Russia & The Struggle for Peace/Chapter 3
Part II: The Disorganisation of
Industry
CHAPTER THREE
THE ECONOMIC ISOLATION OF
RUSSIA
I WELL remember how at the beginning of the war people in Russia used to discuss the chances of Germany's economic exhaustion under the pressure of the blockade, and I wonder now that no one realised that the economic isolation of Germany was, in fact, a double-edged weapon. Nobody seemed to grasp that the same process which was injuring Germany was bound to injure Russia still more.
It is astonishing that neither the Russian Government nor the Russian economists foresaw any danger in the economic isolation of Russia. At any rate, I can state definitely that the Russian Press, which used to prophesy the inevitable and rapid economic ruin of Germany under the pressure of the blockade and the war, had not a single article on the danger of the isolation of Russia from the West. Neither before, nor at the beginning of the war, did the Russian Government take a single measure to ameliorate the dangerous position in which Russia actually found herself after the war broke out.
And yet nothing could be more clear than that the closing of Russia's frontiers with the Central Empires, the chief countries for Russian exports and imports, was bound to have the worst effects on the economy of Russia.
The predominance of Germany in Russia's foreign trade is a matter of common knowledge. Particularly since the war, much has been written about the extent of Germany's trade with Russia in peace time. And when the war broke out there was a considerable amount of rejoicing in this country at the prospect of Germany losing this very considerable portion of her foreign trade. But here too, unfortunately, nobody seemed to realise that the cessation of Russo-German trade would hit Russia's economic position infinitely harder than it would stimulate the commerce of this country with Russia.
In effect, the closing of the frontier with Germany and Austria was literally a death-blow to Russia's foreign trade. As regards her exports, this will easily be realised from a glance at the following figures:—
In 1913 Russia's exports across her European land frontiers amounted to 1,232 million roubles, whereas the sum total of her exports through all her other frontiers (i.e., Black Sea, Baltic ports, Caucasus, and Asiatic frontiers) was less than 300 million roubles. But the effect of the blockade on Russia's imports was even more disastrous. In 1913, the imports through Germany, Austria, and the Baltic ports, amounted to 1,146 million roubles, and through all other frontiers only to 227 million roubles. Thus the closing of the European frontiers put a stop to three-quarters of Russia's exports and to four-fifths of her imports.
But these figures by themselves do not enable us to realise the full significance of the cessation of exports and imports. In order to understand what it really meant to Russia's economic life, it is necessary to consider the nature of these exports and imports. It was, indeed, not the quantity of Germany's exports to Russia which mattered, so much as their nature and quality. Before the war Germany practically controlled Russia not only through the so-called "key-industries"; she actually dominated the whole of Russia's industrial life. Russia was dependent upon Germany—in the first place, for by far the greater part of her machinery; and secondly, because of the special character of Russian industry which consists in turning out the finished products from half-prepared materials. These half-manufactured materials ("polu- fabrikaty," as they were called) came almost entirely from Germany. Russia had raw materials enough, but her actual economic development was at such a stage that in many important branches of industry she was unable to deal with the first processes of manufacture. She therefore had to export the raw material, and re-import the ready-prepared material for the final processes of manufacture, which, again, constituted an important branch of her national industry. An example of this is seen in the leather and fur industry. Russia had raw animal hide and skins in plenty, and the making of leather goods and especially of furs was an important part of Russian industry. But the initial processes of tanning and colouring were not performed in Russia. And, as a matter of fact, Russia used to export raw hide and skins to Germany and to import back leather and furs. The famous Russian leather ware and Russian furs were made out of these German half-prepared materials. So it was in many other branches of industry. In 1913 the import of such half-manufactured products amounted to 662 million roubles, or more than half of the total imports of Russia. Altogether, Russia depended on other countries—especially on Germany—for some essential machinery or important part or process, or for the half-prepared materials, in nearly all her important industries.
It is therefore not to be wondered at, if the sudden and complete cutting off of all imports from Germany not only put an end to certain industries but paralysed nearly all the rest. Relatively speaking, Russia suffered far more from the cessation of imports in half-prepared materials than Germany suffered from the loss of Russia's raw materials. The raw materials which she used to obtain from Russia Germany endeavoured to obtain from neutral countries or to replace by some efficient substitutes. But half-prepared products are a kind of raw material whose absence is not so easy to adjust. The turning out of finished articles from these half-prepared materials had been the result of a long process of accommodation between the Russian and German industries.
Thus, the closing of Russia's frontiers with Germany and (to a considerably less extent) with Austria, led to the cessation of Russia's foreign trade and to the paralysing of Russia's industry.
The situation was in fact tragic, and, had Russia had a more intelligent and less corrupt Government, it would have aroused the utmost attention and measures would have been taken to deal with it. During the first months of the war it is probable that Russian industry could have been reorganised and readjusted to deal with the situation with some measure of success. Missing links in the chain of industrial production could probably have been replaced in Russia itself, and the import of machinery, and especially of agricultural machinery, could have been arranged with Great Britain, America, and Japan.
But the essential condition for the success of any big scheme of reorganisation of industry was the placing of the whole industry under control of public institutions. However, the Russian Government was too stupid to grasp the gravity of the situation. It was too closely allied with the propertied classes to dare to interfere with their private interests, and too much afraid of any show of public spirit to allow the people to play any part in Russian industrial and political life. Control of industry was the only possible remedy. But it was not applied, and no attempt whatever was made to deal with the situation from a statesmanlike point of view.
In Germany there was developed down to the very smallest details a comprehensive plan, both defensive and offensive, to obviate the difficulties caused by the war and the blockade. In Russia the almost complete cessation of foreign trade and paralysis of industry—which would have been a disaster to any country and in the case of poor and undeveloped Russia was a catastrophe—aroused very little attention.
While the Press and the public were prophesying the speedy exhaustion of Germany and were scoffing over Germany's measures to combat the blockade by adapting her economic and social structure to the new situation (which measures were welcomed as indications of her early breakdown), the results of the war and the blockade were striking at the very roots of the weak and undeveloped economic structure of Russia.
The Government was blind and indifferent; the Duma, after the demonstration of approval of the war, was prorogued and could not assert itself until the great defeat of the Russian armies in Galicia. And the manufacturers and merchants who were most concerned were, as usual, only looking to their profits, which, indeed, they were soon to have in unprecedented quantities. Even the menace of a speedy breakdown of industry was easily exploited by the industrialists, whose profits went up as goods in the markets went down. They started speculating and buying up in competition all the remaining stocks of goods, thus inflating prices still more and still further enhancing the difficulties for the national economy.
The struggle against the effects of this terrible economic isolation of Russia was left to the individual interests of speculators and profiteers.
It is a remarkable fact that Russia actually began to feel the pinch caused by the closing of the frontiers to German trade within a fortnight of the beginning of the war. Crowds of speculators flocked to Scandinavia and Roumania to buy substitutes for goods formerly imported from Germany; and it is noteworthy that the corrupt and stupid Government, in its attempt to "regulate" the activities of these men, could only work against the public interest.
The greater part of these new supplies were naturally of German origin or manufacture, and were, therefore, declared contraband, and the Government began to throw difficulties in the way of this traffic. The Government was so stupid and shortsighted as not to realise that the chief if not the only object of the blockade of Germany was to prevent supplies from reaching Germany; whereas the import of German goods into Russia, so far as it could be kept up, was of distinct advantage to Russia. However, the sinister influence of certain large interests was at work in Russia, as elsewhere, and the blockade of Germany, which had the very important but limited object of striking at the military strength of Germany, was perverted into the destruction of German commerce. "Bomb German business" was soon the cry of Russia's patriotic newspapers, and the capitalists and the Government began zealously to combat the influx of German goods, notwithstanding the fact that their entry was entirely in the public interest. Merchants and speculators were allowed to demand any price they liked for the imported goods, but they had to prove that their wares were not of German origin. The only effect of insisting on such proofs was to raise prices still higher and to make the import of necessary articles still more difficult.
Soon a new evil was added to this "wise" policy of hindering foreign goods from reaching Russia: this was a secret traffic in goods waggons. When a merchant brought goods to any Russian frontier—to Archangel, the Finnish ports, Vladivostok, or the Russo-Roumanian frontier—he had to apply for a so-called "Nariad" or order for trucks. The issue of the "Nariad" depended not only on the Ministry of Communications but also on the Home Office, War Office, Admiralty, or Ministry of Commerce. The number of departments concerned depended on the circumstances of the case and on the nature of the goods. Very often the necessary orders could only be issued by the joint action of two or three Ministries. This practice made for great delays and was a great burden to the consumer, since the bribes for getting a "Nariad" inevitably increased the prices. When a merchant had succeeded in importing American, Japanese, or English goods, he was never certain of being able to obtain the necessary trucks required to take them to their destination. Many transactions of great national importance could not be executed, thus causing- great losses both to the importer and to the public.
"Trucks" was the cry of Russia, but they were more and more difficult to procure without substantial bribes to high and low officials. All Russia knew that this corrupt traffic was going on, and protested against it loudly; many cases involving high Government officials were brough before the Courts; yet the selling of "Nariads" for goods trucks could not be stopped until the Revolution.
By that time the dearth of essential articles was so great, and their price in consequence so high, that fortunes could be made by one or two trips to Stockholm or Bucharest with a couple of trunks.