THERE are few better examples of investment penetration for strategic political reasons than the penetration of Albania by Italy during the last decade.(1) Economically, Albania is unattractive. Five centuries of Turkish suzerainty terminated in 1912 with Albanian social organization still based on the tribe or clan, and blood feuds have only lately ceased to be common. It has scanty resources, of which agriculture must be reckoned the most promising,(2) and until recently it has remained isolated from the main stream of modern economic development. Yet this mountainous, poverty-stricken little country with its population of one million has become a bone of contention in international politics, and a glance at the map will show why. From the Bay of Valona near the southern extremity of Albania's Adriatic coast, it is only forty-five miles across the narrow Straits of Otranto to the heel of the Italian boot. Any power which controls the southern portion of Albania has potential control over the entrance to the Adriatic Sea. On its landward side, the boundaries of Albania are coterminous with those of Jugoslavia and Greece. Italian spokesmen argue that Italy must control Albania in order to prevent any other power from gaining a foothold which might weaken the defense of Italy's long, exposed coastline. Jugoslavia, for its part, has regarded the influence of Italy in Albania as a menace, especially when it has seen Italian engineers building roads and bridges capable of bringing troops to the Jugoslavian frontiers.
Early in the World War, while still a neutral, Italy occupied Valona. In the secret Pact of London (1915) one of the promises which brought Italy into the conflict on the side of the Allies was a pledge that it would receive full sovereignty over Valona, the island of Saseno and sufficient surrounding territory to insure the defense of these points. It was further provided that in case portions of Albania should be given to Montenegro, Serbia, and Greece, the coast from the southern boundary of the Italian territory of Valona to Cape Stylos would be neutralized; and that Italy would be entrusted with the conduct of the foreign relations of any autonomous Albanian state which might be formed.(3) At the close of hostilities, however, an Albanian nationalist movement asserted itself, and in the Paris Peace Conference the Wilsonian principle of self-determination enabled it to defeat plans for the partitioning of the country. In December, 1920, Albania was admitted to the League of Nations.
At first Italy had attempted to retain at least Valona, but fierce attacks on the garrison by the Albanians, coupled with violent agitation by socialists in Italy, led to its evacuation in September, 1920. On August 2nd Italy signed an agreement with the provisional government of Albania which marked a turning point in Italian policy. Since that time Italy has not sought Albanian territory, but has striven to preserve the integrity of Albania and to assist that country in becoming a consolidated state under Italian tutelage.(4) The Italian influence exercised under the new policy was recognized by the Allied Conference of Ambassadors in a declaration of November 9, 1921. This declaration provided that should Albania's integrity be threatened, the matter would be brought before the Council of the League, where the representatives of the powers signing the declaration---Great Britain, France, Italy, and Japan---would recommend that any necessary measures of intervention be entrusted to Italy since "any modification in the frontiers of Albania constitutes a danger for the strategic safety of Italy."(5) On November 27, 1926, Italy and Albania signed the Pact of Tirana, in which the two governments agreed to collaborate in maintaining the status quo of Albania, and this was followed a year later (November 22, 1927) by a defensive alliance which was to run for twenty years and, if not denounced, was to be automatically renewed for another twenty years.(6) It is the economic implementation of Italian policy in Albania which interests us here, especially the methods by which Italian capital has been directed into this strategically important but economically uninviting land. First, however, it is instructive to notice Albania's vain attempts to secure neutral capital through the League of Nations and thus to avoid dependence on any one power.
After the war, Albania was confronted with the necessity of establishing its independence. installing a system of administration, and solving pressing economic problems. Indeed, the very existence of the Albanian state---its internal cohesion and its ability to maintain its territorial integrity and independence---was conditioned on economic development. If the central government was not to be disrupted better means of communication had to be installed. Roads, bridges, and ports were needed to overcome the feudal disunity of the country. Public health services, schools, police and military protection had to be provided. All these activities called for large investments of capital, but Albania did not have capital at its disposal. The country was desperately in need of foreign financial support, and it also needed effective guarantees of its frontiers. For these two forms of assistance, Albania looked first to the League of Nations.
After the Conference of Ambassadors had finally reached its decision of November 9, 1921, which confirmed Albania's 1913 frontiers, a Committee of Inquiry appointed by the League proceeded to Albania to observe conditions and adjust border difficulties. In their general report(7) the Commissioners emphasized that "a free and independent Albania is an essential condition of tranquillity and peace in the Balkans," that the constant risk of internal disturbances and foreign complications could only be obviated when Albania had attained a higher degree of political stability and economic development, and that this in turn depended upon a long list of improvements enumerated in the report. "Albania," said the Committee, "will need not only competent advisers, but also foreign capital." The requisite advice and economic support should be disinterested; it "should not be organized by countries having direct interests in Albania, but by an international body." Therefore, "the League of Nations, which enjoys an indisputable prestige in Albania, would appear to be the organ best fitted to give this support."
In compliance with the repeated requests of the Albanian government and in accordance with the recommendations of the Committee of Inquiry, the League Council decided that one member of the Committee, Professor Sederholm, should remain in Albania pending the arrival of a financial adviser.(8) Meanwhile, in July, 1922, the League sent Professor Calmès of Luxemburg to study the economic and financial situation of Albania. His report, presented in September, outlined a program of development. A foreign loan of about $22,000,000, Professor Calmès said, would be of great help to Albania and would contribute to political stability in the Balkans; due to the existing situation in Europe, however, he believed that Albania would probably find it useless to look for the support of foreign capital. Credit, he further admonished the Albanians, meant confidence, and there is no confidence without security. External security would be guaranteed by the League of Nations, but "security within depends solely on the political wisdom of the Albanians themselves."(9)
But the greatest political wisdom cannot maintain internal security of the type demanded by investors of capital in a country devoid of modern means of communication and of the most elementary public services. These themselves cannot be had without a certain amount of capital investment. In other words, before Albania could attract foreign private capital it must have security, but before it could achieve security it needed capital. "Without security, no money; without money, no security"---thus did Professor Sederholm describe the position.(10) Short of a slow, difficult period of development, punctuated by political crises which would inevitably rupture the precarious peace of the Balkans, there was only one way out of this vicious circle: consistent economic support from outside. It is hardly open to question that the financing of Albania through the League of Nations, had that been possible, would have been a worthwhile investment in Balkan peace. The Albanian government was prepared to place itself in the hands of the League for the sake of the funds and the technical assistance it so desperately needed. The League, however, did not undertake this task. Its failure to act may be attributed to the unsettled financial state of Europe, which made the flotation of a loan extremely difficult; lack of financial experience, since acquired as a result of loans granted under League auspices to Austria, Hungary, Greece, Bulgaria, Estonia, and Danzig; and the political jealousies of the powers with respect to Albania.(11)
The League did accede to Albania's request for the nomination of a financial adviser, and, after a year of delay, appointed Mr. J. D. Hunger of Holland to the post. The name of an Englishman originally proposed by the Financial Committee of the League and acceptable to the Albanians had to be rejected because of the jealousies of the powers, especially since oil concessions were thought to be at stake.(12) Mr. Hunger began his work in June, 1923, and proposed drastic measures of economy, taxation and reorganization calculated to balance the budget. The Albanian government, however, showed little disposition to act on his advice. Mr. Hunger, like other experts before him, recognized the immediate need of Albania for a bank of issue and attempted to mobilize enough foreign capital for its creation. Draft statutes for an Albanian national bank were drawn up with the assistance of the Financial Committee of the League of Nations at its September session in 1923. The plan provided for an internationally subscribed capital of one million dollars.(13) As a result of the unsettled situation in southeastern Europe, capital was pledged but slowly, and the project failed to materialize.(14) According to an Italian source, the Financial Committee of the League, having invited member states to participate, received favorable responses only from Italy, Belgium, and Switzerland. The committee thereupon decided that it would be best to leave the initiative exclusively in the hands of the Italian group.(15)
Meanwhile, Mr. Hunger's proposed internal reforms were making no progress, political unrest and famine were rife in Albania, and the government's financial outlook grew steadily worse. On March 1, 1924, the Albanian government denounced the contract with its financial adviser, alleging that it took this step solely for reasons of economy, since its modest budget was unduly burdened by his high salary.(16) The government of Fan Noli, which came into power shortly after, informed the League that it regretted the manner in which Mr. Hunger's contract had been cancelled by the preceding government, but that due to the economies which it was forced to make it would not be in a position to reappoint him. The new government, however, actually adopted many of Mr. Hunger's recommendations, and succeeded, at least nominally, in balancing the budget.(17)
In September, 1924, Fan Noli again took occasion to declare at Geneva that the League might do much to promote peace in the Balkans by granting a loan to Albania, but caustically added that his country had little to hope for from the League---"only words, words, words, full of sound and fury, signifying nothing."(18) A month later Ahmed Zogu was back in power, and this young Realpolitiker, seeking to lay a foundation for the economic development and internal stability of his country---and, incidentally, for the consolidation of his own rule---turned to Italy for the necessary resources. He seemed willing, for the time being at least, to pay the inevitable price of financial and political dependence. After 1924 the financial problems of Albania were discussed not in Geneva, but in Rome.
As Professor Sederholm pointed out in his final report(19) other Balkan states at the time they achieved independence "generally found some Great Power able and willing to befriend them and to afford them financial assistance." Similarly Ahmed Zogu, obtaining no help from the League, entered into negotiations with the Fascist government and on March 15, 1925, concluded with an Italian financial group an agreement which had far-reaching consequences.
The convention of 1925,(20) which was to run for 50 years, was concluded by a representative of the Albanian state and "His Excellency, Mario Alberti, as representative of the financial group recommended by the Italian government."(21) This group undertook to establish the National Bank of Albania--Banca Nazionale d'Albania, sometimes referred to as the Bancalba---with a nominal capital of 12,500,000 gold francs ($2,500,000), divided into 495,000 ordinary shares at a face value of 25 francs each, and 100,000 founders' shares at a face value of 1.25 francs each. Albanian citizens were to have a right to participate to the extent of 49 per cent of the share capital. The Bank was to have its administrative seat in the capital of Albania; its operations, however, have been actually directed from Rome. The Bank was to have the exclusive privilege of issuing paper currency, and was to supervise the coinage of metallic money, the profits from which were to be divided equally between the state and the Bank. It was to receive government deposits and to act as treasury agent, and was to have the right to negotiate government and municipal loans. Provision was made for Albanian representation in the management, although the Italians were always to have the deciding vote. The Albanian state was to receive 10 per cent of the net annual profits. The .Bank concession was exclusive and irrevocable.
Furthermore, within a month after the initiation of Its own activities, the Bank undertook to form a company to be known as La Società per lo Sviluppo Economico dell' Albania (Company for the Economic Development of Albania, commonly referred to as the S.V.E.A.). The S.V.E.A.'s capital of 15,000,000 lire (about $750,000) was to be divided into 150,000 ordinary shares, of which 10,000 were to be assigned gratuitously to the Albanian government. This new company undertook to procure a loan of $10,000,000 for Albania, to be used exclusively for public works---roads, drainage of swamps, agricultural development, and construction of ports. The repayment of capital and interest was to be guaranteed by a lien on the Albanian customs duties and on the state monopolies of salt, cigarettes and matches. The S.V.E.A. or the affiliated companies which it might organize, was given the right to submit bids for the execution of public works and was to be accorded preference in the awarding of contracts.
Under the terms of the 1925 convention, the Banca Nazionale d'Albania(22) was formally constituted in Rome on September 2, 1925, in the presence of the Italian and Albanian Ministers of Finance, the Jugoslav Minister in Rome, and Signor Alberti of the Italian financial group.(23) It has been reported that Great Britain and Jugoslavia protested against the exclusively Italo-Albanian character of the original plans and thereby obtained a right of participation for the nationals of other interested states.(24) It may also be suggested, however, that Italy, compelled to borrow abroad for its own financial needs, was not averse to admitting foreign capital to the enterprise so long as Italian citizens retained control. Practically all the shares set aside for the Albanian interests participating in the Bank---49 per cent of the total capital---were actually bought for Italian account.(25) The voting power represented in the shareholders' meeting of March 20, 1930, was distributed as follows: Italian banks held 225,000 shares out of a total of 579,216;(26) Jugoslav banks, 50,000; other foreign banks, 75,000; while the balance was held by private shareholders(27) and officers of the Bank.
The Bank established a gold-standard currency in Albania, and while Albanians were at first reluctant to accept paper money, the circulation of banknotes gradually increased. The notes were printed in Albanian and Italian, and the new gold, silver, nickel and bronze coins minted by the Bank resembled those of Italy in appearance. Commercial undertakings were stimulated by the establishment of general warehouses under the direction of a company founded by the Bank. Agricultural development was encouraged by the provision of credits. The spread of the banking customs of more developed countries, coupled with legislative reforms which the Bank sponsored, also tended to promote Albanian economic development.(28)
The second part of the Convention of 1925 had provided for the creation by the Italian financial group of the development company known as the S.V.E.A. and for the flotation of a $10,000,000 public works loan. The details of this loan were set forth in a further convention of May 29, 1925, and an executive accord Of July 26, 1925, between the Albanian government and the S.V.E.A.(29) The bonds, as finally issued in November, 1925, carried a rate of interest of 71 per cent and were issued at 75. Charges were 4 per cent, which made the effective emission figure 71.
The effective interest cost to Albania would have been, thus, about 10 1/2 per cent---not at all high, considering the situation of the debtor and the extreme dearness of money in Italy itself. Moreover, acting on the advice of the Italian government, the Albanian government converted its credits into lire just before the revalorization of the lira, with the result that it found itself in possession of 65,000,000 gold francs, net, for which it was obligated to pay 7 1/2 per cent on a nominal debt of 70,500,000 gold francs. The interest cost to Albania, therefore, was not much over 8 per cent.(30) Even this Albania did not have to pay, for, thanks to the circumstance that the Italian government agreed to guarantee the service of the loan, the Italian Financial Group was able to grant one moratorium after another. Until the new loan agreement of 1931, the Italian government was paying the bondholders, while interest and sinking fund in arrears were accumulating to the charge of the Albanian government.
The S.V.E.A. often pointed in its annual reports to the favorable terms given Albania in this loan as proof of Italian friendship, and contrasted the lien on customs duties and taxes provided by its contract with the allegedly more stringent provisions---i.e., for financial control---of the League of Nations loans to Hungary, Greece and other countries.(31) It should be noted, however, that the League in granting loans has to take their financial soundness into consideration, while the Italian loans to Albania are political in nature and take little account of ordinary financial calculations. In any case, control exercised by Italian diplomats and Italian civil and military advisers is not unimportant, even if organized in a less formal manner than that imposed by the League.
There can be little doubt that the Italian capital represented in the Banca Nazionale d'Albania and the S.V.E.A. entered Albania not for economic reasons, but as an instrument of Italian diplomacy. These organizations, though private in form, have not regarded themselves as ordinary business enterprises. Speaking to a meeting of stockholders, the president of the S.V.E.A., Vincenzo Lojacono (himself a high official of the Italian Foreign Office), declared:
"Due to the special character of our company, springing from and living in the orbit of a happy and much vaster political conception of the relations between Italy and Albania, our attainments unfold themselves in a sphere so superior and so foreign to the internal results of a balance sheet that it is a legitimate wish on your part to prefer to hear what our activities have contributed to the development of the program of Italo-Albanian collaboration."(32)
Still more convincing proof that Italian investments in Albania are not ordinary economic undertakings is provided by certain formal decrees of the Italian government, which, after having accorded large tax exemptions in favor of the loan to Albania,(33) ended by providing for a guarantee of the yearly payments from the Royal Treasury.(34)
Any remaining doubts regarding the political rather than economic purposes of Italian investments in Albania were removed by the loan agreement concluded at Tirana on June 24, 1931.(35) In this agreement the Italian government abandoned all indirect methods and arranged to advance funds to Albania not through the mediation of bankers, but in its own name.
The terms of the 1931 agreement provided for a series of annual loans from Italy to Albania extending over a period of ten years and limited to a maximum of $2,000,000 in any one year. The loans were to bear no interest and the date and manner of repayment were to depend upon the financial situation of Albania. A commission composed of two Albanians and two Italians was to supervise the expenditure of the funds so received, devoting them mainly to public works, the development of national economy, and the improvement of education. Albania agreed to request the services of the following advisers (organizzatori) approved by the Italian government: one at the Ministry of Finance, two at the Ministry of Public Works, four at the Ministry of National Economy, and one for national education. Finally, Italy made it clear that the annual payments to Albania would depend on the "continuation of full and sincere technical and political collaboration between the two governments."
Thus, the influence of military and civil advisers, the lien on custom duties, salt, cigarette and match monopolies provided in the loan convention of 1925, the manifold activities of the Banca Nazionale d'Albania, and the S.V.E.A., as well as the provisions of the loan agreement of 1931, have given Italy a very real control not only over Albania's finances but over its whole national economy. It is sometimes taken for granted that the hidden hand of capitalist enterprise, or some less specific economic force---" population pressure," for example---is behind the foreign policy of every great power which extends its influence over a weaker country. Such an interpretation of Italian penetration in Albania would be erroneous. Albania does not constitute an attractive sphere for economic expansion. It is probable that "in many parts of the Italian colonial empire colonizing activities could be carried out with a smaller outlay of capital and greater chance of success than in Albania."(36) Italy is not "exploiting" poverty-stricken Albania in an economic sense. Indeed, it would be more in accord with the economic facts to say that Albania is exploiting Italy, for Albania has received Italian capital on which no responsible banker would expect an economic profit. What Italy has done is to assure itself of the political and military control of Albania by judicious loans and investments instead of by resort to armed force. Italian policy in Albania is based on the recognition that it is cheaper to subsidize and strengthen an independent, but "allied" Albania than to conquer, garrison and administer the country in the face of inevitable hostility on the part of a warlike people.(37)
The problem of Albania after the World War presented a dilemma: either financial support from an interested power, such as other Balkan states had received at an earlier date, or a protracted period of instability due to lack of capital for economic and political development. The dilemma might have been resolved had an international organization interested in the maintenance of peace been able to finance Albania through a rather long period of construction, but it would have been necessary for this organization to advance funds with slight prospect of repayment on economically profitable terms. Italy found it expedient to provide Albania with capital on financially unprofitable terms for the sake of political advantages which it deemed important to its national security---a course which no international organization is yet in a position to follow for the sake of promoting general peace.
.
The Saar Territory, bounded on the north and east by Germany, on the south and west by the (now) French province of Lorraine, was formed by the Treaty of Versailles from part of Prussia and a bit of the Bavarian Palatinate. The economic importance of the Saar basin depends upon a coal field lying under it which is third in importance in Continental Europe, ranking second only to those of the Ruhr and of Silesia. The greater part of the coal output from these mines, which were, before the war, mostly state mines of Prussia and of Bavaria, is used in the area itself in great metallurgical, glass, and pottery industries. Owing to the exhaustion of the Saar iron mines, iron ore has, since the beginning of the nineteenth century, been largely imported from Lorraine. The inhabitants of the Saar number about 800,000, three-quarters of whom are workers in the mines and industries of the region or belong to families of these workers. The mass of the population, certainly more than 90 per cent, is German in parentage, language, and thought.(39)
From the ninth century until the end of the World War the area was constantly under German rule, with two short interruptions: the first, from 1680 to 1697, under Louis XIV; and the second, from 1793 to 1815, following the French Revolution. A claim to the Saar formed no part of the publicly defined war aims of the French government. That such an acquisition was, in fact, part of its policy became clear, however, with the publication by the Bolsheviki in November, 1917, of a secret agreement made on February 12 of that year between Russia and France by which the latter was to be given the Saar coal basin. Studies made by French experts in preparation for the Peace Conference recommended that in taking back Alsace-Lorraine the coal supply necessary for the industries of these provinces should be assured by also annexing the Saar. M. André Tardieu drew up a memorandum which demanded as a minimum the whole Saar basin. The French claims to the Saar were resisted by the English and Americans at Versailles, and at one stage in the negotiations President Wilson threatened to leave the Conference. In the end a compromise was adopted which provided that, as compensation for the destruction of mines in the north of France, Germany was to cede to France complete ownership in the coal mines of the Saar. In order to assure France all possible facilities for working the mines, Germany was further required to turn over the government of the territory to the League of Nations. In 1935, the Treaty stipulated, a plebiscite should be taken to determine whether the area would return to Germany, go to France, or remain under the rule of the League of Nations. In case of a victory for Germany the government of the Reich would be obliged to buy back the mines from France. Meanwhile, French money might be introduced into circulation, there were to be no tariff barriers between France and the Saar, and, after a transition period of five years, the Saar basin was to be completely subject to the French customs regime.
Though it later became apparent even to the most ardent French nationalists that there was no chance of persuading the Saar populace to vote for union with France in the 1935 plebiscite, many Frenchmen at the time hoped that the area might be won in the course of fifteen years, and at least some in high positions set out enthusiastically to increase French influence in the Saar. In addition, some French industrialists had an interest in bringing the metallurgical industries of the Territory under the sway of business agreements designed to limit competition in the French home market, for the Treaty abolished the customs frontier between the Saar and France. The process by which French private industrial investments, impelled by these two motives, were pushed into the heavy industries of the Saar is the subject of this case study.
When the Allied victory transferred Lorraine from Germany back to France, a complex industrial entity based upon the exchange of Saar coal for Lorraine iron was threatened with disruption. Saar metallurgists had long owned valuable and important properties in Lorraine---mines and industrial plants. By offering to accept a minority participation of French capital, certain German firms in the Saar attempted to avoid the sequestration of their Lorraine holdings by the victors, but the French government apparently had a different plan for maintaining the unity of the Saar-Lorraine industrial region. It attempted, so the Germans allege, to bring together under French ownership both the former German property in Lorraine and that still held by German industrialists in the Saar, and as a means to this end offered the sequestered Lorraine properties for sale on the condition that those who would buy a former German metallurgical holding in Lorraine must first acquire a controlling interest in the corresponding Saar concern. Interested French groups, of course, thereupon made active efforts to buy majority shares in Saar industrial establishments, and in this endeavor they received the active support of the French government. Of the chief German metallurgical firms in the Saar all but one (Röchling) finally had to yield under this pressure and accept a 60 per cent French participation in the ownership of their businesses.(40)
The difficulties in the way of securing accurate and adequate information regarding proceedings of this sort are immense. In this case, as in others, the interconnections of politics and finance are not to be found in the realm of open covenants openly arrived at. In what follows, the attempt has been made to gather and to weigh impartially such information as is available concerning the process by which French capital entered Saar industries; but since the evidence is not as perfect as might be desired the reader must judge for himself how much confidence can be placed in the conclusions. The post-war experiences of three outstanding German firms in the Saar will first be recounted, largely on the basis of information furnished by the firms themselves or by those sympathetic with them. These are: Stumm Brothers (Gebrüder Stumm, G.m.b.H., Neunkirchen-Saar), the Röchling firm (Die Röchling'schen Eisen und Stahlwerke, G.m.b.H., Völklingen-Saar), and the Dillingen firm (Aktiengesellschaft der Dillingen Hüttenwerke, Dillingen-Saar). Then follows a brief discussion of the general movement of French capital into the Saar, then such comments as it has been possible to gather from French sources, and finally a statement of conclusions as to the facts and their significance.
In January, 1919, the properties in Lorraine belonging to the firm of Stumm Brothers were seized and placed in sequester by the French; thereafter the Saar enterprise had to buy ore from its filial in Lorraine as though there were no relation between them.(41) The first overtures on behalf of a French firm for acquisition of an interest in the Saar properties of the Stumm family were made in April, 1919, while the Peace Conference was still in session. M. Bailly of Nancy called on the Stumm firm, saying that the fate of the Saar was decided, and that the Stumm managers had better look to French participation in their organization. Due to the loss of their properties in Lorraine, it seemed to the Stumm executives themselves that the business could not go on living without some scheme for mutual coöperation with the eventual owners of the Lorraine interests. They informed M. Bailly, however, that the only terms acceptable to them would be a minority participation by French capitalists in their Saar establishment, in return for which they would demand a share in the ownership of their former holdings in Lorraine. M. Bailly said he thought this could be arranged, though he remarked that the terms which the French government was demanding were less favorable. At this point the Stumm firm agreed with other leading German firms to present a united front by refusing to negotiate with any French capitalists regarding the sale of majority interests in their businesses.(42) Shortly thereafter a new discussion with French negotiators took place in Frankfort. The Stumm representatives had instructions to proceed cautiously. The attitude of the Frenchmen at this conference was quite different from that of M. Bailly. They said his talk was all nonsense, that the French government demanded 75 per cent participation by French capital in the Saar industry, and that it was useless to resist. Furthermore, the German industrialists would not be allowed to share in the ownership of their former Lorraine properties. The Stumm negotiators refused to discuss any such terms, and the French left in indignation.
Next came M. Cammerer, whose brother was connected with the French Foreign Office and who negotiated on behalf of the Crédit Mobilier and the Société Générale. He was told that before Stumm Brothers could consider the sale of a part interest in the firm, assurance would be required on three points: first, the preservation of some connection between the Lorraine and the Saar properties of the Stumm family; second, the limitation of the French share in the Saar works to a minority interest; and, third, continued independence for the Stumm administration. On June 21, 1919, M. Cammerer said that conversation with officials in the French Foreign Office had left him with the impression that the government did not intend to force French capital into the Saar. He had not spoken with M. Loucheur, Minister of Industrial Reconstruction in the Liberated Regions, however, and the German industrialists remarked that it was the opinion of this Ministry and not that of the Foreign Office which was really important.
A few days later the general manager of the Stumm interests was summoned for an interview with Commandant Rich, chief of the Service Industriel of the French occupying troops in the Saar. Rich, according to the report of this manager, delivered a tirade at him, riding whip in hand, and threatened to send him over the boundary. The Commandant expressed himself as most indignant over the three conditions of sale which had been laid down, said they were brazen and impudent, and declared that the French government would require a 66 per cent French participation in the Stumm firm. The Stumm representative answered that the interested French capitalists themselves had said they would be content with a minority participation and refused to yield.
Still another French group came forward about this time and were told that the Stumm family was prepared to accept a 30 per cent participation in the Saar if liquidation of the Lorraine properties could be avoided. It was obviously to the interest of the German owners to make substantial concessions in order to avert liquidation in Lorraine (the Lorraine properties finally brought at forced sale only about 10 per cent of their peace-time value). Furthermore, it was a practical necessity for the Saar industries to maintain some sort of vertical integration with the ore mines and smelting works of Lorraine; and if the French government insisted upon liquidating these, then there was no choice for the Saar works but to arrive at an agreement with the new French owners.
It was not particularly important to the French capitalists, on the other hand, that they should obtain a majority interest in the Saar industrial properties. They were out primarily to do a profitable bit of business in buying the Lorraine properties cheaply. The word had gone around, however, that purchase of Saar-owned properties in Lorraine would be permitted only to those who also acquired rights to the related Saar works. The French capitalists themselves were not eager to expend more than necessary in the Saar, and, without the insistence of the French government, they would have been satisfied with much less than a majority interest.(43) Such, at least, was the impression of the German industrialists who negotiated with them.
The prospective French purchasers who had approached the Stumm managers thus far had been interested, perhaps primarily, in handling securities. But in July, 1919, the Massenet group said they wanted an interest in Saar steel in order to provide themselves with a sure basis for their manufacturing operations. They agreed to be content with a 40 per cent participation in the Stumm works in -the Saar and to leave the Stumm family a 33 1/3 per cent interest in the Lorraine portion of their property. They received a formal option embodying these terms. Soon afterward, the Bessoneau group (Jules Bernard) made inquiries, and perhaps had contact with the French government. In any event, Massenet shortly raised various objections to the terms of the option and demanded changes which the Stumm Brothers considered impossible, including an equal division of stock ownership between the two parties.
After the interview in June, Commandant Rich of the Service Industriel had not participated further in the negotiations, merely keeping himself informed of their progress. In October he again called a Stumm manager to his office and advised him emphatically to come to an agreement with some French group, no matter which. It was folly to resist further. To insist upon the conditions which the firm had laid down was going too far; it must come to book. The French government demanded as a minimum a 60 per cent participation for French capital. Early in November there was another interview with Commandant Rich,(44) who said he had just talked to Minister Loucheur. The French must have a 60 per cent participation in the Saar steel industry. The Peace Treaty would probably go into effect on November 21 (it actually did not until the following year); and, although it required that coal deliveries be continued to Saar industries, there was nothing to prevent the French from shutting off the supply of Lorraine ore. In fact, there was an old law in France under which the export of ore might be forbidden. All steel firms in the Saar which refused to accept a 60 per cent French participation would get no ore. Loucheur had told him this, said Rich.
Meanwhile, pending the ratification of the Peace Treaty, the coal mines of the Saar were still under the control of the occupying military forces. The morning after this last interview with Commandant Rich, a confidential phone call from a German mining engineer reported to the Stumm firm that orders had gone out to stop coal deliveries to their works. There was also difficulty with the ore supply, and in November the plant had to be closed down. It was during these weeks that the main negotiations with the Bessoneau group were going on.
The last straw was the intelligence that other German industrial leaders in the Saar also found themselves approaching the end of their resistance to French capital participation; so, on November 22, 1919, an option on a controlling interest in their works at Neunkirchen-Saar was made out by the Stumm representatives to whichever French group should purchase their Ueckingen plant in Lorraine at auction. Certain conditions which they inserted in the option, notably an attempt to except from its provisions a plant for producing special high-grade steel, drew denunciations from Commandant Rich, who cursed them as betrayers. On December 5 Rich said he had orders to hold back coal deliveries until the terms of the option were altered, and he showed a French government letter to that effect. There was nothing for the German owners to do but agree; so on December 6 they signed the final option. Sixty per cent of the capital stock was to be sold to Frenchmen.(45) Commandant Rich was asked to certify that in his opinion the option was satisfactory, and did so; but he remarked parenthetically that he was not to be considered an official representative of the French government.(46)
It was thus that the sale of a 60 per cent interest in the Stumm works at Neunkirchen to a company organized by the Forges et Aciéries du Nord et de l'Est came about. Continued operation at a loss led in 1926 to another readjustment in ownership. A banking combination including the Otto-Wolff group and the Deutsche Bank purchased 40 per cent of the shares, the French company retaining 20 per cent, and the Stumm family 40 per cent.(47) So six years later control passed again into German hands.
All through the negotiations of 1919 the Stumm firm and the German government were in close touch. The Foreign Office in particular urged the firm to hold on as long as possible and to retain as much of its property as possible, for the whole affair was looked upon as a political battle. Officials earnestly requested the Stumm family above all not to abandon its traditional seat in the Saar, since such a withdrawal would inevitably have taken on tremendous significance in the minds of the populace, who would have interpreted it as a sign that Germany had given them up.
We turn now to the fate of the Röchling firm, where pressure of an entirely different sort was involved. During the war the two owners, Robert and Hermann Röchling, had served as officers in the German army and had carried out orders for the crippling of steel works in the occupied areas of France. Shortly after the armistice they were included in a list of "war criminals" whose punishment was demanded in France.
They were charged with having stolen materials and having maliciously damaged French factories. Their defense was that they were acting under orders to execute measures due to military necessity and hence sanctioned by the law of nations. Robert was arrested in November, 1918, but Hermann, warned in time, got away. Both were tried by courtmartial at Amiens and found guilty. They were sentenced to serve ten years in prison and to pay heavy fines. Hermann Röchling, who had escaped detention,(48) was naturally concerned about the fate of his imprisoned brother; and, when the diplomatic efforts of the German government and of the Vatican failed to effect his release, the Röchling firm informed the Service Industriel that if Robert were freed and the sentence against Hermann quashed within a specified time, then the firm would yield to French wishes in regard to the participation of French capital in the enterprise. An industrial group headed by the Aciéries de Longwy had been seeking to obtain part ownership on the basis of the French governmental demands, but its overtures had hitherto been refused.(49)
Early in November, 1919, the Röchling firm signed a preliminary agreement with the Société Lorraine Minière et Métallurgique, founded by the Longwy group, in which the French company was given an option for the purchase of a 60 per cent participation in the Saar works at a price of seventy million francs. Certain portions of the plant devoted to the production of special grades of steel were excluded from the option, however, and the validity of the whole was made dependent upon the release of Robert Röchling and the quashing of the proceedings against both brothers. The Société Lorraine simultaneously handed in a bid for the Röchling properties which were undergoing liquidation along with other German possessions in Lorraine. This arrangement did not meet the approval of the French government. On December 5, the Röchling firm was informed through the Service Industriel that control over the entire works must be transferred to French capitalists and that the conditions regarding Robert and Hermann Röchling could not be fulfilled.(50)
It was primarily the detention of Robert Röchling which induced the firm to continue the negotiations.(51) Upon its declaration that it was ready to accept a 35 per cent participation in those portions of its works from which it had previously sought to exclude French ownership a new bargain was struck and a new option granted. This option contained the same conditions as to Robert and Hermann Röchling as before, expressed in the following terms :(52)
This agreement is binding on the Röchling Iron and Steel Works only in case, by August 31, 1920, the "non Lieu" for Messrs. Robert and Hermann Röchling has been pronounced, Robert Röchling has been permanently released, and all further proceedings of any kind against members of the Röchling family by the French government have been dropped.
The French government is said to have expressed itself as satisfied with the new option,(53) and the Lorraine properties of the Röchlings were awarded to the Société Lorraine for 34,150,000 francs.(54) Meanwhile, the French government initiated a new trial of Robert Röchling, and he was acquitted. He was released from prison in Nancy in October, 1920. The French government then demanded that Hermann Röchling present himself before a court at Amiens in order to have the sentence against him annulled, but this he refused to do, insisting instead that the government should obtain the necessary court decree on its own initiative and thus "repair the injury to justice." When this was not done within the time limit(55) specified in the option agreement with the French industrialists, Röchling declared his firm no longer bound by its terms. Furthermore, during the long delay due to these proceedings the depression of 1920 had begun and had so affected the iron industry that the Société Lorraine no longer regarded participation in the Röchling works as advantageous.(56) The Röchling family, therefore, half on a legal technicality and half by accident, succeeded in retaining possession of its Saar interests.(57)
The third enterprise to be examined is the Dillingen foundry. Even in 1914 some 43 per cent of its capital stock had been owned by French shareholders.(58) Dispossessed during the war, they were restored to their rights with the conclusion of peace. These French stockholders organized themselves into a syndicate and requested the French government to cancel the sequestration and liquidation proceedings under way in Lorraine so far as the possessions of the Dillingen company were concerned, pointing out that the disruption of the vertical combination which bound the Saar and Lorraine works together would injure important French capital interests. The French government answered that it would abstain from liquidating the Lorraine properties of the Dillingen firm only if 75 per cent of its capital stock were found to be in the hands of French citizens. The French group now asked the German group to sell at least enough of its stock to fulfill this condition and even stood ready to buy the entire German holding. Though the terms of sale proposed were not disadvantageous, the German owners "regarded the fight against foreign control nevertheless as a self-evident national duty and therefore rejected the French proposal."(59) The French group now endeavored quietly to buy up enough stock in small parcels to gain control and thereby raised its participation to 44 per cent. The Germans then saw the danger that a few additional purchases might give absolute administrative control to the French capitalists; they tried to avoid this contingency by offering to allow the French a 50 per cent interest on condition that the corporation's statutes be amended to prevent complete control by either group. These negotiations broke down also. At a conference on August 5, 1919. the German and French stockholders agreed on a proposal to the French government under which the majority would be in the hands of French and "Saar" citizens, but the Minister of Reconstruction, Loucheur, declared that no such arrangement would be acceptable. The French government was determined to proceed with the liquidation in Lorraine unless the absolute control of the Dillingen firm were in French hands.
Finally the German group yielded and agreed to raise the French participation to 60 per cent-still on condition, however, that certain statutory changes be made in order to prevent the Germans from being deprived of all voice in the administration of the enterprise. With this the French capitalists declared themselves satisfied. These qualifications were to be treated as confidential, however, since they plainly violated the requirements laid down by the French government. On this basis an option was signed, and the French group agreed to-lengthen the terms in office of certain German directors. Nevertheless, political and business causes brought about a conflict between the French and German groups early in 1921. The French government saw certain political objectives-particularly the introduction of wage payment in francs-end angered by the incomplete administrative control of the Dillingen firm. Loucheur thereupon demanded that the French group dismiss the German general director and replace him by a Frenchman. He threatened reprisals not only against the Dillingen firm but also against other enterprises in France owned by these French stock holders. The result, of course, was the assumption of complete administrative control by the French.
We have now examined in detail the methods employed in the three most important and interesting cases connected with the post-war French capital penetration of heavy industry in the Saar: the pressure on the Stumm, the Röchling, and the Dillingen firms. The extent of post-war "Ueberfremdung," as, German writers call it, by French capital in the minor industries of the Saar need be only briefly outlined. The Dingler-Karcher steel manufacturing works became French to the extent of 60 per cent of its capital, but was later repurchased by Germans. The Ehrhardt and Sehmer machine factory had a similar history; first it became 60 per cent French, then, after several reorganizations, found itself in German hands again. Several other firms, like the Agricultural Machinery Company and the Mannesmann Tube Works, came and remained under the majority control of the French. On the other hand, a considerable number of machine factories and metal works succeeded in pulling through without the necessity of taking in French capital at all: the Seibert structural steel and bridge works, the Heckel wire factory, the Karcher, Roth, and Company screw factory, and others. In the glass industry, those plants manufacturing sheet glass remained under purely German ownership, but several bottle-making firms passed into the possession of French capitalists. Two organizations in the electrical industry were temporarily in French hands, but by the end of 1926 had become German again. Attempts of French firms to establish themselves in the retail trade of the Saar were few; the number of French wholesale branches was somewhat greater, but, in general, the trade of the district remained German. French capital did not penetrate into the old established banking institutions of the Saar, but a number of French banks established branches in the Territory.(60)
It is not suggested, of course, that French capital in all these cases was pushed into the Saar Territory and its acceptance forced upon German firms with the aid of governmental pressure. After all, the same economic forces which induced a tremendous flow of foreign capital into other industrial sections of Germany were operative in the Saar. A large part of the French capital invasion took place during the depreciation of the mark. Furthermore, there were certain special economic factors at work, such as long-standing connections between the economic life of the Saar and of Lorraine. Likewise very important, however, were certain effects of the political situation upon the economic life and prospects of the Saar; these constituted a general, but none the less powerful pressure in support of the "Ueberfremdung" by French capital. First of all, there seemed to be some prospect in the beginning that the Saar Territory would become permanently French. Again, the governing authorities introduced French francs as the medium of exchange, and this doubtless encouraged French investors. More important still, not only did the Peace Treaty establish freedom of trade between the Saar district and France, but it raised the prospect that after a five-year transition period the Saar would constitute an integral part of the French customs system. This meant a shift in markets for Saar products. The German owners of Saar industries were faced by the prospect of finding themselves outside the German tariff wall and therefore cut off from old markets in Germany. Industrialists in France anticipated costly competition within their national preserves from these newly admitted outsiders, who must therefore be brought into their production-quota and price-fixing schemes. The resulting pressure on the Germans to sell and on the French to buy is obvious.
As a matter of fact, the influence of German and French industrialists interested in the Saar on their respective governments brought about special Franco-German agreements in 1925, 1926, and 1928 which modified the customs provisions relating to the Saar in the Treaty and permitted continued exports to Germany.(61) This change in the customs prospects of the region, coupled with recovery of economic strength in Germany after the passing of the inflation crisis and the gradual perception by everybody concerned that a German victory in the plebiscite of 1935 was a foregone conclusion, turned the tide of capital movements in the Saar. By the end of 1926, as we have seen, many of the firms which had passed into French control were again in German hands. A very considerable amount of French capital remained invested in the Saar District, however.
Germans who have written about the penetration of French capital into the Saar, and especially about the pressure applied to the greatest German metallurgical firms under the military administration in 1919-20, see behind it definite political intentions---a conscious attempt by the French to link the economic life of the Saar definitely with France and thus (as well as through French schools established for the children of workers and by other propaganda means) to influence the plebiscite of 1935.(62) In their first energetic campaign just after the war, say the Germans, the French in the Saar believed that economic and cultural penetration might be effective enough in the course of fifteen years to bring the Territory permanently into the French fold at the plebiscite.
What do the French in the Saar have to say concerning these allegations? The writer talked at Saarbrücken with a number of Frenchmen prominently connected with the industrial life of the region(63) among them a high official of the Administration des Mines, two men actively engaged in the management of metallurgical interests, and the secretary-general of the Chambre de Commerce Franco-Sarroise. Only one of these was willing to accept the view that pressure had been exercised by the government to get French capital into the Saar. One of the government's means of encouraging its capitalists to enter, said he, had been to make it as cheap as possible for them to buy, and this was done through the control of coal. The others denied that pressure of this sort had ever been used on the German firms(64) and emphasized purely economic aspects of the situation which had made the Germans want to sell and the French want to buy.
Just after the war the Germans felt that the Saar was lost, say the Frenchmen whom the writer had the opportunity of interviewing. They knew that if the French adopted the same methods that they themselves would have employed in a similar case, there would be no chance for German industries.(65) Therefore, the German industrialists sought to get out and to save themselves as best they could. They were glad to sell. Even if they intended to remain they needed French connections in order to find a market in France. Röchling occupied a special position; his was an old family long attached to the Saar, and his firm was impelled by sentimental, political considerations to hold on.
The French metallurgical industry, on the other hand, which was solidly organized within France, saw the Saar works being brought inside the French tariff wall to offer competition, and, perhaps, to upset their system. They naturally wanted to control the Saar production, as well as that within France, under their quota arrangements. Hence, the buying of interests in the German industries of the Saar was a matter of price protection for the internal market from the standpoint of the French metallurgists. "There is often a tendency to see some huge, general plan back of transactions like the buying of Saar industries by French capital and their later repurchase by Germans," concluded one of the Frenchmen interviewed. "Really, each transaction was an affair in itself, with economic, profit-seeking motives back of it. Frenchmen and Germans are even able to unite for such purposes."(66) As for the part played by the French government in the capital transactions in the Saar after the war, it consisted entirely of moral influence. The government, which means the Ministry of Reconstruction headed by M. Loucheur, merely counseled and advised French industrialists to buy control of German firms in the Saar, pointing out that this was necessary for their own protection against price competition. In other words, according to this view, the new orientation of Saar economy after the war and under the Treaty of Versailles was such that it had as a result the movement of French capital into the region. French capital was not pushed in as a means to a political end, but came instead for business reasons which arose, it is true, partly out of a political situation.(67)
Now that the allegations of the Germans and the replies of the French have been stated, together with the best evidence which it seems possible for an outsider to obtain without having available the resources which a really searching inquiry would demand, certain conclusions may be drawn. On the factual questions involved, there can be little doubt about the validity of the following findings:
1. French capital did enter the Saar Territory in large amounts after the war, replacing German capital and in many instances obtaining a controlling influence over important firms, particularly in the iron and steel industry. A reverse movement set in about 1925.
2. Economic factors resulting from the new situation of the Saar under the Peace Treaty go a long way toward explaining the movement of French capital into the Saar and are sufficient to explain most of it in its entirety. Nevertheless, the French government was more than a passive observer; it certainly advised and counseled its capitalists to enter the Saar, probably requested some of them do so, and probably induced others to enter who would not have done so otherwise (by means of conditions attached to the purchase of sequestered Lorraine properties, for example).
3. In addition to the general economic pressure resulting from the changed situation of the Saar and the uncertainty of its future, very specific pressure backed up by threats and actual interference with necessary supplies was exerted upon certain of the most important German firms in the Saar in order to force them to sell a majority of their share capital to French buyers. This pressure was applied through the Service Industriel of the French occupying military forces, with the knowledge and probably at the instance of the Minister of Industrial Reconstruction in the Liberated Regions at Paris. The pressure referred to occurred in 1919 and the early months of 1920. There is no evidence that it lasted longer, nor that such methods were employed after the military occupation was terminated, the Peace Treaty put into force, and the League of Nations Governing Commission set up.
A word on the interpretation of what took place in the Saar. An example of economic "penetration" it clearly is, but is it an example of: (1) the influence of private profitseeking investors on the foreign policies of a government? or (2) the influence on private investments of a government with certain national purposes to promote? The two often go hand in hand, and in the Saar episode there seems to have been something of each, but (2) apparently dominated.(68) Patriotic officials were out to consolidate the French position in the Saar and to begin a process of reorientation which might culminate fifteen years later in the permanent addition of a bit of important territory, which they had been denied in the Peace Treaty, to the homeland. There may have been also in the minds of the Ministry of Reconstruction---M. Loucheur and his associates---some project for building up a French continental iron trust.(69) For the fulfillment of these aims, French capitalists were encouraged by the government to invest in the industries of the Saar District, and apparently some of them were led to invest more capital in the Saar than they really wished to put there. We have seen evidence of the fact that it was repeatedly the French government and not the capitalists concerned who insisted upon a majority rather than a minority interest in the Saar steel firms, and this lends strong support to the interpretation suggested here, as does also the willingness of the French shareholders in the Dillingen enterprise to make secret terms not as stringent as those demanded by the government.
