I.G. Wins the Peace

What to do about the future of I.G. became a matter of major Allied concern almost immediately after the defeat of Germany. I.G.’s crucial role in making it possible for Hitler to wage the greatest war in history for over five and a half years did not go unnoticed by the Allied leadership.

Even before Germany surrendered officially, General Eisenhower ordered an investigation of I.G.’s place in Germany’s war effort. After a detailed analysis of every facet of I.G.’s operations, from the creation and production of synthetic oil and rubber to its international cartel agreements, the investigating team concluded that I.G. was indispensable for the German war effort. Without it Hitler could never have embarked on the war or come so close to victory. 1

The report made a deep impression on Eisenhower. He decided that I.G.’s strategic position in the German economy must be broken as “one means of assuring world peace.” 2 Eisenhower’s specific recommendations would have warmed the heart of Marshal Foch, his predecessor as commander in chief of the Allied forces in World War I:

1. make I.G. plants and other assets available for reparations;
2. destroy I.G. plants used exclusively for war making purposes;
3. break up I.G.’s monopoly control by dispersing ownership of the remaining plants;
4. terminate I.G.’s interest in international cartels;
5. take over I.G.’s research programs and facilities. 3

The same day Eisenhower’s recommendations were released to the papers, the United States Army announced plans to dynamite three I.G. plants in the American zone devoted to the manufacture of smokeless powder and nitrocellulose. These factories would be “the first of many hundreds of plants . . . designated for actual destruction.” 4

By November 1945, the Allied Control Council enacted a law “to ensure that Germany will never again threaten her neighbors or the peace of the world . . . taking into consideration that I.G. Farbenindustrie knowingly and prominently engaged in building up and maintaining the German war potential.” 5

All plants and other assets of I.G. in Germany were to be seized and legal title vested in the Control Council. Control officers were to be appointed for each zone of occupation to administer the seized plants and implement Control Council policies. The objectives set forth were exactly those recommended by Eisenhower, including destruction of I.G. plants used for war purposes and dispersion of the remaining plants.

Despite the strong words of the Control Council German speculators did not seem to take the new law or the Allied plan seriously. In the three months between October 20, when Eisenhower’s recommendations about I.G. were made public, and January 20, the price of I.G. shares doubled on the Munich stock exchange. General William H. Draper, director of the economics division of the office of military government, was asked at a press conference about the skyrocketing price of the stock. He smiled wryly and remarked that the speculators must be “buying a piece of the Control Council” 6 since the council now held legal title to all I.G. assets.

A few days later, the American Military Government took a more serious view of the matter and ordered an end to all trading of I.G. securities. Any violator could receive five years in prison or a fine of $10,000. It was hoped that this move would convince German speculators that the dissolution of I.G. was to be permanent. 7 In late February 1947 the American Military Government promulgated a law that was to serve as the legal vehicle for the dissolution of I.G. in the American zone.

The “Prohibition of Excessive Concentration of German Economic Power” 8 was a sweeping antitrust law designed to prevent monopoly practices. It provided for the investigation of all German firms employing more than 10,000 persons; if any of these firms were found to represent an “excessive concentration of economic power, they were to be reorganized and broken up into a number of economic units.” 9

The first target of this law—and, as it turned out, the only one—was I.G. Farben. On June 17, U.S. Military Government decartelization chief Phiilip S. Hawkins announced that the I.G. facilities in the American zone had been broken up and established as forty-seven independent units to be run by German trustees until the final disposition of the plants. 10 By any standard, the breakup of I.G. into forty-seven parts was quite a dissolution.

Most of the German trustees had already been appointed, and they had been briefed as to widespread German business practices that were now outlawed by the new antitrust law. Prohibited were price fixing, boycotts, discrimination against any manufacturer or distributor, division of markets or field of industry, suppression of technology or invention whether patented or not, fixing of quotas, and other devices or practices in restraint of trade or production. 11

It was not long before all this fine sermonizing turned out to be too good to be true. By the middle of 1947, American foreign policy was taking a direction that was drastically to affect the decartelization program in Germany. The new point of view was expressed in a report by fourteen top American businessmen appointed by the War Department to review the U.S. Military Government’s industrial policies in Germany.

The committee of businessmen specifically attacked the decartelization law, charging that it embodied a series of controls and regulations, many of which represent economic principles quite new to the German mind and to the past industrial development of the country. Since we are now confronted with the urgent necessity of bringing about as rapidly as possible recovery of the economic life of a starving people—it is our belief that too strict adherence to the law in its administration will seriously retard this primary objective. 12 In keeping with the new attitude of the cold war, the breakup of I.G. was suspended. Nothing further happened for the duration of the Allied Control Council’s existence.

However, when the four-power military control of Germany ended in June 1949 and was replaced by the Western Allied High Commission (composed of civilians from the United States, Great Britain, and France), the stockholders of the old I.G. went into action. They formed a stockholders protective committee and demanded that instead of forty-seven separate units operated by trustees, the I.G. plants should be consolidated into three companies: Bayer, BASF, and Hoechst.

The stockholders committee further demanded that all the stock of the old I.G. Farbenindustrie be converted pro rata into the stock of the proposed three successor companies. The large stockholders of each company would be the same. To the skeptical this appeared to be an ingenious scheme for maintaining common control of each of the three companies 13 by the erstwhile major stockholders of I.G. Farben.

The stockholders committee embarked on a powerful lobbying and propaganda campaign to secure Bonn government support of their plan. During 1950 nothing was done to dispose of the I.G. units. A High Commission spokesman explained that a new, three-power Allied High Commission law must be enacted to take the place of the old, four-power Allied Control Council law before any action on I.G. could be taken.

He added that previous plans for a vast liquidation program for I.G. would have to be scrapped; the program to sell individual plants was “dead as a doornail.” The spokesman did not need to point out that the emphasis was on the cold war and the industrial recovery of Germany and not on the deconcentration of excessive economic power and demilitarization.

The new Allied High Commission Law, No. 35, “Dispersion of Assets of I.G.,” was issued in August 1950. It declared that “the Allied High Commission shall take such action as it considers necessary to accomplish the winding up of I.G. Farbenindustrie A.G. and to extinguish its juristic personality.” The company’s assets in the American, British, and French zones were to be “dispersed among such a number of economically sound and independent companies as will ensure dispersion of ownership and control and promote competition in the German chemical and related industries.”

The number of companies was not specified. An I.G. Farben liquidation committee of German nationals was to be appointed by the Allied High Commission to put the new law into effect. Any convicted war criminal was to be barred from participating either directly or indirectly in the management of any of the proposed new companies; this edict barred such prominent I.G. figures as Krauch, Schmitz, Schnitzler, Ter Meer, Jaehne, Ambros, and Buetefisch. The provisions of the new law definitely gave the impression that the old order of I.G. control had been effectively terminated.

By mid-January 1951, the Allied High Commission finally agreed to a plan for the dispersion of ownership. The 159 I.G. plants in the western zone were to be divided among nine companies: the Big Three (Bayer, BASF, and Hoechst) and six smaller firms, including Agfa, Kalle, Cassella, and Huels.

Those in Allied countries who had demanded the dissolution of I.G. “as one means of ensuring world peace” were bitterly disappointed. However, the I.G. stockholders committee also was not satisfied with the proposal. The stockholders were still insisting on the Big Three formula. In this demand they were supported by the German trustees of the I.G. plants—some of them I.G. officials from the old days—and by the Bonn government. The result was protracted negotiation between the Western Allies and the Germans. Time was on the side of the stockholders committee. Before long the Allies would be leaving.

By late 1951 the question of what to do with the smaller companies had not yet been resolved. However, there was no dispute that the Big Three should resume their pre-1926 corporate identities. In fact, these firms were being reestablished while negotiations continued between the Allied High Commission and the Germans as to what other companies were to be formed. In December the names of the boards and officials of the Big Three companies were announced. Included were many former I.G. executives, but for the time being there were no convicted war criminals among them. 14

Some Allied officials who had been involved in the decartelization program began to say openly that control seemed to be slipping from the Allies and returning to former I.G. men. They speculated that the Big Three might return to their old ways once the Allies left Germany. They also found another matter disquieting. The stock in the newly formed Big Three companies would be available to former I.G. stockholders on a priority basis. This raised the possibility that the Big Three would be owned by the same stockholders. 15 Nevertheless, no one was much inclined to prevent this situation.

Still, the Allies refused to capitulate on one point, the German demand to register the stock in the new companies only to “bearer.” They insisted that every share be registered in the name of the actual owner in order to insure against secret control. The Germans responded that registering all shares was too difficult and too expensive. But on this issue, the Allied High Commission refused to compromise. Bearer shares were prohibited.

In March 1953, the Allied High Commission finally produced a plan for the disposition of the remaining I.G. assets in West Germany. Most of the assets were transferred to the Big Three. Bayer ended up with 100 percent of Agfa. 16 Of all the smaller units, only Cassella and Huels were to survive as independent companies. The shareholders of the dissolved I.G. were to receive shares in the five successor companies in exchange for their old stock. 17

A year and a half later, in October 1954, treaties were signed in Paris terminating the occupation regime in West Germany. With the ratification by the signatory nations, the Federal Republic of Germany would soon become a sovereign and equal member of the Western Alliance. 18

Chancellor Konrad Adenauer wrote the U.S. high commissioner, James B. Conant, affirming the determination of the Federal Republic of Germany to follow the antitrust policy that had been pursued by the Allied occupation regime. 19

But not all of the occupation officials were sanguine about the effectiveness of this transfer of authority. According to a New York Times dispatch:

“United States officials acknowledge that they cannot be certain the Germans will not soon reverse the trend by reconstituting the Farben empire and other enterprises that wielded vast political and economic power in pre-war Germany.” 20

On May 5, 1955, the Federal Republic of Germany became a sovereign government, and the Allied occupation forces left. Three weeks later, 450 stockholders of the old I.G. Farben met, for the first time since the defeat of Germany, to receive a report on the past decade. They were informed by the I.G. liquidators that the formal dissolution of I.G. would not take place “for many years to come.” 21

Numerous claims on I.G.’s assets had been filed, including demands for compensation from slave laborers who had worked in the I.G. plants during the war. Moreover, the disposition of I.G.’s assets in the Soviet zone, including the huge Leuna works, had to await the reunification of East and West Germany, an uncertain and distant possibility.

In the spring of 1955 the I.G. successor companies held their first annual stockholders meeting without the benefit of Allied supervision. Bayer, exercising its new freedom, promptly revised its bylaws to permit bearer shares. Henceforth, the owners of Bayer could be anonymous. 22

This action was soon repeated by the other companies. Moreover, the successor companies did not intend to be bound by the Allied High Commission law barring convicted war criminals from executive posts. Friedrich Jaehne, a war criminal who had been sentenced at Nuremberg to a year and a half in prison, became a member of the supervisory board of Hoechst in June 1955. In September he was elected chairman. 23 In 1956 Fritz ter Meer, the only war criminal who had been convicted of both plunder and slavery, was elected chairman of the supervisory board of Bayer. 24

Prosperity was returning to the Big Three. Their profits already outstripped those of their monolithic I.G. predecessor. All three raised their annual stock dividends from nine to ten percent in 1956. The combined value of BASF, Bayer, and Hoechst stock represented over fifteen percent of the value of all stock listed on the West German stock exchange.25 At the beginning of 1956 Bayer more than tripled its capitalization.26

Three months later it acquired twenty-eight percent of Huels. According to the New York Times, one of the Farben successor companies has now become part owner of another part of the old German chemical empire. . . .

It appears then that the forces of economics are starting to draw pieces of the shattered Farben empire together.
To many observers here, last week’s developments, along with others like them in recent months, point to a coming rebirth of the cartel, the huge, monolithic industrial enterprises that dominated German business before World War II. 27

Soon the last piece, Cassella, was absorbed by Bayer. The Big Three once again merited the name. In 1977, Hoechst, BASF, and Bayer were among the thirty largest industrial companies in the world. Hoechst is the largest company in Germany. Hoechst and BASF are each larger than Du Pont; Bayer is only slightly smaller. 28

Each one is bigger than I.G. at its zenith.

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