SCIENTIFIC AND TECHNICAL MOBILIZATION TUESDAY, AUGUST 29, 1944 UNITED STATES SENATE, COMMITTEE ON MILITARY AFFAIRS, SUBCOMMITTEE ON WAR MOBILIZATION, Washington, D. C. The subcommittee met at 10:50 a. m., pursuant to call of the chairman, in room 224, Senate Office Building, Senator Harley M. Kilgore, West Virginia (chairman), presiding. Present: Senator Harley M. Kilgore, West Virginia. In the winter of 1943-44 this subcommittee asked the Department of Justice to prepare materials bearing on the suppression of technological advance as a result of monopoly and cartel practices. In the course of testimony presented at that time, it was disclosed that international cartels, principally cartels dominated by I. G. Farben, could and did exploit their cartel relationships in the interest of German aggression and to the detriment of our own national security. At the conclusion of this first set of hearings I asked the Department of Justice to assemble such further materials as they had on the manner in which our enemies, in particular the Germans and Japanese, had used commercial ties to obtain vital United States military information. These materials have now been compiled. In presenting testimony of this nature, there is no intention to impugn the patriotism of any particular Ámerican corporation which may have been a member of an international cartel. I am rather concerned that there be a full disclosure of the methods and practices employed by I. G. Farben and others against this Nation. As the armies of the United Nations are moving relentlessly toward Berlin, it is reported that the Nazi cartel masters are already drafting plans for a third world war to avenge their sure and imminent defeat. In plotting the restoration of Germany's military might, they doubtless place great emphasis upon any opportunities which may be afforded them by resumption of the old pattern of international relationships. It is therefore of the greatest consequence that at this time Congress and the Nation be given further insight into enemy penetration of the American economy during the period which followed World War I. We are met here today to hear the testimony of the Honorable Francis Biddle, Attorney General of the United States. I understand, General, that you have a prepared statement. If you care to, you can go ahead with your prepared statement, and at the end of it I will ask any questions I may have. 84949-44-pt. 16-2 1965 STATEMENT OF HON. FRANCIS BIDDLE, ATTORNEY GENERAL OF THE UNITED STATES Mr. BIDDLE. All right, sir, I will be very glad to. Don't hesitate to interrupt me in this statement if there is any point you want clarified. Your committee has been examining various cartel arrangements formulated during the period between the two wars. In addition to the hearings which you have already held, you have incorporated into your record the testimony given by members of the Department of Justice before the Committee on Patents on seven international cartels, and you have now asked that the Department present additional material on the relationship between American and German or Japanese firms prior to the war. Your concern with these contracts is chiefly as to their effect on the national security. The committee has suggested that I say a word of introduction in order to show the significance of this material. The problem of these cartel contracts with German firms is particularly timely. As we approach the occupation of Germany, we will have to decide what is to be done with the great German monopolistic firms. These are the firms that made the contracts in which you are interested. The period between the wars was only an armistice during which the firms of Germany conducted war against us. The British representative on the Inter-Allied Commission Supervising German Disarmament stated in a lecture in 1923: We, in this country flatter ourselves that the war ended on January 10, 1920; a future generation may yet describe the period in which we are living as an armistice during which the war was continued by other methods than rifle and howitzer, only to be resumed in all its carnal horror after the lapse of a few ambiguous years. These firms in reality operated as departments of the German Government. They evaded and violated the peace treaties in order to build up Germany's military strength. It was the theory of the German Government that operating under the guise of ordinary commercial arrangements, these firms could be used to weaken Europe and America so that when the military war was resumed, we would lose. Through the techniques of industrial penetration, they hoped to be able to cripple American production, to gain from us technical know-how, to conduct espionage upon us, and to establish centers of propaganda throughout the world. The CHAIRMAN. In other words, we failed to appreciate the fact that German commercial firms were really a part of the German Government? Mr. BIDDLE. Yes; I think that is precisely so; and I think you will find the growth increasing steadily between the wars, the growth of the relationship between the firms and the Government; and we, of course, working under the tradition of private enterprise, were approaching the matter in a competitive spirit and not in the authoritarian spirit of the Germans. The CHAIRMAN. So that one of our companies, in entering into a cartel with a German firm, didn't realize that the cartels of Germany were being coordinated and correlated to an over-all war effort? Mr. BIDDLE. I think that is true, and let me say that any of the evidence that may hereafter be introduced is not introduced in any sense of criticizing American business or firms. It is to show what the whole picture was. The CHAIRMAN. That is my point, that our firms did not know the coordination existing abroad, the pattern that was being built up. Mr. BIDDLE. That is true. The cartel contract which Germany made covered such strategic items as beryllium, synthetic rubber, magnesium, plastics, military optical instruments, synthetic nitrogen, pharmaceuticals, electrical and radio equipment, and a host of other items. In the material which. you have requested, you will find the cartel contracts in the important aircraft component parts industry. From the standpoint of our own national security, we must assume that as long as these monopolistic German firms continue to exist in anything like their present form, we shall have a recurring set of problems. When the Nazis lose, these German firms will undoubtedly announce that this war was not of their choosing and that they are only commercial enterprises. Because we live in a tradition of economic liberalism and believe in free enterprise, we must never forget for a moment the activities in which these companies were engaged. After the last war we did forget the relationship between Imperial German industry and the German Government. This was a fatal error. A peace with Germany which leaves these companies intact will be a peace to insure another war against us. The record before this committee will tell the story. The German combines of Carl Zeiss, Friedrich Krupp, the "Stahlverein" steel trust, Osram, and I. G. Farbenindustrie serve as examples. Prior to the First World War the German firm of Carl Zeiss in Jena had practically a monopoly position in the world market of the manufacture of scientific optical instruments. It still holds a preeminent position in this field. Its military production includes such things as range finders, submarine periscopes, bomb sights, and tank telescopes. Under the terms of the Versailles Treaty after the last war, Carl Zeiss was not permitted to manufacture military optical instruments. Nevertheless, it deliberately continued to do so. In 1921 it created a manufacturing subsidiary in Holland and, using this as a dodge, continued its military business. As it explained some years later in a letter to Bausch & Lomb it had at no time the intention to allow our business and knowledge of the military business to rest, but have, as you know, established the Nedinsco branch (the Dutch subsidiary) for the express purpose so as to keep our place in the world market. The CHAIRMAN. In other words, they went into Holland and organized a subsidiary to evade the terms of the Versailles Treaty. Mr. BIDDLE. Precisely. The CHAIRMAN. They were also engaged in the manufacture of field glasses, and that sort of thing, and their activities may account for the terrific shortage we found in field glasses when we got into this war. Mr. BIDDLE. It very definitely does, I think; and, of course, that will be infinitely complicated after this war because the intercorporate structure between German and foreign firms is infinitely more complex and widespread than it was 10 or 15 years ago. In 1921, also, the firm of Carl Zeiss entered into a cartel arrangement with the American company of Bausch & Lomb. From the standpoint of the German company, this was no ordinary commercial arrangement. The agreement provided for the division of world markets. The American firm could not sell military instruments directly or indirectly to countries outside of the United States unless Carl Zeiss agreed. In 1935, when the French and British Governments wished to purchase gun sights, periscopes, and other military optical instruments the American firm was not allowed to supply them. That answers your question, Senator. The agreement did more than provide for a division of territories. It required the American company to set up a special department which would handle all research and development of military instruments; it gave the German company the right to veto and to participate in the selection of the head of this department. This was in effect the German Government reaching out through Carl Zeiss to control the development of military optical instruments in this country. The provision of the cartel agreement to which I refer reads as follows (paragraph 4, agreement of 1926): In furtherance of the aims of this agreement, Bausch & Lomb in Rochester will create a new department solely responsible to the board of directors, which is charged with the independent development of all scientific and technical tasks within the military scope and the maintenance of connections with Jena. The parties will come to an agreement as regards the heads to be placed in charge of this department. In addition, Bausch & Lomb was required to supply to Zeiss detailed royalty statements from which Zeiss was able to determine the quantities and types of instruments purchased by the armed forces of the United States. The CHAIRMAN. Under that arrangement Carl Zeiss, of Germany, really controlled military optical research in the United States; and through these reports on royalties were able to determine exactly the extent of armament in the United States, the number of submarines we might have, the number of guns that we would have with gun sights on them, and the number of glasses sold to officers and to the Government for military purposes. They were thereby able to determine to a man and to an instrument the strength of our Army and Navy at all times; is that right? Mr. BIDDLE. Yes; I think that is a fair statement, and it shows the use of the industrial organization, international organization, by German interests for espionage as well as industrial purposes. The CHAIRMAN. We were also in danger, if we should invent something new and turn it over to Bausch & Lomb for manufacture, that immediately the Germans would be advised of all of the details of manufacture through their research department? Mr. BIDDLE. Yes; I suppose that would follow. The CHAIRMAN. We would have no such thing as secrecy and no such thing as a secret weapon if it were manufactured by Bausch & Lomb? Mr. BIDDLE. That, I think, also would be true. Much of Germany's armament during the last World War came from the firm of Friedrich Krupp; Krupp is still the mainstay in Germany's armament program. As a part of the Treaty of Versailles, this firm was required to destroy its machinery and implements of war. In order to evade the treaty, Krupp transferred its patents, its licenses, and its secret processes of manufacture to a Swedish armament manufacturer, Bofors, in exchange for a block of that company's stock. While the Inter-Allied Commission was supervising German disarmament, Krupp continued with its manufacture of new types of heavy artillery, tanks, antiaircraft, gas masks, bombs, and other war material through the Bofors works, and also through Spanish interests in a similar way. The CHAIRMAN. We are using the Bofors gun in our battleships and as an antiaircraft gun now; isn't that a fact? Mr. BIDDLE. I believe it is. The CHAIRMAN. In other words, the 40-milimeter gun that we now use is a Bofors model, developed in Sweden, on which we pay a royalty to the Swedish firm of Bofors for every gun manufactured. Mr. BIDDLE. That is very interesting. It was Friedrich Krupp which entered into a cartel arrangement with the General Electric Co. in order to restrict the production and export from this country of tungsten carbide, a hard metal composition invaluable in the production of machine tools. Under this agreement Krupp required the General Electric Co. to maintain prices in all licenses granted by it for the manufacture and sale of tungsten carbide. After 1936 General Electric was not permitted to grant any additional licenses for the manufacture of tungsten carbide in this country without the consent of Krupp. The agreement also contained the usual divisions of territory. The effect of this agreement was summarized by the head of the Firth-Sterling Steel Co., one of the licensees, as follows: The control of the tungsten carbide patents by the General Electric Co. and the Krupp Co. has resulted in keeping the prices at exorbitant levels. Now when the emergency has come, industry has not learned how to use tungsten carbide and has not the machines, the skilled men, or the technique which it would have had if the material had been available at the same low prices at which it was available to German industries. Tungsten carbide, which was selling in Germany at a price of $50 a pound, under this arrangement sold in the United States for as much as $425 a pound. The CHAIRMAN. The German manufacturer could afford to use it while the American manufacturer couldn't afford to use it to any great extent, and the experience or know-how of its use in the United States was thereby limited. Mr. BIDDLE. Precisely; and translated into terms of national defense, it meant that the Government was building up its armament in Germany on that item at $50 a pound and we were building up our armament on that item at $425 a pound. In some ways the center of Germany's cartelized industry is to be found in its coal and coke industry. The German coal syndicate dates back to 1893. After the World War, its cartelization-and it is thought that cartelization in Germany started after the last World War. It had started many years before but its great impetus was given first by the years immediately after the war, and then on the rise of the Hitler government, by the close alliance between the Government and industry. The CHAIRMAN. I have felt that the growth of cartels since the last war was due to a realization by Germany that through cartels the |