862.60/12–147

The Acting Secretary of State to the Chairman of the House Committee on Foreign Affairs ( Eaton )

[Extracts]

My Dear Mr. Eaton : This will acknowledge receipt of your letters of November 25 and December 1, 1947,35 transmitting copies of House Resolution 364 and House Resolution 365, and requesting the comments of the Department of State thereon.

House Resolution 364 provides in substance that the entire dismantling program in the United States Zone of Germany be suspended until the Congress has had the opportunity to study the economic effects of such dismantling upon future United States expenditures in aid of European recovery; and that an attempt be made to bring about similar action in the British Zone. The objective of the Resolution appears to be to enable the Congress to assure itself that the dismantling program will in no way increase the financial burden on the United States.

With this objective the Department of State is, of course, in complete sympathy. All directives to the United States Zone Commander have consistently emphasized the necessity for minimizing United States financial costs in Germany, and for bringing Germany as rapidly as possible to the achievement of self-support. This factor was basic to our decision to increase the industrial capacity to be retained in the bizonal area after it became clear that the conditions which were assumed for the earlier Level of Industry Agreement for all of Germany could not be fulfilled at this time.

It was necessary to ensure, in accordance with international agreements, a prompt contribution by Germany to the economic reconstruction of the victims of German aggression, and to carry out the [Page 1134] fullest demilitarization of Germany consistent with German self-support and with European reconstruction. Therefore, General Clay was instructed to prepare, in concert with his British colleague, a Revised Level of Industry Plan. This Plan was published on August 29, 1947,36 and the list of plants selected for removal thereunder was published on October 16.

As stated in the text, “the over-riding requirement (in the development of the Plan) was to provide the level of industry necessary to make the area self-supporting.” General Clay’s instructions were to ensure the retention in Germany of sufficient industrial capacity to permit not only the achievement of a self-sustaining economy, and thereby the elimination of U.S. financial contributions, but also a substantial contribution through exports to general European recovery.

It is the considered opinion of the American and British authorities who have worked with these problems for over two years now that the Plan achieves these objectives. It is their firm belief that the plants scheduled to be removed could not, because of world shortages of food, fuel and raw materials, possibly be used in Germany within the next four to five years; and that their removal, therefore, will cause no loss of German production. General Clay has provided the following statement which expresses his position clearly:37

“The United States has consistently refused to permit production in Germany for reparations as it is apparent such production would be supported by the United States. However, it has realized from the beginning that there was an excess industrial capacity in Germany built up during its war effort which could be removed from Germany without detriment to its normal economy. Therefore, the United States had favored reparations in the form of capital equipment, realizing that a reduction in Germany’s industrial output was also a security measure.

“Our first calculation of the level of industry failed to take into consideration the effect of failure to obtain early unification, subsequent boundary changes, and underestimated increases in population. Moreover, it failed to give adequate consideration to the need for Germany’s production to assist in European recovery. Realizing our mistake, we requested and obtained authority to revise the level of industry for the British and American Zones which had started to operate as an integrated economic unit. The revised level of industry gives to Western Germany what it had in 1936. It is true that this will not support the standard of living which existed in 1936. It is a productive [Page 1135] output per capita approximately 75% of the per capita output in 1936, and capable of providing a reasonable standard of living taking into consideration the standard prevailing in Europe as a whole. It will permit exports from Germany sufficient to pay for essential imports, including food, and the exports made to other Western European countries will eventually assist in their recovery. However, it is doubtful if the industrial capacity left in Germany can be put fully to use in less than 5 years, and it would be indeed many years before the full capacity, including that made available for reparations, could be put to use. If, in fact, this equipment is removed by other Western Nations, it may well contribute to European recovery at an earlier date than if left in Germany.

“While the IARA organization does include some of the satellite countries, they would obtain very little of the equipment.

“Coal, transport, and manpower are not available to Western Germany to support an industry greater than now contemplated. Western Germany no longer has access to the Brown coal fields of Eastern Germany and hence must use hard coal for many purposes formerly served with Brown coal. This of course reduces its steel-making capacity. Germany’s transport has been badly damaged. There is a great shortage of rolling stock and waterway stock. Germany’s repair facilities were designed only to keep up with normal depreciation. They too are badly damaged and it will be many years before these repair facilities can take care of present depreciation and at the same time replace the railroads, barges, and other transport equipment lost as a result of war damage.

“Moreover, even today Germany is facing manpower shortages everywhere, although total production is less than 50% of prewar production and the population of the 2 Zones has increased by more than 6,000,000 persons. The reasons for this shortage in manpower lie first in the heavy casualties suffered by Germany during the war, the still missing prisoners of war, and the low productive output of its present manpower due to food shortages. Young and middle aged skilled manpower is in short supply. It will take many years for replacement manpower to be found and to be trained. The increase in population is composed largely of untrained women and the young and old. Moreover, even if food becomes available, it will be several years before the working population can be fully restored to its prewar productive ability.

“It is my sincere conviction that in view of these factors, we have left to Western Germany all of the industrial capacity it can use. Of course cases can be made for specific plants and we are prepared to consider recommendations from the Germans for transfers and other replacements to save specific plants when it can be shown that such plants are essential to the German economy. While the German politicians have gone on record disclaiming responsibility, there is no widespread evidence that the proposed program has created any serious disturbance or that it will create such disturbance. Obviously the Communist Party will attempt to make it an issue before the German people.

“I have frequently pointed out that fear of the effect of dismantling on the German people failed to take into consideration the effect that [Page 1136] discontinuance of the program would have on the Free Nations of Western Europe. We have entered into an international agreement at the Paris Conference in which we promised deliveries of capital equipment. While no quantities were specified, it was certainly intended that the deliveries would be substantial. It seems to us that we have reduced the deliveries to a minimum to satisfy our commitments to these countries and to meet real needs. A failure to deliver substantial quantities of capital equipment would certainly be regarded as a breach of our commitment. In the case of France, I have pointed out its concern as a matter of security over the present agreed level for the British and American Zones. The French believe too that shortages of coal will make it difficult to establish this level in Germany without holding back industrial development in Western Europe. Therefore, in establishing the present level of industry, we have already challenged French friendship and any further increase in this level would be certain to arouse great additional French resentment.

“Moreover, this presently agreed level of industry is not a unilateral US matter but a joint matter covering the British and American Zones with, in fact, the greater amount of the capital equipment coming from the British Zone.

“In the general interests of Western Europe we believe we have reached a solution which, while perhaps satisfactory to no one, is less unsatisfactory to everyone than any other solution which could be developed. Finally, this decision settles the reparations program, fixes the plants to be left in Germany so that their owners may put them at work, and definitely tells the nations belonging to IARA what they may expect from Germany. This final solution is essential and further delays and studies could only add uncertainty and doubt to a program which needs resolving now.

“In addition it might well be pointed out that the repairs of Germany’s war damage will for years require a substantial percentage of German manpower and this alone would prevent sufficient manpower being available to operate present industrial capacity in Germany if all of this industrial capacity were left in Germany and fully restored for production.”

Quite recently the Department of State had occasion to make a general statement of its position on the relationship of the dismantling program to the proposed European Recovery Program. This statement seems relevant to the present inquiry and is set out below in its entirety.

[Here follows the text of the statement by Acting Secretary of State Lovett on the objectives of the reparations removals program in Germany, released to the press on November 26, 1947. For the text of the statement, see Department of State Bulletin, December 7, 1947, pages 1088.]

The right of the member countries of the IARA to receive reparation from Germany is incontestable. A delay of two years has already occurred in the large-scale implementation of the reparation program on which they counted when signing the Paris Agreement. Still further [Page 1137] delay would tend to be considered by them as evidence of lack of United States interest in reparation and security, and as lending substance to the Soviet charge that the United States favors German over European recovery.

The Department of State would, of course, agree that these considerations, strong as they are, could not take precedence over important United States interests. It is the firm view of the Department, however, that the Revised Level of Industry Plan affords ample protection to the financial interests of the United States, and that all other United States interests in this matter favor the prompt completion of the dismantling program. The Department of State would not, therefore, favor passage of House Resolution 364.

House Resolution 365 constitutes a rather detailed request for information. The Department of State is prepared at all times, of course, to furnish to the best of its ability any information requested, in whatever form, by the Congress, its Committees, or its individual Members. A memorandum38 is enclosed which furnishes the additional information not believed to have been provided by Mr. Lawrence Wilkinson’s testimony before your Committee on December 3. If this information is considered sufficient for your immediate purpose, it would appear unnecessary to have the Congress pass this Resolution.39

The information furnished herewith was gathered with the complete cooperation of the Department of the Army, which concurs fully in the views expressed.

Because of the urgency of the matter this letter has not been cleared with the Bureau of the Budget, to which a copy is being sent.

Sincerely yours,

Robert A. Lovett
  1. Neither printed.
  2. See the editorial note, p. 1066.
  3. The statement that follows was cabled from Berlin by General Clay in response to an inquiry from the Civil Affairs Division, Department of the Army. The statement was transmitted to the Department of State in a memorandum from the War Department dated December 3, 1947 (740.00119 Control (Germany)/12–347).
  4. Not printed.
  5. House Resolution 365 of the Eightieth Congress was adopted by the House of Representatives on December 18, 1947. The Resolution requested the Secretaries of State and Defense to transmit information to the House of Representatives on eleven questions regarding the removal of industrial plants from Germany. For the text of the questions contained in House Resolution 365 and the answers provided thereupon, see Department of State Bulletin, February 8, 1948, pp. 185–191.