Witte and Industrialization in Revolutionary Russia

Дата публикации: 04 сентября 2007
Публикатор: Научная библиотека Порталус
Рубрика: RUSSIA (TOPICS) - Imperial Russia →
Источник: (c) http://russia.by
Номер публикации: №1188905401

Were Sergei Witte's policies favoring industrialization and economic development successful?

Viewpoint: Yes. Witte's policies modernized the Russian economy and made Russia competitive internationally.

Viewpoint: No. Witte's policies created great urban instability and caused many problems for Russia's emerging economy.


Count Sergei Iul'evich Witte oversaw Russia's transition economy from 1892 to 1903. As finance minister, Witte pushed for greater exports, ambitious industrialization, and large foreign loans. He hoped to modernize Russia and make it competitive with other great powers. These policies by and large continued after Witte was dismissed in 1903 and were expanded by Witte when he returned to government as premier in 1905-1906, and by his successors.
Most accounts laud Witte's ingenuity and ambition. By financing industrialization and securing foreign capital, Witte played a major role in facilitating Russia's development. The country enjoyed impressive economic growth, a healthy pace of industrialization, and other aspects of modernization that would not have been possible in other circumstances. Witte remains a hero to those who believe that, if only he had been entrusted with more leadership, Russia would have been better off.
Witte, however, does have some detractors. By borrowing abroad, Witte based Russia's development on the stability of foreign capital markets and thus left the economy vulnerable to foreign security requirements. Industrial and infrastructure development, focused on heavy industry and large-scale enterprise, created unevenness in the Russian economy. Even as it expanded to greater heights, the Russian economy created divisions, difficulties, and other problems in Russia's modernizing society, problems that strongly contributed to revolution in 1917.

Viewpoint: Yes. Witte's policies modernized the Russian economy and made Russia competitive internationally.

One of late-tsarist Russia's most talented and ambitious civil servants, Count Sergei Iul'evich Witte was the central architect of the country's economic policy in the years leading up to the 1905 Revolution. A railroad executive, Witte headed Russia's Ministry of Finance (1892-1903), the government organ that played the most important role in industrial development and nonagricultural economic policy. Keys to the "Witte system" were the expansion of Russia's railway network and the securing of foreign investment for industry. During his tenure as finance minister, Russia's industrial economy grew more rapidly than at any other time in the prerevolutionary period.

Witte's priority was to restore and cement Russia's position as a great European power, and it was to this end that he pushed so vigorously for rapid industrial growth. Witte was highly influenced by the arguments for state-driven industrialization advanced by the German economist Friedrich List. For Russia to overcome problems associated with its relatively low income levels and concentrations of capital, the state would need to play an active role in furthering industrial development through engaging in building projects (such as the railway system) and in ensuring the availability of finance.

The transformation of Russia's railways from short lines owned primarily by private companies to an extensive, state-owned network was begun and furthered by Witte's predecessors in the finance ministry from peasant emancipation to the early 1890s: M. Kh. Reutern, N. Kh. Bunge, and Ivan Vyshnegradskii. However, it was under Witte's direction that the most significant progress was made in both expanding and modernizing Russia's railway system, his area of immediate expertise after all, vital for meeting demands for large amounts of industrial materials throughout the growing economy. During his tenure Russia's railways grew from less than thirty-three thousand kilometers to more than fifty-eight thousand kilometers of track, more extensive in length than the railroads in either France or Germany, and by 1901 all railroads were state-owned.

Witte's securing of capital for industrial growth was remarkable given Russia's relatively low revenues and investment capital. Foreign loans thus became central to capital accumulation. Between 1897 and 1901, 20 percent of investment within Russia was financed with funds from abroad, mostly from France and Russia's principal diplomatic and military ally after 1892, Belgium. The introduction of the gold standard for the ruble in 1897 also made investments in Russia more stable and attractive than before.

With the aid of Witte's policies, Russian industrial production made huge advances. Growth rates in the late nineteenth and early twentieth centuries were high, comparing favorably to those of the United States, Germany, and Japan at the time, and closely resembling those experienced by China, South Korea, and other dynamic Asian economies in the 1990s and early twenty-first century. The favorable comparisons that can be made between Russia's prewar industrial economy and those of West European countries were due in large part to the advances made under Witte. In 1913 Russia's total national income was nearly equal to that of Great Britain, and its industrial economic output was similar in size to that of France. Russia's steel production in 1913 exceeded France's (4.9 to 4.7 million metric tons), and its coal and iron production were not far behind. Russia's industrial output was still considerably lower than that of Britain and Germany, but much ground had been gained over Russia's lagging economy of the 1850s and 1860s.

Domestic opponents of the influx of foreign capital who had connections in the imperial court attempted, ultimately successfully, to turn Tsar Nicholas II against his powerful finance minister. In a memorandum to the emperor, however, Witte defended the inflow of foreign capital. The productivity of Russian agriculture could not be raised fast enough to produce the capital needed for industrialization, Witte told Nicholas, and foreign investment forced greater efficiency upon domestic Russian producers. Witte was aware of problems that his system caused, to which his answer was continued use of borrowed foreign capital, steep protectionist tariffs and other duties, and direct excise taxes, including a lucrative state liquor monopoly that came into force in 1896. With criticism of Witte's policies mounting, Nicholas II cashiered Witte in 1903. Yet, the redoubtable finance minister soon returned to the highest levels of Russian politics. In the summer of 1905 he negotiated a reasonable peace treaty to end Russia's disastrous war with Japan. In October of the same year, he became Russia's first premier--a head of government distinct from the imperial family--after convincing Nicholas II of the need to grant Russians civil rights and an elected legislature in order to preserve the monarchy in the face of intensifying revolution. This quasi-constitutional order, which offered representative government and hope for future democratization, largely developed from Witte's initiatives.

In the 1950s Harvard economic historian Alexander Gerschenkron proposed a model to explain the path of industrialization in relatively poor agrarian countries such as tsarist Russia. Gerschenkron argued that relative economic backwardness induces such societies to make substitutions for missing preconditions necessary for industrial growth and that the state plays a crucial role in providing the preconditions. According to this theory, in Russia it was the Ministry of Finance, both under Witte and his immediate predecessors, that filled the breaches through actions favoring heavy industry: building railways, installing high tariffs, purchasing domestic goods, and securing foreign investment capital. These measures were taken by the state in the face of a weak labor market, as peasant emancipation had failed to release adequate numbers of individuals to work in industry. Building on Gerschenkron's work, a consensus among economic historians holds that the Russian state was crucial in the securing of foreign loans to finance the country's industrial growth.

The notion of "economic modernization" is one that cannot be uniformly defined, and thus it is difficult to arrive at a universally agreed-upon assessment of the influence of any single actor in Russia's economic development. Be that as it may, for the period from peasant emancipation to the first complete year before World War I (1861 to 1913), the proportion of Russia's national income provided by industry rose from 23.5 to 32 percent, while income from agriculture fell from 57 to 51 percent. Russia's overall economic output doubled between 1890 and 1900. Sergei Witte, as finance minister for much of this era, was the key figure in this progress and transformation.

-- Bradley Woodworth, Yale University

Viewpoint: No. Witte's policies created great urban instability and caused many problems for Russia's emerging economy.

Historians usually praise Count Sergei Iul'evich Witte's role in the political and economic history of tsarist Russia. His tenure as minister of finance (1892-1903), negotiation of a favorable peace treaty in the Russo-Japanese War of 1904-1905, and role in promoting a constitutional political order after the Revolution of 1905 are all frequently cited as progressive developments and led to his accrual of his countrymen's honor and respect. Yet, Witte had flaws. Nowhere was this more apparent than in his plans for Russia's economic development, which, though ambitious and in some ways successful, exacerbated existing problems and created new ones. Their long-term implications for the country's economic and social stability were serious.

Observing the problems with Witte's approach to development is not to deny that Russia needed major reform. Its defeat by Western powers in the Crimean War (1853-1856), lack of industrial development, poor infrastructure, and enserfed rural population left it much weaker than its competitors, and everyone recognized that fact. What one should realize, however, is that bridging this gap was not Witte's original idea. The abolition of serfdom and other meaningful administrative and judicial reforms carried out in the 1860s predated Witte's ministerial appointment by nearly thirty years. The initiative most closely associated with him, ambitious railroad expansion (Witte was a career bureaucrat in the railroad department of the Ministry of Finance before his appointment as minister of communications in 1892 and minister of finance later that year), had begun a dozen years before he reached high office. Between 1880 and 1890 his predecessors oversaw the doubling in size of Russia's railroad network. Witte continued this development by more than trebling its size in the last decade of the nineteenth century, but he could hardly claim the idea as his own.

Railroad development was an undeniable benefit, but several other existing policies continued and expanded by Witte were not so beneficent. In an effort to stimulate Russia's domestic economic growth, the Russian government had encouraged increased exports of wheat and other agricultural products, as well as high tariffs and other protectionist measures to limit competitive foreign imports. Witte's immediate predecessor as minister of finance, Ivan Vyshnegradskii, had pushed this policy to an extreme in the late 1880s and bore some responsibility for the famine that broke out in 1891-1892. That human catastrophe, which brought about his replacement by Witte, exposed the lack of wisdom behind the export policy, which failed to establish a surplus of food to compensate for even a season or two of poor harvests. Witte, however, continued to place high pressure on agricultural exports. Like his predecessors, he also maintained high tariff walls against foreign imports to preserve a favorable trade balance. These measures had been and remained problematic because Russia's major trading partners both placed retaliatory tariffs on Russian grain and found their finished industrial exports much less competitive in Russia. In this vicious circle Russia's agricultural sector lost ground in international markets to North and South American produce, which could be shipped to Europe more cheaply and easily via new transport and refrigeration technologies, while Russia as a whole lost out on cheap and efficient opportunities to modernize its productive capacities. The adoption of the gold standard at Witte's urging in 1897 made currency exchange more rigid and denied Russia the prospect of using a flexibly valued currency to its advantage in international trade.

The first major consequence was that agricultural exports, though greater and greater in volume, were insufficient to finance Russia's industrial development. As a result, Witte had to take on massive foreign loans. Once again, he was not thinking originally. His predecessors had also looked to international finance to aid Russia's development. What made Witte peculiar, however, was that he could rely only on particular sources of foreign investment. Germany, identifying a strong Russia as a threat, had closed its capital markets to traditionally generous Russian borrowing in the late 1880s. Britain, which at least until 1900 continued to see Russia as its most serious international competitor, was also reluctant to help it develop and preferred to invest in its own colonial empire, its economic condominium in Latin America, and the safer and less threatening United States. The United States directed most of its investment into domestic development and remained a debtor nation until World War I. Its suspicion of Russian intentions in Asia and dislike of Russia's poor treatment of Jews and other minorities added to its reluctance to finance Witte's modernization program. The finance minister was thus forced to rely on the support of the world's only other major financial power, France, which strategic circumstances had made Russia's ally from 1892.

Witte's reliance on French finance posed several challenges. Poorer than the three other potential creditors, France could offer only far smaller amounts than what might otherwise have been obtained. Although French banks held about 40 percent of Russia's public debt by 1900, their investment capital's absolute value was limited and could only be applied to select projects. While it would have been more prudent to spread French investment evenly, a policy that greater funds would have facilitated, most loans were spent in a piecemeal way that created unevenness in Russia's economic development. As Norman Stone and many other economic and military historians have pointed out, it was this unevenness in growth, rather than "backwardness" in the country's general economic situation, that bedeviled Russia's effort in World War I and harmed its prerevolutionary urban stability.

Worse, if France suffered a major fiscal crisis or reconfigured its strategic policy in a way that left it at odds with Russia, its loans would have disappeared, and no other power would have likely emerged as Russia's banker. When World War I broke out in 1914, this was exactly what happened. The French economy faced major challenges, and its own war effort quickly consumed investment capital that would otherwise have been loaned to Russia. The same was true of Belgium, the impressive banking sector of which had also financed some of Russia's development but found itself in the fight of its life when the Germans invaded. Britain and the United States extended some wartime credits, but despite the obvious advantage of supporting a strong Russia to battle Germany, they were usually small in amount, late in payment, and unfavorable in terms. This problem did not arise while Witte was in government, but its emergence during World War I exposed the tenuous foundations upon which he had based his development program. By 1917 it led to catastrophe.

Further, just as Britain, Germany, and the United States had strategic reasons to avoid major sponsorship of Russian development; France embraced it largely out of strategic imperative. After its sound defeat by Germany in 1870-1871, France suffered two decades of diplomatic isolation knowing that it could never defeat Germany on its own should there be a rematch. Germany's ill-advised decision to abandon its strategic relationship with Russia after 1890, however, left the latter open to a new alliance partner. Looking at the situation geographically, the French logically identified Russia as a second front that would divert German military resources in the event of war. After the two countries concluded a mutual defensive alliance in 1892, financing Russia's development, and by extension its military effectiveness, became a major French policy. Yet, this objective only proved a liability for Russia's economy. As time went on and the French grew increasingly wary of German power, they began to place more onerous strategic conditions on their loan packages. With each passing year these conditions privileged projects of military significance--such as railroad construction in the Russian Empire's western borderlands to facilitate faster Russian troop mobilization--over more broadly useful development in other regions and economic sectors. In addition to exacerbating the Russian economy's unevenness, the situation deprived civilian, consumer, and industrial projects of funds. As the Russians discovered in 1914, many of these needs were equal or more important than the specifically military projects demanded by the French, many of which were in any case made irrelevant by German advances in the first year of World War I. Yet, Witte's decision to depend on French finance left Russia with no other choice.

Prioritizing foreign loans as a development tool slammed the door on several valid and much less risky domestic sources of revenue. A major flaw in Witte's program rested in his ambivalence toward rural modernization. Happy though he was to encourage grain exports, he did remarkably little to modernize Russian farming. Although Russia possessed some of the world's richest farmland, most of its rural population produced at only slightly more than the subsistence level. This situation had roots in the country's traditional communal form of land tenure and in a rapid increase in the rural population over the course of the nineteenth century, but nothing in Witte's program allowed for the improvements necessary to alleviate the situation. The only major government institution that gestured in that direction, the Peasant Land Bank, existed to facilitate the repayment of peasant dues left over from emancipation and the purchase of gentry land for peasant use. Consumer credit, other forms of small-scale finance, and general government support for rural development--all common in the West at the time--passed Russia by. Foreign corporations trying to sell farm machinery consistently reported dismal sales and uncooperative attitudes. In 1911 only 166 tractors were tilling the vast fields of European Russia, compared to 14,000 in the United States. Witte's failure to close this gap weakened his overall program. More efficient farming and greater agricultural production would have created greater surpluses for export. Increased exports would have helped balance Russia's trade deficit and reduce its reliance on high tariffs. Bigger export revenues would have allowed for domestic development without the need to resort to borrowing abroad. Yet, all of these positive achievements had to begin with measures that Witte neglected to take.

It is also worth mentioning that despite his great influence, Witte was unable to implement legislation that would allow peasants to leave their communes and set up private farmsteads like those common in Western Europe. Offering modern values of private property, individual profit, and freedom from intrusive institutions of communal life, these measures were advocated by Russia's leading economists during his time in office, but were only implemented by a later premier, Petr Stolypin, in 1906.

Modernizing the Russian government's domestic revenue collection was another lost cause under Witte's leadership. Although he tried to rationalize and standardize Russia's system of taxation and tax collection (partly by bringing it under his Ministry's control in 1899), the more innovative approaches found among Russia's competitors were sorely lacking. Most state revenue continued to come from direct taxes--excise duties on imports and certain essential commodities. In 1894 Witte extended this system to include a government monopoly on liquor. However, these measures were insufficient to fund the needs of a modern state. Witte's tinkering with the efficiency of collecting the extant direct taxes did marginally increase revenues, but it embittered peasants and the growing ranks of the urban poor, who felt squeezed and realized the economic truth that direct taxes, which normally assess the same amount or percentage from everyone paying, were regressive and thus fell disproportionately on them. The state liquor monopoly was an even stranger development. Eventually accounting for about one-third of the government's revenue, it cast a long moral shadow since Russia's official cultural, social, and religious institutions formally opposed drinking and decried the abuses of alcoholism. Good subjects, in other words, were paradoxically discouraged from engaging in an activity that furnished the state with much of its revenue. The liquor monopoly also turned into another case of state dependence on an unstable source of income. When conflict broke out in 1914, the government banned vodka sales as counterproductive to the war effort, thus at a stroke cutting off much of its own revenue. The comprehensive indirect taxation systems (mainly taxes on income) prudently adopted by West European nations and the United States before World War I made no inroads into Russia until the pressures of war forced it to consider a national income tax in 1916.

Although Russia experienced steady economic growth before and indeed even during World War I, Witte's eleven-year tenure as minister of finance left it with many problems. The Empire's reliance on foreign capital was inefficient and surrendered an important amount of decision-making power to the strategic needs of another nation. Its agricultural sector remained underdeveloped, underutilized as a source of revenue, and yet nevertheless discontented socially and politically. Its taxation system failed to access its growing urban financial resources and left it ill prepared to pay the costs of operating a modern state. The fault for these problems lay with an incomplete process of modernization, much of which was directed by Sergei Witte.

-- Paul du Quenoy, American University in Cairo


Anna Alexandrovna Vyrubova, a lady-in-waiting for the empress of Russia, accompanied the royal family on their yacht Polar Star for a cruise in Finnish waters following the end of the Russo-Japanese War in 1905. It was while onboard the vessel that she met Count Sergei Iul'evich Witte and recorded these observations:

The war was again recalled by a visit on board the yacht from Count Witte, fresh from the Portsmouth Conference. As a reward for his work done there he received for the first time his title by which the world now knows him. During dinner he related with great gusto all his experiences in the United States, his triumph over the Japanese delegates, his popularity with the Americans, appearing very happy and satisfied with himself. The Emperor complimented him warmly, but Count Witte for all his talents was never a favorite with the Sovereigns.

Source: Anna Alexandrovna Vyrubova, Memories of the Russian Court (1923) http://www.alexanderpalace.org/russiancourt/II.html.



Peter Gatrell, The Tsarist Economy, 1850-1917 (New York: St. Martin's Press, 1986).

Paul R. Gregory, "Russian Industrialization and Economic Growth," Jahrbücher für Geschichte Osteuropas 25 (1977): 200-218.

Gregory, Russian National Income, 1885-1913 (Cambridge: Cambridge University Press, 1982).

Patricia Herlihy, The Alcoholic Empire: Vodka and Politics in Late Imperial Russia (Oxford & New York: Oxford University Press, 2002).

Theodore H. Von Laue, Sergei Witte and the Industrialization of Russia (New York & London: Columbia University Press, 1963).

Hans Rogger, Russia in the Age of Modernisation and Revolution, 1881-1917 (London & New York: Longman, 1983).

Nicolas Spulber, Russia's Economic Transitions: From Late Tsarist to the New Millennium (Cambridge: Cambridge University Press, 2003).

Norman Stone, The Eastern Front, 1914-1917 (London: Penguin, 1998).

Опубликовано на Порталусе 04 сентября 2007 года

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