Empires Apart (45 page)

After the Crimean War it was obvious to everyone that if Russia was to fulfil its imperial pretensions it needed to industrialise, but industrialisation brought its own problems. First it needed investment, and to a large degree that meant foreign investment. One of the most critical events in the collapse of the tsarist autocracy occurred not on the battlefield or on the barricades of the revolution but in the corridors of power, where diplomats and bankers collide and collude. In 1888 Russia was in desperate need of foreign investment to kick-start its industrialisation, and it turned for help to what was by then the dominant continental power: Germany. For reasons that are still argued over, the German chancellor Bismarck refused all requests for credit, forcing the Russian regime to turn elsewhere, in particular to France. Thus was born the Franco-Russian alliance that pulled the Romanov regime to its destruction on the rocks of the First World War.

As with early American industrialisation foreign entrepreneurs played a key role in kick-starting industrial growth. The modern city of Donetsk, with a population of 1.2 million and one of the largest cities in Ukraine, was founded in 1870 and originally named Yuzovka after a Welsh industrialist, John Hughes, whose factory dominated the local
economy. (Donetsk may lack the historical interest of Yuzovka, but it has to be better than the name the city bore from 1924 to 1961 – Stalino.) A crucial difference between American industry and Russian was that in Russia foreign entrepreneurs and companies remained key players long after they had been displaced in America. There were a number of reasons for this, but none had much to do with the supposed virtues of America's ‘free' markets.

Some of the reasons were industry-specific. For example, Whitney's cotton gin, which had revolutionised the American cotton industry, worked with short staple cotton; when the American Civil War devastated world cotton markets Russia turned to the new provinces of central Asia as a source of raw cotton, but this meant spinning long staple cotton, which was not only labour intensive but relatively highly skilled and for large scale production required machinery Russia could not produce. Britain dominated the global cotton industry by the end of the eighteenth century and produced most of the world's textile machinery. In 1842 a British ban on machinery exports was lifted and machinery was soon exported to both America and Russia. By copying British technology and then imposing high tariffs on machinery imports, American manufacturers were able to see off British competition. Russia, on the other hand, lacked the ability to create its own machinery, and as late as 1910 nearly 90 per cent of all cotton spinning machinery in Russia was British. Cotton weaving and dyeing also required technologically advanced machinery, and when Britain did not provide it other western nations did. Giant German- and Swiss-owned textile mills imported machinery from their homelands. Not only was machinery imported; even as late as the First World War nearly all Russian-owned textile mills had British technical managers and engineers.

However, the principal reason that so much of Russian industry before the revolution was dominated by foreigners was not specific to the cotton industry but was a consequence of history: unlike America, Russia had never been part of the British empire. In colonial America the local oligarchs, protected from global competition by British trade
barriers, built up substantial capital assets. This accumulated wealth was able to fund the development of an industrial economy that was not only far more dynamic than Russia's but balanced local with foreign ownership. In the Russian empire, on the other hand, wealth was sucked into the imperial treasury and most of it spent by the tsar. Therefore for budding entrepreneurs the only source of capital for industrial investment was what remained in the tsar's vaults or what could be borrowed from foreign banks. Not surprisingly foreign banks, at least initially, were more inclined to lend to people they knew, their own nationals wanting to invest in Russia, rather than to the new class of Russian oligarchs. Furthermore, to buy foreign machinery required gold or foreign exchange. America's first industrialists had ready access to the foreign exchange receipts from southern cotton and tobacco exports (which permeated north to merchants, manufacturers and – not to be forgotten – slave traders). Russia's agricultural exports were too small to serve the same purpose.

Both America and Russia were heavily dependent for their economic development on foreign investment, almost all of it from western Europe; by 1914 they were by far the world's largest net debtors. Right up to the First World War the US was the world's largest importer of capital. In 1914 its foreign debt was $7.1bn compared with the next largest debtor nation, Russia, with $3.8bn. The crucial difference between the two countries was that the US was also a significant lender; by 1914 it had overseas investment of $3.5bn (although dwarfed by Britain with $18bn, France with $9bn and Germany with $7.3bn). In terms of net borrowing Russia and America were in virtually the same position, but the US was an integral part of the global economy: in 1897 US foreign investment had amounted to $700m; by 1914 this had almost quintupled.

The reliance of the US on foreign investment caused considerable anguish to the native oligarchs. The January 1884 issue of the New York
Bankers Magazine
commented, ‘It will be a happy day for us when not a single good American security is owned abroad and when the United States shall cease to be an exploiting ground for European bankers and money lenders.'
It went on to describe the interest and dividends earned by European bankers as ‘tribute paid to foreigners' and as such totally ‘odious'.

Russian entrepreneurs were also well aware of their disadvantageous position. As Professor Alfred Rieber has written, many were convinced that ‘reliance on foreign skills and capital could turn Russia into a dependency of the west without a single shot being fired'. But there was little they could do about it as long as the tsar, increasingly dominated by his reactionary wife and her spiritual advisor Rasputin, remained committed to a vision of divinely ordained autocracy, which made him nearly as unsympathetic to the arguments of the new capitalist class as he was to those of the socialists and anarchists.

In contrast, across the Atlantic the US economy was entering a period of rapid ‘consolidation'. The mechanism for this consolidation was the ‘trust', which could bring together all the firms in a particular industry – not just in the new sectors like oil, steel and railways but in older ones such as sugar and tobacco. These trusts were enormous, dominating their domestic market and in some cases controlling production worldwide. No trust was bigger than Standard Oil, owned by John D. Rockefeller, whose personal wealth was equal to nearly 2.5 per cent of the whole US economy (the equivalent of around $250bn today, more than twice as much as Bill Gates). Standard Oil was formed in 1867 but it took a lawyer, Samuel Dodd, to come up with the idea of a trust, and on 2 January 1882 the Standard Oil Trust was formed. A board of trustees was set up and all the Standard properties were placed in its hands. The nine trustees elected the directors and officers of all the component companies, allowing Standard Oil to effectively function as a monopoly. Later Standard Oil pioneered the holding company, which had the same effect.

Public disquiet about trusts increased,
and politicians like Theodore Roosevelt, secure in his inherited wealth, recognised not only a political bandwagon they could climb on but, in many cases, a genuine affront to their concept of democracy. If men like Rockefeller and Carnegie represented the new dawn of big business and corporate empire, Theodore Roosevelt represented an altogether older vision of economic and political life. He was born into a wealthy New York family with powerful southern connections on his mother's side. He personified the way America's imperial aspirations had moved on from the Wild West to encompass the whole world, but at the same time he retained the rugged frontier values that had prompted his cowboy heroes to stand up to the cattle barons and outlaws of yesteryear. After the death on the same day of his mother and his first wife Roosevelt bought a ranch in the Bad Lands of Dakota, determined to play cowboys for real. He was appointed deputy sheriff and claimed to have hunted down a gang of desperados, but he soon discovered that the frontier at the end of the nineteenth century was neither as exciting nor as profitable as he had hoped and his gaze turned elsewhere – to glory in warfare overseas and politics at home.

Few American presidents have been able personally to shape their country's history in the way that tsars defined the history of Russia but two or three have come near. Andrew Jackson was one, and two others fired the popular imaginations of their day: Abraham Lincoln, who took his nation into war with itself, and Theodore Roosevelt, who became a symbol of America's imperial wars overseas. Lincoln is probably the only American president between George Washington and modern times that most people can name. Abraham Lincoln's cause, freedom and civil rights for all, has become part of how Americans see themselves today, and that is why he is remembered – despite the fact that Lincoln was actually committed to maintaining slavery in the south and eventually freed the slaves only in the extraordinary conditions of the civil war. Roosevelt's cause, empire and military glory, is no longer a core part of America's self image and Theodore Roosevelt has become an embarrassing footnote to American history – despite the fact that he won the Nobel peace prize for resolving war between Russia and Japan.

Theodore Roosevelt was from the same brave, impetuous and demagogic mould as Winston Churchill. Just as Churchill flung himself into Britain's imperial war against the Boers, Roosevelt threw himself into battle in the Spanish American War, leading what became one of
the most famous episodes in American military history – the charge up San Juan Hill in Cuba. Like Churchill, Roosevelt was given political command of the navy despite having no naval experience, although Roosevelt achieved greater success in the Philippines than Churchill achieved in the Dardanelles. Both leaders spent much of their spare time writing: Churchill penned his famous history of the Second World War, Roosevelt his less famous naval history of the 1812 War. The parallels continued in the political world. Churchill was shunned by many in his party (indeed both men changed parties) and was a political maverick who only achieved power owing to the exigencies of war; Roosevelt only became President McKinley's vice-presidential running mate after the incumbent died, and then became president following McKinley's assassination.

Roosevelt's career was dominated by the twin themes of empire and soul. Although most famous internationally for his pursuit of America's manifest destiny, he first achieved political notice at home through his attacks on corporate America and the scandalous behaviour of the robber baron Jay Gould. He launched a series of initiatives against the trusts, and in doing so he deflected much of the popular anger that arose from glaring inequalities of wealth and power. The contrast with Russia was marked. Roosevelt's Russian counterpart, Tsar Nicholas II, also had to grapple with the issues of empire and soul, but not only were there no mechanisms available to him to capture the spirit of dissent, as Roosevelt had done in America, but fundamentally there was no desire to do so. Nicholas, as the supreme autocrat, simply did not believe that his role was to ‘represent' the concerns of the people in the way Roosevelt would have understood the term. The tsar was not the voice of the people but its emblem. He represented Russia as parents might represent children, not as elected officials represent their constituents.

Roosevelt, on the other hand, fulfilled another role for his nation's children. On a hunting trip in Mississippi aides presented him with a captured bear cub to shoot, but Roosevelt considered this unsporting. His act of mercy was caricatured in the
Washington Post
and a New York shopkeeper put the cartoon in his window alongside a toy bear made by
his wife: the teddy bear was born. (Teddy Roosevelt's generosity to the toy industry was not matched by generosity to the original cub: when the president declined to kill it another member of the party did so.)

The two most important developments in American history between the civil war and the First World War were the globalisation of American imperial ambitions manifested in the Spanish-American War and the birth and rapid growth of the corporation: the commercial structure that would come to dominate the economy of the world.

Initially the major corporations were the playthings of the new class of oligarchs, the robber barons, who were deeply unpopular with those at the bottom of society who created the wealth so ostentatiously displayed by those at the top. (In another very tenuous link between Roosevelt and Churchill, an explosive book entitled
Coniston
stirred up public anger over the links between the oligarchs and corrupt officials. Its author was Winston Churchill, cousin and namesake of the British politician.)

The unadulterated greed of the oligarchs eventually antagonised just about everyone, from the workers and customers they exploited right up to the most exalted in the land. Supreme Court Justice John Marshall Harlan, a conservative Republican, proclaimed that the country was in real danger from another form of slavery in which a few mighty capitalists controlled, exclusively for their own profit and advantage, the entire business of the country. In England the 1624 Statute of Monopolies had taken away the power of the crown to grant monopolies, but in the United States nothing stopped their development, which often took place – as with the railways – with the active encouragement of the government. State legislatures, especially in the west and south, passed laws to regulate business, but the trusts simply re-established themselves in friendly states like Delaware and New Jersey.

By 1888 public discontent was so strong that both political parties put anti-trust planks into their presidential platforms. In the same year President Rutherford B. Hayes famously recorded in his diary, ‘This is a
government of the people, by the people and for the people no longer. It is a government of corporations, by corporations, for corporations.' Two years later Congress overwhelmingly passed the first federal trust-busting legislation, with just one vote against in the Senate and none at all in the House of Representatives. The Sherman Antitrust Act, named after Senator John Sherman, brother of the civil war general, declared illegal any contract, combination or conspiracy in restraint of interstate and foreign trade and authorised the federal government to institute proceedings against trusts in order to dissolve them. However, to get through Congress the Act had been made deliberately vague and the Supreme Court initially prevented federal authorities from using the act against their intended targets. Instead the American propensity for legality over justice was seen once again as an Act supposedly designed to curb the oligarchs was instead used to enhance their power. In 1894, in the case of US v. Debs, the Supreme Court ruled that the Act could be used to stop trade unions from interfering with commerce, and in the first ten years of the law's existence many more actions were brought against trade unions than big business. Businesses like the Pullman Railcar Company argued that unions were conspiracies in restraint of trade, and gained legal authority to use state and federal militia to support their union-busting activities.