Sergei Witte, the author of this document of economic policy reform was appointed to the position of Minister of Finance in 1893. He was appointed Minister of Finance during the reign of Alexander III to help Russia’s struggling economy. Witte was a very influential Minister of Finance achieving the ultimate goal of putting Russia on the gold standard in 1897. 1 This was one of the main reasons as to why this document was written in 1899, because Russia could now implement radical economic policies due to the foreign investment it received because it had the gold standard.
Witte was an admirer of Western European style economies, and did not approve of Russia’s policy of exporting raw materials and importing finished goods. By halting the policy of exporting raw materials and importing finished goods, Witte believed that this would be a fundamental factor in the industrialisation of Russia. Lionel Kochan believed that Sergei Witte was one of the most important men in Russia in pioneering its eventual success to industrialise. Although Kochan was an admirer of Witte, many western European historians believed that Witte’s reforms hindered and not helped Russia’s economy, such as domestic industries which did not benefit from contracts and subsides. 3 The document of economic reform was addressed to the Tsar, Nicholas II. This document is meant for the Tsar to read and is ‘extremely secret’. Witte hoped Nicholas II would give his approval to his ideas of economic reform for Russia.
The style in which Witte wrote the document is to inform the Tsar of the flaws in Russian economy and almost to scare the Tsar into immediate and radical change in economic policy. However, in various parts of the document, Witte seems to be somewhat sycophantic towards the Tsar, possibly in an attempt to win the approval of the Tsar to implement his economic policies for Russia. Nicholas II has been described as ‘an ineffective ruler’4 and this may have influenced the way in which Witte wrote the document.
Witte knew that Nicholas relied on senior politicians to help him run the country and used this to his advantage in this document by highlighting some of Russia’s shortfalls when pitted against major European powers. This was a major factor in the construction of this document with only two years previous to it being written Russia received gold standard status which meant their currency could now be exchanged for all other gold standard currencies in the Europe. This made it easier for foreign capital to be invested into Russia.
The idea of foreign capital being invested into Russia was a new innovation because before this document was written Russia had adopted an isolationist economy, and believed that, ‘unlimited free trade did not permit the economy to develop calmly’. The reason set out by Witte about the drastic need of foreign investment needed is to ‘speedily furnish our country with abundant and cheap goods’. Witte believed that this would therefore lead to businesses in Russia to seek out new technological advances which will ultimately bring down the price of goods for the consumer.
When Witte wrote the document the current economic system in Russia was poor. The economy was geared towards exporting raw materials and importing finished goods, and because Russia were not supplying there own economy with finished goods, it meant that the average consumer in Russia had to pay a lot more for products than countries in western Europe. An example of this was ‘an Englishman pays 26 kopecks for a pood of pig iron, an American will pay 32 kopecks, but a Russian pays up to 90 kopecks’.
This shows that Russians had to pay almost three times what western Europeans and Americans paid for their goods. When this document was written the policy of protectionism was adopted in Russia. This meant that high tariffs were imposed on imported goods, to protect Russian businesses. Although this is an understandable approach to protecting a certain economy it meant that Russian businesses did not have to compete for trade and therefore the standard of goods could be low, with no technological advancements.
With the new economic policy Witte was trying to implement it meant that Russian entrepreneurs had to develop their ideas and ways in which they make their goods, in order for them to be cheaper for the Russian people. Witte also points out in the document that Russia needs to develop ‘mass production industries, widely dispersed…. and where competition play has the dominant role. ‘ This shows Witte’s admiration of western European economies by wanting to create mass production industries, and shows his vision that Russia could be a major economic power.
However, Witte understands the drawbacks of relying on foreign trade to boost the economy. He describes it as ‘very dangerous to rely on foreign trade for the lowering of our prices’. In his conclusion of the economic policy for the empire, Witte sets out six main points as to how his new economic policy for Russia is going to work. In it he says that the tariff of 1891 will not amended until the renewal of the trade treaties. Witte here shows his understanding that sudden changes to the current Russian economy will cause shocks that will have unprecedented damage to the businesses in Russia.
Witte also shows understanding of the importance of domestic industry to Russia, he shows that without domestic industry, the influx of foreign capital will not be as much as before the new economic policy was implemented. This document is very reliable as a historical source. Although it was translated from Russian to English. Overall, Witte knew that although foreign capital was important to the new economic policy, he also understood that the protectionist system of old was important Russia. Witte therefore recognised that with the balance of domestic industry and foreign capital Russia could have a prosperous economy.