The Eastern Front 1914-1917 (37 page)

The division between Moscow and Petrograd, between large concerns and War-Industries-Committee men, prevented the Special Council from surviving as a united agent of constitutional change. The industrialists who dominated it feared political interference on the lesser producers’ behalf, and several of them found it much easier to work with the government than with the Duma. Duma allies were therefore regarded as expendable, and the political crisis stopped, in August 1915, when the Tsar took control of the army, prorogued the Duma, split the Special Council into four, and left the industrialists to quarrel among themselves. But at least some mechanism had been found for running the war-economy. The Special Council
for Defence was dominated by large producers, monopolies. 2,290 enterprises were involved in its labours, with a work-force of over two million men—in other words, the average number of workers in the Special Council’s factories was about one thousand. Of such enterprises, eighty-six per cent worked for defence,
^†
19
and the Council became an instrument in the hands of the large firms and monopolies. The basis of its existence was the State’s willingness, now, to spend money lavishly on defence-industries. Men took charge, who understood that, for industry to convert, money must be offered beyond anything imagined by Grand Duke Sergey or Sukhomlinov. The Special Council spent 15,000 million roubles between 1914 and the summer of 1917 (1st September) on armaments, which represented a third of all government spending in this period; the railways —fostered to help industry—took almost 2,500 million roubles between August 1914 and March 1917. Russian industry received, in other words, more direct assistance from the government between 1914 and 1917 than it had had in the whole of the nineteenth centur.

This money was channelled through large firms and monopolies, who co-operated with each other, and at the same time could spread out the State’s money rationally.
Prodameta
could arrange for those firms to receive metal who would make the best job of it; fuel-suppliers (who formed a monopoly, with the State, at the end of 1916) could act similarly. The Special Council divided the country into eleven regions, each with a plenipotentiary at its head, who had powers to dictate prices and wages, and if need be to take factories under sequestration (which happened in almost 100 cases, usually of foreign-owned factories). If State and monopolies worked together, they could subjugate factories that tried to retain their independence; and power to inspect factories’ books, though opposed by some businesses on the grounds of the sanctity of profit, enabled the plenipotentiaries to dictate their prices with reference to real circumstances.

Of course the co-operation of State and monopoly was not always easy.
²⁰
The State, despite a new attitude, was not always prepared to put up prices at the monopolies’ dictation; and the monopolies were also not always prepared to have their prices dictated by the State. There was endless wrangling: threats, on the one side, of nationalisation, and on the other, of production-cutting. Wogau and
Med
resisted the State’s attempts to put a ceiling on copper-prices.
Krovlya
in the Urals actually refused to produce sheet-iron for defence, until its protesting managing-director, Erdelyi, discovered that the Special Council’s notion of a maximum price was to take the highest demands of the least efficient producers, add on a little bit to be safe, and then pronounce the result to be a fixed price—a method also tried with the farmers. Some Soviet writers have seen in
this price-policy of the monopolies a simple piece of profiteering. Metals and fuel were barely enough to go round the various government agencies, and the civilian market would hardly have a look in. The government agencies bid against each other—war-ministry and ministry of transport taking equal shares of the metal—and prices were, naturally, forced up, until agents of rival ministries were requisitioning each other’s supplies. But the two main factors behind the monopolies’ price-policies were, first, the overall cost-push of world trade, raw materials and wages; second, the need to create, out of profit, investment that would carry not only the expensive conversion-process and its post-war counterpart, but a general expansion of industry in all kinds of new ways. The State attempted to decree a fixed price for sheet-iron, and a technical commission of the Special Council, under Professor Baykov,
²¹
‘costed’ roof-iron at 3.90 roubles per pood (16 kg.). This price, though suitable for ordinary factories, would do nothing to attract the more backward ones, the more expensive processes of which would rule out a serious profit;
Prodameta
then pushed up the standard price to a level at which such factories—those under
Krovlya
were a case in point—would be able to make a profit, despite the raw-materials, labour, and transport-problems which they had to face. In spring 1916,
Prodameta
pushed up the price to 4.05 and then to 4.90. At such a price, less-than-ordinary factories would just scrape through with a profit; an efficient factory, such as the
Dniéprovienne
or
Providence Russe
, would make profits of 141.3 per cent of its basic capital on a single contract for shell-casings. The State grumbled that these factories should accept less;
Prodameta
could reply, first that this would be to penalise them for efficiency, and second that the money would in any case be re-invested. Moreover, this second point was generally true, for, through the banks, the profits were indeed channelled back to industry, to create a large number of new companies, with a wide spread of activities.

The political outcry against these profits was, of course, vast; and the figures are still repeated as evidence of the peculiar wickedness of Russian monopolists, savagely exploiting for private profit the country’s wartime emergency. Ryabushinski’s companies quadrupled their profit-rates in two years alone. The annual of the ministry of finance reckoned that, in 1916, profit-rates as a percentage of basic capital, had attained the ‘improbable’ average figure of 77 per cent, where before 1914 ten per cent would have been regarded as healthy. Strumilin,
²²
the great statistician of the Soviet period, examined six large metallurgical works in Petrograd, and found that their turnover profits rose from 10.4% in 1913 to 18.6% in 1914, 28.5% in 1915 and 79.5% in 1916. He then turned to a group of 21 large enterprises of all kinds, and found the results as shown in the table.
²³

It was not only in war-material that firms made huge profits. The banks in particular also made profits out of speculation in commodities. This was brought on by inflation, in 1915 and particularly in 1916. Holders of grain, sugar, salt tended to hoard, knowing that a price-rise was inevitable.

The banks often bought from the hoarders, reserving the sellers a certain percentage of the eventual profit; and since the banks had great storage-space available, as well as some influence over the railway-mechanism, they were in a good position to profit. The Moscow branch of the Russian Bank for Foreign Commerce bought and sold 3,658 tons of sugar in 1916, and made a profit of 183,000 roubles; and its dealings in 5,174 waggons containing cotton bought a similar profit, without much effort on the banks’ agents’ part. Indeed, the banks’ activities in such speculation was such that, in 1916, Bark had their vaults inspected by the police.

These profits provoked an outcry—from State agents having to supply them, from War-Industries Committees not sharing them, from workers
whose labours allowed them, from ordinary consumers exposed to all the rigours of the black-market. From time to time, the Special Council was moved to protest. But any protest would be met with a display of rectitude on the monopolies’ part, usually followed by concealment of books. If the State wanted goods, then it must ‘see things as they are, for theoretical considerations are of no interest to us’ (Erdelyi).
²⁴
Industries’ costs had risen, their expectations higher still; and, short of nationalisation, the government could do little against them. By the end of 1916, an uneasy marriage of State and monopoly had arrived. The State, unable to control its own priorities, handed much responsibility to
Prodameta
, the statistical section of which was simply taken over by the Special Council’s metals-committee. It is difficult, and perhaps not very profitable, to determine which partner dominated the marriage, for the State ultimately joined the monopolists in enforcing a certain kind of industrial growth on the country.

The profits themselves, though sometimes indefensible, were in fact of considerable help to the economy as a whole. They were passed back into the firms, or sometimes invested through the banks in a variety of industries. However astonishing it may appear in retrospect, the Russian Stock-Exchanges went through something of a boom in the First World War, a process noted elsewhere only in the United States. 2,500 million roubles of new share-capital appeared; and, according to Vyshnegradski, the banks alone invested 9,000 million roubles in industry during the war.
²⁵
There was a considerable expansion of the number of companies formed. In 1913, 241 had been chartered, with a capital of 403,140,000, as well as twenty-one foreign companies, with a capital of 36,500,000. In the war-years (excluding the freak conditions of summer, 1917), 1,138 Russian companies were chartered, with a capital of 2,032,400,000, and forty-five foreign ones (mainly in the extractive industries) with a capital of 77,650,000.
²⁶
It is generally reckoned that about a third of these companies did not start to operate, and were founded for speculative reasons. Just the same, the capital stock of Russia rose, between 1914 and March, 1917, by one-third—1,256,000,000 roubles, of which roughly half (628,000,000)
²⁷
represented new machinery.

The wartime crisis of the Russian economy is of course a stock theme of the documents and historical literature. Men saw the railways not work-ing; they knew that coal was not enough to keep the factories working; the metals-shortage became such that output of civilian goods declined sharply; finally, there came great food-crises in the large towns, which in the end produced revolution. But these confusions did not represent an irreversible decline of the economy; rather, they were crises of growth. There was no absolute decline in any of these sectors, not even the harvest; on the contrary, virtually all sectors of the economy grew, and some
very fast. But their growth was not even, and a series of bottle-necks threw the economy into chaos as it encountered them. The Tsarist régime had little idea as to how such crises might be surmounted, and in any case they provoked the final crisis of an already badly-strained society. It remains none the less true that they came, not from industrial backwardness, but rather from a too-rapid industrial advance.