Wednesday, January 25, 2006

Review Part Seven: Germany's War Machine Economy and What It Means to MNCs

Review Part Seven: Germany's War Machine Economy and What It Means to MNCs (War and Reconstruction 1940-1950) The European Economy 1914-2000 (Aldcroft, 4th Edition)

The advantages of nationalism were not lost on several German business and political leaders during the period following the 1929 crash. Their brutal strength and seeming unity of purpose in the early 1930s was grown out of the results of the economic meltdown in Germany which rendered nearly half the working population unemployed. Half of the workers in Germany were thus desperate to escape their circumstances of poverty, penury, and idleness. One cannot forgive the fact that their collective sense of responsibility was not inner directed. In that path, ideologues and cultural value systems had helped pave the way to a group belief that their culture was in many ways superior to all others far before Hitler and Nazism came on the scene. A collective resentment of war reparations and the abiding of treaties and pacts was also a heavy cultural influence on the extensions to power of dictatorship and its leaders of racial hatred.

The Jews of Europe had long been an easy target for the vilification of those less fortunate than they had been, particularly in areas of business and finance, particularly in the industrially developed world. However, being that large proportions of Jews lived and worked in the less industrially developed portions of Eastern Europe as well is indicative that their being targeted for ethnic cleansing was an international effort achieved under the same standards of efficiency which the Nazis employed in their reconstruction and recovery efforts. As one may gather from a reading of Aldcroft, the Germans experienced a truly international effort, through the expropriation of political, cultural, and industrial development in each of the nations which it brought under its control seemingly familiar domestic business methodologies if not outright military attacks.

As of 1932 the German government employed its public works to the benefit of the German working population. Aldcroft notes that the starting salvos of German recovery were financed with nearly 6 billion reichmarks of government funding. As of 1933, military expenditures rated only 3% of GNP which did not impact into a full rearmament campaign until 1934, but through which speedily, nearly the entire population was re-employed from half unemployed to under 1% unemployed. For factory workers it appears the ends justified the means, and in Nazi Germany the first purposes of power were to prove a promise to end unemployment. It was fulfilled and the leadership ensured its mandate by ensuring that effort, which is remarkable considering it was the meaningful engagement in productive income earning positions which engaged the nearly 4.5 million unemployed in a feckless faith in Hitler's leadership. It should be explored whether or not the targets of Nazi repression were similarly simply on the other side of the economic fence to begin with if one notes that Jews were not the only persecuted minorities during this period.

His abilities to swing the full forces of Germany's business community behind his objectives could not have come without the tireless ministrations of a low-key economist by the name of Walter Funk. This Walter Funk was the Nazi Party's bridge mender and keeper of the media and also to the entire industrial business community. His efforts are often overlooked and under-regarded in the case of economic development strategies seemingly first employed in Germany to which the ends of a military machine economy were uniquely first evident as Aldcroft notes.

As of 1936 the military production lines in Germany were gaining momentum and in full swing through 1937-38, government figures tell the tale in statistical formations through the diversion of consumer capital to government determined schedules and investments so that by 1939 fully 23% of Germany's production capacity was military and government determined in nature. A figure of 90 billion reichmarks is presented as total capital investment from 1933 to 1939 which would represent again the entire year's income in 1938 dollars for the entire country.

It is simply mind-boggling to imagine how clearly underestimated were these ties between such unprecedented productivity gains and the personal commitments to which each worker on each line of production had made to the leadership of such an enterprise. An evidently kind father of bread, clothing, and housing to the masses. Among Allied nations, the perceived kindness of military leadership had slipped and fallen from production capacities out of necessity, not only to reconstruct shattered economic patterns of transnational trade from 1913 to 1928, but also to rebuild the individual consumer patterns of individual workers in democratic societies, buyers, and sellers of the products which were made available to domestic free market trade. No other government had approached the real losses of domestic capacity in this dangerous a manner and for good reason. But uniquely, as Aldcroft has related, Germany was in a position to dominate Europe due to its new found industrial capacities, and its close proximities to less industrially endowed neighbour states also prone to dictatorial regimes. Their alternatives to trade with Germany, and the accompanying links which guarranteed their co-option into its sphere were limited. Through which, the success of the German government's position was determined by its becoming the largest net investor and net consumer in its own domestic economy and by de facto trade with that of its neighbour trading states.

This was achieved by the successful diversion of much of Germany's private resources to public pursuits through wage and price controls, taxes and attractive savings plans which effectively diverted large proportions of consumer incomes into the maws of the first real war machine built by man from more diverse humble beginnings. Aldcroft notes that munitions and war materiel equalled work for the German population. So quite simply their enticement into the Nazi system was fully supported by the trade networks which Eastern European nations readily provided them. For the eastern borders of Europe were being patrolled by another kind of predator maw economy and its name was the Russian Bear. Germany's products were available to nations like Hungary, Czechslovakia, Austria, Yugoslavia, and even Latin America in exchange for bilateral non-currency based bartering arrangements which fired Germany's desire to acquire raw materials through tax write-off benefits and reduced borrowing requirements which effectively lowered their financial demands for investment by 25% only to increase their production and extend their economic suction-cupped tentacles.

It was a startlingly divergent path to economic recovery among western nations, but it makes sense in terms of full exploitations of competitive advantages utilized some say excessively by multinational corporations today. Germany was an industrial powerhouse in Europe among several competitors in an international trading world which had shut its doors to foreign competition through several domestic measures following the 1929 crash. Its own population could not consume what it chose to produce and sell. A nation seeking to employ based on export trade in a world closed to such trade, located directly adjacent to primarily agrarian economies with high demands for industrial products, able to offer produce and food supplies to factory and worker in exchange for effectively underwriting Germany's further expansion of that relationship. Germany as a parisite expanded so rapidly through transporation and technological evolutions, such as road and motorized networks of scale never seen previously in Europe.

In direct contrast its slow-poke trading partners continued to remain in a rail transport mode of slow and inefficient logistical delivery cycles, continued to harvest crops and foodstuffs under less than up to date, efficient, or highest margin conditions. This environment sustained Germany's economic and super-charged amoeba. It would be interesting to note that had not Germany itself industrially turned into a militarily expansive mode, it would be hard to say what position its economy would hold in the world today. As it stood in the 1930s, it was producing war materiel not only for its own military use but for those of its neighbours through favourable exchange currency avoidance with bilateral exports of industrial product for purely raw materials. As this economic cycle grew, so too did the political chains.

This was the economic success of the German Economic Sphere. For its neighbours, agriculture represented the bulk of their exports. Following the 1929 collapse product prices fell from a half to a third of their former commodities prices. With the exception of Czechslovakia where 70% of exports were manufactured goods, as well as perhaps Poland which had significant industrial capacities, the vast majority of neighbouring Eastern European countries depended upon farm based commodities for their export trade. The region was in a ruinous empty bowl state following 1929 as Aldcroft notes, farmers represented a vast majority of business people, on average holding under 5 hectares of fields each, small-time, gumby and pokey economic players of whom each was indebted to creditors in this period to nearly 80-90% of their individually drowning collective annual income.

These nations wobbled and teetered in the realms of bankruptcy in multitudes of tiny vertical trade towers, and as such, were trading partners extremely easy to manipulate economically, similarly to having nearly half of your working population unemployed. Such workers or sellers easily bend and rush to buyer or employer dictates and pressures out of desperate economic need, of which the Nazis intended and did use to full advantage and great detriment. A similar trend might be noted in the dictates of hiring practices and employment in developed world businesses today as more and more and more of the educated and trained find themselves sloughed off through greater and greater flexiblized labour normatives.

Trade in Eastern Europe following 1929 had fallen to 40% of its previous export volumes. An overwhelming reliance on foreign credit left these markets in an extremely exposed state, regardless of the fact that the German foxes really were entering an Eastern European chicken house. Interest payments to service these debts were nearly a third of collective national revenues for each of these states. Each chicken, pig, and lean bony cow, each grain of durham wheat was being counted and recounted. These farmers had already seemingly willingly jumped into the cooking pots out of their own lack of industrial or financial resources with no means by which to grow these. So there were only two obvious choices of beds for them to jump into anyway, those forged in Germany or those forged in Russia. That Germany got there first could probably be credited to Russian five year plans in which "Fiddler on the Roof" and his friends were being seperated fron their individual assets to the same ends, which was also a massive brutal undertaking.

Aldcroft relates that as of 1933, Hungary itself was fencing off imports with special permits issuances only, free trade there was abandoned for the same reason it was everywhere else, namely to boost exports mostly dependent on government subsidies. Even Germany itself was subsidizing up to 60% of its export trade. No surprise then, Germany could then support prices set on favourable terms and generate massive import surpluses in an interest-free financing of its total production capacity and fund further expansion. So these raw materials imports were gained without foreign exchange demands which easily supported export of secondary products for more primary imports. The roles were reversed in Germany's trading partners however as were the benefits of the trade. Bilateral trade agreements slipped through pressures and blockages, barriers through which every nation attempted to maintain itself. But the rates of import and export reliance on Germany among many nations is revealed as the real blitkrieg according to Aldcroft. In Bulgaria, export trade volumes to Germany increased from 36 to 71% , in Romania 17-43%, in Yugoslavia 14 to 46%, in Hungary 11-52% all over the period 1933-1939.

These kinds of economic alignments really define collective nationalist reactions to the 1929 crash. In and among these nations the shifts often not industrial in nature simply reorganized state ownership of formerly private agricultural spheres to boost profits. But as Aldcroft notes Poland's recovery involved a heavy government ownership strategy particularly in the Warsaw, Krakow, Lwow industrial triangle which would deliver majority government holdings in armourments production, chemicals, and exchange stocks in iron (4%), metals, and oil (20%), seeing 100 fully state-owned companies and fifty majority holdings in stock traded corporations as overall policy during this period. While this looks and smells like Communism, Poland was not at this time. State run policies were not completely successful as Aldcroft notes, even Russian plans similarly faltered. Productivity in state enterprise always appears low, resources were limited, restrictive exchange policies and high taxes ensured free market noncompetitiveness. These businesses were created in an age of restrictive international trade barriers and perhaps that is where such systems have always belonged.

As for the farming nations, Aldcroft writes that mechanisations, improved fertilizers, and scale of production little increased yields again due to the small sizes of average holdings which could not achieve economies of scale necessary for real gains to be made through export trade profits, aside from providing all of the cards which the Germans seemed to be holding. In addition, these gimpy economic units were capital-starved, over-populated, with low wages and small proportions of potential industrial production growth, seemingly locked in to similar trade patterns with a developed nation as many remain of the earth today. Eastern European collective income growth as Aldcroft states was just too damn slow from the 1910-1930s period as in the Balkans today perhaps with the exclusion of Slovenia. Production rates could not exceed local demands or stimulate new growth. Their economic portion of the trading pie had not really developed beyond 1913.

As of Europe as a whole, Aldcroft calculates that domestic outputs continued to remain to the tune of two-thirds of total in just three countries. The U.K., Germany, and France. These disparities ensured Germany's success in its recovery efforts and economic take-over of South Eastern Europe. As further reading will prove, such an arrangment of trade in Eastern Europe was what Germany required to get the quick upper hand over its competitors in the west and maintaining such a master and slave relationship economically among its future empire states was again the only route to its recovery and growth available. That it took on a dictator and military death wish as a nation to meet its short-term economic needs with long-term horrendous international nightmare was carried by an economist in the wings.
Thus "Funking Blitkrieg".

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