The Russian Economy: Past Potential

Bridget Smith

Econ 196

Prof. Toumanoff

Feb. 7, 2005

The Russian Economy: Past Potential

From the onset of industrialization beginning with the emancipation of serfs, Russia, though a backward and largely agrarian based country, began to emerge as a potential economic power. During the late Czarist period, Russian economic growth erupted and the transformation of Russian government began to surface with a rapidly growing GDP and structural changes shifting from agriculture to industry. Had it not been for the revolutionary uprising of the Bolsheviks against the provisional government and the onset of World War I, Russia would have continued to experience explosive economic growth. Due to the vast potential of agrarian resources, massive labor pool, growing domestic entrepreneurial class, and relative attractiveness for other countries to invest foreign capital the Russian economy had unlimited possibilities to become one of the most powerful in the world.

After their defeat in the Crimean War, Russia began to recognize its backwardness resulting from practices such as feudalism and serfdom, a large agrarian base, and an ever widening economic gap in comparison to the progress of other Western countries. The promotion of industrialization, transportation expansion, adoption of the gold standard, and drastic increase of grain output were the first steps Russia took towards industrializing themselves. The Russian economy took off and did so with amazing inertia which is arguably attributed to natural consequences of market forces and the direct effect of state intervention. Before the serfs were emancipated in 1861 they had little incentive to pursue productivity, investment, and organizational improvements. Alexander II emancipated serfs from their slave-like state, and despite the fact that serfs were still tied to communes through land ownership, their obligation to land lords drastically decreased. Though Alexander's reforms were aimed at safeguarding against a peasant revolt, these reforms placed Russia in a unique position to establish a modern agrarian system. Still, 50 percent of land was allocated to Russian aristocracy and gentry, and peasants had extreme limitations of mobility due to redemption payments and little motivation to improve their land due to the practice of repartitioning.

However, growing unrest among peasants due to the existing commune system, increased taxes, and under utilization of land among aristocracy brought about the sparks of a peasant revolution in 1905. Prime Minister Peter Stolypin was forced to institute drastic reforms concerning communal agriculture and top heavy social structure. Stolypin's agrarian reforms included the weakening of communes, creation of peasant proprietors, consolidation of land, and cancellation of peasant debt. Though fine in theory, Stolypin's reforms came too late and found Russian agriculture in a state of heavy debt, high poverty, and declining output. Agriculture remained the base of the Russian economy as it continued to lag behind other industrialized countries. An explosive population increase and expansion of economic inputs not reflected in economic output was evidence that Russia needed to pursue different economic options and new reforms.

Russia remained backward as the onset and development of industrialization took hold. Alexander Gershchenkron critiques Russia on elements of backwardness in both pre (1913) and post (1918) industrial and economic development. Throughout this period Russia experienced much tension between the state of its economy and the obstacles to its industrial development. The role of serfs proved to be substantial both before and after Russian industrialization. Until 1905, peasants were enserfed in a slave-like role within the organization of the peasant commune which provided Russia with vast labor resources for farming. The Russian labor force, though highly skilled in an agrarian society, was not able to easily adapt to practices of heavy industry as Russia began to shift towards industrialization. The presence of newly emancipated peasants in a newly industrializing economy brought more problems. The liberation of the serfs, who once held indirect obligations to the state, shifted their obligations to the nobility which seriously stunted industrial and economic growth; here it is seen that the actions of government were vital in shaping the economy and reshaping Russia's social structure. As Russian industrialized, the privatization of commerce further decreased as state sponsored took a commanding role.

Another feature common of Russia's pre and post industrialization is the backlog of technology and the massive borrowing