Economic and Social Developments (A III)


Economic Change

The Beginnings of state-promoted industrial growth

In the absence of the entrepreneurial m/c, industrialisation in Russia was largely driven by the State in a deliberate attempt to match the economic development of Western Europe. Following emancipation, Alexander II's finance minister from 1862-78, Mikhail von Reutern, produced a series of reforms designed to boost economy and provide funds to drive industrial growth. 

  • The Treasury was reformed and new arrangements for collecting taxes, auditing the accounts of government departments, and publishing budgets were put in place.
  • Tax-farming (whereby groups brought the right to collect certain taxes) was abolished and the tax system was reformed to include more indirect taxation.
  • Banks and the credit facilities were extended with the establishment of a state bank in 1860, town banks in 1862 and a savings bank in 1869.
  • Trade was promoted with the reduction of import duties from 1863. 
  • Government subsidies (sum of money) were offered to enable private entrepreneurs to develop railways.
  • Foreign investment was encouraged with a government guarenteed annual dividend.
  • New legislation regulated joint-stock companies (a business owned by shareholders who invest their own. capital in the enterprise) to encourage 'safe' investment.
  • Government support was offered for the development of the cotton industry and mining.
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Economic Change (Vyshengradsky)

Von Reutern's reforms forced former tax farmers to look elsewhere to invest, while the opportunities provided by government subsidies (money) and trade treaties encouraged enterprise. The railway network also saw a marked expansion. Overall, there was an annual average growth rate of 6% during Von Reutern's term in office.

Although textiles remained the dominant industry, there were also new developments. Oil extraction began and ironworks were set up in 1872. However, despite these improvements, Russia's economy remained comparatively weak. 1/3 of the government's expenditure went on the repayment of debts and the Russian currency - Rouble - was subject to wild variations in its value. The limitations of the Emancipation Edict, and a taxation system which left 66% of government revenue coming from indirect taxation (tax on goods and services rather than income), kept the peasantry poor and the domestic market small. 

Tariff reductions meant a decline in government revenues and the decision was taken to raise them again in 1878 under Vyshnegradsky, who took over in 1887. The tariff was introduced to boost home production and considerably help the iron industry of southern russia as well as the development of industrial machinery. Vyshengradsky needed to balance the budget while financing enterprise, as well as negotiating some variable loans, for example from the French in 1888, he also increased indirect taxes and mounted a drive to swell grain exports. The policy seemed very successful. Between 1881 and 1891 grain exports increased by 18%, and by 1892 the budget was in surplus.

A result of this policy was witnessed in 1891-92 when bad harvests were met by widespread famine, in which many thousands died. Vyshnegradsky was dismissed in 1892, largely because of this disaster.

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Economic Change (Witte)

Sergei Witte was totally committed to economic modernisation as a means to curbing revolutionary activity. Witte believed that the only way forward was to continue with protective tariffs, heavy taxation and forced exports to generate capital. Witte also sought additional loans from abroad. Foreign investment:

  • 1880- 90 million
  • 1890- 215 million
  • 1895- 280 million

Much of this investment went into mining, the metal trades, oil and banking. Witte also encouraged engineers, managers and workers, from France, Belgium, Germany, Britain and Sweden, to oversee industrial developments and advise on planning techinques. With their help there was a huge expansion of the rail network.

Russia's growth enabled it to move up the league table of industrial nations to become the worlds 4th largest industrial economy, althought the bulk of the export trade was still in grain rather than in industrial goods.

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Agriculture and the land issue

Emancipation failed to bring any fundamental change in agricultural practice. Although there was considerable variation, the average peasant only recieved only a little less than 4 hectares. 

High taxes, grain requisitions (official order on the use of raw materials), redemption payments and the traditional farming practices perpituated (continued) by the mir elders hampered agricultural change. Yeilds (production) remained low in comparison to western Europe and although the governement established Nobles' (1882), and Peasants' (1885) Land Banks:

(held funds and reserves of land. They were set up to assist peasants who wished to acquire land directly or through purchase of nobles. The Nobles' Land Bank was designed to help nobles with the legal costs involved in land transfer and in land improvement schemes. Interest loans were kept deliberately low. They helped to increase peasant ownership and between 1877 and 1905, over 26 million hectares were in peasant hands. However it helped to prop up some inefficient farms, which continued with their traditional ways.

There was an overall increase in agricultural production in the 1870s and 80s, largely thanks to the efforts of the kulak class to respond to Vyshnegradsky's export drive. However the disastrous 1891-92 famine showed that the basic economic problem, which emancipation had been expected to solve, remained: the average Russian peasant had too little land to become prosperous.

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Social DIvisions

The land elite

They were a small but diverse group, mostly of noble status. After the Emancipation, their personal landholdings had considerably declined, as some sold out to pay off debts and others abandoned farming in favour of more rewarding professional activities. By 1882, more than 700 nobles owned their own businesses in Moscow, while nearly 2500 were employed in commerce, transport or industry. State service was another option, while some found places in the zemstva and the provincial governorships. 

Although there were changes in their position, most former-serf owners retained much of their previous wealth and status, and society remained highly stratified (arranged in layers, according to wealth)

The Middle Class

The urban and industrial expansion and an increase in educational opportunities, Russia's mniddle class began to grow. Bankers, doctors, teachers and administrators were in greater demand. Government contracts to build railways, and state loans to set up factories (an industry which grew in the 1860s-80s, in the hands of the traditional nobility), provided opportunities for those who were enterprising. There were also more opportunities to take up management positions or set up as workshop owners and traders.

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Social DIvisions

The urban working class

The expansion of industry was accompanied by a growth in the urban population. The number of urban workers was, however, still very small. It was common for peasants to move to the towns to work work temporarily, while returning to their villages to help out at peak times, such as harvests. However, some peasants sold up and left the countryside, either to join a migrant group building railways or to become urban workers. 

Conditions in the cities were grim and the early factories paid very little, despite some reforming legislation. In 1882-90 there were a series of reforms: 

  • regulation of child labour 
  • Reduction in working hours
  • Reduction in excessive fines and payment in kind (payment in goods and services such as accomodation, rather than money wages)
  • Appointment of inspectors with powers to check on working and living conditions.
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Social DIvisions

The position of the peasantry

Like the land elites the peasantry were also divided. At the top were Kulaks who bought up land, prehaps with the aid of loans from the Peasants' Land Bank. They employed labour and bought their grain in the autumn to provide them with money to tide them over in the winter by selling it back on inflated prices in the spring. When the clients could not afford the repayments, the Kulaks often accepted land instead.

In contrast the poorer peasants found life getting harsher as they turned into landless labourers, dependant on others. Living standards varied throughout the country. Areas of former state peasants tended to be better off than those emancipated privately owned serfs, because they had been granted more land. Despite improvements in health care, provided through the Zemstva, a large proportion of the peasantry were turned down as unfit for military service and mortality rates were higher than those in any other European country. Average life expectancy was around 29 for women and 17 for men; in England the average death rate was 45 years. Therefore economic change failed to improve the lot of the peasantry and may even have affected them for the worse

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The cultural influence of the Church

The orthodox church to which 70% of the population subscribed, had a close bond with the tsarist regime. The tsar was seen to be sent from God. By the late 1800s, church administration had become more secular (not connected to religious or spiritual matters). Neverthless, Imperial Russsia remained a strongly orthodox state.

Priests had close ties to the village, as well as a role assigned by the state. They were expected to read out Imperial Manifestos and decrees, keep statistics, root out opposition, and inform the police of any suspicious activity.

Alexander III and his ministers were conscious of the power of the church and under Ivan Delyanov (Minister of Education) the Orthodox church was given increased control over primary education. The church also possessed strict censorship controls and the Church courts judged moral and social 'crimes', awarding punishments to those found guilty.

Alexander III's policy of Russification enabled him to promote Orthodoxy throughout the Empire. It became an offence to convert from Orthodox to another faith, or even to publish citicisms about it. Radical sets, which had broken away from true Orthodoxy- in particular 'the Old Believers' who had settled in remote (distant) parts of Serbia - were all persecuted by the state.

There was evidence to suggest that its control over the lives of the people were weakening. The provision of Churches and priests had not kept pace with the growth of urbanisation and the Orthodox religion had little relevance for the workers in the factories who were often more attracted by the teachings of the socialists. In the countryside superstision often held a stornger way than the Orthodox priests

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  • The backward Russian economy began to develop after the defeat in the Crimean war and emancipation
  • The state played an active role in promoting industry. Financial policies and the encouragement of overseas investment and expertise were crucial.
  • The peasantry were forced to support industrialisation by the drive to export grain and an increase in indirect taxation
  • Railway development was a crucial first step and, in addition to traditional textiles, heavy industry and oil grew more important
  • Emancipation and industrialisation also bought social change affecting landowners, a growing m/c, expanding the ranks of urban workers and causing greater social divide in the countryside 
  • Throughout this period the orthodox church maintained a strong cultural influence and was used by the state to help keep the population under control.
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