IG Farben

Background

At the beginning of the 20th century, the German chemical industry dominated the world market for synthetic dyes. Three major firms BASF, Bayer and Hoechst, produced several hundred different dyes. Five smaller firms, Agfa, Cassella, Kalle & Co., Chemische Fabrik Griesheim-Elektron and Chemische Fabrik vorm. Weiler-ter Meer, concentrated on high-quality specialty dyes. In 1913, these eight firms produced almost 90 percent of the world supply of dyestuffs and sold about 80 percent of their production abroad. The three major firms had also integrated upstream into the production of essential raw materials, and they began to expand into other areas of chemistry such as pharmaceuticals, photographic film, agricultural chemicals and electrochemicals. Contrary to other industries, the founders and their families had little influence on the top-level decision-making of the leading German chemical firms, which was in the hands of professional salaried managers. Because of this unique situation, the economic historian Alfred Chandler called the German dye companies "the world's first truly managerial industrial enterprises".

With the world market for synthetic dyes and other chemical products dominated by the German industry, German firms competed vigorously for market shares. Although cartels were attempted, they lasted at most for a few years. Others argued for the formation of a profit pool or Interessen-Gemeinschaft (abbr. IG, lit. "community of interest"). In contrast, the chairman of Bayer, Carl Duisberg, argued for a merger. During a trip to the United States in the spring of 1903, he had visited several of the large American trusts such as Standard Oil, U.S. Steel, International Paper and Alcoa. In 1904, after returning to Germany, he proposed a nationwide merger of the producers of dye and pharmaceuticals in a memorandum to Gustav von Brüning, the senior manager at Hoechst.

Hoechst and several pharmaceutical firms refused to join. Instead, Hoechst and Cassella made an alliance based on mutual equity stakes in 1904. This prompted Duisberg and Heinrich von Brunck, chairman of BASF, to accelerate their negotiations. In October 1904 an Interessen-Gemeinschaft between Bayer, BASF and Agfa was formed, also known as the Dreibund or little IG. Profits of the three firms were pooled, with BASF and Bayer getting 43 percent each and Agfa 14 percent of all profits. The two alliances were loosely connected with each other through an agreement between BASF and Hoechst to jointly exploit the patent on the Heumann-Pfleger indigo synthesis.

Within the Dreibund, Bayer and BASF concentrated on dye, while Agfa increasingly concentrated on photographic film. Although there was some cooperation between the technical staff in production and accounting, there was little cooperation between the firms in other areas. Neither were production or distribution facilities consolidated nor did the commercial staff cooperate. In 1908 Hoechst and Cassella acquired 88 percent of the shares of Chemische Fabrik Kalle. As Hoechst, Cassella and Kalle were connected by mutual equity shares and were located close to each other in the Frankfurt area, this allowed them to cooperate more successfully than the Dreibund, although they also did not rationalize or consolidate their production facilities.

Foundation

Following a contract signed by all concerned parties on November 21, 1925, IG Farben was founded on December 2, 1925, as a merger of six companies: BASF (27.4 percent of equity capital); Bayer (27.4 percent); Hoechst, including Cassella and Chemische Fabrik Kalle (27.4 percent); Agfa (9 percent); Chemische Fabrik Griesheim-Elektron (6.9 percent); and Chemische Fabrik vorm. Weiler Ter Meer (1.9 percent). The supervisory board members became widely known as, and were said to call themselves jokingly, the "Council of Gods" (Rat der Götter). The designation was used as the title of an East German film, The Council of the Gods (1950).

In 1926, IG Farben had a market capitalization of 1.4 billion ℛ︁ℳ︁ (equivalent to 6 billion 2021 euros) and a workforce of 100,000, of which 2.6 percent were university educated, 18.2 percent were salaried professionals and 79.2 percent were workers. BASF was the nominal survivor; all shares were exchanged for BASF shares. Similar mergers took place in other countries. In the United Kingdom Brunner Mond, Nobel Industries, United Alkali Company and British Dyestuffs merged to form Imperial Chemical Industries in September 1926. In France Établissements Poulenc Frères and Société Chimique des Usines du Rhône merged to form Rhône-Poulenc in 1928. The IG Farben Building, headquarters for the conglomerate in Frankfurt am Main, Germany, was completed in 1931. In 1938, the company had 218,090 employees.

IG Farben was controversial on both the far left and far right, partly for the same reasons, related to the size and international nature of the conglomerate and the Jewish background of several of its key leaders and major shareholders. Far-right newspapers of the 1920s and early 1930s, accused it of being an "international capitalist Jewish company". The liberal and business-friendly German People's Party was its most pronounced supporter. Not a single member of the management of IG Farben before 1933 supported the Nazi Party; four members, or a third, of the IG Farben supervisory board were themselves Jewish.

Throughout the 1930s, the company underwent a process of Aryanization, and the company ended up being the "largest single contribution" to the successful Nazi election campaign of 1933; there is also evidence of "secret contributions" to the party in 1931 and 1932.