An icon of the American century, IBM ranked among the world’s largest and most successful companies for decade after decade. At the peak of its strategic power in the 1970s, it dominated rapidly expanding global markets for computing hardware, software, and services. IBM was technologically innovative, well managed, cosmopolitan, and reliable. Politically progressive, but institutionally and financially conservative, a blue-chip stock safe for widows and orphans, it provided the model of a modern American corporation for its competitors and its high technology peers.
IBM was a classic American brand, like Ford, Levis, or Coca Cola. Yet it was never just an American company. The “I” stood, after all, for International. Its logo was displayed like a flag on prominent buildings across the major cities of the free world. Echoing the famous boast of the British Empire, the title of a 1974 book proclaimed that “The Sun Never Sets on IBM.” IBM’s iconic Americanism was, in keeping with the political internationalism of the Cold War era, a reflection of its confident and successful engagement with the world overseas. This meant finding ways for its foreign operations to be at once American and indigenous, turning both its products and its employees into transnational hybrids. If the firm was truly an empire then its models were the polyglot Austro-Hungarian or Ottoman Empires, in which subject nations enjoyed considerable local autonomy in matters of culture and talented provincial leaders were able to rise to positions of imperial authority. IBM was among the first and most successful of a new breed of multinational enterprises, driving and profiting from the gradual reintegration of the global economy over the second half of the twentieth century to create what Geoffrey Jones calls the second global economy. Footnote 1
In Europe, IBM began to lay the groundwork for this immediately after the Second World War, years before European governments themselves began to dismantle trade barriers and create the institutions that grew into today’s European Union. We highlight the early part of this story, the rebirth of IBM’s European operations in the aftermath of war. While our approach is influenced by recent work on the international history of computing, we focus here on the role of one of IBM’s less celebrated products, the electric typewriter, in building the institutional, political, and cultural strengths it would later deploy to marginalize its competitors within the computer industry. Footnote 2 Historians such as Lars Heide, James W. Cortada, and Steven W. Usselman have already shown that IBM laid the foundation for its success in the computer era during the preceding decades with its punched card machine business. Footnote 3 Here, we extend this insight in several ways, to encompass other products, new markets, and the intersecting influences of political factors such as trade barriers and the Marshall Plan.
These developments during the immediate postwar decade remade IBM as the exemplar of a new kind of multinational enterprise. Like other major US corporations such as General Electric and General Motors, IBM had established a European presence early in the twentieth century through a mish-mash of joint ventures, licensing agreements, distributors, and subsidiaries. After the war, IBM built on the framework of the Marshall Plan to replace it with an integrated network of national subsidiaries offering an almost standard set of products. These were controlled, and usually wholly owned, by the US-based World Trade Corporation, but managerial decision-making and production were deliberately distributed across subsidiaries with a new pan-European management team installed in Paris. Although IBM itself has been widely studied, the literature on the World Trade Corporation is sparse. Footnote 4 We are able to ground several aspects of its history in archival sources for the first time. Footnote 5
IBM’s unique manufacturing system made the corporation an integral part of European reconstruction during the early-1950s. The key innovation was IBM’s distributed manufacturing of electric typewriter parts in several European countries in order to exchange these component parts across borders to create export and minimize duties. IBM’s World Trade Corporation was not, in this early period, about free trade. Instead the visible hand of management shuffled resources and components among national subsidiaries to appease local governments and avoid the tariffs and political price attached to imported goods. The typewriters themselves became transnational artifacts, assembled using parts from eight countries. IBM’s business and politics connected with the Marshall Planners’ ideas and integrated European economies. With the bold interchange plan, IBM proved itself an exemplary corporate citizen avant la lettre, both of the United States and of most major nation states in Europe. Footnote 6
While many big US corporations invested in Europe and employed local citizens as managers, especially after the Marshall Plan started, IBM’s investment was exceptional in embracing European integration by engineering its own networks of interdependence among European nations. Its manufacturing networks became a form of infrastructure, something historians have increasingly recognized as a crucial underpinning for Europe’s economic and political integration. Footnote 7 Making all this work was far from easy, requiring conflict-solving negotiations, increased communication and centralization of control. Analyzing IBM’s postwar re-organization in Europe supports Mira Wilkins’s conclusion that the US multinational companies in particular contributed to European integration because they shared many advantages in developing European-wide operations. Footnote 8 IBM pooled its American and European experiences and resources to create a distinctively European manufacturing system. Thomas Watson Jr., the firm’s leader during the 1960s, later wrote that the integrated European system of production that IBM created around the typewriter was “a kind of common market ten years before the real one existed.” Footnote 9 The boast highlights IBM’s success in building networks of international trade and collaboration, but hides much of what was most novel about the firm’s structural innovations. As we shall show, these made sense only in a Europe without a common market, full of borders, tariffs, and protectionist sentiment.
World Peace and World Trade
The 1930s were a challenging time for American businesses. Yet IBM had weathered the early years of the Depression well, thanks to its business model of leasing rather than selling its products. The establishment of the Social Security Administration brought with it sizeable government orders for the firm’s punched card systems, so that by the mid-1930s it was again expanding rapidly. As the company ballooned, IBM remained a family-run firm, dominated by its leader, Thomas J. Watson. This salesman extraordinaire was hired to manage the fledgling Computing Tabulating Recording Company in 1914. A decade later he renamed the company International Business Machines, a name capturing his ambitions for the still obscure firm. Footnote 10 IBM’s ever growing ranks of employees waved banners, sang proudly from the IBM Songbook (particularly its anthem, “Ever Onward”), shaved their faces, and dressed in dark suits with white shirts. Footnote 11
During the 1930s Watson prioritized rapid international expansion. He would arrive to ceremonially open a new outpost, like a monarch visiting an obscure colonial possession. Employees cheered as Watson received the blessing of local dignitaries. A handful of large European countries had significant and well-established IBM outposts, but in many cases this was a symbolic act of planting IBM’s flag on another corner of the globe. Footnote 12 This also carried a serious political purpose. Nationalism and political extremism were driving apart some of the firm’s most important markets. Trade could bring the world together, and IBM would spread the universal values of rationality and capitalism. IBM’s products promised to bring efficiency and progress, but war was neither efficient nor businesslike.
Perhaps the greatest salesman of his generation, Watson pitched peace to a troubled world as chair (1937-39) of the International Chamber of Commerce (ICC), a sort of businessmen’s league of nations. This belief in the pacifying influence of globalized business strikes us as a forerunner of the canard that two countries with branches of McDonald’s will never fight each other. Footnote 13 He did his best to ensure that IBM salesmen would never be required to kill each other or destroy each other’s factories. Watson was never a fascist sympathizer, unlike some of his fellow American business leaders, but like many in the 1930s he had a fondness for crowds, rallies, and public adoration. At a meeting in Berlin in 1937, Adolf Hitler promised him there would be no war. Footnote 14 Watson’s slogan of “World Peace through World Trade” was apparently vindicated.
Events, alas, proceeded otherwise. Europeans worked industriously to reduce much of the continent to rubble and all of its major economies to penury. IBM machines, old and new, were used on both sides in the war but the firm had lost control of its little empire of subsidiaries and joint ventures across Europe. This was most apparent in Germany, where IBM had acquired a controlling stake in its formerly independent agent, Dehomag, after the Mark collapsed during the 1920s. Its charismatic leader, Willy Heidinger, retained considerable autonomy, which only increased as public evidence of nationalism and development of German self-sufficiency became a mandatory part of business conduct during the Nazi era. After 1933 IBM was unable to repatriate Dehomag’s profits and when America finally entered the war, Heidinger took full control as the “custodian” of an “enemy company.” Footnote 15 The regime’s reliance on Dehomag products became a source of embarrassment to IBM, and Dehomag’s push to supply machines to occupied territories beyond German borders later helped critics to paint IBM itself as a participant in the Nazi holocaust. Footnote 16
When peace returned in 1945 neither the state of IBM’s facilities in Europe nor the finances of its former customers gave much hope for a rapid recovery. A 1946 IBM report summarized its ambivalence towards Europe as a market: the potential market for its products was substantial, as was their potential contribution to Europe’s economic recovery, but limited supply of currencies and government restrictions seriously complicated cross-border shipments and trade. Footnote 17
IBM’s rapid wartime expansion, fed by government contracts, gave it the resources to try again in Europe. The first American multinationals to make major new investments in postwar Europe were oil companies, a potential source of new orders. Footnote 18 Recovery started with locating IBM machines and personnel and regaining legal control of IBM companies. James G. “Jimmie” Johnston, General Manager of IBM world manufacturing, was dispatched to Europe from the middle of 1946 to February of 1947 to help resume local production. Footnote 19
The World Trade Corporation
Unshaken by the failure of his previous foray into international relations, Watson became a fervent supporter of the United Nations, established in 1945, and of strengthening America’s engagement with the world. Footnote 20 In July 1948 Watson sailed back to Europe. Footnote 21 The trip marked the start of IBM’s transformation into a truly global manufacturing corporation, providing a glorious final act for Watson’s career. By the time he bequeathed International Business Machines to his sons in 1956, it had finally earned the grand title he chose more than three decades earlier.
Accompanied by one of his sons and by his top managers, Watson spent more than two months on a corporate version of the old grand tour, taking in France, Switzerland, Italy, Great Britain, the Netherlands, and Belgium. They viewed war damage, met local politicians, and investigated market conditions. The fighting was over, but Europe was far from tranquil. The Cold War was in its dangerous, unfamiliar early stages. Churchill had warned of an “iron curtain” partitioning the continent back in 1946, the same year that George Kennan’s famous “long telegram” from Moscow proclaimed that the key challenge of the new era was containing the spread of Soviet communism without “general military conflict.” Europe was by now unmistakably divided, but the exact dividing line and its stability was still fuzzy. This was the year of the Berlin Airlift, as an alliance of Western nations successfully fought a Soviet attempt to establish control over the whole city. A civil war raged in Greece between communist and pro-Western factions while a communist coup cemented Soviet domination of Czechoslovakia. Within the United States an atmosphere of crisis mounted, as public opinion swung towards more vigorous actions to limit Soviet influence on the rest of Europe. One result was approval by Congress of the previously controversial “European Recovery Program,” the Marshall Plan, to support the economic redevelopment of Western Europe. Footnote 22
The geopolitical drama was of direct and material interest to Watson. After the war, many of IBM’s subsidiaries in Central and Eastern Europe had begun their redevelopment, just as in countries on the other side of the eventual dividing line. However, the remaining IBM companies were now subject to increasing state control. Several IBM managers in the region were jailed and by 1949 none had reasons for optimism. Footnote 23 The Czech coup was particularly shaking to Watson, as business previously had been recovering well there. Containing the spread of communism would safeguard IBM’s access to some of the world’s largest potential markets.
IBM publically announced its World Trade Corporation a year later, in 1949, but it is clear that this trip laid the groundwork. Footnote 24 Its creation has sometimes been explained in terms of dynastic transition, as Watson split his empire between his sons Thomas Watson Jr. and Arthur K. “Dick” Watson. Footnote 25 Watson Sr. had indeed made his plans clear to both sons, and already had Dick by his side during the 1948 trip. Footnote 26 But we do not believe that this gives the whole story.
The reorganization created a new relationship among IBM’s national organizations. IBM’s earlier European operations had developed erratically. Some subsidiaries had evolved from distribution or licensing agreements and thus were jointly owned. In the United Kingdom, for example, a licensing agreement for tabulating machines signed in 1907 predated the formation of IBM itself. In the economically difficult early and mid-1930s key host governments had pushed IBM subsidiaries to increase local manufacturing. Footnote 27 IBM also built factories in the four largest countries to get behind tariff barriers and protect its interests in Europe. Footnote 28 As we saw in the case of Dehomag, self-sufficient national subsidiaries could create considerable problems for IBM.
The end of the war gave Watson a chance to sweep away these messy relationships, creating new subsidiaries that were uniformly structured and, if at all possible, wholly owned by a new IBM unit, the World Trade Corporation. This encompassed not just the European operations, but all IBM units outside the United States, even IBM Canada.
Thus, Watson began to negotiate the end of IBM’s licensing agreement with British Tabulating Machines, dissolving the relationship in 1949. The new IBM UK subsidiary offered an opportunity for the firm to market its products throughout the British Commonwealth where, with the exception of Canada, it had previously received only a 25% royalty on whatever BTM could sell. Footnote 29 Pulling this off required corporate diplomacy at the highest levels over several years, beginning with discussions held with Harold Wilson, industry minister in Clement Attlee’s Labour government, during the 1948 trip. Footnote 30 Although the deal was a top priority for IBM, negotiations proceeded slowly. Footnote 31 Wilson thought that Britain’s scientists and inventors held the key to its economic future, establishing the National Research Development Corporation in 1949 to commercialize new technologies. Footnote 32 He was loath to see IBM supplant its British licensee without extracting significant concessions for example, in the location of IBM’s planned factory. Since 1929, IBM had controlled a large factory producing time equipment at Hammersmith in London, which was not covered by the BTM licensing deal. IBM World Trade purchased this in 1949 for its new subsidiary. Footnote 33 The British government, however, had other preferences—pointing IBM to Scotland. Footnote 34
A final agreement was not reached until Watson returned to Europe in the summer of 1950. IBM UK would have 40 percent British ownership. This was the biggest ownership concession agreed for any of the new European subsidiaries, but the UK held the strongest hand as its existing license was still in force. Wilson was further mollified with an agreement that IBM UK would rent a manufacturing plant in Greenock, Scotland “to be built by the Government.” In the end, however, IBM won approval to build and own the plant itself. Footnote 35 IBM UK started operation in 1951.
When IBM World Trade began operation in October 1949 it was staffed with a multinational team of executives. Johnston was appointed Vice President in charge of manufacturing. A young man named Frances Ritz was promoted to be his assistant. Footnote 36 IBM World Trade was headquartered in Manhattan, but Johnston and Ritz set up their office in Paris, where IBM built a European management group initially comprising fifteen people. Footnote 37 Their arrival, and their plans for Europe, was transmitted around the IBM empire on what the firm’s newsletter called “the most extensive telephone broadcast ever made.” Footnote 38 Together they mobilized IBM’s European manufacturing experts with Ritz overseeing the rebuilding and opening of IBM factories in several countries. Footnote 39
While Europeans like to mock Americans for their cultural insularity and ignorance of the broader world, the truth is that heavy and largely unrestricted immigration during the late nineteenth and early twentieth centuries gave firms such as IBM a diverse pool from which to draw executives. Born a Scot, Johnston had been with IBM since 1916, becoming the first European-born man to rise to such a high level in its management. He spent most of that time in the US, but had coordinated European production as a manufacturing consultant from 1935-39. Footnote 40 Heading the postwar manufacturing expansion was Johnston’s last contribution to IBM before retiring in 1954. Footnote 41
In contrast Francis Urban Ritz was born in 1918 in Binghamton, NY, not far from IBM’s main punched card facilities in Endicott. Footnote 42 Although he spent his formative years in the United States he was no stranger to European culture. Both of his grandfathers had emigrated from Germany. Footnote 43 Binghamton was a local cultural and manufacturing hub, attracting immigrates to its “Valley of Opportunity.” His neighbors were born in locations as varied as Czechoslovakia, Denmark, Italy, Romania, Syria, and Wales. Footnote 44 Ritz’s provincial America meant people with different backgrounds, many of them European, communicating and working together.
His father worked at the Endicott-Johnson Shoe Company operating an edge trimmer machine. Footnote 45 Endicott-Johnson was a key model for Thomas Watson Sr.’s own model in building IBM’s paternalist system of welfare capitalism. Footnote 46 Francis chose the other dominant local business and was hired by IBM at the age of 18 in 1937. Following completion of the basic one-month IBM training course, Francis Ritz spent four years completing an IBM-sponsored two-nights-per-week course in tool making engineering at the high school in Endicott. Footnote 47 Working through several jobs and departments, Ritz was promoted to a managerial position in 1942 and transferred to IBM’s new facility in Poughkeepsie, NY, where he helped to expand IBM’s manufacturing for the war effort. From 1944 to 1945, Ritz served as a US Navy pilot.
He was almost 30 years old in September 1948, when he first travelled to Europe on IBM’s behalf as a “technical engineer,” visiting France, Germany, Netherlands, Belgium, and England, and making “a survey of manufacturing possibilities in Spain.” Footnote 48 He then spent the first part of 1949 at IBM headquarters planning for a new continent-wide manufacturing system and communicating with his European colleagues.
IBM’s Electric Typewriter
The armistice documents of 1945 were typed on IBM’s electric typewriter—a product for which Watson Sr. had high hopes. Footnote 49 As a consummate salesman he was aware of the benefits of making his products into symbols of the new postwar order. Watson later had a brace of white typewriters presented to the Pope and a few years later when Dwight D. Eisenhower returned to Europe as the first Supreme Commander of NATO forces, an electric typewriter was waiting for him. Footnote 50
The electric typewriter was neither IBM’s first product nor its most lucrative. Watson had taken advantage of the Depression to acquire this technology by purchasing the Electromatic Typewriter Company of Rochester, New York in 1933. IBM’s first “Electric Typewriter” model was launched two years later, but it was an expensive, niche product. When preparing for peace in 1943, Watson had emphasized the development of low-priced electric typewriters as IBM’s main product, aimed at small businesses. While historians have focused on high-end electronic products as IBM’s key product initiatives of the immediate postwar period, we should not forget that the firm’s revenues from electric typewriters grew fivefold in the first decade of peace. Footnote 51
Electric typewriters had shown promise in the European market before the war, making them the obvious tool with which to rebuild IBM’s European operations on a broader and sounder basis than before. In Europe, firms were typically smaller and cash was scarce. Considered as typewriters, the new electric models were rather expensive—perhaps three times more than a manual model. However, compared to punched card machines, they were casual purchases. An electric typewriter could be purchased outright for about what it cost to lease one of the cheaper pieces of punched card equipment for one month and, unlike the punched card machine, would be quite usable without other IBM products.
IBM’s model rested on its legendary sales team establishing relationships with businesses and gradually supplying them with greater volumes of equipment, making typewriters and their associated service contracts a beachhead within thousands of new customer organizations. As shown in Figure 1 and Figure 2, they were sold to businesses large and small, schools, and local government offices. Footnote 52
Figure 1 This 1953 advertisement for the IBM Model A, announced in the late 1940s, promoted the typewriter as a serious machine with “high utility.” Electric typing would save time and energy, reducing employee turnover. Courtesy of International Business Machines Corporation, © International Business Machines Corporation.
Figure 2 IBM launched the Model B Standard typewriter in 1954. This 1956 advertisement aligned the efficiency of the electric typewriter with the femininity of flowers and bright colors, while still insisting that a lighter touch on the keys would translate into higher clerical throughput and improved office productivity. Courtesy of International Business Machines Corporation, © International Business Machines Corporation.
The Interchange Plan
The creation of the World Trade Corporation, and its many national subsidiaries, was tied to the development of a new manufacturing strategy known within IBM as the “interchange plan.” Both were formulated during Watson’s 1948 tour.
As we already established, the creation of the new World Trade subsidiaries required difficult negotiations with national governments and local partners. IBM’s 1946 report had acknowledged serious challenges in the postwar environment. The past twenty years had seen one setback after another for international trade. The 1930s were marked by virulent nationalism in many countries, the erection of trade barriers, and a succession of currency crises that pushed many countries off the Gold Standard. Events from 1939 to 1945 had done little to improve trust and strengthen ties between the continent’s largest economies. IBM later admitted, “France would give German-made typewriters a chilly reception.” Footnote 53
New governments taking control of countries that were variously ruined, occupied, hugely indebted, partitioned, or humiliated were eager to rebuild their shattered economies. Exports were an attractive way of stimulating redevelopment. Imports were much less attractive. They consumed precious reserves of foreign currency and were depicted politically as blows against struggling national producers. Most countries continued to require import permits. Postwar unemployment still threatened to create support for communist parties, and no government wanted to be seen as undermining local industry.
Ritz explained later that national officials had a common condition for allowing IBM to expand its presence: exports should exceed imports. Footnote 54 Yet countries could not ramp up exports unless their neighbors and trading partners were willing and able to import their goods. Partially due to import restrictions, IBM’s electric typewriter sales outside the United States decreased by almost twenty percent from 1948 to 1949 as demand could not be fulfilled. Footnote 55
The solution was for the new World Trade Corporation to build up its own manufacturing capabilities. IBM supplied the entire United States, a larger economy and larger landmass than the whole of Western Europe, from its plants in upstate New York. From the point of view of efficiency and logistics, a single centrally located European manufacturing plant could have supplied a particular product, such as electric typewriters, for the entire European market. This was indeed the system of production that IBM ultimately adopted, the importance of which has been recognized by historians as a significant contributor to its success. Footnote 56
Unfortunately, it relied on preconditions of free trade and currency conversion that did not exist in 1948. Europe’s postwar wages were much lower than those of the United States, which made a strong economic case for local production of typewriters, a labor-intensive good with a potentially huge, but price-sensitive, customer base. Unfortunately for IBM, the political and economic reality of Europe in the immediate postwar years bore little resemblance to the classical economic picture of natural advantages maximized by free trade to the good of all. Footnote 57 Relocating production to Europe would, in itself, only marginally improve the problems caused by tariffs, import permits, currency shortages, and protectionist politics. Typewriters produced by IBM World Trade in Paris were still imports for its Italian or German subsidiaries, just as if they had been produced in Endicott, New York. Setting up a complete typewriter plant and supply chain in each national market would solve the problem of trade barriers, but sacrifice all economies of scale. Even the larger European markets were still depressed, and the firm would not realistically have been able to justify the investment to operate in smaller countries such as the Netherlands or Finland.
IBM’s internal newspaper credited Watson with having researched the economics of interdependency to discover that “International trade is a two-way street.” Footnote 58 Yet IBM could not force countries to accept its imports or a philosophy of free trade. Instead it had to reimagine its typewriters within a divided Europe of protectionist regimes, weighting their components so that the typewriter was, in aggregate, as close as possible to being neither an import nor an export.
The interchange plan found an ingenious middle ground between domestic production and importation of typewriters. The idea was for each of World Trade’s new European subsidiaries to contribute components to every typewriter sold in Europe. In every country, custom duties on finished goods, such as machines, were much higher than duties on parts. IBM therefore shipped only parts across borders. Footnote 59 Final assembly took place in national plants, branding the typewriters themselves as domestic goods. This was not in itself a novel idea. Local assembly is a classic response to high tariffs on finished goods. Indeed, shipping parts across the Atlantic for assembly was an established part of IBM’s manufacturing heritage in Europe. IBM’s earliest European factories in Germany (1924, and even earlier), France (1925), and Italy (1935) did not initially manufacture entire machines. Footnote 60
The new twist was IBM’s recognition that trade could be balanced within each individual typewriter. Its electric typewriters were complex mechanisms, each containing 2,200 parts. Design and development work took place in the United States, with only the keyboard symbols and layout customized for national markets. IBM’s European managers were asked to identify specific parts that could be manufactured efficiently in their countries, either by an IBM factory or by a specialist subcontractor. For example, IBM France’s exports of typewriter components would precisely counterbalance its imports if it assembled and sold one quarter of the IBM typewriters in Europe but supplied, by value, one quarter of the components used in IBM’s other European typewriter factories. In practice, as we discuss below, things were complicated by the flow of other goods and parts among subsidiaries. Footnote 61 Balancing the imports and exports of each subsidiary bolstered their political positions, minimized tariffs, and stabilized their previous reserves of foreign currency.
This system would also foster interdependence among the various national firms, since producing a single batch of typewriters involved reliance on and interaction with colleagues in many other parts of Europe. Europe’s fragmented cultural and political environment pushed IBM to further international solidarity in various ways in postwar years, from parts interchange to organizing international meetings, assignments abroad, and publishing its new magazine. These programs would expedite the realization of IBM’s international plans but also bring Europeans together.
The strategic benefits to IBM of leaving its subsidiaries incapable of independent production might also have appealed to Watson. Independent local subsidiaries were at risk of appropriation, as IBM’s wartime experience had made clear. Distributing production, while retaining centralized control over product design, would make it easier for IBM World Trade to deal with the interruption of supplies from any one country.
Watson Sr. accepted the interchange plan as the basis for production in the new World Trade Corporation during the many meetings of his 1948 European tour. One such meeting was a “Managers Meeting” in late September 1948 in Paris, “for the first time after the war,” as highlighted in IBM Finland’s travel log. Watson Sr. and Arthur Watson attended, along with Johnston and IBM managers of 15 countries, all with their wives. Footnote 62 It is not clear how much Watson personally contributed to the concept and how much was provided by others such as Johnston. Contemporary sources attributed the idea to Watson, but given the cult of personality he had built up within the firm, one would not expect otherwise. Various claims were made later by others, but the question of invention is neither resolvable nor particularly important. Footnote 63 The system had, from the start, been planned with the prior approval of European governments.
Johnston knew of Francis Ritz through his management roles in IBM manufacturing from 1939. Footnote 64 He chose Ritz, aged 29, to develop and realize the new plan. Hence, Ritz began drafting the manufacturing expansion while IBM’s top management stayed in Europe. Francis Ritz’s transfer to the IBM World Trade division helps us date the inauguration of the interchange plan. He started preparing the system in September 1948 and managed its implementation over the next six years. Footnote 65 World trade was not free trade, and the visible hand of Ritz often reached out from Paris to shuffle components around Europe to keep the master plan functioning smoothly. For IBM, achieving cooperation and integration on the European scale meant centralizing planning and control.
Implementing the Interchange System
IBM’s ramping up of European production capabilities in 1948–49 benefited from and supported the Marshall Plan, which aimed to limit the spread of communism by expanding manufacturing and export in most of Western Europe. Footnote 66 Its new World Trade Corporation was exceptionally well situated to form simultaneously productive relationships with both the US government and with the eight most important Western European nations initially chosen for interchange and major export roles. Each built an electric typewriter production line. IBM’s three major pre-war factories, in France, Western Germany, and Italy, added typewriter parts to their range. New production facilities for manufacturing electric typewriter components were established in Belgium, Great Britain, Footnote 67 the Netherlands, Sweden, and Switzerland. Footnote 68
IBM Canada had a special supporting role in the system: “If the program got slightly out of balance in any country, Canada could take up the slack—since Canada assembles but does not manufacture parts for electric typewriters.” Footnote 69 To balance its imports therefore, any of the eight European organizations could export parts to IBM Canada. This made Canada alone a net importer of parts, but political and economic conditions made this more tolerable, and it could always export elsewhere in North or South America if needed. This interchange plan helps to explain the inclusion of Canada in the domain of World Trade, since from a logistical viewpoint, it might fit more naturally as an extension of IBM’s domestic operations.
Spain was the only large Western European country not to be included in IBM’s interchange plan. Francis Ritz had studied Spain as a manufacturing country in late 1948, but Spain was not offered aid through the Marshall Plan as the United States government did not support Franco until the early 1950s. Footnote 70 This apparently influenced IBM’s parallel decision to defer investment. Footnote 71
IBM used its pan-European typewriter as a very public symbol of its commitment to the revival and reintegration of Western Europe. In January 1951, the first electric typewriter assembled in the United Kingdom was shown in a London hotel to important customer representatives. These members of the upper classes were carefully pictured for the global IBM magazine with Johnston, whose own British origin made him a symbol of the opportunity IBM could provide to employees of its new subsidiary. Footnote 72
It was Ritz who crisscrossed Europe month after month putting in place the many mechanisms and agreements needed to support such an unlikely machine. For example, shortly after the London launch, Ritz was an instructor at the first Electric Typewriter Assembling Course in Europe with participants from six European countries. The course took place in Amsterdam where another assembly line was by then in full operation. Later in 1951, Ritz assisted when IBM Belgium organized a typewriter assembly line in Brussels. Next, the magazine reported that assembly was underway in Sweden. Footnote 73
By the end of 1951 these assembly lines were running well, mostly in temporary facilities, though later reports suggested that the first machines would have relied in large part on American parts, with a switch to European components over the next year. Footnote 74 IBM’s manufacturing managers concentrated on increasing component production capacity and building permanent factories. In July 1952, IBM World Trade officially opened a new factory in Amsterdam, dedicated primarily to electric typewriters. Ceremonies were attended by more than 1,200 guests and covered extensively in the media. Footnote 75 IBM expanded production by starting electric typewriter assembly in existing factories in France and in West Germany in 1953. Footnote 76 In 1954, IBM World Trade opened and dedicated three new factories: an electric typewriter parts plant in Zurich, the promised factory in Greenock, Scotland, and a new factory, part of which is depicted in Figure 3, in Stockholm. Footnote 77
Figure 3 This 1959 picture depicts workers assembling typewriter components in IBM Sweden’s Vallingby, Stockholm plant. Most of these components were exported under the interchange system, to balance the importation of other components. Boxes at the back left of the frame hold completed Hektowriters, an optional typewriter attachment to aid in the preparation of masters for hectograph duplicators. This attachment had been designed by IBM World Trade explicitly for the European market, where the hectograph process was still widely used. (Customer engineering newsletter 45. IBM in USA. April 11, 1957, p. 3.) Courtesy of International Business Machines Corporation, © International Business Machines Corporation.
As Mira Wilkins noted, American firms “were outsiders, and so had no special affiliation with any particular European country.” Footnote 78 The IBM World Trade board made decisions on the allocation of production. IBM management had some flexibility to reshuffle production towards the most efficient subsidiaries, creating a degree of competition in its internal market: “Holland has the lowest cost of typewriter (sic.) and can handle a great deal of export.” Footnote 79 Therefore, IBM gave Amsterdam more production.
Ritz was careful to present the unwieldy production system as economically efficient rather than purely driven by politics. Its publicity materials quoted him as attributing decisions to national competencies. Thus, “Sweden was admirably qualified to make spring-steel parts,” and “Switzerland was unexcelled in making small precision parts.” In Sweden, an aircraft instrument maker began production of spring-steel parts, and “in Holland a clockmaker joined the program.” Footnote 80
Despite these appeals to economic rationality, decentralising manufacturing made quality assurance much more difficult. Ritz had already emphasized quality in his first European assembly course for IBM in Amsterdam in 1951. Footnote 81 He foresaw that obtaining uniformity and high quality in parts would be difficult with so many subcontractors in several countries. In 1953, severe problems with quality were reported from Sweden and Germany. These quality issues coincided with a new European sales campaign for IBM typewriters and further production expansion. According to Ulrich Steinhilper, who began selling typewriters from office to office in West Germany’s Stuttgart area, the quality of the machines delivered in early 1953 was abysmal. Footnote 82 The machines broke down in a few days and Steinhilper had to take them to IBM’s typewriter repair shop. German IBM management wanted to solve the problem internally, avoiding communication with IBM World Trade in Paris and New York. Steinhilper challenged this traditional autonomy by going directly to international management when faced with the dilatory response of his German superiors. With international assistance, the German factory was able to turn things around. Footnote 83 Steinhilper eventually joined World Trade’s international management, but is best remembered for coining the term “word processing” to give the humble typewriters and dictating machines he was responsible for selling rhetorical equality with the products of the company’s “data processing” division. Footnote 84
The quality issue was the most serious problem in building the interchange manufacturing system. Creating and securing an adequate flow of information, another kind of linkage, from the national subsidiaries to IBM’s European management in Paris required extra effort and circulation of managers.
Broadening Integration
IBM’s public relations drive focused exclusively on typewriters, perhaps because they were more familiar and could be sold to a much broader range of organizations than IBM’s punched card products. The typewriter was indeed unique in having itself been turned into a transnational artifact explicitly to balance trade flows. However, our evidence suggests that the distribution of typewriter production was, from the beginning, used to balance the flow of other IBM products and parts among national subsidiaries. By 1960 typewriters still accounted for only ten percent of IBM’s revenues. Footnote 85 Punched-card systems remained its biggest business, but their complexity and specialized nature made it hard to diversify their production beyond the largest European markets, France and West Germany, where they dominated national production. Both IBM Germany’s Boeblingen plant, established in 1949, Footnote 86 and IBM France’s Essonnes plant only shipped their thousandth electric typewriters in 1954, hitting this symbolic milestone after their smaller neighbors. Footnote 87 IBM began to diversify assembly locations and component production for its punched card products after proving the workability of the interchange plan with its typewriters. According to one claim, production of IBM’s 421 tabulator model, a core part of any punched card machine installation in this era, was eventually extended from existing facilities in France and Germany to plants in Amsterdam, Sindelfingen, and Milan. Footnote 88
In contrast, punched cards themselves accounted for about ten percent of IBM’s global revenue, and required a relatively small investment to produce within a domestic market. By 1953, IBM World Trade had established punched-card plants in fourteen European countries. Footnote 89 This spread IBM’s manufacturing investments beyond even the reach of the Marshall Plan, to Spain, which had been excluded, and to Finland, which had declined participation from fear of the Soviet reaction. Footnote 90 Exports of cards could be balanced against imports of typewriters and Finns had been eager to buy typewriters. By 1952 IBM Finland had accumulated a queue of 130 orders for typewriters, but due to a dearth of foreign currency and import permits, it could deliver only three machines. The effect on its revenues was dramatic. Footnote 91 This posed a major problem for IBM Sweden, which had counted on typewriter exports to Finland to balance its own component imports and satisfy its political promises. Footnote 92
Swedes and Finns attempted to resolve this problem on a bilateral basis, but ultimately lacked the authority to act independently within this centrally planned system. IBM Sweden had suggested that better power frames be manufactured in Finland. Under the interchange system these were made in England, but the manager of the IBM electric typewriter assembly factory in Sweden confided in a Finnish colleague that the British components were substandard. Footnote 93 Procuring frames from Finland rather than England would help IBM Finland acquire its permits to import typewriters assembled in Sweden.
That never happened, but the Swedes did act unilaterally to substitute domestically produced power frames and earned a rebuke from IBM management in Paris. Paris subsequently monitored IBM Sweden more closely than before, but it also focused its own resources on the quality problem. Footnote 94 Ritz was back in Stockholm later in 1953, as the factory there celebrated its one thousandth IBM Electric typewriter. Footnote 95 He used the occasion to assist with the problem of parts quality.
Instead, by 1955, IBM Finland was saved by the output of the new punched card factory and by another niche that World Trade management found for Finland in its planned economy: “the Finnish part is to produce carbon paper (ink) ribbon which is an appropriate product for a country focused on exporting paper.” Footnote 96 This national dimension was foregrounded in a popular magazine Valitut palat, the Finnish edition of Reader’s Digest, Footnote 97 which speculated, “the day will not be far away when people everywhere in Europe use ink ribbons ‘Made in Finland.’” Footnote 98 Thanks to the interchange system, IBM Finland could now obtain its typewriters from whichever national subsidiary was purchasing its cards and ribbons. “Not long ago Finland wanted typewriters. Normally it would have bought them from Sweden, but was short of Swedish currency. It had a surplus of Italian lire, so placed the order in Milan instead. Dozens of such incidents could be cited to show how the program has given European trade a new flexibility.” Footnote 99
Similar expansion by integration occurred in other countries and across other product lines. Footnote 100 According to information received by a new electric typewriter salesman in Western Germany in 1953, parts were produced “in about thirteen different European countries.” Footnote 101 Some products were made in five or six factories. Footnote 102 In an attempt to duplicate its success in Europe, IBM World Trade launched an interchange system for typewriter manufacture in five South American countries in 1956. Footnote 103
By the autumn of 1955, the interchange system was considered settled. Francis Ritz helped to launch a worldwide publicity drive for IBM’s unique, cross-border European manufacturing system. He and his family then sailed back to the United States after six years in Europe. Footnote 104 He retired as an IBM vice president in 1977. Footnote 105
IBM’s Public Diplomacy
IBM promoted its interchange plan within Europe as a contribution to shared prosperity and as proof that, under American leadership, Western Europeans could put aside their old hatreds to meet the challenge of communism. This message was disseminated internally and externally. IBM World Trade News was launched in 1949, along with the World Trade Corporation itself. Its expressed purpose went beyond that of a typical corporate newsletter and into political and cultural dimensions, “to aid in promoting international understanding and in eliminating international barriers.” Footnote 106 Thus, the magazine was published in several languages. Over the years it consistently promoted the interchange plan, and IBM’s European operations, as a step towards global harmony.
Watson himself remained the company’s most powerful ambassador. During the European tour in 1950, Watson Sr., his wife, and IBM executives spent four months visiting IBM organizations and leaders across Western Europe. Having chosen Paris as IBM’s European headquarters, Watson was made a “Grand Officer of the Legion of Honor” by the French foreign minister Robert Schuman. Schuman had recently presented his plan for a union of European coal and steel industries centered on Franco-German coordination. Footnote 107 IBM’s magazine informed the world that Watson had told Schuman, “…you can count on me to do everything to help you carry out your plans.” Footnote 108 Corporate self-aggrandizement aside, it does not seem fanciful to think that the two saw parallels in their plans for European integration; both intended to build broader cultural and economic ties through the coordination of industrial production. In Rome Watson Sr. was received by the Pope, another leader whose authority transcended national borders.
While in Europe, Watson Sr. feted the firm’s most successful salesmen at the first three meetings of the IBM Hundred Percent Club ever held there. Watson Sr. was already 76 years old in 1950 but made several more trips to Europe accompanied by his son Arthur to every important meeting and conference. He was visibly weakening for some years before his death in 1956, but he invested a great deal of his remaining time circulating in Europe and strengthening IBM World Trade’s capacities.
IBM World Trade made a particular push to promote its message to a broader audience in 1955 when it hired John Drury Ratcliff (1903–73), a successful American science writer and freelance magazine writer. Footnote 109 His article on the interchange system, based largely on conversations with Ritz and predictably titled “World Peace through World Trade,” was published in Kiwanis Magazine in the summer of 1955. Footnote 110 It claimed that the system’s contributions to international understanding, cooperation, and goodwill (“a small but perhaps significant step toward a more unified Europe”) were more important than the thousand jobs it allegedly supported. Footnote 111 Interdependence fostered understanding, as “[w]ith workers in each country dependent upon workers in seven others, an international esprit de corps began to grow.” Footnote 112 The American and international magazine group Reader’s Digest, for which Ratcliff wrote regularly, republished the article, titled “Eight Countries Build a Typewriter” later the same year. Footnote 113 IBM World Trade News boasted that the Reader’s Digest story was published in seventeen languages with a world circulation of eighteen million copies. Footnote 114
These 1955 articles did not mention the Marshall Plan or any other role for the United States. As Jacqueline McGlade has emphasized, the Marshall Plan was heavily contested in US business circles. Footnote 115 In that debate, Thomas Watson Sr. publicly committed IBM to defend the Marshall Plan and America’s international engagements. IBM presented itself as a model for other US multinationals and firms, not least because these corporations were its customers and their growth overseas soon would benefit IBM, as well.
This story resonates with the claims of Michael Hogan that American support was instrumental in creating processes towards a more integrated European economy. Footnote 116 One cannot, of course, credit Watson and Ritz with the creation of the European Union. Yet had there been no Marshall Plan, IBM would not have invested in Europe as early and widely as it did and thus would not have provided this powerful demonstration of the tangible potential of European cooperation across national borders. IBM’s choice of technology was powerful, too: practically everyone knew electric typewriters, unlike computers and punched card machines, not least from IBM’s many advertisements in popular magazines, featuring pictures such as those in Figure 1 and Figure 2. This publicity advertised both brand awareness and European integration, at a crucial time in the broader economic unification of Western Europe. After some setbacks, the six countries of the existing coal and steel union resumed negotiations on the creation of a broader common market in May 1955 leading to the Treaty of Rome in 1957. Footnote 117 This established the European Economic Community, and remains the founding document of today’s much expanded and deepened European Union. Over the years to come internal tariffs were eliminated and external tariffs harmonized.
To the extent to which the manufacturing interchange plan supported steps towards a true common European market, one might say that it carried the seeds of its own destruction. Watson Sr. regarded the interchange plan a clever solution for difficult times. His biographers appositely characterized the interchange plan as a “triumph of shrewd idealism.” Footnote 118 By the late 1950s, IBM was reorganizing its manufacturing in anticipation of increased European integration. A new production system was suggested in late 1956, its implementation commenced in 1957, and it was planned to be mostly in place by 1960.
This “Product-by-Plant Program” rationalized IBM’s production system by consolidating production of each product in a single location, relying on the planned dismantling of trade barriers against finished goods within the new European Economic Community and the allied European Free Trade Area. Footnote 119 This system of assigning particular products to national subsidiaries remained in place for decades thereafter. Footnote 120 It permitted the reintegration of research and development with production, as World Trade subsidiaries began to design products as well as manufacture them.
IBM’s decentralization of typewriter production peaked around 1958, when World Trade operated seventeen plants outside the United States. Footnote 121 Over the next decade, European production was consolidated from ten facilities to just two plants, in Amsterdam and West Berlin. In 1968, Prince Bernhard of the Netherlands opened a new plant that had more than 1,300 employees. This met increasing demand for IBM’s Selectric (or “golf ball”) typewriter, which had been manufactured in the Netherlands since 1961. Footnote 122 By 1983, when IBM introduced its personal computer to Europe, the plant had produced 2.5 million typewriters. Footnote 123 More than 90 percent of Dutch production was exported, the combination of low wages and excellent transport infrastructure making this an ideal manufacturing base. Footnote 124 West Berlin enjoyed no comparable logistical advantage, and we suspect that this plant was situated for political reasons, to support the enclave’s sleepy and heavily subsidized economy. Its vulnerable location may explain IBM World Trade’s departure from the new policy giving each plant a unique product. Outside of Europe, the IBM World Trade plant in Mexico gradually expanded to consolidate production for the Latin American and Asian markets. Footnote 125
Conclusions
IBM’s interchange system operated for less than a decade in Europe, primarily for typewriters and punched card machines. As IBM exported its first computer to Europe only in 1955 and began selling them in large numbers only during the 1960s, well after the system was dismantled, it might be tempting to dismiss it as a historical curiosity of little relevance to the firm’s electronic triumphs. Footnote 126 Indeed IBM’s competitors in the computer business skipped over this stage, moving straight to the development of plants to serve the newly open Western European market.
We believe that the head start IBM achieved with this system was vital to its later success. Its ingenious reshuffling of production to overcome trade barriers provided the company with more than a dozen subsidiaries, each with its own manufacturing capabilities and sales networks. IBM’s commitment to local manufacturing employment and the generation of exports won its subsidiaries popular and political support. IBM was always American, but to Europeans it was not purely American. This had real benefits. In the decades to come, IBM’s national operations were able to present themselves, when the political need arose, as patriotically rooted in the local economy and full of pride in the accomplishment of their country folk. Eda Kranakis showed that several European governments generated a formal European IT policy from the late 1960s onwards largely as a defensive reaction to IBM World Trade’s dominance. Footnote 127 Yet IBM World Trade was, and had been since its foundation, a major European manufacturer, making concerted action against it legally and politically problematic.
This story likewise challenges historians to think more carefully about the assumption that postwar globalization of European trade can be reduced to “Americanization” even when driven by an American corporation. IBM’s interchange plan was a creative modification and hybridization of US technology and management in postwar Europe. Footnote 128 The process was driven in part by a strategic desire to save European capitalism, and thus to further the firm’s long-term business, but IBM’s investment would have been hard to justify on any short-term measure of return. It invested a great deal in building up its new subsidiaries, but the interchange system forced accumulated profits to remain abroad since the whole point was to prevent national subsidiaries from being net importers of foreign goods or exporters of capital. IBM also paid a price in operational efficiency and, initially at least, in product quality by moving so many parts around Europe to balance trade flows. During the 1950s its European productivity sank further than ever, below IBM’s domestic plants. Footnote 129 Watson Sr. valued growth and the extension of the firm’s infrastructure into new markets over profit.
We might see something faintly ridiculous about the idea of a “typewriter made in eight countries” using parts sourced from each partner. Yet this arrangement prefigured many landmark European projects to come—from European Science Foundation grant programs offered only to researchers collaborating across many countries to the era when Airbus had two chief executives and was required to assemble its planes from sections provided by its national partner firms according to a quota system. For IBM, as for these later projects, transnational collaboration and the development of a continental marketplace were goals worth pursuing even if politics and economic nationalism meant that the reality would look more than a little awkward. Bringing European citizens together with a common purpose had its own value in a world where neighbors had so recently been exhorted to kill each other. IBM did this with its exchanges and sales meetings and in the new European layer of World Trade management based in Paris. Later on, the European Commission’s Erasmus programs facilitated millions of student exchanges with a similar aim of creating a pan-European elite.
IBM’s competitors, especially the essentially national European computer companies, faced increasing difficulties in competing with the European-wide resources and international relations that IBM had created. Footnote 130 IBM had the resources and confidence to set up its interchange system, at a time when trade barriers prevented more obvious approaches to serving the overall European market through the export of goods from a single plant. This set a hurdle that its American and European competitors did not attempt to clear. Under Watson’s command, IBM used the seemingly non-strategic electric typewriter business to open new markets and to lay the foundation for an integrated pan-European business.
Let us finish where we began, with Thomas J. Watson Sr. and his quixotic dream of world peace through world trade. He can be a hard figure to relate to, even for his own biographers, a superlative salesman whose favorite product was himself. Watson was an autocrat with a weakness for pomp and an enduring need to ingratiate himself with the politically powerful. He was certainly no match for Adolf Hitler as a negotiating partner, and has come to symbolize the blinkered naivety of an international business elite who assumed that bourgeois appeals to shared interests could contain the Nazis’ demented rage. As novelist J.G. Ballard once noted, Hitler remained perpetually vivid in the public imagination, whereas his contemporaries, such as Neville Chamberlain and, we would add, Watson soon came to “seem pathetically fusty figures, with their frock coats and wing collars, closer to the world of Edison, Carnegie and the hansom cab.” Footnote 131 After Watson died his own son threw away the company songbook and shifted decision making to a network of committees, rejecting aspects of Watson’s approach that appeared outmoded in the postwar world.
What of “world peace?” The phrase itself seems ridiculously dated, heard only in the mouths of New Age cultists and the hopelessly unworldly. It was memorably used in the film Miss Congeniality as a running joke to capture the vapid loftiness of purpose demanded from beauty pageant contestants. Yet in the last decade of his life Watson responded to postwar conditions with great skill as a veteran businessman, integrating technology, business, and politics into a plan that served both the cause of international stability and the long-term fortunes of IBM. We never achieved world peace, but armed conflict between the nations of Western Europe quickly became unthinkable. Further European expansion of the Soviet Union’s domain was successfully blocked and it eventually dissolved itself after withdrawing peacefully from Eastern Europe. Watson would have been content with that outcome, and with the enormous expansion of global trade over the past sixty years. Today only about twenty percent of IBM’s global workforce is in the United States. This fusty autocrat and his long-forgotten transnational typewriter did more than has been remembered to lay the groundwork for our modern world.
