Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

Much of the impetus to industrial advance came from the railroads, since these, in the last decade of the nineteenth century, were by far the chief purchasers of ferrous metals, coal, and petroleum products. As a result, there was a spectacular outburst of economic productivity in this decade, followed by a decade of lower prosperity after 1900. The production of pig iron in the period 1860-1870 ranged about 350 thousand tons a year, rose to 997 thousand tons in 1890, to almost 1.6 million tons in 1895, and reached a peak of 3.3 million tons in 1900. During this period, iron production shifted from the charcoal foundries of the Urals to the modern coke furnaces of the Ukraine, the percentages of the total Russian production being 67 percent from the Urals to 6 percent from the south in 1870 and 20 percent from the Urals with 67 percent from the south in 1913. The production figure for 1900 was not exceeded during the next decade, but rose after 1909 to reach 4.6 million tons in 1913. This compared with 14.4 million tons in Germany, 31.5 million in the United States, or almost 9 million in the United Kingdom.

Coal production presents a somewhat similar picture, except that its growth continued through the decade 1900-1910. Production rose from 750 thousand tons in 1870 to over 3.6 million tons in 1880 and reached almost 7 million in 1890 and almost 17.5 million in 1900. From this point, coal production, unlike pig iron, continued upward to 26.2 million tons in 1908 and to 36 million in 1913. This last figure compares to Germany’s production of 190 million tons, American production of 517 million tons, and British production of 287 million tons in that same year of 1913. In coal, as in pig iron, there was a geographic shift of the center of production, one-third of the Russian coal coming from the Donetz area in i860 while more than two-thirds came from that area in 1900 and 70 percent in 1913.

In petroleum there was a somewhat similar geographic shift in the center of production, Baku having better than 90 percent of the total in every year from 1870 until after 1900 when the new Grozny fields and a steady decline in Baku’s output reduced the latter’s percentage to 85 in 1910 and to 83 in 1913. Because of this decline in Baku’s output, Russian production of petroleum, which soared until 1901, declined after that year. Production was only 35,000 tons in 1870, rose to 600,000 tons in 1880, then leaped to 4.8 million tons in 1890, to 11.3 million in 1900, and reached its peak of over 12 million tons in the following year. For the next twelve years output hovered somewhat below 8.4 million tons.

Because the industrialization of Russia came so late, it was (except in textiles) on a large-scale basis from the beginning and was organized on a basis of financial capitalism after 1870 and of monopoly capitalism after 1902. Although factories employing over 500 workers amounted to only 3 percent of all factories in the 1890’s, 4 percent in 1903, and 5 percent in 1910, these factories generally employed over half of all factory workers. This was a far higher percentage than in Germany or the United States, and made it easier for labor agitators to organize the workers in these Russian factories. Moreover, although Russia as a whole was not highly industrialized and output per worker or per unit for Russia as a whole was low (because of the continued existence of older forms of production), the new Russian factories were built with the most advanced technological equipment, sometimes to a degree which the untrained labor supply could not utilize. In 1912 the output of pig iron per furnace in the Ukraine was higher than in western Europe by a large margin, although smaller than in the United States by an equally large margin. Although the quantity of mechanical power available on a per capita basis for the average Russian was low in 1908 compared to western Europe or America (being only 1.6 horsepower per 100 persons in Russia compared to 25 in the United States, 24 in England, and 13 in Germany), the horsepower per industrial worker was higher in Russia than in any other continental country (being 92 horsepower per 100 workers in Russia compared to 85 in France, 73 in Germany, 153 in England, and 282 in the United States). All this made the Russian economy an economy of contradictions. Though the range of technical methods was very wide, advanced techniques were lacking completely in some fields, and even whole fields of necessary industrial activities (such as machine tools or automobiles) were lacking. The economy was poorly integrated, was extremely dependent on foreign trade (both for markets and for essential products), and was very dependent on government assistance, especially on government spending.

While the great mass of the Russian people continued, as late as 1914, to live much as they had lived for generations, a small number lived in a new, and very insecure, world of industrialism, where they were at the mercy of foreign or governmental forces over which they had little control. The managers of this new world sought to improve their positions, not by any effort to create a mass market in the other, more primitive, Russian economic world by improved methods of distribution, by reduction of prices, or by rising standards of living, but rather sought to increase their own profit margins on a narrow market by ruthless reduction of costs, especially wages, and by monopolistic combinations to raise prices. These efforts led to labor agitation on one hand and to monopolistic capitalism on the other. Economic progress, except in some lines, was slowed up for these reasons during the whole decade 1900-1909. Only in 1909, when a largely monopolistic structure of industry had been created, was the increase in output of goods resumed and the struggle with labor somewhat abated. The earliest Russian cartels were formed with the encouragement of the Russian government and in those activities where foreign interests were most prevalent. In 1887 a sugar cartel was formed in order to permit foreign dumping of this commodity. A similar agency was set up for kerosene in 1892, but the great period of formation of such organizations (usually in the form of joint-selling agencies) began after the crisis of 1901. In 1902 a cartel created by a dozen iron and steel firms handled almost three-fourths of all Russian sales of these products. It was controlled by four foreign banking groups. A similar cartel, ruled from Berlin, took over the sales of almost all Russian production of iron pipe. Six Ukraine iron-ore firms in 1908 set up a cartel controlling 80 percent of Russia’s ore production. In 1907 a cartel was created to control about three-quarters of Russia’s agricultural implements. Others handled 97 percent of railway cars, 94 percent of locomotives, and 94 percent of copper sales. Eighteen Donetz coal firms in 1906 set up a cartel which sold three-quarters of the coal output of that area.

The creation of monopoly was aided by a change in tariff policy. Free trade, which had been established in the tariff of 1857, was curtailed in 1877 and abandoned in 1891. The protective tariff of this latter year resulted in a severe tariff war with Germany as the Germans sought to exclude Russian agricultural products in retaliation for the Russian tariff on manufactured goods. This “war” was settled in 1894 by a series of compromises, but the reopening of the German market to Russian grain led to political agitation for protection on the part of German landlords. They were successful, as we shall see, in 1900 as a result of a deal with the German industrialists to support Tirpitz’s naval building program.

On the eve of the First World War, the Russian economy was in a very dubious state of health. As we have said, it was a patchwork affair, very much lacking in integration, very dependent on foreign and government support, racked by labor disturbances, and, what was even more threatening, by labor disturbances based on political rather than on economic motives, and shot through with all kinds of technological weaknesses and discords. As an example of the last, we might mention the fact that over half of Russia’s pig iron was made with charcoal as late as 1900 and some of Russia’s most promising natural resources were left unused as a result of the restrictive outlook of monopoly capitalists. The failure to develop a domestic market left costs of distribution fantastically high and left the Russian per capita consumption of almost all important commodities fantastically low. Moreover, to make matters worse, Russia as a consequence of these things was losing ground in the race of production with France, Germany, and the United States.