Economic Development in Russia and the Long Waves of World Economy

 

Marina Ivanova*

 

 

 

 

 

Abstract

 

            Long-term cycles in world economic development are analyzed through the view on Russia’s economy in the XIX century.  Several economic indicators and industries are observed.  It is found that Russia joined long economic fluctuations gradually.  The first signs of this involvement are noticeable since 1840-50s (an upswing of the 2nd world long economic wave) in more developed industries, like the textile industry, for example.  The whole Russia’s economy has got involved into the world economic flux on the upswing of the 3rd world long economic wave in the 1890s.         

 

 

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   * Economics Department, Carleton University, Ottawa, Canada. Email: marina_ivanova@carleton.ca

 

The long-term cycles in economic activity were first identified by Nikolay Kondratieff (1935).  The Kondratieff cycle is spread over roughly half a century and consists of twenty-five years of boom followed by twenty-five years of slump. Kondratieff theory has been originally based on the analysis of statistical data on England, France, Germany and the United States.  Kondratieff chose those countries mostly because there was a systematized statistical material on them.  Also all those countries had similarities in economic structure, that is, all they were countries of developed industrial capitalism at that time (1).   The time frame that was defined for the long-term cycles by Kondratieff are presented below.

Kondratieff’s long waves  (1)

Wave

Upswing

Downswing

1

1780-90 to 1810-17

1810-17 to 1844-51

2

1844-51 to 1870-75

1870-75 to 1890-96

3

1890-96 to 1914-20

 

 

Researchers who study the problem of long economic fluctuations mostly analyze the theoretical postulates of this theory in general.  On the other hand, one of the most important tasks here is to define a place for any country -Russia, in our case - in this concept, the level of involvement of Russia in the world economy and long economic fluctuations and their stages.

 In the economic literature the problem of involvement of different countries in the worldwide long fluctuations has been developed substantially.  The chronology of the implementation of different countries into the world economic growth has been elaborated considerably.  According to this chronology, Russia along with Japan, Sweden, Norway, Denmark, Netherlands, Italy made a step into world economic fluctuations during the period 1890-1905 on an upswing of the third long wave (2).  One of the most serious recent research on this topic was an interesting analysis of coal and steel production in 17 countries, including Russia since 1890 (3).  In other investigations,  the long waves in energy consumption and transportation infrastructure in Russia since the last half of the 19th century has been discovered (4).  On the other hand, most of those works state that long waves make sense only during eras of developed capitalism, and there is small possibility of their existence in Russia before the 1890s, though a detailed test of this hypothesis has not been done yet.

A general review of Russia’s economic development in the 19th century shows some long fluctuations in Russia’s economy that characterized the Western economies as well.  In particular those fluctuations in connection with social and political changes in the country that are observed actually confirm one of Kondratieff postulates of so-called empiric rules (5).  Changes in political processes, though, can be caused by many other factors besides fundamental economic ones.

Therefore, Kondratieff’s hypothesis of existence of long waves of economic development in Russia can be tested only by a detailed statistical analysis of the dynamics of several important economic indicators.  The absence in Russia of systematized statistical base of this kind is a big obstacle, and therefore, this limits the research.

Let us try to analyze, though, the main tendencies of Russia’s economic life in 19th century using this small source of information.

One of the indicators that can be used for this purpose is volume of international trade.  First, international trade reflects the general rates of economic growth in a country even though it can be influenced by some other factors, such as customs policy, for example.  Second, changes in international trade indicate a level of market development in some countries.  In addition, Kondratieff used this indicator in his research on other countries, so it could be interesting to compare our results with his analysis.  Finally, there is substantial statistical material on the volume of international trade in Russia in the 19th century (6).

The volume of international trade is computed as a sum of imports and exports per capita since 1800.  Data until 1840 are presented in assignation rubles and since 1840, in credit rubles.  This caused a sharp decrease in the indicator in 1840.

The trend was computed as a 9-year moving average to be more compatible with Kondratieff results (who used a method of moving average).  It is presented in Chart 1. Then the deviations from this trend were computed and a trend was defined as a 3-year moving average (Chart 2).  

As we can see, dynamics of volume of international trade shows some visible fluctuations.  Are they are compatible with long waves in developed countries?

First of all, in the case of Russia we do not observe balanced changes in upswings and downswings.  The first increase in the indicator was observed from 1807-1818; the next one (less substantial) from 1834-1847.  After that we can see two periods of long and steep increases: from 1855-1877 and from 1885-1910.  Here we have 3 points of minimum: 1833, 1855 and 1863. The last two are definitely connected with the Crimean War.  In-between them we found a period of relative increase, from 1856-1857.  This increase was caused by the new customs tariff established in 1857 that decreased import taxes on many foreign commodities.  Then, from 1863 we observe a stable growth in volume of international trade.  Here we can notice that even during a growth from 1834-1847, deviations from the trend did not exceed 0.  This can be considered as a kind of upswing during a stage of general recession in international trade.

The growth in international trade in the 1840s can be explained by a huge amount of new trade agreements, and also by the cancellation of customs taxes on bread by England in 1846. If we compare Russia’s international trade growth rates with growth rates in other countries, we find that during 1825-1850 international trade volumes in England increased by 283%, in France by 257% and in Russia – by 74%.  It can be considered to be “only 74%” but it was a considerable increase for the developing country like Russia in 19th century.

Therefore, we can identify three main stages in international trade growth in Russia:

·        1807 – (1818) – 1855-63s;

·        1855-63 – (1877) – 1892;

·        1892 – 1910s.

This timing coincided with the chronology of long waves that had been defined by Kondratieff for industrially developed countries.  Kondratieff defined that there was an upswing in England from the end of the 1830s to the beginning of 1850s.  In France he observed an upswing starting at the end of the 1840s.  This upswing ended in 1872-1873. Then we observe a second downswing that ended in 1894-1896.  After that the new (third) upswing came that lasted until World War I.

On the other hand, we cannot claim the existence of long waves in economic development in Russia by judging only one economic indicator.  Therefore, let us discuss the dynamics of another indicator – the Central Bank’s prime rate.

This indicator has been chosen because there were statistical data on it, and also this indicator reflects condition of a financial system in general.  The financial system itself is very sensitive to general economic changes as well.  Similar to the case of international trade, an empirical data, the trend, and deviations from that trend (3-year moving average) are presented (charts 3, 4).

Along with a general tendency for the prime rate to decline by 3% annually, some periods of positive and negative deviations from the trend can be observed. We observe an increase in the prime rate in 1869-1870, after that there was a long-term decrease until 1894-1895.  Then we observe a steep increase in the prime rate. During the years 1895-1904, it increased by 18%, whereas in 1905-1914 the increase was only 3%.  Positive deviations are observed since 1901.  These time frames coincided with the upswing and the downswing of the 2nd long wave of the 1870s in Western economies, and with the upswing of the 3d wave that started in 1897 (10).

Unfortunately, there is no systematized and detailed data on the changes of wages and prices in Russia during the 19th century.  The data on wholesale price indices in Petersburg (11) could not be used as we still do not have annual data.  On the other hand, comparisons of cotton prices in Russia, USA and England in 1800-1899 (12) allows us to draw the conclusion that the process of long wave fluctuation occurred simultaneously and was similar in those countries.  The stable price level until 1860 changed by a steep increase in prices then, especially in the US and Russia. It is explained by the Civil War in the US and by the agricultural reform of 1861 in Russia.  Then we also observe a steep increase in prices in Russia starting with 1875 (that is connected with an end of Crimea War) and ending in 1890.  In all countries, after 1890, we observe a stable decrease in prices on cotton.

Let us now look at the the dynamics of non-cost indicators. The analysis of steel production (since 1830) and coal production (since 1860) (13) did not show any substantial fluctuations in those indicators until 1890.  Only after 1890 we observe an increase in both steel and coal production.

Another non-cost indicator that is considered here is imports on foreign and Middle Asian cotton (since 1860) (14). The general tendency to increase turned and started decreasing in several points such as 1863 (Civil War in the US) and 1876-1877 (end of Crimea War).  Then an increase started with 1888 and continued until 1899.

Therefore, we can conclude that cost indicators as international trade, the prime rate in Russia showed a long-term fluctuation simultaneous to the long waves in Western economies.  On the other hand, analysis of not-cost indicators does not show this kind of fluctuations till 1890.

What is the reason of these differences? Can we claim the existence of long waves in Russia’s economy only by judging the changes in cost indicators?

   As it is stated in numerous economic literatures devoted to this topic, long-term economic fluctuations are caused by complete renovation of technological structure of the economy and radical changes in technological development (16).  The 1st long wave is connected with industrial revolution; the 2nd wave is known as a “wave of steam and steel” (40s of 19th century); the 3d wave is called a “wave of electricity, chemistry, and the automobile industries” (17).

An industrial revolution took place in developed countries during the last quarter of the 18th century. The invention of machines for production methods, new manufacturing labor organization, and the emergence of industrial capitalism characterized it. In Russia the industrial production emerged only at the beginning of 19th century.  And feudal relations at that time considerably hampered technological changes in the economy.

Russia’s industrial development was late by 1850-1860s in comparison with developed capitalist countries.  And industrial revolution in Russia itself occurred between the 1830-1860s.  Main changes in technological and socio-economic structures had happened during that period of time and strengthened after a reform of 1861.

The first industry that got involved into technological changes was the textile industry.  A loom “Jenny” and Arkright’s loom were the first machines that had been used in Russia.  On the other hand, textile industry was based on using free labor and, therefore, was a really progressive branch.  Comparing growth rates of textile industries in Russia and England we can see that English textile industry had it’s maximum in 1790s whereas Russia had it’s maximum in 1840s  (chart 5).

Underdeveloped industries with hand labor, such as coal and steel production had switched to using machine labor much later.  In addition they were based on using slave labor till its elimination in 1861.

Therefore, we can suppose that Russia got involved into world long-term fluctuations gradually, the first industries to become involved in the flux were the more developed industries with a high rate of technological change.  This idea is not really new; it has been analyzed before.  Russian economist M. Tugan-Baranovsky stated that Russia’s economy had been involved “into circulation of world capitalist development… Our capitalist industry had even in the past some fluctuations. But as the role of industry in Russian economy has grown substantially nowadays, and the role of those fluctuations has grown substantially as well”. (19)

Accordingly, we can consider a whole process of Russia’s involvement in world long-term fluctuation.  On one hand, we observe an absence of considerable fluctuations in technologically underdeveloped branches (coal, steel production).  On the other hand, we can see this kind of fluctuations in capitalist developed branches (textile industry, for instance).  Also, we can notice that branches get switched to world fluctuations during an upswing stage of long wave (20).  For example, a maximum of cotton consumption is observed in the 1840s, on the upswing of the 2nd long wave.  Cotton consumption in Russia increased during 1839-1849 by 338%, even though a radical technological change occurred in this branch started in 1820s (21).

A drastic increase in coal and steel production is also observed during an upswing of the 3rd long wave (1890s).  During this decade, steel production increased in 2.8 times, coal production in 2.5 times, whereas during previous decades the growth observed was only 1.7 and 1.5 times accordingly (22).

Volume of international trade substantially increased during the 1810s – by 90% during 1812-1817 (on the upswing of the 1st wave).  And this is taking into account that in 1808 Russia had joined Napoleon’s continental system that restricted trade relations with England that was Russia’s main trading partner!  Since 1811 terms on trade had been improved, with acceptance of the Act on Neutral Trade.

Next substantial growth of international trade was observed in 1860-1870s.  It was longer and higher.  During those 20 years volume of international trade in Russia increased 2.5 times.  This period also coincided with an upswing of the 2nd long wave.  On the other hand, fluctuations in the volumes of international trade in Russia had already coincided with world economic fluctuations since the beginning of 19th century.

Can we talk about Russia’s involvement in the world long-term economic fluctuations based on the analysis of international trade indicators?  Probably, no.  This branch is not considered to be fundamental, but secondary because it just reflects fundamental economic processes.  On the other hand, international trade reflect needs of internal economic development and in this sense can be used as an indicator of Russia’s economic development.  It could be interesting here to analyze a structure of Russia’s imports.  At the beginning of 19th century in Russia’s imports, the most imported were raw materials.  Among those, cotton was the main product to import.  An import of metal products was on a very low level (5.7% in 1825), imports of machines and equipment practically did not exist (0.3% in 1825) (23).  Starting from 1840s the situation changed radically.  By 1855 metal products imports was up to 21.5%.  The imports of machines and considerably (11.1% in 1855) (24). 

The above allows us to suppose that the beginning of long-term fluctuations in Russia’s economy can be dated not by the end of 19th century (25) but by an earlier period of time.  A more precise date would be 50-60s of 19th century, i.e. an upswing of the 2nd long wave.  Since this time we can observe simultaneous changes in most economic indicators in Russia as well as other Western countries.

An example of this kind of simultaneous change can demonstrate fluctuations in Central Bank’s prime rate in St. Petersburg, London and Berlin since 1881 till 1904 (chart 6).

If we review a general economic development of Russia in the 1870-1880s (the downswing of the 2nd long wave), we can also make similar conclusions.  Starting from 1869 the deficit of the government budget had disappeared.  In 1881 the monetary and credit reform started.  There is a stable increase in manufacturing production. The number of plants with 1,000 employees almost doubled from 42 to 81 from 1866 until 1879 (in 1890 their numbers reached 99).  The volume of production on these plants also increased from 53 to 171 million rubles, i.e. more than in 3 times (29).

In agricultural production and equipment there was an increase. In 1869-1872 the imports of agricultural equipment was 787,000 rubles, in 1877-1880 – already 3,593,700 rubles, i.e. in 4.6 times more.  During next 4 years (1881-1884) the imports of agricultural equipment was already 6,318,000 rubles that is 1.8 times more.

On the other hand, the downswing of 2nd long wave did not have the same deep depression in agriculture in Russia as in Western countries.  If we look at the dynamics of grain production in Russia, USA, and England per capita in 1881-1894, we would see that English and the US indicators slowdown slightly, while Russia’s indicators do not show any the tendency to decrease (30).

Unfortunately, further comparisons of these indicators for 1920s (downswing of the 3d long wave) does not make sense, because those were years of tremendous social stress for Russia, and level of production had decreased drastically.  On the other hand, even this fact shows a strong involvement of Russia into world economic fluctuations.  And therefore we can state that Russia had switched to world economic fluctuations in 1850-1860s.  By the next upswing (of the 2nd long wave, 1890-1910s) the final formation of the capitalist economic structure had been finished.  And the radical economic growth starting from 1894-1895 must be a result of those processes.

The more detailed and systematized statistical data could allow us to estimate Kondratieff hypothesis for Russia more precisely.  On the other hand, our analysis also can be considered as evidence that Russia had the same world economic fluctuations that Western countries had during 19th century.

REFERENCES

1.      N. Kondratieff. Problems of Economic Dynamics. Moscow, 1989, 176.

2.      Duijn J. van. The Long Waves in Economic Life. London, 1983, 63.

3.      B. Sipos. Prognosification and Empiric Research of Kondratiev Cycles. Papers for Int. Conference “Regularities of Scientific – Technical Progress and Long-Term Tendencies of Economic Development”. Novosibirsk, 1988, 17-28.

4.      A. Grubler. Technology Diffusion in a Long Waves Context. Paper for Int. Conference “Cycles de la vie et Cycles Longes”. Montpelier, 1987, 33-46.

5.      More about it in: V. T. Ryazanov.  To the Problem of  “Long Waves” in Economic Reforms in Russia. Vestnik St. Petersb. Univ., 1992, 2, 29-44.

6.      Data Source: History and Statistics of Foreign Trade/V. I. Pokrovsky and others.

7.      P. P. Migulin. Economic Growth of Russian State for 300 years. 1613-1913. Moscow, 1913, 80.

8.      See N. Kondratieff., 188-190.

9.      Banking Encyclopedia. Volume 1. Kiev, 1914, 368-370; World Economic Crises. 1848-1935. Volume 3. Ed. By E. Varga. Moscow, 1937, 788.

10. See N. Kondratieff., 185.

11. S. G. Strumilin. Industrial Revolution in Russia. Moscow, 1944, 34.

12. Russia. It’s Present and Past. St. Petersburg, 1990, 285.

13. P. A Khromov. Economic Development of Russia in 19-20 centuries. 1800-1917. Moscow, 1950, 434-439, 452-455.

14. M. I. Tugan-Baranovsky. Russian Factory. Moscow, 1933, 243-249.

15. Ibid., 244.

16. For example, Long Waves: Scientific Progress and Socio-Economic Development. Ed. By C. B. Kazantcev, Novosibitsk, 1991, 7.

17. J. Schumpeter. Theory of Economic Growth. Moscow, 1982, 50.

18. See S. G. Strumilin, 16.

19. See M. I. Tugan-Baranovsky, 268.

20. More about it in: Long Waves: Scientific Progress and Socio-Economic Development. Ed. By C. B. Kazantcev, Novosibitsk, 1991, 63-67.

21. See S. G. Strumilin,16.

22. Data Source:  P. A Khromov. Economic Development of Russia in 19-20 centuries. 1800-1917. Moscow, 1950, 434-439, 452-455.

23. S. I. Gulishambarov. Trade and Industrial Development of Russia during era of Nikolay II. 1825-1855. St. Petersburg, 1896, 32.

24. Ibid., 32.

25. For example, A. Kleinknecht. Innovation, Accumulation and Crisis: Long waves in Economic Development. Review, 1981, Vol.4, 683-711.

26. See M. I. Tugan-Baranovsky, 249.

27. More about it in: Long Waves: Scientific Progress and Socio-Economic Development. Ed. By C. B. Kazantcev, Novosibitsk, 1991, 66-67.

28. Data Source: S. I. Gulishambarov. Comparative Statistics of Russia and world economies during era of Alexander III. 1881-1894. St. Petersburg, 1905, 82; S. I. Gulishambarov. Comparative Statistics of Russia and world economies during first decade of the era of Nikolay II. 1894-1904. St. Petersburg, 1907, 80.

29. See P. P. Migulin, 120.

30. See S.I. Gulushambarov, 1907, 86.

APPENDIX

 

 

Chart 1.

 

Chart 2

 

Chart 3

 

Chart 4

 

Chart 5

Chart 6