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After Tsushima Economic and Administrative Aspects of Russian Naval Rearmament
After Tsushima Economic and Administrative Aspects of Russian Naval Rearmament
1913
Author(s): Peter Gatrell
Reviewed work(s):
Source: The Economic History Review, New Series, Vol. 43, No. 2 (May, 1990), pp. 255-270
Published by: Wiley on behalf of the Economic History Society
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1
Elbaum and Lazonick, Decline of the British economy.
2
Gerschenkron's ideas established the agenda for successive generations of scholars. See his volumes
of essays, Economic backwardnessand Europe in the Russian mirror.The actions of the tsarist state also
figure prominently in the work of von Laue, Sergei Witte, and 'The state and the economy'. Even
scholars who adopt a different approach are obliged to couch their work in the form of a response to
Gerschenkron or von Laue. See, for example, Kahan, 'Government policies'; McKay, Pioneersfor profit;
Gregory, Russian national income;and Gatrell, Tsaristeconomy.For a helpful guide to the historiography,
consult Gregory, 'Russian industrialization'; and Falkus, Industrialization.The state consequently looms
large in textbook treatments of the European economy: see Kemp, Industrialization,pp. I30-I, I43-5;
Milward and Saul, Development of the economiesof continental Europe, pp. 383-90; and Trebilcock,
Industrialization,ch. 4, especially pp. 23I-3. A notable exception to the general tendency to emphasize
the role of state institutions in Russian economic development was Baykov, 'Economic development'.
3 Crisp, Studies, ch. i, especially the 'tentative conclusions' on pp. 52-4.
4 Rudolph, 'Agrarian structure'; Gregory, Russian national income. For a stimulating interpetive
work that sees institutions as part of the overall environment in Russia, see White, Russia and America.
I Kahan, 'Government policies', pp. 467-9. Prior to i890, the government competed with private
entrepreneurs for domestic savings. Kahan noted that the situation changed during the i89os, when 'the
decreased government demand for savings in the domestic capital market (which was in part substituted
by heavy borrowings abroad) enabled the Russian industrial entrepreneurs to borrow more freely'.
255
6
Gerschenkron, Europein the Russian mirror,p. 79: speaking of the late eighteenth century, he argued
that 'the state was not the state of this or that class; it was the state's state'. I do not believe that his
attitude to the nineteenth- and early twentieth-century tsarist state was any different.
7 Typical examples of the genre include: Sidorov, Dokumenty;idem, Ob osobennostyakh; Laverychev,
Gosudarstvoi monopolii. For a good guide to the literature prior to i964, see Tarnovsky, Sovetskaya
istoriografiya.
8 See, for example, Shepelev, Tsarizm i burzhuaziya;and Polikarpov, 'Gosudarstvennoe proizvodstvo
vooruzheniya'. 'Glasnost' is also evident in the access afforded the author of the present article to
unpublished materials, notably those contained in the archive of the Soviet navy.
9 A substantial piece on 'Russian economic development and the tsarist state' is currently in preparation
by the author. For a suggestive recent interpretativework in English on this topic, consult Shanin, Russia
as a 'developingsociety'. Other important work is being undertaken in West Germany. See Schramm,
Handbuch; and Haumann, Kapitalismus.
10See also Gatrell, 'Defence industries'.
those that were articulated soon after the Russo-JapaneseWar by the Russian
Naval General Staff. In an anonymous memorandum a group of officers
wrote that 'even if our battleships had not been sunk, but had remained in
our hands, we should in any case have had to rebuild our fleet. We have
lost precisely those vessels that were no longer fit to serve in battle, as the
experience of the recent war has demonstrated; we have lost what we no
longer needed'.'4 So far as the navy was concerned, rearmament had a
qualitative as well as a quantitative dimension: the navy needed up-to-date
vessels, including dreadnoughts, armoured cruisers, and submarines, in
order to keep abreast of other European navies. Modernization, rather than
mere replacement, was the watchword.
The modernization of the imperial Russian fleet inevitably raised the vexed
question of Russia's financial position. Needless to say, not all sections of
the tsarist bureaucracy saw the problem the same way. The Ministry of
Finances supported the cause of retrenchment, in the light of the financial
consequences of the Russo-JapaneseWar. Thus, on three successive occasions,
in October i906, February i908, and January i910, Finance Minister
V.N. Kokovtsev argued consistently and strongly against the ambitious
programmes being put forward by the defence ministries. When, in i906,
the Navy Minister broached the question of job losses in shipbuilding, if
fresh orders were not forthcoming, Kokovtsev dismissed the potential
consequences as insignificant, when set against the general economic and
political crisis in I905-6.15 But for the most part Kokovtsev's objection to
massive rearmamentprojects was couched in terms of budgetary difficulties.
For example, he noted that the state debt had risen to 8,500 million rubles
by i908, and that Russian credit-worthiness abroad had 'fallen too low'.
Furthermore, any new taxes which it was realistic to introduce, even if
approved by parliament, could only yield at most an additional 50 million
rubles per annum.'6 Set against this, the Navy Ministry request in I907 for
around 900 million rubles over ten years could not be conceded, especially
in view of the army's request for up to 2,500 million rubles to replenish the
losses incurred during the Russo-Japanese War.'7 The Finance Minister
continued to press this point until I9I2, by which time the programme of
rearmament could no longer be halted. However, Kokovtsev's opposition
during the intervening five years forced the Navy Ministry to address the
problem of financial constraints on naval rearmament, in the light both of
14
Quoted in Shatsillo, '0 disproportsii', p. I28, n. 28.
15 Tsentral'nyi gosudarstvennyiistoricheskii arkhiv SSSR/Central State Historical Archive of the
USSR/hereafter TsGIA, fond (fund) I276, opis' (inventory) 2, delo (file) 444, list (sheet) 5ob. Hereafter
archival references will be abbreviated thus: f., op., d. and 1. (plural 11.).Kokovtsev did not immediately
follow Witte as Minister of Finances. He succeeded the nonentity E.D. Pleske in Feb. I904, was replaced
by I.P. Shipov in Oct. I905, returned to his previous post in April i906 and remained Finance Minister
until Jan. I9I4. Details in Shepelev, Tsarizmi burzhuaziya,p. 36.
16 Discussion of new taxes in the Council of Ministers was confined to taxes on consumption, although
the Ministry of Finances was currently drafting proposals for an income tax, hitherto unknown in Russia.
See Gorlin, 'Problems of tax reform'.
17 TsGIA, f.I276, Op.4, d.530, 11.32-9and 11.343-74, V.N. Kokovtsev to P.A. Stolypin, 2 Jan. igio.
Stolypin was Chairman of the Council of Ministers. Additional archival documentation will be found in
Sidorov, 'Iz istorii podgotovki'. For further commentary on Kokovtsev's economic policy, see Girault,
Empruntsrusses, pp. 462-5.
did not follow that the production of naval vessels should-or could-be
entrusted exclusively to state yards. In principle, the government could
procure its ships from foreign suppliers and, as we shall see, there were
strong arguments both for and against this option. Alternatively, vessels
could be ordered from the emerging Russian shipbuilding firms in the private
sector. It is with such procurement choices that the following section is
concerned.
II
Prior to i908 the Navy Ministry, through the Chief Administration of
Shipbuilding and Naval Supplies (GIJKS), had sole responsibility for the
procurement of naval vessels and armaments. But in December i908 the
Tsar approved the formation of a new Council for Shipbuilding (Soveshchanie
po sudostroeniyu,hereafter Sovsud), with extensive powers in the sphere of
procurement. Sovsud was one of the first fruits of parliamentary criticism
of the Navy Ministry. It included representatives from civilian branches of
government (the Ministry of Finances, the State Auditor's Department, the
Ministry of Trade and Industry, and the Prime Minister's office) and its
creation clearly imposed an element of outside control on the procurement
practices of the navy. For this reason, Sovsud occasioned alarm and irritation
among officials in the Ministry.22 Sovsud was required 'to consider
economic and financial questions arising from the proposed measures for the
construction and fitting-out of warships, as well as for the supply of new
naval bases, in accordance with the shipbuilding programme'.23 It had a
duty to advise the Navy Ministry on the choice of contractors and to examine
the conditions attached to draft contracts. Finally, Sovsud considered requests
from contractors for financial support from government or (what amounted
to the same thing) relief from penalties imposed for delays in the completion
of contracts. The only aspect of shipbuilding which was explicitly excluded
from its purview concerned the technical details of ship construction.24
One of the recurrent themes in the proceedings of the Council for
Shipbuilding concerned the readiness of the Navy Ministry to place orders
with foreign contractors. Sovsud did not question the fact that it was cheaper
to import naval components or finished vessels than to acquire them from
Russian firms. For example, in i910 a report prepared for the Tsar by three
members of the State Council (the upper house) concluded that a battleship
equivalent to one built in Russia could be obtained for three-quarters of the
price in Germany and two-thirds of the price in Britain.25 In I9I3, to take
another example, the State Auditor acknowledged in a secret report that the
22
TsGAVMF, f.420, op.i, d.92, ll.I2-I20b., I.M. Dikov to P.A. Stolypin, I4 Nov. i908. Dikov was
at this time Navy Minister.
23 The reference was to the I907 shipbuilding programme, but Sovsud also handled questions arising
from subsequent construction programmes.
24
TsGAVMF, f.4Io, op.3, d.I357, 11.5-7.
25
TsGAVMF, f.4Io, Op.3, d.76i, ll.lob.-2. The differential was less marked in respect of armoured
cruisers. These calculations should be treated with caution. A contemporary study argued that German
and British prices were only iO per cent lower than the average price of Russian-built vessels: Dmitriev
and Kolpychev, Sudostroitel'nyiezavody, pp. IOI4-5.
cost of the I9I2 shipbuilding programme (42I million rubles over a ten-year
period) could be reduced by around 30 per cent, if the government were to
award all contracts to foreign producers.26
Instead of challenging such evidence, Sovsud stressed the potential
productive capacity of Russian factories and examined ways of cutting
production costs. Support for domestic industry came from the civilian
departments of government. The Ministry of Finances consistently favoured
domestic firms because of its concern for the balance of payments; the
Ministry of Trade and Industry acted as the spokesman for Russian industry,
whether state or privately owned.27 In seeking to restrict the import of naval
components and of finished vessels, Sovsud was able to draw upon a principle
enunciated in earlier years. Before the Russo-JapaneseWar, the Department
of Industry (a branch of the Ministry of Finances which in I905 became the
separate Ministry of Trade and Industry) had pressed the government to
give priority to domestic suppliers. But there were no means of enforcing
the principle, which was in any case undermined by the events of I904-5.
With the end of the Russo-Japanese War, however, the government agreed
on more decisive measures to restrict imports of military goods. In February
I907 new regulations required each ministry to justify the award of contracts
to foreign firms, where sums greater than i0,000 rubles were involved. The
new Ministry of Trade and Industry had the right to challenge such contracts
and to refer specific cases to the Council of Ministers.28 Interestingly, the
Navy Ministry tried at once to subvert the regulations, by proposing in I907
that orders for two battleships be given to Vickers. There ensued a sustained
campaign against this proposal, spearheaded by the Ministry of Trade and
Industry, with the backing of the Association of Trade and Industry.
Eventually, the navy was forced to capitulate.29
Sovsud insisted that the navy should adhere to the I907 regulations. These
were easier to enforce in respect of hulls and armaments than turbines and
other high technology items. The Russian heavy engineering industry was
still in its infancy in i908.30 It was common practice for Russian factories
to subcontract orders for turbines to foreign firms. One advantage in so
doing was the speed of delivery, and thus the avoidance of penalties imposed
for late completion of the contract. Another was directly financial: turbines
ordered abroad cost I5 per cent less, inclusive of duty, than equivalent items
produced in Russia. Russian enterprises concluded contracts on the basis of
the higher domestic price, only to claim subsequently that they were obliged
26
TsGAVMF, f.4oI, op.6, d.272, l.I780b.
27
The civilian representatives held to these views, even when the capacity of Russian enterprises was
being strained by the volume of orders. See TsGAVMF, f.4oI, op.6, d.275, 11.20I-2, session of Sovsud,
4 Oct. I9I3.
28 Otchet otdela promyshlennosti za i9io, pp. I34-9; Otchet otdela promyshlennostiza i9ii, pp. I46-7.
This move was welcomed by one contemporary with the words that 'our balance of payments suffers
from foreign orders for defence, and especially for naval purposes'. Khrulev, Finansy Rossii, p. 2I5.
29 Ironically, in view of the role played by the business lobby, the order went to the state-owned
Baltic Works, which nevertheless subcontracted the turbines to a private firm. See TsGAVMF, f.420,
op.I,'d.42, ll.52-57ob., 11.6o-65ob., and ll.I56-I58ob.
30 An up-to-date assessment is provided in Cooper, 'The high technology industries'.
31 TsGAVMF, f.4oI, op.6, d.36, 1.7, K.P. Boklevsky to Sovsud. Boklevsky was a member of Sovsud,
representing the Chairman of the Council of Ministers. He was Dean of the Faculty of Shipbuilding at
the St Petersburg Polytechnical Institute. He subsequently became a director of the Nikolaev Shipbuilding
Works. See Shatsillo, Russkii imperializm,pp. 289-90.
32 TsGAVMF, f.4oI, op.6, d.37, 11.39-47.
33 Employment figures are derived from Beskrovnyi, Armiya i fiot Rossii, pp. i98-9.
34 I estimate fixed capital in state shipbuilding by multiplying the figure for employment by the value
of fixed capital (buildings and equipment), per worker which amounted to I,I02 rubles per person in
metal-working and machine-building in i908. See Vainshtein, Narodnoe bogatstvo, p. 293. The same
source, p. 403, puts the value of all state-owned industrial assets on I Jan. I9I4 at 6I2 million rubles.
Deflating this figure in accordance with Kahan's index of the net stock of fixed capital in industry, cited
in Gregory, Russian national income, p. 292, yields a figure of 434 million rubles for state-owned assets
in i908.
3 TsGAVMF, f.420, op.i, d.69, ll.I49-I5oob., Kokovtsev to Dikov, i9 Sept. i908. See also the
remarks made in igio by S.I. Timashev, Minister of Trade and Industry, quoted in Gefter, 'Tsarizm',
p. I77. For a specific example of support given to the state-owned Perm Gun Works for these reasons,
see Vyatkin, GornozavodskiiUral, pp. 260-2.
III
The resources at the disposal of the state shipyards proved insufficient to
meet normal operating expenses, let alone sustain a higher level of
capital investment. This was largely because ministry officials determined
procurement prices in accordance with an outdated notion of the profits
required to meet operating costs and capital investment. That is to say,
officials based their pricing on the shipbuilding technology of the late
nineteenth century and the first years of the twentieth, and on the assumption
that production costs remained constant. Speaking to the Duma in April
I9I2, the Navy Minister pointed out that the revolution in shipbuilding
techniques had left existing accounting assumptions and arrangements in
tatters. Management could not function properly, unless the framework of
assumptions about shipbuilding costs was substantially revised. Costs, he
noted, had risen principally because of changes in shipbuilding technology,
but inflation in the price of raw materials and labour must also now be taken
into account 39
In these circumstances, the state yards failed to make a profit and were
36
GosudarstvennayaDuma. Stenograficheskieotchety. III sozyv, session 7I, cols. I2I4-33, I25I; session
72, col. IVio; session 98, cols. 3973-4; session I29, cols. 3425-8.
37 The new regulations said nothing about the possibility of borrowing from commercial banks, nor
is there any indication that the managers of state yards ever did do so.
38 Svod morskikhpostanovleniz,paras. 5 and i8. This was not, therefore, a straightforward cost-plus
system for determining the procurement price for military vessels.
39 TsGAVMF, f.4Io, op.3, d.822, 11.75ob-76.
40
The regulations stipulated that state yards should create an amortization fund (kapital pogasheniya),
and a 'reserve fund'. Svod morskikhpostanovlenri,paras. 9-i6.
41 TsGAVMF, f.427, op.i, d.i998, 11.38-49.
42 TsGAVMF, f.4oI, op.6, d.I78, 11.2-I7. The sums involved in the instance of the Baltic Works
were 270,000 rubles to buy tools to equip a turbine testing facility and 500,000 rubles for the foundry
and machine shop.
43 TsGAVMF, f.4oI, op.6, d.i, 11I42 and I75ob. By i9ii, for example, the state yards were asked
to supply additional cruisers, in the midst of an ongoing struggle to keep abreast of orders for battleships.
44 TsGAVMF, f.4oI, op.6, d.547, l.8I. In addition, some contracts were renegotiated with the Chief
TsGAVMF, f.4oI, op.6, d.i, 11.io6-I4, Sovsud session, i Aug. i9ii; and 11.I22-3, session of 3 Aug.
I9I I.
56 TsGAVMF, f.4oI, op.6, d.i, ll.I43-I54ob, Sovsud sessions, 20 June and 5 July I9I2. Kokovtsev
was at this time more sympathetic than the members of Sovsud to such a deal: TsGAVMF, f.4oI, op.6,
d.37, 1.5ob.
57 Shatsillo, 'Inostrannyi kapital'; Bovykin, 'Banki'.
58 For Putilov's links with the German firm Blohm & Voss, see TsGAVMF, f.4oI, op.i, d.i, 11.I79-
82, Sovsud I5 Nov. i9ii; and TsGAVMF, f.4oI, op.i, d.37, 11.I55-72, session of 26 April I9I3. Further
information and analysis is provided in Trebilcock, 'British armaments'.
59 Derived from Beskrovnyi, Armiya i fiot Rossii, pp. i98-9. I have found no work, Soviet or western,
that sheds any light on the origins of these shipbuilding workers or on recruitment methods.
60 But see n. 64. Archival evidence for the 'regulation' of prices by state factories-sometimes
successful, sometimes not-is found in TsGAVMF, f.4oI, op.6, d.i, 11.I85-7; f.4oI, op.6, d.275, 11.I30-
sob; f.4oI, op.6, d.37, 115.8-66, 93-Io5, II3-9.
IV
This study has demonstrated the difficulties that confronted those
responsible for the procurement of naval vessels in tsarist Russia. It suggests
that the circumstances under which the state-owned production facilities
operated were quite different after I905 from those that had prevailed prior
to the Russo-Japanese War. In particular, the Navy Ministry was compelled
to press ahead with the modernization of traditional state enterprises, in
order to placate its new parliamentary critics. Even less welcome to the
Ministry was the imposition of a new procurement watchdog, which afforded
scope for civilians to participate in the decision-making process and
constrained the Ministry's freedom of manoeuvre. Sovsud attempted to plan
naval purchases more systematically, and had several successes in this respect.
Even so, recalcitrant navy officials tried to circumvent it wherever possible.
For example, the Ministry continued to place orders abroad, although the
policy of Sovsud was to favour domestic enterprises.
Sovsud undoubtedly wished to maintain the traditional reliance upon the
state dockyards. In the changed circumstances after I905, this policy could
only succeed if the state yards demonstrated to their critics that they were
capable of operating along commercial lines.6' But these attempts at
modernization took place at a time when the state sector was being asked
to play a major role in the rearmament drive. The financial autonomy of
state yards, a cornerstone of the reform programme, was undermined from
the outset by the need to obtain direct funding from government, in order
to invest in new plant.
The outcome of naval rearmament was simultaneously to maintain the
traditional role of state enterprise in defence production and to create
important opportunities for private enterprise. However, while the state
shipyards remained in place, private enterprise was unable to establish a
dominant position in prewar Russia. During the peak period of rearmament,
both the private and the state sectors were satisfied, because the procurement
agencies had to make use of all available capacity. Yet it was clear that the
government would not tolerate the erosion of state enterprise. Furthermore,
there was every likelihood that the government would ditch private firms,
once the shipbuilding programmes had been completed.62 The potential
vulnerability of private enterprise was sharply exposed during the First
World War, when the government sequestrated several private firms and
embarked upon a massive programme of construction of state works.63 In
the light of this evidence, the standard Soviet argument that Russia
exemplified the onward march of monopoly capitalism needs to be modified.64
61
Contemporary criticism along similar lines was evident in late nineteenth-century Britain. See
Ashworth, 'Economic aspects'.
62
Compare the self-expressed vulnerability of Vickers: Trebilcock, Vickers brothers.For a contrary
position, Shatsillo, Russkii imperializm,pp. 265-3I3.
63
Sidorov, Ekonomicheskoepolozhenie, pp. 424-49.
64
Consider the remarks contained in a recent ('glasnost'-inspired) dissertation: 'the government
applied all its strength to renovate the state sector and increase its capacity. This line in government
policy has been obscured by the influence of the concept of the "subordination" of government to the
interests of monopoly capital'. Polikarpov, 'Gosudarstvennoeproizvodstvo vooruzheniya', p. 6. This line
of argument represents a significant departure in Soviet historiography.
Universityof Manchester
65
Von Laue, Sergei Witte; McDaniel, Autocracy;Fuller, Civil-militaryrelations.
66
Haimson, 'Problems'; Bonnell, Roots of rebellion.
67
In support of this contention, consider, first, the indications that the growth of agricultural output
took place within a framework that had not been fundamentally altered by the Stolypin land reforms:
Gatrell, Tsaristeconomy,pp. I24-5. Secondly, it is striking that the rate of growth of large-scale ('modern')
industry between i908 and I9I3 was no greater than the rate of growth of small-scale ('traditional')
industry; the output of both sectors increased by around 50 per cent in this period. See Gatrell and
Davies, 'Industrial economy'.
Footnote references
Official publications
GosudarstvennayaDuma. Tretii sozyv. Stenograficheskieotchety(St Petersburg, i909).
Otchet otdela promyshlennostiza i9io (St Petersburg, 9 iI).
Otchet otdela promyshlennostiza i9iI (St Petersburg, I9I2).
Svod morskikhpostanovlenii, kniga v (St Petersburg, i910).
Vsepoddaneishiiotchet morskogoministerstvaza I9I2 (St Petersburg, I9I3).
Vsepoddaneishiiotchet morskogoministerstvaza I9I3 (St Petersburg, I9I4).