Heidinger confirmed in a special report to Watson, “As the merger of Degemag, [old] Dehomag, and Optima is effected… corporation profits tax is out of the question… on account of the relief from [loan] claims of IBM, as thereby no profit, but merely a reduction of losses, is obtained.”32
Second, IBM increased its investment in Dehomag from a mere RM 400,000 to more than RM 7 million—about a million Depression-era American dollars. This would include a million Reichsmarks to purchase new land in Berlin and build IBM’s first German factory. IBM was tooling up for what it correctly saw as a massive economic relationship with the Hitler regime. In the midst of America’s Depression, this expansion of manufacturing base would not relieve unemployment in the United States, but actually transfer American jobs to Nazi Germany where the Hollerith machines would be manufactured.33
Understandably, Watson decided to visit Germany to observe conditions first hand, which he did on October 13, 1933. Despite a highly publicized boycott against German ocean liners, he ignored picket lines and sailed on the German ship Bremen. 34
Watson was impressed with what he saw in Berlin. The Watsons and the Heidingers managed many happy social moments together. Mrs. Watson even asked Heidinger for a copy of his portrait as a memento of their joyous time. Heidinger sent two.35
Watson also visited the massive census operation at Alexanderplatz. There among the rows of data clicking clerks arrayed before their large block- letter instructions to enter Jews in Column 22 row 3, amid the clatter of shiny, black sorters flickering punch cards into a blur, Watson was moved to donate money to buy meals for everyone at IBM expense. As an added gesture, he authorized Dresden pastries for each and every member of the Statistical Office’s Census Department. Heidinger later wrote to Watson that the total bill for his “bountiful gift” of 6,060 meals disbursed to 900 staffers came in at just under 4,000 Reichsmarks.36
More than just hot meals and baked goods, Watson wanted to make sure Dehomag was successful and effective. He personally dispatched Eugene Hartley, a top IBM census expert and manager of the firm’s statistical department, to advise Dehomag. Hartley would oversee costs in Berlin and become acquainted with all details of Dehomag’s census operation and its methods. These details were to be recorded in a special handbook. No copies would exist. Senior management at Dehomag sent Watson an RCA Radiogram declaring, “We especially appreciate your foresight in sending Mister Hartley who as a census expert is especially helpful to us at a time when we are undertaking greatest service job ever done by any IBM agency.”37
Most gratifying to the Germans was the secret pact between Watson and Heidinger, entered into that October 1933, while Watson was touring Dehomag. At a time when the Hitler government was declaring its war intentions in Europe, Watson’s secret deal granted Heidinger and Dehomag special commercial powers outside of Germany. Although there were IBM agencies and subsidiaries throughout Europe, Dehomag would be permitted to circumvent and supplant each one, soliciting and delivering punch card solution technology directly to IBM customers in those territories. That gave Dehomag entree to the major foreign corporations, foreign national railroads, and foreign government offices across the Continent. IBM subsidiaries, such as those in Brussels, Paris, and Warsaw would still exist. But now Nazified Dehomag could usurp their clients and even their manufacturing base.38
The extraordinary arrangement virtually reinvented Dehomag as a de facto “IBM Europe.” Subject to IBM NY oversight, the German subsidiary was granted free rein to cultivate its special brand of statistical services to other nearby countries, especially Austria, Czechoslovakia, Poland, Belgium, France, and Holland. Where census, registration, and other statistical operations did not exist, or where they could be updated along the lines of Germany’s anti-Semitic model, Dehomag could now move in. In essence, before the Third Reich advanced across any border, its scientific soldiers would already have a vital outpost.
With its new potency to create a German sphere of statistical influence across the continent, no wonder senior management in November 1933 sent Watson a jointly signed cable proclaiming, “Your visit to Germany has brought encouragement not only to Dehomag, but to the German people.”39
CONSIDERING THE considering the far-reaching importance of the Watson-Heidinger agreement for commercial hegemony, and the certainty of upsetting other IBM subsidiaries, Watson committed nothing to paper about his secret territorial agreement with Heidinger. Deniability seemed to be the order of the day.
Clearly, Watson possessed an understanding of the value of deniability. When he was prosecuted for criminal conspiracy in the National Cash Register case, he was confronted by exhibit after exhibit of his own incriminating writings, such as instructions to destroy competitors and create fake companies. That error would not happen again. Moreover, IBM was at that very moment being prosecuted by the U.S. Justice Department’s anti-trust division for additional secretive acts of monopoly and unfair competition involving punch card technology.40
Watson developed an extraordinary ability to write reserved and cleverly cautious letters. More commonly, he remained silent and let subordinates and managers do the writing for him. But they too respected an IBM code—unwritten, of course—to observe as much discretion as possible in memos and correspondence. This was especially so in the case of corresponding with or about Nazi Germany, the most controversial business partner of the day.
For example, a few weeks after Watson left Germany, one of IBM’s European managers in Paris, M. G. Connally, was assigned to monitor details of the merger of IBM’s four subsidiaries. On November 18, 1933, Connally wrote a letter to Heidinger concluding with the sentiment: “I only wish we had someone here to do things the way you people do in Germany.” Shortly thereafter, Connally circulated a copy of that letter to Watson and other executives at IBM NY. Connally sheepishly scribbled under the last sentence, “I think now I shouldn’t have said this.”41
Whether or not Watson wanted to keep the Dehomag expansion deal a secret, Heidinger was clearly irked by the absence of any proof that he could literally invade any other subsidiary’s territory. Census offices and other IBM customers in other countries would be surprised if abruptly contacted by a Dehomag agent. And any IBM subsidiary manager would surely challenge a Dehomag attempt to steal its business.
After many months of waiting, Heidinger suddenly demanded some written proof.
On August 27, 1934, he pointedly cabled Watson, “We need urgently by cable and following letter confirmation for our right granted by you personally to deliver our German manufactured machines for entire European market…. This right does not include any obligation of your European companies to give any orders.”42
Watson gave in. The next day, August 28, he dispatched a radiogram to Berlin: “Confirming agreement reached between us last conference in Berlin. We extend German company rights to manufacture machines under our patents for all European countries. Formal contract following by mail. Thomas Watson.”43