DISCLAIMER: While I have read many historical books and other stuff, my memory isn't the best and not all of what I state may be completely factual. However, I can assure you most of it is.
First, I'd like to state what I personally think the Fascism model of Government should be like in the Civilization 3 game.
Military Police: same as Communism
Reasoning: Uprisings were usually quelled or kept low-profile by Fasicst governments.
Draft Rate: 1 higher than Communism
Reasoning: More than any other of the government types represented in the game, Fascism mobilized people for war (japan and germany in particular)
Trade: same as Democracy/Republic
Reasoning: As stated in other posts, the fascist economy was a mix of capitalism and socialism, and there was some free enterprise, and some ownership by the state. No reason for a penalty here.
Worker Rate: normal
Reasoning: production under Fascism was decent, but not as efficient as it could have been.
Corruption: same as Republic
Reasoning: The tight control over production helps balance the fact that large amounts of actual production were siphoned off for other purposes. But not enough to put it in the same class as Communism or Democracy.
Free Units: 1/2/4 (town, city, metropolis)
Reasoning: This is more representative of forced contributions than anything, but isn't comparable to the support given by a monarchy, or the communal support of communism.
War Weariness: none
Reasoning: this government was made for total war, discontent was squelched by the police.
Spies/Diplomats: regular for spies, lower for diplomats
Reasoning: the intelligence gathering of the major fascist states wasn't as bad as commonly believed, but alot of times they refused to believe their own intelligence. Diplomats are lower because most fascists weren't interested in negotiating.
I'm not going to get into the resistances and such.
Assimilation: 1%
Reasoning: They poorly assimilated other cultures, didn't want much to do with any except those who were similar (IE english, scandanavian in the case of the germans). The japanese though were more inclusive on this, not by much though.
Immune to Propaganda.
Reasoning: Most people under fascism had true faith in their leaders, at least out in the open, and were easily swayed.
Hurried production: forced labor
Reasoning: obvious.
Advantages over Democracy: No war weariness, immune to propaganda, free units, draft more units, military police.
Disadvantges compared to Democracy: Less worker production, less assimiliation, higher corruption, worse diplomacy.
Advantages over Communism: higher draft rate, higher trade, immune to propaganda.
Disadvantages compared to Communism: worse spies, diplomats; lower assimilation, less free units, higher corruption.
This clearly makes fascism a good alternative to Democracy and Communism, while giving it obvious disadvantages compared to each.
Now for the historical arguments.
There is not a single major culture or race or group of people in history who has not committed mass-murder on another such culture or race or group of people. A few examples:
Romans typically enslaved conquered peoples, or forced them into the Roman Empire.
The Huns and Mongols are well-known for their ruthlessness when dealing with those who failed to submit.
The Spanish Inquistion (and other Inquistions in other countries, such as Portugal or the various states of Germany and Italy that existed at the time) killed millions of "heretical" non-believers, mostly Jews and Muslims.
Stalin in the mid to late 30's caused the starvation of as many as 20 million russians.
Since europeans started to colonize the americas, the subjugation, elimination, enslavement, and pushing into undesired areas of the native people has been widespread and common among almost all countries who have had or have control over part of the americas. Examples would be the Spanish enslavement of the natives, their slaughtering of the Aztecs and Incas, and the American wars against the Native Americans in the 1700's/1800's.
Almost all major civilizations that existed before 1800 used widespread slavery as a source of labor (serfdom was a form of slavery).
While 90% of all war-related deaths since 1700 have occurred in the 20th century, that still leaves a good-sized 10% for the years 1700 to 1900.
The United States surely holds the record for most deaths in the shortest amount of time with the dropping of the Atomic Bombs on Hiroshima and Nagasaki.
Genocides have occurred in the last 30 years in Serbia/Yugoslavia, Rwanda, Cambodia, Iraq, and Sudan, among other places. (the one in Cambodia in particular, killed over 20% of the country's TOTAL population in a matter of 2 to 3 years)
The American Civil War fought over the institution of slavery (and preservation of the union) caused over 600,000 battle deaths. Most of the men who signed the Declaration of Independence and Constitution were slaveholders or believed slavery was morally correct.
Slavery is mentioned in several of the World's religious books and beliefs, and war in some religions is said to be correct. (Islam for the latter, Christianity is an example of the former)
The American/British bombing of Germany caused over 1 million civilian deaths, and as mentioned in another post, well over 100,000 in one bombing of Dresden alone.
Any war that has ever occurred with any significance, has caused needless deaths, and is murder. Each death in war, is murder, no matter who is killed (solider, civilian, doesn't matter). [I am NOT a pacifist and am not condoning the outlawing of wars as a means of diplomacy, wars have always occurred and probably always will)
There are many more examples of murder or other human sufferings I can quote, but I've already written too much. My point is while most of us may disagree with Fascism being right, the point is it happened, it occurred, and it cannot be denied. And its form of government committed just as much murder as the next. They were no more right than the United States or others in their mass-murders.
As for the Germans lack of technological development, that has been covered by others, but I'd like to point out that jet fighters, rockets, the snorkel (for subs), and other technological innovations were made by the German scientists during WWII. German scientists first split the atom in 1936, which started atomic research funding for other countries as well. Also, no American or British tank ever was comparable to the later version of German tanks, especially the Panther D/G and the Tiger I and II series of tanks. Only the Soviets (another nation quoted as having no science) were comparable, with their KV 1/2 and the T-34 series of tanks. German anti-tank guns and fighters were also much superior to the American/British versions till the end of the war. Japanese fighters (in particular the Zero) also were superior for a time compared to American ones. The germans also created the first "flying bombs", the V1 and the V2. Precursors to the current ICBM's and cruise missiles.
The german unemployment feat was one which has few parallels in history. In 3 years it was virtually wiped out, and while military conscription and loss of jobs by jews was a good part of the result, overlooked is the massive public works projects done by Germany during the 1930's (including superhighways). While the future result of such was disastrous for the rest of the world, the result at the time was an amazing feat for any nation (it took mobilization for the United States to get out of the Great Depression, and WWII did the rest).
The United States during WWII put into "concentration camps" 110,000 American-born citizens of japanese descent.
Think that about covers it. Sorry if some points were brought up elsewhere, I don't have the time/patience/need to read through all the pages on this thread, I scanned the first few and then posted this.
And I am an American, and happy to be living here, I just try to see history and historical perspectives from all sides, not just the very highly skewed one given in most textbooks and by most people living in "democratic" countries. As stated above in several places, just because a country is democratic doesn't mean its any better in the mass-murder department than a fascist or communist one.
Feel free to express your opinion as I have mine, just try to back up your reasoning as I have by facts or interpretation of facts. I am not nor ever will be Fascist, but their point of view should be respected as any other would be.