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State-Led Economic Growth

State-Led Economic Growth

The new force - the financial oligarchy - was closely connected with the State.  The State in Russia had always kept most important branches of industry under its control, and it continued to exercise it in the new conditions. In the early twentieth century special bodies were set up which reflected the close relationship between the government and leading capitalists, such as, for instance a ‘Shipbuilding Council’ or a ‘Congress of Transport Affairs’. They oversaw the allocation of government orders, gave subsidies, tax benefits etc. These bodies, comprised of industrialists and government officials, allowed the government to regulate production in close contact with the representatives of major monopolies.  

Moscow businessmen

For these reasons the emerging Russian bourgeoisie had an ambivalent attitude towards the autocratic-bureaucratic regime. On the one hand, as its wealth increased, it began to crave for political power and thus found itself in the opposition to autocracy.

On the other hand, the continual financial support from the ruling bureaucracy and the dependence on government orders, subsidies and other benefits rendered the bourgeoisie’s opposition fairly weak, inconsistent and predisposed towards political compromises. Because of its political servility and social egotism, the bourgeoisie commanded  little respect in Russian society.

Preponderance of Foreign Capital

Russia’s new industries were to a large extent dependent on foreign capital. The establishment of the gold standard created conditions which attracted investment by banks and stockholding companies from France, Britain, Germany, Belgium. With her inexhaustible resources of raw materials and cheap labor, Russia quickly became a magnet to Western European investors.  

The biggest share of foreign capital went into metallurgical companies, oil extraction, machine-building and oil-processing industries. Investment in Russian heavy industry yielded huge rates of profit - much higher than could be gained  from investment in their own French, British or Belgian production. In addition, foreign investment was strongly encouraged and protected by the Russian government.  As a result, at the start of the twentieth century in such key branches of industry as mining, metal-processing and machine-building the share of foreign investment was higher than the domestic one.

     This did not make Russia completely dependent on Western European capital. Yet this peculiarity had one important consequence. Profits earned from Russian investment returned to Western Europe. They increased the wealth of Western European bourgeoisie which could direct part of its income to ease domestic problems and diffuse social tensions. In the early twentieth century in Western Europe the working-day was considerably shortened, wages were rising, the system of old-age pension provision was introduced. Gradually a significant stratum of qualified, well-paid workers  had emerged, and the Western labor movement increasingly acquired a peaceful, reformist character.  

     The Russian bourgeoisie, on the other hand, could not afford social concessions to the workers - it simply did not have enough wealth. It also tried to export capital to less developed countries but it could not compete in this sphere with its more powerful foreign rivals. Russian capital could establish footholds only in a few regions, namely, in Central Asia, Northern Iran, Northern China - and profits from investments there were comparatively modest. All this limited the Russian bourgeoisie’s means of resolving social conflicts in a peaceful and amicable way.

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The Last Romanovs


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