Protectionism in Russia

Analyse why a strategy of “industrialisation behind protectionist barriers” was initially adopted in Russia and why trade was eventually liberalised.

 

It has been only a year since Russian Federation after 18 years of negotiation finally accessed WTO, and since then it has managed to make headlines over imposed protectionism barriers. Such behaviour is not surprising considering that Russian industries remain to be in the poor state and performance. The state remains to choose an export-led growth strategy. Meantime, modern Russian economy policies remain inheritance much from approaches and biases of the Soviet period and even Imperial Russia, particularly period of industrialisation.

It’s quite common especially after global crisis to see a rise of protectionism not only in the developing countries, but developed too. In this essay, I would like to analyse the reasons for the rise of protectionism in Russia starting from first steps of protectionism formation and finishing up with collapse of Soviet Union and introduction of liberalized economy.

 

Protectionism in Russia as a series of political and economic strategic direction is associated primarily with the name of Sergei Witte Yulyevich, identifies the Russian economic policy in 1892 - 1903 years. Proposed and implemented in many ways, "Russian national doctrine" Witte, the essence of which, using modern terminology, can be formulated as a "catch-up development on the basis of accelerated modernization" was based, on the one hand, the experience of the preceding period, associated with the name of the Minister of Finance of Russia A. I. Vyshnegradskiy, and the other - on the theoretical position of the classic German historical school of Franz Liszt. The latter was known to be an active supporter of protectionism hard to industrialization and the so-called "positive nationalism". Witte obviously found in Liszt that he was looking for "healthy nationalism" that break the cosmopolitanism of the English school and represents a solid foundation for the construction of the building of capitalism in Russia.

 

As noted by Witte, the foreign policy of protecting domestic industry was slated Vyshnegradsky, the last year of which - in 1891 - was "introduced systematic and strictly protectionist tariff". His rates for most types of industrial and agricultural products were much higher than the tariff rates in 1868, so most duties were, in fact, prohibitive.

 

This significantly increased duties on products (metallurgical and machine-building products), which are required for these rapidly growing sectors of the economy, such as rail transport and engineering. Obviously, the focus here is primarily done by domestic production. At the same time, the tariff rate for goods of wide demand - cotton products - has remained virtually the same, which is apparently not allowed to "relax" the domestic producers manufacture.

 

Goals and objectives of the protectionist policies were formulated in the development program of Industry and Trade of Russia, the development of which was completed in autumn 1893 protectionist measures need to explain the impossibility of open competition of Russian industry, has just come out of the period of "uterine development", with the industry in the West, "organized both technically and economically, and in public relations." And pointed to the need to address excessive commodity-oriented Russian exports, "Our exports are still mainly focuses on raw materials, ie, the least profitable product in international trade," and to "gradually prepare the transition to a relatively large export of processed products, so that People will work to extract greater benefits from exports, is still mostly paying our natural wealth ". (We regret to note that these formulated by Aim at Witte and arguments in favor of protectionism and to this day still valid.)

 

Customs protection measures were effective against competitors from a number of European countries, which at that time almost close their markets and publicly supported the outward expansion of its producers. It is primarily about Germany, with which Russia had to fight, according to Witte, "merciless customs war." Through the use of virtually prohibitive duties Russia finally managed to conclude a mutually beneficial agreement with Germany. Contracts on the same principles were later signed with other countries, in particular France and Austria-Hungary. "The system of trade agreements has made the duty rates are one of the means, and even one of the objectives of the foreign policy of public relations".

 

In 1903, the adoption of the new customs tariff, changes in the rates of which was not as radical as in his 1891 introduction in practice meant the continuation of the former foreign economic policy.

 

However, Witte, realizing the one-sidedness of protectionist policies and following the concept of Liszt, considered the highest trade barriers as a temporary phenomenon. With the strengthening of the national industry trade and economic policy had become more liberal. Protectionism late XIX - early XX century suffered as the general population, forced risen in price to buy lower-quality domestic products, and certain sectors of the economy. Russian customs policy researcher, professor of Tomsk State University, MN Sobolev believed that the dominant fiscal target was "brilliantly performed by exerting the utmost force payment of the masses". According to him, during the second half of XIX century. Russian people due to high customs tariffs put "on the altar of the domestic industry" 14 - 15 billion rub.

 

One can not judge the extent to which it is bonded protectionism contributed to rapid economic growth in Russia in the early twentieth century. The fact that almost at the same time acting opposite strategy, which, using modern terminology, can be described as "open door policy" for foreign companies. Thanks to the measures the government Witte - monetary reform 1895 - 1897 years and the strengthening of the Russian currency, the adoption of the customs tariff in 1891, receiving new government bonds, aimed at upgrading the army, the construction of railways, upgrading of heavy industry - foreign capital actively rushed into Russia. Moreover, the administration Witte, as well as subsequent government, with all the changes of political and economic course has been steadily adhered to a line on the promotion of "foreign presence" in the Russian economy. In February 1899 Witte wrote a secret report to the emperor, in which, among other things, alleged that the inflow of foreign capital will create a competitive environment for Russian manufacturers and force them to lower prices for the products of the factory sector. In essence, this meant a proposal to create a level playing field for domestic and foreign competition industrialists.

 

The most important role played by foreign capital in the development of the mining industry in southern Russia. A pioneer among foreign investors was John Hughes. For the development of coal, he founded the "Novorossiysk Society coal, iron and rail industries." Iron smelting began back in 1872 plant operated by integrated steel-making in Russia for the first time launched 8 ovens, hot blast mastered. Plant-based Hughes became one of the industrial centers of Russia, and later Ukrainy. Active participation in the development of Russian metallurgy later adopted capital of Belgium and France. Recent soon occupied a dominant position. In 1913, the share of 10 enterprises southern Russian region, based on the French capital, accounted for 60.7% of Russia's melting chuguna. No less important role played by foreign capital in the development of the southern oil fields. In 1879, R. Nobel founded the "Association of the oil production of the Nobel brothers" or "Concern Branobel." Group share in Russia's oil production was as follows: in 1898 - 3.8%, in 1902 - 12, in 1903 - 10.8% 15.

 

In mechanical engineering and metalworking foreign presence is most noticeable in sectors such as the production of agricultural machinery, defence, power generation machinery, and steam locomotive and railway industry.

 

Leader in the manufacture of agricultural implements was an American firm "International Company reapers in Russia." In the steam locomotive 5 of 8 companies have been linked to the French capital in 1911, they produced 86.5% of all locomotives in Russia. In the production of electrical dominated by German company "Siemens" and "Gali and Schuckert." In 1910 - 1914 years share of Russian capital in electrical engineering was one third of total investment in energy. The German capital predominated in the chemical industry, except for the production of rubber products, where they pushed the French. In the defense industry and shipbuilding English engineer Wacker headed "The company Nikolayevskiye factories and shipyards" (capital stock of which was French). He owned shares and other businesses of a similar type. The British capital is actively involved in gold mining: the English "Society Lena gold mines" was Russia's largest gold mining company, accounting for one quarter of total production of gold.

 

We note the presence of a foreign bank and financial sector of pre-revolutionary Russia. According to estimates of the Soviet researcher SL Ronin, to the beginning of the First World War, the share of foreign capital accounted for 42.6% of the total amount of capital the 18 largest banks in Russia. Of these, 21.9% were in the French capital, 17.7 - for German, 3% - to angliyskie18.

 

Since 1898, when the active discussion of foreign capital in Russia, this issue has become the subject of fierce debate. With criticism of the course Witte at attracting foreign investments were powerful politicians and the military, including Durnovos I., V. Pleve, P. pubis.

 

Provided the ideological background Slavophils - writers and publicists, and not only because it represented the interests of the landed estates, but also because of the actual "pochvennicheskih 'beliefs. It is clear that the "dangers and hazards Russian interests" claimed by many representatives of commerce and industry and the banking sector, especially financial services groups in Moscow and the Urals industry that experienced the greatest competitive pressure.

 

For the active use of foreign capital into the Russian economy were writers and scholars of the liberal direction, as well as industrialists in southern Russia. At the outset, when policy decisions on foreign participation were to take on the highest level, an important role was played by the great Russian scientist Dmitry Mendeleev. In his letter to the emperor, sent in November 1898, was justified by the need to ensure the inflow of foreign capital in Russia is under tighter customs regime. This combination of trade protectionism with the opening of the country to foreign capital would, in the opinion of Mendeleev, the future generations to see "a flourishing industry, which can now only dream of and to what is able to achieve ... capable and responsive to all the people ". The main provisions of the messages included in the periodic report Witte and were approved at the special meeting of ministers.

 

In defense of the idea of ​​the foreign presence in the economy in large-scale Russian economists Struve, II Yanzhul, Tugan-Baranovsky. Peru belong to the last line, topical, in our opinion, and to this day: "Our exceptionalists speak with horror of the seizure of foreign capital natural resources of Russia ... Count the future dividends that will get foreign capital and who will leave Russia. But they forget that these profits would not be at all, if foreign capital is not fertilized soil of our industry. They forget that once invested capital remains in the country - nourishes a working mass. Our entire industry has developed a new time-based foreign capital ".

 

During the First World War, its position in Russia, especially in the electrical industry, has lost the German capital. However, the formed niche filled mostly not Russian, and foreign capital, mostly American.

 

After the events of October 1917 to attract foreign capital into the economy of the pre-revolutionary Russian Soviet researchers evaluated ambiguously. If the number of works published under the NEP and in the late Soviet period, there are tolerant evaluation, in particular points to the positive role of foreign participation, during the Stalinist promoted above all the theory of "denationalization", according to which the country before the revolution was in the "semi-colonial" dependence. It has been argued that foreign capital have turned Russia into a semi-colony of the more developed nations, and it was to serve as a resource base for foreign capitalists at the expense of national interests.

 

We stress that the above charges are characterized solely by political and ideological declarations: advocates of the theory of "semi" could lead to a justification no arguments other than the statistics of participation of foreign capital in some - though certainly key - industries. No evidence of enslavement, especially brutal exploitation or "anti-Russian activities" was not found. Moreover, in the 1960s, in the studies of VI Bovykina VS Dyakina, AG Dongarova and others found that in Russian foreign capital played a natural and integral part of its economy, has worked on the domestic industry, rather than the needs of investors, and played a role as a catalyst for national economic development.

 

Economic internationalization of Russia was undoubtedly beneficial to investors from Europe, but not because they wanted to colonize it, but because of what it offers profitable and long-term business in the country. Characteristically, the largest increase in foreign investment accounted for periods not ascents and declines in pre-revolutionary Russia economy. However, in the Soviet period, the results of the policy of "open doors" before the revolution, the country could not take advantage of: the entire industry, including enterprises with foreign participation was nationalized.

 

1920-1930-ies - the defense of socialism in one country

Once in power, the Bolsheviks in the first place - to the nationalization of major industries and domestic trade - the nationalization of foreign trade. In accordance with p.1 of the Decree of SNK of the RSFSR of 04.22.1918, the entire foreign trade was declared the state sphere. "Commercial transactions for buying and selling all kinds of products (mining, manufacturing, agriculture, etc.) with other countries and private commercial enterprises abroad are made on behalf of the Russian Republic by specially authorized bodies. In addition to these sorts of trade deals with other countries for the import and export are prohibited ". In fact, at the same time - in April 1918 - was introduced in the Russian Federation and the state monopoly on currency transactions, although officially only SNK RSFSR Decree of 6 October 1921 People's Commissariat was requested (and any and all organizations, institutions and persons forbidden) to produce purchase of gold, platinum, and foreign exchange.

 

According to the TSB, the main challenge the monopoly of foreign trade, was to "ensure in the field of foreign trade relations of national interests." In addition, the postulated and protectionist function - monopoly "guarantee the independent development of the national economy and the planned nature of its foreign trade," but "in relations with the capitalist countries the foreign trade monopoly acts as an effective instrument for the protection of economic expansion "

 

Using the Bolsheviks immediately after the seizure of power of the ultra-efficient protectionist mechanism, as the monopoly of foreign trade, was a measure not only forced, but also mandatory. Another tool, obviously, could not ensure approval, survival and subsequent existence of the socialist planned economy to a national scale. When Bukharin in 1922 proposed to move to a softer mode of foreign trade, and introduce constraints tariffs, Lenin categorically rejected the idea. This "liberalization" would be turned, in his opinion, disastrous consequences, "for about any serious customs policy now, in the era of imperialism is not out of the question, except for the system of monopoly of foreign trade ... In practice, Bukharin - wrote on Lenin - is to protect the speculator, the petty bourgeoisie and the peasantry against the tops of the industrial proletariat, which is not able to build up its own industry, to make Russia an industrial country without protection it is in no way customs policy, but only exclusive monopoly of foreign trade. Any other protection in today's Russia is completely bogus, paper protectionism, which did not give the proletariat ".

 

This is a fundamental value of foreign trade monopoly as the only possible means of protection under socialism, the Soviet model was confirmed by the whole history of the Soviet system. The monopoly of foreign trade was introduced immediately after the establishment of the Soviet regime and cancelled immediately after the transition to the free market. For more than 70 years, it protected the socialist economy from the "harmful" effects of international competition, and in the absence of domestic competition allowed to shape the structure of the economy in accordance with the ideological precepts, and not by the requirements of real demand. The monopoly of foreign trade, in fact, made it possible exception of direct consumer decision-making in economic life, claiming the state's role as the sole (in the USSR), or certainly the dominant (in the socialist countries of CEE) business entity. In other words, the most important function of a monopoly protectionist system was to protect itself of Soviet socialism, the entire structure of its economy and the whole system of institutions from the effects of the environment on the international comparisons and competition.

 

The liberalization of the economy in the period of the NEP is largely affected by external economic sphere, although, of course, to a lesser extent than the domestic economy. In October 1922, was authorized exchange trade foreign exchange trading, and from February 1923 for the State Bank remained only a monopoly on the purchase of gold and silver coins. But in fact the state has full control over foreign exchange transactions. Also in 1922, began issuing a new currency - gold pieces, which took the gold content (1 ducat = 10 pre-revolutionary gold rubles = 7.74 grams of pure gold). In 1924, gold coins quickly repressed sovsigne generally stopped printing and removed from circulation. On April 1, 1924 exchange rate of gold pieces published on the New York Stock Exchange. All April quotes tenner exceeded its dollar parity. In 1924 - 1925 years informal transactions with “chervonets” committed in London and Berlin. At the end of 1925 has been fundamentally resolved the question of its listing on the Vienna Stock Exchange. Chervonets officially quoted also in Milan, Riga, Rome, Constantinople, Tehran and Shanghai. Soviet gold coin could be exchanged or purchased in almost all countries, but the convertibility remained largely relative and conditional, as private companies could not use the purchased currency for trade settlement.

 

As is known, the Soviet government had high hopes for the active use of the Institute of concessions, especially in the economy to attract foreign capital and technology. The question of the delivery of enterprise leased to foreign capitalists was raised during the period of War Communism - in the spring of 1918 at the I All-Russian Congress of Soviets of the economy. In an official policy statement, prepared in order to orient the members of the Soviet delegation to the Soviet-German economic negotiations, noted that Soviet Russia could get "necessary for the production of Russian foreign products" only through loans and credits. This can be achieved only granting of concessions "to create new businesses needed to systematically develop unused yet productive forces of Russia on a common plan." At the same time, however, wondered limiting: the concession did not have to turn into a "sphere of influence of foreign countries." From areas where they could operate the concession, it should exclude the Urals, Donetsk and Kuznetsk basins and the district of Baku. Concessionaires must comply with Soviet law, the Soviet government must receive the products at market prices and of the profit, if it exceeds 5% 28. Although this document is related to the connections with Germany, its provisions have the character of policy guidance. In fact, it was the outline of the concession period of the NEP policy. Etou instructed to carry out the policy of LD Trotsky, who led Concession Committee.

 

The scope of the concession cooperation with foreign businessmen were, however, very modest, in 1926 - 1927 years. operated 117 concession and lease agreements in enterprises, which operated on the basis of them, were employed 18 thousand workers, they produced just over 1% of the industrial produktsii29. The apparent failure of this initiative was primarily explained by two reasons.

 

First, and most importantly, the Bolsheviks refused to restitution of expropriated property from foreign owners, respectively, under these framework conditions that a new "credibility" is not out of the question. Second, in principle, there were limitations, which were discussed in the aforementioned document: the concession of areas excluded are key sectors and regions. In addition, along with the implementation of the concession strategy is becoming increasingly apparent pragmatism of the Soviet type: concessions were primarily used to strengthen the state, that is, socialist sector. The strengthening of international cooperation on a concession basis and actively involved in the world economy power is obviously not going to. De facto, when foreign equipment and technology mastered by Soviet specialists, the Government terminates the concession and other cooperative agreements with foreign kompaniyami30.

 

The liberalization of foreign trade under NEP strictly controlled and implemented metered: the opening of the economy allowed precisely to the extent that it does not threaten the political, economic and ideological foundations of the Soviet regime. This conclusion is confirmed by the ratio of sovereign power to the monopoly of foreign trade. Some Soviet leaders offered to give it up and do not limit the freedom of trade state borders. In addition to Bukharin spoke with such proposals and GY Sokolniki, who believed that the successful economic development of the country is real only in the event that it can "join the global economic market." The monopoly of foreign trade, in his opinion, did not allow full use of the export potential of the country as farmers and artisans for their products have received only impaired the Soviet banknotes, not valyutu31.

 

All attacks against the monopoly of foreign trade were ultimately reflected by its supporters, led by Lenin. During the period of the NEP value monopoly as one of the "commanding heights", which in any case should have been retained by the State, in a sense, even increased compared to the time of war communism. Thus, the resolution of the conference of the RCP (B) in December 1923, stated: "The monopoly of foreign trade is quite justified itself, in particular, in terms of the NEP and as a tool for the protection of the country's wealth by plundering their native and foreign capital, and as a means of socialist accumulation. Just keeping the entire system of monopoly of foreign trade, we could do now trade surplus revenues and focus on foreign trade in the hands of the state ... The monopoly of foreign trade should be kept entirely in the future, as the most important, especially in the period of the NEP, the element of the economic policy of the Party "32.