CORNELL UNIVERSITY LIBRARY RUSSIA A Consideration of Conditions Revealed by Soviet Publications Cornell University Library HC335 .A509 Russia a consideration of conditions as 3 1924 029 973 249 olin PUBLISHED BY THE COMMISSION ON COMMERCE AND MARINE OF THE AMERICAN BANKERS ASSOCIATION Documents and publications in the_files of the Department of Commerce constituted the source of much of the follow^ ing material. There are in- cluded numerous translations from Soviet Publications. Z3S The Russian Situation The purpose of this study is to show that regardless of the attitude of the Department of State toward the Soviet Govern- ment of Russia, the internal conditions of Russia and the policy of the Soviet Government are such that for the time being American business could gain very little by dealings with that country. Even under a trade agreement our exports to Russia could not have been large in the past and cannot become large in the near future. Similarly, nothing our Government could do would increase in any important degree private investment in that country. Great as is Russia's need of foreign goods and foreign capital, its internal conditions and the policy of its rulers are such as almost to preclude the possibility of obtaining the one or the other. Smallness of Russian Imports. Take first the matter of trade. It is the fashion in some quarters to speak of the opening of the Russian market as a practical remedy for the depression of industry now prevailing not only in the United States but in the leading Western Euro- pean countries. The needs of the vast Russian population, de- prived for years of their customary imports, are pictured as rep- resenting an enormous demand for goods. The trouble is that need does not constitute effective demand. Except on credit people can import goods only if they have something with which to pay for them. Russia has almost no such means of payment. It is true that since the beginning of 1921 Russia has im- ported considerable quantities of goods. The value of these im- ports, however, has been far less than many people supposed. According to official Soviet statistics, the total value of the goods imported during 1921, on the basis of the prices of 1914, amounted to only 248,000,000 gold roubles, or about $125,000,000. This is less than one-fifth of the annual importation before the war. (1913: 1,389,800,000 roubles.) The United States sells four or five, times as much to Cuba, or to Canada, as all coun- tries combined sold to Soviet Russia in 1921. In this comparatively small import trade of Russia, the United States has had a very considerable share, even in the absence of any trade agreement with Russia. In 1921 our total 1 exports to Soviet Russia, together with those to the border states Esthonia, Latvia and Lithuania, mostly in transit for Russia, amounted to over $19,000,000. This was seven-tenths as much as we sent to the Russian Empire in 1913. The exports of Great Britain to the same countries in 1921 (including re-exports as well as those of domestic merchandise) were $33,500,000, or only one-fourth as much as in 1913. Whereas before the war, British exports to Russia were five times as great as ours, in 1921 they were only 74 per cent, greater. And yet. Great Britain was the first important country to enter into a trade agreement with Soviet Russia. Russian Exports Insignificant. The most significant fact about Russian imports, however, is that they have been paid for almost entirely out of the gold reserve of the former Empire. The total exports of Soviet Russia during 1921, according to the figures of the Bolshevik authorities themselves, amounted to only 20,300,000 gold roubles or about $10,500,000. The export of Russia in 1913 amounted to 1,520,000,000 roubles. The official London organ of the Soviets has this to say about these exports (Russian Information and Review, March 15, 1922) : The total value of Russian exports for 1921 calcu- culated in pre-war prices was 20,000,000 roubles. This is an insignificant figure compared with the 250,000,000 roubles of imports, although a steady increase in exports was to be observed throughout the year. In addition to the unfavorable legal conditions for Russian goods which reigned and still reign on the world's markets, the de- terioration and disruption of Russia's economic life not only decreased the goods available for export, but modified the character of these exports. Before the war food-" stuffs comprised fifty-six per cent, of Russian exports; since the war this category entirely ceased to figure among the exports. As to the other sources of Russian exports previous to the war, the products from cattle rearing have decreased by fifty per cent., the extent of seed culture in 1921 was seventeen per cent, that of pre-war years, the extraction of manganese, which before the war amounted to 750,000 tons annually, and iron ores, 9,000,000 tons, was in 1921 almost insignificant, and in place of 8,000,000 tons of oil produced in pre-war days, in 1921 was pro- duced only 2,500,000 tons. The export of timber was also greatly diminished, owing to the lack of food available for the workers, the decrease in saw mills, tools and other equipment, and, above all, to transport difficulties. The amount of goods available for export was consequently very small, and on examination it is evident that improve- ment in this respect depends upon the reconstruction of Russian industry as a whole. Depletion of Gold Stock. Before the war, exports somewhat exceeded imports ; in 1921 the imports were more than twelve times the exports in value. The difference was made up by gold. In the light of the ex- treme hardship which an inconceivably depreciated currency is causing in Russia, this exportation of gold must be considered a grave and possibly irreparable blow to the future financial situation of the country. Moreover, the Russian stock of gold is strictly limited and the current production is insignificent. It can not be long before this means of payment for imports will be wholly exhausted. The opportunity to sell goods to Russia, except on long term credit, will hereafter depend on Russian production. Prospects of Future Trade. The prospect of Russia having an important export surplus in the near future, is most discouraging. It must not be for- gotten that before the war, 70 per cent, of Russia's exports were agricultural products — foodstuffs, flax, hides, wool, etc. A large proportion of Russia's imports today consist precisely of food- stuffs. The worst famine of modern times is gripping the coun- try. Details as to the decline of Russian agriculture are pre- sented further on. Commenting on the anticipated increase in the 1922 crop (due to probable larger yield per acre despite a still further reduced, area) the official London organ of the Soviet Government (Russian Information and Review, May 1, 1922) says: This, of course, must not be taken to mean that there will be any surplus for export; there cannot be any such surplus until the sown area can be extended to at least its pre-war level. This means, not until the sown area is substantially doubled — a tremendous task. Meantime, there has been still more enormous fall in the productivity of other industries, and small likelihood appears that any of them can produce an important export surplus for some time to come. Were the Soviet authorities to throw the doors of Russia wide open to trade, there might be, for a short time, a considerable exportation of the treasures of pre-war households. Some such treasure still remains, and their owners would part with them in order to satisfy their dire needs. Trade of this character, however, can make little enthusiasm in Ameri- can business men. Government Monopoly of Foreign Trade. Apart from an inherent lack of the wherewithal for com- merce, grave obstacles have been placed in the path by the Soviet Government itself. The normal machinery of trade does not exist. Everything is subject to extreme Government control. In principle, foreign trade is a Government monopoly, and such commerce as it permits semi-private organizations to carry on, is subject to far-reaching regulation. Let no one suppose that if the American Government should make a trade agreement with Russia, the American manufacturer or merchant could sell goods directly to the Russian dealers or consumers. He would have to sell to the Russian Government or to agencies controlled by it. Some goods he would not be permitted to sell at all, and for all his goods the prices would be fixed by the Government. The methods under which foreign trade with Russia can be carried on are set forth very cleary in an article by P. Stomonia- koflf. Chief of the Commercial Mission of the Soviet Republic in Germany (Der Weg zum Osten, May 2, 1922). The following are verbatim extracts (translated) from this authoritative statement, in their actual order of appearance in the article. Regulation of Foreign Trade in Russia. "The legal situation makes the foreign trade of the Soviet Republic a State monopoly. The conduct of transactions in Russia itself is in principle refused, on account of the continuing isolation from the world market and the consequent lack of informa- tion concerning world market conditions. Individual permits for import and export are granted to private firms only in exceptional cases ; as a rule requests for permits are declined. Through trade concessions, the import and export activity of the Commissariat for Foreign Trade is en- larged in a manner which takes account of the economic interests of Russia. Only mixed companies, in which oti the one side foreign or Russian private capital, and on the other hand Russian State capital participates, can receive trade concessions. Through this capital participation of the Russian State, an inner control of the undertaking is given. The Government retains the right to limit the quantity of import. There is a price control, such as during the war and after the war was undertaken also by many other states and is still being maintained. The price control will not be meticulous, but that fact can in no way alter the deter- mination of the Government to hold in its hands rules against possible efiforts of exploitation at the cost of the public welfare. The Foreign Trade Commissariat retains the right to enter in each import transaction as buyer, reimbursing the importing concessionary company at a reasonable profit. The concessionary companies are also permitted to take and execute orders of Russian officials, trusts, com- panies and private firms. In that case a notice to the Commissariat for Foreign Trade is required, which deter- mines whether the order is justified from the general economic standpoint, whether the need cannot be supplied from internal stocks. The sale of import goods in Russia takes place in Soviet roubles or in exchange for raw materials. Barter is thus not excluded, although at the present time the Soviet Government is conducting an eneregetic propaganda against barter. Export. ^ The purchase of export goods takes place upon the Russian market without restriction. Payment may be made in Russian money or in foreign valuta, but in the latter case only through the intermedia- tion of the State bank. An export permit has to be obtained from the Foreign Trade Commissariat. Limitation of the quantities is ordinarily not required, but the Commissariat has reserved the right to make such limitation, in order to prevent the draining of the internal market of a given class of goods. Very significant is also here naturally the control of prices, which serves to hinder the dumping of wares, both in the interests of Russia and the world interest. The Foreign Trade Commissariat has the right itself to enter in as purchaser for the export of wares. It pays to the exporter the world price. Furthermore, the concessionary concerns are obliged to refrain from all competition with the exports of the Foreign Trade Commissariat. It is evident that both the above provisions must lead to a combination of the State and concessionary exporters — that a syndicate of exporters must be established in this manner. Credit and Distribution of Profits. Only the establishment of large foreign-trade com- panies is contemplated. These companies will be man- aged jointly (paritatisch). In the case of a tie vote be- tween the representatives of the foreigfn capitalists and the representatives of the Russian State, the decision lies with a delegate of the Soviet Republic. It is especially important that, for the purpose of obtaining the concession, assurance of credits to the com- pany will be demanded of the foreign concessionaires. We have in mind, that, above a dividend rate fixed at a high figure, super-dividends in increasing proportion will come to the Russian State." Mr. Stomoniakoff attempts to defend this policy of extreme Governrnent control, primarily on the ground that Russia is so impoverished that, were trade free, the people would be forced to pay exorbitant prices for imported goods and could get only ridiculously low prices for their products and their accumulated treasures. There is justification for protecting the Russian people against exploitation, but it is evident that control goes much further than is necessary for that end and that so long as such excessive Government interference continues, there will be very little trade. The same control is exercised by the Soviet authorities over trade with countries which have entered into agreements as over that with other countries. There is nothing in any of the trade agreements which gives the participating countries special privi- leges in this respect. Co-operatives in Foreign Trade. Much importance has been attached by certain American periodicals to the part which co-operatives are playing or are to play in Russia's foreign trade. That the co-operatives are not, by any means, the most important factor in the foreign trade of Russia is sufficiently evident from the fact that they are not mentioned at all in the article of Mr. Stomoniakoff, above quoted. It is true, however, that already before the publication of that article, the Soviet Government had issued a decree conferring certain special rights in foreign trade upon the Centrosoyus (the Central Union of Co-operatives) in Russia. Ultimately the co- operatives may prove the salvation of Russian agriculture, as well as become the leaders in restoring foreign trade. For the time being, however, they enjoy powers far from extensive, they can at best do little to increase the exports of Russia, and they stand slight chance of obtaining any considerable credits for im- ported goods. Mixed Companies. It will be noted from the article above quoted that the Soviet authorities are now counting largely upon the activity in foreign trade of mixed companies of Government and private stockholders. Two or three such companies have already been formed, the Government holding in each case a majority of the stock. In view of the severe regulations above described, these companies appear by no means attractive to foreign capital, and especially will the foreign capitalist hesitate to guarantee the credits of such corporations abroad as the Soviet authorities expect him to do. It seems a partnership where all the risk rests with one partner, and all the power and most of the gain with the other. Need of Foreign Capital. If there is little promise for American business in participa- tion in trade with Russia, there is even less in the investment of capital in Russian industry. Beyond question, Russia has crying need of foreign capital. The Soviet authorities themselves con- stantly proclaim that rehabilitation is dependent upon capital from abroad. Everyone who has studied the situation recognizes that without large aid from foreign capital, the restoration of production in Russia must be extremely slow. But unfortu- nately need for capital does not by itself constitute an efifective inducement to capital. Capital must see prospects for profit. Under the conditions in Russia, that prospect is too uncertain to attract most investors. The hindrances to investment arise partly from the policy of the Soviet Government and partly from the general ruin of industry and the demoralization of industrial organization. The Soviet authorities have hoped that they as a Govern- ment could borrow huge sums abroad for use as they might see fit. The one insistent demand of their representatives at Genoa and at the Hague was for loans to the Government itself. They attempted to force the foreign powers to grant loans by declaring that only on that condition could they consider the question of recognizing the existing debts of Russia, or of restoring the prop- erty of foreigners. In a note of the Russian delegation at Genoa, dated April 20, 1922, it was stated : Provided, (1) that the war debts and the arrears of interests or postponed interests of all debts are written down, and (2) that adequate financial help is given to Russia assisting her to recover from her present economic state in the shortest possible period * * * the Rus- sian Government would be willing to restore to its former owners, the use of property, nationalized or withheld, or where this is not possible, then to satisfy the just claims of the former owners * * * On June 30, at the Hague, Litvinoff, the Chief Russian Dele- gate, asked for credits totaling $1,600,000,000, and insisted that these must be in the form not of assistance of Governments to their nationals seeking to do business in Russia, but of direct loans to the Russian Government. Inadequate Guarantees for Capital. Whatever one may think of the likelihood that either gov- ernments or private capitalists will lend money to the Russian government, it is likely that capital would gradually flow into private enterprises in Russia were it assured of adequate free- dom and protection. Unfortunately, sufficient assurance is not yet forthcoming. One need enter into no disquisition as to in- 8 herent rights of property, nor into any argument as to the jus- tice of Communism. Certainly, if the Russian people desire a communist system, the outside world can have no ground to object. But if a nation wishes foreign capitalists to invest their money, it must, perforce, provide conditions which will assure them a reasonable prospect of profit. Foreign capitalists in general will not believe that they pos- sess sufficient protection so long as the Soviet Government con- tinues to hold confiscated property of foreigners and even to fail to compensate them for it. Nothing approaching a restora- tion of foreign property or adequate compensation for it has yet been made or even promised. The very attempt already mentioned to require as a condition of such restoration or com- pensation the grant of loans from abroad, shows how far the Soviet Government is from realizing the attitude of business men toward property rights. The Bolshevik leaders do not yet see that it is a condition and not a theory which confronts them — the condition that capitalists simply will not invest money where property rights are flagrantly violated. "Capitalistic" Methods — Government Operation. It is true that the attitude of the Soviet auhorities is not so extreme today as it was two or three years ago. At that time they insisted on nothing less than complete Government opera- tion of all industry and the distribution of its product amoiig the people on a purely communistic basis. Numerous steps have been taken toward the restoration of ordinary, so-called "capi- talistic" methods of conducting business. It is often overlooked, however, that most of these steps are in the nature not so much of restoring private ownership or management of industry, as of introducing the methods of private management in enterprises still operated by the State. The Soviet authorites still proclaim their purpose to retain in Government hands the great basic in- dustries of the coimtry. So far as private management has been permitted or invited, it is still subject to conditions which offer little attraction to capital or to managerial talent. The recent changes in the management of Russian Govern- ment enterprises constitute the principal feature of what is com- monly called the new economic policy. In most industries the workers are no longer given uniform rations but are paid so far as possible according to output. Money wages supplement wages in kind. Government enterprises, with certain important exceptions, are required (at least on paper), to operate on "busi- ness principles" — to buy their own materials, pay their own wages, and sell their products at a profit to other government in- stitutions or the general public. Various other similar changes in management methods have been introduced. All this shows an increased apprehension of the importance of appeal to the economic motives of workers and managers, although, as shown later, these measures have largely failed so far to improve the in- dustrial situation. Leases of Minor Plants Only. These measures in any case have nothing to do with restora- tion of private management. The chief steps taken in the latter direction have been the system of leases and the system of con- cessions to foreign concerns. It is the definite policy not to lease or grant concessions for the better plants or those in the more basic industries. In a memorandum published, in English, by the Soviet Commissariat of Justice (March, 1922), intended to show how largely property rights had been restored, it is stated : Further, whereas — owing to a lack of food, fuel, raw materials, technical stafif and the deterioration of machin- ery — not all of the concerns that had come under the wholesale nationalization of 1919-1920 could be exploited the Soviet Government decided to concentrate all their attention and material and financial resources on a small number of the biggest and more important plants indispen- sable for the State. Of the remaining nationalized enter- prises, one part the Soviet Government has deprived of approvisionment by the State, left them to their own in- ternal economic self-administration and put them on a commercial basis, while the other part was offered on lease to the former owners or to third persons. * * * Going still further on the way of the denationalization of industry and desirous to give as strong an impulse as possible to private initiative, the All-Russian Executive Committee decreed, on December 10, 1921, that the former owners should have the right to get back these national- ized works and enterprises that had not been at all, or had been inadequately exploited by the State. The plants " left to their own internal economic self-ad- ministration " are by no means denationalized; they are still run by the government but on a " business " basis. Moreover, leases have been subject to conditions quite unattractive to busi- 10 ness men. Their proposed duration lias usually been short. A considerable fraction of the product must be turned over to the Government by way of rental. Whether by reason of the un- satisfactory terms or for other reasons, it is a fact that up to the present time only a small part of the plants offered for lease have been taken over by private parties and only an insignificant fraction of Russian industry is operated under the lease system. What Concessions Mean. The conditions under which concessions are offered to for- eign capitalists likewise represent only a short step toward the re-establishment of private management in industry. The Soviet authorities have sought to induce foreign capitalists to take up either operation of (1) certain specified enterprises formerly belonging to these capitalists themselves, or (2) formerly be- longing to other Russian or foreign owners, or (3) the exploita- tions of resources hitherto untouched. The willingness of the Soviet Government to grant to former owners of property in certain cases concessions for the operation of that property has been viewed in some quarters as a reasonable recognition of property rights. What the concession scheme really amounts to is that if the former owner will furnish new capital, the Russian Government will permit him to use his former capital if he pays the Government for its use. At present the scheme most favored by the Soviet authorities is the formation of mixed companies, similar to those mentioned as regards foreign trade, in which they hold the ma- jority of the stock. Speaking of those companies and the rights of foreign investors, including former owners, in them, the official London organ of the Soviet Government (Russian Information and Review of May 15, 1922) says: " This general type is similar to the ordinary share company, the majority of the shares being held by the State Commissariats. This type is particularly appropriate in the case of existing companies which are, in fact, in working order but require additional capital for renewals or extension. The Government puts into the company existing buildings and plants in exchange for shares, and further shares are available for subscription by foreign capital to provide the additional capital required for effi- cient working. It should be made clear that, in principle, the Soviet Government is prepared to give preference, in 11 the allocation of such shares, to those who were formerly interested in the enterprise in qttestion and that any ar- rangements made do not prejudice claims to compensa- tion which may be established in connection with any gen- eral political agreement that may be arrived at." In other words, the Government is prepared to put the exist- ing plants which were formerly in the hands of private indivi- duals, into proposed companies as its subscription to the ma- jority of the capital stock. It will give preference to the former owners for subscription to the minority of the stock, but that is all, unless general political agreements are arrived at regard- ing compensation of former owners, which now seems unlikely. As regards concessions of the second class above distin- guished, most foreign capitalists have scruples about taking over property formerly owned by others unless the latter are com- pensated for it. Moreover, they recognize that to do so would mean sanctioning a precedent which migh imperil their own rights later on. As to concessions for virgin enterprises, the general dis- organization of Russian economic life makes it doubtful whether in most cases they could be profitably worked at present. What Russia needs most, just now, is rehabilitation of what already exists, or formerly existed. New exploitation will in general have to wait until that is accomplished. Restrictions on Concessionaires. Moreover, all schemes for concessions have thus far been surrounded by conditions little attractive to capital. One of the most important negotiations of the Soviet authorities was with the Russo-Asiatic Consolidated Company, Ltd., an English con- cern, with a capital of 12,000,000 pounds sterling, which had formerly operated extensive mines in Western Siberia. Mr. Leslie Urquhart, Chairman of the Board of Directors of this company, in a letter to Krassin, dated October 11, 1921, breaking off these negotiations, stated (in part) : Clause 4. With reference to the return of our losses and working capital no definite agreement was come to. Clause 15. With reference to royalties payable on sales in lieu of taxation, the amount of royalty could not be agreed. It is obvious, as has been documentarily demon- 12 strated, that the Company could not pay the royalty de- manded without loss. The Company refused to consider Excess Profits Tax. Clause 19. My draft of this Clause stipulated that all workers employed by the Company, whether Russian or foreign subjects, should be regarded as engaged on work of State importance and should not be liable to labour conscription or to any kind of forced labour generally; their property to be free froni any special local taxes or charges, requisitions and confiscations; their homes free from regulations limiting living space, emigration and other similar measures of force. That searches, arrests and extraction of papers or documents should only be carried out against employees and workmen on the Conces- sion by decision and in the presence of the justiciary organs. Further, that qualified workmen and employees were to be free from military service and mobilization and on an equality with persons employed in the most important State enterprises. The Commission refused to agree to my draft and substituted another limiting the above privileges, and then even only with reference to foreign subjects — Russian citizens working on the Concession were to be subject to all these restrictions and limitations of their liberty. Although I protested strongly against this unfair dis- crimination in favour of foreign as against Russian working men on common grounds of humanity, equality and justice, the Commission insisted on their wording of this Clause. All-Russian Council of Professional Unions. I now come to the proposed supplemental agreement with the All-Russian Council of Professional Unions, which is to form part of the Concessions Contract, this Council being a department and organ of the Soviet Government. Clause 2 covers in the collective Contract 39 different categories of skilled workmen alone, whose rates of pay are based on wages paid in England and Germany, but it is beyond the skill of mortal man to-day to fix the rate of Exchange ; and further, the conditions are not the same, as you know ; the skill and capacity of the Russian workman is not nearly as high, the undertaking has got to house him and also supply him with food and all the 13 necessaries of life, which naturally entails a great increase in the working capital of the undertaking. Clause 9. The Concessionaire is obliged to inform the Professional Unions of every engagement and every discharge of workmen. The transfer of persons employed in State enterprises to the enterprises of the Concession- aire is only permitted on the same conditions as the transfer from one State enterprise or department to another. This means that without the permission of the Russian Central Professional Union, a workman or employee may not; even if he desires to do so, enter the employment of the Con- cessionaire. Clause 13 insists that the Concessionaire is obliged to purchase from abroad for a period of not less than seven years for the personal needs of the workmen and their families all food, provisions, clothes, boots, etc., etc., and sell these goods at cost price. Whatever may have been the cause of the failure of the plan of foreign concessions hitherto, it certainly has failed. Up at least to a very recent date only one concession has actually been granted, namely, one for the operation of asbestos mines, and as far as can be ascertained the mines are not yet in operation by the concessionaire. German View of Russian Concessions. It is the common notion that while American business men are kept back, or themselves voluntarily hold back from transac- tions in Russia, the Germans are going in on a large scale and gaining control of trade and enterprise. As a matter of fact, the Germans have done comparatively little because they too have found the terms imposed by the Russian Government unaccept- able. The following are extracts from an article in the very authoritative German financial periodical " Boersen-Zeitung " May 28, 1922: " The endeavors of German economic interests to realize the Russo-German Treaty of Rapallo through con- tracts between German firms and the Soviet-Russian trade delegations, are already known. Everyone who has nego- tiated with the Russian trade delegations during the past months knows how very difficult and long drawn out such negotiations are, because the Soviet-Russians have so little 14 understanding of solid business mentality, have no con- sideration for the trade principles established throughout the world. * * * The Soviet-Russians must make the sacrifice of adapting themselves to the elementary business principles recognized by the rest of the world. The draft contract which is presented as a kind of model to German firms and as a basis on which to negotiate in- dicates that the Russians have not made this sacrifice. * * * It would seem that the Soviet-Russian deleg- tion after negotiating with German trade circles, should have acquired sufficient commercial wisdom to realize that a fair-dealing, solid business man would never enter into such agreements." Political Risks of Investment. The hesitation of Russian and foreign capitalists to take up leases or concessions offered by the Soviet Government is no doubt due not merely to the unsatisfactory terms imposed by the Soviet authorities, but in part also to a feeling of uncertainty as to the inviolability of the agreements, and as to the perma- nence of the " new economic policy." Such a feeling might easily arise from statements of Soviet leaders themselves with regard to their policy toward capital. Lenin, in an oft-quoted speech made in October, 1921, referred to the new cojjcessions to capitalism and capitalistic methods as temporary, as a " stra- tegic retreat." Other leaders have been even more outspoken in their declaration of the aim to go back to thorough-going Com- munism later on. Almong other expressions used by Lenin are the following: " Alongside with you, you will find foreign and home capitalists, concessionaires and lessees — they will get rich off you. Let them, but you will learn their methods of management from them, and only then will you be able to build up a Communistic Republic." " We are in the position of people who must still retreat, in order later to pass finally to an offensive." It is not even necessary to assume that there is risk that the Soviet authorities will deliberately break their agreements. The proposed agreements themselves have been for comparatively short periods of time. Business men are hardly likely to accept them unless they believe that the same policy will continue after IS Missing Page Missing Page which almost one-fifth was exported has now become a cereal importing country. Another factor on the debit side of Russian agriculture is the great reduction in the number of cattle. Large cattle has decreased by IS per cent, and small cattle by 52-55 per cent. I pass on to describe the present situation of in- dustry in Russia. To avoid details I will not quote the exact figures of industrial production from 1913 to 1920, but will content myself with merely pointing out the pro- portions in which the production of 1920 has fallen below that of 1913. I will begin with the extraction of coal: in 1920 it was only 27% of what it was in 1913. In 1921 there was an increase of 35% in comparison with 1920. The production of petrol was 42.7% in 1920 as compared with 1913 ; in 1921 there was a slight increase. The pro- duction of peat was 90% in 1920 and in 1921 it exceeded pre-war production by almost 50%. The production of salt was 30% in 1920 and nearly 40% in 1921. The pro- duction of the wool, hemp and flax spinning mills was 23-38% ; that of the skin and leather industry 38% ; of the paper industry 25%; of the tobacco industry 42.2% ; matches 14% ; railway locomotives 14.8% ; the production of ploughs 13.3% ; other agricultural machinery 6.3% ; the production of wagons 4.2% ; cables 38% ; the extrac- tion of iron ore 1.7%; the production of cast-iron [pig- iron] in 1920 was 2.4%, while in 1921 it has been notably increased. The various electrical industries have suffered a diminution of production which varies from 5.6 to 16%. Rakowski, in the document quoted, sought to attribute the ruin of Russian industry wholly to the great war, and the sub- sequent civil wars, armed interventions and blockades. How- ever, other authoritative leaders, and Russian periodicals con- trolled by the Soviet Government, have made many admissions that the decline in production has been due in part to mistaken Soviet policies. Moreover, Russia has been free from wars and interventions since the fall of 1920, and yet conditions have become worse rather than better. Poland was at war practically as long as Russia, but Poland today is producing at close to pre-war levels. It is not the intention in this article, however, to enter with any fullness into argument as to the causes of Russia's plight. It is suffitient for the purpose of showing the difficulties of trade 18 with or investment in Russia to describe the actual conditions which now prevail. The facts presented are not taken from anti- Bolshevik sources, but directly from official or semi-offitial state- ments of Soviet ofifitials and periodicals. The Bolshevik press is full not merely of statistics from which economic ruin can be inferred, but of specific statements that production and the well- being of the people have fallen catastrophically. Decline of Agriculture. The basic factor in Russian economic life is agriculture. Fully 85% of the population are engaged in that industry. Russia has always been a comparatively poor country, and after supplying themselves with food, the great bulk of the population had little left to spend for other products. Although Russia, before the war, exported more grain than any other country, her exports formed a far smaller proportion of her production than in the United States. The teaming population consumed the great bulk of the product of the soil. Of the principal bread grains, wheat and rye (taken together — not separately), Russia exported only one-eighth of what she produced. The Russian masses were too poor to eat wheat bread; they lived chiefly on rye. Of all grains combined, the proportion exported was about the same. It is obvious that any great reduction of agricultural output was bound not merely to stop export but cut deeply into the indispensable food supply of the population. And the decline in agricultural production has been enor- mous. The area planted has dropped off disastrously, and quite apart from the effects of the extraordinary drought of 1921, the yield per acre has likewise fallen greatly. In the territory now constituting Soviet Russia in Europe (not counting Siberia or the Transcaucasian States), the area planted to grain of all sorts before the war was about 195 million acres. In 1921, according to an article published last November in " Russian Information and Review," the organ of the Soviet Trade Delegation at Lon- don, the grain area in the same territory was only 113,700,000 acres, a decline of over 40%. Even this figure was considered by some Russian experts to be too high. According to the article mentioned, the compiler of the statistics " corrects [i. e., in- creases] the local figures of the gross yield of crops by 30% for the provinces where the harvest has been bad, and by 25% for the areas with a good harvest," in the belief that the reports made from the local communities were too low. However, later 19 estimates (Russian Information and Review, March IS) gave a somewhat higher figure still, namely, 127,400,000 acres, repre- senting a decrease of 35 per cent. ' The pre-war production of grain in the territory covered by the above figures was approximately 58,000,000 tons (calculated at 60 poods to the ton — the basis used in the "Russian Informa- tion and Review"). According to the article above mentioned, the output in 1921, although increased above the local figures in the manner stated, was only 26,800,000 tons, a decrease of con- siderably more than 50 per cent. Part of this decrease must be attributed to the drought which affected approximately one- third of the grain area, but it is safe to say that had weather conditions been normal, the grain crop of Russia in 1921 would not have been very much more than one-half of that before the war. Kondratieff, a competent expert, official of the Soviet Government, has declared that even in 1920, owing to inferisr cultivation, acre-yields had fallen 10 per cent., as compared with pre-war yield. Even had there been no extraordinary drought in 1921, the people would have been greatly undernourished. What with the drought, the conditions have become appalling. It is safe also to say that, had it not been for the great decline of area and of efficiency of cultivation and of transport, there would have been no serious famine. Crop Prospects of 1922. It is difficult to forecast either the immediate or the more distant future of Russian agriculture. There are as yet no official statistics of area planted this year, and the official estimates of crop condition are generally believed to be somewhat misleading. Taking the country as a whole, there has been a further fall of acreage. In the issue of June 1, the "Russian Information and Review" states that for all Russia "during autumn 85 per cent, of the area sown the year before was cultivated. This is approximately 50 per cent, of the pre-war area. The area sown m the spring of 1922 over the whole of Russia will probably work out at only a little less than that of the previous year." In the famine district, naturally the decline has been much greater than elsewhere. Fortunately, the condition of the crops even in the famine region was, at the time of the last available reports con- sidered fair. 20 Loss of Domestic Animak. One of the causes of the decline in the area planted and in the efficiency of cultivation has been the enormous reduction in the number of horses and other domestic animals. At the Soviet Congress in December, 1921, giving data as of October, the Chief of the Soviet Bureau of Horse Breeding, stated: "In 1913 the number of horses in Russia was estimated at 35,000,000 head, out of which barely 17,000,000 survive, and those of vastly in- ferior grade * * *. According to census of August, 1920, the number of people owning two head of horses decreased by 1,989,835, or 66.87 per cent. * * * jhe peasantry have no horses and the War Department is compelled to do with inferior stock." Some other estimates by persons in Russia put the loss of horses up to 1921 at a still greater proportion. In the famine regions the great majority of the horses and other animals still left in 1921 have since starved or been killed for food. "Economic Life," Moscow, March 3, 1922 (long before the harvest of 1922), stated that in Samara, atypical famine government, the number of horses had fallen from 546,800 in 1921 to 195,700 in 1922, and that the loss in the entire famine region as compared with 1921 was about 3,000,000. The reduction of cattle has been about the same as that of horses ; the losses of sheep and swine still greater. This decline of live stock means a terrible lack of motive power on farms as well as in the amount of fertilizer available for the depleted soil. Peasants' Lack 4 million, the textile industry of 25 million, and the mining industry of 24J^ million. The^ Bolshevik press is full of complaints of the various Government Departments that the appropriations required by them, or promised to them, are not forthcoming. Thus, the chief of the Kiev Sugar Administration declared in a statement published in April ("Economic Life," April 26) : "At the time of the organization at the end of De- cember, 1921, of the sugar "trust," the Council of National Economy and the Committee on State Planning had ap- 32 proved our working capital at 7,000,000 poods of sugar (or 42,000,000 gold roubles) and had sanctioned an appropria- tion of 50% on account of same.* * * However, as a result of all kinds of formal procrastination and con- flicting rulings, the 50% which was allowed was reduced to 15%. * * * Even if we were super-men, it is obvious that we cannot avoid the wreck. * * * jf the State will not immediately, not later than May, furnish us with the arrears of working funds, a catastrophe will be imminent. Furthermore, if the program for this year will not be carried out, the peasants will abandon for a long time the cultivation of beets." Prospects of Industry. It is quite impossible to forecast what will happen to Rus- sian manufacturing and mining industry either in the near or more distant future. It depends much upon whether the Russian Gov- ernment is able to induce foreign capital to come in. Even if there is no change in the present methods of operating industry, it is quite possible that, immediately following harvest, there may be some improvement in the output of industries and in the con- ditions of the working classes. Already, during May, the pros- pect of a harvest better than that of last year, checked the soar- ing of prices. For the time being, at least, the Soviet authorities after harvest may be able to feed their working people better, and this is the most important factor tending to increase the out- put of mines and factories. Any intelligent judgment, however, as to the possibility of maintaining production even at the low scale of the last two or three years, to say nothing of increasing it, cannot be formed until the spring of 1923, for it is always in the spring that the fundamental shortage of agricultural production makes its efifect fully felt. Disastrous Transportation Conditicms. The condition of railway transport in Soviet Russia has for the past two or three years been extremely bad, not to say des- perate. The phrase, "crisis of transportation," has at frequent intervals appeared in the utterances of Soviet leaders and periodi- cals. The demoralization of transportation is both a cause and an effect of demoralization of industry. The Soviet authorities publish regularly statistics of the condition of engines and cars. To rolling stock out of commis- 33 sion they apply the picturesque adjective " sick." In 1914 the territory now comprised in Soviet Russia in Europe (including the Ukraine and the Caucasian States) had 17,140 sound engines, while the number of engines out of commission amounted to 15 per cent, of the total. The total number of engines at present is not far different from what it was in pre-war times, but the number of sound engines on April 1, 1922, was only 6,302, or about 35 per cent, as many as in 1914. On that date, 67 per cent, of all engines were unfit for use. In Russia, especially at the present time, locomotives are largely fired with wood, though coal and fuel oil are also used fairly extensively. It is a striking commentary on the demoraliza- tion of the industries producing these different kinds of fuel that of recent months a considerable fraction, even of the small number of sound engines, have been idle for lack of fuel. On January 1, 1922, when the conditions in this respect were the worst, 1,296 out of 6,539 sound engines were idle for lack of fuel. According to the Bolshevik railway officials, one of the reasons why so many of the engines are sick is that unsuitable fuel had to be used. According to a report of the Commissariat of Trans- port in March, 1922 : " The wood is dumped on the tenders in sections of logs, sometimes hardly even trimmed, and is damp right through and encrusted in snow and ice. This sort of fuel rapidly causes wholesale leakage of fire tubes and the breaking up of grates," The percentage of unfit cars has increased with extraordi- nary rapidity during recent months. On January 1, 1921, 19.5 per cent, of the cars were reported as out of commission; in January, 1922, 28.3 per cent, and in May, 47 per cent. As one of the explanations of the bad condition of rolling stock, the Soviet railway officials mention the lack of materials and parts. The following statement of the Central Transport Committee was published in Moscow (" Economic Life," Febru- ary 22, 1922) : The supply of materials and spare parts has dwindled to alarming proportions, especially during the past few months, since the works and stores, having been put on a business operating basis, demand spot payment from the Commissariat of Transport, while the Commissariat has no funds at its disposal. An utterly abnormal situa- tion has been created when articles and materials of re- 34 pair badly needed for the rolling stock are lying at the works and factories and cannot be obtained on any ac- count, while at the same time that transport service is being strangled for the need of these articles. The. roadbed of the Russian railways has also degenerated seriously. The enfeebled condition of the bridges is in con- siderable measure due to the fact that during the various wars many of them were destroyed. This explanation cannot account, however, for the condition of tracks. The failure to replace sleepers has been one of the most serious causes of degeneration. Many million ties need to be renewed, and the program of re- placement is never lived up to. The bad condition of the tracks and bridges reduces the speed of trains and consequently the hauling capacity of the roads. As a result of these conditions of rolling stock and road bed, the Russian railways are unable to haul even the greatly reduced traffic which is offered them. In 1916, an average number of 35,900 cars was loaded daily, while in February, 1922, the latest month for which statistics are available, the average daily load- ings were 8,750 cars. The total quantity of freight handled in 1921 was about 40,000,000 tons, as against over 250,000,000 in 1913. As already stated, the inadequacy of transportation facili- ities resulted during the winter and spring of 1922 in the piling up of large quantities of coal at the Donatz mines. Notwith- standing the desperate need of fuel for the railways themselves and for the factories, it was impossible to move all even of the very limited quantities produced. Throughout the past winter and spring, every effort of the Bolshevik railway authorities was bent to the transportation of seed grain and food for the famine districts. Although there were many complaints of delay, this task appears to have pro- ceeded, on the whole, in a fairly satisfactory manner, but other much needed transportation had to be sacrificed. Just as the Soviet authorities, unable to operate all manu- facturing and mining plants effectively, have concentrated effort on the best and most necessary plants, so have they done with regard to railways. For the 1922 " campaign " the Central Transport Committee grouped the railroads into three classes, according to their degree of importance for the maintenance of economic life and for military transportation. The first group of 20,500 miles, the Committee proposed to furnish with its full 35 requirements of fuel, repairs, etc. A second group consisting of brancii lines feeding the railroads of the first category, and comprising 6,950 miles, were to be operated continuously, but to be furnished with a percentage of their requirements only. Lines of the third group, 14,000 miles, were to receive supplies irregu- larly and to be operated sporadically, with complete suspensions if occasion might require. Water Transportation. Without going into details, it may be stated that the decline in efficiency of water transportation in Russia has been approxi- mately the same as that in railway transportation. The Volga and the other great rivers of Russia have always been very important factors in transport. The boats formerly operated by private enterprise have been nationalized, A large portion of them are entirely out of commission and most of the others are in a bad condition as regards repair. Russian shipping on the Black Sea has almost ceased to exist, this being partly, however, due to capture or destruction by hostile forces. Such is a picture drawn directly from Bolshevik sources of the status of economic life in Russia at the present time. What- ever one may think as to the extent to which the unfortunate conditions described are attributable to the Communist system, it is perfectly evident that these conditions have a very important bearing upon the possibility of trading with Russia and upon the wisdom of investing capital there. What with the restrictions which the Bolshevik Government imposes upon the conduct of trade and of enterprise, there is very little to tempt American business men at the present time to undertake business . with Russia. It is earnestly to be hoped that there may be changes in policy and improvement in conditions which will make trade and investment more practicable, but for the time being, the obviously wise policy for American business, in general, is that of watchful waiting. Here and there some particular commercial transaction or industrial enterprise may possibly be undertaken with profit but these instances are the exception. 36 The American Bankers Association COMMISSION ON COMMERCE AND MARINE FRED I. KENT. CHAIRMAN. VICE-PRESIDENT. BANKERS TRUST COMPANY, NEW York. n. Y. JOHN MCHUGH. PRESIDENT, THE MECHANICS AND METALS NATIONAL BANK NEW YORK. N. Y. J. R. KRAUS. VICE-PRESIDENT AND EXECUTIVE MANAGER, THE UNION TRUST COMPANY. CLEVELAND, OHIO. ROBERT F. MADDOX, PRESIDENT, ATLANTA NATIONAL BANK, Atlanta, Ga, LEWIS E. PIERSON. CHAIRMAN OF BOARD. IRVING NATIONAL BANK. NEW YORK. N. Y. M. E, AILES. PRESIDENT, RIGGS NATIONAL BANK, WASHINGTON, D. C. CHARLES H. SABIN. CHAIRMAN OF BOARD. GUARANTY TRUST COMPANY. NEW York, n. y. RICHARD S, HAWES, vice-president, first national bank in st. louis. St. Louis, Mo. DANIEL G. WING, PRESIDENT, FIRST NATIONAL BANK, BOSTON, Mass, J. F. SARTORI. PRESIDENT. SECURITY TRUST a SAVINGS BANK. LOS ANGELES. CALIF. EDMUND D. HULBERT. PRESIDENT. MERCHANTS LOAN a TRUST COMPANY, CHICAGO, ILL. J. W. SPANGLER, PRESIDENT, SEATTLE NATIONAL BANK, SEATTLE, WASH. WILLIAM A. LAW. PRESIDENT, FIRST NATIONAL BANK, PHILADELPHIA, PA. JOHN L. HAMILTON, PRESIDENT, EQUITABLE SECURITIES COMPANY, COLUMBUS, OHIO. O. WATTS. PRESIDENT. FIRST NATIONAL BANK IN ST. ST.. LOUIS, Mo. LEWIS L. STRAUSS, KUHN, LOEB a CO., NEW YORK, N. Y. SECRETARY OF THE COMMISSION, B. BUNIM. ASSISTANT SECRETARY, S NASSAU STREET, NEW YORK, N. Y. PAM PHLET BINDER ' Syracuse, N. Y. ^^3 Stockton, Calif. DATE DUE ^ <'(^(^^-' h^^$%i 1 t9'b// ' ■! GAYLORD PHINTED IN U S. A. a ti