[6] In 1913 the trade of the United Kingdom with British possessions was still greater, though it formed in that year a smaller percentage of the entire trade of the country. Statesman's Year Book, 1915, p.

77. The trade of the United Kingdom with foreign countries was considerably less (in 1913) than was that of Germany.

[7] "Colonial Administration," pp. 210-11.

[8] _Op. cit._ "It has further been shown that in the foreign trade of Great Britain the export of manufactured goods is declining while that of raw material and machinery is increasing."

[9] "Germany's Colonial Policy," in "Modern Germany in Relation to the Great War." New York, Mitch.e.l.l Kennerley, 1916, p. 152. See also "British White Book," a report on Colonial Preferences given in various countries. Oct. 21, 1909, No. 296. For an able a.n.a.lysis of the results of the open and the closed door in colonies see Johlinger (Otto), "Die Koloniale Handelspolitik der Weltmachte,"

(_Volkswirtschaftliche Zeitfragen_) Vol. x.x.xV, Berlin, 1914.

[10] Statesman's Year Book, 1915, pp. 893-94.

[11] Statesman's Year Book, 1915, p. 882.

[12] But the whole trade was small, amounting to less than 1 per cent.

of the entire foreign trade (in 1909) of Germany.

[13] In his defence of German Colonial policy, Dr. Solf makes much of the fact that of the total sum of 500,000,000 marks invested in German colonies, no less than 89,000,000 marks belongs to foreigners. But this means that Germany which has little capital to export has invested over 82 per cent. and all the other countries of the world less than 18 per cent. Moreover the character of the investment, not the absolute amount, is significant. Compet.i.tive investment, as in a brewery or cotton factory, does not bring the same profit as does a concession for a railroad, tramway or bank.

[14] Paul Arndt. "Grundzuge der auswartigen Politik Deutschlands,"

quoted by Ludwig Quessel, _Sozialistische Monatshefte_, Vol. 19, II, June 12, 1913.

[15] Fr. Naumann. Die Hilfe, Nov. 16, 1911. Quoted by Ludwig Quessel.

"Auf dem Weg zum Weltreich." _Sozialistische Monatshefte_, Vol. 19, 1913.

[16] Ruedorffer, J. J., "Grundzuge der Weltpolitik in der Gegenwart,"

Stuttgart und Berlin, 1914, quoted by Paul Rohrbach, "Germany's Isolation" ("Der Krieg und die deutsche Politik"). Chicago, 1915.

{116}

CHAPTER IX

INDUSTRIAL INVASION

The direct compet.i.tion between great industrial nations for the products and profits of the backward countries would suffice to create an international antagonism even if no other economic forces contributed to this result. Closely though not obviously bound to this struggle for colonies, however, is an equally intense struggle among the industrial nations to force their way economically into each other's home territory. Germany, it is alleged, forces her way industrially into France, Switzerland, Italy, Belgium and Holland. She penetrates these countries economically, crushes their industries, forces upon them her own industrial products, extracts from them the profits which should go to their own manufacturers. Industrially, commercially, financially she seeks to rule Italy and Belgium as Great Britain rules the Argentine or Canada. She holds these countries, so it is claimed, in industrial non-age. It is all a quiet economic infiltration, a matter of buying and selling and of lawful contracts, but it is none the less war. "War is war," admits Prof. Maurice Milloud, a student of this phenomenon of German industrial expansion, "but make no mistake that it is war."[1]

Within the last few years there have appeared numerous books by French, Swiss, Belgian and Italian[2] {117} publicists attacking the policy by which Germany prior to the war secured a partial control of her neighbouring markets. With the merits of this controversy and with the morality or immorality of the procedure, we need not concern ourselves.

To us the only point of interest is the nature of the economic forces leading to such a conflict and the effect of this conflict in creating national animosity and in inciting to war.

All the industrial nations export to one another as well as to the agricultural countries. Why, then, is Germany's course so bitterly resented?

At first glance one might suppose that the chief objection to this German enterprise lay in its ruthlessness and economic terrorism. A French manufacturer of formic acid is crushed outright by a sudden price reduction; a Swiss or Italian manufacturer is ruined by being spied upon by his own employes in the pay of a German compet.i.tor. But the main objection to the German compet.i.tion seems to be its formidableness. Germany exports not only wares but men, and in all the neighbouring countries are to be found German chemists, engineers, business men and clerks. It is claimed that these pioneers hold together, advance together, maintain the cult of _Deutschtum_ in an alien country, and act as agents for the home industry. It is also claimed that Germany "dumps" her goods on foreign markets, thus causing losses or even total destruction to rival industries. Yet all these things have been done before, and even the nations which object are not always innocent of like practices. What is deeply resented, however, is that the German compet.i.tion is a disciplined state-aided compet.i.tion, that it is collective rather than individual. The Belgian, Italian or Dutch {118} manufacturer feels that behind his German compet.i.tor stand the gigantic power and resources of the whole German nation. It is not individual Germans who compete, but Germany; a patient, resourceful, long-sighted Germany, willing to make temporary sacrifices for permanent gains, a Germany forced to expand industrially and bending its immense wealth and power to this one purpose. Against such an organised body what can a single manufacturer avail?

The means at Germany's disposal in this invasion of near-lying markets are varied and great. Industry is organised; the German has a genius for organisation. In all the near-lying countries, concerns with German connections open up a wide channel for the incoming wares. In Antwerp, in Rotterdam, in Zurich, a large part of the big business is in German hands. German banks are established and these aid directly or indirectly in the importation of German commodities. Moreover, the Germans are better informed than any of their rivals concerning all the minute knowledge necessary to the conquest of a local market. Their business plans are not only far flung but meticulous; they have a card-index method of study and their training is admirably adapted to just these methods of commercial penetration.

No such penetration would be possible, however, but for the intelligence with which German industry is conducted at home. In Germany the scientifically trained man is more highly regarded than in any other country. The chemist, the engineer, the specialist of every sort is called into consultation and the laboratory is united to the factory. The vast expense of maintaining a corps of inventors forever working at new problems is more than compensated for by the frequent technical improvements which result from their studies. The scientific men employed by {119} the German chemical factories have revolutionised methods and given Germany almost a monopoly in this rapidly growing industry. In Germany also, as in America, there is a willingness to discard old methods and machinery, whatever the initial expense. In a few years the losses due to the change are retrieved and the German business is creating values more efficiently than ever.

Such an industry must in its nature be immensely productive. The Germans, like the Americans, are successful in ma.s.s production, the fashioning of vast quant.i.ties of cheap, standardised articles.

Factories tend to grow larger. Formerly competing concerns are united into a.s.sociations or cartels, which buy or sell in common, save a vast amount of unnecessary friction within the trade and act as a clearing house for information and ideas. A high protective tariff enables these cartels to maintain a remunerative price in the home market while dumping their surplus products upon foreign markets.

What this "dumping" may mean for manufacturers in the countries upon which the wares are dumped may be made clear by an example. "The German ironmasters," writes Prof. Milloud, "sell their girders and channel iron for 130 marks per ton in Germany, for 120 to 125 in Switzerland; in England, South America and the East for 103 to 110 marks; in Italy they throw it away at 75 marks and _make a loss of from 10 to 20 marks per ton_, for the cost price may be reckoned at 85 to 95 marks per ton."[3] Other iron products have been sold by Germans in Italy far cheaper than they could be sold or even produced in Germany, with the result that the struggling Italian iron industry is hardly able to exist. Nor is this dumping a mere temporary expedient to relieve the German manufacturer of an unexpected surplus. It is {120} systematic, organised and intentional, designed to destroy compet.i.tors and establish a monopoly. It is a procedure with which we in America are unpleasantly familiar, since it has been long the practice of our trusts to destroy compet.i.tion in a circ.u.mscribed local market by temporarily reducing prices and then to raise prices after the compet.i.tor is _hors de combat_.

The most striking difference between the flooding of adjacent markets by German cartels and the destruction of compet.i.tors by American trusts is that in the former case the operation is international, and the manufacturers who suffer live in one country and those who profit in another. Moreover, the German Government is itself directly concerned in the process. Not only is the Government one of the a.s.sociated concerns in certain cartels, but by its railroad policy it gives an immense impetus to dumping. Railroad rates are cheaper if the commodity carried is to be exported. To take one out of a thousand instances "the freight of a double wagon of German coal from Duisbourg to Hamburg, a distance of 367 kilometers, costs 57 marks, whilst, in the reverse direction, from the sea-board to the industrial centres in the interior, the freight charge is 86 marks in the case of German coal, and as high as 93 in the case of foreign coal."[4] The Government grants an export bounty upon coal (and other commodities) in the shape of reduced transportation rates.

We need not study in detail the vastness and complexity of that integration of German industry, which permits it to act as a unit in its invasion of near-lying territories. We need not recount the almost vertiginous growth of the German banking system, with its tendency towards a narrow concentration, its bold conduct and control of German industry and its establishment of {121} branch organisations in the countries to be invaded. Nor need we consider the practice of long credits by which German manufacturers secure a foothold in new markets or the system by which German capital, labour and intelligence migrate to the foreign country, and as branches of a German concern, continue the process of dumping from within. The significant fact is that the entire process is organised and thought out. It is a concrete national policy for securing German economic control in neighbouring industrial countries.

Nothing could better ill.u.s.trate the collective nature of this economic invasion than the history of the German cartels. "It is evidently to the cartels," writes Fritz-Diepenhorst, "that Germany owes in great measure the conquest of foreign markets."[5]

The German cartel differs from the trust in that it does not represent the absorption of weaker rivals by one powerful concern but is a federation of business units which retain their legal independence but surrender a part of their industrial and commercial autonomy. In the beginning the German cartels represented an effort to regulate prices in the home market, but after the adoption of a protective tariff and during the period when Germany launched out upon a policy of large-scale exportation, the cartels grew in numbers and power. Their policy was to maintain prices at home and sell at a lower rate abroad.

But this policy, owing to a near-sighted individualism, injured the German export industry itself. The coal cartel determined its policy irrespective of the interests of the c.o.ke cartel, which in turn fixed its prices irrespective of the interests of the iron industry. As a result vast {122} quant.i.ties of raw materials and semi-manufactured products were shipped abroad at prices which permitted the foreign manufacturer of finished wares to undersell the German manufacturer.

It was a boomerang dumping, which worked to the advantage of the dumped and to the disadvantage of the dumper.

Within the last fifteen years, however, and especially since the report in 1903 of the German Parliamentary Commission on Cartels, this early anarchy has been gradually abolished, and arrangements have been made by which a cartel grants lower prices not only for its own exports but also for such part of its home-sold product as is to be used in the manufacture of more highly finished wares, which are in turn to be exported. The coal used in iron manufactures that are to be shipped to foreign countries is sold cheaper than the coal used in iron manufactures which are not to be exported. A community of interest among the cartels is thus created. The result is an amazing industrial solidarity. "The individual exporter disappeared in the cartel, and the cartel itself is absorbed in this sort of cartel of cartels, which ends by becoming the German industry.... For an economic guerilla warfare there is subst.i.tuted a ma.s.s action, a veritable strategy."[6]

The excesses of dumping are cured and dumping becomes a national economic policy.

But how can this organised conquest of adjacent industrial countries be averted without some alternative method for the economic expansion of a highly organised industry? The same forces that push Germany and England into an imperialistic policy and into a conquest of the markets of agricultural countries also force them into a compet.i.tion to secure the markets of industrial countries. The two processes are not quite alike, since the trade between, {123} let us say, Brazil and Germany is a complementary and mutually beneficial commerce, while the dumping of German rails and girders on Italy is a compet.i.tion or war between two industrial nations. The impulse and motive in both cases is, however, the same. It is the desire to increase buying power. Germany can secure more of the wool of Australia and of the wheat of the Argentine if she can establish even a limited economic dominion over adjoining countries. It is the lack of a sufficient home market that forces Germany to dump her goods on Switzerland and Belgium just as it forces England to sell largely to her colonies and to invest in backward countries.

How far this policy of industrial invasion can safely go is one of the interesting international problems of the future. It is of course not the desire of any country to sell permanently below cost to the foreigner, since such a policy means, if not actual loss, at least a diminution of profits.[7] Germany would prefer to get the same price for her girders in England and Italy as she does at home. But she must take what she can get. Her industry is based upon a productiveness in excess of the demands of the home market, and she is under the necessity of paying for large importations of food and raw material and of profitably employing increasing numbers of workmen. Her industrial invasion of neighbouring countries is alternative and supplementary to an attempt to secure a {124} needed colonial market. It is, parenthetically, a necessity imposed upon an industrial nation menaced by a constantly growing population.

Be this policy of invasion ever so well organised, however, it cannot escape inherent limitations and obstacles. The German export policy maintained itself only by holding up prices at home, which meant an increased cost of living and a rise in money wages. The imposition of tariffs by neighbouring countries meant an increase in the difficulties to be overcome in exportation and a reduction in the net profits of the foreign trade. To a considerable extent this export of cheapened goods was at the mercy of the importing nations, which, at any moment, might levy prohibitory duties. At the best the whole development led to strong opposition and prejudice, to counter-attacks, to the violation of favouring commercial treaties and to the imposition of punitive duties (as in the Canadian tariff) especially aimed at dumpings. In the opinion of many observers, the policy provided an insecure base for a top-heavy industry, with the result that in Germany industrial crises were frequent and destructive and the economic development showed the weaknesses of a forced growth.

It is too early to pa.s.s judgment upon the relative success or failure of this industrial invasion. Prof. Milloud believes that the policy by 1914 had demonstrated its failure, and that the fear of an industrial _debacle_ forced Germany to escape from an impossible economic position by throwing Europe into war. How far this is true it is difficult to determine.[8] It is evident, however, that the {125} difficulty of this German penetration of adjacent countries must have intensified a desire for an easier market in the colonies. The Italian trade for which Germany fought so hard must have seemed unremunerative and unpromising as compared with the practically monopolised market which France possessed in North Africa or with that which Germany could obtain through the Bagdad Railway and the penetration of Asia Minor.

The sharpness of the conflict for nearer lying markets ill.u.s.trated anew the necessity of securing colonial outlets.

If, however, the compet.i.tion among industrial countries to secure each other's markets results in national antagonism, the compet.i.tion of the same nations for the exclusive possession of colonies and dependencies leads, as we have seen, to an equally bitter struggle. The choice seems to lie between the devil and the deep sea. It is no wonder therefore that as the rapid expansion of industry brings the great nations into ever keener antagonism, voices are raised against the whole imperialistic policy. Just as the German consumer objects to paying high prices for German commodities which the Belgian or Italian can buy cheap, so also opposition is encountered to a policy of extending colonial development at the expense and imminent risk of the nation and to the obvious benefit of certain preferred cla.s.ses in the community.

[1] "The Ruling Caste and Frenzied Finance in Germany." Boston, 1916, p. 104.

[2] See in the first instance Milloud, _op. cit._, and Prof. Henri Hauser, "Les Methodes Allemandes d'expansion Economique," Paris, 1916.

also G. Preziosi, "La Germania alia conquista dell' Italia," Florence, 1915.

[3] _Op. cit._, pp. 104-5. His italics.

[4] Milloud, _op. cit._, p. 110.

[5] _Revue economique Internationale_, 1914, II, p. 259, quoted from Hauser (H.) "Les methodes allemandes d'expansion economique," p. 106.

[6] Hauser, H., _op. cit._, p. 128.

[7] The goods exported to foreign countries may show a profit if they are sold at a price less than the average cost of production but greater than the marginal cost. If it costs $100 a unit to produce a million units of a given product for the home market and only $70 a unit to produce an additional 100,000 units then there is a profit in permanently selling this extra amount at any price above $70. To break down a foreign compet.i.tion it may pay _temporarily_ to sell at 60 or even 30 dollars, in order to raise prices again after compet.i.tion is destroyed.

[8] Prof. Milloud's argument based upon the relative growth of British and German exports is far from conclusive. He shows that in the period from 1890-1903 to 1904-08 the German export trade increased only 75 per cent while the British export trade increased 79 per cent. If we consider the statistics for the subsequent period, 1909 to 1913 (which figures were quite accessible to Prof. Milloud), we find that the German export industry increased much more rapidly than did that of Britain.