PEACEFUL PENETRATION PROGRESSES
THE FINANCIERS GET THEIR FIRST PROFITS
The convention of March, 1903, marked the beginning, not the end, of
the work of the promoters of the Bagdad Railway. Ahead of Dr. von
Gwinner[1] and his associates lay all sorts of obstacles, some of which
proved to be insurmountable. There were the financial difficulties and
risks attendant upon the task of borrowing and expending the funds for
the construction of the railway—estimated at about one hundred million
dollars. There were the technical difficulties of constructing a line
across obstinate mountain barriers and inhospitable desert plains.
There were the political difficulties of retaining the friendship of
notoriously fickle Ottoman ministers and of preventing diplomatic
opposition on the part of foreign powers. Events proved that this was
to be a thorny path indeed—a path which was to lead through political
intrigue, diplomatic bargaining, a Turkish revolution, and a world war.
The concessionaires began work in a manner indicative of a
determination to succeed in spite of all obstacles. The Bagdad Railway
Company was incorporated in Constantinople, March, 1903, under the
joint auspices of the _Deutsche Bank_ and the Imperial Ottoman Bank,
as provided by their mutual agreement of 1899. Almost immediately
an invitation was extended to British capitalists to participate
in the enterprise. Three-cornered negotiations were conducted by
German, French, and British bankers—under the watchful eyes of their
respective foreign offices—to arrive at some satisfactory plan for
internationalization of the railway. An agreement was reached by the
financiers by which British capital was to share equally in ownership
and control with the German and the French, but the hostile attitude of
the English press and the disapproval of the Balfour Government led to
the abandonment of the proposed tripartite syndicate.[2]
Failing to secure British cooperation, the concessionaires proceeded to
finance the Bagdad Railway by other means. Ten per cent of the stock of
the Company was subscribed by the Ottoman Government, ten per cent by
the Anatolian Railway Company, and the remainder by an international
syndicate headed by the _Deutsche Bank_. The Board of Directors was
enlarged to twenty-seven members, as follows: eight Germans, chosen by
the _Deutsche Bank_; three Germans elected by the Anatolian Railway
Company; eight Frenchmen designated by the Imperial Ottoman Bank; four
Ottomans; two Swiss; one Austrian; and one Italian.[3] The control of
the Bagdad Railway Company thus remained in Turco-German hands, but
French and other interests were too well represented to justify the
criticism that the railway was a purely German enterprise secretly
coöperating with the German Foreign Office. In fact, in 1903 Mr.
Balfour and Lord Lansdowne were as much alarmed by the possibility of
pernicious French activities in the line as they were disturbed by the
predominantly German character of the scheme.[4] Baron von Schoen,
one-time German Foreign Secretary, described the Bagdad Railway as “an
Ottoman enterprise which has an international character under German
guidance.”[5]
The great resources of the _Deutsche Bank_ were now brought into
play to provide the funds for the construction of the first section
of the railway. The necessary capital was to be secured, it will
be recalled,[6] by the sale of an issue of Imperial Ottoman Bagdad
Railway Bonds amounting to 54,000,000 francs. With comparatively
little difficulty the German share of the loan was subscribed, but the
allotment of the Imperial Ottoman Bank and its associates was not so
easily disposed of, because of the decision of the French Government
to exclude the Bagdad Railway Bonds from the Bourse. Nevertheless,
the entire loan was successfully underwritten, and by November, 1903,
preparations had been completed for the construction of the line from
Konia to Bulgurlu, a distance of 200 kilometres.[7]
Building of the railway went forward with great rapidity, and the rails
reached Bulgurlu by early autumn, 1904. On October 25, the Sultan’s
birthday, this first section of the Bagdad Railway was opened to
traffic with pompous ceremonies. And well might the concessionaires
have celebrated! Not only had they passed the first milestone of their
great task, but they had made a comfortable profit on their operations.
By numerous economies the Bagdad Railway Company had saved 3,697,000
francs of the 54,000,000 francs allowed by the Ottoman Government to
defray the costs of construction. The commissions of the bankers in
underwriting the bond issue, it was said, raised the total profit
on the first section of the railway—before a single train had been
operated—to about 6,000,000 francs.[8] This surplus, however, was not
all available for distribution among the concessionaires. A reserve
fund of almost 4,000,000 francs was established to provide for the
subsequent construction of the costly sections across the Taurus and
Amanus mountains. The promoters had to be reimbursed for preliminary
expenditures, such as the expensive surveying of the entire line from
Konia to the Persian Gulf. Included in these “out of pocket” payments
was a large item for _backshish_—gratuities to Ottoman dignitaries.
“Nobody,” said Dr. von Gwinner, “having done business in Turkey
ignores the fact that _backshish_ on the Bosporus ruled supreme and
was hitherto an absolute condition of any contract. We had to pay in
proportion to the importance of a business of some £20,000,000.”[9]
Djavid Bey informs the author that the item of _backshish_ must have
amounted to almost £100,000, “for during the Hamidian régime friendship
between sovereigns was not enough to bring about the granting of a
concession.”
Within nineteen months after the Turkish Government had issued its
bonds to cover the cost of the project, the first section of the Bagdad
Railway, from Konia to Bulgurlu, had been completed. The success of
the concessionaires in this part of the enterprise might have been
taken as a criterion of rapid progress with the further construction
of the line to the Persian Gulf. Such an expectation, however, would
have been premature. Beyond Bulgurlu lay the Taurus mountains and
innumerable engineering difficulties which could be overcome only after
the expenditure of considerable time and money. The Turkish Government,
furthermore, was in no position to issue additional bonds to the amount
of fifty or sixty millions francs to cover the costs of constructing
the second section of the line. Interest and sinking fund charges on
the first issue of Bagdad Railway bonds were a serious drain on the
treasury; additional charges of a like character could be met only by
an increase of the customs revenues of the Empire. Such an increase
could not be effected, however, except by international agreement,
because under existing treaties between Turkey and the Great Powers all
import duties were fixed at eight per cent _ad valorem_.[10]
In 1903, coincident with the first issue of bonds for the Bagdad
Railway, the Ottoman Government had requested permission to increase
these duties to eleven per cent but had been unable to obtain the
consent of the interested nations. It was not until 1906, after
prolonged and irritating negotiations, that the Powers agreed to a
three per cent increase, effective in July of the following year. Even
then, however, the higher duties were assented to under a number of
restrictions which rendered difficult the diversion of the increased
revenue to the payment of railway guarantees; elaborate regulations
were incorporated in the treaties prescribing expensive reform of
the government of Macedonia and costly readjustments in the customs
administration.[11]
By 1908, nevertheless, Turkish fiscal affairs were in a sufficiently
satisfactory state to enable the Government to conclude arrangements
for the construction of succeeding sections of the Bagdad Railway. On
June 2 of that year an imperial _iradé_ was granted authorizing the
extension of the line from Bulgurlu to Aleppo and thence eastward to
El Helif (near Nisibin), a distance of some eight hundred and forty
kilometres. The completion of this portion of the line would bring
the railway to a point about eleven hundred miles from Constantinople
and only a little over seven hundred miles from Basra. Arrangements
were effected for the immediate issue of the Imperial Ottoman Bagdad
Railway Four Per Cent Loans, Second and Third Series, to an amount of
one hundred and eight million and one hundred and nineteen million
francs respectively, to provide the capital necessary for the building
of the railway. Interest and sinking fund payments on these loans were
guaranteed from the surplus of net revenues accruing to the Imperial
Government from the Ottoman Public Debt. In case of emergency, certain
taxes (notably the cattle tax) of the vilayets of Konia, Adana, and
Aleppo were pledged for this purpose.[12]
Only a month after the conclusion of this convention the Near East
was thrown into a state of turmoil as a result of the outbreak of the
first of the Young Turk revolutions. Under these circumstances it
appeared inexpedient to the Bagdad Railway Company to push construction
of its line until such time as a reasonable degree of security should
be restored. It was not until December, 1909, therefore, after the
deposition of Abdul Hamid, that good friend of German enterprise in
Turkey, that a construction company was formed to build the railway
across the Taurus and Amanus mountains. During the autumn of the same
year a Franco-German syndicate underwrote the second and third series
of Bagdad Railway loans, thereby providing the necessary funds for the
work.[13]
THE BANKERS’ INTERESTS BECOME MORE EXTENSIVE
The years 1904 to 1909 were lean years, judged by actual progress in
the laying of rails from Bulgurlu to Bagdad and Basra. Nevertheless,
they were years characterized, on the part of the investors interested
in the consummation of the great enterprise, by every possible
activity to prepare the way for eventual success on a grand scale. In
the spring of 1906, for example, Dr. Karl Helfferich was appointed
assistant general manager of the Anatolian Railways, and one year
later was elected a managing director of the _Deutsche Bank_ with
general supervision over all of the Bank’s railway enterprises in
the Near East. The appointment of Dr. Helfferich—who, although he
was only thirty-four years of age, had achieved an international
reputation—aroused widespread comment and turned out to be an event
of first-rate importance in the history of the Bagdad Railway. As a
young professor of political science in the University of Berlin, Dr.
Helfferich won general recognition as an unusually able economist.
He was persuaded to enter the Government service in 1901 and became
assistant secretary in the Colonial Department of the Ministry of
Foreign Affairs. He was known to be in the good graces of the Emperor
and of Prince von Bülow, and it was said that he became their chief
adviser on Near Eastern affairs.[14] The choice of such a distinguished
person as directing genius of the Anatolian and Bagdad Railways gave
renewed confidence in Germany that the Bagdad plan would succeed. In
Great Britain the appointment was considered an ominous sign that a
very real connection existed between the economic enterprises of the
_Deutsche Bank_ and the Near Eastern activities of the German Foreign
Office.[15]
In 1907 the Anatolian Railway Company, under a contract with the
Turkish Government, completed arrangements for the irrigation of the
desert plain southeast of Konia. It was planned to water artificially
about one hundred and fifty thousand acres of arid land, thus rendering
the region independent of weather conditions. The effects of such
an improvement would be far-reaching. Much idle land would be made
available for profitable farming, and the yield of soil already under
cultivation would be developed materially. Increased production
might lead to a surplus of agricultural products for export, and the
greater purchasing power of a prosperous Anatolian farming class would
stimulate import trade. Agriculture, commerce, and manufacturing alike,
therefore, could be served. The Anatolian Railway Company issued some
135,000 new shares of stock to defray its part of the expenses, hoping
to be richly compensated by increased traffic on the railway. The
Imperial Ottoman Treasury issued £800,000 of Konia Irrigation Bonds,
an outlay which it hoped to offset by increased taxes from the Konia
district, by rentals and sales of irrigated lands, and by decreased
guarantees to this section of the railway.[16]
A number of German banks, meanwhile, were pushing their financial
operations in the Near East. The success of the _Deutsche Palästina
Bank_[17] encouraged the formation of other similar institutions. The
_Nationalbank für Deutschland_, in 1904, founded the _Banque d’Orient_,
with offices in Hamburg, Athens, Constantinople, Salonica, and Smyrna.
The following year the _Dresdner Bank_, in coöperation with other
large Austro-German financial institutions, inaugurated the important
_Deutsche Orientbank_, with a capital stock of sixteen million marks.
This latter bank took over the Hamburg and Constantinople offices of
the _Banque d’Orient_ and established a large number of branches of its
own, including those at Alexandria, Cairo, and Smyrna. The _Deutsche
Orientbank_ became an active promoter of industrial enterprises in
Asiatic Turkey; for example, in 1908 it organized _La Société pour
Enterprises Electriques en Orient_, a company which proceeded to take
over the surface railways as well as the electric light and power
concession of Constantinople. In 1908 the _Deutsche Bank_ itself
formally opened an office in Constantinople for the transaction of a
general banking business.[18]
The entry of these German banks into the Near Eastern field was of
no small importance to the British and French financial institutions
already there. The German bankers allowed liberal rates of interest
on time and check deposits and permitted reasonable overdrafts at
low rates. These practices were in sharp contrast with the rigid
regulations of the older-established banks. The _Deutsche Bank_
undertook to collect claims of local merchants against the Turkish
Government; through its influence in the Government departments it cut
red tape and secured payments which otherwise might have been delayed
for years. Constantinople business men welcomed their emancipation
from the ultra-conservative methods of the older institutions, and it
was not long before a very thriving business was being transacted by
the German banks and their agencies in the Near East.[19] Here was
a high-powered bomb to disturb the quiet which heretofore had ruled
in the banking community of Constantinople and of Asiatic Turkey.
Germans were disturbing the financial, as well as the commercial and
industrial, _status quo_ in the Near East!
The advance of the German banks in Turkey was almost certain to be the
first step in a more general industrial and commercial penetration.
This will be the more readily understood if one recalls the close
coöperation which characterized the relationships between the German
banks and the business interests of the empire. This coöperation which
amounted, in effect, to financial interdependence—was one of the
striking features of the German economic advance in the generation
before the Great War. It strengthened German industrial enterprises
at home and promoted German trade and investments abroad. If a great
business needed capital, the banks furnished the necessary funds by
the purchase of securities which made them at once creditors and
copartners in that business. Sooner or later this connection would
find expression in the appointment of a representative of the bank on
the supervisory council of the industrial enterprise; occasionally a
“captain of industry” would be elected to the board of directors of
the bank. Although this procedure of interlocking directorates was
not unique to Germany—it was an established practice in the United
States, certainly—there was no country in which these alliances
were so far-reaching, or in which financial power was so centrally
controlled, as in the German Empire. In Germany finance and industry
were wedded—permanently united for better or for worse.[20]
Of this alliance of banking and business the _Deutsche Bank_, chief
promoter of the Bagdad Railway, was a shining example. Its industrial
connections were too numerous to catalogue. It enjoyed intimate
financial relations with hundreds of companies engaged in every
important branch of manufacturing in Germany; it was represented on the
directorates of the North German Lloyd and Hamburg-American steamship
lines; it was the organizer of and chief stockholder in the German
Petroleum Company. It was the owner of a number of overseas banking
corporations stretching their activities from South America on the
west to China on the east. The officers of the _Deutsche Bank_ firmly
believed that the export of capital and the export of commodities
should go hand in hand. The other banks associated in the Bagdad
Railway enterprise likewise were closely affiliated with important
industrial enterprises. For example, the _Dresdner Bank_ held the
vice-chairmanship of Ludwig Loewe & Company, prominent manufacturers
of munitions, and the chairmanship of the Orenstein Koppel Company,
manufacturers of railway supplies. The _Bank für Handel und Industrie_
possessed interests in the _Allgemeine Elektrizitäts-Gesellschaft_,
the German General Electric Company. A still further evidence of this
close association of financial and industrial interests was furnished
in January, 1905, when the chief German banks entered into a “community
of interests” with August Thyssen and Hugo Stinnes, the steel and coal
barons of Germany.[21]
If German business men were likely to be interested in the economic
development of Asia Minor, what was the nature of this interest?
BROADER BUSINESS INTERESTS DEVELOP
Speaking to the Reichstag in March, 1908, Baron von Schoen, Foreign
Secretary of the Empire, explained a few of the opportunities which
the Bagdad Railway opened to German industry and commerce. “The
advantages,” he said, “which accrue to Germany from this great
enterprise, conceived on a grand scale, are obvious. In the first
place, there arises the prospect of considerable participation of
German industry in the furnishing of rails, rolling stock, and other
railway materials. Furthermore, German engineers, German construction
workers, and German contractors are very likely to find remunerative
occupation in the construction of the railway. Finally, it is certain
that with the rising civilization and the higher standard of living of
the inhabitants of the country, a new market will be made available.
That this territory will be opened up not merely for us, but also for
other nations, we can allow without envy.... What we have in view is
the development of regions that seem to be worth developing; we wish
to coöperate in awakening from a sleep of a thousand years an ancient
flourishing civilized region, thereby creating a new market for
ourselves and others.”[22]
This same idea had been advanced by others on other occasions. The
_Alldeutsche Blätter_ of December 17, 1899, had prophesied that the
construction of the railway by a German-controlled syndicate would
result in the purchase of some eighty million dollars’ worth of German
products and that, once completed, the railway would open to German
business an enormous and wealthy market. Lord Ellenborough, speaking in
the House of Lords of the United Kingdom, on May 5, 1903, expressed the
opinion that “the capital disbursed in constructing the railway would
be largely spent on German steel industries, and on salaries to German
engineers and German surveyors, so that even if the railway, as a
railway, were a failure, it would not be a total loss to Germany.”[23]
The British Consul General at Constantinople pointed out, in 1903,
that, in addition to all of the aforementioned advantages, there would
be innumerable special opportunities for the remunerative investment of
German capital in the regions traversed by the railway.[24]
Events seemed to establish the wisdom of these expressions of opinion.
Rails for the Bagdad line were ordered in Germany from the Steel
Syndicate (_Stahlwerksverband_). Transportation of materials from
Europe to the Near East was arranged for through German steamship
companies. German engineers were given the executive positions in
the construction and operation of the railway. Important subsidiary
companies were formed for the construction of port and terminal
facilities, for the building of irrigation works, and for other
purposes incidental to the railway proper. German banks established
branches on the ground in order to take advantage of other
opportunities for the profitable investment of surplus funds.[25]
There was much evidence, however, to indicate that the preëminently
German character of the railway was not preserved. An English observer,
after a trip over the Anatolian lines in 1908, wrote that he noted a
great predominance of Turkish, Greek, and Italian employees over the
Germans. “The fact is,” he maintained, “that the people who run the
line, though Germans, care first for their own pockets and next for
Germany. They buy or employ what is cheapest and most suitable and
do not care a finger-snap for the origin of an article or a servant.
Patriotism occupies a small place in the calculations of promoters. The
tendency to deal with the Fatherland must always be strong, but it is
founded chiefly on the fact that the German knows the goods available
in his own country better than the goods of other countries and that
credit and banking facilities are more easily obtained at home. The
master impulse in every German engaged in business in Turkey, as in
business men of every other nationality, is to make money for himself
as soon as possible.” This same observer pointed out that there was an
astonishing absence of German employees in even the more responsible
positions of the Anatolian Railway and that the great majority of the
unskilled laborers were Italians.[26]
Ultra-patriotic Germans, furthermore, denounced Dr. von Gwinner and his
associates for not making the Bagdad Railway an exclusively Teutonic
enterprise. A speaker at a Berlin branch of the Pan German League
had this to say of the situation: “The Bagdad Railway, which in its
origins was entirely German, has, thanks to the criminal negligence of
the _Deutsche Bank_, become almost wholly French. The German schools
along the line of the Railway, which were established by von Siemens,
have fallen into decay. The officials of the Railway speak French.
The ordinary language for transacting the business of the Railway
is French, although the French share of the capital is only thirty
per cent. The German engineers may as well be called home to-day as
to-morrow.”[27]
Nevertheless, the rapid expansion of German financial interests in the
Near East and the established policy of the German banks to encourage
and assist export trade were factors in a remarkable development
of German trade in the Ottoman Empire, as will be indicated by the
following table:[28]
EXPORTS FROM IMPORTS TO
TURKEY TO TURKEY FROM
YEAR GERMANY—MARKS GERMANY—MARKS
1900 30,400,000 34,400,000
1901 30,000,000 37,500,000
1902 36,500,000 43,300,000
1903 37,700,000 50,200,000
1904 43,500,000 75,300,000
1905 51,600,000 71,000,000
1906 55,000,000 68,200,000
1907 55,100,000 81,500,000
1908 47,600,000 64,000,000
1909 57,300,000 78,900,000
1910 67,400,000 104,900,000
1911 70,100,000 112,800,000
This table eloquently describes the nature of the advance of German
economic interests in Turkey. It does not, however, tell the whole
story. Was this advance the result of a general increase of prosperity
in the Ottoman Empire in which the Germans shared in common with other
traders? Or was the increase in German trade out of proportion to the
progress of other nationals—perhaps at the expense of the French and
British? The following tables will help answer these questions:[29]
EXPORTS FROM TURKEY
TO UNITED TO AUSTRIA
KINGDOM TO FRANCE TO ITALY HUNGARY
YEAR MARKS MARKS MARKS MARKS
1900 118,760,000 86,220,000 22,520,000 35,220,000
1901 122,000,000 26,120,000 31,540,000
1902 130,520,000 83,040,000 28,980,000 35,580,000
1903 127,400,000 81,200,000 38,120,000 39,900,000
1904 122,760,000 73,120,000 31,300,000 39,120,000
1905 118,960,000 80,780,000 42,240,000 37,640,000
1906 129,440,000 91,600,000 45,100,000 39,300,000
1907 136,600,000 95,320,000 50,480,000 34,640,000
1908 109,220,000 70,760,000 44,580,000 34,360,000
1909 109,320,000 79,000,000 59,080,000 36,600,000
1910 100,660,000 77,000,000 48,000,000 43,340,000
IMPORTS TO TURKEY
FROM
FROM UNITED FROM AUSTRIA
KINGDOM FRANCE FROM ITALY HUNGARY
YEAR MARKS MARKS MARKS MARKS
1900 102,920,000 29,800,000 29,720,000 53,440,000
1901 128,220,000 37,880,000 43,800,000 57,100,000
1902 123,980,000 37,200,000 40,400,000 61,380,000
1903 114,020,000 36,640,000 45,360,000 65,120,000
1904 151,960,000 40,880,000 53,280,000 77,600,000
1905 139,300,000 42,420,000 57,200,000 76,660,000
1906 167,040,000 47,300,000 70,900,000 92,620,000
1907 147,380,000 46,380,000 63,040,000 89,920,000
1908 145,260,000 51,600,000 58,700,000 69,240,000
1909 156,280,000 54,600,000 67,740,000 77,040,000
1910 177,160,000 58,400,000 94,000,000 107,300,000
Certain important conclusions may be drawn from these statistics:
1. British trade continued during the decade 1900–1910 to dominate
the Near Eastern market. With total imports and exports in the latter
year of over 277,000,000 marks it was in no immediate danger of being
outstripped by its nearest rivals—a German trade of about 172,000,000
marks and an Austro-Hungarian trade of about 150,000,000 marks.
2. France, whose Near Eastern trade in 1900 had proudly held a
position second only to that of the United Kingdom, was being obliged
to accept a less prominent place in the economic life of the Ottoman
Empire. During the first ten years of the new century French merchants
obviously were being outmaneuvered by Germans, Austro-Hungarians, and
Italians. In spite of a total increase of 17% in exports and imports
between France and Turkey it was apparent that French trade was not
keeping the pace; during the same period Austro-Hungarian trade showed
an increased valuation of 81%, German trade of 166%.
3. Although it continued to dominate the Near Eastern market, British
commerce, likewise, was losing ground. Between 1900 and 1910 it showed
an increase of only 25% as compared with the Italian record of 172%
during the same period. During the decade British exports, although
showing an increased valuation, fell off from 35% to 22–1/2% of the
total import trade of Turkey; for the same period German exports
achieved not only an absolute gain of almost eighty million marks, but
also a relative increase from 2–1/2% to 11–1/2% of the whole.
4. The advance of German trade was not equal to the advance of Italian
trade in the Ottoman Empire during the same period. This explains, in
part, the rapidly increasing political interest of Italy in the Near
East and seems to set at rest the notion that the Germans acquired a
stranglehold on exports and imports from and to Turkey.
5. Looking at the question from a purely political standpoint, one’s
attention is struck by the fact that commercial laurels in the Ottoman
Empire were going to the nationals of the Triple Alliance powers.
Economically, Turkey was leaning toward the Central Powers. Few
international alliances are not based upon coincidence of economic
interests; it appeared that a solid foundation was being laid for the
eventual affiliation of Turkey with the Triple Alliance.
SEA COMMUNICATIONS ARE ESTABLISHED
Exports and imports, however, are not the only items which enter into
the international balance sheet. As has been so amply demonstrated in
the experience of the British Empire, ocean freights may constitute
one of the chief items in the prosperity of a nation which lives
upon commerce with other nations. It was not surprising, therefore,
that upon the heels of German banks and German merchants in the Near
East closely followed those other great promoters of German economic
expansion, the steamship companies. The success of the _Deutsche
Levante Linie_, established in 1889,[30] indicated that there was room
for additional service between German ports and the cities of the
Aegean and the Mediterranean. Accordingly, in 1905, the Atlas Line, of
Bremen, inaugurated a regular service from the Baltic to Turkish ports.
One line was to ply between Bremen and Smyrna, with Rotterdam, Malta,
Piraeus, Salonica, and Constantinople as ports of call. Another of this
same company’s lines was to carry freight and passengers from Bremen to
the Syrian city of Beirut. During the same year the North German Lloyd
was responsible for the formation of the _Deutsche Mittelmeer Levante
Linie_, providing service between Marseilles and Genoa and Smyrna,
Constantinople, Odessa, and Batum.[31] The considerable increase of
trade between Germany and Turkey made a very real place for these
lines, especially in the transportation of such commodities as could
not be expected to bear the heavy charges of transportation by rail
through the Balkans and overland to German cities. These lines were
put into operation to provide for a traffic already in existence and
waiting for them.
Such was not the case, however, with the establishment of German
steamship service to the Persian Gulf. Here British trade had been
dominant for centuries. The German railway invasion had not as yet
reached Mesopotamia, and German trade in this region was negligible.
The establishment of a German steamship service to Basra would be
equivalent to the throwing out of an advance guard and reconnaissance
expedition on behalf of German trade. Incidentally it would mean
the destruction of the practical monopoly which had been enjoyed by
the British in the trade of Irak. It was considered of no slight
importance, therefore, when, in April of 1906, the Hamburg-American
Line announced its intention of establishing a regular service between
European ports and the Persian Gulf. An office of the Company was
immediately opened at Basra, and in August the first German steamer,
with a German cargo, made its way up the Shatt-el-Arab. Soon afterward
the Hamburg-American Line inaugurated, also, a service between British
ports and Mesopotamia, and it provided a regular schedule of sailing
dates, a luxury to which merchants doing business in the Near East had
not heretofore been accustomed. With the aid of a government subsidy
the German company cut freight rates in half. This rude disturbance of
the _status quo_ in the shipping of the Persian Gulf dealt a severe
blow to British companies engaged in the carrying trade between
European ports and Mesopotamia. After a futile rate war the British
lines, represented by Lord Inchcape, came to an agreement, in 1913,
with their German competitors, ending a rivalry which had been the
cause of considerable concern on the part of their respective foreign
offices.[32]
In order to coöperate with the attempts of Germans to have a share in
the trade of the Mesopotamian valley, the German Government established
a consulate at Bagdad in 1908. The services of this consulate,
supplementing the pioneer work of the Hamburg-American Line, had
immediate results in the development of commercial relationships with
the Land of the Two Rivers. The value of exports from Basra to Germany
increased from about half a million dollars in 1906 to slightly in
excess of a million dollars in 1913; German goods received at Basra
during the same period increased from about half a million dollars
to almost nine million dollars. Herr von Mutius, the German Consul
at Bagdad, conducted an active campaign of education and propaganda,
urging upon business men at home the importance of participating
further in the development of the economic resources of the land of the
Arabs.[33]
The establishment of steamship communication between Europe and Asiatic
Turkey was welcomed by the Bagdad Railway Company. To widen the scope
of usefulness—and, consequently, to increase the revenues—of the
railway it was essential that every feeder for freight and passenger
service be utilized. This was a consideration in the agreement
with the Smyrna-Cassaba line and in the purchase, in 1906, of the
Mersina-Tarsus-Adana Railway.[34] The establishment of connections
with the former system developed a satisfactory volume of traffic with
Smyrna. The acquisition of the latter line provided direct connections
with the Mediterranean coast.
Nevertheless, the promoters of the Bagdad Railway were by no
means satisfied with their terminal ports. Constantinople was at
a disadvantage as compared with Smyrna in the trade of Anatolia.
Smyrna was within reach of the Bagdad system only over the tracks
of a French-owned line which might not always be in the hands of
well-disposed owners. The prospects that the Railway soon would reach
Basra were not very bright. Mersina was limited in its possibilities of
development—shut off by the mountains from Anatolia, on the north, and
Syria, on the south, it was the natural outlet only for the products of
the Cilician plain.
The port which the company sought to bring under its control was
Alexandretta, on the Mediterranean, seventy miles from Aleppo. Article
12 of the concession of 1903 assured preference to the Bagdad Railway
Company in the award of a “possible extension to the sea at a point
between Mersina and Tripoli-in-Syria.” The construction of a branch
from the main line to Alexandretta would provide the Railway with
sea communications for the valuable trade of northern Syria and the
northern Mesopotamian valley, then almost entirely dependent upon the
caravan routes centering in Aleppo. Accordingly, negotiations were
begun in the spring of 1911 looking toward the building of a branch
line to Alexandretta and the construction of extensive port facilities
at that harbor.
Serious financial difficulties were encountered, however, in the
promotion of this plan. The Young Turk budget of 1910 had announced
that no further railway concessions carrying guarantees would be
granted. Even had the Government been disposed to depart from its
avowed intention, it would have been unable to do so. Suffering from
the usual malady of a young government—lack of funds—it was running
into debt continually and finding it increasingly difficult to borrow
money. Early in 1911 the Imperial Ottoman Treasury addressed a request
to the Powers for permission to increase the customs duties from eleven
to fourteen per cent. _ad valorem_. Great Britain immediately announced
its determination to veto the proposed revision of the revenues, unless
the increase were granted with certain important qualifications. Sir
Edward Grey informed the House of Commons, March 8: “I wish to see
the new régime in Turkey strengthened. I wish to see them supplied
with resources which will enable them to establish strong and just
government in all parts of the Turkish Empire. I am aware that money is
needed for these purposes, and I would willingly ask British trade to
make sacrifices for these purposes. But if the money is to be used to
promote railways which may be a source of doubtful advantage to British
trade, and still more if the money is going to be used to promote
railways which will take the place of communications which have been in
the hands of British concessionaires [_i.e._, the Lynch Brothers], then
I say it will be impossible for us to agree to that increase of the
customs duty until we are satisfied that British trade interests will
be satisfactorily guarded.”[35] This clear pronouncement of British
policy made it plain that no increased Turkish customs revenues could
be diverted to the proposed Alexandretta branch. It was even doubtful
if further funds would be forthcoming for the construction of the main
line beyond El Helif.
This complicated domestic and international situation led to the
conventions of March 21, 1911, between the Imperial Ottoman Government
and the Bagdad Railway Company. One of these conventions provided for
the construction of a branch line of the Bagdad Railway from Osmanie,
on the main line, to Alexandretta, but without kilometric guarantee or
other subsidy from the Turkish Government. A second convention leased
for a period of ninety-nine years to the Haidar Pasha Port Company
the exclusive rights of constructing port and terminal facilities at
Alexandretta—including quays, docks, warehouses, coal pockets, and
elevators. As in the case of the Bagdad Railway itself, public lands
were to be at the disposal of the concessionaires without charge,
and private lands were to be subject to the law of expropriation if
essential for the purposes of the Company. Within the limits of the
port the Company was authorized to maintain a police force for the
maintenance of order and the protection of its property.[36]
Because of the refusal of the Powers to permit an increase in the
customs, the Turkish Government was unable to assign further revenues
to the payment of railway guarantees. The Bagdad Railway Company
thereupon agreed to proceed with the construction of the sections
from El Helif to Bagdad without additional commitments from the
Imperial Ottoman Treasury. The Company likewise renounced its right
to build the sections beyond Bagdad, including its concession for the
construction of port works at Basra, with the proviso, however, that
this section of the line, if constructed, be assigned to a Turkish
company internationally owned and administered.[37] This surrender by
the Bagdad Railway Company of its rights to the pledge of additional
revenues by the Ottoman Treasury and its surrender of its hold on the
sections of the railway beyond Bagdad are by far the most important
provisions of the conventions of March 21, 1911.
German opinion, as a whole, considered these self-denying contracts
of the Company an indication of the willingness of the _Deutsche
Bank_ and the German Government to go more than half way in removing
diplomatic objections to the construction of the Bagdad Railway.[38]
There were Englishmen, however, who felt that the conventions of 1911
were a mere gesture of conciliation; in their opinion the renunciation
of these important rights was bait held out to win foreign diplomatic
support and to induce the participation of foreign capital in the
Railway and its subsidiary enterprises. Lord Curzon, for example,
expressed to the House of Lords his belief that technical and financial
difficulties made it impossible for the German bankers to proceed with
the construction of the Bagdad line without the assistance of outside
capital. He was firmly of the opinion that no railway stretching from
the Bosporus to the Gulf could be financed by a single Power.[39]
The unsettled political conditions in Turkey, meanwhile, had delayed,
but not halted, construction of the Bagdad Railway. The years 1910
and 1911 were marked by progress on the sections in the vicinity of
Adana. From that Cilician city the railway was being laid westward
to the Taurus Mountains, eventually to pass through the Great Gates
and meet the tracks already laid to Bulgurlu. Eastward the line was
being constructed in the direction of the Amanus mountains, although
there seemed to be little chance for an early beginning of the
costly tunneling of the barrier. During 1911 and 1912 attention was
concentrated on the building of the sections east of Aleppo, which
in 1912 reached the Euphrates River. The branch line to Alexandretta
was completed and opened to traffic November 1, 1913.[40] Financial
difficulties in the way of further construction of the main line
were overcome in the latter part of 1913, when the _Deutsche Bank_
disposed of its holdings in the Macedonian Railways and the Oriental
Railways to an Austro-Hungarian syndicate. The funds thus obtained
were re-invested in the Bagdad Railway, and the necessity was obviated
for a further sale of securities on the open market.[41] In 1914 the
Amanus tunnels were begun, a great steel bridge was thrown across the
Euphrates, the sections east of Aleppo were constructed almost to Ras
el Ain, in northern Mesopotamia. In addition, rails were laid from
Bagdad north to Sadijeh, on the Tigris, before the outbreak of the
Great War.[42]
Thus far we have considered the Bagdad Railway almost entirely as a
business undertaking. In its inception, in fact, it was generally thus
regarded throughout Europe. As time passed, however, the enterprise
overstepped the bounds of purely economic interest and entered the
arena of international diplomacy. The greatest usefulness of the Bagdad
Railway was in the economic services it was capable of rendering the
Ottoman Empire and, further, all mankind. Its widest significance
is to be sought in the part it played in the development of German
capitalistic imperialism. Its greatest menace was its consequent
effects upon the relations between Turkey, Germany, and the other Great
Powers of Europe. The succeeding chapters will deal with the political
ramifications of the Bagdad enterprise.
BIBLIOGRAPHICAL AND EXPLANATORY NOTES
[1] Dr. Arthur von Gwinner (1856- ) is one of the most distinguished
of modern financiers. He was born, appropriately enough, at
Frankfort-on-the-Main when that city was a center of international
finance. His father, a lawyer, was an intimate friend of Schopenhauer
and the latter’s executor and biographer. In 1885 young Gwinner
married a daughter of Philip Speyer and thus became a member of one
of the famous families of bankers in Europe and America. For a time
he conducted a private banking business in Berlin, but in 1894 he
became an active director of the _Deutsche Bank_. Two years later he
was sent to America to supervise the reorganization of the Northern
Pacific Railway by its European creditors; and while he was in the
United States, he formed lasting friendships with J. Pierpont Morgan
and James J. Hill. In 1901 he succeeded Dr. von Siemens as the guiding
spirit of the _Deutsche Bank_, which under his administration made
even more remarkable progress than under his capable predecessor. As
managing director of the _Deutsche Bank_ he became president of the
Anatolian and Bagdad Railway Companies. It was in 1909 that Dr. von
Gwinner’s father received from the Kaiser the patent of hereditary
nobility—an honor said to have been intended as much for the
distinguished son as for the distinguished sire. Intellectually, Dr.
von Gwinner is an international man: he quotes Dickens and Shakespeare
and Molière, Goethe and Schiller and Lessing, with almost equal
facility. His delightful personality stands out in all the Bagdad
Railway negotiations.
[2] _Infra_, Chapter IX. The French bankers also shared in the
ownership of the construction company. A. Géraud, “A New German Empire:
the Story of the Bagdad Railway,” in _The Nineteenth Century_, Volume
75 (1914), p. 967; _Report of the Bagdad Railway Company_, 1903, pp. 4,
8.
[3] Among the German members were Dr. von Gwinner; Dr. Karl Testa,
representative of the German bondholders on the Ottoman Public
Debt Administration; Dr. Alfred von Kaulla, a director of the
_Württembergische Vereinsbank_, and original concessionaire of the
Anatolian Railways; Dr. Karl Schrader, a member of the Reichstag; Dr.
Kurt Zander, general manager of the Anatolian Railway Company. The
directors nominated by the French interests were Count A. D’Arnoux,
Director General, and M. Léon Berger, French member, of the Ottoman
Public Debt Administration; MM. J. Deffes, G. Auboyneau, P. Naville,
Pangiri Bey, and A. Vernes, of the Imperial Ottoman Bank, the
last-named being vice-president of the Bagdad Railway Company; M. L.
Chenut, a member of the Ottoman _Régie Générale de chemins de fer_.
The Turkish members of the Board were Hamdy Bey, representative of the
Ottoman bondholders on the Public Debt Administration; Hoene Effendi,
under-secretary in the Ministry of Posts and Telegraphs; and two
Constantinople bankers. The Swiss were Herr Abegg-Arter, president of
the _Schweizerische Kreditanstalt_, of Zurich, and M. A. Turrettini,
of _L’Union financière de Genève_. The Austrian was Herr Bauer, of the
_Wiener Bankverein_, and the Italian was Carlo Esterle, of the Italian
Edison Electric Company, of Milan. There were few important changes in
the personnel of the Board of Directors between 1903 and 1914, perhaps
the most notable being the election of Dr. Karl Helfferich, in 1906.
_Cf._ _Reports of the Bagdad Railway Company_, 1903, _et seq._
[4] _Cf._ _Parliamentary Debates, House of Commons_, fourth series,
Volume 120 (1903), p. 1371. During the Great War a conspicuous German
general complained that the Swiss in charge of the operation of the
Railway was more interested in the commercial than in the strategic
value of the line and did not coöperate with the military authorities.
_Cf._ Field Marshal Liman von Sanders, _Fünf Jahre Türkei_ (Berlin,
1919), p. 40.
[5] _Verhandlungen des Reichstages, Stenographische Berichte, XII
Legislaturperiode, 1 Session_, Volume 231 (1908), p. 4253c.
[6] _Supra_, p. 77.
[7] Paul Imbert, “Le chemin de fer de Bagdad,” in _Revue des deux
mondes_, Volume 197 (1907), p. 672. The _Deutsche Bank_, with its
capital and surplus of about $75,000,000, was the foremost of the
German banks. Associated with it in the Bagdad Railway enterprise were
a number of other financial institutions, including, it is said, the
_Dresdner Bank_ and the _Darmstädter Bank_, ranking second and fourth
respectively among the great banks of the German Empire. Riesser, _op.
cit._, pp. 642–644.
[8] _Supra_, Chapter IV, Note 48; Fraser, _op. cit._, pp. 48–49;
Jastrow, _op. cit._, p. 94; _Report of the Bagdad Railway Company_,
1904, p. 3; 1905, p. 4.
[9] Von Gwinner, _loc. cit._, p. 1088.
[10] _Corps de droit ottoman_, Volume III, pp. 221–228.
[11] _Turkey in Europe_, pp. 128–129; _The Quarterly Review_, Volume
228 (1917), pp. 510–511; _Parliamentary Debates, House of Commons_,
fourth series, Volume 159 (1906), pp. 1338, 1359; _ibid._, Volume 162
(1906), p. 1419; Volume 178 (1907), p. 321; _ibid._, fifth series,
Volume 53 (1913), p. 368.
[12] _Société Impériale Ottomane du Chemin de fer de Bagdad—Convention
Additionelle_ (Constantinople, 1908); _Parliamentary Papers_, No. Cd.
5636, Volume CIII (1911); _Report of the Bagdad Railway Company_, 1908,
pp. 4–5; 1909, p. 4; _Bagdad Railway Loan Contract, Second and Third
Series_, June 2, 1908; _Report of the Deutsche Bank_, 1909, p. 12.
[13] _Report of the Deutsche Bank_, 1909, p. 12.
[14] _Report of the Bagdad Railway Company_, 1906, p. 4; K. Helfferich,
_Die Vorgeschichte des Weltkrieges_, pp. 131–132; Dr. Helfferich’s
reputation was based largely upon his writings on two important
subjects: the gold monetary standard; government promotion of foreign
trade. _Cf._ _Germany and the Gold Standard_ (London, 1896); _Beiträge
zur Geschichte der deutschen Geldreform_ (Leipzig, 1901). See the
enthusiastic appreciation of Dr. Helfferich’s services voiced by his
associates of the _Deutsche Bank_ upon the occasion of his appointment
as Secretary of State for the Imperial Treasury, January, 1915. _Report
of the Deutsche Bank_, 1915, pp. 11–12; _Report of the Bagdad Railway
Company_, 1914, p. 8.
[15] _The Times_, October 25, 1905, commenting upon the proposed
appointment of Helfferich.
[16] _Report of the Anatolian Railway Company_, 1907, p. 7; H. C.
Woods, “The Bagdad Railway and Its Tributaries,” in _The Geographical
Journal_, Volume 50 (1917), pp. 32 _et seq._; _Parliamentary Papers_,
No. Cmd. 964 (1920). The irrigation system thus planned was completed
before the outbreak of the Great War. It justified the sanguine
expectations of its promoters, for the agricultural yield of the
irrigated lands increased from five to fifteen fold over the former
production. In 1911 a similar irrigation project was gotten under way
in Cilicia. _Diplomatic and Consular Reports_, No. 4835 (1911), pp.
18–19.
[17] _Cf._ _supra_, p. 37.
[18] Riesser, _op. cit._, p. 454; _Report of the Dresdner Bank_,
1905, p. 6; _Diplomatic and Consular Reports_, No. 3553 (1905), p.
29; _Report of the Deutsche Bank_, 1908, p. 10. The Bagdad office of
the _Deutsche Bank_ was not established until 1914, just before the
outbreak of the War. _Ibid._, 1914, p. 9.
[19] The principal bank in Turkey before the War was the Imperial
Ottoman Bank. This institution was owned by French and British
capitalists, the French interest being predominant and in control. It
was a quasi-public bank, founded in 1863, and enjoying since then a
monopoly of bank-note issues. Its central office was at Constantinople,
but it maintained a branch in practically every important city
of Asiatic Turkey, including Smyrna, Jerusalem, Jaffa, Aleppo,
Alexandretta, Beirut, Damascus, Basra, Bagdad, and Mosul. The capital
stock of the Imperial Ottoman Bank was £10,000,000 sterling. A British
bank of some importance was The Eastern Bank, Ltd., of which the
Right Honorable Lord Balfour of Burleigh was chairman—the same Lord
Balfour who was Secretary for Scotland in the ministry of his namesake,
Arthur J. Balfour, in 1903, when the British Government quashed the
participation of English capitalists in the Bagdad Railway. The head
office of the Eastern Bank was in London, and it maintained branches in
Basra and Bagdad, although its principal sphere of activity was India.
Sir Ernest Cassell’s National Bank of Turkey was not established until
1909. _Cf._ Caillard, _loc. cit._, p. 439; weekly advertisements of
these banks in _The Near East; Parliamentary Debates_, Index for 1903,
p. v; _Turkey in Europe_, p. 36.
[20] D. S. Jordan, “The Interlocking Directorates of War,” in _The
World’s Work_, July, 1913, p. 278; H. Hauser, _Les Méthodes Allemandes
d’Expansion Économique_, seventh edition (Paris, 1917), _passim_;
Riesser, _op. cit._, pp. 366–367.
[21] Riesser, _op. cit._, pp. 373–375, 432, 474, 745–746.
[22] _Verhandlungen des Reichstages, Stenographische Berichte, XII
Legislaturperiode, 1 Session_, Volume 231 (1908), p. 4253c. The speech
of the Secretary was followed by “Bravos” from the National Liberals.
[23] _Parliamentary Debates, House of Lords_, fourth series, Volume 121
(1903), p. 1340.
[24] _Diplomatic and Consular Reports_, No. 3140 (1903), p. 40.
[25] _Supra_, pp. 98–99, _Report of the Deutsche Bank_, 1909, p. 12;
_Stenographische Berichte, XII. Legislaturperiode, 2 Session_, Volume
260 (1910), p. 2181d, statement by Baron von Schoen.
[26] Fraser, _op. cit._, pp. 16–17, 18–20. _Cf._, also, _Report of the
Bagdad Railway Company_, 1911, p. 4.
[27] _Staatsbürger Zeitung_ (Berlin), March 3, 1912.
[28] Compiled from the _Statistisches Jahrbuch für das deutsche Reich_,
1900–1914, as corrected for 1900–1905 according to the _Statistisches
Handbuch für das deutsche Reich_, Volume 2, pp. 506–510. A remarkable
increase of German exports to Turkey—an increase of 50%—is to be
noted in the year 1904, during which the first section of the Bagdad
Railway was constructed. Undoubtedly this increase is to be partially
accounted for by the purchase in Germany of materials for right of way
as well as rolling stock for the railway. This factor should not be
over-estimated, however, as a glance at the following tables will show
that imports into Turkey from other European countries during the same
year likewise showed increases, without exception. The general falling
off in trade during 1908 may be attributed, in part, at any rate, to
the Young Turk Revolution of that year.
[29] Compiled from _Diplomatic and Consular Reports_, Nos. 2950 (1902),
3533 (1905), 4188 (1908), and 4835 (1910–1911).
[30] _Supra_, p. 36.
[31] _Diplomatic and Consular Reports_, No. 3533 (1905), p. 27; _Turkey
in Europe_, pp. 86–87.
[32] _Mesopotamia_, pp. 99–101; Schaefer, _op. cit._, p. 22. Regarding
British interests in the Persian Gulf, _cf._, a detailed statement
by Lord Lansdowne to the House of Lords, May 5, 1903. _Parliamentary
Debates, House of Lords_, fourth series, Volume 121 (1903), pp.
1347–1348.
[33] “Bagdad: Handelsbericht des kaiserlichen Konsulats für das Jahr
1908–1909,” in _Deutsches Handels-Archiv_, 1910, part 2, pp. 27–35;
also, “Bericht über den Handel in Basra und Bagdad für das Jahr 1910,”
_ibid._, 1912, part 2, pp. 263–270; _Mesopotamia_, p. 108.
[34] _Cf._ _supra_, pp. 59–60; _Report of the Bagdad Railway Company_,
1906, p. 4, 1908, pp. 7–8; _Diplomatic and Consular Reports_, No. 3533
(1905), p. 29. The Mersina-Adana line was formally incorporated in the
Bagdad system in 1908. _Cf._ _Deuxième convention additionelle à la
convention du chemin de fer de Bagdad_ (Constantinople, 1910).
[35] _Parliamentary Debates, House of Commons_, fifth series, Volume 22
(1911), pp. 1284–1285.
[36] _Quatrième convention additionelle à la convention du 5 Mars,
1903, relative au chemin de fer de Bagdad_ (Constantinople, 1911).
H. F. B. Lynch (of the firm of Lynch Brothers), “The Bagdad Railway:
the New Conventions,” in the _Fortnightly Review_, new series, Volume
89 (1911), pp. 773–780. Mr. Lynch explains that his summary of the
Alexandretta port concessions is based upon an authentic article
appearing in _La Turquie_, a Constantinople newspaper, of March 21,
1911. _Diplomatic and Consular Reports_, No. 4835 (1911), p. 16; _The
Times_ (London), March 23, 1911.
[37] _Stenographische Berichte, XII. Legislaturperiode, 2 Session_,
Volume 266 (1911), pp. 5984c _et seq._; _Troisième convention
additionelle à la convention du 5 Mars, 1903, relative au chemin de fer
de Bagdad_ (Constantinople, 1911); _Parliamentary Debates, House of
Commons_, fifth series, Volume 23 (1911), pp. 582–583, statement by Sir
Edward Grey.
[38] See speeches of Herr Scheidemann and Herr Bassermann before
the Reichstag, March 30, 1911. _Stenographische Berichte, XII.
Legislaturperiode, 2 Session_, Volume 266 (1911), pp. 5980 _et seq._
[39] _Parliamentary Debates, House of Lords_, fifth series, Volume 23
(1911), p. 589.
[40] D. Chatir, “L’État actuel du chemin de fer de Bagdad,” in
_Questions diplomatiques et coloniales_, Volume 36 (1913), pp. 279–281;
_Report of the Bagdad Railway Company_, 1910, p. 4, 1911, p. 4, 1913,
pp. 3–5, 1914, pp. 6–8.
[41] _Report of the Deutsche Bank_, 1913, pp. 11–12.
[42] _Report of the Bagdad Railway Company_, 1914, pp. 6–8. It was not
until September, 1918, that the Amanus tunnels were completed, the
first train being operated through to Aleppo just before the capture of
that city by Lord Allenby’s army. Von Sanders, _op. cit._, p. 42.