global polity; it also demonstrates the power of international companies.
IBM and Ford use Hitler
Henry Ford and Thomas Watson, Sr. were men who believed in profit. In many instances, they were willing to gain profits while ignoring the effects of their actions. One of the only things that would hinder their drive for profit was the view of the buying public. When their actions created a problem among their consumers, it could cause sales to decrease and therefore defeat the original goal. One example of this is both men’s actions in Germany during the Second World War. Both men expanded their business to Germany before the start of the war. As Hitler’s reputation spread, the people in America became restless. When America entered the war, people began to demonstrate against and boycott any companies that associated with Hitler and Germany. This presented Watson and Ford with a problem because they wanted to remain in Germany. Watson wanted to remain because he was making a profit from the Nazis and his business in Europe was expanding. Ford wanted to remain, probably because he knew the German market would again be profitable after the war. For whatever reason, both companies remained in Germany and remained active even after America entered the war. To avoid harming their image with Americans and having their profits diminished, they found other means to conduct their business. The American offices of IBM maintained direct contact with their Swiss offices that monitored the steps of Dehomag in Germany. Ford continued direct communications with Ford Werke until 1934 when the Nazis took over the operation of the plants. Some Ford officials remained in Germany, but Ford denies any knowledge of the activities within the plants.
Hitler’s regime provided the base for the companies’ business. IBM and Ford needed a market and Hitler provided the market for their products. Before Hitler even came to power, he had plans to rule all of Europe. In order to do it, he knew he would have to fight wars. Once in power, he set his plan in to action by beginning rearmament. Rearmament created a need for companies and workers. IBM and Ford provided and at the same time used the Nazis’ creation of new industries to make a profit.
The difference between the way IBM and Ford used Hitler their area of focus. Ford focused it resources on the new market created by the rearmament. Their central concentration was German consumers. They used the slave labor created when Hitler took over Poland and other countries. Their product, cars, was for the German people and their main source of income during Ford’s first years in Germany was from car sales. Later, the focus shifted to acquiring governmental contracts and support. It was vital for a company to have the backing of the Third Reich to ensure the authenticity of the products. The governmental contracts were more important once Nazis took restricted control of the factories. Nevertheless, in the beginning, the company concentrated on the general public.
IBM’s focus was on government contracts from the beginning. The Nazis needed help in taking a census and categorizing all German citizens. IBM was the answer to the problem. They used Hitler and Germany’s lack of technology to enter a new market. After Hitler completed the census using the IBM tabulating machines, he needed the organizational power of the machines to make the trains and concentration camps run efficiently.28 Hitler was providing the opportunity to make money and Watson and IBM could not ignore it.
Both companies were in Germany to make a profit. Both used the state to further their power in Germany. The United States tried to restrict contact, but both international companies had too much power and capital for one state to control. The implication of this is the need for more global polity. States working together to control interstate commerce would restrict the actions of international companies. These companies would no longer be free to follow capital, but required to adhere to a global code of laws.
Hitler uses IBM and Ford
Hitler used IBM and Ford for his own interests. Not only did he use the companies and their status, but also their resources to enhance the German economy and in turn advance his regime. Hitler had similar plans for both companies and the economy. At the same time, each company filled a distinctive need for his political movement. National Socialism used modern industries and technologies for political gain.
Together, Hitler used Ford and IBM to help the German economy prosper. They were well-known companies who helped legitimize Hitler’s reign before the war. IBM and Ford established a good name for themselves in the domestic and global market. States and consumers recognized their names as companies of worth and moral. When IBM and Ford initiated their business in Germany, they validated Hitler’s political movement. Both companies brought enough capital to sustain them in hard economic times. The parent company in the United State was making enough in the US and other ally countries to support the German division when the German economy began to fall. One problem with attracting foreign companies was that they would export the majority of their profits to the home country of the company. IBM and Ford would send a good portion of their profits back to America. Part of Hitler’s plan was to create a pure Aryan and German society. He discouraged foreign companies, but knew he needed them to stabilize the economy. The stipulation he put on their production was that profits remained in Germany and he limited imports of finished products. Hitler blocked companies from transferring funds out of the country and prevented them from changing their Reichmarks into other currency.
Hitler used Ford and took advantage of him and the company in several ways. First, Ford was an innovator in the field of management and factory production. Hitler implemented many of these ideas in his government and imposed these ideas on other factory operators. The assembly line was one way that factories were more efficient. “Thanks to [Mr. Ford] and the mass production methods he had pioneered, America was able to match machine for machine against Hitler” Ford had made his production ideas available in print and established his plants in Germany providing Hitler with the same technology used in America. In essence, the United States competed against its own technology when it fought to keep up with German military production.
IBM also had original technology that it was willing to offer to the Nazis, on a limited basis for a profit. IBM leased its machines to the Third Reich (and maintained them). Watson kept close contact with the workers in Germany to ensure his patents. He wanted to accumulate all of the profit to which he was entitled. Hitler took advantage of IBM’s technology, as he did Ford’s, but was not allowed to completely control the operations. The Nazis used the machines to take the census and identify each of the Jews, their background and where they were located.31 The Nazis then used this information to execute their plans for extermination, where again they used the IBM machines. The concentration camps used the machines to distinguish between the different types of people there, especially the Jews. 32 IBM technology enabled the Nazis to purge Germany of its Jewish population.
Implications for the Global System
Although talk of globalization is a rather new phenomenon, globalization has been around since before World War II as seen through IBM and Ford. IBM’s technology today helps connect people throughout the world using the Internet. More interaction between people of different nationalities strengthens the global society. No polity exists to regulate the Internet internationally. People are more dependent on cars. Ford supplies the consumers with cars. The shared interest of people creates the global society.
The problem is that, until a few years ago, there were few restrictions on international companies. One state did not check the activities of a company in another state because that would violate the sovereignty of the checked state. IBM is an example of an unregulated business during WWII. Even after the United States restricted trade with Germany, IBM continued its business there through the Swiss and bypassed the US. In that way, it profited from both sides. IBM was able to use both the United States and Germany to further its goal of obtaining the most profit by whatever means necessary. Germany and the United States used Ford effectively to produce products for war. Both countries used Ford’s factory management techniques and technology to enhance their own factories.
Globalization today is more extensive than fifty years ago. Capital is more mobile and harder to control. History reveals that globalization existed during the World War II era. The absence of an international polity allowed Ford and IBM to dominate two markets and operate over national boundaries. The United States tried to stop cooperation with the Nazis, but without a global polity, IBM found a way to continue its work in Germany. The lack of a global polity allowed Ford to continue to run its factories in Germany and America that were working against each other. Ford profited from both sides of the war.
Conclusion
IBM and Ford’s activities during World War II are justification for a global polity. Both companies manipulated the governments of Germany and America. Ford’s desire for capital drove his business decisions. He decided to open factories in enemy territory during a war. IBM also used its hunger for profit to decide its business actions. It aided Hitler’s schemes to create a master race. Both companies used Hitler to increase their profits. Hitler used their need for assets to manipulate their technology for his own purposes. A global society created by technology has created a need for a global polity. The global polity should regulate international companies and their business above state lines.

Notes
1. Marshall Dill, Jr., Germany: A Modern History (Ann Arbor: The University of Michigan Press, 1961), 359-362.

2. Alan Bullock, Hitler, A Study in Tyranny (New York: Harper, 1964), 356-7.

3. Bullock, 412.

4. Marshall, 359.

5. Bullock, 357.

6. Karl Bracher, The German Dictatorship (New York: Praeger Publishers, 1970), 333.

7. Marshall, 361.

8. Bracher, 335.

9. Bracher, 339.

10. Max H. Kele, Nazis and Workers (Chapel Hill: The University of North Carolina Press, 1972), 3.

11. Edwin Black, IBM and the Holocaust (New York: Crown Publishers, 2001), 113.

12. Richard T. DeLamarter, Big Blue (New York: Dodd, Mead and Company, 1986), 156.
13. Black, 58.
14. Emerson W. Pugh, Building IBM (Cambridge: The MIT Press, 1995), 90.
15. Thomas J. Watson, Jr., Father, Son, and Company: My Life at IBM and Beyond (New York: Bantom Books, 1990), 113.
16.New York Times, 25 October 1941, page 25, column 4.
17. Pugh, 53.
18. Pugh, 18.
19. Black, 10.
20. “GM, Ford deny collaboration with Nazis during WWII,” CNN.com, 3 November 1998,
<http://www.cnn.com/US/9811/30/autos.holocaust/ >(11 May 2001).
21. Darcie L. Christopher, Jus Cogens, Reparations Agreements, and Holocaust Slave
Labor Litigation, Law and Policy in International Business, 2000. Lexus-Nexis.
22. “Ford Heritage,” www.Ford.com, (11 May 2001).
23. Alan Nevins and Frank Hill, Ford: Expansion and Challenge 1915-1933 (New York:
Charles Scribner’s Sons, 1957), 562.
24. New York Times, 23 October 1944, page 27, column 5.
25. Davis Dyer, Malcolm S. Salter, and Alan M. Webber, Changing Alliances (Boston:
Harvard Business School Press, 1987), 83.
26. Nevins and Hill, 559.
27. Nevins and Hill, 560.
28. Black, 88.
29. Bracher, 331.
30. William Simonds, Henry Ford (Indianapolis: The Bobbs-Merrill Company, 1943), 316.
31. Black, 57-59.
32. Black, 362-363.
33. Elizabeth Amon, “Former Slave Laborers Seeking Restitution, Punitive Damages”, New
Jersey Law Journal, 7 September 1998, (11 May 2001)