Americans Wanted: Russia's Bid for Capital and Enterprise

I

ECONOMICALLY speaking, the world to-day is out of balance. The Great War and the period of reconstruction have created a condition of too much and too little. The United States, with over half the available gold supply, has a plethora of capital, which is constantly on the increase. Wall Street has become the world’s banker, loaning to nations first according to their ability to repay and t hen according to their needs. In spite of vast amounts already given, the surplus of capital still exists, a fact evinced by the cheapness of money in both the New York and the London market. Further avenues of investment must be found. Russia, with a population of 145 millions, with a territory comprising one seventh of the earth’s area, with every conceivable natural resource, offers under certain conditions a market of immense potentialities to American capital.

So much unreliable propaganda pro and con has been published concerning Russia that for the purpose of obtaining first-hand knowledge I spent some months there making a survey of economic and social conditions.

One needs but visit Russia to-day to know immediately both the great need and the intense desire on the part of the entire country for foreign capital and foreign technical brains. Wherever I went, at the Foreign Office, at the banks, in the factories, even in the peasant cooperative stores, the cry was ‘ We are poor — so poor. We must have American capital. We want American business brains over here.’ Litvinoff, acting Minister for Foreign Affairs, candidly admitted to me, ‘We have reached a point in our economic development where foreign capital is essential to our welfare. For the sake of obtaining it we are prepared to satisfy the American demands — namely, to abstain from official propaganda, to make reparation for American property nationalized during the Revolution, and to pay the Kerensky loan. Of course, there will be counter claims for damages, and so forth, wrought at Archangel by the American army of occupation. By promising to abstain from propaganda the Soviet Government simply guarantees that none of its agents — consular, diplomatic, and so forth — will take part in any propaganda movement. As to the propaganda work of the Third International and American Communists the Soviet Government cannot and will not make any promises.’ Sheiman, head of the State Bank, — the institution responsible for the issue of currency, and the very hub of the Soviet banking system, — remarked to me: ‘We must have American capital here. We are willing to pay a high price, a very high price, to get it. Credit needed for the financing of importations, if the collateral is in the form of machinery, such as tractors, or in raw materials, like cotton, is comparatively easy for us to obtain. This merchandise, being shipped in foreign bottoms, is actually controlled by the shipper until arrival at a Russian port. Last year, on cotton purchases alone, credits of over $30,000,000 were extended. Every bill was met absolutely promptly by us. What we need and must have is clean credit for financing the development of our own resources.’

One of the recent short-term state loans issued is paying over 17 per cent interest, 1 per cent per month and 5 per cent lottery. Coöperatives, when they can borrow, pay a minimum of 18 per cent. Individuals arc charged to and beyond 6 per cent per month, often 100 per cent per annum.

One outstanding fact: it was always American capital, American engineers, wanted! American capital because the Russian people feel the United States has no political axe to grind near their borders, no warships to send to Batum at a pin point’s provocation; American engineers because American business methods are regarded as the acme of all that is desirable throughout Russia to-day. Ford tractors, quantity production, American efficiency — these are the gods of every factory worker and peasant, and the secret idols of every Communist.

In loaning to a foreign nation, stability of government is just as important a factor as the development of natural resources for the creation of the trade balance necessary to meet interest charges. An unstable government is often the forerunner of economic chaos. That there is not the slightest possibility of counter-revolution, that the present government of Russia is absolutely stable and in time of trouble would be upheld by the vast majority of the population, is the only subject upon which I found a unanimous opinion. The fountainhead of power to day in Russia is the Communist Party. While bitter disagreements have often tended to disorganize the party internally, at the first show of external opposition the party would come together as a single man. Already distinct changes in policy have occurred, the most important being the New Economic Policy in 1921, which abolished ‘Communism,’ an absolute failure in practice, and established in its place a system of state capitalism, making the coöperative store and the State Trust the basic economic units, which are operated individually and on the principle of profit in management just as our own great trusts are operated, except that they lack the stimulus of private gain and of competition. At the present time the Communist Party contains about 700,000 members, upon whom, owing to drastic periodical purges, the Government can absolutely rely, and who in a sense form the shock troops of the entire system. It must be remembered that to the members of the governing body of the Communist Party, the Politburo, the most important governmental posts are given.

The most important fact is that every organized force to-day in Russia is either a part of the Government or strongly pro-Government. The Red Army is heart and soul behind the Government. Its personnel, with the exception of a few old-line officers, all of whom have been tried in time of stress and are carefully watched, is made up entirely of workers and peasants, for the carrying of arms in Russia is at present a privilege restricted to manual workers. The class issue of the Revolution, instinctively appealing to them, is constantly stressed by a most intense propaganda. Furthermore, great care is taken that the men of the army are well fed and well clothed, and that they have sufficient recreation. Each soldier is given an elementary education and is taught a trade. Coupled with the educational work is the vastest propaganda I have ever witnessed. The newspapers, the bookshops, the theatres — every public approach to the mind and feelings, with the exception of the Church, which, though tolerated, has had its wings clipped by the nationalization of its property and a hostile propaganda, is controlled by the Communists and used as an agency for spreading their ideas. Every army camp, factory, hospital, club, or school has its Lenin shrine, a corner devoted to portraying the life and teachings of the master.

Naturally many of the children of the city and village are pro-Communist, members of the Young Pioneers, the Young Communists, and so forth. Freedom of speech and of thought, as we know it in America, is not even considered to-day in Russia. The Government justifies its action by stating that the minds of the vast majority of Russian people are to-day in an evolutionary state; that the purpose of the Government is to wed these minds to an ideal — Communism; that by eliminating all opposition it is easier to carry through this programme. At all events, the mixture of good living and constant propaganda has created an army that is solidly behind the present Government.

The only other organized force today in Russia is the industrial workers. That they should be pro-Government should occasion no surprise when one remembers that it was the workers who organized the Revolution, and that some form of socialism was their goal. To-day in a sense they are the real power of Russia. It is from the tradeunions that the vast majority of government leaders are picked. The workers are favored at every point. They are given more votes and more privileges than any other group, and they have what purports to be a voice in the management of the industry in which they are employed. But concerning the real problems of management — technical, financial, and sales — the workers have relatively little to say. Naturally all these factors have made of the worker a staunch adherent of the present Government.

II

In order to know the peasant point of view I made a journey of 300 versts on horseback through the countryside and spent some time in a peasant village on the Volga with Albert Rhys Williams, who has devoted the past year and a half to an intensive study of the Russian peasant. The division of the old landed estates and the decreasing tax rate have satisfied the peasant to a great extent, although to-day he is complaining bitterly about the high prices which he has to pay for manufactured goods. While in Kvalinsk, I asked the head of the coöperative to give me some data on the increased price in manufactured goods and the peasant reaction. He replied that most manufactured goods which the peasant used had advanced between 200 per cent and 300 per cent in price. Cotton goods, for example, were 130 per cent dearer, clothes 300 per cent, shoes 150 per cent more than 1913 prices. The railroad rates had advanced about 100 per cent. Taxes were slightly lower; the peasant in 1913 got anywhere from sixty kopeks to a ruble for a pood of wheat, and to-day he is getting between a ruble and a ruble, twenty kopeks a pood. I then asked him how one could expect the peasant to be satisfied with the present Government if he was only getting an advance of about 25 per cent on the prices of his product and must pay between 200 and 300 per cent increase for the necessities that he must buy. He replied very honestly: ‘Of course the peasant is dissatisfied, but his dissatisfaction does not begin to compare with that of us Communists. You must remember that the peasant is practically self-supporting; that perhaps only 15 per cent of his budget goes to the purchase of manufactured goods. He raises his own food, furnishes his own transportation, heat, and light; he has his own home and often makes his own clothes. Therefore the increase in manufactured goods has not hit him so hard as it would first appear.’

Another fact to be taken into consideration is that the Government explains its every move to the peasants. In every guberniya, which is equivalent to our state (there are about seventy in the whole country), there is a yezd committee (county committee) which delivers the commands of the central guberniya committee to the lower orders of the party (volost or township committees). These in turn send out into the country a vast number of trained speakers, whose duty it is to explain the whys and wherefores of every government order to the peasants — such as the raising or lowering of a tax, for instance.

This organized group of ‘ Communist orators’ in turn reports back the reactions of the village to its central committee, and so forth, and by this system the party leaders are in constant touch with the pulse of the entire countryside. Many a measure which in itself might have produced fierce resentment has with the use of reasoned propaganda been successfully carried through.

I was so fortunate as to come across a conference of the Kvalinsk district soviet presidents in session. Great bearded men, with the mud of the steppe still on their boots, were trying mightily for the first time in their existence to understand the problems of government. They had been called together to consider the best method of repaying the government seed loan made at the time of the famine, and of creating a grain reserve against possible future famines. Even though the crops were ready for cutting and every day was precious, still to a man they had come, some walking forty or fifty versts to attend the meeting. A young Communist presided, eager and intelligent. He was the district president, who before the day was over would report back to the volost president the sentiment of the peasants in his district. The Soviet Government, by wiping out illiteracy and by teaching its peasants to think politically, is sowing seeds for the destruction of its own despotism.

Not only are prices high, but merchandise often is not available. I came on many a coöperative whose shelves were practically bare of many necessities. This situation has caused strife within the party and has brought forth an Opposition that is dissatisfied with the present economic development of the country. The Government — or ruling majority party members — maintains that the economic development of the country must of necessity be slow, and that it must grow out of the profits coming from industry itself. The Opposition demands that for the present a greater tax be levied on the peasant and that the burden of a quicker growth of industry be borne by him. The Opposition also desires more latitude for foreign concessions, hoping to bring about a speedy economic development by the use of foreign capital. When I speak about the ideas of the Opposition I must add that I am expressing only the ideas of the majority within it. In Russia the Opposition does not present a united front as in America or England. Each member has his own pet ideas and theories, and often they are totally different from those of the other members. The Opposition at present consists of Zinoviev, Lashevitz, Kamenev, Krypskaia (Lenin’s widow), Radek, Piatokoff, Rykovsky, and Trotsky — practically the entire group of old-line party and government leaders. Besides being dissatisfied with the economic progress of the Government, the Opposition desires more freedom of expression within the party. The present rule is that, after the majority within the party have voted on a question, the minority not only must acquiesce in the decision, but must actively support it, and forever cease from criticism. Furthermore, the Opposition is allowed little or no public expression.

As far as the Opposition is concerned, the most important point for the American capitalist to know is that it claims that socialism so far has been a disappointment and that the best way to develop the country is with the help of foreign capital. Stalin, in the latter part of August, made a very important statement. He claimed that one half of the budget, or two billion rubles, had been used up in the bureaucratic administrative expenses of industry; furthermore, that in spite of terrifically high prices industry does not show the profit expected. True, the budget of industry shows a balance, — in fact, a slight surplus, — but, and here is the crux of the entire situation, no adequate depreciation charges and only very slight outlays for new machinery have been made. Machines do wear out, and some very quickly; buildings do need repairs, and, unless an adequate depreciation charge is made, what may seem an adequate profit may turn into a very large loss. Russian industry cannot go on indefinitely disregarding basic factors. As Djerzinsky, before his death, pointed out, the cost of bureaucratic domination of industry must be reduced, and unless the Communist Party can find some way of economizing in this direction the progress hoped for cannot be realized, and the people will continue in want.

It should be noted that, although the Opposition has been silenced by the majority within the party, — Kamenev, who incidentally was inefficient, has been deprived of the office of Commissariat for Trade; Lashevitz and Belinski have been prohibited from taking any responsible office for the next two years; Zinoviev has been removed from the Politburo, — still the ideas of the Opposition have often been taken up in time by the party itself. Stalin is secretary of the party and literally the political boss of Russia to-day, having gradually made that position for himself by squeezing, one at a time, his own men into key positions; but although he controls the Politburo of the party, which is the real ruling power of Russia to-day, he is not a man of originality, and in due time he usually adopts some of the ideas of the Opposition and makes use of them. For example, when Trotsky advocated more democracy within the party he was deprived of the chief command of the army and sent down to the Caucasus to think over his action. However, to-day Trotsky’s ideas have been adopted by the party as a whole, and the district secretaries, who had been previously appointed, are now elected by the people, as Trotsky desired.

III

The official attitude of the Russian Government toward granting foreigners concessions is best summed up by a pamphlet Lenin wrote concerning the subject in May 1918: —

Concessions are the simplest case or example of the way in which the Soviet Government directs the development of capitalism into the channel of state capitalism, or how it plans state capitalism. We are now all in agreement that concessions are necessary, but not everyone realizes what is the significance of concessions. What are concessions under the Soviet system, from the point of view of the social economic order and its corelations? They are the agreement, the bloc, the union of the Soviet proletarian state government with state capitalism against petty proprietorship and petty bourgeois elements. The concessionaire is a capitalist who conducts business in a capitalistic manner for the sake of profits. He agrees to contract with the proletarian government for the purpose of obtaining surplus profit or for the sake of obtaining such kinds of raw material as are impossible or extremely difficult to obtain in any other way. The Soviet Government gains, by the development of its productive forces, increase of the quantity of products, and by setting up state capitalism in the form of concessions the Soviet Government strengthens large production as against the small . . . strengthens and regulates state economic relations in counterweight to petty bourgeoisie economic relations. State capitalism in the form of concessions is the simplest, most precise, clear, and accurately definite form of capitalism. . . . Capitalism is an evil in relation to socialism; capitalism is a blessing to mediævalism in relation to petty production. In so far as we are not yet strong enough to realize the direct transition from petty production to socialism, capitalism is to a certain extent inevitable.

To enumerate the concession possibilities in any but a brief way is beyond the limits of this article. In oil alone the resources of the Soviet Union have been estimated to constitute some 680,000,000 barrels, which would make 37.4 per cent of the entire world resources. The Government is publicly advertising that the following fields are open to foreign concessionaires: the Kertch-Taman oil regions in the Crimea, the Kakhetian, the Shirakai, the Chatma, and the Naftaln fields in the Transcaucasian regions, the great Fergana oil regions in the Uzbek Republic, the Oukhta fields in the Archangel Province, the Perihai fields situated in Daghestan on the coast of the Caspian Sea halfway between the Grozni and Baku fields, and the great Emba fields on the northeastern coast of the Caspian. The most important oil regions are the Grozny, Baku, Maikop, and Emba. These are concentrated in the Caucasus and on the north shores of the Caspian Sea and close to the Black Sea, which makes their export extremely convenient. Considering the rapid depletion of the American oil fields, the increasing importance of the Russian oil fields to world industry cannot be overemphasized.

As for mining concessions, there are fields of coal, tin, molybdenum, silver, lead, zinc, iron ore, tungsten, manganese, and gold, all open to the foreign concessionaire. Maps and surveys showing the situation, transportation facilities, estimated amount of ore, and so forth, have been prepared by the Concessions Committee in Moscow, and are readily accessible to the interested foreign capitalist.

The area of the Soviet Union covered with forests constitutes, according to some computations, one third of the world forest area, and, according to others, almost one half. There are no precise data available as to the territory of the U.S.S.R. covered with forests. The estimates fluctuate from 590 million hectares to 800 million. At the present moment favorable conditions for the industrial exploitation of forests exist chiefly within the boundaries of the European part of the Union. In the area covered with forests in the Far Eastern regions, forty-four different forest areas are offered to the foreign concessionaire, the most important being the areas along the Pacific Coast and the Amur River, on account of transportation facilities.

In this connection it might again be pointed out that the estimated exhaustion of the forest and timberexporting area for the most part of America will bring to the front the timber trade of the U.S.S.R.

In a letter to me setting forth the possibilities and opportunities for foreign capitalists in the field of industrial development, especially electrical, Yanpolski of the Concessions Committee asked for foreign capital in t he form of specific loans for the erection of hydroelectrical stations. He stated that the Government is willing that the equipment for the power stations shall be purchased from American firms, ‘in accordance with the advice of the banks on the basis of the loan,’ and on condition that the equipment corresponds to the technical plan and its drafts. The assistance and technical supervision of American experts would be welcomed. Yanpolski drew attention particularly to the huge project of the Dnieper Hydroelectric Station, the energy to be used for the erection of ammonium, ferromanganese, and electro-steel factories; to the construction of the Sverdlovski Hydroelectric Station, two hundred kilometres from Leningrad, to supply Leningrad and its industries with electric energy. The capital required for this latter project is forty million rubles, and the capacity is 800,000 kilowatts.

Another form of concession open to the foreign investor is the mixed trading company. The foreign capitalist puts up all the money and receives 50 per cent of the stock of the company. The company usually has a concession monopoly for the export of a specific raw material, such as poultry products, wool, and so forth. However, these concessions play a decidedly minor rôle in the export-import trade of Russia, of which 96 per cent is controlled by the Government.

IV

Of the eighty-eight concessions operating in Russia to-day there are only five or six worthy of note. The foremost are the American Harriman Manganese Concession, with mines at Tchiatura in Georgia, and the Lena gold fields, concentrating the interests of five British firms, who owned in Russia, prior to their nationalization, a number of mining and industrial enterprises in the Urals. A large timber concession has been granted to the German firm, Walldingvatri, and two large agricultural concessions have been granted to the German firms of F. Krupp and Druaid. The Krupp concession covers 25,000 dessiatines in the Don region, and the Druaid concession covers 25,000 dessiatines in the Republic of the Volga Germans.

The Concessions Committee was extremely anxious to bring to the attention of foreign capitalists the Ural Emba oil fields as a concession, because, although these are among the richest of the Russian oil fields in prospective resources, the Russians themselves lack the large capital essential to their successful development. The Emba oil is distinguished by its very high quality, which permits it to be refined into high-grade lubricating oil. The refining has been carried on partly in Baku, but mostly in Yaroslavl and Nizhni Novgorod.

The entire district is very poor in ways of communication. On one side is the Caspian Sea with its natural primitive harbor, Rakusha, to which the southwestern part of the district gravitates. On the other side the Tashkent railway is adjacent to the northeastern part of the district. The valley of the River Tersakan is just as far away from the railway as from the sea. The southwestern part also suffers from lack of waterways.

In order to subject this district to proper exploitation, it will be necessary, besides equipping and digging the wells, to erect a port in Guriev instead of Rakusha and to equip this port for oil shipment, erecting suitable pipe lines from Guriev into the various fields. From Guriev the oil can be carried by tanks to Baku and thence shipped by rail or pipe line to Batum on the Black Sea. The present sixinch pipe line from Baku to Batum is already heavily overloaded, and it is probable that one of the conditions of the concession would be either the building of a larger line from Baku to Batum or the linking up by pipe line of the Emba fields with Grozny and the construction of a twelveor sixteeninch pipe from Grozny to some port on the Black Sea. In the latter event some sections of the Grozny fields would in all probability be allotted to the concessionaire constructing the necessary pipe lines.

On my last day in Moscow I had a farewell interview with Litvinoff, acting Minister for Foreign Affairs and one of the cleverest members of the present régime. At times Litvinoff talks quite freely, having the reputation of being one of the few leaders willing to take the responsibility of a decision on his own shoulders. We had been talking about American recognition, and he again stressed the fact that Soviet Russia was willing to meet the American demands — that they, in the Foreign Office, were eager to send a debt-funding commission, and so forth. We passed on to Grozny, which, along with Baku, ranks as the world’s richest oil field.

I had questioned him regarding the possibility of a foreign concessionaire obtaining the field. His reply was: ‘We are not considering giving Grozny at the present time. It forms a very great source of revenue for us now and is constantly on the increase. However, our original contract with Sinclair stipulated that he should receive part of Grozny. I think that proposals in which mention is made of foreign credits to this Government might be considered favorably. At all times we should be interested in receiving proposals for the building of a pipe line from Grozny to the Black Sea.’

And then, as if by accident, he added: ‘Do you think your connections in America would be interested in obtaining a concession for the Chinese Eastern Railway?’

Strangely enough, I had followed the fortunes of the Chinese Eastern Railway for some months previous, being interested in it as a possible cause of war between Japan and Russia and also as the main connecting link between Japan and her base of supplies in event of war with America; for Japan depends to a large extent on Manchuria for her food supplies, chiefly the soy bean, and is therefore dependent on the Chinese Eastern Railway, which, beside being the short line to the Pacific, connecting with the Trans-Siberian at the Manchurian frontier near Chita and extending across Manchuria almost to Vladivostok, pierces the heart of Manchuria with a branch line running south from Harbin almost to Mukden itself, from which point the Japanese control the railway lines extending south and east to Port Arthur and through Korea.

The railway is now owned half-andhalf by the Chinese and the Russians, with the proviso that the managing director be a Russian. The rolling stock and road bed are in good condition. Last year it was estimated that the road earned approximately twelve million gold rubles, roughly six million dollars.

The ‘nigger in the woodpile’ is that for the past year and a half the Chinese Eastern has formed the centre of all the friction between the Russian Government and Chang Tso-lin, who, being in the pay of the Japanese Government, is acting on their behalf. The Japanese have recently built railways of their own in Manchuria, and it is impossible for them to reach their own connections and, subsequently, tidewater without crossing the Chinese Eastern. Not only does a special provision in the ChinoRussian treaty grant protection to the Chinese Eastern Railway from having its lines crossed, but should such a crossing be made, a great deal of traffic now routed on the Chinese Eastern would be transferred to the Japanese railway, and there would be a consequent falling off of the earnings of the Chinese Eastern.

Great pressure is being brought to bear by Chang Tso-lin on the Russians to permit this crossing, which is essential to Japanese success. On the day before I had my Litvinoff interview Chang Tso-lin had seized the entire river fleet belonging to the Chinese Eastern.

By pawning the Chinese Eastern Railway to American capitalists, the Russian Government no doubt feels that it would thus be able to shift profitably a troublesome burden, which it is likely to lose at all events, since at the present moment Russia is unwilling for war if it can possibly be avoided.

Even though the acquisition of the Chinese Eastern might furnish rich revenues and definitely prevent Japanese expansion, if such a step were desirable, I question very much if American interests are willing to let themselves become involved in the constant embroilments of the Far East, especially Manchuria.

V

To give a clear idea of the operations of a concessions agreement, I shall quote extensively from the agreement drawn up between Harriman and the Soviet Government, which has been officially published by the Concessions Committee.

The agreement was concluded in June 1925 for a term of twenty years. According to it the firm is to have the exclusive right to explore and work the manganese ores (and peroxide) in the Tchiatura district, Georgia, and the exclusive right to export the ores of this district. The Government, however, retains for itself a section of the Tchiatura district containing fifteen million poods of ore, with the right of exploiting this section of the territory, but without the right of exporting abroad the ore obtained. The concessionaire is entitled to dispose of the ore on the home market only by special agreement with the Government. The concessionaire is obliged to take measures for extending the sale of Tchiatura ore abroad.

All property in connection with the extraction and treating of the manganese ore in the Tchiatura district belonging to the Government at the time when the agreement was concluded is to be handed over to the concessionaire, also the necessary plots of territory for warehouses and loading applications in the Tchiatura district and in the port of Poti. The concessionaire enjoys privileges regarding imports into the U.S.S.R. of necessary equipment articles.

The concessionaire agrees to expend not less than one million dollars for constructing new mines, and so forth, as well as for regrounding and building new factories, and must reconstruct a narrow-gauge railway, from Sachtiri Tchiatura to Shropon Poti, into a broad-gauge line, bringing its transport capacity of 70,000 tons up to 125,000 tons. Accordingly the concessionaire is obliged to reconstruct the section of the main railroad line, Ihor Poti, this line remaining in the hands of the Government, which guarantees transportation on the basis of fixed tariffs. The concessionaire supplies the Government gratuitously with railway wagons necessary for transportation purposes. The minimum expenses of the concessionaire regarding this part of the agreement are fixed at two million dollars — which, incidentally, will not begin to cover the expense of the construction as now planned. The concessionaire is obliged to construct in the port of Poti special loading installations with a capacity of 1,200,000 tons of ore per year, with an expenditure of not less than one million dollars.

The production programme is fixed at not less than 500,000 tons of ore yearly. Nonfulfillment of the programme entails, beside a money penalty, the cancellation of the agreement.

The concessionaire pays the Government four dollars for every ton of ore exported and nine dollars for every ton of peroxide, and he guarantees payments on the basis of average yearly exports of 800,000 tons of ore and a certain quantity of peroxide. Beside this the concessionaire pays the Government a part of the possible surplus profits, the limits of which are indicated in the agreement, and also a certain sum per hectare to the mines. Further, the Government reserves the right to purchase from the concessionaire any quantity of ore at the cost of production, for the requirements of the home market.

Should the concessionaire refuse to build a ferromanganese factory in the U.S.S.R., the Government is entitled to build such a factory. In the event of the Government exporting the ferromanganese abroad, it pays the concessionaire about one dollar above the cost of production for every ton of ore containing the normal percentage of metal.

The concessionaire undertakes the regulation of all interests of private firms working in the Tchiatura district prior to the concession, and at the same time he is entitled during the first period to attract these firms of contractors for the purpose of extracting and washing the ore.

VI

So far no one of these large concessions has been in operation a sufficient time to prove whether or not the concessions under existing agreements will be profitable. However, it is safe to say that up to the present time no profits worthy of the name have been extracted. From the experience of each concessionaire something can be learned which every future concessionaire should take into consideration. Harriman made the vital error of not obtaining monopoly control of the Russian manganese market when he entered the field. As matters now stand, the Russian Government, controlling the Nikopol field and having no royalties to pay, can undercut Harriman in price at any time it sees fit. Furthermore, — and this is a most important point, — the Government, by its monopoly control of the exportimport market, can sell its export products abroad at a loss and, with the foreign gold thus obtained, either issue tchervonits notes, requiring but 33 1/3 per cent gold reserve, or else buy foreign necessities, such as cotton, rubber, manufactured articles like machinery or tractors, articles which people must absolutely have and for which they are willing to pay any price, and then sell them in the home market for 300 per cent above cost. This is actually being done. Price in Russia to-day a safety razor, a suit of clothes, or a Ford tractor, and you cannot help but realize the truth of the above statement. Because of this no concessionaire is safe in selling, without either complete monopoly control or a sales agreement with the Russian Government, a product in which dumping may affect world market prices.

Thus far the German agricultural concession on the Volga has not been able to make a profit, first because of the low prices existing in the world market for wheat, and secondly because of high labor and transportation costs.

The timber concession operating near Petrograd had a very difficult time in the beginning because of inefficient Russian management. The Germans have now placed their own men in the key positions and from the latest reports are beginning to show a profit.

Another point which should be given due consideration by the foreign concessionaire, especially in regard to a concession which sells its products in the internal market, that is, to the Russian people, — such as a merchandise concession selling tractors and receiving payment in rubles, or even an electric power concession in which the fees are paid in rubles, — is that the concessionaire is entirely at the mercy of the State Bank, which, because no free exchange market exists, is the only medium through which foreign exchange can be obtained. Unless there is a specific agreement in the concession dealing with matters of exchange, it would be very difficult to exchange any large amount of tchervontsi or rubles for foreign currency. True, a black bourse does exist, but, being illegal, is not worthy of serious consideration.

Another danger which besets the concessionaire is that he will receive but scant protection at the hands of the Russian law court as it is now constituted. True, the law is codified, but in the matter of penalties a great deal of latitude is permitted. In as mueh as the court itself is composed of workers, elected by the various trade-union committees, there exists the likelihood of class prejudice entering into the decisions, especially in cases between Russian workers and foreign capitalists. I think this can be best exemplified by two stories told me while I was visiting the Harriman mines. One of the American engineers had bought a house. According to Russian law the tenants occupying the house have the right to remain there until other quarters are found for them. Cognizant of this law, the American duly found other quarters in the town for the occupants of the house, and then proceeded to ask the tenants to vacate. They refused to move. After a week of politeness and constant urging, the American lost his temper and threw the Russians out, bag and baggage. The Russian labor court gave the American a year at labor. When I last saw him he was serving his time constructing a sewer for the city of Tchiatura. One more example. A very large hydroelectric power station was erected near Tiflis; German engineers were in charge of the operations. Through negligence on the part of the workmen, a scaffold had fallen and killed two laborers. The German engineer in charge received a sentence of two years of solitary confinement and hard labor.

All-important to any concessionaire is the labor supply. The labor supply in Russia is plentiful, but the efficiency of the Russian worker as compared to that of the American is very low. I have often watched groups of laborers at work loading ships, hauling stones, building houses. They would stand around talking idly, dreaming, wasting endless moments debating whether this or that was the better way. At all times they seemed to lack push. During my visit to the Harriman concession, one of the American engineers pointed to a pile of machinery in the warehouse. ‘See that machinery there,’ he said. ‘In America it took four men a half day to load it on shipboard from the box cars. Guess how long it took these birds — two days with fifteen men! And at that I had to do most of the work myself. These Georgians are too lazy even to close their eyes at night. The Russian does a good job when directed properly and given some decent encouragement. If I had an all-Russian gang and they could only keep away from the vodka, I should not ask for anything better. Blit these Georgians!’

Albert Rhys Williams estimates that the average laborer in Russia does not work over 150 days a year, taking into consideration summer holidays, church and state holidays. Of course such matters as working hours, number of holidays, and so forth, could and should be provided for in all concession agreements.

Questions of transport are essential to the economic life of the country. It was the breaking down of the transport system as well as a bad harvest which was responsible in large measure for the intense suffering during the great famine. In many sections of Russia huge quantities of grain, unable to be moved, lay rotting in the warehouses of the northeast.

To-day transportation is back to a pre-war basis. Freight is being moved with regularity on the railroads, although there is a shortage of freight cars which will be felt especially at harvest time. The Volga and other river shipping has been resumed. Passenger train service is excellent to Leningrad, to the Polish frontier, to both Nizhni Novgorod and Saratov on the Volga; and even to the Caucasus I found express train service with seized international wagon lit cars, scrupulously clean and well serviced. Although I saw countless ‘bad order’ locomotives rusting in the yards, still there seemed to be sufficient locomotives in good running order to satisfy the needs of the traffic. The roadbeds and bridges seemed in good condition.

VII

In summing up the financial and business aspects of the situation I feel that under proper conditions, which include American recognition and a favorable settlement of the debt question, Russia offers to the concessionaire who is strong enough to exact from the present Government proper working agreements for his own protection many interesting possibilities.

As far as a shite loan is concerned, under the present state of public opinion in the United States such a loan would be almost impossible to float. Nevertheless many of the essentials of a safe and profitable loan already exist, such as a stable government, a stable currency, a balanced budget, sufficient natural resources for great development, and governmental control of the export-import trade, by which a sufficient export balance could always be maintained to provide the necessary gold imports to meet interest and sinking-fund charges.

The Russian nature is the greatest obstacle to economic progress. With the will to work and proper organization, Russia would not be forced to hold out hungry hands eternally to the foreigner. As long as the spirit of ‘Nichevo’ persists, no matter how much capital is poured into Russia from the outside, the Russian market will prove disappointing, for wealth and purchasing power, while dependent on natural resources, are developed only through honest work. How often has every foreigner sat in a Russian office cursing the Russian who with cigarette in hand takes countless minutes dawdling, discussing with colleagues some detail we arc accustomed to accomplish at a minute’s notice. Take the simple cashing of a letter of credit. At the State Bank, where there is a special department which attends to that work daily, your letters of credit must pass through at least five different hands before your business is finished, and then only after countless repetitions of ‘Please hurry!’

I made a real effort to understand the Communists — not only the leaders, but also the workers. I went to their clubs. I even joined a Communist swimming club, although, not being a union member, I was admitted only as a privileged guest. There is absolutely no doubt in my mind that the men who are at the head of the government are sincere, idealistic, according to their lights, altruistic, and willing to sacrifice themselves unstintedly to a cause they believe in with almost fanatical faith.

I question very much if the masses of the people are ready, or will be ready for many generations to come, to work without the stimulation of private profit. True, in isolated cases the desire for the fulfillment of an ideal, or the desire for creative endeavor, has often been sufficient inspiration for noble and unselfish work, but in these instances the doers have been persons possessed either of rare initiative or of great sensitivity, and not of the mould of common clay of which the great majority are composed.

The great fault I have to find with Communism is that it substitutes mass dictatorship for individual initiative and freedom. The life of the Communist is regulated absolutely by the will of the party, and it is an iron discipline applied from within as well as from without. If the party decides a man should work in Daghestan, he must go without question. He cannot receive more than 225 rubles monthly for salary. He (or she) must take an active part in the social life of the community, such as sitting on trade-union committees, teaching at the adult schools, joining in the work of the theatre (organization part of every factory), leading atheist discussion groups, and so forth. At all times I have found the Communist is the hardest-working and the most efficient member of the community. He markedly deserves the responsibility of leadership because he is willing at all times to do more for the public good than any other individual in the community.

In many cases Communism reminds me of Christianity — it is a religion, an ideal of life, and just because of its religious and emotional appeal it attaches to itself groups of followers who, like all deeply religious persons, are imbued with the crusading spirit. It is a long step from the worship of the ideal to the practice, and just as the ideals of Christianity have rarely been realized in actual living, so it seems to me Communism will remain an ideal, a religion, which, in spite of the most gigantic propaganda ever witnessed, will be unattainable for many generations to come.

No man is truly free unless, by means of saving, he is able to put aside enough of the world’s goods to guarantee him a certain amount of leisure, liberty of movement, and freedom from the worry of having to provide eternally for the wants of the following day. In socialist society, saving is a physical impossibility, and one is always dependent upon either the Government or the workshop for one’s existence and welfare.

I have not the slightest fear of Communism’s being adopted in America. It does not suit our Western European temperaments. The Russian is not the most Eastern of the Europeans, but the most Western of the Orientals. This fact was vividly brought home to me almost daily in Moscow, not only by the physical aspect of the city, so much akin to Peking, — with its multicolored roofs, its fantastic domes, its walls, its great squares and long, flat streets, heavy with the dust of the plain, — but also by Ihe people themselves, with their belief in endless time, their love of bargaining, and their inborn spirit of fanaticism and fatalism. Just because of these Oriental characteristics the Russian is accustomed to despotism, and although Communists will try to prove to me that Communism is the most democratic of institutions, in actual fact it is a rigid despotism, controlled by a small group of party leaders. Although the Communists still preach and dream of world revolution, with the coming of prosperity to Russia and a satisfied working class the ardor will die, and then no Russian Government would dare ruin the prosperity of Russia by attempting to upset the world market and the avenues of trade on which that prosperity would inevitably depend, for in the complex economic world of to-day no nation lives of itself alone.