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Baku Oil and Transcaucasian Pipelines, 1883–1891: A Study in Tsarist Economic Policy

  • John P. McKay

Extract

The leading role of the state in nineteenth-century Russian industrialization is one of the most widely accepted notions in economic history. Thus state-sponsored industrialization, deeply rooted in the strength of the despotic state and the subservience of an undifferentiated peasantry and an insignificant middle class, began in earnest in the era of the Great Reforms, after the Crimean War had shocked the government out of its economic lethargy under Nicholas I and Finance Minister Kankrin. It continued unevenly thereafter until it crested in the burst of state-led growth in the 1890s. The “statist interpretation” of prerevolutionary Russian industrial development has been most notably expounded by Alexander Gerschenkron in a series of influential essays and by Theodore Von Laue in his biography of Sergei Witte. It thoroughly dominates non-Soviet scholarship and serves as the point of departure for almost all general investigations.

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1. Gerschenkron's famous conceptualization of comparative European industrialization in conditions of increasing relative backwardness was first elaborated in 1952 and expanded and tested ina number of influential papers, conveniently assembled in Economic Backwardness in Historical Perspective: A Book of Essays (Cambridge, Mass., 1962). In Gerschenkron's paradigm the gradations of ever–increasing relative economic backwardness observed as one moved eastward from Englandmeant that industrialization in follower countries proceeded with a corresponding increase in institutionalsubstitution and innovation. In France and Germany state–supported but privately owned investment banks substituted for the abundance of autonomous demand and private enterprise characterizing the English Industrial Revolution. In even more backward Russia the state itself substitutedfor the “missing prerequisites” of autonomous market demand, accumulated private capital, enterprisingbusinessmen, and skilled labor. Von Laue's stress on state leadership in Russian industrializationis summarized in The State and the Economy,” in Black, C. E., ed., The Transformation of Russian Society Since 1861 (Cambridge, Mass., 1960), which generalizes the implications of hismonograph, Sergei Witte and the Industrialization of Russia (New York, 1963), and is expanded inWhy Lenin? Why Stalin? (New York, 1964), pp. 52–53 and passim.

2. Kahan, Arcadius, “Government Policies and the Industrialization of Russia,” Journal of Economic History, 27 (1967): 460–77.

3. See especially “The Pattern of Industrialization in Russia, 1700–1914,” in Olga Crisp, Studies in the Russian Economy, pp. 1–54. The case for autonomous forces and private markets has been restated and expanded in the editors’ conclusions of Guroff, Gregory and Carstensen, Fred V, eds.,Entrepreneurship in Imperial Russia and the Soviet Union (Princeton, 1983), pp. 347–60. It is worth noting that the Marxian perspective of economic and social development in conformity with natural laws (zakonomernoe razvitie) accords well with a greater stress on autonomous growth under capitalism and a corresponding downgrading of the state's positive contribution, which is found in somerecent Soviet work, notably V la. Laverychev, “Rol’ gosudarstva v sotsial'no–ekonomicheskom razvitiiRossii vo vtoroi polovine XlX-nachale XX vekov,” paper presented at the Third U.S.–USSR Historians’ Colloquium, Moscow, November–December 1978. B. V Anan'ich, “The Economic Policy of the Tsarist Government and Enterprise in Russia from the End of the Nineteenth through the eginning of the Twentieth Century,” in Guroff and Carstensen, eds., Entrepreneurship, pp. 125—40, also finds contradictions severely hampering the state's development efforts. Also see the pioneering monograph by Mironov, B. N., Vnutrenii rynok Rossii vo vtoroi polovine XVIII—pervoi polovine XIX v. (Leningrad, 1981), which treats quantitatively the development of the all–Russian market as a strictly autonomous process little influenced by modest government initiatives, and which a capable scholar like Mironov might well try to extend in modified form to the post–reform period.

4. Rosovsky, Henry, “The Serf Entrepreneur in Russia,” Explorations in Entrepreneurial History, 6 (1954): 207333 ; Blackwell, William L., “The Old Believers and the Rise of Private Industrial Enterprise in Early Nineteenth–Century Moscow,” Slavic Review, 24 (1965): 407–24; C.Owen, Thomas, Capitalism and Politics in Russia: A Social History of the Moscow Merchants, 1855–1905 (Cambridge, England, 1981), especially pp. 20–59; various studies by Kirchner, Walter, for instance, “The Industrialization of Russia and the Siemens Firm, 1853–1895,” Jahrbücher für Geschichte Osteuropas, 22 (1974): 321–57; McKay, John P., Pioneers for Profit: Foreign Entrepreneurship and Russian Industrialization, 1885–1913 (Chicago, 1970); and Kahan, , “Notes on Jewish Entrepreneurship in Tsarist Russia,” in Guroff, and Carstensen, , Entrepreneurship, pp. 125–39. Soviet historians have been little interested in business and entrepreneurial history, scorning it as self–serving capitalist apologetics.

5. Note, for example, the still vigorous debate (dating from the 1890s) on the results of the efforts of the state to attract foreign capital and establish the gold standard, which has been analyzed by Gregory, Paul and Sailors, Joel in “Russian Monetary Policy and Industrialization, 1861–1913, “Journal of Economic History, 36 (1976): 836–51.

6. After more than twenty years, Gindin, I. F., Gosudarstvennyi bank i ekonomicheskaia politika tsarskogo pravitel'stva, 1861–1892 gody (Moscow, 1960), stands almost alone. See, however, Shepelev, L. E., Aktsionernye kompanii v Rossii (Leningrad, 1973).

7. Much of this work was carried out in the 1960s and early 1970s by members of the Leningradbranch of the Institute of History, who published two massive collections of carefully annotated and heretofore unpublished documents, selected from a wide range of government and business archivalsources: Akademiia nauk SSSR, Institut istorii, otdelenie, Leningradskoe, Monopolisticheskii kapitalv neftianoi promyshlennosti Rossii, 1883–1914: Dokumenty i material)/ (Moscow–Leningrad, 1961),and Monopolisticheskii kapital v neftianoi promyshlennosti Rossii, 1914–17: Dokumenty i materialy(Moscow–Leningrad, 1973). In conjunction with preparing these documentary collections, three ofthe participants in the documents project wrote related monographs: Nardova, V. A., Nachalo monopolizatsii neftianoi promyshlennosti Rossii, 1880–1890–e gody (Leningrad, 1974); Fursenko, A. A., Neftianye tresty i mirovaiapolitika, 1880–e gody–1918 g. (Moscow–Leningrad, 1965); and S. S. Aliiarov,Neftianye monopolii v Azerbaidzhane v period pervoi mirovoi voiny (Baku, 1974). In additionsee B. Iu. Akhundov, Monopolisticheskii kapital v dorevoliutsionnoi Bakinskoi neftianoi promyshlennosti(Moscow, 1959), which surveys the entire course of the industry's development, and other workscited below. Western historians have made no effort to evaluate this imposing mass of Soviet scholarship.Indeed, like Robert W. Tolf in his interesting recent study, The Russian Rockefellers: The Saga of the Nobel Family and the Russian Oil Industry (Stanford, Cal., 1976), they have simply ignored it.

8. See McKay, John P., “Entrepreneurship and the Emergence of the Russian Petroleum Industry,1813–1883,” Research in Economic History, 8 (1983): 4791 , and sources cited there, most notably Ragozin, V. I., Neft’ i neftianaia promyshlennost’ (St. Petersburg, 1884), and S. L., and Pershke, L. L., Russkaia neftianaia promyshlennost': ee razvitie i sovremennoe polozhenie v statisticheskikh dannykh (Tiflis, 1913).

9. On Kokorev's business activities and Slavophil philosophy, see the study by Thomas C. Owen, Capitalism and Politics in Russia. Parkhomenko, V E., D. I. Mendeleev i russkoe neftianoe delo (Moscow, 1957), pp. 37–60 , stresses the great scientist's influence on the reorientation of government policy in a laissez–faire direction in the late 1860s and 1870s. See also Francis Stackenwalt, “The Economic Thought of Dmitrii Ivanovich Mendeleev” (Ph.D. diss., University of Illinois, 1976).

10. McKay, “Entrepreneurship and the Emergence of the Russian Petroleum Industry,” pp. 48–57.

11. Ibid., pp. 57–60.

12. There is a substantial but uneven literature on Ludwig Nobel and his Nobel Brothers Petroleum Company. In addition to Robert W Tolf, The Russian Rockefellers, and the Soviet studies cited in n. 7, see Brandt, B. E., Inostrannye kapitaly: ikh vliianie na ekonomicheskoe razvitie strany, 3 vols. (St. Petersburg, 1898–1901), 3:269–95; the handsome commemorative publications of the company, especially Tridtsat’ let deiatel nosti tovarishchestva neftianogo proizvodstva Brat'ev Nobel',1879–1909 (n.p. [St. Petersburg?], 1913); and D'iakonova, I. A., Nobelevskaia korporatsiia v Rossii(Moscow, 1980), especially pp. 51–71. D'iakonova refutes the unjustified stress of some twentieth century Western scholars on Alfred Nobel, inventor of dynamite and future endower of Nobel prizes,as the firm's principal source of capital. That capital came mainly from elder brother Ludwig, whohad accumulated it in Russia through success in mechanical engineering (steam engines) and defense contracting (rifles). For a recent interpretation of Ludwig Nobel's contribution which seeks to avoid both Western hagiology and Soviet denigration, see McKay, “Entrepreneurship and the Emergence of the Russian Petroleum Industry,” pp. 61–88.

13. Marvin, Charles, The Region of the Eternal Fire: An Account of a Journey to the Petroleum Region of the Caspian in 1883 (London, 1884), p. 209 . Marvin's history of Baku's industry and Ludwig Nobel's accomplishments, pp. 158–320, is one of the best contemporary studies.

14. McKay, “Entrepreneurship and the Emergence of the Russian Petroleum Industry,” pp. 76–84. The number of kerosene refineries in Baku declined from 195 in 1879 to 130 in 1885, before rising to 156 in 1889. There were about 54 producers of crude oil at that time, many of which were also refiners. Gulishambarov, S., Obzor fabrik i zavodov Bakinskoi gubernii (Tiflis, 1890), pp. 70,76.

15. Ibid., pp. 84–85.

16. The United States averaged kerosene exports of 10,300,000 barrels of 42 gallons in 1883–1885, or approximately 82,500,00 puds,; total Russian kerosene production equaled 13,100,000 pudsin 1883, of which 1,500,000 puds were exported abroad. See Harold F. Williamson and Arnold R.Daum, The American Petroleum Industry: The Age of Illumination, 1859–1899 (Evanston, 111., 1959),pp. 489–519, for an analysis of the world kerosene market in the early 1880s from an American perspective, and Pershke and Pershke, Russkaia neftianaia promyshlennost', pp. 28, 32, 39, which remains the best statistical study on Baku's development.

17. Akademiia nauk SSSR, Monopolisticheskii kapital v neftianoi promyshlennosti Rossii, 1883–1914, p. 664, abbreviated hereafter following Soviet practice as MKNPR. Ragozin, Neft', pp. 376–86.

18. Ibid., p. 381.

19. Marvin, Eternal Fire, pp. 141–42 and passim, has a good discussion of the railroad's military significance, which is curiously omitted from Soviet studies of the petroleum industry.

20. Nardova, Nachalo monopolizatsii, pp. 62–63; McKay, “Entrepreneurship and the Emergence of the Russian Petroleum Industry,” pp. 60–61

21. Shepelev, L. E., Tsarizm i burzhuaziia vo vtoroi polovine XIX veka: Problemy torgovopromyshlennoi politiki (Leningrad, 1981), pp. 122—25, 161.

22. The relative independence of ministers and the importance of personality and of bureaucratic horse trading in the formation of tsarist economic policy is a major theme of Shepelev's useful recent synthesis, Tsarizm i burzhuaziia, pp. 13–14, 46–52, 160–61, and passim.

23. MKNPR, pp. 663–64.

24. Shepelev, Tsarizm i burzhuaziia, p. 163, notes that in the 1880s the Ministry of State Property(as opposed to the Ministry of Finance) was generally quite willing to permit such business associations in mining industries. Penetrating discussion of trade associations and their ties to technical organizations before 1905 is found in Rieber, Alfred J., Merchants and Entrepreneurs in Imperial Russia (Chapel Hill, N.C., 1982), especially pp. 219–55. Hartl, Johann H., Die Interessenvertretungender Industriellen in Russland, 1905–1914 (Vienna, 1978), pp. 2025 , is also useful.

25. MKNPR, pp. 64–70, 665; Nardova, Nachalo monopolizatsii, p. 63.

26. MKNPR, p. 664. Also see Gulishambarov, Obzor, pp. 29–30, and Nardova, Nachalo monopolizatsii, pp. 62–63.

27. Nardova, Nachalo monopolizatsii, p. 64.

28. Tsentral'nyi gosudarstvennyi istoricheskii arkhiv SSSR v Leningrad (cited hereafter as TsGIA), fond 37, opts’ 31, delo 483, l. 3–11.

29. Ibid., p. 7.

30. Ibid., l. 1–2.

31. MKNPR, pp. 110–11, 664; William and Daum, American Petroleum, p. 518.

32. Nardova, Nachalo monopolizatsii, pp. 65–66.

33. TsGIA, fond 37, opis’ 37, delo 483, l. 14–15.

34. Ibid., p. 16.

35. This interpretation is forcefully developed in the two leading Soviet monographs on the industry's development in the 1880s: Parkhomenko, D. I. Mendeleev, pp. 211–22; and Nardova,Nachalo monopolizatsii, especially pp. 68–79. It is a unifying theme in the commentary and selection of documents relating to the 1880s in MKNPR, pp. 47–141, 662–76.

36. Nardova, Nachalo monopolizatsii, pp. 64–65.

37. Ibid., pp. 65–66; MKNPR, p. 644; and Gulishambarov, Obzor, p. 61. The Baku Petroleum Association contained firms engaged exclusively in crude oil production, exclusively in refining, and in both. Integrated firms tended to put their refining interests first.

38. Ragozin, Neft', pp. iii–iv. Ragozin's main point, developed at length and with passion,pp. 456–66, was that if Europe had access to the raw material, it would do the refining. Everything could be made more cheaply in Europe, since “everything there is so organized that one person of very average ability can do as much as three very intelligent people here” (p. 457). Nor would it beeasy to catch up with Europe, and “only those who are ignorant and unwilling to learn can speak of the possibility of competing with France or England” (p. 459). Russia was reaching the critical moment in the decisive question: “Will petroleum production be Russian, or will we yet again surrender ourselves to the hands of Europe?” After failing on his own on the Volga, Ragozin became the general manager of the Shibaev firm, a major Baku refiner. For Soviet appreciations of Ragozin,see MKNPR, p. 670, and Nardova, Nachalo monopolizatsii, p. 47.

39. Marvin, Region of the Eternal Fire, p. 318. Marvin casually concluded that a “confidently anticipated” kerosene pipeline to Batum was the most reasonable solution to the whole transport challenge.

40. Bertrand Gille, “Capitaux français et pétroles russes (1884–1894),” Histoire des entreprises, November 1963, pp. 10–18.

41. Quoted by Nardova, Nachalo monopolizatsii, p. 66.

42. Ibid., pp. 82–83.

43. Ibid., 67–68; also see MKNPR, pp. 58–60, 664–65.

44. Mendeleev, D. I., Sochineniia, vol. 10: Neft’ (Leningrad-Moscow, 1949), pp. 251339 .

45. Ibid., p. 274.

46. Ibid., p. 265.

47. Ibid., pp. 283–87.

48. Most of Nobel's arguments and Mendeleev's counterattacks are reproduced in ibid.,pp. 288–339.

49. Parkhomenko, Mendeleev, p. 68.

50. Mendeleev, Sochineniia, 10:341–85.

51. See “Po neftianym delam,” Vestnik promyshlennosti, January and March 1885, printed inSochineniia, 10:387–506.

52. See especially Bakinskoe neftianoe delo v 1886 gody (St. Petersburg. 1886), in Sochineniia, 10:592–713. This widely circulated report of Mendeleev's trip to Baku in 1886 was commissioned by Ostrovskii. Also see speeches, letters, and point–by–point refutations of opponents for Ostrovskii.Ibid., 506–94, 714–43.

53. MKNPR, pp. 76, 664; Parkhomenko, Mendeleev, pp. 214–17; Mendeleev, Sochineniia, 10:582–84.

54. MKNPR, pp. 77–78. Also see the business correspondence of the Zubalov firm, inD'iakonova, Nobelevskaia korporatsii, p. 81.

55. Ibid., pp. 78–80, 667. On the opposition of refiners (and not just Ludwig Nobel), the support of crude producers, and the vacillation of integrated firms depending on whether or not they had a surplus of crude oil, see Trudy Bakinskogo Otdeleniia Imperatorskogo Russkogo Tekhnicheskogo Obshchestva, 1886 g., vol. 1 (Baku, 1887), pp. 17–18 ; Gulishambarov, Obzor, pp. 33–34; and Mendeleev,Sochineniia, 10:274–75.

56. See n. 35.

57. Statement by V A. Bashkirov, Trudy Bakinskogo Otdeleniia Imperatorskogo Russkogo Tekhnicheskogo Obshchestva, 1886 g., pp. 17–18; Startsev, G. E., Bakinskaia neftianaia promyshlennost':Istoriko–statisticheskii ocherk (Baku, 1901), pp. 6566 ; Nardova, Nachalo monopolizatsii, p. 64.

58. Mendeleev, Sochineniia, 10:517–29; Parkhomenko, Mendeleev, p. 214.

59. There were actually two tunnels under Suram Mountain, the longer of which was three miles and required construction of another 10 to 12 miles of track. See the valuable reports of the American consul in Batum, James C. Chambers, entitled “The Russian Petroleum Trade.” in United States Consular Reports, no. 73 (January 1887): 400–23, especially pp. 414–16; and no. 92 (April 1888): 4–11, especially pp. 6–8. The sharp–eyed Chambers also supplied Rockefeller's Standard OilCompany with a continuous flow of information, which has unfortunately been destroyed. Soviet studies ignore or (following Mendeleev) ridicule the Suram Tunnel project.

60. Chambers, April 1888, p. 7; Nardova, Nachalo monopolizatsii, p. 70; Gulishambarov, Obzor, pp. 62–64. According to Mendeleev. Nobel proposed to extend his kerosene carrier all the way to the Black Sea. Parkhomenko, Mendeleev, p. 217.

61. Alekseev, Gavriil, Zakavkazskii monopol'nyi nefteprovod (St. Petersburg, 1886), pp. 1112 ;MKNPR, p. 82.

62. MKNPR, p. 672. Exports of refined petroleum products also expanded rapidly, almost doubling to 30,000,000 puds in a single year, so that Russia accounted for a respectable 24 percent of the world market for petroleum exports in 1888. Brandt, Inostrannye kapitaly, 3:278, 288; F. C.Gerretson, History of the Royal Dutch, 4 vols. (Leiden, 1953–1957), 2:34.

63. United States Consular Reports, “Petroleum Deposits of Russia,” no. 64 (June 1886): 157—58.

64. See TsGIA, fond 268, opis’ 3, delo 82, l. 1–117, especially 113–14.

65. MKNPR, pp. 85–95. Also see Gulishambarov, Obzor, pp. 31–36, for an objective summary.

66. Chambers, U.S. Consular Reports, no. 73 (January 1887), p. 7; MKNPR, pp. 122–23, 673; Alekseev, Zakavkazskii monopol'nyi nefteprovod, pp. 11–12; Tolf, Russian Rockefellers, pp. 96–97.

67. TsGIA, fond 37, opis’ 31, deb 410, l. 52–56.

68. Ibid., l. 57–62. On Ilimov's initial negotiations, see Nardova, Nachalo monopolizatsii, pp. 82–86; and MKNPR, p. 669, which ignore the critical if informal authorization of residual exports,the bête noire of Baku's refiners. The future status of crude oil was left very ambiguous, linked to problematic construction of Black Sea refineries. Ilimov had participated actively in the pipeline controversy, pressing his views in pamphlets and before the Russian Technical Society. Parkhomenko,Mendeleev, p. 213.

69. Ragozin, Neft', pp. vi, 490–552, as well as subsequent pamphlets; MKNPR, pp. 71–74.There is a useful discussion of the tax controversy in Nardova, Nachalo monopolizatsii, pp. 93–112,although Nardova's conclusions unrealistically reduce the complicated crosscurrents to little morethan a monopolistic plot by Ludwig Nobel.

70. MKNPR, pp. 75–77, 665; Mendeleev, Sochineniia, 10:328–39, 526–77; Parkhomenko, Mendeleev, pp. 233–40.

71. Nardova, Nachalo monopolizatsii, pp. 102–104; MKNPR, p. 670.

72. Shepelev, Tsarizm i burzhuaziia, pp. 148–50.

73. Ibid., pp. 153, 161–63; MKNPR, p. 112. It is worth noting that Vyshnegradskii taxed the physical commodity, whereas Bunge had tried to tax the refining process to encourage technicalprogress and better utilization of crude oil. In doing so Vyshnegradskii preferred not only administrative convenience but also the interests of the many technically backward small refiners, while ignoring the tax preferences of both Nobel and Mendeleev.

74. According to reports in the Russian press, the Rothschilds themselves had sought the concession for the Transcaucasian pipeline through their Russian relative M. I. Efrussi, and they were determined to thwart Ilimov after their own request was denied. Ibid.; Nardova, Nachalo monopolizatsii, pp. 86–87. Gille's study drawn from Rothschild archives, “Capitaux frangais,” pp. 29–30,makes no reference to such a bid, but the Rothschilds clearly had no reason to support Ilimov's enterprise.

75. MKNPR, pp. 138–40; also Nardova, Nachalo monopolizatsii, pp. 89–90.

76. The opposition was again led by Prince Dondukov–Korsakov, the minister of transportation,and the state controller. My discussion is based on a copy of the minutes in TsGIA, fond 31, opis’ 31,delo 410, l. 76–82. Neither the opposition nor the ministers’ debate is discussed in MKNPR, pp. 138–41, 676, or Nardova, Nachalo monopolizatsii, pp. 90–91.

77. MKNPR, p. 664.

78. The minister of transportation asserted unequivocally that the railroad would be able to carry 73 million puds of petroleum products in 1891, when in fact it carried 62 million with greatdifficulty. Crude output jumped from 166 to 298 million puds from 1887 to 1891, and Ostrovskiipredicted, correctly, that it would continue to rise in the 1890s. TsGIA, fond 31, opis’ 31, delo 410,l. 76–78; Pershke, Russkaia neftianaia promyshlennost', pp. 32, 55–56.

79. TsGIA, fond 31, opis’ 31, delo 410, ll. 79–82; MKNPR, p. 676.

80. See TsGIA, fond 31, opis’ 31, delo 410, ll. 83–91, for minutes of the commission.

81. See TsGIA, fond 268, opis’ 3, delo 82, ll. 1–102, especially ll. 86–94, for the ministry's attempt to acquire Nobel Brothers’ pipeline cheaply, followed by an order to destroy it when the company would not accept unfavorable terms.

82. See ibid., ll. 102–17, for this compelling case. Also, see the very brief discussion in MKNPR, pp. 676, 681–82.

83. TsGIA, fond 37, opis’ 33, delo 42, ll. 59–60.

Baku Oil and Transcaucasian Pipelines, 1883–1891: A Study in Tsarist Economic Policy

  • John P. McKay

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