13. Making the Case(s) for Deconcentration
In summer 1947, OMGUS got serious about building its first cases under the new law. Which dominant combines were selected first for deconcentration– and why?
Despite– or perhaps because of– the Decartelization Branch Chief’s resignation, in the summer of 1947 OMGUS appeared motivated to move forward with vigor on tackling combines. In July, for example, OMGUS stood by a November 1946 memorandum which provided that 29 listed firms needed to be “excluded” from financing under new export-import programs until they had undergone “proper reorganization and decartelization.” The new Chief of the Economics Branch had written a cable suggesting that Law 56 “superseded” the old memo, which he characterized as resulting in “contradictory directives” between the export-import program and the Decartelization Branch. Colonel Wilkinson informed him that this remained General Clay’s policy, the purpose of which was “to avoid any possibility of criticism of OMGUS for borrowing money from U.S.C.C. in order to expand the export business of the former cartels which have not yet been reorganized.”
Recap: Germany’s hyper-concentrated death star economy fueled Hitler’s rise to power and the outbreak of WWII, so U.S. postwar policy prioritized economic decentralization to parallel democratic political reforms. Yet on the ground, General William H. Draper, Jr. recruited bankers and big businessmen to run the “economic side of the occupation.” After the first two decentralization leaders resigned in frustration, an experienced investigator was brought in. Alas, forces both inside and outside military government were thwarting progress even though the military governor understood the importance of decentralization. Another Allied Power shared some blame for gridlocked negotiations. Then the midterm elections of 1946 shifted the balance of power domestically. In the summer of 1947, two leaders abruptly departed Germany: the biggest roadblock to reform and the strongest advocate for it. Without them, would reform get back on course– or further derailed? It turns out a patent lawyer’s love life might have played a role. German officials had mixed views, while some German academics developed a compatible framework, but outreach to ordinary Germans lagged.
Target Practice
In June– four months after Law No. 56 was enacted– Phillips Hawkins “was in a terrific hurry” to take action.” As he explained a few months later in an interim report directed to the Secretary of War, “[t]here are at least 69 combines in Germany today which appear to possess characteristics of illegal concentrations within the meaning of the law,” and still “others which will have to be examined.” Of course, some of those were based in the zones of other Allies. Nonetheless, “[i]n the United States Zone alone, there were [over two dozen] such combines having their headquarters or principal place of business in that Zone.”
Due to resource constraints, however, the Decartelization Branch had to focus on just a handful of initial “targets.” Hawkins’ aim was to pursue “a sufficient number of dissolution actions and trade practice cases against the most vicious violators so as to set a pattern and establish precedents which can be followed in a consistent manner by future German courts.” He also hoped “[t]o enlighten the German consuming public concerning the mass advantages of the free enterprise system to such a degree that future public sentiment in a democratic state will demand continuation of the fight against monopolistic practices.”
Hawkins tasked four Decartelization Branch teams with putting together cases against German combines. Each deconcentration team was staffed with four professionals and a secretary.
They dove in to their assignments with alacrity. Done well, these initial cases could demonstrate the viability of restructuring the German economy, quell the carping of the Economics Branch, and built trust with the German public. Besides conducting an in-depth study of each business, the teams had to come up with plans outlining specific business units and plants that should be divested.
Combines were chosen for targeting based on dominance in their industries– as well as the strength of their Nazi ties. Early on, the group considered targeting a German subsidiary of International Telephone and Telegraph (ITT). As early as 1939, “the German electrical equipment industry was concentrated into a few major corporations linked in an international cartel and by stock ownership in two major U.S. corporations”– International General Electric and ITT. Post-war interrogation of a financier revealed that ITT made “cash payments to S.S. leader Heinrich Himmler” in order to protect its investment in a German firm that made “fighter aircraft used against the United States.” ITT’s subsidiary was dropped from consideration, however, due to pressure from U.S. intelligence agencies.1
“The names… [of the combines chosen were not] released to the Germans,” Hawkins informed a superior, “as it is not desirable that the other companies gain a false feeling of immunity from the Law.”
The initial targets were:
Henschel and Sohn, a locomotive and armaments firm that made Tiger tanks for the Nazis. By the end of the war, this combine “possesse[d] the most extensive locomotive facilities on the continent of Europe, constituting between 70 and 80 percent of all Germany’s [locomotive] facilities” and “from 90 to 95 per cent of all Germany’s trolley bus manufacturing capacity.”
Excerpt from Henschel Combine Determination and Directive Robert Bosch Company, an automotive fuel injection equipment trust. The trust’s fuel injection products accounted for 50 – 80% of Germany’s production of 13 different classes of commodities, and there was evidence that the company “was an important unit in the economic warfare conducted by Germany prior to and during the war.”
Siemens & Halske, an electrical engineering combine. During the war, Siemens had contractually pushed an American firm not to grant a British aircraft-equipment firm a patent license that would enable the British Air Ministry to expand production of aircraft carburetors. Siemens also had a “gentleman’s agreement” with General Electric to maintain certain “minimum selling prices and conditions.”
Metallgesellschaft A.G., a metals combine. Former Decartelization chief James S. Martin had investigated the company while trailing troops after the war,2 and found that it had “figured quietly, but very substantially, in practically every industrial field that fell between the iron and steel industry and the chemical industry, especially in nonferrous metals and alloying materials,” with perhaps its highest German market share clocking in at 40% of Germany’s copper smelting and refining. One subsidiary had even “secured a monopoly of all raw materials from mines in Spanish Morocco,” and “[o]ther subsidiaries controlled the largest deposits of phosphate rocks in the United States.” Board members were so interlocked that “three industrial firms… and three of the big Berlin banks… as well as the Nazi ministries of the Four-Year Plan for rearmament, had supplied the over-all direction of the affairs of Metallgesellschaft.”3
Hawkins gave each team ten weeks. Three out of four reports met that deadline. Economist Charles Dilley recalled that “[t]he Siemens & Halske team was extremely plagued by personnel difficulties,” some “[p]eople didn’t get [to Germany] from the States [in time]; other people left the Branch.”4 Work on Metallgesellschaft also ran into delays after the first report. So somewhere along the way the teams picked up two other combines:
Gutehoffnungshütte (Good Hope or GHH), a steel and machinery combine. GHH was an “aggregation of approximately 300 companies” with a varied product line including “locomotives, Diesel engines, automobiles, farm machinery, stoves, wire goods and cables, rivets castings and forgings.” What GHH lacked in market shares, it made up for with the political connections: “with Nazi connections of their management and the [controlling] Haniel family members, the Good Hope companies had very little to worry about.”
Vereinigte Kugellagerfabriken AG (VKF), a “dominant manufacturer of anti-friction bearings” that was an almost wholly-owned subsidiary of Swedish company SKF.5 Such bearings were used in “[a]ircraft, trucks, automobiles, trains, military equipment, machine tools,” and so on down to “household appliances,” making them a “world necessity in this modern industrial economy.” “[M]ore than 50 per cent of the bearings produced by SKF throughout the world were made in Germany.” VKF had a history of predatory pricing both in Germany and abroad. Moreover, the U.S. Department of Justice had filed a complaint against SKF’s U.S. subsidiary for having an arrangement where the American subsidiary exported bearings to SKF overseas markets, which “enabled SKF to divert its Swedish output to Germany” while limiting bearings in the U.S. market. Addressing this combine would remedy the Industry Branch’s embarrassing decision to grant VKF a monopoly by decommissioning the plant of its largest independent competitor, Kugelfischer.
After further refinement by supervisors, the teams deemed four cases ready to launch by spring 1948.
In the meantime, there had been more personnel changes at OMGUS. In September 1947, Hawkins was promoted to Deputy Director of the Economics Division. In that capacity, Hawkins published an article in the OMGUS biweekly Information Bulletin touting the benefits of Law 56: “[t]o the millions of German workers the law will mean more and better jobs,” by promoting competition, and “[e]very housewife will benefit by lower prices.”
Hawkins appointed Richardson Bronson to replace him as head of the Decartelization Branch. Bronson, a former lawyer for DuPont without any previous training in antitrust, had worked directly for former Decartelization Branch chief Martin on overseeing a large combine that OMGUS had seized. Bronson had also served as best man at Hawkin’s wedding to Draper’s daughter. And the new deputy chief Johnston Avery, a longtime staffer in the Decartelization Branch, was an experienced DOJ antitrust lawyer who had investigated German cartels with James S. Martin before transferring to OMGUS.
How did these personnel changes impact the deconcentration program as it geared up for its first deconcentration procedures? What did the team’s Determination and Directive reports look like? And how did they propose to break up the combines?
Stay tuned for the next installment…
Primary Sources
Below is a newly-scanned primary source relevant to today’s installment:
July 1947 correspondence where Wilkinson affirms Clay’s policy of excluding certain firms from export-import financing until they had undergone “proper reorganization and decartelization."
Part of my goal with this project is to facilitate renewed scholarship into this era, so I plan to post more scans to Internet Archive—however, to minimize spoilers, I’ll wait to post some of them until later in the series. I’ll also provide a list of some excellent secondary sources.
Due to (comparatively minor) war damage, “[t]o reach the financial records and the files of the company’s directors, we had to scramble up a ladder to the roof, and walk on improvised planks laid across the rafters under the ride-pole.”
Two board directors were eventually convicted as war criminals.
Thus, this was not a case of the fourth team simply enjoying the “whooshing sound.”
“Anti-friction bearings are generally used between a shaft and a rotating body, such as an automobile axle and wheel.”