When approaching the economics of Tsarist Russia of late XIXth - early XXth century, one inevitably comes face to face with two interesting and so diametrically opposite features of Russian economy of that time. These are (1) the industrial 'boom' of the 1980s and (2) the economic backwardness of 1914. The author of the present essay aims at looking into both - to be able to present a fuller picture of Russian economic potential - on the one hand, and to discuss the factors contributing to the constraint of this potential - on the other.
The economic historians are unanimous on the fact
that between 1891 and 1900 Russian economy really did grow. This period
is also known as the period of industrial 'boom' in Russia and it was
during that time that the industrial output of the country raised from
5% per annum (figures of 1861-85) to 8-9% per annum. Such industrial
output ranked among the highest such levels ever measured prior to 1914.
Many of the industrial areas were growing rapidly. As Clive Trebilcock
puts it, "the Tsarist empire, Europe's largest economy, has by 1900
ousted France from fourth pace in world iron production and had taken
fifth pace in steel output. Its railway system … increased in mileage by
87 percent between 1892 and 1903, while oil extraction more than
tripled between 1887 and 1898." All of these were undoubtedly great
achievements of Russian economic planning; and the main credit was to be
given to the Russian finance minister of the time, Count Sergei Witte.
During his time in office, from 1892 till 1903, he tried his best to
bring Russia fiscally and industrially into alignment with the other
European powers and the rest of the government supported him in this
endeavor. Russian government was keen on promoting industrialization
because (1) the market was heavily controlled by the state, (2) the
development of heavy industry allowed for a fast catch-up, rapidly
covering the 'gap' that existed in the country's economy, and besides
all this (3) such industrialization improved the overall military
capability of Russia. However, such an enormous project required
enormous investments. The investments required were (a) the capital
investments, (b) the knowledge capital, and, certainly, (c) the workforce
investments. Speaking of the first, it is obvious that any
industrialization requires much capital. Russia was unable to provide it
in sufficient quantities and, hence, foreign investment was widely
encouraged. Eventually, some of the industries ended up being
predominantly 'owed' by foreigners. For example, in steel industry - 69%
of the invested capital was foreign capital; in mining - 85% of the
capital investment was foreign. According to Gregory, by the outbreak of
the Crimean War, Russia was the world's largest debtor nation. This war
was one of the major obstructions that stood on the way of further
Russian economic progress. It was one of the main reasons for Russia's
further inability to keep the pace of the 'boom' (as so much energy and
finances were directed to supporting the war against Britain and
France). Interestingly enough, the knowledge capital used in Russian
industrialization was also either foreign or that of the entrepreneurial
minorities of the country: Jews, Poles or Старообрядцы [Old
Believers]. Finally, speaking of the workforce investments, such rapid
pace of industrial development owed much of its success to the common
working people, often regular peasants who flocked to the cities for the
new industrial jobs, ending up in abysmal living and working
conditions, underpaid and undernourished. The flow of labour force from
villages into the cities led to a highly unbalanced economy. Russian
economy of this period can by no means be christened a plan of a system.
As Alexander Gerschenkron puts it, this economy of industrialization
was essentially a 'great spur' out of backwardness. Any international
comparison would penalize Russia, and it is only inter-temporal
comparison that makes it look like Russia truly achieved a lasting
success. In actual reality these 'successes' were practically
unsustainable (after 1914). The following factors shed some light on the
(1) Initially, the full-scale Russian industrialization was hindered by the enormous amounts of money spent on financing the war against France and Britain (the Crimean War). Van Thune also points out that during the course of the war, the ruble was severely devalued abroad, which made it extremely difficult for the Russian government to borrow foreign capital.
(2) Russia's plan for industrialization as a follower economy was rather simple since it lacked the capital for a large government-led process of industrialization. The government focused on the construction of railroads that required iron, coal and steel. The hope was that the construction of railways would lead to the creation of iron, steel and coal industries, which would in turn create other industries focusing on production and consumer goods. In actual fact this did not happen but rather led to a severely imbalanced economy.
(3) The industrialization process required a large workforce. However much of the working class was under the burden of serfdom. In 1861 Alexander II passed a decree abolishing serfdom. However, essentially, this was only a false (or technical) liberation and much larger economic burdens were actually placed on the peasantry (e.g.: buying out of their own land - the land that they always worked), which made difficult for the class of industrial workers to develop in Russia.
All of these weaknesses echoed in 1914 - after the 'boom' of the 1890s. Russia did not run out of the potential for the economic prosperity (just as it is nowadays). Its economy simply "ran out of time". As a result, by the end of 1914 the Russian economy mirrored the following traits of chronic backwardness:
a) Agriculture was the most developed area of the country's economy and it was very much relied on. However "any comparison of Russian agriculture with that of other European states was to its disadvantage in terms of cultivating technique; productivity per unit of land, labour or capital; and stability of income for the majority of cultivators"
b) In the arena of heavy industry, despite its intense efforts at modernization in the 1980s, Russia also lagged behind most European states. Besides this, the industrialization, that did take place in the country, spread extremely unevenly throughout its economy. Carson is our speaker on this point. He states that "In industry Russian achievement lagged, except in the rate of building railroads, and Russian domestic and foreign commerce was at a fairly low level" Industrial corporations and banking enterprises were chiefly concentrated in the main cities, but there was very little spreading of financial and industrial activity to smaller towns and rural areas.
c) Russia's industrialization was further hindered by the pitiful financial state of both its government and its people. The government was perennially in debt and forced to reply on foreign investors for revenue, while its people were so poor and economically ignorant that a modern banking system could not be established. Sergei Witte himself said that the "economic relations of Russia with western Europe" were "fully comparable to the relations of colonial countries with their metropolises."
d) Further on, Russia's backwardness in 1914 was well illustrated by the fact that Russian people almost completely lacked any demand for consumer goods. "Limitations upon the peasants' purchasing power for industrial products were a serious obstacle to the industrialization of the country … Industrial development in Russia … if started, was bound to founder in shallowness of the 'internal market'"
e) Finally, the common people of Russia (the ones that constituted the backbone of the labour force of the country) were largely uneducated (in 1914 only 10% of the population was literate), often mistrustful and suspicious of the rules, and hence, generally unproductive. Von Laue writes that Russia's "rate of literacy was a scandal among civilized nations; she needed more schools. Public welfare and health also cried for attention."
All of the above clearly points to the fact that regardless of the famous period of the industrial 'boom' of the 1890s by 1914 Russian Tsarist economy slid into a state of general economic backwardness, being unable to sustain the economic successes of the 1890s. Had there been more time, all these things that Russia lacked would most likely have soon developed and corrected themselves, but the steadiness of the progress was first disrupted by the Crimean War, then hindered by the World War I, and later on entirely suffocated by the February and October Revolutions of 1917. Russia never lacked potential, but it often ran out of time; and the late tsarist period was a good example of it.
- C. Trebilcock "The Industrialization of the Continental Powers"
- H.G.J. Aitken (ed) "The State and Economic Development" (essay by Carson)
- A. Gerschenkron "Economic Backwardness in Historical Perspective"
- T. Starvou (ed) "Russia under the Last Tsar" (article by T.H. von Laue)