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The High Cost and the Gamble of the Witte System: A Chapter in the Industrialization of Russia*

Published online by Cambridge University Press:  03 February 2011

Theodore H. Von Laue
Theodore H. Von Laue
Affiliation:
Bryn Mawr College
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Extract

Students of the Five Year Plans are familiar with the overreach. Sing ambitions, the inflated claims, die disputed accomplishments, die misleading statistics, and the appalling human costs of “socialist industrialization” in Soviet Russia. They have generally ascribed these phenomena to Bolshevik dieory and practice. It comes as a surprise then to find die criticism of die early Five Year Plans foreshadowed, in almost identical terms, in die attacks made upon die earlier policy of rapid industrialization in Russia which is linked with the name of Sergei Witte, the Czarist Minister of Finance, 1891–1903. He, too, paraded seemingly impressive results and dubious figures, and he, too, was forced to exact dire sacrifices from popular welfare: Despite the profound dissimilarities between the Soviet system and die Witte era (they must go unstated here) there exists, it would seem, an underlying continuity, pointing to more fundamental necessities and profounder tragedies that backward countries widi strong nationalist and imperialist tendencies must face in die precipitous development of their resources. One special difference, however, should be noted in diis context. The distaste for die bitter fruits of forced industrialization, muted in Stalinist Russia, could frankly, although not entirely freely, be expressed in die eighteen nineties, when Witte's policies attained their full effect. The subsequent discussion of Witte's policies and their consequence is drawn from that public protest.

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Articles
Information
The Journal of Economic History , Volume 13 , Issue 4 , Fall 1953 , pp. 425 - 448
Copyright
Copyright © The Economic History Association 1953

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References

1 For the following see Migulin, P. P., Russia gosudarstvennyi Kredit (Russian government credit), Vol. III (Kharkov: Gagarin, 1903)Google Scholar;Wittschewsky, V., Russlands Handels-Zoll-und Industriepolitik, von Peter deni Grossen bis auf die Gegenwart (Berlin: E. S. Mittler und Sohn, 1905)Google Scholar; Golowin, K., Russlands Finanzpolitik. und die Aujgaben der Zukunft (Leipzig: O. Wigand, 1900)Google Scholar; Issaieff, A. A., Zur Politic des russischcn Finanzministeriums seit Mitte der So Jahre (Stuttgart, 1898)Google Scholar; Ozerov, I. Kh., Ekonomicheskaia Rossüa i teia finansovaia politika na izkhodie XIX i v nachalie XX veka (Economic Russia and its financial policy at the end of the nineteenth century and the beginning of the twentieth century) (Moscow: Kushnerev, 1905)Google Scholar; Lutokhin, D. A., Graf S. IU. Witte kak ministŕ finansov (Count S. IV. Witte as minister of finance), 1892–190, (Petrograd: Tip. Dvigatel', 1915)Google Scholar; Tompkins, Stuart R., “Witte as Minister of Finance, 1892–1903,” Slavonic and East European Review (04 1933), pp. 590–606Google Scholar; Laue, T. H. Von, “The Industrialization of Russia in the Writings of S. IU. Witte,” American Slavic and East European Review (10 1951), pp. 177–90Google Scholar.

2 This was also the sound testimony of V. I. Gurko, whose judgment of the Minister of Finance must on the whole be taken with caution. See Features and Figures of the Past (Stanford: Stanford University Press, 1939), p. 93Google Scholar.

3 Quoted from Vyshnegradskii's Budget Report for 1889 by Shvancbakh, P. Kh., Nashe podatnoie dielo (Our tax affairs) (St. Petersburg: Stasiulcvich, 1903), p. 13Google Scholar.

4 See the very useful statistical appendix in Khromov, P. A., Ekonomicheskpie razvitie Rossii v XIX-XX vekakh (The economic development of Russia in the 19th and 20th centuries) (Gosizdat, 1950), p. 462Google Scholar.

5 Quoted by Migulin, Part II, p. 8.

6 Lutokhin, p. 5.

7 The influence of industries as a civilizing factor was especially stressed by Mendeleev, Witte's spokesman among the public, in the preface to his work on the tariff of 1891, Tolkpvoi tarif (A sensible tariff) (St. Petersburg, 1891)Google Scholar. Pasvolsky's assertion that Russian bureaucrats were quite contented with the feudal economic system of the country and promoted industrialization only in an effort to stave off bankruptcy and keep Russia a first-rate power-seems not quite applicable to Witte. (See Pasvolsky, L. and Moulton, H. G., Russian Debts and Russian Reconstruction [New York: McGraw-Hill, 1924], p. 39.)Google Scholar

8 The decision to build the Siberian trunk line was taken before Witte was made Minister of Finance. Yet he carried it into action, incorporated it into a comprehensive economic policy, and gave it an ideological significance.

9 See also Gerschenkron's, A. review of Liashchenlco, An Economic History of Russia, OF ECONOMIC HISTORY, XII, No. 2, 157Google Scholar.

10 Quoted from Sergius Julewitsch Witte. Ein Gedenkjblatt zum 10 jahrigen Minister jubilaum des russischen Finanzministers, published by his staff (Berlin: Beno Kaufmann, 1902), p. 13Google Scholar.

11 The pamphleteer Cyon (Tsion) accused him of promoting state socialism and communism. Hence, Witte was careful to use in public the terminology of economic liberalism, to which, in a general way, he subscribed. See , Cyon, M. Witte et les finances Russes (5th ed.; Lausanne, 1895), p. 11Google Scholar.

12 Report of the Minister of Finance to His Majesty on the Necessity of Formulating and Thereafter Steadfastly Adhering to a Definite Program of a Commercial and Industrial Policy of the Empire, 1899 (hereafter referred to as Secret Memorandum), p. 2. A translation of this memorandum will be published by the Journal of Modern History. On close analysis the plan, scheduled to run for five years, is revealed as amounting to no more than the continuation of the high tariffs of 1891 until the renewal of the trade treaty with Germany in 1904.

Witte never formulated an adequate theoretical foundation for the vast power of economic control which he exercised as Minister of Finance over Russia's economic development. In 1897, however, an alert young Marxist, P. B. Struve, indicated the drift of events when he railed against the “bourgeois-bureaucratic-socialist” planning undertaken by Witte. Witte, he said, was trespassing on socialist ground. See Novoe Slovo (The New Word) (April 1897), II, 237.

13 Budget Report for 1896, Viestnik. Vinansov (The financial messenger). No. 53 (1895), p. 1147Google Scholar.

14 Like Zhizn'(Life). See also the column in that magazine entitled “Khronika vnutrennei zhizni” (“Chronicle of domestic affairs”) (January 1901), p. 382, stressing the significance of the budget reports as documents on domestic policy.

15 A creditable example of such publicity is Anspach, A., La Russie économique et I'oeuvre de M de Witte (Paris: Le Soudier, 1903)Google Scholar.

16 One such publication, Chuprov, A. I., ed., Vliianie urozhaiev i Khlebnykh tsen na nekptoryia storony russkago narodnago khoziaistfa (The influence of harvest and grain prices upon some aspects of Russian economy) (St. Petersburg, 1897)Google Scholar, was intended to prove Witte's contention about the advantages of low grain prices but aroused much bitter opposition. Practically all economists ridiculed its conclusions.

17 The extent of Russian industrial expansion in the Witte period as measured by recent studies is not a subject of this paper. Figures may be obtained from Gerschenkron, A., “The Rate of Industrial Growth in Russia since 1885,” JOURNAL OF ECONOMIC HISTORY, Supplement VII, 1947CrossRefGoogle Scholar; Mendel'son, L., Ekonomicheskiie Krizisy i tsikly XIX veka (Economic crises and cycles in the 19th century) (Ogiz, 1949), and Khromov, Ekonomicheskoie razvitie RossiiGoogle Scholar.

18 Cyon, originally a professor of physiology, had been sent by Vyshnegradskii to Paris as agent of the Ministry of Finance, but had been dismissed because of some financial irregularities. Ever thereafter he attacked the Ministry of Finance, speaking, so he claimed, as the successor of Katkov.

19 See Trudy vysochaishche uchrezhdennago vserossiiskflgo torgovo-promyshlennago s'ezda 1896 g v Nizhnem Novgorode (Transactions of the all-Russian congress of trade and industry held 1896 in Nizhni Novgorod) (St. Petersburg, 1897)Google Scholar for the plenary session of August 14. On that day an unpremeditated parliamentary debate on the “Witte system” took place. The subsrquent vote was 140 to 63 against Witte.

25 This opposition was the occasion of Witte's Secret Memorandum.

21 They included not only the unprincipled Cyon, but the more respected Sergei Sharapov, who edited from 1897 to 1899 (until bought out by Witte) the weekly Russk.it Trud (Russian Labor), a good example of Slavophile economic journalism. Among its contributors the economists Butmi and particularly ol' (whose work was eventually published by the Soviets) stood out prominently. Within the bureaucracy P. Kh. Shvanebakh, an influential member of the Soviet of the Ministry of Finance and later State Comptroller, set forth similar views. In the writings of these men the attack on the Wine system found its arsenal of fact and argument. The subsequent analysis is largely drawn from their evidence.

22 One of them, more adept at criticism than economics, asked how Russian agriculture, out of its earnings of 1.5 billion rubles, should not only feed itself but also pay for two billions in domestic goods (none of which, practically, were exported) and for a considerable volume of imported goods as well. Quoted from Biriukovich by Wittschcwsky, p. 279.

23 Reported from G. Butmi, Itogi finansovago khoziaistva s 1892 p 1903, by Rohrbach, P., “Das Finanzsystem Witte,” Preussische fahrbücher, No. 109, p. 103Google Scholar.

24 Svod dannykh o fabrichno-zavodskykh predpriiatiiakh v Rossii za 1897 (Statistics on manufacturing enterprises in Russia for 1897) (St. Petersburg, 1900) footnote, p. 270Google Scholar.

28 As reported by Wittschewsky, p. 278.

26 Rohrbach, p. 104.

2 7 Wittschewsky, p. 278.

28 Ibid., p. 280.

29 As quoted by Wittschewsky, p. 283.

30 One pud equals 36.1 pounds.

31 Ozerov, p. 118, wrote that in 1900 only 14 per cent of the iron and steel produced in Russia reached the population in form of consumers' goods.

32 Rohrbach, pp. 105 ff.

33 Ibid.

34 In another controversial field, the influx of foreign capital, Witte's figures and arguments revealed a similar tendentiousness. He argued in the Secret Memorandum for the overriding necessity of resorting to foreign capital for the industrialization of Russia and discounted the fear that Russian industry might be exploited unduly by foreign interests. Foreign capital, he wrote in the Secret Memorandum of 1899, constituted only one third of all new capital invested in joint stock companies in Russia, and only one fifth or one sixth of all new capital invested annually in all Russian industry. He called that a small leaven introduced in order to stimulate the sluggish energies of the Russian industrial community. Furthermore he asserted that the larger portion of the foreigners' earnings went to Russians; that foreign capital made existing Russian capital cheaper; and that it was immeasurably more advantageous to import capital than goods. Russia was no China, he fulminated; the resources of Russia could not be sold to foreigners. His opponents (for instance Gurko, V. I., Ustoi narodnago hhoziaistva Rossii [The foundations of Russia's economy) [St. Petersburg: A. S. Suvorin, 1902], pp. 76 ff.)Google Scholar asserted that the foreigners who invested in Russian industry only wanted their profits and did not care for the development of Russia. It often happened that when they had made their fortune they let their enterprises collapse; occasionally they only wanted to speculate on the stock market and never came to Russia personally. Or like so many Russian enterpreneurs, they spent their profits abroad rather than reinvest them in Russia. And if it was true that foreign capital amounted to only one third of all industrial investments in Russia, according to figures drawn from an officially inspired investigation (B. F. Brandt, Inostrannyic Capitaly [Foreign capital] [St. Petersburg, 1899], quoted by Mendel'son, p. 692), at the end of the century it still owned 54 per cent of all the joint stock companies in Russia. In the heavy industries, which arose so phenomenally in the 1890's, it constituted even 74 per cent. With the exception of one or two enterprises all southern metallurgical works constructed in the nineties belonged to foreign stockholders, who thus controlled a significant part of the very industries of whose progress Witte had been so proud.

35 Shvanebakh; p. 19.

36 Miliukov, P., Russia and Its Crisis (Chicago: University of Chicago Press, 1906), p. 442Google Scholar.

37 Quoted from Butmi by Rohrbach, p. 99.

88 shvanebakh, p. 31.

39 Ibid., p. 59.

40 In his Memoirs (Vospominaniia [Berlin: Slovo, 1922], I, 74)Google Scholar, Witte accused his successor Kokovtsov of starting the bad practice of using the vodka monopoly for fiscal purposes.

41 Trudy, Vol. I, session of August 14.

42 Shvancbakh, chap, ii, passim.

43 Sharapov, S., Due zapiski Scrgeia Sharapova o russkykh finansov (Two notes by Sergei Sharapov on Russian finance) (Berlin: V. Stankevich, 1901), chap, ii, Parts IX and XGoogle Scholar.

44 The low standard of technical perfection in the matter of statistics and figures even among the foremost and presumably most competent authorities in Imperial Russia seems truly incredible. For instance, the economist Butmi made in one of his attacks upon the Minister of Finance a bad blunder in a simple subtraction. But the blunder was not discovered by the scribes in Witte's department who wrote an official refutation. The official statistics on railway operations for the year 1896 included by mistake the revenue of a private railroad. The census of 1897 counted 16 million inhabitants of 865 towns and cities. But the previous year the same agency which compiled the census, the Central Statistical Committee attached to the Ministry of the Interior, had given the figure for towns and cities as 945, not including many smaller settlements of an urban nature. Other sources asserted that in the census of 1897 towns of 10,000, 15,000, and even 25,000 inhabitants had been overlooked. One can imagine the difficulties of industrialization in a country where such carelessness prevailed even at the center of the government.

45 Migulin, p. 379. This devastating conclusion by a competent authority lent substance to Witte's cynical remark reputedly made to A. A. Suvorin, the editor of Novoe Vremia, apropos of Vyshnegradskii's budgets: “You take these budgets and their surpluses seriously? But they are only simple writing exercises. One moves the figures according to need sometimes from left to right, sometimes from right to left. But in reality the treasury does not have a kopek.” Quoted by Cyon, p. 221.

48 There had been disagreement over the effects of the exhibition of Russian trade and industry at Nizhni Novgorod. Witte had called it a great success, Philippov a costly failure. See theVsepodanncishchii Otchet Gosudarstvennago Kontrolera za 1896 (The report of the State Comptroller for 1896) (St. Petersburg, 1897), pp. 76 ff., and Witte's account in the Budget Report for 1897Google Scholar.

47 All dates in this paper are given according to the Gregorian rather than the Julian calendar, then still prevailing in Russia.

48 “Iz Dnevnika Polovtseva” (“From the diary of Polovtsov”), Krasnyi Arkhiv, No. 3, entry for December 29, 1901, p. 106.

49 The official record of this meeting was smuggled out of Russia and published by P. Struve in Germany, Finanzminister Witte und der russische Reichsrat iiber die Finanzlage Russlands. Protokpll der Plenarsitzung des russischen Reichsrats vom 30 Dezember 1902 (Stuttgart: Dietz, 1902)Google Scholar. See also the entries in Kuropatkin's and Polovtsov's diaries for that date.

50 D. A. Timiriasev of the Ministry of State Domains and Agriculture, speaking at the Third Congress of Russian Trade and Industry, asserted the grain prices had fallen 27 per cent between 1893 and 1896, while the price of metal products had risen 13 per cent in the same period. Even then, it seems, there existed a “scissors crisis.”

51 Witte's assertion that he was much concerned as Minister of Finance with peasant welfare (Vospominaniia, I, chap, xxxii, passim) must be treated with considerable caution. He promoted greater mobility of peasant labor; yet there is no evidence of government support of peasant agriculture as advocated by Zemstvomen.

52 It lasted from 1897 to 1902. In his Memoirs Witte gives wrong dates (1895–1898).

51 The full Russian title was Kommissiia po izsledovaniiu voprosa o dvizhenii c 1861 po 1900 g blagosostoianiia sel'skago naseleniia sredne-zenilcckl'-cheskykh gubernii sravnitel' no s drugimi miestnostiami evropeiskoi Rossii.

54 The Russian title was Osoboie soveshchaniie o nuzhdakh sel'skokhoziaistvennoi promy-shlcnnosti.

55 This is the explanation generally accepted by Russian authorities on this subject. Witte, and the Russian Government, had no difficulties raising loans, even if the economic conditions of Russia did not seem very auspicious. Anyway, the depression started only after the shortage of capital in the international money market had begun.

58 Vsepodanneishchii otchet gosudarstvennago kontrolera za 1900, Gosudarstvennaia tipografiia (St. Petersburg, 1901), p. 64Google Scholar. The State Comptroller's reports, although printed, were not available to the public.

57 Vsepodanneishchii otchet … za 1901, p. 55. The same charge was repeated in the Comptroller's report for 1902, which, incidentally, was highly critical of Witte's actions in other fields as well, with the Emperor's agreement expressed in marginal comments.

58 Vsepodanneishchii otchet gosudarstvennago kpntrolera za 1900, Gosudarstvennaia tipogra-fiia (St. Petersburg, 1901), p. 64Google Scholar. The State Comptroller's reports, although printed, were not available to the public.

57 Vsepodanneishchii otchet … za 1901, p. 55. The same charge was repeated in the Comptroller's report for 1902, which, incidentally, was highly critical of Witte's actions in other fields as well, with the Emperor's agreement expressed in marginal comments.

58 “Dnevnik A. N. Kuropatkina” (“The diary of A. N. Kuropatkin”), Krasnyi Arkhiv, II, 25 ff.

59 Migulin, p. 403.

60 Prokopovich, S. N., Mestnyie liudi o nuzhdakh Rossii (Local people or the needs of Russia) (St. Petersburg: E. D. Kuskovoi, 1904), pp. 145 ffGoogle Scholar. This evidence refutes Witte's assertion (Vospominaniia I, p. 477) that the “local people” did not attack his policies.

61 This tariff, his critics asserted, could hardly be called a protective tariff. It impeded the course of normal industrial development; it taxed essential resources of Russian industry, cotton, coal, or machines; it offered a shelter for inefficiency and lethargy; it promoted monopolies and cartels; it led to a fatal concentration of industry in a few large combines rather than dispersing it in smaller units over the country; it built up the periphery of Russia at the expense of the center; etc.

62 The influx of foreign capital, Witte argued there, was necessary to alleviate the sacrifices borne by the rural population. Witte disapproved an income tax in order to encourage the accumulation of native capital. Yet industry and commerce did not entirely escape taxation. Contemporary opinion agreed, however, that the main burden was borne by the rural population and that Witte opposed the taxation of Russian trade and industry in order to encourage the accumulation of native capital.

63 See particularly Ozerov, p. 67.

64 Migulin, p. 324 ff.

65 See the characterization of the chief economic centers of Russia by the sociologist IUzhakov, S. N. in Russkoie Bogatstvo (Russian wealth) (09 1894), “Khronika vnutrennei zhizni,” pp. 329 ff. By comparison St. Petersburg, despite its extensive industries, was a city dominated by chinovniks.Google Scholar

66 The continuity of Russian economic policy was stressed by Eckhardt, H. von, “Die Kontinuität der russischen Wirtschaftspolitik von Alt-Moskau bis zur Soviet Union,” Archiv fur Sozialwissenschajt und Sozialpolitik., No. 55 (1928), pp. 754 ffGoogle Scholar.

67 There is much evidence on this point in Polovtsov's diary.