The Russian Review/Volume 1/May 1916/Russia's Part in an Anti-German Economic Coalition

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Russia's Part in an Anti-German Economic Coalition.

By J. M. Goldstein,

Professor of Political Economy in Moscow University.

The author of this article is the Editor of the Department of Economics of the new Moscow magazine, "The Problems of Great Russia" and one of Russia's foremost authorities on economics and finance.—Ed.

Fifteen years ago the author of this article had occasion to visit the principal trade and industrial centers of Russia for the purpose of gathering material in an investigation of conditions bearing upon the renewal of the Russian-German commercial treaty. At the request of the then Minister of Finance, S. J. Witte, and his assistant in this Department, W. I. Kovalevsky, I set forth the most important results of this investigation in a report which I submitted to the Minister. In this report[1] I pointed out the necessity of an economic and political rapprochement with England and several other countries, since a rapprochement of this kind would have greatly facilitated the task of concluding an advantageous treaty between Russia and Germany.

Five years later, when our political relations with England reached the height of their animosity, I wrote as follows, in concluding the book mentioned above:

"The next decade after the expiration of the commercial treaties, which were recently concluded under Germany's guidance, will, in my estimation, witness a state of affairs entirely different from that which obtains to-day. The immediate future will show whether or not the leading spirits of Russia and England will realize the problems before them.

"The statesmen of Russia should not, moreover, forget that an economic rapprochement with England will benefit Russia by making difficult, and, for a long time, even impossible, a repetition of the unfortunate events of the kind of the Russo-Japanese War, or a whole series of possible complications in Persia, Afghanistan, Asia Minor, Thibet, etc., which would be no less dangerous to a peaceful development of Russia."

Finally, long before the War, in a report presented by me on December 10, 1912, before a commission of the Ministry of Finance, which was studying the question of a new Russian-German commercial treaty, I pointed out the possibility of serious complications with Germany and the danger to which such complications might subject the prestige of Russia, which was rapidly becoming transformed into an economic colony of Germany. [2]

The War, which came upon us like a tempest, has shown the correctness of my prognosis concerning the precariousness of the traditional friendship between Germany and Russia, and the necessity of a close economic rapprochement between Russia on one side, and, on the other, England, France, Belgium, Holland, Scandinavia, Italy, and other countries. As if by magic, Russia has become freed from her long-standing illusions; she is now face to face with such a new set of world problems that even those who, two years ago, were inclined to deride my fears concerning the role that Germany was playing in our commercial situation, are now enthusiastic in declaring the need of our rapid emancipation from the German domination.

In the course of the past few months, the question of bringing about closer commercial relations between Russia and her present allies, assumed a new form. It has been proposed to call together in Paris two special conferences. The first is to consist of representatives of the Entente powers, while the other, of representatives of the legislative bodies of the allied countries. These conferences, especially the second one, are called together primarily for the purpose of discussing the measures that would facilitate mutual commercial relations among the allied powers, at the same time making it impossible for their markets to be again flooded by German goods.

The reactionary circles of Russia, as well as a large number of Russian manufacturers interested in preserving the present high import tariff, which often proves to be prohibitive for Russia's present allies, as well as for the neutral countries, are not in sympathy with these efforts. In view of the open as well as secret opposition exerted by these circles, the question of Russia's future economic policy acquires special significance, and is now largely discussed in the special, as well as the general, press of Russia. The question resolves itself into two parts, viz., whether the direction which this policy should follow after the War is to be along the lines of a close rapprochement with Russia's present allies, and with the friendly neutral powers, especially the United States, or whether it is to be along lines leading to a condition under which the country would be able to supply all her needs without foreign trade.

II.

In considering the problem of the creation of an anti-German economic coalition, the following question naturally presents itself: "Is such a coalition necessary?"

If Russia is able alone to combat Germany, Austria, Bulgaria, and Turkey, then the coalition becomes needless, from her point of view, since, like any other agreement, it would require certain sacrifices on her part. Therefore, in order to answer the above question, it is necessary to determine who is more powerful, Russia, or her enemies, united under the leadership of Germany. There seems to be very little doubt as to the nature of the answer to this question. It must be admitted that Russia is the weaker of the two sides.

One reason for this is the instability of Russian money. In this connection, it must be pointed out that if the War should last a few months longer, in view of the low present value of our money, we shall be compelled to pay out annually, as interest on our foreign loans, the colossal sum of one and a quarter billion roubles. In order to make a more or less profitable conversion of our short-term loans abroad, we shall be compelled to seek very large long-term loans in the allied countries, viz., England, France, and Belgium, which, as is well known, are the bankers of the world. Moreover, with the aid of our allies, we shall be able to obtain considerable credits in Holland, Switzerland, and particularly, in the United States. These countries will hardly be very generous with us unless we have the assistance of our allies.

Only a visionary can maintain that Russia will be able to adjust her financial affairs after the War without seeking foreign loans. It would be no less fanciful to expect that there would be any possibility of obtaining these loans in Germany. Even before the War, Germany was constantly in need of money in order to make possible her rapid development along the lines of industry and commerce, and she was often compelled to seek loans in France, Belgium, Holland, and Switzerland. After the War, she will have to fulfill so many obligations to Austria Hungary and Turkey, as well as to several neutral powers, that she will scarcely have enough for her own needs. Moreover, we must not forget that it is to Germany's advantage to keep Russia weak economically, as an economically weak country cannot be a formidable adversary in war. Russia's weakness would facilitate considerably the realization of Germany's dream of a hegemony in Europe, since the land forces of the rest of her opponents are not very formidable to her. Thus, Germany is interested in keeping the development of Russia's productive forces at the slowest possible pace.

The stabilization of the value of Russian money by means of large foreign loans is necessary for Russia, also, because it would decrease the amount she would have to pay for her imports. During the three years from 1911 to 1913, the value of Russia's imports was, on the average, about one and a quarter billion roubles a year. If the present exchange value of Russian money will remain unchanged after the War, it would mean that during the years immediately following the re-establishment of peace, Russia would have to overpay on her imports, (which will probably increase after the War in view of the rapid exhaustion of our supplies) the sum of seven or eight hundred million roubles annually. To this figure we must add at least another billion roubles, which represents the deficit in the Russian foreign trade, that has accumulated during the War, due to the excess of imports over exports.

The condition of affairs that we have just described will require, immediately after the end of the War, enormous exports from Russia, for otherwise the exchange value of our money will fall even lower. Moreover, because of lack of efficiency in the functioning of the Russian railroad system, immense amounts of grain have been stored up in many parts of Russia. The impossibility of exporting this grain would entail a sharp fall in the prices of agricultural products, which would be highly unprofitable for our rural economy, since its expenses of production have increased considerably during the War.

The extent of this accumulation of grain may be seen from the fact that according to estimates made by experts, there is an accumulated surplus of all kinds of grains in Siberia alone of almost nine million tons. The accumulation in other parts of Russia is also very great, because the peasants are not very anxious to sell their crops, fearing the difficulties of transportation, or biding their time in the expectation of still higher prices.

Hope is expressed in some quarters that the low exchange value of Russian money might prove a factor in increasing Russia's exports, since it will make the purchase of grain in Russia very profitable. While we cannot deny the possibility of such an influence upon Russian exports, we ought to bear in mind that this fact alone cannot have an all-important significance. The possiblities of extended export trade will be greatly lessened, for some time at least, by the difficulties of the means of transportation and the large number of floating mines in Russian waters. Finally, we should not forget that the lowering of prices on the Russian market will result in a similar drop in prices in the United States, Canada, Argentine, Australia, and India, for the grain dealers of these countries cannot keep forever the large surpluses which are due to their splendid crops of the past year, and which they cannot consume.

It would also be unreasonable to expect that the general lowering of prices on the world market would result in a restriction of the grain areas in the American West, Canada, etc. For farmers take into account not only the prices on the world market; they are concerned primarily with utilizing as best they can the stock and the working force at their disposal. Always fearing the possibility of crop failure, in which case they would have to purchase a part of the amount they need, they are often compelled to plant larger areas than the existing prices on the world market would seem to warrant.

The above considerations lead me to believe that Russia's own economic strength alone would not be sufficient to enable her to conduct successfully a long and severe economic struggle with Germany and her allies. Her hope of emancipation from the dominating influence of Germany upon her markets can be brought about only if she succeeds in forming a powerful coalition with her present allies and with those of the neutral countries which are displeased with the aggressive policies of Germany.

This is especially true since, after the War, Russia can scarcely expect to export grain to Germany in as large quantities as she did before. Allied now with Bulgaria and Turkey and utilizing the crops of Hungary and Roumania, on the one hand, and extending the productivity of her own agriculture, on the other, Germany will hardly be in need of very large amounts of Russia's grains.

III.

But perhaps Russia can become a self-supplying country, i. e., a country which has no need of a foreign trade and is not compelled to produce more than what is needed for home consumption?

Whoever is acquainted with the condition of the Russian market at the present time, and with the enormously high prices that we are compelled to pay for all kinds of goods, will scarcely advocate a policy like the above. Moreover, the economic history of the civilized world has shown the utter impossibility of the existence of a country completely isolated from the world's trade. The following figures show the growth of the world's trade during the last half-century.

Year World's Trade in
Billions of Roubles.
Average Annual
Increase in Billions
of Roubles
1860 15 0.6
1895 35 1.8
1905 53 3.0
1910 68 about5.0
1912 about78  

In other words, during seventeen years, from 1895 to 1912, the amount of the world's trade has almost doubled. In the course of only seven years, from 1905 to 1912, the world's trade has increased by fifteen billion roubles, or exactly the whole amount of the world's trade in 1860, after many centuries of human civilization.

Russia, too, despite the continual rise of her customs tariff since the days of Vishnegradsky and Witte, has not been able to escape taking part in the world's trade, as may be seen from the following figures, showing the amount of imports and exports per capita:

Years Imports Exports
IN ROUBLES
1895-99 4.7 5.5
1900-04 4.6 6.3
1905-09 5.1 7.4
1910-13 7.1 9.1

Thus, were Russia to become a self-supplying nation, requiring neither exports nor imports, this would be equivalent to turning back the wheels of history. Russia's emancipation from the German domination, the consummation of which will remove the chief obstacle in the way of her economic development, can never be accomplished by such reactionary means.

The only right way is just the opposite of this. Russia must develop and increase her trade with foreign countries, especially her present allies and some of the neutral countries. This will make it possible for the productive forces of the country to develop precisely along the lines required by the economic and social conditions in which Russia finds herself at the present historic moment. It is well to note in this connection that England and Belgium alone can provide a larger market than Germany for the exportation of agricultural products.

In considering the question of Russia's economic rapprochement with other countries, we must bear in mind that under such conditions only can we expect an inflow of capital into Russia, and such an inflow is necessary not only to increase the exchange value of Russian money, but also to facilitate the development of Russia's productive forces.

I have recently made tentative calculations as to the minimum sum that Russia will be compelled to expend during five or six years immediately following the War, in order to make this development possible. This sum would equal at least five or six billion roubles. For example, it would be necessary to spend no less than three or four billion roubles for the construction of new railroads, the purchase of new rolling stock, the improvement of roads. The construction of additional grain elevators would require an outlay of about one hundred, or one hundred and fifty million dollars. The need of increasing the number of grain elevators becomes perfectly apparent when we recall that the capacity of grain elevators in Russia is one-sixth of the capacity of elevators in Canada.

About five hundred million roubles will have to be spent for the improvement of harbors, the construction of piers, etc. The strengthening of the mercantile fleet will require two or three hundred million roubles, while the navy will require an outlay of at least a half-billion roubles. Moreover, it will be necessary to spend at least another half-billion roubles for the improvement of water-ways, especially in the way of connecting the rivers Volga, Don, and Dnieper by means of canals. Finally, millions of roubles will have to be spent for providing better facilities for technical and commercial education.

When we consider that one or two billion roubles will be necessary for the resumption of normal activities in the territory devastated by the War, and that the interest on war loans will require an outlay of enormous sums of money, we feel justified in asserting that by 1920 Russia will have spent, over and above her normal budget requirements, the immense sum of about twelve billion roubles.

Now the following query naturally presents itself: Where is Russia to obtain all these billions of roubles, since the home market is absolutely incapable of supplying them? As it is, the home market will have to withstand a tremendous strain if it is to supply the needs of rapidly developing industrial enterprises, as well as to solve many problems of national economy, the solution of which was postponed on account of the War.

IV.

An economic coalition with Russia's present allies and with several neutral countries is thus eminently important and desirable. We should now consider the means whereby the desired result may best be achieved.

In the first place, we shall have to change radically the general character of the treaties we conclude with other powers, for until the present War the trade policy of Russia seems to have been directed towards destroying her commerce with her present allies and the neutral countries. The basis of Russia's foreign trade consisted largely of her treaties with Germany. And the Germans, of course, were concerned with their own interests, and not with the interests of other countries. These countries, finding nothing of special advantage to them in the treaties which they concluded with Russia, were not anxious to make special allowances for Russia and to develop their trade with her. It was largely because of this mistaken policy on the part of Russia that she has become an economic colony of Germany.

What is necessary now is to create a condition of preference upon the Russian markets for those countries with which Russia desires to enter into closer relations. This would have to be accomplished, however, without any harm to the interests of Russia's own economic life, since a rapid development in this direction is a necessary factor in military preparedness, as the present War has so well demonstrated. It seems to me that conditions have never been so ripe as at the present time for the formation of an anti-German economic coalition upon the basis outlined above. Russia's allies, as well as the neutral countries which are amicable to the Entente powers, realize the necessity of an energetic economic struggle against Germany's policy of forcing her cheap exports upon other countries. Thus it seems that Russia's initiative in this matter ought to meet with a cordial reception in the countries allied with her or amicable to her in the present struggle.

The question of Russia's becoming an economic colony of some other power, so often urged by Russian ultra-protectionists, is scarcely worth discussing, for the question that will stand before- Russia after this War is over, will not be that of becoming anybody's colony, but of gradually becoming a part of the world's stream of trade, of developing her own productive forces, and thus assuming on the world market a position befitting a first-class power.

Those who desire lasting peace, which alone can afford Russia an opportunity of developing her productive forces, and of increasing her economic might and making her better prepared from a military point of view, must do everything in their power to bring about a strong economic alliance between Russia and those countries which, like her, are opposed to Germany's economic policies. At this time it is well to keep in mind the old truth that political friendship is based very largely on comunity of economic interests.


  1. This report, prepared in 1901, was published as an Appendix to my book, "Syndicates and Trusts and the Modern Economic Policy," Moscow, 1907.—J. M. G.
  2. This report was published under the title of "The Russian-German Commercial Treaty, and Should Russia Become a 'Colony' of Germany?" Moscow, 1913; 2nd edition, 1915.—J. M. G.