The German Empire and increasing power through economics (1871-1914)

With a remarkable economic and industrial boom, the German Reich (1871–1918) established itself as the leader of the Second Industrial Revolution, orchestrating a kind of “economic Blitzkrieg” against its European competitors. By harnessing technical innovations, pursuing an industrial integration strategy, and engaging in meticulous international expansion, it successfully reshaped the global economic landscape in its favor. Theorized by Christian Harbulot, the concept of “increasing power through the economy” provides the keys to understanding the political and economic strategy that enabled the young Germany to become a world power.

Laying the foundations of an industrial giant

Germany’s emergence as an industrial powerhouse can be traced to the unique structures known as Konzerns and cartels under the Second Reich (1871–1918). They reflected a distinctive model of economic concentration, supported by a state that valued discipline and hierarchy. Unlike the American trusts or Britain’s more trade-oriented imperial model, German industrial concentration was tightly regulated, striking a balance between cooperation and control.

• Konzerns resembled American trusts, grouping together numerous companies under a single holding.

• Cartels were agreements between companies that remained legally independent but coordinated crucial aspects like pricing and production.

Such collaborations were part of a larger economic system called Verbundwirtschaft, which translated into mutual oversight and cooperation among major industrial players. Prominent dynastic or oligarchic families—Krupp, Haniel, and Stinnes—maintained control over these vast industrial empires. By 1932, nearly half of all public companies and over three-quarters of their capital were under some form of Konzern structure, underscoring the huge influence of these entities on Germany’s economy.

A leading example is the 1904 chemical cartel, which brought together AGFA, BAYER, and BASF. By pooling resources, managing production and distribution, and setting prices, these chemical giants boosted their power on the global market. Another case is the Kohlensyndikat (1893), an early and highly influential coal cartel that united coal producers under a single entity. This arrangement stabilized—and sometimes artificially raised—coal prices, benefiting members with steady, high revenues. Hugo Stinnes, among others, capitalized on this system by integrating it vertically, expanding and modernizing coal mines to solidify his industrial and political clout.

This deep industrial concentration, combined with strategic resource management (notably coal in the Ruhr region’s Zollverein mine), underscores the crucial role economic intelligence played in Germany’s rise. Through efficient exploitation of natural resources and shrewd management of production, distribution, and pricing, Germany deployed an economic strategy that propelled it onto the world stage—showing how economic intelligence and resource control are often decisive factors in a nation’s quest for power.

Driving innovation and protecting local industry

The Kohlensyndikat cartel influenced far more than the coal sector: it championed modern steelmaking techniques like the Bessemer and Thomas processes, which transformed the German steel industry. These innovations enabled the effective use of phosphoric iron ore found in regions such as Moselle, Lorraine, and Luxembourg. By reducing steel production costs, Germany bolstered its global competitiveness, notably exporting to India and Australia.

Crucially, these lower costs weren’t just about cheaper raw materials; improved productivity and rationalized labor expenses also played a role. While German workers and miners had traditionally been paid less than their British counterparts, wages gradually caught up thanks to technological innovations that boosted productivity. Germany’s real edge lay increasingly in top-notch industrial efficiency, not just low labor costs.

Further solidifying its industrial base, Germany imposed tariffs on imported British iron and steel, protecting its domestic market and allowing local producers to raise their prices at home. The resulting profits financed export discounts, making German products highly competitive abroad—and undercutting Britain both in Germany and overseas.

Together, these strategies illustrate how the German Empire employed a blend of cutting-edge technology and well-designed economic policies to entrench itself as a fast-rising industrial power. From steelmaking breakthroughs to shrewd export tactics, Germany laid a sturdy foundation for global competitiveness.

“Made in Germany”: from warning label to global seal of quality

Alarmed by Germany’s economic boom, Britain passed the Merchandise Marks Act in 1887, requiring German goods to bear the label “Made in Germany.” At the time, German products were commonly viewed as cheaper knockoffs of British innovations, especially in vital sectors like steel and metallurgy. This new labeling rule aimed to protect British consumers from what many saw as inferior German imitations.

In practice, however, the label “Made in Germany” soon became a powerful marketing tool for German industry. Forced to improve quality to overcome the stigma, German manufacturers responded by investing heavily in research, development, and higher production standards. The paradoxical result: consumers worldwide, including those in Britain, came to associate “Made in Germany” with reliability and excellence. Exports soared, and by 1896, even a British study titled “Made in Germany” (by Ernest Edwin Williams) acknowledged Germany’s remarkable economic triumph.

Economic dominance on the european continent

Germany’s commercial strategy in continental Europe—particularly in its rivalry with France—reveals how well-positioned and methodical the Second Reich had become by the eve of World War I. When France raised tariffs in 1892 to shield its own industries, German companies countered by quietly setting up subsidiaries in France. Ranging from small factories to mere storage and sales depots, these foreign branches bypassed customs barriers and captured sizable market share. Between 1898 and 1905, German imports to France grew by 43%, and by another 38% from 1905 to 1909, placing Germany among France’s top three suppliers.

Starting in 1912, the nationalist newspaper L’Action française criticized these firms—often disguised under misleadingly French names—accusing them of effectively “invading” the French market. This was confirmed when France seized German industrial assets at the outbreak of World War I. An even more striking example was Germany’s purchase of more than 17,000 hectares of French coal fields before 1910—fully one-fifth of France’s operating mines. In 1914, Commander Henri Andrillon vehemently denounced this German commercial “invasion,” pointing to how German businesses were encroaching on sectors like ceramics, chemicals, pharmaceuticals, and even Cherbourg’s maritime transport. He was particularly alarmed by a German officer of the reserve overseeing a gunpowder plant near Landerneau—underscoring the strategic risks. This reflected Bismarck’s vision of achieving a “commercial Sedan” against France—an economic victory to follow the 1870 military triumph.

Beyond France, Germany’s ambitions took shape through local ethnic German communities spread across the continent (in the Banat region, the Baltic lands, Transylvanian Saxons, etc.). Backed by a flexible citizenship code, these diasporas championed the Fatherland’s economic aims. Rooted in the Hanseatic League’s mercantile tradition, thousands of German trading companies operated out of Baltic ports, manipulating freight rates and monopolizing distribution channels in expatriate enclaves to hamper rival nations’ commercial interests.

A global economic campaign

Internationally, Germany sought to challenge British economic might, especially in Asia and within the British Empire itself—most notably in India. By investing in a modern merchant marine, Germany minimized reliance on British ships and bypassed trade routes under British control. This fleet carried German goods to distant markets, supporting what some called a “Blitzkrieg” of export growth.

Berlin’s maritime ambitions dovetailed with the founding of the Deutscher Flottenverein (German Navy League) in 1898 by Alfred von Tirpitz. This lobbying group pressed the German Parliament to pass naval expansion bills in 1898 and 1900, underscoring how vital maritime power was for counterbalancing Britain’s dominance at sea. Germany also used neutral ports and complex trans-shipment systems to avoid high tariffs, infiltrating key markets at reduced cost. Utilizing experienced businessmen as consuls, Germany developed efficient sales and distribution networks, winning a solid foothold in far-flung regions.

Meanwhile, Germany pursued robust “economic diplomacy,” signing a stream of trade agreements with Egypt, Japan, Russia, and even Britain. Germany’s exports and investments also surged in the Americas (Brazil, the United States) and in the Transvaal region. By broadening its global trade partners and reducing dependence on Europe, Germany countered Britain’s grip on international commerce. This diversified approach fueled industrial development and established a global commercial network—clearly illustrating how coordinated policies can reshape the global market balance.

Influence and diplomacy: the Ottoman Empire as a case study

In the Ottoman Empire, Germany wielded a sophisticated blend of media strategy and diplomacy. Otto Hammann, tasked with shaping foreign press policy at the Foreign Ministry, worked closely with German correspondents such as Arthur von Huhn and Heinrich von Tyszka. Their dispatches often favored Ottoman interests over Russian ones, swaying public opinion. Berlin also focused on breaking telegraph monopolies and controlling the flow of information, recognizing that press and communication channels were vital in global power dynamics. Paying journalists to promote favorable coverage and thwart opposing narratives was a key tactic, reflecting how Germany advanced its interests through deliberate “information warfare.”

When Kaiser Wilhelm II ascended to the throne in 1888, German-Ottoman ties entered a new era. As part of his “Weltpolitik” (world policy), the Kaiser saw the Ottoman Empire as a core partner in Germany’s expansion. Military cooperation soared: German officers arrived in Istanbul to train and modernize the Ottoman army under Marshal Colmar von der Goltz (“Goltz Pasha”) until 1895. As a result, Krupp cannons and Mauser rifles flooded the empire, displacing French and British suppliers. Ottoman forces used this arsenal to defeat Greece in 1897, rekindling Constantinople’s hopes. Economics also played a big role—German investments accounted for more than 25% of all foreign capital in the Ottoman Empire. The most striking symbol of this partnership was the strategic Berlin-to-Baghdad railway project.

A culture of economic intelligence

Germany’s industrial and economic success during the Second Reich also rested on a robust culture of intelligence-gathering—often bold and highly effective.

Alfred Krupp, known as the “Cannon King,” built a steel empire at the Friedrich Krupp works (today part of ThyssenKrupp). While pioneering innovations such as seamless locomotive wheels, he was more famously dominant in armaments. Behind this triumph lay a lesser-known secret: economic intelligence. Under the alias “Mr. Schroop,” Krupp moved inconspicuously among Britain’s steelmakers, gathering valuable details about new techniques—without arousing suspicion. Upon returning home, he integrated these insights into his operations, propelling Krupp to the forefront of modern steel production.

Continental, a major German firm, took a similar approach. Under the pretense of compiling a road atlas, it sent agents to French border areas—ostensibly to check travel conditions but in reality to observe French military fortifications. This instance highlights how boundaries between civilian and military aims could blur, reflecting an ingrained civil-military cooperation within Germany’s broader industrial and economic strategy.

Such episodes underscore how intelligence-gathering, both industrial and military, was woven into the fabric of German economic expansion. By rapidly assimilating foreign know-how and keeping a keen eye on potential rivals, Germany secured a head start in new technologies and markets, helping the Second Reich vault into the top tier of global powers—just decades after its birth.