All Commentary
Tuesday, June 1, 1965

Peoples Shares In Volkswagon

Mr. Long is Chief Correspondent in Germany for United Press International.

By car, bus, train, and bone-cracking motor scooter, they plunged toward a village in Northern Germany that bright summer day, running with the fever of men heading for a new­ly discovered gold field.

The analogy was apt, or so many thought, for they were own­ers of “People’s Shares” which had trebled in price since issu­ance six months earlier. Now they were gathering for their first shareholders’ meeting.

When all were jammed inside a factory hall in Wolfsburg, they numbered 7,000 of the new own­ers of the great Volkswagen con­cern, West Germany‘s and Eur­ope‘s largest automobile maker, which the state had just sold to the people. It was the largest shareholders’ meeting ever held anywhere.

In later years, the crowd at the annual meeting has dwindled to about 3,000. But the popularity of “People’s Shares” in Volkswagen and other former state-owned en­terprises is undiminished, and the West German government in­tends to sell quite a lot more of its industrial holdings.

Ludwig Erhard, who guided West Germany‘s economic destiny for 14 years before he became Federal chancellor, summed up the government’s hopes for its “Property for All” program in these words:

“It is hardly an exaggeration for me to say that now the era of the class war can finally be considered as having been overcome, and a new socio-political image is recognizable according to which the care, the improve­ment, and the expansion of pro­ductive capital is no longer the duty of the entrepreneur alone, but the concern of all citizens.

“If also the wage and salary earner and the small saver is better able to recognize that their fate, their social security, and the future of their children de­pends on the maintenance of our productive powers, then it must almost inevitably lead to a change of attitude, in the sense of a higher consciousness of responsi­bility of the individual for the whole. And that appears to me to be the best basis for any demo­cratic order.”

State Ownership

The conviction that German workers were hostile to the idea of owning property, other than perhaps their home, was widely held until the mid-1950′s. Des­pite the disastrous experiences of state ownership in Britain, many Social Democrats still be­lieved that nationalization of basic industries would insure eco­nomic prosperity and democracy.

But it was clear from the way the votes were being cast in par­liamentary elections that a con­siderable number of workers had become disenchanted with Social Democratic dogma. The “social market economy” ideas developed by Erhard, as Chancellor Kon­rad Adenauer’s Minister for Economics, showed more results than the socialistic theories adopted in neighboring countries. The Social Democrats found themselves in a minority even in their traditional strongholds in the industrial Ruhr region.

Some of the men who sup­ported Adenauer and Erhard thought “Christian Democracy,” as they styled their philosophy, ought, however, to go beyond simply providing wage earners with a relatively high standard of living. They also were con­cerned over the dominant position the government had inherited in certain manufacturing industries as well as in mining and electric­ity. As the legal successor to the Third Reich, Bonn had ac­quired several billion marks’ worth of enterprises which the Nazis had seized or created or inherited from earlier regimes. A few visionaries wondered if they couldn’t put the little man in business while, at the same time, take the government out of it.

Hermann Lindrath Calls Turn

One such man was Hermann Lindrath, a banker and munici­pal administrator from Halle, in what is now communist-controlled East Germany. Lindrath learned politics in the twenties, working alongside Gustav Stresemann, the leading liberal of the day. As Chancellor and Foreign Minister, Stresemann’s attempt to bring po­litical and economic democracy to Germany failed before the aggres­sive tactics of the extremists.

From 1945 to 1951, Lindrath stayed on in Halle, trying to work with the Russians. First in the city administration, later as a tax consultant, he experienced at first hand the mass expropria­tion of manufacturing firms and the deliberate ruination of small businessmen, and watched the sluggish efforts of the economy to wade through a swamp of state control. What he endured there convinced Lindrath that collective ownership is a sham, and inef­ficient. When his position in Halle became untenable in 1951, he fled to West Germany. There, he was elected to the Federal parliament in 1953, as a member of the Adenauer-Erhard party, and in 1957, was appointed Minister for Federally Owned Property.

Ideas into Practice

In his new job, Lindrath saw a chance to put his theories about individual ownership into practice. Chancellor Adenauer’s government policy statement of October 29,1957, promised “a wider distribu­tion of the ownership of productive means.” Lindrath told parliament “this socio-political goal is based on the experience of the past, in which the creation of private prop­erty, the aspiration for individual ownership, for personal property, the desire for an independent ex­istence has been shown to be the main driving force behind the re­vival of the German economy.”

With Germany moving into the Common Market, Lindrath argued, it was foolish to believe the government should continue to own manufacturing properties in order to influence price levels. “That,” he declared, “is the func­tion of competition in a free econ­omy.” Domestic prices depend on world prices, he pointed out, and a rise in German prices resulting from increased raw material prices on the world market could hardly be blocked by Federally-owned enterprises.

The government’s holdings were organized as joint stock compan­ies. Lindrath proposed to sell some or all of the shares of each to com­pany employees or other low-in­come groups.

He was entering unexplored territory when he offered shares in the PREUSSAG (Preussiche Bergwerks and Huetten AG) on March 24, 1959. PREUSSAG em­ployed 20,000 persons in the ore, coal, oil, and potash industries, and had an annual turnover of 800 million marks ($200 million). Lindrath offered 30 million marks ($7,500,000) of shares, about one-third of the total, to the public.

60,000 Anticipated, 200,000 Applied

Even Lindrath was astounded at the reception his scheme re­ceived. “We anticipated 60,000 buyers,” he said. “More than 200,­000 signed immediately the lists were opened.”

The demand was so great that Lindrath promptly offered another 52 million marks ($13 million) of PREUSSAG shares for sale, so that the government wound up holding less than 25 per cent of the shares.

Only persons with annual in­comes of less than 16,000 marks ($4,000)—about 50 per cent more than a production line worker earns—could buy PREUSSAG shares. None could hold more than 1/100th of the total issue, a pro­vision thought necessary to pre­vent speculators from gaining con­trol of the company.

Lindrath kept part of the shares in the government’s hands so it could gather experience. But he promised the remainder would be sold soon, too.

More confident than ever, after this initial success, Lindrath ex­panded his philosophy. “True freedom,” he declared,” “is unthinkable without property. The possibility to dispose over personal property in its various forms assures the individual greater security and greater in­dependence of the vagaries of life than the Federal constitution is capable of doing. And it provides the basis for a special tie to and responsibility for the state and society.

“Beyond that, experience teaches us that there is no real freedom which is not spiritual freedom and at the same time ma­terial freedom. Freedom merely as a right guaranteed by the con­stitution is not real freedom as we understand it. The Federal constitution alone is incapable of making men free in the exercise of their daily lives. Constitutional freedom requires a foundation, and we want to create this by mak­ing the Germans a people of prop­erty owners.

“But only if the shares come into the hands of those who so far have had an insufficient share of the economy’s productive capi­tal can this be considered prog­ress along the road from class war to responsibility… The class warrior of the past shall become an economic citizen.”

The most obvious property for the government to sell next was the Volkswagen works. Hitler had wanted a “People’s Car” and tens of thousands of trusting Germans had paid their money to his “Labor Front” in anticipation of the day cars would roll off the lines in the sand hills of Lower Saxony for civilian instead of for military use.

“People’s Shares”

After the war, the Federal gov­ernment in Bonn and the Lower Saxony state government became joint owners. Volkswagen now had annual sales of almost five bil­lion marks ($1.2 billion), and was turning out 4,200 cars and trucks every day. A third of all new cars registered in West Germany each year were Volkswagens. They were a major export item and earner of dollars and gold. It was the hottest automotive property in Europe. And Lindrath reasoned that the factories making the original “People’s Car” ought also to be owned by the people.

Lindrath died before the deal was closed. But his successor pro­posed that of Volkswagen’s 600 million marks ($125 million) capitalization, the government sell 60 per cent or 360 million marks ($90 million) in “People’s Shares.” The Federal government and Lower Saxony state govern­ment would each retain 20 per cent.

“People’s Shares” in Volkswagen would have a nominal value of 100 marks ($25), but be sold for 350 marks ($87.50). The rule pro­hibiting sales to anyone earning more than 16,000 marks ($4,000) a year was retained. But married men earning less than 12,000 marks ($3,000) per year would be given a 20 per cent “Social Dis­count.”

Again the government under­estimated the popularity of the scheme. It announced buyers would be limited to five shares each. But just as fast as the banks and brokers could record their names, 1,547,000 persons sub­scribed for shares. After some fast reckoning, the government an­nounced each subscriber would get two shares, and the right to par­ticipate in a drawing for a third share. About one-third of the sub­scribers received a third share.

The day after the shares were issued, their price was quoted on the official exchanges. Within a week, they had doubled in price. Dealing in Volkswagen shares or at least following the course of their prices in the newspapers, said one commentator, “has be­come the national sport.” By May, 1961, about two months after the shares were issued, they hit their peak of 1,108 marks ($277), 31/2 times their original price.

That first giant shareholder’s meeting conducted by VW General Director Heinz Nordhoff went off admirably, allaying the fears of those who thought it would be impossible for a crowd of that size to conduct business. A little later, he raised the price of the “beetle car.” The daily Welt of Hamburg cartooned a cloth-capped worker looking at an announcement of the price increase, and explaining, “As a trades-union man I oppose it, but as a shareholder I approve it.” Sales climbed steadily despite the price hike. But suddenly, public confidence in the Volkswagen shares faltered. Prices of the shares slipped, sagged, then nose-dived. On May 29, 1962, henceforth known as “Black Tuesday,” the price hit bottom at 492 marks ($123).

But it bounced, and by the time 3,000 shareholders gathered for their second meeting in July of that year, had again reached 550 marks ($142.50). In the years since, public confidence in Volks­wagen shares has never wavered, and it has been among the steady leaders on the exchanges.

Most significant to the men who followed in Lindrath’s footsteps, however, was the tenacity with which original buyers hung on to Volkswagen shares. Four years after issue, 60 per cent of the first buyers still own their Volkswagen paper. And almost overnight, the nation had acquired two million new shareholders. In 1960, only 3per cent of West German house­holds owned shares. Three years later, the figure was 7 per cent, on a par with the United States, and is believed now to be even greater.

Other Sales Projected

Trades-union leaders still argue against the “People’s Shares” scheme, proposing instead that “excess profits” be siphoned off large corporations—both public and private—into a special gov­ernment-managed investment fund in which workers could buy non­voting stock. Probably because of official trades-union opposition, only 43 per cent of the PREUS­SAG employees bought shares in their company. But factory work­ers were soon infected by the gen­eral enthusiasm, and 97 per cent of Volkswagen’s hands ignored the union’s exhortations and bought company shares.

This summer, the government will sell “People’s Shares” in the VEBA (Vereinigte Elektrizitaets—und Bergwerks AG), a govern­ment-owned stock company capi­talized at 450 million marks ($112.5 million).

Among other things, VEBA produces 10 per cent of West Ger­many‘s electricity and 9 per cent of its coal, and last year paid a 101/2 per cent dividend, so its shares are expected to be hotly pursued. Initially, the government will sell 100 million marks ($25 million) of VEBA shares, but is prepared to let go another and equal amount if the demand is great enough.

And there is more being made ready for sale. Werner Dollinger, the Bavarian food wholesaler and and kiln owner who is now Minis­ter of Federally Owned Property, reports the government still owns industrial properties with a nomi­nal value of four billion marks ($1 billion), and an annual pro­duction of 14 billion marks ($3.5 billion), including 28 per cent of the nation’s coal production, 30 per cent of its shipbuilding, and 74 per cent of its aluminum pro­duction.

The Debate Continues

The Social Democrats contend the “People’s Shares” give an il­lusory sense of ownership. In par­liamentary debate on the VEBA bill, Social Democrat Georg Kurl­baum—himself sole owner of a Nurnberg electronics manufactur­ing firm—said it was foolish for a government to be at the mercy of shareholders in determining such sensitive matters as power rates. “Only in a minimum of cases,” Kurlbaum contended, “does the small shareholder actu­ally control the way his vote is cast. Large banks hold proxies for most of the small shareholders and the bankers actually vote.” A more democratic system, he said, is for the government to be the sole owner and let the parliament representing all the people decide or supervise company policies. “We believe that properly used, Federal enterprises can contribute to smoothing out economic bumps, to slowing the tendency of prices to rise and to improve competitive conditions,” Kurlbaum declared.

Anyway, the Social Democrat asserted, a wage earner doesn’t want a voting share in a company as much as he desires security against creeping or sudden infla­tion.

Minister Dollinger challenged Kurlbaum’s every point. In the first place, he said, the govern­ment was concerned at the grow­ing concentration of capital in the hands of the state and a few pri­vate entrepreneurs. Concentra­tion of production was perhaps inevitable and necessary in the modern world, but the government wanted to balance that process by deconcentrating capital owner­ship.

To Kurlbaum’s anxiety that big bankers actually would control shareholders’ votes, Dollinger said the government would insist that shareholders granting proxies state how they should be voted on each item of the annual meeting agenda.

The Social Democrat had said that for reasons of national de­fense, the government should maintain important holdings in the basic industries. But Dollinger believed that “precisely in such an important area as defense require­ments, a healthy competition of private companies for state con­tracts is in the best interests of all participants.”

Dollinger also objected to ap­propriating funds when state-owned corporations require fresh capital.

“Public monies, whether they come from the Federal, state, or municipal budgets,” Dollinger de­clared, “are always tax monies. To use tax monies to fill the capital need of a Federally-owned under­taking means nothing less than to make the citizen poorer, while making the state richer and more powerful.”

“The Federal government op­poses such a solution,” Dollinger reasserted. “Without personal, freely disposable property, the preservation of our personal free­dom against collectivism is in the long run not possible.

“Free disposability is not exhausted in that one is able to sell his property at any time. Rather it also must include a right of co-determination, which makes the people’s shareholder a co-entre­preneur. As a matter of principle, therefore, ‘People’s Shares’ are provided with a complete vote.

“Above all, we believe a man who owns something thinks dif­ferently than a man who does not. A man thinks and reacts with more responsibility when a deci­sion involves his own property.”

Even though some critics sug­gest that many of the sharehold­ers at the annual Volkswagen meeting are merely harassing the directors instead of sharing in de­cision-making, Erhard and Dol­linger really believe a change in the attitude of newly propertied workers is apparent whenever strike votes are called by the unions during wage contract ne­gotiations. By Erhard’s lights, shareholder-workers demonstrate more responsibility. The govern­ment admits the battle isn’t won yet, but is confident of eventual victory in the contest between col­lective ownership and individual property.