The low level of development of the productive forces, considering the predatory activities of the state, left no room for the accumulation of surpluses, for the widespread development of social division of labor, or for urban growth. The crafts were not separated from agriculture nor were they concentrated in towns; instead, they remained in the hands of the village population, in the form of home industries scattered over the entire countryside. It was precisely because of the dispersed nature of artisanal work that home craftsmen were obliged to work, not to order, like the craftsmen of European towns, but on the chance possibility of sale. The merchant or the traveler was the intermediary between the scattered producer and the scattered consumer. In this way the sparseness and poverty of the population and the resulting smallness of the towns determined the immense role of commercial capital in the organization of the national economy of old Muscovite Russia. But commercial capital, too, remained scattered and failed to create any major commercial centers.

It was not the village craftsman, nor even the rich merchant, but the state itself which finally came face to face with the necessity of creating a large-scale industry. The Swedes imposed on Peter the creation of a navy and a new type of army. But having made its military organization more complex, the Petrine state became directly dependent on the industries of the Hanseatic cities and Holland and England. Thus the creation of Russian manufactures to supply the army and the navy became an essential task of national defense. Before Peter, there was never a suggestion of factory production. At his death there already existed 233 large-scale state and private enterprises: mines, armaments factories, cloth, linen, and sailcloth factories, etc. The economic basis for these new industries was provided, on the one hand, by state funds and, on the other hand, by commercial capital. Furthermore, new branches of industry were frequently imported from abroad together with European capital which enjoyed corresponding privileges for a number of years.

Merchant capital played an important role in creating major industries in Western Europe. But there manufacture grew on the basis of collapsing artisanal trade, the previously independent craftsman being transformed into a hired industrial worker. In Muscovy the manufactures imported from the West found no free craftsmen on the spot and so were obliged to make use of the labor of peasant serfs.

That is why the Russian eighteenth-century workshop did not, from the very start, encounter any competition from urban artisanal trade. Neither was the cottage craftsman a rival to it: he was working for a popular consumer, while the manufacturing workshop, regimented from head to foot, worked primarily for the state and, to some extent, for the upper classes of society.

During the first half of the nineteenth century the textile industry broke the circle of serf labor and state regimentation. Factories based on freely hired labor were, of course, radically hostile to the social relations of the Russia of Nicholas I. For that reason, the serf-owning nobility’s point of view was wholly that of the “free traders.” As far as his sympathies were concerned, Nicholas himself entirely shared this viewpoint. Yet the needs of the state, including fiscal needs, forced him to adopt a policy of prohibitive taxes and financial subsidies to the factory owners. After the lifting of the embargo on the importation of machines from England, the Russian textile industry developed entirely on the basis of ready-made English models. During the 1840s and 1850s the German, Knopp, transferred 122 spinning factories, down to the last nail, from England to Russia. In the textile area there even used to be a proverb:

“Where there’s trouble, there’s a cop, where there’s a factory there’s Knopp.” Since the textile industry was working for a market, it put Russia in fifth place (on a world scale) as regards the number of spindles, despite the chronic shortage of skilled hands and even before the abolition of serfdom.

But the other branches of industry, especially ironmaking, developed hardly at all after the death of Peter. The main reason for this stagnation was slave labor, which rendered the application of new technology quite impossible. Cheap cotton is manufactured for the use of peasant serfs themselves; but iron presupposes a developed industry, towns, railways, railway engines. None of this was compatible with serfdom. At the same time serfdom was also holding back the development of agriculture, which, as time went on, was working more and more for the foreign market. Hence the abolition of serfdom became a pressing demand of economic development. But who could put it into effect? The nobility refused even to consider it. The capitalist class was as yet too negligible to achieve a reform of such vast scope by any pressure it could exert. The frequent peasant riots, which in any case bore no comparison with the peasant war in Germany or with the Jacquerie in France, remained mere scattered outbursts and, finding no leadership in the cities, were in themselves too weak to destroy the power of the landowners. The state had to pronounce the decisive word. Tsarism had to suffer a cruel military defeat in the Crimean campaign before it could, in its own interests, clear the way for capitalist development by means of the semi-liberation reform of 1861.

This point marked the beginning of a new period of economic development within the country, a period characterized by the rapid formation of a pool of “free” labor, a feverish development of the railway network, the creation of seaports, the incessant inflow of European capital, the Europeanization of industrial techniques, cheaper and more easily available credit, an increase in the number of limited stock companies, the introduction of gold currency, ferocious protectionism and an avalanche-like growth of the national debt. The reign of Alexander III (1881-1894), when the ideology of the “uniqueness” of Russia dominated the whole of public consciousness, starting in the revolutionary conspirator’s hideout (the narodnik movement) and ending with the private chancellery of His Majesty himself (official “narodnost,” or Russianness), was, at the same time, an era of ruthless revolution in production relations. By setting up major industries and by proletarianizing the muzhik, European capital was automatically undermining the deepest foundations of Asian-Muscovite “uniqueness.”

The railways acted as a powerful lever for the country’s industrialization. The initiative for building them was, of course, the state’s. The first railway (between Moscow and Petersburg) was opened in 1851. After the Crimean catastrophe, the state yielded first place in railway construction to private entrepreneurs. Yet, like a tireless guardian angel, it always stood at the back of these entrepreneurs: it assisted the formation of stock and bond capital, it undertook to guarantee profits on capital, it showered the shareholders’ path with all kinds of privileges and encouragements. During the first decade after the peasant reform, 7 thousand versts of railways were built Russia, 12 thousand during the second decade, 6 thousand during the third and, during the fourth, more than 20 thousand in European Russia alone and approximately 30 thousand in the empire as a whole.

During the 1880s and especially the 1890s, when Witte appeared as the herald of the notion of autocratic police capitalism, there was a renewed concentration of the railways in the hands of the treasury. Just as, in the development of credit, Witte saw a weapon in the hands of the finance minister to “guide the national industry in one direction or another,” so state-controlled railways were seen in his bureaucratic brain as a “powerful means of controlling the country’s economic development.” Stockbroker and political ignoramus that he was, he could not understand that in fact he was gathering the forces and sharpening the weapons of revolution. By 1894 the total length of railway line amounted to 31,800 versts, including 17,000 versts of state-owned line. In 1905, the year of the revolution, the railway personnel who played such an immensely important political role counted 667,000 men.

The customs policy of the Russian government, in which fiscal greed was intimately bound up with blind protectionism, almost completely barred the way to the ingress of European goods. Deprived of the possibility of dumping its products on Russia, European capital crossed the Eastern frontier in its most invulnerable and attractive hypostasy: in the form of money. Any animation on the Russian financial market was always determined by the contracting of new loans from abroad. Parallel with this, the European entrepreneurs took direct possession of the most important branches of Russian industry. Europe’s finance capital, by assimilating the lion’s share of the Russian state budget, returned in part to Russian territory in the form of industrial capital. This enabled it, through the intermediary of the Tsarist fiscal system, not only to exhaust the productive forces of the Russian muzhik, but also to exploit directly the working energy of the Russian proletarian. During the final decade of the nineteenth century alone, and especially after the introduction of gold currency in 1897, not less than 1.5 billion roubles of foreign industrial capital flowed into Russia. Whereas during the forty years preceding 1892 the basic capital of limited stock companies increased by only 919 million roubles, during the succeeding decade alone it had increased by 2.1 billion roubles.

The importance of this golden flood from the West for Russian industry can be seen from the fact that whereas in 1890 the sum total of the production of all our factories and plants amounted to 1.5 billion roubles, by 1900 it had risen to between 2.5 and 3 billion. Parallel with this, the number of factory and plant workers increased during the same period from 1.4 million to 2.4 million.

While it is true that Russia’s economy, as well as Russian politics, always developed under the direct influence – or rather, the pressure – of European politics and economy, the form and depth of this influence, as we have seen, changed constantly. During the period of artisanal and manufacturing production in the West, Russia borrowed Western technicians, architects, craftsmen, skilled workers of all kinds. When factory production displaced manufacture, machinery became the principal object of imitation and importation. And, finally, when serfdom had fallen under the direct pressure of state needs, giving place to so-called “free” labor, Russia opened herself to the direct influence of industrial capital, the path for which was cleared by foreign state loans.

The chroniclers tell us that in the ninth century we called upon the Varangians from across the sea to come and help us establish a state. Then came the Swedes to teach us European military skills. Thomas and Knopp taught us the textile trade. The Englishman, Hughes, implanted a metallurgical industry in the southern part of Russia, Nobel and Rothschild transformed Transcaucasia into a fountain of oil gushers. And at the same time the viking of all the vikings, the great, the international Mendelssohn brought Russia into the domain of the stock exchange.

While economic contacts with Europe were still limited to the importation of craftsmen and machines or even to loans borrowed for productive purposes, this was, in the last analysis, a question of making the Russian national economy assimilate certain elements of European production. But when free foreign capital, in its race for a high level of profits, flung itself upon Russia’s territory, protected by customs duties which were like the Great Wall of China, it became a matter of making the capitalist industrial organism of Europe assimilate the national economy of Russia. That is the program which has filled the last decades of Russia’s economic history.

Only 15 per cent of the total number of existing Russian industrial enterprises were created before 1861. Between 1861 and 1880, 23.5 per cent were created, and more than 61 per cent between 1881 and 1900, 40 per cent of all existing enterprises having been created during the last decade of the nineteenth century alone.

In 1767, 10 million pouds of pig iron were smelted in Russia. In 1866 (a hundred years later!) smelting still barely reached 19 million pouds. By 1896 it had already reached 98 million pouds, and in 1904, 180 million; moreover, while in 1890 the south accounted for only one-fifth of the total amount smelted, ten years later it accounted for one-half. The development of the oil industry in the Caucasus proceeded at a similar rate. In the 1860s, less than a million pouds of oil were produced; in 1870 the figure was 21.5 million pouds. Foreign capital entered upon the scene in the mid-eighties, taking possession of Trans-caucasia from Baku to Batum and launching operations intended for the world market. By 1890 oil production had risen to 242.9 million pouds, and by 1896 to 429.9 million pouds.

Thus we see that the railway, coal-mining and oil industries of the southern part of the country, to which the economic center of gravity has been shifting with extreme rapidity, are only twenty or thirty years old. In this part of Russia, the development assumed from the very start a purely American character, and, within a very few years, Franco-Belgian capital has radically changed the appearance of the steppe provinces, covering them with giant enterprises of a size almost unknown in Western Europe.

Two conditions were necessary for this: European/American technology and the Russian state budget. All the metallurgical plants of the south – many of which were bought from America, down to the last bolt and screw, and transported across the ocean – had government orders guaranteed for several years ahead at the moment of going into operation. The Urals, with their patriarchal, semi-feudal traditions and “national” capitals, remained a long way behind and it is only recently that British capital has begun to eradicate barbaric “Russianness” in that part of the country as well.

The historical conditions of the development of Russian industry sufficiently explain the fact that, despite its relative youth, neither small-scale nor medium-scale production plays any significant role within it. Large-scale factory and plant production has not grown in Russia in any “natural” or organic manner. It did not grow gradually out of artisanal trade and manufacture, since artisanal trade itself had no time to grow out of the cottage industries and was doomed to economic death, even before its birth, by foreign capital and foreign technology. The cotton mill had no need to fight the craftsman weaver; on the contrary, it was the cotton mill that gave birth to cotton-producing cottage industries in the villages. Likewise, the ironmaking industry of the south and the oil industry of the Caucasus were not obliged to swallow up any small enterprises; on the contrary, such enterprises had to be brought into existence as a series of secondary and ancillary branches of the economy.

By reason of the pitiable state of our industrial statistics, it is quite impossible to express the correlation of minor and major production in Russia. The table reproduced below gives only an approximate picture of the real situation, since the information concerning the first two categories of enterprises, occupying up to 50 workmen, are based on materials which are extremely incomplete, or, to be more precise, accidental.

The same question is vividly illuminated by a comparison of the profits obtained by different categories of commercial and industrial undertakings in Russia.

In other words, about half of all undertakings (44.5 per cent) receive less than one-tenth of the entire profit, whereas one-sixtieth (1.7 per cent) of the enterprises received almost half of the whole surplus value (45 per cent). Moreover, there can be no doubt that the profits of the large enterprises as given in the table are considerably underestimated. To demonstrate the exceptional degree of concentration of Russian industry, we reproduce comparable data (excluding mining enterprises) for Germany and Belgium in the tables on the next page.

The first table, despite the incompleteness, already mentioned, of the data it contains, enables us to draw the following incontrovertible conclusions: (1 ) within homogeneous groups, the average Russian enterprise employs a considerably larger number of workers than a German one; (2) a considerably higher percentage of workers is concentrated in the large (51-1,000 workers) and very large (over 1,000 workers) enterprises in Russia than is the case in Germany. In the last group this difference is not merely relative but absolute. The second table shows that the same conclusions can be drawn in even more striking form from a comparison between Russia and Belgium.

We shall see further on the enormous influence this highly concentrated character of Russian industry had on the course of the Russian revolution, and indeed on Russia’s whole political development.

At the same time we shall have to take into account another circumstance of a not less important nature: this highly modernized industry of a highly capitalistic type involves only a minority of the population, while the peasant majority continues to struggle under the net of class enslavement and pauperism. This fact, in turn, sets narrow limits on the development of capitalist industry in our country.

The breakdown of the industrially active population into agricultural and non-agricultural pursuits, for Russia and the United States of America, is given in the table below.

The number of people employed in industry in Russia, with its population of 128 million, is scarcely larger (30.6 million) than in the United States with a population of 76 million (29 million). This is a result of the country’s general economic backwardness and the consequent tremendous preponderance of agricultural over non-agricultural population (60.8% as against 39.2%) – a circumstance which must inevitably mark all branches of the national economy.

In 1900 the factories, plants and large-scale manufacturing enterprises of the United States produced 25 billion roubles’ worth of goods, whereas the corresponding figure in Russia was only 2.5 billion, that is, 10 per cent, which apart from anything else bears witness to extremely low productivity of labor. During the same year the following amounts of coal were extracted: 1 billion pouds in Russia, 1 billion pouds in France, 5 billion pouds in Germany and 13 billion pouds in England. The figures for iron production were: 1.4 pouds per worker in Russia, 4.3 pouds in France, 9 pouds in Germany and 13.5 pouds in England. “Yet,“ says Mendeleyev, “we could supply the entire world with our extremely cheap pig iron, iron, and steel. Our oil, coal, and other mineral reserves are virtually untapped.”

But the development of industry corresponding to such wealth is unthinkable without an expansion of the domestic market and an increase in the purchasing power of the population: in other words, with an economic improvement in the life of the peasant masses.

Therein lies the decisive importance of the agrarian question for Russia’s future as a capitalist country.