Naturally, IBM profits boomed. In February 1940, IBM Geneva sent IBM NY a month-by-month review of Dehomag's record profit increases in the last half of 1939. June profits increased RM 96,680 over May profits. July bettered June's amount by RM 123,015. August continued to set another record, beating July by RM 98,006, and so on for the rest of the year.
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In April, IBM executives in both Geneva and New York continued to marvel at Dehomag's unprecedented profit increases, including the unexpected nearly RM 1.8 million boost in December 1939. Auditors could not wait for details, reporting, "we telegraphed to Berlin for further information which we are now awaiting."
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It was never clear exactly how much true profit IBM earned worldwide because of the stealthy way its many subsidiaries classified and reclassified revenues to avoid taxation. Not all that was profitable was declared a profit. However, in mid-1940, even after applying its best accountancy transmogrifications, the New York office was compelled to announce yet another in a string of profit records, this one for the first half of the year. Just less than a $6 million gross profit for the six-month period was conceded, and that was without adding about a million-dollar foreign profit blocked in Germany and elsewhere. That $6 million half-year profit was about a half million higher than the same period a year before. Few in the financial community were surprised. IBM profits had been in a steep climb since the day Hitler came to power.
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Clearly, the war was good to IBM coffers.
Indeed, in many ways the war seemed an ideal financial opportunity to Watson. Like many, he fully expected Germany to trample over all of Europe, creating a new economic order, one in which IBM would rule the data domain. Like many, Watson expected that America would stay out of the war, and when it was over, businessmen like him would pick up the post-war economic pieces.
In fact, Watson began planning for the post-war boom and a complete reorganization of the world's economic system almost as soon as the war began. By late April 1940, he had convened a stellar Committee for Economic Reconstruction jointly sponsored by the two organizations he dominated, the ICC and the Carnegie Endowment for Peace. This group planned to rewrite the rules of international trade and economic sovereignty, essentially parceling out the world's resources when the war concluded. Watson introduced the plan to his fellow industrialists attending an April 29, 1940, ICC dinner in Washington D.C. "Our program," asserted Watson, "is for national committees in the individual countries to study their own problems from the standpoint of what they need from other countries and what they have to furnish other countries." It was the same Hitleresque message Watson had been preaching for years. Some countries, both men believed, were simply entitled to the natural resources of another. War could be avoided by ceding these materials in advance.
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No time was wasted in making plans. "We are carrying on just as though there wasn't any war, if you can believe it, and probably you don't," declared Eliot Wadsworth, chairman of the ICC's American Committee, when he convened the April 29, 1940, meeting. Wadsworth, a Watson confidant, revealed that "already two meetings have been held among representatives of the sections of the International Chamber in spite of the fact that it is contradictory to the regulations of the belligerent countries. . . . England, France and Germany have allowed the representatives of their sections to meet in friendly discussion at The Hague to consider the . . . future program."
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Just days after the ICC's dinner, Hitler launched his savage
Blitzkrieg
invasions overrunning Luxembourg, Holland, and Belgium. An outraged public could turn nowhere without seeing German atrocities depicted on newsreel screens or the front pages of newspapers. Horror stories from refugees, governments-in-exile, diplomats, and journalists alike would not stop. Although the nation was divided on the wisdom of entering the war, many nonetheless felt certain America would soon join the battle against Germany. Anti-Nazi sentiment intensified. A Gallup poll taken shortly after the Reich's spring offensive began showed only 2 percent of Americans felt Hitler's invasion of Belgium or Holland could be justified.
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As the public mood swelled against all things Nazi, Watson was now confronted with one major public relations problem: his medal.
Despite all the persecutions, atrocities, plunder, and invasions, Watson remained the proud holder of
der Fuhrer
's Merit Cross of the German Eagle with Star bestowed in 1937 at the ICC Congress in Berlin. Hitler's medal was a very public link. Holding it in the face of daily aggression was inherently an acceptance of Hitler's actions.
At the same time, Watson had avoided virtually all criticism of the Hitler regime beyond offering boyish aphorisms to observe the Golden Rule, and calling the invasion of Poland "a difference of opinion." He could not afford to offend his second-biggest customer, a customer that would soon emerge as the new dictatorial ruler of Europe. On the other hand, Watson would never allow his legendary and patriotic position in the United States to be compromised.
Events were squeezing Watson.
On May 16, 1940, the day after Holland capitulated, Watson did as he always did: he reached out to his friends in the White House and State Department for political cover. That day, he dispatched a note to Secretary of State Cordell Hull asking if the United States government wanted him to return the medal. Watson could then attribute his return or refusal to return the decoration to Hull's specific counsel. Now, however, the American government was openly anti-Nazi.
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Hull would not even become involved. The Secretary immediately wrote back: "I feel that this is a matter upon which the decision will have to rest entirely with you, and is not one upon which this Government would be able to take a position." Hull penned a personal regret in the margin, "I would offer advice to no person sooner than you."
62
Four days later, on May 24, Watson took his first overt step of identification with the victims of Nazi aggression. He agreed to chair an emergency committee to raise $3 million for the relief of Dutch refugees.
63
But now, IBM itself was coming under scrutiny for its Nazi connections. The company had become a virtual way station for German nationals transiting in and out of New York for training, meetings, and conferences. Some of these men were now moving with the vanguard of the German destruction machine in Austria, Czechoslovakia, Poland, and Holland. Others had been transferred to South America. A number of German nationals were actually stationed at IBM offices in the United States. Some of them were openly anti-Semitic and pro-Nazi. To even express pro-Nazi opinions was now considered anti-American.
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Beyond the vaunted publicity stunts and symphonies, IBM's Nazi alliance was quietly emerging from the haze.
At the end of May 1940, FBI Director J. Edgar Hoover became interested in IBM's Nazi connections. Suspecting the company of hosting a hotbed of Nazi agitation, the Federal Bureau of Investigation, in late May, launched wide-ranging investigations on at least four German nationals employed by IBM and suspected of espionage or other subversive conduct. Although no charges were ever brought, more probes would follow and they would continue for years. Assistant Secretary of State Adolf Berle became the State Department's point man for espionage concerns at IBM. Berle and Hoover began to regularly trade information on the suspected spies at IBM. In short order, federal agents and local police intelligence officers were dispatched to IBM offices in Manhattan, Endicott, Albany, Cincinnati, and Milwaukee asking probative questions.
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Eventually, the FBI interviewed senior company executives in their IBM offices, including the executive secretary, sales manager, education department director, and even Executive Vice President and General Manager Frederick Nichol. The field investigations soon came to the door of several IBM clients. Customers were asked about any pro-Nazi remarks overheard from at least one suspect IBM salesman in Milwaukee. The postmaster in Darien, Connecticut, was asked about rumors involving a leading IBM technical editor, a German national working in New York who was said to be part of an anti-Jewish society and expressing pro-Reich feelings.
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As soon as Watson learned of the FBI's interest, indeed even before the agency could organize its investigations, he went into action. Watson and Nichol visited Undersecretary of State Sumner Welles on June 6 to volunteer personal details about potentially suspect IBM employees in the U.S. and Latin America. Watson made it clear he would cooperate in any way, and take immediate steps to sever corporate relations with any individual the government thought questionable, including several specifically discussed in the Colombia and Mexico City offices. Welles referred the information Watson proffered to Berle, who in turn forwarded it on to J. Edgar Hoover. Ironically, when Watson and Nichol met with Welles at the State Department on June 6, the two IBM executives forgot to mention one particular salesman by the name of Karl Georg Ruthe.
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The FBI soon took an intense interest in German-born Ruthe for the many reports of his rabidly pro-Hitler statements while in IBM offices and even at customer sites. One widely distributed FBI file memo related the comments of an auditor at Blatz Brewery in Milwaukee, one of the IBM customers Ruthe had visited. A Blatz auditor passed on Ruthe's remarks reportedly expressing "strong sympathies for Germany and [the] thought that Hitler was justified in everything he did, inasmuch as Germany was given a very unfair deal in the last World War."
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Another FBI report quoted IBM's Milwaukee manager reporting that Ruthe "was quite boastful and would predict the outcome of the battles that are taking place in Europe, and that he kept the office force in a general turmoil with his constant talk about Hitler and what he [Hitler] was going to do to the European nations." Ruthe was also rumored in FBI files to be a member of the
Bund,
an association of German-American Nazis.
69
Few could understand Ruthe's continuing position in the company since he was hired in 1936. He did not fit the IBM mold. Reported in FBI files as a "drunk" and "a poor salesman," Ruthe was said to have seriously under-performed at the Endicott sales training school. Indeed, when Ruthe was transferred from the New York office to IBM Milwaukee, his superiors were asked to keep tabs on him.
70
Although Watson and Nichol forgot to mention Ruthe during their June 6 discussion, they did remember several days later, when Nichol sent a letter to Welles marked "Strictly Confidential." Nichol wrote, "In the discussion which Mr. Watson and I had with you on Thursday June 6, we overlooked mentioning the name of Mr. Karl Georg Ruthe. The facts concerning him are as follows." Nichol then listed in a column Ruthe's date and place of birth in Germany, graduating school in Germany, the four languages he spoke, home address, and citizen status—which was "American Citizen."
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Nichol added some other background: "Mr. Ruthe was first employed by us on December 1, 1936, in New York in a sales capacity. He spent three months at our school at Endicott, N.Y., from July to October 1937, when he was assigned to Milwaukee, still in a sales capacity. Prior to working for us, Mr. Ruthe was a tutor of modern languages in New York City; had his own school in Schenectady (the Schenectady School of Languages) and was an instructor of German at Union College in Schenectady. We understand him to be an American citizen, and believe that his parents reside in Germany. It so happens that we saw fit to ask for this man's resignation last week, based solely, however, on his inability to produce a record as a salesman in this business." Nichol included nothing more on Ruthe.
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Ironically, when the FBI inquired as to how a person such as Ruthe could remain at IBM so long, they discovered that Watson had omitted some pertinent details. The FBI file cited observations received from IBM Sales Manager Fred Farwell: "Subject's work was so poor," an FBI report recorded, "that he would have never been allowed to finish the IBM School and go out into the Field as a salesman had it not been for his close relationship to Mr. Watson, President of IBM; that as a matter of fact, Subject had been a constant source of trouble to all men in administrative positions who came in contact with Subject. And that Subject was only kept as an employee for the length of time, in view of his relationship to the President of the Company." Farwell added that Ruthe had married Watson's niece.
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The first week of June was a tense one for Watson. On June 3, 200 German planes dropped 1,060 explosive bombs and 61 incendiaries on Paris itself. More than 97 buildings were struck, including two hospitals and ten schools, killing 45. Ten children died at one demolished school alone. U.S. Ambassador to France William Bullitt himself narrowly missed death. While he was lunching with the French Air Minister, a bomb crashed through the roof and into the dining room, showering everyone with glass shards, but the device failed to explode.
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The public mood was reflected in a page one story in the
New York
Times,
June 4, reporting a mere off-hand comment to an elevator boy by a German diplomat arriving in Buenos Aires, Argentina. The diplomat asked if the young man could speak German. When the youth replied that he could not, the diplomat shot back, "Well, you'd better learn it, you are going to need it."
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