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Russian Political Economy from Utopia to Social Engineering, part I

M. Kh. Reutern and Tariff Reform in Russia

M. Kh. Reutern et la réforme tarifaire des droits de douane en Russie
Vincent Barnett
p. 17-27

Résumés

Cet article traite du contenu et du contexte du Mémorandum sur la réforme tarifaire en Russie de M. Reutern qui est publié à la suite dans ce même numéro. Nous traitons d’abord des visées du Mémorandum en termes théoriques et politiques puis nous évaluons son impact sur l’économie russe. Nous comparons ensuite l’approche de Reutern à celles de figures importantes dans l’histoire de la politique tarifaire douanière russe comme D.I. Mendeleïev et M.I. Tugan-Baranovsky. Les liens entre les propositions contenues dans ce Mémorandum sur les droits de douane et les autres éléments de la politique économique de Reutern sont brièvement examinés.

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Texte intégral

1Mikhail Khristoforovich Reutern (1820-1890) has been identified as an important precursor of the Witte system for the state management of economic development, as under his Ministerial tutelage, the Russian railway network increased its capacity from around 2,200 miles to 14,000 (Mosse, 1992, 59-60). Reutern’s tenure as Russian Minister of Finance was a very substantial one, lasting from 1862 to 1878, and hence his impact on post-emancipation Russia was significant (Kipp, 1975, 438). He has been described as “the most talented and dynamic minister of finance under Alexander II” (Owen, 1991, 59). He was also an important figure in political terms, for example being one of the members of the small group within the Russian government involved in a meeting to decide on the issue of the sale of Alaska to the USA in 1866 (Bolkhovitinov, 2003, 255).

2Reutern’s period in office was defined by efforts to promote the development of private credit institutions and to stabilise the ruble, and also to develop a single state budget. Indeed, “Reutern had been only a few days at the head of the Finance Department when he published the first budget of the Empire” (Horn, 1896, Ch.3, 1). As reported in a pre-eminent British economics journal one year prior to the outbreak of the Bolshevik revolution:

Count Reutern…succeeded in maintaining the equilibrium of State income and expenditure, in re-establishing Russian credit abroad, and in encouraging the construction of Railways by placing the credit of the State at the disposal of private companies… (Raffalovich, 1916, 528)

3Hence, his tenure as Minister has often been judged a definite success, at least in respect to his policies on financial and credit reform. Others have pointed out more critically that in fact, Reutern only balanced the regular state budget, and created a separate extraordinary budget which contained much of the costly deficit expenditure; hence his balancing efforts were to some degree a statistical manipulation (Laue, 1974, 11).

4However, one particular area of Reutern’s economic policies that has received less attention from commentators is his work on tariff reform. His general approach to Russian foreign trade policy was to reduce export duties where possible and to promote a free trade agenda, at least as a guiding principle, as he was starting from the relatively high level of tariffs inherited from his predecessors. As early as the late 1850s, Reutern had identified the existing tariff schedule as one of a number of taxes that reflected the archaic and backward nature of the Russian economy (Kipp, 1975, 449). Coming to office in 1862, he subsequently helped to introduce a new tariff schedule in 1868. One source explained that:

Reutern stood for a liberal foreign trade policy. In 1863 almost all existing export duties were abolished…before his appointment, the Tariff Act of 1857 had lowered import duties on a number of goods…The Act of 1868 went still further. (Seton-Watson, 1967, 408-409)

5In 1868 Reutern “abolished some and drastically reduced other import duties on manufactured goods” (Crisp, 1976, 23). Hence, Reutern’s work on Russian tariff policy was significant in reducing both import and export duties, and was partly inspired by orthodox ideas in economics about the benefits of lowering tariff barriers, and partly by an attempt to facilitate the import of investment goods and raw materials that were deemed necessary for overcoming Russia’s economic backwardness (Laue, 1974, 15).

6Reutern was not an unquestioning free trade ideologue, however, and he perceived that some tariffs that were well focused on specific goods could be helpful in promoting economic development. Thus, the Act of 1868 reduced many tariffs, but did not abolish all of them; in fact, some were even raised. This targeted approach was not unusual in the wider European context, and it has received recent confirmation of its effectiveness in bolstering trade flows for some of the specific goods that were involved (Lampe, 2009). Despite various successes in the implementation of his financial and credit reforms, such as bringing all Russian budgetary revenues under the authority of the Ministry of Finance, the Russo-Turkish war of 1877-1878 seriously affected Reutern’s efforts to promote currency stability in Russia, and marked the end of his period in office. Even so, his legacy in beginning to promote sustainable financial development proved very useful to his successors such as Sergei Yulyevich Witte.

7However, there is little detailed discussion in English of his policies in this particular area, or their impact on Russian economic development. In order to increase understanding of this issue, following the discussion below is an original Memorandum on Tariff Reform in Russia that was composed by Reutern in the summer of 1867, which was discovered in a UK archive. Although the source and the mechanism of British obtainment of this Memorandum are not explicitly outlined in the document, it is a printed English translation of Reutern’s original memorandum that appears to have been prepared for use by the British government in policy background briefings at the behest of the British Foreign Office not long after its first composition in 1867. This explains why it was found in a Foreign Office (FO) file at The National Archives in London. It is quite possible that other versions of this document have survived, but, as far as is known, it has never previously been published (at least in English).

8Reutern’s Memorandum was related to the Act of 1868 mentioned above. It discussed the tariff policies that had been conducted by previous Russian governments, and also ideas and institutions to be explored for the then-current round of reform efforts (1867-1868). Some degree of comparative analysis can be obtained by comparing Reutern’s account with the diametrically opposed analysis of Russian tariff policy that was undertaken by the industrial economist and chemist D.I. Mendeleev sometime later (see Barnett, 2004a and 2004b).

1. Analysis of the Memorandum

9Firstly, a few comments on some of the ideas that are presented in the Memorandum will be made. As Reutern explained, in the past (i.e. in the second quarter of the nineteenth century), tariffs in Russia had been used to protect existing industries with significantly sized workforces, rather than only to promote the development of new industries. This was the reverse of the usual infant industries argument for customs protection, and had a purely political or nationalist rationale, as opposed to the economic rationale of the infant industries argument. Within Russia at this time, the ideas of the German historical school were beginning to be extensively promoted, including the protectionism advocated by Friedrich List. The ideas of the British classical economists were regarded with some scepticism, especially the free trade doctrine, which was seen by some to operate only in British interests (see Barnett, 2005). However, the 1850s and 1860s saw a relatively short-lived turn against protectionism in Russia, which was the wider national context of Reutern’s Memorandum (Tugan-Baranovsky, 1970, [1898], 292).

10Reutern’s own underlying argument for proposing a reduction of tariff levels on various goods in 1867 was that allowing rates to be too high encouraged illegal attempts to bypass the payment of duties, and/or transferred commercial traffic from sea to land routes, where differential rates were lower. He believed that some tariff reductions would therefore assist in increasing customs revenue, as more goods would be imported through legal channels. He explained that in certain sectors of industry, falling price trends had produced an effect of increasing actual tariff rates, and hence constant adjustments to tariff levels were necessary. He also recommended that procedural reforms for simplifying the collection of duties would be beneficial. Despite some indication that the dramatic reductions in duties that Reutern had initially proposed were moderated by calls from Russian merchants for protection to remain in certain areas, a programme of tariff reductions was indeed implemented in 1868 (Owen, 1991, 59).

11It is worth noting that, even though Reutern advocated a general reduction in tariffs in 1867-1868, he was still defending differential import duties a decade later in October 1877, when a mid-ranking US Minister complained to him that the USA was being discriminated against vis-à-vis tariff rates. US trade with Russia was more often conducted by sea (where rates were higher) than by land, whereas the trade of continental European states more frequently used land routes (where rates were lower). Reutern replied to the US Minister that since the place of origin of any goods imported into Russia was not a factor in the duties to be paid, no actual discrimination against the USA was taking place. The USA could use continental land routes if they so wanted to: in this instance Reutern was not very sympathetic to external calls for tariff reform.

12Secondly, it is worth asking the question: how does this Memorandum connect with Reutern’s other contemporaneous writings as Minister of Finance? In September 1866, Reutern had written a detailed report entitled “On Measures for Improving the Financial and Economic Position of the State,” in which he argued that the Russian budget deficit had to be eliminated by both raising additional revenue and curtailing state expenditure. This report was considered at a meeting attended by Alexander II (Lieven, 2006, 480). However, this 1866 report only contained a very short section on customs policy (approximately two printed pages), and hence the analysis that Reutern had provided in his 1867 Memorandum was much more substantial on this particular issue.

13The only extra point that Reutern raised in his 1866 report was that of the special importance of customs income from sugar (both raw and refined), as fluctuations in the level of sugar imports had exerted a destabilising effect on total customs income since 1856, and he emphasised the concomitant future necessity to increase excise duties relating to the sugar-beet industry (Reutern, 1999, [1866], 148-150). Otherwise he stressed again the need to increase income from what was often treated as contraband, and described customs policy as one of the most important financial, economic and political questions that faced any state.

2. A Preliminary Evaluation

14Was Reutern eventually proved right about the direction that Russian tariff policy should take in 1867-1868? In order to provide a preliminary judgement on the impact of the 1868 tariff changes, Table 1 shows data on the level of Russian imports and customs revenue for the period 1860-80, and also the nominal tariff rate for this same period. Imports clearly increased in the second half of the 1860s, as also did customs revenue from 1868 onwards. However, the nominal tariff rate (a measure of the percentage relation between total imports and customs revenue) decreased dramatically in the second half of the 1860s, clearly indicating that tariffs were (on average) falling across this half-decade.

15The continued rise of customs revenue from 1868 to 1876 suggests that Reutern’s goal of increasing total tariff revenue was (at least in part) fulfilled, while at the same time, international trade was bolstered through increased imports. The argument advanced by some historians that: “In the 1850s and 1860s…tariff reductions meant a decline in government revenues” was, therefore, inaccurate when applied to Reutern’s own customs reforms in 1868 (Waldron, 1997, 63). This analysis is also confirmed by the figures presented in Table 2, which shows the relation of customs income in Russia to total ordinary government income in the period 1869-1873.

Table 1: Russian Imports and Customs Revenue, 1860-1880

Year

Imports (millions of rubles)

Customs Revenue (millions of rubles)

Nominal Tariff Rate (Customs revenue/imports)

1860

159

35.21

22.15%

1861

167

34.33

20.56%

1862

153

34.73

22.70%

1863

155

36.34

23.45%

1864

175

34.52

19.73%

1865

164

32.45

19.79%

1866

205

32

15.61%

1867

265

37

13.96%

1868

261

37

14.18%

1869

342

42

12.28%

1870

336

43

12.80%

1871

369

49

13.28%

1872

435

55

12.64%

1873

443

56

12.64%

1874

471

58

12.31%

1875

531

64

12.05%

1876

478

73

15.27%

1877

321

53

16.51%

1878

596

81

13.59%

1879

588

93

15.82%

1880

623

96

15.41%

Source: Mitchell (1987, 511 and 750). Customs revenue data for 1860-1865 has been taken from Reutern (1999, [1866], 149) which shows slightly higher figures than Mitchell.

Table 2: Relation of Russian Customs Income to Total Income

Year

Total Ordinary State Income (millions of rubles)

Total Customs Income (millions of rubles)

Customs Income to Total Income

1869

436

41

9.4%

1870

460

43

9.4%

1871

488

49

10.0%

1872

490

55

11.2%

1873

510

56

11.0%

Source: Mendeleev (1950, 920). The figures for customs income in Tables 1 and 2 match for all years except for 1869 (42 million against 41), this very small difference most likely being due to differences in the rounding up of the data.

16Table 2 clearly shows that income from customs duties actually increased to a moderate degree after 1869, both in absolute terms and relative to total state income, and certainly did not decline as a consequence of Reutern’s tariff reforms. By 1881 customs duties as a percentage of total government taxation had reached around 18% (Kahan, 1989, 99).

17The question naturally follows of the effect of these tariff reductions on Russian exports in the same period. Table 3 shows corresponding data on Russian imports and exports for 1860, 1870 and 1880, showing that exports from Russia increased by around 40% between 1870 and 1880. This suggests in turn that Reutern’s tariff reform did not act to choke off significantly the development of Russian industry by hindering the growth of exports, either through facilitating increased foreign competition for Russian goods or by reducing demand from overseas. Table 3 also shows that the Russian trade balance worsened between 1860 and 1880, perhaps partly as a result of the lowering of tariffs, but greater imports of certain goods was a conscious aim of government policy at this time in order to assist in the industrialisation of the Russian economy. The theory at least was that this trade imbalance would only be temporary, and that as Russia industrialised, it would export more of its manufacturing output, and exports were indeed rising alongside imports.

Table 3: Russian Imports and Exports (millions of rubles)

1860

1870

1880

Imports

159.3

335.9

622.8

Exports

181.3

359.9

498.6

Source: Crisp (1976, 112). The data on imports in Table 3 agree almost exactly with those presented in Table 1.

18Finally, some indication of the relative weighting of tariff rates on different types of imported goods after Reutern’s 1868 reform is available from Table 4, which measures tariff levels within three basic production sectors by comparing the duties that were collected from each sector against the value of imports.

Table 4: Tariff Rates by Production Sector in 1869

Type of Good

Import Value (millions of rubles)

Duties Paid (millions of rubles)

Duties/Values (in percent)

Foodstuffs

87.6

27.6

31%

Raw Materials and Semi-Manufactures

189.5

9.5

5%

Manufactured Goods

161.9

14.2

9%

All Items

439

51.3

12%

Source: Gatrell (1986, 167). Table 4 indicates higher figures for both values and duties for 1869 than were given in Table 1, although the nominal tariff rate is almost identical (12% against 12.28%). This discrepancy is not crucial for the comparative discussion presented here, however, as only general trends are being considered.

19The structure of tariff rates in 1869 is very apparent from Table 4. Foodstuffs were (on average) subject to higher duties, whereas raw materials and semi-finished manufactures were (on average) subject to lower duties. This latter policy was designed to assist Russian industry by allowing the import of the required raw materials and semi-finished goods that were needed in the more advanced manufacturing sector.

20It is clear that the 1868 tariff reform was not purely a free trade policy. Out of the 550 items listed in the 1868 tariff schedule, duties on 217 items were reduced, against duties on 169 items that were increased. However, the overall rates of increase were much less than the overall rates of decrease. Of the total 550 items listed, 16.4% of the items had their rates reduced by between 26-50%, 11.3% had their rates reduced by between 11-25%, and 10.4% had their rates reduced by more than 75%. In contrast, the vast majority of the increases were below 25%, and many were as low as 10% (Sobolev, 1915, 11). Hence, the reform was carefully targeted at certain commodity groups, and reductions in tariff rates were not made entirely across the board.

21One final issue worth considering is the apparently odd sentence at the end of Reutern’s Memorandum suggesting that “in the present position of Russia, the Tariff question should not be subjected to the conditions of Commercial Treaties.” An Anglo-Russian Treaty of Commerce and Navigation had been signed in January 1859 that guaranteed “reciprocal freedom of commerce and navigation” between the two countries, and protected against manufacturer and trademark fraud (Treaty, 1859, 2, 9). The British Foreign Office had become interested in trademark law in the 1850s, negotiating various commercial treaties (such as the one with Russia in 1859) to protect it thereafter. The fact that the Foreign Office had prepared the translation of Reutern’s Memorandum can thus be explained as part of a British interest in securing formal commercial relations with European states across the 1850s and 1860s, and thereby protecting the interests of British manufacturers overseas.

22The 1859 Treaty of Commerce also gave both parties Most Favoured Nation (MFN) status, i.e. pledged that they would not face higher tariffs or prohibitions than were imposed on any other countries trading with Russia and the UK at this time, but this did not necessarily eliminate all tariffs between the two states completely (Levi, 1872, 512). By arguing that the tariff question should not be subjected to commercial treaties, Reutern most likely meant that he believed Russian tariff policy should remain flexible and at the discretion of the Russian government: this position should not be negotiated away in any universal free trade agreements where tariffs were entirely abolished.

3. Conclusion

23Is it possible to harmonise the suggestion advanced in this article, that Reutern’s 1868 policy of tariff reductions was (relatively) successful, with the (apparently contradictory) suggestion advanced in a previous article (Barnett, 2004b), that Mendeleev’s 1891 policy of large tariff increases was also (relatively) successful? How can both tariff increases and tariff decreases achieve positive results within the same national context? One answer could be that historical specificity matters; that tariff reductions were the right choice in 1868, and tariff increases were the right choice in 1891. Another element of this apparent duality might be that, as was explained by Tugan-Baranovsky, the 1891 tariff appeared to be successful, in part, precisely because of the previous period of (relative) free trade brought in by Reutern.

24According to Tugan-Baranovsky, it was the tariff reductions of 1857 and 1868 that favoured the rapid construction of the Russian railway network, which in turn were the principal cause of the development of Russian industry at this time and immediately after it (Tugan-Baranovsky, 1970, [1898], 292). But in turn, Reutern’s own tariff policy was successful, in part, precisely because of the previous period of higher protection after 1822, which had enabled the growth of the cotton industry in Russia within a wider context of the technical progress that was occurring at this time (Tugan-Baranovsky, 1970, [1898], 53). Thus, on this analysis, successful tariff changes should be suited both to the commercial context of the country in question, and to its previous tariff history. Blindly supporting either full-scale protectionism or 100% free trade for ideological reasons might be an incorrect approach to adopt. This was the same conclusion about tariff policy that J. M. Keynes came to realise many decades later (Barnett, 2013, 207-211).

25Of course, these are only preliminary propositions based on a strictly limited analysis of the data, but it is hoped that the following presentation of Reutern’s Memorandum on Tariff Reform in Russia will enable scholars to gain a greater insight into the thinking of an important Russian Minister of Finance with respects to tariff policy in a rather neglected period of Russian history.

Thanks are due to two referees for their very useful suggestions.

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Bibliographie

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Vincent Barnett, « M. Kh. Reutern and Tariff Reform in Russia », Œconomia, 4-1 | 2014, 17-27.

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Vincent Barnett, « M. Kh. Reutern and Tariff Reform in Russia », Œconomia [En ligne], 4-1 | 2014, mis en ligne le 01 mars 2014, consulté le 25 avril 2017. URL : http://oeconomia.revues.org/559 ; DOI : 10.4000/oeconomia.559

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