Germany: From Economic Integration to Political Unity. Part 2

Part 1.

Ideological Insubordination

The beginning of the industrial development of Germany, the Genesis of its unity and the start of the construction of its national power were only possible once the country – thanks to the pains taken by a handful of intellectuals- was able to free itself from the ideological-cultural dominance of England.[5]

The process of ideological insubordination was the necessary condition that made it possible, first, for the economic integration of the different German states and that made –once political unity was achieved- the new State thus emerged become formal and substantially independent. Amongst that handful of intellectuals the novel economist List was one that stood out. It was in the United States – where the young German was exiled from 1824 on - that List received the intellectual influence of the followers of Alexander Hamilton and it was also there that he created his system of ideas that he had learned in large part in that country. At the same time, List’s proposals had a big impact in the United States. After having seen the American experience of industrialization in the flesh, the German economist began to attack head on the thoughts of Adam Smith in his speeches. List held that Smith’s doctrine could not be considered scientific. To the young German the ideas of the Englishman were pure ideological propaganda that the very same British political elite took great care so as to not apply on an internal level.

List was an advocate of German industrialization and considered protectionism to be the most rational economic policy for that end. That is why he rejected laissez faire, free trade and the theory of the international division of labor as a group of ideas that were inadequate for his country and for any other country that wished to industrialize. He held that economic liberalism was “something the British had tried to export together with cotton, to the detriment of less developed nations” (Lichtheim, 1972: 71). He argued that the economic blooming of Great Britain was due to the fact that “its industries had grown in the shelter of a high wall of protection, and that other susceptible to industrial development should likewise protect their national products until they had time to become equally efficient” (Cole, 1985: 82).

To List, industrial growth had to be something backed by the State, that foreign products should be hindered from entering during the “adolescent period” of the new industries. List remained in the United States until 1832 when, finally, he returned to Germany. His incessant preaching influenced, in large part, so that –after painstaking negotiations- in Germany the establishment of the Zollverien or customs union would be granted. List was, without a doubt, one of the main artifices of the German ideological insubordination, an insubordination that allowed it to break through the “ideological corset” that hindered its national unity and its industrialization.

From Fragmentation to Unity through Economic Integration

On January 1st, 1834 a treaty of tariff union went into effect between Prussia, Bavaria, Wurttemberg and the two Hesse. A few years later, Saxony, the states of Thuringia, Nassau, the Great Dukedom of Baden and the free town of Frankfurt were added to the agreement: “Without a doubt”, Jacques Droz (1973: 129), sagaciously points out, “the unifying work was not yet completed: Steuerverein was still left out of the Union, supported by England […] however, the Zollverein, administered by a general conference that included twenty-six million inhabitants, opened up a huge field to the development of industry and commerce”. With the customs union “things quickly evolved towards a price leveling; duties that had lost all reason for being were suspended and the coordination of currencies and weights was undertaken. All of this took place to the great disgust of England and France, that for during such a long time had cultivated the inner diversion of Germany and that now feared the announced unification”(Ludwig, 1944: 324).

London considered the process of economic integration started by the Zollverein so irritating to British interests –despite the fact that the common external tariff was still relatively low- that, in 1840, the researcher John Bowring “had been sent to feel out the strength of the new union” (Derry and Williams, 2000: 428). Officially, Great Britain sent the prestigious doctor Bowring to Germany with the objective of convincing the Germans to open their market to English manufactured goods in exchange for concessions in favor of German cereals and wood, in a way analogous to what took place with French wines and spirits, in 1834.[6] For this purpose John Bowring drafted a report that tended to show that German industry was protected at the expense of agriculture, harming the German consumer, that protectionist measures had misguided many capitals, harming agricultural interests, that agriculture in Germany was the most important branch of production, that industrial interest could only prosper in a regimen of external competition and, finally, that German public opinion aspired to free trade.

Extra-officially, Great Britain had sent Bowring with the hidden objective of tempting the Prussian elite so that, guided solely by personal interests – namely tied to growing cereals and the exploitation of forests-, it would impose on the union the reduction of tariffs that protected industry. Despite de fact that the Prussian bureaucracy “was a majority of the free trade party” (Droz, 1973: 133) – as much as the class of large rural property owners, that clung desperately to their privileges -, Bowring was not able to fulfill his objective because it was not possible for him to guarantee –given the opposition of the land-holding English, well represented in the British Parliament- that Great Britain would commit to the elimination of the cereal laws, which banned the entrance of those products into the English market.

Despite the establishment of the customs union and the failure of the free trade treaty proposed by Great Britain –an agreement that would have made it very difficult for German to re-industrialize-, the sectors that strived for industrialization – up against the greater part of the Prussian bureaucracy and with the majority of the sectors of the ideologically subordinated university to the ideas produced by England - would not finally win the match until 1890. Nevertheless, the Zollverein constituted the beginning of Germany’s economic process of insubordination and was the foundation on which her national thought was rebuilt and after which unity was shaped.

From Agricultural Country to Industrial Power

Apart from the Zollverein, the history of what is today known as Germany is the history of a group of states, primarily agricultural ones that, through economic integration and a state impulse, became an industrial power. The Zollverein unleashed a “synergy” that allowed Germany to go from fragmentation to unity, from an agricultural level to an industrial level, from sub-development to development.

Nevertheless, it is necessary to clarify that this process of revolutionary transformation was not lineal. The process of integration and industrialization of the German states was full of contradictions, of motion and counter motion, because the great fortunes of the aristocracy desired for Prussia to maintain its agricultural character and because cultural dominance, exercised from a long time before by Great Britain, had been able to make on part of German society, mainly the Prussian bureaucracy, the commercial bourgeoisie and important sectors of university thought - adhere to free trade. Proof of that, for example, were the congresses of celebrated German economists in Gotha in 1858 and in Frankfurt in 1859, that manifest themselves in favor of dismantling of the mechanisms that protected industry and that would adhere, without hindrance, to the theory of free trade. Fortunately for Germany, the economic detachment initiated by the Zollverein was spearheaded by the Seehandlung, a type of bank of industrial promotion under the control of the State that “played a capital role in the financing and equipping of industry; it was that in the end that the Zollverein propelled and despite the resistance of an entire people” (Droz, 1973: 138). Through the Seehandlung, the German industrials had the opportunity to access long-term financing with low interest that, in any other way –meaning, what we would currently denominate “market conditions”- they would never have been able to obtain. What’s more, the action of the Seehandlung was complemented by the state impulse aimed at the building of the railway network. The governments “participated in it, very directly, and by way of loans approved by them” (Droz, 1973: 130). As Droz well points out: “The order of the Prussian government of November 22nd of 1842, that guaranteed a minimum interest of 3.6 percent to authorized companies, gave a decisive impulse to the construction of the rails” (130) and provoked a “railway fever” to take hold of Germany between 1842 and 1845. So effective was the state impulse on construction of the railways –despite the corruption of high officials and of the members of the Prussian royal family- that its development was the largest of all of Europe.

In 1848, the railway network reached 5,500 kilometers. In the decade of 1850 Germany experienced rapid economic growth whose most notable manifestation was the increase in the production of textile, iron and coal, as well as the construction of railways:

The longitude of the railway network tripled between 1850 and 1870; the percentage of the population working in factories went from 4 percent in 1850 to 10 percent in 1873, and gross national product per capita increased a third between 1855 and 1870. (Fullbrook, 1955: 170)

The German industrial bourgeois responded positively to the state impulse and correctly used “soft credits” that it obtained from the State and from private banking. Common economic space and long-term credits allowed the steel industry to develop considerably. Moreover, in Prussia measures were taken to introduce and divulge the manufacturing of modern machinery. The Prussian State created the Gewerbe Institut, the model Polytechnic Institute of Berlin, where, at the cost of the State, the technicians that the blooming German industry needed were educated. In the Polytechnic Institute, the Prussian government exposed its most advanced machinery made in Great Britain or the United States so that they could literally be copied, without paying for patents, by German technicians and later introduced, at the expense of the State –through long term credits-, by the German industrials into the process of industrial production. In 1863 the Krupp firm installed the first iron factory in Germany capable of employing the modern Bessemer method. Four years later, Krupp astounded the world exhibiting a five ton canon in the World Expo in Paris of 1867. As soon as 1865 Germany occupied second place in worldwide production of iron and was only surpassed by Great Britain, being “escorted” by France and the United States. In 1867 the Borsig firm manufactured two-thousandth locomotive in Berlin, while agricultural machinery production, especially in Saxony, increased considerably. In 1870, Germany recovered third place in world production of cast iron.[7]

It is necessary to point out, also that –in order to adequately value the magnitude of the impulse that from the State received the process of industrialization-, that after the Frankfurt truce, the unified German state began the organization of scientific investigation and the application of scientific methods to industrial development with in energy that no other State in Europe showed signs of up to that moment. The German state took it upon itself, more than any other state of its time, to unceasingly sow and harvest “the fruit of knowledge”.

By way of the establishment of a system to uphold and pay the men of science, Germany not only created a true “army of scientific researchers” but it also carried out a true “policy of grey matter importation”. Tempted by this “policy of importation of brains”, many English scientists emigrated to Germany. Thus the powerful German chemical industry set its foundations on the works of the Englishman Sir William Perkins, who was unable to find in England a single division of the State nor a single practical negotiator that would support him.

After national unification, if in the superior level of the German educational system, through public universities, it educated the most qualified researchers and scientists in Europe, then in the inferior levels State education produced one of the most modern, most literate and educated labor forces on the European continent. Finally, it is necessary to point out that in 1890 the German tariff, that had not been high if considered from the point of view of modern standards, was considerably raised: “Germany was able to grow in this way during the last decades of the 19th century under the shelter of an economic system based on the doctrines of List” (Cole, 1985: 88). Through the adoption of the ideas preached for so long by List, the ideological-cultural subordination –that had halted its development until that moment- was then defeated and Germany then lived through “a second wave of relatively quick industrialization, quintupling its production of manufactured items in a period in which England’s only doubled. In this era it went from the older industries – steel, coal and heavy engineering- to the newer chemical and electric companies” (Fulbrook, 1995: 191).

Comparing the English economic model – adequate for an already-developed economy- to the one Germany – ideologically and culturally insubordinate - used to cease being an essentially agricultural country and to become an industrial power, Cole states:

In Great Britain, according to the ideas of the laissez-faire, the States would interfere as little as possible in industry and commerce, where as in Germany industry had grown under the stimulus directly granted by the State, and for the most part under state tutelage. The English railways were private property and their different company owners competed amongst themselves, whilst German railways were State owned and managed. [Another huge differentiating element was that] white Germany considered itself as the definitive aide to industrial and commercial development of Germany. (Cole, 1985: 92)

From 1890 on, as the result of a true national strategy of development whose cornerstone was also state impulse, “Germany soon became a rival of Great Britain much more important than France, as much because beforehand the German market had been very important for the English manufacturer, as also due to the fact that German industry developed in parallel branches to that of the English […] and in Lorena and Ruhr an iron industry grew rapidly, in the eighties and nineties, based on cutting edge production methods, threatening more and more the position of English iron in the continental markets. […] The metallurgical industries thus came to make up the main field of economic rivalry between the English and Germans. […] The German process, as much in riches as in industry, was, therefore, surprising, and it is not necessary to go any further to locate the main source of Anglo-German hostility” (Cole, 1985: 88, 90-91).

The German Lesson

The analysis of the historic German process clearly shows us how, thanks to the success of the process of insubordination, German went from being a fragmented and under-developed region –that produced handmade goods and food products and bought industrial products- to being an industrial power. Likewise, this teaches us how the German states went from being passive objects of international policy to being an indispensable active subject. For centuries the country was the battle field of the Spanish, Swedish and French that disputed predominance on German soil. It was only when Germany freed itself from “ideological bindings” –that hindered it from reaching national unity and its industrial development- that it was able to change its destiny. As Arturo Jauretche sagaciously points out, Germany owes much to the thinking of List that warned that Adam Smith’s liberalism, when professing the international division of labor and free trade, what it was looking for was to take advantage of the momentary conditions of superiority that England had achieved by creating an industry and a marina, thanks to the customs protection and Navigation Law.

List headed up a process of ideological insubordination thanks to which Germany learned that Adam Smith, the teacher of liberalism, was a more dangerous conqueror than Napoleon Bonaparte. The process of ideological insubordination made economic integration possible which, in its own turn, gave way for political integration. The political genius of Otto von Bismark sealed the unification and made Germany and industrial power starting from an economic policy that, following the teaching of List, defended itself from English competition through customs protection at the same time as, using the State as a promoter, it subsidized industrial production and exports. The success of the industrialization process hastened through imports substitution and state impulse allowed Germany to overcome the state of subordination and made its helplessness a great power. The same land that had been a battle field and object of dispute between France, Russia and England among others, later became in such a way a main actor on the international stage.

It does not turn out to be difficult to conjecture that if Germany had not had success in its industrialization process – vertiginously done thanks to the triumph of the ideological insubordination headed up by List -, its destiny would not have been very different from that of Poland, a country that practically remained occupied and under-developed until the end of the Cold War and the caving in of the Soviet Union. Lastly, it is necessary to remember that after the defeat of the Nazi barbarity, when the United States offered itself to dismantle Germany industrially to convert into, once again, an agricultural sheepherding country, the outbreak of the Cold War and the Soviet threat forced it to rebuild Germany as a first defense of Europe and to substitute the Morgenthau Plan –of deindustrialization- for the Marshall Plan, that meant a new – and enormous- state impulse toward the reconstruction and reindustrialization of Germany.[8]

The industrial reconstruction of Germany thanks to the state impulse, made it possible in 1952 for the Federal Republic of Germany to propose to itself together with France –just seven years after the end of the Second World War - the strategic objective of building European unity in order to reach, long-term, the new threshold of power, then set by the United States of America.
Footnotes:
5. Commenting on the cultural ideological domination that England exercised over German society, a fact that made up the main strategic vulnerability of Germany, List (1955: 83) writes: “Nowhere has Adam Smith’s theory and his young disciples found more acceptance as in Germany; in no other nation has the cosmopolitan generosity of Canning and Huskisson been more believed”.

6. England quickly reacted against the German customs union because it understood completely that economic integration could easily bring on a means for the achievement of political integration and that this could lead, if Germany seriously industrialized, to the apparition of a political power in the heart of Europe and to the loss of important markets for their manufactured goods. The mission that the English Cabinet charged doctor Bowring with –of convincing the Germans to accept a partial agreement of free trade- was not only a means of guaranteeing the German market for English industrial products but also a way to empty out the content, meaning the power, of a possibly unified German state.

7. It would do good to remember that the Krupp Group, founded in Essen in 1812 by Friedrich Krupp, employed little more than one-hundred workers in 1826 and that in 1846 and 1847 hundreds of people died in the country due to starvation and typhoid. For more on the astounding German development –that allowed Germany to cease being a miserable region punished by famine- see the works of William Dawson (1904), William Henderson (1939), LudwigPohle (1923).

8. During the discussions suggested in Washington about determining which policy would do best to maintain control of Germany and keep her at peace after finishing the war, two groups formed: one of advocates of repression and the other, of rehabilitation. The Treasury Secretary Henry Morgenthau, author of the plan that carries his name, held that “the only sure guarantee for avoiding future wars was not only to eliminate the German-Belgian potentiality but also all of its industrial capacity, in such a way as to convert the entire nation into a pastoral State. […] General Eisenhower enthusiastically supported the idea of eliminating German war industry [and] Secretary of State Hull seemed to take sides with Morgenthau’s proposition. […] The only one to express his stark opinion towards the plan would be Secretary of War Stimson”. President Roosevelt was frankly an advocate of treating Germany with harshness and he held that: “It is of vital importance that each of the inhabitants of Germany understand that this time their country is a defeated one. There exists a line of thought, as much here as in London, that upholds the need to do for Germany what this administration has done for its own citizens in 1933. I see no reason to instate a WPA in Germany […] since the time we have been there in our condition of occupation by the army. […] There are too many people here and in England which thinks that the German people are not responsible for all that has happened; that only a few Nazi leaders are. Disgracefully, such an affirmation has nothing to do with the truth”. Henry Morgenthau reached the height of his influence in the Quebec Conference in which Franklin Roosevelt and Winston Churchill agreed on the transformation of Germany “into a primarily agricultural State and of a pastoral character”. When leaked information gave as a result the newspaper publication of the Morgenthau Roosevelt Plan it stated: “highly unlikely that the whole scandal was nothing more than the consequence of an inadequate journalistic management of information”. The spirit of the Morgenthau plan achieved “surviving official defenestration” and continued “profoundly influencing the occupation policies that the United States initially implemented in Germany”. All quotations were taken from John Lewis Gaddis (1989: 144-148).

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