Origin of German Chemical Monopolies.—The completeness of our organic chemical deficiencies, and the thorough way in which we had failed to develop organic chemical industries, creates such a sharp impression, when thrown into relief by the outbreak of war, that we are led to inquire into the methods by which these monopolies were established. Let us admit, without any further delay, that Germany owed the origin and assertion of these monopolies in part to her scientific development, fostered by a vigorous policy of applying scientific research to industrial enterprise. So far as her success depended upon such factors, it merits our unqualified admiration and envy. But stimulating these developments was a very definite general and commercial policy which requires close examination.
German Chemical Commercial Policy;—Evidence of the U.S.A. Alien Property Custodian.—Giving every credit to German initiative and thoroughness in the application of science to industry, we are still prompted to inquire how this monopoly came to be so complete. We can rely on more than mere rumour, when examining the commercial methods of the great I.G. The American Alien Property Custodian, Mr. Mitchell Palmer, and, later, Mr. Francis P. Garvan, had occasion and opportunity to make minute examination of the German dye agencies in America in connection with general investigations on the reorganisation of alien property. Their revelations truly merit the term, showing remarkably clearly the unity of conception, determination of purpose, and co-operation with the German Government which characterised the policy of the I.G.
Pre-war American Situation.—Let us briefly consider the relevant aspects of the pre-war American situation. According to fairly well-known facts, confirmed by the reports of the two American officials mentioned above, the American pre-war organic chemical industry consisted of little more than a series of small assembling plants. Although enormous supplies of coal-tar products were available, yet the dye intermediates derived from them were not made in America, but imported from Germany. After various attempts to establish the dye industry, it seemed, at one time, about 1880, to have definitely taken root, but, within the space of five years, there were only four dye producing establishments remaining.
German Price-cutting;—Salicylic Acid.—In every instance the manufacture was almost immediately brought to an end by German price-cutting. The same source reveals the direct and indirect methods used by Germany to prevent, at all costs, the development of an independent organic chemical industry. There are many pointed examples of the direct method, and we will glance at the case of salicylic acid. This is a very important chemical, used not only for certain important drugs but also as in intermediate for dyes and photographic chemicals. In 1903 the United States possessed five manufacturers of this product. In ten years' time three of these had failed, and one of the survivors was a mere branch of a German house. During this fatal ten years, the product was being sold in that country at a price twenty-five per cent. lower than in Germany. The manipulation of the prices of the other products of the German monopoly enabled them, by such methods, to maintain it. Many other examples, including such important products as bromine, oxalic acid, and aniline, could be quoted to show the results of the German price-cutting policy. The direct significance of bromine for chemical warfare must be borne in mind.
Full Line Forcing.—Besides directly attacking the production of raw materials and intermediates, the Germans used an indirect method which has been described as "full line forcing." They were the sole producers of certain specialities, such as alizarine colours, anthracene colours, and synthetic indigo. These were indispensable to the textile manufacturers, and by refusing to supply them, except to houses which would buy their other supplies from German manufacturers, the latter could squeeze out home producers of simple dyes, however efficient their production.
Bribery and Corruption;—German Patent Policy.—The dyeing industry was peculiarly susceptible to corruption. It was so simple for the head dyer of a mill to show a partiality for dyes from any particular source of supply. The American Alien Property Custodian very frankly tells us[1]: "The methods of the great German houses in carrying on their business in this country were from the first honeycombed with corruption. Bribery of dyers was carried on almost universally on a large scale. . . . So extensive was this corruption that I came across only one American consumer that had escaped its ill effects." Such were hardly the methods of decent commercial competition, although it appears that the strong patriotic sense of the German was able to justify, in his own eyes, what might be regarded as reprehensible methods. This is not a question of bringing up old reproaches, but merely of coldly examining facts. We have already referred to their patent policy, whereby thousands of patents were taken out, the only value of many of them, being to cramp the productive initiative of possible rivals. Professor Stieglitz explains how the German patents were useless in developing large scale manufacture. "The patent protects the product, but does not reveal the method." Sir William Pope has also brought out this point, showing how the Germans use thousands of bogus patents to protect their chemical industry. He tells us,[1b] "In fact, some German patents are drawn up for the purpose of discouraging investigation by more practical methods; thus, any one who attempted to repeat the method for manufacturing a dyestuff protected by Salzman & Kruger in the German patent No. 12,096 would be pretty certain to kill himself during the operation."
[1] Alien Property Custodian Report, 1919, p. 34.
[1b] Science and the Nation. A. C. Seward, F.R.S. Cambridge University Press, 1917.
Propaganda and Information;—Espionage; Activities of the Dye Agencies.—But another method which was used in this commercial offensive, to which we must draw further attention, dealt with propaganda and information. In his comprehensive report, the American Men Property Custodian examines a number of large industries and reveals how the German interest in these industries through their American ramifications were active, "sowing the seeds of German propaganda," and collecting information, both commercial and military, for the use of the German Government and its agents. Quoting again from this report, "In many of the large German-owned companies taken over by the Alien Property Custodian, after investigation it was found that espionage was one of the chief functions. Every scrap of information of commercial or military value to Germany was carefully gathered by the representatives of these concerns in this country and quickly forwarded to the home office in Germany. The German agents were particularly keen on gathering information that would be helpful to Germany's commercial warfare. Once in Germany, this information was carefully card-indexed for the use of the manufacturers. Bulletins of commercial information were also prepared and placed at their disposal. In Germany, the collection of all commercial information is under a bureau which is controlled and financed by the great German banks, such as the Dresdner, Disconto, and Reichs Bank." This statement is not mere generalisation, but is backed by innumerable examples. Thus we find a light railway equipment manufacturer, a projectile company, a wireless company, various magneto companies, insurance companies, and German shipping companies, all engaged in spreading propaganda, acquiring information, and influencing public opinion in favour of Germany. But, undoubtedly more important than any of these, and taking a leading part in the general scheme, was the German dye organisation. The American publications make this quite clear. Mr. Garvan goes so far as to say: "As long as you were supplied by the big six (i.e. the I.G.), your business had no secret unknown to Berlin. In Berlin you will find the card index system which recites every fact connected with each and every one of your sources which can be of any possible value to your rivals over there." Referring to assistance rendered by various American and Allied departments, including Military, Naval, and War Trade Intelligence, we learn from the same sources: "All these bodies worked in close co-operation and their mutual assistance was of inestimable value. Information derived from these sources demonstrated that the chemical industry was a natural centre for espionage and that this had been true long before we entered the war—indeed, before the war began. The relation between the German Government and the great German chemical houses was so close that representatives of the industry were naturally almost direct representatives of the Government, and their work in this country gave them unequalled opportunities for examining our industries from within."
With the outbreak of war, this organisation became more clearly defined. It was, perhaps, difficult before the war to know where to draw the line between purely commercial and actual governmental German activities. The outbreak of war left no room for doubt. The German dye agencies became, at once, the active agents of their Government in various schemes, the nature of which we shall outline, and their "information" functions became very definitely describable as espionage.