The late nineteenth and early twentieth centuries were times of crisis for Russia. Not only did technology and industry continue to develop more rapidly in the West, but also new, dynamic, competitive great powers appeared on the world scene. The unification of Germany in the 1860s, increase of size and strength of the United States after the civil war, and the emergence of Japan seemed to emphasize the developmental dilemma that Russia was facing. Although Russia was an expanding regional giant, it could not generate the capital that was necessary to support a rapid industrial development, and therefore it could not compete with advancing countries on a commercial basis. Russia’s main dilemma was that accelerated domestic development risked upheaval at home, but slower progress risked full economic dependency on the faster-advancing countries in the east, but primarily in the west. Agriculture and industry were being carried out according to methods that were no longer necessary. Russia was not using the most advanced methods in practical use at the time. Russia’s agriculture and industry become labor intensive, instead of focusing on capital.
It is common knowledge that Russia’s economy developed slower than any other European nations. Russia did have a population that was larger than those of the more developed countries, but most of the population lived in rural communities and engaged in primarily in ancient techniques of agriculture. Agriculture, which was technologically underdeveloped, remained in the hands of former serfs and former state peasants, who together constituted about four-fifths of the rural population. Industry, on the other hand, had greater state involvement, but still, in many selected sectors it was developing through private initiatives, many of those which were foreign. Russia's industrial regions included Moscow, the central regions of European Russia, St. Petersburg, the Baltic cities, Russian Poland, some areas along the lower Don and Dnepr rivers, and the southern Ural Mountains.
Tsar Alexander II, who succeeded Nicholas I in 1855, was a conservative who saw no alternative but to implement change. Alexander initiated substantial reforms in education, the government, the judiciary, and the military. In 1861 he proclaimed the emancipation of about 20 million privately held serfs. Local commissions, which were dominated by landlords, effected emancipation by giving land and limited freedom to the serfs. The former serfs usually remained in the village commune, but they were required to make redemption payments to the government over a period of almost fifty years. The government compensated former owners of serfs by issuing bonds. In 1864 the regime implemented judicial reforms. In major towns, it established Western-style courts with juries. In general, the judicial system functioned effectively, but the government lacked the finances and cultural influence to extend the court system to the villages, where traditional peasant justice continued to operate with minimal interference from provincial officials. In addition, the regime instructed judges to decide each case on its merits and not to use precedents, which would have enabled them to construct a body of law independent of state authority. Following this, most local governments were organized into provincial and district zemstva, which were made up of representatives of all classes and were responsible for local schools, public health, roads, prisons, and food. In the financial sphere, Russia established the State Bank in 1866, which put the national currency on a firmer footing. The Ministry of Finance supported railroad development, which facilitated vital export activity, but it was cautious and moderate in its foreign ventures. The ministry also founded the Peasant Land Bank in 1882 to enable enterprising farmers to acquire more land. The Ministry of Internal Affairs countered this policy, however, by establishing the Nobles' Land Bank in 1885 to forestall foreclosures of mortgages.
The regime also sought to reform the military. One of the chief reasons for the emancipation of the serfs was to facilitate the transition from a large standing army to a reserve army by instituting territorial levies and mobilization in times of need. Before emancipation, serfs could not receive military training and then return to their owners. Bureaucratic inertia, however, obstructed military reform until the Franco-Prussian War (1870-71) demonstrated the necessity of building a modern army. The levy system introduced in 1874 gave the army a role in teaching many peasants to read and in pioneering medical education for women. But the army remained backward despite these military reforms. Officers often preferred bayonets to bullets, expressing worry that long-range sights on rifles would induce cowardice. In spite of some notable achievements, Russia did not keep pace with Western technological developments in the construction of rifles, machine guns, artillery, ships, and naval ordnance. Russia also failed to use naval modernization as a means of developing its industrial base in the 1860s.
The Acceleration of Industrialization
In the late 1800s, Russia's domestic backwardness and vulnerability in foreign affairs reached crisis proportions. At home a famine claimed a half-million lives in 1891, and activities by Japan and China near Russia's borders were perceived as threats from abroad. In reaction, the regime was forced to adopt the ambitious but costly economic programs of Sergei Witte, the country's strong-willed minister of finance. Witte championed foreign loans, conversion to the gold standard, heavy taxation of the peasantry, accelerated development of heavy industry, and a trans-Siberian railroad. These policies were designed to modernize the country, secure the Russian Far East, and give Russia a commanding position with which to exploit the resources of China's northern territories, Korea, and Siberia. This expansionist foreign policy was Russia's version of the imperialist logic displayed in the nineteenth century by other large countries with vast undeveloped territories such as the United States. In 1894 the accession of the pliable Nicholas II upon the death of Alexander III gave Witte and other powerful ministers the opportunity to dominate the government. Witte’s policies had mixed results, and although he enlarged the mileage of their Railroad system, Russia still failed to rise significantly. Russian grain production and exports failed to rise significantly, and imports grew faster than exports. The state budget also more than doubled, absorbing some of the country's economic growth.
Will Russia Catch Up?
Since World War I, Russia has experienced revolution, collectivization, purges, war, cold war, privatization, and the disintegration of its empire, but its national income per capita is still about 40% of the levels prevailing in Western Europe. Using market exchange rates, western European countries are about three times as rich as Russia, but based on purchasing power parity they are only about twice as rich as Russia. Exchange rates may fluctuate, but roughly speaking Russia’s position vis-à-vis the west hasn’t changed in a century. Although Russia may have kept up with Western Europe over the past 100 years, it has not caught up. Peter and Catherine the “Greats” may have brought Russia to the brink of modernity, but in the 19th century Western Europe opened a huge lead over Russia. Russia was not stagnant, but it didn’t match the growth rates of western European countries. In the 20th century Russia did match western European growth rates and stabilized its position vis-à-vis the west, but the 19th century gap remained. Today’s differences between Russia and the west have their roots not in the privatization era or the communist era, but in the tsarist era.
Russia could theoretically catch up, but it is not clear whether the Russian class of elites have an incentive to do so.