The Paul Gregory is a case of the

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The Paul Gregory is a case of the

  

The two rivalling views of Robert Allen and Paul Gregory is a case of the
pessimistic view (Allen) versus the optimistic view (Gregory).  Gregory’s analysis suggests that Russia’s
economy under the tsars performed better than previously thought, with the
economy being integrated in the world market allowing Russia to attract
substantial foreign investment.  Allen’s
analysis provides an explanation of the sources of growth and delves into the distribution
of income, which is perhaps lacking in the optimistic analysis. The bulk of
this essay will focus on the period after the Emancipation Act of 1861,
implemented by Alexander II, but it is important to outline the state of the Russian
economy before this date and how it compared to its rival countries.   Russia
experience forced industrialisation at the beginning of the 18th
Century due to Peter the Great’s adoption of mercantilism whereby state support
led the expansion of the economy through imported technology, primarily for
military purposes.   Military expansion was
deemed necessary in order to defend borders which, due to Russia’s size, was a
difficult task, whether the threat was real or not.  The military expansion acted as stimulus for industrialisation
through the build-up of iron-works and textiles.  By 1760 Russia was the world’s largest iron
producer but did not keep up with its competitors due to a lack technological progress,
namely the lack of steam power and a failure to shift from using charcoal to
coking coal to smelt iron.

 

At the time of the serf emancipation in 1861, Russia had just lost the
expensive Crimean War and perhaps had one of the least developed economies in
Europe.  Per capita income was around 70
rubles (1913 rubles) in 1861, which was approximately 25% of per capita income
levels in the UK and US and around half that of France and Germany.  This rose to around 120 rubles by World War 1
but these ratios had worsened with per capita income estimated to be less than
20% of the UK and just over 10% of the US (Lindert & Nafziger 2013).

 

The serf emancipation was an important step towards industrialisation.  Lenin argued, however, that the terms of the
emancipation hindered the transition to capitalism and slowed the growth of the
economy by reinforcing communal ownership and preventing the emergence of a
labour market.  In addition, the demand
for manufacturers was limited as peasants were largely self-sufficient so
purchased few commodities.  Over time,
labour was freed by “peasant differentiation” which encouraged industrial
development.  A domestic market for
manufactures was created as large farms purchased factory made goods and workers
bought food and clothing instead of producing their own.  Lenin was confident in the emergence of
capitalism but also wary that capitalism would collapse in revolution due to
the depression of urban wages, from rapid technical progress, combined with
social unrest in rural areas.  He was
ultimately proved right with the revolutions of 1905 and 1917. 

 

Conversely, Gerschenkron believed that the demand for manufacturers was a
result of the state’s railroad building programme.  By 1913 Russia had 70,156km of track (Allen
2003) making it one of the largest in Europe but in terms of relative size to
area, its rail network was far smaller than that of the UK, United States and
Germany.  Russia had 1.54km of track per
1000km2 compared to 106km per 1000km2 in the UK.  The state implemented high tariffs which channelled
demand for rails and locomotives to Russian producers so acted as a stimulus to
growth compared to India where their rail system was largely developed through
the importation of UK rails and locomotives. 
Gerschenkron concludes that “Russian growth was a precarious achievement
and depended largely on state promotion and failed to create widespread
prosperity” (Allen 2003, p.22) with persisting rural poverty laying the
foundations for the 1905 and 1917 revolutions.

 

Allen acknowledges Gregory’s important empirical contributions to two
issues.  Firstly, his estimate of Russian
national income from 1885 to 1913 and secondly, his finding that agricultural
productivity was rising and the increase in agricultural output made a significant
contribution to the rise in GDP.  The
main contentious point is whether Russia embarked on “modern economic growth”
i.e. growth that was spontaneous and not rooted in state promotion or a
consequence of special features of the period. 
Allen argues that the rise in GDP was largely due to an agricultural
boom combined with special features of the world economy in the 19th
Century.  Also, that industrial growth
played a small role and much of that was due to state promotion.  Russia experienced an increase in national income
in the period 1885-1913 which grew at 3.3% per year (1.7% per head) and output
growth was comparable to that of Western Europe and North America on a per
capita basis (Allen 2003; Gregory 1994). 
However, when one delves into the structural change of the economy, the
case for success becomes much weaker. 
Around 75% of the population were peasant farmers in 1913, which is
scarcely down from the 1861 level, while the proportion of the population
living in towns of 5000 or more increased from 6% in 1800 to 7% in 1850 to 14%
in 1913 (Allen 2003).  In a period of
over a hundred years, this is not a marked improvement thus there is little
sign of a structural transformation.  Agricultural
production accounted for 59% of the economy in 1885 and slid to only 51% in
1913 while the industrial share rose from 6.6% to 14.9%.  Allen remarks that “Russia was developing a
modern economy, but the pace was glacial” (Allen 2003).

 

The “special features” of the period that Allen alluded to are firstly
the integration of the world economy spurred on by the collapse in shipping
rates due to the adoption of steam power. Secondly, the building of Russia’s
railroads cheapened the cost of shipping grain from farms to the coast which led
to a further rise in wheat prices in the Russian interiors that linked Russian
farmers to the international market and the rising agricultural prices led to a
marked improvement in agriculture’s terms of trade.  The ratio of agricultural prices to wholesale
industrial prices rose by about 35% between 1896 and 1913. Russian wheat was in
great demand from developing countries who were shifting resources away from
agriculture while their populations grew. With rising wheat prices, cultivation
expanded into the steppes of South Russia and Western Siberia.  The combination of this and cheap
transportation allowed for different regions to focus their efforts on crops
that they could grow relatively well. 
This contributed to the increase in agricultural productivity.  In the period 1885-1913, agricultural output
grew at 2.8% per year while the cultivated area grew at 1.3% per year,
agricultural labour force grew at 1.4% per year and farm capital grew at 2.3%
per year .  Thus, inputs grew at 2% so
productivity grew at 0.8% (2.8% minus 2%) (Allen 2003).   The increase in agricultural prices gave
rise to increasing peasant differentiation as land owners saw the value of
their land rise thus enjoyed a higher income. 
This increasing differentiation led to the appearance of the Kulak class
who were capitalist farmers.

 

Gregory had a more positive take on agricultural performance based on the
view that agricultural labour productivity grew at 1.35% in the period 1883-1887
and 1909-1913 compared to industrial labour productivity growth of 1.8% and economy-wide
growth of 1.5% (Gregory 1994).  Thus, agricultural
labour productivity failed to keep pace with industry and the economy as whole.  Gregory mentions that according to Kuznets,
in the course of modern economic growth, agricultural labour productivity grows
at a pace equal to the economy as a whole and industrial labour productivity
exceeds this.  Russia’s experience is
roughly consistent with this pattern and is in line with the experiences of
Germany, Canada and the UK.  Based on
this, Gregory dismisses the views of Lenin and Gerschenkron who saw Russia as a
dual economy consisting of “substantial pockets of modernity” and a backward
agricultural sector “dominated by the vestiges of feudalism” (Gregory 1994)
with exceptionally dated cultivation techniques.  One could argue against the strength of this
conclusion due to the weakness of labour force growth figures and the resulting
output-per-worker statistics caused by different measuring techniques in
different countries.  Also, Russia is
being looked at over a much shorter period (1885-1913) which calls into question
whether it should be compared to countries who are being looked at over much
longer periods.

 

Allen accepts that rising crop yields did take place with yields rising
from 400kg per hectare in 1880 to 700kg per hectare in 1913.  Allen somewhat discredits older pessimistic
analysis suggesting poor performance from Russian farms which compares Russia’s
crop yields to that of England who produced around 2 tons per hectare in 1913.  This is an unfair comparison since the
climate and soil conditions are so different in these countries.  A fairer comparison is to North America,
namely in North Dakota, who’s yields fell from 1 ton per hectare in 1880 to
700kg per hectare in 1913.  Reasons for
the high yields in the 1880s include cultivation expanding onto virgin prairie
which was extremely fertile and unusually high rainfall.  In Russia, despite expansion into the
steppes, high yields were not achieved with much of the wheat still being
produced in northern districts, yet by World War 1, Russian farmers had closed
the gap with North Dakota indicating that Russian agriculture performed well.

 

Although the rising agricultural output was the main source of growth in
the Russian economy, it is important to point out that there was significant
industrial development.  For example, the
increase in production of consumer goods, namely cotton textiles and producer
goods such as rail locomotives and steel for the tracks.  Tariff policies were deemed necessary as the integration
of the world market meant Russian resources would’ve been directed to the
agricultural sector and away from industry. 
This is a result of higher prices on the world market for wheat and the
lower price at which British manufacturers could supply cotton and steel to
Russia due to cheaper transport.  Allen
remarks that a protectionist trade policy was probably necessary to establish
heavy industry in the late 19th century (Davies 1998).  As mentioned previously, India’s rail system
was developed by Britain with rails, locomotives and rolling stock being
imported in the UK whereas in Russia, their tariffs and state procurement
polices ensured that all of this work would stay in Russia which provided a
stimulus to growth of the iron, steel and engineering industries.   Tariffs were also a feature of the cotton and
textile industries which allowed for development but Asian history suggests
that tariffs were not necessary as low wage companies such as India, Japan and
China could beat the UK at their own game by operating British machinery with
cheap local labour.   With tariffs in place, the domestic industry
was protected but Russian entrepreneurs could not compete at world prices so
the tariff “guaranteed them the home market but condemned them to it at the
same time” (Allen 2003).

 

Witte’s policies allowed for foreign investment into enterprise but also
lay a heavy tax burden due the eventual adoption of gold standard in 1897 (Khaustova 2013) which restricted the domestic market but
Gregory’s more optimistic view claimed it was a positive as it allowed for
greater involvement in world trade and created opportunities for international
investment.

 

In conclusion, both Allen and Gregory provided extensive analysis of the
issue at hand.  One of the key issues is
whether Russian would have continued on its trajectory if World War 1 had not
intervened.  Gregory suggests that the
imperial economy would have outperformed the Soviet economy had it been allowed
to develop, “it is hard to imagine that the result would have been inferior” to
what actually happened (Gregory 1994), with per capita GDP in 1989 being
$7070.  Gregory continues to suggest that
Russia would be a world economic power offering living standards similar to
Western economies.  Allen argues this is
a much stronger claim as per capita GDP for Western Europe was around $18,000
in 1989.  By extrapolating the growth
rate of 1.7%, GDP would have reached $5358 in 1989 which is less than what was
actually achieved in Soviet Russia.   The required rate of growth to close the gap
is 3.3% per year and only Japan managed anything close to that but Russia would
have been extremely unlikely to adopt Japan’s institutional modernisation
(Davies 1998).   Gregory insists that state policies played a
minor role in industrialisation and was actually spurred on by the growth of
the Russian market economy and its integration in the world market.  I’m more inclined to side with Allen on this
point as the railroad building was absolutely paramount in the development of
the Russian economy and this was down to state procurement and protectionist
policies allowing Russian industry to get a foothold.  Allen also remarks how the growth of light
industry was a derivative phenomenon with no independent momentum of its own.  Overall, in my opinion Allen offers a more
realistic analysis of Russian growth up to 1917 as Gregory’s analysis provides
little explanation for the revolutions of 1905 and 1917 whereas Allen delves
more into the regional disparities and growing unrest in the social classes.

 

 

 

 

 

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