March 11, 2019

Tim Wu’s Bad History: Big Business and the Rise of Fascism



The recent increase in economic concentration and monopoly power make the United States “ripe for dictatorship,” claims Columbia law professor Tim Wu in his new book, The Curse of Bigness. With the release of Senator Elizabeth Warren’s proposal to “break up” technology companies like Amazon and Google, fear of bigness is clearly on the rise. Professor Wu’s book adds a new dimension to that fear, arguing that cooperation between political and economic power are “closely linked to the rise of fascism” because “the monopolist and the dictator tend to have overlapping interests.” Economist Hal Singer calls this the book’s “biggest innovation.”

The argument is provocative, but wrong. As I show below, the claim that big business contributed to the rise of the Nazi Party is simply inconsistent with the consensus among German historians. While there is some evidence industrial concentration contributed in Hitler’s ability to consolidate power after he was appointed chancellor in 1933, there is no evidence monopolists financed Hitler’s rise to power, and ample evidence showing industry leaders opposed his ascent.

Thomas Childers, a professor of history at the University of Pennsylvania, calls the idea that Hitler was bankrolled by big corporate donors a “persistent myth.” This, among myriad other reasons, should give us pause before comparing 1930s Germany to the present-day United States. If fascism does come to the United States, big business won’t be to blame.

A Closer Look at Wu’s Sources

To begin to unpack Professor Wu’s argument, let’s first dig into his sources. He summarized his argument in an essay adapted from the book for The New York Times opinion page:

Postwar observers like Senator Harley M. Kilgore of West Virginia argued that the German economic structure, which was dominated by monopolies and cartels, was essential to Hitler’s consolidation of power. Germany at the time, Mr. Kilgore explained, “built up a great series of industrial monopolies in steel, rubber, coal and other materials. The monopolies soon got control of Germany, brought Hitler to power and forced virtually the whole world into war.”

 

To suggest that any one cause accounted for the rise of fascism goes too far, for the Great Depression, anti-Semitism, the fear of communism and weak political institutions were also to blame. But as writers like Diarmuid Jeffreys and Daniel Crane have detailed, extreme economic concentration does create conditions ripe for dictatorship.

As economist Tyler Cowen points out, Diarmuid Jeffreys  “does have a book on IG Farben and the making of the German war machine, but it does not demonstrate how economic concentration brings totalitarian regimes to power, instead focusing on how IG Farben profited from Nazi war aims and helped build the Holocaust.” The reference to Daniel Crane, a University of Michigan law professor, is for a working paper titled “Antitrust and Democracy: A Case Study From German Fascism.” Here is a key passage:

Farben played an early and critical role in developing the finances of the Nazi party. On February 27, 1933 — perhaps not coincidentally the day of the Reichstag fire — Farben deposited RM 400,000 in the Nazi Party’s coffers, the largest donation by any firm by a large order of magnitude.

But this donation came late in the development of the Nazi Party. As Crane writes,

With Hitler’s rise to power in the early 1930s, Farben initially resisted Nazification, worried about potential ill effects on its global business of becoming overly intertwined with a controversial political party. However, by the mid-1930s, the firm’s management had acceded to the reality that alliance with the Nazis was critical to the continued success of the Farben enterprise.

Elsewhere in his paper, Crane is even more circumspect. He emphasizes that pre-Nazi Germany had no antitrust laws and considers the counterfactual: “Would the presence of a consumer-welfare oriented antitrust law have prevented the economic dominance of I.G. Farben and hence the crucial role it played in supporting the rise and evils of Nazism? The answer is plainly yes.” Crane concludes his paper by noting the takeaway from this historical period is that the consumer welfare standard, which underpins American antitrust law, is sufficient to protect democracy from this particular kind of risk:

At least as to the German chemical industry, application of consumer-welfare oriented antitrust principles would have interdicted the steps leading to the Farben monopoly and hence its role as Hitler’s industrial facilitator. If the Farben story can be generalized — an important caveat since this is just the beginning of an inquiry — that would suggest that antitrust law need not be reformulated to safeguard political liberalism, that what is good for consumers is good for democracy.

Big Business and Hitler’s Rise to Power

Hitler’s rise to power is widely considered to have begun when he joined the fledgling Germany Workers’ Party (DAP) in September 1919 and culminated with the passage of the Enabling Act, which abolished most civil liberties and gave the German cabinet unilateral power to enact laws, on March 23, 1933. The DAP changed its name to the National Socialist German Workers’ Party, or Nazi Party, on February 24, 1920. On the same day, the party also released its 25-Point Program, which Childers explained in his book The Third Reich: A History of Nazi Germany (p. 38):

Working with (DAP co-founder Anton) Drexler, Hitler had rewritten the party’s program, producing the “Twenty-Five Points,” which would remain the core of the “unalterable” National Socialist platform throughout the party’s existence. The new program, echoed in hundreds of stump speeches, pamphlets, and later in Hitler’s Mein Kampf, called for the nationalization of trusts and cartels, the establishment of consumer cooperatives, “profit sharing in big business,” the “breaking of interest slavery” (whatever that meant — even Hitler seemed unclear), and the ennoblement of the German worker. Its language borrowed heavily from the left, referring to members as “party comrades,” invoking “German socialism,” and calling for a classless “Volksgemeinschaft,” a people’s community to overcome Germany’s traditional social, regional, and religious cleavages. The program also courted the middle class, especially small-business interests, calling for “the creation and maintenance of a sound Mittelstand.” It demanded “the immediate communalization of the big department stores and their leasing to small shopkeepers at low rents.” Since the major department store chains were Jewish-owned, the attack on them, the party believed, was a major selling point in its anti-Semitic agenda. In all government contracts and purchases, the party promised “the most favorable consideration to small businessmen . . . whether on the national, state, or local levels.” It also advocated the creation of corporatist “chambers based on occupation and profession” as a counterweight to the powerful labor unions and corporate giants.

Hitler was appointed party chairman on July 29, 1921. Over the following decade, the Nazis went from zero representation in parliament to becoming the single largest party in July 1932. Here is how Childers describes the relationship between big business and the Nazi Party during this period (p. 139):

For the most part, however, business leaders, with a few notable exceptions, remained at arm’s length from the party. Despite contemporary accusations, especially by the parties of the left, that big business was bankrolling the NSDAP, the business community continued to be wary of the Nazis and preferred the more predictable center-right parties, especially the DNVP and DVP … Modest contributions from business sources were made in 1931 and into 1932, but the Nazis were not in need of their contributions. They were proud of the fact that the party did not rely on donations from special interests to fund its activities but relied almost exclusively on grassroots sources of funding — membership dues, subscriptions to the party press, admission to party events, and so forth. Despite considerable investigation, the police authorities in the Ruhr, for example, could find no evidence of significant donations from big business to the NSDAP in 1931. Nazi propaganda — the dances, the “German Evenings,” the concerts, the speeches — was a moneymaking operation.

Childers also notes that during this time the party would ask “members to make contributions for special causes or occasions — 11 million reichsmarks, for example, were collected in celebration of Hitler’s birthday.” In the run-up to the presidential election in the spring of 1932, Hitler gave a speech to “a gathering of some 650 members of the Düsseldorf Industry Club in the grand ballroom of Düsseldorf’s Park Hotel.” British historian Sir Ian Kershaw recounts the event in Hitler: A Biography (p. 224):

Hitler’s much publicized address … did nothing, despite the later claims of Nazi propaganda, to alter the skeptical stance of big business. The response to his speech was mixed. But many were disappointed that he had nothing new to say, avoiding all detailed economic issues by taking refuge in his well-trodden political panacea for all ills. And there were indications that workers in the party were not altogether happy at their leader fraternizing with industrial leaders. Intensified anti-capitalist rhetoric, which Hitler was powerless to quell, worried the business community as much as ever. During the presidential campaigns of spring 1932, most business leaders stayed firmly behind Hindenburg, and did not favour Hitler … The NSDAP’s funding continued before the ‘seizure of power’ to come overwhelmingly from the dues of its own members and the entrance fees to party meetings. Such financing as came from fellow-travellers in big business accrued more to the benefit of individual Nazi leaders than the party as a whole. Göring, needing a vast income to cater for his outsized appetite for high living and material luxury, quite especially benefited from such largesse. Thyssen in particular gave him generous subsidies, which Göring — given to greeting visitors to his splendrously adorned Berlin apartment dressed in a red toga and pointed slippers, looking like a sultan in a harem — found no difficulty in spending on a lavish lifestyle.

As Ralph Raico, a professor of history at Buffalo State College, points out, the aim of these “relatively minor subsidies” to particular Nazis “was to assure (the donors) of ‘friends’ in positions of power, should the Nazis enter the state apparatus.” In Hitler: Ascent, 1889-1939, German historian and journalist Volker Ullrich details the extent of the industrialists’ support for center-right parties during the time of the Düsseldorf speech (p. 292):

[T]he American historian Henry A. Turner and others following in his footsteps have corrected this outmoded narrative about the relationship between National Socialism and major German industry. By no means had the entire economic elite of the Ruhr Valley attended Hitler’s speech… The crowd’s reaction to Hitler was also by no means as positive as (Nazi Press Chief Otto) Dietrich’s report had its readers believe. When Thyssen concluded his short word of thanks with the words “Heil, Herr Hitler,” most of those in attendance found the gesture embarrassing. Hitler’s speech also did little to increase major industrialists’ generosity when it came to party donations. Even Dietrich himself admitted as much in his far more sober memoirs from 1955: “At the ballroom’s exit, we asked for donations, but all we got were some well-meant but insignificant sums. Above and beyond that there can be no talk of ‘big business’ or ‘heavy industry’ significantly supporting, to say nothing of financing, Hitler’s political struggle.” On the contrary, in the spring 1932 Reich presidential elections, prominent representatives of industry like Krupp and Duisberg came out in support of Hindenburg and donated several million marks to his campaign.

The period immediately following Hitler’s speech to the Düsseldorf Industry Club was similarly fruitless for fundraising, as Richard J. Evans, a professor of history at the University of Cambridge, describes in The Coming of the Third Reich (p. 245):

Neither Hitler nor anyone else followed up the occasion with a fund-raising campaign amongst the captains of industry. Indeed, parts of the Nazi press continued to attack trusts and monopolies after the event, while other Nazis attempted to win votes in another quarter by championing workers’ rights. When the Communist Party’s newspapers portrayed the meeting in conspiratorial terms, as a demonstration of the fact that Nazism was the creature of big business, the Nazis went out of their way to deny this, printing sections of the speech as proof of Hitler’s independence from capital. The result of all this was that business proved not much more willing to finance the Nazi Party than it had been before.

Hitler lost the spring 1932 presidential election to Hindenburg. But the Nazi party achieved a plurality of seats in parliament for the first time in the July 1932 elections. Unable to form a government without Nazi cooperation after yet another round of  elections in November 1932, Hindenburg appointed Hitler chancellor on January 30, 1933. With Hitler now in power, things changed. Ullrich describes a pivotal meeting the following month between business leaders and Nazi officials (p. 419):

That changed on 20 February, when Göring hosted a reception for twenty-seven leading industrialists, including the president of the Reich Association of German Industry, Gustav Krupp von Bohlen und Halbach, United Steelworks General Director Albert Vögler, IG Farben board member Georg von Schnitzler and Hoesch chairman of the board Fritz Springorum. Hitler, who spoke for an hour and a half, once again reaffirmed his belief in private property, denied rumours that he was planning any wild economic experiments and stressed that “only the NSDAP offers salvation from the Communist danger.” Fresh elections had been called, Hitler declared, to “allow the people to be heard once more.” And with rare frankness, he revealed the hollowness of his insistence upon remaining within the boundaries of the law. “He was no friend of illegal measures,” one of the industrialists recorded Hitler saying. “But he would not allow himself to be forced from power even if he could not reach his goal of an absolute majority.” Once Hitler had left, Göring declared without further ado that the “coffers of the party, the SS and the SA were empty” and that the business sector would have to bear the costs of the election, “which would be the last one for the foreseeable future.” After Göring, too, had withdrawn from the meeting, Hjalmar Schacht spoke up to present those in attendance with a bill for the campaign: 3 million reichsmarks were to be raised, of which three quarters would go to the NSDAP and one quarter to the “Battle Front Black, White and Red.”

Below is a copy from the Nuremberg Military Tribunals of Schacht’s ledger tracking the donations:

According to Childers (p. 269), “With this donation, big business was helping consolidate Hitler’s rule. But the offering was less one of enthusiastic backing than of political extortion.” In his book German Big Business and the Rise of Hitler, historian Henry Ashby Turner described this meeting as “the first important material contribution of organizations of the big business to the Nazistic cause.” The Reichstag fire occurred on February 27, 1933, prompting parliament less than a month later to pass the Enabling Act, effectively marking the completion of Hitler’s rise to power.

In summary, Hitler’s rise to power began in September 1919. He was either ignored or actively opposed by most of the leading industrialists until after he was appointed chancellor on January 30, 1933 and his party was the largest in parliament. The next month, his advisors “asked” a group of Germany’s most prominent businessmen for a 3 million reichsmarks campaign fund, in what one historian describes as “extortion,” and were only able to secure 2 million before the election (and spent just two-thirds of it). So much for the idea that German big business “got control of Germany” and “brought Hitler to power.”

The Trump Parallel

Trump has a soft spot for modern-day autocrats. A recent headline on an NPR article read “6 Strongmen Trump Has Praised — And The Conflicts It Presents.” In a piece for The Atlantic, David Frum argues the preconditions for autocracy are present in the United States today. Former Secretary of State Madeleine Albright released a book simply titled Fascism: A Warning. Trump’s continual interference in the Justice Department is the most telling piece of evidence, but far from the only one.

In The Curse of Bigness, Tim Wu recognizes these same risks, but ultimately places the blame in the wrong place. Big business is far from perfect, but most of the indicators of prosperity — wages, benefits, worker protections and diversity — increase with firm size. Big corporations are more productive than small businesses, and economic growth is what enables human flourishing.

But for the sake of argument, if we assume big business can contribute to the rise of fascism in the United States, what contemporary evidence do we have to evaluate that claim? Even if Trump isn’t a literal fascist, he may still be sowing the seeds for authoritarianism in America. So, which presidential candidate did the monopolists donate to in the 2016 election?

The tables below contain data from OpenSecrets — a nonprofit, nonpartisan research group that tracks the effects of money and lobbying on elections and public policy — on the political donations in the concentrated industries most commonly cited by Wu and others.

Big Tech

Clinton Trump
Apple $675,219 $5,041
Amazon $411,955 $5,502
Facebook $480,466 $4,815
Google $1,614,663 $21,921
Microsoft $865,134 $33,628

 

Big Banks

Clinton Trump
Bank of America $495,265 $78,192
Citigroup $295,486 $11,214
JPMorgan Chase & Co $563,261 $29,159
Wells Fargo $496,327 $67,884

 

Big Telecom

Clinton Trump
AT&T $357,401 $34,224
Sprint (SoftBank Corp) $89,452 $5,246
T-Mobile (Deutsche Telekom) $67,380 $4,252
Verizon $315,588 $21,150

 

Big Pharma

Clinton Trump
AbbVie $41,788 $3,135
Johnson & Johnson $148,792 $14,165
Merck $90,749 $4,305
Pfizer $216,092 $7,550

 

Donations from the usual suspects, from Big Tech to Big Pharma, favored the Hillary Clinton campaign by an order of magnitude. Perhaps corporations were merely donating to the expected winner in order to curry favor with the future administration. But if big business only finances the favorites, Professor Wu’s theory still fails to explain the rise of fascism.

Quite the opposite: Trump actively campaigned on antitrust populism. At a 2016 campaign rally, Trump said “AT&T is buying Time Warner, and thus CNN,” calling it “a deal we will not approve in my administration.”  In November of 2017, Trump’s Justice Department sued to block the merger. Trump has also directed the Justice Department to look into antitrust cases against Facebook, Google, and Amazon. The personal motivations behind these moves, like Trump’s belief that CNN and Google have a liberal bias, are particularly worrying. A plausible definition of fascism is the ad hoc application of state power to control the commanding heights of the economy. Expanding discretionary antitrust authority may therefore be less an antidote to creeping fascism than an enabler.

So what did cause the rise of fascism in Germany? In his own response to Professor Wu’s claims, the economist Tyler Cowen said he,

would instead stress that war, civil war, scapegoating, and deflation create the conditions ‘ripe for dictatorship.’ You might want to toss Russia and China into the regression equation, or how about Cuba and North Korea and Albania and Pol Pot’s Cambodia? How would the coefficient on industrial concentration end up looking?

In the contemporary debate, that coefficient would be small indeed. The history of fascism can teach us a lot about the ongoing rise of right-wing populism. But it’s important to draw the right lessons. The narrative provided by Professor Wu, on the other hand, uses the specter of fascism to advance a policy agenda that simply doesn’t follow from the facts.


Alec Stapp is a research fellow at the International Center for Law and Economics.