Chap 6: Economic and Social Developments in Russia (19th Century)

Economic and Social Developments in Russia

State-Promoted Industrial Growth

• Lack of Middle Class: Unlike Western Europe, Russia's industrialization was primarily led by the state due to the absence of a substantial middle class.
• Emancipation Catalyst: Following the emancipation of serfs, industrial growth became a governmental priority.
• Mikhail von Ruten: Served as Minister of Finance from 1862 to 1878; initiated economic reforms to stimulate growth, emphasizing state control over economic changes.

Financial Reforms and Banking

• Treasury and Tax System Reforms: Established new methods for tax collection, auditing, and budgeting.
• Abolishment of Tax Farming: This previous system allowed groups to collect certain taxes; it was replaced with a more direct taxation system which favored indirect taxes.
• Banking Developments:
  • State Bank established in 1860.
  • Municipal banks (1862) and a Savings Bank (1869) were created.

Promotion of Trade and Investment

• Reduction of Import Duties: Began in 1863 to encourage trade.
• Government Subsidies: Aimed at facilitating private enterprise, especially in railway development.
• Foreign Investment: Policies were enacted to draw in investments, guaranteeing dividends for investors.

Agricultural and Industrial Advances

• Cotton Industry Support: Leveraged opportunities from the American Civil War to capture lost markets.
• New Extractive Industries:
  • Oil extraction began in Baku (1871).
  • Iron works established in Donetsk (1872).
• Noble Brothers' Contributions: Founded the Natva Extraction Company (1879) for coal and oil exploitation.

Economic Weaknesses

• Debts and Currency Fluctuations: A third of government spending was on debt repayment, with the ruble facing instability.
• Tax Dependency: 66% of revenue from indirect taxes kept peasants impoverished, leading to a small domestic market.
• Tariff Reductions: Although initially intended to promote growth, reduced revenue led to increased tariffs in the 1880s.

Ivan Vyshnogradsky and His Policies

• Minister of Finance (1887-1892): Implemented stringent financial measures to balance the budget, primarily through higher taxes and export increases.
• Grain Export Growth: Successful increase in grain exports by 18%, but at the expense of peasant welfare.
• Famine of 1891-1892: Resulted from harsh policies and poor harvests; caused significant loss of life due to starvation and disease.

Sergei Witte and Economic Modernization

• Promotion of Industrial Growth: As Minister of Finance, Witte sought protective tariffs, taxation, and foreign loans to further industrialize Russia.
• Foreign Investment Surge:
  • Increased from 98 million rubles (1880) to 280 million rubles (1895).
• Railway Expansion: System greatly expanded, leading to Russia becoming the fourth largest industrial economy by 1897.

Social Changes and Class Structures

• Rise of Classes:
  • Emergence of a new middle class, including bankers, doctors, and small business owners.
  • Traditional landowners adapted to changing economic realities, moving towards new professional avenues.
• Urban Working Class: Although small in numbers (about 2%), urban laborers grew due to industrial expansion.
  • Harsh working conditions despite reforming legislation in the 1880s.

Peasantry and Social Division

• Kulaks and Landless Peasants: Emergence of wealthy kulaks who benefited from loans contrasted sharply with impoverished landless laborers.
• Living Conditions: Despite some land policy efforts, peasants faced severe challenges, including high mortality rates and low life expectancy compared to Western nations.