Default Setting II.

Between 1775 and 1825, the revolts against the British and Spanish Empires in the Americas created a host of new nations.  In the minds of European leaders, formal “empire” sold at a deep discount.  However, the “empire of free trade” arose as a far more appealing idea.  If non-European countries would pursue Western economic[1] and legal[2] policies, then you could get the same benefits of empire without the costs and heartbreak.  The Western capital generated by industrialization could then safely flow toward the economic development of the rest of the world.[3]  All would benefit.

The world of international investment brimmed with challenging opportunities in the later Nineteenth Century: Latin America, the United States, the Ottoman Empire, Japan, and China for example.  However, a willingness to fulfill commitments to Western economic and legal doctrines in exchange for Western investment varied from society to society.

Russia came late to industrialization and wanted to hurry the process forward.  Russia possessed rich natural resources, but its primitive agriculture generated little wealth.  Where to find the capital for rapid industrialization?  Two solutions offered themselves.  Either the country could borrow from rich foreign lenders or the peasantry could be squeezed very hard.  Fearful of peasant unrest, Russian leaders sensibly opted for foreign borrowing.

Foreign lenders could discern positive and negative features in Russian borrowers.  On the plus side were two essential factors.  Russia’s gigantic territory housed vast amounts of minerals and other natural resources.  In the middle of the century, the Tsar Alexander II had shoved through a series of “Great Reforms” intended to begin the modernization of Russia.  Those reforms had not yet taken full hold, but they provided a foundation for further progress.  On the negative side the “Great Reforms” had compounded the turmoil inside Russia.  Rapid industrialization would intensify the strains.  Then, Russia remained an absolute monarchy.  After the death of Alexander II, the quality of leadership declined markedly.

Between 1890 and 1920 political considerations, rather than purely economic ones, exerted a growing influence over foreign investments in Russia.  First, seeking escape from the diplomatic isolation into which it had been forced by Bismarck’s diplomacy, the French government encouraged lending to the Tsarist regime.  This lending supported the eventual Franco-Russian alliance that surprised and alarmed German statesmen.  Second, during the First World War, the French and British tried to prop up their tottering ally by ample credit.  Third, the Bolshevik regime repudiated the Russian external debt.[4]  The Bolsheviks understood the Red default as a stroke against global capitalism.  It would—and, in France, did—gravely weaken the middle class savers who formed a vital support for bourgeois democracy.

At the same time, default contributed to making Soviet Russia an international pariah.  Within a decade, the Soviets turned to the alternative strategy of squeezing assets out of the peasantry.  As late Nineteenth Century leaders had foreseen, the human cost would be terrible.

[1] Raise no barriers to imports and exports; pursue “sound” money.

[2] Practice Western notions of the rule of law, especially the sanctity of contracts.

[3] See, David Landes, Bankers and Pashas: International Finance and Economic Imperialism in Egypt (1958).

[4] See: Hassan Malik, Bankers and Bolsheviks: International Finance and the Russian Revolution, 1892-1922 (2018).

Man of Steel.

In the first volume of his new biography of Joseph Stalin[1], Princeton historian Stephen Kotkin makes clear the disastrous effects of Bolshevik victory in the Russian Revolution. “The Russian Revolution—against the tyranny, corruption, and, not least, incompetence of tsarism—sparked soaring hopes for a new world of abundance, social justice and peace.” Garry Trudeau mockingly entitled a collection of his “Doonesbury” cartoons from the Vietnam War-era But This War Had Such Promise. The same might be said of the Russian Revolution. Twenty years on the country was a vast police state; millions were dead from famine or execution, while millions more were imprisoned in the Gulag archipelago; Russian agriculture had fallen below its prewar levels to off-set the increase in industrial production; and a murderous psychopath ruled the country without any check on his actions. Fifty years on from that sad state, Communism finally collapsed under the weight of its own failings.[2]

Historians have argued that circumstances forced Stalin to into certain courses of action, rather than him having chosen them. Thus, surrounded by a hostile world, Russia had to modernize its economy and be always on watch against subversion. The forced collectivization of agriculture offered the only means to rapidly modernize Russian peasant-based farming. Modernization of farming under State control held the only means to obtain the resources for rapid industrialization. The opposition from the peasants, then the wavering among Bolsheviks over the high human costs of collectivization forced the adoption of harsh measures.

Kotkin rejects such views. He argues that Stalin fulfilled, rather than diverged from, Lenin’s intentions. “If only Lenin had lived,” the same things would have happened to Russia and the world. From the first, the Bolsheviks “unwittingly, yet relentlessly reproduced the pathologies and predations of the old regime state in new forms.” Between 1918 and 1928, tyranny, corruption, and incompetence became the hall-marks of the Soviet state. Stalin rose to power in this environment thanks to his own ruthlessness, adroit skill at maneuver, and the spectacular incompetence of his rivals like Trotsky, Bukharin, and Kamenev.[3] (Indeed, the incompetence of these men at conspiratorial politics offers a clue to how Lenin himself rose to leadership of the Bolshevik party before the Revolution.) However, the Russian Revolution had never been carried through to completion. The resistance from the peasantry and many other people had forced the strategic retreat called the “New Economic Policy” (N.E.P.). While Lenin claimed to hold the “commanding heights” of the economy (foreign trade, finance, heavy industry), agriculture and commerce remained in private hands. The path to traditional capitalist economic development remained open. With that, Bolshevism would become irrelevant.

By 1928, when the first volume of Kotkin’s gigantic work ends, Stalin had gained control of the main levers of power in the Soviet Union. He set out to complete the Revolution. Heads would roll.

[1] Stephen Kotkin, Stalin, Volume I: Paradoxes of Power, 1878-1928 (New York: Penguin, 2014). See the review by Serge Schmemann, NYT, 9 January 2015, C29.

[2] Rather than from any actions of the Reagan Administration. American triumphalism in the wake of the collapse of Communism showed the first signs of that generational change in self-concept that was to prove so disastrous under the Bush II administration.

[3] See: Robert Conquest, The Great Terror: Stalin’s Purge of the Thirties (New York: Macmillan, 1968), pp. 3-122.