Ivar Kreuger's Grand Design
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Transcript of Ivar Kreuger's Grand Design
June 23, 1980
Ivar Kreuger's Grand Designby Kerstin Tegin-Gaddy and Clifford Gaddy
Above, a portrait of Kreuger shortly before his death.
March 8, 1980 was the 100th anniversary of the birth of the Swedish industrialist and financier Ivar Kreuger. Kreuger was without question the greatest industrialist in modern Sweden. His reputation was linked most directly to his worldwide match trust, but in fact he built up a broad range of Sweden's biggest manufacturing and mining concerns. Internationally, Kreuger was one of the major figures in business and finance in the late 1920s and early years of the 1930s. In 1924-25 he was involved
in negotiations with the Soviet Union on economic deals which the Soviets regarded as the most important opportunity for cooperation with the West since the Rapallo Treaty with Germany in 1922. In the late 1920s Kreuger emerged as the single largest lender of capital to European states in the world. In the years of 1928-30 alone, Kreuger lent a total of $375 million to European nations, a staggering figure relative to the size of total global industrial output at the timeroughly equivalent to $7-8 billion today. After the U.S. stock market crash of 1929. Ivar Kreuger advanced a proposal for a reform of the international monetary system, centered on the need to create an international development bank for industrial construction. Not least among Kreuger's concerns in this connection was to save the German economyefforts which, had they succeeded during the crucial 1928-32 period, could have prevented the Nazi seizure of power in 1933. Yet, despite these credentials as a national and international pioneer in industry and finance, the 100th anniversary of Ivar Kreuger's birth went virtually unnoticed in the Swedish press and other media. To the uninformed observer, such neglect of an obvious national hero in Sweden might seem unexplainable. However, for the small circle of people who still know some of the facts about the end of Kreuger's career, today's press blackout is lawful. It is merely the continuation of a campaign that had been started during Kreuger's lifetime. For, precisely because of his accomplishments during the 1920s andeven more importanthis plans for the 1930s, Ivar Kreuger was singled out as a leading enemy of British-allied financial circles throughout the world and as the personal foe of three men in particular: the American financier J.P. Morgan, the German Reichsbank (Central Bank) president and later Nazi economics minister, Hjalmar Schacht, and the man whom Schacht called "my spiritual father," Bank of England head Montagu Norman. By 1931 at the latest, Norman, Schacht, and Morgan had decided that Kreuger had to be removed from the scene. Their efforts succeeded on March 12, 1932, when Kreuger was assassinated in a hotel in Paris. From that point on, a campaign was set in motion to eliminate even the memory of Ivar Kreuger, not only in Sweden, but internationally. Kreuger's murder was arranged to look like a suicide, and all attempts at a judicial inquiry were squelched. His corporate empire was "exposed" as a fiction,
something that had existed only on paper. His international lending operations were "revealed" to be nothing but the machinations of a genial swindler. Within only a few years after his murder, these new "facts" were all that remained of Kreuger in the public consciousness. Today, among the younger generation in Sweden, the name of Ivar Kreuger is practically unknown. It was partly in order to restore Kreuger to his true place in Swedish history that Ny Solidaritet, the Swedish-language sister publication of this newspaper, published a series of articles on Kreuger in March. But there was another, more important purpose as well. Kreuger's murder was a key element in a political fight which in many ways is directly comparable to the present strategic situation. Thenin the years around 1930as today, the central determining strategic issue internationally was the global economic crisis. Then, as today, there was essentially two factions fighting for control of the world economy, two factions with diametrically opposed notions of how the crisis was to be solved. Thus, the background to the murder of Ivar Kreuger is directly relevant to todays fight, and it is for this reason that we also present for American readers an edited version of the articles in the Swedish paper. The 1920s and Today One of the basic parameters in the fight over the international economy in both the 1920s and the 1970s was the volume of "surplus capital" in the world economy and the related questions of where it came from, who would control it, and how it would be used. For most of the 1970s (and continuing into the 1980s) the source of that surplus has, of course, been the pool of so-called petrodollars collected by the OPEC nations. In the 1920s the dollar surplus was generated by the U.S. economy itself. The diagrams below present a rough comparison of the volume of capital involved during the two periods. The bars indicate the amounts actually held in the form of foreign loans and other investments abroad by the United States in the 1920s and by OPEC in the 1970s. For the sake of comparison, keep in mind that the gross national product of the United States is today about 20 times what it was in 1929. In other words, the U.S. capital surplus in the 1920s was bigger, in relative terms, than the entire OPEC surplus today.
However, the really interesting feature of the diagrams is not the mere size of the surpluses involved, but rather the radical growth of the surpluses in each case. In both cases, the emergence of these sources of surplus capital represented a radical shift in international financeand, consequently, a potential shift in political power, depending on who controlled the new sources. Prior to 1914 and 1973, all international capital flows were solidly in the hands of the City of London and its allies, and had been so for several decades in each case. But World War I and the 1973 oil price hikes threatened to change that situation drastically. World War I had economically devastated Europe and left every European nation heavily in debt to the United States. From having previously been a borrower nation, the United States suddenly became the only country in the world which was generating a capital surplus. Similarly, after 1973, nearly the entire net surplus of the world economy became concentrated in the OPEC nations. Thus, in both cases, if the City of London was to retain its control of the world's financial flows, it would have to control lending from the new centers of capital concentration. And conversely, any other forces in the world attempting to break British control of the world economy would have to "capture" the new capital surpluses. Today, precisely this issuehow the OPEC surplus will be usedhas been the motivation for French and West German efforts to establish cooperation with the OPEC countries and to integrate them into the second phase of the
European Monetary System. In the 1920s the problem was in many respects more difficult for those forces who wished to use the American capital surplus for productive investments in the "underdeveloped nations" of that time (a category which, because of the devastation of the war, included not only today's "Third World," but also nearly the whole of continental Europe and the Soviet Union). The difficulty was that the U.S. surplus was split up among so many different small and medium-size investors, while the potential borrowers were entire states with huge capital needs. It was in solving this technical problem of finance in the 1920s that Ivar Kreuger first established himself on an international scale. Kreuger's Lending Operations On the one hand, Kreuger showed himself to be uniquely successful in raising funds on the complicated U.S. securities market, characteristically by offering convertible debentures of low denominations to small investors. On the other hand, Kreuger developed a similarly unique vehicle for relending that money to European and other nations sorely in need of funds in the mid-1920s. The instrument Kreuger used was his international match trust. Kreuger had entered the business world in Sweden as the founder of a large and successful construction company (he himself had been educated as a civil engineer). But by the beginning of the 1920s, the nucleus of his industrial interests was the Swedish Match Corporation, a multinational enterprise with subsidiaries throughout the world. Kreuger's method, in brief, was to arrange long-term loans to entire nations in exchange for being given the concession for a monopoly of that country's match industry. In other words, Swedish Match went in and built upor modernizedthe borrower nation's match industry, with a percentage of the profits on the match business being used to service the loan. As Kreuger saw it, this method offered optimal advantages to both lender and borrower. The match trust, of course, benefited directly from the new monopoly. But the country in question also came out ahead: not only did it get a major loan, but it also acquired a new modern industry which could service the debt out of new real profit created. But, most important of all, as Kreuger explicitly recognized, his method meant that international lending would not be used as a tool for political control of credit-hungry nations. In
one memorandum to his employees working in the foreign lending sector, Kreuger put it this way: It has always been a difficult problem to establish effective contact between foreign lending institutions which have made loans to a government and the government itself. When formal control measures are introduced, people in the borrower country can easily develop feelings of hatred. In the system used by the Kreuger concern, the collateral