By maintaining in the 1880s a foreign trade surplus, largely with the help of grain exports, and by intensive gold mining, Russia managed to accumulate enough bullion to adopt in 1897 the gold standard. This measure, carried out by Witte in the teeth of strong opposition, made the paper ruble convertible on demand into gold. It attracted massive foreign investments in state obligations as well as securities. Stringent rules on bank-note emissions and an excellent record of debt servicing earned Russia a high credit rating, which enabled her to borrow at interest rates only slightly above those paid by Germany (usually 4 or 4.5 percent). The bulk of the foreign money—four-fifths of that invested in state bonds—came from France; the remainder was supplied by British, German, and Belgian investors. In 1914, the total debt of the Russian Government amounted to 8.8 billion rubles, of which 48 percent or 4.2 billion ($2.1 billion or the equivalent of 3,360 tons of gold) was owed to foreigners: at the time, it was the largest foreign indebtedness of any country in the world.63 In addition, in 1914 foreigners held 870 million rubles of state-guaranteed securities and 422 million rubles of municipal bonds.
Fiscal needs also drove the government to encourage industrial expansion as a means of broadening its tax base. Here, too, foreign capital flowed readily, for European investors believed that Russia, with its huge population and inexhaustible resources, needed only capital and technical know-how to become another United States.64 Between 1892 and 1914, foreigners placed in Russian enterprises an estimated 2.2 billion rubles ($1.1 billion), which represented approximately one-half of the capital invested in these enterprises during the period.65 The largest share (about one-third) of these investments went into mining, mainly petroleum and coal; the metalworking, electrical, and chemical industries as well as real estate also benefited. French capital accounted for 32.6 percent of that money, English for 22.6 percent, German for 19.7 percent, and Belgian for 14.3 percent.66 Witte estimated in 1900 that approximately one-half of all Russian industrial and commercial capital was of foreign origin.*
Such heavy foreign involvement in the economy led conservative and radical opponents of Witte alike to claim that he had transformed Russia into a “colony of Europe.” The charge had little merit. As Witte liked to point out, foreign capital went exclusively for productive purposes† —that is, enhancing Russia’s productive capacity and therefore her wealth. It was in large measure owing to the growth of the non-agrarian sectors of the economy, made possible by the infusion of foreign capital, that the revenues of the Treasury between 1892 and 1903 more than doubled (from 970 million to 2 billion).67 It has also been pointed out that foreign investors did not simply “milk” the Russian economy by repatriating their profits, but reinvested them, which had a cumulatively beneficial effect.* In this connection, it is often ignored that the economic development of the United States also benefited greatly from foreign investments. European investments in the United States in mid-1914 are estimated to have been $6.7 billion.† twice the capital invested by Europeans in Russia. “In considerable measure the funds for the national expansion and development [of the United States],” writes an economic historian, “had been obtained from abroad.”68 And yet the role of foreign capital is rarely mentioned in American histories and never led to charges that it had made the United States a “colony” of Europe.
The opening phase of the Industrial Revolution in Russia got underway around 1890 with a rapid spurt in industrial production. Some Western European economists have calculated that during the decade of the 1890s Russian industrial productivity increased by 126 percent, which was twice the rate of the German and triple that of the American growth.69 Even allowing that Russia started from a much lower base, the rise was impressive, as the following figures indicate:
GROWTH OF RUSSIAN INDUSTRIAL PRODUCTION70
Between 1890 and 1900, the value of Russian industrial output more than doubled (from 1.5 billion to 3.4 billion rubles).‡
In 1900, Imperial Russia was the world’s largest producer of petroleum, her annual output exceeding that of all the other countries combined. It is generally agreed by economic historians that on the eve of World War I, by which time the value of her industrial production had risen to 5.7 billion rubles, Russia had the fifth-largest economy in the world, which was impressive even if, proportionate to her population, her industrial productivity and income remained low. Thus, in 1910, Russia’s per capita consumption of coal was 4 percent of the American, and of iron, 6.25 percent.*
