Business as Means of Foreign Policy or Politics as Means of Production? The German Government and the Creation of Friedrich Flick's Upper Silesian Industrial Empire (1921-1935)

In the 1920s, the German government secretly supported private business activities across the German-Polish border due to revisionist political aims. Based on these aims, the (in-) famous industrialist Friedrich Flick was able to attract financial support for otherwise uneconomical activities in Upper Silesia to which the government provided “insurance.” Not even considering the possibility of moral hazard and holdup, the German government was captured in its secret cooperation with Flick, who could effectively exploit this “insurance.” Until 1931, Flick was able to gain high subsidies and to use them efficiently building up an industrial empire that comprehended the German, Polish, and Austrian iron and steel industry. The interplay of German foreign policy and private business activities in the inter-war years is analyzed as an agency problem in a specific “public-private partnership” that allowed for blackmailing the Government.