Russia’s reform ended in 1881 with the assassination of Alexander II, after which highly cruel policies went into effect in most quarters. The Ministry of Finance, however, maintained a commitment to change. The minister of finance during the 1890s, Serge Witte, dedicated his great talents to stabilize Russian finance. Witte’s background was as a railroad official, and he advocated rapid additions to the Russian network. Mileage doubled between 1895-1905, the additions including almost the whole of a line across Siberia that opened the vast resources of this region to industrial use. Private companies, working under government allowances, did much of the work, but after 1880 state control increased.
A key factor in Russia’s early industrial revolution, along with increasingly focused government planning and railway development, involved foreign entrepreneurs, from whom Russia gained much-needed capital and technical knowledge. West European industrial countries such as Germany and France, were quite aware of Russia’s vast potential. The huge population, though largely peasantry and with a traditional agriculture, presented a tempting market to target.
Smaller business class in Russia made the foreign presence there even more noticeable and its role in guiding industrialisation even greater. Foreign capital was absolutely essential to Russian industry. It constituted at least 20% of all capital invested before the 1890s and then began to expand even further. France, Germany and even Britain developed wide interests in Russian Industry.
West European activities spread across Russia’s industrial territory. A number of French and German firms set up Russian branches. Not only Western companies established branches but also individual entrepreneurs setting up Russian operations on their own, played a vital role in the expansion process. The growing foreign presence rapidly increased Russian technology levels.
Failures and disputes were common in Russia, and some foreigners pulled out after extensive problems with their work force or clashes with local property owners.
Foreign investments continued until 1914, and government encouragement continued as well. The process not only brought money and technology to Russia but also contributed to the expansion of a group of Russian managers and technical experts. Russian industrial growth increased steadily and then had its first extraordinary burst in the 1890s.
Exploitation of Russia’s iron and coal fields began slowly in the 1850s, found by individual Western industrialists. Coal deposits in the Donetz district of south Russia had been discovered late in the 18th century, but there was no widespread mining until after 1850. Heavy industry in general grew rapidly. Overall industrial growth rates held at 6% per year during the late 1880s, risen to 8% during 1890s, and then resumed a 6% level after 1908.
Between 1860-1913, Russia expanded almost twice as fats as Germany, over three times as fast as France and over four times as fast as Britain – though the starting point was much lower. In a host of industries, Russia ranked fourth, for example, in steel output. Having in mind the unusual size of Russia’s population – industrial production was less impressive, and it included some technologically backward sectors as well as relatively advanced heavy industry. Even textiles, however, slowed the usual symptoms of industrialisation: increasing mechanization, greater use of cotton, and falling average prices for manufactured goods.
By 1914 Russia has passed through a first industrialisation phase. It had concentrated particularly on heavy industry because of resources, foreign interest, and the government’s military needs. The factory labour force expanded rapidly as well. Overall, rapid urbanization rates paralleled the burst of industrial growth around the 1900.
Russia is the only nation to have experienced massive political revolution after starting a successful industrialisation effort. Russia’s working class played major role in the revolution of 1905. The rapidly growing Russian working class faced many material problems. Child labour was widely used and abused in some cotton factories. The emancipation of the serfs, combined with large population growth, sat free an overflow of potential urban workers, and wages in many early factories were quite low in consequence. Factories, where a traditional heavy industry had already attracted many workers, paid low wages. Whereas, places that had to recruit new workers, like the growing Donetz area, offered high payment at least to a skilled minority.
Russian workers felt their isolation from urban society and from the state. A few factory laws were passed, one of them as early as 1845 limiting child labour, but they were not put into effect.
These factors operated in combination. They reflected not only the conditions common to early industrialisation, but also the inflexibility of Russian politics.
Finally, for Professor Gerschenkron Russia between 1885-1914, was the most backward of European countries, with a traditional agriculture and impoverished peasantry, an autocratic state and an inactive economy, which could only be pulled into the modern age during the 1890s by a state-induced industrial boom. From 1894-1900, with state support, heavy industry grew rapidly until the financial crisis of 1901 weakened government credit and ended the boom. During the years 1894-1900, however, backward linkages from the industrial sector were formed with the rest of the economy. Thereby, an infra-structure was created which, in the aftermath of the crisis of 1901-1905 and in the context of reforms initiated in 1906, allowed the Russian economy, for the first time to experience a phase of natural, balanced economic growth. By 1914, Russia, thanks to the state help of the 1890s, was well on the way to join the western European nations.