The Vampire Economy

Chapter V

RAW MATERIAL DISTRIBUTION

“Wood, for example, has been used largely as ersatz for other more valuable raw materials, such as metals. But wood and timber in turn have become so scarce that the use of wood for numerous purposes not directly connected with armaments and not immediately necessary is verboten.”

AT LEAST half the time of a German manufacturer is spent on the problem of how to get scarce raw materials. These cannot be obtained without a certificate from one of the supervisory boards which distribute the available raw materials, domestic as well as foreign. Usually a manufacturer needs dozens of different materials. He cannot work without any one of them. For each one there is a special supervisory board with a different procedure, with all of which the businessman must be familiar. For example, before a builder starts work on a new building or even accepts an order for repairs, he has to make sure that the various supervisory boards will issue permits and certificates. In describing the manifold things a German builder must know, the Koelnische Zeitung came to the following conclusion:

“One necessarily needs a guide to get through the administrative labyrinth of officialdom. The normal human being needs an assistant who can explain the procedure to him.… We are experiencing an era of exuberant growth of new central authorities…

“The second Four-Year Plan should not create new authorities, but the establishment of new supreme Reich offices could not be avoided; for example, the Office for German Materials (Leader: Col. Loeb), the Office for Iron and Steel Supply (Leader: Col. von Hannecken).”1

These supervisory boards estimate how much iron, steel, copper, rubber and other raw materials are needed by the whole country in order to carry out certain production programs. They even know how great the demand is from individual industries and plants. But this knowledge is of little practical use when it is impossible to obtain an adequate supply and to regulate the demand. The supply depends on factors which are not under the control of the supervisory boards. There are other authorities, such as the Reichsbank, the Commissar for Foreign Currency, the Price Commissar, the War Department Business Council, etc., which might nullify the policy of the Raw Material Boards. The supply and demand of raw materials change according to changing conditions in home industries—and on the world market—as well as under the influence of foreign policies which are not under the control of the commissars and supervisory boards. They might calculate at best how large a quantity of a certain raw material is actually available on the market and how much is needed in order to satisfy the most urgent and immediate demands. However, this is somewhat theoretical, for there is no way of measuring how urgent a demand is.

Many raw materials which are scarce in Germany are being imported in greater quantities than at any time before. During 1929, a year of prosperity, when barter trade was unknown, German industry had reached a high level of production. Yet in 1938 Germany had a net import of 30 per cent more iron ore than in 1929, 143 per cent more lead ore, 330 per cent more chrome ore, 50 per cent more copper ore, 140 per cent more nickel ore, 70 per cent more raw copper, 24 per cent more other copper, 62 per cent more nickel, 26 per cent more flax, 76 per cent more hemp, and so on. The greater part of these raw material imports is needed for armaments.

GERMAN IMPORTS OF RAW MATERIALS
(In thousand metric tons)

(Figures from the official German foreign trade statistics)

Until just a few years ago, Germany’s iron and steel industries were able to export large quantities of iron and steel after having satisfied the domestic demand. Since then, production has greatly increased, exports have declined, yet iron and steel are as scarce in Germany today as are foreign raw materials because of the gigantic armaments program.

Scarce raw materials are not distributed according to productive capacity, consumption or past production. Conditions may have changed in the sphere of production and consumption. Peacetime articles which were previously in demand may very well be considered of minor importance today. A new measure for estimating the urgency of any given demand has to be found. Therefore, “urgency certificates” are issued which entitle the holder to the privilege of a special supply from producers or dealers. These certificates are often graduated according to different degrees or urgency or “national interest.” There are certain categories of demand which are always privileged: for example, demands for the construction of army, State and Party buildings, for fortification work and war supplies, and for export requirements. In the next category are usually to be found buildings sponsored or recommended by the Four-Year Plan Commission and by other State authorities. There are general rules as to the priority of other demands. Decisions as to the distribution of raw materials are often subject to later changes dictated by new policies or unforeseen conditions. An identical general trend, however, prevails in all fields of raw material distribution.

At first the State intervened only in particular emergency situations which seemed temporary. The private raw material syndicates or producers were instructed to give preference to customers who were in possession of urgency certificates. When the number of urgency certificates exceeded the quantity of raw materials available, special or preferential urgency certificates were issued. Firms which were unable to obtain certificates had to be satisfied with what they could get after the certified demand had been filled. This right of “free” purchase often meant nothing, especially to those who did no direct work on armaments, Party buildings, etc. This led to the introduction of “control numbers” for firms which had obtained certificates for iron and steel supplies, and quota numbers for individual firms with preferential and special urgency certificates.

Factors which are decisive for measuring the degree of urgency vary according to circumstances. During the first period of the Four-Year Plan, Party buildings or armaments production had preference on the schedule. Four-Year Plan projects for production of substitute raw materials and exports ranked second. In 1939 exports and armaments were given preference even over Party buildings.

Theory and practice, however, are far apart, especially under a system where a huge bureaucracy exists and “private initiative” tries to make official rules conform to personal and business interests. Realities have a way of peeping out from behind the façade of rules and regulations. There are many loopholes in the bureaucratic system through which private and individual interests can modify the distribution of raw materials.

Heads of the gigantic bureaucratic organizations have difficulty in controlling the demand and the urgency of the requests. “Private initiative” upsets their efforts. A whole army of investigators and office workers is engaged in checking up demands for raw material, future stocks and new requirements, with the result that a steady stream of complaints against decisions rendered arrives every day. The volume of daily or weekly applications does not indicate what proportion of the requests are genuine, nor how much they may have been purposely inflated. An extra staff of thousands of officials is necessary to investigate these cases. Millions of questionnaires are sent out in order to get a true picture of demands, stocks, etc. Questionnaires and statistical reports of thousands of firms are collected and catalogued. A vast number of office workers labors over them in order to calculate normal requirements, the volume of demand, and other figures necessary for getting a picture of the market situation. And what has been the result of all this tremendous bureaucratic work? The “urgent” demands do not correspond to the real needs and render it impossible to ascertain which cases are truly urgent and which requests should be granted first.

It is impossible for the raw material supervisory boards to meet the most important requirement for effective control and organization—issuance of purchasing permits or certificates in accordance with the quantity of raw materials actually available. The supervisory boards have neither the knowledge nor the means to adjust demand to supply. They are compelled to grant certificates according to arbitrary schedules of “urgency,” only to discover when it is too late that the certificates issued are for a quantity of raw materials far surpassing the supply. Then an avalanche of complaints arrives, sent in by firms which have made strenuous efforts to obtain urgency certificates, only to find themselves in possession of sheets of paper with the seal of the authorities, but with no way of obtaining the actual raw materials.

Many special decrees have been issued, modified and modified again—all of them dealing with emergency situations and all attempting to bring order into this “organized disorder.”

The scarcity of iron and steel, for instance, is felt perhaps more than that of any other raw material, in spite of the fact that Germany is the greatest iron and steel producer in Europe, and the world’s largest after the U.S.A. But from the beginning it was impossible to examine every single demand for a material necessary to all industries. Therefore certain quotas were decided on for each industry. But this system did not work satisfactorily because the supply did not correspond to the sum total of the quotas. Fortuitous circumstances and special connections determined whether or not a firm could obtain its quota of iron and steel. Many firms, on the other hand, succeeded in getting more than their allotment; there are always individuals or companies willing to sell scarce raw materials secretly—in exchange for some other scarce raw material. A direct barter of scarce raw materials, without the knowledge and permission of the authorities, circumvents State control and upsets the plan; but such arrangements are quite frequent. The “contact” man who is working for the firm must be versed in such practices. He not only has to know the decrees, laws, and State authorities; he must also know how to circumvent them.

This internal barter system has attained considerable proportions. To a certain extent, it has even been legalized and encouraged. The Reich Association of the German Textile Industry, for example, organized an “exchange service for raw materials.” A circular of November 5, 1937, informed its members:

“The need … to make available all existing raw materials has caused us to organize a raw material exchange service. … If for some reason a firm does not finish a repair job although repair materials have already been supplied (lumber, fittings, iron parts, etc.), it would be economically unjustifiable not to utilize these materials.…”

This exchange service of group organizations competes with private “contact men” or agents who arrange barter contracts among individual firms.

The commissar in charge of the supply of iron and steel sent many circulars to industrialists blaming them for and warning them against the use of non-quota iron and steel, as well as against exceeding their quotas. He appealed to their “national consciousness,” pointed out the disadvantages to those firms that could not obtain their share and, finally, threatened industrialists with heavy penalties should they disregard State decrees. The firms were advised to accept new orders for manufactured articles only if and when they knew whether they could obtain sufficient iron and steel within the quota. Firms may even insist that a company desiring delivery of a certain machine should transfer to them sufficient iron and steel out of its own supply to manufacture the machine.

The following circular illustrates how raw material is distributed:

“To all members of the Building Trade Guild, Loebau, Saxony. Referring to the iron and steel quota. A.Z.: 541.

“The Reich Guild Association informs me that it has succeeded in obtaining a considerable increase in the quantity of crude steel to be delivered this month.… This extra quantity is to be used only to satisfy the most urgent demands. Every firm will have the opportunity of receiving a share, with the exception of metal for oven construction, the quota for which is still centrally administered.2

“Notify me at once as to your immediate needs for iron and steel. Kindly list them in detail and have them verified.

“… Under no circumstances may supply certificates be used in building work when a quota has already been allotted or registration numbers have been received from the proper labor office.

“… Nobody will receive anything unless he has sent in the lists covering his needs together with receipts for supply certificates…

“Heil Hitler!

“Signed: Paul Selig, Obermeister.

There are many other raw materials which are scarce. They are arranged according to degree of scarcity so that one raw material may be replaced by another raw material which is less scarce. The ideal balance would be achieved if the degree of scarcity could be equalized so that different raw materials would all be equally scarce. This is the unattainable goal of all the planning and scheming in the distribution of raw materials.

Wood, for example, has been used largely as ersatz for other more valuable raw materials, such as metals. But wood and timber in turn have become so scarce that the use of wood for numerous purposes not directly connected with armaments and not immediately necessary is verboten.

The Market Association for German Forest and Wood Economy is in charge of the production and consumption of timber. Any purchase without a special permit of the Association is forbidden. New enterprises requiring a continuous supply of timber may not be set up without the Association’s previous approval. Even peasants are no longer allowed to burn wood in their stoves, although it is cheaper than coal. In general, not even dead wood can be bought or sold for firewood. However, when it is absolutely necessary, the assumption is that those who have to use dead wood in their stoves are unable to use coal; otherwise scarcity of wood would merely have been shifted to scarcity of coal.

The businessman needs every bit of his ingenuity to circumvent regulations and restrictions and to avoid interruptions in production. Rubber, for example, is extremely scarce, and it is consequently very difficult to buy a new rubber tire. It has become an officially decreed rule that no new tires may be sold unless the old tire is returned completely worn out. But this system does not work out in practice. Reserve tires are needed so badly that firms have resorted to buying entire new trucks just to obtain new tires. These tires were then removed and the new trucks sold without the tires as scrap iron. Business ingenuity in circumventing the State bureaucracy thus results in fantastic waste of materials, all in the name of preventing waste.

As a result of the raw material scarcity, certain trades are flourishing. Firms specializing in the demolition of old buildings are very prosperous. The materials which can be salvaged—from scrap iron to old bricks—are valuable and are often sold at prices not much lower than prices for unobtainable new material.

Secondhand motorcars are in great demand. They are bought by dealers who break them up even if they still are in good condition, and the parts are sold at prices which often add up to more money than the car was worth when it was in operation.

The businessman and the State differ considerably over the question of what constitutes an indispensable raw material. For example, the use of iron or steel is forbidden in the construction of garages, the installation of window frames, and for many agricultural needs. In practice, however, the restrictions are much more severe. In 1938 a rule was in force forbidding private building projects altogether if they required more than 1,500 kg. (1.65 tons) of iron or steel products. Such unofficial restrictions are relaxed or dispensed with according to the actual raw material situation.

Only an expert in dealings with the authorities and organizations knows the difference between official and unofficial rules. Outsiders who read only official reports might easily be misled. Thus, restrictions on the use of iron and steel and other raw materials have been relaxed. There are fewer decrees forbidding the use of scarce raw materials. This does not, however, indicate a relaxation of the restrictions in practice. For it is obvious that a manufacturer who obtains merely a fraction of his former supply of a certain raw material will use it only where it is most needed.

But, in spite of permits, certificates and the “private initiative” of the contact man, production often has to be held up due to the lack of one or more materials that fail to arrive on time. In factories, many different materials, tools and so on are needed. It is a question of luck whether or not all the materials arrive at the same time. Sometimes skilled metal workers have great difficulty in buying new tools, and they must remain idle even though enough raw materials are available.

Many appeals are issued and letters written to the manufacturers to persuade them to fulfill their “national duty.” But the private entrepreneur is inclined to consider primarily his own and his firm’s special requirements. He needs raw materials which are scarce. Special measures to “fight against waste” are expensive. Economizing on raw materials means a decline in the quality of the manufactured articles and affects sales in competition with similar articles. In the name of “national duty” the manufacturer is asked to expend his energies and money to save scarce raw materials and to replace them by more expensive ersatz materials. “National duty” against private interests—the latter would surely prevail if it were not for the many coercive measures used to prevent the businessman from acting in his own interest.

Many businessmen boast of their sacrifices in the “national interest,” emphasizing their special efforts to economize on the consumption of raw materials and to support the policies of the various governmental agencies. The skill of the firm’s representative in advertising its patriotism and military fervor is often more important than anything else as a means of impressing a patriotic bureaucrat who makes the decisions of the distribution board. This impairs the position of less “patriotic” competitors. Their representatives also must do something to put them in good standing with the State bureaucrats. So the out-of-favor manufacturer reports on the transactions of competitors who try to circumvent regulations. In this way a State bureaucrat obtains inside knowledge of business affairs in the industry which he is to control. This knowledge adds to the reputation of the bureaucrat, who thus proves his efficiency to his superiors. Consequently an atmosphere of mistrust and suspicion prevails among businessmen in the same trade. They may have been business friends for many years, yet they do not know what is said behind closed doors at the commissar’s office. They often are surprised at the fact that the commissar has knowledge of certain trade secrets which he could have heard about only through a competitor’s betrayal of confidence. One’s closest business friend may be the informer. The State commissar may even pretend to know for certain what he merely suspects, so as to get more information.

The greater the shortage of raw materials, the stronger has become the pressure of different groups for preferential treatment. Many enterprises could claim that their work was of utmost importance to the State, and many State authorities were willing to certify the “absolute necessity” and the “national interest” to be served by preferential treatment of applications. There was a tendency to neglect raw material requests for undertakings which could be postponed or which were not directly related to the armaments program.

When supervisory boards for raw materials were first organized, quotas were not usually provided for repair work or for independent artisans. Usually such people maintained repair shops where they worked directly for the consumer. Consequently their work did not appear sufficiently important for the State commissar to grant them a share, especially since the leaders of this group had little influence with the Party bureaucracy. But the long period of scarcity changed the situation. At first many industries or consumers could be cut off from supplies of raw materials without any noticeable effect on the national economy. When, however, insufficient repair work threatened to result in the ruin of machinery and thousands of independent artisans were idle because they could not replace urgently needed tools, their demands for a share of iron or steel assumed greater importance. The commissar might advise firms which insisted on a share to use more ersatz. But this was not always possible; neither an independent artisan nor a big industrialist can afford to replace iron nails, for example, by nails made of wood, aluminum or other ersatz.

In 1938, years after the introduction of State control of raw-material distribution, the “Independent Artisans” group finally obtained a share of the available iron and steel. It was only a small share, but previously they had had no quota at all.

With the growth of this control system, bureaucratic requirements have grown tremendously. Even the smallest artisan must fill out dozens of questionnaires and must read long circulars. One circular of the Reich Estate for German Handicrafts with regard to applications for a supply of iron and steel asks thirty-one questions which have to be answered with great care by all independent artisans in Germany.

The clash between different groups and authorities who simultaneously claimed to represent the most urgent and most important “interests of the State” and therefore insisted on preferential treatment, resulted in such anarchy, in such a flood of complaints, investigations and wasted correspondence, that as a final solution, a new authority was created for the most important branches of industry. Three commissars were appointed: one for the building trades, one for the machine-tool industry, and one for the iron and steel industry. These new commissars are plenipotentiaries extraordinary who can overrule decisions of all other authorities; they are responsible solely to Goering. This “reform” might have made superfluous a part of the paper war between different offices and authorities, but the relationship between supply and demand did not improve. Nor was a method found for the elimination of preferential treatment for those having “good contacts.”

The clash of different groups and policies compelled the commissars to find a compromise between the various groups clamoring for preferential treatment. A plan was conceived which provided that the supervisory board would act only as a central agency fixing raw material quotas for each industry as a whole. The distribution within each industry was to be left to the industrialists themselves, or, rather, to the “leaders” of the various industries. Such a reform would have lessened the influence of the Party, which was stronger in the supervisory boards than in the industrial group associations. The latter would have gained in power considerably.

The reform was rejected by the Government. Instead, the group associations were made the go-betweens between the supervisory boards and the individual firms in the handling of complaints and general information. The supervisory board is not to deal directly with any complaints, which must be sent to, and investigated or commented on, by the group association. The decision as to the issuance of certificates or allotment of raw material quotas to an individual enterprise must be made by the supervisory board.

The group associations acquired real functions as a result of this reform. Previously, they had had no task of practical importance; now they function as intermediaries between commissars distributing raw materials and the individual firms, as complaint bureaus and information agencies. These functions have created a vast amount of office work and have considerably raised the authority of the group leader. He does not merely deal with complaints; he also maintains a kind of advisory service for group members, explaining to them the technique of applying for raw material certificates, giving them hints as to procedure so that a particular application will be granted. Especially important in the group association is the legal adviser. He is in a position to advise the membership on what is allowed or forbidden each member. He is familiar with the latest decrees. He can tell whether a contemplated business transaction is contrary to any instructions of the supervisory boards and therefore dangerous. Last but not least, the manufacturer needs a letter from his group leader in support of his request for certificates from the supervisory board; otherwise he has little chance of gaining his end.

The small manufacturer in particular is dependent on the favors of his group leader. The group leader in an industry composed of many small enterprises is more “authoritarian” than group leaders in mass-production industries.

Firms which have close connections of long standing with producers of raw materials are much better off than manufacturers who were in the habit of buying their raw materials from dealers and who had no direct contact with producers. A certificate granting a supply of a certain quantity of raw materials entitles the holder to buy that particular quantity. But it does not indicate whether and from whom the supply will be forthcoming. This becomes a matter of “private initiative” and personal contacts.