How well did Alexander II and Alexander III’s ministers manage the economy?

How well did Alexander II and Alexander III’s ministers manage the economy? In this lesson, you will... Evaluate the effectiveness of the economic policies introduced by three Finance Ministers: von Reutern, Vyshnegradsky and Witte. Decide which measures might have had the biggest impact upon industrial development in Russia. Predict the long-term consequences of the economic policies introduced in this period.

Sergei Witte (Finance Minister under Alexander III, from 1892-1903). In terms of the economy under Alexander II and Alexander III, there are 3 key names you need to remember... Mikhail von Reutern (Finance Minister under Alexander II, from 1862-78). Ivan Vyshnegradsky (Finance Minister under Alexander III, from 1887-92). Sergei Witte (Finance Minister under Alexander III, from 1892-1903).

A reform of the Treasury. The introduction of various types of banks. Von Reutern produced some of Alexander II’s most successful reforms, including: A reform of the Treasury. The introduction of various types of banks. The introduction of liberal trade policies and lower tariffs. Government subsidies for private entrepreneurs. The encouragement of foreign investment. Mikhail von Reutern (Finance Minister under Alexander II, from 1862-78).

He increased indirect taxes and tried to increase grain exports. Vyshnegradsky wanted to improve Russian finances and build up the country’s gold reserves. He increased indirect taxes and tried to increase grain exports. The 1891 Tariff Act increased duties so that Russian iron, industrial machinery and raw cotton were heavily protected against outside competition. He negotiated valuable loans to kick-start growth. But: these policies had negative consequences for the peasants... Ivan Vyshnegradsky (Finance Minister under Alexander III, from 1887-92).

Sergei Witte (Finance Minister under Alexander III, from 1892-1903). Witte was an expert on railways, and did much to improve Russia’s railway network. He was totally committed to economic modernisation, seeing it as the only way to preserve Russia’s ‘great power’ status. He believed Vyshkegradsky’s policies were essentially good, and that eventually living standards would be raised through economic development. He believed industrialisation needed to be directed ‘from above’. Sergei Witte (Finance Minister under Alexander III, from 1892-1903).

Sergei Witte (Finance Minister under Alexander III, from 1892-1903). Can you think of a way to remember these 3 names? How about... Monetary Reforms (and) / Investments Very / Seriously Wanted. Mikhail von Reutern (Finance Minister under Alexander II, from 1862-78). Ivan Vyshnegradsky (Finance Minister under Alexander III, from 1887-92). Sergei Witte (Finance Minister under Alexander III, from 1892-1903).

To complete your Triangle 9, decide what the most successful economic policy/idea was, and describe this policy in the top, yellow square. You need to also explain why this was the most successful policy. Follow the same process for the other squares, adding descriptions of the other economic policies in the coloured boxes (descending, in order of success) and explanations. You can add images if you can find relevant ones!

Economic policies/ideas to include on your Triangle 9: Reutern’s reform of the Treasury. Reutern’s establishment of banks: a state bank in 1860, municipal banks in 1862 and a savings bank in 1869. Reutern’s decision to encourage foreign investment in Russia. Vyshnegradsky’s decision to increase indirect taxes and tariffs. Vyshnegradsky’s negotiation of various loans. Witte’s ‘state capitalism’: protective tariffs, heavy taxation and forced exports. Witte’s seeking of additional loans from abroad. Witte’s investment in new railways. Witte’s focus on heavy industry.

From Jonathan Bromley, Russia 1848-1917 (2002), p. 41. FOREIGN INVESTMENT “Mikhail von Reutern accelerated the introduction of changes at the Ministry of Finance. He suggested that all ministries set budgets a year in advance, and auditors could then compare the past budgets with the projections. This system would allow the regime to borrow money from abroad (as other European countries did). Large loans were made available to industrialists and, as a result, railway-building increased twenty-fold.” From Hannah Dalton, Tsarist and Communist Russia 1855-1964 (2015), p. 16. ESTABLISHMENT OF NEW BANKS “After von Reutern’s reforms, Russian banks were more specialised than banks elsewhere. At the centre was the State Bank, established in 1860 to replace the more backward State Commercial Bank. It stabilised the rouble’s foreign exchange value, issued paper currency and accepted deposits from the Treasury. The State Bank helped further Russian interests in China and Persia. The tsar’s government also sponsored Savings Banks: these expanded during the 1860s, and they accepted accounts from small savers in mortgages. Banks helped to promote investment, thereby helping with the development of things like the railway.” From an online article called ‘Banking System, Tsarist’. REFORM OF THE TREASURY Under von Reutern, the Treasury was reformed. A new system for collecting taxes, establishing budgets and auditing the accounts of government departments was put in place. This meant tighter government control over all areas of finance. Mikhail von Reutern “Von Reutern was the first tsarist Finance Minister to confront the problems of modernising Russia’s economy in response to the spread of the industrial revolution in western and central Europe. His achievement was cnsiderable because he had little in the way of private capital to fall back on. The drive to modernise had to be supplied by the autocratic state. He established momentum in the vital area of railway construction, the arm of the Russian economy that was to attract French investment in the late 1880s and bring about the Witte boom of the 1890s.” From Jonathan Bromley, Russia 1848-1917 (2002), p. 41. Mikhail von Reutern (Finance Minister under Alexander II, from 1862-78).

Tariff = a tax or duty to be paid on imports or exports. LOANS “Vyshnegradsky focused on negotiating foreign lands in order to expand cash reserves, and negotiated a loan from the French in 1888 (among others). His policies appeared to be successful. By 1892, grain exports had increased by 18%, and the budget was in surplus. However, such statistics disguise the suffering caused to the peasants. Many were left on the edge of starvation. Vyshnegradsky’s motto ‘We ourselves shall not eat, but we shall export’ really did apply to the peasants. The 1891 famine was partly caused by this ruthless policy, and it led to Vyshnegradsky’s dismissal in 1892.” From Sally Waller, Imperial Russia, p. 110. Ivan Vyshnegradsky (Finance Minister under Alexander III, from 1887-92). Tariff = a tax or duty to be paid on imports or exports. INDIRECT TAXES AND TARIFFS “Vyshnegradsky strove to improve Russian finances. To achieve this, he increased indirect taxes and mounted a drive to swell grain exports. He also reduced imports by increasing tariffs, and in the Tariff Act of 1891 duties were increased so that Russian iron, industrial machinery and raw cotton were heavily protected against outside competition. By 1891, import duties had reached 33%. This remarkable export drive was achieved at the expense of the peasants. They bore the brunt of heavy indirect taxation which reduced their limited purchasing power. At the same time, the price of goods rose because of the import taxes, and their grain was being requisitioned by the government to sell abroad. Many peasants were left with no reserve store and were often hungry.” From Sally Waller, Tsarist Russia 1855-1917, p. 45. Ivan Vyshnegradsky “”Vyshnegradsky was single-minded in his pursuit of stability, of which the tariff was a central component. Vyshnegradsky set about the collection of tax arrears from peasants, which had the effect of forcing them to market their grain. The tariff was successful in achieving surpluses on the balance of trade, which averaged 311.2 million gold roubles annually between 1887-1891, compared to a mere 68 million between 1882 and 1886.” From a book called The Wealth of States, by economic historian John Hobson.

Sergei Witte (Finance Minister under Alexander III, from 1892-1903). ‘STATE CAPITALISM’ “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 industrialisation 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.” From an online article called ‘Witte and Industrialisation in Revolutionary Russia’. MORE LOANS FROM ABROAD “Witte’s securing of capital for industrial growth was remarkable. 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.” From an online article called ‘Witte and Industrialisation in Revolutionary Russia’. Sergei Witte State capitalism = a political system in which the state has control of production and the use of capital [money]. “Witte was a talented statesman and Russia’s greatest finance minister. Born into a German family, he began his career in the railway business. In 1892, he became Finance Minister, a post he held for the next eleven years. The “Witte era” was one of economic expansion and rapid industrialisation.” From a book called Readings in Russian Civilisation (1964) by Thomas Riha. Sergei Witte (Finance Minister under Alexander III, from 1892-1903).

These developments were aided by overseas investment. NEW RAILWAYS “In the 1880s, the state began to pay up private railway companies, and the construction of the new long-distance state railways began. By the mid 1890s, 60% of the whole railway system was state-owned. By 1905, Russia had 59,616 kilometres of railways, which, though small in comparison with the size of the country, indicates a major engineering feat. This had many implications. The railways helped open up the Russian interior and allowed better exploitation of Russia’s raw materials. These developments were aided by overseas investment. The very building of the railway lines was also a stimulus to the development of the iron and coal industries. The most acclaimed development was the impressive construction of the Trans-Siberian railway, which crossed Russia from west to east. Its building proved a huge industrial stimulus whilst the psychological boost it provided, both at home and abroad, was perhaps even greater.” From Sally Waller, Tsarist Russia, 1855-1917, p. 47. The building of the Trans-Siberian railway line. Years Kilometres 1881-85 632 1886-90 914 1891-95 1,292 Table showing annual average railway construction, 1881-1895. Sergei Witte (continued) HEAVY INDUSTRY When Witte came to power, textiles made up the biggest area of industrial output. Witte believed that, by concentrating production in key areas and by developing large factory units of over 1,000 workers, big increases in heavy goods production could be achieved. The main areas of industrial development were around St Petersburg and the Baltic coast, and Moscow. The Caspian Sea port of Baku began pumping oil in 1871. The Putilov factory in St Petersburg provided for nearly ¼ of all state orders for locomotives, wagons and rails. Production shifted between 1885-1900 towards goods that could be produced in smaller quantities but with greater profitability, e.g. machinery and artillery. Year Number of factories Number of factory workers 1887 30,888 1.3 million 1908 39,856 2.6 million Table showing factories and factory workers, 1887-1908.

The Trans-Siberian railway https://www.youtube.com/watch?v=Pl_DdpwZvlA - documentary.

Economic development: results By the 1890s, Russia’s rate of annual growth was the highest of any industrial country, though it begun from a very low base compared with other countries. Russia became the world’s 4th largest industrial economy from 1887-97. This growth helped bolster an increase in Russian exports and foreign trade. Russia traded mainly with Germany and Britain. Most of the export trade was in grain rather than industrial goods. However, there were both economic and social costs. The Trans-Siberian railway proved a huge drain on finances. Russia was also dependent on foreign loans, which had to be paid back with interest.

What happened next? So, by 1894 Russian Finance Minsters had: Introduced heavy taxation. Introduced tariffs, to encourage Russia to reduce its imports. Sought loans from abroad to fund industrial growth. Invested heavily in industry and railways. Taken strong control of all areas of the economy. ... Can you predict any consequences of any of these measures? Can you foresee any problems/issues?