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After Tsushima: Economic and Administrative Aspects of Russian Naval Rearmament, 1905-

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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EconomicHistoryReview, 2nd ser., XLIII, 2(I990), pp. 255-270

After Tsushima: economic and


administrativeaspects of Russian
naval rearmnament, I 905-I I3
By PETER GATRELL

A t a time when economic historians of modern Britain are seeking to


integrate the study of political institutions into the analysis of long-term
economic change,' it is worth remembering that the economic history of
tsarist Russia has often consisted of little else. There has been a constant
preoccupation with the role of the state in Russian economic development.
In this respect, economic historians have taken their cue from pre-
revolutionary actors on the political stage, for whom the tsarist state was
simultaneously a creative and an oppressive force. Gerschenkron, the most
influential exponent of Russian economic history, always had the state firmly
in mind.2 This fixation with the state (as with that other famous institution,
the peasant land commune) has coloured most accounts of the Russian
economy before I9I7. But, as Crisp observed more than a decade ago,
economic historians have not considered sufficiently seriously the possibility
that autonomous social forces contributed significantly to the process of
economic development.3 Her comment is lent extra weight by the recent
researches of Rudolph and Gregory, who have modified the Gerschenkronian
perspective.' Other scholars have remarked that the private sector had a
potential impact that was stifled by government activity, a view that has its
counterpartin the contemporaryliberal critique of the tsarist state.5 However,
even on its own terms, the conventional historiographical wisdom suffers

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

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256 PETER GATRELL

from serious shortcomings. In particular, economic historians have become


so accustomed to the 'state' that they seem to have forgotten to ask what it
means. When attempts at conceptualization have been made, they have taken
such a lapidary form as to defy further investigation
Soviet historians have devoted much attention to the role played by
political institutions in Russian economic development, and notably to the
relationship between the government apparatus and business groups.7
Unfortunately, much of this scholarship is vitiated by a refusal to conceive
of the state in terms other than as a simple instrument of class domination.
Those historians, such as Gindin and Tarnovsky, who looked at the question
in more subtle ways were regarded as unorthodox. But as the intellectual
vestiges of Stalinism come to be challenged in the Soviet Union under
Gorbachev, we can expect to see a subtler characterization of business-
government relations. Indeed, the process is already evident.8
The conceptualization of the tsarist state is too large a task to undertake
in a short article, and the pages of the Review are not the place to attempt
it.9 What is offered instead is a contribution towards a fuller analysis of the
character of the Russian state (including the various departments of
government, parliament, and the armed forces) and of the dilemmas and
constraints that the tsarist government faced in the crucial sphere of
rearmament.'0 In particular, we can test propositions about the relative
importance that was attached to the traditional state-owned sector and to
more modern forms of private enterprise. Gerschenkron, it will be recalled,
maintained that the pattern of Russian industrialization changed after I905,
because the state retreated from the dominant position that it occupied
during the industrialization boom of the i89os. If this 'westernization' of
the economy did take place, we should surely expect to find the private
sector challenging and supplanting the traditional state sector.
The defence industry makes an excellent test case. The main sources of
domestic supply before I905 were government-owned arsenalsand dockyards.
But changes in the character of armaments technology after i900, the growth
of foreign corporate interests in Russia, and the level of military demand
for armaments after the Russo-Japanese War afforded scope for private
enterprise to mount a challenge to the state sector. Elements within the
tsarist state, however, neither welcomed this challenge nor wished the state
sector to forfeit its position to private enterprise. The study thus permits an

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'.

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AFTER TSUSHIMA 25 7

insight into the character and determinants of decision-making within the


tsarist state; it also sheds further light on the extent to which the economic
system had 'modernized' by I9I4. Section I considers briefly the background
to naval rearmament and the financial constraints on rearmament. Section
II is devoted to the two issues that dominated discussion in the procurement
agencies, namely the choice between foreign and domestic suppliers, and
between private and state enterprise. The main agency responsible for naval
procurement favoured the awardof contracts to state yards wherever possible,
but maintained at the same time the need for reform in the management of
state yards.
The third section documents the persistence of financial difficulties in the
state-owned shipyards and the modest success of attempts at reform in the
sphere of naval procurement. The very scale and complexity of naval
rearmament frustrated the implementation of fundamental reform at the
state yards, undermined attempts to plan procurement more systematically,
and created a climate in which private enterprise tried, with some success,
to seize the initiative.

Russian naval rearmament took place in the aftermath of the Japanese


victory at Tsushima and against the background of the vigorous expansion
of the naval strength of other European powers, notably Britain and
Germany." The naval engagement at Tsushima in May I905 ended with
the destruction or capture of virtually the entire fleet that had been despatched
to the Far East in I904. The losses of capital vessels were subsequently
valued at 230 million rubles, more than twice the annual budget for the
navy as a whole and three-fifths or more of the capital value of the imperial
fleet in I904.12 Tsushima had a traumatic effect, and not just on those
involved in the planning and execution of Russian naval strategy. To the
majority of the informed public, the defeat at Tsushima was a catastrophe
that necessitated a thorough re-examination of the tsarist system of
government, or at the very least a review of the competence of the Navy
Ministry.13
In the eyes of the modern economic historian, however, the physical
destruction of the fleet assumes less cataclysmic proportions than it did for
the Russian public. The reasons for a more restrained assessment are in fact

For background, see Trebilcock, Vickersbrothers;and Geyer, Russian imperialism.


12
Shatsillo, '0 disproportsii', p. I24, n. 5. The total naval budget averaged I02 million rubles in
I900-4: Khromov, EkonomicheskoerazvitieRossii, tab. 26g. According to Vainshtein, Narodnoebogatstvo,
p. 292, the value of all vessels, merchant and naval, including those under construction, amounted to
783 million rubles on I Jan. I9I4. Bearing in mind the huge shipbuilding programme that was under
way after i908, discounting the merchant fleet, and taking account of price changes between I904 and
I9I 3, the value of the stock of military shipping in I904 must have been considerably less than 400 million
rubles. A figure of 300 million rubles might be nearer the mark.
13 For a contemporary witness, see Miliukov, Political memoirs.Scholarly treatments in English include
Manning, Crisis of the old order, pp. 83, I02-5; and Galai, Liberationmovement,pp. 25I-5.

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258 PETER GATRELL

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.

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AFTER TSUSHIMA 259

general budgetary difficulties and of parallel proposals from the War


Ministry.18
The Minister of Finances had drawn attention to the role of parliament
(Duma) in approving new taxes. But the Dfima also had the power to
approve or reject the financial estimates from each ministry, including that
presented by the navy. A ministry could still function, even if parliament
rejected the estimates brought before it, because in such an event the
ministry automatically drew upon the same level of support as had been
approved in the previous year. Nonetheless, the fact that parliament annually
debated the estimates gave it plenty of opportunity to criticize government
ministers, and in particularthe Navy Minister. Virtually all shades of political
opinion in the Duma united in holding officials in the Navy Ministry
responsible for the calamity at Tsushima.
On the eve of the first Duma, in April I906, the government had
acknowledged the need for reform in naval administration, approving the
formation of a Naval General Staff whose purpose was to construct an
alternative naval strategy and to ensure the battle readiness of the fleet.'9
Parliament, even after the electoral law of June I907 had greatly reduced
the influence of radical political parties, kept up a barrage of criticism which
compelled the Ministry to accede to a reform of naval procurement and of
the administration of the state shipyards. Without such concessions on its
part, the navy would have been unable to obtain the fresh funds required
for new levels of defence spending.
Financial constraints on the proposed rearmamentwere inescapable. Only
on isolated occasions and in private did naval officials make light of Russia's
financial exigencies.20 Partly, as we have seen, this realization was imposed
upon the Navy Ministry by periodic confrontation with the Ministry of
Finances and other sections of the government. But, in addition, naval
officials had to take account of changed realities in shipbuilding. The new
vessels embodied new technology, particularly in propulsion and in the
provision of armament. The latest technology was reflected in the increased
price of finished vessels.2' For the Navy Ministry, therefore, the question
of naval rearmament and modernization was closely linked to the need to
monitor costs of ship construction and to take all possible steps to minimize
expenditure. This would ensure that available funds were used efficiently
and would thus deflect parliamentary criticism of naval administration.
The navy could exert a direct influence on the overall cost of the
shipbuilding programme through control of the four state shipyards. But it
18 War Ministry opposition to naval programmes in i909 is evident in TsGIA, f.I276, op.5, d.494,
11.25-34, and in Shatsillo, '0 disproportsii'. The Minister of Finances was supported by other colleagues
in the Council of Ministers, notably the State Auditor. The Ministry of Agricultue, embarking upon a
huge and expensive land reorganization programme (the famous Stolypin land reforms), had a vested
interest in supporting Kokovtsev. See Dyakin, 'Iz istorii ekonomicheskoi politiki'.
19 Shatsillo, Russkii imperializm,p. I73.
20
For example, Captain Ugrimov of the Naval General Staff commented in Jan. I9I2 that 'a matter
of a few million rubles cannot be of such significance when set alongside the military readiness of the
state'. Tsentral'nyi gosudarstvennyiarkhiv voenno-morskogoflota/Central State Archive of the Navy/
hereafter TsGAVMF, f.4oI, op.6, d.36, 1.3ob.
21 See the remarks of the Navy Minister to the Council of Ministers, concerning the adoption of
turbine-driven ships, I7 Oct. i906, TsGIA,.f.I276, op.2, d.444, ll.i-8.

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260 PETER GATRELL

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.

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AFTER TSUSHIMA 26I

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'.

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262 PETER GATRELL

to go to a foreign supplier.3' Sovsud decided to put an end to the practice,


by penalizing firms which subcontracted to foreign suppliers in this way,
and thereby helped to encourage domestic production of turbines. By I9I2
at least three Russian factories had experience of turbine production: the
Putilov Company and the Franco-Russian Works in the private sector; and
the state-owned Baltic Works. What is more, Sovsud succeeded in getting
these factories to contract for turbines at prices below those originally
quoted.32
This brings us to the other main issue in naval procurement, the choice
between state and private sector production. In i908 there were four state-
owned shipyards in and around St Petersburg: the Baltic Works, Admiralty
Yards, Izhorsk Works, and Obukhov Steel Mill (strictly speaking, only the
first two built vessels; the others were responsible for the supply of armour
plate and weaponry respectively). Together, they employed around Ii,000
workers. By contrast, total employment in the private yards was smaller and
more dispersed. Private yards accounted for around 8,700 workers in I908.33
A considerable amount of capital was tied up in the state sector. The value
of fixed assets at the four state yards amounted to around I20 million rubles
in i908, probably between one-quarter and one-third of all state-owned
industrial assets.34 The support preferred by Sovsud to state shipyards did
not hinge on the need to exploit this stock of capital and skills for its own
sake. Rather, Sovsud took the view that the state sector had a specific
function, namely to 'regulate' procurement prices. This meant that, in
principle at least, the prices charged by the state yards were to constitute a
yardstick by which the prices proposed by commercial firms could be judged.
In normal circumstances, the government expected to give priority to
state-owned factories. This view was defended by Kokovtsev.35 It was
relatively straightforwardto defend the role of state factories as a 'regulator'
of prices, if it could be demonstrated that they were efficiently managed.
Unfortunately, by i908 there was a virtual consensus that the state sector
was ill-equipped to take on this role. The Duma, for example, complained
that the state yards had no means of identifying their costs of production
and in these circumstances proved profligate in their consumption of financial

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.

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AFTER TSUSHIMA 263
and material resources.36 It was against this background that the government
agreed to the reform of the state shipyards in i908.
The new regulations introduced in i908 required all four state shipyards
to finance capital investment from internal resources, and without government
financial assistance: 'No credits from the Navy Ministry for the maintenance
and activity of the factories shall be assigned, and their expenses shall be
covered from sums obtained from orders and from other internal sources
and, in case of necessity, from the factories' reserve capital'.37 Under the
new rules, the state factories agreed a price which embodied an element of
profit in addition to the production cost. The percentage profit was
determined by the navy's supreme economic and administrative agency, the
Admiralty Council (Admiralteiskiisovet). No percentage figure was given in
the published regulations, which merely stated that the rate of profit should
ensure that the final procurement price did not exceed the price quoted for
a similar product by either private or foreign suppliers, the latter inclusive
of freight and duty.38
Under the new regulations, therefore, the state yards had been given an
autonomy that they hitherto lacked. They were now supposed to operate on
principles of 'commercial accounting' in implementing the new shipbuilding
programmes. But by the end of I9II it was clear to management, to Sovsud,
and to the Navy Ministry that the scale of naval rearmament placed the
state yards in great difficulties.

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.

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264 PETER GATRELL

unable to allocate annual sums to the various reserve funds as specified in


the regulations.40The state yards were in any case burdened with debt that
had accumulated prior to i908, and payments to these creditors typically
consumed any profit they made. At the same time, the Navy Ministry itself
was late in paying for work completed In a submission-to the government
in November i9ii managers maintained that 'the profits and amortization
funds have a purely accounting significance and do not represent cash in
hand, since the question of the factories' debt has not been resolved and
since the Baltic factory has been obliged to write off the debts outstanding
from the Ministry'. In these circumstances, for example, management had
no funds with which to purchase the machine tools needed to work on
battleships currently under construction for the Baltic fleet.42 Thus, the
shipbuilding programmes strained the capacity of the state yards to breaking
point, and they were unable to finance the investment needed to add to that
capacity.43
In principle, one solution to these financial difficulties would have been
to increase the rate of profit allowed to the state yards. The government
consistently ruled this out, on the ground that the procurement prices in
the state sector would then exceed those charged by the private sector. Only
in I9I4 did the government belatedly increase the rate of profit embodied
in the order for battleships, from I4 to 30 per cent.44 The alternative course
of action was to inject funds directly from the Treasury, and indeed the
ministry appealed for the immediate release of funds to finance new
investment in the state shipbuilding industry.45This proposal, too, involved
a departure from the principles enshrined in the i908 regulations and was
strongly opposed by the Ministry of Finances.46 In September I909 the
Navy Ministry had submitted to the Council of Ministers a request for
I5.54 million rubles in order to begin the reconstruction of three state
shipyards.47The proposal was challenged on the traditional ground that the
state works invariably frittered money away (a charge less easy to sustain
after the i908 reforms), and by the Ministry of Finances, which argued that
the next stage of the shipbuilding programme had not been finalized. The
Council of Ministers supported Kokovtsev and eventually rejected the
request 48
In practice, the financial crisis was handled in a different manner. First,
factories used funds from current reserves, such as they were, in order to

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

Artillery Administration. TsGAVMF, f.4Io, Op.3, d.822, 11.45-8.


4 TsGAVMF, f.4Io, Op.3, d.I246, 11.8-9.
46 TsGAVMF, f.4Io, op.3, d.822, 1.I93.
47 TsGAVMF, f.44I, op.i, d.I998, 11.I-3, 286, 293.
48 TsGAVMF, f.441, op.I, d.i998, 11.3I4-324, 349-357ob, and TsGIA, f.I276, op.s, d.249, 11.25-36.

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AFTER TSUSHIMA 265

finance running repairs to capital equipment. Secondly, some 'emergency'


credits were quietly transferred by the Ministry from other items on the
shipbuilding budget to the state yards, in order to fund new investment.49
Thirdly, and most importantly, the government agreed a fresh influx of
orders for new vessels and other items, and the advances on these orders
allowed factories to settle some of their debts to private suppliers and to
conclude contracts for new equipment. At the same time, management
withheld payments to other factories within the state sector, and other claims
within the state sector on state shipyards were written off. In effect, the
financial problems faced by state yards were being transferred to other state
factories, such as Perm and Izhevsk, which supplied steel and other items
to shipyards. The sums involved were substantial: the proposed transfer of
new funds and the write-off of debt amounted to nearly I5 million rubles.50
Despite recurrent complaints about the inability of state factories to reduce
costs and compete with the commercial sector, the evidence suggests that
the management of state yards took vigorous steps to cut production costs."5
In particular, pressures were exerted on wages as a crude yet effective form
of cost-cutting. The director of the Izhorsk factory reported in i909 that he
had been obliged to cut prices in order to compete with private firms: 'if
this were not done, the factory would lose work, and in view of the serious
unemployment problem, the workers themselves have been prepared in their
own interests, as well as those of the factory, to get more work and to
receive modest wages, rather than to be laid off because of a lack of work'.52
No data have come to light on the average wages paid by the management
of Izhorsk. But at the Baltic yards, the average wage fell from 2.32 rubles
per day in I908 to 2.26 rubles in i909 and 2.04 rubles in I9I I. This strategy
could not continue indefinitely, and when all shipyards were deluged with
orders in I9I2 and I9I3 wage rates picked up sharply.53
However, the problems of naval procurement were not confined to the
internal management and performance of state yards. Indeed, in some
quarters it was held that the performance of state yards was not hampered
by management deficiencies (such as lack of awareness of production costs
in each separate section of the factory), but rather by the procurement
policies pursued by the Ministry. The Ministry, it was said, had no systematic
policy of procurement, which would allow it to allocate orders in a rational
manner to individual factories, but instead issued orders in a haphazard and
unsystematic fashion. Sovsud was supposed to monitor the distribution of
orders, but the Ministry circumvented it wherever possible.54 But it would
be wrong to focus exclusively on the hostility of the Navy Ministry to civilian
intervention in procurement. If there was no systematic procurement policy
by I9I2, this reflected not the malevolence of the Navy Ministry, but rather
Vsepoddaneishiiotchet morskogoministerstvaza I9I2, p. I22.
50 TsGAVMF, f.4oI, op.6, d.I78, 11.2-I7.
5' Shatsillo, Russkii imperialim, pp. 22I-2.
52
Zav'yalov, Izhorskii zavod, p. 265.
53 Vsepoddaneishiiotchet morskogoministerstvaza I9I3, p. 302; TsGAVMF, f.4Io, Op.3, d.io66, 1.io.
In I9I3, 2 rubles were equivalent to a wage of 4 shillings.
54 TsGAVMF, f.420, op.I, d.I49, 1.3, session of Sovsud, 8 Jan. i9io; see also Shatsillo, Russkii
imperializm,p. 46.

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266 PETER GATRELL

the overwhelming scale of the shipbuilding programme.


In such circumstances, private firms stepped in to offer their services.
One tactic they adopted was to seek leases on existing state facilities. The
state wharves, at Nikolaev on the Black Sea, were offered to the Nikolaev
Shipbuilding, Engineering and Foundry Company (Chantiers et Ateliers de
Nicolaiev) on a 25-year lease, on the understanding that the private company
would spend at least 3 million rubles on their modernization. With the
financial assistance offered by French banks, the company reorganized and
re-equipped the old yards.55But there were limits to government toleration
of private sector encroachment. The approach made in June I9I2 by the
Russian Shipbuilding Company (Russud), for a lease on government wharves
in St Petersburg, met with a distinctly frosty response in Sovsud.56
A much more successful strategy on the part of the private sector was to
offer to create new capacity, rather than to take over existing capacity.
Private firms benefited from close links with financial institutions in the
Russian capital. Russud, for instance, enjoyed the patronage of the
St Petersburg International Bank. The major commercial banks underwrote
new share flotations and provided credit to fund massive investments,
especially after IgIo,57 thus underlining the contrast between the resources
at the disposal of private enterprise and those at the disposal of the state
sector. The private sector was also able to offer the tsarist government the
opportunity to tap foreign armaments technology.58 With strong financial
support and stimulated by the award of substantial contracts, the private
sector expanded its role in Russian military shipbuilding. The labour force
in the commercial sector increased from less than 9,ooo in i908 to around
23,000 by I9I3.59
The main concern in Sovsud and, by extension, in government circles,
was the possibility of collusion between private firms and the risk that the
government might come to depend upon a monopoly supplier. Collusion
over bids for shipbuilding contracts undoubtedly took place, but in these
circumstances the government looked to the state sector to act as a
counterweight. For this reason, it is over-simple to interpret the prewar
naval rearmament drive as a straightforward triumph of monopoly capital,
as Soviet historians are wont to do.60

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.

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AFTER TSUSHIMA 267

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.

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268 PETER GATRELL

Equally, there is little justification for the contention, often encountered in


western scholarship, that Russia was a case-study in successful 'modernization'
before I9I4. So far as the defence effort is concerned, two reasons may be
offered for this verdict. First, the scale of rearmamentbetween i910 andI9I4
made it difficult to embark simultaneously upon the expansion of output
and the reconstruction of state-owned enterprise. Growth and perestroika
were no easier to reconcile in late tsarist Russia than they are now in the
Soviet Union. Between I905 and I9I3, the latter aim was sacrificed for the
sake of the former. Second, the government was beset by internal divisions,
which hampered attempts at coordination of policy-making. This is not an
original observation: other scholars have documented fundamental differences
within the bureaucracy over labour policy, the allocation of budgetary
resources and so forth.65 In the defence sphere, these differences were
particularly acute. The absence of a successful coordinating authority was
strongly felt. Policy differences also contributed greatly to the difficulties
experienced by Russia during the First World War.
Finally, and more controversially, it may be time to lay to rest the belief
that the Russian economy and society were undergoing a process of what
has been variously termed 'stabilization' or 'westernization', on the eve of
the First World War. The work of social historians has cast considerable
doubt on the view that Russia in I914 was more stable than it had been a
decade earlier.66For their part, economic historians must acknowledge that
the economy of tsarist Russia grew rapidly between I905 and I914. But they
can also demonstrate that the administrative system and economic structures
that provided the framework for growth changed much less dramatically.
After Tsushima, the Russian engine had not run out of steam, and the train
of state may have taken new passengers on board; but it was still travelling
along the same track.67

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

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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).

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AFTER TSUSHIMA 269
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