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Western Technology and 

Soviet Economic Development 

1917 to 1930 



By 
ANTONY C. SUTTON 



HOOVER INSTITUTION ON WAR, REVOLUTION AND PEACE 
STANFORD UNIVERSITY, STANFORD, CALIFORNIA 



The Hoover Institution on War, Revolution and Peace, founded at Stanford 
University in igig by the late President Herbert Hoover, is a center for advanced 
study and research on public and international affairs in the twentieth century. 
The views expressed in its publications are entirely those of the authors and do not 
necessarily reflect the views of the Hoover Institution. 



Hoover Institution Publications {76} 

© 1968 by the Board of Trustees of the Leland Stanford Junior University 

All rights reserved 

Library of Congress Catalog Card Number: 68-24442 

Printed in the United States of America 

Second Printing 1970 



To 
Mum and Dad 



Preface 



By far the most significant factor in the development of the Soviet economy has 
been its absorption of Western technology and skills. Previously this technolo- 
gical transfer has not been treated in detail; hence the data that comprise 
Part I of this study are thoroughly documented. Without such documentation, 
the argument of Part II would appear less than credible. The reader may, 
however, wish to pass on to Part II after briefly satisfying himself with the 
general content of Part I. Chapter two discussing Soviet oil, and chapter 
eleven, on electrical equipment, arc representative of the empirical treatment 
of key sectors in Soviet industry. 

The primary sources for data are the U.S. State Department Decimal Pile 
and the German Foreign Ministry Archives, supplemented by journals in 
half a dozen languages from a dozen countries. Of these, the journals published 
by Soviet trade representatives abroad were of particular help. 

Grateful appreciation is due the Relm Foundation for funds to purchase 
several hundred thousand microfilmed documents. Acknowledgment is also 
due to California State College at Los Angeles and to the Economic Opport- 
unity Program for secretarial and research assistance. The National Archives, 
the Library of Congress, and the Hoover Institution library were unfailingly 
responsive and remarkably adept at interpreting requests for information. 
Without their sympathetic aid, this study could have been neither attempted 
nor completed. In addition, Dr. Stefan Possony of the Hoover Institution was 
very helpful in making research suggestions which, in the final analysis, 
turned out to be of fundamental importance. The Hoover Institution also 
accepted the considerable burden of preparing the manuscript for publication; 
particular thanks is due London G. Green for his capable and understanding 
work as editor. 

Finally, acknowledgment is made to F. W. B. Coleman, resident United 
States Minister in Riga, Lativa, during the 1920s. Riga was the main American 
'listening post" of this time, and dispatches by Coleman to Washington, D.C., 



viii Preface 

suggest a deep understanding of events in the Soviet Union. These detailed 
and accurate reports were of major help in this study. 

It is especially important in a study which breaks substantially new ground 
in a controversial area to point out that any criticism concerning the inter- 
pretation of data must fall squarely on the shoulders of the writer, and not 
on his sources. Such criticism is, of course, to be welcomed. 

A. C. S. 
Pasadena, California 
April 1, 1966 



Contents 



Part I. An Empirical Examination of Foreign Concessions and 
Technological Transfers 

Chapter One: Introduction 
Economic Development and the International Transfer of Tech- 
nology 

The Soviet Union and the Transfer of Technology 

The Role of the Foreign Concession, 1917 to 1930 

The Place of the Concession in the Economic History of theU.S.S.R. 
Methodology of the Study 

Chapter Two : Caucasus Oil Fields — The Key to Economic Recovery 

Collapse of Oil Field Drilling 

International Barnsdall Corporation 

Oil Field Properties Covered by the Barnsdall Agreement . . 

Extent of Barnsdall Drilling 

Changes in Drilling Technology at Baku 

Changes in Pumping Technology and Oil Field Electrification 

The 'Pure' Oil Concessions 

Oil Development in the Soviet Far East 

Oil Exploration Technology 

Pipeline Construction, 1925-8 

Refinery Construction 

Acquisition of Foreign Markets for Petroleum Products . . 

Summary of Soviet Oil Development, 1917-30 

Chapter Three: Coal and Anthracite Mining Industries 
Years of Crisis and Stagnation 
Union Miniere and the Donetz Basin Coal Mines 
The Kuzbas Project of the American Industrial Colony . . 
Pure Concessions in Remote Areas 



3 

4 
6 

9 
n 



16 
18 
21 

2 3 
*3 

25 

27 
29 

3° 
31 
35 
40 

43 



45 
46 

48 

5° 



Contents 



Technical Assistance from Germany 

Technical Assistance Contracts with Stuart, James and Cooke, Inc. 

Roberts & Schaefer and Allen & Garcia Contracts 

Results of the Mechanization of Coal Mines 

Chapter Four : Early Development of the Soviet Metallurgical Industry 

The Southern Ore Trust (Yurt) 

Reconstruction in the Metallurgical Sector 

The Structure of Ugostal in 1929 

Concession Offers in Metallurgical Construction . . 
Pure (Type I) Concessions in the Metallurgical Industry 
Technical-Assistance Agreements with Gipromez . . 

Chapter Five: Non-ferrous Metal Mining and Smelting; The Manganese 
Concessions 

Lead-Zinc Mining and Smelting 

Copper Mining and Smelting Industry; Silver 

A Non-Collusive Duopsony; The Manganese Concessions 

The Implications of the Harriman Failure 

Chapter Six: Gold Mining, Platinum, Asbestos, and Minor Mineral 
Concessions 
Gold Mining and Foreign Concessions 

The Lesser Gold Concessions 

Discovery and Development of the Alden Gold Fields 
Platinum Exports 

Bauxite and the Aluminum Company of America . . 
Mica Mining and the International Mica Company, Inc. 

Asbestos Production in the Urals 

Asbestos Roof Shingles Manufacture 
Chapter Seyen: The Industrialization of Agriculture 
The Krupp Agricultural Concessions 

Other 'Pure' Farming Concessions 

German-Russian Seed Cultivation Company 

Technical Assistance in Agriculture 

Cotton Irrigation 

Merino Wools and an Australian Embargo 

Replenishment of Livestock Herds 

Livestock and Dairy Industry Concessions; Union ColdStorage, Ltd. 

Foreign Agricultural Communes in Russia 

Jewish Land Settlement Programs 

The Fate of the Agricultural Communes 

The Agricultural Equipment Manufacturing Industry 



51 
5 1 
S3 
54 

58 

59 
66 

67 

70 

74 



76 
So 
86 
89 



92 
100 
104 
105 
106 
107 
10S 
112 



114 
116 
118 
119 

,121 
122 
123 
I24 

136 
129 

*3* 
132 



Contents xi 

Attempts to Develop a Soviet Tractor, 1922 to 1926 ■ • "33 

International Harvester Company and Nationalization .. ■■ '35 

Position at Mid- Decade '37 

Krasnyi Putilovets and the Ford Motor Company . . ■• ! 39 

Credits Granted by Agricultural Machinery Producers to the Soviet 

Union, 1925 ^3 

Chapter Eight: Fishing, Hunting, and Canning Concessions 

Norwegian Fishing Concessions - ■ J 45 

Fur and Skin Concessions " 4 

Siberian Fish Canneries I4 

American Construction of Salmon Canneries in Kamchatka . . 14s 

Chapter Nine: Restoration of the Russian Lumber Industry, 1921-30 
Severoles Trust and Foreign Lumber Companies 1 S° 

I C I 

Russangloles, Ltd. 

Russhollandoles, Ltd. (Russian-Dutch Timber Company) . . ■ • 154 

Ex-Chancellor Wirth and the Mologa Concession *55 

The Exploles Trust in the Far East "59 

Activities After the Departure of the Concessions ™° 

Pulp and Paper Mills 

Technical Assistance in the Lumber Industry 

Soviet Lumber Trade from 1 921 to 1928 

Chapter Ten : ' Sovietization' of the Tsarist Machine-Building Industry 
The Leningrad Machine-Building Trust (Lenmashstroi) . . • • 164 

Mosmash and German Technical Assistance l66 

Gomza and the Westinghouse Brake Works l6 7 

Gomza and the German and Swedish Locomotive Program . . 168 

The Baldwin Locomotive Technical- Assistance Agreement of 1929 173 
General Electric Diesel-Electric 'Suram' Locomotive . . . . 174 
Technical Assistance to Gomza Refrigeration Equipment Plants . . 175 
General Technical Assistance for Orgametal 
SKF (Sweden) and the Manufacture of Ball Bearings 
Steam Boilers and Mechanical Stokers 
Precision Engineering Technology and Its Acquisition 
Conclusions 

Chapter Eleven: Electrical Equipment Manufacturing Industry and 
Goelro 

The Formation of Trusts x °5 

The Electro-Technical Trust (GET) i 88 

The Electrical Machine Trust (Elmashstroi) 191 

The Low-Tension Trust • • IQ -3 



if 

161 

162 



176 
177 
179 

180 

183 



Contents 



Technical Assistance to the Low-Tension Trust 

The Accumulator Trust 

The International General Electric Company Contracts of 1928 and 
1930 

The Metropolitan- Vickers Electrical Company — Mashinostroi Tech- 
nical Assistance Agreement 

Socialism is Electrification; The Goelro Program 

The Process of Hydroelectric Technology Acquisition 

Chapter Twelve: Chemical, Compressed Gas, and Dye Industries 

Nitrogen Fixation: Basis of a Chemical Industry 

Synthetic Production of Ammonia in the United States 
Manufacture of Nitric Acid and the Dupont Company 

Solikamsk Potash Deposits 

Manufacture of Sulphuric Acid . . . . 

Coke Oven By-products 

The Russian-American Compressed Gas Company -'Ragaz) 

Basic and Intermediate Dyes 

Glass Manufacturing Industry 

Resinotrest 

Conclusions on the Chemical Industry 

Chapter Thirteen: Clothing, Housing, and Food Concessions 

The Formation of Trusts in the Textile Industry 

The Russian-American Industrial Corporation (RAIC; and Sidney 

Hillman 
The Trilling, Novik, and Altaian Clothing Concessions . . 
Technical Assistance to the Textile Industries 
French Technical Assistance to the Silk Industry 

European Button Concessions 

Technical Assistance to the Food Industry 

Technical Assistance in Housing and Plant Construction . . 

Small Household Items 

The Hammer Concessions 

Chapter Fourteen : Transportation and the Transportation Equipment 
Industries 

Reconstruction of the Railroads 

United States Technical Assistance to the Railroads 

The Beginning of Railroad Electrification 

Development of the Russian Automobile Industry 

The Soviet Automobile Industry and Henry Ford 
Telegraph Communications and Foreign Concessions 



i9S 
197 



199 

201 

206 



209 
211 
213 

215 

217 
2l8 
219 
220 
222 
222 
223 

225 

227 
230 
231 
232 

233 

333 

235 
236 

237 



239 
240 

242 

243 

246 

249 



Contents xul 



2 



The Radio Corporation of America Technical Assistance Agreement 250 

German Aid for Reconstruction of Petrograd Harbor . . . ■ 25 " 

Reconstruction of the Russian Shipbuilding Industry . . 25 3 

Foreign Aid in Shipping Operations 2 S4 

The Beginnings of the Russian Air Lines 2 5° 

Chapter Fifteen: German-Russian Military Cooperation and Technology 

Tsarist and Junkers Aircraft Technology 2 S9 

The Red Air Force, 1929 a6 3 

Russian- German Training Centers a6 3 

Bersol Poison Gas Production z °4 

Production of Shells, Artillery, and Submarines for the Red Army 

and Navy a6 5 

Equipment of the Soviet Armed Forces in 1929 266 

Chapter Sixteen: Soviet Trading Companies and the Acquisition of 
Foreign Markets 
Allied American Corporation (Alamerico) 
United Kingdom Trading Companies 
The Russo- British Grain Export Company 
German Trading Companies and the U.S.S.R. 
Russo-Austrian Trading Company (Rusavstorg) 
Compagnia Industriale Commercio Estero (CICE) . . 
Credit from Western Firms 



268 
270 

271 
272 
274 
275 
276 



Part II. The Significance of Foreign Concessions and Technological 
Transfers 

Chapter Seventeen : The Foreign Firm and the' Arm's Length Hypothesis' 
Charles Haddell Smith of the Inter-Allied Railway Commission in 

Siberia a8 4 

The Hammer Family and Soviet Operations 285 

American Organizations for Promotion of Trade with the U.S.S.R. 287 

The American-Russian Chamber of Commerce 289 

American Banks and Soviet Securities 290 

European Trade with the Soviet Union 292 

Conclusions . . . . ■ . ■ • • • • • • ■ • • a 94 

Chapter Eighteen: Organized and Disorganized Governments: The 
State Department and the Acquisition of Technology 
Western Government Assessment of Soviet Intentions . . . . 295 
Erosion of United States Policy on Soviet Trade Credits . . . . 296 
The State Department and Patent Protection 299 



xiv 



Contents 



The Monopsonistic Power of the Soviet Trade Organization 

The Bolshevik Attitude Toward the Foreign Firm 

Bolshevik Leaders and the Joint-Stock Companies 

Chapter Nineteen: The Necessity for Foreign Technology and the 
Process of Acquisition 
The Impact of Revolution on the Industrial Structure 
The Trough of the Industrial Decline 
The New Economic Policy (NEP) .. ■• 
Concentration, Trustification, and Contraction 
The Treaty of Rapallo (April 16, 192a) 
Reconstruction and the Second Bolshevik Revolution 
The Process of Acquiring Foreign Technology 
The German 'Secret' Engineering Departments 
Problems in the Acquisition of Foreign Technology 

The Shakhta Affair 

Chapter Twenty : The Western Contribution to Soviet Production and 
Productivity, 1917-30 

The Contribution of the Early Concessions 

Sectoral Impact of Concessions on the Early Soviet Economy 

Sectors Without Identifiable Concessions 

The Degree of Technological Impact Within Specific Sectors 
The Contribution of Imported Technology to Soviet Production 

Chapter Twenty-one: The Significance of Foreign Technology and 

Concessions for Soviet Exports 

The Composition of Soviet Exports 

The Significance of Pure and Mixed Concessions in Raw 

Development 

Chapter Twenty-two : Conclusions 

Appendix A: A Guide to Sources of Material 

The State Department Decimal File 

Reliability of Data Originating Inside the U.S.S.R. 

Appendix B : List of Operating Concessions, 1920 to 1^30 
Type I (Pure) Concessions 
Type II (Mixed Company) Concessions 
Type HI (Technical-Assistance Agreement) Concessions 

Selected Bibliography 

Index 



3°4 

3°5 
308 



310 

3 J 3 

313 

3i5 
316 

3!7 
318 
319 

322 

3^5 



327 

328 

335 
336 
339 



Material 



34i 
342 

344 

3Si 

35 1 
352 

353 
353 
357 
360 

36s 
369 



Tables 

i-i Concession Applications and Agreements, 1921-30 . - ■ • 9 

2-1 Average Monthly Drilling in Russian Oil Fields, 1900-21 . . 17 
2-2 Distribution of Crude Oil Production and Property Ownership 

in the Baku Oil Fields, 1915 . . ■ • 22 

2-3 Oil-drilling Tcchnique.Percentage Utilization by Azneft (Baku), 

1913-28 * 

2-4 Crude Oil Extraction Technology in Baku Oil Fields, 192 1-2 

and 1927-8 ^ 

2-s Electrification of the Grozny Oil Fields, 1923-7 ■ • • ■ 2 ° 

2-6 North Sakhalin Oil Production, 1926-31 ■ • ■ - 3° 

2-7 Russian Oil Pipelines Before 1930 . . ■ - • • 3 2 

2-8 Soviet Construction of the Grozny-Tuapse and Baku-Batum 

Pipelines, 1925-8 ■ ■ 33 

2-9 Comparative Price and Delivery Schedules for 300-hp Diesel 

Engines for Baku-Batum Pipeline 34 

2-10 Construction of the Batum Refinery Complex, 1927-30 . . 37 

2-1 1 Construction of the Tuapse Refinery Complex, 1 927-30 . . 38 

2-12 Construction of the Soviet Inland Refineries, 1927-30 . - 39 

2-13 Composition of Soviet Oil Exports, 1923 and 1928 . . 4 1 

3-1 Operating Foreign Concessions in the U.S.S.R. Coal and 

Anthracite Mining Industry, 1922-30 47 

3-2 Effect of United States Management in Kemerovo (Kuznetsk) 

Coal Mines, 1923 ■ • ■ ■ • ■ • • ■ ■ " 49 

3-3 Introduction of the Manufacture of Coal Mining Machinery . . 55 

3-4 Early Mechanization of the Donetz Coal Basin, 1922-8 . . 55 

3-5 Donetz Basin : Changes in Number of Shafts, Total Output and 

Mine Averages, 1913 to 1926-7 5° 

4-1 Ugostal (Southern Steel Trust) Production, 1913-2S, Donetz 

Group a 

4-2 Ugostal (Southern Steel Trust) Production, 1913-28, Eka- 

terinoslav Group . . ■ • • • ■ • • ■ • ' 4 



xvi Tables 

4-3 Ugostal (Southern Steel Trust) Production, 1913-28, AzovGroup 65 

5-1 Sources of Zinc Metal Production in U.S.S.R., 1926-32 . . 78 

5-2 Sources of Lead Metal Production, 1927-8 79 

5-3 Copper Ore Mines and Smelters, Production 1914 to 1927-8 82 
5-4 Capacity, Production and Technical Assistance of Soviet Copper 

Smelters, 1929 ' 84 

5-5 Manganese Production in U.S.S.R., 1913-29 87 

6-1 Sources of Gold Produced in the Soviet Union, 1913-28 . . 96 
6-2 Lesser Soviet Gold Mining Concessions Leased to Foreign 

Operators, 1921-8 100 

6-3 Asbestos Production in Russia, 1913 and 1923 . . . . 108 

6-4 Workers Employed by Uralasbest and Hammer Concession, 

1921-4 109 

6-5 Acquisition of Asbestos Mining and Milling Technology by 

Uralasbest, 1 92 1 to 1930 111 

6-6 Manufacture of Absestos Shingles by Foreign Companies .. 112 
7-1 Production and Imports of Merino Wool in U.S.S.R., 1923-6 122 
7-2 Price Schedule for Soviet and Foreign Tractors . . 137 
7-3 Technical-Assistance Agreements (Type IH) with the Post- 
Revolutionary Tractor Construction Industry to 1930 . . 142 
8-1 Construction and Equipment of Kamchatka Salmon Canneries, 

1928 148 

9-1 The Soviet Lumber Trusts and Foreign Concessions . . .. 151 
9-2 Exports of Sawed Lumber from the U.S.S.R., 1913-28, by 

Destination 162 

10-1 Plants Comprising the Leningrad Machine-Building Trust in 

1923 l6 4 

10-2 Plants Comprising Mosmash in 1923 166 

10-3 Locomotive Construction by Gomza Works, 1921-3 . . . . 171 
10-4 Construction of Steam Locomotives in Russia and the U.S.S.R., 

1906 to 1929 172 

10-5 Age of Steam Boilers in Russian Plants, 1914 and 1924 . . 179 
ii-i Agreements Between Foreign Companies and the Electrical 

Equipment Trusts, 1922-30 . . . . . . . . . . 187 

1 1-2 Plants Comprising the Electro-Technical Trust .. .. 189 

1 1-3 Production of Heavy Electrical Equipment in Russia and the 

U.S.S.R., 1913 to 1929-30 190 

1 1-4 The Electrical Machine Trust (Elmashstroi) 191 

1 1-5 Plants Comprising the Low-Tension Trust 193 

11-6 Technical Assistance and Equipment Supply in the Goclro 

Program, 1920-30 204 

1 1-7 Comparative Construction Cost and Energy Cost at the Volkhov 

and Zages Projects, 1927 a°5 



I 2-1 
12-2 



14-1 
14-2 



20-3 
2O-4 



2l8 
221 

240 



Tables, Charts and Maps 

Soviet Acquisition of Basic Chemical Technologies, 1925-30 . . 214 
Coke Oven By-products, 1914. i^S- and I0a6 
12-1 Dye Production in the Soviet Union •• •• •• 

German Exports to the U.S.S.R. and Proportion of Railroad 

Materials ■ • ' ' " ." 

Technical Assistance Contracts (Type III) in the Soviet 

Automobile Construction Industry to 1930 3 4° 

14-3 Russian Scheduled Airlines in 1925 2 S 

1 5-1 Soviet Purchases of American Aircraft Engines, 1926-9 -■ 2&I 

15-2 Red Air Force Equipment and Western Origin, 1929 ■• 2 °3 

17-1 Specialized Trading Concessions (Type H) 2 7 2 

17-2 Credits Advanced to the Soviet Union by Western Firms .. 278 

19-1 Regional Distribution of Enterprises Under Government and 

Private Control After NEP Reorganization, 1922 ■ • • • 3*4 
20-1 Sectoral Impact of Foreign Concessions (Types I and II) . . 3*9 
20-2 Sectoral Impact of Foreign Technical Assistance Agreements 

(Type III) V j "it 

Summary Statement of Sectoral Impact of Types I and 11 

Concessions ' 334 

Summary Statement of Sectoral Impact of Type III Technical 

Assistance Agreement ■ • 335 

20-5 Summary Statement of the Sectoral Impact of All Concessions 

Irrespective of Type 335 

20-6 Direct and Indirect Impact of Western Technology by Sector 

and Subscctor . . - • ■ • • ■ • • " ■" 

ai-i Capital Goods as Percentage of U.S.S.R. Trade, 1920 to 1930 341 
21-2 Leading Soviet Exports and Significance of Concessions . . 343 



CHARTS AND MAPS 

2-1 Foreign Oil Drilling Concessions in the Caucasus, 1921-8 . . 19 

4-1 Metallurgical Plants in South Russia, 1926 6o 

9-1 Acquisition of Foreign Lumber Markets: Phase I (1922-4) . . 152 

y-2 Acquisition of Foreign Lumber Markets: Phase II (after 1924) 153 

i2-i The Transfer of Nitrogen Industry Technology to the U.S.S.R. 210 



Glossary 



Artel: Collective labor group 

Basmach: Counter-revolutionary bandit 

Bedniak: 'Poor' peasant 

Centrotoyuz: Central Union of Consumers Co-operatives 

Chervonetz: Ten ruble bank note 

Dessiatin 2.7 acres 

Glavk: Central board or committee 

Glavkontsesskom: Chief Concessions Committee 

Geolro: State Commission for Electrification 

Gosbank: State Bank 

Gosplan: State Planning Commission 

Guberniia: Province 

Hectare: 2.47 acres 

Kolkhoz: Collective farm 

Kopeck: Small coin, 1/100 of a ruble 

Koustarny: Home industry, handicraft wares 

Krai: Region 

Kroner: Swedish monetary unit 

Kulak: Literally 'fist' (term applied to 'rich' peasant) 

Oblast' : Province 

Pood: 36.1128 pounds 

Rayon: District (of an oblast') 

Ruble, gold: Ruble valued in gold at 0.222168 grams 

Saxhen: 2-3333 Y ards 

Seredniak: 'Middle' peasant 

Usufruct: Legal term for operation of an economic activity without 

ownership rights 

Uyezd: District 

Verst: 0.6629 n"' 68 



xx Glossary 

VSNKh Vyashyi Sovet Narodnogo Khozaistva — Supreme Council 

(Vesenkha): of National Economy 

Zemstoos Elected rural councils in tsarist Russia 

Zolotnik 0.15 of an ounce (4.265 grams) 



PART ONE 



An Empirical Examination 

of Foreign Concessions 
and Technological Transfers 



CHAPTER ONE 

Introduction 

ECONOMIC DEVELOPMENT AND THE INTERNATIONAL 
TRANSFER OF TECHNOLOGY 
It is accepted that a significant factor in the economic growth of those coun- 
tries undergoing rapid development during the twentieth century is the 
'advantage of coming late.' Advanced industrial and agricultural technology 
can be effectively transferred, reducing the latecomer's investment in research 
and development. Indeed, continuing investment in technology by advanced 
countries has generally made for a dramatic decrease in capital-output ratios, 
during the last sixty years. 1 

Massell* argues, with empirical support, that the productivity increase in 
United States manufacturing between 1919 and 1955 is attributable far more 
to technological change than to increased capital investment. Traditionally 
it has been assumed that capital investment exceeds technological advance as 
the major factor in economic development. According to Massell however, 90 
percent of the increase in the U.S. output per man-hour is to be attributed to 
technological improvement and only 10 percent to increases in capital invest- 
ment. Improvement in labor skills is included as technological advance. 

In the sphere of Soviet development, other things being equal, we would 
then look for technology as a contributing factor of some significance. Develop- 
ment literature in the West omits this factor, although recognition of its 
importance is implicit in the Soviet emphasis on technological advance. 

> Paul S. Anderson, 'The Apparent Decline in Capital-Output Ratios,' The Quarterly 
Journal 0/ Economics, LXXV, No. 4 (November 1961), 629. 

t B F. Massell, 'Capital Formation and Technological Change in United States 
Manufacturing ' ktmen of Economics and Statistics, XLII (May 1060), (82-8. 
KSwrmmology , the change in productivity is due to a shift of the produc 
ftSBte right rather than a deepening ir iMp.ttl.mttM.ty and* move- 
ment along the production function. Other writers have arnved at similar conclu- 
sions. Maxell's conclusions coincide with those of Solow and Fabncant, who use 
different data and methodology. 



4 Western Technology and Soviet Economic Development, 1917-1930 

Considerable evidence will be presented to show that Soviet technology was 
completely dependent on the West in the decade of the 1920s. Thus we can 
argue that a major portion of Soviet economic development would have been 
dependent on the technological contribution of Western enterprises even had 
there been no capital transfers. There were, however, such capital transfers — 
of at least sufficient magnitude to support the transfer of technology. 

The argument of this study hinges indeed on the contribution of Western 
technology to Soviet economic development. As technology in the period 
between 1917 and 1930 originated in the West and not in the Soviet Union, 
it is concluded that the Western contribution was decisive in Soviet economic 
development during this period. The essential technology can usually be 
acquired for significantly less than the cost of the overall project. For example, 
the total cost of the Volkhov hydroelectric project was 90 million rubles, the 
major part of which was absorbed by the construction of the dam, the access 
roads, and the supporting buildings, while only 6 million was spent on 
imported equipment. However, it was the imported equipment — the turbines, 
generators, and switchgear — that determined the technical success of the 
project. 

This, of course, is not to argue that technology is the only factor in economic 
development. Political, social and psychological factors play their respective 
roles. This interplay is particularly interesting in the Soviet example but is, 
unfortunately, outside the scope of this study. 

THE SOVIET UNION AND THE TRANSFER 
OF TECHNOLOGY 

A study of the influence of Western technology upon the early stages of 
Soviet economic development may then be a profitable field for research and, 
in fact, may change our view of those forces allegedly 'released* by socialism 
and traditionally held responsible for Soviet economic growth. No rigorous 
analysis of this technological transfer has yet been attempted, although its 
existence has been noted within the Western world. 3 

The mechanisms for this transfer were in fact many and varied, and include 
some not found elsewhere in world economic development. First, there was 
a carryover of internal capital investment from prerevolutionary industrial 
Russia. 4 This industrial structure was but slightly affected by the Revolutions 
and subsequent Civil War; evidence to be developed in this study indicates 

* Werner Keller, Ost minus (u«i= null (Munich : Droemersche Vertagsmstalt, i960). 

* Anton Crihan, Le capital Hranger en Ruttie (Pari*: Pichon, 1934). P. V. Oil, Let 
capitaux itrangert at Ruitie (Petrograd: 1922), estimated this capital, expropriated 
by the Soviet government, to be over Si billion, a figure quoted in S, N. Prokopo- 
vitch, Hittoire Eeonomvpu dt 1'U.R.S.S. (Pari*: Flammarian, 195a), p. 381. 



Introduction 5 

that the popular story of substantial physical destruction is, except in the case 
of the Don Basin, a myth. More damage was done to Russian industry by 
the ineptitudes of War Communism than by World War I, the Revolutions, 
the Civil War, and the Allied Intervention combined. Many of the largest 
plants worked at full capacity right through the Revolutions and Civil War 
under their 'capitalist' managers. Others, with equipment intact, were placed 
in a state of 'technical preservation' until managers with skills requisite to 
recommence operations could be found. 

Second, the New Economic Policy (NEP) denationalized certain economic 
activities and restored some measure of free enterprise to both foreign and 
domestic capitalists. Internally, the relaxation of controls affected retailing, 
wholesaling, and small industries employing less than twenty persons. How- 
ever, the 'commanding heights' of the economy (iron and steel, electrical 
equipment, transportation, and foreign trade) were retained under Communist 
control and grouped into trusts and syndicates. Foreign capital and technology 
were then invited into these units through concessions and mixed joint-stock 
companies, both with and without domestic private and state participation. 
The concession, in its varying forms, was the most significant vehicle for the 
transfer of foreign technology. 

At the beginning of the NEP, the emphasis was on concessions to Western 
entrepreneurs. In the middle and last years of the decade the concession was 
replaced by technical-assistance contracts and the import of complete plants 
and equipment. After the acquisition of a specific technology, by cither 
concession, purchase, or confiscation, came duplication in Soviet plants. 
Major acquisitions were supplemented by the purchase or appropriation of 
designs, plans, patents, and prototypes. This process extended even to 
agriculture. For instance, the purchase of pedigreed stock provided for rapid 
multiplication — equivalent in its way to the reproduction of technical pro- 
cesses.* 

Athird transfer vehicle was the employment of individual Western engineers 
and experts and the corresponding dispatch of Soviet engineers and workers 
to training positions in foreign plants. When foreign assistance was required 
on a substantial and continuing scale, the technical-assistance contract was 
utilized. The study trip abroad by Soviet engineers was used both as prelude 

* Numerous examples are given in detail below. One interesting importation of 
Western agricultural technology was the acquisition of Australian and American 
stud merinos. In 1925, the Soviet government purchased between ao.ooo and 30,000 
pedigreed breeding sheep. In order to maintain Australian flocks, the Australian 
government placed an embargo, still maintained today, on the export of sheep for 
breeding purposes. (House of Representatives, Commonwealth of Australia, 
Parliamentary Debates, izth Parliament, 1st Session, p. 3J5.) 



6 Western Technology and Soviet Economic Development, igi^-ipjo 

to a technical-assistance contract and when minor foreign training or technical 
help was required.* 

The transfer of technical knowledge sometimes took forms easily over- 
looked. For example, the number of subscriptions taken out by the Soviet 
government for American technical and scientific publications jumped 
dramatically as the industrialization process got under way.' 

The penetration of early Soviet industry by Wester;: companies and indi- 
viduals was remarkable. Western technical directors. Tonsulting engineers, 
and independent entrepreneurs were common in the Soviet Union. In retro- 
spect, perhaps the most surprising examples were the directorships held by 
General Electric affiliates on the boards of Soviet elec'rical trusts. 9 

Although the technological transfer took many forms, dictated by political 
and economic circumstances, the central mechanism v. as the concession, 
around which this study is built. The concession was also interrelated with 
other mechanisms and the very small amount of internally originated research, 
development, and innovation. It is true that after 1930 the importance of 
the concession declined greatly as other forms of technological transfer came 
into use but for the period from 19 17 to 1930 the concession is central. 

THE ROLE OF THE FOREIGN CONCESSION, 1917 TO 1930 

The use of concessions was suggested in December 1917 at the first All 
Russian Congress of Councils of the National Economy, After extensive 
debate it was agreed that concessions were desirable for the restoration of 
the Russian economy. Subsequent negotiations with American, German, 
French, and British capital however, were temporarily halted by the Allied 
Intervention and Civil War. 

In 1920, when political conditions were more stabilized, Lenin issued a 
decree allowing concessions to be granted by simple departmental permission. 
However, negotiations with Urquhardt, a British financier and well-known 
capitalist in prewar Russia, ended in failure ; and so ended the second attempt 
to establish foreign concessions. Urquhardt sensed the likelihood of con- 

* A partial list is in Saul G. Bron, Soviet Economic Development and American 
Buiiness (New York: Horace Liveright, 1930), pp. 144-6, Bron Was chairman of 
the Amtorg Trading Corporation in New York. 

* In 1925 the Soviet government held 200 subscriptions to United Statu technical 
journals, in 1936-7 about 1,000, in 1927-8 about 8,000, and in 1928-9 more than 
12,000, as noted in Amtorg Trading Co,, Economic Review of the Soviet Union 
(New York: 1938), III, 383. 

1 The General Electric Co. was represented on the board of Electroexploatsia, which 
was responsible for new electrical power stations and systems construction, Swedish 
General Electric (ASEA) was • 'founder and a principal shareholder' of Electrosela- 
troi, responsible for electrification of rural areas, aa noted in Annuairt Politique et 
Economtque, (Moscow: N.K.I. D., 1926), p. 25 (rear). 



Introduction 7 

fiscation and would not embark without ironclad guarantees. An agreement 
between Krassin and Urquhardt was rejected by Lenin, who had problems 
with the more unrealistic members of the Party, who refused to accept a 
return of foreign capital under any guise, 

A third, successful, attempt stemmed from the decree of March 8th, 1923, 
replaced by the law of August 21, 1923, which was further amended in 
December 14, 1927 and supplemented by special ordinances of May 23, 1926 
and April 17, 1928. The August 1923 law established a Chief Concessions 
Committee (Glavkontsesskom) and the legal structure for the conduct of 
negotiations and the transfer of Russian property to foreign enterprises. 8 

A pure concession is an economic enterprise in which a foreign company 
enters into a contract with the host country to organize, equip, and exploit 
a specific opportunity, under the legal doctrine of usufruct. In return for the 
burden of development, exploitation, and production, the foreign company 
receives a non-contractual surplus or profit, usually taxed by the host country. 
The Soviets even considered the foreign commune, wherein foreign settlers 
entered the U.S.S.R. with their tools and equipment, as an agreement 'in lease 
usufruct.' 10 A variant of the pure concession found in Soviet development is 
the credit or contract concession. Here the foreign firm has the function of 
organization and finance, but operation is by a Soviet organization. Mixed 
companies are of this nature, and are still utilized in Soviet economic relations 
with satellite countries. Technical-assistance contracts are sometimes viewed 
as concession operations by the Soviets but rarely by the West. The return 
allowed to the foreign participant in a technical-assistance agreement is usually 
determined by contract and is not merely a surplus accruing to the entrepre- 
neur. On the other hand, not all economic agreements lacking contractual 
payment features can be described as concessions. The design competitions, 
such as the Locomotive Design Competition of 1927, had. non-contractual 
rewards but were not concessions, although they had elements of technological 
transfer. 

The mixed corporation was also used in agriculture, as were credit and 
contract concessions financed by foreign firms but operated by Soviet organiza- 
tions. In addition, technical-assistance contracts were used to acquire advice 
on particular agricultural problems, and in some cases concessions participated 
in the financing of equipment purchases. 

Concessions, however, operated within all sectors of the economy, although 
the largest single group numerically was in raw materials development. Indus- 

• The Concession Law of 19*3 is reprinted in the Journal of the Workmen-Peasant 
Government of the U.S.S.R., No. 13, 1923, The amendment is reprinted in Collec- 
tion of Lava of the U.S.S.R. (Moscow: 1927), Part I, No. 69. 

** The Imkommune Uhlfeld (Austria) is a good example. See page 119. 



8 Western Technology and Soviet Economic Development, igij-ig^o 

trial concessions formed a smaller but, as will be seen, strategically important 
group. Although concessions were offered in housing and public utilities, 
they were not, with the exception of a few housing developments, attractive 
to foreign investors. 

In size, concessions ranged from the gigantic Lena Goldfields, Ltd., of the 
United Kingdom, operating thirteen separate industrial complexes and valued, 
after Soviet expropriation, at over $89 million, to small factories manufac- 
turing pencils (the Hammer concession) or typewriter ribbons (the Alftan 
concession). 

The Soviet definition of a concession is sometimes broader than that used 
in the West, and to avoid confusion the broader definition is utilized in this 
study. Concessions are here categorized in three ways; each category refers 
to a distinct organizational type. 

The 'pure' concession (or Type I) was an agreement between the U.S.S.R. 
and a foreign enterprise whereby the foreign firm was enabled to develop 
and exploit an opportunity within the U.S.S.R., under the legal doctrine of 
usufruct, i.e., without acquiring property rights. Royalty payments to the 
U.S.S.R. were an essential part of the agreement, and in all cases the foreign 
enterprise was required both to invest stipulated capital sums and to introduce 
the latest in Western technology and equipment. 

The 'mixed' company concession (or Type II) utilized a corporation in 
which Soviet and foreign participation were on equal basis (at first 50:50 
but later 51 : 49), with a Soviet Chairman of the Board who had the deciding 
vote in cases of dispute. Normally the foreign company invested capital and 
technology or skills and the Soviets provided the opportunity and the location. 
Labor, both skilled and unskilled, was partly imported, and profits were to 
be split. 

Whereas the first two types are clearly recognized as concessions, the 
technical-assistance contract (or Type III concession) has not usually been 
so designated, except in the U.S.S.R. Probably the Soviets were well aware 
of the negligible marginal cost to Western companies of supplying technical 
knowledge, patents, designs, and similar technological vehicles. In essence, 
Type III was a 'reverse technical concession,' in that the Soviets were making 
payments to exploit foreign technological resources; the Western company 
was not, in this case, making payment to exploit Russian natural resources or 
opportunities. 

All known concessions can be grouped into these three categories, as table 
1-1 demonstrates. The common link is that each type, in its own way, acted 
as a mechanism for the transfer of Western technology and skills, although 
only Types I and II involved the transfer of capital. 



Table 1-1 



Introduction 

CONCESSION APPLICATIONS AND 
AGREEMENTS, 1921-30 



Year 


Application? 


Number of agreements 
Types I and II 1 


Type III 1 



1 



4 

7 

"3 

17 

33 

„ 5.9 

134 

(to ig29-30) 




1921-2 
1922-3 
l9»3-4 
1924-5 
1925-6 
1926-7 
1927-8 
1928-9 
1929-30 


224 
579 
396 
2 so 

482 

263 
200 
270 

Not available 

2,670 
(to 1928-9) 


18 

44 

55 

103 

no 

Not available 

Not available 

Not available 

Not available 




Total 


330 
(to 1925-6) 





Sources, 



1 A. A. Santalov and L. Segal, Soviet Union Yearbook, 1930 (London: Alien 

and Unwin, 1930), p. 206. 
1 U.S.S.R. Chamber of Commerce, Economic Conditions in the V.S.S.R. 

(Moscow: Vneshtorgizdat, 1931)1 P- '62. 



THE PLACE OF THE CONCESSION IN 
THE ECONOMIC HISTORY OF THE U.S.S.R. 

Analyses of Soviet economic growth and the processes by which it has been 
attained have been restricted by lack of accurate data and firsthand knowledge 
of decision-making processes. The Soviets have, in fact, continually attempted 
to disguise the true rate and process of this economic growth. 

It has been almost universally accepted that the foreign concessions policy 
of the 1920s and 30s did not aid the industrial development of the U.S.S.R. 
Certainly this interpretation has been propagated by the Soviets. N. Liubimov, 
former professor of economics at the University of Moscow, argues: 

Any discussion of concessions in the Union of Soviet Socialist Republics 
must emphasize their relative unimportance in Soviet activity. . . . ll 

Western writers, whether Marxist or non-Marxist in orientation, have taken 
a similar viewpoint. For instance, Maurice Dobb, a Marxist, argues that: 

... the policy of granting concessions on a larger scale to foreign com- 
panies had little success, apart from one or two special cases, white the 
concessions which were granted were more often in the sphere of foreign 
trade than in production, 11 

11 'The Soviets and Foreign Concessions,' Foreign Affairs, IX, No. 1 (October 1930), 

95- 
" Soviet Economic Development since i'jr7 (5th ed. ; London: Routlcdgc and Kcgan 

Paul, i960), p. 142. 



10 Western Technology and Soviet Economic Development, 1917-1930 

Then he adds: 

The policy of granting concessions to foreign firms to undertake trading 
and industrial ventures was unsuccessful in yielding more than about 10 
million rubles (gold) of foreign capital in the first years of the concession 
policy. 1 * 

This is a meaningless statement unless the period in question is indicated. 
Several concessions contributed much more than 10 million rubles of invest- 
ment apiece. 

Soviet sources, which would hardly overstate the investment of concession 
capital, give figures for 1927 and 1928 indicating an investment, at least five 
times greater than that given by Dobb. Nevertheless, Dobb continues: 

In the early 'aos' an attempt had been made to invite the aid of foreign 
capital on a limited scale in the form of concessions grants. But we have 
seen that the policy did not meet with any great success. ..." 

Dobb's conclusions are, in fact, unsound and unsupported by the available 
concessions data. 

Non-Marxist writers have also assigned a minor role to the foreign conces- 
sion. A. Baykov 1 * does not mention concessions. A. Yugoff l * holds that they 
had only a slight effect on economic development. Their ineffectuality, he 
argues, was due mainly to a prohibitive currency policy and restrictions on 
the free export of foreign bills of exchange. On this basis, Yugoff generally 
discounts the technological and economic impact of the concession. 

M. Hwang Jen" ignores restrictions on export of proceeds mentioned by 
Yugoff, and instead argues that export of proceeds was a source of loss to 
the Soviets, and that generally the concession was an inefficient vehicle for 
the transfer of either capital or technology. Jen is impressed with the ingenuity 
of the concession but concludes that it was unrealistic as a method of develop- 
ment. 

There has been some difference of opinion within the executive branch of 
the United States government on the importance of the concession in Soviet 
economic development. The State Department has not considered the conces- 
sion particularly important. 18 

" Ibid., p. 150. 

» Ibid., p. 180. 

" The Development of the Soviet Economic System (New York: Macmillan, 1947). 

u Economic Trend* in Soviet Rustia (New York: R. Smith, 1930)1 PP- Ml-3. 

" Le Rigime da Conceuiotu en Ruitie Sovittigue (Paris: Gamber, 1929). 

11 The importance of the concession has been in general toned down. For example, 
in submitting advice to Professor Raymond T. Bye for a speech before the American 
Economic Association, the State Dept. suggested that '& few large concessions' be 
re-stated as 'one large concession* (316-109-807). (Numeral references to U.S. 
archivs] material are explained in Appendix A.) 



Introduction 1 1 

On the other hand, United States Military Intelligence (MID) arrived at 
conclusions closer to the theme of this study: 

The lack of capital, the failure of the New Economic Policy to stimulate 
actively trade and production, and the exhaustion of raw material stocks 
have influenced the leaders to look outside of Russia for aid in bringing 
about economic recovery. 1 * 

and: 

By September 1927, Soviet authorities are reported to have granted 156 
concessions, embracing practically all branches of national economy. In 
February 1928 there were 110 concessions in operation. 20 

In brief, despite the single contrary estimate mentioned, the concession has 
generally been regarded, in the West and in Russia, as a negligible factor in 
Soviet economic development. Further, it has been suggested that supportive 
data is unavailable. Keller claims concession operation records arc buried in 
the files of each firm and that the Soviets will not release their data." 

In the light of this almost universal conclusion that the concession was 
insignificant as a development mechanism, certain essential questions must 
be clearly answered. Can the data on concessions and transfers be assembled? 
Is such data reliable? Does the assembled data support the current assumption 
of a negligible role for the concession? Finally, what was the contribution of 
the concession to Soviet technological and economic development? 

METHODOLOGY OF THE STUDY 
A simple but consistent methodology is utilized in this study. Our objective 
is to estimate in a quantitative manner the impact of Western technology on 
early Soviet economic development. Each plant in this fairly primitive economy 
is identified and the origin of its equipment and technical processes traced. 
Because many of the plants were operated by Western concession operations, 
the major research task has been to obtain extensive and accurate data on 
concession operations. This was a complex and time-consuming task, involv- 
ing a search in sources originating in a dozen countries. The data generally 
comes from one of five sources distinguished by varying degrees of reliability. 
This variety however, allows for comparison and informed interpretation of 
data from different sources on many similar problems. 

» U.S. War Dept., Soviet Russia; on Economic Ettimate t March 18, 1928, p. 43 I H> 

(U.S. State Dept. Decimal File, 3 16-1 10-306). 
*> Lot. eit. The estimate of 156 concessions is not inconsistent with table 1-1. MID 

probably counted only Type I concessions, while table 1-1 col. a includes Types 

1 and II. 
" Keller, op. cit., p. sio. 



12 Western Technology and Soviet Economic Development, 19x7-1930 

The primary sources of data are the United States State Department Decimal 
File and the German Foreign Ministry Archives for 1917 to 1930. These are 
a superlative source of detail not available elsewhere; yet a few concessions 
were not recorded by their respective home governments. In general, conces- 
sions and similar agreements were noted in Western news media, but with 
scanty detail; it is rare that the German or American archives provide data 
on a concession unmentioned in some newspaper; about 10 percent arc 
recorded only in the archives. Most concessionaires were reluctant to provide 
details, and considering the shabby treatment the majority received from the 
Soviets, it is unlikely they wanted to publish the amount of their losses. 
However Western governments were interested in the progress of concessions, 
and instructions went out to consular and other officials to acquire data. The 
U.S. Riga (Latvia) consulate was very active in this collection process. 

The State Department Archives contain a number of firsthand reports of 
visits to Soviet plants made by United States company officials in search of 
business. In some cases, however, such as the W. A. Harriman manganese 
concession, the State Department had to glean its information from indirect 
sources such as European newspapers. 22 Archival sources are, then, incom- 
plete. They have to be utilized concurrently with data from the four other 
sources. 

The second source of data is Western news media and in general consists 
of voluntary information releases from those companies desiring to publicize 
their operations. During the 1920s fear of public opinion curbed news 
concerning the concessions of many companies. 23 Indeed, some concessions 
known from other sources, are not recorded at all in Western news media. 
The problem with this second group of sources is incompleteness of detail 
and possible corporate bias to protect a 'public image.' M 

The third source of data, and a surprisingly lucrative source, consists of 
publications of Soviet trade representatives in Western countries. These 
sources have been treated with the same circumspection as data originating 
within the Soviet Union. However, it has been found that data from this 
source usually agrees with news media reports, with specific exceptions noted 
in the text. The major exception occurs in explanations for liquidation of 
concessions; official Soviet explanations often diverge considerably from the 
versions of the expropriated corporation. The explanation for the existence 
of detailed information in Soviet sources lies in the intent of the publications : 
to encourage further investment by Western companies. The information 

" U.S. State Dept. Decimal File, 316-138-17/19. 
" New York Timet, August 17, 1915, p. 3, col. 5, 

" The most useful Western newspapers are the Timet (London), the New York 
Timet, U Information (Paris), and the Russian Daily News (Harbin, China). 



Introduction 13 

had to be reasonably accurate — it could be checked, and the greatest problem 
of the Soviets then, as now, was to instill confidence. There was, however, 
no requirement to publish adverse information. Although these publications 
were used to print 'explanations' by some Western businessmen for the 
expropriation or failure of other concession enterprises, the 'explanations' 
were consistently pro-Soviet. 85 

A fourth source consists of data originating within the U.S.S.R., particularly 
in Pravda, Izvestia, and Ekonomicheskaya Zhizn. A scries of five maps 
(dated 1921) suggests the vast plans, involving thousands of projected conces- 
sions, which characterized early Soviet thinking. These are reproduced in 
U.S. State Department Archives (130-1207/1234). An atlas of available 
concessions was also published in 1926 by the Central Concessions Committee 
(Karty kontsessiotmyklt ob'ektov S.S.S.R.) together with a few little booklets 
describing available concessions. These are useful as an indicator of the 
technological state of the plants being offered. 

Soviet sources are viewed here in the light of the 1927 decree making the 
transmission of economic information prejudicial to Soviet concessions policy 
a crime against the state. Concessions and foreign companies working within 
the U.S.S.R. felt the sting of a decree against actions considered criminal only 
in the Communist world. Representatives of the Swedish firms Alfa Lava! and 
Diabolo-Scparator, manufacturers of dairy equipment (particularly cream 
separators) were accused of economic espionage in 1928 because they deter- 
mined the probable future requirements of Soviet trusts for cream separators 
and reported the results of the market survey back to their respective firms in 
Sweden. The three defendants who worked for the Swedish firm were given 
five to eight years each in prison. Eight employees of Soviet trusts and 
commercial organizations, together with a German citizen named Bartsch, 
were given from one to three years each for accepting bribes and abetting 
economic espionage.- Consequently, after 1927, the flow of data from both 
the West and from the Soviet internal and external press declined substantially. 
Whereas detailed reports exist on industrial conditions up to 1927, few arc 
found for the period from 1927 to HJ30. 2 ' 

The fifth source consists of a collection of miscellaneous material in several 
languages, including books written by engineers, consultants, and others who 

85 Amtorg Trading Co. Economic Review of the Soviet Union {New York; 1928), 

III. 373. 
»• Based on article in Foiii.se/ie.Zeitiwf (Berlin), July iqs8, as reported by the American 

Legation in Berlin, Report No. 375° of July *4. >°28 (U.S. State Dcpt. File, 

316—109-754/5). Bartsch was promptly released. 
*' The report by M. Klcmmer, a Western Electric Co. engineer, to the U.S. State 

Dept. (U.S. State Dept. Decimal Kile, 3:6-141-6*8) is clearly economic espionage 

<vithin the Soviet meaning of the term. See also chap. it. 



14 Western Technology and Soviet Economic Development, 1917-1930 

worked in the U.S.S.R., and statistical summaries and handbooks published 
by Soviet representatives abroad. 

In general, the problem of interpretation of Soviet data is not acute, although 
it is time-consuming. Data distortion had not at this time reached the quag- 
mire stage; the major problem is incompleteness and the pervasive Soviet 
habit of omitting unfavorable facts and figures. 

Use of data from several sources enabled cross-checking. As a general rule, 
data from Soviet and Western sources had to be consistent before it was 
utilized (exceptions to this rule are noted). Such a method avoids the problem 
of choosing between contradictory statements and statistics. For example, 
statements concerning the condition of the electrical equipment industry in 
1922 can be found in the Soviet press which lead to the conclusion that it was, 
on the one hand, healthy and profitable,** and, on the other, in a state of 
near-collapse.** Evidence was also found that the electrical trusts were 
approaching foreign companies for help. 30 Subsequently foreign engineers 
entered the U.S.S.R. and their survey reports found their way into Western 
government archives. 31 With this support, the second conclusion could be 
accepted as reasonably factual. 

Omission, at times, assumed significant proportions. Acceptance of the 
mineral production figures for 1927-8 published by the Leningrad Academy 
of Science Geological Committee would lead one to believe that neither gold 
nor platinum was produced in the U.S.S.R., and that the Lena Goldfields, 
Ltd., concession produced only limestone, dolomite, and quartz, whereas, in 
fact, it produced almost 40 percent of Soviet gold, 80 percent of Soviet silver, 
and significant proportions of copper, lead, zinc, and iron.** Similarly, the 
concession agreement with International Barnsdall Corporation omitted all 
reference to the specific geographic area covered by the agreement, although 

n 'Experience proved that the electrical industries had improved very much under 
Government control. They were working satisfactorily and even giving profit to 
the State. Ixvestm, October 9, 1921 (paraphrased). 

" Three months before the October 9 statement above, half the electrical plants in 
fetrograd had been closed due to a fuel crisis and the others drastically slowed 
according to Ixvatta, July 12, 1921. Eight months after the October 9 statement, 
the industry is described as having no working capital, no credits, no payments, 
. • • ■ the position is a very difficult one . . . electric lamps and cables can only 
be obtained by force . . .' according to Ekonomicheskaya Zhixn, No. 124. Tune 7 
1923. '* 

" Electro-Technical Trust (GET) letter to International General Electric Inc., May 
», 191a (U.S. State Dept, Decimal File, 316-139-38). 

» Examples are the B. W. Bary report (1921) (U.S. State Dept. Decimal File, 316- 
i39-»); and the Reinkereport(i923)(U.S. State Dept. Decimal File, 3 16-10S-672). 

" V. I. Kruglyakova (ed.), Sbornik ttatisticketkikh svedenii po eornm i gornozavodtk 
protayshltmiasti S.S.S.R. tta 1937I8 gg. (Moscow: ^30) pp. 60, 74, 90, to*, 106, 
14?, 15°, 15*- Limestone and quartz were used as a flux for the (statistically non- 
existent) Lena Goldfieldi gold-smelting operations. 



Introduction 1 5 

the W. A. Harriman manganese concession agreement had its geography 
spelled out in minute detail, 33 A healthy dose of skepticism has proved to be 
an invaluable research tool. 



Reasons for omission in the case of Barnsdall arc significant and arc outlined in 
chap. a. 



CHAPTER TWO 

Caucasus Oil Fields — 
The Key to Economic Recovery 

The Caucasus oil fields are a major segment of Russian natural resource 
wealth. Baku, the most important field, was developed in the 1870s. In 1900 
it was producing more crude oil than the United States, and in 1901 more 
than half of the total world crude output, The Caucasus oil fields survived the 
Revolution and Intervention without major structural damage and became a 
significant factor in Soviet economic recovery, generating about 20 percent 
of all exports by value; the largest single source of foreign exchange. The 
process by which the oil economy recovered from Impending disaster and 
acquired modern refinery operations in a brief four or five years is the topic 
of this chapter. 

COLLAPSE OF OIL FIELD DRILLING 
Caucasian fields require continuous drilling to maintain an oil flow from 
producing wells. Therefore, oil production in this area .s directly proportional 
to the amount of drilling undertaken. Before the Revolution, drilling averaged 
in excess of 35,000 feet per month, and had been as hrjh as 50,000 feet in 
Baku alone. 

The Bolsheviks took over the Caucasus in 1920-1, and until 1923 oil field 
drilling almost ceased. During the first year of Soviet rule ' ... not one 
single new well has started giving oil' ' and even two years zfter Soviet occupa- 
tion, no new oil-field properties had been developed. In addition, deepening 
of old wells virtually ceased. As a result, water percolated into the wells, and 
the flow of crude oil became first a mixture of oil and water and finally a flow 
of oily water. 

' U.S. State Dept. Decimal File, 316-137-221, 



Caucasus Oil Fields — The Key to Economic Recovery 17 

Table 2-1 AVERAGE MONTHLY DRILLING IN RUSSIAN 
OIL FIELDS, 1900-21 

1900 1913 xg2o zgzi 

48,496 ft.* 36.665 ft. 780 ft. ££ 336 ft.; 

Sources: 1000 — A. Beeby Thompson, The Oil Fields of Russia (London: Lockwood, 
1908), p. ISO. 

1 91 3 — G. Ghambashidic, The Caucasian Petroleum Industry and Its Impor- 
tance for Eastern Europe and Asia (London : Anglo- Georgian Society, 1 91 8), p. 9. 
1920-21 — EkonomUheskaya Zhizn, May 20, 1921. 

* Baku only. 

Drilling records are an excellent indicator of the state of oil field mainte- 
nance, development, and production. The complete collapse after the Soviet 
takeover is clearly suggested in Tabte2-i. In 1900, Russia had been the world's 
largest producer and exporter of crude oil; almost 50,000 feet of drilling per 
month had been required in Baku alone to maintain this production. By early 
1921, the average monthly drilling in Baku had declined to an insignificant 
370 feet or so (0.7 percent of the 1900 rate), although 162 rigs were in working 
order. This drilling was concentrated in only eight holes due to lack of steel 
pipe, 2 

The result was that, by 1922, half of the Baku wells were idle and the 
remainder were producing increasing quantities of water. In the Grozny field 
a greater portion of the wells were idle; only eight were in process of drilling, 
and the Old Grozny section was completely shut down. Smaller fields at 
Emba and Kuban were in similar chaos; both had received extensive drilling 
in 1915; consequently there were forty to fifty producing wells in 1922 but 
no new or maintenance drilling was in progress. 3 

The reasons for the catastrophic decline in oil-field production were four. 
First the number of available oil- field workers declined from about 40,000 
in 1915 to less than 10,000 in 1920-1; coupled with this was the growing 
technical inefficiency of the remaining workers. Second, there was a break- 
down in railroad transportation and a decline in pipeline capacity, because of 
lack of maintenance. Third, new oil-field supplies and equipment, including 
repair facilities were almost nonexistent. Last, there was a breakdown in the 
oil field electrical supply system. One of the largest Baku powerhouses, for 
example, had twenty-two water tube boilers, none were in operation in 1922, 4 

* U.S. State Dept. Decimal File, 316-137-442. 

3 The decline of the Caucasus oil fields is covered in detail in Ekonamicheskaya Zhizn 
for 1921-2. 

* Ekonomickeskaya Zhizn, December 24, 1922 and February io, 1923, 



18 Western Technology and Soviet Economic Developm\tt, 191J-1Q30 

The paradox was the collapse of one of the few industries capable of generat- 
ing sufficient foreign exchange for an industrial revival. Serebrovsky, Chairman 
of Azneft, put forward the program for recovery in a Pravda article. The plan 
for 1923 was to increase oil-well drilling to 35,000 sazhens per year (245,000 
feet). This would require 35 rotary drills (to drill 77,000 feet) and 157 percus- 
sion drills (to drill 130,000 feet). Serebrovsky pointed out that Azneft had no 
rotary drills, and that Russian enterprise could not supply them. Rotary 
drilling, however, was essential for the success of the plan. He then announced : 

But just here American capital is going to support us. The American firm 
International Barnsdall Corporation has submitted a plan. . . . Lack of 
equipment prevents us from increasing the production of the oil industry 
of Baku by ourselves. The American firm . . . will provide the equip- 
ment, start drilling in the oil fields and organize the technical production 
of oil with deep pumps.* 

During the next few years International Barnsdall, together with the Lucey 
Manufacturing Company* and other major foreign oil-well equipment firms, 
fulfilled Serebrovsky's program. Massive imports of equipment came from 
the United States. International Barnsdall inaugurated the rotary drilling 
program, initiated Azneft drilling crews into its operational problems, and 
reorganized oil-well pumping with deep-well electrical pumps. 

INTERNATIONAL BARNSDALL CORPORATION 
Numerous British, Swedish, Dutch, Greek, German, and American oil- 
field concessions were rumored from 1919 onward, but there is no evidence 
that any were granted and implemented, in spite of many extravagant claims, 
before the three Barnsdall concessions in 1921-2. 

The first International Barnsdall concession was signed in October 1921, 7 
and was followed in September of 1922 by two further agreements. There is 
no doubt that Barnsdall did work under the first agreement. Pravda reported 
groups of American oil-field workers on their way to the oil fields," and a 
couple of months previously the United States Constantinople Consulate had 
reported that Philip Chadbourn, the Barnsdall Caucasus representative, had 
passed through on his way oar of Russia. 9 In particular, the U.S. State Depart- 
ment Archives contain an intriguing quotation from Rykov (unfortunately 
with no stated source), dated October 1922; 

* Pravda, September zi, 19*2. 

* £? p ? ain J* ?' Luce y- founder of the Lucey Manufacturing Co., was the first 
Chairman of the Committee on Standardization of Rotary Drilling Equipment, 
organized by the United States petroleum induitry in 1926. 

* New York Timet, March 29, 1922, p. 24, cot, 1. 

* October 2a, 1932. 

* U.S. State Dept. Decimal File, 316-130-1201/3. 



Caucasus Oil Fields — The Key to Economic Recovery 



19 



The one comparatively bright spot in Russia is the petroleum industry, 
and this is due largely to the fact that a number of American workers 
have been brought into the oil fields to superintend their operation. 10 

MAP 2-1 
FOREIGN OIL DRILLING CONCESSIONS IN THE CAUCASUS, 1921-8 



SCALE MILES 

M 100 200 300 4QC 




IRAQ 



/ 



PERSIA 



Legend: j. British Petroleum Co. Ltd., Gouria concession {1923, Type I) 

2. International Barnsdall Corp., Baku concession (iQ2t-2, Type III) 

3. Duverger Baku concession (1923, Type I) 

4. Duverger Emba concession {1923, Type II) 

5. Societa Minere Italo-Belge di Georgia, Shirak concession (1913, Type I) 

6. F. Storens concession in Busachi (JQ2S. Type I) 



/bid., 316-107-1167. 



20 Western Technology and Soviet Economic Development, 1917-1930 

In September 1922, two extensive agreements w ere signed by Serebrovsky, 
representing Azneft, and Mason Day, president of the International Barnsdall 
Corporation, a New York-based oil company. 11 Barnsdall agreed to drill for 
oil in the 'Baku district in the Balakhani oil-field arei (sic)' ll within an area of 
400 dessiatins, or 1,080 acres. The work was to consist of deepening old oil 
wells and drilling new wells under the supervision of a mixed commission 
containing both Soviet and American members. The maximum depth of 
these wells was to be 450 sazhens (3,150 feet) with a starting diameter of at 
least zo inches and a finishing diameter of not less than 4 inches. Barnsdall 
agreed to import tools and equipment for the simultaneous drilling of 20 wells ; 
and to drill at least 10,000 feet in the first year, no less than 20,000 in the 
second, and no less than 30,000 annually thereafter. Electric power, derricks, 
water, clay, timber, cement, and workshops (without equipment) were to be 
supplied by Azneft. 

Barnsdall imported equipment at its own risk, with cost plus 5 percent to be 
repaid by Azneft on arrival at the drilling site. Azneft had the option of paying 
in either gold rubles or oil and oil products at market price. Each oil well 
drilled was paid for on a schedule based on 80,000 gold rubles per each sazhen 
(7 feet) drilled for the first 100 feet in each hole, and 10,000 gold rubles for 
each additional sazhen. As in the case of the equipment, payment could be 
made either in gold rubles or in oil or oil products, at the option of Azneft. 
A royalty of 20 percent in oil was paid to Barnsdall on either new or deepened 
wells, and the term of the agreement was set at fifteen and a half yeais. 

The second Azneft-Barnsdall agreement was an oil-well-pumping contract 
under which International Barnsdall undertook to install modern pumps in both 
shut-down and watered wells and in new wells drilled under the first contract. 

There was a specific requirement in the pumping contract for electrical deep 
pumps to be installed in all wells except fountains, gushers, and those requir- 
ing air-lift. During the first year, sufficient equipment was to be imported by 
Barnsdall to develop deep pumping in a minimum of 40 wells, with a further 
100 pumps to follow each year for the 1 5-year term of the agreement. Electrical 
power was to be supplied free by Azneft. 

No payment was made by Azneft for the pumping equipment, which was 
to pass to the Soviets at the expiration of the agreement. A royalty payment 
of 15 percent of the gross crude output of each well was assigned to Inter- 
national Barnsdall, with free tank storage at Baku. 

11 The Barnsdall agreements were not published. Mason Day, after some pressure, 
supplied a copy to the U.S. State Dept. This copy is now in the Archives, and is 
the basis for this section. Mason Day later joined forces with Sinclair and was 
convicted in the Teapot Dome oil scandal. Barnsdall financing was by Blair and 
Co., of New York. 

» U.S. State Dept. Decimal File 316-137-51°. 



Caucasus Oil Fields — The Key to Economic Recovery 21 

OIL FIELD PROPERTIES COVERED BY THE 
BARNSDALL AGREEMENT 

To assess the impact of Western technology on the development of the 
Caucasus oil industry, it is necessary to determine the areas of the Baku fields 
covered by the Barnsdall agreements. The technological impact was in two 
forms: the direct oil-field work undertaken by Barnsdall engineers and crews; 
and the installation by Azneft engineers of equipment supplied by the Lucey 
Manufacturing Company, Metropolitan-Vickers, Ltd., and other companies 
and only partly under the technical supervision of Barnsdall. 13 

The geographical area to be covered by the agreement was deliberately 
obscured not only to the Western public but also to the U.S. State Department. 
There were major discrepancies in the statements of Mason Day and the 
Soviet press concerning the actual area placed under development. 

The property rights of the prerevolutionary owners and lessees of Baku 
oil lands were in question, and the probability existed that these claimants 
would restrict Barnsdall and other Western company operations by legal 
action. It was therefore important for the U.S.S.R. to convey the impression 
that all Barnsdall work was being done on land formerly owned by the Crown, 
so that former private owners and lessees would have no cause for injunctive 
action in Western courts. 

The contract clearly states that the area covered by the first, or drilling, 
contract, was 400 dessiatins in the Balakhani area of the Baku oil fields, with 
the option of extension to Sabunchi and Ramuni. A dessiatin is 2.7 acres. 
In talks with the U.S. State Department, Day used a conversion factor of 
1 dcssiatin=7/8 acre, and Barnsdall press releases talked about 400 acres 
rather than 400 dessiatins. In other words, there was a deliberate attempt on 
the part of Barnsdall to make the area covered by the agreement appear 
considerably smaller. 

The area covered was, in fact, 1,080 acres, and as the location of previously 
privately-owned and leased property in the Balakhani section was known, it 
was concluded by the U.S. State Department that: 

There can be no doubt . . . that the vested rights of private owners or 
lessees will be infringed on from the very outset under cither the first or 
the second contract. 1 * 

" International Barnsdall obtained Si. 5 million credit in the United States from 
Lucey Manufacturing for oil-field equipment. In addition, Lucey obtained a 
substantial order directly from Azneft. Hill Electrical Drills, EMSCO (Los 
Angeles), and Metropolitan-Vickers, among others, secured significant orders for 
oil-field equipment. [W. A. Otis, The Petroleum Industry of Russia, U.S. Dept. 
of Commerce, Trade Information Bulletin No. *63, p. 24. Also EMSCO Derrick 
and Equipment Company (Los Angeles: Banks Huntley, 1029). PP> 26-7]. 

" Memorandum, Durand to Herter, February 1923 (316-137-586). 



22 Western Technology and Soviet Economic Development, igij-ig^o 

The substance of the State Department assessment was that it would be 
difficult, if not impossible, to find 400 dessiatins not previously operated or 
leased by private persons or companies. 

A comparison of the four sections of the Baku oil field supports this 
position. 

Table 2-2 DISTRIBUTION OF CRUDE OIL PRODUCTION AND 

PROPERTY OWNERSHIP IN THE BAKU OIL FIELDS, 1915 

Baku Oil Field Percent Total Percent Previously 

Section Production Owned or Leased 



Balakhani 


i9.S% 


93.o% 


Sabunchi 


41.7 


100.0 


Ramuni 


'5-7 


100.0 


Bibi-Eibat 


23.1 


100.0 



Source: Memorandum, Lewery to Durand (316-137-580/3). 



The Sabunchi, Ramuni, and Bibi-Eibat sections had been completely 
under private ownership or leasing arrangement at the time of the Revolution. 
The Balakhani section was the only section with some open state land, but 
this amounted to only 7 percent of the total oil land in the section. The area 
of this unworked Crown land, which would not be subject to private claims, 
was less than 45 dessiatins. The balance of this section and the other three 
sections would all have been subject to injunctive action if worked by Inter- 
national Barnsdall. 

The agreement stated that work was to be done on the Balakhani section, 
i.e., the only section with some Crown land, but contained an option to extend 
the work to the Sabunchi and Ramuni sections under instruction from Azneft. 
It was also verbally understood to extend to the Bibi-Eibat section." The 
technical-assistance and pumping agreements covered all sections of the Baku 
field; so did the equipment sold by Lucey and other suppliers to Azneft. 

In brief, the news releases attendant upon the International Barnsdall 
contract limited public discussion to 400 acres or less in the Balakhani field 
for good reason; to avoid legal action in Western courts. 

Whatever may be the purpose of the Barnsdall group, the contract reads 
as if the Russian authorities expected and intended to assign them for 
improvement and pumping wells which have been con6scatedfrom former 
private owners, mostly foreigners. 1 * 

" U.S. State Dept. Decimal File, 31 6-1 37-581. 

" Memorandum, Durand to Herter, February 8, 1913 (3 16-1 37-587)- 



Caucasus Oil Fields— The Key to Economic Recovery 23 

The agreement was intended to cover the whole of the Baku field. Both the 
Soviets and International Barnsdall, considered it prudent to misrepresent the 
area covered by the contract. 11 



EXTENT OF BARNSDALL DRILLING 

Barnsdall was required to undertake a minimum of 10,000 feet of drilling 
in the first year of operations and additional amounts in subsequent years, 
under the direction of a mixed committee, which included Azneft representa- 
tives. There is substantial reason to believe that Barnsdall undertook more 
drilling than the minimum required by the contract, which again may have 
camouflaged a private agreement. There was certainly substantial financial 
incentive for Barnsdall to exceed the minimum. 

Analysis of drilling reports suggests a rate in excess of 180,000 feet per year. 
In the month after the arrival of the first group of engineers (June 1923), 
Barnsdall put down 15 wells in the Kirmaku area of northwest Balakhani. 18 
Given an average depth of 1 ,000 feet for Baku wells, this equalled 1 5,000 feet a 
month, or 180,000 feet a year. 1 * Also, Barnsdall had six American engineers 
in Baku, a number hardly warranted by a drilling rate of only 10,000 feet a 
year. One drilling agreement was in operation for two years. International 
Barnsdall was 'driven out' of the U.S.S.R. in 1924 after incurring 'very impor- 
tant material losses.' 20 Louis Fischer says the agreement lapsed 'by mutual 
consent' in 1924. 21 

CHANGES IN DRILLING TECHNOLOGY AT BAKU 

Although the exact area and footage drilled will probably never be known, 
a complete change in Soviet drilling technology has been recorded. The old 
labor-intensive percussion methods gave way completely to the United States- 
developed rotary drilling techniques. This changeover is summarized in 
table 2-3. 

" Morris, Chief of the Petroleum Division, U.S. Dept. of Commerce, made the 
succinct comment, ' ... the Russians knew exactly what they were doing when 
they assigned Barnsdall's territory' (316-137-584). Lucey Manufacturing later 
confirmed to the State Dept. that Barnsdall was working throughout the Baku area 
irrespective of former ownership (316-137-745). 

" Otis, op. cit., p. 25. 

11 This would be equivalent to sinking iSo wells averaging 1,000 feet each. Scheffer 
noted that 300 wells were put down in Baku between October 1923 and October 
1924 [Paul Scheffer, Seven Years in Soviet Russia, (New York: Macmillan, 1932), 
p. 94J. 

" W. Kokovtzoff, 'Le gouvemement des Soviets et les concessions aux itrangers,' 
Revue des Deux Mondes, XXXV Sept. 1, 1926, 158-81. 

« OH Imperialism (New York: International, 1926), p. 169. 



24 Western Technology and Soviet Economic Development, igiy-ig^o 

There was no substantial rotary drilling in the U.S.S.R. before 1923. sa 
However, in the five years following, the percussion method was almost 
completely abandoned and the American rotary method substituted. By 1928 
the percussion method accounted for only z percent of drilling (against 100 
percent in 1913) and rotary drilling accounted for 81 percent (against none in 
1923), The cable technique had brief use but was abandoned in favor of 
rotary methods. It should be noted that the Soviet-developed turbine drill had 
an early but insignificant utilization, and did not gain wide acceptance until 
later in the 19303." 

Table 2-3 OIL-DRILLING TECHNIQUE, 

PERCENTAGE UTILIZATION BY AZNEFT (BAKU), 1913-28 

„ OIL-DRILLING TECHNIQUE 

Rotary Cable Percussion Turbine 



1913 


— 


— 


100.0% 


— 


1934 


36.0% 


8.0% 


56.0 


— 


19*5 


54-3 


7-7 


37.* 


0.8% 


1926 


62.6 


20,6 


16.2 


0.6 


1927 


Z 1 ' 3 


19.7 


7-3 


i-7 


1928 


81.3 


14.0 


2.1 


2.6 



Source: Adapted from Alcan Hirsch, Industrialized Russia (New York: Chemical 
Catalog Co., 1934), p. 146. Hirsch was Chief Consulting Engineer to Chemtrust. 
Note: TheBe figures are supported by less detailed data in he Pdtrole Ruste (Paris: 
Editions de la Representation Commerciale de 1'U.R.S.S. en France, 1917) No. 6, p. 5, 
where the following figures are given for rotary drilling: 

1923-4: 34.7% 1924-5: S4-a% 19*5-6: 63.7% 1926-7: 71.0% 

The insignificant turbine drilling is confirmed in Kruglyakova, op. eit., p. 120. It is 
stated that, of a total 367 ,480 meters drilled, 7,164 meters (or 1.9 percent) were turbine- 
drilled. Of this, 5,685 meters were drilled at an experimental hole at location No. 24, 
Surachanskaya. 

The substitution of rotary drilling for the old percussion methods increased 
speed of drilling by a factor of ten and reduced costs by more than one half 
between 1924 and 192s. 24 

Neftsyndicat provides more detailed data which is consistent with Hirsch's 
statement. In 192c— 1, when no rotary drilling was utilized, average drilling 
rates were 6.8 meters per drill-month. This jumped to 69,8 meters in 1925-6, 

" A Russian mining engineer, Adiassevich, imported a rotary drilling rig and tools 
from California and completed a few 22-inch holes between 1913 and 1915 
(3i6-t37-a»o). 

11 These percentages contrast with those of the 1960s. By denying the Soviets 
Western rotary drills and drill pipe, we have forced them to utilize the turbine and 
electric drill techniques and to incur the cost of both development and a less efficient 
technique. The final cost to their oil economy has been substantial. 

" Mean Hinch, Industrialised Russia (New York: Chemical Catalog Co., 1934), p. 146. 



Caucasus Oil Fields — The Key to Economic Recovery 25 

with a maximum figure of 640 meters. The same source suggests that a 600- 
700 meter hole required in 1927 only 70-80 days for drilling, whereas under 
the old drilling system it had required one year. In terms of cost, the advantages 
were just as significant. In one year, from 1923-4 to 1925-6, drilling costs 
fell from 413 rubles to 218 rubles per meter, and the number of workers 
required for one drill-month of operations fell from 49 to 30. 25 

CHANGES IN PUMPING TECHNOLOGY AND 
OIL FIELD ELECTRIFICATION 

There was a parallel revolution in pumping technology. In 1922 oil-well 
pumping was undertaken by bailing (a primitive, inefficient technique) or 
by air-lift. About 10 percent of production was free-flowing and did not 
require mechanical assistance. A small portion was collected by surface 
methods. There was no deep-well electrical pumping in 1922, and no oil 
field pumps were produced in the U.S.S.R. until the initiation of the 
Maschinenbrau A-G technical-assistance agreement with Mosmash, SB in the 
mid- 1 920s. 

Table 2-4 CRUDE OIL EXTRACTION TECHNOLOGY 

IN BAKU OIL FIELDS, 1921-2 AND 1927-8 

Method of Extraction 1^21-2 igiy-S 



Bailing \ 49-3% °-°% 

Air-lift / 40-3 27-0 

Gushers 9,8 26.0 

Pumping \ 0.0 44. S 

Surface J NEW _0.6 _ ij 

1Q0.0% 100.0% 



Source: 1921-2, Otis, The Petroleum Industry of Russia, p. 19 
1927-8, U.S. State Dept., Decimal File, 316-137-1130. 

On the other hand, electrical deep-pumping was at this time in general use 
in the United S tatcs and elsewhere and was considerably cheaper than the more 
primitive extraction methods. The second part of the Barnsdall contract 
required installation of deep-well pumps in Barnsdall-developed wells; pumps 
were also purchased from the United States and Germany for Soviet opera- 
tions. Acquisition of pumps was so rapid that four years after the signing of 
the Barnsdall contract, 45 percent of Baku crude oil was being pumped rather 
than bailed. 

15 Le Pitrole Russe (Paris: Editions de la Representation Conwierciale de l'U.R.S.S. 

en France) No. 6 (1927), p. 6. 
** See page 35. 



26 Western Technology and Soviet Economic Development, 1917-1930 

The change in extraction technology in the Baku fields is summarized in 
table 2-4. Bailing declined from 49.3 percent in 1921-2 to zero in 1927-8, 
while pumping increased from zero in 192 1-3 to 44.8 percent of output in 
1927-8, The other significant change was the increase in production from 
free-flowing wells (gushers) from 9.8 percent to 26.0 percent, reflecting the 
increase in new well-drilling activity by International Barnsdall, in Type I 
concessions, and in newly equipped and trained drilling crews of Azneft. In 
absolute numbers, there were only 38 wells equipped with modern pumps in 
May 1924; one year later, in July 1925, over 500 wells had modern pumps." 

The general operation of the Baku oil fields was electrified in the same 
period; by September 1928, of 3,312 oil wells in operation, about 3,212 (97 
percent) had pumping powered by electricity, 3 by steam engines, and g6 by 
gasoline engines. This compares to only 30 percent electrification in 1913. 
The oil-field electrification program, including the supply of some switch- 
gear and other equipment, was undertaken by Metropolitan-Vickers, Ltd. 
(United Kingdom), a subsidiary of Westinghouse, 28 while between 1927 and 

1930. 

. . . large quantities of General Electric products began to furnish the 
motive power for drilling oil wells and for pumping oil in the rich fields 
of Baku and Grozny.** 

Details in Le Pitrole Russe suggest that the electrification program was also 
concentrated into a very few years and in old wells involved a substitution of 
electric for gasoline and steam engines rather than just the introduction of 
electric motors. 

Table 2-5 ELECTRIFICATION OF THE GROZNY OIL 

FIELDS, 1923-7 

Number 0/ Engines (by Type) on Oct. I 





/oaj 


1924 


1925 


1926 


I93 7 


Steam engines 


MS 


•37 


IS7 


91 


31 


Gasoline engines 


37 


31 


27 


22 


21 


Electric motors 


76 


126 


192 


276 


396 


Total 


25S 


194 


346 


389 


448 


Percent electric motors 


39-5 


42.9 


5S-S 


7I.O 


88.3 



Source: Le Pdtrolc Rune, No. 6, p. 6, 



Financial Timet (London), May 25, 1923. 

This was one of the largest of the Metropolitan-Vickers contracts with the U.S.S.R. 
The breach of relations between the United Kingdom and Soviet Russia in 1927 
(following the 'Arcos affair") did not disturb Metropolitan-Vickers. The company 
worked continually in the U.S.S.R. on a substantial scale from 1921 until after 
the trials of 1933, when six of their engineers were accused of sabotage and expelled. 
Monogram (Schenectady; General Electric Co.), November 1943, p. 16. 



Caucasus Oil Fields — The Key to Economic Recovery 27 

In Grozny, for example, the number of oil-field motors increased from 258 
in 1923 to 448 in 1927. Electric motors formed only 29 percent of the total 
in 1923 but 88 percent in 1927. During the same period steam engines were 
virtually eliminated and the number of gasoline engines reduced by almost 
half. 

The same change took place in Baku. At the beginning of 1925-6 there were 
1,821 electric and 175 steam engines in Baku. By August 1927 there were 
3,810 electric motors and only 27 steam engines. 

This technological substitution greatly reduced the cost of producing oil. 
In 1913 the Baku fields used 1.3 million tons of crude oil (about 15 percent 
of the total produced) as fuel in the oil fields. By September 1925 this total 
had fallen to 8.4 percent; and by July 1927 to 3.9 percent. In brief, the 
substitution of electricity for oil reduced operating costs and also released 
considerable quantities of crude oil for export. 

This export of Western technology — primarily American — was first con- 
centrated in the Baku fields, and later in the Grozneft and Embaneft regions. 
The lag in regional application is supported by the statistics. In the Azneft 
field 36 percent of the drilling was done by the rotary method in 1924, but a 
comparable percentage (35 percent) was not attained by Grozneft until 1927. 
Whereas Azneft had 54 percent rotary drilling in 1925, Grozneft did not 
attain this percentage until 1928. 

Neither Grozny nor Emba had specific technical-assistance contracts for 
crude oil production. Their production problems, much less acute, were over- 
shadowed by those of transportation and marketing. Consequently the three- 
year transfer kg was not of major importance. 

Although the first, International Barnsdall was not the only vehicle for 
technological transfer in the oil fields. This transfer was designed to modernize 
the most prolific of the oil fields (which was also the field with the most 
serious production problems) by developing new wells and instituting a 
rational organizational and technical structure for deepening old wells. The 
transfer was a complete success. 

THE 'PURE' OIL CONCESSIONS 

Another transfer vehicle used, outside the Baku field, was the pure (Type I) 
concession. The fields offered for pure concessions were more remote or 
smaller, or in less-developed areas. Although Baku, Grozny, and Emba were 
offered on this basis, there were no serious negotiations for pure concessions 
after 1925. A typical offering for a pure concession was the Cheleken Island 
field in the Caspian Sea, As early as 1830, there were more than 3,000 hand- 
dug oil wells up to 250 feet deep, and production continued until the Rcvolu'- 



28 Western Technology and Soviet Economic Development, igi^-igjo 

tion. By 1923 only 12 wells were still producing; the rest were inoperative. 
The field was then offered for concession." There were at least five operating 
concessions of this type between 1922 and 1928. 31 

In February 1925 the Chief Concessions Committee concluded an agree- 
ment with F. Storens, a Norwegian firm, for the industrial and mineral 
exploitation of the Busachi Peninsula in the Caspian Sea. The area covered 
12,000 square verets on the eastern part of the peninsula. Storens was required 
to make an expenditure of 800,000 rubles on exploration work within five 
years. The life of the concession was set at 40 years, although the Soviet 
government had the option to buy out Storens in 30 years. All equipment 
was imported duty-free, but unstated dues and fees were payable, including 
5 percent of any metals output and 15 percent of any oil produced (50 percent 
if a gusher). A deposit of 50,000 rubles was accepted as a guaranty of the 
execution of the contract. 3 ' M 

At the end of 1923, a concession agreement was concluded between the 
Societa Minere Italo-Belge di Georgia of Turin, Italy, and the Chief Conces- 
sions Committee, under which the company agreed to conduct oil exploration 
on 50,000 acres of the Shirak Steppes near Tiflis. The Societa was given the 
right to explore and drill for three years, and production concessions could 
be subsequently granted for 30 years, the U.S.S.R reserving the right to buy 
out the undertaking after zo years. During the exploration period the grantees 
paid the Soviet government a royalty for each dessiatin explored. At the end of 
the exploration period, the company was required to make a report and hand 
over equipment and all oil produced to the Soviets. 

The company was also required to pay a percentage on gross product, pay 
export taxes, and comply with Soviet law on taxation and labor. At the end of 

" tencemorf' "V" N °' ** (December I5 ' I9 *7): "Cheleken Oil Field proposed for 

* l £ hM V"£ re Stortns ' Italo-Belge, British Petroleum, the Japanese Sakhalin, and the 
French Duverger group. Others were rumored. At one time the Chief Concessions 
U>mmittee was considering 62 applications for oil concessions, but little has been 
recorded concerning the.r operation. The Comparre Oil Company of New Jersey 
was formed by W. Averell Harriman specifically for a Baku oil concession. 
ft^JLL'S"^ «>mpany) concessions were not common in oi! operations; apart 
from the Dutch-Soviet trading company mentioned in the text, there was only 
hv U £™« d * e Turkestan <*• for Raw Materials Preparation, jointly operated 
by Sorgagen A-G (Germany) and Neftsyndikat (316-111-819). 

" Ekanomuhtskaya Zkixn, No. 33, February 10, 1925. 

'One of the most important and largest concessions granted is that for mining and 
oil concessions given to the Norwegian Company Storen. . . . According to the 
geological reports, th» area 13 very rich in oil. Considering that it has never been 
worked before and operations will be more difficult than usual, the concessionaire 
was given many special privileges.' [L. Segal and A. A. Santalov, Soviet Union Year 

^ZZLui^t™^ c'i en /^ d t,nwn) ' p " ,6 ^ According to Karty KmUet. 
nonnykh ob ektov S.S.S.R. (Moscow: 1926) the Busachi Peninsula oU deposits 
were known but not worked or delineated at this time. 



Caucasus Oil Fields — The Key to Economic Recovery 29 

the concession period, the entire property reverted to the Soviets without 
compensation. A bond was required from the grantees, who were also required 
to introduce the latest methods of drilling and oil production. 31 

An extension of the agreement was applied for and granted in September 
1926. Preliminary work was completed, and the area for development was 
increased from the original 415 to 1,515 hectares. The extension was granted 
with the stipulation that the company sink four oil wells, each at least 500 
meters deep. 35 

In 1923 an agreement was signed between the Gouria Petroleum Corpora- 
tion, Ltd. (United Kingdom), and the Chief Concessions Committee covering 
the development and exploitation of 1,100 square miles in Gouria, on the 
Black Sea, between Poti and Batum. A 40-year concession stipulated that 
rental payments and part of the production were to be assigned to the Soviets, 
who also had an option to purchase the whole output." 

The Duverger group (France) obtained oil concessions in 1923 in both the 
Baku and the Emba fields. The lease of 'state' lands in Baku was subject to 
an annual percentage of profits or oil payable to the U.S.S.R. The conces- 
sionaires had full management control. The Emba concession was a Type II 
mixed company arrangement for exploitation of the fields between Samar and 
Tashkent. The initial capitalization required payment of five million francs. 37 

OIL DEVELOPMENT IN THE SOVIET FAR EAST 38 

Protocol B of the January 1925 convention between the U.S.S.R. and Japan 
contained the conditions under which petroleum and coal concessions were 
granted to Japan in North Sakhalin. In effect, these replaced the 1922 Sinclair 
Exploration Company concessions, cancelled by the U.S.S.R. 

The petroleum concessions gave the Northern Sakhalin Petroleum Com- 
pany (Kita Sagaren Sekio Kigio Koumiay, succeeded by Kita Karafuto Sekio 
Kabushiki Kasha) the exclusive right to explore and exploit half of the two 
known oil fields for a period of forty-five years. The other half of each field 
remained in the hands of the Soviets. In addition to the original area of 2,200 
dessiatins, a further area was later granted for exploration work, on the under- 

" Corriere Diplomatka e Consolare, February 10, 1924, and Ekonomicheskaya Zhian, 
No. 62, December 13, 1923. Oil seepages had been known in the area for many 
years, but prcrevolutionary exploration had not been profitable. 

" U.S. Consulate in Riga, Report, September 10, 1926 (316-137-991/3), 

" 'The concessionaire company is extremely reticent concerning the details of the 
arrangement and the London press has . . . referred to the matter only in a cursory 
way.' (U.S. Embassy in London, Report No. 14817, March 23, 1923.) 

n New York Times, July 19, 1923, p. 23, col. 2. 

" This section is based on evidence in the U.S. State Department Decimal File 
(Rolls 137, 176 and 177 of Microcopy 316), 



30 Western Technology and Soviet Economic Development, igiy-xg^o 

standing that half of any oil field discovered was to be transferred to the 
U.S.S.R. for Soviet operation. A royalty was payable on all output, ranging 
from 5 percent for production not in excess of 30,000 tons per year up to 15 
percent for production in excess of 630,000 tons. A royalty of from 15 to 45 
percent was payable on gushers depending on yield. For natural gas the 
royalty ranged from 10 to 35 percent, depending on the composition of the 
gas. Foreign skilled labor was allowed to the extent of 50 percent of the total 
labor force and unskilled to 25 percent of labor force. All disputes were 
subject to the law and courts of the U.S.S.R. 

Soviet Far Eastern oil development was completely dependent on Japanese 
concessions and technical assistance. Beginning in 1925, the Japanese began 
exploring and developing the extensive oil strata of North Sakhalin. 

Table 2-6 NORTH SAKHALIN OIL PRODUCTION, 1926-31 





METRIC TONS PRODUCED 


Percent 


Year 


Japanese 


Soviet 


Total 


Produced by 
Japanese 
Concessions 




Concessions 


Production 


F} Auction 


1926 


29,829 





23,829 


160.0 


1927 


78,700 


— 


78,700 


100.0 


1928 


104,000 


17,000 


. z.-,ooo 


85.9 


1929 


187,000 


26,065 


213,065 


87.8 


1930 


I9S.O40 


96,268 


29I-308 


66.9 


1931 


275,000 


"33.172 


408.172 


67.4 


Source: V. Conolly, Soviet Trade from the Pacific to the Levam (London: 


: Oxford 1935), 


P-43- 











The Soviets started work in 1928, after obtaining the necessary credits and 
technical assistance from the Japanese.* 9 As the areas were divided into 
checkerboard development plots, the Soviet plots alternating with the 
Japanese, the Soviets were able first to develop their plots by obtaining 
credits and aid from the Japanese. When the Japanese concessions were 
expropriated, the whole area came under Soviet control. 

OIL EXPLORATION TECHNOLOGY 
The adoption of electrical well-logging, one of several methods of well- 
logging, is an excellent example of the priority given to the acquisition of 

•• 'It is characteristic that in the first place the Russians had to seek a three year credit 
from Japan, so as to obtain the necessary boring materials, pipes, etc. to start 
work. . . .' [V. Conolly, Soviet Trade from the Pacific to the Levant (London; 
Oxford, 1923), p. 43.] Conolly refers to a one-million-yen loan granted in 1928 and 
repaid in crude oil. [Oil Nem (London), September 1, 1918.] 



Caucasus Oil Fields — The Key to Economic Recovery 3 1 

the latest in Western science and technology. Schlumberger and coworkers 
started working on this technique in France in 1922, and, although he was 
joined by other researchers throughout the world, this group played an 
essential and primary role in its development. The first use of electrical well- 
logging is reported by Schlumberger from France in 1927. A company was 
formed — the Sociite 1 de Prospection Electrique Precedes Schlumberger — ■ 
which almost immediately made a technical-assistance agreement with Azncft 
to introduce electrical prospecting and subsurface techniques into the U.S.S.R. 
It appears that Azneft, along with Venezuela, was used as a test field. 10 By 
1933 the U.S.S.R. had eighteen electrical well-logging crews in the field, 
compared to four in the United States and five in Venezuela. 

Azneft concluded another contract, with the Radiore Company of Los 
Angeles, for technical assistance in electrical prospecting (presumably using 
magnetometer and gravimetric techniques), but no further data is available. 111 

Similarly, well-cementing techniques (Perkins) and core and rock bit manu- 
facturing technology were introduced in the same period. 

PIPELINE CONSTRUCTION, 1925-8 

Production problems at Baku were, by 1924-5, well on the way to solution. 
Rotary drilling and deep- well electrical pumps had revolutionized oil-field 
technology. The bottleneck now became transportation: particularly the 
means to move an increasing flow of crude oil to the Black Sea ports for export. 
The pipeline program initiated in 1925 as the solution to this problem is an 
excellent example of the intricate interlocking of foreign technologies and 
skills utilized in Soviet economic development. In this sector we find Type 
I, II, and III concessions with foreign firms and individuals, in addition to 
the import of equipment, supplies, training skills, supervisory ability, semi- 
manufactured materials, and oil-field services for cash, credit, or a share in 
anticipated oil profits. 

After the occupation of the Caucasus, two pipelines were available for oil 
shipments. The 560 miles from Baku on the Caspian Sea to Batum on the 
Black Sea were spanned by an eight-inch kerosene line built in 1905 by the 
Nobel interests. Capacity was about 600,000 tons a year, but by 1921 the 
line operated only at about 50 percent of capacity and was in need of substantial 
overhauling. By 1922 shipments were only 22 percent of capacity, and half 

*• In September 1031, the following instructions were issued to the Schlumberger 
field personnel: 'The results in Russia and Venezuela are remarkable. It has been 
decided to run the SP surveys in all wells.' [American Petroleum Institute, History 
of Petroleum Engineering (New York: 1961) p. 535.] Schlumberger used electrical 
well-logging at Baku as early as iozg. 

n U.S.S.R. Chamber of Commerce, Economic Condition! in the U.S.S.R. (Moscow: 
Vneshtorgtzdat, 1931), p. 226. 



32 Western Technology and Soviet Economic Development, igiy-ig^o 



of Azneft oil was moving to Black Sea ports on the overcrowded, badly 
maintained rail system which paralleled the pipeline.* 8 



Table 2-7 



RUSSIAN OIL PIPELINES BEFORE 1930 



Pipeline 



Km 



Diameter 
in inches 



No. of Years 

Stations Completed 



Service 



Baku-Be turn 

Groiny-Petrovsk 

Tukha-Krainodar 

Grozny-Tuapse 

Baku-Batum 



883 


8 


16 


1896-1906 


Kerosene 


161 


8 


4 


1910-13 


Kerosene 


102 


8 


6 


1910-11 


Crude oil 


649 


10 


7 


1926-8 


Crude oil 


834 


10 


■3 


1947-30 


Crude oil 



Source: Robert E. Ebel, The Petroleum Industry of ike Soviet Union (New York: 
American Petroleum Institute, 1961), p. 143. 



The Grozny oil field was linked to Petrovsk on the Caspian Sea by a 1 10- 
mile line, used in 1921 only for fuel oil and residues, and operating at about 
70 percent of capacity. At Grozny the problem was even more one of trans- 
portation than production. Recovery had been aided in 1923-4 by two large 
gushers. When these ceased in 1926, however, output was cut back by 65 
percent* 8 Grozneft's main requirement was a pipeline to the Black Sea, 
rather than to the Caspian, to connect with European markets. 

In brief, the essential problem in 1925 was to get Caucasus oil to the Black 
Sea ports. This was not within the technical scope of either Azneft or Grozneft ; 
the railways were operating at capacity and were themselves in need of 
reorganization and new equipment. The rails and ballast were in need of 
replacement and the tank cars 'in bad shape.' 4 * 

The position was critical. Over 37 mites of line required replacement on 
the Baku-Batum line, as well as 18 new diesel pumping engines. It was 
estimated that repairs to restore prewar capacity would require 81 million. 
On several occasions between 1923 and 1925, both the Baku and Grozny fields 
were shut down, as the oil storage tanks at the terminals were full and no 
transport existed to move the crude oil. 15 

In 1915 Royal Dutch Shell had proposed a Grozny-Novorossisk pipeline, 
this proposal, together with one to build a to-inch Baku-Batum line, was later 
revised. It was decided to build first a 10- inch crude line from Grozny to 
Tuapse (near Novorossisk) on the Black Sea, then a 10-inch crude line from 



U.S. State Dept. Decimal File, 316-137-744. 

U.S. State Dept. Decimal File, 316-137-977. 

U.S. State Dept. Decimal File, 316-137-1059. 

Dobb, op, at., p. 168, suggests, incorrectly, that the shutdown was part of the 

general sales crisis' afflicting Russian industry in 1922-3. The oil was needed in 

fact, to fulfill foreign purchase contracts. 



Caucasus Oil Fields— The Key to Economic Recovery 33 

Baku to Batum, and then to rebuild the existing 8-inch Baku-Batum pipeline. 
These lines were put into construction in 1925-6 and scheduled for comple- 
tion by 1928. 

The construction of a pipeline may be broken into a standard sequence of 
operations. Assuming that the route is surveyed and cleared, the first operation 
is trenching, followed by welding and inserting the pipes, and finally by 
covering them. The critical skilled functions are those of welding, trenching, 
and covering. The major inputs are the steel pipe itself, welding equipment, 
and skilled welding labor. Engines are required for installation at pumping 
stations along the route. Table 2-8 lists these operations for the two pipe-lines 
built between 1925 and 1928, together with the enterprise undertaking each 
operation. 

Table 2-8 SOVIET CONSTRUCTION OF THE GROZNY-TUAPSE 
AND BAKU-BATUM PIPELINES, 1925-8 



Sequence Construction of Operation Undertaken By 



1. Manufacture of line pipe German pipe mills under Russgertorg 

contract* 

2. Supervision of pipe transportation Otto Wolff Co.* 

3. Purchase of trenching equipment Purchased in United States 

4. Training of welders J. I. Allen Co. (Los Angeles) 

5. Purchase of welding equipment Purchased in United States by Ragaz 

(Russian-American Compressed Gas 
Co.)** 

6. Welding of pipeline Ragaz** 

7. Supervision of welding J. I. Allen Co. (Los Angeles) 

8. Purchase of line pumping engines 9 provided by Crossley Co. (United 

Kingdom) and 30 Mann engines 
made by Gomza*** 



Sources: • See chap. 16. 
•* See chap, ia, 
*** Gomza had a Type III concession agreement with Mann A-G (Germany). 
See chap. 10. 



The 10-inch steel pipe required for the lines was bought in Germany by 
Russgertorg 16 on five-year credit terms. Twenty ships were required to trans- 
port the total quantity of 51,000 tons of pipe from Germany to the Black Sea, 
and German transportation specialists were hired by Wolff to ensure safe 
arrival of the cargo at Poti, on the Black Sea.* 7 

n The Otto Wolff Trading Concession (Russgertorg) is covered in detail in chap. 16. 
Soviet trusts were also trying to get the order for pipe, but their prices were higher 
(3.85 rubles/pood versus z.71 rubles/pood), and quality was far inferior to that of 
the German pipe. 

" U.S. State Dept. Decimal File, 316-137-108*. 



34 Western Technology and Soviet Economic DevSopment, 191J-IQ3Q 

The critical task of welding the line was handled by the Russian-American 
Compressed Gas Company (or Ragaz) a Type II concession owned jointly by 
the International Oxygen Corporation of Newark, New Jersey, and Metalo- 
sindikat." One of the seven plants manufacturing compressed gases established 
by Ragaa was at Baku and produced the large quantities of welding gases 
required for construction. The $100,000 worth of welding and electrical 
equipment necessary for this operation was purchased by Ragaz in the United 
States." Automatic thyratron and ignition welding equipment was later 
manufactured in the U.S.S.R. with the technical assistance of General Elec- 
tric." The 150 Russian welders were trained by the J. I. Allen Company of 
Los Angeles. The latter then supervised work on the site under the general 
contract supervision of Ragaz. 81 It does not appear that either of the two 
special schools established by Ragaz for the training of welders was used for 
the pipeline welders. The trenching equipment was purchased in the United 
States." 

Table 2-9 COMPARATIVE PRICE AND DELIVERY SCHEDULES 

FOR 300-HP DIESEL ENGINES FOR BAKU-BATUM PIPELINE 



Germany Rustia (Gomza) 



Delivery 8 within 6 months 8 within 14 months 

All within 18 months All within 27 months 

Price 87 rubles per hp. 180-186 rubles per hp. 



Source: Adapted from Confidential Report No. S 4«9 of Polish Consul General. Tiflis 



May 25, 1928. 



Azneft wanted to purchase all pumping engines for the line stations from 
abroad and cited lower costs to support its case. A comparison between the 
relevant German and Russian offers is summarized in table a-a ; Azneft was 
instructed by Gosplan and Vesenkha, after nine engines had been ordered in 
the United Kingdom, to purchase the balance of thirty from Gomza (the 
Soviet State Machine Building Trust). 

Thirty Mann-type 300 horsepower diesel engines were finally supplied by 
the Gomza works and nine by the Crossley Company (United Kingdom). 
The pumps were supplied by the Moscow machine-building trust, built under 

•* The concession agreement between Metalosindikat and the International Oxyeen 

Ulrp. was signed in January 1926 and is discussed in detail below, 
" Amtorg, op. tit., Ill, No. 14-15 (August 1, iga 7 ). 
*' Monogram, November 1943. 
11 New York Timet, April 9, 1918, p. s , col. a. 
» U.S. State Dept, Decimal File, 316-137-1082. 



Caucasus Oil Fields — The Key to Economic Recovery 35 

license and the technical supervision of German companies, operating under 
Type III concession agreements. 5 * 

REFINERY CONSTRUCTION" 

Prerevolutionary refineries were small units, located primarily at Baku and 
producing fuel oil, kerosene, and lubricating oils. 

The Soviet objective of utilizing crude oil as a means to generate foreign 
exchange for industrial development required a different approach to refining. 
Refining had to produce those oil products in demand in the Western world, 
at a cost reasonably close to that of Western refineries. There was no refinery 
technology within Russia in the 1920s to design plants of this type; 65 this 
technology could be found only in Germany and in the United States. There 
were no cracking units in the U.S.S.R. before 1928. Of nineteen refineries and 
cracking plants built between the Revolution and 1930, only one had some 
units manufactured in the U.S.S.R. and even that was under British technical 
supervision, using the United States Winkler-Koch process. 

Although the first United States patent had been granted for a cracking 
process in i860 (United States Patent No. 28,246, to L. Atwood), it is usually 
accepted that 1926 was the year in which it was universally recognized that 
gasoline from the cracking process was better than that produced by straight 
distillation. 68 The United States was far ahead of foreign producers in 1926, 
with more than 2,500 cracking process patents issued, some 26 processes in 

*' Both the state machine-building trust (Gomza) and the Moscow machine-building 
trust (Mosmash) had technical-assistance agreements with German companies. 
Gomza had an agreement with Maschinenfabrik Augsburg-Nurnberg A-G to build 
under license and with technical assistance both two- and four-cycle motors, with 
and without compressors, and Mann-type diesel motors. Mosmash was formed 
from nine large prerevolutionary machine-building works in Moscow, including 
those of the Bromley Brothers, Danhauer and Kaiser, and other Russian, British, 
French, and German companies. Mosmash had several Type III technical-assist- 
ance agreements, and one with Maschinenbrau A-G of Saarbrucken included the 
manufacture of pumps. See chap. 10 for details. 

" The refinery section is based extensively on the monthly Le Pdtrole Rime (a supple- 
ment to La Vie Economiqut des Soviets), published by the Neftsyndikat representa- 
tive in Paris between 1027 and 1930. Although the principal objective of the 
journal was to further Soviet penetration of Western oil markets, the 22 issues 
published contain a wealth of detail on Soviet oil-field development and refinery 
construction. The only complete set in the United States is in the Hoover Institution, 
Stanford University. 

" A. sample examination of Neftianae Khozaistvo, a Soviet monthly devoted to the 
oil industry, for ig28 suggests that the problems receiving research attention were 
those of applying foreign technology to the U.S.S.R., the examination of domestic 
oil deposits, and the structure of world oil markets. Nothing, except the develop- 
ment turbine drill, suggests any Soviet contribution to World oil technology. 

" Cracking is a process of breaking down and rearranging oil molecules by high 
temperatures and pressures. The older straight-run distillation process could produce 
only a limited amount of gasoline, but cracking enables fuel oil, for example, to be 
converted into gasoline. 



36 Western Technology and Soviet Economic Development, 1917-1930 

commercial operation, and another 28 in experimental or demonstration pilot 
plants. There was an enormous American investment in these processes — not 
only in those utilized commercially but also in those that fell by the wayside. 

Russian crudes have gasoline fractions running only 5-10 percent, but the 
gas-oil fractions are greater, averaging 35-40 percent; consequently cracking 
is very important for the Soviet petroleum industry. Until the installation of 
the refinery complexes in 1927-8, only straight-run distillation was used, and 
this resulted in both a small total production of gasoline and low recovery 
percentages. To increase both production and recovery percentages, some 
form of cracking process was vital. 

Exports of crude oil had begun again in 1922, and in 1926 an extensive 
program of refinery and cracking plant construction was begun to upgrade 
the products exported. Two locations on the Black Sea were selected (Batum 
and Tuapse) and two in the oilfields (Baku and Grozny) as initial sites for 
refinery complexes. These complexes were built entirely by Western com- 
panies, with the exception of some minor equipment and the partial duplication 
of a Baku refineiy by Azneft in 1929. 

Batum, on the Black Sea, was the site of the largest development. Three 
petroleum refineries, two cracking plants, an asphalt plant, and a kerosene 
plant were built between 1923 and 1930. 

In April 1927 construction was begun on the first petroleum refinery. This 
utilized the latest United States technology, with a capacity of 1,600,000 tons 
a year of petroleum products. At the same time two other refineries, duplicates 
of the first, were placed on order. 

The first Batum refinery was built by Craig, Ltd. (United Kingdom), for 
ten million rubles, advanced on six-year credit terms." The other two units, 
built by German companies (Heckmann, Wilke and Pintsch) were financed 
from a 1926 revolving credit of 300 million marks from the German govern- 
ment. A large part of the amount was used for oil-field equipment. These 
units were financed on four-year credit terms. M 

The units listed in table 2-10 were fabricated abroad and erected in the 
U.S.S.R. by Western engineers, some of whom worked on behalf of their 
own companies and some of whom were employed by Azneft as consultants. 
Between 1926 and 1929 more than $20 million was expended in the United 
States alone for oil-field and refinery equipment— by far the greater part on 
long-term credits. 8 * A substantial portion of the 1925-6 German credits was 
also used for oil-field and refinery equipment. The Batum petroleum refiner- 
ies utilized the latest United States continuous sulphuric acid process, 

»' U.S. State Dept. Decimal File, 31 6-1 37-1 031. 
*• U.S. State Dept. Decimal File, 3 1&-1 37-980, 
'* Alcan Hircch, op. at., p. 15a. 



Caucasus OH Fields— The Key to Economic Recovery 37 

Table 2-10 CONSTRUCTION OF THE 

BATUM REFINERY COMPLEX, 1927-30 



Unit 



Comtruaion by Capacity* 



ZTl T, 7! (-,«;„ rv 1 ,600,000 tons per year crude 

Refinery I (.»8) ^^ Kingdorn) gi , 

Refinery II (.9*8) Heckmann *&>*«> «°™ P» ?™ " ude 

(Germany) °" 

Refinery III (,9*9) Wilkc, Pintsch I.***™ «»» P« * ear crude 

(Germany) °" 

Cracking Plant I Winkler- Koch system Not avadable 

/jn 2 gj (manufactured by Graver Corp.) 

Cracking Plant II Winkler-Koch system Not available 

fioio) (manufactured by Graver Corp.) 

Kerosene Plant St a ndard Oil Co. IS o.ooo lone tons per year 

(1027) of New York 

Sources: Le Parole Russe, various issues, iQ27> 

U.S. State Dept. Archives. 

Amtorg, op. at. , 
* Refinery capacities arc approximate only; several figures exist for each unit. These 
are maximal. C olumns .and 2 are confirmed by several sources. 

although built by British and German companies." The four gasoline cracking 
units were built by the Graver Corporation of Chicago as part of an order 
for ten units valued at $2 million and supplied on long-term credit for instal- 
lation at Batum, Tuapse, and Yaroslavl. Graver also had a technical-assistance 
agreement with the U.S.S.R. which covered petroleum refineries. 8 The 
cracking units utilized the Winkler-Koch and Cross systems of cracking and 
the Winkler-Koch Engineering Company, of Wichita, Kansas, also had a 
technical-assistance agreement with the U.S.S.R. to facilitate the transfer of 
its cracking technology. 

The 150,000-ton kerosene plant was built tn 1927 by the Standard Oil 
Company of New York and then leased back by Awicft. Standard operated 
the plant under a three-year, Type II contract, loading company tankers 
with kerosene at Batum for shipment to Middle East and Far East markets. 

» Azneft ' . . a choisi le precede americain de raffinage du petrolc par J'acide 
futfurique, en L melangeant d'une facon r*"™' P^oT^ cu'iv' 
eurs.' [Le Petrol* Russe, No. z (Oct. 5, i<W), P- J.5-] A so, Amtorg op. en. iv, 
No, (January 1, 1929), and Ehonomickeskaya Zkizn, No. t6i, July 17. <9*9- 

«i The usual claims of prior discovery were made for the cracking process ; . . . the 
emmen" cons ™ctor Choukhov" discovered the process long before the Americans 
Why the Choukhov process was not utilized is left unanswered. (U Peirole Russe, 
No 12 Msy s 1 028, p» 18.) 

« At least ten photographs were traced of a Standard Oil of New York unit at Datum. 
Tries* were dated between IQ*7 and l«°, but the unit was desenbed vanously as a 
refinery! kerosene plant, fuel oil plant, etc. It is presumed, b «t ™t known w. h 
certainty, that there was only one Standard umt-a kerosene plant. While Standard 



38 Western Technology and Soviet Economic Development, iqij-iqjo 

This was the first United States investment in Russia since the Revolution. 
There is no evidence that Azneft constructed or fabricated parts for any of 
the Batum refineries; there was complete reliance on imported technology, 
supervision, and equipment. 

Tuapse, on the Black Sea north of Batum, was the site of the second 
refinery complex oriented to Western oil products markets. This complex 
was run by Grozneft, the Grozny oil trust. 

Table 2-1 1 CONSTRUCTION OF THE 

TUAPSE REFINERY COMPLEX, 1927-30 

Unit Construction by Capacity 

Refinery I Heckmann* 1,000,000 tons per year 

Refinery II Heclcmann* 1,000,000 tons per year 

Cracking Plant I Cross system (Graver Corp.) Not available 

Cracking Plant II Cross system (Graver Corp.) Not available 

Source: Le Pitrote Rusie, various issue*, 1927-9. 

• The refinery construction is known to be German, but the firm is not precisely 
known; it was probably Heckmann. 

The equipment for the refineries at Tuapse came from Germany, and the 
two cracking units were manufactured and installed by the Graver Corpora- 
tion, of Chicago. The Burrell-Mase Engineering Company (United States) 
reorganized, modernized, and expanded the overall gas and petroleum produc- 
tion and refining facilities for Grozneft, and between 10 and 20 Burrell-Mase 
engineers were occupied with the project for a period of two years. One 
interesting comparison between refinery construction at Tuapse and Batum 
involves the length of time required to build a refinery under Soviet conditions, 
BurreU points out that a refinery which could be built in five months in the 
United States took two years to build in the Soviet Union under Grozneft.* 3 
On the other hand, a Standard Oil construction engineer, Tompkins, building 
the Standard-leased Batum refinery for Azneft, is quoted as saying that the 
company was able to complete construction in only three months 'in light of 
the complete assistance of Soviet authorities.'** This comparison supports 



of New York was thus aiding Soviet development at Batum, Soviet agents were 

busy in the Far East endeavoring to undermine its market position, with the lavish 

use of bribery and threats. [Naval Intelligence Report No. 159, May n, 1938 

(316-137-1084/s).] 

George A. BurreU, An American Engineer Looks at Russia (Boston: Stratford, n.d.), 

J). 269. BurreU has 37 publications in the field of gas and petroleum engineering 
isted in the Library of Congress card catalog, and was an outstanding expert in 
the field. 

Amtorg, op. «'(., II, No. iS (September 15, 1917), 5. 



Caucasus Oil Fields— The Key to Economic Recovery 39 

the observation made elsewhere that A2neft under Serebrovsky was a far 
more efficient concern in this period than either Grozneft or Embaneft. 
Serebrovsky was later shifted by Stalin to the gold trusts, to repeat his 
Azncft success 

Foreign equipment was used throughout these complexes, including even 
American fire extinguisher equipment and such auxiliary facilities as machine 
shops." Electrical equipment for refineries, i.e., pumps, compressors, and 
control apparatus, was largely supplied by the General Electric Company. 68 

Table 2-12 CONSTRUCTION OF THE 

SOVIET INLAND REFINERIES, 1927-30 



Unit 



Constructed by Capacity 



Baku 

Re fi nery I United Kingdom 470,000 tons per year 

technical supervision in Baku 

Cracking Plant I Winkler-Koch system — 

(United Kingdom)* 

Cracking Plant II Winkler-Koch system — 

(United Kingdom)* 
Heavy Oil Plant Stemschneider 3,600,000 tons per year 

(Germany) 

Grozny 

Refinery I Borman (Germany) 365.000 tons per year 

Refinery II Pintsch (Germany) 365.000 tons per year 

Cracking Plant I (3 Units) 2 Dobbs (Germany); — 

Sakhanov & Tilitchev 

(Germany) 
Etaba 

Vara Refinery (lubricants) Borman (Germany) 1 28,000 tons per year 

Source: Lt Petrole Russe, various issues, 19*7-9. 

• Probably by Viekers. 



In both Tuapse and Batum other American corporations— in particular 
the Foster- Wheeler Corporation of New York, E. B. Badger and Sons of 
Boston, and the Winkler-Koch Corporation of Wichita— played an important 
part in the design and construction of cracking units." 

The inland refineries at Baku depended more on German and United 
Kingdom construction aid; but two new factors are apparent. The refinery 

" The only manufacturer of fire extinguisher equipment in the U.S.S.R. was the 
concession Boereznsky (Lithuania). 

'* Monogram, November 1943. 

" The Winkler-Koch Corp. of Wichita, had a technical-assistance agreement with 
Neftsyndikat for the construction of cracking plants. [American-Russian Chamber 
of Commerce, Economic Handbook of the Soviet Union (New York: ^i), p. 101.] 



40 Western Technology and Soviet Economic Development, 1917-1930 

at Baku was partly built by Azneft under a British technical supervisor, but 
the tuyeres and some of the other pipe work were built by Azneft— the only 
case of Soviet oil-field construction in that decade. In addition, the cracking 
plant at Grozny was partly Soviet-designed by Sakhanov and Tilitchev but 
constructed by German companies. These are the same procedures noted in 
other industries. Soviet construction was at first limited to the simple and 
the straightforward (i.e., pipework) in less strategic locations (the inland 
refineries) and then gradually moved into more complex and more important 
functions at more important locations. Either Soviet designs were first made 
abroad or prototypes were made both abroad and in the U.S.S.R., presumably 
for comparison purposes, before complete development was tackled in the 
U.S.S.R. However, Soviet design and technology were almost nonexistent, 
and such examples as we have may have been no more than the 'Sovietization' 
of an existing Western technology; this name-changing was typical in the 
electrical equipment industry. 

ACQUISITION OF FOREIGN MARKETS FOR 
PETROLEUM PRODUCTS 

The technological revolution in oil-field production, construction of new 
pipelines, repair of pre-Revolutionary pipelines, and the refinery construction 
program on the Black Sea coast put the Soviets in a position to collect on 
their investments and development strategy. 

Production of crude oil almost tripled from 1923 to 1928, and exports 
followed a similar development, from 185,000 tons in 1922 to 1,9 million tons 
in 1927-8. The refinery program enabled a greater proportion of oil derivatives, 
of higher value (especially gasoline) to be exported. Before 1923 no gasoline 
had been exported, and most petroleum product exports consisted of kerosene 
and oils. 

In 1923 almost half of Soviet oil exports consisted of kerosene, or heating 
oil, which could be produced by prewar straight-run distillation refineries. 
By 1928, as a result of the new refinery and cracking-unit construction pro- 
grams, the proportion of kerosene dropped to less than one-quarter, and gaso- 
line now made up more than one-quarter of total exports. There was also a 
significant increase in total petroleum exports, from 430,000 tons to almost 
2.75 million tons— a sixfold increase, Light oil fractions figured among the 
1928 exports but not in 1923 exports. 

In brief, table 2-13 indicates both a very substantial increase in the quantity 
of oil exported and an increase in the product qualky. Both factors resulted 
directly from the refinery construction program. By 1928, the value of oil 
exports was 124 million rubles, or 19.1 percent of the value of all Soviet 
exports, and the largest single earner of foreign exchange. 



Caucasus Oil Fields — The Key to Economic Recovery 



4i 



Table 2-13 COMPOSITION OF SOVIET OIL EXPORTS, 

1923 AND 1928 



Product 



Tons 



'9 2 3 



Percent 



Tons 



1928 



Percent 



Crude oil 


35,000 


Gasoline 


50,000" 


Kerosene 


200,000 


Fuel oil 





Gas oil 





Solar oil 





Light oil 


— 


Lubricating oil 


100,000 


Other types 


45,000 


Totals 


430,000 



8.1 

11.6 
46-S 



23-3 
1 00.0 



244,542 


8.9 


725.840 


26.5 


680,360 


S4-9 


640,822 


23-4 


191,787 


7-0 


49."45 


t.8 


22.472 


0.8 


170861 


6.6 



2,734,829 



99.9 



Source: Imperial Institute, The Mineral Industry of the British Empire and Foreign 
Countries, 1928-30 (London: H.M.S.O., 1931). 

* These early (1923) gasoline exports were derived from a German process utilizing 
natural gas, natural gasoline, and straight-run distillation. 



In May-June 1923, coinciding with the start of the Harnsdall drilling and 
pumping work, a mixed or Type II, agreement was made with Sale and 
Company of London, for the immediate sale of 30,000 tons of crude oil and 
follow-on sale of 100,000 tons of kerosene per year. The company was capi- 
talized at £250,000 sterling; both Sale and Company and the Soviets held an 
equal number of directorships. Neftsyndicat reserved the right to buy out 
alt shares of the company after ten years, no doubt looking forward to the 
time when they would be strong and knowledgeable enough to establish their 
own distribution network in the United Kingdom. 68 This appears to have been 
the first major breach in the solid front presented by the world oil companies 
against the purchase of Russian oil, or 'stolen oil* as it was called in contem- 
porary business terminology. Royal Dutch Shell then argued that self-interest 
dictated the purchase of 30,000 tons (and an option for a further 170,000).*° 
The Soviet estimate of oil products available for export in 1923 was 430,000 
tons; these two sales alone made a sizeable contribution to the re-entry of 
the U.S.S.R. into the world oil markets. 



Isvestia, No. 104, May 12, 1923. 

Standard Oil in the United States, British, French, and Italian companies hud been 
buying Soviet oil on a minor scale before the 1923 contracts. Vlessing in Holland 
acted as the agent for continental Europe. It would be difficult to match the hypoc- 
risy displayed by both major oil groups. Sir Henri Deterding, of Royal Dutch 
Shell, was blasting Standard of New York for buying 'stolen oil' while himself 
buying it in large quantities and negotiating for a monopoly arrangement with the 
U.S.S.R. Standard switched dramatically from an anti-Soviet to a pro-Soviet 
stand in 1927, and its public relations man, Ivy Lee, put out a sycophantic U.S.S.R. 
— a World Enigma {London: Benn, 1929) to reinforce its position. This got Standard 
of New York into a conflict with Standard of New Jersey. 



42 Western Technology and Soviet Economic Development, 1917-1930 

This breach was followed by the formation of a Dutch-Soviet mixed com- 
pany for the export of Soviet oil, under an agreement signed on May 11, 1923 
between Royal Dutch Shell and the U.S.S.R. Capital participation was 50:50, 
with £1.25 million sterling being subscribed. The head office was in London 
and the company sold Soviet oil abroad through exclusive dealerships. The 
agreement lasted for ten years, and the company earned a 10 percent commis- 
sion. 70 

In 1924 Royal Dutch Shell was purchasing oil via this mixed company on 
behalf of Standard, the purchases being split between the two major oil 
groups. This, however, presented a united front to Neftsyndicat and the trade 
organization— a front which offset the bargaining power of the Soviet trade 
monopoly. Since 1924 the Soviets have vehemently protested the formation 
of such foreign trade groups. 

The first goal in the expansion of oil exports at this time was to establish 
trading relations with existing distributors in each foreign market. The 
Standard Oil Company handled the Near and Far East markets, and the 
Blue Bird Motor Company and British-Mexican Petroleum Company handled 
imports into the United Kingdom and cracked Soviet kerosene in the United 
Kingdom until refineries were built later in the U.S.S.R. Asiatic Petroleum 
bought oil for distribution in India and Ceylon. Turkey and Spain bought 
large quantities (532,000 tons in 1928) for distribution through their govern- 
ment monopoly networks. A five-year agreement in 1 925 between Neftsyndicat 
and Bell Petrole covered delivery of Grozny crude to France. 

Later, when the acceptance of Soviet petroleum had been established, the 
Soviets began to establish their own distribution networks. Russian Oil 
Products (ROP), owned jointly by Arcos and Neftsyndicat, was founded in 
the United Kingdom. By 1925 ROP had established a chain of oil depots in 
the United Kingdom and was engaged in extensive price warfare with existing 
distributors. In the mid-i92os the Soviets canceled their agreements with 
German distributors and established their own subsidiary, the Deutsche- 
Russische Naptha Company, which established the Derop chain of gasoline 
service stations in Germany. In Sweden, the Nordiska Bensin Aktiebolaget 
was established and promptly drove prices down 30 percent to gain entry 
into the market. Gradually by the end of the decade the Soviets controlled 
their own distribution networks in most of their major markets, although they 
still relied on Standard Oil for distribution in the Middle and Far East, while 
in Spain a mixed company arrangement with the Argus Bank of Barcelona 
had exclusive rights for Spain, Portugal, and their colonies, with Neftsyndicat 
receiving 25 percent of the profits and the losses. The export of petroleum 

'• Hatutehblad, May u, 1913 (quoted in 316-137-844). 



Caucasus Oil Fields — The Key to Economic Recovery 43 

products to Persia was handled through the Persian-Azerbaidjian Naptha 
Company (a subsidiary founded by Azneft) and Shark {the Russian-Persian 
Import and Export Company), a Type II concession. 71 

Several very large orders were placed directly by Western governments for 
Soviet oil. The Italian Navy bought 150,000 tons in 1927, the French Navy 
bought 33,300 tons in 1927, and the United States Shipping Board bought 
200,000 tons — at a time when there were no official diplomatic or trade 
relations between the two countries. 



SUMMARY OF SOVIET OIL DEVELOPMENT, 1917-30 

No new oil fields were developed in the 1920s; all the producing fields 
had been developed by prerevolutionary operators. This inheritance was 
intact in 1921, when the Caucasian oil fields were occupied by the Soviet 
armies, but world technological advances, primarily American, put these 
fields and their products at a distinct competitive disadvantage. Further, the 
early Bolsheviks had no ability in oil-field operation, and production rapidly 
declined by 1922-3. 

Serebrovsky, Chairman of Azneft, was instrumental in focusing Soviet 
attention upon foreign oil production techniques and within seven years the 
Soviet oil fields were modernized: two new pipelines were completed, and 
three distinct refinery complexes, comprised of nineteen major identifiable 
units, had been put into operation. Exports by 1926-7 were double those of 

1913- 

It is overwhelmingly obvious from the preceding discussion that the im- 
portation of foreign oil-field technology and administration, either directly or 
by concession, was the single factor of consequence in this development. 
Statements that this achievement was 'without foreign assistance and capital' 72 
are obviously propagandist^ nonsense. Development of an indigenous oil 
technology comparable to the contemporaneous American technique was not 
a useful alternative. The only available elements for an indigenous technology 
were the turbine drill and the Choukov tracking process, and these were 
more or less dismissed from consideration by the Soviets.' 3 The development 
of domestic technology would have been costly in both time and expense, 

" U,S. State Dept. Decimal File, 316-137-900. 

" Such statements may be found in Louis Fischer, Oil Imperialism (New York: 
International. 1926), p. no; and in T. Gonta, The Heroes of Grozny, Horn the 
Soviet Oil Industry Fulfilled the Five Year Plan in Two and a Half Years (Moscow: 
193a). 

" The turbine drill did a small percentage of drilling ; the Choukov process has never 
been used. The Export Control Act of 1949 forced the Soviets to develop the less 
efficient turbine drill (it overheats below about 8,000 feet) and so incur some of the 
costs of development. 



44 Western Technology and Soviet Economic Development, xgzj-xg30 

and the oil fields were in no condition to wait; they were rapidly watering, 
and maintenance operations were nonexistent. 

The only rational solution from the Soviet viewpoint was to introduce 
American rotary drilling and electrical deep-well pumping, while continuing 
the tsarist oil-field electrification program. This, toge*her with refinery com- 
plex construction, was implemented, except in the case of the tuyeres of one 
Baku refinery, by Western firms, engineers, and consultants with Western 
skills and equipment. This alternative cost far less tt»an developing an oil- 
field technology from scratch. The marginal cost of supplying refining and 
cracking units by Western firms to the U.S.S.R. v-a* insignificant, as the 
research and development cost had already been recouped from units built 
in the West. Any return in excess of direct costs was profit. 

There was no domestic Russian demand for gasoline, and little for light 
fractions, but there was an urgent demand for foreign exchange to finance 
the industrialization program. 74 With the installation t>f modern cracking 
plants, penetration of Western markets became possible. This overall develop- 
ment strategy was so successful that the declining petroleum industry of 
1922-3 was able by 1928 to contribute 20 percent of Soviet foreign exchange, 
The Soviets developed a completely up-to-date refining and cracking industry 
within a few years of the United States — an industry destined to play a great 
role in the Soviet industrialization drive of the early 1930s. 



There was no production of automobiles or trucks in the U.S.S.R. until the 
implementation of the Fiat and Ford Motor Co. agreements of 1038-0.. There were 
very few imported automobiles and trucks, and no motor buses at all until after 
1924. The internal demand for oil products was for heating and lighting oils; 
i.e., fuel oil and kerosene. 



CHAPTER THREE 

Coal and Anthracite Mining Industries 



YEARS OF CRISIS AND STAGNATION 

The most productive Russian coal fields are in the Donetz Basin (Donbas). 
In 1910 these supplied more than 18 million tons of a total of 24 million tons 
of coal and anthracite produced in Russia. This prerevolutionary industry 
was highly labor-intensive, employing 123,000 workers in coal mines and 
19,000 in anthracite pits, with little mechanical equipment apart from primitive 
hand-propelled mine cars. About 4.6 million tons of coal and coke were 
imported. 

From the Revolutions until the mid-i920S, the coal and anthracite mining 
industries endured a series of crises involving over-production, severe under- 
production, bad quality, lack of skilled labor, and general technical backward- 
ness. The blame for these crises was laid at a bewildering number of doors: 
the Revolution, the Civil War, the Intervention, flooding of the mines, 
housing shortages, food shortages, labor shortages, bad attendance and sick- 
ness, lack of bread, 'central authorities,' lack of fireproof bricks, lack of 
technical materials, non-payment for output, reorganization, inefficient rail- 
roads, lack of shipping, technical backwardness, and non-payment of wages 
all received their share of the blame. 

Looking at the situation as a whole one sees two factors that stand out as 
prime causes for the catastrophic crises: first, the attempt to transform a 
capitalist system into a socialist system without a clear understanding of the 
operation of either system ; and second, the very low level of technical and 
economic knowledge of those who assumed the burden of transformation. 
The causes listed in the contemporary Soviet press were generally no more 
than symptoms of an imperfect transformation. 

These difficulties led to a policy of concentration and a subsequent reduction 
in the number of operating coal mines. In 1921 there were 1,816 coal mines 
in the Donbas of which 857 (47 percent) were closed. Of the remaining 959 



46 Western Technology and Soviet Economic Development, 1917-1930 

mines, some 387 (or 41 percent) were leased to former operators or peasants. 1 
The 57a state operated shafts were reduced to aoa shafts in 1922, and after 
several crises further reduced to 175 in mid- 1922 and to 36 by mid-i923. a 
These 36 nationalized collieries produced 78 percent of the total Donbas 
output, 16 percent being produced by other state and railroad trusts and 6 
percent by private leased coal pits. An attempt to export coal to earn foreign 
exchange through an organization formed specifically for the purpose 
(Exportugol) also failed. 

Lack of the technical facilities to produce coal was only part of the problem. 
Although the mines were not mechanized, the conveyor and mine rail equip- 
ment was, according to Ekonomicheskaya Zhizn, 80 percent in order. 3 The 
output per worker was, on the other hand, miserably low; about 5 tons per 
worker pa month compared to about 48 tons per worker in the United States. 
This was barely sufficient to supply enough coal to keep the pits operating, 
and at one point in 1921 the Donbas mines produced only enough coal for 
themselves and had no surplus production for shipment. This was due partly 
to the lack of mechanization and to inefficient organization, and partly to 
problems created by the attempt to impose 'socialist organization' on a tech- 
nically backward enterprise. Together they resulted in chaos. Average daily 
shipments of coal from the Donbas dropped to 57 carloads in the summer of 
1921, normally the most advantageous season for mining and transportation. 
Coal was imported into the Donbas from both the United Kingdom and the 
United States in 1921-3: truly a case of 'carrying coals to Newcastle.'* 

From 1923 onward, efforts were made to lease more coal mine operations 
and smaller pits to private individuals, artels and joint-stock companies, and 
an effort was made to induce foreign concessionaires into the coal regions. 

UNION MINIERE AND THE DONETZ BASIN 
COAL MINES 

The major effort in coal mine mechanization was handled under Type III 
technical-assistance agreements with United States companies between 1927 
and 1930, but there were also a number of pure Type I concessions. With 
one exception, these were on the more distant borders of the U.S.S.R. — those 
areas more difficult to develop. 

J P. Zuev, Ugol'nya Promyshlennost' i ee Polozhenie (Moscow: J921), p. 9. 

* The Engineer, November 16, 1923, p. 5*9. 

* Ehmomichetkaya Zhizn, No, 66, March 21, 1924. 

* 'In 1870 they produced 9 million poods , . . so we have gone back to the conditions 
of 50 yeare ago.* Pravda, October 28, 1921. 



Coal and Anthracite Mining Industries 



47 



The single exception was the operation of coal mines in the Donbas by 
the Union Miniere group. Before 1917 part of the Donbas output had been 
controlled by a French company, Union Miniere du Sud de la Russie, whose 
properties were expropriated after the Bolshevik Revolution. It was reported 

Table 3-1 OPERATING FOREIGN CONCESSIONS IN THE U.S.S.R. 
COAL AND ANTHRACITE MINING INDUSTRY, 1922-30* 



Concession Holder 



Country 
of Origin 



Concession 
Type 



Work Undertaken in U.S.S.R. 



Companies 

Union Miniere Group France I Production 

Anglo-Russian Grumant United I Production 

Co., Ltd. Kingdom 

Polar Star Concession Unknown I Production 



Kita Karafuto Sekio 
Mitsui Shakeef 
Lena Goldnelds, Ltd. 

Bryner and Company, 

Ltd. 
American Industrial 

Corp. 
G. Warren, Inc. 

Roberts & Schaefer, 

Inc. 
Allen & Garcia, Inc. 

Stuart, James and 
Cooke, Inc. 
Thyssen A-G • 

Stein A-G 

Goodman 

Manufacturing, Inc. 
Hilaturas Casablancas 

S.A. 
American Commune 

Individual consultants 
J. W, Powell 

T. G. Hawkins 

C. Pierce 



Japan 
Japan 
United 

Kingdom 
United 

Kingdom 
United 

States 
United 

States 
United 

States 
United 

States 
United 

States 
Germany 

Germany 

United 
States 
Spain 

United 
States 

United 

States 
United 

States 
United 

States 



I Production 
I Production 
I Production 

I Production 

II Production 

II Trade 

III Technical 
assistance 

III Technical 

assistance 
III Technical 

assistance 
III Technical 

assistance 
III Technical 

assistance 
III Technical 

assistance 
III Technical 

assistance 
Commune 



III Technical 
assistance 

III Technical 
assistance 

III Technical 
assistance 



Opening Krivoi Rog mines 
Operating Spitzbergen mines 

Operating coal mines Spitzber- 
gen, railroad in Murmansk 
Opening Sakhalin coal mines 
Opening Sakhalin coal mines 
Opening Kuzbas coal mines and 

anthracite mines 
Operating Far East coal mines 
(Tetiukhe) 
Operating Kemerovo coal mines 

Importing anthracite to United 
States 
Reorganizing Donbas coal mines 

Reorganizing Donbas coal mines 

Reorganizing Donbas coal mines 

Sinking shafts in Donbas coal 
mines 
Sinking shafts 

Providing technical assistance on 
manufacture of coal cutters 

Providing technical assistance on 
manufacture of coal cutters 

Operating mine No. 2, Donbas 



Providing assistance to 

Giproshaft 
Providing assistance to 

Giproshaft 
Providing assistance to 

Giproshaft. 



Source ; See text. 

• This table contains the important concession agreements, It does not include agree- 
ments for supply of equipment, which also included training and installation clauses, 
such as the Krupp and Sullivan contracts for supply, installation, and operator 
training for heavy coal cutters. 



48 Western Technology and Soviet Economic Development, igij-ig^o 

in December 1923 that an 'extremely valuable' concession to exploit the 
Donetz Coal Basin had been granted to a French group, and evidence points 
to the operation of these mines by Union Miniere. In the statistical annual 
for 1927-8, eleven very large coal mines in Makeevka were listed as 'Union' 
and two in Ekaterinovsk were listed as 'Franco-Russky.'* Given the proclivity 
of the Bolsheviks to propagandize, it is unlikely these shafts would have 
continued for ten years under their prerevolutionary name except for a 
specific reason. On the other hand, there was every reason for the Union 
Company to have completely obscured public knowledge of a concession. 
There were some two million tsarist shares and bonds held in France, with 
active representative organizations fighting for total settlement of prewar 
debts. This was a parallel to the International Barnsdall situation. 



THE KUZBAS PROJECT OF THE AMERICAN 
INDUSTRIAL COLONY 

This project is of more than purely historical interest ; it enables us quantita- 
tively to establish the effect of United States management methods on a 
backward Soviet enterprise of the early NEP period. The Kuzbas operation 
counters any argument that it was lack of equipment alone, or the ravages of 
the Revolution, that delayed economic development. The removal of socialist 
methods of operation and substitution of profit-oriented methods, even by 
a group ideologically sympathetic to the Soviet 'experiment,* brought about 
an immediate and significant upward change in output. Within six months of 
the take-over of Kemerovo mines by American workers, output of coal, coke, 
and sawmill products almost doubled; this occurred before the injection of 
modern equipment.* Rutgers, director of the Kuzbas project, held that the 
Soviets looked upon Kuzbas as a Soviet state enterprise run on American 
lines and 'unfortunately' needing Americans, strongly implying that counter- 
revolutionary activity at least hindered Soviet development, but that American 
labor discipline and organizational methods were required ahead of the 

* V. I. Kruglyakova, op. tit., p. 175. The original report was in the New York Times, 
November 14, 1913. It was also announced by the Soviet Embassy in Berlin in 
December 1913 (569-3-1 50) and confirmed by the United States Consulate in Riga 
(569-3-155). A hint that the concession operated for at least two years is in a Times 

u l u- ™P° rt of MarcI > 30, »Oi6: 'Following consultation of representatives of 
all the big French enterprises in Russia, among them. . . . Union Miniere du Sud 
de la Rustic . . .' 

* 'These mine* were lying almost idle when they were taken over by the Americans 
... the presence of the Americans has a stimulating effect upon the Russian 
workmen, there is already a tendency to increase production.' Ekonomieheskaya 
Zhisn, No, 19, January 28, 1913. The 'stimulating effect' is rather overstated, as the 
Russian workers were, at the least, hostile to these new foreign elements. 



Coal and Anthracite Mining Industries 49 

machinery itself.' A similar situation was reported from the Donbas. A group 
of American miners near Youzovka nearly trebled former production. 8 

In early 1922 a concession agreement was concluded between the U.S.S.R. 
and a group of American workers represented by Bill Haywood and an 
'American Organization Committee,' formed in New York by the Society 
for Technical Aid to Soviet Russia, which had the objective of persuading 
American skilled workers to go to the U.S.S.R. This unit was to exploit the 
'almost idle* plants of the Nadejdinsky and Kuznetsk regions. The concession 
included iron ore and coal mines, forests, and auxiliary industries in Nade- 
jdinsky, and the coal mines, chemical by-products plant, and supplementary 
industries at Kemerovo. In addition, the unit operated brick kilns, a leather- 
shoe factory at Tomsk, the Jashkinsky cement plant, Guricv Zavod (pig iron) 
and other enterprises. 

According to the terms of the agreement,* the group undertook to import 
2,800 fully qualified workers to Kemerovo and 3,000 to Nadejdinsky. A capital 
subscription was required by the Soviet government of 8100 in machinery 
and Si 00 in food per worker. These were imported along with the workers. 
The Committee was responsible for organizing the purchase of machinery 
and raw materials abroad. The U.S.S.R. undertook to pay expenses and buy 
machinery to the value of 8300,000. The total product of the concession was 
the property of the U.S.S.R, but some surpluses of coal, wood, bricks, and 
agricultural produce accrued to the settlers. 

In January 1923, five groups of colonists arrived and began work under 
skilled mining engineers. The total population ultimately reached 400 Ameri- 

Table 3-2 EFFECT OF UNITED STATES MANAGEMENT 
IN KEMEROVO (KUZNETSK) COAL MINES, 1923 



Average Output Per Month 



Aug. 1, 191s to Feb. I, 1923 F'b. 1, 1923 to Aug. 1, 1923 

(Soviet management) (United States management) 

Coal produced 6,950 metric tons 10,657 metric tons 

Coke produced 160 metric tons 288 metric tons 

Sawmills 16,800 cubic feet 20,600 cubic feet 



Source: Nation, August 8, 1923, p- 14&. 



R. E. Kennell, 'Kuzbas: A New Pennsylvania," Notion, May 2, 1923. The American 

Industrial Colony published its own journal, Kuzbas. Only issue No. 3 of Vol. I 

appears to have survived in the United States (at the Hoover Institution Library, 

Stanford University). 

Pravda, No. 246, October 31, 1922. 

Complete text is in U.S. State Dept. Decimal File, 316-111-1270. 



50 Western Technology and Soviet Economic Developbient, xgij-xgjo 

cans and 2,000 Russians. S. J. Rutgers was the chief ^rector; Grindler, the 
chief engineer; and A. Pearson, technical director, at the Kemerovo project. 
Despite local opposition from 'counterrevolutionaries,* the group took over 
full management control on February 1, 1923. 

The effect of introducing American skills and methods of organization was 
both immediate and substantial (table 3-2). One of the first steps was to 
reduce the number of employees by 20 percent and simultaneously increase 
output per worker. The Colony installed three sawmills, re-equipped the coal 
mines, built fifty coke ovens, new bridges, and railroads, and after a year in 
operation had set up a completely autonomous industrial colony. 

Those colonists (the 'White Feather Groups') who, disillusioned with the 
'socialist paradise,' made efforts to leave Russia were treated harshly. It took 
all winter for some to get out of Russia; they were stranded periodically and 
finally reached Riga, Latvia, destitute and hungry. A graphic and moving 
story by one of these colonists, a young woman, written at the request of the 
the United States Consulate in Riga is in the U.S. State Department files. 10 

PURE CONCESSIONS IN REMOTE AREAS 

The Anglo-Russian Grumant Company continued to operate its coal conces- 
sion in the 'no-man's land' of Spitsbergen. Another concession was made in 
1923 to the Polar Star Company to operate other mines on Spitzbergen Island 
and railroads in the Murmansk area. Lena Goldfields operated a Kiselev 
coal mine and two Yegushin anthracite mines (numbers 1 and 5) in Siberia 
as part of its 1925 concession. 

The Tetyukhe (Bryner) concession operated coal mines in the Far East, 
as did Japanese concession operators. Only twenty coal mines were in operation 
in the Far East in 1924; of these six were state-owned enterprises, sue operated 
by Japanese concessionaires on Sakhalin Island, and one operated as a 
concession by Bryner and Company near Vladivostock. 11 In 1924 the state 
mines in the Far East produced about 46 percent of total output of coal and 
lignite while the privately operated concessions (Japanese and Bryner) 
produced about 54 percent. 

The two Japanese Sakhalin coal concessions granted under Protocol B of 
the 1925 U.S.S.R.- Japanese convention became an important export source 
later in the 1920's, their export rising from 4,000 metric tons in 1925 to 

" U.S. State Dept. Decimal File, 316-110-795/801. However, the autonomous 
industrial colony (AIK) at Kuzbas was not broken up until late 1927, when few of 
the original American* remained (316-^08-391)- 

11 U.S. Embassy in Tokyo, Report 13, March 1925. This last concession is of interest 
in relation to the 'arm's length hypothesis.' One of the partners was suspected of 
being in the pay of the Soviets (Decimal File 861.00/11170). 



Coal and Anthracite Mining Industries S 1 

115,500 in 1929." However, total Far East coal and lignite output was only 
about 3 percent of the total Soviet production. 

In 1920 the independent Georgian government concluded an agreement 
for the operation of the Tkwarozly region coal mines with the Italian company 
ILVA Alti Forni e Acciaierie d'ltalia s.p.a. The Soviet government offered 
ILVA a renewal of the agreement, but this was not taken up by the company. 
The mines, although investigated by several commissions, remained dormant 
until at least 1928. u 

TECHNICAL ASSISTANCE FROM GERMANY 
Pure technical-assistance (Type III) agreements for the coal mines and partic- 
ularly Donugol, were sought prior to any others. In the latter half of 1925, 
a commission of Ruhr industrialists and economic experts began examining 
the Donbas coal mines. This commission was invited by the U.S.S.R., 
. . . because it wanted objective economists to make a report to indus- 
trialists in Germany on the exact conditions in the Don district . . . and 
to confer ... on the basis for collaboration between the two countries. 1 
Dr. Rechlin, a member ofthecommission, argued that sue!) collaboration was 
entirely possible because the coal deposits of the two countries were similar 
from the geological and physical viewpoints; consequently the same type of 
coal-cutting machines could be used in the Donbas as in the Ruhr. By ig26, 
Thyssen A-G and other coal-machinery-making firms in Germany were 
receiving orders for equipment, and coke ovens had been ordered from Koppers 
A-G in Essen. The anticipated purchase of the Rhenish-Westphalian Metal 
Products and Machine Company, manufacturers of locomotives in Dussel- 
dorf, by the U.S.S.R. did not materialize. 

The Soviets were not completely satisfied with German techniques and in 
i9a6 appointed a commission to make an extensive study of comparative coal 
mining methods in Germany, France, England, and the United States. *The 
result was a victory for American methods and engineers. . . . ' IS 

TECHNICAL ASSISTANCE CONTRACTS 

WITH STUART, JAMES AND COOKE, INC. 

In early 1927, Amtorg reported that American coal-mining methods and a 

major emphasis on mechanization were to be adopted throughout Soviet coal 

mines. Concurrently with this announcement, Charles E. Stuart, of Stuart, 

" Amtorg, op. at., V, 354; and Times (London), January 11, 19*6. The agreement on 

Sakhalin coal concessions is in U.S. State Dept. Decimal File, 316-176-426. 
l * U.S. Legation in Warsaw, Report 1699, April 13, '9^8 (3 1 6-1 36- J 244), 
*« U.S. Embassy in Berlin, Report 1407, August 17, 1926 (316-136-1232). 
» Amtorg, op. cit., II, No. 7, p. a. 



52 Western Technology and Soviet Economic Development, 191J-1930 

James and Cooke, Inc., coal-mining consultants in the United States, was 
making a preliminary inspection of Soviet coal mines: 

. . . with a vieyr to their mechanization in accordance with the most 
modern American practice and methods. Mr. Stuart stated that several 
shafts will be operated under the direction of the firm to serve as model 
mines for the purpose of gradually extending the methods and systems." 

Between 1927 and 1930, Stuart, James and Cooke, Inc., signed four technical- 
assistance contracts with Soviet trusts. Two of these were with coal trusts 
(Donugol and Moskvugol), the latter for technical assistance in the reorganiza- 
tion of the Dubovaya Balka and October Revolution coal mines in the Moscow 
area. 

Charles E. Stuart was an active promoter of American assistance to the 
Soviet Union. In a speech before the 1928 annual convention of mining en- 
gineers, he stressed '. . . . the traditional friendship between the two 
countries,' and suggested that 'America will surely play the foremost part in 
the rehabilitation of Russia.' 17 

A year later, after the four technical-assistance contracts had been imple- 
mented, Stuart was even more generous in his praise of Soviet officials. In 
1928 he was allowed to make a 10,000-mile trip throughout the U.S.S.R. and 
recorded it on movie film later shown to the American Association of Mining 
Engineers." 

The Stuart Company drafted a complete five-year reorganization plan for 
Donugol, modernizing equipment, layout, and working methods. Twelve 
American engineers, sent to Kharkhov in 1927 to implement the program, 
were supplied with Russian assistants, clerks and draftsmen. One year later 
the staff of Russian engineering assistants was arrested by the OGPU. Despite 
this demoralizing episode, the rationalization continued through the late 1920s 
and 1930s. At first German and then American coal mining equipment was 
utilized. Later Soviet-made equipment, manufactured under the Goodman, 
the Casablancas, and similar technical-assistance agreements, was used. A 
similar three-year reorganization plan was implemented by the Stuart com- 
pany for the Moskvugol coal fields, in the Moscow sub-basin. 19 

" Amtorg, op. at., II, No. 7, p. 2. 

" Neto York Times, February 33, 1928, Although there were no diplomatic relations 
between the two countries, the Soviets were allowed to operate Amtorg in New 
York, supposedly to facilitate trading relations. Saul Dron was the president of 
Amtorg. 

'• Nets York World, March 3, 1919. Stuart was hardly a prophet concerning Soviet 
intention*. For example, he stated : "The prevailing opinion in the United States 
that the U.S.S.R. while endeavoring to bring foreign capital into its enterprises has 
the intention of seizing those enterprises in the future, is entirely wrong.' 

u Torgovo-Promysklermaya Gageta, No. 246, October 24, 19*9. Izvettia, No. 128, 
June 8, 1927. Stuart, James and Cooke, Inc., had similar contracts with Yurt, the 



Coal and Anthracite Mining Industries $3 

ROBERTS & SCHAEFER AND ALLEN & GARCIA 
CONTRACTS 

In mid-1929 a Type III technical-assistance agreement was signed between 
Donugol and Roberts & Schaefer, mining consultants and engineers of 
Chicago. The agreement was to sink five new coal shafts in the Donbas to be 
completed within thirteen months, and to provide a production of 3.5 million 
tons per year. The firm manufactured the equipment, installed it in the mines, 
and brought the mines into operation. For this purpose engineers were sent 
from Chicago to the Donbas, and a number of Donugol engineers were sent 
to the United States for training." 

Another United States firm of mining consultants, Allen & Garcia, was 
given a three-year contract with Donugol in late 1927 to plan and build new 
coal pits in the Donetz Basin, including both surface buildings and shafts. 51 
Two years later, in 1929, the firm received a second contract with Donugol 
to plan and build three new coal pits within three years. The firm provided 
thirty-five United States mining engineers and accepted ten Soviet engineers 
per year for training in the United States.* 2 

In addition to contracts between American consulting firms and Donugol, 
there were a number of individual contracts between specialist American 
engineers and Giproshaft, the Institute for Designing Coal Mines, and 
Kuzbastrust. 

In 1929, under the reorganization plan of the Donetz coa! trust, three new 
large capacity shafts were sunk, with an aggregate output of 1.65 million tons 
of coal. The one in the Gorlov district had a capacity of 650,000 tons, the 
one in the Dolzhansk area an annual capacity of 600,000 tons, and the one 
in the Krindachev area a capacity of 400,000 tons per annum. 

For the year 1929-30, some fourteen new shafts were planned, the largest with 
an output of 1.6 million tons per year. Brukh, chief engineer of Stein A-G 
coal mine in Germany, designed the i.6-mi!lion-ton shaft in the Scheglov 
district, and Thyssen A-G designed a similar shaft in the Gorlov district, 
under the supervision of engineer Drost. Another million-ton shaft was 
designed by Stuart, James, and Cooke, Inc. 23 



southern ore Trust; Kiseltrust, a Urals mining trust, and the Kuzbastrust, in the 
Kuzbas coal fields. The company apparently viewed these undertakings as pure 
concessions (316-136-372). 

When Stuart, James and Cooke, Inc., issued their report on the reorganization of 
the coal mines in 1931, V. I. Mczhlauk ordered 10,000 copies to be printed nnd 
distributed to ail executives down to foreman level in the coal and related industries, 
[E. M. Friedman, Russia in Transition (London: Allen & Umvin, 1933)] 

M Ekonomicheskaya Zkizn, No. 143, June 26, 1929. 

11 U.S. State Dept. Decimal File, 316-136-1342. 

tt Pravda (Leningrad), No. 246, October 25, 19*9- 

" Bank for Russian Trade Review, II, No. 7 (July 1929), p. 10. 



54 Western Technology and Soviet Economic Development, igiy-igjo 

Lomov, a member of the Central Executive Committee, pointed out in 1929 
that reconstruction of the Donetz Coal Basin was impossible without outside 
aid, as only 350 trained Russian engineers existed for 275 coal and anthracite 
shafts. The gap would have to be made up with foreign engineers, whom 
'. . . we are trying to employ on a large scale.' 2 * He added that shafts were 
being designed by two German firms (Thy&sen and Stein) and a number of 
American firms, and that an agreement was about to be concluded with an 
American firm to develop anthracite shafts. *In this way we shall be able to 
solve the problem facing the Donetz Basin.' ** 



RESULTS OF THE MECHANIZATION 
OF COAL MINES 

Russian coal mines before 1923 were highly labor-intensive; there was little, 
if any, mechankation even of an elementary nature. In 1923 the Donetz Coal 
Trust imported a few Sullivan coal cutters,** followed by seventeen in 1925 
and another forty-five in 1926. 

In August 1923, the purchase and installation of mining machinery from 
the United States was placed on a more formal and, from the Soviet viewpoint, 
more satisfactory basis. J. A. Meyerovitch, who represented in the U.S.S.R. 
a group of Milwaukee and Chicago equipment manufacturers including 
Sullivan and Allis-Chalmers, informed the United States Riga Legation that 
a concession had been concluded between the group and the U.S.S.R. Under 
this agreement the group was to arrange the export of Russian mineral 
products and to supply American mining equipment on a matching basis. 
However, Meyerovitch had the distinct impres^inn that the Soviets were moie 
interested in political recognition than in trade." 

Coal-mining equipment purchases were stepped up in 1925-6 and included 
a significant number of German and America. l ;ieavy (178) and light (125) 
coal cutters, conveyors (30), hoists (32), and electric and gasoline tractors 
and chargers. Both the Sullivan Company and Krupp, the leading sellers, 
sent engineers to install and introduce the equipment to Soviet miners. 
Westinghouse installed electric tractors, and Jeffry front-end loaders, while 
Soviet purchasing commissions visited the United States. 28 

" 'Debates on the Five Year Plan, 1 Pravda (Moscow), April 28, 1929. 

•• Ibid. 

** The contract was arranged by Meyerovitch, the Sullivui Co. representative in the 
U.S.S.R. It involved $210,000 worth of coal mining machinery, on terms of 
two-thirds cash and one-third in four months, one of the earliest trade credits 
granted by a Western company (316-130-1274), 

" U.S. State Dept. Decimal File, 316-131-719. See also chap. 16 on RAITCO. 

" Amtorg, op, eft., II, No. 16 and No. 19. 



Coal and Anthracite Mining Industries 



55 



Table 3-3 INTRODUCTION OF THE MANUFACTURE 

OF COAL MINING MACHINERY 



Item 
No* 




Production (Units) 


First Soviet 


Description 


1927-8 


1928-9 


Output 


Group A: 


First produced in 1928-9 








26 


Coal cutting machines: 










Heavy 


None 


ti 


1928-9 




Light 


None 


48 


1928-9 


zS 


Pick hammers 


None 


29 


(928-9 


29 


Mine ventilators (stationary) 


None 


206 


1928-9 


Group B: 


First produced in 1930 and after 








13 


Motors for electric mine locomotives 


None 


None 


1932 


'7 


Motors for coal cutting machines 


None 


None 


1931 


30 


Mine ventilators (mobile) 


None 


None 


>M3 


3* 


Mine safety lamps 


None 


None 


1031 


39 


Griiily screens for coke 


None 


None 


1930 


142 


Belt conveyors 


None 


None 


1930 


Source: A 


. Gershenkron, A Dollar Index of Soviet Machinery Output, 


1927-8 to 1937, 


(Santa M 


onica: RAND Corp., 1951). 








* Refers to the category of machinery given in 


Gerschenkron. 





There was no production of any type of coal mining machinery in the 
U.S.S.R. until the end of the decade. Priority was then given to the establish- 
ment of coal-cutter and underground-drill production, and Type III agree- 
ments were made with two Western companies: Goodman Manufacturing, 
Inc. of Chicago and Hilaturas Casablancas S.A. of Spain. 49 Production 



Table 3-4 



EARLY MECHANIZATION OF THE 
DONETZ COAL BASIN, 1922-8 



Year 



Number of 

Machines in Use* 

(all imported) 



Metric Tons of Coal 

Production Production 

per Machine per Worker 

(per year) (per month) 



1922-3 
19*3-4 
19*4-5 
1935-0 
1926-7 
19*7-8 



3* 

3 2 
48 

90 

2*5 
348 



6,264 

7,54" 
10,682 

i3,»7 
14,196 
14,300 



5.8 

7'2 

8. 7 
10.5 
11. S 
12.4 



Source: L. Liberman, Trud i Byt Gorniskov Donbassa (Moscow: 1929), pp. 97-8. 
• Heavy coal cutters only. 



" Pravda, No. 246, October 25, 1929. 



56 Western Technology and Soviet Economic Development, 1917-1930 

of electric motors was undertaken after 1930 (Group B) to a General Electric 
design described by them as unique and used only in Soviet-made coal 
cutters.* 

The effect of imported and Soviet-made coal-cutting machinery was signi- 
ficant. In the Donetz Basin the number of coal-cutting machines in operation 
increased from none in 192 1 to 348 in 1927-8, the last year in which the U. S. S.R, 
was completely dependent on imported equipment. In the peat mining 
industry reliance was completely on imported drag lines, and it was not until 
the 1930s that the hydra-peat method, using specially designed General 
Electric motors, was introduced.* 1 

Increase in production per machine from 6,264 metric tons in 1922-3 to 
14,300 metric tons per machine in 1927-8 (table 3-4) testifies to the success 
of the Stuart, James and Cooke rationalization scheme and to the efficient 
training of workers and installation of equipment by Western manufacturers. 
In terms of output-per-worker, the increase was also significant: from 5.8 
tons per worker per month to 12.4 tons in 1927-8, compared to the United 
States average of 48 tons per worker per month. 

Table 3-f DONETZ BASIN: CHANGES IN NUMBER OF SHAFTS, 
TOTAL OUTPUT AND MINE AVERAGES, 1913 TO 1926-7 



Date 



Number of 
Skaftt 



Production 

(in millions of 

metric torn) 



Average 

per Mine 

(in metric tons) 



1913 


1,200 


25.3 


21,083 


1921-* 


954 


7.2 


7.547 


1922-3 


577 


8.1 


14,038 


1923-4 


591 


12.2 


20,642 


1924-s 


238 


12.5 


52,521 


1925-6 


377 


19.6 


51.989 


1926-7 


480 


24-5 


51,042 



Sources: 1913 to 1926-7 U.S. State Dept. Decimal File, 316-136-1304 (based on 
Central Statistical Office data). Not available after 1926-7. 



The effect of Type III technical-assistance agreements can be traced very 
clearly in table 3-5 covering Donetz Basin output from 1913 to 1926-7. In 
19 1 3, 1,200 shafts produced a total of 25 million tons of coal, an average of 
21,083 metric tons per shaft per year. The catastrophic decline in production 
through 192 1-2 is followed by the policy of concentration; coincident with 
introduction of the American and German equipment and training in 1923, there 
is a climb in output to 12 million tons. The reduction of shafts from 591 to 



10 Monogram, November 1943. 
" Ibid. 



Coal and Anthracite Mining Industries 57 

238 in the same period that output was increasing was due to concentration 
of the newly imported equipment into comparatively few mines, increasing 
the output per mine while ruthlessly closing down the non-mechanized mines. 
In 1935, beginning with German reorganization assistance and continuing 
with large imports of mechanical coal cutters and conveyors, output increased ; 
and the number of operating shafts increased as the mechanization program 
spread. The dramatic rise in mine output accompanies the first introduction 
of mechanical equipment, and the output stabilizes at 51,000 tons per shaft 
at this date, indicating a methodical program of mechanization and training 
in an increasing number of mines. 

Whereas in 1922-3 only 200,000 tons of coal were mined by machine in 
the Donbas by 1928-9 about 30 percent (or 7.6 million tons) were machine- 
mined; and the U.S.S.R. had not at that time begun to manufacture coal 
cutters. 

The Warren Coal Corporation, coal distributors of Boston, concluded an 
agreement with Amtorg in May 1929 covering the distribution of 160,000 
tons of Soviet anthracite per year in the United States. Warren became sole 
distributor for Russian anthracite in New York and the New England States. 32 

In critical stagnation at the beginning of the decade, the coal mines, 
technically backward and with inefficient, unskilled labor, were reorganized 
according to United States coal-mining procedures utilizing first German and 
later American coal-mining equipment. At the very end of the decade, arrange- 
ments were made with Spanish and American companies for technical assist- 
ance in the manufacture of coal-mining equipment, all of which had been 
previously imported. Pure concessions were not of major importance in the 
aggregate, except that Union Miniere operated a number of large Donbas 
mines at a time when the majority of these mines were either closed or being 
re-equipped by German (later American) engineers. However, more remote 
mines, in the Kuzbas and the Far East were extensively operated by foreign 
concessionaires. 



Agreement is in U.S. State Dcpt. Decimal File, 316-136-1285. 



CHAPTER FOUR 



Early Development of the Soviet Metallurgical 

Industry 



The metallurgical industry, primus inter pares of the 'commanding heights' 
of the economy, was kept well within the control of the planning organs and 
the Party. The decade of the 1920s, which has been called by Clark the 
'restoration period' 1 to distinguish it from the massive new metallurgical 
construction of the 1930s, suggests that only limited technical and economic 
advances could be made without Western technical assistance. 

THE SOUTHERN ORE TRUST (YURT) 

Yurt controlled iron ore in Krivoi Rog and manganese in theNikopol deposits. 
After 1924 there was an agreement with Rawack and Grunfeld, of Germany, 
for the operation of these manganese and iron ore mines. Rawack and Grunfeld 
also held a monopoly for the sale of all South Russian iron ore and manganese 
in foreign markets. In 1924-5 the company sold 21 million poods of iron and 
manganese ores to Germany, Italy, Belgium, and the United Kingdom. 2 The 
Port of Nikolaev was equipped with ore loaders by the company to handle 
the export of these ores. 

Only six mines were operated at the beginning of the year. The major restor- 
ation of the Krivoi Rog iron ore and manganese mines took place after 1925 
under predominantly German technical assistance. In December 1925, fourteen 
iron ore and three manganese mines were reopened ; these were tsarist mines 
closed since the Revolution. The mining equipment was purchased in the 
United Kingdom and Germany by Yurt, on nine months' credit. Company 
engineers from the United Kingdom and Germany assembled the equipment 
and put it into operation. 

1 M. Gardner Clark, The Economics of Soviet Steel (Cambridge : Harvard, 1956), p. 65 . 
■ U.S. Consulate in Hamburg, Report 360, October n, 19*5 (316-108-1544). 



Early Development of the Soviet Metallurgical Industry 59 

At this point the mines at Krivoi Rog and Nikopol were inspected by a 
German industrial delegation headed by Steinitz, of Rawack and Grunfeld, 
which expressed the opinion that the newly equipped mines could produce 
500 million poods of iron ore and 150 million poods of manganese within 
five years and that the members of the delegation were prepared to provide 
assistance to reach that objective. Its opinion was that new equipment to 
fulfill the five-year program need only consist of electrical mining equipment; 
Yurt was instructed by Vesenkha to consider the German suggestions, which 
were later implemented. It was also agreed that credit would be advanced by 
Germany to Yurt on the basis of the proceeds from the anticipated export of 
manganese ore from Nikopol. 3 

In October 1927 Yurt concluded a technical-assistance contract with Stuart, 
James and Cooke, Inc., for the further preparation of projects and consulting 
services. 1 

RECONSTRUCTION IN THE METALLURGICAL SECTOR 

The position of the Russian iron and steel industry in 1920 was almost un- 
believably bad. In 1913 there had been 160 blast furnaces operating in 
Russia; but in 1920 only 12 were operating intermittently. In 1913 there had 
been 168 Martin steel furnaces; but in 1920 only 8 were operating inter- 
mittently. Production of iron ore was 6 million poods, compared to 55 1 million 
poods in 1913. Production of cast iron was 6 million poods, compared to 231 
million in 1916 and 6.6 million poods in 1718 under Peter the Great. 

Production of rolled iron was 6.4 million poods, compared to 222 million 
in 1916, and so on. Of sixty-six cast-iron foundries available, only two were 
in production. However, employment had not fallen in the same proportion : 
whereas 257,000 were employed in metal works in 1913, there were 159,000 
so employed in 1920 despite the catastrophic decline in output.* 

The metallurgical sector, however, received comparatively few concessions 
until the Type III technical-assistance agreements of 1927-9, which were a 
prelude to the Five-Year Plan construction. Although, production had 
partially recovered by the late 1920s, technologically the industry had remained 
at the level of the tsarist era. Independently attempted technical advances 
backfired and forced the Soviets to seek out Western assistance — another 
proof that Soviet development and technical progress in the twenties were 
essentially dependent on Western technical aid. Soviet-originated projects 

' U.S. Consulate in Hamburg, Report 417, December 12, 1925 (316-108-1582). 

* Torgovo-Promyshlennaya Gaseta, No. 229, October 7, 1927. 

* These figures taken from a confidential report in U.S. State Dept. Decimal File 
(316-107—359). Also see report from General Wrangel's staff, December 1521 
(316-107-560). 



6o Western Technology and Soviet Economic Development, igij-iQ30 



3 







Early Development of the Soviet Metallurgical Industry 6 1 

were fumbling and technically inept, and made little contribution to recon- 
struction or development. The only successful Soviet work of the period was 
the restoration of seven small blast furnaces— not a particularly difficult 
task — and these, as Clark points out, 

... are almost never mentioned in Soviet technical or metallurgical 
literature. Perhaps the Soviets are ashamed of these first attempts, which 
certainly look like pygmies beside the giants built during the First Five 
Year Plan. 8 
The Donbas sector is by far the most important of the iron- and steel- 
producing regions. As shown in figure 4-1, Ugostal {Southern Steel Trust), 
formed in 1923, divided the inherited plants into four groups: the Donetz 
group proper, at the east end of the basin; the Ekaterinoslav group, at the 
western end of the basin and north of the iron-ore fields of the Krivoi Rog; 
the southern group of plants on the Sea of Azov; and the Kramatorsk and 
Hartman locomotive plants. 

The Donetz group metallurgical industry was in a sorry state in 1921. All 
plants were closed except for Makeevka and Petrovsk. The latter had no 
blast furnaces in operation, and rolling was limited to available steel slab 
stocks. Whereas more than 233 million poods had been produced in all Russia 
in 1916, only 7 million poods were produced in 1920' (i.e., about 3 percent), 
and much of this was too bad in quality for use. In the Donetz area the position 
was even worse, with production less than .5 percent of the prewar level. 

Contraction of the metallurgical industry continued into mid-i9Z2. Most 
of the Donbas steel plants remained closed, reportedly because of a lack of 
purchase orders and working capital. Only South Briansk and Chaudoir 
operated on a continuous basis; Petrovsk, the largest, continued with one 
furnace working continually and the others either intermittently or not at all. 
Makeevka was partially closed in 1922. 

In early 1923, the mines supplying Petrovsk became idle, as did the open- 
hearth steel-making plant. The plant was in fair condition technically but now 
lacked skilled labor. Makeevka was completely closed, although the workers 
were retained. 

' Clark, op. cit., p. 82. Soviet restoration was limited to the simplest of repair work; 
even furnace lining (a skilled but simple task) was difficult for them. For example, 
the Perin and Marshall engineers stated that in 1926 the unfinished No. 5 blast 
furnace at Petrovsk required only a 'comparatively small expenditure' to complete. 
The furnace had been under construction prior to 1914 and 'nearly all of the metal 
work (had) been erected for the furnace proper, stoves and skip bridge,' but much 
of the piping' was still lying on the ground where it had rested since 19 14. The 
inference is that completion was beyond the technical capabilities of Ugostal. 
[Perin and Marshall, Report on Improvement of the Ugostal Steel Plants of South 
Russia (New York: 1926), p. 42.] Petrovsk No. 5 was not working as late as October 
1928. (Kruglyakova, op. cit., p. 70.) 

' Ekonomieheskaya Zhizn, No. jo6, May 18, 1921. Numerous articles in this and 
other journals in the period 1920-2 indicate a pitiable condition. 



62 Western Technology and Soviet Economic Development, igij-x^o 



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Early Development of the Soviet Metallurgical Industry 63 

One widely held view was that Ugosta! should be disbanded and all the 
South Russian steel works closed. The area was being worked at a loss. There 
were few orders; most were being placed abroad. However, the trust employed 
27,000 people: sufficient argument to keep the mills in intermittent operation ! 

A compromise was reached by formally closing Makeevka and discharging 
one half of the workers while transferring the other half to the Ugostal coal 
mines. 8 

In the next three or four years, several blast furnaces were rebuilt, with 
Western assistance and by 1927-8 pig-iron output was increased in four of 
the ten plants which constituted the prewar Donetz group. The Donetz group 
now produced more than 1 million tons of pig iron (compared to 1.6 million- 
in 19 1 3), including output from blast furnaces at Briansk- Alexander, the 
Donetz- Iur'ev works, and the Frunze (old Society des Tuileries) works. In 
1928 all output from the Donetz section of Ugostal, the largest single group of 
metallurgical works, was from pre- Revolutionary plants which had been put 
back into operation. 

The second group of works forming the Ugostal trust was in the Ekateri- 
noslav area, at the western end of the Donbas and to the northeast of the 
Krivoi Rog iron-ore deposits. This group comprised six prerevolutionary 
plants, only three of which (Dnieprovsk, Briansk, and Gdantke) had been 
pig-iron producers with blast furnaces. Of these three only Briansk was pro- 
ducing pig-iron in 1923-4; neither the Dnieprovsk or the Gdantke were 
operating as pig-iron producers. Consequently in 1923-4 only one of the 
six works situated near the Krivoi Rog iron ore deposits was producing any 
pig iron. 

Two works, the Dnieprovsk and the Lenin (formerly the Shoduar 'A') were 
producing small quantities of open-hearth steel and rolled steel products. 

In sum, this group was only producing about 140,000 tons of rolled steel 
products in 1923-4, compared to almost 826,000 tons in 1913. 

The third group of Ugostal metallurgical works was the Azov Sea group 
of four prerevolutionary plants which produced 400,000 tons of pig iron in 
1913. No blast furnaces in this group were operating in 1923-4, and only two 
produced any rolled steel: Zhdanov and Taganrog. As Taganrog produced no 
slab steel, it was probably importing slabs from the Zhdanov works (formerly 
the Marioupol), (table 4-3). 

The old Providence works was first merged with the Zhdanov, a few miles 
to the South, and then closed down. 

The Kertch works was first built by French and Belgian capital in 1900, 
but the owners had closed it down as unprofitable after a few years. 9 The 

• Pravda, No. 48, March 3, 1933. 

• Clark, op. tit., p. 157, 



64 Western Technology and Soviet Economic Development, 1917-1930 



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66 Western Technology and Soviet Economic Develofbient, 1917-1930 

equipment had survived until 1925 in good condition, ana the Soviets reopened 
the works according to plans drawn up by German and American engineers. 
The first blast furnace was ready for blowing-in by 1929. The cost of recon- 
struction, however, greatly exceeded even the most pessimistic estimates, and 
a search was put under way for the 'criminals' who had miscalculated. The 
major problem was that the furnaces would not smelt local iron ores. 

The failure of the Kertch works is typical of the actual conditions of 
the new industrial enterprises which have been organized by inexperi- 
enced and inefficient persons for the sake of political propaganda and 
without any regard of the conditions under which the new plant will 
have to work. 10 

By late 1929 only two of the projected three blast furnaces had been built, 
and capital costs already had exceeded 66 million rubles — far in excess of 
the 18 million originally estimated for the whole project. The operating costs 
were also significantly greater as local Lipetsk 40-percent-iron ore required 
additional fuel, which had to be transported from the Donbas. Use of this ore 
required an additional nine rubles a ton for transportation. 11 



THE STRUCTURE OF UGOSTAL IN 1929 

At the end of the decade, Ugostal consisted of eight plants constructed 
before the Revolution and one reconstructed plant, the Kertsch, whose prob- 
lems have already been discussed. These plants had produced 3.2 million 
metric tons of pig iron in 1913, whereas in 1929 they produced less than 2.5 
million, with labor productivity about 50 percent below the prewar level. Real 
wages had declined heavily because of the many compulsory contributions 
required of the plant workmen. 1 * 

Several smaller works were included in the trust, including the former 
Handtke plant, producing iron pipes, and the former Sirius and Taganorog 
plants, producing railroad equipment. 

Although a few American and Polish engineers worked on the Ugostal 
plants, the bulk of the rehabilitation was carried out by German engineers 
working under the post-Rapallo economic-cooperation contracts between 
Germany and the Soviet Union. 

10 U.S. State Dept. Decimal File, 316-139-232/8. The American and German 
engineer* said their calculations were correct, but they had failed to take political 
considerations into account (316-133-858), 

11 U.S. State Dept. Decimal File, 316-139-332/8. 

11 Based on report from Polish Consulate General in Kharkov, June 5, 1929, from 
information supplied by a Polish engineer working for Ugostal and believed to be 
'absolutely reliable* (3«6->39-2S0- 



Early Development of the Soviet Metallurgical Industry 67 

CONCESSION OFFERS IN METALLURGICAL CONSTRUCTION 

Large new metallurgical projects and the rehabilitation of prerevolutionary 
plants were offered as concessions under the broadened post-1927 concessions 
policy. 

The possibility of using the iron-ore reserves of Magnitogorsk with the 
extensive coking coal deposits of Kuznetsk had been discussed in Russia 
since the nineteenth century. The Magnitogorsk concession proposal was for 
a 656,000-ton-capacity plant (rolled products), to produce pig iron, together 
with steel-making and rolling facilities. 13 The rolling capacity of the suggested 
plant was planned as follows: 

Heavy rails 245,000 tons 

Large stanchions (structurals) . . . 33,000 tons 

Medium commercial iron and pit rails . 65,500 tons 

Small commercial iron products . . 230,000 tons 

Casting iron 27,500 tons 

601,000 tons 

A preliminary outline of the technical requirements was published. The 
plant was scheduled to include four blast furnaces, open-hearth and Bessemer, 
furnaces, and rail and continuous blooming mills of American design. Three 
basic requirements repeatedly emphasized were that the plant had to operate 
on coke, that the coking had to be undertaken at Magnitogorsk from Kuznetsk 
coal, and that coke by-products were to be utilized. This emphasis is interest- 
ing as it relates to the basic economic weakness of the Magnitogorsk- Kuznetsk 
project and the technical weakness of the Soviets in coke by-products produc- 
tion. 14 

Given the long haul for coking-coal, transport costs were the major factor 
in determining profitability. Early discussion, beginning in the 1890s and 
continuing through the 1920s, had revolved around this point. As late as 
1927, 1. G. Feigin had stated that 'transportation of raw material and fuel for 
2,000 kilometers is completely irrational.' 15 But the official party line was 
that transportation costs could not be a determinant of location in a Socialist 
economy, this being bourgeois Weberian theory. 

The concession was offered a supply of coking coal from Kuznetsk, then 
being planned by Freyn and Company, Inc., at a rate of 0.38 kopecks per 

" P. I. Egorev, The Magnitogorsk? (Magnet Mountain) Metallurgical Works (Moscow : 
Glavnyi Kontsessionnyi Komitet, 1929). This was the same technical arrangement 
suggested by Perm and Marshall two years earlier and rejected as 'technically 
inadequate.' 

" See chap. 12. 

16 Clark, op. cit., p. 215. 



68 Western Technology and Soviet Economic Development, 1917-1930 

ton-kilometer. Consequently, any concessionaire with the temerity to under- 
take construction of Magnitogorsk and install coking facilities dependent on 
Kuznetsk coal would have been completely at the mercy of the Soviet govern- 
ment By merely raising transport rates to equal costs, the Soviets could have 
forced the concessionaire to abandon the project. This was in addition to the 
immense difficulties which could have been imposed on the concessionaire as a 
result of the single-track, inadequate, and overcrowded railway already 
straining under the weight of increased coal tonnages. It will be recalled that 
the major problem in getting American and British relief to this part of Russia 
had been a heavily overburdened and inadequate rail system which required 
several weeks for journeys of a few hundred miles, even though large segments 
of the population were starving." 

The estimated cost of building Magnitogorsk was 171 million rubles. The 
plant was to employ 6,216 people and return a profit of 10 percent. The 
concessionaire was given the option either to operate the plant for a number 
of years as a pure concession and then turn it tv;r to the Soviet government, 
or to operate it as a credit concession in which erection and operation would 
be undertaken by the Soviets and the foreign Cvr--pany would grant a ten-to- 
twelve-year credit. 

Clark states that the basic rate of 0.38 kopecks, also used in the argument 
over the construction of the shuttle under the ?ive-Year Plan, was about 
one-third the rate charged for coal hauled the same distance in the general 
rate schedule. The Magnitogorsk concession lay outside the control of 
potential concessionaires; one could have fulfilled an agreement, stayed 
within the cost estimates given, and yet within a f :w months or years been 
forced to abandon the concession operation. 

Whether this was the intent or not is debatable. The history of other 
concessions gives support to the probability that this was indeed an aim of 
concession policy. Chernomordik, referring to the special discount or subsidy 
given to the Magnitogorsk-Kuznetsk shuttle says, 

The Soviet freight-rate system, based on the principle of costs, includes 
the use of freight rates as a lever of economic policy." 

In brief, the proposed Magnitogorsk concession could have operated only 
with a subsidy from the Soviet government to the foreign operator. It is 
unlikely this subsidy would have been long continued. 

The restoration of other large metallurgical complexes was offered to 
foreign capital. 



H. H. Fisher, The Famine in Soviet Russia (New York: Macmiltan, 19*7), p. 173. 
D. Chernomordik, 'Toward a Theory of Railroad Freight Rates,' Voproty Ekono* 
miki, No. 9, 1948, p. 3*. 



Early Development of the Soviet Metallurgical Industry 69 

The Nadejdinsky Metallurgical Works in the Urals, founded in 1894, 
battered in the Revolution and Civil War, subsequently operated by the 
American Industrial concession, and still in a bad state of repair, was one 
such project. The works comprised the iron ore mines about 90 kilometers 
away, and the Bogoslovsky brown-coal mine about 50 kilometers away, 
together with extensive forest properties for the manufacture of charcoal, and 
both narrow- and wide-gauge railroads. 

Production in 1929 was less than half of 19 13 output, and the ore and coal 
mines had received little new equipment since 1899-1907, when the plant 
had first been placed in operation. 

The equipment was out of date. The air and gas blowers dated from between 
1905 and 1913. The six rail- and sheet- rolling mills dated from the mid- 1890s 
and were classified in 1939 as only 50- percent fit (three mills), 70-percent fit 
(two mills) and 90-percent fit (one mill). Even if restored to normal operation, 
they would have been be well below current engineering standards. The blast- 
furnace plant operated on a fuel comprising a mixture of brown coal, charcoal, 
and wood; and occasionally one furnace operated on imported Siberian coke." 8 

Employment in 1929 was over 20,000 workers, producing about 163,000 
tons of pig iron per year and converting this into 155,000 tons of steel. 

The product totals produced by the plant in 1929 were: 

59,600 tons rails 
4,600 tons roofing iron 
2,500 tons commercial iron 
4,000 tons pit rails (light rails). 

The concession offered required the prospective concessionaire to drop rail 
and tire production and rebuild the plant for roofing-iron production only. 
In effect, this involved the construction of a completely new plant (at a cost of 
between 47 and 53 million rubles) which, it was claimed, would produce 11. 7 
to 13.0 percent return on. investment. 19 

The Taganrog Metallurgical Works dated from 1895, and was in a very 
poor state of repair. 20 The furnaces were oil-fired and produced just over 
57,000 tons of steel ingots in 1927-8. Of six rolling mills, only the roofing mill 
was described as satisfactory. The electrical equipment dated from the period 
1 895-1 907. 

■• I. N. Kostrow, The Nadejdinsky and Taganrog Metallurgical Works (Moscow: 

Glavnyi kontsessiony komitct, 1929). 
» Ibid., p. at. 
n Ibid., p. 30. The four Martin furnaces are described as 'exceedingly worn out and 

of obsolete type.' The three Thomas converters are described as 'partly demolished 

. , . very much out of date. 1 



70 Western Technology and Soviet Economic Development, 1917-1930 

A concession was offered to produce 160,000 tons of roofing iron per year, 
with the stipulation that coke ovens were to be built together with a plant for 
the manufacture of chemical by-products. Profit was estimated at 10 percent. 

There are interesting parallels between these metallurgical concession offers. 
Each stipulated (Magnitogorsk and Taganrog) or involved (Nadejdinsky) the 
construction of coke ovens and the utilization of coke as a fuel. Without 
control of coking-coal deposits the concessionaire could not have controlled 
the operation of the metallurgical plant. Using the weapon of transport costs, 
the Soviets could have squeezed out the concessionaires without violating 
the letter of the agreement. 

The profit estimates, from 10 to 13 percent, indicate a rather naive concept 
of the degree of inducement required to enter a new line of endeavor. Even 
without political risk, as in the United States or Great Britain, an estimated 
annual return of 20 percent would have been more suitable. 



PURE (TYPE I) CONCESSIONS IN THE 
METALLURGICAL INDUSTRY 

Pure concessions were not a major factor in the development of the iron 
and steel industry, the Soviets were obviously unwilling to allow Western 
elements to operate freely in the most strategic of the 'commanding heights.' 

The Russian-American Steel Works was established in the Soviet Union 
by emigrant American workers in 1921. They were able to double output in 
the first year and then ran into problems; insufficient orders were forthcoming 
from the trust, and the works was diverted into supplying small orders for 
private firms and repairing automobiles and tools. There were insufficient 
raw materials — about 30 percent of the steel received was unfit for use — and 
shortages of oil and coal. 21 

An early Type I concession, perhaps better described as a commune, was 
granted to 3,000 emigrant American workers about 1922. The Nadejdinsky 
mines, in Perm okrug, and later part of the Uralmed trust was reportedly 
being operated along with associated coal mines and forests. They were granted 
20,000 dessiatins of land for agricultural use and a loan (at 7 percent) of 350,000 
gold rubles for working capital. Each worker was required to bring $100 in 
cash and Jioo worth of tools. The government purchased 50 percent of 
production and the balance accrued to the concession. 52 

At least two metallurgical works were leased to Russian concessionaires, 
The Randrun foundry, at Omsk, was leased back to its former owner in 

,l Pravda, No. 79, April 12, 1923. 

" Haywood contract with the Soviet of Labor and Defense (316-111-1270). See 
chap. 3 for details of the Haywood (American Industrial Corp.) contract. 



Early Development of the Soviet Metallurgical Industry 71 

October 1921 on condition that he undertake the necessary repairs to get it 
back into production. As soon as the foundry was back in operation, the 
former owner was again ejected and the Soviets took over operations." 

Another large works, the Goloborodov — part of the Eketerinslav group in 
southeast Russia — was leased for five years with a rent based on output. 24 

In 1924 the Viksun Metal Works, in the Urals, nominally part of the Gomza 
trust, was leased for forty years to the German firm, Bergman, on a pure 
concession basis. Bergman was required to restore the equipment and put the 
plant in operating condition before May 1925. Forests, mineral rights, and 
mines over a 250-squarc-verst area were handed over to Bergman for exploita- 
tion. The company had the right to hire and fire, with the restriction that 
foreign personnel were not to comprise more than 25 percent of workmen, 
45 percent of foremen, and 75 percent of technical personnel. The only 
assistance from the Soviets was to provide labor. The concessionaire was 
required to make payments, beginning in 1928, to comprise 30 percent of 
the final manufactures (heavy machinery, etc.) or semi-manufactured materials 
and minerals output in the lease years three through ten. A minimum conver- 
sion of five million poods of ore into metal was required, with a corresponding 
manufactured output. The concessionaire was required to manufacture 
heavy machinery and various metal goods including guns, shells, and small 
arms." 

The Lena concession operated the blast furnaces and steel works at Sissert 
and Revda, in the Urals. The company first renovated seven iron ore mines, 
three limestone quarries, and two quartz quarries in Polevskoi rayon, installed 
new iron works plant at the Scversky blast furnace, and renovated the Revda 
iron and steel works. By 1927 the annual combined output of these works was 
100,000 tons of roofing iron, almost 30,000 tons of wire, 1,400 tons of nails, 
and 3,000 tons of cast iron shapes. This was achieved in a plant producing 
nothing when taken over in 1925 by Lena, who spent more than $2.5 million 
on imported equipment for these works. 

The available evidence indicates that foreign labor was not generally 
utilized — apart from that in these pure concessions — before about 1927. The 
Polish Foreign Ministry concluded as late as mid-1929 that: 

" U.S. State Dept. Decimal File, 316-107-203. 

** U.S. State Dept. Decimal File, 316-107-5*. 

" The agreement contained a clause that military production could be exported, so it 
may be assumed that this agreement was part of the wider German-Russian military 
co-operation of the 1920s. This was not one of the GEFU shell-making plants 
(316-139-191). 

There was also a report from the United States Riga Consulate in late 1923 to the 
effect that a number of the Krivoi Rog coal and iron ore mines had been turned 
over to the munitions firm Crouardi for the production of armaments. (U.S. State 
Dept. Decimal File, 569-3-99.) 



•jz Western Technology and Soviet Economic Development, igij~ig3o 

Very few foreigners are among the technical personnel of the Jucostal ; 
but such foreigners as are employed are engineers or skilled workmen 
from Germany or Czechoslovakia, and occasionally Poles. 29 

The Perin and Marshall report 27 on the reconstruction of the South Russia 
iron and steel industry was centered around reconstruction and enlargement 
of one works, the Petrovsk, while including the Stalino, Makeevka, and 
DoneU-Iur'ev works in a subsidiary role; the others were scheduled to be 
closed down. 

In essence, the Perin and Marshall report proposed three new 750-ton 
skiploaded blast furnaces and completion of an existing 600-ton furnace to 
replace smaller hand-fed units. Steel was to be made in three departments : 
an open-hearth plant with three modern open hearths replacing four obsolete 
furnaces, a new Bessemer plant, and a duplex plm.t to make steel from an all 
hot-metal charge (to overcome the scrap shortage). 

The major technological change suggested by Perin and Marshall was 
installation of a powerful blooming mill to break li.ge ingots into slabs before 
rolling them into finished products — a very succesr-ful process in the United 
States but not then introduced in Europe or Rursla. 

The (consequent) large supply of relatively cheap billets and blooms 
will permit the small and medium shape, merchant and sheet mills of the 
Donbass steel works to be remodeled so as to reduce the amount of work 
which these mills must do with a reduction in hbor and an increase in 
tonnage.* 8 

The report pointed out that these proposals would not interfere with existing 
Ugostal plans but would generate a substantial increase -n capacity at reasonable 
cost. The metallurgy of the duplex process lent itself to the high-sulfur coking 
coal available. Semi-skilled labor could be used, as was typical in the United 
States. 

A contract was concluded in October 1927 between Percival Farquhar 
(an American financier) and the Soviet government to develop the Donetz 
Basin. The contract was based on the findings of the Perin and Marshall 
report. 

** Report of the Polish Consul General at Kharkov, June 5, 1029 (316-130-255/8). 
This was reasonably accurate for the period before 1929; T. H. McCormick had a 
two-year contract as technical director of the Poltava steel mills for 1928— 1930, 
and the Frank Chase Company, Inc., had a contract in 1928 to reorganize the 
foundry department ofthe Podolsk plant, but no others, except the Freyn-Gipromez 
technical agreements, have been traced at this time. 

" Perin and Marshall, Report on Improvement of the Ugostal Steel Plants of South 
Russia (New York: 1926). This was one of three reports prepared for Percival 
Farquhar in his negotiations for a large concession based on the Don railroad and 
metallurgical industries. The Farquhar documents covering these negotiations are 
in the Hoover Institute Library, Stanford University. 

" Ibid., pp. 59-60. 



Early Development of the Soviet Metallurgical Industry 73 

In order to implement this agreement, Farquhar proposed the formation 
of a Delaware company, the United American German Corporation, which 
would administer the contract. The capital was to be 82 million; one half 
subscribed by Percival Farquhar, Ingersoll-Rand Company, and Dillon Reed, 
and the other half by Vereinigte Stahlwerke and Otto Wolff in Germany. 

The contract consisted of two parts : first, a definite agreement to construct 
a large, modern one-million-ton-capacity iron and steel mill with all ancillary 
equipment 'according to American standards, specifications and patents in 
the coal and iron ore district of South Russia';*' and second, optional for the 
company, was the reconstruction of the railroad transportation system of the 
Don 'on American standards,' together with the construction of iron ore 
concentration plants at Krivoi Rog and elevators, docks and shipyards at 
Stalingrad. 

Under the first part of the contract, the United American German Corpora- 
tion was to receive drafts from the Soviet State Bank to the amount of $40 
million, bearing 6 percent interest, amortizable over a period of six years. 
The Corporation would then sell in the United States S20 million worth of 
6-percent debentures 'guaranteed unconditionally (as to) principal and interest 
by the German Government.' The balance of the capital would be provided 
by manufacturers' and bankers' credits. This was not acceptable to the State 
Department or to the Treasury Department, on the grounds that the benefits 
would accrue to Germany rather to the United States, and that the transaction 
would be, in effect, Russian financing and the employment of American credit 
for the purpose of making an advance to the Soviets. It was held to differ only 
in form, not in substance, to previous unacceptable proposals. 

Subsequent to the failure of this move, an agreement was signed between 
the Farquhar-Otto Wolff group and the Soviets involving a $40 million credit 
for the reorganization of the Makeevka metallurgical trust, on a six-year- loan 
basis. This was a straight credit arrangement involving neither concessions 
nor sale of the property. 30 31 

In 1928, Gipromez, staffed by the Freyn Company, rejected the Farquhar 
proposal for Makeevka as containing serious defects. It was argued that costs 
were underestimated. Technical defects were found in the rolling-mill 
arrangement, the equipment selection was not justifiable on either technical 
or economic grounds, and the project contained no provision for either internal 

'* Based on memorandum submitted to Secretary of State Kellogg by P. Farquhar, 

dated October s. 19*7 (316-131-975/6). The contract is in U.S. State Dept. 

Decimal File, 316-131-977/92. 
" Those readers wishing to explore the Soviet-Farquhar contract in more detail 

should examine the four boxes of Farquhar's personal papers at the Hoover 

Institution, Stanford University. 

" German Foreign Ministry Archives (quoting a Tass report of January 21, 1928), 
T120- 3032-H109353. 



74 Western Technology and Soviet Economic Development, 191J-1930 

transport or power supply. The connection betweenlthe rejection of the 
Farquhar project, the subsequent conclusion of a technical-assistance agree- 
ment with Dr. Kuppe (a well-known German rolling-mill specialist), and the 
earlier agreement between Gipromez and Freyn, under which planning 
assistance was given to new iron and steel projects, is unknown. It would be 
reasonable to assume that the events were not disconnected. There is no hard 
evidence of active competition between the American and German concession- 
aires and planners, but such competition was certainly not beyond the realm 
of possibility.** 

TECHNICAL-ASSISTANCE AGREEMENTS WITH GIPROMEZ 

The agreement between Vesenkha (Supreme Council of the National 
Economy) and the Freyn Company, Inc., of Chicago, signed in August 1928, 
was the first milestone in the transfer of Western metallurgical technology. 
This was an extension of an earlier agreement, signed in 1927, under which 
Freyn gave technical assistance in reconstructing existing metallurgical plants 
and construction of new plants in the U.S.S.R., and was especially concerned 
with the design of the new Kuznetz iron and steel plant, estimated to cost $50 
million and planned as a key element in the forthcoming Five-Year Plan, 
and the reconstruction of the old Telbiss iron and steel mill. The second 1928 
agreement enabled Gipromez (the State Institute for Planning Iron and Steel 
Works) to create a new metallurgical section staffed by 'the most prominent' 
Freyn engineers, twelve of whom took up permanent residence in the U .S.S. R . M 
At the same time, six Gipromez design engineers went to the United States 
for three to four months, 'visiting American plants and consulting American 
engineering authorities.' 3 * In addition, access was now given to Freyn archives 

*■ The real reason for turning down the proposal was that the Soviets were not too 
assured Farquhar could raise the required capital, and in any event they objected 
to the aale of 'German machinery at American prices.' He was paid 3600,000 for his 
technical services. (316-131-1088/9, U.S. Embassy in Berlin, Report 4121, 
November 19, 1928.) 

See also Charles A. Gauld, The Last Titan: Percivat Farquhar (Stanford: Stanford 
University, Institute of Hispanic American and Luzo-Brazilian Studies, 1964). 
Gauld makes the point that the Soviets are impressed by those capitalists who 
Buffered their losses in silence. Farquhar lost about $100,000 on the Donetz project 
but said nothing publically: 'Farquhar's silence impressed the Kremlin . . . (he) 
was surprised When later the Soviet planners, on resuming the Donetz project, 
invited him to return to help co-ordinate it. But he had had enough of semi-Asiatic 
dealings with Soviet 'state capitalism.' He declared 'I learned that capitalists cannot 
do business with amoral, cynical Communists' (p. Z05). Farquhar's impression 
was not typical — see W. Averell Harriman's adventures, pp. 89-91 below. 

" 'American Technique Assists Soviet Metallurgy,' Ekonamichukaya Zhisn,tia, 182, 
August 8, 1928, and Clark, op. tit., p. 65, Gipromez was founded April 10, 1926 
and was comprised of a council of 237 professors and engineers. The utilization of 
Freyn designs will be traced in Vol, II, 

" Amtorg, op, «'(., II, No. 14 (July 15, 1927). 



Early Development of the Soviet Metallurgical Industry 75 

and standard metallurgical drawings; and all Soviet project planning was 
transferred from the United States, where it had been conducted to that time, 
to the U.S.S.R. In other words, the design and technical experience of the 
leading United States steel works designer was now at the disposal of Gipro- 
mez. The first basic 'Soviet' blast furnace design resulting from this agree- 
ment was, according to Clark, used for twenty-two blast furnaces, each with 
a capacity of 930-1,000 cubic meters and an output of 1,000 tons or more a 
day — substantially larger than that of any previous Russian furnace. 

Under the second agreement, Freyn contracted to plan and supervise the 
reconstruction of forty metallurgical plants and the building of eighteen 
completely new iron and steel plants, at an estimated total expenditure of over 
$1 billion. 33 These plants were to form the basic structure for the Five- Year 
Plan, In addition to the Freyn assistance, Dr. Kuppe, a prominent German 
steel-rolling specialist, acted as a consultant to Gipromez. 36 

Amtorg was able to conclude in 1928 that although the U.S.S.R. lagged 
behind in iron and steel, the 'enormous technical advances made during 
recent years in , . . the United States and other countries arc now being 
incorporated in the new plants under construction in the U.S.S.R.' 37 

Thus Russia was able to utilize wide-Strip mills, a fundamental innovation 
in iron and steel technology, within six or seven years of their introduction 
in the United States and at least two years before utilization in Europe. 38 



Amtorg, op, cit., IV, No. 6 (March is, 1929). 

U.S. State Dept. Decimal File, 316-131-1075. 

Amtorg, op. cit.. Ill, No. a (January 15, 1928) p. 24. 

The first wide-strip mill in the United States was installed in 1926; the first in 

Europe was the Richard Thomas, Ltd., mill at Ebbw Vale, South Wales, completed 

in 1937. German continuous mills of the 1920s were not able to produce steel strip 

wider than 30 inches. 



CHAPTER FIVE 

Non-ferrous Metal Mining and Smelting; 
The Manganese Concessions 

LEAD-ZINC MINING AND SMELTING 

Zinc, lead, silver, and copper production, both in the form of mined ore and 
smelted metals, are examined in this chapter separately, although in practice 
they are mined jointly and smelters produce separate metals, as well as 
by-products. 

Some lead-zinc ores were mined and exported in tsarist times, but no 
smelting on a sizeable scale developed until the igio opening, by the British 
Urquhardt (Ridder) concession, of lead-zinc mines in East Kazakhstan, near 
the Chinese border. The company installed 120 kilometers of narrow-gauge 
railroad and the Altai smelting plant. The immediate post-revolutionary 
history of this complex was unhappy: 

When the Bolsheviks took over the mines, they spent enormous sums 
for new equipment, much of which deteriorated or was completely ruined 
through ignorance and deliberate sabotage. From the viewpoint of waste 
it might have been better ... if the mines had been developed by 
foreign capital. 1 

The Ridder mines covered an area of 1 5,000 square miles and were reopened 
after the Revolution by the Lena Goldfields, Ltd., Type I concession with 
the long-term financial assistance of the Deutsche Bank. 2 

The Ridder lead-zinc-silver smelting plant established by the Urquhart 
concession was not let out to concession after the Revolution, although 
extensive negotiations took place between the Russo-Asiatic Company and 

1 J. D, Littlepage and D. Bess, In Search of Soviet Gold (New York : Harcourt Brace, 
1938), P- *66- 

' Times (London), November »o, 1918. V. I. Kruglyakova, op, cit„ omits all mention 
of either the mining or smelting of lead, zinc, or silver ores by Lena Goldfields, Ltd, 
However, Soviet sources (see page 96 below) confirm Lena operations. 



Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 77 

the Soviets toward this end.' In 1924, the Ridder smelter became part of the 
Altai Polymetal Trust, which was formed in lieu of the rejected Urquhardt 
concession. A commission under the direction of a Professor Gubkin approved 
a plan for reorganization of the non-ferrous mining and smelting industry 
submitted by an engineer, van der Better; 4 however, apart from uniting the 
copper smelters at Kyshtim, Tanalyk, and Kalat with the lead-zinc smelter at 
Ridder under the same organizational roof, no significant development of 
mines and smelters was undertaken until the Altai Polymetal Trust made a 
technical-assistance agreement with Frank E. Downs, who became Technical 
Director (at $20,000 per year) in 1928." 

A New York corporation held the Belukha concession for mineral prospect- 
ing in the southern Altai mountains from 1925 to 1927.* 

Tabic 5-i summarizes the sources of metallic zinc production for 1926-32. 
In 1926 the only operating zinc smelter was the old Sadon-Buron (Alagir), 
built by a prerevolutionary French concessionaire and operated by Zvet- 
mctzoloto (the Non-Ferrous Metals Trust) but fed with ore mined by 
'concessions. '* Sadon-Buron produced r,888 metric tons of metallic zinc— the 
total Soviet production. By 1932, production had risen, with the help of 
foreign engineers, to 4,892 metric tons: just under 36 percent of total Soviet 
zinc metal production. 

The Lena Goldfields concessions of 1925 included the construction of a 
new lead-zinc smelter at Altai, fed with ore from the prewar Ridder mines. 
The new Altai smelter was built more or less on schedule, started, and 
expropriated in 1930. In 1932 the plant produced 4,578 metric tons of zinc 
metal, or almost 34 percent of Soviet production. 8 

' The agreement signed by Krassin and Urquhardt, and later rejected by Lenin, 
covered an extraordinarily large territory in Siberia, including twelve developed 
metal mines, coal mines, four non-ferrous smelters, a refinery, iron and steel mills, 
twenty sawmills, the Ridder lead-zinc mines and smelter, the Spassky copper mines, 
Karaganda coal mines, and other mine and smelting properties in the Altai and 
Urals regions. (Le Petit Parisian, October 27, 1922.) The significance for this study 
is that all the properties were in good technical condition and ready to be operated. 
[U.S. Embassy in London, Report 1717, September 26, 1022, in U.S. State Dept. 
Decimal File, 316-136-172/5)-] 

* Igvestia, No. 32, February 8, 1924. 

s U.S. Embassy in Berlin, Report 31 14, January 21, 1028 (316-136-51?)- In 1927-8 
the Altai Polymetal Trust was able to smelt only 67 kgs of silver. (Kruglyakova, 
op. cit., p. 152.) 

* U.S. State Dept. Decimal File (316-130-1240). 

' Kruglyakova, op. cit., p. 1 52, reports the ore was mined by a concession (unnamed). 

It is inferred that this was the Siemens-Schukert concession. 
' Liubimov, op. cit., states that the smelter was not built. Amtorg, op. cit., IV, iyzg 

p. 33, and other Soviet sources make clear, however, that it was in fact completed 

in 1929-30. The Engineering and Mining Journal, October 1936. has photographs 

of the smelter and supporting operations. 



78 Western Technology and Soviet Economic Development, igiy-xg$o 



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Non-Ferrous Metal Mining and Smelting; The Manganese Conceaions 79 

The Tetyukhe mines (Biyner and Company), another Type I concession, 
made a significant contribution to Soviet foreign exchange earnings from 1927 
to 1930 by the export of zinc concentrates. The company re-established the 
mines, and until the smelter was ready to produce zinc metal, the zinc ore 
was beneficiated and exported. Conolly gives the exports as 9,000 tons in 
1927, 15,000 tons in 1928, and 18,000 tons in both 1929 and 1930. Exports 
dropped to 6,000 tons in 1931 as the new smelter came into production. 8 
The Tetyukhe (Bryner) concession, signed in 1924, exceeded its annual quota 
of 20,000 tons of 2inc and 10,000 tons of lead concentrate by 1928. The plant 
was equipped with the latest imported equipment in the flotation mill. The 
company then proceeded to build the Belovo zinc smelter to produce 5,000 
tons of lead metal and 10,000 kilograms of silver per year, by 1932 producing 
30 percent of Soviet zinc metal. 10 

In 1937-8 lead ore was mined and concentrated at five locations. The 
Ridder mines of the Altai Polymetal Trust produced 3,699 tons, and the 
prerevolutionary Alagir mines produced a little in excess of 2,000 tons of 
lead concentrates. The Auli-Atinski mines of the Atbassvetmet produced 
just over 1,000 tons of concentrate. The Tirinski Development Company, a 
privately leased operation, produced just under 150 tons, and the Igergol 
mine of the Svintsovii Artel produced 16 tons." In brief, these were small 
operations incapable by themselves of supporting a large-capacity smelter, 

Table 5-2 SOURCES OF LEAD METAL PRODUCTION, 1927-8 



Smelter Method of 


Origin of 


IQ2J-8 

Production 
(in metric tons) 


Name Organization 


Smeller 


Alagir Polymetal Trust 


(prewar) 


939 


Igergol Artel 


— 


5 


Tirinski Joint Stock Co. 


— 


06 


Ridder Altai Polymetal Trust 


(prewar) 


1,225 


Auli-Atinski Atbassvetmet 


(prewar) 


3*7 


Lena-Altai Lena Gold fields, Ltd. 


(prewar and new) 


2,300 


Belovo Tetyukhe Mines, Ltd. 


(new) 


— 


Total lead mctsil production 




+,8y2 


Percentage produced by concessions 




47.o% 


Percentage produced by concessions 


and prewar smelters 


100,0% 


Source: Kruglyakova, Sbornik statisticheskikh svedeitii . . ., pp. 14S 


-9- 



Conolly, op. cit., p. 7. 

Bank for Russian Trade Review, II, No. j (January iqsq), 7. 

Kruglyakova, op. eit., pp. 148-9. 



80 Western Technology and Soviet Economic Development, igxj-ig3o 

but able to produce comparatively small quantities of metallic lead from local 
smelters, as shown in table 5-2. 

A concession was also granted in December 1935 to operate the Priamur 
Mines, developed in the Far East during the tsarist period. The concession 
was Bet up to last for thirty-six years, the first three of which were to be 
spent prospecting — at a cost of 400,000 rubles — in Primorska Gubernia. A 
land rental of 1.25 rubles per hectare and a royalty on production were 
payable; the concessionaire undertook to build a port and establish a smelter. 12 
Production did not begin before 1930. 

COPPER MINING AND SMELTING INDUSTRY; SILVER 

Copper ore mines flourished in prerevolutionary Russia in the Urals, the 
Caucasus, the Khighiz Steppes, and Siberia. These mines were high-grade 
operations and did not beneficiatc low-grade ores; the Atlas Mines, for exam- 
ple, operated on 10- 20 percent copper ore and the Spassky on 7-22 percent 
ore. Geographical isolation required completely self-supporting operation; 
and all the mining complexes made iron products and owned and operated 
forests for charcoal. Most of them also operated coal mines, power facilities, 
and communications. The Kyshtim mine even operated a boot and shoe 
factory to supply its miners with work boots. All had granaries and food stores. 

Tsarist Russia was almost self-sufficient in copper metal production. 
Output in 1910 was 22,000 tons and in 1912 about 33,000 tons of smelted 
copper, of which a small quantity was exported. Imports consisted only of 
electrolytic copper, of which production was insignificant. 

Mining operations collapsed with the Revolution. In 192 1-2 only an 
insignificant 13,266 tons of copper ore was mined from the single operating 
mine, the Korpushinsk, which was part of the Kalatinsk smelter complex in 
the Urals. A shipment of copper ore in 1922 enabled the Kalatinsk smelter 
to smelt the first copper metal since 1918, but as Pravda said, 'AH other copper 
establishments in Russia are now in a state of technical preservation.' 13 
Between 1922 and 1925 only the Kalatinsk smelter was in operation. 14 

Uralmed (the Urals Copper Trust) was formed in December 1921 and took 
over operation of copper mines in the Verkh-Isset, Revdinsk, and Syssert 
districts, together with the Kalatinsk, Lower Kyshtim, Kishmino-Kluchevsk, 

" Ekonomichetkaya Zhizn, No. 188, August 20, 19*4; and U.S. State Dept. Decimal 
File, 3x6-136-357. 

'* No. 184, August 17, 1922. 

14 The Soviet* claimed that copper smelters were in a state of 'technical preservation' 
because there was no demand for copper. However, copper metal imports in 1913 
were only 1,1 50 tons, whereas they were 5,335 tons in 1925-6, 10,921 tons in 1926-7, 
and 23.087 tons in 1927-8. About one-half of the imparts came from the United 
States. (Ekonomickeskaya Zhizn, No. 161, July 17, 1929.) 



Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 81 

and Karabash copper-smelting works. Most of the mines and all four smelters 
were in working order. 

Similarly, the Caucasus mines and smelters, the Spassky and Atlas works 
in the Kirghiz, and the Julia mine in the Yeniseisk region were closed. 

Briefly, in 1925, some eight years after the Revolution, of the half-dozen 
smelters and the dozen copper mines which had survived more or less intact, 
only the Kalata smelter in Uralmed was producing any copper metal at all: 
2,807 tons °f copper meta! in 1923-4 and 5,588 tons in 1924-5. The missing 
ingredient for production was the technical ability to get existing mines and 
smelters into production. This ingredient was provided by the Lena and 
Siemens concessions and by Type III technical-assistance agreements. 

Considerable emphasis was placed by the U.S.S.R. on the development of 
its non-ferrous potential, clearly for strategic reasons. By the end of the 1920s, 
the non-ferrous mining and smelting industry (lead, zinc, copper, and stiver) 
employed 65 engineers and 157 technicians from the United States alone. 15 
The overall plan for reconstruction was developed by an engineer, van der 
Better, under the auspices of Uralsvetmet, 18 which united the copper smelters 
in the Urals with the lead-zinc complex at Ridder. Capital sums of $5 million 
were then allocated to Kyshtim and Ridder and J 1.5 million to Kalata. 

The component sectors of the copper mining and smelting industry are 
divided (table 5-3) into seven groups. The largest in terms of 1927-8 produc- 
tion was the Kalata-Karabash combine (Group I), consisting of numerous 
mines and smelters developed before the Revolution. The chief engineer for 
this group was Littlepagc, 17 and with the aid of American engineers the group 
rebuilt ore tonnages and copper smelting substantially after 1925. Group II 
also consisted of Urals mines and smelters, and was taken over by the Lena 
Goldfields concession in 1925. The tsarist-era Gumishev copper smelter was 
restarted, and a new much larger smelter, the Degtiarka, was completed by 
1930. By 1927 Lena had the new smelter, including a 500-ton-per-day concen- 
trating plant, under construction. This was the first use in the U.S.S.R. of 
selective flotation of ferrous sulphides in copper production. 18 The mines to 
feed Gumishev and the new smelters were reorganized tsarist mines at Soyu- 
zelski and Degtiarinskii. In 1928 these were also producing 53,000 tons of 
sulphur pyrites— the first production of pyrites in the U.S.S.R. 18 By the end 

'• V. Karmashov, 'Non-Ferrous Metal Industry of Soviet Russia,' Engineering and 
Mining Journal, CXXX, July 24, 1930. Karmashov was employed in the Technical 
Bureau of the industry. These engineers, such as Woods who supervised copper 
mining for Armmed, and Lerva, an engineer at Uralmed, were hired on renewable 
two-year contracts (316-136-512). 

" Izvettia, No. 33, February 8, 1924. 

" Littlepagc and Bess, op. cit., p. 108. 

" ToTgovo-Promyshletmaya Gazeta, No. 2a 1, September 28, 1927. 

" Kruglyakova, op. cit., p. 1 50. 



8a Western Technology and Soviet Economic Development, igiy-ig^o 



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Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 83 

of 1927, Lena Goldfields engineers had blocked out more than six million 
tons of 3,5 -percent copper ore at these mines. 

The Group III mines were developed by the Kalata combine to feed the 
$38 million Bogomol copper smelter. This latter was brought into production 
in the Five- Year Plan and also built by Western companies. Groups V and 
VII were in the development stage, and mines in Group IV, including the 
tsarist Julia mine, were being developed to feed the new Bashgortrest smelter, 
also built after 1930. 

The Caucasus smelters and supporting mines were renovated (one with the 
aid of a Siemens- Schukert concession) and later grouped into the Armmed 
trust. The Zanguezour district group of copper mines, including the Kovart 
and Bashkend mines, which had been in operation since 1840, were renamed 
the Lenin Group and put into the Armmed trust. It is known that they came 
through the Revolution in good operating condition and required only to be 
placed into production. In 1927-8 they produced 53,619 tons of copper ore. 
This ore was shipped to the old prerevolutionary Ougourchaisk copper 
smelter, renamed the 'Red November', and yielded 665 tons of black fired 
copper metal, or about 75 percent the prewar capacity. 20 

The Atbastvetmet trust, in the Kazakh area, did not make its contribution 
until late in the 1920s. This trust included the Karsak Pai 5,000-ton smelter, 
with a 250-ton-per-day flotation plant which had been begun as a pre- 
revolutionary enterprise and was completed at the end of the 1920s, and 
also included mines opened up before the Revolution.* 1 

Two trusts were completely new: the Bogomolstroi and the Bashgortrest, in 
the South Urals. These were extensively aided by Western companies, parti- 
cularly the Southwestern Engineering Corporation and Arthur E. Wheeler 
of the United States. 82 

The reconstruction and expansion of the copper-mining and smelting 
industry can be divided, then, into three segments. There was the reconstruc- 
tion, somewhat delayed, of the prerevolutionary copper smelters in the Urals 
(Kalata and Karabash complexes) and the Caucasus. Second, and quite 
distinct from these operations were the Type I pure concession operated by 
Lena Goldfields in the Urals around the old Gumishev and Polevsky smelters 
and the new i2,ooo-ton Degtiarka smelter (which replaced Gumishev), and 

" Ibid., p. 104; and U.S. State Dept. Decimal File, 316-136-1066. 

" J, W. Wardell, In the Kirghiz Steppes (London: Galley Press, 1961); and letter 
from Wardell (manager of the prewar operation at Karsak-Pal) to the writer, 1965. 

" Southwestern Engineering Corp., of Los Angeles, had a technical-assistance 
agreement with the Non-Ferrous Metals Trust for the design, construction, and 
operation of non-ferrous metal plants. Archer E. Wheeler and Associates, of New 
York, had a technical-assistance agreement with the same trust for equipment of 
the plants. [American-Russian Chamber of Commerce, Economic Handbook of the 
Soviet Union (New York: 1931), p. 101.] See Vol. II. 



84 Western Technology and Soviet Economic Development, 1917-1930 




Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 85 

the Siemens-Schukert Type I concession at the Arhaham mine, south of 
Batum, in the Caucasus. Third, construction of three new smelting plants 
began within this period, but these had little impact on copper metals output 
until the early 1930s. They included the completed Karsak Pai smelter, begun 
before the Revolution, and two new smelters: the Bogomolstroi and the 
Bashkirtrest, in the South Urals. 

Although technical-assistance agreements {Type III) were successfully 
utilized for construction of copper smelters, it is not clear that agreements 
made for assistance to the copper mines were equally successful before 1930, 
Chief engineer Goncharov of Bogomo!, while on a study visit to the United 
States in 1927, invited an American engineer, McDonald, to work at Uralmed, 
the Urals copper trust responsible for new copper-mine development. 
MacDonald was installed as manager of all underground mining and adviser 
on planning mine extensions, particularly for the Kompaneisky group — the 
largest of those supplying Bogomol. There was overt hostility on the part of 
Russian mining engineers, and McDonald apparently beat a retreat back to 
the United States without achieving very much in the way of planning. 23 

At the end of the decade, these trusts were absorbed, along with the gold 
industry, into Svetmetzoloto, and two further technical-assistance agreements 
were then made, with the W. A. Wood Company and with Norman L. 
Wimmler, both of the United States; but these had no impact within this 
decade. 24 

In 1928 the Lena Goldfields Company produced 80 percent of Russian 
silver. The Tetyukhe concession, in the Far East, was required to produce 
6,000 kilograms of silver per year. It was reported in 1928 that Tetyukhe was 
fulfilling its agreement. Thus in 1928 all Russian silver was produced by 
foreign concession. 

Even if the technical competence to operate the zinc, lead, silver, and copper 
mines had been available, the Soviets would have faced enormous difficulties 
in attempting to restart operations without Western help. These mines had 
been operated by Western companies before the Revolution, and records of 
some twenty-five years of work — most importantly of drilling experience and 
the solution of metallurgical problems — was stored in the home offices. This 
accumulated knowledge was required to make rational progress, certainly in 
underground operations. 85 Without it the Soviets could perhaps at some point 
have restarted the mines and smelters, hut only at an enormous cost. 

" Pravda, No. 239, October 16, 1929. 

" American-Russian Chamber of Commerce, op. cit., p. 101. 

" Urquhardt estimated that the complete records of 100,000 feet of drilling in Siberia, 
Caucasus, and the Urals, together with the geological evaluation of thousands of 
Russian ore deposits, were stored in London and unavailable to the Soviets, 
\Timts (London), October 24, 19x2] 



86 Western Technology and Soviet Economic Development, 1917-IQ30 

A NON-COLLUSIVE DUOPSONY; 
THE MANGANESE CONCESSIONS 

The Soviets acquired modern mining and transportation facilities for their 
manganese deposits at Chiaturi and Nikopol, acquired foreign exchange, and 
finally shattered American foreign policy concerning oans to the U.S.S.R., 
in a series of astute business agreements with the H*cJman-Guaranty Trust 
group in the United States and the Rawack and Grunfeld group in Germany. 28 

In 1913, tsarist Russia supplied 52 percent of world manganese, of which 
about 76 percent, or one million tons, was mined from the Chiaturi deposits 
in the Caucasus. Production in 1920 was zero, and by 1924 had risen only to 
about 320,000 tons per year. The basic problem was 

that further development was seriously retarded by the primitive equip- 
ment, which was considered grossly inadequate even according to prewar 
standards.*' 

The Chiaturi deposits, situated on high plateaus some distance from Batum, 
were mined in a primitive manner, and the ore was brought on donkeys from 
the plateaus to the railroads. There was a change of gauge en route, and the 
manganese had to be transshipped between the original loading point and 
the port. When at the port the ore was transferred by bucket: a slow, expensive 
process. 

The other deposits of manganese were at Nikopol in the Ukraine and, 
although somewhat smaller than those at Chiaturi, were significant. These 
deposits were reopened, before the Rapallo Treaty, by a group of German 
companies, through a joint-stock company, Tschemo A-G., with a 30-ycar 
monopoly grant The Soviets then demanded a 55-percent share of Tschemo 
A-G., and, when refused, nationalized the company. They then began negotia- 
tions with W. Averell Harriman and the Deutsche Bank, and the Rawack and 
Grunfeld group. 88 

On July 1 a, 1925, a Type I concession agreement was made between the 
W. A, Harriman Company of New York and the U.S.S.R, for exploitation of 
the Chiaturi manganese deposits and the extensive introduction of modern 
mining and transportation methods. In the first full year of operation, the 
Harriman syndicate was able to extract 763,000 tons of ore. 

" Ai this study la concerned with the impact of technology on the economy, the 
Harriman negotiations are not described. The interested reader is referred to over 
300 pages of documents in the U.S. State Dept. Decimal FUe, 316-138-13/331, and 
the German Foreign Ministry Archives. Walter Duranty described the Harriman 
contract at utterly inept' and von Dirksen of the German Foreign Office as 'a rub- 
ber contract.' The full contract was published [Vysshii sovet narodnogo khoziaistva, 
CowettwnAgrttment Bttvxen the Government of the U.S.S.R. andW. A. Harriman 
W Co. Inc. of New York (Moscow: 1925)]. 

" Atntorg, op. tit., II, No. 13 (December 1, 19*7), 8. 

■* U.S. State Dept. Decimal File, 316-138-50. 



Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 87 

Harriman was associated with Gelsenkirchner Borgwerke A-G. and the 
Disconte Gesellschaft, to whom a royalty of 81 per ton of manganese ore was 
payable as settlement for prerevolutionary interests. As the result of a London 
conference on June 29, 1925, this group obtained 25 percent, 51 percent 
remaining with Harriman, and the balance going to other interests, including 
an English group. 4 * 

Under the Harriman concession agreement, $4 million was spent on 
mechanizing the mines and converting them from hand to mechanical opera- 
tion. A washer and reduction plant were built; and a loading elevator atPoti 
with a two-million-ton capacity and a railroad system were constructed, 
together with an aerial tramway for the transfer of manganese ore. The 
expenditure was approximately 82 million for the railroad system and $1 
million for mechanization of the mines. 30 

After the conclusion of the Harriman agreement, the Soviets negotiated 
with Rawack and Grunfeld A-G. for the exclusive sales and export rights for 
the Nikopol deposits. The latter also mechanized the mines with German 
technical assistance. 31 The Nikopol-Nikolaev loading equipment was rebuilt 
by German engineers, using German and British equipment, at a cost of 
two million rubles on nine months' credit. 32 

Table 5-5 MANGANESE PRODUCTION IN U.S.S.R., 1913-29 

V.nr Chiaturi /p™'*^°i,j Total U.S.S.R. Percent Produced 

Year (Harrimm,) '^Srfj Production by Conation* 







(in metric tons) 






1913 


970,000 


370,000 


1,240,000 


N.A.*** 


1922-3 


5*.J77 


22, OOO 


74.J77 


none 


19*3-4 


320,132 


173.531 


493.663 


none 


I9Z4-5 


335.994* 


382,223 


676,000** 


24 


1925-6 


772,000 


415,000 


1.334.°°° 


100 


1926-7 


775.7°° 


527,000 


1,109,000 


100 


1927-8 


540,000 


615,000 


766,000 


100 


192S-9 


644,300 


612,500 


1,415,000 


100 



Source: A. A. Santalov and L. Segal, 'Concessions production,' Soviet Union Yearbook, 
193° (London: George Allen and Unwin, 1931), p. 135. 

* 160,000 tons of the 1925 output produced by the Harriman concession. 

** Between 1926 and 1929 the total U.S.S.R. production does not equal the sum of 
the outputs from Chiaturi and Nikopol. A reconciliation would require taking account 
of stockpiles, ore fines, transport losses, and the small Urals output. 

•••N.A. Not available. 

" U.S. Embassy in Berlin, Report 334, July 14, 1925 (316-138-12/331). 

10 U.S. Embassy in Berlin, Report 300, June 25, 1925 (316-138-12/331). 

11 U.S. Embassy in Berlin, Report 1775, December 9, 1926 (316-138-12/331). 

** U.S. Consulate in Hamburg, Report 149, December ix, 1925 (316-138-12/331). 



88 Western Technology and Soviet Economic Development, 1917-1930 

By the end of 1925, the Soviets had thus made agreements on both their 
major manganese deposits. In both instances they had previously pushed 
production as far as possible, given the primitive state of mines. To increase 
production they then had to turn to Western technical assistance and equip- 
ment. The agreements differed. Whereas Harriman and his German associates 
were committed to make specific royalty payments whether or not the output 
was sold, and also to undertake major capital improvements, the Rawack and 
Grunfeld group was acting as a sales agent and was paid for its technical 
assistance. However, so far as the world market was concerned, the Soviets 
had now placed both concessionaires in a competing position. Table 5-5 
indicates that both concessions were able to raise output; this was also their 
undoing. Prices began to fall, and both concessionaires got into trouble with 
rising costs and declining returns.** 

Walter Duranty, writing in the New York Times considered the original 
Harriman contract to be 'utterly inept,' and said that after three years of a 
'checkered and unprofitable existence, (it was) about to expire quietly.' 3 ' 

At the time of the Harriman withdrawal it was suggested that a fall in world 
manganese prices made continued mining of the Chiaturi concession unprof- 
itable; the Soviets certainly utilized the Harriman price policy as its reason 
for the failure of the concession. 34 

Although market prices for manganese ore dropped in the late 1920s, the 
decrease was hardly sufficient to force a well-managed mining company out 
of business. In 1937-8 manganese quotations fell about 2 cents per long ton 
unit, from the 40-cent average for i926.Pricesin 1929 touched 35 cents toward 
the end of the year, but it will be noted that this reasonably steep decline 
came after the surrender of the concession. Most metal prices fluctuate, and 
a fluctuation of 2 cents to 5 cents per long-ton unit is not of major consequence. 

Even if some actual contract prices in 1928 were below quoted market 
price — not an unusual occurrence — they would be reflected fairly quickly in 
the open market quotations. 

Essentially the reasons for failure appear to be threefold : 

1. The harsh treatment by the local Georgian government, and the 
unfavorable attitude of the Soviet government soon after the signing of the 
agreement in 1925. In one year the concession had to endure visits and 
inspections from various control commissions on 127 working days, 

"* U.S. Consulate in Hamburg, Report iz, January 16, 1937 (316-138-12/331). 

" Nea York Times, June 17, 19*7, III, p. 3, col. 5. Also see J. E. Spurr, 'Russian 
Manganese Concessions,' Foreign Again, V, No. 3 (April 1927), 507. Spurr consid- 
ers that the terms of the Harriman concession were too hard in the face of world 
competition. 

** Bank for Russian Trade Review, No, 14, December 192S, p. 15. 



Non-Ferrous Metal Mining and Smelting; The Manganese Concessions 89 

2. High production costs. The 'professional proletarians' were constantly 
demanding more wages. 

3. Weaknesses in the original contract: particularly the requirement to pay 
between $3.00 and 84.00 royalty per ton of ore irrespective of tonnage 
removed. 



THE IMPLICATIONS OF THE HARRIMAN FAILURE 

The Harriman negotiations had begun in the United States at the end of 
1924 with unofficial representatives of the Soviet government. The State 
Department was unaware of the negotiations, and Harriman did not inform 
them. 38 The first word of the agreement reached the State Department via a 
speech made by Prime Minister Ramsay MacDonald in the House of Com- 
mons and reported back by the American Embassy in London. 

As word of the negotiations spread, Western governments protested and 
inquired whether there was a change in United States government trade 
policy. 37 The British government, for example, pointed out that other 
companies had been trying to get the concession and that the Soviets desired 
an agreement for political purposes only: 

Viz., for the purpose of establishing the fact that a big American con- 
cern had taken the properties which belonged to foreign concerns and 
thereby recognizing the right of the Soviet Government to nationalize 
property. 38 

The Harriman negotiations caused some confusion in the State Department, 
which for reasons not clearly established by the files did not wish to initiate 
an investigation, although obviously disturbed by the whole affair, 39 

Harriman was not the first businessman to attempt to circumvent United 
States policy on trade with the U.S.S.R. There were attempts throughout 
the 1920s, and the policy had in fact been substantially eroded by 1929. 
Policy up to 1927 was to view long-term loans and credits with disfavor if they 

'• U.S. State Dept. Decimal File, 3 16-138—17/19, Washington to London Embassy: 
'The memorandum transmitted by you embodies the first information received by 
the Department concerning the concession other than that which has appeared in 
the public press.' 

" The protests of the German, Belgian and Georgian (exile) governments are in die 
U.S. State Dept. Decimal File, 3 16- (3 8-1 7/20/4 1/84. The German Foreign Office 
Archives contain a letter from von Dirksen to the United States Embassy in Berlin 
concerning the effect of the Harriman concession on German firms and, in diplo- 
matic language, implying a breach of agreement. 

" U.S. State Dept. Decimal File, 316-138-18. Memorandum from U.S. Embassy 
in London dated October 28, 1924. 

" Such a move, i.e., to initiate an investigation, was held to be 'very unwise.' (Memor- 
andum, State Dept. to Commerce Dept., U.S. State Dept. Decimal File, 316-138- 
28.) 



90 Western Technology and Soviet Economic Develojbneiit, 1917-1930 

involved floating a loan in the United States or using American credit for the 
purpose of making advances. The State Department stated their policy on 
three occasions during the 1920s, each time as the result of an attempt of 
American financiers to utilize a German front group to advance credit to 
the U.S.S.R. 

On July 15, 1926, the State Department informed the New York Trust 
Company that it would view with disfavor an arrangement to discount certain 
Russian obligations endorsed by German firms (40 percent) and the German 
government (60 percent), the discounting to be carried out by American banks, 
and the financing of Soviet purchases of equipment to be completed in 
Germany. 

On October 14, I9 2 7 Percival Farquhar was informed by the State Depart- 
ment that a scheme to sell $20 million of bonds in the United States in order 
to place the proceeds at the disposal of the Soviet government for the purchase 
of goods and materials in Germany would not be viewed with favor. 

It must be made clear the State Department argument in these cases did 
not rest upon non-recognition of the U.S.S.R., but upon the fact that the 
benefits of the loan would accrue to German rather than United States 
manufacturers. The State Department had not interposed, for example when 
Chase National in I9 2 5 arranged a short-term credit for cotton shipments 
destined for the U.S.S.R., nor in the provision of loans by the International 
Harvester Company. 

Their position was reviewed in the case of the American Locomotive 
proposal in October 1927 and weakened to the extent that no objection was 
raised to American manufacturers of railway equipment granting long-term 
credit to the Soviets for the purchase of locomotives, cars, and other railroad 
materials from the United States* 

The only position not breached in late 1927 was that on long-term loans 
to the Soviet government. The Harriman concession was utilized by the 
Soviets to give the coup de grace to what was left of American trade policy 
with Russia. Harriman was induced to accept long-term bonds as compensa- 
tion for expropriation. 

Discussion between the Harriman interests and Soviet representatives in 
July and August 1928 led to an agreement to cancel the concession, and the 
Soviets agreed to. repay Harriman the estimated $3,500,000 investment. 
However, Harriman was 'to arrange a commercial loan for the Soviet authori- 
ties to develop the manganese industry.' The acceptance by Harriman of a 

" This mi apparently decided at the Presidential level. There is the follow™ hand- 

fiU co^of T &£*£ i Ke "? y ° f , DiVisi ° n - ° f ^E^/BS 
me copy of the letter to American Locomotive: 'Drafted after discussion of the 
matter by Secretary with Mr. Mellon, Mr. Hoover and the Preafd™ 



Non-Ferrous Metal Mining and Smelting; The Manganese Concessions gi 

long-term credit arrangement and position as Soviet fund-raiser as compensa- 
tion for expropriation was the final breach in the American policy of restriction 
on trade with the U.S.S.R. 41 

According to the United States Commercial Attache in Prague, after the 
Harriman collapse the Soviets went about Europe bragging they could borrow 
money from Harriman at 7 percent; therefore their credit must be good." 

With the departure of Harriman, the Soviets had two sizeable manganese 
deposits, both with up-to-date mining and loading equipment supplied on 
credit terms. In addition, they had Rawack and Grunfeld to continue operating 
the Nikopol deposits, take over operation of the Chiaturi deposits, and continue 
as exclusive sales agent for the U.S.S.R. on the world market. As Rawack and 
Grunfeld now controlled output from both deposits, they were no longer in 
the position of duopolists competing price down to zero, although they still 
had to face competition from newly opened deposits in Brazil and West Africa. 
It is also very interesting to note that one-half of the 1927-8 output of Chiaturi 
was from the Perevessi Hill deposit, 13 the high-grade area which had been 
left out of the Harriman concession. In other words, Harriman had been 
induced (on top of all else) to mechanize production of the low-grade deposits 
and install loading facilities so that the Soviets could take advantage of these 
low-cost loading facilities to ship high-grade, almost surely low-cost, ore. 

Sales of manganese ore were further facilitated in 1929 by the negotiation 
of a five-year contract with United States Steel Corporation for an annual 
supply of between 80,000 and 150,000 tons. 44 



This was the State Dcpt. assessment (.116-124-45). Harriman's recollection is 
subtly different: In 1926 I was back there on business, representing ,1 group 
that was mining manganese in the Caucasus. I found Stalin and Trotsky in dis- 
agreement about foreign concessions like ours. I talked to Trotsky for four hours 
concluded that we should give up the concession and got our money out— paid in 
full with interest and with a small profit.' ('How Hiirriirum "Earned a Dinner" from 
Khruscnev , Life, August q, 1963, p. 29.) 

The interested reader is directed to the four-page report from the attache, which 
summaries very well the impossibility of normal commercial dealings with the 
t-ommunists, although, as the attache pointed out, 'Harriman and Company are 
not saying very much.' (316-138-33*/$.) 
Kruglyakova, op. cit., p. 100, 
Ektmomicheikaya Zhizn, No. J82, August 10, 1929. 



CHAPTER SIX 

Gold Mining, Platinum, Asbestos, and 
Minor Mineral Concessions 

GOLD MINING AND FOREIGN CONCESSIONS 

Russia has excellent gold ore reserves. In tsarist times the Lena River gold 
mining area in Siberia, reputedly one of the richest in the world, measured by 
both extent of reserves and metal content of the ore, was operated by conces- 
sionaires. In 1 91 3 there were 39 foreign and Russian companies operating 
770 mines in the Lena River area; of these 121 were actually producing gold 
and employed over 10,000 workers. 'These mines had excellent equipment, 
full electrification and large hydroelectric installations. . . Z 1 

British companies held several concessions from the tsarist government, 
including some for development of the Siberian gold and platinum mines in 
the Lena River region. These were developed as self-supporting industrial 
entities complete with iron and steel plants, smelters, and agricultural and 
small-consumer goods manufacturing works. The departure of the Western 
owners with the Revolution significantly reduced Russian gold production. 

There was a catastrophic decline in the condition of the Siberian gold 
fields, of which Lena-Vitim was the most important, from about 1921 onward. 
The Urals' 1913 gold production of 25,700 pounds dropped to just over 8 
pounds in 1921, the West Siberian output from 7,300 pounds in 1913 to 33 
pounds in 1921, the East Siberian output from 103,000 pounds in 1913 to 
8 pounds in 1921, and the Yenessei output from 5,000 pounds in 1913 to 
140 pounds in 1922.* 

The Siberian Revolutionary Council suspended operations in the Lena- 
Vitim area in early 1921, with the arguments that the labor force of 9,000 
was producing significantly less than before the war and that it was costing 

* Ekanomichakaya Zhizn, No. 196, September a, 1931. 

* Irvtttia, No, at], September u, 191a. 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 93 

two zolotniks of gold to produce one zolotnik. However, the Council was 
overruled by the Soviet of Labor and Defense, and the fields were ordered to 
continue working. Shortly thereafter, the 1920 decree which had forbidden 
private interests from mining gold was replaced by a decree authorizing 
special concessions for gold and platinum operations. This was followed by the 
organization of the Lenzoloto trust in December 1921. This trust had the 
exclusive right to mine gold on the right bank of the Lena River, although 
individual prospectors continued working both elsewhere and for Lenzoloto 
itself on a contract basis. 

It was argued in Ekonotnicheskaya Zhisn that the mines had suffered from 
two years of civil war in the Urals, were badly equipped, and were exhausted 
by 200 years of continual mining. 3 However, the report which formed the 
basis for the foundation of Lenzoloto gives a more detailed and substantially 
different picture. In substance, the gold mining equipment was in good 
operating condition.* However, the reasons for conversion into a trust are 
obvious from the catastrophic decline in output. 

Mining of gold by prospectors almost ceased in 1921, as it was im- 
possible to send supplies to the prospectors and also there were persistent 
attempts on the part of local organs to turn prospectors into ordinary State 
workmen, who receive payment in money and goods regardless of the 
amount of gold they find. 5 

Conditions did not improve much in 1922-3. Employment dropped to just 
under 5,000 men because of lack of food and supplies; there were financial 
difficulties and equipment needed repair. It was believed that the richer gold 
areas would only last another seven to eight years. Dredges, not manufactured 
in Soviet Russia, were required to develop the low-grade areas on a profitable 
basis. The average gold content was 65 zolotniks per cubic sazhen, while the 
average of the extensive poorer area was in the neighborhood of 44 zolotniks 
per cubic sazhen. An article in Ekonomicheskaya Zhizn recommended turning 
part of the Lena fields over to private enterprise in accordance with the 1921 
decree and also recommended the purchase of foreign dredges to operate 
poorer areas. 8 

Conditions apparently had not improved much one year later. Only the 
Feodosyer placer among the hydraulic operations was working, and under- 
ground production was curtailed. There were the perennial financial problems, 
and no move had been made to obtain the 17-foot Bucyrus dredge, ordered 
from the United States in 1916 and stored at San Francisco, It was estimated 

* Ekonomicheskaya Zhisn, No. 172, August 4, 1922. 

* Ekmomichttkaya Zhizn, No. 196, September 2, 1922. 
' Ekonomicheskaya Zhizn, No. 172, August 4, 1922. 

* Ekonomicheskaya Zhizn, No. 196, September 2, 192a. 



94 Western Technology and Soviet Economic Development, 1917-1930 

it would take two years and another $1.5 million to move it to Siberia. Later 
in the year the government speeded up payments to Lenzoloto to relieve the 
financial crisis but refused to import the dredge, as low gold reserves would not 
warrant the expenditure.' However, dredging was the only solution to the 
long term Siberian gold problem. 

The situation was so abysmally bad that in a 1923 report on Soviet gold 
mines in Ekonomieheskaya Zhizn, it was seriously suggested that it was no 
longer worthwhile to continue working the deposits. Production was too small 
and the costs too high to justify the expenditures of materials and labor. An 
almost unbelievable cost-revenue ratio of 25:1 was quoted. A dredge was 
considered to be the only solution,* 

In mid-1923, a French mining expert, Professor E. N. Barbot-de-Marni, 
was hired by the Soviets to make a report on the Siberian mines, including 
those in the prewar Lena group. The report stated that there had been no 
illicit digging of gold, but that work had been concentrated in high-grade 
mines, while low-grade mines were ignored. The equipment was prewar and 
utilized in an inefficient manner. Barbot-de-Marni pointed out that, although 
the Lena mines possessed the most advanced drilling equipment in Russia 
(forty steam drills of the Keystone type), no exploration and development 
work was in progress. In brief, the higher-grade properties were working 
and so could work at a profit, whereas lower-grade properties and explora- 
tion work required for future development were ignored. Barbot-de-Marni's 
recommendation was for state assistance to get development under way. 

In mid-1923, thirty-four leasing contracts were made with private individ- 
uals and enterprises in the Lena-Vitim area. There were seventeen con- 
tracts in the platinum mining areas of Semipalatinsk. Nine mines were leased 
in the Northern Yenessei and five in the Southern Yenessei district, together 
with eleven gold mines in the Altai Mountains. 8 

After 1925, gold began to assume its key role in Soviet development as a 
major earner of the foreign exchange required to pay for imports of foreign 
equipment and technology utilized in the industrialization program. Gold 
mining was, consequently, put in the vanguard of the Soviet mineral exploi- 
tation program: an effort characterized by Shimkin as 'the merciless and insati- 
able Soviet quest for gold.' 10 

' Ekonotmchetkaya Zhizn, January 16, 1923. The original coat of the dredge was 
»49S,307. of which »4J3.«35 was paid before the Revolution. However, Spares 
freight, customs, and assembly required an estimated total expenditure of 
81,53:1,836. 

• Ekonomieheskaya Zhizn, February 20, 1023. 

• Ekonomieheskaya Zhizn, No. 143, June 29, 1923. 

10 DemitriB, Shimkin, Minerals; A Key toSoviet Power (Cambridge: Harvard, 1951) 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 95 

The Lena Goldfields, Ltd. (United Kingdom), concession was concluded 
on April 30, 1925. It was to extend for a period of thirty years in the Lena 
gold mines and for fifty years in the Ural and Altai Mountain districts. The 
area included in the concession was that previously leased from the tsarist 
government and operated by a Russian subsidiary, the Lensky Zolotopromish- 
lennoie Tovarichestvo. In the 1925 agreement the properties of the former 
Sissert copper mines and the Altai District Mining Company were also operat- 
ed by Lena Goldfields. 

The Lena concession therefore, covered the following properties: 11 

1. The Sissert copper mines (described in chapter 5). 

2. The Nikolopavdinsky platinum mines, reportedly. However, nothing 
has been traced of any post-revolutionary development of this property 
by Lena Goldfields. 

3. The copper, lead, and zinc deposits on the Irtish River (discussed in 
chapter 5). 

4. The north Kuznetsk (Kiselov) coal mines (discussed in chapter 3). 

5. The anthracite mines at Yegoshin in the Urals (discussed in chapter 3). 

6. Gold mines on the Lena-Vitim Rivers in Siberia. This is the only 
development covered in this chapter, and a major part of the Lena 
complex. 

7. The Zirianovsky, Zmeynogorsky, and Pryirtishky districts (discussed in 
chapter 5). 

8. The copper and iron smelters at Sissert and Revdinsky (discussed in 
chapters 4 and 5). 

9. The Degtiarinsky copper mines (discussed in chapter 5.) 

10. The Gumeshevsky copper smelter (discussed in chapter 5). 

11. Wire- and nail-making factories in the Urals (discussed in chapter 13). 

12. The Bodaibo railroad in theLena-Vitim area, the Degtiarinsk railroad in 
the Urals, and the shipping system on the River Lena, under a separate 
agreement with the People's Commissariat of Ways and Communications. 

The concession did not include Soviet participation in either operations or 
management, but the Soviet government received a royalty equal to 7 percent 
of the total output of gold, and the concessionaire received the right to export 
any surplus duty-free. 

The company was granted unrestricted freedom of hiring and firing tabor, 
and, in regard to social insurance and railroad rates, treatment equal to that 
afforded government trusts. 

11 Based on an interview with Lyman Brown by the United States Consulate at Riga, 
Latvia in May 191s (31 6-1 36-4 19). There is some doubt whether the Nikolopav- 
dinsky platinum mines were operated by the Lena concession, but they were part 
of the tsarist-granted prcrevolutionary concession. 



96 Western Technology and Soviet Economic Development, igiy-ig^o 

Arbitration of disputes was to be by an arbitration court composed of an 
equal number of representatives from both sides, with an umpire selected 
from either the faculty of the Freiburg Mining School, in Saxony or the King's 
Mining School, in Stockholm. 

The agreement was a departure from previous agreements in that it 
permitted extensive industrial and commercial operations without the joint 
management of the Soviet government, and in addition gave the conces- 
sionaire practically unlimited control of real property (at least on paper), 
although title was not established, together with control of labor and the right 
of unrestricted export. 1 * 

In 1928 the Lena Goldfields Company was producing 35 percent of all 
the gold mined in the Soviet Union. 13 It was also by far the most efficient 
producer. 14 

TabU 6-1 SOURCES OF GOLD PRODUCED IN THE 

SOVIET UNION, 1913-28 



y ear Kilogram of Gold Produced By: % Produced by 

U.S.S.R. Lena Concession Lena Concession 



"9"3 — 11,728 — 

I9*i — 066* — 

i9**-3 11,179 2,588* — 

19*3-4 10,000 4-,734* — 

I934-S 25,258 6,7+9* — 

192S-6 15,149 8,364** 33 

1926-7 23,15a 8,552"' 37 

1928 27,965 7.953** 28 



Sources: 1913-24: B. P. Torgashev, The Mineral Industry .-..' the Far East (Shanghai: 
Chah, 1930), p. 10a. 

1925-28 : Amtorg, Economic Review of the Soviet Union, III, 34. 
• Operated by Soyuszoloto. 
•• Operated by Lena Goldfields Co. This production is .1 excess of the 6,500 kg. 
annual production required by the concession agreement. 

" 5?*?? 2. 11 ," lterview between Lyman Brown, representing >-he concession, and F. 
o »9° leman - * e United States Consul at Riga, Latvia, orinted in Report No. 
2838, May 12, 1925. Coleman makes pointed comment on tt-e value of the conces- 
sion, and history was to bear him out almost exactly: 'While my opinion may be a 
passing one and gratuitous, I think that Mr. Brown is too optimistic and that 
nothing will come out of the agreement in the shape of profit* . Asked what security 
he had that the party of the first part would fulfill the terms of their contract, Mr. 
. Brown said that they 'could not afford to do otherwise; which, in view of the past 
records, is adjudged very slim security.' (316-136-426.) 

" Times (London), September 3, 1930, p. 13. The Soviet estimate is also 35 precent. 
(Amtorg, op. cit., Ill, 116.) 

" The Lena Co. employed 8,000 workers and was producing 2.73 kgs of gold per 
worker per year. The Soviet national average was between 0.44 and 0.59 kgs of 
gold per worker per year, (Amtorg, op. cit., Ill, 285.) 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 97 

Lena Goldfields fulfilled its agreement to produce more than 6,500 kilo- 
grams of gold per year. Both Soviet and Western sources agree on this point. 
Reference to table 6-1 indicates that, during the life of the concession, Lena 
consistently exceeded the agreed gold output, and averaged more than one- 
third of Soviet gold production between 1925 and 1928. 

According to Soviet sources, Lena also fulfilled the other requirements of 
the concession. 1 * A summary of the first three years of operations (1925-8) 
stated that Lena had installed a 17-foot dredge in the Bodaibo section of the 
Lena-Vitim fields 'before the time set in the agreement.' This in itself was a 
massive undertaking, as a large, complex piece of equipment had to be moved 
from the United States to the far interior of Siberia, installed, and put into 
operation . Special roads and equipment were built, and the dredge was put into 
operation in July 1928. A yearly average 8,000 kilograms of gold was produced 
between 1925 and 1928, with a slight drop at the end of 1928 because of the 
changeover from hand to machine methods. It was estimated that the dredge 
alone, apart from re-equipment of the underground mines operated by Lena, 
would double Soviet gold production almost immediately. 16 

By March 1929, Lena had invested, according to Isvestia,* 7 over eighteen 
million rubles in new equipment, and in addition had restored old plants to 
operation. However, the Lena Goldfields honeymoon was not to last for long. 
In April 1928, just as the dredge was being finally readied for production, an 
article by I. Maisel in Ekonomicheskaya Zhizn entitled 'It must be ended' began 
the harassment which was to culminate in the expulsion of Lena in 1930. Maisel 
argued that Lena had turned exploitation over to starateli (private prospectors) 
and to artels comprised of former hired laborers. That this was the arrange- 
ment also used by the Aldenzoloto trust was not mentioned. The article 
cataloged alleged complaints against the operation and specifically stated that 
the company was 'manifesting a quite unjustified and inadmissible intolerance 
and stubborness' in relation to the miners' economic provisions: i.e., social 
insurance payments and allotments for cultural needs. The crux of the 
argument was, however, the organization of artels, the company preferring a 

" Amtorg, op. eit., IV (February 1919), 33 • 

" The dredge was one of four placer dredges built for Russia by the Bucyrus Co. 
(United States) in 1916-7. Of these, two were delivered and one canceled. The 
fourth was the Lena dredge, a massive piece of equipment, as high as a six-story 
building. It was delivered to Lena in 1927 after being moved from South Milwaukee 
to Baltimore on seventy-five flat cars, to Murmansk by steamer and to Irkutsk 
by rail, then 200 miles on a mountain trail by wagon and sledge, and then to Kachuca 
by barge on the River Lena. At Kachuca it was reloaded on small boats for a 700- 
mile trip up the River Vitim to Bodaibo, just 1 1 miles short of its final destination. 
Delivery and assembly took 18 months. [Designed for Digging; The First 75 Years 
of Bucyrus-Erie Company (Evanston; Northwestern University Press, 1955), p, 
is6.] 

11 Isvestia, March 36, 1929, 



98 Western Technology and Soviet Economic Development, 1917-1930 

simple association of miners while the Miners' Union wanted an organization 
similar to labor artels under which the artel also became a contractor. The time 
was picked well — the start of the gold-mining season — and the union called 
for a revision of company policy, irrespective of a concession agreement which 
clearly gave the Lena company a clear option in this aspect of labor relations. 

This article was followed eighteen months later by one in Izvestia of October 
22, 1929, which made a derisive attack on the profits being made by Lena: 
'The profits of the concessionaire are growing — what a victory.' As the Lena 
concession got into full operation, it was attacked as a 'weed in the socialist 
system' which required attention. Two months later the GPU searched the 
company offices and arrested several Lena employees. 

Continual Soviet interference with production by labor strikes, management 
fines, and similar harassment slowed output after 1928." The Soviets then 
claimed that the reduced output was non-fulfillment of paragraph 39 of the 
concession agreement, ergo the agreement 'has lost its validity owing to the 
one-sided and unlawful action of the Lena Goldfields. . . .' le Liubimov was 
thus enabled to make the statement that gold production was 'below agree- 
ment,' 10 although previously published Soviet figures (table 6-1) had indicated 
a production well in excess of the agreement. 

In February 1930 it was reported that the Soviet government had given 
notice of its intention to annul the Lena concession in the first week of April 
1930. Lena denied the validity of this report on the basis that the Soviet 
government had no authority under the concession agreement to give any 
such notice or to annul the concession. 

The labor disturbances had started in earnest in January, and on January 30 
the Soviet courts sentenced the Lena manager to eight months' forced labor 
and a fine of $62,500 for alleged late payment of wages. 

On February 12, 1930, Lena sent the Soviet government a telegram asking 
for arbitration and nominated Sir Leslie Scott as its representative. There was 
no direct reply to the telegram, but on February 28 the Soviets agreed to 
arbitration via Izvestia, which published a long indictment of the Lena 
Company alleging that: 

(a) The company had insufficient capital to undertake the program. 

(b) It had failed to reach its production and construction program in the 
last year. 

(c) It had failed to utilize the latest technical methods.* 1 

11 Titnti (London), September 3, 193c, p. 13. 

" Documents Concerning the Competence of tkt Arbitration Court Set Up in Connection 
with the Question! Outstanding Between the Lena Goldfields Company Limited and 
the U.S.SJt. (Moscow: GUvnyi kontsessionnyi komitet, 1030), p. 32. 

w Liubimov, op. tit., p. 139. 

" Ixvtstia, March 6, 1930. 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 99 

The article alleged failure to meet foreign obligations and breakdowns in 
the dredge and the Urals copper smelter as evidence of the validity of these 
charges. 

Three weeks later, four Russian employees of the concession were placed on 
trial on charges of espionage and sabotage, and on May g all four were jailed. 

In the meantime, the Arbitration Court had been established in Berlin 
with Professor Stutzer as Chairman. On May 10, Moscow recalled its delegate 
to the Court, Stutzer decided to continue hearings and stated that the conces- 
sion could be abrogated only by a decision of the Court. At the end of May, 
the Soviet government instructed the Commissariat of Transportation to take 
over the steamships and other transportation property of the Lena concession. 

On August 7 the Special Court of Arbitration opened its hearing with the 
Soviets absent. It was established without question that Lena had fulfilled the 
terms of the agreement. Whereas the agreement called for an expenditure of 
Jii million in seven years, Lena had actually spent $17.5 million in four and 
a half years, Evidence of adequate financing was presented. On the other hand, 
extensive evidence was presented that after 1929 the Soviets had started to use 
physical pressure against Lena, first by cutting off supplies, and then by 
ejecting the company from the Sissertsky limestone deposits by armed force. 
(Limestone was essential as a flux in the Lena smelter operations.) An independ- 
ent arbitrator valued the Lena property at more than 889 million. 

The Soviets did not put in an appearance; the Court found for Lena, but 
the concession passed into the pages of history. A booklet was published by 
the U.S.S.R. in both German and English, as a rather superficial attempt to 
explain what was clearly completely unjustifiable expropriation. 82 

In retrospect, there can be no other conclusion than that the Soviets 
deliberately enticed Lena into the U.S.S.R. to get the massive dredge installed 
and also as much else as they could along the way. It is, in the light of history, 
a clear case of premeditated industrial theft on a massive scale. 

Before Lena Goldfields entered the Siberian gold fields, some 75 percent of 
all Russian gold output was being produced by hand methods, and there was 
no mechanical equipment. Consequently, output per worker was both very 
low and fluctuating: ' . . , even the record of the most efficient producer, 
the foreign concession at the Lena Goldfields, was unimpressive.* M With the 

" Materialmen zur Frage der Zustaendigkeit des Schiedsgerichts in Sacken 'Lena Gold- 
fields'— Union d.S.S.R. (Moscow: Glavnyi kontsessionnyi komitet, 1930), published 
in English as Documents Concerning tlie Competence of the Arbitration Court Set Up 
in Connection with the Questions Outstanding Between the Lena Goldfields Company 
Limitedand the U.S.S.R. Aisoset, for iheSovietside,S. A. Bernstein, The Financial 
and Economic Results of the Working of the Lena Goldfields Limited {London: Black- 
friars, n.d.). This title must be a classic among misnomers. The booklet contains 
not a single statistic concerning 'results.' 

'* Shimkin, op. cit., p. 168. 



loo Western Technology and Soviet Economic Dei. tiopment, 1917-1930 

introduction of the Lena dredge, however, the stage was set for a massive 
increase in production at a much lower production cost, and the field of opera- 
tions could be extended into the low-grade-ore-bearin^ areas. By 192S Herbert 
Guedelta (Chairman of Lena) in his annual report tc shareholders reported 
that the results of capital expenditures were beginning to show. There had 
been an intense reorganization of production during the previous three years; 
large orders for plant equipment had been placed (in addition to the dredge), 
and these had been financed with the aid of the Deutsche Bank in Germany. 24 
In brief, by 1930 the technical reorganization was almost complete. In addition, 
the Soviets decided to utilize American technology. Consequently, Lena, held 
predominantly by British interests, could be expropriated without fear that 
political repercussions would affect further technical acquisitions. 

THE LESSER GOLD CONCESSIONS 

Smaller gold-mining and exploration concessions were located in the Far 
East, in the Amur River basin, Okhotsk, and Northwest Siberia. 

Table 6-2 LESSER SOVIET GOLD MINING CONCESSIONS 
LEASED TO FOREIGN OPERATORS, 1921-8 



Concessionaire 



Country 
of Origin 



Location Years Investment 



Work 



Vint concession 

Far Eastern Prospect- 
ing Co. Inc. (formerly 
Smith concession) 


United 
States 

United 
States 


Amur Basin 
Amur Basin 


1 92 1-8 
1923-4 


N.A.* 

125,000 
rubles 


Mining 
Prospecting 


Ayan Corporation, Ltd. 


United 
Kingdom 


Okhotsk 

1 


1925-7 


400,000 
rubles 


Prospecting 


Yotara Tanaka 


Japan 


Kamchatka 


IQ2S-? 


N.A. 


Mining 


Shova Kiultfl 
Kabushiki Kaisia 


Japan 


Far East 


igas-? 


N.A. 


Mining 


D.A. Hammerschmidt 


United 
States 


Amur Basin 


19x6-8 


S375,ooo 


Prospecting 



Source: U.S. State Dept. Decimal File, see text, 
* Not available. 



The first such concession was granted to J. C. Vint in 1921 and was followed 
by at least five others. Apart from direct concessions, there were also attempts 
by the Soviets to get Chinese capital and labor for the Okhotsk and Amur 
fields. 11 As late as 1928, when the trust Dalzol (Far East Gold Trust) had been 

** Timet (London), November 20, 19*8. 
•* Harbin Daily Newt, May 27, (924. 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 101 

organized to operate the Amur River mines, the Soviets had agents in Harbin, 
China, to recruit 3,000 coolies and were also utilizing United States gold 
mining machinery and mining specialists.* 6 

The Vint gold mining concession, granted in December 1921 for 20 years, 
covered 1,600 dessiatins along the River Smirtak, in the Amur Region of the 
Far East, and gave Vint the right to exploit prerevolutionary mines at Ftoroi, 
Blagovestchensky, Petrovsky, Zaharievsky, Novopoktovsky, Seregovi, Evdo- 
kievsky, and Codachny, and the placer deposits in the Smirtak River valley 
for two vcrsts upstream from the Codachny gold mine. As late as 1923 this 
concession represented 'practically the only organized effort either in Russia 
or Siberia to produce gold,' 27 Vint was required to install a dredge, with a 
capacity of not less than 2 cubic feet, not later than June 1, 1922. Extra dredges 
had to be installed before July 15, 1925 to excavate not less than 50 cubic 
sazhens per day. 48 

In lieu of the deposit of 35,000 gold rubles required in the concession 
agreement, Vint was allowed to purchase a dredge already on the Smirtak River. 

Vint had both British and American partners and raised capital in the 
United States, Britain, Belgium, and China at various times during the life of 
the concession, which lasted at least until 1927. 

The Vint concession is especially interesting from the viewpoint of the 
heavy tax burden placed upon more successful concessionaires. According to 
information given in an interview with the U.S. State Department, Vint was 
subjected to the following taxes: 

1 . A 'dessiatin tax' of one gold ruble per year for each of the 1 ,600 dessiatins 
in the concession. 

2. A land tax of 0.75 ruble per dessiatin. 

3. A workmen's insurance tax equal to 10 percent of the wages paid. 

4. A workmen's association tax equal to 2 percent of wages paid. 

5. An assessment of 10 gold kopecks per dessiatin for the 'gold miners' 
association.' 

6. A 6-percent tax on turnover in the general merchandise store which 
Vint was required to operate as part of the concession. 

7. A local tax not in excess of 30 percent of the total state tax (items 1 
through 4 above). 

8. The cost of providing a school for the miners* children. 

** 'The Soviet mining officials are unable to work these mines without foreign mining 
experts and without the labor of Chinese coolies who work more efficiently and 
with less wages than do Russian laborers.' [U.S. Consulate in Harbin, China, 
Report, July *3, 1918 (3l6-J36-*7S)0 

** U.S. Consulate in Riga, Report 1480, November ao, 1923. 

** There is a copy of the Vint agreement in the U.S. State Dept. Decimal File, 316- 
1 36—348, with other data scattered throughout 136. 



102 Western Technology and Soviet Economic Development, 1917-1930 

9. A 5-percent royalty on gross output to the government, which in any 
event reserved the right to fix the price of gold and required all produc- 
tion to be delivered to government laboratories. 

Vint held that he was unable to make the proposition pay and that taxes 
were continually raised — eventually to the point of eliminating profits. Apart 
from that, he argued that locally concluded agreements were not always 
honored in Moscow, and that on taking a local agreement to Moscow for 
ratification he would be 'chipped down' even further. Although the concession 
may have been profitable from Vint's viewpoint in 1923, continuing tax 
pressure made it unprofitable from about 1924 until its demise some time 
after 1927. 

C. Smith, a mining engineer and former employee of the Inter-Allied 
Railway Commission, in Siberia, was the operator of a gold mining concession in 
the River Karga area of the Amur Basin. The concession, granted in November 
1923, was for the exploration and production of gold. One year was allowed 
for initial prospecting, during which all gold had to be turned over 'without 
payment,* and a further twenty-three years was allowed to mine any pros- 
pects discovered in the initial prospecting period. The agreement contained 
the usual terms: customs-free import of machinery and equipment, a land 
rental fee and 5-8 percent output tax, together with state and local taxes. At the 
end of the concession period, all equipment and properties were to be turned 
over to the Soviet government in good condition. 

It is certain that Smith did some work. He brought in a mining engineer, three 
American drilling specialists, and fifty Russian laborers. The concession was 
transferred to a United States registered company, the Far Eastern Exploration 
Company.** Drills and supplies ordered through this company were shipped 
to the Drazhud gold fields. At this point the history of the concession becomes 
vague. It was reported that more than Si 25,000 was spent in the first nine weeks 
of exploration, but that the expenditure was made in looking at oil-well borings 
and that the imported drills were not used. It can reasonably be assumed that 
the concession lasted only a short while — probably less than one year — and 
that it made an insignificant contribution to Soviet gold fields development 
in the Far East." 

" New York Times, October 30, 1923, p. 8, col. 2, reported that the Far Eastern 
Exploration Company, headed by Henry T. Hunt, had received concession pros- 
pecting rights to 3,500 square miles of placer fields in the Amur Basin: there was 
no mention of C. Smith. 

" U.S. State Dept. Decimal File, 3>6-i3i-:47. The Smith concession is more 
interesting in relation to the 'arm's length hypothesis' discussed in chap. 17. Smith 
was suspected by the U.S. State Dept. of being in the pay of the Soviet Union, 
was a member of the Peasant International, and later, in 19*6, became Moscow 
representative for the American-Russian Chamber of Commerce, which had such 
preattgou* members as Westinghouse, International General Electric, and Deere. 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 103 

In early 1925, a gold prospecting and mining concession was granted to the 
Ayan Corporation, Ltd., of the United Kingdom. The company acquired the 
right to prospect for, and mine, gold in the Okhotsk uyezd, Kamchatka. The 
concession had a nominal life of thirty-six years; during the first four years 
the company was required to expend 600,000 rubles in prospecting work, 
deposit 100,000 rubles as security, and purchase all buildings and existing 
physical property at market value. Modern prospecting and mining tech- 
niques were to be imported by the concessionaire, who was also required to 
build roads and communications, with the right to run aerial communica- 
tions if desired. 

The entire gold output was to be delivered to government laboratories for 
purchase by the Soviet government. A rental was paid on land explored, a 
5-percent royalty on the total output of gold, and an overall 5-percent tax. 
The company organized food stores and was required to abide by the labor 
laws and to hand over all buildings and property intact at the end of the 
thirty-six years. 31 

After two years the concession was cancelled at the request of the Ayan 
Company, in the light of unpromising prospecting results. 32 

A protocol of the 1925 Treaty of Friendship and Recognition between Japan 
and the U.S.S.R. made provision for gold concessions in Kamchatka and 
Okhotsk. The Kamchatka concession was taken up by two Japanese firms, 
Yotara Tanaka and Shova Kiuka Kabushiki Kaisia. 

The D, A. Hammerschmidt concession to prospect and mine gold in the 
Amur Basin was signed on November 12, 1926. The American concessionaires 
were required to transfer not less than $375,000 capital to a joint-stock com- 
pany, and the founder members were to be subject to the approval of the 
Soviet government. The initial prospecting period was to expire on March 
31, 1928 and the mining period on March 21, 1948. During the initial period, 
Hammerschmidt and his associates were required to undertake 2,000 meters 
of drilling and do trenching on an exploratory basis. Any gold mined was to 
be deposited with the Soviet government, and the concession was to be voided 
if mining did not commence before March 31, 1928. A royalty of 3 percent was 
to be paid to the U.S.S.R., in addition to an annual land rent, plus 4 percent 
of the gold mined, in lieu of national and local taxes. The mine was to be 
turned over to the U.S.S.R. at the end of the concession period. 

The concession was subject to the Labor Code, and the lessee 'agreed to 
admit ... for purposes of study, Soviet geologists, engineers and technical 
personnel.' 31 

*' Izvtstia, No. 103, May 8, 1925, 

»' U.S. State Dept. Decimal File, 316-136-667. 

»' Ekonomkheskaya Zhisn, No. 175, November 27, 1936, 



104 Western Technology and Soviet Economic Development, igij-igjo 

These smaller concessions did not have the same magnitude of capital 
investment as Lena Goldfields, but they were required to introduce modern 
mining and exploration equipment and techniques. 

Those gold mines that did not come within the sphere of concessionary 
activity were equipped with modern equipment, and Western mining engineers 
were hired to establish and plan future production. The Kockar gold mine, in 
the Southern Urals, previously a French concession, was the first to be equip- 
ped in this manner, in 1928. According to Littlepage, who was in a position to 
have accurate data, by the end of the 1920s each gold mine, outside the 
concessions, had four or five United States mining engineers and employed 
'thousands of foreign workers.' 34 

It is estimated, therefore, that in 1928 about 40 percent of Soviet gold was 
being produced directly by foreign concessions utilizing modern dredges and 
ore-crushing and sorting plants. This estimate is indirectly confirmed by other 
data from Soviet sources. It was reported in 1928, for example, that 56 percent 
of gold was being produced by 'individual prospectors and purchased from 
them by the large companies* — presumably Soyuszoloto and the other gold 
trusts. The balance of 44 percent was being produced by 'organizations using 
hired labor'— presumably Lena and the smaller concessions. 35 

DISCOVERY AND DEVELOPMENT OF THE 
ALDEN GOLD FIELDS 

In 1924 a rich gold field was discovered and exploited in Northwest Siberia : 
the Alden. There are two features worth noting about this discovery: first, 
this was the initial gold discovery under Soviet rule and the only major 
discovery in the 1920s, and second, it was not opened up to foreign concessions 
for development. The question then logically arises: how is such a develop- 
ment, remote from Western influence, consistent with the hypothesis of this 
study? 

Under the 192a decree, private leasing and exploration had been restored 
in gold and platinum mining. The Alden discovery was made in 1923 by 
Kuzmin, a private digger working on his own account and not employed by a 
State organization « The report of the discovery spread rapidly, and the 
response was a typical Western-style gold rush. Thousands of prospectors 
flocked into the Alden area, under the inducements offered in newspaper 



»« 



J. D. Littlepage and D. Bess, In Search of Soviet Gold (New York: Harcourt Brace 
* Co-. 1937). PP- 08, 87-8. Littlepage was chief production inspector for the Soviet 
Gold Trust at this time; he later became deputy chief engineer of the same trust. 
The heavy reliance on individual prospectors or 'Russian concessionaires' is con- 
firmed by Littlepage and Bess, op. cit., p. isi. 
Izvettia, No. i, January i, 1917 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 105 

publicity. 37 The result was a decrease in the working force of the Far Eastern 
province mines from 12,238 in 1923 to 8,222 in 1924, as workers moved to the 
Northwest. 38 The field was then closed to private claims, and in mid- 1925 the 
12,000 or so workers who had moved to Alden were organized into artels. 
A trust, Aldenzoloto, was then created and a few months later the Yakut 
Autonomous Socialist Soviet Republic was closed to outsiders. 39 

In brief, this remarkably rich deposit was prospected and initially developed 
by individual 'Russian concessionaires," as Littlepage calls them, rather than 
foreign concessionaires. The state trust was formed three years after the 
initial discovery and development. 

The extraordinary inefficiency of the state trust (even the best-run) has 
been described by Littlepage, who was in a position to observe. The Soviet 
Gold Trust was run by Serebrovsky, the best of the trust directors in the 
1920s. Serebrovsky hired Littlepage as his technical administrator, but the 
difficulty of efficient administration is seen in the examples given by Littlepage. 
The Alaska Juneau gold mine, one of the largest in the world, had five people 
in the office and could provide figures promptly. Littlepage describes the 
typical trust gold mine with 150 in the mine office, and a fraction of the 
United States output. It could take weeks or months to get comparable 
figures. 40 

PLATINUM EXPORTS 

Before World War I, the Urals provided almost all the world's supply of 
the platinum group metals. Production of platinum in 1901 was 14,000 pounds 
and in 1914 10,700 pounds. In general, the platinum producing areas escaped 
the ravages of war and revolution, and demand was certainly stimulated 
between 191 7 and 19 19 by vigorous pre-emptive buying on the part of the 
Allies to prevent platinum from falling into German hands. The provisional 
Omsk government required sale to government sources but little else of a 
restrictive nature. The area was occupied by the Soviets in 1919 and within 
two years production dropped to between 700 and 1,000 pounds per year. 

The condition of the platinum industry appears to be no better than that 
of the gold industry. All the events which caused the collapse of the gold 
industry . . . refer as well to the platinum industry, 41 

By 1921, production had fallen to 360 pounds, concentrated in three areas 
along the River Isse. Apparently some production was on an 'irregular' basis, 

" Harbin Daily Neios, December 7, 1924. 

" Ekonomicheskaya Z/ttzn, No. 355, December 9, 1924, 

" Izvestia, No. 23, January 29, 1926. 

"> Littlepage and Bess, op. cit., p. 216. 

" Ekonomicheskaya Zhizn, No, 173, August 4, 1922. 



106 Western Technology and Soviet Economic Development, 1917-1930 

and platinum was exported to the West through Latvia insubstantial quantities 
until choked off by more effective Soviet border patrols in 1925.* 2 

From about 1923 to 1926, Rusplatina used the London chemical firm of 
Johnson, Mathey and Company as a world distributing agent, although at rare 
intervals platinum was also shipped via the Compagnie de la Platme, in 
Paris. This trade was on the basis of a yearly renewable contract. In 1926 
Johnson, Mathey and Company became a little high-handed and the Soviets 
established Edelmetall Verwertungs Gesellschaft in Berlin, which apparently 
had the effect of bringing the London firm back into line. 

This was followed by an active campaign of price cutting to regain the 
prewar share of the market. In order to accomplish this, the industry had been 
reorganized and equipped with imported modern electric shovels. This meant 
that platinum could be mined profitably where the ore content was as low as 
1/30 pennyweight platinum content per ton, in contrast to the requirement 
for 1/10-pennyweight per ton under earlier conditions. By 1926, production 
was restored to 5,800 pounds per year, all of which was exported. However, 
this was hardly a major contribution to foreign exchange earnings, as the price 
of platinum had been forced down from $112-8120 in 1925 to J62 per ounce 
in 1927. 

Two platinum-refining works had been started by the Russian government 
in 1914 under the pressure of changing wartime conditions. These plants were 
started again in the early 1920s, with the assistance of Professor L. Duparc 
(France), described as 'the greatest platinum expert in Europe.' 43 

BAUXITE AND THE ALUMINUM COMPANY OF AMERICA 
A Type I concession agreement was signed in April 1926 between the 
U.S.S.R. and the Aluminum Company of America (ALCOA) which gave the 
latter the right to explore for bauxite, the raw material for aluminum, through- 
out Russia during a period of two years. Although no details were published 
concerning this agreement, representatives of ALCOA were interviewed from 
time to time by U.S. State Department officers, and it appears that nine 
ALCOA engineers prospected for bauxite in several locations— mainly south 
of Tikhvin. J 

The Tikhvin area blocked out by ALCOA contained four deposits of Grade 
I bauxite, estimated to contain 2.8 million tons of 'probable' ore, together 
with additional tonnages of 'possible' ore. The ore had a high silica content, 

" T^i 51 ?™ f ?' ' im « ular exports' are available, as Latvia produces no platinum 

Sw! fi M ^5 t "V ,m C | Cp ? r ? f ? r th,s penod are alt of 'iiWButa' Russian platinum. 
Export figures for regular 1 platinum ate not available, but these were approximately 
40,000 os. per year, compared to just under 10,000 oz. for 'irregular' exports. 
*' Annuaire, op. cit., page XI. 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 107 

together with iron oxide (an impurity), and the project was abandoned at the 
end of 1927, as the engineers considered the deposits not of commercial value 
and unworthy of further development." 

The Soviets did not give up. Tikhvin was their best bauxite deposit, and 
they were determined to build an aluminum industry. In 1929 the German 
firm Vereinigte Aluminumwerke A-G., which had perfected a reduction 
process applicable to the Russian bauxite grades, reported that the Soviets 
had been attempting ' ... for some time to secure the patent rights for 
Russia or at least operating rights to this process, but the negotiations have 
remained negative due to the failure of the Soviets to furnish certain guaran- 
tees.' 46 

Nevertheless, by 1930 technical-assistance agreements had been made to 
cover most aspects of aluminum manufacture. An agreement in 1930 with 
Compagnie de Produits Chimiques et Electrometallurgiques S.A. (France) 
covered the reduction of aluminum; and another contract, with Dr. Ing 
Straube of Karlsruhe, covered the manufacture of aluminum hydroxide, 
synthetic cryolite, and aluminum electrodes. A third agreement, with the 
Societe du Duralumin S.A. (France), covered the manufacture of duralu- 
minum.« A fourth agreement with Frank E. Dickie, an independent American 
engineer, provided technical assistance to Aluminstroi, the Construction 
Bureau for Aluminum Plants. 17 

MICA MINING AND THE 
INTERNATIONAL MICA COMPANY, INC. 
The largest mica deposits in the U.S.S.R. were included in a Type I 
concession agreement in 1924 with the Russian-American Mining and 
Engineering Corporation, a subsidiary of the International Mica Company, 
Inc., of the United States. The concessionaire agreed to produce 35 tons of 
mica in the first year, increasing quantities gradually to 175 tons in the fifth 
year. A 5-perccnt royalty was paid on all production, and export was allowed 
by the operator. Modern mining equipment was imported and installed by the 
company. 

" yj^f^? 1, I ? <dmi, L ESfL 3^-136-363 and .230; 316-131-388 and 316- 
Ak " ^5- ,. an " 1 >'!f s of Tikhvm ore are in Geologichcskii komitct, Codovoi 
Obxor MiiuraTnykh Resursov SSSR sa 1925)6 (Leningrad: iga 7 ), pp. 47-8. 

" Vossische Zeitutig, November 1 8 , 1 929. 

" ^f^I^V^ °'&. pp ' 2 5? and ? 3 ?' By ,93 ° Soviet aluminum production 
Z113? ?™ baS ' S ' ^ he ,P roblc ™ .<> f development and the partially successful 
transfer of Western technology will be covered in Vol. II. 

«id A Unwin) l0V '"a 1 L " ^^ 5< "" <! ' Un " > " Yearhook < ^ 3 ° ^' Lo ^^- Allen and 



108 Western Technology and Soviet Economic Development, xgiy-igjo 

ASBESTOS PRODUCTION IN THE URALS 

The Urals' asbestos deposits have been mined since the 1880s. The most 
important group of mines was at Baskenovo, about 90 miles northeast of 
Sverdlovsk; this group produced 96 percent of the 24,000 metric tons asbestos 
produced in Russia in 1914. Just before the Revolution, mines at Alapaievsk 
and Iltchirsk (in Irkutsk Province) were equipped and brought into production. 
The Neviask and Ostanino deposits were known but not exploited. In 1912 
Russia exported 13,260 metric tons of asbestos, but exports ceased completely 
during the Revolution. 

The impact of the Revolution was significant. No maintenance was done 
for several years, many of the mine buildings fell into disrepair, and the open- 
cut workings became watered. The essential problem, however, between 
1917 and 1920 was to organize production and transport the mined asbestos 
to foreign markets. 

Table 6-3 ASBESTOS PRODUCTION IN RUSSIA, 

1913 AND 1923 

Mines 191J 1023 



All grades, in metric tons 
Baskenovo Group: 

Graemuchka River 1,300 None 

Korevo ii.soo"! 

Reftinsk 8,000 I 7,830 

Mukhanovstt 1,400 f 22 '350 

Okunevsk 150 J 

Alapaievsk N.A, 350 

Neviask 1,000 None 

Ostanino 170 None 

Iltchirsk (Irkutsk Province) N.A. None 

Source: L. Berlinr&ut, 'Russian Asbestos Mining Reviving,' Engineering and Mining 
Journal-Press, CXXI, No. 4 (January 33, 1926), 164. 

In 1920 only 1,300 tons of asbestos were produced (all from the Baskenovo 
group of mines), and of this more than 75 percent was of inferior grades. 

The Alapaievsky, Neviask, Ostanino, and Iltchirsk mines were closed 
because of the lack of engineering and managerial skills. 

In November 1921 a Type I concession was granted to the Allied Chemical 
and Dye Corporation of the United States, whose subsidiary, the Allied 
American Corporation, owned by the Hammers, had been operating under 
license in the U.S.S.R. since 1918. The concession was to restore and operate 
the Alapaievsky asbestos mines. The concessionaire repaired the buildings and 
organized production, and by 1922 had more than 1,000 men employed, or 
44 percent of all asbestos mine workers in the U.S.S.R., as shown in table 6-4. 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 109 

The agreement was made with the Ural Industrial Bureau for twenty years, 
and Allied was required to start work within four months. A sliding scale of 
required output was established, progressing from 1,200 tons in the first year 
to 2,580 tons in the fifth and subsequent years. The government had the right 
to purchase the concession after five years, and was to receive 10 percent of 
all production. 48 

Table 6-4 WORKERS EMPLOYED BY URALASBEST AND 
HAMMER CONCESSION, 1921^ 















j Producer/ Year 




J02J-2 




1922-3 


1923-4 


; Uralasbest 
j Hammer 

Total 

% Employed by Hammer 


".385 
I.IOO 

44-30 




2.487 
1,617 

4,104 
39.40 


3,067 
1,227 

4,294 
28.60 


Source: Annuaire Politique 


el Economique, p. 


161. 







Hammer has described the pitiful conditions of the workings when opera- 
tions began. 4n 

Six months after the concession agreement was signed, the company 
received 'one very deteriorated asbestos mine.' Piles of asbestos blocked the 
passages; there was a heap of 1,200 cubic sazhens of waste ore. There were no 
communications and no housing for workers or management. The company 
built 4,800 feet of mine passages and repaired shafts, workers' barracks, houses 
and schools. Within a year 1,200 poods of high grade material had already been 
shipped, 20,000 poods of ore were ready for shipment, and 1,100 workers were 
employed during the summer mining season. To achieve this, the concession 
imported modern mining and transportation equipment and built a sawmill 
and a z\ verst narrow-gauge railroad. 50 

By 1925 the concession began to show a profit. 

Uralasbest was created in 1921 to operate the Baskenovo group of mines, 
but it took many years and many major setbacks before Ruykeyser, an American 
asbestos mining engineer and consultant to Uralasbest, was able to perform 
his 'brilliant construction feat ... in creating the Ural Asbestos Works.' 51 
All the problems of Soviet development during the 1920s seem to be found 
in this trust: lack of working capital, personal jealousies, sabotage, inefficient 
foreign contracts, fire— but through sheer persistence, and at tremendous cost, 
a workable enterprise was finally built up. 

" Krasnaya Gazeta, January 4, 1922, 

" Armand Hammer, The Quest of the Romanoff Treasure (New York: Payson, 1932). 

" Ekonomicheskaya Zhizn, No. 280, December 10, 1922. 

61 Shimldn, op. cit., p. 226. 



i io Western Technology and Soviet Economic Development, 1917-1930 

The Baskenovo open-pit mines are by far the most important asbestos 
deposits in Russia, In the early 1920s, production was primitive and without 
facilities for upgrading." However, some asbestos was produced, despite the 
shortage of working capital, under the technical direction of Svedberg, who 
had been the prewar director and was retained by the Soviets as consulting 
director. The limitations on output were the extremely primitive mining 
methods and the absence of a mill to upgrade the mined chrysotile asbestos 



ore. 



The first major step was taken by Uralasbest in 1928, when it concluded a 
Type III concession agreement with the Humboldt Company (Germany) to 
build a mill for upgrading the asbestos fiber and to reorganize mining methods. 53 
Ruykeyser's description of the circumstances surrounding the mill contract 
is quoted in full: 

In 1928 I had fulfilled a contract with Amtoi-T in New York to lay out the 
preliminary designs, along generalized lines, ibr the proposed asbestos 
mill. The plans were accompanied by an extensive report covering all 
phases of the processes involved. I had pohv.td out wherein my ideas, 
based on actual experience with the subject, vere at variance with the 
technical norms sent me as a basis for the drawing, ideas from which 
I could not depart. But disregarding such advice, without heed of 
consequence, a contract had been given a large German firm to build the 
plant. The flowsheet, or schematic arrangement of machines and proces- 
ses, had been made by the engineers of the Trust under the direct super- 
vision and approval of the technical director. This flowsheet was also 
contributed to by the Germans, a paltry five-ton sample of the ore being 
worked on laboratory scale in the preliminary testing. I was told that 
none of the Russian or German personnel had iwer seen a chrysotile 
asbestos mill in operation; and yet, they had attempted to build what was 
to be one of the largest mills of its kind in the v-orld." 
Not surprisingly, this mill failed to produce the desired results, although 
there is some evidence that sabotage was at least partly responsible for its 
failure. There are reports, for example, that wood chips, fatal to asbestos 
quality, were found along the production line. The mill was destroyed by fire 
in May 1929, and, as a result of the subsequent investigation, three Russian 
civil engineers were shot by the GPU and two sentenced to twenty years' hard 
labor. Svedberg, the technical director, was arrested for negligence." The 
Soviet response was to order another mill— a copy of the first ; this also failed 

" Photographs in W. A. Ruykeyser. Working jar the Soviets (New York: Coviei- 
* nede, 193a) indicate quite clearly the hand methods in use before Ruykeyser 
reorganized production in 1929. 

'» U.S. State Dept Dispatch No. 1518, Finland, Dec. 7, 1929. (Decimal File, 361. 
ooaai/i.j 

** Ruykeyser, op. tit,, p. 60. 

" U.S. State Dept. Dispatch No. 1528, Finland, December 7, 1929. (Decimal File. 
j6i.6od2i/i.) 



Gold Mining, Platinum, Asbestos, and Minor Mineral Concessions 1 1 1 



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1 1 2 Western Technology and Soviet Economic Development, 1917-1930 

to perform. The consequence was the contract with Ruykeyser, and later with 
the C. V. Smith Company, of Thetford, Canada, to design a mill suitable for 
milling chrysotile asbestos fiber using Canadian experience. This was done, 
and finally, on the third attempt, the Soviets acquired a mill which would 
perform adequately. As late as 1939, this third mill was producing 95 percent 
of Russian asbestos fiber. 

ASBESTOS ROOF SHINGLES MANUFACTURE 
Asbestos products were manufactured in prewar Russia at the Red Triangle 
Works in Moscow. This works continued producing at about 25 percent of 
capacity (see table 6-6) for a few years after the Revolution, and closed in 
I 9 3 3- M I n 1926, Hammer (Allied American) started to build a factory in 
Moscow, under a concessionary agreement, to manufacture asbestos roof 
shingles utilizing raw material from the Alapaievsky asbestos deposits, which 
had been operated by Allied since 1921. The plant utilized imported modern 
equipment and was managed by Dr. G. L. Rosenbaum, formerly head of a 
similar plant in Czechoslovakia, 57 

Table 6-6 MANUFACTURE OF ASBESTOS SHINGLES BY 
FOREIGN COMPANIES 



Year Output 

(Millions of Shingles) 



1921-z 2 .i 7 

I9M-3 2.75 

19*3-4 3-9* 

> 924-S 1 1.9 

19^5-6 16.6 

19*6-7 *i.6 

1927-8 38.5 

1928-9 51,3 

1929-30 65.9 



Source; G. Warren Nutter, The Growth of Industrial Production in the Soviet Union 
(Princeton, N.J.: Princeton University Press, 1962), p. 429. 

Production of shingles accordingly doubled in a brief period; but this was 
apparently insufficient, as a Type III technical-assistance agreement was 
signed in 1928 with the Multibestos Company of the United States for the 
construction and equipping of another asbestos products plant. 68 

** Ehonomkkukaya Zhim, No. 14, October 17, 1923. 

" Ekonamichetkaya Zkisn, No. 124, June 1, 1926. 

** Another technical-assistance agreement between E. Waite and the Rubber Trust, 
is listed for asbestos products in American-Russian Chamber of Commerce, op, 
at., p. 101. E. Waite however, probably represented Multibestos Company in the 
U.S.S.R., so that this may not have been a separate contract. 



CHAPTER SEVEN 

The Industrialization of Agriculture 



The transfer of Western technology and labor skills in agriculture was 
attempted along five channels. Each was part of a complex set of aims; 
enlarging the scale of farming, substituting machinery for labor, converting 
the farming sector into an industry, and removing the class enemy — the kulak. 
The five transfer channels were: the large farming concessions, communes 
manned by foreign sympathizers, model seed and breeding farms, the modern- 
ization of the agricultural implement industry (particularly the tractor, 
which had a place of honor equivalent to electrification in the industrial 
sector), and the technical-assistance programs. 

Bolshevik interest in large-scale agriculture began in 1924 and has been 
viewed as an anti-kulak measure, but it was equally a method of industrializing 
the farm sector. The kulak was the ideological enemy, but his ability to out- 
produce the bedniak and the seredniak made him, at least up to 1928-9, 
indispensable. There was a basic, naive assumption (which saturated the 
thinking of the planners) that a large scale of operations would effect infinite 
economies in agriculture. 1 The large farms of the American and Canadian 
prairies attracted the attention of Gosplan and the Commissariat of Agricul- 
ture, not because their yields were significantly greater than those in the 
U.S.S.R., but because the sheer scale of operations and the massive substitu- 
tion of capital for labor promised a simultaneous solution for two basic problems 
in the Russian economy: the technical backwardness and hostility of the 
peasant, the latter stemming from the policy of prodrazverstka (forced requisi- 
tion of grain) and the growing demand for agricultural products from cities 
and planned industrial complexes, Perhaps a more obvious pressure was 
Russia's complete failure to regain her prewar position as a major grain export- 
er or even to reduce the grain imports necessary in 1928-9. The grave decline 

1 The Gigant, largest of the State farms (500,000 acres), had higher costs than less 
favored and smaller state farms, however. 



114 Western Technology and Soviet Economic Development, igi^-igjo 

in Soviet grain procurements in 1929 (down 23 percent from the previous year) 
was an immediate incentive to action. 1 

In 1928 the People's Commissariat for Agriculture drafted a proposal for 
the establishment of very large grain farms, and thirty experts were sent to the 
United States, Canada, and Australia to study large-scale foreign agriculture. 3 
Zemotrust (the grain trust), which had been organized to develop large-scale 
farms, sent two further groups.* The Zemotrust program for 1928-9 provided 
for establishment of fifteen large grain farms with a total area of 150,000 
hectares in the Northern Caucasus and Volga regions, to be cultivated by 635 
tractors.* 

THE KRUPP AGRICULTURAL CONCESSIONS 

The first attempt to introduce large-scale farming was made with the aid of 
Krupp in 1924, after an announcement by the Commissariat of Agriculture 
that it considered agricultural concessions necessary to the development of 
livestock breeding, sugar beets, and silk worms. Processing and equipment 
enterprises were thought to be in particular need of foreign help.* However, 
the Krupp agreement, after two major changes, ended in failure. The new 
Zemotrust farms were consequently modeled on American and Canadian 
practice.' 

The Krupp agricultural concessions were an ambitious attempt on the 
part of the Soviets to introduce modern agricultural large-scale methods into 
the U.S.S.R., but for Krupp the objective was to develop a market for German 
agricultural implements and equipment. The concession was also designed 
to revive Russian agriculture, eliminate the possibility of famine, and turn 
the U.S.S.R. once again into a grain-exporting country. Krupp'sche Land- 
concession Manytsch G.m.B.H, was partly financed by a United Kingdom 
company, Russian Land Concession Manytsch, Ltd., registered in London. 
The function of the latter was to finance the German company to the extent 
of 75 percent of the funds required for exploitation of the concession. The 
United Kingdom company had a basic capital of £40,000, of which £30,000 

* Ekonomicheskaya Zhizn, No. 187, August 16, 1929. See map of crop conditions 
on p. a. 

' Irvatia, No. 114, May 18, 1938. 

' Ixvtttia, No. o», April »i, 1919. 

1 Pravda (Moscow), No. 168, July 21, 1928. 

• Ekonomickakaya Zhixn, No. 331, November 11, 1924, 

T M. Farbman comment*, "The big American and Canadian farms served as a model 
for the new experiment and American agronomical engineers and experts were 
engaged to start it, while the great virgin plains in the southeast of Russia, where the 
meteorological and aoil conditions resembled those of the wheat belt in America, 
were chosen as the scene of operations.' [Piatiletka; Runic? t Five Year Plan 
(New York: New Republic, 1931)1 p. 130.] 



Industrialisation of Agriculture 1 1 5 

was subscribed by the English group and £10,000 by Krupp. There was an 
obligation to raise a further £80,000 if required. 

A model farm was established in the Don district of the Ukraine, equipped 
with the most modern equipment and operated according to the latest methods. 
The final agreement, signed on April 3, 1922, covered an area of 162,000 
acres. In a further agreement later in the same year, this area was reduced to 
67,500 acres in the Saal section of the Don district. The concession company 
was obligated to place 3,780 acres under cultivation annually until a total of 
63,450 acres was under cultivation at the end of the sixth year. 

The Soviet government had an option to buy the whole output at world 
market prices. At the end of the twelve years the Soviets might purchase the 
entire concession settlement, and either party would have the absolute right 
to cancel the agreement in any sixth year. The period of the concession was 
set at thirty-six years, at the end of which time the concession, with all its 
equipment, would revert to the U.S.S.R. in good condition; the government 
would reimburse Krupp for all improvements that had not been amortized. 

A special tax was imposed, equal to 17.5 percent of the total annual crop 
yields, calculated at world market prices on the basis of Rotterdam Grain 
Exchange quotations; this was in addition to the usual taxes. Krupp was 
authorized to employ foreign labor to 50 percent of the total labor force and 
foreign administrative workers to 75 percent. There was a board of arbitration ; 
books and administrative procedures by the company were under the super- 
vision of a government inspection board. Workshops were established to . 
repair, assemble, and improve agricultural machinery. 8 

A new concession agreement for farming in the North Caucasus area was 
signed by Krupp with the Concessions Committee in 1927. The purpose was 
changed from grain-growing to sheep-raising. Apparently substantial quanti- 
ties of the land originally granted in 1923 could grow grain only at a consider- 
able loss. 9 Liquidation was first considered but then replaced by the new 
agreement. Under the new agreement, 12,000 acres were to be used for grain 
and the balance of 66,000 acres for sheep-raising. Two thousand sheep were 
to be imported immediately, and 36,000 to be grazed within eight years. 10 
Ten percent of gross receipts were paid to the U.S.S.R., which also had the 
right to buy the wool at world prices. The wages paid by the concessionaire 
were 30-40 percent higher than average Russian wages. 11 

' U -f- Consulate in Konigsberg (Germany) Report No. ano, February 17, 1923, 
and Ekonomichakaya Zhizn, No. 13, January 19, 1923. ' 9 3 ' 

• U.S. Embassy in Berlin, Report 1561, August 9, 19*7. (316-133-626.) 
»• Amtorg, op, cit., II, No. iS (September 15. 1927), 2. 
11 U.S. Embassy in Berlin. Report 2561, August 9, 1927. (31 6-! 3 3-626.) 



If 



• ! ; 1 1 6 Western Technology and Soviet Economic Development, 1917-IQ3Q 

% 

;|j A significant change was that the Soviets now agreed to participate in losses 

(previously they had only participated in profits) and in the burden of financing 
: i and management on an equal basis, A mixed enterprise (Type II), the German- 

Russian Krupp Manushka Company was formed. Krupp's share of the capital 
was 3 million rubles and the Soviets' 1.5 million rubles. The capital invested 
by the Krupp concern was 'guaranteed,' and in the event that the undertaking 
was not successful, it was repayable in 1937." 
The soil was too salt, and tractors were more expensive to use than animals. 
j Buildings were built and experiments conducted, but when things went wrong 

;| the bureaucratic process was slow and corrections could not readily be made. 

I; Grain raising failed, so cattle raising was substituted, and, when this failed, 

■ sheep raising — but too long a period elapsed between the substitutions. 13 

i; 

\ OTHER 'PURE' FARMING CONCESSIONS 

j| An agreement between the U.S.S.R., the Volga-Deutsch Bank in the Volga 

H : region, and the Berlin firm Deutsch-Russische Agrar A-G (Druag) in late 

1923 covered an agricultural concession on 67,000 acres of land in the Volga 
region. The land was to be used for any purpose seen fit by the German conces- 
sionaires. The Soviet government had an option on any products, although 
any portion not so taken might be exported. A tax equal to 14.5 percent of the 
total output was paid during the first two years of the life of the concession, 
but increased to 17.5 percent during the next two years and to 19.5 percent 
during the remaining years. Rent was equal to 10 percent of gross revenue 
and additional taxes equalled a further 10 percent. 14 

An extensive agricultural concession was also granted to the German Volga 
Bank, a Soviet joint-stock company, despite its name. This concession covered 
370,000 acres in the German Volga and in the cantons of Federov, Krasno- 
kutsk, and Palassov near the German Autonomous Commune. The concession 
was then broken up and sublet to German sub-concessionaires in areas of 
about 50,000 acres each. One such sub-concession was made to the German- 
Russian Agrarian Association. The company was required to cultivate the land 
according to an approved plan: 10 percent in the first .year, 30 percent in the 
second, 80 percent in the third, and 100 percent in the fourth. The concession 
was set up to last for thirty-six years. The company paid to the bank a percent- 
age of total production: 14.5 percent in the first year, 17.5 percent in the next 
two years, and 19.5 percent thereafter— an arrangement somewhat more 
liberal than in the Krupp concession. All state and local taxes had to be paid, 

" U.S. Embassy in Berlin, Report 3923, September 18, 1928. (316-133-823.) 

u Berliner Tagebiatt, October 6, 1928. 

u U.S. Embassy in Berlin, Report No. *iio, November 19, 19*3. (316-131-140.) 






Industrialization of Agriculture 117 

and upkeep of the roads in the area was a concession responsibility. The bank 
had the right to buy out the concession after twenty-five years. 15 

An Italian-Russian concession for agricultural and mineral development in 
the Kuban district was ratified in September 1922. One of the signatories, 
Commendatore Ferdianando Bussetti, discussed the matter with the U.S. 
Embassy in Rome shortly after signing the agreement. He indicated that the 
operation of the 100,000-hectare concession would be under the supervision 
of the Italian Agricultural Confederation, and that the objective was to grow 
wheat for export to Italy. Under the contract, 15 percent of production was 
to be paid to the Soviet government, a further 35 percent was to be sold locally, 
and the balance was to be exported. It was suggested that 30,000 Italians 
were to be transported to work the concession, and that they were to be free 
from Soviet law and under Italian jurisdiction.' 

An agricultural concession was granted to Harold M. Ware of the United 
States in 1934. Ware formed the Prikumskaya Russo-American Association 
and established farms on several thousand acres near Piatigorsk, in the North 
Caucasus, His main objectives were to train Russian agriculturists in American 
methods and organize model agricultural enterprises in the U.S.S.R. 17 Ware 
brought a number of tractors and fifteen American specialists with him. 18 

Another concession agreement signed in 1923 transferred 15,000 dessiatins 
to the Nansen Mission for the organization of model and demonstration farms. 
The objective of the concession was to produce high-quality seeds and high- 
grade animals, together with the organization of model seed-cleaning stations 
and cooperative butter and cheese factories." A much larger seed-growing 
concession, however, was Deutsche-Russische Saatbau A-G (Drusag). 



Pravda (Moscow), No. 344, October 27, 1923. 

U.S. Embassy in Rome, Report No. 456, October z, 19*2 (31 6-1 30-1 M*)- This is 
a little far-fetched. There is no evidence that such a large number of Italians ever 
went to work in the U.S.S.R. 
U.S. State Dept. Decimal File, 316-136-1241. 

Pravda (Moscow), No. 198, September z, 1924. Previously Ware had organized 
the export of tractors to the U.S.S.R. through the Society of Friends of Russia. 
The Ford Delegation of 1926 met Ware on several occasions and made unfavorable 
comments on his personal operations and ethics. For example, 'He intimated that 
provided we could arrange to give him a complete repair outfit (practically every- 
thing on his farm had been a gift) much good would result on both sides. . . .' 
(Presumably Ware was going to use his 'influence' with the Soviets on behalf of 
Ford.) Later, with reference to some tractors which Sherwood Eddy had prevailed 
upon the Ford Motor Co. to 6've to Ware, he commented to the Delegation that 
the tractors did good work, 'but that the Company failed to send along the tractors 
equipped with fenders, pulleys and assorted spares. We thought this a somewhat 
curious statement from one who had received the tractors as a gift.' [Report of the 
Ford Delegation to Russia and the U.S.S.R. April-August ioi6 (Detroit; 1926), 
Ford Motor Company Archives Accession No. 49, p. 145-6.] 
Izviitia, No. 166, July 26, 1923. 



1 1 8 Western Technology and Soviet Economic Development, 191J-1930 

GERMAN-RUSSIAN SEED CULTIVATION COMPANY » 

Drusag was founded in 1923 by Stinnes, the City of KSnigsberg, and a group 
of German agricultural implement firms including Sack, Kemna, and Lanz, 
together with the Soviet Commissariat of Agriculture. The concession was 
granted two properties: one in the Kuban area, suitable for seed growing, and 
the other near Rostov, used as a cattle-breeding station. Substantial investments 
were made in buildings and machinery, and within two years a greater area 
was under cultivation than that called for under the agreement. 

In 1925 a new agreement replaced the old contract. The main alteration was 
that the rental fee, based on gross profits, was decreased. Further relaxations 
were granted in order to allow the concession to export from the Soviet 
Union so as to purchase foreign machinery and to pay interest on loans raised 
in Germany. The concession apparently operated well for a year after the 
reorganization, and in 1926-^7 a profit of 450,000 rubles was reported. Then 
difficulties developed, so that further German and Russian investment was 
required. By 1927 a debt of more than 300,000 rubles was owed to Gostorg, 
in addition to the unamortized part of the original German loan. A further 
600,000 rubles was borrowed : 450,000 from the German government and the 
balance ffom the City of KBnigsberg and German implement-manufacturing 
companion. Of this sum, 150,000 rubles was used to repay the balance of the 
German (lebt, 300,000 rubles was used to settle various Russian claims, and 
the balance was used as working capital to carry the enterprise over until the 
1927 harvest. However, in 1927 the German obligation had grown to some 
one million marks, and the Soviets began to move the enterprise toward 
compulsqry liquidation. Further negotiation kept the enterprise alive until 
1932. 

The existence of the Drusag concession from 1923 to 1932 enables us to 
make a brief comparison between 'tractorization' undertaken in the late 1920s 
and the experience of the concession — an island of private enterprise in a sea 
of collectivization. 

The mass introduction of the tractor, the high cost of depreciation, the cost 
of fuel, the almost total lack of repair facilities, and the rough treatment the 
machine received in the hands of the peasant made it an extremely wasteful 
method of farming. The Drusag concession, farming land of good quality in 
a large plot of 27,000 acres, found animal power was often more economical 
than mechanical power. Animals, especially oxen, were cheap : a unit consisting 
of eight yoke oxen, a four furrow plow, and two men did the job as efficiently 
as, and at less cost than, a tractor. The tractor only came into its own when 
speed was a factor. 

** The information in this section is based on the German Foreign Ministry Archives. 



Industrialization of Agriculture no. 

The Russian however is inclined to think that, because the tractor turns 
over the soil at a prodigious rate and with lots of cheerful noise and bustle 
it is doing it more economically and efficiently than any other method. 81 

The contribution of Drusag was not, therefore, to a more efficient allocation 
of agricultural resources. For a period of ten years the enterprise contributed 
seed and pedigreed cattle to the state and collective farms, and although 
Gostorg made sizable investments from time to time, these were repaid, 
while the innovations developed by the concessions were contributed free 
of charge. 

TECHNICAL ASSISTANCE IN AGRICULTURE 
An early form of technical assistance was given by the International Agrarian 
Institute, established in 1923 by the International Peasant Soviet." The 
institute consisted of five departments, for the study of peasant agriculture, 
agrarian legislation, agricultural practices and methods of work, the attitude 
of local Communist parties to this work, and the contribution made by peasant 
economies in the world toward the achievement of a higher standard of living. 
The institute established a library and published a monthly, The Agrarian 
Question. 

The main objective of the institute was the world-wide collection of informa- 
tion concerning the peasant and his relation to agricultural technique and 
economics. 23 In 1924 the institute established an agricultural bureau in New 
York to study the theory and practice of agriculture in the United States, 
Canada, and the Latin American countries." In the same year an American 
citizen, Coleman, founded an agricultural school in the U.S.S.R. with an 
American staff, 25 

The acquisition of agricultural technology increased as delegations went 
from and visited the U.S.S.R. A Soviet Agricultural Commission of twelve 
experts, headed by P. B. Asaultschenko, visited Denmark in June 1926 to 
study Danish agricultural methods. The commission purchased some animals 
for breeding purposes, although fewer than had been expected in Danish 
trade circles." A Swedish model farm was established and stocked with 

n L. E. Hubbard, Economics of Soviet Agriculture (London: Macmillan, 10.39). 

pp. 260-1. Hubbard points out that the consumption of fuel alone by a tractor 

would in 1935 be 63 litres, or the equivalent of 630 kilos of grain— very nearly 

the whole yield. 
" Charles H. Smith, of the American-Russian Chamber of Commerce, formerly with 

the U.S. State Dept., was also a member of the International Peasant Soviet. 
" Izvestia, No. 3, January 4, 1924. 
** Pravda (Moscow), No. 116, May 34, 1924. 
u Pravda (Moscow), No. 198, September z, 1914. 
" U.S. Legation in Copenhagen, Report 216. July 25, 1927. (316-133-6") 



120 Western Technology and Soviet Economic Development, IQ17-1930 

Swedish pedigreed animals. Nineteen Ardenne horses were delivered person- 
ally by the Director of Sweden's General Agricultural Service, who commented 
on the model farm being established: 

The Swedish model farm will be of a very great service for the demonstra- 
tion of Swedish products and the use of Swedish agricultural machinery 
as well as for instruction in Swedish agricultural methods.* 7 

A group of American specialists was induced to go to the U.S.S.R. One of 
them, Professor A. A. Johnson, was 'unduly enthusiastic' and voiced his 
'unstinted praise' of Soviet development to the U.S. Consul at Berlin in 
September 1928 after a three-month visit to the U.S.S.R., where he had 
received an offer to act as agricultural adviser. *» 

This search for specialists extended throughout the range of agriculture. 
The grain elevators at Vladivostok and at Harbin, first operated by the 
Chinese Eastern Railway, were later operated on a concession basis when 
the area came under the control of the Soviet authorities. A group of Russian 
businessmen in the Far East joined with the railway administration and formed 
a joint-stock company to operate existing elevators and construct new ones. 
Such a move suggests the inability of the Soviet authorities to either operate 
or construct such units. As the elevators were handling nearly 100 million 
poods of grain a year, this was no small operation." Attempts to make a similar 
agreement with a group of Italian grain importers for operation of Black Sea 
elevators was not successful; after extensive negotiations, the Italian group 
refused to participate without a Soviet guarantee of investment protection. 30 

Thomas Campbell,' 1 according to Izvutia 'the biggest American farmer and 
one of the most prominent experts on the organization of grain production,' 
was invited to the U.S.S.R. by Zernotrust in 1929. The organization of 
Campbell's Montana farm had been noted by Soviet experts and the processes 
'reproduced on a film 2,000 feet long which he has brought to the U.S.S.R. 
with him.' Campbell farmed 95,000 acres in Montana with 109 tractors and 
only 200 workers. The object of his visit was to advise in development of ten 
million acres for wheat growing. The scheme envisaged expenditure of 
$100 million on agricultural machinery and another $50 million on trucks 
and road-making equipment. Campbell was reported to have been interviewed 

»' U.S. State Dept. Decimal File, 316-133-631. 

" U.S. Embassy in Berlin, Report No. 3924, September ,5, 1928. (316-134-455.) 
" A translation of the extensive agreement is in U.S. &**.- e Dept. Decimal File 
316-134-860 to 891. ' 

» Several detailed reports on the negotiations are in U.S. State Dept. Decimal File. 
316-134-783 and 3"6-i34-79i. 

» Thomas D. Campbell, Stasia: Market or Menace! {New York: Longmans Green. 
193*). Campbell s book is of the "I'm not a Communist but. . ,' genre and con- 
tains nothing specific concerning his work in the U.S.S.R. 



Industrialization of Agriculture 121 

and approved by both President Cootidge and Mr. Herbert Hoover before his 
1929 visit.* 2 

While these ingredients for agricultural improvements became part of 
Soviet agriculture,. the kolkhoz yield was less at the end of the decade than 
the yield on private estates had been during the first ten years of the century, 
although it represented a marginal imp ro vement over the yield of prewar peasant 
farms. 33 The uneconomic replacement of the horse by the tractor and the 
persecution of the more effective peasants were disastrous to Soviet agriculture, 
and incipient transfer of advanced Western agricultural techniques was 
drowned by an intemperate ideology. 



COTTON IRRIGATION 

In July 1923 it was reported by the American consul in Riga that a group 
of German financiers, including Krupp and Stinnes, had formed an organiza- 
tion with the objective of reviving and enlarging the cotton industry of Turkes- 
tan. The Turkestan cotton crop had received numerous setbacks from drought, 
hot winds and marauding bands of basmachi who had succeeded in extensively 
damaging the Fergana irrigation system, essentially devoted to cotton. The 
population had fled to the towns as a result of the disturbances, so that the 
cotton fields remained uncultivated. Production had consequently declined 
heavily. In Bokhara, 1921 production of cotton fiber was less than 100,000 
poods compared with 2.5 million before 1917. Between 1909 and 1914, the 
total Russian production of cotton had averaged 13 million poods per year; 
this declined to less than 2 million by 1922. 31 

In 191 1 a mixed group of American and Russian engineers had visited the 
Karakouma Steppe in Transcaucasia to determine its suitability for growing 
cotton. The expedition, financed by John Hays Hammond, confirmed the 
prevailing opinion in Moscow that the steppes were not suitable for irrigation 
or cotton growing. 15 The 191 1 expedition was led by Arthur P. Davis, a 
well-known American irrigation engineer. In 1929 the Soviets invited Davis 
to undertake complete supervision of the operation and extension of the irriga- 
tion system of central Asia, Sredazvodkhoz. 36 

M Bank for Russian Trade Review, I, No. 2 (February iQ2<j), p. t6. This claim was 
marked with a marginal question mark in Decimal File 316— 133— 1 167. 

M L. E. Hubbard, op. tit., Chap. XXII, 'Effects of Mechanization on Production.' 

" U.S. Consulate in Riga, Report No. 1337, October 6, 1923. (316-130-361.) 

" U.S. State Dept. Decimal File, 316-134-410/429. 

'• Ekonomicheskaya Zhizn, No. 133, June 13, 1929. By extraordinary good fortune, 
extensive documentation exists for the work of one of the consulting engineers to 
Sredazvodkhoz. This collection, now at the Hoover Institution, Stanford University, 
forms the basis of a chapter in Vol. U, 



122 



Western Technology and Soviet Economic DevelojLunt, 1917-IQ30 



One unusual— and successful— experiment was tile establishment of a 
Russian experimental station for cotton growing in Persid. This was established 
in 1926 in Mazanderan Province, the country's largest cotton-growing district. 
The station consisted at zzz acres with a large Soviet and Persian staff. Experi- 
mental work was done with all varieties of cottonseed, including the American 
types Weber and Acala, which did well, and Pima, which did less well. By 
improving seed quality and malting cash advances to the planters in the sur- 
rounding areas, the Soviets came to dominate the area. The cotton was export- 
ed to Russia. Records of the experiment were transferred to the cotton-growing 
areas of Turkestan.* 7 

Later in the decade the Chief Cotton Committee sent a delegation to the 
United States to study latest American achievements in cotton growing and 
cotton ginning; the ten specialists remained in the United States about six 
months. Particular attention was given to organization and mechanization 
problems. An agreement was also negotiated with a 'large cotton growing firm' 
for the establishment of a seed farm in the U.S.S.R. and for the mechanization 
of Soviet cotton gins. The Committee argued that the contract would 
'permit the Commission to successfully bring the experience of American 
cotton cultivation to the Soviet Union.'* 8 

MERINO WOOLS AND AN AUSTRALIAN EMBARGO 
A decline in the breeding of sheep had become catastrophic by 1923 
Said the President of the Wool Syndicate, 'The breeding of Merino sheep 
must be considered as completely ruined,' » As a result of the Revolution 
only 98,000-110,000 head of Merinos were left, compared to the more than 
two million head in 1912. Commercial sheep farming had almost ceased, as 
sheep farmers had left Russia and their flocks had dispersed. In 1923, only 

Table 7-1 PRODUCTION AND IMPORTS OP MERINO WOOL 

IN U.S.S.R., 1923-6 



y«" CUpped in U.S.S.R. 



Impprtt 



,Qa 3-4 *o,ooo poods 480,000 poods 

j°*+-5 38,ooo poods 350,000 poods 

,0I S-° 3°f0O0 poods N OIM . 



Commi'tt«H'Sj'" 0f ?' Uish - Rullian Trade (London: Anglo-Russian Parliamentary 

" U.S. Consulate in Teheran. Report, August 6, 1936. (3i6-i 3 s-»7s.) 
" Ekonomicheikaya Zhixn, No. 171, July 28, 1029, 
" Ekanemichttkaya Zhixn, December 9 and ta, 1921. 



Industrialization of Agriculture 123 

20,000 poods of Merino wool was clipped, and less than half of all available 
supplies was collected. There was a parallel decline in the wool manufacturing 
industry. 40 

The solution came in two stages. Large quantities of Merino wool were 
imported in 1923-5, followed by heavy imports of Merino and other stud 
sheep for breeding. The latter created sufficient concern in Australia to cause 
the imposition of a ban on the export of Merinos, still effective in 1962. 
Between 1919 and 1927, Soviet purchases of Merinos for breeding were not 
too great: about 2,000 head during the whole period. In 1928-9 the Soviets 
stepped up buying far beyond normal and on one order purchased 30,000 
stud Merinos. The subsequent outcry led to the embargo on stud Merinos 
on November 28, 1929. " 

Supplementing the import of sheep, a group of Australian sheep breeders 
with capital and a flock of 1 ,500 Merinos settled in the southeast portion of 
the R.S.F.S.R., under an agreement with the People's Commissariat of 
Agriculture." 

Large purchases of high-grade pedigreed sheep were also made in the 
United States to improve and build up Russian stocks. In 1924, 2,766 sheep 
were purchased; in 1925, 1,621; in 1926, 2,628; and in 1927, 8,414." They 
were shipped in groups of 1,000 to 3,000. For example, in 1927 four Russian 
peasants arrived in the United States to escort 2,700 pedigreed animals pur- 
chased in Utah, Montana, Oregon, and Ohio. This group included 1,550 
prize stock Rambouillets, 1,000 prize Hampshires, and 150 Sliropshires, 
purchased for a total of $i6o,ooo. 41 

REPLENISHMENT OF LIVESTOCK HERDS 

The 1922 famine left the Soviet Union, particularly the southeast, with a 
much-depleted livestock population; most of the animals had been killed and 
marketed. The restocking project was offered for concession. In the Volga 
A.S.S.R., it was indicated that there were forty-five large cattle ranches, 
each of which could be put in order for £50 sterling, although livestock 
and supplementary equipment would cost a total of more than £1 million. 
It was suggested that the enterprise would be profitable; but there were no 
takers. 45 

,0 U.S. Consulate in Helsingfors, Kuport No. R-2100, February 28, 1923. 

41 Commonwealth of Australia, Parliamentary Debates, '12th Parliament, 1st Session,' 

P- 3S8- 

" Izvestia, No. 35, February 12, 1924. 

" Amtorg, op. cit., II, No. 24 (1927). 

** Amtorg, op. cit., II, No. iq (1927). 

15 Russian Information and Review, 1, No, 30 (July 15, 19**), 462. 



1 24 Western Technology and Soviet Economic Development, zgiy-i 93 o 

Breeding herds, as well as herds for sale, had been reduced to minute 
proportions. In July 1921, just after the establishment of a commission to 
reorganize and improve the livestock-breeding industry, it was found that, 
although breeding establishments occupied more than 35,000 acres they 
contained very few breeding stock. Only 1,000 pedigreed horses, 114 bulls, 
1,700 cows, and a few pigs, sheep, and goats remained in the breeding farms. 
Some improvement was made the following year bv purchasing small herds 
from peasant farmers, but a decline of this magnitude required replenishment 
from outside.** 

The failure of tractor production, a 175,000-head .shortage of horses, the 
lag in agriculture, and possibly a military demand produced an unusual 
transaction in halter-broken wild horses in 1927-8. Britain had broken with 
the U.S.S.R. over the Arcos affair and Canada had immediately followed suit, 
so that officially there were no diplomatic relations between Canada and the 
U.S.S.R. However, the Canadian Department of Agricu.ture made four ship- 
ments, totaling 8,000 horses, from the western Canadian ranges to Leningrad 
under official auspices. Canadian officials rounded up the horses and made the 
purchases, and two Canadian officers escorted them to Leningrad Further 
the price was only $30 per head! The horses were taken to a military camp 
outside Leningrad, inspected by General Budenny and cavalry officers, and 
then shipped down to the Ukraine.* 7 

LIVESTOCK AND DAIRY INDUSTRY CONCESSIONS- 
UNION COLD STORAGE, LTD. 

The Union Cold Storage Company, of the United Kingdom, had several 
concessionary arrangements with the U.S.S.R. The first was signed in May 
1923 with the North Western Trade Department. The Trade Department 
assembled animal products in the R.S.F.S.R., with the technical and financial 
assistance of Union Cold Storage, who then exported and sold them abroad 
guaranteeing a minimum profit of 10 percent. This profit was then split: 67 
percent to the Department and 33 percent to Union Cold Storage." 

G. H. Truss and Company, also of the United Kingdom, had a similar 
agreement with Khelboprodukt, concerning bacon exports, and provided 
equipment and technical assistance to build two bacon factories to produce 
for export. These were supplied on a credit basis. 49 

'* Ibid., pp. 461-1. 

" Ekonotmchakaya Zhizn, No. 193, May 27, 1924. 

" Ekottomkkeskaya Zhizn, No. toz, May n, 1923. 

^JZ°'r? Z10V * ky ', Ek * P J'J t ' l mport ' *""•*"»" »J"« S.S.S.R. (Moscow: Dvigatel, 
1926} Troyanovsky adds the comment that ' ... the Soviet purchasing-eiport 
organization* have conducted their egga-exporting businesa mainly with the use of 
loreigtt capital, r. 145, 



Industrialization of Agriculture 125 

Khleboprodukt concluded two further concession agreements in 1924 with 
Union Cold Storage. The first was a concession for the export of woodcocks, 
hazen-cocks, and partridges. Combined with this was a technical-assistance 
agreement in poultry-farming development with a view to the subsequent 
export of poultry. Union Cold Storage advanced credit, and the initial 
agreement lasted until September 15, 1927. The second concession agreement 
covered pig breeding. In 1922 there were only twenty pig-breeding farms left 
in the Soviet Union, with a total of 843 pedigree animals, compared to a 
total pig population of over zi million animals in 1916. 50 sl Union Cold 
Storage agreed to facilitate the export of pork to England through company 
distribution channels on credit, and also to provide technical assistance in 
Soviet pork production until September 15, 1929- 

The Gostorg butter-export office in Leningrad also concluded an agreement 
with Union Cold Storage, in August 1924 for export of butter to the United 
Kingdom, the latter granting financial and machinery credits to facilitate the 
contract. 62 

The 'Arcos break' interrupted Union Cold Storage concessions, but, 
upon resumption of trade relations in 1928, they were the first United Kingdom 
concessions to be renewed. Under the 1928 agreement, the Union Company 
agreed to advance a credit of $2.5 million in exchange for the right to handle 
all Soviet imports and dairy produce for United Kingdom market. The credits, 
utilized for the purchase of machinery in the United Kingdom for the Soviet 
dairy industry, were spread over three years and were granted in addition 
to a credit of 80 percent of the value of dairy goods shipped. The dairy produce 
was sold by Union Cold Storage on a commission basis and credit was made 
available upon receipt of the produce in London. 63 

Butter production and export in 1924 were also facilitated by a concession 
agreement forming the Danish-Siberian Company (Sibiko), under which a 
Danish company obtained for five years the right to produce and export butter 
from Siberia. First-year production was set at a minimum of 200,000 poods, 
with 300,000 poods as the minimum annual quantity thereafter. This con- 

H Pravda (Moscow), No. 182, August 13, 1924. 

* l Henry Wallace noted that the Siberian pigs were Yorkshires descended from 800 
imported from the United Kingdom in the early 1920s. [Soviet Asia Mission 
(New York: Regnal & Hitchcock, 1946), p. 222.] 

" Ixvestia (Moscow), No. 189, August 21, 1924, Union Cold Storage was handling 
almost all Russian exports of butter and eggs in the middle of the decade (including 
exports to Latvia, reexported to the United Kingdom) except for a small quantity 
handled by Truss, another Type II United Kingdom concession, and IVA, a 
German concession. [L. Segal and A. A. Santalov, Soviet Union Yearbook, 1925, 
(London: Allen and Unwin, 1925), p. 243.] 

M New York Times, March 16, 1928, p. 5. col. 3. Sir Edmund Vestey, who controlled 
Union Cold Storage, was quoted: 'We have been doing business with Soviet Russia 
for some time, and have found it quite satisfactory.' 



126 Western Technology and Soviet Economic Developmnt, igi 7 -I 93 o 

stituted a considerable portion of Russian butter production at the time The 
D*ush company received half the profits made by Sibiko « 

A report from the Danish Legation in Moscow to the Danish Foreign 
Office m earfy 1925 suggests that the Soviets had problems even in butter 
product™ The butter trust, Maslocentr, operated some 5,820 dairies „ d 
680 cheese factories (about 80 percent of the prewar total, 'but pXdon 
was . cojribaotj, percentof the xotj total. There were probLs wF* te^- 
£TJ T bUtl0 r ,by ^ epingPr0duCer P riceslow .«^aldairyasso£. 

tTe lot 6 H ° ""* ^r^ Pr ° fitS fof ** °™ «*»*-£» which 
were not passed on to producers. A certain amount of Danish capital was 
invo ved m ^e regional associations. It was indicated that future^ Lion 
^Iquer" ° n Pf ° dUCt Standardization . training, and improved 

! T / leSe ^ utter a , nd e J& ex P or * were of major importance as, together with 
Wber, they replaced the lost grain exports on which the Soviets^d pll d 
major reliance for fore.gn exchange." Hens had been nationalized soon after 
the Revolution, and eggs were nationalized under a decree signed by Lenin 
on March 3 , 1920. A quota was allotted each farm to be delivered to govern- 
mem collecting points." govern 

FOREIGN AGRICULTURAL COMMUNES IN RUSSIA 
The Ira commune was established in April 1922 in Tambov Province on 
theestateofPnaceOboiensky.Another commune, the Seyatel, was esSS'heS 
n an estate rearing considerable repair, by about xo^Local peasant and 

mor^rr^r 6 r r portedly friendiy ' and the «™« ™ «^X 

^z«^r^v he welding of broken *- --^ «* 

In 1923 some zoo returned emigrants arrived in the U.S.S.R. from the 
United States a„d were organized by the Society for Technical Aid ^Rus" 

he nL 4 ,7 f^T ^ " thC Unit6d StateS > into fi - corlune 
SSZ ?h ' J *?***» Red »««r. ^e Labor Field, and the 
Estoman They were settled in the Ukraine and the Don Basin with $x 3 o, oo 
worth of equipment brought from the United States. About 20 percen C 
party members and the rest were sympathizers." 

" Ekonomicheikaya Zhizn, January u, i 9 j 2 . 

" Yzf « tW ° P' 1 "' Rep ° rt No * 394S ' S«Pt""ber 25, ,o a 8. 

« ass s: ;™r * Report n °- •* Aprii <• ■- <-— > 

(supposedly denied to the U S SH ™%Zt1? S a*? fun « ioM of a consulate 
rt^w , ucmca 10 me u.&.Sj.k., a* there was no diplomatic recognition »t the 



Industrialization of Agriculture i 27 

Another group of repatriated emigrants, mostly metal and textile workers, 
arrived later in the year and also settled in South Russia. Their communes 
were organized according to city of origin in the United States. The Trud 
Commune had members predominantly from Boston; Harold (a dairy farming 
commune), from Chicago; Proletarian Life, from Cleveland; Krasny Loutch, 
an agricultural commune in Nikolaev, from Chicago; and so on. M 

At Perm a group of returned agricultural laborers was given 10,000 dessia- 
tins (27,000 acres) to farm. 60 

The California commune was established by an agreement between the 
Soviet of People's Commissars and a group of American agricultural workers 
largely from the western United States. The commune was granted 2,700 
acres in Don oblast to establish various agricultural enterprises on a lease 
basis for twenty-four years. A fee equal to 5 percent of all crops grown was to 
be paid the Soviet government, with the first payment falling due after the 
third harvest. On expiration of the contract, the commune was to hand over 
all equipment and livestock.* 1 

This commune was not destined for success; it was near bankruptcy within 
nine months. The major blow was the loss of three railroad cars containing the 
equipment and possessions of the settlers. These cars wandered about Russia 
for six months despite '348 inquiries to the railroads.' Two were permanently 
lost, and the commune had to pay the freight charges for the wanderings of the 
third, placing an impossible burden on their finances. 62 

Lenin had the announced aim of settling one model American group 
m each uyezd, which would have required about 250-300 such groups, a long 
way from the 25-30 that actually were settled. 63 

The communes, particularly the American communes, appear to have been 
utilized in an attempt to transfer more advanced agricultural practices into 
the surrounding areas. For example in the village of Posovka, Americans 
founded a commune in 1020 which created for a period of at least three years 
a series of 'circles' devoted to various problems: seed selection, agricultural 
exhibition, horticulture, and similar activities. 



time). See, for example, the document issued to L. F. Rautancn in New York which 
is, in essence, a visa. (316-110-719.) 

The Society for Technical Help to Armenia was also organized in the United 

States to return qualified Armenian laborers from the United States, to establish 

trade schools in Canada and Armenia for training specialists, and to maintain 

relations. {Pravda, No. 210, September 18, 1923.) 

Pravda (Moscow), No. 232, October 13, 1923. 

Pravda (Moscow), No. 246, October 31, 1922, 

Ekonomicheskaya Zhizii, No. 19, January 28, 1023, 

'Now the Agricultural Communes Are Perishing,' Pravda, No. 260, November 

16. 1923- 

Pravda No. 246, October 3:, 1923. 



128 Western Technology and Soviet Economic Development, 1917-1930 

The young Americans are continuing their efforts quietly, without noise 
Their example was not fruitless. In various neighboring villages similar 
circles with agricultural purposes have been formed." 

The Finnish commune comprised a group of Finns and a few Americans 
on about 100 dessiatins of land fifteen miles from Leningrad, farmed on a 
cooperative basis. The commune failed because local peasants stole the 
equipment, there was lack of harmony in the group itself, and finally, taxes, 
at 5,000 rubles per year, proved to be too much of a burden."* 

Another Finnish settlement was the Seattle Commune, started by Finns 
deported from the United States in 1921. This was more successful. The 
commune was visited in 1930 by M. Farbman, who reported that its wheat 
fetched higher prices than neighboring state farms." 

Gigant State Farm 128 kopecks/pood 

State Farm No. 2 17 * 

Seattle Commune i g3 

Average all peasants I20 " " 

An agricultural union of Dutch descendants in the Ukraine concluded a 
foreign loan of Si million for purchase of foreign equipment." 

Communes were supported by the Czechoslovak government to the 
extent of fifteen million crowns in agricultural equipment, but, as this was 
distributed to all communes regardless of nationality, it is impossible to assess 
how much of this sum went directly to the aid of Czechoslovakian communes 
The Czech Mission in the U.S.S.R. was also (in 1923) given the right to rent 
and organize shops for the assembly and repair of agricultural machinery." 

An Australian commune was established with help from the Society for 
Technical Help to the U.S.S.R. in Australia. Mainly from North Queensland 
the group settled in 1921 in the Ukraine (with equipment brought from home) 
as the Australian Commune." 

There was a Canadian Dukhorbor commune with some 2,500 members— 
but this sect and the Mennonites tended to leave Russia, near the end of the 
decade when anti-religious pressures were applied. 70 There was also a 

" Pravda (Moscow), No. 276 (December 5, 1923). 

U.S. Consulate in Helsingfors, Report, October 8, 1928 (3 id-i33-84t) This ra D ort 

d£££ !?•** e f T r, t n « of Lau " R«««»«, a" United States tittzen of Sh 
descent; .t is usefu as being among the most balanced and objective of the exc7m 

otates Kautanen did not regret his experience; ' , . . he wanted to see how it 

worked in Russia. He would advise nobody to go to Russia.' 
** Farbman, op. «'»., p. 148. 
*' Izveilia, No. 246, October 27, 1923. 
" Pravda (Moscow), No. 979, December 8, :g2 3 . 
•• Pravda (Moscow), No. 247, October 31, 1923. 
" U.S. State Dept. Decimal File, 316-135-251. 



Industrialisation of Agriculture 129 

'Canadian commune 1 near Odessa formed by the Canadian Society for 
Technical Aid to Soviet Russia. They were allotted 1,500 dessiatins and employ- 
ed several hundred Canadians and a few Russians. They brought equipment 
for their workshops from the United States. 71 

The Austrian commune, Imkommune Uhlfeld, was supported by both 
the Austrian government and the City of Vienna. The former contributed 
800 schillings ($125) for each immigrant (the investment required by the 
U.S.S.R.). The City of Vienna gave a similar amount to commune members 
from Vienna. There were about 600 members in the commune, which settled 
in the Kirghiz Republic with the intent of founding an Austrian city based 
on regional agricultural development. 73 

JEWISH LAND SETTLEMENT PROGRAMS 
With financial support from the Jewish community in the United States, 
Jewish settlers were encouraged to settle on various parts of the U.S.S.R. and 
particularly to undertake farming." The act organizing the Committee for 
Settling Jewish Toilers on the Land was published in Izvestia on October 13, 
1926, which outlines the land distribution and budgetary considerations in the 
program. Quite unknowingly, this organization aided the Bolshevik drive on 
private trade, renewed in 1924. 

American assistance was organized under the Jewish Joint Distribution 
Committee, which had cooperated with American Relief in Russia and 
maintained a representative in the U.S.S.R. In 1925 land was set aside for 
these settlers, and the Joint Committee supplied tractors and other equipment, 
dug wells, provided cattle, gave loans for housing and farm building, and gave 
instruction in farming. By October 1925, the committee had settled 6,000 
families on 500,000 acres in the Ukraine and Crimea. 

Apparently the land settled could be used only with foreign assistance, as 
it was arid and water wells had to be drilled to a depth of 300-400 feet: hence 
the comment that 'this is why the country can be settled only by Jews who 
receive money from abroad'. 74 

11 Pravda (Moscow), No. 47, March 2, 1923. 

" The commune had a 12-page agreement with the Soviets. A translation is in the 
U.S. State Dept. Archives at 3 16-13 1-343. 

" It should be noted that Jewish leaders in the United States, unlike many business 
men, took precise care to discuss their plans and actions with the State Department 
and ascertain the government viewpoint on such financial support, in order to avoid 
«ny possible misunderstanding. (See U.S, State Dept. Archives, 316-137-304,) 
There were similar organizations in other countries, but little is known of their 
activities. For example, Verein ORT, Gesellschaft zur Forderung desHandwerke 
und der Landwirtschaft unter den Juden, a German organization, registered to 
undertake operations in the U.S.S.R. Ekonomicheskaya Zhisn, No. 248, October 
as. 1928. 

" Izvestia, No. 157, July tj, 1936. 



130 Western Technology and Soviet Economic Development, iQi7-rg30 

The Joint Committee also provided American plants and administrators 
for distribution and cultivation. 7 * 

Another 4,000 Jews settled by mid- 1926. This number was held to be 
'more than in the preceding 100 years, from the foundation of Jewish colonies 
during the reign of Nicholas I.'" Early in 1928, the Soviet government set 
aside for colonization by Agro- Joint some ten million acres in Eastern Siberia, 
between the Ussuri Railway on the north and the Amur River on the south. 
The administrative office was established in the spring at Khabarovsk and 
soon after, tractors, buses, automobiles, and settlers began to arrive. Adverse 
conditions forced half the settlers back to their homes in the first year, but 
very gradually a settlement was carved out of this previously unsettled land." 

Ikor, another United States Jewish organization interested in colonization, 
sent Dr. Charles Kanz to Siberia in 1928 to investigate conditions at first hand. 
Some 32,000 people, including the i.ooo immigrants who had arrived the 
previous year, lived in a total area of 42,000 square kilometers. Through Ikor 
and Ozet (a Soviet organization for establishing Jewish workers' settlements), 
quantities of equipment were shipped to the settlers during the 1929-30 
season. A commission sent by Ikor to render technical assistance to the colony 
arrived in the U.S.S.R. in July 1929. 78 

The Joint Tractor Commission (1924) was an American- Jewish organization 
with the objective of generally developing Russian agriculture. At this time 
the commission had 135 tractors, which it rented out to peasants on condition 
that they create artels in groups farming not less than 20 dessiatins of adjoin- 
ing land. Payment ranged from one to five poods of wheat per dessiatin. 7 " 

In 1923 the Jewish-American Committee imported 200 tractors, of which 
75 were Waterloo Boy (make unknown) and the rest were Fordson. These 
were put to work in the Ukraine, generally at the disposal of collectives lacking 
horses. 80 

A joint-stock company, Akotprom, was formed in June 1923 to undertake 
commercial and industrial business in order to aid the Jewish Committee for 
Relief. 81 French Jewish circles also aided agricultural colonization. In 1923 

" Ixvettia, No. 64, March 10, 1923. 

" Ixvatia, No. 140, June 20, 1026. 

" y-S-. Consulate in Harbin, Report January 22, 1929, However, there are two sides 
to this story. Reports indicate that the Soviet* had great difficulty after the first year 
in getting anyone to go to Biro-Bidjan, in Siberia, and gave each village and town 
• quota to fill for •ettlen to populate this 'God forsaken [sic] country.' [Report May 

'• Pravda (Moscow), July 6, 1929. 

" Ixvettia, No. 140, June 20, 1926, 

10 Pravda, No. 166, July 26, 1923. 

11 Ekonomicheskaya Zkixn, No. 142, June 26, 1923. 



Industrialization of Agriculture 131 

some three million French francs were sent under an agreement, renewable 
annually, to Jewish families settling on the land. 84 In retrospect, one can only 
conclude that these settlements were little more than attempts on the part of 
the Soviet Union to extract foreign Jewish assistance. None of the settlements 
have survived. 



THE FATE OF THE AGRICULTURAL COMMUNES 

In early 1923 reports began to filter out of the U.S.S.R. concerning the 
desperate state of foreign communes. Many settlers were left without land 
allotments; others were in need of assistance, and some were caught in the 
squeeze between rising costs and low prices for grain and dairy produce. 83 

The commune was a failure, and its fate is well described in a Pravda article 
of late 1923. The author pointed out that incoming communes should have 
had every chance to become models of efficient agronomy. They brought in 
modern equipment, totaling to that time some $600,000 in value, and the 
membership, skilled and efficient, contained a large percentage of Party 
members. 'In general they arc energetic, businesslike, Americanized people.' 81 

It was pointed out that in areas where land was lying idle, the commune 
Echo was given 'wild prairie' without a single building, with two of the sections 
connected by a narrow corridor 1 kilometer wide and 15 kilometers long. 
The Canadian commune in Odessa lost five baggage cars for six months; 
finally only three of the cars arrived. 85 The John Reed Commune in Podol 
Province did not obtain land for nine months, and then received a ruined 
estate. The Red Banner Commune waited seven months for land! and after 
working it for a while was expelled and force to sell its equipment to pay 
moving costs. The Novy Mir Commune received buildings infected with foot 
and mouth disease. The communes, it was stated, were breaking up. Some 
members were going back to the United States, and some were wandering all 
over Russia. Said the Soviets, ' ... we are losing very precious and impor- 
tant breeding stations of agricultural knowledge; we are killing the cause with 
our own hands.' 8S 

On the other hand, some communes must have survived for several years, 
as they were still importing American equipment in 1926. The Ira imported 
$35,000 worth of agricultural equipment in early 1926, the Agro- Joint 

" Ekonomichetkaya Zhizn, No. >8, January 27, 1923. 

11 IS Report, December 8, 1923. (316-133-339.) 

" Pravda (Moscow), No. 260, November 16, 1923. 

" Pravda (Moscow), No. 260, November 16, 1943. Elsewhere it is stated that two 

cars out of three were lost. 
» Ibid. 



132 Western Technology and Soviet Economic Development, 1917-1930 

commune just over 839,000 worth of equipment, and AIK, in the Kuzbas, 
$4,345." 
In the end, however, they all perished. 

THE AGRICULTURAL EQUIPMENT MANUFACTURING 
INDUSTRY 

Toward the end of the nineteenth century, Russian farming, as a result of 
the introduction of modern agricultural machinery and implements, under- 
went extensive technical improvement. Peasant credit associations, funded 
by government banks and the zemstvos (district councils) encouraged this 
trend. Spurred by these changes, the manufacture of agricultural implements 
expanded rapidly; by 1908 there were over 500 plants, not including peasant 
industries, also of considerable importance. In 1908 the plants produced 
more than 390,000 ploughs, 8,800 seeders, 61,000 reapers and mowers, 22,000 
threshers, and 31,000 winnowers. 88 By 1913 the number of establishments 
increased to more than 800, employing 39,000 workers and including very 
large plants funded with Western capital. By far the largest was the Inter- 
national Harvester plant, covering sixty-two acres at Lyubertsy, near Moscow. 
This plant, opened in 1911, provided employment for 2,000. The company 
had an extensive and well organized service network in Russia; the Omsk 
(Siberia) branch of International Harvester was the largest overseas branch 
operated by the company. 8 * 

Agricultural exhibitions, credit associations, and other forms of government 
aid enabled Russia to develop a relatively advanced agricultural economy 
before World War I. Agricultural products were exported on a large scale; 
at the turn of the century Russia had become the world's largest exporter 
of wheat. 

The equipment plants survived the Revolution; exactly the same number 
(825) were reported available for use in 1923 as in 1913, but their output had 
declined catastrophically. In 1923, the Soviets produced only 12 percent of 
the ploughs, 70 percent of the scythes, 26 percent of the sickles, and between 
i and 8 percent of other implements which had been produced in 1913. 110 

The early 1920s were characterized by continuing crises in the industry. 
The 1921-2 plan for agricultural machinery was less than 50-percent fulfilled, 

" Amerihamkiai torgoolia i promyshlemuaf (New York: Amtorg Tradinn Company. 
June 1926), p. 40. r " 

" Rtution Yearbook; 101a (New York: Macmillan, 1912), pp. 157-61. This evidence 
appear* to refute the numerous statements that agricultural machinery output in 
prewar Russia was negligible. For an example, see Friedman, op. at., p. 81. 

*• World Harvester, November-December 1953. 

" Bitdnota, No. 1487, January afi, 19*3. 



Industrialization of Agriculture 133 

and productivity per worker only 43 percent of prewar. 91 Kooperativnoe Delo 
for June 1922 describes the chaos into which the industry had descended. Of 
the 825 enterprises working in 1913, only 73, or 9 percent, were working at 
all, and most of these in a half-hearted manner. 

To overcome production difficulties, the industry was consolidated. 
Prerevolutionary works in the Ukraine were now grouped into two trusts: 
Ukrselmashtrestand Zaporozhtrest. In October 1923, eleven of the twenty-one 
plants in these two trusts were combined in the Vseukrainsky Selmashintrest, 
and the remaining ten were closed down. Specialization of output was 
increased. Drill seeders were now produced at Elvorty, Helferlich-Sade 
(in Kharkhov), and Kiranon-Fuks. Reapers were produced by the Donsky 
(Nikolaev) and Kopp (Zaporozhia) works. Threshing machines were produced 
at Elvorty, Helferlich-Sade, and Lepp-Valman. However, major deficiencies 
reported for 1925-6 suggest that concentration did not get to the root of the 
problem." 

Selmashstroi reported in 1923 that the decline was due to the high cost of 
production and inadequate financing. The deficiencies had now become 
monumental. Production and imports together failed even to offset normal 
wear and tear, and peasants were reverting to the use of primitive, hand-made 
wooden equipment. 



ATTEMPTS TO DEVELOP A SOVIET TRACTOR, 1922 TO 1926 

The Soviets made numerous unsuccessful attempts to produce a workable 
tractor in the early years of the 1920s. These ended in failure, and the Soviet 
Union then turned to the United States for assistance in constructing the 
massive tractor plants of the Five- Year Plan. 

Two designs were completed in the Soviet Union about 1923, both by I. B. 
Mamin. The 'Gnom' design was selected as being suitable for Russian agricul- 
tural conditions, and Mamin was sent to Germany (with 130,000 rubles) to 
purchase the necessary production equipment. The Balakov factory in Samara 
was turned over to 'Gnom' mass production. It was anticipated that 150 of 
these small, 16-horsepower, oil-driven tractors would be built in the first year 
and 250 to 300 per year thereafter. No complete units were produced, although 
some engines were used for a while as stationary power units. 

The other Mamin design was the crude oil tractor, 'Karlick,' with a one- 
cylinder 12-horsepower engine. This was built at the Old Neurepublik works 
at Marmstadt on the Volga. Some were produced, but, like the 'Gnom', they 

" Pravda (Moscow), No. 279, December 8, 19*3. 
" U.S. State Dept. Decimal File, 316-129-969. 



134 Western Technology and Soviet Economic Development, igiy-igjo 

were too heavy, too clumsy, and insufficiently powered for field use, and were 
used only as stationary power units.* 5 Another tractor, the 'Bolshevik', a 
4-cylinder, 20-horsepower machine was also attempted at the Bolshevik Works 
in Leningrad. Only a small number were produced, in 1923-4, and production 
ceased entirely before 1926. The Ford Delegation suspected it was for military 
transport work, as it was too large and clumsy to perform as a tractor,'* 

The 'K.P.Z.' tractor was a 4-cylinder, 50-horsepower machine built at the 
Kharkov Locomotive Works. This was a copy of the German tractor, 'W.D.' 
It was expensive (15,000 rubles) and much too clumsy for field use. Production 
stopped before 1926." 

Several hundred of the 'Zaporojetz' were built at the Ukraine Agricultural 
Machinery Trust. This was a 3-wheeled, 1 -cylinder, 12-horsepower machine, 
very heavy (2 ton) and useful only as a stationary power unit. It was priced 
at 5,000 rubles, expensive when compared to the imported Fordson (1,800 
rubles).** 

Two additional tractor models were attempted at the Kolomensky Machine 
Works at Golutviko near Moscow. One was the 'Mogul', a 4-cylinder, 12-25- 
horsepower machine : an'exact copy of an American tractorby the same name. ' " 
The other was a 2-cylinder, crude-oil copy of the Swedish tractor, 'Avance,' 
but with transmission and gears as in the 'Mogul', built in the same plant. 
Production of both was very small and ceased by 1925-6.* 8 

Work was also started on an experimental electric plow: an example of 
Lenin's preoccupation with electrification. A contract was issued in 1923 to 
plow 16,000 deasiatins with 16 electric plows. When the season was over, only 
one had worked any length of time, and only 477 dessiatins had been plowed. 
In the following year, 5 plows undertook 4,000 deviating, but actually plowed 
only 300. The trailer was found to be 'extremely b^avy and constantly buried 
in the ground.'** It was expensive and impractical; the experiment was 
discontinued in 1926, although it has been revived at intervals since that time. 

Work also started on several models of oil-futied tractors. 'An exact copy 
of an American tractor built in 1922' 100 (100 'Holt') was placed in production 
at the Bolshevik plant, near Leningrad. The carbure'ors, ignition system, and 
other parts were imported from the United States. Work continued for one 

" Report of the Ford Delegation to Russia and the U.3.S.R. April-August 1926 

(Detroit; 1926), Ford Motor Company Archives Accession No. 49, p. 42. 
** Ibid., p. 41, The report hu photographs of these RuaMan model*. 

« Ibid. 

" Ibid. 

" /«rf.,p.4o. 

" Ibid., p. 46. 

" Ibid., p. 102. 

«* Ibid., p. 103. 



Industrialization of Agriculture 135 

year. Between 1924 and 1926 the plant only made spare parts, but this also 
ceased in 1926. The Ford Delegation (1926) reported the 'Russian Holt' to be 
a product of extremely high cost and poor quality. 



INTERNATIONAL HARVESTER COMPANY AND 
NATIONALIZATION 

According to Keeley, 101 the International Harvester plant at Lyubertsy, 
just outside Moscow, continued operation through both revolutions and the 
winter of 1919-20 with only a single three-day strike. Cromming, the German 
manager, produced equipment for the Bolsheviks on a cost-plus- 10-percent 
basis, the percentage to cover the living expenses of the chief executives and 
himself. Cromming agreed with the Workmen's Committee to supply food 
(no small promise), in return for complete authority over technical operations 
of the plant. Cromming apparently acted on his own initiative; he was reported 
as not knowing whether the parent United States company had even wanted 
to continue operations after the Revolution. 

In 1921 the Soviets offered an agricultural equipment manufacturing 
concession to an unknown United Kingdom tractor manufacturer. The offer 
was passed along to International Harvester, who in turn passed it on to the 
State Department with a notation that the company was cool to the proposition 
but worried lest British and German interests accept a concession to manufac- 
ture tractors and freeze out International. 102 

It is clear that, although Cromming operated the Moscow plant and Inter- 
national Harvester was concerned for the welfare of employees inside the 
U.S.S.R., including several engineers sent in 1921, the company did not press 
for modification of United States policy. Mr. Legge of International is quoted 
as saying, 'Nothing has occurred up to the present which would justify consid- 
erations of change in policy of this Government.' 1<0 In 1924 rumors circulated 
about an impending takeover of the Moscow plant 101 which was, in part, 
accomplished before the end of 1924. The enterprise immediately slumped 
into substantial deficit, a subsidy of 1.8 million rubles and a credit of 466,000 
rubles being required on expenses of 3.49 million rubles. Even more catastroph- 
ic was the effect of the August decree of the Council of Labor and Defense 
equalizing prices for domestic and imported tractors. In February 1925, 



101 

lot 



101 



U.S. State Dept. Decimal File, 316-107-97. 

A copy of che proposed concession agreement is in U.S. State Dept. Decimal File, 

316-130-1161. There is a marginal notation, marked HH (Herbert Hoover), that 

great importance was attached to this offer— presumably on the part of the 

Administration, 

U.S. State Dept. Decimal File, 3i6-io8-»3. 



m Rumors noted in 361. its of the Decimal File, 316-108-1279. 



136 Western Technology and Soviet Economic Development, 191J-1930 

Glavmetal confirmed the first year's program of 1,000 hay harvesters and 
600 reapers planned for Lyubertsy. The hay harvesters were estimated to 
cost 130 rubles apiece, against 190 rubles for imported harvesters. Glavmetal 
then reversed itself and requested Vesenkha to dismiss the 'acceptance com- 
mittee' which had been taking over the factory from the International Har- 
vester Company. 108 

A rapprochement took place in 1925. In August, International Harvester 
was granted permission to conduct trading operations within the U.S.S.R. 
and supply spare parts for agricultural machinery. 10 * The company then began 
to advance substantial credits for the purchase of American-made equipment. 107 
At the end of 1925, all International plants were denationalized ; according to 
the German Embassy, they were found too complex to operate and Inter- 
national Harvester temporarily re-entered its own factories. 108 

The Bolsheviks had the last word. The Selmash trust was liquidated 
November 16, 1926 and a committee established to wind up business, 
including the claims of the Lyubertsy works of International. On March 7, 
1927, the trust was placed under moratorium, and all claims against it suspend- 
ed. The United States Riga consul comments: 

Thus the legal guarantees which existed at the time when the creditors 
entered into business with the syndicate [i.e., trust] were suddenly with- 
drawn, leaving the creditors of a Government organization at the mercy 
of a Government commission and depriving them of a part of the 
lawful interest on their money. It will be noted that the moratorium is 
entirely one sided and does not suspend the obligations of the syndicates 
debtors . , . lw 

As late as 1929, International was still trying. It negotiated a contract for 
the sale of 5,900 International tractors on three-year credit terms, including 
clauses which allowed the U.S.S.R. to send technicians to the United States 
for training and required International engineers to give consulting services 
on the establishment of a network of tractor-repair shops. 110 

The contribution of Lyubertsy and the International Harvester Company 
to Soviet industrialization is best summed by a Soviet publication: 

The Lyubertsy enterprise is a shining example of the good sense of 
'Nep.' The Harvester Company rendered the hated Bolsheviks the same 
service that Harriman performed in Chiatury and Krupp in the Ukraine. 

**• Ekonomichetkaya Zhizn, No. 29, February 5, 1925, 

,M Torgovo-Promyshlemuiya Gaztta, No. tBs, August 15, 1915. 

"' German Foreign Ministry Archives, Ti 10-303 J-H10945. The company advanced 

S2.5 million on 18-month terms. 

»« Ibid. 

,M U.S. Consulate at Riga, Report 4449, April 12, 1927. (316-111-924.) 

110 Ixvettia, No, 149, July 3, 1929. 



Industrialization of Agriculture 137 

These firms helped them to train a nucleus of skilled workers in these 
enterprises and to learn the process of production which soon enabled 
them to continue production without the capitalists. Today there are few 
concessions left in Soviet Russia and not even the Vorwaerts dares to 
assert any longer that the Bolsheviks have introduced capitalism. . . .'" 

At the same time, 1,300 60- horsepower Caterpillar tractors were purchased 
for delivery in November-December 1929, with similar clauses for technical 
assistance. Caterpillar sent engineers and technicians to the U.S.S.R. to 
instruct in the operation of tractors, and Russian engineers went to Caterpillar 
plants in the United States for further instruction on maintenance. The 
company opened a permanent office in Moscow to solve problems arising in 
the utilization of their tractors. 112 

POSITION AT MID-DECADE 

The 1924-5 plan for tractor manufacture concentrated production in larger 
prewar plants taken over by Glavmctal; Krasnyi Putilovets was planned to 
produce 500 tractors, Gomza 500, and the Kharkhov plant 120, 

These targets were not achieved, and attempts to create a tractor industry 
were described by Dr. G. Schlesinger, a German tractor expert, as 'creating 
a laughable impression and extremely amateurish.' In an effort to induce the 
peasant to buy the miserable product of the Soviet tractor factories, a decree 
was published in August 1925 equalizing prices for Soviet-made and the 
much cheaper and better- quality imported tractors. In effect, the prices for 
imported tractors were raised. 

Table 7-2 PRICE SCHEDULE FOR SOVIET AND FOREIGN 
TRACTORS (DECREE OF AUGUST 1925) 

Russian Rubles 

Krasnyi Putilovets (with plow and spares) 1,800 (cost 4,000 rubles) 

(copy of Fordson) 

Kolomenets (with plow and spares) 2,300 

H.P.Z. (without plow) 3,ooo 

Zaporozhets (with plow and spares) 2,000 

Karlilc (with plow and spares) 2,000 

Bolshevik (planned) (with plow and spares) 8,000 

American 

Fordson (with plow and spares) 1,800 \ (now including 165 rubles 

International (30 h.p.) (with plow and spares) 4,000/ tractor subsidy tax) 

Source: Ekonomicheskaya Zhizn, August 18, 1923. 

An implementing decree of the Council of Labor and Defense had the 
stated objective of providing the largest possible distribution of tractor power 

111 Theodor Neubauer, Lyubertsy; a Cross Section of the Five Year Plan (Moscow : 
Co-operative Publishing Society of Foreign Workers in the U.S.S.R., 1932), p. 17. 
111 Ekonomitkeskaya Zhizn, No. 160, July 16, 1929. 



138 Western Technology and Soviet Economic D^l&bment, 1917-1930 

for the improvement of land cultivation. 118 Import*! Fordsons and Inter- 
nationals normally sold well below the prices of tiie'fcw domestic tractors; 
after the 1935 decree the imported Fordson and the Krasnyi Putilovets copy 
of the Fordson both sold at 1,800 rubles, as indicated in table 7-2. The stated 
objective, of course, was not fulfilled: the domestic pioduct was far below the 
imported quality. The peasant preferred the imported tractor, but surplus 
accruing from taxation of the imported tractor was used to offset the deficit in 
domestic production, and in effect subsidise domestic 'ractors. 114 Agricultural 
productivity suffered while industry tried to overcome production problems. 

Russian tractor works in this period were chronically inefficient. The 
Putilovets required 350 man-days per tractor produced, and at the Kharkov 
Works the assembly of a tractor motor required eight man-months. 1 " In 1926 
an inspection of the agricultural machinery factories of Riazan, Tula, Orel, 
and Belokhuminsky revealed that the raw-material supply, particularly that 
of iron and steel, was hopelessly deficient. Tula, for example, received only 
8 percent of its iron and steel requirements in 1925-6. In addition, equipment 
was out of repair and in need of replacement. 1 " 

The dismal plight of the tractor-building industry was investigated in 
June 1925 by the above-mentioned Dr. Schlesinger, at the invitation of 
Orgametal. Conditions must have been pretty miserable; Ekonomicheskaya 
Zhizn made the point that 'one must not become downhearted.' 117 

Schlesinger's specific recommendation was a plant to built 10,000 tractors 
a year 'with the special machine tools that are being built by American factories 
for Ford,' to replace the outmoded tractor works. 

The 1925-6 plan for domestic tractor-building allowed for only 1,800 
tractors: 1 " 

Type *FP' (Fordson-Putilovets) 900 tractors 

'Kolomenets' 250 tractors 

'Zaporozhets' 300 tractors 

'Karlik' 100 tractors 

'Bolshevik' 100 tractors 

'Comintern' 150 tractors 

1,800 tractors 

"' Decree is reprinted in Ekonomicheskaya Zhizn, No. 186, August 18, 1925. 

,u Thi» was almost the supreme insult so far as the Ford Motor Company is concerned : 
the unauthorized Soviet copy of the Fordson was subsidised at the expense of the 
imported Fordson. The 'subsidy tax for Russian tractor industry' was 165 rubles 
on a Fordson — about 8 percent of cost. 

"• U.S. Consulate at Riga, Report No. 3237, September 28, 1924. (316-133-516.) 

"* Ekonomicheskaya Zhixn, No. 87, April :6, 1926. 

"' Ekonomichtikaya Zhizn, No. 130, June 11, 1925. 

u * Ehonomkhetkoya Zhizn, No. 290, December ig, 19*5. 



Industrialization of Agriculture 139 

The intent in 1925-6 had been to supply 16,750 tractors, of which 1,800 
were to have been made in the U.S.S.R. The balance of 14,950 tractors 
(89.2 percent) were planned as imports, 119 Actually, less than 900 tractors 
were produced, and most fell to pieces after a few weeks or months in opera- 
tion; in effect, almost all usable tractors were imported. 



KRASNYI PUTILOVETS AND THE FORD MOTOR COMPANY 
Although the International Harvester plant had been the largest in tsarist 
Russia, the oldest and most famous undoubtedly was the Putilovets in St. 
Petersburg, which was founded in 1801, and 100 years later was claimed as 
the largest manufacturing plant in Russia and also the largest in Europe, 
apart from Krupp in Germany and Armstrong in the United Kingdom. 1 * 
The firm had licensing agreements with Western companies; one with the 
Bucyrus Company (United States) dated from the early 1900s and covered 
the manufacture of placer dredges and steam shovels. 181 The Revolution 
dispersed its skilled workers and managers, and it was not until January 1922 
that some sections began operating again, with German engineering assistance. 
We do know something of the mechanical condition of the plant during the 
period 1917 to 1922 (the five years of 'technical preservation'). A report exists 
which indicates that equipment was intact, although '60 percent worn out'; 
blame for non-operation was placed on the enemies of the people: 

It was at that moment impossible without any prepared plan to put all 
in order, because of the opposition (not shown openly) of the different 
specialists towards the Working Peasant Power. 122 

Later some emigres from Detroit were sent to Putilovets, and the 1926 Ford 
Delegation reported that the works was well equipped with United Kingdom, 
Geiman, and American machine tools, and that it was 

... not at all badly arranged, with machines in progressive order, and 
it was the only shop visited that was provided with special tools and 
fixtures to any extent. The manufacturing methods, jigs and fixtures 
strongly reflected Ford practice at the old Dearborn plant. 12 * 

The plant had then been reopened about a year before, and employed some 
800 workers. The delegation estimated production at three tractors per month. 

"' U.S. Consulate at Riga, Report 3529, January 18, 1916. (316-133-559.) 

tn The Works 'Red Putitovez': A Short Historical Description. Typewritten ma 

undated, origin unknown. Hoover Institution, Stanford University. 
"* £»«""'/<»' Digging: The First 75 years of Bucyrus-Erie Company (Evanston: 

Northwestern; 1955), p. 85. 

»" The Workt 'Red Putilovez': A Short Historical Description, p. j S . 
'*' Ford Delegation Report (1026), pp. 48-9, 



140 Western Technology and Soviet Economic Development, IQ17-193Q 

There was a sprinkling of ex-Ford Motor Company employees throughout the 
plant, including the final inspection area. 

Ford, the arch-capitalist, then attracted the envious attention of the 
Communists. Fordismus and Fordizatsia as work methods became bywords; 
if Ford methods would work in a capitalist country then they must surely 
work in a socialist country. 124 The initial relationship between the Ford Motor 
Company and the Soviets was purely one of trade. Between 1922 and 1926, 
Ford sold 20,000 tractors to the U.S.S.R., each with its own set of replacement 
parts. By 1927, more than 85 percent of all trucks and tractors used in the 
U.S.S.R. were Ford-built from Detroit. The balance was a mixture of import- 
ed Fiats, Case, Internationals, and some United Kingdom models, together 
with the scrambled output of the A.M.O. plant in Moscow (attempting to 
reproduce Fiat trucks and repair White trucks), the ex-International Harvester 
plant, and the decrepit prerevolutionary tractor plants in Moscow and 
Kharkov. 

The 1926 Ford Delegation to the U.S.S.R. found Ford products everywhere. 
The Ukrainian government owned 5,700 tractors, of which 5,520 were genuine 
Fordsons. Azneft had 700 automobiles, of which 420 were Fords. The major 
problem facing Soviet organizations was servicing, and this was also the 
primary interest of the five-man Ford team. The delegation traveled through- 
out the U.S.S.R. giving lectures and lessons on servicing and cost reduction, 
and setting up training schools and service organizations along Ford lines 
elsewhere in the world. The existing servicing was found to be 'wretched.' 
Charts and diagrams produced in abundance on request meant nothing: in 
practice, little in the way of either maintenance or repair was being done: 

Our surprise can be imagined when we arrived in the Ukraine, the richest 
tractor district in Russia, and were unable to find a single Fordson repair 
shop worthy of the name. No special repair equipment existed anywhere, 
although fourteen full sets of Fordson (repair) equipment had lately been 
received for Ukraine alone. . . . m 

In 1923 the State Trade Commission had been given the responsibility of 
developing a network of sale and repair shops to be tied in with the major 
repair points established by the Fordson sales organization in the U.S.S.R. 
Apparently the trade commission had not established its repair shops, and 
the Fordson shops had been neglected. 1M 

The 1928 Sorensen mission to Russia inspected the Krasnyi Putilovets 
plant, and, as Sorensen relates it: 



"* 'Fordismus,' Bohkaya SoveUkaya Entsiklopediya (1933). 

i« Ford Delegation Report (1916), p. 49, 

i" Ekonomtchttkaya Zhixn, No, 48, March 3, 1923. 



Industrialization of Agriculture 141 

We came into . . . the assembly room and I stopped in astonishment. 
There on the floor lines they were building the Fordson tractor. . . . 
What the Russians had done was to dismantle one of our tractors in the 
Putilov Works, and their own people made drawings of all the disassem- 
bled parts. 1 " 

However, as Sorensen pointed out, it was a long way from pulling a machine 
to pieces to building workable copies, and the Russians had neither the 
specifications nor the skills to turn out good copies. The Fordson-Putilovets 
tractor experiment provided little more than technical education. 

In brief, at the mid-point of the 1920s, the Soviets had five prewar agricul- 
tural machinery plants, suitable for small-scale tractor construction. However 
these plants were costly to operate and technically backward. They made a 
hopelessly insufficient and inefficient contribution to agricultural development. 

The solution was to turn to American technology. The poor Krasnyi 
Putilovets works was therefore completely re-equipped with American 
equipment 128 and, by technical-assistance arrangement, placed under the 
management of the engineering consultants Frank Smith, Inc. 12 * A series of 
large-scale tractor building plants was then envisaged, utilizing the latest 
American mass production methods. The first of these was the Stalingrad 
(followed by the Chelyabinsk and Kharkov), designed by Albert Kahn, a 
United States construction design firm, and built by McClintock and Marshall, 
also of the United States. 130 

Albert Kahn had been the builder of the large mass-production plants of 
the American automobile manufacturers, and he incorporated the skills and 
ideas of American experience in mass production. The Stalingrad tractor plant 
was designed to produce 40,000 tractors a year in two shifts. With United 
States assistance, the Soviets produced similar tractor and automobile plants 
in the 1930s. 

The Soviets had a clear concept of the advantages to be gained from 
importing this technology in toto, and the contribution it would make to the 
achievement of the first Five Year Plan : 

The utilization of its [i.e., Kahn's] technical assistance assures the execu- 
tion of the construction work of the Traktorstroi within the specified 
time and guarantees the employment of all the achievements of modern 
American technique. 131 

"' Charles E. Sorensen, My Forty Years with Ford (Hew York: Norton, 1956), p. 2oz. 

The plant certainly did not impress Sorensen, who suggested they take some sticks 

of dynamite and 'blow it out of its misery. 1 

*" Friedman, op. tit., p. 438. 

"• U.S. State Dept. Decimal File, 316-131-654. 

"• Ibid. 

" l X he a K r «ment between Albert Kahn and Glavmashinostroi is reported in 
TorgovQ'Promyshlennaya Caseta, No. 109, May 16, 1929. 



H2 Western Technology and Soviet Economic Development, i 9 i 7 -x 93 q 
M^ COmp ^F K ^ td c ° ns <ruction Plans in the United States 

The company Jen lured American engineers to handle the erection of the 
buddmgs, worth about 8 million rubles (83 million). The production equip! 
ment was purchased in the United States. 13 * 

Table 7-3 TECHNICAL-ASSISTANCE AGREEMENTS (TYPE IID 
WITH THE POST-REVOLUTIONARY TRACTOR ' 
^^^^^ CONSTRUCTION INDUSTRY TO 1930 



Technical Protu, WuUn p — 

G^SSraSSSv P " Ing i ?■ SchI «-8« (Germany) 

"safe- ure «— M^Mffit, 
te:- PP A ^- r i^' Ru ssi '" chaa,ber ° f c ° mmeree - ^-^^o/^^ 

Although the tractor industry, heralded as the basis for socialist agriculture in 
thesamemanne, -that electrification had been associated with induLialkatJ 

Tn ^dT Pr °? l r f ° r ? UCh ° f thC deCadc ' the «»«* -^-f- • "-d 
1^ *f S ' mpler Wnd ° f e<JuipmenL Sc y thes - *™£ Pitchforks 

plows harrows, and w nnows were prohibited from import, as it wL planned' 

IculSal e demand f l° m RUSSUn faCt ° rieS ' The sim P'« «««• of 

agricultural equipment were subject to a heavy duty of 4 = ruble* De r Ino 

krlograms, whereas the more complicated mecha'nic/equip'mem wi a low d 
« duty-free ; reapers binders, disc harrows, and all newly invented or improv d 
equipment required by model farms were allowed in without duty. However 
t t e w TJ { f h °f ag « ° f sim P' e e ^P-ent reduced the ability o/the peasani 
to work his land, and m some areas the peasant actually returned to 5» use 
of wooden implements. 131 

We may conclude therefore, that in agriculture the transfer of Western 
technology was not notably successful. The hostility of the peasant the 
collection of agriculture, the undue attachmen/to imagery mWe 

" S^^V^ST' "' N °- 7 (Ju ' y ,9a9) " < : Bnd US - *~ O^ 

"' EuSWgS i^n s« r 6V^ (3,6 - , "T ) The 

winnow*. 1+0,000 plows, (114,000 harrows, and 17,000 



Industrialization of Agriculture j,, 

economies of scale, and the misunderstanding of the factors making for success 
in Western large-scale agriculture made for ineffective transfer. 

Kuibyshev's lengthy report of April 1927 suggests the great gap between 
the Soviets' achievement and their fantastic claims. While Krasnyi Putilovets 
was Struggling to make a few ersatz copies of the Fordson tractor, the effort 
was thus described by Kuibyshev: 

... a mass of difficulties has been solved brilliantly, the production of 
tractors is getting cheaper and cheaper and the quantities produced by 
the Red Putilovets are ever increasing. . . .*** 

In the agricultural equipment industry, nothing of substance was achieved 
in tractor production until the very end of the decade, and implement manu- 
facture was unfortunately ignored in favor of the tractor— the favored Bolshe- 
vik symbol of industrialization. The failure of adapted prerevolutionary 
plants to make tractors, whether of native design {the Gnom) or stolen design 
(the Fordson) forced the Soviets to arrange for Western tractor manufacturers 
to install packaged 'knocked-down' plants in the U.S.S.R. 15 * 

CREDITS GRANTED BY AGRICULTURAL MACHINERY 
PRODUCERS TO THE SOVIET UNION, 1925 
The Soviet Union had no trouble purchasing agricultural machinery on 
credit terms. The Ford Delegation Report (1926), for example, notes: 

International Harvester, which lost huge sums of money in Russia 
through nationalization of its property and equipment, are now extending 
two years credit to the Soviet Government. 

An International Harvester invoice dated August 18, 1925, indicates that 
the cost of the International 1 5-30 tractor to the Soviet government was $1 , 1 co 
and the 10 - 2o tractor S 775 (both f.o.b. New York). Terms were as follows: 

50 percent three months after purchase 
16.6 percent August 15, 1926 
16.6 percent November 15, 1926 
16.6 percent May 15, 1927 

Interest was charged at 8 percent in the first year and 6 percent in the second, 
Case Machinery was granting about the same terms. Advance-Rumlcy 
which had about 6oo to 800 of its 'Old Pull' tractors in the Soviet Union, was 
offering less favorable terms, and this limited its sales. An invoice dated August 
12, 1925, places cost to the Soviet government at $1,000, and offers terms at 
10 percent with order, 40 percent against documents in New York, and 25 
percent in each of two payments, to be made November 1, 1926, and November 

1,1 Imiettia, No. 94, April 27, 1917. 

" s Construction of the Stalingrad ant J other tractor plant, is covered in Vol. J I. 



144 Western Technology and Soviet Economic Development, 1917-1930 

1. 19*7. Dodge Brothers was offering nine-month terms with only 6-percent 
interest for lots of more than 50 tractors, but required S o-percent payment 
against documents for any size of purchase. Massey-Harris, in Canada, sold 
300 binders in August 1926 on terms of ,0 percent with order, 20 percent 
against documents, 10 percent three months from date of delivery, and the 
balance ,n August 1927. Fordson, who sold the bulk of the tractors in the 
U.S.S.R., required 25 percent down and the balance over nine months or 
one year. These terms were not, however, as favorable as those obtained by 
*e Soviets for automobiles and trucks. Steyer in Austria and Mercedes in 
Germany both gave three-year credits, and Renault in France two years 

Of a total 24,000 tractors in Russia in August 1926, 20,000 were Fordsons, 
2,400 were International Harvesters, 7 oo were Advance-Rumley, and 900 
were miscellaneous (including Soviet makes). 

w,•!h n ^^ light0f i heSe ■ St , atiStiCS ■ 3tatements ** the Soviet Union developed 
without foreign financial assistance are seen to be manifestly untrue 



CHAPTER EIGHT 

Fishing, Hunting, and Canning Concessions 

The small group of fishing, hunting, and canning concessions was more 
important as a contributor to foreign exchange earnings than as a channel 
for the direct transfer of technology. Furs, for example, were the second 
most important Soviet export and indirectly, by generating foreign exchange, 
aided the technological transfer process. 

NORWEGIAN FISHING CONCESSIONS 

In early 1023, an agreement was made between the Norwegian firm Vinge 
and Company and the People's Commissariat of Supplies, under which the 
Norwegians were given the privilege of hunting 'sea animals' within the 
territorial waters of North Russia. The company equipped fifty-six ships for 
this purpose. Vinge and Company paid 200,000 Norwegian crowns for this 
right. 1 

For the second year of operations the Soviets demanded negotiation with 
the ships' owners who had been organized with Vinge as their bargaining agent 
in the first year. In the second year, rental was set at S10 per ton for ships 
employed hunting seals, with a minimum payment of $40,000. Provision was 
also made for Russian scientists to study fishing methods and fishing locations, 
on board the 'best' of the ships in the fleet. 8 

An additional contract was also concluded for the 1924 season, under which 
Vinge was granted the right to fish for white sturgeon along the Russian 
Arctic coast. 3 

A concession was granted to the Norwegian citizen Christensen in May J 923 
to hunt whales and reduce these to food products within a zone extending along 
the Arctic coast of Russia. It was granted for a period of fifteen years, and the 

1 Rustian Economic Review, III, No. 8 (June io, 1923), u. 
* Ekonomicheskaya Zhizn, No. 71, December 23, 1923. 
' Ekonomtehetkaya Zhizn, No. 303, October 7, 1924. 



146 Western Technology and Soviet Economic Development, 1917-1930 

Soviet government received a portion of the profits unstated but not less 
than £2,000 sterling per year. Each ship manned by Christensen was 
required to have at least sue Russian seamen, and shore enterprises operated 
by the concession were required to employ not less than 25 percent Russian 
workmen.* 

A group of German fishing firms working in the Murmansk area was granted 
a concession in 1924 to fish in certain northern waters disputed by the U.S.S.R. 
and Germany. The group holding the concession was known as Wirtschafte- 
liche Verband der Deutschen Hochseefischerein and was based in Bremen. 1 

FUR AND SKIN CONCESSIONS 

The Hudson's Bay Company of the United Kingdom and Canada concluded 
a concessions agreement with Vneshtorg in April 1923, under which the 
company agreed to export to Kamchatka, in the Far East, goods to the value 
of $350,000, at prices not exceeding the London market price plus 20 percent. 
The company could also purchase furs on the peninsula in cooperation with 
Vneshtorg. The furs were to be exported to London, where 10 percent of the 
value was payable to Vneshtorg, and any profit resulting from the ultimate 
sale of the furs was to be divided equally between Hudson's Bay and Vnesh- 
torg. A similar agreement was reported with Glavconcern for smoked fish 
and furs." The company was required to pay all state and local taxes, license 
fees, and export and import taxes. 

The winter buying season did not go untroubled for Hudson's Bay. There 
were petitions from Kamchatka in which hunters requested the government 

... to free them from the criminal activities of the Hudson's Bay 
firm . . . agents of the firm deliberately value furs at 50 percent below 
last year, and sables of the highest quality are valued at the same price 
as skins of the lowest quality. . . . The firm has double income whereas 
the population suffers treble losses.' 

The Persian Iamb fur market in the United States was dominated by 
Brenner Brothers, of New York. In the fall of 1922, Kalman and Feival 
Brenner made a buying trip into Russia and purchased 'a considerable quantity 
of furs,' for delivery to Paris and New York. They considered uncertainty too 
great to warrant more extensive dealing, although they were offered an 'attrac- 
tive proposition.' * 

* Ismettia, No. 113, May 24, 1923. 

* U.S. State Dept. Decimal File, 340-5-806. 

* Rigaichc Naehrichten (Riga, Latvia), April 14, 1923. 
' Pravda (Moscow), No. 40, February xo, 1924. 

* U.S. Consulate at Riga, Report 2729, September 25, 1922. (316-107-1034). 
This deal apparently went through because Brenner's Siberian representative had 
a brother who was a 'high government official in Moscow.' 



Fishing, Hunting, and Canning Concessions 147 

Karl Brenner, a partner of the firm, was approached by Arcos agents in 
1924 with another $1 million proposal. In return for the exclusive right to 
purchase furs within the U.S.S.R., they could buy at 15 percent under the 
market price or be repaid at an interest rate of 10 percent. Brenner pointed 
out that Arcos had overheads of 35 percent in handling furs while Brenner 
had a 50 percent markup. They considered the U.S.S.R. had reached the 
end of its financial resources and refused to deal.' The company registered 
for business and purchased 500,000 rubles of furs in the 1924-5 season. 10 

In the same season, J. Wiener, of New York, was registered for operations 
in the U.S.S.R. and purchased 400,000 rubles worth of furs. 11 

Probably the largest of the fur concessions was that of Eitingon-Schild, 
which in 1924-5 handled 4 percent of the total trade turnover between the 
United States and the U.S.S.R. 12 

A dispute between the Eitingon-Schild concession partners in United States 
courts revealed the substantial profits made by a few successful concessions. 
Representing Eitingon-Schild, Otto B. Shulhof, of New York City, went to 
London and then to Moscow in 1922 to negotiate a contract for the marketing 
of Russian skins and furs. Eitingon himself was a Russian emigre and had 
considered himself persona non grata so far as the Soviets were concerned. 
Shulhof held that when the concession was about to be signed (he had all 
required signatures except those of Krassin and Bogdanov) he found that 
Eitingon had signed a fur concession directly with Arcos, Soviet trade repre- 
sentatives in London. Shulhof sued for $1 million damages for breach of 
contract, in lieu of the 10-percent commission. Just before going into court, 
he raised the damage claim to $2 million. Examination of Eitingon-Schild 
accounting records indicated that the concession profits for two years were 
over $1,5 million. Net sales of the concession had been 87,340,178, which 
after deduction of cost and 7 percent royalty, left a net profit of $1, 846,759. 13 
The contract had run initially for one year, during which Eitingon-Schild 
advanced the Soviets 50 percent of the value of the skins and furs and split 
profits equally with them. During the second year, the concessionaire was 
required to make more substantial advances, and his profit was limited to 
15 percent of the selling price of the furs. 14 Apart from the Hammer operations, 
no other case is known where large profits were made from concessions. 



U.S. Consulate at Riga, Report 2550, December 8, 1924. (316-108-1277.) 

U.S. Consulate at Riga, Report 927, January 17, 1923. (316-1 11-915.) 

Ekonomicheskaya Zhizn, No. 102, August 25, 1925. 

U.S. State Dept. Decimal Fife, 316-108-1543. 

An independent accountant in later evidence held that profits were only 

Si, 079,973 over two years. 

New York Times, various issues, November 1927. 



148 Western Technology and Soviet Economic Development, 1917-1930 

SIBERIAN FISH CANNERIES 

In the Soviet Union the only variety of fish canned in 1923 was salmon, 
of which about 30 million pounds were canned annually and almost all export- 
ed. Of the twenty canneries in Siberian waters, fifteen were owned and operated 
by Japanese, two by Russians, two by Americans, and one by the British. 
There were also eighteen crab canneries, of which fifteen were Japanese-owned 
and operated and three were Russian. The entire Siberian fishing industry 
in 1923 employed about 34,000 persons, of whom 29,000 were Japanese. 
The Japanese also leased 62 percent of the fishing stations." 

AMERICAN CONSTRUCTION OF SALMON CANNERIES 
IN KAMCHATKA 

In 1927-8, two large salmon canneries, one with five canning lines and one 
with three canning lines, were built to can salmon for export. The construction 
of these new canneries indicates a complete dependence on the most advanced 
Western engineering achievements. Nearly all th- ::rms involved in construc- 
tion came from the Pacific coast of the United Spates. 



Table 8-1 CONSTRUCTION AND EQUIPMENT OF 

KAMCHATKA SALMON CANNERIES, 1928 



Structural Equipment Supplied Company 

Coolers Isaacson Iron V'orks, Seattle 

Steam engines Nagle Engine ai,d Boiler Works 

Steel barges Wallace Bridge tmd Structural Co. 

Conveyer* International B.F. Goodrich Co. 

toilers Pennsylvania Bc;Ier Works 

Diesel engines Fairbanks Morse 

Transmission equipment Link Belt 

Canning Equipment Supplied 

Electric strapping equipment EBY Co. 

Lift truck* Parker 

Cannery equipment Seattle-Astoria Iron Works 

Canning equipment Smith Canning Machine Co. 

U" 1 "? 8 Worthington Pump Co. 

Tinplate Bethlehem Steel and United States Steel 

Fish cutter* Wright and Smith 

Fillers, retorts Troyer-Fox 

Lacquering machines Seeley 

Nailing machines Morgan 



Source: Amtorg, op. cit.. Ill, No. 7 (1018). 



U.S. Embassy at Tokyo, Report 13, January 29, 1925. (316-108-1310.) 



Fishing, Hunting, and Canning Concessions 149 

A floating crab cannery with a capacity of 500 48-pound cases a day was 
manufactured for the U.S.S.R. by the International Packing Company in 
Seattle, in ic-28. 16 

After a Russian fishing industry delegation had visited the United States, 
the equipping of nearly all Siberian and Far Eastern canneries was given 
over to American firms. 1 ' Similarly, an Odessa fish cannery with a capacity 
of 10 million cans of fish a year was equipped with Western canning 
machinery. 18 

In brief, fur concessions enabled the Soviets to enter the foreign market 
and, with the help of Western partners, build this into their second largest 
generator of foreign exchange. The canneries, also a significant exchange 
generator, were equipped completely by Western manufacturers, primarily 
from the United States. 



" Amtorg, op. cit,. III, No. 7 (1028). 
" Amtorg, op. cit., Ill, No. 2 (1928). 
l ' Amtorg, op. cit., Ill, No. 12 (1928). 



CHAPTER NINE 

Restoration of the Russian Lumber Industry 
1921-30 



SEVEROLES TRUST AND FOREIGN LUMBER COMPANIES 

Russia has extensive forestry resources — probably the finest in the world. 
Under the tsars, lumber trade possibilities were not fully recognized and the 
industry developed slowly in the years immediately preceding World War I. 
In 1913 Russia had exported 10 million cubic meters of sawed timber; by 
1929 this volume of exports had been almost regained. 

There were no Soviet exports of lumber in 1919-20. In 1921 the industry 
recovered slightly and exported 35,000 standards, or about 3 percent of the 
average yearly prewar shipment. Reorganization in 1922-3 created four trusts: 
Severoles in the northern forest area, Sapodles in the western forest area, 
Dvinoles in the Dvina forest area, and Exploles in the Far East. 

The trusts, however, were incapable of increasing production. Penetration 
of prewar markets was impossible, owing to their inability to organize produc- 
tion; shortages of equipment, tools, provisions, and labor made sizable produc- 
tion impossible. 

Negotiations for assistance were opened with foreign lumber companies in 
1921 and resulted in the formation of four mixed companies (Type II conces- 
sion agreements, with some elements of the Type I and Type III), which 
took over the operation of the greater part of the northern forests in the 
Severoles trust. The foreign companies were predominantly British and 
German and held 49 percent of the shares, 51 percent being held by the 
Soviet government. The Soviets also had the right to grant further concessions 
to build sawmills and woodworking mills in the trust areas. The foreign 
companies were entrusted with entire management of forests and mills and 
had the obligation to supply machinery, tools, housing, and food for those 
workmen supplied by the Soviet government. The poor state of the railroad 
system meant that only areas close to rivers and ports could be exploited. 



Restoration of the Russian Lumber Industry, 1921-30 151 

For timber in the Luga and Pliussa forests, near the Estonian border, the 
Soviets made an agreement with the Estonian companies Arbor and Narova. 
These companies were entrusted with the operation of the sawmills, but export 
arrangements were left in the hands of the Soviet government. 

In the Dvina forests, the Dvinoles trust owned shares in a mixed Russo- 
Latvian company organized along lines similar to those of the Severoles 
agreement, 

Sapodoles was dependent on Polish and Lithuanian technical assistance. 1 

Table 9-1 THE SOVIET LUMBER TRUSTS AND 

FOREIGN CONCESSIONS 

Trust Foreign Operator of the Trust Area 

Severoles Russangloles, Ltd. (United Kingdom) 

Onega Russnorvegloles, Ltd. (Norway, United Kingdom) 

North Dvina-Vichegoda Russhollandoles, Ltd. (Holland, United Kingdom) 

Sapodoles Polish and Lithuanian lumber companies 

Dvinoles Russo-Latvian Company (Latvia) 

Exploles Rorio Rcngio Rumian (Japan) 

Raby-Khiki Kansba (Japan) 

Rorio Rengto Kumai (Japan) 
Non-Trust Area 
Mga-Rybinsk Hqlz Industrie Aktien Gesellschaft Mologa (Germany) 

Sources: 1. U.S. State Dept. Decimal File, 316-135-479. 

2. Troyanovsky, Eksport, import i kontsestii soyuz S.S.S.R., p. 16. 



RUSSANGLOLES, LTD. 

Russangloles, Ltd. was a stock company organized under British law, and 
the most important of the lumber joint-stock or mixed companies. It was 
registered on February 7, 1922 with a nominal capital of £150,000. Its objec- 
tive, noted in a Memorandum of Association, was to develop timber properties, 
sawmills, and transportation (including docks, railroads, roads, etc.) in order 
to merchandise timber products. The company could borrow money to 
achieve this objective. 2 Of the six company directors, three were Russian, 
two were British, and one was Latvian. The foreigners had all been in the 
lumber business. 

Russangloles was the operating arm of an earlier concession agreement made 
between Severoles and the London and Northern Trading Company, Ltd., on 
December 31,1921. This company had been organized in the United Kingdom 

1 Timber News and Sawmill Worker (London), June 10, 1922. 
* The complete Memorandum of Association is available in a dispatch, dated February 
16, 1922, from the American Vice Consul in London (316-135-479). 



t52 Western Technology and Soviet Economic Development, 1917-1930 

on September 20, 1919 with a nominal capital of £i million to operate sawmills 
in the Archangel area and merchandise substantial quantities of lumber 
already stored there. Four of the directors of the London and Northern 
Trading Company were British and one Russian — Morduch Schalit, earlier 
a timber merchant in Archangel and the former owner of the property taken 
over by the company. 

It was not unusual for concessions to be in operation before official announce- 
ment, and this was the case with Russangloles. There is in the State Depart- 
ment files an agent's report, dated August 1921, describing a stormy meeting 
held at the town of Petrozavodsk, in Olonetz Province, concerning ' the question 
of handing over to the English the working of woodlands and forests in the 
province.' This concession was submitted to the regional committees and 
commissariats to enlist local support, as local peasants objected to losing their 
timberlands.* 

Russangloles was given the right to exploit timber lots in the Pomozdinsky 
and Kontzegorsky areas for a term of twelve years. The rental consisted of a 
gross income percentage, a stumpage fee, and a separate fee for sawmills and 

Chart 9-1 ACQUISITION OF FOREIGN LUMBER MARKETS: 

PHASE I (1922-4) 



Timber Industry of the Northern 
and White Sea Region 



Severoles Trust 
(U.S.S.R.) 




Legend 



I Foreign participation 

- Organtutioruit control 

■ Foreign technical aaaiatance 



The agent reported that the 'meeting was so stormy ... it was almost necessary 
to have recourse to troops but they also voted for a second discussion refusing to 
attack the people.' (3i6-i35-477-) It has been noted elsewhere that concession 
operations often caused local trouble (apart from the Party-inspired 'strikes'), and 
a case could be made that the concessions were seen locally as a means of perpetuat- 
ing an unwanted Bolshevik rule. 



Restoration of the Russian Lumber Industry, 1921-30 153 

building and transportation facilities. In addition, taxes were levied by the 
central and local governments. Export duty was payable, and the Soviet 
government reserved the right to purchase any timber prepared for export. 4 

Severoles was the largest of the Soviet timber trusts, covering the whole of 
the gigantic white wood resources of the Russian northland. It was this enor- 
mous area that was taken over, developed, and operated by Russangloies. 
The other two trusts in the western area, Sapadoles and Dvinoles, were 
considerably smaller and were operated by Estonian and Latvian companies 
in mixed company arrangements with the U.S.S.R. 

Severoles was also the principal shareholder, along with British lumber 
companies, in the White Sea Timber Trust, Ltd. (organized in the United 
Kingdom to sell sawed lumber on the. European market), and its auxiliary 
concerns: the Russian Wood Agency, Ltd. (a timber brokerage firm), the 
Russ-Norwegian Navigation Company, Ltd., and the Norway- Russian 
Navigation Company, Ltd., which used leased Norwegian ships to transport 
timber materials and products to foreign markets. 5 

In each of these trusts, and in the Far East trust discussed later, timber 
development, construction of sawmills, transportation, and ancillary opera- 
tions were undertaken by foreign companies. In effect they transferred their 
skills to Russian operations, and in each area created extensive and success- 
ful timber operations. 



Chart 9-2 ACQUISITION OF FOREIGN LUMBER MARKETS: 
PHASE II (AFTER 1924) 



Severoles 

Trust 
(U.S.S.R.) 




4 



1 



Ru«ancrlr>leJ ! Ku jsian Wood E§: I While Sea 1 

KUSSangloJes Agency. Lrd. all Timber Trust '■ 




Legend 
I Foreign participation 
Organizational control 
' Foreign technical assistance 



European 
Lumber Market 



4 Ehonomichezkaya Zhizn, No. 60, March 17, 1923. 
* Troyanovsky, op, cit., p. 16. 



154 Western Technology and Soviet Economic Development, 1017-1930 

Sales were made through a wholly Russian-owned trust. l\s the original 
agreement has never been published, it is impossible to determine precisely 
the part played by Western firms. Severoles acted as a broker, obtaining 
sawed lumber from concessions and selling it to Western timber merchants 
for advance royalties. This operation generated scarce foreign exchange. 

Lumber sales to Germany, however, did not go through the trusts. The 
German Mologa concession output was substantial and financed on credit 
by Deruwa (the German-Russian Merchandise Exchange Society) and the 
Berlin branch of the Russian Bank of Commerce (the Aschberg concession). 
Advance payments were made through Deruwa beginning in 1923 for all 
lumber sold through the organization in Germany.* 



RUSSHOLLANDOLES, LTD. 
(RUSSIAN-DUTCH TIMBER COMPANY) 

Russhollandoles, Ltd. was a mixed company similar to Russangloles 
formed in the spring of 1922 by Severoles and a Dutch timber firm, Altius 
and Company, with some British financial participation. The objective was 
to develop for a period of twenty years the forest resources of the North Dvina 
and Vichegoda River area in the Archangel region. The area covered over 
400,000 dessiatins and included property formerly belonging to the Altius 
company. Half the shares were owned by the Soviets and the other half by 
the Dutch and United Kingdom concessionaires. Operations began in August 
1922, and in the first three months a quarter million railroad sleepers and the 
stock of 2,500 standards of lumber had been exported to the United Kingdom 
and Holland. 7 

Another very large timber concession, Russnorvegloles, was concluded in 
July 1923 with a group of Norwegian firms and a Dutch company (Backe and 
Wigg, of Dramman; Backe and Wagner, Prytz and Company, and Altius 
and Company). The capital stock was set at £300,000 divided equally. The 
Soviets were granted the right to contribute their share in timber instead of 
cash. The company was registered in the United Kingdom. The area covered 
was about 2.9 million dessiatins, of which about two million was forest land 
in the Onega River area. The term of agreement was twenty years, after 
which all equipment and buildings became the property of the U.S.S.R. 8 
The capital stock was divided proportionately between Severoles and the 
Dutch and Norwegian companies. 

* U.S. Consulate in Konigsberg, Report, March 6, 1923. (3 1 6-1 35-501.) 
7 Ekoiiomicheskaya Zhisn, No. 53, March 9, 1923. 

' Ekonomicheskaya Zhisn, July 6, 1923 ; and U.S. Consulate in Christiania, Norway, 
Report, July 19, 1923. (316-135-531) 



Restoration of the Russian Lumber Industry, 1921-30 155 

The three mixed companies — Russangloles, Norvegloles, and Hollandoles 
— organized by Severoles advanced 15 million rubles credit in the first year 
of operation, as well as providing necessary working capital and technical 
assistance to get the northern timber areas back into operation. 

British lumber companies also had an arrangement with Dvinoles known 
as Dvinoles Export, Ltd. There was in addition an agreement between Finnish 
companies and Dvinoles called Repola Wood, Ltd. Both companies exported 
unsawed timber. The cutting operations were financed by the foreign partners ; 
the wood was exported and cut by foreign mills. 8 

In brief, to restore timber cutting operations and renew contact with Western 
markets, the Soviets used the good offices of the former owners, although a 
superficial examination of the organizational structure of the Soviet trusts and 
the mixed companies does not indicate the full extent of these arrangements. 

EX-CHANCELLOR WIRTH AND THE 
MOLOGA CONCESSION 

An important Type I concession was the 'Society for Economic Relations 
with the East* (Gesellschaft fur Wirtschaftliche Beziehungen mit den Osten), 
headed by ex-Chancellor Wirth and ex- Reichstag Deputy Haas, and including 
the German firms Himmelsbach, Dortmund Association, Bop und Reiter, 
Schuckart und Schuette, Voegele, and others — and signed in October 1923. 
It included timber production and export, and the construction of a railroad 
in Northwest Russia. By the end of 1923, the Mga-Rybinsk railroad alone 
had received an investment of almost 25 million rubles. 

Under the agreement, which created an operating company, Holz Industrie 
A-G Mologa, one million dessiatins of forest land was granted to the concession 
and S.ooo dessiatins was required to be cut annually. In addition, the conces- 
sionaire built a wood sleeper- treating plant for 1,000,000 sleepers annually, 
together with a pulp and chemical works, including ten plants for the chemical .:; , 

treatment of tree stumps. The Soviets received a royalty which varied between j 

2.5 and 22 rubles per cubic sazhen marketed by the Mologa concession. The ■ ' 

railroad construction had to be completed within three years. The life of the :: - 

concession was twenty-five years, with provision for an extension to thirty-five J 

years upon mutual agreement. At this time properties would revert to the | - 

Soviet state." .;; ' J 

The concession got under way in 1924; seven ships of timber were loaded - 1 ; 

in the first nine months, and the Mga-Rybinsk Railroad was started. There " : 

was a report of a labor disagreement on the railroad construction in September 

' Troyanovsky, toe. eit. 
" U.S. Embassy in Berlin, Report 135, October 12, 1923. (316-135-545). 



1 56 Western Technology and Soviet Economic Development, 1917-1930 

1924, but this was settled and the threatened strike collapsed when Mologa 
submitted to the demands of the workers. 

By 1926 Mologa work was not going well, and Dr. Wirth visited Leningrad 
in April to renegotiate the concession. The proposals made by Wirth were 
briefly as follows: 

1. That the royalty payable to the Soviet government be reduced by 
30 percent. (A 15 percent reduction was granted.) 

2. That machinery for use in the concession enter the Soviet Union duty- 
free instead of at the previously agreed preferential tariff. (This was 
granted.) 

3. That railroad freight charges be reduced 1050 percent of those normally 
paid. (This was not granted.) 

4. That permission be granted to bring in timber specialists from 
Germany, (This was granted.) 

5. That labor hours be increased by 20 percent. (This was not granted 
by the Soviets, but it was agreed that overtime be paid at 40 percent 
above the regular wage rates.) 

In addition, Dr. Wirth agreed to build a cellulose factory, two additional 
sawmills, and an electric power station on the Mologa River to serve the conces- 
sion area. At this time, between 25,000 and 32,000 men were employed by the 
concession in cutting and shipping lumber to Germany. 11 

In early 1927, the Mologa representatives in Moscow (Levin and Ber- 
dichevsky) were alleged to have bribed Soviet officials, specifically those 
employed by Mostroi (the Moscow Construction Trust), the Lyubertsy 
Agricultural Machinery Works (formerly the International Harvester Plant 
in Moscow), and officials of Grozneft. The trial opened in 1927. The Soviet 
officials were sentenced to death and Levin, the Mologa representative, to five 
years' imprisonment. 

By mid- 1 927 Mologa was again in a very precarious position, and the 
Germans decided to withdraw and allow the Soviets to take over. 

Mologa was exceptional in that it received preferential treatment. The 
renegotiation of 1926, for example, was clearly favorable to German interests. 
The accusation of bribery was a characteristic move to force expulsion of the 
concession as soon as production was organized and sufficient equipment 
introduced into the concession areas. 12 

11 U.S. Srate Dcpt. Decimal File, 316-135-505. 

" £ 0,eman ; U -S- Consulate at Riga, Report +516, May 19, 1927. (316-135-615.) 
Coleman s conclusion reads: 'Ksandrov's assurances of friendliness to the Molo- 
roIcs merely confirms the long known fact that this concession has been particularly 
favored by the Soviet Government who saw in it one of the concrete manifestations 
of a Soviet- German rapprochement. But incidentally they also reveal that in spite of 



Restoration of the Russian Lumber Industry, 1921-30 157 

In an interview published in Ekonomicheskaya Zhizn, No. 85, March 22, 
1927, Ksandrov, deputy chairman of the Chief Concessions Committee, 
argued that the real reasons for the Mologa financial difficulties lay outside 
both the concession agreement and the attitude of the U.S.S.R. toward the 
agreement. He stated that the Society for Trade with the East had been formed 
in Berlin in 1923 and this company formed also the Holz Industrie Aktien 
Gesellschaft Mologa with an initial capital of 300,000 marks, increased in 
1926 to 3 million marks. During the first year, the company erected ten frame 
saws instead of the stipulated six, and a major part of the investment — about 
2.35 million rubles — was made in the first year, resulting in an operating loss 
of 576,000 rubles. This induced Mologa to request changes in the agreement. 
Ksandrov pointed out that the changes were made; consequently the 1925-6 
production was 1 million rubles, compared to 4.5 million rubles in 1924-5. 
Also the concession was granted a two-year extension on the railroad construc- 
tion program, a postponement of stumpage payments, and a grant of Soviet 
financial support. Up to March 4, 1927, credits from Gosbank amounted to 
4.5 million rubles, in addition to 420,000 rubles loaned by the Bank of Trade 
and Industry, a revolving credit of 3 million rubles, and a government subsidy 
of 2.2 million rubles granted in January 1926 and repayable in March 1927. 
Ksandrov then concluded that 'the main reason for the financial difficulties of 
the Mologoles is a lack of a solid financial basis.' The initial capital of 300,000 
marks was used during the initial organizing period; the concessions then had 
to borrow capital at high interest rates (15 to 16 percent in the first year, 13 
percent interest in the second year, and 7 to 8 percent in the third year), 
and Anglo-American capital, which was anticipated at lower rates of interest, 
was not forthcoming. 

Therefore, Ksandrov said : 

In view of the economic and political importance of this concession, the 
Soviet Government granted considerable privileges already at the conclu- 
sion of the agreement, that assured large profits from the concession to 
German capitalists. 

A rather different explanation of the decline and liquidation of the Mologa 
concession is given by M. Klemmer in his 1927 report to Western Electric Co. 
and is the basis for his advice that pure concessions, as distinct from technical- 
assistance agreements, were not suitable objects for investment. Klemmer 
reported that the Mologa concession developed normally in its first years, but 



the exceptionally friendly attention shown to Herr Wirth's concession, the prom- 
inent German interests backing the latter proved unable to overcome the reluc- 
tance of the international money market to make investments in the Soviet Union. 
... It is a striking coincidence, characteristic of the Soviet regime, that the failure 
of the concessionaires (sic) to obtain new investments was immediately followed 
by sentences in a Soviet criminal court of several officers of the Mologoles to 
prison for alleged bribing of employees of Soviet commercial institutions. . . .' 



:t 



1 



158 Western Technology and Soviet Economic Development, 1917-1930 

then 'the cost of labor and all the prices went so high up' that export did not 
pay; the concession then acquired permission to sell on the internal Soviet 
market. This appeared profitable, as lumber prices were two to three times 
higher than in the previous years. However, Soviet organizations paid only 
after long delays, and, coupled with rising prices for materials and labor, this 
put Mologa in another difficult financial position. Klemmer points out that 
Gosbank loans were insufficient to meet commitments, and Mologa was forced 
to go abtoad for financial assistance. 13 

It would appear, then, that credits were advanced by the U.S.S.R. to 
Mologa, but that these were insufficient to offset the disadvantages of selling 
on the internal market. Any foreign enterprise operating within the U.S.S.R. 
and this certainly applied also to Harriman and Lena — faced insurmountable 
difficulties in an environment where normal business facilities, such as credit 
and terms of trade, were controlled by an arbitrary organization whose interests 
were not coincident with those of the Western organization. 

In conclusion, the Mologa 1925-6 balance sheet indicated a profit. This 
profit did not satisfy the Concessions Committee, and in February 1927 
Ksandrov proposed reorganization of the concession: 

It is obvious . . . that the fate of the concession enterprise depends 
entirely on a thorough solution of the financial problem, and that the 
failure of the concessionaire to solve this problem in a satisfactory manner 
will make the liquidation of the concession inevitable. 1 * 

Two months later, according to Ekonomicheskaya Zhizn, the Soviets 
liquidated Mologa. 

The German government, it was argued, had refused to continue financing 
Mologa; therefore the concession was unable to establish a stable financial 
basis and 'a friendly agreement was reached by both parties to liquidate the 
concession.' IS It was also stated that Mologa would be reimbursed the fair 
value of the concession property and a committee was appointed to appraise 
its value. Operations were then transferred to the Northwestern Lumber 
Trust (Severoles). 

The only reimbursement was a payment for raw materials taken over. 
In the final analysis, the reimbursement for the 20 million marks invested by 
German firms was about 5.7 million marks, or 25 percent of the investment. 
Nevertheless, this was a considerably more favorable settlement than any 
other concession received. The creditors received 27 perce.it of their debts; 
the stockholders lost their investment. 19 

13 Klemmer Report (1927), pp. 22-3 (316-60-95). 

11 Ekonomicheskaya Zhizn, No. 85, March «, 1927. 

" Ekonomicheskaya Zhizn, No. 120, May 29, 1927. 

" New York Times, September 29, 1928, p. 21, col. 2. 



Restoration of the Russian Lumber Industry, l$2t-30 159 

THE EXPLOLES TRUST IN THE FAR EAST 

In early 1923, the Soviet government completely reorganized the timber 
industry in the Far East. All timber resources east of Lake Baikal, except 
those areas under concession or reserved for concessions, were grouped into 
the Exploles trust. This included timber lands and wood product factories, 
including sawmills and veneer plants. Plants within the trust were not 
immediately nationalized ; there were eight private sawmills and six nationalized 
mills. The veneer factory was privately owned — an essential feature, as the 
trust was in its early years financed by private capital from emigre Russians 
in Harbin. The trust then negotiated concessions with foreign capital." An 
agreement was concluded in early 1923 between the Far Eastern Revolutionary 
Committee, the forerunner of the Far Eastern Soviet Government, and the 
Japanese syndicate, Ookura Gumei. 18 The grant was six million acres covering 
seven forest districts in Maritime Province, six for a period of twenty-four 
years and one for one year." 

The 1925 Treaty of Friendship and Recognition between Japan and the 
U.S.S.R. contained several protocols concerning concessions. Protocol 'B' 
led the way to more timber concessions in the Far East. The Far Eastern 
Timber Industry syndicate and Rorio Rengio Rumian were later relinquished 
because of difficulties imposed by the Soviets concerning the erection of sawmill 
and paper factories and the application of labor regulations.™ 

In 1 927 a third timber concession was granted to a group of Japanese lumber 
companies in the Primorsky District." The Raby-Khiki-Kansha concession 
was formed to exploit some 5,400,000 acres of forest and to ship the timber to 
Japan. The period of the concession was six years {until 1933), and renewal 
could be discussed during the sixth year. At least 7.5 million board feet of 
lumber had to be removed annually. Twenty-three dwellings were erected 
for Soviet lumber inspectors; and 350,000 rubles (a special fee), a royalty, 
and stumpage fees were paid after sale on the Japanese market. Sawmills and 
pulp mills were erected. Foreigners were employed but could not comprise ; , 

more than 25 percent of total employment except in sawmills. There was a , 

requirement to employ Soviet technical students in all operations." ■ ' 

Another agreement was signed in April 1927. The Rorio Rengio Kumai, j ■ 

which employed 2,000 men, consisted of 2.7 million acres near the Tartar 
Straits, with an annual output of 7.5 million cubic feet. 13 '■ 



U.S. Consulate in Vladivostok, Report, March 1, 1923. (316-135-50*) 

U.S. Embassy in Tokyo, Report 579, April 30, 1923. (3«6-io8-455-) 

Russian Daily News (Harbin), May 13, 1923. 

C. Conolly, op. at., p. 45. 

Amtorg, op. cit., II, No. 7 (April t, 1927), 1. 

U.S. Embassy in Tokyo, Report 399, January "'. '9*7- (3i6->35"435) 

Amtorg, op. cit., IV, No. 8 (April 15, 1929)- 



; 3 



1 



160 Western Technology and Soviet Economic Development, lcjij-1930 

Later in 1927 an effort was made to attract foreign timber concessionaires 
on a much larger scale. It was announced, for example, that large unexploitcd 
timber regions of the Far East, extending for some 62,000,000 acres, had been 
divided into fifty-one blocks and that concessions could be obtained for these 
regions. 2 * 

ACTIVITIES AFTER THE DEPARTURE OF THE 
CONCESSIONS 

Exit of Western companies and their concession operations was followed 
by the operation of the same northern lumber areas by prison labor: specifically 
political prisoners and kulaki under the management control of the OGPU. 
Although this proposition will not be examined in depth, there is considerable 
evidence that those lumber stands developed by the concessions (Dvina, 
Onega, and Komi in the northern forest areas) were precisely those areas 
turned over to OGPU prison camp operations. The loading of foreign ships 
with the sawed lumber was also undertaken by forced labor. 25 

New sawmills constructed were, however, still built by Western companies 
and with Western equipment after the departure of the concessionaires. The 
Dubrovsk sawmill, with a capacity of 5 million cubic feet of lumber a year, 
was built by the Bolinder Company in 1928 and 'largely' utilized Swedish 
equipment. 26 Another large sawmill, built in 1928 at Volinkinsky, near 
Leningrad, with a capacity of 2.5 million cubic feet per year, utilized equip- 
ment from both the United States and Sweden. 27 

The technical backwardness of the Russian lumber-processing industry, 
even as late as 1929, is suggested by the admission by Lobov that only 1 percent 
of Russian lumber was kiln- dried, compared to more than 60 percent in the 
United States. 28 

PULP AND PAPER MILLS 

All pulp and paper mill technology was imported from Western countries. 

The Kondopozh (Lake Onega) paper mill, built in 1928, with an annual 

capacity of 25,000 tons of newsprint, had two turbo-generators built in 

Sweden and a 3,000 kilowatt steam plant and paper- making machine from 

" Amtorg, op. cit., II, No. 20-1 (November 1, 1927), 10. 

15 A. Pirn and E. Batcson, Report on Russian Timber Camps (London: Benn, 1931). 
Swianiewicz, who had personal experience of the Soviet prison system, makes the 
point that lumber had to take the place of grain in generation of foreign exchange. 
In 1920-30 an acute manpower shortage developed; this led to OGPU operation 
of the northern forest areas. (S. Swianiewicz, Forced Labour and Economic Develop- 
merit, London: Oxford University Press, kj6j, pp. 113-4.) 

** Amtorg, op. cit., Ill, No. 2 (1928), 23. 

" Amtorg, op. cit., Ill, No. 3 (1928), 41. 

" Amtorg, op. cit., IV, No. 4 (1929), 77. 



Restoration of the Russian Lumber Industry, xgsi-jo 161 

Germany. Nine Soviet paper technicians studied paper-making in Canada 
before returning to operate the plant. 2 * 

In 1926-7 the total Russian output of paper was 267,000 tons. A single plant, 
the Balakhna paper mill on the Volga River in Nijnhi-Novgorod Province, 
with a capacity of 105,000 tons, raised this overall capacity in 1928-31 by just 
under 50 percent. The Balakhna mill had three paper-making units: one 
bought in Germany and two in the United States. The larger of the two United 
States units had a bed width of 234 inches and, at the time of installation, was 
the fastest American sectional-drive paper machine in the world. Its finishing 
delivery speed was 1,200 feet per minute. The complete electrical installation 
for the mill was supplied by General Electric, whose engineers supervised 
installation and initial mill operations. The final unit was not completed before 
193T. 30 

TECHNICAL ASSISTANCE IN THE LUMBER INDUSTRY 

The mixed trading company agreements of 1923-4 contained technical- 
assistance clauses. The British, Norwegian, German, and Dutch lumber 
companies were required to cut and transport the lumber. In undertaking 
these operations, they entered the timber areas of the U.S.S.R. to organize 
production and shipping. There is little doubt that these concessions granted 
in the timber and sawmill industry between 1922-27 worked closely with the 
Soviet government on the technical sphere and furnished considerable capital 
for lumber operations. 31 

In every case, operations ultimately proved unprofitable, and by 1928 the 
last foreign operations in the lumber industry had closed, except for the 
Japanese concessions in the Far East. The technical-assistance components, 
however, persisted. Harry Ferguson, Ltd., provided technical assistance under 
the Russangloles, Ltd. agreement, and his contract for assistance was still in 
operation in 1929, several years after the ejection of the British concession- 
aires. 82 

After closing the concessions, the Soviets purchased technical assistance in 
the form of Type III agreements. For example, in September 1928 the 
Stebbins Engineering and Manufacturing Company, a firm of architects and 
engineers of Watertown, New York, was approached by Amtorg with a 
request for a consultant to make a report on Soviet pulp operations. 83 

" Amtorg, op. tit., Ill, No. 8 (1928), 195. 

" Monogram, November 1943. 

« See, for example, the United States Consulate Report from Hehtngfors dated 

December 24, 19*9. (316-1 35-663.) 
" U.S. State Dept. Decimal File, 31 6-1 31-641. 
" The Amtorg letter reads in part, "We wish your representative to come to the 

U.S.S.R. in a consultant capacity on organization and production problems." 



1 62 Western Technology and Soviet Economic Development 1917-1930 

In 1929 the British-European Timber Company, a United Kingdom firm, 
sent a group of engineers to forested areas in Mezen, Pechora, and Siberia." 

SOVIET LUMBER TRADE FROM 1921 TO 1928 

As a result of these transfers of foreign skills and technology, Soviet exports 
of sawed lumber grew from a mere 48,000 standards in 1921 to 569,000 
standards in 1928 — an increase greater than tenfoM However, 569,000 
standards was still less than one-half of 1913 Russian e^ort of sawed lumber. 

The destination of these exports was significantly one; ■ ted to the operation 
of the mixed trading companies. In 1913 about half of sawed lumber exports 
went to the United Kingdom. The most important of the Type II agreements 
(made in the 1920s) was made with United Kingdom lumber merchants and 
lumber importers. In 1928 some 389,000 standards w-nt to the United 
Kingdom — about 60 percent of the amount exported tc Britain in 1913. 
However, the total 1928 Soviet lumber exports were only 46.7 percent of 
those in 1913. In other words, the relative proportion of lumber going to the 
United Kingdom was considerably greater in 1928. Holland and Germany, 
who possessed concession arrangements in lumber, show a similar increased 
importance as importers of Soviet lumber, whereas France and Belgium, with 
no concession arrangements, took an insignificant proportion of their 1913 
imports of Russian lumber (13.9 and 20.1 percent, respectively). 

Table 9-2 EXPORTS OF SAWED LUMBER FROM THE U.S.S.R., 
1913-28, BY DESTINATION 



Destination 


1913 


1926 


7927 


1928 


1928 as 
percent of 






(Export in 


Standards) 




1913 exports 


United Kingdom 

Germany 

France 


642,800 

194,100 

83,700 


217,542 
15,634 
16,406 


33*. 597 

41,607 

2,Il6 


389,610 

48,318 
1 1,666 


60.0% 

24.9 

13.9 


Holland 


1 6 1, zoo 


41,720 


40,334 


66,292 


41.1 


liclfiium 
Others 


70,000 
65,800 


6,114 
1 5,908 


6,099 

■4.799 


J4,095 
39,157 


20.1 
49-5 


Total 


1,217,600 


3U.324 


437,552 


569,238 


46-7% 



Source: U.S. Consulate at Helsingfors, Dispatch Number 1370, July io, 1929. 



An examination of lumber exports by type of lumber suggests a similar 
orientation toward countries with concessionary arrangements. Almost all 
sawed lumber (87 percent) was marketed by means of the United Kingdom 

" Amtorg, op. cit., IV, No. 6 (1929), 117. 



Restoration of the Russian Lumber Industry, 1921-30 163 

Type II concessions, using the maiket knowledge and skills of the private 
concessionaires. Part of the balance was shipped through the German Mologa 
concession. Beams, alder veneer, and pit props also show a strong orientation 
toward the United Kingdom market. 

Companies underwriting timber contracts with theU.S.S.R. had complaints 
about Soviet trading practices, as the Soviets entered the market on their own 
account after 1924-5. The Soviets had a practice of appearing in the lumber 
market at the last minute and underselling not only Swedish and Finnish 
timber but also their own earlier contracts, and thus 'disturbing' the market, 
from the veiwpoint of the British trade. Twenty leading United Kingdom 
timber merchants formed a coalition on 1929 and made arrangements to 
purchase all Russian timber in specific grades forthcoming in a particular year 
at agreed prices. 8 * 

More than 90 percent of all Soviet timber exports during the 1920s was 
going to countries with mixed company arrangements. In brief, all Soviet 
timber was produced and most marketed with foreign capital and technical 
assistance. 



" U.S. Embassy in London, Report 3342, February 7, 1929. (316-135-647.) 



CHAPTER TEN 

'Sovietization' of the Tsarist Machine-Building 

Industry 1 

THE LENINGRAD MACHINE-BUILDING TRUST 
(LENMASHSTROI) 

There was a well-established general and precision machine-building industry 
in Russia before the Revolution. This was located primarily in Petrograd 
and Moscow and included the locomotive construction plants in the Ukraine. 
After the Revolution, the industry went through a chaotic transformation. 



Table 10-1 



PLANTS COMPRISING THE LENINGRAD 
MACHINE-BUILDING TRUST IN 1923 



Prerevolutionary Name 


Soviet Name 


Position in 1923 


Putilovets 


Krasnyi Putilovets 


Open, under War Commissariat 


Aivaz 


Engels 


Working intermittently 


Atlns 


Economizer 


Under War Commissariat 


Pneumatic 


Pneumatic 


Under War Commissariat 


Truba 


Krasnoya Truba 


Not known 


Metal Petrograds 


Metallic (Statin) 


Under War Commissariat 


Nobel 


Russky Diesel 


Under War Commissariat 


Lcssner 


Karl Marx 


Closed 


Arthur Koppel 


International 


Closed 


Struk-Ekval 


Ilytch 


Closed 


Phoenix 


Sverdlov 


Closed 


Tilimans 


Northern Mechanical 
and Boiler Works 


Closed 


Vulcan Pipe Works 


Vulcan 


Closed 


Sources: 1. Ekonomicheskaya Zhisnt, No. to, 


October 12, 1923. 


2. Spravochiyi katalog rossiskoi promyshlennosti (VSNKh, Moscow: 1923). 


3. U.S. State Dept. Archives. 





Agricultural machinery is covered in chap. 7 and transportation equipment in 
chap. 14, except for aircraft manufacture, which is covered in chap. 15. 



'Sovittizatiori of the Tsarist Machint-Building Industry 165 

In Petrograd, half the machine-building plants were closed in 1923, and those 
open were working on an intermittent part-time basis and were later trustified.' 

The Putilovets in Petrograd employed more than 6,000 before the Revolu- 
tion. In 1920, renamed the Krasnyi Putilovets, the works employed t.ooo 
but produced almost nothing. Continual strife between the technical executive 
staff and the workmen's committee was aggravated by the fact that unskilled 
workers received higher pay and more food than skilled technicians and 
managers. The plant remained more or less in this condition through the 
early 1920s. In 1929 the Putilovets arranged a technical-assistance contract 
with Frank Smith Co., Inc., of the United States. 3 The Ford production chief, 
Sorensen, also visited the plant in 1929 and, when asked by a Soviet official 
what he thought of it, suggested they pu t a few sticks of dynamite in the middle 
of the shop floor and blow it out of its misery. 4 

Other operating plants were in little better condition. The Nobel Gas 
Engine Works {renamed Russfcy Diesel) was well equipped in 1921, but 
produced only a few repair jobs. The Arthur Koppel works, formerly a 
producer of fire escapes and light structural steel work for the city of Petrograd, 
was completely at a standstill. Keeley reported that they were trying to build 
a couple of peat excavators. 6 The Lessner, renamed the Karl Marx, reopened 
with 100 skilled workers imported from Finland in late 1921 or early 1922.' 

Lenmashstroi concluded a technical-assistance agreement with the Metro- 
politan Vickers Company of the United Kingdom in March 1927. For a 
period of five years the trust used the patents and manufacturing rights for 
Vickers turbines, paying to the company a royalty dependent on the number 
of turbines produced. Russian engineers were sent to the Vickers' plants in 
England for study, and a large crew of English engineers went to the trust's 
plants in the Soviet Union. 7 Vickers' assistance was concentrated in the old 
Petrograd Metal Works, renamed the Stalin. The assistance concerned turbine 
design and construction problems. The Stalin plant was the only producer of 
turbines until 1930; they were all produced with Vickers' assistance and 

' This information is based on report by Royal Keeley in U.S. State Dept Decimal 
File, 316— 107-99/100. Keeley, an American, was in Russia from September 1919 
to August 1921. He investigated, at the invitation of Lomonosov, industrial and 
economic conditions in various plants in Moscow and Petrograd. These visit* receiv- 
ed support from Lenin and Rykov. Keeley reported personally to Lenin on several 
occasions. He was imprisoned from May 1920 to August igsi 'because he knew too 
much about Russian conditions.' (U.S. State Dept., Division of Russian Affairs, 
memorandum to Secretary of State, October 18, 1921. 316— 107-106/12.) 

■ U.S. State Dept. Decimal File, 316-131-642. 

' Sorensen, op. cit., p. 202. 

1 Keeley, op. cit. 

* Makhovik (Petrograd), December 13, 19x1. 

7 Torgovo-Promyshlennaya Gazeta, No. 60, March 15, 1927; and Allan Monkhouse, 
Moscow 1911*1933 (Boston: Little Brown, 1934), pp. 185-6. 



1 66 Western Technology and Soviet Economic Development, igiy-ig^o 

comprised the total Soviet output. Other plants in the trust were reestablished 
with German technical assistance. 



MOSMASH AND GERMAN TECHNICAL ASSISTANCE 

The tsarist-era machine-building plants in Moscow were grouped after 
the Revolution into Mosmash. Their names were changed and most were 
restarted with German technical assistance. 

Table 10-2 PLANTS COMPRISING MOSMASH IN 1923 



Prerevottttionary Name Soviet Name 

Bary Engineers Parostroi 

Bromley Brothers Krasnyi Proletariat 

Gratchcff Krasnya Presnia 

Singer Goujon Serp i molot 

Danhauer and Kaiser Kotloapparat 

Dobroff and Nabholz Melnitchno-Tkatskoie Oborudovanie 

Jaquot Press 

List-Butirsky Boretz 

List-Sofisky Hydrophil 

Kramer Krasnyi Stampovstchtk 

Source: Anmiaire, op. cit., p. 84 rear. 



The Bromley Brothers Works in Moscow kept running throughout the 
Revolution under its English manager and was nationalized in 191 8. This was 
one of the better-organized plants in the Soviet Union, but it ran into the 
same difficulties as others, and by 1921 its production was negligible.* It was 
renamed the Red Proletariat and brought into the trust. Moscow's oldest and 
largest semi-fabricated metal materials plant was the Singer Goujon. It 
produced structural shapes, steel sheet and plate, wire, rope, and similar 
products. The plant was nationalized in 1918 and a former English foreman 
made manager. In 1920 the plant was at a complete standstill; official records 
indicated an output of only 2 percent of 1913. After being renamed the Serp i 
molot and absorbed into the trust, the works made a good recovery with 
German technical assistance. By 1923 the plant was producing 80 percent 
(by weight) of the Mosmash output. 8 The trust was also interested in producing 
steam and diesel engines, turbines, and pumps, as well as fabricated metal- 
work. 10 A technical-assistance agreement was made in 1926 with Gasmotoren- 
Fabrik Deutz A-G, of Germany, which gave the trust the right to construct 

11 Kcelcy, op. cit., 
« Ibid. 
" Anmiaire, rear p. 84. 



'Sovie fixation' of the Tsarist Machine~BuMin$ Industry 167 

and assemble all types of Deutz motors (with and without compressors), 
stationary engines, and main and secondary engines for river and marine 
craft. All patents, designs, experimental data, and other information generated 
in the German plants passed from Deutz A-G to Mosmash. There was the 
usual exchange of engineers, Deutz engineers going to the plants of the trust 
and trust engineers going to Deutz plants in Germany for training. Royalties 
were paid on all production. 11 Further, there was probably an implied leci- 
procity clause of some type in the agreement. In mid- 1927, the Soviets ordered 
two freight-passenger ships from the Janssen and Schnilinsky A-G shipyards 
of Hamburg and specified Deutz diesel engines." 



GOMZA AND THE WESTINGHOUSE BRAKE WORKS 

Gomza was the largest of the machine-building trusts, and in 1924 consisted 
of eighteen units, including iron ore mines, smelting plants, and works 
producing machinery, tools, locomotives, wagons, and agricultural machinery. 
In 1925, the Westinghouse Air Brake Works was nationalized and added to 
this trust. Of the eighteen units, only fourteen were operating. Of the remain- 
ing units, two were in a state of 'technical preservation' and two in liquidation. 
The trust was notoriously inefficient, accumulating a loss of 3.7 million rubles 
in 1932-3, 7 million rubles in 1923-4 and over 4 million rubles in 1924-5 
and in 1925-6. 

The Westinghouse Air Brake plant in Moscow (moved by the company to 
Yaroslavl in the early 1920s) was not nationalized until after the Soviets had 
assured themselves of its facilities and were confident of having enough skilled 
engineers and workers available. It is noteworthy that any activities connected 
with transportation — and particularly railroads — were handled with great 
care by the Soviets. 

There is little question that Westinghouse also played a cautious game in 
an attempt to evade the nationalization decree. The manager of the Yaroslavl 
plant, when interviewed in 1922 by officials of the U.S. State Department, 
reported that relations between management and labor were excellent, that 
the company did not import raw materials, that the Soviet government owed 
the company half a million rubles, and that he felt the time was ripe for a 
further investment by the parent company. He claimed that profits could be 
transferred out of the Soviet Union with only a 3-percent penalty, while the 
fee for imported funds was only 10 percent. Westinghouse did not bite. 18 



Torgovo-Promyshlennayo Gascta, No. 879, December 3, 1926. 
U.S. St«e Dept. Decimal File, 316-130-605. 
U.S. State Dept. Decimal File, 316-139-31. 



1 68 Western Technology and Soviet Economic Development, igiy~ig30 

During the Civil War and famine, the company supplied its Russian workers 
with flour and clothing. Consequently, the Party had trouble stirring up 
Westinghouse workers when the time came to demand nationalization. The 
end was foreshadowed in a Pravda article on January 1 8, 1924, under the title, 
'With the Lackeys of American Capital.' The article complained about condi- 
tions in the Westinghouse plant. The company was accused of using the 
Taylor system to carry out twelve months' work in six months and bribing 
the factory committee by supplying food and clothing. The essence of the 
complaint was: 

... at the present time they are paying only 25 percent more than other 
factories. The cells have now opened the eyes of the workmen. At present 
the workers not only distrust but even hate the administration. 
This was followed by a demand that the secretary of the cell should be present 
at collective bargaining meetings— presumably to 'protect' the interests of the 
workers. 14 The company was nationalized in 1925 and the works absorbed into 
Gomza. 15 

GOMZA AND THE GERMAN AND SWEDISH 
LOCOMOTIVE PROGRAM 

In August 1920, Professor Lomonosov, formerly director of traffic on the 
tsarist railroads and in 1920 director of all railways in the Soviet Union, went 
to Germany and later to Sweden to negotiate for railway supplies, the Soviets' 
most urgent requirement. 16 

The locomotive stock at this time was about 16,000 of which only about 
6,000 were able to operate at all. The position was so critical that workers were 
released from the Red Army transportation corps to help repair locomotives. 17 
The Sormovo locomotive works was able to make capital repairs to thirty-six 
locomotives in the last half of 1920 but only to nine in the first half of 1921. 
Sormovo repaired 246 cars in the second half of 1920 but only 3 1 in the first half 
of 192 1. 1B The Tver wagon construction works made 100 new freight trucks 
and repaired 603 in the last half of 1920, and then closed down. At this time 
more than 10,000 locomotives and many more wagons were awaiting or under- 
going repair. 10 In August 1921, of a listed rolling stock of 437,152 cars, only 
20,000 were in first-class condition, and fewer than 200,000 were able to run 

» The complaint was phrased, 'The Americans have played a dirty game with us but 
they are called a cultured and liberal nation.' (TVwrf, No. +2, February 24, 1923.) 

15 Pravda (Moscow), No. 15, January 18, 1924. 

16 U.S. State Dept. Decimal File, 316-163-721. 
" U.S. State Dept. Decimal File, 316-163-724- 

" In 1890 the Sormovo Works was making complex rolling-mill equipment and was 
able to machine one-piece 20-ton forging!,. Sec Foss Special Collection, Hoover 
Institution Library. 

" U.S. State Dept. Decimal File, 316-163-840. 



'Sovietization' of the Tsarist Machine-Building Industry 169 

at all.** The equipment and locomotive problem was solved by purchasing 
European and American locomotives; sending defective locomotives to Latvia, 
Estonia, and Berlin for repair; and importing German technicians and railway 
materials for wagon repair. 

In July 1920 the U.S.S.R. made an agreement with the Nyquist and Holm 
A/B locomotive construction company at Trollhatten in Southern Sweden. 
The agreement has been variously described. The Stockholm Consulate, in 
an interview with C. W. Beckmann, chief engineer at the plant, reported 
that Gunnar W. Andersson had purchased controlling interest for Kr 7 
million. In addition, he had a contract from the Soviets for 1,000 locomotives. 
Andersson, who knew nothing about locomotives, became president and 
director general ; Lomonosov assumed technical direction." 

The Berlin Embassy reported the Soviets had advanced a loan of $1.5 
million to the company to extend the locomotive construction plant at 
Trollhatten.* 4 The Soviets themselves stated the arrangement was no more 
than a credit. In view of the special 'arm's length' relationship with Andersson, 
the latter explanation is unlikely. 23 What is quite clear is that the Soviets 
financed locomotive construction in Sweden at a time when they had five 
locomotive construction plants in 'technical preservation' one with completely 
new equipment, « and notwithstanding a precarious financial and foreign 
exchange position. Later the following month about 1,500 'high-grade' 
locomotives were purchased from Germany, delivery beginning early 1922.** 
These were of basic American decapod design adapted to Russian conditions. 2 ' 

The imported Swedish and German locomotives were sent to the Putilovets 
in Petrograd for assembly under the supervision of Waldemar Sommermeycr, 
representing the German builders, and Karl Kainer, representing Nyquist 
and Holm. The status of locomotives in January 25, 1922 was as follows: 

Locomotives On Order Delivered Assembled 

From Germany 1,350 220 

From Sweden 600 12 

From United States 250 24' 



•} 



12 > S3 



Total 2,200 256 



53 



Source: U.S. State Dept. Decimal File, 316-163-890. 

• These were probably Baldwin Locomotive units. The Russian Ambassador in 
Washington reported on September 1 920 that Baldwin Locomotive had sold 50 locomo- 
tives 'indirectly' to the Soviet Union with payment through a Spanish account (316- 
163-836). 



™ Ekonomicheskaya Zhizn, No. 210, September 21, 1921. 

" U.S. State Dept. Decimal File, 3 16- 163-731. 

" U.S. Embassy in Berlin, Report 53, December 8, 1021. (316-130-1174.) 

a See page 269, 

H See page 269. 

" U.S. State Dept. Decimal File, 316-163-739. 

" Trud, No. io+. May 14, 1922, 



u 



170 Western Technology and Soviet Economic Development, igij-igjo 

Locomotives were assembled at Putilovets as a temporary measure, and 
some 2, 000 extra workers were engaged under supervision of Swedish and 
German engineers. Between November 1921 and January 1922 about 53 
locomotives were assembled and sent to Nikolaev and Northern Railways. 
During January, twelve were returned as defective due to 'systematic damage* 
by railway workers. As the locomotives were driven under the supervision of 
German instructors, 160 of whom had been sent from Germany, this was 
presumably sabotage. 27 

In addition to outright purchase of locomotives in Sweden, Germany, and 
the United States, the Soviet Union contracted for large-scale repairs in 
Estonia and Germany. The first Estonian contract was with locomotive- 
building plants in Reval for repair of 2,000 'sick' locomotives. Payment under 
this and similar contracts was in damaged locomotives; i.e., a percentage of 
the delivered units was retained by the Estonian firms as payment in kind.** 
The second Estonian contract, valued at over $2 million, was signed on Decem- 
ber 21, 1 92 1 with the Dvigatel plant (representing a group of Estonian and 
English builders), the Russo-Baltic works, the Peter shipyard, the Fr. Krull, 
and the Ilmarine, all in Reval. This contract covered an initial 200 freight 
units of the 0-8-0 type and extended later to 1,000. The repairs were classified 
into three categories, and a fixed price was paid for each class of repairs with 
additions for missing parts according to a fixed scale. Cash advances were 
made and 40 percent paid on delivery of the repaired locomotives at the 
Russian-Estonian frontier. Payment was in American dollars. All steel and 
parts, except copper fire-boxes, were the subject of a separate agreement 
between the Estonian companies and Krupp of Germany. The latter also 
arranged financing of the program with the Deutsche Bank. The British 
Vickers- Armstrong Company participated in the repair contract by leasing the 
Russo- Baltic works through a specially formed subsidiary, the Anglo-Baltic 
Shipbuilding and Engineering Company. The major portion of the order 
was divided between Anglo-Baltic, the Dvigatel, and the Peter shipyard. 
The plants were kept busy for about one-and-a-half to two years. 29 

The Soviet Union made numerous attempts to acquire American locomo- 
tives. On April 22, 1919, Martens, operating as the 'representative of the 
U.S.S.R. in the United States,' claimed 200 locomotives ordered by the 
Kerensky government as the property of the Soviet Union. His letter was left 
unanswered. 30 The next recorded attempt was in February 1920, when Mayor 

" U.S. Statu Dept. Decimal File, 316-163-836. 

» U.S. State Dcpt. Decimal File, 316-163-856. 

" U.S. State Dept. Decimal File, 31 6-1 63-881 el. seg. 

30 U.S. State Dept. Decimal File, 316-163-453. 



'Sovietization' of the Tsarist Machine-Building Industry iji 

Friedenberg (of Riga), who had just returned from Moscow, announced that 
he had been commissioned to enter into negotiations for purchase of 600 
American locomotives and 'large quantities' of machines, tools, and rails. 
Payment was proposed in gold and platinum. 31 Ten days later the Riga Con- 
sulate reported that Friedenberg was going to attempt to order directly from 
Baldwin Locomotive or American Locomotive for delivery to Latvia, and then 
turn the locomotives over to the U.S.S.R." It was reported via Finland two 
months later that representatives of 'American firms' had accepted a Soviet 
order for 400 locomotives at Reval, Estonia.* 3 Purchase of American locomo- 
tives was also attempted through Latvia. 3 * 

In the main, however, the bulk of the locomotives purchased were 
either Swedish or German and were classified 'Eg' (German-built) or 'Esh' 
(Swedish-built). The basic design was the Vladikavkaz Railroad o-io-o, 
introduced in 1912 and built after 1936 at all five Russian locomotive construc- 
tion works. The only difference was a larger superheater in front of the engine. 
More powerful variants were introduced in the 1930s, but this basic type was 
still being produced after World War II and is still the basic steam freight- 
hauler in use on Soviet railroads today. For passenger locomotives the Soviets 
inherited a mixed group of prc-revolutionary makes and selected the Vladi- 
kavkaz Railroad type S 2-6-2, known as the *Sv', built originally for use on 

Table 10-3 LOCOMOTIVE CONSTRUCTION BY GOMZA 

WORKS, 1921-3 



Prerevolutionary Name Soviet Name Position, ign-3 



Sormovo Krasnoye Sormovo Closed, then opened with German 

technical assistance 
Kolomna Kolomna Partly open, for wagon repair 

Bryansk Profintern Closed 1922-3 

Hartmann (Lugansk) Lugansk Closed 1922-3 

Kharkov Kharkov Locomotive Closed 1922-3 



Source: German Foreign Ministry Archives, ^20-4249-1,092272. 



U.S. State Dept. Decimal File, 316-163-678. 

U.S. State Dept. Decimal File, 316-163-680. The State Dept. reply (marked 'not 

sent ) suggested that the Friedenberg matter be allowed to develop along these lines. 

It was drafted by Poole of Russian Affairs but killed by the Second Assistant 

Secretary. 

U.S. State Dept, Decimal File, 316-163-703. An intercepted radio message to 
Martens in the U.S. directed him to purchase 100 locomotives directly from 
Baldwin Locomotive. 

U.S. State Dept. Decimal File, 316-163-705. 



172 Western Technology and Soviet Economic Development, 19IJ-1930 

the Warsaw- Vienna railroad. This locomotive was redesigned to carry a larger 
firebox and superheater and was put into production after 1925 with the 
designation 'Su'. Several hundred were built in this basic design." 

The decline in repairs continued throughout 1921 and 1922, and the 
position was stabilized only by this flow of new locomotives from abroad. 

This decline continued; Russian locomotive shops were idle although in 
good mechanical condition. They had lost many skilled workers but had 
enough to turn out some new locomotives. The orders, however, were going 
abroad, not even the newly equipped Murom plant outside Moscow could get 
locomotive orders. Pressure built up to halt the export of 'sick' locomotives 
to Estonia for repairs and place orders in the idle Russian plants. In June 
1922, Glavmetal refused to sanction a shipment of 200 'sick' locomotives to 
Estonia, The trade union organizations added to the pressure by accusing 
Lomonosov of selling out the proletariat to Estonian capitalists. 86 As a result 
of this pressure, deliveries under both the Estonian and German contracts 
slowed after 1922, and the idle Russian plants were restarted, with German 
assistance, by about 1924-5. 



Table 10-4 


CONSTRUCTION OF STEAM LOCOMOTIVES 




IN RUSSIA AND THE 


U.S.S.R., 1906 TO 1929 


Year 


No. Built 


Year 


No. Built 


Technical Assistance 


1906 


1,270 


1 92 1-2 


115* 




I9M 


O09 


1Q23-3 


96* 




i'J'4 


76* 


1923-4 


169" 




1915 


883 


1924-5 


148* 




1916 


616 


1925-6 


302 


German post-RapaUo 
technical assistance 


1917 


410 


1926-7 


359 




1918 


zoo 


1927-8 


479 




1919 


74* 


1928-9 


575 


Baldwin Locomotive 

-schnical agreement 


1920 


90* 


1929-30 


625 





Sources: 1. U.S. State Dept. Archives. 

2. German Foreign Ministry Archives, 

3. G. W. Nutter, op. cit., p. 432. 

* These figures, from Nutter and originating in Soviet sources, arc doubtful. They 
are probably major or capital repairs counted as new locomotives; the Archival 
sources support this argument. 

Productivity in the Gomza trust was about 20 percent of that of 1913. 
The State Railroad system — the major customer — calculated it was paying 

]1 J. N. Wcstwood, A History of Russian Railways (London: George Allen & Unwin, 

1964), PP. 86-93. 
36 U.S. State Dept. Decimal File, 31 6-1 63-9 13. 



'Sovietutation' of the Tsarist Machitu-BuiUing Industry 173 

prices six times greater than prewar for Gomza products, and smaller articles 
made by the trust were being sold on the open market at half price in order 
to sell at all. Consequently, it is not surprizing that the trust was covering 
only 7 percent of direct costs (i.e. , it was making no contribution to fixed costs). 
The statement was made that, ' ... we cannot close down as this would 
throw 80,000 men out of employment and the railways would suffer.'" The 
problem, of course, was lack of orders. While German, Swedish, and American 
locomotives were being imported in quantity, Gomza was largely idle. 
On the other hand, there was ample evidence that the skills to manufacture 
locomotives were lacking. The engineers had fled, and those locomotives that 
were being repaired broke down after a few days back in service. 3 * 

THE BALDWIN LOCOMOTIVE TECHNICAL-ASSISTANCE 
AGREEMENT OF 1929" 

The Baldwin Locomotive Works Company, with a group of fifteen manu- 
facturers of input parts and supplies for locomotives, made a sales-cum- 
technical agreement with the Soviet Union on April 12, 1929. Baldwin agreed 
to sell its products and those of the allied companies to Amtorg on a revolving 
credit basis. A total of $5 million was made available {$2 million within 
eighteen months of date of signature). Separate technical-assistance agreements 
(not available from the State Department files) were also signed to assist 
Gomza in the development of locomotive production. The credit terms were: 
20 percent payable 24 months from date of dock receipt 
20 percent payable 36 months from date of dock receipt 
20 percent payable 48 months from date of dock receipt 
20 percent payable 60 months from date of dock receipt.' 10 
These advances carried a 6-percent interest rate. Baldwin and the associated 
companies agreed to send their engineers into the Soviet Union for locomotive 
erection and engineering work, and, as the contract reads: 

' * i £ grees t0 receive at its works and ass ' st ^ placing at the works of 
such firms whose products will be supplied under this agreement, and 
will also assist in placing in shops and on railroads in the United States a 
reasonable number of workers, foremen and engineers sent from the 
t! 1 l a P er ' od °f t ' me provided in each case separately, so as to 
enable these workers, foremen and engineers to get fully acquainted with 
American practice. 41 

17 U.S. State Dept. Decimal File, 316-107-1044. 
" U.S. State Dept. Decimal File, 316-163. 

A copy of the agreement is in the U.S. State Dept. Decimal File, 316-163-1301. 

Clause o of the agreement. 

Associated companies were American Steel Foundries, Athey Truss Wheel, Brill 

<-ar Company, Electric Controller and Manufacturing, Fairmont Railway Motors, 



174 Astern Technology and Soviet Economic Development, xyxy-xyjo 

The agreement was signed by A. A. Zakoshansky for the Soviet Union and 
Charles M. Muchnic, Vice President for the Baldwin Locomotive Works 
Company. 

GENERAL ELECTRIC DIESEL-ELECTRIC 
'SURAM' LOCOMOTIVE 

Russia had been a pioneer in diese! traction. Prerevolutionary shipbuilding 
yards and locomotive construction plants in Petrograd and Kharkov had 
undertaken a great deal of innovatory work in the direction of dicsel-electric 
and diesel -mechanical propulsion. There were dicsel electric ships in tsarist 
times built in Russian shipyards. The Tashkent railroad had been an early 
innovator in diesel traction and had actually built a gas turbine locomotive. 14 
This promising start came to a complete halt in the 1920s. Efforts to continue 
diesel locomotive construction were halting and unsuccessful. They culminated 
in the import of the General-Electric-designed 'Suram' locomotive, named 
after the mountain pass in the Caucasus, in 1932. 

In 1922 an experimental power plant was built, using the Tashkent railway 
turbine and a compressor system designed and built by Armstrong-Whitworth 
in the United Kingdom. The claims were great but nothing more was heard 
of it. 43 Two years later a locomotive design competition was announced for a 
i6-ton, 930-mile-radius locomotive with a tractive effort of 26,000 pounds at 
9 m.p.h. The sole entrant was a design by Professor Gakkel, which was 
subsequently built at the Putilovets and Baltic plants under German super- 
vision. The locomotive was powered by a Vickers 1,030 h.p. diesel engine 
reclaimed from a submarine, coupled with some Italian generators. This was 
the Lenin Memorial Locomotive, presently preserved in Moscow. Westwood 
says it was withdrawn from service in 1927 after running only 25,000 miles 
and spending much of its active life out of service. It spent many years as a 
mobile generator. 41 

Russian designs were not forthcoming; it was obvious that the designers 
had fled with the Revolution. Prototype locomotives were then ordered in 
Western countries. These used both diescl-electric and dicsel-mechanical 
systems. The most successful under Russian conditions was a Krupp 1-E-1 
diesel electric, and in 1927 a trial order was placed with Krupp for an improved 



Locomotive Terminal Improvement, Southwark Foundry and Machine, Standard 

Steel Car, Superheater Company, Sunbeam Electric, Westinghouse Air Brake 

(expropriated without compensation in 1923). Wilson Welder, G. D. Whitcomb, 

Locomotive Firebox, and Nathan Manufacturing. 

Westwood, op. cit., p. 67. 

Ibid. 

Ibid. 



'Sovietization' of the Tsarist Machitu-Buildtng Industry 175 

version of this prototype with a Mann-type four-stroke six-cylinder engine 
which enabled the Soviets to make use of their technical-assistance agreement 
with the Mann company. Brown-Boveri traction engines of 140-kw hourly 
rating were also ordered. These prototypes were not built in the Sonet Union, 
however, until 1932, when production started at Kolomna. The design produc- 
ed was identical to the German E-e 15. This decision ended an unsuccessful 
prototype development program which had been continued for some years at 
the Kolomensky works. It had produced some prototypes for secondary 
lines in the late 1920s, but Westwood indicates these had not been successful, 
owing to frequent burnouts." Future locomotive construction was based on 
foreign design and particularly on the General Electric design for the 'Suram' 
model; indeed some elements of the current (1966) VL 23 design are the 
same as those in the original 'Suram' delivered about thirty-four years ago. 
Diesel-electric traction is an area where the Soviets have shown neither 
innovatory nor construction ability. 4 * 

Apart from purchasing prototypes, the Soviets induced Western companies 
to undertake the solution of specific mechanical problems. In the development 
of industrial locomotives using gasoline engines, the technical problems were 
solved by an American company hoping to sell such locomotives to the 
U.S.S.R. In 1926-7 the Koehring Company sold several four-cylinder indus- 
trial locomotives to the Soviet Union and in the following year received an 
inquiry about six-cylinder units. The company pointed out that ordinary 
Russian grade kerosene would not be sufficiently volatile, although the 'export' 
grade produced by the Standard Oil refinery at Batum would be suitable. 
With the assistance of the Department of Commerce, which canvassed 
American oil companies for Koehring, data was developed on the characteris- 
tics of Russian kerosenes, and engineers from 'one of Koehring subsidiary 
companies' developed an engine suitable for efficient operation on this grade 
of fuel.* 7 

TECHNICAL ASSISTANCE TO GOMZA REFRIGERATION 

EQUIPMENT PLANTS 

Gomza's efforts in refrigerator and cold-storage plant construction received 
technical assistance from German and United Kingdom firms from about 1926 
until well into the 1930s. In late 1926 an agreement was signed between 
Gomza and A. Borsig G.m.b.H., of Berlin, for assistance in construction of 
refrigerators utilizing the Borsig system. The German firm prepared construc- 

" Ibid,, pp. 67-9. 

*• Ibid. 

*' Records of the U.S. Bureau of Foreign and Domestic Commerce, File 31a (1927). 



176 Western Technology and Soviet Economic Dwhpment, i^iy-1^30 

tion designs and working plans for the trust, utili2*ng its own patents and 
experience. There was an exchange of refrigeration engineers between Gomza 
and Borsig plants. Further such technical-assistance contracts were signed with 
Maschinenfabrik Augsburg-Numburg A-G and L. A. Reidinger A-G, also 
of Augsburg, for construction of cold-storage facilities 18 

Dairy produce agreements with the Union Cold Storage Company, Ltd, 
(of the United Kingdom), allowed the company to establish cold-storage 
facilities in the U.S.S.R. to handle food products being exported under the 
trading agreement. 1 " 



GENERAL TECHNICAL ASSISTANCE FOR ORGAMETAL 

The first overall technical guidance for the reconstruction of the heavy- 
machine industry came under a three-year agreement signed in later 1926 
between Orgametal (the heavy industry syndicate) and the German company, 
Verein Deutscher Wcrkzeugmaschinen Fabriken Ausfuhr Gemeinschaft 
(known as Faudewag). This company set up a joint technical bureau in Berlin 
to design new plants and re-equip the tsarist heavy-machine industry. The 
company supplied engineers, technicians, and skilled workers; superintended 
construction and reconstruction; and supplied machinery, raw materials, 
working supplies, and design services. 60 The agreement was renewed in 1929, 
and Faudewag added more functions. It was still in force in the early 1930$." 

The Faudewag project, whicli supervised all Orgametal work, was followed 
by an extensive technical-assistance agreement with the Frank Chase Company, 
of the United States." The most significant agreement was made at the end of 
the decade, in connection with the large-scale construction projected under 
the first Five- Year Plan. Almost all major projects under the Plan were design- 
ed by American companies. 53 Albert Kahn Company of Detroit had the basic 
task of supplying technical advice to the Building Committee of Vesenkha, in 
addition to contracts with Glavmashstroi for construction of new machine- 
building plants and with Traktorstroi in Stalingrad for construction of tractor 



Vncshtorgizdnt, op. cit., p. 227. 

See chap. 7. 

Torgovo-Promyshleniiaya Gazeta, No. 279, December 3, 1926. 

Vncshtorgizdat, op. cit., p. 228. This expanded Faudewag agreement supervised 

all Orgametal projects. The company office in Berlin replaced the Russian-operated 

and staffed Buiro Inostrannoi Nauki i Tekhniki (BINT), organized in Berlin in 

1020 to collect foreign technical data. BINT employed 100 Russians in 1921 but the 

staff was reduced to 5 by Ipatieff, who considered the cost too great in light of the 

returns. (Ipatieff, op. cit., p. 330.) 

U.S. State Dept. Decimal File, 316-131-642. 

This is covered in detail in Vol. II. 



'Sovietisation' of the Tsarist Machine-Building Industry 177 

plants." The Five- Year Plan as a concept is almost completely a myth of the 
propaganda mills. First, there were no hard and fast dates for beginning and 
ending specific projects in sequence. Each contract had its own time sequence 
and was not always well integrated with other construction projects. A set of 
dates was necessary, however, for the propaganda image of 'scientific socialism 
at work.' Second, the complete design work, supervision of construction, 
provision of equipment, and, in many cases, actual factory construction were 
done by Western companies under contract. They were kept to the all- 
important dates by heavy penalty-bonus clauses. The fact that some large 
plants were finished ahead of the planned date had nothing to do with 
'socialist construction.' It was quite simply that the Western firms responded 
to the substantial bonuses payable for completion ahead of the contracted 
date. When the Soviets attempted to repeat the feat of Western private enter- 
prise later in the 1930s, they were totally unsuccessful and became very 
secretive about new projects. 46 

SKF (SWEDEN) AND THE MANUFACTURE OF BALL BEARINGS" 
Prior to the Great War in 19 15, the Swedish company Aktiebolaget Svenska 
Kullagerfabriken (SKF), an internationally known manufacturer of ball 
bearings and transmissions, established an extensive and well equipped plant 
in Moscow. This plant was nationalized in 1918 but continued to work at full 
speed under its Swedish engineers through the Revolution. Sometime in 1920, 
negotiations started between SKF and the Soviets for a concession arrange- 
ment. Agreement was reported by the Chicago Tribune in October 192*, but 
not by the Soviets for another eighteen months. The details are fairly dear, 
but the exact date of signature remains unknown. 

The SKF company was given the right to produce balls, bearings, and 
transmissions and to export up to 15 percent of these products. Complete 
supply to Soviet industry was anticipated. The company was guaranteed a 
15-percent profit. In return, the company was allowed to purchase its own 
prewar property (two plants and the remaining stock of raw materials) for a 
payment of 200,000 gold rubies. The plants were then re-equipped by SKF, 

" Tonooo-pTtmythlmnaya Gaseta, May 16. 1919; and U.S. State Dept. Decimal 
1-ile, 316-131-674. 

" V °j "^ S<M d "1 ^T * e , Ger "ian Archives and suggests that the construction 
under the second and third Five-Year Plana, in which the Soviets relied much 
more on their own resources, was almost eatastrophically below projected targets 
At least part of this problem was caused by diversion of the finest of available skills 
and equipment into military production. 

" Sources for this section are the Chicago Tribune (Paris edition), October 3, imi • 
Izvestta, No. 63, March 22, 1923; and the U.S. Consulate in Stockholm, Report 
April 4, 1923. ' r ' 



1 78 Western Technology and Soviet Economic Development, igif~l^30 

who supplied all patents and management, the Soviets supplied raw materials. 
Some 400 workers were employed, with Swedish engineer Wilhelm Adrian 
as manager. Three-quarters of the workers were Russian and the balance 
Swedish ' . . . paid in Swedish money and fed on imported Swedish food.' 
The intent, according to Adrian, was to raise the standard of Russian labor by 
mixing skilled Swedish workers with the Russians. 

A completely new SKF plant was built under the agreement and produced, 
with the re-equipped tsarist-era plants, about 2-3 million rubles' worth of 
bearings per year, and the company paid a rental based on this annual volume 
at a progressive rate. Previous to the Revolution, only bearings had been 
produced in Russia; the steel balls were imported from Sweden. The Soviets 
required the steel balls to be manufactured in the U.S.S.R., and up to that 
time the company was required to keep on hand in its Moscow warehouses a 
stock of balls equal to three times the quantity of bearings. 

The Soviets were represented by two members on the Board of Directors, 
although nominally and probably in practice the plant was run by a Swedish 
management. Provision for arbitration was made with a board comprising two 
members from each side and a president appointed by the Moscow High 
Technical School; i.e., the Soviets had a say in management and a majority 
in arbitration. All former SKF claims were cancelled by the concession. The 
agreement was viewed by the United States consul at Riga with some distaste: 

The Soviets having forced the owners to pay for the use of their own 
property over a long period of years, will probably hold the transaction 
out to the world as evidence that property once nationalized by them 
has actually been bought back by the original owners." 

The company was required to buy back its own plant and also required to 
amortize its new equipment over twenty-five years, a lengthy period when 
compared to a more normal requirement of five years. As the hidden intent of 
the Soviets was to nationalize once again after the new plant and techniques 
had been assimilated, the 'guaranteed 15-percent profit' was meaningless. 
The concession was expropriated long before the expiration of the amortization 
period. One has to examine Soviet attitudes to Western business to appreciate 
the overriding importance of good faith in enterprise societies. Company 
after company went into the U.S.S.R. with an agreement based on good faith, 
and all eventually learned the meaning of the 'dictatorship of the proletariat.' 
SKF had to buy back its own property for cash, make a second investment 
from its own capital stock, and amortize that for the purpose of estimating its 
'guaranteed profit* on the basis of a twenty-five year stay. Finally, however, 
the whole investment was re-expropriated under conditions which effectively 

" U.S. State Dept. Decimal File, 316-131-7*1. 



'Sovietixation' of the Tsarist Mackine-BtaMuig Industry 1 79 

precluded anything but a purely arbitrary Soviet settlement. One can under- 
stand why details of these investments are difficult to come by. The picture of 
the capitalist entrepreneur as a hardnosed calculating machine is shattered 
by the story of his dealings with the Soviets. 

One by-product of the SKF agreement was technical assistance in the 
production of high-quality steel. Under the SKF concession, the Soviets 
were required to supply steel for the bearings. This posed a problem, as all 
high-grade steel had previously been imported and there were no facilities 
for production of this type of steel. The problem was solved in a characteristic 
manner: the Soviets asked for technical assistance and the SKF Company 
installed Swedish steel men in the Zlatoust steel plant in the Urals. 

The transfer of Western ball-bearing technology was not completed by 
the time of the second expropriation of SKF. Two further agreements were 
made in 1930: one with Vereinigte Kugellager Fabriken A-G, of Berlin, and 
the other with S. A. Officine Villar Perosa (RIV), of Turin, Italy" 

STEAM BOILERS AND MECHANICAL STOKERS 
Steam boilers are essential for industrial production operations where coal 
is a useful fuel. The relative decline of the economy under the Soviets may be 
well illustrated by the increasing age of steam boilers between 1914 and 1924. 

Table 10-5 AGE OF STEAM BOILERS IN RUSSIAN 

PLANTS, 1914 AND 1924 



Age ig I4 



1934 



Under 10 years 3J . S percent 4.8 percent 

Under 15 years 49.0 percent 53.0 percent 

Under 35 years 1 1.5 percent 31.0 percent 

Over 35 years 4,0 percent 11,3 percent 

1 00.0 percent 100.0 percent 



Source: Troyanovsky, op. cit., p. 383. 



In 1914, 35 percent of boilers were less than ten years old but in 1924 less 
than 5 percent fell into this category. This suggests negligible replacement. 
Even more important, in 1914 only 15 percent of boilers were more than 
twenty-five years old; by 1924 the figure had increased to 42 percent. There 
were 138 boilers in Briansk and Dnieper factories in 1923; of these, rn had 
been built before 1900," Imports of boilers immediately after the Revolution 

" Vneshtorgizdat, op. at., pp. 228-9, Barmine, op. at., p. 210, testifies to the low 
quality of Russian ball bearings in this period. See Vol. II for further information. 
** Izvestia, No. 278, December 5, 1923. 



t So Western Technology and Soviet Economic Development, 1917-1930 

sank to zero. Importation began again in 1921, rose to almost one-third of the 
prewar level, and then declined after 1924. Steam boiler accessories followed a 
similar pattern. The decline after 1924 was due to local production by a 
concession. 

In 1922 a concession was granted to Richard Kablitz, a Latvian firm, which 
took back its old prewar Pctrograd factory and started again to produce steam 
boilers, mechanical stokers, fuel economizers, and similar equipment. This 
was by far the largest such plant in the U.S.S.R. Production expanded rapidly, 
and by the end of the decade Kablitz had equipped over 400 Russian factories 
with boilers and stoking equipment. 80 In the last two years of the decade, 
Kablitz turnover was substantial: more than 900,000 rubles in 1925-6, 1.4 
million in 1926-7 and more than 1.6 million in 1927-8. 

In brief, the Kablitz concession, operating from 1922 to 1930, enabled the 
Soviets to eliminate importation of boilers almost completely since the firm 
organized production and trained Russian workers in boiler production. It 
made a very significant contribution to the re-equipment of Soviet industry. 
The success may be established by the decline of boiler imports in the face of 
increasing boiler age. By 1929, Kablitz had served its purpose. Taxation was 
increased to the point where production was no longer profitable, and the 
Soviets took over the Kablitz operation. 61 

PRECISION ENGINEERING TECHNOLOGY AND 
ITS ACQUISITION 

Many skilled instrument-makers fled Russia during the Revolution, but in 
1918 a group of these returned from the United States with a group of American 
deportees and formed the Russian-American Instrument Company in Moscow. 
They brought their own machinery from the United States, employed about 
300 unskilled Russian workmen, and ran what was considered to be 'one of 
the best factories in Russia. Members of the Third International were taken 
to see it as an example of the finest conditions.' As the government was unable 
to supply food, the enterprise broke up. 62 

In 1 92 1, the pre- Revolutionary plants producing instruments, watches, 
and precision equipment were grouped into Techmekh (the Precision Engineer- 

" Bank for Russian Trade Review, II, No. 2 (February 1929), 10; and Izvestia, 
No. 223, October 2, 1923. 

" U.S. Consulate in Riga, Report 5997, March 25, 1929 (3 16-1 10-1014). In the view 
of the Latvian Foreign Office, it was impossible to establish Latvian firms in the 
U.S.S.R., as the Soviets 'would force them out of business either through taxation, 
labor legislation, charges of economic espionage or some other method of persecu- 
tion if the enterprise should become too prosperous or compete with a Soviet 
industry.' 

11 Keeley, op. eit. The trade unions also protested this plant. 



•Sovietization 1 of the Tsarist Machine-Building Industry 181 

ine Trust). These comprised the former Duber plant (renamed the Geophy- 
sika), the former Tryndin (renamed the Metron), and the Unified Watch 
Works, formed from smaller pre- Revolution plants." The process of trusti- 
fication did not appear to acUeve very much, and the next few years saw a 
succession of concession agreements with foreign companies. These were Of 
all three types and were allocated one to each branch of precision engineering. 
Calculating machines, typewriters, sewing machines, clocks and watches, 
razor blades, drawing instruments, and similar items were all subject to 
agreements. The Soviet Union took the opportunity to change over to the 
metric system. This problem was tackled by yet another concision the 
Franco-Russian Association for the Study of the Metric System (SO VMETR) 
a French-Soviet mixed Type II company which undertook the changeover 
and the production of the necessary weights and measures. The difficulties of 
changeover varied by industry and were dependent to a great extent on 
conditions during the prerevolutionary period. In the electrical industry, 
there was no difficulty, as the industry had been developed on the basis of the 
metric system; but textiles, equipped extensively with British equipment, 
posed considerable difficulties which Gosmetr (State Office for Metric Weights 
and Measures) was unable to solve for some years. 

The Singer Sewing Machine Company operated numerous plants, ware- 
houses, and retail units in prerevolutionary Russia, including manufacturing 
units in Moscow, Leningrad, and Vladivostok. These plants, producing one 
quarter of a million household sewing machines, were valued by Singer at 
S75 million." In addition, the wholesale and retail Singer network in tsarist 
Russia included 50 central agencies and warehouses and more than 3,000 
individual outlets for the sale and servicing of sewing machines. The Singer 
sales force alone employed 27,500 in 191 4. 

Nationalization of the Moscow and Petrograd Singer plants in 1917 and 
the Vladivostok plant in 1923 was completely unsuccessful. The equipment 
was found to be much too complex to operate on the basis of shock tactics 
and revolutionary slogans. The factories were denationalized and returned to 
the Singer Sewing Machine Company in 1925" This company, like many 
others, assumed incorrectly that this admission of inability implied that the 
Soviets did not wish to renationalize. No sewing machine output figures have 
been recorded for the period 1917 to 1926-7; technical problems probably 

• a Atmuaire, p. 39; and Troyanovsky, op. tit., p. 385- 

" Based on claims filed with the U.S. State Dept in ,«. (Decimal gJ^^ST 
11TO \ Includina Russian government treasury bills and accounts in Kuwian Datura, 
tte &5m daim ™ over Sioo million. (Foreign Claims Settlement Comm.ss.on 
of the United States, Claim No. SOV-4°,92o.) _ 

« Denationalization, and the reasons for it , are noted in the German Foreign Ministry 
Archives, T120-3033-H100454. 



1 82 Western Technology and Soviet Economic Development, igij-igjo 

inhibited production.** In 1926-7, the first full year after denationalization 
and restoration of operations to the Singer Sewing Machine Company, the 
plants produced 200,000 machines, a figure which rose to 500,000 by the 
end of the decade. 

In the early years of the New Economic Policy the Miemza concession was 
granted for the operation of a clock manufacturing plant in Moscow. 
After expropriation this became the Second State Clock Factory and was 
supplied with additional equipment from the Ansonia Clock Company in 
New York." 

The clock and watch industry production problems were overcome in a 
manner more suggestive of the massive 'turn-key' acquisitions of the 1950s. 
In June 1929 Techmekh negotiated a contract with two United States firms 
when Swiss firms refused to sell equipment necessary for watch plants. This 
contract called for establishment of two complete watch and clock factories. 
The first contract, with Dubert, was for a plant to produce 200,000 pocket 
and wrist watches a year to sell at retail prices between 20 and 40 rubles. The 
Soviets obtained five-year credit terms, and the plant was built in the early 
1 930s. This became the First State Watch Factory. The other p lant was supplied 
by Ansonia for the production of one million alarm clocks and 500,000 large 
clocks for public squares, railroad stations, and public institutions. This plant 
was also supplied on five-year credit terms and was named the Second State 
Watch Factory, In both contracts, provision was made for the supply of 
manufactured and semi-manufactured parts until such time as the plants were 
able to develop their own input from internal Russian sources. About twenty- 
five specialists were sent from the United States to establish the plants and 
supervise production for the breaking-in period.* 8 

Typewriters were not produced in the Soviet Union until after 1930. 
In 1929, the Moscow Soviet decided to build a typewriter factory and instruct- 
ed Techmekh to negotiate with foreign firms for construction. An agreement 
was made with the Underwood Company for technical assistance to manu- 
facture typewriters and calculating machines and for the intermediate-term 
sale of machine parts for assembly in Russian plants. During the first two 
years, the new factory only assembled machines. In the first year, 5,000 
machines were planned for production, and in the second, 10,000. This 
figure was scheduled to rise to 218,000 annually after ten years. Typewriter 

" The U.S. State Dept. has a report (origin unknown) to the IX Congress of Soviets 
noting that the figure for sewing-machine production was 3 18 in the first half of 
1920 and 187 in the first half of 1921. Even this miserable contribution has the air 
of 'something is better than nothing' and is dubious. 

" S. Weinberg, An American Worker in a Moscow Factory (Moscow: 1933), p. 18-19. 

*' Torgovo-Promysklennaya Gazeta, No. 147, June 30, 1929; and Ekottomichttkaya 
Zhtzn, No. 191, August ai, 1929. 



'Sovietizatiori of the Tsarist Machine-Building Industry 183 

ribbons and supplies were produced by the Alftan concession after about 
1924.** Pencils and stationery items were made by the Hammer (American 
Industrial) concession. These companies were the only producers of these 
items in the Soviet Union. 

In the case of precision equipment, we can trace the start of a process of 
acquisition which was to be developed more extensively from the late 1930s 
to the 1950s. This was the purchase of single items or prototypes which were 
examined, broken down, and then used as the basis for Soviet production. 
The Fordson (Putilovets) tractor was probably the first effort in this direction. 
Purchases of small lots of Western machines began about 1927. For example, 
in September of that year, a number of calculating machines were bought in the 
United States, but only one or two each of a large number of makes and models. 70 
Burroughs, Monroe, Marchant, and Hollerith were represented in the pur- 
chase. In more difficult areas, such as marine instruments, technical-assistance 
agreements were made: in the case of marine instruments, with Sperry 
Gyroscope Company of the United States." 

CONCLUSIONS 

The process by which the tsarist machine-building industry was restarted 
and modernized is quite obvious. A great number of the plants were physically 
intact after the Revolution; skilled labor and engineering personnel were 
missing. Both had been dispersed by the political upheaval,'* 

" Ekonomicheskaya Zhizn, No. 346, November 28, 1924. 

,0 Amtorg, op. cit., H, No. 18, September 15, 1927, 5. 

71 A. A. Santatov and Louis Segal (eds.), Soviet Union Year Book, J930 (London; 
George Allen & Unwin, n.d.), p. 359. 

" The Foss Special Collection at the Hoover Institution illustrates the comparatively 
advanced technology of tsarist industry. Foss, graduate of the St. Petersburg 
School of Mines, was variously builder and manager of the Briansky Works, the 
Kolomna Locomotive Works, the Sormovo Works, and the Alexandrovsky plant 
between 1800 and 1917. The collection comprises eighteen large folders of high- 
quality photographs stressing the technical side of these plants. 

The photographs emphasize particularly the size of these prerevolutionary 
enterprises; some shops at the Alexandrovsky and Sormovo were very large by 
contemporary world standards. General neatness and order, uncharacteristic of 
post-revolutionary plants, is very noticeable (see the 'General view of blast furn- 
aces and coke ovens' in the Alexandrovsky folder). A high degree of Russian 
craftsmanship is demonstrated in photographs of the erection of the manual training 
school at the Kolomna Locomotive Plant, particularly in the stone and brick work. 
This craftsmanship is conspicuously missing in post-revolutionary buildings. 

Complex machinery was made in these plants. The Briansky Works folder has 
photographs of intricate steel castings, stampings, bevel gears, helical screws, 
locomotive parts, small tools, and armaments, as well as complete locomotives and 
wagons. Kolomna Service Locomotive No. "Tiozy (dated 1897) is an impressive 
piece of equipment. Of particular interest (in the Sormovo Works folder) is a 
photograph of a large planer under construction (dated 1 887) and an almost complete 
3 -high plate-rolling mill. The latter is complete with run-out tables, cast rolls, and 
screw-down mechanism. The rolls are about 84 or 96 inches wide and of great 



1 84 Western Technology and Soviet Economic Development, igiy-xgyi 

Several of the more complex machine-building plants were allowed to 
continue unmolested (e.g., Wcstinghouse Air Brake and Citroen). The alter- 
native was to see the plants at a complete standstill. The foreign owner viewed 
the situation with a measure of hope. In some cases (Singer and International 
Harvester) the plants were nationalized and then denationalized. This was 
also seen as a sign of a genuine return to capitalism. Others were restarted 
with German technical assistance forthcoming under the Rapallo economic 
protocols. At the end of the decade, after a decision had been made to orient 
to American technology, a series of agreements were made with American 
companies: Baldwin Locomotive, Frank Chase, Albert Kahn, Sperry 
Gyroscope, and Underwood, for example. In dicscl and engine building, the 
decision was to continue with German (Deutz and Faudewag) technical 
assistance. 

In sum, the restored tsarist machine-building industry was on the way to 
modernization at the end of the decade. Construction of new plants was on the 
drawing boards of top American and German companies. 



interest in the light of Soviet assertions that this equipment was not built in Russia 
until after 1930. In the Alexnndrovsky folder there are photographs illustrating 
forging and machining a one-piece zo-ton steel ingot into a connecting rod for 
the cruiser Bogatyr (about 1890). Other features are the racks in Pickling Shop 
No. 1 at the Kolomna Works. These are the same model in use in Welsh tinplate 
mills in the early 1950s. The worker's dress is decidedly better than that of the 
post-revolutionary period. 

The reader who is interested in pursuing this comparison further should compare 
the complete Foss collection with examples of the same plants in the Soviet period. 
One source for Soviet data is the booklets published by the Chief Concessions 
Committee describing plants offered as concessions to foreign entrepreneurs. 
For example, see I. N. Kostrow, The Nadedjinsky and Taganrog Metallurgical 
Works (Moscow: 1920). The plants were in a pitiful state, having been allowed to 
run down during twelve years of Bolshevik rule. There is a photograph of the 
open-hearth shop of the Nadedjinsky Works, which indicates that the shut-down 
plants only needed work to get them into operation. Nadedjinsky appears partially 
in operation, but one furnace is obviously 'cold,' with debris and trash heaped 
around the furnace doors. 



CHAPTER ELEVEN 

Electrical Equipment Manufacturing Industry 
and Goelro 1 



THE FORMATION OF TRUSTS 
A Russian electrical equipment industry was established in the decade before 
the Revolution. In 1917 the industry was concentrated in Petrograd (about 75 
percent) and Moscow, and employed some 60,000 workers. The Soviets 
nationalized the industry, which came through the Revolution with its equip- 
ment substantially intact 

From 1921 onward, the government invited a series of foreign experts and 
companies into the U.S.S.R. to make recommendations for modernization. 
The first known report by a Western engineer painted a chaotic picture. Some 
plants were closed; in those that remained open, employment was 5 to 10 
percent of the prewar level (about 4,000 in 1920) and production even less. 
Many skilled Soviet workers had entered military service to get food and shelter ; 
the more skilled foreign workers had returned home; and those domestic 
workers that remained were largely inefficient. Wages did not correspond to 
ability. Bench workers often earned more than skilled technicians. Communists 
possessing little or no technical ability served as technical directors, and 'white' 
skilled engineers were serving in minor posts. Stocks of raw materials ran 
out; no means existed for importation or domestic supply. 

On the other hand, the industry was in relatively good shape technically; 
only a few plants required re-equipment .* 

1 This chapter is based on Soviet sources published inside and outside the U.S.S.R 
on reports submitted to the U.S. State Dept. by representatives of American 
companies invited to exam ine the condition of the electrical industry, and on material 
on Allgememe Elektrizitats Gesellschaft (A.E.G.) from the German Foreign 
Ministry Archives. 

* See the Report by B. W. Bary, electrical engineer, to the U.S. Consulate at Vibourg, 
October 19* «• The covering letter describes the report as 'competent,' 'comprehen- 
sive, and 'a measure of the true conditions.' (316-139-11.) 



1 86 Western Technology and Soviet Economic Development, igi?-i$30 

Confirmation of the excellent technical state of the inlustry comes from a 
surprising source — Charles P. Steinmetz, the inventive^ genius of General 
Electric Company, who was certainly not unsympathetic to the Bolshevik 
Revolution: 

It is interesting to note that Russia had a considerable electrical industry 
before the war, so that in 1913 more than half the electrical machinery 
used in Russia was built in Russia , . . (but) in 1920 the output of the 
electric factories in Russia was very low. It is stated however that their 
equipment including tools, etc., was perfectly intact and ready to resume 
large scale operation. 1 

The first step in reconstruction was to organize the industry into four trusts. 
The total industry contained thirty-two plants, of which twenty-six were in 
operating condition and six completely idle, or, as the Soviets expressed it, 
'in a state of technical preservation': i.e., in working condition but not 
operating. The twenty-six were working very intermittently. The four trusts 
formed were :( 1 } the Electro-Technical Trust for the Central D istrict {or GET), 
to manufacture high tension equipment,(2) a trust f«-r manufacture of electrical 
high-tension equipment (Elmashstroi), (3) the low-tension equipment trust, for 
telephones and radio apparatus, and (4) the accumulator-manufacturing trust. 

The formation of the trusts brought prerevolutiOAary managers back to 
positions of authority; although usually these were technical men, one at least 
had been a company director. Lew Zausmer, a former officer of the Russian 
General Electric Company, became one of the trio of directors controlling 
the Electro-Technical Trust, 

Concurrently with this reorganization and the return of former managerial 
and technical personnel, invitations were sent to foreign electrical equipment 
manufacturers to participate in the development of the .ndustry. On March 
29, 1922, Maurice A. Oudin, President of the General Electric Company, 
informed the U.S. State Department that 'his company feels that the time is 
possibly approaching to begin conversations with Krassin relative to the 
resumption of business in Russia.' The State Department told Oudin that this 
was a question of 'business judgment.' Oudin then added that negotiations 



Charles P. Steinmetz, 'The Electrification of Russia,' p. 3 of typescript supplied to 
the writer by the Schenectady Historical Society, New York. 

The reports of Western company representatives are of particular interest and 
agree with Steinmetz on this point. These engineering reports were to form the 
basis of managerial decisions to enter or not to enter into agreements with the 
U.S.S.R. As the reports were made by engineers, they are important for their 
estimates of the technical state of the electrical plants. These engineers had unres- 
tricted access granted by the Soviet authorities and collected detailed data. The 
writer gives this data greater weight than that from any other source, including the 
intelligence reports found scattered throughout the U.S. State Dept. Archives. 
These engineers (Bary, Reinke, Keeley, Klemmer, and others) were skilled observers, 
knew the Russian language and also many of the engineers in the plants they visited. 



Electrical Equipment Manufacturing Industry and Goeko 187 

were currently under way between General Electric and A.E.G. (German 
General Electric): 

... for resumption of the working agreement which they had before 
the War. He expects that the agreement to be made will include a provi- 
sion for cooperation of Russia. 4 

Within four weeks an offer was made to International General Electric 
Company to participate in a joint mixed-capital company: 

We believe that the low rate of wages as well as the excellent conditions 
of the outfit (equipment) of the works will give you sufficient economic 
grounds for taking part in our business, either in the way of supplying 
us with certain materials, or by a partial finance in exchange for the 
products worked out by our factories. 8 



Table 11-1 AGREEMENTS BETWEEN FOREIGN COMPANIES 

AND THE ELECTRICAL EQUIPMENT TRUSTS, 1922-30 



Trusts formed from 
prerevolutionary plants 



Affiliated foreign firm 



Type of 
concession* 



Electro-Technical Trust (GET) 



Elmashstroi 



Low-Tension Trust 



Accumulator Trust 

New Soviet undertakings 
Electroselstroi 
Electroexploatsia 



International General Electric 
Allmanna Svenska Elektriska A/B 

(A.S.E.A.) 
AUgemeine Blektrizitits A-G 

(German General Electric) 
Metropolitan- Vickers, Ltd. 
Radio Corporation of America 
AUgemeine ElektrizitSts A-G 
Metropolitan-Vickers, Ltd. 
John J. Hifjgins (U.S.) 
Ericsson (Sweden) 
Radio Corporation of America 
Compagnie Generale de TSF (France) 
Gaso-Accumulator A/B (AGA) 

(Sweden) 

Allmanna Svenska Elektriska A/B 
International General Electric Co. 



Ill 

I and III 

in 

in 

111 

in 

in 

in 

1 

in 

in 

I and III 

II and III 
II and III 



Sources: 1. 



U.S. and German Archives. 

2. Annuaire, 1925-25. 

3. Troyanovsk, op. cit. 

4. Klemmer Reports to Western Electric Co., 1926 (U.S. State Dept, 
Decimal File, 316-141-630) and 1927 (U.S. State Dept. Decimal File, 
316-60-95). 

Sec chap, t for definition of concession types. 



U.S. State Dept. Decimal File, 661.1115/402. Memorandum from D.C.Poole 
to Secretary of State, March 29, 1022, 

U.S. State Dept. Decimal File, 316-139-58. Letter from the Electro-Technical 
Trust to the International General Electric Company, Schenectady, May *, 1922. 



1 88 Western Technology and Soviet Economic Development, 19x7-1930 

Two points are notable: first, the statement that the equipment in the plants 
was in good working order, and second, the timing of the letter from the 
Electro-Technical Trust to General Electric. It arrived just four weeks after 
the State Department conversation. 8 

After 1922 a series of similar invitations was sent, and agreements were 
concluded between all four trusts, individual plants within each trust, and 
most major Western electrical equipment manufacturers, including Inter- 
national General Electric, A.E.G., A.S.E.A. (Sweden), Westinghouse (through 
its U.K. subsidiary, Metropolitan-Vickers), Ericsson of Sweden, Brown- 
Bovcri (Switzerland), Western Electric, and Siemens, as well as numerous 
smaller companies. 

These agreements were made at two organizational levels: the trust and the 
individual plant. At the trust level they provided technical assistance, patents, 
drawings, and exchange of personnel (Type III agreement). At the plant level 
the contracts provided for technical assistance and also, in some cases for 
plant operation as a pure Type I concession by the Western entrepreneur. 
Table 11-1 lists the four trusts formed by the Soviets from prerevolutionary 
factories together with the affiliated foreign partner, and the Soviet enterprises 
Electroselstroi and Electroexploatsia which were developed by the Soviets 
and did not incorporate prerevolutionary plants. They had affiliated foreign 
partners and operated in the form of 'mixed' companies, or Type II conces- 
sions with technical assistance features.' One Western company managed to 
evade nationalization after the Revolution. A.S.E.A. (Swedish General 
Electric) operated its Leningrad plant from the time of the Revolution through- 
out the 1920s and even managed to get its Yaroslavl plant, built in 1916, 
denationalized and converted into a Type I pure concession in 1924. There 
was also an independent factory, the Carbolite, operating outside the control 
of the trusts and coming directly under Glavelectro until it was abolished. 8 

The four trusts will now be considered in more detail. 

THE ELECTRO-TECHNICAL TRUST (GET) 

GET was responsible for manufacture of high-tension equipment and was 
formed by grouping together the major prerevolutionary dynamo and 
electric motor works located in Moscow and the Ukraine, including the 

' It may be that Zausmcr, the ex-officer of General Electric and a director of the 
Electro-Technical Trust, had some influence on this decision. He is quoted by a 
Berlin newspaper as follows: ' . . . the Russian electrical industry cannot develop 
without the support of the highly developed electrical industries of Germany and 
America.' (Botrson Courier, September 25, 1922.) 

' Annual re, op, {it. (rear page 24). 

" The German Foreign Ministry Archives refer to a 'Curtio project'; otherwise 
nothing is known of this operation. (T120-4Z47.) 



Electrical Equipment Manufacturing Industry and Goctro 189 

Kharkov works of the General Electric Company and its twelve assembly 
divisions in major industrial centers throughout the Soviet Union. All type9 
of heavy electrical machinery, including generators, motors, transformers and 
turbines, were produced. 

Table 1 1-2 PLANTS COMPRISING THE ELECTRO- 

TECHNICAL TRUST 



Prerevolutionaty Name Soviet Name Production 



Russian General Electric Dynamo A-G Electric motors 

(Moscow and Petrograd) 

Allgemeine ElektrizitSts A-G Electrosila (Kharkov) Electrical equipment 

Allmanna Svenska Elektriska A/B (A.S.E.A. concession) A.C. electric motors 

A.S.E.A. obtained its prerevolutionary plant as a Type I concession and 
in 1927 received another Type I concession to build and operate a plant at 
Yaroslavl for production of alternating current electric motors. 9 By 1928 the 
company was producing 500 motors a month at Yaroslavl, 'the output sold on 
partial credit terms mainly to state-owned enterprises.' 10 The construction 
involved an outlay on buildings and equipment of between 15 and 18 million 
rubles. The new plant had 28,000 square meters of floor space and 1,500 
employees, and in 1929 produced at the rate of 30,000 electric motors per year. 
In weight this was 48,000 tons of equipment, valued at 14 million rubles. 
Production included alternating current motors ranging from 1/4 to 700 h.p. 
Equipment for the Yaroslavl factory came from the Swedish General Electric 
factory at Stockholm. A royalty was payable by the Soviets on all production 
during the life of the concession, agreed upon at thirty-five years but expro- 
priated long before the final date. 

The widest impact of G.E. technology came, however, from agreements 
made after the Swedish General Electric concessions. There had been 
negotiations between A.E. G. in 1 922 and 1 923 following the letter sent by GET 
to International General Electric. These negotiations were not immediately 
successful. Their failure probably placed G.E. at a competitive disadvantage; 
Siemens-Schukert Werke A-G, for example, had granted credits as early as 
1922. Metropolitan- Vickers (the Westinghouse subsidiary) had been in the 
U.S.S.R. from about 1922 onwards. The G.E. company therefore continued 
negotiations through its German subsidiary. 11 

The first technical-assistance agreement was concluded between Uchanov, 
Chairman of the Electro-Technical Trust, and A.E.G. in October 1925. This 

* Amtorg, op, at.. Ill, 374. 

" Ibid,, E. P. Lindgrcn, Director of A.S.E.A. (Swedish General Electric). 
11 U.S. State Dept. Decimal File, 316-130-41. 



I go Western Technology and Soviet Economic Developm-mt, 1917-1930 

agreement included the manufacture of General Electric generators, electric 
motors, and transformers of high- voltage types. The trust was given the right 
to produce A.E.G. products and use 'all patents, protective certificates, 
inventions, construction and experiments belonging to A.E.G. in the field of 
high-voltage currents.' la General Electric was required to furnish data on 
request and to accept and train Russian engineers in German plants for a 
period of five years. The agreement was supplemented and continued by 
other agreements which continued the technical-assistance program until 
1938. A royalty was payable on all production of high- voltage electrical 
products for which A.E.G. held manufacturing rights from the parent 
company in the United States. 13 As a quid pro quo for technical assistance, 
substantial quantities of equipment were purchased on credit terms for the 
plants comprising the trust. 

Table 11-3 PRODUCTION OF HEAVY ELECTRICAL 

EQUIPMENT IN RUSSIA AND THE U.S.S.R., 1913 TO 1929-30 



Year 


Power transformers 
(thousand kva) 


Electric motors (A.C.) 
(thousand kw) 


Turbo-generators 
(thousand kto) 


1913 

19 iK to 1922-3 

1923-4 


96.3 

None 

76.5 


N.A. 
N.A. 
N.A. 


N.A. 
N.A. 
N.A. 


1 924-5 
1925-6 
j 926-7 


196.0 
127.4 
291.7 


104.4 

N.A. 
N.A. 


10.3 
16.3 
51-8 


1927-8 
1928-9 
1929-30 


403.2 

791. 1 

1525.0 


458.6 
321-7 
632.6 


7S-o 
136.5 
186.0 


Source: Nutter, op. 


at., p. 441. 







Table 1 1— 3 indicates production of transformers, electric motors, and 
turbo-generators from 1913 to 1929/30. There was no Soviet production of 
these items in the years before 1924. Their production coincided with the 
technical-assistance agreements and the operation of the A.S.E.A. Type I 
concession. The recovery and development of the Soviet electrical equipment 
industry in these fields was almost entirely dependent on General Electric 
technology transferred to the Soviet Union through A.E.G. 

In addition to the agreements outlined in this chapter, there was a technical- 
assistance agreement between the United States firm of John J. Higgins and 
GET in 1929 and an important Radio Corporation of America agreement, 

15 U.S. Consulate in Hamburg, Reports No. 149, December 13, 1925 (316-108-1543); 

and No. 360, October 12, 1925 (316-130-552). 
" Ibid. See also International General Electric section, p. 198. 



Electrical Equipment Manufacturing Industry and Goelro 191 

which included General Electric and Westinghouse patents in the field of 
communications, concluded in 1929 and discussed at length in chapter 14, 
Even while this technical transfusion was in progress, the Party propagan- 
dists were unable to restrain themselves from 'agitprop.' A challenge was 
issued "from the workers' of the ex-A.E.G. plant in Kharkov to the A.E.G. 
plant in Berlin to engage in 'revolutionary emulation,' and a delegation of 
working men from Berlin was invited to the Kharkov plant 'all expenses paid.' 
The benefits of 'revolutionary emulation' to the General Electric Company 
were not spelled out. 11 



THE ELECTRICAL MACHINE TRUST (ELMASHSTROI) 

This trust grouped high-tension equipment plants in Petrograd, including 
the Siemens A-G plant (renamed the Electrosila), with the Volta factories in 
the Urals. Elmashstroi negotiated an agreement with A.E.G. in late 1923 for 
technical assistance. A.E.G. was required to supply drawings, machines, and 
apparatus for the production of high-tension equipment, together with aid in 
construction of electrical manufacturing plants within the U.S.S.R. Russian 
engineers were sent to Germany for training and German engineers were sent 
to the trust offices and plants in Leningrad. The agreement ran initially for 
five years, and a percentage of all production was paid to A.E.G. as a royalty." 

The most important plant in the trust was the Electrosila, originally built 
in 1893. This trust had a chaotic history of technical assistance under the 
Soviets. In tsarist times the plant had produced steam turbines and generator 
equipment. In 1923 Electrosila adopted the designs forthcoming under the 
A.E.G. agreement. Then came four management changes in rapid succession, 

Table 11-4 THE ELECTRICAL MACHINE TRUST (ELMASHSTROI) 
Prerevolutionary Name Soviet Name Production 



Siemena-Schukert A-G 


Electrosila 


Electrical machinery 


Nordische Kabel Werke A-G 


Sovkabel 


Electric wire and cable 


Koltschugin 


Sovkabel 


Electric wire and cable 


Svetlana Gluklampenfabrik 


Svetlana 


Electric light bulbs 


Druzniai Gorka* 


— 


Porcelain insulators 


Kernilov* 


Proletarii 


Porcelain insulators 


Petrograd Armaturfabrik A-G 


— 


Armatures 



Source: U.S. State Dept. Archives. 

* Transferred in 1023 from the Glass and Porcelain Trust, and later transferred back 
to the same trust. (U.S. State Dept. Decimal File, 316-1 11-957.) 

" 'Challenge to the Proletarians of Berlin from the Workers of the Electro-Technical 

Factory of Kharkov,' Trud, No. 244, October 23, 1929. 
" Izvestia, No. 7, January 9, 1924. 



192 Western Technology and Soviet Economic Development, 1917-1930 

and by 1925-6, turbines were being built under a ten-year agreement with 
Metropolitan-Vickers, This was apparently not too successful, because one 
year later a further change occurred. As A. Monkhouse, the Metropolitan- 
Vickers chief engineer in the Soviet Union, puts it, 'a great American com- 
pany contracted to render technical assistance to this and other factories 
and thus American designs were introduced.' ls 

The 'great American company' was International General Electric. Russian 
engineers were then sent to the United States for training, whereas previously 
they had gone to the United Kingdom. In 1931 the Metropolitan-Vickers 
company again obtained the technical-assistance contract, and this heralded 
yet another series of management changes. 

In the tsarist era, electric light bulb production was concentrated at Svetlana 
Gluklampenfabrik in Petrograd. In 1913 the plant produced 2.85 million 
electric light bulbs, and in 191 6 over 4.58 million (a good example, incidentally, 
to show the fallacy of using 1913 as a comparative base). Production in 1920 
fell to about one-quarter million, but later recovered (with the use of imported 
wire), reaching a level between the 1913 and 1916 outputs (3.82 million in 
1922-3). 17 In May 1923, Ekonomicheskaya Zhizn published an interview with 
the chief of Glavelectro, A. G. Holtzman, who had just returned from negotiat- 
ing with Osram in Germany, Phillips in Holland, and General Electric in the 
United States for the introduction of the latest in Western techniques in the 
manufacture of electric light bulbs. A joint-stock company was proposed, in 
which the Soviets would provide the plant (the tsarist Svetlana plant) and the 
foreign partners would introduce modern equipment. 

The objective was as follows : 

, . . Russia would develop within two years to the same extent as now 
exists in Western Europe and America. The Russian bulbs must not be 
worse nor more expensive than those produced by the aforementioned 

firms." 

In the following months, agreement was also reached with the International 
Electric Light Cartel. With the aid of Western technical experience, produc- 
tion was increased from 1,500 to 7,500 bulbs per day. At first, tungsten wire 
was purchased abroad, and later Russian tungsten wire was used. From an 
output just under four million in 1922-3, there was a significant increase to 
thirty-three million bulbs in 1929-30. I0 

" A. Monkhouse, Moscow 1911-1933 (Boston: Little, Drown and Co., 1934), pp. 

'9+-S- 
17 Nutter, op, cit,, p. 458. 

" Ekonomickeskaya Zliizit, No. 96, May 3, 1923. 
" Nutter, he. tit. It is known that a Polish Type I concession, Yan Serkovsky, operated 

an electric lamp plant in Moscow. As the Svetlana was the only plant able to produce 

electric light bulbs the plant was possibly leased to this group. (U.S. State Dept. 

Decimal File, 861.602/211.) 



Electrical Equipment Manufacturing Industry and Goetro 1 93 

THE LOW-TENSION TRUST 

The Low-Tension Trust was comprised of the tsarist-era plants in Lenin- 
grad, Moscow, and Nizhni- Novgorod which had made telephone and telegraph 
apparatus. In 1923 this was probably the most efficiently operated Soviet 
trust. The trust president, Joukoff, was a party member but, unlike most of 
hi3 confreres, who were long on talk and short on management ability, Joukoff 
had excellent management abilities, was entirely responsible for financial 
matters, and was directly supported by a team of 'white' technical experts 
who managed internal operations of the plants. 

The 'white' technical directors were hold-overs (former engineers, not 
former directors) from the prerevolutionary electrical industry. They 
included Mochkovitch, formerly chief engineer of the Heisler Company 
(owned by Western Electric) and Kolotchevsky, formerly of the B.T.M. 
company. These technical directors functioned alongside 'red' directors. 
The latter were party members who nominally directed the plant but in 
practice left the 'white* technical men to operate independently in the technical 
sphere. The equipment in all the plants in the trust was intact and maintained 
in good order. Each plant operated as an independent profit-making unit. 

The ex- Western Electric Heisler plant employed some 850 men: slightly 
less than its 1917 employment level of 1,100. Inmid-i9Z3, the plant was busy 
on an order for 900 train-dispatching sets for the Railway Administration, its 
only major customer. 

Table 11-5 PLANTS COMPRISING THE LOW-TENSION TRUST 



T ,„ . , ___, Number of workers _ 

isanst name . Production 

loty 1 1916 1 1923* 1926 1 

Ericsson (Red Dawn) 1275 2700 900 4800 Automatic telephone equip- 

, ment and switchboards 

Heisler A-G 845 900 850 1200 Telegraph equipment and 

loudspeakers 

Siemens Halske A-G 750 2200 600 1300 Radios, R.R. -signaling meters 

Electro-vacuum plant (new) — — — 250 Radio and roentgen tubes 

Marconi plant — — — 350 Military radios 

Telephone plant — 1200 — tooo Radio receiving equipment 

Siemens — 1200 — 700 Telephone sets 

Sources: • Klemmer report to Western Electric Company, 1927 (U.S. State Dept. 
Decimal File, 316-141-630). 
* Reinke report (U.S. State Dept. Decimal File, 316-108-672). 



The Ericsson plant employed 900 (considerably fewer than the 3,500 
employed just before the Revolution) and was making Ericsson-type tele- 
phones—the only producer of telephones in the U.S.S.R. It was operated as a 



194 Western Technology and Soviet Economic Development, igij-ig^o 

concession and was able to produce all types of telephone equipment except 
lamps (which were imported from Germany or Sweden), and cords and cables, 
(which were bought from the Cable Trust). Troubles were reported in 1923; 
Soviet raw materials were of poor quality, and some items, such as enameled 
wire and magnet steel, were either in short supply or unobtainable. Production, 
therefore, averaged only about 7,000 sets per year, although capacity was 12,000 
telephone sets annually. Nutter 40 gives the telephone output as rising from 
13,300 in 1923/4 to 117,000 m 1929/30. As Ericsson was still the sole producer, 
this was also the measure of Ericsson's ability to increase production during 
the decade. 

The Siemens Halske works in Petrograd, previously a manufacturer of 
telephone equipment, employed some 600 and was preparing to change over 
to the manufacture of radio equipment under technical direction of Compagnie 
Generale de TSF (which Reinke erroneously calls French General Electric). 81 
Since the Revolution, this plant had been at a standstill except for a little 
repair work. 22 Reinke, the Western Electric engineer who visited the plant, 
concluded that the chance of a mixed company or pure concession for Western 
Electric, the previous owner, was remote. Reinke concluded that the U.S.S.R. 
was 'encouraging only badly run factory trusts to get into mixed companies.' 
However, he did comment that the trust was anxious to associate itself with a 
large foreign firm. He explained this on the basis that although the plants were 
operating efficiently, they lacked the ability to progress. 23 This observation is 
confirmed by the subsequent agreement between the Low-Tension Trust and 
Compagnie Generate in June 1923 and Ericsson in 1924. Even a well-run 
trust required foreign technology to make technical progress. In the 1920s 
this could be explained on the basis of a negligible research and development 
investment. More recently the notable absence of Soviet innovation which can 
compete in the Western marketplace has had to be explained on quite different 
grounds. 44 

10 Ibid., p. 448. 

" Based on the Reinke Report (mid-1923) (State Dept. Decimal File, 316-108-672). 

This was supplemented by two later reports in 1926 and 1927. 
" Keeley Report (3 16-107-100). 
" 'The present technical men are those formerly in control, and they are doing 

practically as good a job as in 1917. They can get on very comfortably without us. 

But what they lack is the ability to go ahead. The same difficulty existed in 1917 

when the factories depended on the foreign mother companies to lead the way.' 

(Reinke, op. cil.) 

11 Klemmer lists electrical products not produced in the Soviet Union in 1927, four 
years after the Reinke Report. These were: generators above 5,000 kw, all types of 
high-tension equipment and transformers, fine insulated wires, special lamps 
(including all over 200w), high-tension insulators, carbon brushes and carbon 
materials (including telephone carbons), heating appliances, nickel steel accumula- 
tors, measuring instruments, automatic telephone equipment (including pneumatic 
tubes), condensers, all types of electrical consumer equipment {including vacuum 



Electrical Equipment Manufacturing Industry and Goelro 195 

TECHNICAL ASSISTANCE TO THE LOW-TENSION TRUST 
In June 1 923 the Compagnie Gencrale de TSF of France signed a technical- 
assistance agreement with the Low-Tension Trust to re-equip its plants with 
modem machinery and processes, to supply technical assistance, and to build 
electrical substations in the Moscow area. A new electro-vacuum plant was 
established by the Compagnie Gen6rale, using French methods of producing 
cathode ray tubes and radio tubes. The old Petrograd plant of Siemens was 
equipped to manufacture radio transmission equipment for radio stations. 
Other plants of the trust were similarly modernized, 'after which Russian 
radio technique (will be) on the same level as the French,' as Klemmer says 
in his report. The trust sent its engineers to France for training, and French 
engineers went to the trust plants to provide the engineering and operational 
assistance required. Equipment was supplied on rive-year credit terms." 
Patents were transferred from France and, unlike other contractors, the French 
were able to negotiate a payment (the amount unknown) for the technical- 
assistance features. The very extensive nature of the Compagnie Generate 
agreement is suggested by the transfer of over 38,000 drawings and 3,000 
technical specifications in the first two years of the cooperation.** 

The Compagnie Ginerale agreement was followed by another with Ericsson 
of Sweden, which took over its old plant in Petrograd for the manufacture of 
telephones. This was, in effect, a formality, as Ericsson engineers had been 
working in Petrograd almost continuously since the Revolution. Modern 
machinery, imported from Germany and Sweden, included automatic screw 
machines and automatic punching, milling, and tooth-cutting equipment from 
the United Kingdom and the United States. Inspection and test equipment was 
installed. This re-equipped plant started production in 1926, at first with 
Swedish raw materials and later with Soviet-produced raw materials. Ericsson 
had four engineers in the plant with complete authority to control and approve 
every step of the production of automatic telephone equipment. All drawings 

cleaners), electrical medical apparatus (including roentgen tubes), and special 
electrical apparatus. (Klemmer, op. tit., p. 42.) 

Some of these items were the subject of technical-assistance agreements apparently 
not known to Klemmer (for instance, medical apparatus, nickel accumulators, 
high-tension equipment, high-tension insulators, and transformers). Most came 
within the scope of technical-assistance agreements by 1030. 

™ The Soviets erected 43 internal radio stations between January 19*3 and January 
1927; all except the experimental models were with French technical assistance. 
Klemmer states the manufacturer in 22 cases; 16 were built by the Low-Tension 
Trust-Compagnie Generate operation, 4 were built by local laboratories on an 
experimental basis, and 2 radio stations were imported. Later, more powerful 
stations were built either in the U.S. by RCA or in the Soviet Union with RCA 
technical assistance after assurances by the State Dept. to RCA that they would not 
be used for propaganda (see chaps. 14 and 18). (316-141-712 et teq.) 

•• Izvestia 1, No. 15, January 18, 1924; and No, 33, February 12, 1924. See also 
Soviet Union Yearbook 1917, p. 169. 



196 Western Technology and Soviet Economic Development, 1917-1930 

and technical information were supplied by Ericsson. Locally made Russian 
drawings and technical instructions had to receive approval of an Ericsson 
engineer before use. Between ten and twelve Russian engineers were trained 
in the Ericsson Stockholm plant for periods ranging from three to six months 
and then returned to Leningrad, ultimately to take over production control." 
Credit for the arrangement was supplied by a consortium of Swedish banks. 

The technical contribution of the foreign electrical companies enabled the 
trust to increase its output from two million rubles in 1922 to more than 
thirteen million rubles in the year 1924-5. According to Klemmer, this 
increase was mainly due to the work of Ericsson. 

The 1927 Klemmer Report 28 indicated that 1926 output in the electrical 
equipment industry was 20 percent greater than the previous year, with 
Ericsson showing the most progress. Several new shops had been opened and 
about one-third of the plant had received new equipment. At this point about 
one-third of the employees of the Low-Tension Trust were working for the 
Ericsson Company. 

There was a less significant agreement for the manufacture of long-distance 
receiving sets, including the transfer of patents, with the German company 
Telefunken Gesellschaft fur Drahtlose Telegraphic. 29 

In 1926-7 all Low-Tension Trust products were copies of Western equip- 
ment. Klemmer noted that the trust microphones were an 'exact copy' of the 
Western Electric Model 373- W, the loudspeakers were the balanced armature 
accord type (Western Electric Model 4002) and the amplifiers and public 
address systems had been copied from Western Electric systems. The Russians 
had produced domestically designed radio valves, but according to Klemmer 
these would not work. In 1926 they were producing, and attempting to export 
to Latvia, the Western Electric Models 216-D, 102-D, 205-B, and 2ii-D. M 
Klemmer should have known; he was an engineer with Western Electric. 

The trust teletype machines were allegedly designed by A. F. Shorin, but 
Klemmer points out that the design was no more than a Morcum printer 
combined with the Murrey keyboard. Further, although the Kaupush distri- 
butor (of which the trust manufactured about 20 in 1926-7) was claimed as a 
Soviet design, it was actually based on the Baudot repeater. Quite clearly these 
manufacturing efforts were part of a learning process, although the products 
manufactured were in many cases useless. 

The electrical industry was the advanced sector of the economy, and the 
Low-Tension Trust just described was the most advanced trust within the 

" Klemmer, op. cit., p. 27. 

58 U.S. State Dept. Decimal File, 316-60-124. 

*' Vneshtorgizdat, op. cit, p. 228. 

'° Klemmer, op. cit., p. 28. 



Electrical Equipment Manufacturing Industry and Goelro 197 

electrical industry. Other branches were using 40-50 percent imported 
materials and more extensive foreign technical assistance.* 1 



THE ACCUMULATOR TRUST 

The Accumulator Trust employed about 250 in 1923. Combined within it 
were the prerevolutionary accumulator, lighting, and illuminating fixture 
firms in Moscow and Petrograd. In 1912 the value of product for this sector 
was 24 million rubles; in 1922/3, the value was only 0.6 million rubles. 
In December 1924 an agreement was made by the trust with the Swedish 
company Gaso-Accumulator A/B (AGA) whereby the Moscow Lukes 
(or Lux) plant was leased under a concession agreement. The company was 
required to produce equipment valued at 210,000 rubles in the first year 
(one-third of the current Soviet output), rising to 470,000 rubles in 1926-7, 
AGA paid 75,000 rubles to the trust for the stock of raw materials and unfinish- 
ed work in the plant. The company was required to re-equip the plant and 
after twenty-five years turn the plant over to the government. A royalty of 
3 percent was paid on gross turnover. 82 

Insulating materials were the subject of an agreement between Centropro- 
bizol and the Swedish Company Vakander in 1927. This was a Type III 
agreement which ran for five years and included supply of the complete 
equipment for a plant to produce all types of insulating materials. The 
agreement included construction, start-up assistance, training of engineers, 
and the supply of production and technical data. Russian engineers were 
allowed to make 'a thorough study of the Swedish production methods. ' M 
This agreement was followed by a General Electric technical agreement with 
the Izolit insulation materials plant in 1930. 3 * 

The Soviets formed two trusts which did not include major prerevolution- 
ary institutions and indeed had had no exact equivalent in tsarist times. 
One was Electroselstroi, a joint-stock company founded in June 1924 with 
the same objective as the United States Rural Electrification Authority: to 
expand the use of electricity in rural areas. Electroselstroi undertook construc- 
tion of district electric generating stations of a standard type and sold electric 
motors, generators, and allied equipment to state farms and collectives. The 
Swedish General Electric Company was a shareholder (with a participation of 
250,000 rubles purchased for cash) along with the People's Commissariat for 
Agriculture, Gosstrakh, Gosspirr, and Sakharotrust. The Swedish company 

n Klemmer, loc. cit, 

" U.S. State Dept. Decimal File, 316-139-554. 

" Amtorg, op. cit., II, 14. 

" Ibid. 



tg8 Western Technology and Soviet Economic Development, 1917-1930 

had the function of organizing and supplying equipment for sale by the trust 
and no doubt its share subscription was 'a fee' for this privilege. 35 The 
General Electric Company was also one of the 'main shareholders' in Electroex- 
ploatsia, the second of these trusts, specifically designed to promote the use of 
electrical systems, in accordance with Lenin's dictum that 'socialism is 
electrification.' 3 * 



THE INTERNATIONAL GENERAL ELECTRIC COMPANY 
CONTRACTS OF 1928 AND 1930 

A contract of fundamental importance was signed in 1928 by the Soviet 
Union and the International General Electric Company. Under this contract 
the company supplied to the Soviet Union $26 million worth of electrical 
equipment on six-year credit terms. The Soviets claim that G.E. agreed to 
consider all prewar claims against the U.S.S.R. as settled." Technical assist- 
ance was an integral part of the agreement. This began what General Electric 
has described as 'a continuous uninterrupted record of close technical 
collaboration and harmonious commercial association.' M 

The 1928 agreement was followed by a tong-teim technical-assistance 
agreement signed in 1930, under which 'vast amounts' of technical, design, 
and manufacturing information flowed from General Electric in Schenectady 
to the Soviet Union. The Soviet Union established an office at Schenectady 
and G.E. a parallel office in Moscow. 

There was the usual exchange of personnel, training of Soviet engineers in 
the U.S., and dispatch of American engineers to the U.S.S.R. to implement 
the agreement. The Electrozavod transformer plants, the Izolit insulation 
material plant, the Dynamo locomotive plants, the Electrosila plants, Electro- 
apparat and Electric works in Leningrad, and the turbine plant in Kharkov 
received groups of G.E. engineers. In general, however, the great impact of 
direct General Electric technological assistance was not in the period 1 9 17 to 
1930. Development before 1930 was dependent on Metropolitan- Vickers and 
A.E.G. (i.e., indirect G.E. technical assistance}. The General Electric era was 
after 1930. 39 

55 U.S. State Dept. Decimal File, 316-139-56. Atmuaire, op. cit., rear p. 24. 

36 Troyanovsky, op. cit., p. 791. 

" lsvestia. No. 247, October 23, 1928. 

38 Monogram, November 1943. 

" The 1928 General Electric contract was closely examined in Germany. The Rapallo 
Treaty contained a clause that compensation would be relinquished only for German 
claims against the U.S.S.R. so long as the Soviets did not make payments to any 
other power. The Soviets argued that G.E. was a private company, not a power, and 
that therefore the Rapallo clause did not apply. The Germans considered the G.E. 
agreement a violation of the Rapallo Treaty, as the company received a payment of 



Electrical Equipment Manufacturing Industry and Goelro 199 

THE METROPOLITAN-VICKERS ELECTRICAL COMPANY— 
MASHINOSTROI TECHNICAL ASSISTANCE AGREEMENT 

In addition to German assistance in the electrical industry, two other 
European manufacturers rendered substantial assistance and equipment. In 
1927 the Brown-Boveri Company of Switzerland opened an office in Moscow 
to implement the installation and erection of equipment supplied under a 
number of contracts with the U.S.S.R. Little is known of the content of these 
agreements. 40 

Far more important was Metropolitan- Vickers, a United Kingdom subsid- 
iary of Westinghouse. The company has operated in Russia since the turn 
of the century, installing several large electricity-generating plants and the 
electrification of the Moscow tramway system in 1906. Just before World 
War I, the company became associated with Russian General Electric (the 
Dynamo works) which then took over the Metropolitan-Vickers plants in 
Moscow. 41 

After the Bolshevik Revolution, Metropolitan-Vickers returned to Russia 
and by 1924 had several large contracts in progress. Each major technical 
advance made by the company in its U.K. plants was transferred to the Soviet 
Union. In the early 1920s significant advances were made in the operating 
speed of generators. A world record was set by a Metropolitan-Vickers 
generator of 38,500 Kva (3,000 rpm.) installed in a Soviet power station in 
1926. Similarly, in the same period there was an increase in transmission 
voltages; Metropolitan-Vickers manufactured transformers for Soviet 110-kV 
and 115-kV systems were installed in 1923, some five years before the start 
of the British grid system utilizing similar transmission voltages. In 192a the 
company developed outdoor switchgear for 132-kV systems. Several 1500- 
MVA 132-kV circuit breakers were installed in the U.S.S.R. within two years 
of initial development. These sales of the latest products of the Metropolitan- 
Vickers laboratories were followed in 1927 and 1931 by long-term technical- 
assistance agreements. The 1927 agreement was initially signed with Mashinos- 
troi for six years at £30,000 ($150,000) per year and covered that turbine 
construction which formed the basis of the Soviet turbine industry." The 
company maintained extensive erection and technical facilities in the Soviet 



SS7S.403 as compensation for its claims on theU.S.S.R, G.E. claims this was only a 
partial settlement. The Foreign Claims Settlement Commission (Decision No. 
SOV-3110) made an award of 81,157,407.26 plus interest to G.E. This dispute, of 
course, has not been settled. (340-6-517.) 
U.S. State Dept. Decimal File, 316-131-1010. 

W j S H? Bh ? use ' eft ** uss ' a in '9'3 except for a bank account. This was expropriated, 
and Westinghouse has received Is, 703. 44 from a claim amounting to $49,400 plus 
interest. Letter from Westinghouse to writer, March 4, 1966. 
J. Dummerlow, 1899-1949 (Metropolitan-Vickers Electrical Company, 1949). 



2oo Western Technology and Soviet Economic Development, 191J-1930 

Union, an office at Electroimport, a company office at Leningrad and a 
'compound' with several buildings at Perlovka, just outside Moscow. 48 
Company engineers established the manufacture of turbines according to 
company plans on 'a large scale' under R. Cox, its chief mechanical engineer, 
in the U.S.S.R. Soviet engineers and foremen were s-.-nt to the United Kingdom 
for training. In 193 1 another agreement with GET txpanded the scope of the 
transfer of turbine technology. These agreements endured both the Arcos 
break of 1927 and the notoriety surrounding the arrtat and expulsion of six 
Mctropolitan-Vickers engineers in 1933 on grounds •"■f economic espionage 
and sabotage. 

Steam turbines had been made in the Pctrograd M: tul Plant (later renamed 
the Stalin) early in 1906. By 1914 there were seven plants in Russia manu- 
facturing naval turbines and one manufacturing stationary steam turbines; 
after 1917 the Petrograd plant alone continued working, but only on repairs 
to existing turbines and the manufacture of spare parts, .^either this nor any 
other Soviet plant had experience with high-power hydraulic turbines. 

To summarize, by the end of the decade the Soviet electrical industry had 
undergone a complete overhauling in methods of production, variety of goods 
produced, and quantity produced. This had been achieved in the face of 
disaster by restoring the prerevolutionary technical personnel, injecting 
foreign managerial and engineering personnel and foreign-developed technol- 
ogy into the most important of the prerevolutionary plants. Whereas in 
1 913 the industry value of output was 45 million rubles, in 1924-5, one year 
after the introduction of foreign technology, it was 75 million (19 13) rubles, 
and by the end of the decade more than 200 million (1913) rubles. Imports 
of electrical equipment increased from 7,592 tons (valued at 14 million rubles) 
in 1925-6 to 26,465 tons (valued at 45 million rubles) in 1927-8. Eighty 
percent of these imports were electrical machinery and high-tension apparatus 
(i.e., capital goods). 

The variety of goods also expanded under foreign guidance. Steam turbine 
generators of up to 10,000 kw, hydro-turbine generators of up to 8,750 kw, 
transformers of up to 38,000 volts, high-voltage armatures, oil switches, and 
mercury rectifiers were being produced by the Electro-Technical Trust and 
Elmashstroi by the end of the decade. Production of electric light bulbs was 
modernized and arrangements had been made with foreign firms to introduce 
the manufacture of mercury lamps, automatic car headlights, and pocket 
lights. The Low-Tension Trust was now producing radio transmitters and 
receivers, although large stations for international communications and 

" Correspondence Relating to the Arrest of Employees of the Metropolitan-Vickert 
Company at Moscow, Command Paper 4286 {London: H.M.S.O., 1933) pp. 2-3. 



Electrical Equipment Manufacturing Industry and Goelro zo i 

propaganda were built by RCA in the United States.** Watt meters, X-ray 
apparatus, automatic telephones, and exchanges were being built in the 
U.S.S.R. 

Research establishments, including the State Electrical Engineering Experi- 
mental Institute, were also established, complete with 'unique' equipment 
manufactured by the General Electric company.* 4 

All trusts and plants within the trusts received foreign technical assistance. 
All technological progress resulted from a transfer from West to East. Further, 
rather than just restoring and modernizing the prerevolutionary plants, the 
foreign associates introduced the latest innovations from Western laboratories 
—sometimes before they had been utilized in the Western country of origin. 

SOCIALISM IS ELECTRIFICATION; THE GOELRO PROGRAM 
The most important customers for electrical machinery are power stations, 
utilizing hydro, peat, and coal fuel methods of energy conversion. 

The original Goelro program outlined by Lenin demanded 100 power 
stations as the basis for a socialist economy. This was revised downwards in 
the Zinoviev speech of January 1 921 to 27 stations, and followed by ample 
discussion but little concrete action.* 6 Two years later only three projects 
were receiving any attention, and that was rather desultory. Studies inherited 
from the tsarist period included one which had been expanded into the 
Dniepr project, but a few scattered site borings comprised the total achieve- 
ment. The general feeling was that Dniepr should be offered as a concession. 
Volkhov, Svir, and Nizhni-Novgorod were at various points of early construc- 
tion, but three years after the announcement of Goelro, the program had 
hardly moved. 

The Svir hydroelectric project, north of Leningrad, ran into almost 
innumerable difficulties, which stretched its construction period from 1920 
well into the 1930s. The fifteen-month preliminary investigations of the 
project were handled by an American engineer, Emegess, employed by the 

" It should be clearly noted that RCA pointed out the propaganda possibilities to 
the Sstate Dept, The latter described these warnings as 'theoretical' (316-141-714 
tt seq.). See also chap. 18. tit 

" Monogram, November 9, 1 943 ; and Bank for Russian Trade Review (January 1 929), 

" lutek <? U ". ,<M1 ' Vibourg ?°,V\ S ' State De P«- April u, 1911: 'Confidents 
Although Soviet papers contain little on electrification accomplishments and only 
reiterate bombastic plans the truth is that slight progress has been made due to the 
lack of electrical goods, technical supplies and skilled labor. To date most energy has 
been devoted to collecting material and making paper plans. The colossal Svir 
electric station has not materialized, and is no further advanced than six months ago 
except that a small and inadequate quantity of building materials has been col- 



202 Western Technology and Soviet Economic Developtabtt, i^t^-1^30 

Cooper Company, also working on the Dniepr proj ect. 47 VaBous other American 
(J. G. White Company) and Swedish (Karlsrads Mechaniska A/B and Vatten- 
byggnadsbyran A/B) construction companies were involved in various aspects 
of the Svir darn and site construction. The generators were supplied by 
Metropolitan- Vickers and the turbines by Werkstaden Kristinegarnm A/B 
of Sweden. The project was finally completed in 1933 at an estimated cost of 
$500 per horsepower compared to an average cost of approximately $100 
per horsepower in the United States.'' 8 

At Volkhov the construction process was also extremely stow. Graftio, the 
engineer in charge, used Swedish engineers to implement Swedish construc- 
tion methods. 40 The 10,000 h.p. turbines from Sweden arrived at the end 
of 1923, and date of completion was set at 1926. By April 1927, despite 
extensive foreign assistance from A.S.E.A. and Metropolitan-Vickers, the 
Volkhov station was still not fulfilling expectations. It was described as 
'irregular, capricious and unreliable.' so The problem was in the use of genera- 
tors from two sources; four from A.S.E.A. and made in Stockholm, and four 
made at the Electrosila works in Leningrad with its mixed history of technical 
assistance. The Electrosila generators contained materials of different speci- 
fication from those in the Swedish generators, and problems arose when 
the eight generators were operated simultaneously. 51 

The high-tension insulators (Hewlitt type) for the 130 kilometers of trans- 
mission lines to Leningrad were manufactured by the General Electric 
Company and the Thomas Company in the United States. The total cost of 
the project was estimated by Klemmer at 90 million rubles, of which 6 million 
was spent on imported equipment and technical assistance. In return for this 
substantial investment, the plant did not generate more than 20,000 kw in 
1927 52 or about seven times the cost per kilowatt of capacity constructed at 
the Zages project. 53 

The world-famous 650,000 h.p. Dniepr project, supervised by Col. Cooper, 
builder of Muscle Shoals in the United States, used four 80,000 h.p. turbines 
manufactured by the Newport News Shipbuilding and Drydock Company, 
linked with vertical 77,500 kw. General Electric design generators. The total 

47 limcgcss made a report to the U.S. State Dept. concerning the methods used by the 
Soviets to keep Col. Cooper in ignorance of the true conditions in Soviet Russia. 

*' Emegess Report. (316-139-128.) 

" Ibid. 

10 Ekonomicheskaya Zhizti, No. 85, April 1937. 

" Ibid. 

S! Klemmer, op. cit., pp. 16-7. 

" Sec table, p. 205. 



Electrical Equipment Manufacturing Industry and Goelro 203 

value of $2.5 million was granted by G.E. on five-year credit terms. Cooper 
Company engineers were sent to Russia in the summer of 1926 to make a 
feasibility study for this project. They examined the prerevolutionary 
construction plans and the structural and geological problems of the site. 
In particular, they raised questions concerning labor supply, raw materials 
and transportation, all of which were considered inadequate for the size of the 
proposed project." 

The initial study was followed in October 1927 by the visit of Professor 
E, G. Alexandrov, Chairman of the Technical Council and Vice-President of 
Dnieprstroi, to the United States, where he visited construction machinery 
plants and raw material supply and water power projects. He especially noted 
operating principles and types of materials used. Alexandrov expressed the 
hope that the 'best methods' could be applied at Dnieprstroi. By this time 
some $1.5 million in equipment orders had been placed in the United States 
for Dniepr. This equipment included dump trucks, steam shovels, pneumatic 
drills, forges, and similar construction items. Credit terms obtained varied 
between one to one and a half years." 

A construction agreement was then made with both the Cooper Company 
and Siemens A-G of Germany to undertake supervision of the dam construc- 
tion. Cooper reported on the project to the American section of the All Union 
Western Chamber of Commerce which was a Soviet institution with functions 
rather different from those of Western chambers of commerce. The dam 
was to be considerably larger than any existing dam in the world, exceeding 
in volume the Nile Dam by 18 percent and the Wilson (Hoover) Dam by 
10 percent. The electric power station was designed to yield 2.5 billion kwh 
at a cost equivalent to this supply of electrical energy in the United States. As 
Ekojwmickeskaya Zhizn phrased the goal, 'The United States is a country in 
which electrical energy is used wherever possible. The U.S.S.R. must also 
become such a country.'" The ultimate capacity was designed to be 650,000 
h.p. The dam itself was 51 meters high and 720 meters across. The first five 
generating sets, each with Francis-type turbines and 77,500 kw. generators as 
well as the outdoor equipment (transformers, oil circuit breakers, switch- 
boards, etc.) were manufactured and installed by General Electric. Equipment 
used in construction was imported from the United States and Germany. Two 
massive stonecrushers were specially made in Germany. Even the equipment 
for the dining halls, to seat 2,000 workers at one time, was imported. The only 
purely Soviet work traced was the longer of the two bridges which were built 

" Pravda (Moscow), No. 171, July 28, 1916. 

" Ekonomickakaya Zhizn, No. 237, October 16, 1027. 

" Ekonomicheskaya Zhizn, No. 215, September i$, 19*8. 



204 Western Technology and Soviet Economic Development, xgif-iggo 

Table 11-6 TECHNICAL ASSISTANCE AND EQUIPMENT 
SUPPLY IN THE GOELR0 PROGRAM, 1920-30 



Project 


Consultants} Supervisors on 
DamfPlant Construction 


Equipment Supply 
Generators and 
Transformers 


Turbines/ Boilers 


Svir 


J.G. White Engineering Co. 


Metropolitan-Vickers 


Werkstaden- 




J. Cooper Inc. 


Electrosila (with 


Kristinegamm 




Karlsrads Mechaniska A/B 


General Electric 


A/B 




Vattenbyggnadsbyran A/B 


assistance) 




Volkhov 


A.S.E.A. 


4 A.S.E.A. 


A.S.E.A. 






4 Electrosila 


Metropolitan- 
Vickers 


Nizhni- 
Novgorod 
Dniepr 


Thomson-Houston (U.K.) 


Metropol itan - Vickcrs 


# 


H. Cooper Company 


5 General Electric 


9 Newport 




Siemens A-G 


4 Electrosila (General 
Electric assistance) 


News 


Shatura 


Metropolitan-Vickers 


Brown-Boveri 
Erste Brun. Maschinen 


Brown-Boveri 






Fabrik (Czechoslovakia) 


Shterovka 


(under construction 1930) 


Metropolitan-Vickers 


Metropolitan- 
Vickers 


Zages 


## 


Electrosila (General 
Electric assistance) 


— 


Ivanovo- 


Krupp 


Metropolitan-Vickers 


Metropolitan- 


Vozncsscnsk 






Vickers 


(Ivgres) 








Moges 




Metropolitan-Vickers, 


Metropolitan- 






General Electric 


Vickers 


Chelyabinsk 




Metropolitan-Vickers, 


Metropolitan- 






General Electric 


Vickers 


Zucvksi 


(under construction 1030) 


Metropolitan-Vickers 


Metropolitan- 
Vickers 


Zlatoust 




Metropolitan-Vickers, 


Metropolitan- 






Westint;house, 


Vickers 






General Electric 




Nigrus (Gorki) 




Metropolitan-Vickers, 


Metropolitan- 






General Electric 


Vickers 


Baku 




Metropolitan-Vickers 


Metropolitan- 


(Knissnya Zvcsku) 




Vickers 


liclovo 




Unknown 


Metropolitan- 
Vickers 


Orekhovo 




Metropolitan-Vickers 


Metropolitan- 
Vickers 


Saratov 




Unknown 


Rateau(France) 



Sources: 1. 'A Portfolio of Russian Progress,' Monogram, November 1043. 
z. INRA, op. cit. 

3. A. Monkhouse, Moscoie 1911-1033 (Boston: Little, Brown and Co. 1934). 

4. J. Dummcrlee, op. cit. 

5. Wrecking Activities at Potcer Stations in the Soviet Union (Moscow: 
State Law Publishing House, 1033). 

6. Klemmer Reports, U.S. State Dept., Archives. 
* A German firm, name unknown. 

** 'Foreign consultants,' INRA, op. cit., p, 176. 



Electrical Equipment Manufacturing Industry and Goelro 305 

over the Dniepr; this was of short-span construction and, according to 
bcneffer, 'entirely Russian work.'" 

The Zemo-Avtchalin hydroelectric development (Zages) at Tiflis, in the 
Caucasus, was begun in i 9 m an d completed in 1927. The project engineer 
was Russian (Melik-Pashaev) and the supervising engineer Armenian (Chi- 
chmadze) but 'foreign consultants' were used in some stages." The station 
developed a useful capacity of 40,000 kw, compared to 60,000 kw at Volkhov, 
and an annual output of 150 million kw hours, compared to 225 million kw 
hours at Volkhov." Four turbo-generators were manufactured at the Stalin 
plant (formerly Petrograd Metal) with German assistance and by Electrosila 
m h assistance from A.S.E.A. Cost of construction was « million rubles: 
well ln excess of the original estimate of 6.9 million rubles but substantially 
cheaper than Volkhov both in terms of cost of construction per kw of capacity 
and per kw hour of electricity produced. (See table 1 1- 7 .) 

Tab l'JZZl„ COMPARATIVE CONSTRUCTION COST AND 

ENERGY COST AT THE VOLKHOV AND ZAGES PROJECTS, 1927 



Volkhov Zages 



cS^rtT hot PCr ^ ° f »""* »«• «*** soo nh]e& 
3-S kopecks ,. 3 kopecks 

Source: Ekonomickeskaya Zhizn, No. 143, July 1937 

The textile complex at Ivanovo-Voznessensk, claimed as the largest in the 
world had a peat-burning power station erected by Krupp." The status of 
the other projects is listed in table 11-6. 

A few large foreign companies undertook the greater part of the construc- 
tion, installation, and equipment of these power stations. Metropolitan-Vickers 
obtained the lion's share of the work. A list of the most important orders 
received by the company in this period includes three turbo-alternator sets 
for Krasny Oktiabr (Leningrad), two of which were 45,000 kw units; all the 
switchgear and transformers for Shatura and Nizhni-Novgorod; large-capacity 

and th/rcfore UX of "cording * U ™ ^ USUa " y n ° ted M bein * ~«P<™*' 
" 1NRA, p. 276. 

Jun^f^" 8 dCm Te " ilb « irl < v»n Iv a „ov -Vozne Sse „ sk ,. Berliner Tagebhtt, 



206 Western Technology and Soviet Economic Development, igij-igjo 

turbo-generators for Moges (Moscow), Baku, Chelyabinsk, and Ivanovo- 
Voznesscnsk ; medium-capacity generators for Shterovka and the Third Cotton 
Trust; smaller-capacity turbo-gencrators for Irkutsk, Novo-Sibirsk, and 
others; and all the switchgear equipment for Volkhov, the oil-well electrifica- 
tion program for the Baku area, and the Moscow-Mytishe electric railway. 61 
To give a comparative estimate of the importance of the Metropolitan- Vickers 
contribution, the turbo-generators supplied for the Krasny Oktiabr plant, in 
themselves only part of the generating equipment, equaled the total generator 
capacity already produced in the U.S.S.R. at the time (90,000 kw versus 
92,600 kw); and Metropolitan- Vickers was only one of a number of foreign 
firms supplying similar equipment. Further the existing generator capacity 
of the U.S.S.R. was all being produced with foreign technical assistance. 
In brief, all electric energy stations built in this period, whether coal, peat 
or hydroelectric, were based on Western technology. Station equipment was 
either supplied directly from abroad or, if of Soviet construction, was built 
in a plant with Type III technical assistance. The Svir, Shatora, Shterovka, 
and Ivanovo plants, for example, utilized generators built abroad and installed 
by Western engineers in the Soviet Union. Volkhov and Dniepr used gener- 
ators made abroad and in the U.S.S.R. Similarly, turbines were either 
manufactured abroad or in Soviet plants with Type III technical-assistance 
agreements. A larger selection of foreign companies was utilized in this area 
of technology: Wcrkstaden-Kristinegamm and A.S.E.A. of Sweden, New- 
port News and General Electric of the United States, Krupp of Germany, 
Metropolitan-Vickers of the United Kingdom and Brown-Boveri Company 
of Switzerland. 



THE PROCESS OF HYDROELECTRIC TECHNOLOGY 
ACQUISITION 

In 1925 the Leningrad Metal Plant manufactured a 4,500 h.p. hydraulic 
turbine for the Zages project. This was the first turbine produced after the 
Bolshevik Revolution, and a copy of three turbines imported for the purpose 
from Germany.* 2 In the following year the plant produced a second turbine: 
a 1,500 h.p. unit for the Leninakcn hydro project in Armenia. These were 
produced with A.E.G. technical assistance. In 1927 an agreement was made 
to construct Metropolitan- Vickers turbines under license and with United 
Kingdom technical assistance; thus 'the manufacture of big Francis turbines 
(for the Dzoraget and Rion stations) was mastered in the courseof 1927-30.' 03 

" Dank for Russian Trade Review, March 1929, p. 15. 
" INRA, p. 276. 
" Ibid. 



Electrical Equipment Manufacturing Industry and Goelro 307 

In 1927 the Electrosila plant in Leningrad (formerly Siemens A-G) 
manufactured four vertical generators for the Zages project: the first ever 
produced in the Soviet Union. This was followed by an order for four genera- 
tors for the Volkhov project. These to be coupled with four Swedish made 
A.S.E.A. generators. There was a further order for four generators for the 
Dniepr project, to be coupled with five General Electric generators. Electrosila 
had assistance agreements with A.S.E.A. and the International General 
Electric. 

The acquisition process is now clear. There was a primary stage when 
generators and turbines were both imported and installed by foreign engineers. 
This was succeeded by the acquisition of foreign technical assistance and by 
the use of plants inherited from the tsarist era. A specific technology was 
established with imported equipment and technical designing, supervisory, 
and engineering skills. Orders for capital equipment to modernize the plants 
of the electrical trusts were dependent upon the granting of technical-assistance 
contracts. Normally the Western company was glad to donate the technical- 
assistance aspects to acquire the order for the major installation. 

Substitution of domestically produced machinery for imported machinery 
then followed. In hydroelectric projects, several installations utilized both 
equipment manufactured abroad and equipment domestically produced with 
foreign assistance. The technical advantages were dubious, but the educational 
aspects were undeniable. Comparative data on operating performance was 
generated and found useful as a check on the efficiency of domestic produc- 
tion. The final stage was reached when only domestically produced equipment 
was used, with or without foreign assistance. In hydroelectric projects this 
did not occur in the 1920s. 

Concurrent with the progress of import substitution, there was increasing 
technical sophistication. Manufacture shifted from the small and simple to 
the complex and large. The 'gigantomama' of the 1930s was an uncontrolled 
technical escalation of this nature. There is nothing in Marxist theory, in the 
absence of the discipline of the market place or a theory of production and 
diminishing returns, which dictates a cut-off point for either complexity or 
size. By definition, the largest and the most complex is always the most 
efficient, and only in the last few years has the assumption been challenged in 
Soviet technico-economic literature. By the same measure we would expect 
to sec a degree of over-engineering in Soviet design. In the 1920s it was much 
too early to see the flowering of this phenomenon, but the politico-economic 
structure established in this period was destined to move Soviet industry 
along this road. Volumes II arid III will pick up and trace the threads from 
this inauspicious starting point. 



208 Western Technology and Soviet Economic Development, 1917-1930 

It is also interesting to note that many of the associations described here 
for the 1920s have continued uninterrupted to the present date. Karlsrads 
Mechaniska Werkstad A/B had a contract for the Svir project in 1923. In 1963 
the same company completed a paper mill, and in 1964 a pulp mill. This 
long-term association is not at all uncommon. The tiansfer process is still 
underway. 



CHAPTER TWELVE 

The Chemical, Compressed Gas, and 
Dye Industries 

NITROGEN FIXATION: BASIS OF A CHEMICAL INDUSTRY 
The immediate chemical industry problem in 1921 was synthesis of ammonia 
from the elements: i.e., nitrogen fixation. This would eliminate use of Chilean 
saltpeter and facilitate production of calcium cyanamide needed for the 
manufacture of ammonia and cyano compounds. 1 

In 1921 V. I. Ipatieff, Chairman of the Chemical Committee of Vesenkha, 
made an extended trip through Europe to investigate purchase of these pro- 
cesses for use in the U.S.S.R. He found the best available process was owned 
by I. G. Farben of Germany, who would not sell or grant a license to manu- 
facture in the Soviet Union. The remaining alternative was to install plants 
for production of calcium cyanamide to produce fertilizer in peacetime and 
ammonia and nitric acid in wartime. Ipatieff investigated several processes, 
including those of Bayerische Stickstoff Werke in Germany, but was denied 
access to the best-known plant, the nitrogen fixation plant at Oslo, Norway. 8 

A Commission on Fixation of Nitrogen was then organized and all available 
foreign literature acquired. Research was started, not to develop a nitrogen 
fixation process, but to determine which of the foreign processes was the best. 
Domestic production of ammonia was recognized as the key problem, with 
special significance for military purposes, and this was taken up by both the War 
Technical Administration of Vesenkha and the Chemical Branch of Gosplan. 

The manufacture of nitric acid, also dependent on ammonia technology, 
had also been ignored. This was a major gap in Soviet industry— particularly 

1 V. I. Ipatieff, Life of a Chemist (Stanford: Stanford University Press, 1046), 
PP- 327-8- Ipatieff fled Soviet Russia and left us a first-hand account of the chemical 
industry, in tsarist and Soviet Russia. The Gumberg Papers at the State Historical 
bociety in Madison, ^Visconsin, also contain data on Chemstroi. 

■ Ibid., p. 379. 



2 to Western Technology and Soviet Economic Development, 191J-1930 

Chart 12-1 THE TRANSFER OF NITROGEN INDUSTRY 
TECHNOLOGY TO THE U.S.S.R. 



PROCESSES 



CHILEAN 

Guggenheim 



BY 
PRODUCT 

Koppeti 



SYNTHETIC 

Nifngen Engineering Corp 
Ceialt S.A. . 
Fauter A-G 



CYANAMID1 

Fttmk-Caro 



NATURAL 
SODIUM 

NITRATE 



AMMONIA 



NITROGEN 
-OXIDES 



"fyTlTRiC 

: V'acid . 

Duponl ■ 



SYNTHETIC 
SofilL'M 

N ITK A'I'E 



XW Calcium 

, 'NITRATE 
.h. ■ A'rtipp A-G 



POTASS! I '.M 
NITIIATI-: 



AMMONIUM 
NITRATE 



EXPLOSIVES 

.Gtfa 
Htrcutti Ptmttr Co. 



RAYON 

■ S.T.it.P. 



CALCIUM 

• CYAN- 

AMIDE 

Frank-Csro 



AMMONIUM SULPHATE 
Stockholm! Superjosfal Fubrih A)B 



AMMONIUM PHOSPHATES 
SuxklaSmi i'u(irr/cii/iir Fatrini AIB 



AMM»N'II ; M 
CARHONATK 



AMMONIUM CHLORIDE _^ 

iiJ 



DM 



UREA 



AMMON1ATED 

SUPKFU'HOSrHATF.S : 

Statkholmi Suprrfoifat FalnhtAlB 



REFRIGERATION.: 
Bonis A-G . *" 



PERT I I. I 7. V. I! MIXTURES 



'IVcJiiuilocv triiinfiTri'il from tin 1 WVsl lu'tuvrn l<)\~ J!iJ IQ.10. 



Source: Based on United States Tariff Commission, Report No. 114, Second Series. 
Chemical Nitrogen (Washington D.C. 1 937)- With data from text of chapter 
added. 



Chemical, Compressed Gas, and Dye Industries 21 1 

in the military sector (nitric acid is an essential ingredient in explosives 
manufacture). The three available synthetic ammonia processes available were 
the Cloudt in France and the Casale and Fauser in Italy. Ipatieff selected the 
Casale process as the most suitable; it was not too expensive and a small 
plant (20,000 tons per year) could be readily installed. A Soviet commission 
was dispatched to Italy; the final arrangement was for a i6,ooo-ton-capacity 
plant built by the Italian company at Dzerdjinsky in 1927. Russian engineers 
were trained at Casale Ammonia S-A in Italy, and Italian engineers built 
and initially operated the Dzerdjinsky plant. Essentially the only differences 
from the I. G. Farben process, which had been refused, were in the type of 
catalyst and the operating pressures used. 

For a solution to the calcium cyanamide problem, Ipatieff visited Bayerische 
Stickstoff Werke and Borsig A-G in Germany and the Superfosfat A/B 
in Sweden. The Swedish method, obtainable on more advantageous terms, 
was adopted, and several plants were ordered from Sweden. This was the 
basis of the Soviet superphosphate industry. 3 

SYNTHETIC PRODUCTION OF AMMONIA IN THE 
UNITED STATES* 

The technical revolution brought about by synthetic ammonia was felt 
throughout the heavy chemical and allied industries, from agriculture to 
explosives. The opening of a single synthetic ammonia plant in Niagara Falls 
utilizing an atmospheric nitrogen process cut the price of ammonia by 50 
percent in one week. Cheaper ammonia stimulated development of refrigera- 
tion, established effective competition against the Chilean saltpeter monopoly, 
replaced sodium nitrate in the chamber process for the manufacture of sul- 
phuric acid, and introduced an entirely new method of nitric acid production. 

Several synthetic ammonia processes were developed simultaneously in 
Europe and the United States. General Chemical, a subsidiary of Allied 
Chemical and Dye, spent between $4.5 and $5 million on research and 
development of the Haber process, followed by an investment of $125 million 
in the Hopewell plant, opened in 1928. The Mathieson plant, using the 
Nitrogen Engineering process, was built in 1931 and followed by another in 
Niagara Falls using the Casale process, built by Ammonia Corporation of 
New York. In 1924 Dupont acquired American rights to the Claude process 
and in 1927 acquired American rights to the Casale process and then proceeded 
to improve both processes. At the end of the decade the effectively competing 

s Ibid,, p. 426-8. 

4 Based on W. Haynes, American Chemical Industry (New York : Van Noatrand, 1 948), 
IV, 85. 



213 Western Technology and Soviet Economic Development, igi^-zgjo 

processes in the United States were those of the Dupont Company (Claude- 
Casale) and the Nitrogen Engineering Corporation (Haber-Bosch). It was not 
until 1936, after the expenditure of more than S24 million on development of 
synthetic ammonia, that net operating results began to show a profit. 

It was American technical ingenuity and originality in developing techniques 
for handling very great pressures and temperatures which enabled successful 
replacement of early methods of ammonia manufacture and introduction of a 
much cheaper method. Research was partly financed by the Army Ordnance 
Department, the Department of Agriculture, and a special Congressional 
appropriation of $i8s,ooo. 6 The value of the developed technology is suggested 
by the payment of Jf 1 .25 million for Japanese and Chinese rights to the Claude 
process. The reader may compare this figure to the 8150,000 received from 
the Soviet Union for similar rights.' 1 

MANUFACTURE OF NITRIC ACID AND THE DUPONT COMPANY 

There was a small production of nitric acid in tsarist Russia. In 1920 eight 
small plants produced 360 tons per year. During the 1920s major technical 
advances were made in the West, and by the end of the decade three companies 
were offering nitrogen fixation processes for the manufacture of nitric acid. 

The Soviets found themselves in an excellent bargaining position. Dupont, 
Nitrogen Engineering, and the Casale Company were competing suppliers 
with more or less equivalent processes. The Soviets used their monopsonistic 
power to drive prices down from opportunity costs (probably well in excess 
of $100 million when one considers the absence of input suppliers in the 
U.S.S.R.) to a mere $150,000 — the price ultimately paid to the Dupont 
Company after a number of such plants had been erected. Only if the three 
Western owners of fixation processes had merged into a joint bargaining unit 
could the price extracted from the U.S.S.R. have approached Soviet oppor- 
tunity costs. It appears that from the strictly technical viewpoint the Dupont 
process had a slight competitive product edge by virtue of the 120 lb,-per- 
square-inch pressure used, but this was insufficient to offset Soviet buying 
power.' 

In early 1929, negotiations began between Chemstroiand Dupont concern- 
ing the sale of their ammonia oxidation process and nitric acid technology. 
Dupont had expended over 827 million developing the process. 6 This was in 
addition to the substantial investment made by the earlier French and Italian 

1 Ibid., p, 90, 

* See page 213. 

' F. D. Miles, Nitric Acid; Manufacture and Uses (London: Oxford University Press, 

1 961), p. 34. 
" Dupont: The Autobiography of an American Enterprise (Wilmington: Dupont, 

1952). P- 95- 



Chemical, Compressed Gas, and Dye Industries 213 

owners of the process. To attempt to recoup anything like this amount from 
the Soviets would have been naive; there were other processes available and 
the alternative always existed that the Soviets could develop the process 
themselves. For Dupont, any return over marginal cost of supplying the 
process was advantageous. However, marginal costs were zero as, according 
to the agreement, the U.S.S.R. paid the expenses of both the Soviet and the 
Dupont engineers. Consequently the $150,000 fee to Dupont was a return on 
research and development investment and a 'windfall' gain to the Dupont 
Company. 

In requesting advice from the State Department, the Dupont concern 
argued that the process was neither secret nor covered by patents, that the 
end use of nitric acid is the manufacture of fertilizer, although it is the basic 
fundamental raw material for dyes, celluloid, photographic materials, medicine 
and artificial silk." Dupont argued that if they did not supply the process it 
could be bought elsewhere, and that several plants had already been erected 
in the U.S.S.R. by Casale and Nitrogen Engineering of New York. Further, 
the company argued that there was nothing exclusive about the Dupont process : 
'Our superiority . . . is based entirely upon the economic advantages of our 
engineering design.' 10 

The copy of the agreement from the State Department files indicates 
that Chemstroi 

. . . (wishes) to use in Russia the Dupont process for the oxidation of 
ammonia and to place at its disposal sufficient data with respect to the 
design, construction and general information as to permit the satisfactory 
operation of such plants ... the Company shall serve the Russian 
Corporation in an advisory capacity and furnish upon request services of 
engineers and chemists so as to accomplish the purpose of the contract. 

The agreement further stipulated that Chemstroi might use the Dupont 
processes for the oxidation of ammonia to manufacture 50-65 percent nitric 
acid and that Dupont agrees 

... to place at the disposal of Chemstroi sufficient data, information 
and facts with respect to the design, construction and operation of such 
plants as will enable Chemstroi to design, construct and operate ammonia 
oxidation plants. . . . 

" In 19*7 more than two-thirds of U.S. nitric acid was being used for explosives. 
Dupont said the acid was 'too weak' for explosives manufacture. However, the 
btate Dept. appears to have accepted this rather surprising statement. 

" Letter from Dupont to U.S. State Dept. (316-139-573). The Dupont-Cherastroi 
agreement is m the U.S. State Dept. Decimal File, 3 16-139-370. This agreement is 
well worth reading from one viewpoint alone: the remarkable two-facedness of the 
Soviets. They can call themselves a 'Russian Corporation, ' etc., to give the Western 
company the impression it is dealing with feltow businessmen, and then present the 
Dupont work as a 'feat of socialist construction.' 



214 Western Technology and Soviet Economic Development, 19^-1930 

Dupont was therefore to act in an advisory capacity in the construction and 
initial operation of all such plants. The fee for the use of the process was $10 
per metric ton of yearly rated capacity for the first plant and $10 per ton on 
subsequent plants, until the total fee was $50,000. * a addition, a flat fee of 
$25,000 per plant was payable until the total fees paid amounted to $150,000. 
As has been pointed out, this was rational profit-maximizing action for Dupont, 
but hardly for the Western world. 

Chemstrot was allowed to request reasonable services of Dupont engineers 
and chemists, their salaries and expenses to be paid by Chemstroi. In the 
case of the first plant Dupont provided construction engineers and chemical 
engineers to build and start up the plant and train sufficient local personnel 
to continue operations. In all, five such plants were built. Permission was 
granted by Dupont to enable Chemstroi to pass on the technical information to 
other state organizations (a similar request caused R.C.A. some amusement; 
their patents and processes were being sequestered either way). 11 In addition, 
Dupont agreed to accept Chemstroi engineers and technicians in their United 
States plants for training. 

Table 12-1 SOVIET ACQUISITION OF BASIC CHEMICAL 
TECHNOLOGIES, 1925-30 



Technology 
Nitrogen fixation 



Calcium cynamide 
Nitric acid 
Sulphuric acid 



Western Process 



Soviet Plant 



Nitrogen Engineering Corp 

(modified Haber-Bosch.) 
Nitrogen Engineering Corp 

(modified Haber-Bosch) 
Cassile Ammonia S-A. (Italy) 
Fauser (Italy) 
Stockhotms Superfosfat 

Fabriks A/B (Sweden) 
Dupont Company 

Bersol (Russo-German Company) 
Hugo Petersen (Berlin) 
Lurgie Gesellschaft fur 
Chemie und Hiittenwesen m.b.H. 



Bererniki (1929-1931) 

Bobriki (1949-1931) 

Dzerdjinski (1927) 
Gorlovka (1930) 
Karakliss 

Five plants (one erected 
before 1930) 
Samara 

N.A. 

Technical assistance 



Sources: t. V. I. Ipatieff, op. cit. 

2. U.S. State Dept. Archives. 

3. German Foreign Ministry Archives. 



The first Dupont plant for nitric acid was built at Chernorechenski, near 
Gorky. The capacity of the combine was 115,000 tons of superphosphates a 
year and included plants for the manufacture of ammono-phosphates, calcium 
carbide, cynamide, and nitric and sulphuric acids. Alcan Hirsch, a New York 



See below, page 300, n. 18. 



Chemical, Compressed Gas, and Dye Industries 215 

consultant, was chief engineer for Chemstroi and supervised construction of 
the combine by Western companies. Hirsch comments that the nitric acid 
plant was built according to the Dupont specifications and 'incorporates 
apparatus made of nickel-chromium steel and all the equipment is of American 
manufacture throughout.'" 

As has been pointed out, 'turn-key' purchases were also made from Dupont's 
competitors, so that the Soviets ended up in a better position than any of 
their suppliers independently. They had the sum of Western technical experi- 
ence within two to three years of perfection of that process. In other words, 
the Soviet Union was able to acquire a greater knowledge of the processes 
involved in nitrogen fixation, nitric acid production, and other areas by 
expending a microscopic amount of money. An agreement covering the produc- 
tion of ammonia from coke was made with Nitrogen Engineering of New York, 
and another contract with the same company covered construction of a $10 
million synthetic ammonia plant. Yet another contract with NEC established 
a ten-year technical-assistance agreement for all NEC-Haber-Bosch tech- 
nology. 13 

SOLTKAMSK POTASH DEPOSITS 

Phosphatic fertilizers, either from bones or from phosphate rock, were not 
produced in any quantify in prerevolutionary Russia. Nutter gives a total of 
only 55,000 tons for 191 v Toward the end of the 1920s, production of both 
natural and rock phosphate fertilizer jumped substantially to a total of 484,000 
tons. 

The substantial increase in natural phosphate output in 1929-30 may well 
be associated with the kul.il-. extermination program and massive slaughter of 
cattle. Natural phosphate is bone meal. 

Increase in rock phosphide output stems partly from development of the 
Khibini apatite deposits en the Kola peninsula. These deposits of apatite- 
nepheline contain about 2S-32 percent phosphoric acid. One of the major 

11 Alean Hirsch, Industrialized Russia (New York: Chemical Catalog Company 1934), 
p. 83. This phrase has a much deeper implication than first reading might convey. 
Let the reader ask the question, which plants in the U.S.S.R. were able to produce 
stainless (i.e., nickel-chrome) steels in 1927? There was one, and that used the old 
hand-mill process and was unable to turn out the larger sheets of very different 
quality used in chemical engineering. In other words, if the apparatus had been 
denied, the Soviets would first have had to acquire a stainless steel production unit. 
Alcan Hirsch was a most effective agent for the transfer of chemical engineering 
technology. He was quite sympathetic to the aims of the Bolshevik Revolution. 
After the extermination of the kulaks, the show trials, and the forced labor construc- 
tion of industry (all of which he witnessed) he could still write in 1934: 'Soviet 
Russia has not as yet reached unprecedented eminence in the arts, science or industry 
although I believe that sociologically it is far ahead of the rest of the world.' (P. 273.) 

11 Vneshtorgizdat, op. est., p. 226; and Hirsch, op, cit., p. 78. 



216 Western Technology and Soviet Economic Development, 191J-1930 

technical difficulties in initial development was presence of nepheline, which 
had to be separated out. A concentrating and refining plant was built, with a 
capacity of 250,000 tons of apatite concentrates per year (more than the increase 
in output from 1928-9 to 1929-30). The presence of nepheline was overcome 
by a flotation process, utilized by the first such nepheline treatment plant in 
the world, designed and built by General Engineering Company of Denver 
and utilizing all United States equipment. The by-product nepheline was 
used in the manufacture of glass, ceramic wares, pottery, porcelain, and 
electrical insulators. In brief, the by-product became useful in many other 
industries, all with their own technical-assistance agreements with foreign 
firms. 14 

In 1924 there was a production crisis in the largest potash production 
operation, Kubtrestpotash, which badly missed its production targets although 
the 'mixed' trading company Wostwag had an agreement to take its complete 
output for export. 1 * Two years later, prospectors found extensive deposits of 
potash (sylvanite and carnallite) in the Solikamsk district while drilling for oil." 
It was decided by Vesenkha to favor development of Solikamsk over Kuban. 
The report of the prospecting expedition found its way from the Geological 
Committee of Vesenkha to the State Department in Washington, D.C." The 
deposit was offered as a concession to Lyman Brown, previously American 
Relief Administrator in Russia. He operated on the fringes of concession- 
promotion of Soviet opportunities. By August 1927, Dillon, Read and 
Company was in process of raising $30 million to finance the development of 
Solikamsk and an associated chemical combine and oil pipe line. The fund- 
raising was killed by unilateral action on the part of the State Department; 
the Soviets then decided to start development with their own resources, 
utilizing Western skills under Type III assistance agreements. 

A potash trust was formed and an agreement concluded with the German 
company, Deilmann Bergbau und Tiefbau Gesellschaft, of Dortmund, to 
design the mine and plant at Solikamsk. 18 The resultant Berezniki-Solikamsk 
complex included a salt refinery to produce 160,000 tons of stone salt annually, 

14 Amtorg, op. cit., IV, No. 6, p. no. 

14 Ekonomicheskaya Zhizn, No. 115, February 19, 1914. 

" Much was made in the Soviet press about this oil-potash discovery {see Torgovo- 
Promyshtennaya Gaseta, No. 99, pp. 107-9 and 118, for 1929). This was, however, 
an extension of a field developed before 1917 (See A. A. Trofimuk, Uralo-Povolzhe- 
novaya neftiania baza S.S.S.R. (Moscow: Gostoptekhizdat, 1957), pp. 144-5. 

" The 3 1 -page Provisional Report includes the drill core logs. These suggest a very 
substantial deposit of potash salt (316-138-352). The Soviets must have needed 
Western technology badly in this area, to allow out the drill logs. At about the same 
time they sentenced the representatives of a Swedish company to eight years in jail 
just for making a market survey of dairy equipment requirements. 

18 Vncshtorgizdat, op. tit., p. 22. 



Chemical, Compressed Gas, and Dye Industries 217 

a plant to procure 1.2 million tons of potash, chemical plants to utilize the 
potash, a brick plant, and other industries. Two shafts were planned for the 
mine : one was sunk by the trust to a shaft depth of 35 meters, and the main 
shaft was sunk to 260 meters by the German company, Gefrierschachbau, 
using freezing methods of sinking. The nature of the overburden required 
use of methods beyond Soviet capabilities at the time." The degree of technical 
uncertainty felt by the Soviets is probably indicated by the fact that one year 
after development was started the project was still being offered as a concession. 
The program finally involved some thirty German engineers. The first mine, 
with a capacity of 1.5 million tons of ore, and the first concentrator, with a 
capacity of 1.2 million tons, were completed in 1933. 

MANUFACTURE OF SULPHURIC ACID 
Sulphuric acid capacity was modernized with the help of German firms. 
Lurgie Gesellschaft fur Chemie und Huttenwersen rn.b., of Frankfurt, 
provided assistance for construction of a sulphuric acid plant with a daily 
capacity of 80 tons of monohydrate. The company also provided equipment 
and started operations for the Soviets. General technical assistance for sul- 
phuric acid production was provided under another agreement, with Hugo 
Petersen, of Berlin. 80 

Bersol (the Russo- German company) was primarily interested in develop- 
ment of poison gas facilities, but was also instrumental in establishing factories 
for production of potassium chloride, sulphuric acid, superphosphates, and 
other chemicals. 21 

Development of an acids capacity is an essential prerequisite to plastics 
production. While nitric and sulphuric acid production was under develop- 
ment, moves were being made to acquire a plastics base. Ekonomkheskaya 
Zlthsn of November 30, 1926, reported that a concession agreement had been 
signed with Societe Industrielle de Matieres Plastiques (S.I.M.P.) for produc- 
tion of cinema and photographic film and articles made from celluloid. S.I.M.P. 
was granted a factory at Podmoskovnia, just outside Moscow. The French 
company repaired this facility and started production in 1927. This was 
followed by a joint American-German concession in early 1928, under which 
a plant was built to produce noninflammable film, artificial silk, and also 
paper, utilizing a patented process based on the use of corn stalks. The 
German participant was Dcutsche-Russische Film Allianz A-G (Derufa), and 
the American was the Euroamerican Cellulose Products Corporation of New 

» Ekonomkheskaya Zhizn, No. 86, April n, 1028; and A. Hirsch, op. cit.. p. 64. 

VneshtorgUdat, op. cit., p. 228. 
11 Troyanovsky, op. cit., p. 836. 



ai8 Western Technology and Soviet Economic Development, 1917-1930 

York, represented by Montifiore Kahn (not the Albert Kahn firm with 
Vesenkha agreements)." The patents were held by the New York firm which 
"thought it best' not to enter directly, but through German intermediaries. 
Investment amounted to $1.5 million, but little is known of the process 
itself." 

COKIi OVIiN BY-PRODUCTS 

The Russian chemical industry was not insignificant in size before the 
Revolution. The production of coke oven by-products, an important source 
of chemicals, was well developed in tsarist times. Table 12-2 compares 1914 
production of by-products with 1915 and 1926. 

Table 12-2 COKE OVEN BY-PRODUCTS, 1914, 1915, AND 1926 



Tar 

Ammonia water 

Ammonium sulphate 

Sal ammonia 

Benzol 

Oils 

Goudron 



1914 



486,700 
197,300 
■ 69,000 

64 

767 
145,640 
201,700 



1915 


192b 


(Metric tons) 




529,000 


6+5 


209,800 





117.230 





ig6 





49.23° 


i4S 


200,300 





248,300 






Source; Quoted by J. Douillet, Moscow Unmasked (London: Pilot, 1930), pp. 477 s - 
Douillet had been Belgian Consul in Moscow and obtained the data from a Belgian 
engineer with personal working knowledge of the Russian coke by-product industry 
before and after the Revolution. 



In 1914 production was substantial in both tar and ammonium sulphate. 
The war affected different branches of the industry differently. Tar output in- 
creased, while that of fertilizers decreased. The industry completely collapsed 
in the early 1920s and the Soviets were unable to restore production even by 
1926. The only plant operating in the first few years of the decade was the 
Enakievo Coke Benzol Works, formerly owned by the Russo-Belgtan Company. 
In 1921 John Rccd, the noted American Communist, organized 300 unskilled 
American workers, to whom Lenin donated a coke benzene plant to operate: 
A year afterward the Chemical Administration sent a Commission of 
engineers to report on the coke-benzene plant. Atrocious conditions were 
uncovered, and the ovens were found to be badly damaged. The workers 
were soon returned to the United States. . . , u 



U.S. State Dept. Decimal File, 316-139-562. 

Berliner Tageblatt, April 28, 1928. It may be noted that the use of German inter- 
mediaries was a common practice among American firms at this time, no doubt to 
avoid adverse publicity in the United States. 
V. N. Ipatieff, op. cit., p. 323. 



Chemical, Compressed Gas, and Dye Industries 219 

Then for a period of some years no attempt was made to utilize coke by- 
products, officially because Koksobenzol and Ukrchim questioned the right 
of the Central Coal Industry management to concern itself with these pro- 
ducts. Nothing was done while the dispute was in progress. 28 The coke-benzol 
industry was finally grouped under Koksobenzol. Of the twenty-two by- 
products plants incorporated into the trust, fifteen were fully equipped and 
had an annual aggregate capacity of 16,000 tons of benzol. Output in 1926 
was a mere 145 metric tons. Before the Revolution, Russian coking had been 
dependent on foreign coke-oven technology. The Donbas ovens installed 
before World War I consisted only of Coppe and Piette systems." Although 
about 800 ovens were available, output of coke was only 9,800 metric tons 
for 1920, compared to 4.3 million metric tons in 1913. By 192a output 
recovered slightly to 110,000 and in 1923 to 130,000 metric tons. This enabled 
some attention to be placed on by-product recovery. 27 This recovery was 
brought about as coal supplies found their way once again to the ovens, but 
still only 4 percent of ovens were in production. 28 

THE RUSSIAN-AMERICAN COMPRESSED GAS COMPANY 

(RAGAZ) 

Ragaz was a joint-stock company organized in January 1926 by the Inter- 
national Oxygen Company of New Jersey and the Soviet Metalosindikat for 
development of industrial gases in the U.S.S.R. Both parties held an equal 
share, and it was agreed that the concession would last until 1941. It was 
taken over by the Soviets in 1932. 

Seven plants were established by Ragaz for manufacture of oxygen and 
acetylene for industrial uses. This included locations in Moscow (Rostokin), 
Sverdlovsk, Rostov on Don, and Baku. In addition, some seventeen welding 
plants, three acetylene gas generating plants, and two special schools for 
training welders were established at various points throughout the U.S.S.R. 

The Moscow plant was opened in April 1927 and combined a special school 
with facilities for production of oxygen and acetylene. The second plant, 
which manufactured oxygen only, opened at Rostov in April 1928. The 
others followed. The Ragaz company also held the contract for the welding 
the Baku-Batoum and Grozny-Tuapse pipelines built between 1926 and 
1929 — the only pipelines built in the U.S.S.R. in this period, 



Ibid., p. 288. 

Coppe ovens were at Petrovsky, Mariupol, Donetz-Urevsky.Taganrog, and Stalino. 

Piette ovens were at the Providence works. (316-131-949.) 

Coal Age, January 8, 1915, p. 47. 

Polish Foreign Ministry Report. (316-107-1262.) 



aao Western Technology and Soviet Economic Development, 1917-1930 

In 1928 Ragaz produced 345,000 cubic meters of oxygen and 66,500 cubic 
meters of acetylene, and one year later 500,000 cubic meters of oxygen and 
77,000 cubic meters of acetylene— the total Russian production. After the 
manufacture of industrial gases and the establishment of welding schools, 
the next problem was manufacture of welding equipment to replace imports. 
This was done under a technical-assistance agreement in 1929 with a German 
company, Messer A-G, of Frankfurt, specialists in the development of automa- 
tic welding equipment. 29 and later with technical assistance from General 
Electric for more advanced forms of welding equipment. 30 

BASIC AND INTERMEDIATE DYES 
Imported dyes came exclusively from I. G. Farben, under an arrangement 
made in 1922 by a joint German-Russian commission containing I. G. Farben 
representatives. The latter agreed to maintain a warehouse in the U.S.S.R. 
and to import dyestuffs through Russgertorg (the mixed trading company). 
The commission also undertook to arrange for production of dyes through a 
jointly owned subsidiary— Igerussko. In return, the Soviets agreed to buy 
I. G. Farben products up to 70 percent of requirements of all coal tar dyes and 
medicines. The arrangement lasted until 1929. It was hardly profitable for 
the Soviets— only four intermediate dyes were manufactured by Igerussko, 
and the impression is gained that I. G. Farben was rather uncooperative! 
In return for a guarantee of gross sales, I. G. Farben was supposed to provide 
technical assistance also to the chemical and pharmaceutical industries. The 
agreement was not renewed. The Soviets complained they had not received 
any technical assistance, and the Farben company charged it had not received 
the agreed share of the Russian market, 31 There is a distinct possibility that 
I. G. Farben was shortchanged, as the Soviets made another dye agreement 
in 1924, a couple of years after the I. G. Farben agreement. 

Before the Revolution, the German firm of Berger and Wirth A-G operated 
a large dye, ink, and paint manufacturing plant in Petrograd. This plant 
remained closed until 1924, although it was largely undamaged and nominally 
part of the Chemical Trust." In February 1924, Berger and Wirth received 
a Type I concession agreement to reopen and modernize its old plant. The 
company was required to install new equipment. During the second year, a 
production level of 390 tons of dyestuffs was required, and in the third year 
30,000 poods of printing inks, dyes, varnish, and paint. All technical advances 

" Vneshtorgizdat, op. cit., p. 228. 
'" Monogram, November 1943, p. 18. 

31 Bank for Russian Trade Revietc, II, No. 1 (January 1919); and U.S. State Dent 

Decimal File, 316-136-1421. 
" Report, April 13, 1943, U.S. State Dept. Decimal File, 316-108-362. 



Chemical, Compressed Gas, and Dye Industries mi 

made by the company in Germany were required to be incorporated into the 
Russian plant. The agreement was to last for twenty-four years, at which time 
the plant was to revert to the Soviets in good condition. A royalty of 15,000 
rubles per year plus 1 o percent of sales was paid to the Soviets. Foreign workers 
were not allowed to exceed 20 percent of the labor force. In 1929 the company 
employed about 120 with an annual output of two million rubles in a new 
and completely mechanized plant. 83 

In 1924, when Berger and Wirth started work, the State Aniline Trust, which 
grouped together the prewar dye industry plants, was not in good shape. 
Of eight plants forming the trust, two (the Derbenevsky in Moscow and the 
Vladimirsky) were closed, two (the Butinsky and the Kinkshensky) were 
about to be closed, and four others (the Experimental, theTrigor, the Krasny 
Lutch, and the Central Laboratory) were on a heavily reduced schedule and 
working for the Military Trust. In 1923, just before the Berger and Wirth 
agreement, the trust sustained an overall loss of 876,451 rubles on a minute 
output. In 1913 the industry had produced 4,000 metric tons of synthetic 
dyes; in 1920-1 no output has been reported. There was then pressure on 
the Soviets to conclude a concession agreement in this sector. The opening 
of the Berger and Wirth plant and the implementation of the I. G. Farben 
technical agreement through Igerussko had an immediate impact on produc- 
tion. 

Table 12-3 DYE PRODUCTION IN THE SOVIET UNION 





Year 


Production (metric tons) 






1913 


4,290 






1920 


170 






1921 


none 






1933 


none 






1923/4 


1,800 






19*4/5 


n.a. 






1925/6 


8,290 






19*6/7 


7.37° 






1927/8 


10,2^0 






1928/9 


I3,300 






1929/30 


I 6,790 




Source; 


Nutter, op. cit„ p. 425. 







By the end of the decade, the Soviets were able, with the help of I. G. Farben 
and Berger and Wirth, to claim legitimately a production of dyestuffs four 
times greater than prewar— wholly due to foreign efforts. 

" U.S. State Dept. Decimal File, 316-139-549; and Haynes, op. cit. t p. 59. 



222 Western Technology and Soviet Economic Development, 1917-1930 

Smaller concessions in this and allied fields were negotiated with the Leo 
Brand Company for production of cosmetics and with H. Brock for production 
of laboratory drying and desiccating equipment. 

GLASS MANUFACTURING INDUSTRY 

The earliest technical assistance in glass-making came under the Rapallo 
Treaty protocols involving a German group in the Kuban for production of 
Glauber's salts, and the processing of these sulphates for use in glass manu- 
facture. Arsky said, ' . . . we must admit that we are quite incapable of doing 
this ourselves just now or even in the next ten-fifteen years,' and then realisti- 
cally he added that, "... the concessionaires will profit but it will bring 
wealth to us and we must pay for that.' 31 

The only completely modern glass-making plant built in the decade of the 
1920s was the Bely Bychok plate glass works, built in 1927 and equipped with 
two ovens and twenty imported Fourcault-type furnaces and glass machines; 
the complete plant cost $3.6 million. 35 Later, in 1927, four American glass- 
machinery operators were hired and spent between one and two years in the 
U.S.S.R. They toured Soviet glass-making plants and introduced Russian 
workers to new American equipment as it was imported to replace the pre- 
revolutionary machinery. 38 

Simultaneously, a Ukrainian delegation arrived in the United States to 
study American glass factories. The delegation was sent by the Porcelain and 
Glass Trust of the Ukraine to study the application of American glass-making 
machines and methods to the Ukrainian industry. The delegation visited 
Pittsburgh, the Ohio River glass plants, Detroit, Buffalo, and Trenton, New 
Jersey. The delegation then announced that a large-scale plan of expansion 
had been worked out which involved purchase of 'considerable machinery 
abroad.' 3 ' 

RESINOTREST 

There was a rubber goods manufacturing industry in tsarist Russia. The 
important components were the Treugolnik (Triangle) plants in Moscow and 
Petrograd, combined by the Soviets into Resinotrest. Progress at these works 
and the tsarist Bogatyr, Caoutchouc, and Provodnik factories (also incorporat- 
ed into Resinotrest as Rubber Manufacturing Plants Number 1, 2, and 3) 
went very slowly. The latter three plants employed about 10,000 in 1923, 

34 Krasnya Gazeta, September 3, 1921. 

** Amtorg, op. cii., II, No. 14, 5. 

" Ibid., No. 15, 5. 

" Amtorg, op. cit., II, No. 8, a. 



Chemical^ Compressed Gas, and Dye Industries 223 

but were only partly in operation, producing rubber galoshes and tire canvas. 
The Petrograd Treugolnik plant employed about 10,000 and also produced 
galoshes. The essential problems were those of raw materials, skilled labor, 
and equipment. 3 * 

The Petrograd Treugolnik plant was selected for improvement and 
completely modernized in the mid-iQ20s. New activities were added, including 
asbestos spinning and manufacture of brake linings, yarns, packings and similar 
products. Its employment was boosted to 22,000 by 1928, and the company 
was placed under management supervision of two American consultants.** 

The establishment of a rubber-reclaiming industry was initiated by a 
technical-assistance agreement between Resinotrest and the Akron Rubber 
Reclaiming Company in 1930. 40 The manufacture of rubber tires was initiated 
with the aid of the Seiberling Rubber Company, which completely outfitted a 
tire manufacturing plant at Yaroslavl and provided technical assistance in 
operations." 

CONCLUSIONS ON THE CHEMICAL INDUSTRY 

During the decade the tsarist plants were restored and modernized and 
the Soviets added a new dye-manufacturing plant (built by Berger and Wirth 
under their concession agreement) and glass-manufacturing plant (from the 
United States), expanded a Treugolnik rubber plant (with American assist- 
ance), and obtained, through concession agreements, two foreign plastics 
operations. 

The most significant items were the transfer of technology for the manu- 
facture of synthetic ammonia, and nitric and sulphuric acids, and the creation 
of a compressed gas industry. The Dupont, Casale, and Nitrogen Engineering 
processes were transferred to the Soviet Union and formed the basis for de- 
velopment of chemical complexes under the so-called Five- Year Plan. These 
complexes were the Berezniki-Solikamsk, where the NEC synthetic ammonia 
plant was backed up by a Westvaco chlorine plant, and the Chernorechensky 
complex designed on the basis of the Dupont synthetic ammonia and nitric acid 
plants. A third complex was started at Bobriki (later Stalinogorsk) based on a 
second NEC synthetic ammonia plant. 12 Modernization of the basic chemical 

" IS reported that Treugolnik 'refused' to join Resinotrest and had 'suffered accord- 
ingly' but gave no details. (316-10S-40S.) 

" Ruykeyser, op. cit., pp. 209-10. The engineering section was run by a German 

engineer, Hertwig. (316-108-415.) 
*° A. A. Santalov and L. Segal, Soviet Union Year Book, 1930 (London: Alien and 

Unwin, 1930), p. 357. 
" Ibid., p. 359. 
*' Hirsch, op. cit., pp. 73-85. 



224 Western Technology and Soviet Economic Development, igi^-ig^o 

capacity, vital for industrialization, was essentially an achievement of foreign 
enterprise; once again, indigenous Soviet technology is notable for its absence. 
There is no trace in the engineering literature, Western or Soviet, or in archival 
material, of any Soviet contribution, unless the 3 5 -meter Solikamsk shaft 
(which may have been a Soviet project) is counted as a technological contri- 
bution. 



CHAPTER THIRTEEN 

Clothing, Housing, and Food Concessions 



THE FORMATION OF TRUSTS IN THE 
TEXTILE INDUSTRY 

All large textile firms were nationalized by the decree of 1918 and manage- 
ment placed in the hands of a Chief Committee of the Textile Industry. The 
home textile industry, based on hand work but without hired labor, remained 
in private hands. 

Available cotton spindles in 1920 totaled about seven million, but only 
a little more than ten percent of these were working. In the flax industry, only 
one quarter of 400,000 available spindles were working. Thus, although 
spindle capacity was about the same in 1920 as in 1912, output was very much 
less. This decline was the result of poor administration. Substitution of 
'ignorant, sometimes unscrupulous Soviet officials' for the former owners, a 
labor and fuel shortage, and inability to provide food for the workers were the 
main causes. Rations were small and in irregular supply, and output was 
largely restricted by time wasted in foraging expeditions. 1 

In late 1921, the textile industry was organized in a number of trusts. 
These were the Tambov, comprising five factories producing coarse cloth; 
the Simbirsk, comprising six factories producing coarse cloth; the Moscow 
Trust, combining thirty-two plants in the Moscow industrial district and 
called also the Worsted and Finishing Trust; the Silk Knitting Trust, com- 
prising fifteen factories; the Bogorodsk-Glukov Trust, with ten factories; 
the Orechovo, with ten factories; the Ivanovo-Voznessensk, with twenty- 
seven factories, and the Vladimir with ten cotton-spinning plants. Later the 
Petrograd district was organized as was the Linen Administration, comprising 
seven factories in the Vladimir-Kostroma provinces. Altogether, the Linen 
Trust comprised seventeen factories, including the large Kostroma plant.* 

1 Wool and Textile World, July 7, 1921. 

1 Krasnya Gaseta, August 21, 1921. These figures arc somewhat different from those 



226 Western Technology and Soviet Economic Development, igij-rgjo 

Trustification was accompanied by the return of emigrants from the United 
States: usually deportees with ideological sympathies with the Revolution, 
In the summer of 1922, Petrograd Pravda reported that an 'American Depart- 
ment' had been organized in the Thirteenth State Clothing Factory by a group 
of deportees led by Comrade Summer and using methods described as the 
last word in efficiency, in an effort to create 'a genuinely American attitude to 
work.' 3 Another group of thirty-six American tailors joined the Moscow 
Tailoring Combine. It is interesting to note how a comparatively small group 
can affect a major organization; 

[they] have raised its work to such a level of efficiency that the Combine 
has become a model establishment . . . there are now six cutters to 150 
machines, whereas formerly there were fifty cutters when hand machines 
were used. 4 

Demand for textiles was intensified by good harvests in the middle 1920s, 
but the cotton crop was insufficient to meet the demand, so that imports were 
necessary. In 1923-4, some 10 million poods of cotton was produced and 
another 8-9 million, valued at 875 million, was imported from the United 
States. The Chase National Bank advanced credits to the Textile Syndicate 
for the purchase of this cotton, payment being collected against documents 
in Moscow. In 1925, negotiations between Chase and Prombank extended 
beyond the finance of raw materials and mapped out a complete program for 
financing Soviet raw material exports to the U.S. and imports of U.S. cotton 
and machinery. 

Imports were still insufficient to meet demand, and in March 1926 most 
cotton mills suspended work during Easter for an extended summer vacation. 
Wool factories closed for most of the summer discharging half of their workers 
and paying the rest at half rates. 5 The crisis recurred in 1927. Again numerous 
factories were closed. These supply problems were compounded by technical 
problems. In the Kostroma plant, some 45,000 spindles were crowded into a 
space designed for 20,000. These were of widely varying types, and about 
three quarters were from thirty-five to sixty years old. Few repairs had been 
undertaken since the Revolution, and spare parts were removed from machines 
already in operation. The steam engines providing power dated back to 1880. 



given by M. Dobb. In particular, Dobb places only 7 plants in the Moscow Trust 
instead of 32, and quotes his source as Y. S. Rozenfeld, Promithlermaia Politika 
S.S.S.R. (1926)- (Dobb, op. cit., p. 134.) The propaganda image of a 'destroyed 
industrial structure' is hardly consistent with this comparatively large number of 
plants ready for trustification. 

Pravda (Petrograd), No. 175, August 6, tgaa. 

'Emigrants Returning from North America,' Pravda (Moscow), No. 246, October 

31, 1922. 

Isvestia, No. 191, August 23, 1925. 



Clothing, Housing, and Food Concession: 227 

As a result of this technical backwardness, substantial orders were placed 
abroad for textile machinery, particularly in the United Kingdom and 
Germany. In 1927-8, the U.S.S.R. purchased 11,471 tons of 'machines for 
spinning and twisting cotton, wool, flax, silk and bast fibres' from the United 
Kingdom alone. This may be compared with purchases of only 3,896 tons 
of cars, trucks, and fire engines from the same source. Textile machinery was 
the largest single category of exports from the U.K. to the Soviet Union In 
the years 1926 to 1928.* 

THE RUSSIAN-AMERICAN INDUSTRIAL CORPORATION 
(RAIC) AND SIDNEY HILLMAN 1 

Several small groups of American emigrants arrived in the early 1920s. 
One, as already mentioned, joined the Moscow Tailoring Combine. Another, 
comprising 120 deportees with 200 sewing machines and other equipment, 
arrived a few months later. They took over an old sewing factory and established 
the Third International Clothing Works. 8 

In 1922 a much more ambitious project, of major significance in modern- 
izing the textile and clothing industries, was begun. The project was initiated 
by Sidney Hillman and the Amalgamated Clothing Workers of America, 
whose official position was as follows: 

Russia has been pleading in vain with the rulers of the world for industrial 
credit. It is the duty of labor to give Russia the credit denied her by the 
ruling class. The Amalgamated has made the beginning with the clothing 
industry. Let us be big enough to perform our duty fully and quickly, 8 

In an Izvestia article, Hillman pointed out that the aim of the union 
was not solely to establish a clothing industry in the Soviet Union: 'our aims 
are much higher, we will begin with this industry and then grant credits to 
the other clothing trusts.' 10 

* A. A. Santalov and L. Segal, Soviet Union Year Book, 1930 (London: Allen and 
Unwin, 1930), p. 331. 

7 Board of Amalgamated Clothing Workers of America, Bibliography of the Amalgam- 
ated Clothing Workert of America (New York, 1 939). Section IV is a list of references 
to the Russian-American Industrial Corp. 

* Pravda, No. 215, October 6, 192a. 

* Amalgamated Clothing Workers of America, Sixth Bienniel Convention, Report of 
the General Executive Board (Philadelphia, May 1924), p. 90. Hillman was not 
typical of American unionists. Samuel Gompers thundered long and loud against 
Soviet treachery and brutality. He was wholly opposed to any form of economic or 
trade links with the Soviet Union, {See S. Gompers and W. E. Walling, Out of 
Their Own Mouths: A Revelation and Indictment of Sovittism (New York, 1921).] 
Most present-day American unionists follow in the Gompers tradition. (See the 
speeches of Meany, et al.) Comparison with the record of American businessmen 
(both then and now) is revealing: 3ee chaps. 17 and 18, 

" Izvestia, No. 252, November 10, 1921, 



228 Western Technology and Soviet Economic Development, 1917-1930 

An agreement was drawn up between Vesenkha and a company formed by 
Hillman and Amalgamated Workers called American-Russian Industrial 
Workers Association (Artina) later changed to Russian-American Industrial 
Corporation (known as RAIC or RAIK). The full text of the agreement was 
given in the Nation and was intended to act as a model agreement for a series 
of such worker enterprises, which were conceived as the equivalent of the 
foreign commune in agriculture. 11 RAIC made three contracts with the Soviet 
Union. The first was a general contract (November 1921) authorizing the 
company to do business and to underwrite contracts made by the union 
treasury. The underwriting included a minimum dividend and repayment of 
principal if the corporation should be liquidated. The second agreement was 
with Vesenkha and similar to the first. The third and most important was with 
the All-Russian Clothing Syndicate and covered the first project: that of 
operating the prerevolutionary clothing and textile plants. 

RAIC was capitalized at Ji million, and stock was sold to union members 
at $10 per share. The union appropriated $10,000 from the union treasury 
to defray initial organization expenses and also bought $50,000 worth of stock. 
RAIC was linked also to the all-Russian syndicate of the Sewing Industry, 
which was founded in 1923 with a capital of 900,000 rubles. Sixty percent 
of the syndicate was owned by various Soviet state institutions (Vesenkha 
held eighty shares; Moscow Sewing Industry, twenty shares; Petrograd 
Sewing Industry, 600 shares; Tartar Clothing Industry, twenty-five shares; 
Nijhny-Novgorod Sewing Trust, five shares; Experimental Factory twenty 
shares; and the Kharkow Sewing Trust, twelve shares). The balance of 40 
percent was owned by RAIC. This was an arrangement similar to the General 
Electric ownership of shares in Electroexploatsia and Electroselstroi. The 
syndicate opened fifteen branches across Russia. This provided a channel for 
the transfer of capital, equipment, management techniques, and skilled labor 
from RAIC to the textile and clothing industries. 12 

In June 1922, six clothing factories in Petrograd and three in Moscow were 
turned over to the control of the joint board. It was then announced that the 
new capital would go mainly for new and improved equipment, and in August 
RAIC announced that the first shipment of spares for American machines 
currently in use in the U.S.S.R. had been made. By late 1923 RAIC was 

» 'Contract with Soviets', Nation, CXIV (June 1922), p. 728- The Nation was a very 
useful vehicle for spreading news of the aims and work of these enterprises and 
communes and in denying rumors (true or false). For example, when Americans 
were trying to leave the Kuzbas Commune (American Industrial Corp.), the Nation 
vehemently denied any such pressure existed or that any exodus was under way. 

" Izvestia, No. 207. September (4, 1023. It is likely, although no evidence can be 
presented, that the syndicate utilized the 3.000 outlets, 50 agencies, and 50 ware- 
houses and manufacturing plants built by the Singer Sewing Machine Co. (Foreign 
Claims Settlement Commission of the United States, Claim No, SOV-40, 920.) 



Clothing, Housing, and Food Concessions 229 

operating nine clothing plants in Moscow as well as plants in seven other 
Russian cities. This was independent of the arrangement to aid, technically 
and financially, the clothing syndicate. 13 By late 1923 RAIC was operating 
twenty-five clothing plants in Moscow alone and employed 15,000 workers." 
The union also supplied skilled personnel to aid plants operating outside the 
syndicate, and provided specialized personnel for research and other opera- 
tions. (For example, the Moscow experimental factory had a manager supplied 
by the union in the United States.) 1 * 

The capital and technical skills were supplied by the union, and the workers 
and raw materials were provided by the U.S.S.R. Both sides were equally 
represented on the board of control, and the enterprise run on a cooperative 
basis. 

The books had opened for subscription in June 1922 ; by August more than 
$100,000 had been subscribed, and by September more than $300,000. It was 
announced on September 1 5, just three months after formation of the company, 
that a dividend of 8 percent would be paid. There were immediate protests 
in the current news media that this was a payment from capital and not earn- 
ings. Hillman denied this claim: 

So far as our information goes we expect the dividend to come out of 
the earnings of the Syndicate. Under our contract with the Soviet govern- 
ment, if these earnings are insufficient the Soviet makes the dividend 
good on our filing a claim. We have filed no claim, and reports that the 
Soviet has sent money here for this specific purpose are incorrect. 1 ' 

In April 1924 the Amalgamated Clothing Workers of America opened two 
banks: the Amalgamated Bank of New York and the Amalgamated Trust and 
Savings Bank of Chicago. These banks called their 'most important function' 
the transmission of dollars to Russia. By 1927 some $20 million had been sent, 
in addition to $200,000 \): food gifts and another $300,000 in cash gifts. The 
money was 'largely used for the purchase of machinery and raw materials for 
the clothing trusts of Russia.' 1 ' RAIC also interested itself in Syndchveiprom, 
the syndicate for the unitjd confectionery trusts, but, apart from a financial 
investment, the degree of participation is not known, 18 



New York Times, October \i, 1923, p. 17, col. 6. 

Nation, January 19, 192+, letter from S. H. Walker, 

Nation, November 7, 1923, [-. 524. 

JVetu York Timet, Septembc j, 1923, Sec. II, p. 11, col. 1. Payment out of capital 

would, of course, be an offense against the 'blue sky' laws. 

Nation, May 25, 1927, pp. .^65-70. 
Annuaire, p. 133. 



230 Western Technology and Soviet Economic Development, igiy-ig^o 

THE TRILLING, NOVIK, AND ALTMAN 
CLOTHING CONCESSIONS 

In September 1926, a Type I concession agreement was concluded with 
O. Trilling, of Poland — the former owner of the Spartak factory in Moscow. 
The concession produced woolen goods, including blankets, thread, and 
carpets. The plant had been part of the Mossukno and was in a very run-down 
condition, producing only 2 percent of the trust's output, although reportedly 
working at capacity. Trilling was required to re-equip the plant completely 
so that by the second year of operations it would produce not less than 200,000 
meters of cloth, and by the end of the third year 300,000 meters. In addition, 
Trilling was required to produce 150,000 meters of blanket cloth a year. The 
necessary equipment was to cost not less than $80,000 and had to be imported. 

Trilling was employing 230 workers by 1929 and had introduced 

considerable alterations and improvements in the factory, which was 
obsolete. ... the whole plant was electrified and much new equipment 
introduced. The daily output of the spinning department was increased 
from 400 to 2,500 kilograms of wool yarn. In the weaving department 
twenty-seven new looms were installed and automatic drying machines 
were purchased for the washing department. . . . Additional equipment 
will be imported to produce Jacquard blankets, an article which is not 
manufactured at the present time in the Soviet Union. 19 

Upon expiration of the concession, the enterprise was to be turned over 
to the Soviets without compensation, free from debt, and in a technical 
condition not less favorable than that for the final two years of operations. 
In the meantime a yearly payment was to be made to the Soviet government. 
This was to be not less than 40,000 rubles per year and equal to 6 percent 
of the sales volume of the factory. The concessionaire was given the right to 
establish a share company either abroad or in the U.S.S.R., with a capital 
of not less than 400,000 rubles, and with all members to be approved by the 
Soviet government. The term of the concession was to be fifteen years, 
although the concession was actually expropriated long before this date. 20 

The second clothing concession was granted to Novik and Sons to operate 
the Baranov factory for manufacture of caps and hats. They were required 
to equip the plant and start operations within nine months of date of signature. 
Production was to be not less than 20,000 dozen caps and hats per year, in 
addition to 13,000 dozen felt snow shoes and 20,000 meters of felt cloth per 
year. Novik paid an annual rent of 32,000 rubles and from the end of the 
second year onward an additional annual royalty of 50,000 rubles per year. 
At the end of the agreed term of twelve years, the factory was to be turned 
over to the Soviet government in good condition and without charge. 

'* Bank for Russian Trade Review, II, No. 2 (February 1929), 10. 
10 Ekonomicheskaya Zhisn, No. 237, October 14, 1926. 



Clothing, Housing, and Food Concessions 23 1 

A third concession was granted to the Austrian citizen, Altman, who took 
over the former Gorbachev plant to produce knitted goods. The concession 
was required, within fourteen months from date of signature, to produce 
annually 25,000 kilograms of cotton and 50,000 kilograms of woolen yarn, of 
which not less than 30 percent was to be used for the manufacture of stockings 
and gloves. Altman was required to import equipment for production of 
knitted goods. The equipment was to be valued at not less than 120,000 rubles, 
in addition to equipment for wool-spinning valued at not less than 60,000 
rubles. A royalty of 8 percent was payable on knitted goods turnover and 5 
percent on woolen goods turnover. 

Turnover was required to be not less than 400,000 rubles in the first, 800,000 
rubles in the second, and one million rubles in the third year. Annual rent was 
set at 8,000 rubles. The factory was to revert to the state at the end of eighteen 
years with complete equipment and in good working order. 21 The concession 
was later taken over by Tiefenbacher and expropriated before the eighteen 
years had expired. 

There had been numerous small shoe-manufacturing concerns in tsarist 
Russia. Aktieselskabet United Shoe Machinery Company of Copenhagen 
(the Danish subsidiary of United Shoe Machinery Corporation of the United 
States) had leased shoe machinery to over sixty-two plants before 19 14. This 
equipment was valued at five million rubles. In addition equipment was 
stored in Petrograd warehouses. These factories and their equipment were 
confiscated in iqi8. m In the 1920s a concession was negotiated with the Union 
Shoe Company of Vienna for technical assistance and the use of imported 
Austrian equipment. 23 

TECHNICAL ASSISTANCE TO THE TEXTILE INDUSTRIES 
In July 1929 an agreement was concluded with the U.S. firm, Lockwood, 
Green and Company, under which four American textile machine-building 
specialists were sent to the Soviet Union 'for technical aid in the reorganization 
of Soviet textile mills as well as drafting projects for new textile mills.' The 
agreement included 'material responsibility' by the American company for 
the rationalization proposals of its engineers and was coincident with an in- 
crease in the purchase of American textile machinery.** Another contract 
aimed at rationalizing the accounting system in Russian textile mills; this 
contract was made with the New York firm of management consultants, Eugin 



SI 
S3 



Ibid. 

Foreign Claims Settlement Commission of the United States, Claim No. SOV 

4-353- 

U.S. State Dept. Decimal File 316-131-344. 

Ekotsomicheskaya Zkizn, No. 133, July 7, 1029, and No. 159, July 14, 1949. 



232 Western Technology and Soviet Economic Development, i^ij-1^30 

Szepisi. ss The design of plants for specialized textile products intended for 
the export market was represented by the agreement with C. T, Steinert, of 
Frankfurt, for the design and construction of a plant for manufacture of kid 
leather.'* 

There is little question that these design contracts stemmed directly from 
'uneconomic conditions' prevailing in the textile and allied industries. 
Textilstroi (trust for building textile plants) was organized in 1926 with the 
aim of reducing construction costs of textile plants. Investigation in 1928 
showed that the trust had been undertaking construction without definite 
plans or sufficient materials and labor. This had resulted in heavy over- 
expenditures and slow construction. Administrative costs were out of line with 
results achieved; in 1927-8 over 500,000 rubles had been spent without 
producing any 'concrete results' whatsoever." 

FRENCH TECHNICAL ASSISTANCE TO THE SILK INDUSTRY 
The silk trust (Shelkotrust) was formed in 1921, It consisted of thirty-eight 
prerevolutionary factories in the Moscow and Vladimir districts, including 
some plants with a large prewar output. The planned output for the first 
year of production was 1.9 million arshines (compared to 60 million for the 
same plants in 1913). This target was not achieved. The largest plant in 
Shelkotrust was the Moscow plant of the Societe Anonyme Franco-Suedoise 
pour la Fabrication de Soie en Russie, built in 1889 and considerably enlarged 
in 191 1. Before the Revolution the plant had employed over 2,000, but, even 
by 1930, with extensive foreign assistance, employment was still in the region 
of 350-4oo. !S 

In 1923 negotiations were begun with the former French owners concerning 
further investment. These resulted in several agreements after some four or 
five years of discussion. In February 1928 a contract was made between 
Iskustvennoie Volokno (a Soviet company), the French firm Soieries de 
Strasbourg S-A, and Professor E. Bronart for production of artificial silk by 
the viscose process. The agreement was for ten years and the French parties 
undertook to give technical assistance in the construction and operation of a 
new plant in Leningrad utilizing the patents and processes of the French firm. 49 
By 1930 the firm had built two plants, one in Leningrad and another in 
Moscow. This was followed by an agreement to build a third plant at Mohilev 

!S Vneshtorgizdat, op. cit., p, 227. 
M Ibid., p. 229. 

17 Ekonomicheskaya Zhizn, No. 223, September 25, 1928. 

a J. Douillet, op. cit., p, 48 ; and Ekonomicheskaya Zkisn, No. 277, December 9, 1921. 
" Ekonomicheskaya Zhizn, No. 46, February 23, tgiS; and Vneshtorgizdat, op. cit., 
p. 230. 



Clothing, Housing, and Food Concessions 233 

using equipment supplied by a German firm, Oskar Kohorn A-G, of Chemitz. 
The Kohorn company also had a direct technical-assistance contract with 
Shelkotrust for the supply of data and assistance in the manufacture of 
artificial silk by the viscose process. Combined output of the German-assisted 
plants was 20,000 kilograms per day of artificial silk, but nothing is known of 
the exact number and location of these plants. 50 

EUROPEAN BUTTON CONCESSIONS 
Even the lowly button had a number of manufacturing concessions. 
Tiefenbacher Knopfabrik A-G, button manufacturers of Vienna, signed a 
concession agreement in July 1926 and was still manufacturing buttons under 
thu agreement at the end of the decade. The company sent equipment from 
its Vienna plant to Moscow and took over the factory previously occupied by 
the Altman company. 41 

Skou-Keldsen also had a button concession at Poltava in the Ukraine and 
another in Leningrad. At one time the company applied for further works in 
Kiev and Odessa, but there is no record that the application was successful." 
Two other manufacturers of buttons were Stock A-G and Block and Ginsberg, 
both German companies. 

TECHNICAL ASSISTANCE TO THE FOOD INDUSTRY 
Technical assistance in the food industries consisted of equipping plants in 
key processing industries and designing of plants for the Five- Year Plan." 
A concession agreement between Okman (an Estonian) and the Kharkov 
Provincial Council of People's Economy created a joint company to run beer 
and malt breweries in the Ukraine. This was a Type II concession, and both 
parties deposited 85,000 rubles capital. The company had three directors: 
Okman, and two others appointed by the Provincial Council, which received 
60 percent of the profits « H. Langmann and Sons, of the United Kingdom, 
had a concession for growing hops for the brewing industry. 

« Y,'l' ? mbassy in w a«aw, Report No. 294, October 7, 1930. 

» nt t tM '£ ePt - DedmaI FUe ' 3 l6 -3.-34S and 3.6-. 1 1-9.6. 
U.S. State Dept. Decimal File, 316-13 1-668. 

fLTPj? e ,T ° f C0 . nce ? sio J?» w e« rumored to be in this field but concrete evidence 
" U.S. State Dept. Decimal File 316-131-119. 



234 Western Technology and Soviet Economic Development, 1917-1930 

Gaier, a French firm, equipped a plant in the Ukraine to produce oil from 
various seeds." In 1930 a technical-assistance contract was concluded with 
Harburger Eiscn und Bronzwerke A-G for design, construction, and supply 
of equipment for oil-crushing mills. A similar agreement was made in the 
same year with the Dutch firm, N.V. Maatschappij Tot Exploitatie von 
Veredelinsproccdes, for technical assistance in the saccharification of wood 
pulp to produce cattle fodder and glucose. 3 * 

Design of meat-packing plants was the subject of a contract between 
H. G. Hcnshien of Chicago and the food industry. 3 ' The German firm, Hect- 
Feifer, enlarged the Odessa meat-packing plants and arranged for the export 
of preserved meat to Germany. 38 The Mechanical Manufacturing Company, 
of the United States, provided technical assistance to the meat-packing 

industry. 39 

The design of condensed-milk plants was the subject of a contract with the 
McCormick Company, of Pittsburgh." Another design-assistance contract 
was with Penick and Ford, Inc., of Cedar Rapids, Iowa, to plan factories for 
production of corn products." General technical assistance to the food 
industry was the subject of an agreement with Webber and Wells, Inc., of 
Chicago. 12 The Romanoff Caviar Company had its nationalized plants return- 
ed, and, as the company had German and American owners, it must be con- 
cluded that the Soviets were interested in developing the foreign exchange 
potential of caviar. 45 

Three large bakeries were constructed by the McCormick Company. These 
were not only the largest in the Soviet Union but among the largest anywhere 
in the world, with a daily capacity of 200 metric tons, produced during three 
shifts. Operations were completely mechanized, so the workers numbered only 
seventy per shift. McCormick engineers designed the plants and supervised 
construction, installation, and initial operation of American equipment." 
The output of bread in Moscow in 1927-8 was 175,000 tons and in Leningrad 
278,000 tons. These were significant increases from 1925-6, when the Moscow 
output had been 74,000 tons and the Leningrad output 147,000 tons. Each of 

»* Izvestia, No. 7. January 9, 1924- 

" Vneshtorgisdat, op. cit.. p. 228. 

" American Russian Handbook, p. 99. 

" Polish Foreign Office Report, October 7, i9^9. < ■ 

» A. A. Santalov and L. Segal, Soviet Union Year Book, 1930, (London: Alien and 

Unwin, 1930), p. 358. 

" Ibid. 

" Ibid., p. 100. 

" Ibid., p. 101. 

" Report 93130, April ta, 193° (3i6-i3«>-i293)- 
" Bank for Russian Trade Review II, No. 7 (July 1929). »6- 



Clothing, Housing , and Food Concessions 235 

the new plants built by McCormick was able to produce 74,000 tons per year 
on two shifts. There is little doubt that the whole increment in bread output 
came from these mechanized American bakeries." 

Most of the sugar refineries in the Ukraine were put back into operation by 
German technical assistance forthcoming under the Rapallo Treaty. In 1929, 
however, there were, still ten refineries in a state of 'technical preservation,' 
and three new refineries were planned to replace these. 1 * 

Concessions were rare in the tobacco field. There was one in 1924 with 
A. Lopato and Sons, of Harbin, China, for the operation of the latter's 
prerevolutionary plant in Chita, Siberia. A fifteen-year lease was granted the 
company, which paid the Soviets 5 percent of gross output, and a tax equal 
to 3 J percent of the market price of tobacco. 4 ' 



TECHNICAL ASSISTANCE IN HOUSING AND 
PLANT CONSTRUCTION 

The American-Russian Constructor Company (ARK) made a private 
Type I concession agreement for house repair with the Moscow Soviet. 
Practically all the stock was held in the United States. Houses in need of 
repair were allotted to the company by the Moscow Soviet for terms of 8, 18, 
or 36 years, according to the amount of capital required to place them in 
habitable condition. The company was to furnish all materials and labor, 
repair the houses, and keep them in good repair for the stipulated period. 
During this term the company was to have renting privileges. Of the rent 
collected, 80 percent accrued to the company and 20 percent to the Moscow 
Soviet. Taxes were paid by the tenants. About 24 Americans (mostly of Russian 
origin) were employed by the company.* 8 Little is known about the specific 
operations of ARK, but it probably expired in the early 1930s when the Soviet 
ran out. of houses in need of repair. In 1923 the functions of the concession 
were extended to 'construction and repair work, organization, leasing and 
operating plants producing construction materials in the RSFSR and allied 
republics. . . .' 49 

In late 1923, following a decree of the Soviet of People's Commissars which 
removed a number of institutions and organizations from Moscow to relieve 
the housing shortage, an agreement was made with Geoffrey and Curting, 
Ltd. (United Kingdom), to undertake capital repairs on these buildings. 

" Calculated from data in Bank for Russian Trade Review II, No. 7 (July 1939), 16. 

" Pravda (Moscow), No. 98, April a8, 1929. 

" U.S. Consulate at Harbin, China, Report No. 2824, September 20, 1924. 

" U.S. Consulate at Riga, Report 212, December 23, 1922, 

" Ekonomicheskaya Zhizn, No, 105, May 13, 1923. 



236 Western Technology and Soviet Economic Development, 1917-1930 

A large company was formed for this work, but nothing has been reported 
about specific operations. 60 

By 1925 the housing situation had become desperate. Resultant fatigue was 
blamed for many industrial accidents. One article warned against placing too 
much reliance for construction on cooperatives and suggested that the greater 
part of the needed house building should be done by 'commercial organiza- 
tions.' 51 This was followed by an agreement in March 1929 with the Longacre 
Construction Company, of the United States, to build according to the "latest 
technical methods' some four million rubles' worth of workers' housing in 

Moscow. 62 

Another concession in housing, between Tsentrozhilsoyuz (the Central 
Union of Dwelling Cooperatives) and the German firm, P. Kosset A-G in 
1926, provided for the establishment of a Type II joint-stock company to 
build houses, hotels, and apartments. Rusgerstroi had a share capital of six 
million rubles equally subscribed by each party. Kossel received 1.9 million 
rubles for patents turned over to the joint company. The Soviets received the 
same amount free. The concession was stipulated to last twenty-five years, but 
Kossel was ejected in 1928. In the meantime, the company established 
cement, glass, and woodworking plants. 53 

A series of articles in Ekonomicheskaya Zhizn suggests why concessions 
were attempted in the field of housing and why the plants of the Five- Year 
Plan were designed and built by foreign companies. Several meetings of the 
Soviet of Labor and Defense were devoted to the question of the extremely 
poor results of industrial and domestic building programs. There was no 
responsible supervising organ; each production unit had tried to become 
self-supporting. This resulted in poorly designed projects whose costs had 
usually been underestimated. There were gross technical inefficiency and 
poor technical training. The input industries— especially the glass, paper and 
chemical industries-were inefficient, and supplies of these products were 
irregular and of poor quality. 54 

SMALL HOUSEHOLD ITEMS 
The Alftan pure concession granted in 1924 produced typewriter ribbons 
and carbon, waxed, colored, and parchment paper. 55 Elia Shulmann took over 

10 Pravda (Moscow), No. 224, October +, 1923. 

11 Torgovo-Promishlemiaya Gaxeta, No. 268, November 24, 1925. 
» Izvestia, No. 51, March 2, 1929. 

" Ekonomichetkaya Zhizn, No. 180, August 8, 1926- 

» EkononUcheskaya Zhizn, various issues for April ,ga8 , »«««*«. "I** , and 
Fanuarv to June 1929. Negotiations were reported m the Soviet press with the 
American companies Van Soon and McDonald for constructor of large cement 
plants (Izvestia, No. 248, October 26, 1929). 

" Ekonomicheskaya Zhizn, No. 346, November 28, 1924. 



Clothing, Housing, and Food Concessions 237 

his prerevolutionary factory in Moscow for a concession to manufacture 
typewriter ribbons, carbon paper, indigo, copying paper, stencils, and inks. 
The factory employed 150 and was the largest in the U.S.S.R. making these 
articles. In 1926 Shulmann, a Latvian citizen, concluded another agreement 
for the manufacture of steel pens, penholders, drawing pins, paper clips, 
pencil sharpeners, and fountain pens.** A Finnish firm, Raabe, was granted a 
concession to operate the nail factory at Nerecht, in Kostroma Province." 
After the demise of the Harriman manganese concession, United States 
manufacturers were decidedly cool to further concessionary ventures. One, 
however, was concluded in the record time of three weeks between the Gillette 
Safety Razor Company and the U.S.S.R. Gillette was obligated to build a 
plant in the Soviet Union — the first time an American company decided to 
build on Soviet territory.* 8 

THE HAMMER CONCESSIONS 
The first Hammer concession was granted to Allied Chemical and Dye for 
operation of the Urals asbestos deposits, discussed in chapter 6. The best- 
known of the Hammer concessions was one granted in 1925 for production of 
pencils, pens, celluloid drawing instruments, and similar items. The cedar, 
graphite, and colors were imported. Machinery and skilled labor were brought 
from Germany. Four factories, located in Moscow, employed at their peak 
about 1,000 persons.* 9 The pencil concession was, in effect, a monopoly, and, 
at the end of the first year's business, a turnover of $2.5 million, with net 
profits of 96oo,ooo, was reported. Some 8450,000 of the profits was reported 
as having been exported. The second year's turnover was $3.5 million, on 
which profits were $550,000. A turnover tax of between 6 and 10 percent was 
payable, together with an income tax of 10 percent on gross income and a tax 
of 50 percent of all profits in excess of the first 20 percent of profits based on 
invested capital. 60 It was reported in 1927 that Dr. Hammer was seeking a 
$500,000 loan in New York for further expansion of the pencil factory. Obliga- 
tions by Centrosoyuz were offered as security. Further security was offered in 

■* Troyanovsky, op. cit., p. 861. 

" Prawta (Moscow), No. 250, November 3, 1923. 

« New York Times, December 10, 1919, p. 8, col. 4. Nothing more was reported; it 
is presumed the agreement was not implemented. 

" U.S. State Dept. Decimal File, 316-136-1340. Hammer's monopoly resulted from 
pi'oduct superiority rather than agreement. Alexander Barmine, One Who Survived 
(New York: G. P. Putnam, 1945), P- '57, says, 'The State Mospolygraph Trust 
undertook to make cheap pencils, but the quality was bo bad they could not compete 
with Dr. Hammer's more expensive goods.' High import tariffs were placed on 
pencils to protect the State Pencil Trust (Karl Liebnecht factory). (Ekonotmtheskaya 
Zhizn, August 11, 1923.) 

*° U.S. Embassy in Berlin, Report 4457, April 11, 1929. 



238 Western Technology and Soviet Economic Development, 1917-1930 

the form of Russian government loan bonds." This appears as a pre-Harriman 
attempt to break United States policy against long-term loans to the Soviet 
Union. The concession was turned over to the Soviets on December 20, 1929, 
in accordance with a clause in the contract which enabled the Soviets to buy 
out at any time at an agreed valuation. 82 There are unique features about the 
Hammer concessions. The pencil concession had a smooth and profitable 
history, quite unlike most other concession agreements. The purchase clause 
was invoked and accepted without the usual protest. 



41 New York Times, November 22, 1927, P- 4°, col. 2. 
" New York Times, December 22, 1929, p. 3'. "1. 2. 



CHAPTER FOURTEEN 

Transportation and the Transportation 
Equipment Industries 1 

RECONSTRUCTION OF THE RAILROADS 

The heart of Russian trar,sr-ort is the railroad. Development in tsarist times 
was limited by weak track, which in turn limited size of locomotives employed. 
The tsarist Ministry of Transport had a rather limited view of locomotive 
construction, and its was r.c: until 1912 that the Vladikavkaz Railroad in the 
North Caucasus introduce;; a ten-coupled freight steam engine. This was the 
finest engine available in the 1920s and became the standard Soviet type. 
However, the comparative bt-kwardness of the Russian railroad system was 
not due to lack of experimenl'ition or innovative ability. Westwood points out 
the long Russian history in steam traction, from tsarist times to the Soviet 
research,* 

Restoration of railroads and ports, both heavily damaged in the Civil War, 
were the essential prerequisites to economic development. 8 This reconstruc- 
tion was begun in the immediate post-Rapallo period, with extensive German 



Locomotive construction is covered under Gomza (chap. 10). 
Westwood, op. tit., p. 93. 

Just how badly the railroads were damaged is controversial. The American Relief 
Administration (in a telegram to the Dept. of Commerce, U.S. State Dept. Decimal 
File, 316-107-853) argued, 'Railroads functioning with old employees who ap- 
parently take pride in their accomplishment. Main yards on the whole dean. . . . 
We have traveled entirely on regularly scheduled trains and on time in every 
instance except once when two hours late due to wreck on main line . . . however 
barring ARA supplies no freight moving and passenger traffic limited foreign relief 
agents, government officials, repatriated refugees and occasional troop movements,' 
On the other hand, Hilger (then German Relief representative) states, "The trans- 
port system was in complete ruins and what railroad travel still continued was 
disturbed by repeated attacks on moving trains,' (Hilger, op. tit., p. 45.) 
The most probable view is that little freight was moving, many bridges were out 
(especially in the Don), and main lines in the north were clear because of large 
numbers of workers rather than 'old employees.' 



240 Western Technology and Soviet Economic Development, 1917-1930 

technical assistance, and completed between 1922 and 1924. German trade 
figures for exports to Russia in 192 1-2 (table 14-1) suggest how much 
importance was attached to this phase of Russo-German cooperation. 

Table 14-1 GERMAN EXPORTS TO THE U.S.S.R. AND 

PROPORTION OF RAILROAD MATERIALS 
(in current paper marks) 



Year 



1921 



1922 



Month 



June 

July 

August 

September 

October 

November 

December 

January 

February 



Total Exports 
(in millions of 
marks) 



Locomotives 
(in millions 
of marks) 



Other RR 

Material 
(in millions 
of marks) 



Proportion of 
RR Materials 
(percentage) 



18,166 million 

64,261 
130,248 
128,704 

54.77' 
112,678 

136.2S5 

43,272* 

6,278 



"7.255 
36,667 

42,354* 



3.422 
17,300 
88,944 
84,607 
21.417 
3'. 743 

8,628 

7.797* 
6,278 



Source: U.S. State Dept. Archives, 340-650. Column 5 calculated. 
* Figures as given in source. 



18.8 

*7-' 
68.3 
79.1 

39-1 

60.1 

6.3 



UNITED STATES TECHNICAL ASSISTANCE TO 
THE RAILROADS 

Two groups of American railroad engineers investigated conditions of rail- 
roads in European Russia in the middle and end of the decade. The first group, 
under H. G. Kelley, former President of the Grand Trunk Railroad, made 
an inspection of the Ekaterina Railroad and the Donetz Railroad on behalf of 
Percival Farquhar, who was negotiating a large concession to run both rail- 
roads and related iron and steel plants. 4 The second investigation was made 
in 1930 under the supervision of Ralph Budd, of the Baltimore and Ohio 
Railroad. The recommendations of the Budd Report were implemented by 
150 engineers from the B&O after 1930.* 

The impulse to grant major railroads as concessions resulted from their 
declining ability to handle traffic, although the honeyed phrases of the Kelley 

* H. G. Kelley, General Report on Ekaterina Railway, Donets Railway (New York, 
1926). A copy is at U.S. State Dept. Decimal File 316-131-744, with supplement 
at 316-131-872. 

1 The B&O work will be covered in Vol. II. The Russian Railway Service Corps, an 
American organization, and the Inter-Allied Railway Commission in Siberia did 
major reconstruction work between 1918 and 1922. There is extensive material on 
this in the U.S. State Dept. Archives. The 1,100-mile Turkman-Siberia railroad 
was built under the direction of an American deportee, Shatof. 



Transportation and the Transportation Equipment Industries 241 

report slur over the operating and physical deficiences of the systems examined. 
Advance data supplied by Amtorg to Farquhar gives the daily average number 
of loaded cars handled by the Ekaterina Railroad. Traffic declined from 3,351 
cars daily in October 1925 to 3,066 in February 1926, and on the Donetz 
system from 4,011 daily in October 1925 to 3,911 in February 1926,' 

Both railroads had been built well before the Revolution. In the case of 
Ekaterina, the report indicates date of construction of the twenty-one divisions ; 
fifteen sections were opened for traffic before 1900, and all divisions (except 
the Apostolovo via Snigirevka) were open for traffic before 1910. These were 
well-established railroads, built to provide transportation for the tsarist- 
developed iron and steel plants and coal mines of the Donetz. The Ekaterina 
comprised over 1,600 miles of first main track, and the Donetz, 1,459. Both 
railroads serviced coal fields, iron ore mines, manganese mines, iron and steel 
works, and the Ukrainian agricultural region. They constituted the most 
important combined system in the U.S.S.R. 

They were built according to European standards with light equipment but 
had always been substantial net earners. The aim of the Kelley study was to 
determine the cost of modernization according to American standards. The 
first recommendations were that train weight should be increased from i,ioo 
net revenue tons to 3,500 net revenue tons and that suitable locomotives and 
capacity should be provided for the expansion. It was pointed out by Kelley 
that to move the anticipated 1927-8 traffic with existing equipment would 
require thirty-eight trains daily, while with the proposed greater train weight 
only twelve daily trains would be required, 'reducing the train density . . . 
and making room for the steadily increasing traffic of the railway in products 
of agriculture, manufacturing and miscellaneous commodities.' The equip- 
ment and physical resources required to support such a system were then 
given in detail. 

The basic objective of the report was clearly to determine the requirements 
for expansion. Indeed, it is clear from the report that the roads were handling 
far less than their prewar volume. The total train mileage operated by the 
Ekaterina in 1913 was more than 15 million train miles, whereas in 1924-5 
(latest year given) the mileage was a little over 4.5 million, or about one quarter 
of the 1 91 3 volume. 

In terms of car miles or locomotive miles, the proportion was about the 
same. 7 Total tonnage of all classes of freight carried in 1913 on the Ekaterina 
was 40 million, compared to 13.5 million in 1924-5. Figures for the Donetz 
system are not given. It may be presumed they were less, as the physical 

' U.S. State Dept. Decimal File, 316-131-745/6. 

' Kelley, op. eit., p. 125. Again, use of 191 3 as a base is misleading. Traffic increased 
substantially between to 13 and 1917. 



24* Western Technology and Soviet Economic Development, 1917-1930 

operating conditions were not as good as those for the Ekaterina. The poor 
condition of the bridges on both lines may well have been a contributory factor 
to limited operations. The Ekaterina line had 1,774 bridges less than 70 feet in 
length and 81 bridges greater than 70 feet in length; 245 of the former and 
37 of the latter had been destroyed or damaged by the Civil War and Inter- 
vention. Considering that railroad destruction was the focal point of military 
activity, the damage perhaps is not as great as one might have expected. Of the 
smaller activity, bridges, some 206 had been rebuilt and the balance of 39 
put into temporary working order. Only 23 of the 81 major bridges had been 
rebuilt, leaving 14 operating under temporary operating conditions. These 
limitations were compounded by the poor condition of the roadbed and 
generally inadequate maintenance. 

The appendix to the Kelley report includes an estimate of the amount of 
repair work required to restore the bridges on both systems. This estimate, 
when coupled with the equipment repair backlog, suggests that a massive 
job would have had to be accomplished before the railroads could be put into 
prewar operating condition. 8 

THE BEGINNING OF RAILROAD ELECTRIFICATION 
Two Soviet railroads were electrified before 1930. This was recognized as 
an alternative which enabled increased capacity without new line construction. 
The first line to be electrified was a 13-mue suburban line in Baku in 1926. 
It whs installed under German supervision. The overhead system and rolling 
stock were similar to that of the Berlin high-speed, multiple-unit, side-door 
trains. The roiling stock was made in the Soviet Union using German patterns 
and models and under German supervision. 9 

The second line to be electrified was the Moscow-Mytishchi line, an eleven- 
mile commuter line completed in 1929. This was also of German construction 
and utilized imported German equipment. 10 

Complete railroad electrification came under serious consideration about 
1928-9, and several engineering delegations visited Western Europe, the 
United States, and Mexico to study various types of electrification systems. 
In 1929 the People's Commissariat of Transportation selected the Suram 
Pass section of the Trans- Caucasian railroad as a trial section for electrification. 

« There are numerous omissions in the Kelley report which give rise to the thought 
that the report, as donated to the U.S. State Dept., had been considerably doctored 
or censored to disguise the true state of affairs. There is, for example, an inconsistency 
between the buoyant, flowery accolades to Russian maintenance skill and the 
statistical information given in support. 

• Ruykeyser, op. cit., p. 80, 

10 Westwood, op. cit., p. 41. 



Transportation and the Transportation Equipment Industries 243 

This was a strategic section carrying oil to Batum for export, and the system 
decided upon there was to be used as basis for future electrification. General 
Electric was chosen to develop a suitable locomotive design and to provide 
the firet eight main line units. There had been no construction of electric 
locomotives tn the Soviet Union up to this time, so the G.E. prototype, 
the 'Suram', was transferred to the Dynamo works and construction of diesel 
electrics based upon it. 11 The system was a 3,ooo-volt direct-current one with 

I zo metric tons locomotive weight, using a 6-axle, articulated, 2-truck design. 
This was 'in accordance with the exhaustive studies and recommendations of 
General Electric.' 1 * J. N. Westwood points out that current Soviet diesel- 
electrics stem directly from the initial G.E. design. 18 

DEVELOPMENT OF THE RUSSIAN 
AUTOMOBILE INDUSTRY 

Russia took an early interest in the automobile; there were more than 
500 automobile taxis in Moscow before 1910. Many of the vehicles were 
imported; nevertheless, tsarist Russia could claim the distinction of having 
produced automobiles without foreign technical assistance, while the Soviets, 
after spending a decade, finally gave up and handed the problem over to 
foreign companies. 14 

The Baltic Engineering Works in Moscow was producing 250-300 automo- 
biles annually as early as 1912 and expanded its production during the war. 
Mechanically the Baltic was a good automobile although more expensive than 
its European and American competitors. 16 The Baltic plant was completely 
re-equipped with American machinery early in 1917, but this effort was not 
completed by the time of the Bolshevik Revolution. The Soviet administration 
put 1,000 men to work to complete the plant. This was achieved in 1920, 
but the plant was abandoned later the same year. 18 Next year the Baltic was 
placed under Red Army management and with German assistance turned its 
attention to heavy military vehicles. Production in late 1922 was about two 

II Monogram, November 1943. 
» Ibid. 

" Westwood, lac. cit. 

'* The following Russian automobiles were produced before the Bolshevik Revolu- 
tion: the Leutner (1911-1913), Marck (1906-1910), Rmso-Baluc (1900-1013), 
Sevronsky (1901-1905 and 1911-1915), andtheTansky (1001-1005). [G. R. Doyle, 
The World's Automobiles, 1880-1953 (London: Temple, 1957)-] Th e Soviets have 
not (in 1966) produced a completely indigenous automobile design; see Vols. II 
and III. 

" U.S. State Dept. Decimal File, 316-164-402. 

» Keeley, op. cit. Compare this to the claim that there were no automobue-manufac- 
turing plants in prirevolutionary Russia, as stated in Skonomichetkaya Zhitn, 
No. 46, February 25 1925. 



244 Astern Technology and Soviet Economic Development, 1917-1930 

units per month. 17 A few years later attention was turned to buses, of which 
there were none in Russia. By a heroic effort one was manufactured, 'consisting 
of parts nearly all made in Soviet Russia, except the frame and axle.' 18 Later 
in 1928-9 the Italian Fiat truck was produced at the Baltic under an agreement 
with the Fiat company" and also a few British Mark IV tanks were copied 
from a prototype. 80 

The new AMO automobile factory was also completed in 1917 just before 
the Revolution. It was located m a modern building with the latest in American 
equipment and was designed to employ 6,000 workers. Between 1919 and 1921 
the only output was repair work on a few White trucks. For this AMO 
employed about 1,200, under supervision of Adams, an American deportee. 21 

The Soviets have claimed there was no automobile manufacturing in Russia 
before 1930, although actually they had two large, well-equipped plants intact 
after the Revolution. As with the Westinghousc, Citroen, Singer, and other 
operations, Soviet skills were not available to operate the inheritance. 

The Citroen plant offers an interesting example of the dilemma in which 
the Communist Party found itself. The plant was allowed to operate unnation- 
alized for some years. In 1921 the firm formally applied for release from the 
nationalization decree, and the response was immediate enforcement of 
nationalization. 28 The highest levels of the Party had been well aware of the 
vacuum created by the Communist takeover of industry. They allowed larger 
plants to operate in 'capitalist hands' until solutions presented themselves. 
On the other hand the workers in these plants were forced to do more work 
under capitalist discipline and naturally pressured for nationalization. Where 
this pressure was taken up by the lower ranks, implementation of the nationali- 
zation decree was forced upon the Party. 

The solution to the automobile-manufacturing problem was formulated 
slowly. The AMO plant continued miniscule production of trucks (much 
less than the planned 2,000 per year). The AMO truck was unsatisfactory 
in quality and very expensive to produce. 23 Until the 1930s, however, it was 
the only one in production. Beginning in 1929, production was reorganized 
and upgraded as the result of a technical-assistance agreement with the A. J. 
Brandt Company, of the United States. 

" Pravda, No. 188, August 23, 1922. Probably armored cars. 

18 Heroic, as it was reported under the title, 'Our achievement — the first Soviet bus' 

almost as a military victory. Which parts, if any, were actually made within the 

USSR, is difficult to determine. 
" U.S. State Dept. Decimal File, 316-131-417. 
" See chap. 15. 
!1 The Kccley report op. cit. states that the AMO output in ioi) could have been 

handled by any American garage with less than 20 men. 
" Swedish Export Association, Report, 1922. (316-107-782/3.) 
" Ekonomicheskaya Zhten, No. 134, June 1, 1925. 



Transportation and the Transportation Equipment Industrie* 245 

The first tentative steps in the direction of a mass production automobile 
industry had been taken in 1925. A large-scale motor-vehicle driving contest 
was instituted to 'ascertain the types of automobiles, motor trucks, and motor- 
cycles best suited to Russian conditions.' 11 The total stock of automobiles 
in the U.S.S.R. at this time was less than 16,000, of which only 10,000 were 
running," so it is not surprising that endurance, mileage, and acceleration 
were tested, among other characteristics. Participants were 169 vehicles, one 
of each current make, including 82 passenger cars, 48 trucks, 21 special 
vehicles (fire engines, etc.) and 18 motorcycles. Among the entrants were all 
European and American models of note; if the manufacturer did not enter 
voluntarily (which was the case with most American producers), a vehicle was 
purchased by Amtorg and entered involuntarily. 2 * AMO entered a truck, 
but this was assembled from imported parts not of Russian manufacture. 
The record docs not show whether it completed any of the tests." 

The Contest Committee evaluated the results and published a report of 
its findings. Ehonotnicheskaya Zhizn reported these and carried an interview 
with Z. T. Litvin-Sedoy, Chairman of the Committee. 88 He pointed out that 
both American and European manufacturing had undergone fundamental 
changes since the war, in both methods of construction and techniques. 
(He was referring to mass-production techniques, substitution of metal for 
wood in automobile coachwork, and the use of improved alloy steels.) It was 
pointed out that prewar reputations did not necessarily apply in 1925. except 
in the case of Mercedes, which maintained its 'excellent* reputation. The report 
was critical of American automobiles, but less critical of American trucks. 
It feared the latter could dominate the market because of their low cost, but 
the high fuel consumption, unknown composition of materials used, and the 
difficulty of acquiring spare parts were held to be serious objections. It is 
interesting to note, in the light of subsequent agreements, that the Ford entry 
failed and that, despite its low price, it was held to be very expensive in 
operation. 29 

Negotiations with the Ford Motor Company began in January 1926, and 
one immediate result was that International General Motors sent its Baltic 
representative, T. E. Eybye, to explore possibilities for General Motors 
business. Eybye was decidedly negative; he reported that he felt prospects 

» Ekonomickeskaya Zhisn, No. 46, February 25, 1925. 

" Ibid. 

" U.S. Consulate in Riga, Report 3234, October 2, iozS> 

" Ekonomichethaya Zhizn, various issues for early 1915. 

" Ekonomichethaya Zhizn, No. 216, September sz, 1925. 

a U.S. Consulate in Riga, Dispatch 3516, January is, 1926 and Dispatch 3851, June 
16, 1926. 



246 Western Technology and Soviet Economic Development, 191^-1^30 

were slight and that it was inopportune for G.M. to establish itself in the 
Soviet Union. 3 " 

The first version of the Five- Year Plan, drawn up in 1927, made provision 
for production of only 3,500 autos per year. This small output was vigorously 
assailed by V. V. Ossinsky, Director of the Central Statistical Administration, 
on the grounds that the TJ.S.S.R. was 'catastrophically backward' in automobile 
production, and that on both economic and military grounds there were 
insurmountable arguments for the establishment of a plant capable of produc- 
ing 100,000 automobiles per year. 31 

In the fall of 1928, the 'activization of concessions' policy failed to produce 
foreign bidders to erect an automobile plant in the Soviet Union. Subsequently 
the Soviets incorporated their plans into the Five- Year Plan. In 1928 Ossinsky 
was sent to the United States to negotiate with Ford, General Motors, Durand, 
and Studebaker. Ford was the most promising as a supplier of automotive 
experience and equipment required. Negotiations moved along three separate 
lines: (1) American ownership and operation on a concession basis, (z) a mixed 
company, and (3) Soviet ownership and operation with technical assistance 
and financial help from the United States. 

Ossinsky was followed to the United States by Meshlauk, of Vesenkha, 
who conducted final negotiations with both General Motors and Ford. A 
psychological ploy was added in the Soviet press when the Soviets suddenly 
announced their intention to build an automobile plant 'with their own 
resources' capable of producing 100,000 cars per year. Gipromcz and 
Glavmashstro'i were directed to produce plans and work out a manufacturing 
schedule 'within two weeks' — an absurd proposal. n!! 

THE SOVIET AUTOMOBILE INDUSTRY 
AND HENRY FORD 

On May 31, 1929, V. I. Meshlauk, a member of the Presidium of the 
Supreme Soviet, and Saul G. Bron, President of Amtorg, signed an agreement 
with the Ford Motor Company under which the Soviets contracted to purchase 
830 million worth of automobiles and parts before 1933 and the Ford Motor 
Company agreed to furnish technical assistance until 1938 in the construction 

30 Ibid. 

31 V. V. Ossinsky, 'The American Automobile or the Russian Peasant Cart', Pravda 
(Moscow), Nos. 162, 163, and 194, of July so, 21, and zz, 1QZ7, states: 'If in a 

future war we use the Russian peasant cart against the American or European 

automobile, the result to say the least will be disproportionately heavy losses, the 
inevitable consequences of technical weakness. This is certainly not industrialized 
defense." 

31 'Towards New Victories on the Industrialization Front,' Torgovo i promysMennaya 
Cazeta, No. 53, March 5, 1929. 



Transportation and the Transportation Equipment Industries 247 

of an automobile-manufacturing plant at Nizhni-Novgorod. The plant, to be 
completed by 1933, was to produce the Model A (called by the Soviets Gaz-A), 
the Ford light truck (Gaz-AA), and the heavy truck (AMO-3). All Ford 
patents were placed at the disposal of Gipromez, and Ford engineers rendered 
technical assistance in the introduction of Ford manufacturing methods. 
Soviet engineers were given facilities to study Ford methods at the River 
Rouge plant in Detroit. 

The Ford plan adopted included a schedule which potentially gave the 
Soviets their 100,000 automobiles per year: 



Proposed total output Percent imported 



1st year 1929—30 6,000 100 percent 

2nd year 1930-31 24,000 100 

3rd year 1931-32 48,000 S° 

4th year I93*~33 96,000-100,000 25 

The first year's schedule covered manufacture of bodies, fenders, hoods, 
and all sheet metal work in the new Austin-designed plant at Nizhni-Novgorod, 
while assembly of complete vehicles was located at the temporary plant. The 
second year's schedule extended this program to cover the manufacture of 
fittings. The third year added engine production, by which time it was planned 
that the technical-assistance contract with the Brown Lipe Gear Company 
would have developed gear-cutting technology. The fourth year phased in 
rear and front axles made in the Soviet Union with the assistance of the 
Timken-Detroit Axle Company. This last year phased in domestic production 
of all instruments, batteries, and electrical equipment imported up to that 
time from Detroit. 33 Raw materials and semi-manufactured inputs were 
concurrently developed to phase into the above schedule. The plan included, 
for example, the manufacture of automobile-quality steels at Prioksky, 
Sormovo, and Vyhksunsk, and at the Novosormovo foundry. Glass was to be 
developed at Sormovo. 

The development and learning process noted previously in this study is 
repeated. The first stage involved assembling automobiles manufactured 
abroad and imported as parts. For this purpose Ford converted an unused 
railroad shop at Lublin. This had the capacity to assemble 10,000-12,000 
vehicles per year and was, of course, a training ground while the main plant 
was under construction. Production was transferred in stages to the new plant 
and imported parts gradually cut off. By 1934 all parts were being supplied 
internally, although many were of indifferent quality. In the late 1930s, Ford 

" Pravda, No. 128, June 7, 1929; and Sorenson, op, cit, chap. 15. 



248 Western Technology and Soviet Economic Development, 191J-IQ30 

obtained one of the Nizhni-Novogorod Model A (Gaz A) automobiles which 
had been exported by the Soviets to Turkey. It was shipped to Detroit and 
there pulled to pieces; Sorenson comments 'it was a pretty poor reproduction 
of Model A.' 34 The Foid was still in production in the late 1930s and by 1938 
production was 84,000 units per year. 35 

The automobile industry is, then, an excellent example of a planned step- 
by-step transfer of Western technology at minimal cost. Ford was happy to 
sell $30 million worth of parts and throw in invaluable technical assistance 
for nothing. Technical assistance in production of axles, tires, bearings, and 
other items required payment but, as the marginal cost to American companies 
was slight, the Soviets reaped a gigantic harvest of technological knowhow 
for almost no outlay, 

Table 14-2 TECHNICAL ASSISTANCE CONTRACTS (TYPE III) 

IN THE SOVIET AUTOMOBILE CONSTRUCTION INDUSTRY TO 1930 

Western company Soviet trust Nature 0/ technical assistance 

Reconstruction of AMO truck plant 
Gcat-cutting technology 
Nizhni-Novgorod and Moscow plants 
Truck engines for AMO plant 
Technical assistance on road building 
Construction of tire plant 
Axle and bearing technology 
Construction and design 

Sources: Soviet Union Year Book, 1930, pp. 357-9. 
U.S. State Dept. Archives. 

As the Ford agreement was being signed in June 1929, another was being 
negotiated with Arthur J. Brandt for assistance in reorganizing the AMO 
truck plant. Preliminary technical work for the reorganization was undertaken 
in the Detroit office and works of Brandt, while American engineers were sent 
to the AMO works to investigate production conditions. Facilities were 
upgraded to produce 25,000 of the Ford 2j-ton truck (AMO-3), whereas 
previously only a few hundred a year had been produced. 36 In the following 
September, ten AMO engineers went to Detroit for training, 37 

One month after the signing of the Ford agreement, the Austin Company 
made a construction proposal to Glavmashstroi under which it guaranteed 

'* Sorenson, loc. cit. 

" Report by Oberkommando der Wehrmacht, (OKW/Wi R u Amt/Wi), March 1941 , 

Miscellaneous German records, T 84-122. 
** Torgovo-Promyshlevtiaya Gazeta, No. 127, June 6, 1929. 
" Ekonomicheskaya Zhisn, No. 140, July 2, 1929. 



A, J. Brandt Company 


Avtotrest 


Brown Lipe Gear Co. 


Avtotrest 


Ford Motor Co. 


Avtotrest 


Hercules Motor Co. 


Avtotrest 


C. F. Seabrook Co. 




Seibetling Rubber Co. 


Resinotrest 


Timken-Detroit Axle Co. 


Avtotrest 


Austin & Co. 


Glavmashstroi 



Transportation i"td the Transportation Equipment Industritt 249 

to complete the Nizhni-Novgorod plant within fifteen months of conclusion 
of a definite contract. Austin had built the Ford and other automobile plants 
in the United States and had ample construction and engineering experience 
in this field." 

The contract was signed early in August; the Austin Company paid 
$250,000 for drafting the project and a special compensation for supervising 
construction and installation of equipment. Penalty clauses came into effect 
if costs were higher than estimated, and there was a bonus for completion at 
less than the estimated cost. Five engineers were delegated from Avtostroi 
to work with Austin in drafting the project. Austin was able to negotiate a 'cost 
plus* contract for supervisory operations, and compensation was calculated, 
as a percentage of the total cost of all building operations, including equipment, 
boiler room, foundry, and power station. 39 

Although these plants were built completely by Western enterprise and 
equipped and initially operated by Western firms, the myth has been perpet- 
uated that these were designed, built, and run by the Soviets. Even large 
Western suppliers unwittingly reflect this belief. For example, the General 
Electric house organ, The Monogram, comments on the automobile-manu- 
facturing units just described : 

When the Soviet Union built its mass production automobile and truck 
plants in Moscow and Gorki, where the Ziz and Gaz cars and trucks take 
shape on moving conveyors, General Electric, in addition to supplying 
hundreds of motors and controls for various high speed and special 
machine tools, also supplied especially designed electric apparatus to aid 
the mass production of vital parts. . . . For the mass production of 
drive shafts and rear axle housings for the Gaz cars and trucks General 
Electric designed and built special high speed arc welding machines to 
suit the exact requirements set down by the Soviet Engineering Com- 
mission, 40 

TELEGRAPH COMMUNICATIONS AND 
FOREIGN CONCESSIONS 

In August 1921 , a contract was signed with Det Store NordiskeTelgraselskab 
(the Great Northern Telegraph Association) of Denmark for the operation of 
telegraph lines between the Soviet Union and the Far East and all inter- 
connections with foreign countries. A fee of 1 franc 20 centimes was payable 
to the Soviet Union for each word transmitted. The firm had to undertake 
repairs, keep the line in order, and install new apparatus capable of transmit- 

" Torgovo-Promyihlennaya Gazeta, No. 169, July 26, 1949; and No. 353, November 

1. 19*9- 
" Ekonomickeskaya Zhizn, No. 185, August 14, 1919. 
10 Monogram, November 1943. 



25© Western Technology and Soviet Economic Development, 191J-X930 

ting no words per minute; the existing apparatus could transmit only 20 
words per minute,* 1 

Before the First World War the Indo-European Telegraph Company of 
London operated telephone and telegraph lines across central Europe, through 
Poland and Russia to Odessa, and through the Crimea to Persia, in addition 
to a cable line under the Black Sea from Odessa to Constantinople. Service 
was discontinued during the war. On April 12, 1922, the company signed a 
concession agreement with the Department of Posts and Telegraphs and again 
took over control of its lines through the Soviet Union. The lines appear to 
have been in a reasonably satisfactory condition, and workable for 200 miles 
northwest and 300 miles southeast of Odessa, into the Crimea. The under- 
water cable was also in good condition. Only a short section between Erevan 
and Tiflis required minor repairs. 18 

Three years later, in June 1 926, a similar concession agreement was concluded 
between the Trans-Siberian Cables Company, a subsidiary of Great Northern, 
for the renewed operation of its overland cable to China. The company 
paid the Soviets one gold franc for each word transmitted along the line, 43 

The necessity for these concessions is rather obscure. The lines were 
operating when the concessions were granted. In 1913 the Indo-European 
cable to Persia carried one million words. This fell to 800,000 words in 1920 
but was up to four million in 1923 and five million by 1926, when the con- 
cession was concluded. 

It was reported in Krasnya Gazeta that the telegraph concessions would be 
of enormous advantage; without them Russia would be unable to connect to 
the European lines, and in any event the existant lines would be repaired and 
modernized. In addition to the word fee in gold the latest high-speed Western 
apparatus would be introduced. This would produce 'millions of francs in 
gold which will enable us to carry on trade with abroad.' 44 It appears in retro- 
spect that existant traffic was straining the lines to capacity and that the 
concession was a device to get equipment modernization. 

THE RADIO CORPORATION OF AMERICA 
TECHNICAL ASSISTANCE AGREEMENT 

In March 1926, General Harbord, president of RCA, requested advice 
from the State Department concerning a Soviet request to have RCA build 
a modern high-power radio station in Moscow capable of communication with 

11 U.S. Consulate in Riga, Report 1109, September 3, 1921. (316-107-29.) 
" Minutes of proceedings of the 55th Ordinary General Meeting of the Indo- 
European Telegraph Company, Ltd., April 26, 1922, pp. 4-5. 
" U.S. Consulate in Riga Report 3820, June 5, 1026. 
" U.S. Consulate in Riga, September 5, 1921. 



Transportation and the Transportation Equipment Industries 251 

the United States, RCA was concerned, 'as it would . . . undoubtedly afford 
an opportunity for their peculiar governmental doctrines to get additional 
circulation in this country, ' and consequently: 'a station built by us, and 
perhaps subsidized by credit facilities, enabling Russia freely to communicate 
with the United States, might be a liability to us with the American public* 
In later verbal discussions with the State Department, General Harbord 
appears to have been hesitant concerning the Russian proposition, as it would 
mean 'placing in the hands of Soviet Russia uncensored and untrammeled 
direct means of communication between Soviet Russia and the United States 
over which they could send messages of any kind, including propaganda.'" 
It was then reported that the radio station in question would cost an 
estimated $2.5 million and that the Soviets did not have a powerful enough 
station for communication with the United States. A memorandum in the Far 
Eastern Division files argues that the question of utilizing the station for 
propaganda purposes or directing subversive activities in the United States 
was more theoretical than practical." On April 9, 1926, the State Department 
sent a letter to RCA indicating that the Department did not desire to express 
any opinion concerning the proposed transaction. 

The matter then lapsed until 1927. Another letter, dated May 25, 1927, 
from General Harbord to the State Department, indicates that RCA 
anticipated further negotiations for a 'modern, high powered radio station 
capable of communication with the United States.' Harbord requested an 
indication as to whether the letter of April g, 1926 still held good in the light 
of Soviet propaganda 'being promulgated from Soviet offices in London 
directed against the United States and other countries and that evidence 

*• Documents in this section are in the U.S. State Dept. Decimal File 316-141-714/78. 
The first part of Roll 141 contains material on Soviet propaganda and other 
communications with the Near and Far East. At this stage of the negotiations, the 
State Dept. view was that 'completion of the station in question would put into the 
hands of the Soviet regime a very powerful instrument which might be used to the 
detriment of the interest of the United States.' See Memorandum, Johnson, Far 
East Division, March 1, 1926 (316-141-714). This view was to change considerably 
over the next few years, for reasons which are not clear, 

M There are however, hundreds upon hundreds of documents in the State Dept. 
files alone indicating this was very much a practical matter. The exact wording of 
part of the memorandum is, 'I am inclined to the opinion that the theoretical 
possibilities are not of such cogency as to justify our according to them a decisive 
influence in this matter.' 

The draft of the State Dept. letter to Harbord is also interesting. The draft 
prepared by R. F. Keiley makes reference to the possibility that the station might 
be used for subversive activities in the United States, but this was scratched out 
and does not appear in the letter that went to RCA. The erased paragraph reads 
'With regard to the possibility of the utilization of the wireless station by the Soviet 
regime to facilitate the direction of communist subversive activities in the United 
States, I am not prepared at this time to make any comments, I note from your 
letter that you realize both the possibility and undesirability of such utilization.' 
The final letter went out over the signature of Kellogg, Secretary of State. 



252 Western Technology and Soviet Economic Development, xgij-ig^o 

thereof had been furnished to our government.' The State Department reply 
of June I indicated that their position remained the same. 

RCA made an agreement with the State Electro-technical Trust on June 
30, 1927. This covered the transfer of patents and technical information. 
In addition, RCA furnished the delegation with tenders and quotations on a 
considerable quantity of radio apparatus, including a high-powered radio 
installation for Moscow. These amounts quoted were to be paid 70 percent 
cash, with the balance due over a period of five years at 6 percent. RCA 
agreed '. . . to grant exclusive licenses to the Trust to manufacture, use 
and sell all patents, applications for patents and inventions owned or 
controlled by the Radio Corporation of America and/or the General Electric 
Company and Westinghouse, to the extent that it has, or will have, the right 
to grant licenses in and for the territory for the Trust as hereinabove provided 

for. . . :*■> 

It was agreed that meetings of RCA engineers and those of the Soviet 
trusts would be held not less than once a year, and alternately in their respec- 
tive territory, in order to exchange necessary technical information. 

In addition, RCA agreed 'to furnish to the Trust complete manufacturing 
information in respect to terminal apparatus for use in radio picture trans- 
mission, including facsimile transmission, but not including television.' 
Manufacturing information was supplied for terminal apparatus, including 
'complete specifications, working drawings, description of process of manu- 
facturing, detailed basic calculations for construction of apparatus and the 
privilege of sending the representatives of the Trust to factories, laboratories 
and working stations of the Radio Corporation and General Electric Company 
or parts owned and controlled by them.' 48 

The agreement was made contingent on Amtorg placing a firm order with 
RCA within four months of the date of ratification for a minimum sum of 
$6oo,ooo. 49 In brief, in exchange for an order valued at $600,000, RCA 
transferred the sum of the technical knowledge accumulated by the leading 
firm in the industry. 

GERMAN AID FOR RECONSTRUCTION 
OF PETROGRAD HARBOR 
This was the largest port in Russia. Its facilities were severely damaged in 
the Revolution — probably more so than any other sector of the economy. 
As late as December 1921, most of the port was still out of commission. 

" Ibid., Frame 740. 
*' Ibid., Frame 760. 

** There was also a traffic agreement covering the use of radio circuits between the 
U.S. and the U.S.S.R. and the supply of high-speed automatic and duplex com- 



Transportation and the Transportation Equipment Industries 253 

Of eight cranes, two were continually out of order, two intermittently out 
of order, and two unusable. The telephone system of the port could not be 
repaired, 'on account of lack of cable, wire, and commutators.' 50 The harbor 
itself, although it was the main base of the Red Navy, was not freed of mines 
until 192a. The harbor was not dredged from 1917 until 1923. German and 
British steamers calling at the port in 1921 were serviced by lighters when 
these were available. Although the port was a high-priority project for 
repair and a port telephone system was an essential part of that operation, 
Krasnya Gazeta admitted five years after the Revolution that nothing had 
been done. 61 

In 1922, tenders were received from German companies for repair of the 
port and the city facilities of Petrograd. Friedlam A-G handled the technical 
work of the restoration of harbor facilities, while the actual reconstruction 
was done by Julius Berger. Gas-works design was undertaken by Pintsch and 
construction also by Berger. Canals, general buildings, and cement works 
became the responsibility of Hecker, another German firm.* 1 The city itself 
was the subject of another agreement 'to make the necessary repairs to all 
buildings that are now falling to pieces (and to) repair railways, the water and 
sewage systems, and other institutions belonging to the municipality.' German 
engineers and equipment were brought in as the navigation system opened in 
1922. As payment, the Germans received the right to develop the clay industry, 
establish a brick plant and export lumber to Germany. 53 

By late 1922, Petrograd Harbor was being cleared of debris and put back 
into operation. Groups of the unemployed were used for this job, together with 
Latvian Communist Paity members." Repairs to the ice breakers went more 
slowly. The only unit fit for service was named the Lenin; the Svyatogor and 
the Ermak required extensive work. 

RECONSTRUCTION OF THE RUSSIAN 
SHIPBUILDING INDUSTRY 

The shipbuilding yards at Petrograd and Nikolaev had been heavily damaged 
in the Revolution. Nearly a!i such facilities were in a chaotic condition; this 



mercial radio communications apparatus. The agreement, together With letters 
from the International General Electric Co. and Westinghouse Electric International 
releasing patent rights in favor of the Soviet trusts, may be found in the U.S. State 
Dept. Decimal File 3i6-'4i-757/77i. 
Krasnya Gazeta, December 39, 1921. 

U.S. Consulate in Helsingfors, Report 21 10, May 15, 1922. (316-107-765.) 
U.S. Consulate in Helsingfors, Report 135, August %i, 1922. (340-5-547/9.) 
U.S. Consulate in Helsingfors, Report 2230, April 29, 1922 (316-107-751); 
Nan York Times, April 28, 1922, p. 3, col. 7. 
IS Report, September at, 1922. (316-10-1018.) 



254 Western Technology and Soviet Economic Development, igij-lp^o 

sector suffered more than most. The Petrograd yards, previously known as 
Nevsky (renamed the Lenin), Putilov (renamed Northern Shipbuilding), the 
Baltic, the Izhorsky, and the Ochtinsky (renamed the Government Works 
for River Ships), were grouped into the Sudotrust. In 1924, a technical 
commission was appointed to consider ways and estimate the costs of clearing 
the Petrograd yards. The commission had a number of German members, 
and the Krupp engineer Ledeke did the actual job of estimating costs of repairs. 
This was a military matter under the Northwestern Military Industry Com- 
mittee and part of the post-Rapallo military cooperation agreement. The 
preliminary inspection of the Izhorsky yards, the largest, indicated that only 
nine of the seventeen workshops were in operable condition; the others needed 
complete rebuilding. Of four shipbuilding stocks, only the third could be used 
for ship construction and then only if the associated workshops were also put 
back into operation, Ledeke also estimated the cost of installing a submarine 
department in the yards. The Krasny Putilovets plant was inspected to estimate 
cost of installing turbine construction facilities for class 1 destroyers. 68 

Reconstruction of the Russian merchant fleet was slow. In 1925 the hulls 
of 1 1 vessels were laid, in 1926 a further four and in 1928 another 17. By May 
1929 only 15 had been completed and 30 were still under construction. 66 
No oceangoing ships were completed before 1930, except three 6,000-ton- 
gross motor ships with engines made with German technical assistance. At 
the same time two larger tankers, of 11,500 tons gross, were under construc- 
tion in French shipyards with imported Sulzer engines. Somewhat larger 
vessels, of 9,000 to 1 1,000 tons gross, were undertaken at Soviet yards, at first 
with imported Sulzer engines and then with engines made with foreign 
technical assistance." Again, the simple was built, while the complicated 
was purchased. Interestingly enough, the graduated process is still going on. 
In the 1960s Soviet yards were making all Soviet naval craft and tankers up to 
about 35,000 tons. Larger tankers were made to Soviet order in Italy and 
Japan and other special ships in British and Danish yards. Naval craft have 
always been constructed in Soviet yards, with the use of imported shipbuilding 
equipment, except for the World War II acquisitions noted in Volume II. 

FOREIGN AID IN SHIPPING OPERATIONS 
The first of a series of shipping agreements was made in January 1922 
between the German Orient Line, the Soviet Volunteer Fleet, and Narkomv- 
neshtorg (People's Commissariat of Foreign Trade). Under this agreement, the 

M U.S. Consulate at Hamburg, Report No. 417, December 12, 1925. 
" Izvestta, May 12, 1929. 

" Details from Motor Ship Reference Book (London, Temple Press) years 1925 to 
1930. 



Transportation and the Transportation Equipment Industriet 25 5 

tonnage of the Orient line was handed over to the Soviet Volunteer Fleet on 
preferential rate terms (20 percent lower that market rates). This enabled the 
fleet to establish a service between Hamburg and Odessa, Novorossisk, and 
Constantinople. 5 * 

Russtransit was a German-Russian joint-stock mixed company also organiz- 
ed in 192a, between the Commissariat of Foreign Trade, Ways, and Com- 
munications, and a group of five German firms, including the Orient Bank, 
Wenkhouse of Hamburg, and the Hamburg-Amerika line. The company 
established shipping routes between Germany and the Near East via the Baltic, 
the Marinsky canal system, the River Volga, and the Caspian Sea. This reduced 
the shipping time between Hamburg and Enzeli on the Caspian from a period 
of 4-6 months to only 3-4 weeks. Russtransit purchased several 10,000- 
ton vessels to operate on the river, canal, and lake routes. 5 * In 1923 the turnover 
was 1 .2 million rubles, on which the profit was 200,000 rubles.' The Hamburg- 
Amerika line put up 50 percent of the capital and received 50 percent of the 
profits.* 1 

There were also some smaller shipping concessions. The Bergen Steamship 
Company was organized by the Soviets and the Russian-Norwegian Naviga- 
tion Company in 1923 to provide shipping services for Arcos.* 1 Another 
agreement was made with a German company, August Bolton, in 1924, and 
in April 1926 negotiations were concluded for a shipping concession on the 
River Volga to be operated by an Anglo-Dutch group headed by the Cunard 
line. 8 ' This was a mixed company, with the share capital split 50:50, to operate 
alt passenger and freight services on the Volga. All boats, docks, workshops, 
and stores were transferred to the new company. Cunard was required to 
invest cash equal to the value of the boats and plant turned over to the company. 
The latter formed the Soviet contribution. The management was exclusively 
in the hands of Cunard, which had the right to hire and dismiss personnel. 
The Soviet government was not entitled by the terms of the agreement to 
interfere in the internal operations of the company." 

Shipping tonnage was almost completely destroyed by the Revolution, and 
even in 1930 only 4 percent of Soviet trade was being handled in Soviet flag 
vessels. The mercantile fleet was gradually built up by purchases abroad and 
not in the 1920s by domestic production of ships. 

" IS Report, January 19, 1922. (316-108-0006.) 

■* Ekonomichetkaya Zhizn, No. 116, May 27, 1923. 

*° Ekonomicheskaya Zhizn, No. 151, April 3, 1924. 

11 Hilger, op. at., p. 178. Hamburg-Amerika Line also owned 50 percent of Derutra 

(German-Russian Transport Company), another mixed Type II operation. 

" Ekonomicheskaya Zhizn, No. 57, March 15, 1933- 

" Pravda, No. 175, August 3, 1924. 

" U.S. Consulate in Bremen, Report April i, 19*6. (316-108-1668.) 



256 Western Technology and Soviet Economic Development, 1917-1930 

THE BEGINNINGS OF THE RUSSIAN AIR LINES 
The first Russian air line was the Moscow-Konigsberg (Germany) route, 
started in August 1922 and, according to Biednota, 'created according to the 
plan of Red Pilot Grant and exploited exclusively by the RSFSR,' 66 In fact 
the line was installed and operated by the mixed company, Deruluft (German- 
Russian Aviation Company), and used German and Dutch (Fokker III) 
aircraft. Deruluft was formed specifically to conduct a regular air service for 
passengers, mail, and freight between Germany and Moscow. It had a stormy 
life and, as Hilger points out, the line survived only 'because of mutual 
necessity.'* 8 

Dobrolet, an all-Russian company, was started one year later with German 
technical assistance. This company used Junkers aircraft, made in the U.S.S.R., 
throughout the 1920s. The third airline was Ukr-Vozdukh-Put, a private 
company formed in the 1920s and operated on Ukrainian routes up to 1929. 
The company used Dornier Comet II and III aircraft." 

Table 14-3 RUSSIAN SCHEDULED AIRLINES IN 1925 



Route 



Operating company 



Equipment 



Moscow-Konigsberg 

Moscow-Kharkov 

Kharkov-Rostow 

Kharkov-Odessa 

Kharkov-Kiev 

Kagan-Tazbaz 

Kagan-Dushambe 

Baku-Enzeli (Persia) 

Baku-Leningrad 



Deruluft* 

Ukr-Vozdukh-Put** 

Ukr-Vozdukh-Put" 

Ukr-Vozdukh-Put** 

Ukr-Vozdukh-Put** 

Dobrolet*** 

Dobrolet*** 

Junkers**** 

Junkers**** 



Fokker 111 
Dornier Comet III 
Dornier Comet III 
Dornier Comet III 
Dornier Comet II 
Junkers 
Junkers 
Junkers 
Junkers 



Source: U.S. State Dept. Decimal File, 316-164-244, 372. 
Notes: "Type II concession. 

••Private company, expropriated in 1920. 
•••All-Russian company. 
••••German company. 



In additioruto the three regular airlines, the Junkers company operated 
some routes with its own equipment under a leasing arrangement. By the 
middle of the decade, the air fleet consisted of just under 100 passenger planes 
(Junkers, Dorniers, and Fokkers) together with another 50-80 light planes.* 8 
The first Soviet-built planes, copies of the British De Havilland observation 



" Biednota, August 26, 1922. 

" Hilger, op. tit., p. 178 

•' U.S. State Dept. Decimal File, 316-164-205. 

» U.S. State Dept. Decimal File, 3:6-164-225. 



Transportation and the Transportation Equipment Industriet 257 

plane, were produced in 1925 and at once used on a Moscow-Peking propa- 
ganda air expedition. The expedition was billed a* using all-Russian-built 
planes, whereas in fact it used modified Junkers and De Havilland copies 
with imported engines." 



" U.S. State Dept. Decimal File, 316-164-391- 



CHAPTER FIFTEEN 

German-Russian Military Cooperation and 
Technology 

The Versailles Treaty forbade Germany, equipped with some of the most 
extensive and advanced munitions plants in Europe, the manufacture of any 
armaments. Soviet Russia was isolated and under attack from within and 
without. Her armaments plants operated only intermittently, and she had a 
pressing desire to expand military production for internal control and world 
revolution. The obvious came to pass. The German- Russian military coopera- 
tion of the 1920s and 1930s has been documented elsewhere. 1 One aspect of 
this transfer has, however, been missed. The military transfer was part of a 
much wider economic cooperation and included the reconstruction of Russian 
industry as well as purely military construction. It is the industrial aspects 
of the military cooperation which are of interest to this study. 

In April 1921, Menshevik Victor Kopp reported to Trotsky concerning 
his trip to Germany. Kopp had visited the armaments plants of Krupp, 
Blohm und Voss, and Albatross Werke and found them ready to supply both 
equipment and technical assistance for the manufacture of war materials. 
Post-Rapallo negotiations widened this visit into full-blown cooperation on the 
economic aspects of military production. 2 Purely military production was 
placed under the control of Gesellschaft zur Forderung Gewerblicher Unter- 
nehmungen (or GEFU) with a capita! of 75 million reichmarks. 8 This 

1 The most detailed study is in C. F. Melville, The Russian Face of Germany (London : 
Wishart Co., 1932). A more recent book by J. W, Wheeler-Bennett, The Nemesis 
of Power (New York; St. Martin's Press, 1964), is a useful supplement. Gustav 
Hilger and Alfred G. Meyer, The Incompatible Allies (New York; Macmillan, 
I 9S3)i ' s ' ess tnan forthright. Hilger was German economic attach^ in Moscow 
throughout this period but reduces the cooperation to 'scholars and journalists 
with axes to grind.' {Fn., p. 189.) 

* Trotsky Archives, Harvard University, Document T-666 # . 

■ Hilger, op. eit,, GEFU functions after 1925 w * re taken over b y WIKO (Wirt- 
schaftskontor). 



German-Russian Military Cooperation and Technology *S9 

production included reopening the Junkers aircraft plant at Fill, developing 
poison gas plants, establishing factories for production of artillery and shells, 
tanks, and submarines. Further, the Soviets themselves placed heavy emphasis 
on military production and grouped many of the best-equipped tsarist works 
as a part of RVS, including the Putilovets, Koppel, Lessner, Phoenix, Atlas, 
and Pneumatic plants. 4 

TSARIST AND JUNKERS AIRCRAFT TECHNOLOGY 

Aircraft development and construction had made vigorous progress in 
tsarist Russia under such designers as Igor Sikorsky and V. Slessarev, but the 
industry collapsed completely after the Bolshevik Revolution. There was no 
indigenous Soviet aircraft technology in the 1920s and the ill-fated 'Maxim 
Gorki,' designed in 1934, was the first indication of a revival in a truly remark- 
able prerevolutionary activity.* 

Igor Sikorsky (since the Revolution a resident in the United States) 
had been the nucleus of a promising aircraft technology. In 1913 he designed 
and built two planes of four-engine design. The first was the Russki Vityazyi, 
a five-ton aircraft with room for seven passengers, built in St Petersburg; 
the second Sikorsky design was the 'Ilya Mourometz', with four 100-h.p. 
engines, a payload capacity of 1,500 kilograms, and a maximum speed of 55 
m.p.h. Lack of more powerful engines was the impetus behind the four-engine 
design; a similar restriction made the 'Maxim Gorki' an eight-engine (750 h.p. 
each) plane rather than the originally planned six-engine (1,000 h.p.) plane. 

The four-engine Ilya Mourometz was built in Russia as a bomber, and 
about 75 went into service in World War I. Wing span was 102 feet: only 
21 inches less than the Boeing B-17 of World War II. Engines were a restrict- 
ing factor, and 11 different makes were used including the Russian-built 
Baltic. Production of these planes was in fact limited by engine production.* 

This interest in aviation was adopted by the Soviets. After World War I 
the German aircraft manufacturers Junkers, Dornier, and Rohrbach were 
forced, under the 'London ultimatum' to move their plants and personnel 
abroad. Junkers-Werke went to the U.S.S.R. and, under the April 1922 

* U.S. State Dept. Decimal File, 316-107-391. 

* Interest in aviation developed early in Russia. Curtiss made a trip in 191a and 
estimated over 100 aircraft in use by the Imperial Russian Army at a Sevastopol 
base. When the United States entered the war in 1917, its combined Army and 
Navy air forces consisted of little more than 100 planes. ['Aviation in South Russia, 
1912'. (316-164-170).] 

* Ibid., and H. Hooftman, Russian Aircraft (Fallbrook: Aero, 1963), pp. 143-3- 



zSo Western Technology and Soviet Economic Development, 191J-1930 

military agreement reopened the prerevolutionary aircraft plant at FiH in 
mid-1923. Machinery was obtained from the evacuated section of the Russo- 
Battic works in Riga and instalted at Fiji by Junkers engineers. In the tsarist 
era, the plant had made RB-150 h.p. motors for the Ilya Mourometz. Under 
Junkers management the plant built Mercedes-Benz motors under license 
and the all-metal Junkers-design aircraft. 7 

Thus the famous all-metal Junkers aircraft was under construction in the 
Soviet Union some ten years before Lockheed and Douglas brought out their 
first all-metal designs in 1933. The Soviets can legitimately claim that the 
first all-metal plane was produced in the U.S.S.R. 

Even before Junkers had moved, the Soviets were buying aircraft engines, 
Deutz Type UMX and complete aircraft abroad. Some 280 Fokker D-7 
fighter aircraft were ordered and delivered from Holland. 8 In July 1924, the 
Junkers Company opened up a second aircraft plant in Tver Province under 
a 49-year concession arrangement, with the right to export airplanes. All the 
test pilots and engineers were Junkers personnel from Germany. 8 

By 1924 the Soviets began to make their own wooden aircraft, one year 
before the first Russian bus was produced. At first they purchased Fokker 
drawings, the De Havilland prototype, and imported engines. They then used 
engines domestically manufactured with German (Deutz A-G) technical 
assistance. Machine tools for the aircraft plants were supplied by Nielsen and 
Winther in Denmark. 10 Spruce for building the wings and fuselage was 
imported from the state of Washington— which in itself created a small stir 
in Washington, D.C." The most successful of these early afforts was the copy 
of the De Havilland Tiger Moth, still in use in 1966 arid variously called the 
R-i, U-2, and today the PO-2. Up to 1948, when production ceased, several 
thousand had been produced in about 20 versions. It was first used as a 
military observation plane, then as a night bomber in World War II, and is 
presently used as an ambulance plane and crop duster. Production of simple 
planes such the Tiger Moth R-i before automobiles is not illogical. Construc- 
tion of such a plane is a very simple matter involving wood and canvas, and 
is much less complex than automobile production. Utilizing first imported 
engines and then engines made with German technical assistance, the Soviets 
trained their cadres of aircraft engineers and technicians. 



IS Report, August 17, i9»3- (316-108-641/2.) 

U.S. State Dept. Decimal File, 316-164-193- 

U.S. State Dept. Decimal File, 316-164-215. 

U.S. State Dept. Decimal File, 316-164-208. 

Telegram from Governor Hart of Washington to the President, January 24. '923. 

(336-129-332-) 



German-Russian Military Cooperation and Technology 261 

German technical assistance, supplemented by assistance from other 
countries, was quite extensive. Barmine recounts how, because of the large- 
scale purchases of aircraft equipment and components in Europe, the aircraft 
manufacturers signed technical-aid contracts, trained Russian engineers and 
sent their specialists and designers to the U.S.S.R. to build and equip aircraft 
plants. Barmine singles out the French aircraft industry to 'share with the 
American the credit of helping the U.S.S.R. to build its air power.' 1 * Technical 
assistance in the manufacture of aircraft parachutes, and particularly the 
packing techniques, was provided by Irving Air Chute Co., Inc., of the 
United States. 13 

Numerous efforts, some successful, were made to obtain American aircraft 
engines and, especially, large quantities of the war surplus Liberties available 
in the domestic United States market at $1,000 each. The latest Curtiss 
engines were also secured. 

In the early 1920s, the Hall Scott Motor Company sold a large lot of 
aeronautical equipment to the Vimalert Company of New Jersey; this found 
its way to the Soviet Union." In late 1925 some thirty cases of aircraft engines 
were shipped by Amtorg to Autoimport in Moscow. These were assumed by 
the State Department to be Liberty engines, not automobile engines, as they 
were purchased by Zautinsky, the aviation purchasing agent for the Soviet 
Union and shipped from Little Rock, Arkansas, where the large quantities of 
surplus Liberty engines were stored and sold. 16 This shipment was followed 
by another thirty-three Liberty engines on May 6, 1926 via the Hamburg- 
Amerika Line to Leningrad. These had been purchased by Zautinsky in a 
very roundabout manner. They were originally sold to the Leoning Aircraft 
Company, resold to Ayers Airco, then to a dealer named Epstein and another 
dealer named Kelly." 

Table 15-1 SOVIET PURCHASES OF AMERICAN 

AIRCRAFT ENGINES, 1926-9 

Date Number shipped Type and make 

Nov 8, 1925 30 Liberty 400 h.p. 

May 6, 1926 33 Liberty 400 h.p. 

Dee 27, 1929 10 Curtis Conqueror 

Source: U.S. State Dept. Decimal File, 316-164-267, 164-289, 164-317. 

11 Barmine, op. cit., p. 179. 

" A. A. Santalov and L. Segal, Soviet Union Year Book, 1930 (London: Alien and 

Unwin, 1930), p. 358. 
" U.S. State Dept. Decimal File, 316-164-250. 
" Ibid. 
11 U.S. State Dept. Decimal File, 316-164-250. 



262 Western Technology and Soviet Economic Development, 1917-1930 

These comparatively small purchases were followed by very intensive 
efforts to obtain a larger quantity of the Liberty motors, if possible at the low 
price of $1,000. However, it was reported that the Soviets were willing to pay 
up to $10,000 per motor and give a bonus to anyone able to acquire a substan- 
tial quantity at an export price of 82,000." One effort to buy a batch of 200 
was made by the Payne Export and Import Company of New York in August 
1027 The State Department indicated it did not look with favor upon the 
transaction. Payne later tried to buy through the Vimalert Company At the 
same time Fox and Company attempted to purchase 700 on behalf of the 
Soviets The Chase National Bank of New York, in an aside from its banking 
business, was activelv trying to arrange export of Liberty motors at $2,000 
each to the U S S.R. 18 A few weeks later one Max Rabinoff, a dancing 
instructor in New York, tried to buy 488 Liberty motors, allegedly for use by 
Deruluft (the German-Russian mixed company) on its nights to the Soviet 
Union. However, Rabinoff wanted the motors shipped to the U.S.S.R. to 
•avoid customs duties.'" None of these orders was filled; it would appear that 
the Department of Justice was one step ahead each time. However, in 1929 
the Curtiss Company filled an order for ten Curtiss Conquerers with spare 
parts-a much more advanced engine than the Liberty." Just two years 
previously, in June 1927. the State Department had indicated that it . did not 
look with favor on the sale of 100 Curtiss type D-12 engines to the U.b.fa.K. 
This was a situation parallel to the shipment of a high-powered radio station 

to the Soviet Union. 

General von Seeckt, Chief of the German General Staff, had attempted to 
make contact with the Soviets before the Treaty of Versailles, but H.lger 
places the first cooperation at 1921, originating with a Junkers request for 
assistance from the German government in the establishment of an aircraft 
plant in Russia. Special Group R of the German War Ministry was established 
for military collaboration and gave the necessary political guarantees and finan- 
cial assistance to Junkers. A branch office of Group R was established m 
Moscow and known as Zentrale Moskau; it operated under Neumann , a 
pseudonym for Major Oskar Rittcr von Niedcrmayer.^ The latter was head 
of Zentrale Moskau until 1932 and passed a stream of military information 
back to Germany, as he was far less restricted than the official m.htary attache 

» Department of Justice Utter to Miliary Intelligence (U.S. State Dept. Decimal 

File, 3 16-164-271). 
18 U.S. State Dept. Decimal File, 316-164-256. 
i* U.S. State Dept. Decimal File, 316-164-183. 
20 U.S. State Dept. Decimal File, 3i6-i64-3i7^ 

« US State Dept. Decimal File, 316-164-230- , .. . 

» iSer V cit, P . ,04. The German Foreign Office used »UP«*«« cla-ficat.on 

%' for all documents in contravention to the Versatile* Treaty. 



Geman-Rwtian Military Cooperation and Technology 463 

at the German Embassy. The latter, according to Hilger 'had no opportunity 
to talk to the constant stream of German Army personnel passing through . . . 
on their way to or from different places within the Soviet Union.'* 8 Hilger, as 
economic attache, may have been in a similar position of isolation, because he 
contributed very little to our knowledge of the extensive economic transfers 
of the 19208.** 

THE RED AIR FORCE, 1929 

Total personnel in th= Red Air Force in 1929 numbered approximately 
30,000. Purely military aircraft numbered 1,200, of which 160 were with the 
Red Navy. Table 15-2 su-imarizes Red Air Force and Navy equipment, and 
its origin. 

Table 15-2 RED AIR FORCE EQUIPMENT AND WESTERN ORIGIN, 1929 



Type of plane Origin 

Observation Soviet-made R-i, copy of British De Havilland. 

Attack Fokker D-XI and D-XIII, imported 

French Nieuports. 
Bombers Farman-Goliath (So) and a few Rohrbachs, imported. 

Navy (Black Sea) Fokkers D-XI (Holland). 

Ballilo (Italy). 

Dornio-Wal (Italy). 
Navy (Baltic fleet) Junkers J-io (from Sweden). 

Fokkers D-XI (Holland). 
Aircraft engines 

R-i observation M-5, made with German assistance. 

Some imports from Bayerische Motor Werke. 
Attack 450 h.p. Hispano-Suiza and German makes. 



Source: U.S. Military Intelligence Report, Combat Estimate; Russia. 



Table 15-2 can be summarized briefly. The only complete aircraft built 
in the U.S.S.R. was the R-i light observation plane. All other aircraft and 
engines were imported — from every country manufacturing aircraft. In other 
words, the Soviets were able to compare, test, select for purchase, and at some 
point manufacture the best features from planes manufactured in all Western 
countries. 

RUSSIAN-GERMAN TRAINING CENTERS 

The main German air base in the Soviet Union was at Lipetsk. It was 
initially funded in 1934 by an appropriation from the German war budget and 

" Hilger, op. dt. t p. 179. 

" The United States received excellent information from its Riga Consulate. 



264 Western Technology and Soviet Economic Development, 1917-1930 

further funded by an appropriation from the Ruhrfond (Relief Fund for 
Ruhr Workers). This fund was administered by Group R. Lipetsk was used 
as a base for final pilot training, and the testing and development of new planes 
by both the Germans and the Russians. Nearly everything was shipped from 
Germany, either by Derutra or Russgertorg by a circuitous rail route. Only 
very basic materials such as wood and stone were supplied by the Soviet 
Union. At the end of 1924, there were about 60 German pilots and another 
75-100 technical personnel stationed at Lipetsk. This group was known as 
the Fourth Squadron of the Red Air Force. 85 

Clause two of the German-Russian Military agreement required dispatch 
of German naval instructors to Russia to train the Red Navy. In mid- 1923 
an intercepted telegram from Moscow to Berlin ordered the 'military attacbi' 
in the Soviet Berlin Trade Delegation to arrange for the transfer of 1,200 
German naval instructors. 26 

BERSOL POISON GAS PRODUCTION 
A considerable amount of work was done on poison gases under the tsar. 
Liquid chlorine, the major poison gas used in World War I, was made in eight 
different plants. The difficult technical problems involved in handling chlorine 
' gas— especially liquefaction— were solved by Russian chemists, 'since the 
methods and techniques used in Western Europe were unknown to us.' 27 
Production was so successful that a chlorine over-supply developed, and by 
summer 1 9 1 7 there was a tank reserve of 1 00,000 poods. Phosgene was produced 
at five plants under the supervision of Professor E. I. Spitalsky. Apart from 
use as a poison, gas was useful in synthesis of organic pigments and drugs. 
The work was done under the supervision of the Commission on Poison 
Gases, which also established an experimental factory under the directorship 
of I. Klimov, who continued as director after the Revolution. 

Ipatieff was for a while chairman of the Russo- German commission which 
negotiated production of explosives and poison gases in the U.S.S.R. by 
German companies. A mixed commission of three Russians and two Germans 
carried out the agreement. The tsarist poison gas factory at Samara had been 
only partly built by the time of the Revolution, and Ipatieff was sent to 

" G. Frcund, Unholy Alliance (New York: Harcourt, Brace & Co., 1957). P- 2°5 
el seq. 

"US State Dept. Decimal File, 34°-S-&7<> (intercepted telegram, June 1913). 

" V. I. Ipatieff, op. cit., pp. 212-235. It is noteworthy that tsarist Russia had little 
help from the Allies in the development of gases or gas masks. The Kumant- 
Zelinsky gas mask was a purely Russian development, and although it had detects 
it was more effective than the French mask and equal y as effective as the German 
and British. The tsarist Chemical Committee supplied some 15 million ot this type 
of mask. (Ipatieff, op. cit., p. 225.) 



German-Russian Military Cooperation and Technology 265 

evaluate the plant for purposes of the German agreement and to determine its 
use in the production of both chlorine and phosgene. Ipatieff received instruc- 
tions not to underestimate the plant's value, since the greater the original 
value, the more the Germans would have to invest in the agreement. Although 
Ipatieff felt the plant valueless, he assessed it at six million rubles. The German 
valuation quite naturally was considerably less. The contract was awarded by 
the German government to Stolzenberg, owner of a Hamburg gas factory 
making phosgene, chlorine, and ammonium chloride. The Samara plant was 
renamed the Trotsky and rebuilt by German engineers. Other institutions 
and schools were formed to handle other aspects of poison gas production 
and use. 28 

Soviet interest in gases was intense. A special military agent was maintained 
within the Berlin Trade Delegation solely for the purpose of collecting foreign 
information on poison gas and allied materials. Ipatieff recounts how a Dutch 
engineer offered to bring the Soviets a new substance effective against all 
smoke and poison gas vapors. Reports were sent back on German attempts 
at Essen to manufacture a gasproof fabric. 29 

Not much appears to have been achieved. The Trotsky plant was a failure. 
In 1927, Voroshilov commented that 'our entire chemical industry for military 

purposes has yet to be built up ■ However, he placed great emphasis on 

chemical warfare and aviation as the weapons of the future and wanted to 
equip 'every laborer and every toiler' with a gas mask. 30 

PRODUCTION OF SHELLS, ARTILLERY, AND SUBMARINES 
FOR THE RED ARMY AND NAVY 

The third major task of GEFU was supervision of factories at Tula, 
Leningrad, and Schlesselburg for production of artillery shells at the rate of 
300,000 per year." In 1927 it was reported that seventeen plants for the con- 
struction of artillery were being built by Krupp in central Asia. 8 * The existence 
of such a large number of shell and artillery plants is credible in the light of 
the Soviet recoil to the German Barbarossa attack of 1941. The Russian 
counterattack in the winter was made before Western aid flowed in quantity 
and was made by utilizing large massed fronts of artillery and tanks of a 
single model. 

" /Wrf.,p. 3 8s. 

" Ibid., pp. 459-60. 

" Izvestia, No. 97, April 30, 19^7. 

nl,ntf ™.™ titIe f S™i°% en ¥? n > based <"» interviews with workers at the shell 
^ plants, was isBued by the Social Democratic Party in 1927. 

U.S. Embassy in Stockholm, Report 66, August ia, , 9I7 . (316-60-1003.) 



266 Western Technology and Soviet Economic Development, Tgi^-I^O 

Submarine construction is less well documented. It is known that Krupp 
estimated construction of submarine pens at Leningrad. 31 Bailey holds that 
U-boats were built at both the Leningrad and Nikolaevsk yards by German 
companies. 3 * 

EQUIPMENT OF THE SOVIET ARMED 
FORCES IN 1929 

In 1929 the Soviet army comprised 1.2 million men. It was largely equipped 
with prewar or foreign weapons. The standard rifle issue was the 1891 
Russian .30 supplemented by Browning automatic pistols and a mixture 
of Russian, French, German, and British hand and rifle grenades. 35 The 
one-pound guns used in infantry regiments were MacLean or German makes. 
Heavy machine guns were either Maxim or Colt. Light machine guns were 
either Browning, Chaucgat, or Lewis. Artillery was comprised of the 1902 
Russian 76 mm, the 4.5-inch English howitzer, and 1909 model Russian 4.8 
howitzer. The basic anti-aircraft equipment was the 1916 Russian 76 mm and 
the Vickers 40 mm. 3 ' Tanks were the Renault, built with technical assistance 
at Fili, and a Russian-built copy of the British Mark IV. A few Fiat tanks 
had been purchased from Italy. 

Military strength in 1929 was, then, based entirely on foreign weapons 
and military production technology. Further development, at least at any 
acceptable rate, was possible only with Western assistance. Without it, self- 
generating economic development would have been prohibitively slow. 
Russia was without an automobile industry, without a useful aviation industry, 
without modern iron, steel, and metalworking facilities, and much else with 
which to forge a military structure. But, as the Military Intelligence estimate 
pointed out, 'if her economic and military recovery continue at the present 
rate in a few years she will be a formidable enemy.' 37 



See chap. 14. 

G. Bailey, The Conspirators (New York: Harper, i960). 

The Russian i8 0I 3- line model rifle was the subject of Clause i of the 102* German- 
Russian military agreement. 

Military Intelligence Division U.S. War Dept.. Combat Estimate: Russia (19*9)- 
U.S. State Dept. Decimal File, 316-110-347. 



CHAPTER SIXTEEN 

Soviet Trading Companies and the Acquisition 
of Foreign Markets 

Acquisition of Western technology and skills required, of course, a source 
of finance. Some large-scale inter-government loans were made; of these, the 
1925 German loan of 100 million marks and theio.26 loan of 300 million marks 
were the largest. Unpublicized private business loans and credit were much 
more common and more important. Export of gold was not at first considered 
a generator of foreign exchange. After 1925, coincident with the Lena Gold- 
fields agreement, the export of gold became a valued means of acquiring 
foreign technology. Further, the extensive collections of confiscated platinum, 
silver, rare metals, tsarist crown jewels, plateware, and ikons gathered up by 
the Bolsheviks were sorted and catalogued by yet another Western expert, 
H. J. Larsons, Deputy Chief of Currency Administration, and then exported. 1 

The primary source of foreign exchange during the 1920s was export of 
raw materials— especially petroleum products, furs, minerals, and foodstuffs. 
Export of food to rf gain prewar markets was implemented even while American 
relief was importing supplies into Russia for the famine areas. In one case, 
the Soviets were loading a boat with Ukrainian wheat for export to Germany, 
while alongside war a boat from the United States unloading American wheat 
for the famine area-, to the north of the Ukraine. The chicken industry was 
nationalized at an early date and eggs assembled for export to Europe by 
Russot and other mixed Type II concessions. 

These markets were entered by using mixed joint-stock companies which 
specialized in trading. The Soviets normally held a 50 percent interest and the 
foreign partner the i?rLer 50 percent. Germany, Austria, and the United 
States each had two ;;< these general trading companies in the early 1920s. 

1 H. J. Larsons, An Exp.'rt in the Service of the Soviets (London: Benn, 1929). 



268 Western Technology and Soviet Economic Development, 1917-1930 

Turkey, Poland, Italy, and Persia had one company each. The foreign firm 
advanced credits to the Soviet organizations, found the buyers and arranged 
transportation and storage. In some cases the foreign partner undertook 
assembly within the Soviet Union. In addition to these general trading com- 
panies, there was a more numerous group of specialized trading companies 
with agreements covering trade in specific commodities. In both cases the 
Soviets profited by the skilled knowledge and trading skills of the Western 
partner until such time as they were able to organize their own institutions 
for foreign trade. 

By far the more important of the United States general trading companies 
was Allied American, with its Berlin subsidiary, Alamerico. Simon Sutta was 
a much smaller and short-lived arrangement. 

ALLIED AMERICAN CORPORATION (ALAMERICO) 
The Hammer famity held three concessions in the Soviet Union. One 
covered the Alapievsky asbestos deposits; the second, granted in July 1923, 
was a general trading concession, 8 and the third was the pencil and stationery 
concession. The Hammers had been trading with the U.S.S.R. under a 
Soviet trading license, since 1918; the concession gave them the right to 
establish an office in Moscow and represent a number of large American 
companies. Previous to the grant of the concession, Hammer had been des- 
cribed as the 'Soviet trade representative in the United States.'* 

The Hammer trading concession represented thirty-eight large American 
companies. These had an aggregate capitalization in excess of one billion 
dollars, and included Ingersoll-Rand, American Toot Works, Heald Machine, 
Ford Motor Company, U.S. Rubber, U.S. Machinery, and other companies 
of similar stature. 1 

Hammer also made contracts in the United States for the sale of Soviet 
raw materials. The right was granted to conduct operations independently 
of the government trade monopoly: quite a remarkable situation, given the 
vehemence with which the Soviets normally defended their monopoly on 
trading rights. The only limitation on Hammer operations was that imports 
into the Soviet Union could not exceed exports. It appears that the Hammer 
concession was represented within the U.S.S.R. by Soviet organizations. For 
example, in the Northwestern oblast, the concession was represented by the 
Northwestern Trade Association, 'which institution will carry out all the 
transactions of the Company.'* The concession was financed by the U.S.S.R. 

1 Ekonomkheskaya Zhizn, No. 51, March 3, 1926 (advertisement), 

3 New York Times, November 6, 1021, p. 23, col. 3. 

« New York Times, July 9, 1923, p. 3, col. 3. 

» Pravda (Petrogmd), No. 189, August 24, 1923. 



Soviet Trading Companies and the Acquisition of Foreign Markets 269 

and 50 percent of the profits accrued to the Soviet Union. It was rare at that 
time for the Soviets to finance operations originating outside the Soviet Union 
and operated by foreigners ; the only other example was the Swedish locomotive 
firmof Nyquist and Holm, which received significant financial aid in its program 
of locomotive production for the U.S.S.R. However, as has been pointed 
out, Andersson, the director of the plant, had a special relationship with the 
Soviet Union. 

The Board of Directors of Alamerico contained a Russian member, 
G. L. Rappaport, a member of the People's Commissariat of Foreign 
Trade.* A rather curious letter appeared in the New York Times shortly 
after the agreement, maintaining that the concession was neither a concession 
nor a mixed company but 'a temporary commercial agreement.' 7 As events 
turned out, Alamerico was precisely that: a temporary commercial agreement. 
The motivation for the letter and the source of the information can only be 
guessed. One might infer that it was inspired by Vneshtorg to avoid a conflict 
with Glavkontsesskom. 

Alamerico filled the gap for the Soviets between the demise of the Soviet 
Bureau in New York and the establishment of Amtorg; as Amtorg found its 
feet, Alamerico faded into the background, and in 1926 the agreement was not 
renewed. In a six-month period in 1925-6, Alamerico exported $221,000, only 
twice the amount of the purchases of Lena Goldfields concession in the United 
States in the same period. 8 Clearly the Soviets were never hampered by lack 
of United States recognition insofar as having a trade organization in the 
United States; they were able to operate through individual American com- 
panies in a way denied the United States in the Soviet Union. 

A formal trade agreement of a specialized nature was the mixed Type II 
joint-stock company which operated under the name of the Russian-American 
Engineering and Trading Company (RAITCO), formed in mid-1923 by 
Allis- Chalmers Manufacturing Company, the Bucyrus Company, and the 
Sullivan Machinery Company in the United States and the People's Com- 
missariat for Foreign Trade (Vneshtorg) in the Soviet Union.* 

Clause II of the agreement described the objectives of the concession as to 
import into the Soviet Union from the United States articles required for 
'equipment and supply of agriculture and all kinds of industrial construction 
work,' and to introduce 'American working methods' and 'projects,' Clause 
III described the ways by which these objectives might be achieved: by 
representation of American firms— in particular, industrial, construction, 

• ibid. 

1 New York Times, July 18, 1913, p. 14, col. 6. 

• Amtrikamkaia torgovlia 1 promyihtennost' (Amtorg Trading Company, 1926). 

• The agreement is in the U.S. State Dept. Decimal File, 3 1 6-1 3 1-70/S4. 



a?© Western Technology and Soviet Economic Development, 1917-1930 

engineering, and financial firms-by organization of a staff of experts, and 
by the import of articles required for the equipment of Russian industry. The 
company was to submit proposals and initiate discussions with the necessary 
Soviet institutions, and for this purpose might establish offices, warehouses, 
and branches within the Soviet Union.The capital stock was divided equally, 
and each party was represented by an equal number of directors. 

The first 10 percent of profits went into a reserve fund to sustain possible 
losses The balance (not to exceed 40 percent of the capital stock) was to be 
divided equally among the parties. Of the excess, 75 percent was to go to 
the Soviet government and 25 percent to the group of firms. Altogether there 
were 24 clauses detailing precisely the methods and conduct of the business. 

From the viewpoint of the Western firms this was a logical move to protect 
their markets in the Soviet Union, given the continued operation of the 
International Harvester plant in Moscow. Indeed, the Soviets may well have 
had such a reaction in mind. 10 

UNITED KINGDOM TRADING COMPANIES 
Arcos (the All Russian Cooperative Society, Ltd.) was formed in London 
on July 11, 1920 with a nominal capital of £15.000, allegedly to act as the 
representative of Russian cooperatives in the U.K., to carry on business as 
an export-import merchant, and to provide all services, in the broadest sense 
necessitated by these functions. Of the stock, 65 percent was personally held 
by Leonid Krassin, the Soviet trade representative. This agreement was 
followed by another all-Soviet undertaking, the First All Russian Import and 
Export Company, Ltd., also a trading company. Then followed a series of 
trading companies in joint ownership with British and other foreign share- 
holders. . ■■ .... 

There was considerable criticism in the British press concerning the validity 
of Arcos calling itself a cooperative society when 485,996 of the 500,000 
shares issued were held by Krassin and his deputy, Klisko. It was argued that 
Arcos was in effect the Russian Trade Delegation in the United Kingdom 
and had no connection with the Russian cooperatives. The position was 
confused by the appearance of a second company also claiming to represent 
the Russian cooperatives. Subsequent events proved the cntrctsms correct. 
Arcos became the focal point of Soviet trade (and subversion) in the U.K. 
but the subterfuge was used to gain entry, in the same way that Amtorg on 
entry into the United States denied that it had connections with Soviet trade 
organizations and argued that it was solely a business organization. 

» International Harvester's plant was expropriated for the first time in 1914. I*" 
the signing of the agreement with Allis-Chatmcrs. Bucyrus, and SuU.van. 



Soviet Trading Companies and the Acquisition of Foreign Markets 371 

In 1921 capital in Arcos was raised to j£ 100,000, and Arcos began to sell 
Russian goods as well as to buy British manufactured goods. In 1922 capital 
was increased to £500,000 and in 1923 to 10 million gold rubles. The London 
office then employed some 500 people, about one-third of them Russians. 
Branches were scattered throughout the U.K. and Europe, as well as Russia. 
The guise of a cooperative representative was dropped when it appeared 
that deportation proceedings would not be continued — one of the dangers 
avoided by entering under the shield of a mixed company including foreign 
partners. By 1925 the company described itself as follows: 'The commercial 
organization of Arcos, Ltd. is of such a manifold and flexible character that 
it is able to carry out the most diverse transactions for the importing and 
exporting bodies of the Soviet Union.' 11 

Four years after its rather tentative entry into the United Kingdom, Arcos 
was handling 86 percent of all Soviet purchases in the U.K. 'made by all the 
companies, economic bodies and trading organizations carrying on Anglo* 
Soviet trade.' 12 Only 13.7 percent of the exports from the Soviet Union were 
being handled by Arcos. Its successful establishment was followed by a host 
of mixed and Soviet-owned companies in the U.K., predominantly for the 
sale of Russian raw materials. When these mixed companies, with foreign 
partners, were no longer needed, they were dropped. 

THE RUSSO-BRITISH GRAIN EXPORT COMPANY 

Exports of Russian grain began again in 1922 and gained new impetus 
in 1923. Russia had been the world's largest exporter of grain in tsarist times, 
and the Soviets naturally wanted to regain 'their' share of the market. One of 
the first agreements in the grain trade was completed in October 1923 between 
Centrosoyuz, Arcos, and Khlebexport on the one hand and a group of English 
companies on the other (the Cooperative Wholesale Society; Shipton, 
Anderson, Laurence and Company; and Furness Withy). As a result, the 
Russo-British Grain Export Company was formed. The English and the 
Soviets were represented equally on the board. The company had the support 
of British banks who provided from the outset a line of credit amounting to 
£1 million sterling at any one time to cover Russian grain at seaboard, in 
port, or afloat. 

The willingness of leading banks and commerical institutions to finance 
trade operations in the U.S.S.R. on ordinary commercial terms, even when 
the question of expropriation was still far from negotiation, contributed 
greatly to the success of these early efforts; without such financial aid they 

" Commercial Year Book of the Soviet Union, X925, p. 250. 
" Ibid. 



272 Western Technology and Soviet Economic Development, 1917-1930 



•would never have been realized. The proceeds of these grain sales were used 
to purchase manufactured goods in the U.K. 1S 

Another Type II mixed company was formed in December 1923 between 
the Commissariat of Foreign Trade and Dava-Britopol (the Danzig- Warsaw 
British-Polish Company) called Ruspoltorg. This company had the prime 
objective of exporting timber, bristles, horsehair, and medical herbs. To 
assemble, store, and prepare these materials for export, it invested in the 
Soviet Union, The capital of Ruspoltorg was one million rubles invested 
equally by the founders, but it also had a line of credit amounting to four 
million rubles from a group of Polish financiers, and some additional United 
Kingdom backing. 

Table 17-1 SPECIALIZED TRADING CONCESSIONS (TYPE II) 



Lumber 



Petroleum Products Transport 



Dairy Products 



Russangloles (U.K.) 

Russhollangloles 

(U.K.-Holland) 
Russnorvegloles 

(U.K.-Norway) 
Mologa-Waldindustrie 

(Germany) 
Dvinoles Export, Ltd. 

(U.K.) 
Repola Wood, Ltd. 

(Finland) 
Deruwa (Germany) 

Cotton and Silk 



Persaneft (Persia) Russtransit 
(Germany) 



Eggexport (Germany) 

Russcapa (Canada) Union Cold Storage 
(U.K.) 

Deruncft Deruluft Siberian Co. (Sibiko) 

(Germany) (Germany) (Denmark) 

Derutra G. H. Truss (U.K.) 

(Germany) 
Ocean Travel 
Bureau (U.S.A.) 



Foodstuffs 



Animal Products Miscellaneous 



Persholk (Persia) 

Perskhlopok (Persia) 

Kazuli (Greek) 
Turksholk (Turkey) 



Russot (45 percent Kossayger 

International) 
Russperssakhar A. Roesch 
(Persia) (Germany) 

Iva (Germany) 
Wostwag 

(Germany) 
Koshsuryo 



Persshold 

Russian-Asiatic Stock 

Co. 
Shark 
Sovmong 

Derumetall 



The company paid all Soviet taxes, imposts, and duties, and an additional 
io percent of annual profits to the Soviet government. Exports amounted to 
about $1 million per year. 14 

GERMAN TRADING COMPANIES AND THE U.S.S.R. 
In late 1021, Centrosoyuz concluded an agreement with a German trading 
company, Nord-Ost, for exchange of Russian raw materials for German 

" Manchester Guardian, October 18, 1023- 

" Ekonomickeskaya Zhisn, No. 366, December 20, 1924. 



Soviet Trading Companies and the Acquisition of Foreign Markets 273 

manufactured goods. The company opened a line of credit of 500 million 
marks, and goods were valued at prices prevailing on the Hamburg Exchange 
at the time of the offer." In the following year, the Ukrainian Centrosoyuz 
signed an agreement with the Dutch firm of Amexima of Amsterdam, under 
which all exports of the Ukrainian Centrosoyuz to Holland were handled 
through Amexima, which had the exclusive right to supply the former with 
imported goods. 11 

By far the largest of the German trading companies was Russgertorg 
(Russische-Deutsche Handels A-G) a Type II concession, owned jointly by 
the Soviets and the Otto Wolff interests, which represented a number of large 
German firms, including Phoenix, Rheinische-Stahlwerke, Rheinmetal, and 
Zippen and Bissener. It was signed in October 1922 and at a later date included 
some United States firms who were unwilling to deal directly with the Soviet 
Union. The company was jointly capitalized at 175 million marks. It function- 
ed as an import-export company. The Soviets determined the nature of the 
imports (mainly equipment for Soviet plants), and exports had to be coordina- 
ted with Vneshtorg. Russgertorg also handled shipments made under the 
military agreement with the Soviet Union. 

Otto Wolff provided working capital of £750,000 plus a revolving credit of 
£500,000 and a further credit equal to the income from half of the orders 
placed with the company by the Soviets. The board of directors was selected 
equally from each side. The company established itself very quickly— Hilger 
suggests too quickly for its own good. In the second year of operation it was 
handling one-fifth of all Soviet imports — essentially machinery and industrial 
equipment, In the first eight months of 1925, its business doubled to over 
20 million rubles, of which three-quarters was financed by the seller and did 
not require the company's working capital. 17 

Although there are reports that Rusgertorg made a comeback, it probably 
did not survive beyond 1925. It was 'extremely profitable' for both parties 
while it lasted. It was, however, too successful from the Soviet viewpoint, and 
within a short time it so dominated Soviet domestic and foreign trade that 
'the Government regarded its continued existence as a threat to its interests 
and to its own governmental trade organizations.' 18 The company did receive 



Pravda (Petrograd), January 26, 1922. 

U.S. Consulate in Hetsingfbrs, Report mo, May 15, 1922. (316-107-763.) 
U.S. State Dept. Decimal File, 3 16-1 31-89/102. See also Troyanovsky, op. cit., 
pp. 89S-7. 

"The case of Russgertorg was a typical example of the way in which the Soviet 
Government made use of its foreign partners as long as it derived benefits from such 
contracts, and dropped them as soon ss the conditions under which the contracts 
were concluded had changed.' (Hilger, op, cit. t pp. 172-3.) 



274 Western Technology and Soviet Economic Development, rgif-iyjo 

a house-building concession in late 1928 but reportedly could not raise 
sufficient capital for operations. 1 * 

Derutra (Deutsche-Russische Lager und Transport m.b.H) had a virtual 
monopoly of Soviet-German land transportation, but not ocean freight, be- 
tween 1923 and 1926. It was a joint-stock Type II concession owned jointly 
by the Hamburg-Amerika line and Vneshtorg. The concession had great 
difficulties from the beginning, and Hilger suggests this was partly because 
of the clumsy Soviet economic system and partly because of Soviet distrust. 
An official reason for its dissolution was never given but the 'obvious reason 
was that the Hamburg-Amerika Line . . . had a closer view of Soviet 
economic conditions than Moscow desired.' 20 

Whereas Russgcrtorg was mainly involved with manufactured imports and 
Derutra with transportation, the Type II concession Wostwag was organized 
in 1923 for exporting raw materials — mainly furs, casings, bristles, caviar, 
horsehair, potash, and oil. It established a network of workshops in the 
U.S.S.R. for the 'working up' of bristles. Its functions were much more 
circumscribed than those of Russgertorg, and it was limited to a precise list of 
imports and exports. Furthermore, the trade in any one item in any one year 
could not amount to less than 1.2 million gold rubles. Profit was divided equally 
with Vneshtorg, and Soviet representatives sat on the board of directors. 21 

Whereas most trading concessions were of the mixed Type II variety, 
Rueben and Bielefeld was a pure concession in which the Soviets held neither 
management nor legal rights. It was concluded in 1923 to enable the firm 
to buy fish products within the Soviet Union and export these products. The 
U.S.S.R. collected 50 percent of the profits as a fee in lieu of taxes. M Another 
Type II concession was Derumetall (Deutsche-Russische Metallverwertungs 
G.m.b.H.), which joined the Berlin firm of N, Levy with Metallotorg to 
export scrap metal. This must have been a sizable business, in the early years 
Derumetall employed some 66 ships in removing scrap from the Soviet 
Union to Germany. 83 In addition there were several minor concessions, such 
as Rusot, operating in the oilseed and oil cake field. 21 

RUSSO-AUSTRIAN TRADING COMPANY (RUSAVSTORG) 
The Russische-Oesterreichische Handels und Industrie A-G was a mixed 
Type II concession linking Vneshtorg to a group of large Austrian firms. The 

" U.S. Consulate in Riga, Report 5789, December 28, 1918. 

10 Hilger, op, «'(., pp. 177-8. 

" Izveitia, No, 126, June 9, 19*3; and Ekonotnithttkaya Zhign, No. loa, May 10, 

1923. 

** Izvestia, No. 108, May 17, 1923, 

" U.S. State Dept. Decimal File, 340-5-566. 

" Ekonomichttkaya Zhixn, No. 105, February 7, 1924. 



Soviet Trading Companies and the Acquisition of Foreign Markets 275 

capital stock was owned jointly by the Soviet government and the firms, but 
the Austrian* actually purchased 75 percent of the stock and donated 25 
percent to the Soviet government; the other 25 percent of the Soviet share 
was paid out of accumulated profits and not subscribed at time of formation. 
In addition, the Austrian firms granted a credit of $1.6 million to the mixed 
company and a $1 million credit directly to the Soviet government. The 
profits were divided: 10 percent went to the Soviet government, and the 
balance (up to 40 percent of the capital stock) was divided equally between 
the Soviet government and the Austrian firms. Of the profits in excess of 40 
percent, 60 percent went to the Soviets and 40 percent to the Austrians. The 
Soviets had the deciding vote and in effect controlled the company," 

The second Austrian trading concession was Ratao (Russische-Oesterrei- 
chische Handels A-G) a mixed joint-stock company one-half of whose capital 
was held by two Austrian firms and the balance by the Soviet Union. 

COMPAGNIA INDUSTRIALE COMMERCIO ESTERO (CICE) 
This was a jointly owned Type II trading concession handling all import 
and export between Italy and the U.S.S.R. The company had its head office 
in Milan and a branch office in Moscow and other cities throughout Europe. 
It was capitalized at fourteen million lire and provided exclusive representa- 
tion for major Italian metalworking, leather, textile, and chemical companies, 
including the Fiat company, which had extensive sales and technical-assistance 
agreements in both automobiles and aircraft. 

The transport and handling of commodities and equipment from Italy to 
the U.S.S.R. was handled by Societa Mista Italo-Russa di Commercio e 
Transporti, with agents and correspondents scattered throughout Europe and 
Russia. 

By 1924 the Soviets found they had exhausted the possibilities of the mixed 
Type II trading concession. Originally formed to attract capital and get into 
direct contact with foreign suppliers and customers, the mixed companies 
achieved both aims. The Soviets did not hide their reasons for dropping the 
foreign partners. An article in Ekonomtckeskaya Zhizn points out they were 
no longer necessary: capital had been acquired and more could now be 
obtained by direct contact with the foreign suppliers; there was now no 
problem in getting in touch with foreign businessmen. It was proposed that 
trading companies should now become 'producing and trading companies' 
and that this would 'appeal to those who are really specialists in a given branch 
of the export industry and not merely middlemen and traders.' The example 

" Izvestia, No. 148, July 5, 1913. 



276' Western Technology and Soviet Economic Development, 1917-1930 

of the German firm, Seyfurt, egg assemblers and producers in the Soviet 
Union under concession, was given. 28 

What had the trading concessions achieved? 

First, they had gained entry for the Soviet Union into foreign markets; 
this was vital for the sale of Russian raw materials to generate foreign exchange 
for imports of the technical means for economic development. This could not 
have been achieved without foreign help. Once entry had been gained then 
the sequence of orders could be maintained without too much skill. 

Second, the use of trading companies with foreign partners effectively 
maintained the trade monopoly in Soviet hands. In the early years the Soviets 
did not appreciate the value of a trading monopoly, but once the value became 
obvious they defended it with vehemence. The mixed joint-stock companies, 
in which final control remained with the Soviets, in effect extended the trading 
monopoly into areas where the foreign firms might join together to establish a 
joint selling and buying company as a bargaining unit in the path of Vneshtorg. 
The trading concession performed the supremely valuable function of main- 
taining the trade monopoly for the Soviets until such time as they could 
establish their own overseas branches. 



CREDIT FROM WESTERN FIRMS 

It is generally believed that the Soviets received no credit during the early 
phases of their development. This view has been propagated by the Soviets 
themselves. Even well-informed writers have maintained this point. 5 " There 
were, it is true, few government-to-government credits of any size. There 
were two sizable German loans and a few smaller direct loans from Austria 
and Czechoslovakia. However, irrespective of non-recognition, numerous 
firms, both American and foreign, were wilting either to advance credit to the 
Soviet Union or to aid in the acquisition of funds through intermediaries. By 
the end of the decade the Soviets were no longer complaining about lack of 
credit; there was more than enough. They were, however, complaining about 
payment of interest and the fact these firms did not treat the U.S.S.R. as a 
'first-class customer,' In brief, Soviet development was in no way restricted, 
by lack of finance capital, although the proof of existence of this financing 
has had to be pieced together from numerous sources. 28 

" Ekonomicheskaya Zkizn, No. 127, March 4, 1924. 

17 For example, see F. D. Holiman, 'Financing Soviet Economic Development,' in 

M. Abramovitz (ed.), Capital Formation and Economic Growth (Princeton: Princeton 

University Press, 1055), p. 55. 
!S See Note A to chap. 7 for agricultural equipment credits. 



Soviet Trading Companies and the Acquisition of Foreign Markets 277 

Given the risks involved, the amount of financing forthcoming was sur- 
prisingly large. The files of the United States War Trade Board indicate that 
American import-export companies advanced credit for Soviet purchases on 
the heels of the Revolution. One firm, Foreign Products Company, bought 
$670,000 of clothing and condensed milk in March 1920, before trade restric- 
tion with Bolshevik Russia were lifted, on the basis of an order and a small 
deposit. The company then applied for export permits. This application was 
rejected, but the company replied 'We insist upon passing of the above 
mentioned applications.' Some products were getting through the blockade 
through foreign firms operating under various names. One such was Niel3 
Juul of Christiania (Os'o), Norway, which, according to the War Trade Board, 
'used a number of cover names and in every way had a bad standing.' 8 * 

Beginning in about 1921-2, credits began to flow from manufacturing 
companies of some size and standing. Avery and Moline, and Sullivan 
Machinery in the United : ? tates, the Clayton Company in England, Pamp in 
Sweden, the Russian-Eui opean Company in Germany, and others in Finland 
and Austria were advancing credit in 1922-3. From a position of 'no credit' 
the United States moved to one of long-term loans and security issues within 
a period of eight years, in a graduated erosion of executive interpretation and 
under constant pressure from the Soviets and American financial and manu- 
facturing houses. The two major breaches of 'no-longterm loans' policy were 
the American Locomotive Sales case of 1927 and the Harriman bond issue 
case in 1928. By the end of the decade, more than 200 American firms were 
advancing credit for up to three years at quite reasonable interest rates. 80 

Chase National Bank and the Equitable Trust Company were leaders in 
the Soviet credit business. For some years this was handled on the basis of 
platinum credits, as the State Department requested return of gold shipped 
from the Soviet Union. In time this position also changed. 31 Some financial 
houses, notably Blair and Company, had a decidedly bad reputation within 
the State Department. 32 

Credits to the Soviet Union were supposedly against State Department 
policy in the mid igzo's. The German Foreign Ministry Archives has reports 
however of an International Harvester credit of $2.5 million for 18 months 



United States Export Control regulations were not always treated seriously. One 
shipper, on being informed by Customs that a load of coal to Murmansk required a 
permit, said, 'Hang the license, I will ship to Norway and then re-ship to Mur- 
mansk.' Customs reported this was not uncommon. (Memorandum, Dickson to 
Merle-Smith, October 29, 1920, U.S. War Trade Board files.) 
Bron, op. cit., p. 57. 

U.S. State Dept. Decimal File, 316-136-471. 
Memorandum, Division of Russian Affairs (316-137-404). 



278 Western Technology and Soviet Economic Development, 1917-1930 

Table 17-2 CREDITS ADVANCED TO THE SOVIET UNION 
BY WESTERN FIRMS 



CREDIT GRANTED 



Country Year Thousands of Percent of Average term 

Rubles Purchases in months 



Germany 

1st 3 quarters 1925/6 19.176 72.6 6.7 

1 st 3 quarters 19*4/5 16,748 56.0 5-8 

Italy 

1st 3 quarters 1925/6 n.987 99-7 7-7 

1st 3 quarters 1924/S 651 55.6 6.2 

England 

1st 3 quarters 1925/6 6,452 71.7 6.5 

I st 3 quarters 1 9*4/5 9.83* 60.8 4.8 

United States 

1 st 3 quarters 1925/6 3.283 432 9' 

1st 3 quarters 1924/5 8,419 72.5 5.2 

France 

1st 3 quarters 1925/6 3,598 91.9 15.7 

1 st 3 quarters 1924/5 5 ! 9 3"-9 4'4 

Sweden 

1st 3 quarters 1925/6 3,233 92-1 '2-1 

1 st 3 quarters 1924/5 '.963 s 7-° 9-6 

Czechoslovakia 

1st 3 quarters 1925/6 3,3 2 9 99-9 7-7 

1st 3 quarters 1924/5 1,091 14.0 6.4 



Source: U.S. State Dept. Decimal File 661. 1 115/466$ 

in 1925; this was overshadowed by the £30 million revolving credit advanced 
by Chase National in 1926. M It has already been mentioned that American 
banks involved themselves in making purchases on behalf of the Soviet Union. 
Chase tried to buy Liberty engines. 31 The Equitable Trust Company financed 
a group of Bolivian tin producers to supply the tin requirements of the Soviet 
Union. 3S 

Credits from Germany up to 1925 were limited by Germany's own economic 
position, by the necessity to pay reparations, by some doubt as to Soviet intent 
or ability to repay loans and to some extent by the necessity to avoid offending 
the Allies by making advances to the U.S.S.R. The first credits were on a 
barter basis. German reconstruction and operation of the Ukraine sugar 
refineries was paid for in sugar. A similar arrangement was made with grain in 
1923. 39 This was followed by the October 12, 1925 short-term loan of 100 

™ German Foreign Ministry Archives, Roll 3033, Frame H109454. 

M See chap. 15. 

35 U.S. Consulate in La Paz, Bolivia, Report, December 26, 1929. 

'• Hilger, op. cit., pp. 184-6. 



Soviet Trading Companies and the Acquisition of Foreign Markets 279 

million marks at 8.5 percent. The loan was hailed by Solnikov, the Finance 
Minister, as the first breach in the financial blockade of the Soviet Union. 
It was handled jointly by the Deutsche Bank and Reichs Kredit Gesellschaft 
A-G and repayable in bills on New York." In 1926 came the 300 million 
mark credit by German business firms, guaranteed by the German government 
to the extent of 35 percent in case of default. The German lander accepted 
another 25 percent guarantee. The loan was restricted to the purchase of 
equipment for specific industries." 

The International Union of Cooperatives was more skeptical. A joint 
meeting with Centrosoyuz in Moscow in 1922 did not impress the European 
delegates. It was suggested that the Moscow Co-operative Bank become a 
member of the International Co-operative Bank, but when it was indicated 
that the Moscow Bank would have to take up shares in proportion to its 
claimed membership, it was suggested that the international cooperative 
movement should meet Russia halfway because of her difficult economic 
position. The foreign delegates were not impressed and put off the question 
of credits to the international conference to be held at a later date in Milan. 
The point never came up for further discussion." One surprising conclusion 
from this study has been that organizations which are often thought to be 
somewhat socialist in character, such as cooperative and trade unions, have 
consistently refused to have anything to do with the Soviet Union in the matter 
of credits, aid, trade, or technical assistance. The few exceptions, such as 
Haywood and the Amalgamated Clothing Workers, make the overall coolness 
of these movements very obvious. On the other hand, the industrial and 
financial elements in all Western countries have, in the final analysis, provided 
more assistance for the growth of the Soviet Union than any other group. 



This provision is intriguing. The Soviets were heavy buyers of American cotton at 
this time. One wonders where the U.S. dollars were being obtained. The Chase 
credit may have some connection with repayment of the German loan. 
Hilger, op. eit., pp. 184-6, 
IS Report, April 1, 1922. (316-107-748.) 



PART TWO 



The Significance of Foreign 

Concessions and 

Technological Transfers 



CHAPTER SEVENTEEN 

The Foreign Firm and the 
'Arm's Length Hypothesis' 



The compilation of data which forms Part I of this study yielded several 
supplementary hypotheses in addition to support for the basic hypothesis that 
Soviet economic development for 19 17-1930 was essentially dependent on 
Western technological aid. 

The most significant supplementary hypothesis is termed the 'arm's-length 
hypothesis.' In some concessions and agreements, the Western partner had 
noneconomic links to the Bolshevik cause; this particularly applies to early 
concessions. In other words, from the Soviet viewpoint the invitation to 
foreign capital was hedged, and initially limited to the more 'reliable' foreign 
capitalists. One such arrangement sprang directly from the New York-based 
Soviet Bureau of Martens before his deportation; but although the bureau 
had been financed by numerous American businessmen, only a few of these 
could be called ideological sympathizers. 

The hypothesis is that some concession holders were in effect in arm's- 
length relationship with the Soviet government, and their contribution to 
the revolutionary cause was to lead the way and instill confidence in the Soviet 
government in the hope that other businessmen would follow. 

Quite clearly all agricultural communes, the American Industrial Colony 
(AIK) in the Kuzbas, the Russian-American Steel Works, the Russian- 
American Instrument Company, the Third International Clothing Factory, 
and the Haywood concession (the Russian- American Industrial Corporation) 
were inspired by ideological fervor. The operators were either Communist 
Party members expelled from or emigrating from the United States and other 
Western countries or, as in the case of Haywood, sympathizers. That they 
were sadly disillusioned does not alter the fact that the initial desire was to 
support the Revolution; they clearly fall within the scope of the hypothesis. 
Others require further explanation. 



284 Western Technology and Soviet Economic Development 1917-1930 

CHARLES HADDELL SMITH OF THE INTER-ALLIED 
RAILWAY COMMISSION IN SIBERIA 1 

According to the State Department, Charles H. Smith, formerly United 
States representative on the Siberian Railway Commission and member of 
the Soviet Peasant International, was 'more or less' an agent of the Soviet 
government.* The name threads thioughout the history of U.S.S.R.-United 
States trade relations in the 1920s. 

There is evidence that Smith used delaying tactics 3 while he was American 
member of the Inter-Allied Railway Commission of Siberia. On April 25, 
1919 the State Department sent a telegram, 'Urgent for Smith . . . please 
advise what materials Committee proposes to purchase in the United States.'* 
At the same time, Stevens, the Chairman of the Technical Committee of the 
Commission, was urgently requesting railroad materials: track motors, air 
brakes and high-speed tool steel. 6 

On May 2, Smith replied as follows to the urgent State Department tele- 
gram: 'Technical Board has not had time to study railway needs carefully." 
Smith appended a list of items based on 'past information' and adds, 'Do not 
think rails and track fastenings are needed just now. . . . ' 8 

By June 18, no orders had been placed, although Stevens was still requesting 
material urgently. By August 25, Smith had apparently been removed from 
the sphere of ordering supplies and now it was found that 200,000 tons of 
rails with 3A fastenings were needed. 

The impression from the flow of telegrams from the Consul's office in 
Vtadivostock to the State Department is that Stevens, President of the 
Technical Committee, was competent, active, and anxious to start work, and 
was requesting necessary supplies. These were delayed by inaction, and mis- 
information. 7 

After leaving the Railway Commission, Smith was active in the Far East, 
generating support and winning influence for the Soviet Union, and trying 

1 The U.S. State Dept. Archives refer to Charles Haddell, Charles H., Charles W„ 
and Charles S. Smith, sometimes preceded by 'Colonel.' According to file notations 
they are one and the same. (See 316-130, 316-131, 316-136, and 316-176.) 

8 U.S. State Dept. Decimal File, 316-131-1/2. Covering letter from Consul states, 
'Mr. Smith is more or less an agent of the Soviet Government, and it is to his interest 
to publish propaganda of this sort.' 

1 'Delaying tactics' as a weapon were formulated by Representative Walter Judd. 
The Harry Dexter White case and the takeover of China by the Communists is 
another example. See A. Kubek, foreword to Morgenthati Diary (China), Vol, J, 
U.S. Senate Committee on the Judiciary, February 5, 1965. 

* U.S. State Dept. Decimal File, 316-163-442. 

5 U.S. State Dept. Decimal File, 316-163-452, 316-162-454, and 316-162-456. 

* U.S. State Dept. Decimal File, 316-163-460. 

' U.S. State Dept. Decimal File, 316-163-440/677. 



The Foreign Firm and the 'Arm's Length Hypothesis' 285 

to introduce foreign capital into the Far Eastern Republic. He was connected 
with the Far East Exploration Syndicate (also known as the Far Eastern 
Prospecting Syndicate) and various proposed lumber and mining concessions. 
Soviet reporting explained that Smith was 'a capitalist not under the control 
of the United States Government'* and a 'breakaway.'* 

Part of Smith's activity involved propaganda in favor of the Soviets. Smith 
pleaded, for example, with Senators Borah and Johnson, on their visit to 
the Far East, to press for recognition of the U.S.S.R. and for the return of 
the Chinese Eastern Railway to Russian hands: 

As always the Chinese Eastern Railway is a key to the solution. The 
sooner the Russians would get it back, the better would it be for all 
nations except Japan. . . . We who represent America here used to 
say that this is a Russian railway and it must remain in Russian hands. 10 
Letters and memoranda in the U.S. State Department files testify to his 
consistent pro-Soviet activities. Part of this activity was in concert with another 
suspected Soviet agent, Lively, who represented the United States Depart- 
ment of Agriculture in the Far East and China. 11 

Smith turns up later in the decade as vice-president of the American- 
Russian Chamber of Commerce (which had such well-known members as 
International Harvester, General Electric, Westinghouse, American Car and 
Foundry, and Guaranty Trust) and Moscow representative of the Chamber. 12 

THE HAMMER FAMILY AND SOVIET OPERATIONS 

Dr. Julius Hammer (born in Russia in 1874, died in the United States in 
1948) was a member of the steering committee which founded the Communist 
Party of the United States at the First National Left- Wing Conference of the 
Socialist Party, held in New York City in June 1919. The Hammers were 
then trading under license with the U.S.S.R. They continued to trade until 
1923 when they operated, jointly with the Soviets, the Allied American 
Corporation (Amerikanskoi Ob'edinennoi Kompanii), sharing both capital 
and profits on a 50:50 basis. 

The secretary of Allied American Corporation was Atmand Hammer; 13 
who also managed the Alapievsky asbestos concession, 1 * while Dr. Julius 

• Ekonomcheskaya Zhizn, No. 24, October 28, 1923. 
' Far Eastern Times, November 22, 1923. 
" U.S. State Dept. Decimal File, 316-131-1/2. 

11 U.S. State Dept. Decimal File, 316-130-1259, 316-176-409 and 316-176-838. 
11 See page 289. 

" Armand Hammer, Quest of the Romanoff Treasure (New York; Payson 1036) 
Armand Hammer is currently President and Chairman of the Board of Occidental 
Petroleum Corp., Los Angeles. 
11 See chap. 6. 



286 Western Technology and Soviet Economic Development, 1917-1930 

Hammer, his father, was serving a term in Sing Sing for criminal abortion. 
Later in the 1920s Armand Hammer operated the American Industrial Con- 
cession, for pencil factories in Moscow. 1S 

Upon grant of the Alapievsky asbestos concession, the New York Timet 
reported F.B.I, investigations had ascertained that Dr, Hammer 'had for 
many years been prominently identified with the Socialist movement in this 
country and became a Lenin-Trotsky propagandist.' Dr. Hammer had then 
become associated with the Soviet Bureau in New York and acquired affluence. 
When he was sentenced to Sing Sing it appears that Martens 'and other 
representatives of the Soviet Government in this country had taken an active 
part in the effort to prevent the physician from being sent to Sing Sing,' 1 * 

Smith and Hammer therefore appear to fat! within the 'arm's-length 
hypothesis.' There may be others. In 1920-1 the Robert Dollar company 
handled $7 million of the total $15 million worth of United States exports to 
the U.S.S.R. The company's Moscow representative was Jonas Lied, who 
had, according to the State Department, an 'interesting dossier* in the Depart- 
ment of Justice (i.e., the F.B.I.) and intelligence in the State Department." 
Like other Western traders with the Soviet Union, Dollar was reluctant to 
say very much except to blast the 'radical element in the country (which) 
should not be allowed to block trade.' 18 

One of the partners in Bryner and Company, operators of the Tetiukhe 
metals concession in the FarEast, 'was suspected of espionage for the Soviets.' 19 
J. Finger and Professor Johnson of the Joint Distribution Committee (Agro- 
Joint) gave glowing reports of the 'new Russia.' 40 

Although the German ex-Chancellor Wirth, operator of the Mologa conces- 
sion, has been described by some writers as a 'Communist sympathizer,* there 
is no evidence, and Hilger is probably correct in denying the charge.* 1 

In brief, there is supporting evidence for the 'arm's-length hypothesis.' 2 * 



" See chap. 13. 

11 New York Times, November 4, 1921, p. i, col. 2; November 6, 1921, p. 23, col. 3; 

November 7, 1921, p. to, col. z; and November 24, 1921, p, 12, col. 4. 
17 U.S. State Dept. Decimal File, 316-109-1375, 
" Memoirs of Robert Dollar (San Francisco, 1925), III, p. 34. Out of a three-volume 

Memoirs, Dollar devotes only one and a half rather general pages to his Russian 

trade activities. 

*' U.S. State Dept. Decimal File, 316-136-1254. 

" U.S. State Dept, Decimal File, 316-108-652. 

" Hilger, op. tit. 

" According to documents at U.S. State Dept. Decimal File, 316-139-28/9, there 
were also 'leaks' from the State Dept. to Moscow. Coleman suggested his reports 
be kept under close control and limited distribution, as the contents were finding 
their way to his opposite number in Riga and he feared for the security of American 
couriers. 



The Foreign i-.rm and the 'Arm's Length Hypothesis' 287 

Companies such as Westintfiouse and International Harvester, who operated 
their prewar plants for mkc years, do not fall within the 'arm's-length 
hypothesis.' Westinghouse, International Harvester, Singer, and other 
American companies are still awaiting settlement for expropriation of their 
plants. Swedish General Electric, the Swedish Separator Company (manufac- 
turers of dairy equipment) and SKF all domiciled in Sweden, had conces- 
sions, but there is no evidence that they fall within the scope of the hypothesis. 
In fact the unfavorable treatment of these companies when compared to those 
firms that do fall within the scope of the hypothesis confirms rather than denies 
the hypothesis. 

Swedish General Electric, Swedish Separator, and SKF made consider- 
able profits from their concessions but were blocked from transferring these 
profits out of the U.S.S.R .» Although profit figures for concessions are hard 
to find, it appears that Hammer and Eitingon-Schild were the only conces- 
sionaires to make substantial profits and export them. Amtorg reports that 
the 22 principal concessions made 6.5 million rubles profit in 1926-7 and 
12 million in 1927-8, but nowhere indicates how much of this profit was 
transferred out of the U.S.S.R. 2 * 

As Paul Scheffer put the case, 'Concessions in Russia are a sort of sport for 
rich people who can afford to pay dearly for their experience. . . .'» 

AMERICAN ORGANIZATIONS FOR PROMOTION OF TRADE 
WITH THE U.S.S.R. 

American organizations with the objective of promoting Soviet-American 
trade were formed on the heels of the Revolution, unlike those of Britain and 
France, where organizations to gain recompense for expropriated capital were 
stronger and more vocal than those designed to promote trade. 

Prerevolutionary foreign investment had been heavily concentrated under 
French (33 percent) and British (23 percent) control. About 20 percent was 
German, but only 5 percent came from the -United States. Consequently there 
was comparatively less ex-shareholder pressure in the United States against 
trading with the Soviet regime. 26 

The American pressure organizations were linked directly and indirectly 
to the U.S.S.R. and numerous American firms. 

The American Commercial Association to Promote Trade with Russia 
was founded in 1919 by a group of American manufacturers, including the 

" U.S. State Dept. Decimal File, 316-131-661. 

" £T, t0rB ' "£■ K IVl I79 - SI S F alone made 2 - 8 mill '°» rubles in iojS and reoorted 
that exports of these proceeds were being blocked. 9 reported 

" Berliner Tageblatt, January n, 1919. 

" U.S. State Dept. Decimal File. 3,6-107-1323. 



288 Western Technology and Soviet Economic Development, IQ17-1930 

LeHigh Machine Company, Bebroff Foreign Trading Company, New Hide 
Manufacturing Company, Fairbanks Company, Morris Company of Chicago, 
and perhaps 100 other firms and some well-known representatives of the 
financial world. The first tasks of the association were to get the licensing 
requirements enforced by the War Trade Board removed and to press for 
removal of restrictions on financial transactions with the U.S.S.R. The asso- 
ciation, according to claims of its president, Emerson P. Jennings, succeeded 
in both objectives. Other objectives included a writ of mandamus to release 
ships held in United States ports with goods for the U.S.S.R.*' 

Probably the most important of its actions (although certainty not its most 
highly publicized) was the financing of Ludwig C. A. K. Martens's Soviet 
Bureau in New York. Jennings states that this was the work of a group of 
American businessmen anxious to trade with Russia, rather than a plot financed 
by 'Soviet gold,' as ran the current hue and cry. M 

Not only did the association finance the Soviet Bureau but it also maintained 
communications. The chairman of the Resolutions Committee was Martens's 
attorney. 29 Congressman James P. Mulvihiil, who represented the New Hide 
Company in the association, was in contact with Heller, of the Commercial 
Department of the Soviet Bureau. 30 In brief, the association, comprised of 
American businessmen, was also intimately connected with the operation of 
the Soviet Bureau. 

The attachment was the result of political naivete rather than ideological 
obeisance to the cause of the Revolution. In the fall of 1921, Emerson P. 
Jennings spent a few months in the U.S.S.R. to drum up trade for members 
of the association. As soon as he reached Reval, Estonia, on his way back to 
the United States, he commenced one of the bluntest condemnations of the 
Soviet Union on record. While in Revai, Jennings wrote a six-page bitter 
denunciation of the U.S.S.R., complaining of the complete and utterunwor- 
thiness and untrustworthiness of the Bolsheviks.'Pikers,' 'fakers,' and 'babies,* 
are some of the epithets used. Nevertheless, he concludes by making a plea 

" American Commercial Association to Promote Trade with Russia, Bulletin, 
February 19*0. 

" Emerson Jennings, Report to the Association (American Commercial Association to 
Promote Trade with Russia, 1921). The Soviet Bureau had both trade and propa- 
ganda functions. For example, see A. A. Heller, The Industrial Revival in Soviet 
Russia (New York: T. Seltzer, 192a!. Heller was commercial attache to Martens 
and the Soviet Bureau, and liaison with the U.S.S.R. He was arrested and deported 
in May 1921 to Riga, Latvia, for these activities and became the Vesenkha represent- 
ative in the United States. The book was an attempt to disguise the pitiful state of 
Russian industry at that time. [Memorandum, Poole to the Secretary of State 
(316-120-633).] 

" American Commercial Association, Bulletin, February 1920. 

" L. I. Strakhovsky, American Opinion about Russia 1917-1920 (Toronto: University 
of Toronto Press 196-1), p. 8s, fn. 9. 



The Foreign Firm and the l Arm*t Length Hypothesis' 289 

for the United States government to advance credits to the Soviet Union for 
the benefit of American manufacturers. 31 

THE AMERICAN-RUSSIAN CHAMBER OF COMMERCE" 

The American-Russian Chamber of Commerce was comprised of a group 
of major United States manufacturers and financial institutions interested in 
trading with Russia, and was a factor in the pressure for recognition of the 
Soviet Union and resumption of full trade with credits. In a letter to the 
Secretary of State (February 27, 1922), the chamber pressed for a policy 
statement 'announcing under what conditions you would be glad to cooperate 
with all nations in relation to the economic development of Russia,' and 
utilizing the alternative of German political domination as a pressure point. 8 * 

The president of the chamber was Reeve Schley, a vice president of the 
Chase National Bank, which was in the forefront of financing United States 
trade with the U.S.S.R. and reluctant to follow State Department policy. 3 * 

In 1926 the chamber decided, in view of its failure to persuade the State 
Department to send a commission or a representative to Russia, to send its 
own representative to 'open an office in Moscow and generally obtain informa- 
tion which will be of assistance to its members.' 36 The representative was 
Charles Haddell Smith, previously described by the State Department as 
being in the employ of the Soviets and a member of the Soviet Peasant 
International, 

In 1928 'Colonel' Smith was appointed vice-president of the Chamber and 
toured the United States speaking in favor of increased trade with the 
U.S.S.R. This brought forth protests from organizations and individuals who 
viewed trade with the Soviet Union in a rather different light. Matthew Woll, 
for example, vice-president of the American Federation of Labor and president 
of the National Civic Federation, sent an open letter to the American-Russian 
Chamber of Commerce complaining of its activities and particularly called 
upon it to use its influence to stop Soviet propaganda and subversive activities 

31 Report to the Association, Emerson Jennings, August 31, 1921. 

" The board of directors of the chamber represented many companies associated with 
Russian development : Deere & Co. , Worthington Pump, Russian Singer, Mercantile 
Trust, International Fur Exchange, International Harvester, Lucey Manufacturing, 
American Locomotive, International General Electric, Guaranty Trust, 'Westing- 
house Air Brake Co., and American Car and Foundry. (3 16-1 07-451.) The chamber 
was founded in 1 91 6 to 'foster trade, encourage and generally promote the economic, 
commercial and industrial relations between the United State* of America and 
Russia.' A Moscow office was established in 19*7. By 1931 its publications were 
reflecting many of the propaganda shibboleths of Soviet regime. 

" Letter from American-Russian Chamber of Commerce to U.S. State Dept., 
February 37, 19a*, (U.S. State Dept. Decimal File, 316-107-451.) 

31 U.S. State Dept. Decimal File, 316-100-1424. 

3S U.S. State Dept. Ddcimal File, 316-107-451. 



290 Western Technology and Soviet Economic Development, 1917-1930 

in the United States, Perhaps unfortunately, Matthew Woll suggested that 
the presence of Smith in Moscow as representative of the Chamber 'furnished 
additional grounds for the belief that the Bolsheviks would heed any requests 
or demands made by your body.' 3 * If such a request had been made by the 
Chamber (it was not), its handling by Smith would have been a most interest- 
ing episode, 

AMERICAN BANKS AND SOVIET SECURITIES 

& number of American banks were partners in a Soviet attempt to float a 
bond issue on the American market. The Chase National at first refused to 
break off the relationship, using its past banking services for the U.S.S.R. as 
the reason. 

On January 19, 1928, the State Bank of the U.S.S.R. placed an advertise- 
ment in the New York Times to the effect that the bank had guaranteed the 
principal and interest of a 9-percent Soviet railway loan and that coupons 
might be presented for payment at the Chase National Bank, the Amalgamated 
Bank of Chicago, and the Bank of Italy in San Francisco. The advertisement 
also contained the address of the State Bank in Moscow where 'further infor- 
mation* could be obtained. 

Two weeks before the advertisement, a $30 million railway bond issue 
had been authorized in Moscow. The certificates permitted payment of interest 
and principal to the holder in dollars, thus in effect converting the bond issue 
to a dollar loan — flatly prohibited by the State Department. The issue was to 
be sold by mail in the United States, and it was estimated that at the time of 
the advertisement about $100,000 of such bonds had been sold, mostly to one 
of the fur concession holders; in other words bona fide sales were insignificant. 
The coupon advertisement was justifiably interpreted as an offer for sale of 
Soviet bonds, and this interpretation was made plain to the associated banking 
houses in letters from the State Department." 

Among other things, Chase National was called an 'international fence' 38 
acting to compromise American foreign policy, It was said that they were 
'a disgrace to America. . . . They will go to any lengths for a few dollars 
profit.'" 

" U.S. State Dept. Decimal File, 3 16-1 10-268. 

" The documents are in U.S. State Dept. Decimal File, 316-110- 250. Letters from 

corporations and other interested parties in the files suggest that the State Dept. 

was by no means alone in its interpretation of the action of the State Bank and 

Chase National. See the three-page telegram at 316-1 10-259/61, from New York 

Life Insurance Co. 

s * By the National Civic Federation (representatives from business, labor unions and 
the public). (U.S. State Dept. Decimal File, 316-iic— 266.) 

" By the Allied Patriotic Societies (U.S. State Dept. Decimal File, 31 6-1 10-284). 
The letters from private citizens were even more specific. 



The Foreign Firm and the 'Arm't Length Hypothesit' 391 

The Bank of Italy announced immediately that it would have nothing 
further to do with the loan and specifically that it would not honor the bond 
coupons. Other banks (the Chicago Amalgamated and Chase) were more 
reluctant. The Chase made a step-by-step withdrawal. One reply (February 5) 
stated that it wanted to conform to government policy but would continue to 
pay the coupons. The second step of the retreat came after the State Depart- 
ment bluntly pointed out that the payment of coupons would facilitate Soviet 
financing and was against government policy. The third letter from Chase 
indicated they had advised the U.S.S.R. State Bank 'that until further advice 
of any change in policy by the Department of State we must decline to make 
payment of any such coupons.' 10 

There is no doubt that stepped up purchases of American equipment and 
technical assistance motivated this attempt with the aid of American banking 
companies to break United States policy. The contracts with Dupont, Ford, 
Kahn, McCormick, and many others were being signed, and dollars were 
required for payments. The denial of the railway bond issue was followed by a 
substantial increase in Soviet gold deposits in the United States. 41 

The amount of pressure placed by American firms individually and through 
their associations on cabinet officials is very difficult to gauge. SamuelGompers, 
President of the AFL, thought it was sufficient in 1923 to make a strong 
attack on Mr. Hearst, former Secretary Fall of the Interior Department 
(of Teapot Dome notoriety), the Sinclair and Bamsdall organizations, Senator 
King, and Senator Ladd, together with 'international bankers, oil magnates 
and concession hunters' all or whom he accused of placing pressure on the 
cabinet for trade with Russia.* 2 

When the desk level in ihe Division of East European Affairs suggested 
that it would be 'unwise to hi'.ate' an investigation of Harriman's negotiations 
with unofficial representative of the Soviet Union, one can only infer that 
pressures above the desk level were at work. 41 It was widely felt that General 
Electric brought political pressure to bear in 1928 for permission concerning 
its credit agreement with the U.S.S.R. for supply of electrical equipment." 
The American Locomotive case was decided at the presidential level, and the 
files certainly suggest interest by parties outside the executive branch. 

American big business was almost unbelievably naive politically concerning 
the Soviet Union. Standard Oil of New Jersey, for example, negotiated oil 

" Letter from Chase National to U.S. State Dept. (Decimal File, 316-1 10-341.) 
41 With the collapse of the bond scheme, a shipment of S6 million in gold was made 

from the U.S.S.R. to the Chase National and the Equitable Trust Company. 

(U.S. State Dept. Decimal File, 316-110-337.) 
" New York Timet, November 23, 1923. 
" See chap. 6. 
" U.S. State Dept. Decimal File, 316-131. 



29a Western Technology and Soviet Economic Development, iqzj-iygo 

development simultaneously with the Soviets and the White Russians." 
Many major American firms, including Standard Oil of New York, Bethlehem 
Steel, Armour and Company, and the Pennsylvania Railroad, were represented 
by Ivy Lee, a well-known public relations agent. For much of the 1920s, 
Standard of New York was battling with Royal-Dutch Shell over Soviet oil; 
in 1926-7 Standard of New York decided to build a kerosene refinery for the 
Soviets at Batum and lease it back to supply Standard Near and Far East 
markets. Ivy Lee had the job of selling the switch to the American public, 
and after a quick trip wrote of the U.S.S.R. as follows: 

I had heard that the Russian Government, the Communist Party and the 
Communist International are all combined in a conspiracy against man- 
kind, particularly capitalist mankind. I was anxious to find out, by first 
hand examination, just what is the nature of that conspiracy and how 
it is functioning. 48 

Quite predictably, 180 pages later, Lee concludes that the communist 
problem is merely psychological. By this time he is talking about 'Russians' 
(not Communists) and concludes 'they are all right.' He suggests the United 
States should not engage in propaganda ; makes a plea for peaceful coexistence ; 
and suggests the United States would find it sound policy to recognize the 
U.S.S.R. and advance credits. 47 

Walter Duranty felt, probably with accuracy, that the Rockefeller oil 
interests were playing both ends of the game. Standard Oil of New Jersey 
wanted compensation for its expropriated petroleum holdings, white Standard 
Oil of New York was buying oil in Russia and had therefore leased back the 
Standard-built kerosene refinery in 1927 at Batum. Duranty quotes Izvestia: 

While the Standard Oil of New Jersey is talking about moral reasons for 
refusing to do business with the Soviet Union, Ivy Lee who handles the 
Rockefeller propaganda recently visited the Soviet Union and carried on 
an unobtrusive press campaign for the improvement of trade relations 
between the United States and the U.S.S.R. 48 

EUROPEAN TRADE WITH THE SOVIET UNION 
Promotion of trade with the U.S.S.R. became the objective of Parliamentary 
delegations in a number of countries. In the United Kingdom, members of 

" U.S. State Dept. Decimal File, 316-137-83/1*6, 131-343/5. 

41 Ivy Lee, U.S.S.R.; A World Enigma (London: Benn, 1927), p. 9. 

41 Ibid. William White acted as interpreter for Ivy Lee in his interviews with Rykov 
Sokolmkov, Karahan, Radek, Hinchuk and Piatakov. 'Mr. White stated that the 
interviews which he attended were extremely inane in character but that because of 
his Standard Oil connections Mr. Lee seemed to stand A- 1 with the Soviet author- 
ities.' [U.S. Embassy in Berlin, Report 5099, November 26, 1929 (U.S. State Dept. 
Decimal File, 316-110-1391).] 

*• New York Times, July 25, 1927, p. 33, cols, i, a (quoting Izvestia of July 34, 1927). 



The Foreign Firm and the 'Arm's Length Hypothesis' 293 

Parliament sympathetic to the 'new Russia* made the usual trips and published 
glowing reports on their return suggesting that the Soviets had demonstrated 
their 'fair-minded treatment of concessionaires,' and that this removed the 
need for 'excessive caution' on the part of foreigners as the 'new Russia' could 
be relied upon to give a 'square deal to foreign capital.'" 

On the other hand, associations devoted to emigre 1 and prerevolutionary 
owner interests in France were almost equally injudicious in other respects. 
Emigrd businessmen resident in Paris had several vocal associations, including 
the Association Financier, Industrielle et Commercial Russe, which issued 
memoranda and booklets concerning the economic position of Soviet Russia. 
For these groups nothing could possibly be right nor could any development 
possibly take place without the return of former owners." 

In Germany, attempts to trade with the U.S.S.R, began in 1919, and in 
late 1920 German firms interested in resuming trade with the Soviet Union 
formed a Research Association for the Resumption of All Trade with the East 
(Studiengesellschaft fur die Aufnahme des gesamten Handels mit dem Osten). 61 
After the Treaty of Rapallo, which contained economic and commercial 
protocols, relations with the U.S.S.R. developed very rapidly. An all-German 
section of the Ail-Union Chamber of Commerce of the U.S.S.R. was formed, 
and this became the focal point for industrialists and German Embassy officials 
in discussion concerning the reconstruction of both Germany and the U.S.S.R. 
—until, as Hilger points out, the Embassy was blocked off by the Soviets 
from either assisting or communicating with German companies working in 
the U.S.S.R. The Soviets also utilized the meetings of the German section 
to move German industrialists along 'more desirable' lines, to reassure them 
that imports of German machinery would not lead to dumping, and to complain 
that the Americans 'do not guard manufacturing secrets so jealously.'* 2 
However, the U.S.S.R. found continued resistance by some German com- 
panies, especially I. G. Farben, to the transfer of technology. 

On the other hand, Dr. Otto Deutsch, managing director of A.E.G. 
(Allgemeine Elektrizitats Gesellschaft), was most interested in resumption 
of trade with the U.S.S.R. and became a member of the German commission 
established to further this objective. His basic arguments were that the 
U.S.S.R. was a vast market which could not be ignored and that, as the 

" £ n S I 'J- Rus9ia " Parliamentary Committee, Poaibtlitiei of Brituh-Rmsim Trade 
f mZr«: , s 9 ffl > - P \P- ™ e booklet "P* d *« the Lena and HarrimarTc^Us, onl 

" Hilger, op. cit., p. 29. 

" Ekonamicheskaya Zhizn, No. 225, September 29, 1029. 



294 Western Technology and Soviet Economic Development, 1917-1930 

U.S.S.R. could not pay cash, concessions and credits would be necessary." M 
In 1928 during the 'Shakta Affair' when A.E.G. engineers were arrested and 
charged with sabotage, the initial A.E.G. reaction was to pull all their 
engineers out of the U.S.S.R. After a few days contemplation of the number 
of outstanding contracts and the losses involved, the German General Electric 
(A.E.G.) company decided to continue working. 84 

CONCLUSIONS 

In brief, the 'arm's-length hypothesis' that some firms had noneconomic 
links to the Soviet Union, applies to early concessions, and these were of great 
importance; they were 'pour encourager les autrcs.' 

The pressure in the United States for trade with the U.S.S.R. began while 
the Revolution was still in progress and was fostered by several active 
organizations. 

Later in the decade, industry pressure was placed on the executive branch 
of the government to facilitate credit in trade with the U.S.S.R. and modify the 
State Department position of denying credits to the U.S.S.R. The latter 
policy was gradually eroded under pressures originating above and outside 
the 'desk level' of the Department. 

On the other hand, German trade with the U.S.S.R. was placed on a formal 
basis by the government in 1921-2, and the Soviets had no need to use 
intermediaries to break down an unfavorable economic policy. 



Mittelungen der Handelskammern, February 1922. 

'European industrial progress cannot be restored without the active participation 
of the 160,000,000 purchasers in Russia. I do not defend the Russian regime as 
we know it, but to wait until it is transformed into something more pleasing is an 
idle fancy. Despite what it is today, the situation in Russia does not prevent the 
operation of commerce on condition that one takes reasonable precautions.' (Otto 
Deutsch, Nezo York Times, November 13, 1927, p. 4, col. 3.) 
'The directors of the AEG in the first flush of indignation had initially declared 
that they would immediately withdraw all their engineers who were in Russia 
mounting machinery, regardless of existing contracts. A few days later, however, 
they seem to have regretted their impetuosity; they withdrew their initial declara- 
tion, obviously afraid of the losses that would occur because of the non-fulfillment 
of contractual agreements.' (Hilger, op. fit., p. 221.) 



CHAPTER EIGHTEEN 

Organized and Disorganized Governments: 

The State Department and the Acquisition 

of Technology 

WESTERN GOVERNMENT ASSESSMENT 
OF SOVIET INTENTIONS 
Although the transfer of technology involved all those Western countries 
with any degree of industrialization, it essentially included Germany in the 
1920s, and then the United States, as German credits ran out and the U.S. 
State Department increasingly relaxed its stand against credits to the U.S.S.R. 
Another factor was the gradual acceptance of American techniques in prefer- 
ence to European. It was the mass production technique of Ford rather than 
the more conservative production horizon of European producers that at 
first mystified and ultimately attracted the Soviets. 

At the beginning of the decade, Western governments were in substantial 
unity concerning the aims of the Soviet Union. Certainly the State Depart- 
ment in 1923 had accurate ideas of Soviet intent in so far as trade and credit 
were concerned. A very clear statement formed part of a 'confidential' report, 
no doubt for circulation to friendly governments, by New Scotland Yard in 
London. The relevant part of the report reads: 

Concessions are offered, and foreign capital is sought with the object of 
restoring the collapsed industries of Russia in the interest of the Com- 
munist State. It is calculated that in some years foreign industry and 
enterprise will have revived these industries which then, more firmly 
established and efficient than ever before, will revert to the State, which 
will then be able, fortified by experience and the method of foreign par- 
ticipants to resume the Marxist experiment. Nor need one believe that 
any conditions subscribed to by the Soviet Government will be faithfully 
observed. The capitalist and the private owner have no inherent rights. 
Faith need not be kept with them. Cozened into the open by their capital- 
ist greed they will be overwhelmed when the great advance is resumed. 1 



296 Western Technology and Soviet Economic Development, igiy-igso 

The State Department did not hesitate to subscribe to this analysis. A 
memorandum from Evan E. Young, Chief of the Division of Eastern European 
Affairs, to the Secretary of State comments: 

I have read the report with care and attention, and while it contains no 
new information, it is to me of especial interest and importance in that 
the report agrees, in all respects and in every particular with our informa- 
tion and our position, 2 
However, there does not appear to have been unanimity on the question 
of Soviet trade, concessions, or technical assistance within the United States 
Administration. Arguments for resumption of trade began while the Bolshevik 
Revolution was still in progress. It was suggested by Mr. Edwin F. Gay at a 
meeting of the War Trade Board, December 1918, that the policy of economic 
isolation of the areas under Bolshevik control was not the best means of 
bringing about a stable government: 

... if the people in the Bolshevik sections of Russia were given the 
opportunity to enjoy improved economic conditions, they would them- 
selves bring about the establishment of a moderate and stable order. 3 

EROSION OF UNITED STATES POLICY ON SOVIET 
TRADE CREDITS 

The basic policy of the State Department in the 1920s was that the United 
States government would neither support nor intervene in individual or 
business relations in trade with the Soviet Union. In other words, it was a 
policy of noninterposition or 'hands off.' The individual or firm was entirely 
on its own, anil could expect no diplomatic or consular help in the event of 
trouble with the Soviet government. 

Toward the end of 1920, there were world-wide rumors concerning a 
gigantic billion-dollar concession alleged to have been obtained by a man 
named Washington B. Vanderlip for the development of Siberia and Kam- 
chatka. There is some possibility that Vanderlip represented himself to Lenin 
as another Vanderlip, banker and friend of Senator (later President) Harding. 
The syndicate behind Vanderlip contained a number of substantial Southern 
California citizens: Harry Chandler (of the Los Angeles Times), E. L. Doheny, 



Present Position and Policy of Soviet Russia, U.S. State Dept. Decimal File, 
316-108-699. 

U.S. State Dept. Decimal File, 316-108-697. There are numerous indications of 
the State Dept. views in the files; this example was chosen because of its succinct- 
ness, clarity, and agreement with the view of a major European government. 
Minutes of the War Trade Board, V, 43-4, December 5, 1918. After Mr. Gay's 
argument, the Board adopted a motion recommending to the Dept. of State that a 
policy of economic isolation and blockade ' ... is one calculated to prolong the 
control of the Bolshevik authorities . . .' (p. 7). This is the earliest statement of 
the 'bridge-building' argument. 



Organized and Disorganized Governments 297 

the Union Oil Company, Merchants National Bank, Braun and Company, 
and other California firms and institutions. Vanderlip's negotiations, while 
General Wrangel was still fighting in the South, were not well received by the 
United States or the British governments. In the end, although the affair took 
up 100 or so documents, now in the Archives, nothing was achieved, and the 
concession faded into thin air. 4 

It can be argued, with substantial evidence from State Department files, 
that the pressures in the 1 920s for expanded trade with the U.S.S.R. came from 
business firms and promoters such as Vanderlip and Farquhar, as well as 
from within the State Department itself. 

The American Locomotive case of 1927 was one of the turning points in 
erosion of United States policy. The American Locomotive Sales Corporation 
inquired in October 1927 concerning sales of railroad material to the U.S.S.R. 
on long-term (more than five years), credit. The company argument was that 
it was extremely desirable 'to obtain foreign orders in view of the Depression' ; 
that bankers and manufacturers had found that the Soviets lived up to their 
short-term commitments, and that German sales were being financed anyway 
by American banks. Then could sales of United States equipment be financed 
on a long-term basis by American banks, preferably by the sales of securities 
to the American public?* 

In the next month, two memoranda were written by R. F. Kelley, Chief of 
the Division of Eastern European Affairs. These indicate that the State 
Department had not previously objected to short-term credits incidental to 
current commercial transactions, but also that only one such transaction had 
ever been presented to the Department for approval. 4 The Department had 
previously objected to bank credits and loans designed to finance the sale of 
German manufactures to Russia. The memorandum then quotes the denial 
to W. Averell Harriman in 1926 concerning a scheme to float a loan of 25 to 
to 35 million dollars on the American market, the proceeds of which were to 
be used to extend credit to German industrialists in order to sell goods to the 
Soviet Union. It also mentions the New York Trust Company and the Far- 
quhar denials. 7 



U. S. State Dept. Decimal File, 316-134-148. The State Dept. files connect 
Vanderlip with Martens and the Soviet Bureau in New York. 

Letter from American Locomotive Sales Corp. to U.S. State Dept. October 17, 
1927 (316-124-0026). 

Kelley Memorandum, October 28, 1027 (316-124-0031). This was in 1925 when 
the Chase National Bank had informed the State Dept. it was arranging a cotton 
credit. The State Dept. did not object, as the arrangement was 'considered as 
incidental to ordinary current commercial intercourse.' 
U.S. State Dept. Decimal File, 31 6-1 24-0031. 



298 Western Technology and Soviet Economic Development, iQiy-ig^o 

The memorandum makes the following very pertinent commentary: 

. , , if the object of the Department's policy with regard to Russian 
financing is to exercise pressure on the Soviet regime to the end that this 
regime may eventually come to realize the necessity of abandoning its 
interference in the domestic affairs of theUnked States and of recognizing 
the international obligations devolving upon it with respect to the 
indebtedness of Russia to the United States and its citizens, and with 
respect to the property of American citizens in Russia, — if such is the 
Department's aim the logic of the situation would seem to demand that 
the Department view with disfavor all financial arrangements, whether 
in the form of bond issues or long term bank credits and whether designed 
to facilitate American exports to Russia or to serve other purposes which 
would result in makingfinancial resources available to the Soviet Govern- 
ment. 8 

In brief, the Kelley argument was that any financial arrangement was going 
to be of assistance. 

The decision, made at the Presidential level after consultation with Mellon 
and Hoover, was to allow American Locomotive to extend long-term credit to 
the Soviet Union for the purchase of railroad equipment.' 

The Soviets kept pressing foreign firms. They finally succeeded in breach- 
ing the long-term loan situation in 1928-9 by holding Harriman and Company 
and the State Department 'over a barrel.' Harriman had been forced out of 
his manganese concession 10 and the Soviets offered compensation in the form 
of long-term bonds. Harriman accepted bonds at an interest rate of 6 percent. 
This was gleefully hailed by the Soviets as the first American loan to the 
U.S.S.R. 11 

When the Harriman bonds were received by the Chase National Bank in 
New York there was no mention on the face of the certificates of the fact that 
they were for any specific purpose. Vice-President Schley informed the State 
Department as follows: 

I do not look upon the transaction in any way as an attempt to float any 
securities in this country, but as an obligation given in payment of a 
single business transaction, and I trust that the Department will view it 
in the same light. 12 

' U.S. State Dept. Decimal File, 316-124-0032. 

' Marginal notation on letter to American Locomotive, U.S. State Dept. Decimal 
File, 316-124-0027. It might be added that in August 1927 a rumored Dillon Reed 
loan of S30 million to develop the Solikamsk potash deposits and other projects 
had been quashed by the U.S. State Dept., acting apparently on its own initiative. 

11 Harriman says he left by agreement (see page 91). This explanation is not at all 
consistent with the contemporaneous newspaper or archival material. He was 
forced out by interference, by high costs, and generally by what Walter Duranty 
called an 'utterly inept' agreement. 

11 'This is actually the first American loan received by the Soviet . Government.' 
(Amtorg, op. cit., IV, No. 16-17, *9%-) 

1J U.S. State Dept. Decimal File, 3 16-13 8-296/7. 



Organized and Disorganized Governments 290 

The subsequent State Department memorandum noted that the bonds 
received by Chase National totalled 84.45 million, whereas the Harriman 
investment had only been $3.45 million. The memorandum comments: 
It would appear therefore that Harriman and Company has advanced to 
the boviet Government a sum of approximately $1,000,000. . . .» 
The memorandum goes on to suggest that this was probably a quid pro quo 
for compensation for expropriation and that: 

No useful purpose would be served by placing difficulties in the way of 
riarnman and Company from recovering the money invested in the 
concession. ... 

The memorandum then argues that the additional %i million was not really 
a loan but part of the original concession.The Riga Consul (Coleman) was less 
vague and called the whole Harriman transaction a 'loan.' This statement, 
however, was given the classification {in the department) of 'confidential.'" 
It is amply clear, in retrospect, that the Harriman 6-percent 20-year bonds 
were a long-term loan and effectively breached the last remnants of United 
States credit policy vis-a-vis the Soviet Union." 

THE STATE DEPARTMENT AND PATENT PROTECTION 
A Soviet decree of September 12, 1924 gave patent rights, under certain 
conditions, to inventors for a period of fifteen years. Article 2 of the original 
decree stated that no invention would be considered novel if, prior to the date 
of application, it had either in the U.S.S.R. or abroad been 'described fully 
or with substantial particulars so openly as to be capable of being reproduced 
by experts.' This was subsequently amended to read 'described fully . . . 
or applied.' (Italics are added.) In brief, if the invention had been described 
or used abroad then protection would not be given under Soviet law. 18 

Irrespective of written law, which gave scant enough protection to foreign 
inventions, Bolshevik practice gave no protection whatsoever. Law and the 
judiciary in Leninist political theory exist only to further the ends of the state. 
Consequently, true patent protection, in the sense that we understand it in 

» U.S. State Dept. Decimal File, 316-138-299. 

" U.S. State Dept. Decimal File, 316-138-289. 

" }■ ^f 11 , "? e "Timbered that previously the U.S. State Dept. had been unwillin* to 

r-resent^ve^^^ 

representatives of the Soviet Union in the United States. It is sensed, but without 

conclusive evidence, that the State Dept. could not become involved n a s3 on 

»kUi I a i 1 * 1 7 ?' ve J the d"tonet impression that political pressures well 
above the desk level of the department were at work. 

" U^winfSrp 81 ??? 1 '' StBaI ' ^^ Vni<m Ytarb00k ' W 6 ' (London: Allen and 



300 Western Technology and Soviet Economic Development, 1917-1930 

the West, could in no way be construed to exist, whatever the written content 
of the decree. This was in fact the initial interpretation and conclusion of the 
State Department. 

The Columbia Graphophone Manufacturing Company was informed by 
the State Department in 192 1 'that the Bolsheveki had nationalized all private 
and industrial property in Russia and that it could therefore be inferred that 
any individual rights — such as patent and trademark protection — could not 
be secured during their regime.' 1 * This was confirmed in 1922 upon a second 
inquiry by Columbia. This interpretation is confirmed by history as there is 
considerable evidence, even without the Archives, that the Soviets were 
indeed sequestering patents and anything else of a technical nature in the 
1920s — as they do even in the present day. 18 That this confiscatory policy was 
widely known is suggested by the numerous letters of inquiry in the State 
Department decimal file. 19 

In any event, caution was indicated by a quite separate chain of happenings. 
In 1 91 9 the United States had deported, as an undesirable alien, Ludwig K. 
Martens, organizer of the Soviet Bureau in New York and hardly a friend of 
the United States, although Martens had been assisted in the organization 
and financing of the Soviet Bureau by a number of American companies. 
On November iz, 1924, Martens was appointed by the Soviet of Labor and 
Defense as Chairman of the Committee on Inventions. 20 

In 1925 or thereabouts, there was a definite change in the administration of 
American policy in relation to patents. Rather than the early doctrine of 
noninterposition, a doctrine of positive encouragement of Soviet trade was 
substituted, but partially clothed in the words of noninterposition. Where 
caution was indicated, active and positive suggestions were made in response 
to inquiries for advice on patent and other matters. This change cannot be 
traced to any specific Congressional action, and, there is no evidence to suggest 
pressure from above the 'desk level' of the State Department. It predates by 
a year or so the changes in credit and loan policies discussed above. 

17 U.S. State Dept. Decimal File, 316-108-679/680. 

" See the report of H. L. Roosevelt of RCA on negotiations with the U.S.S.R. 
for a long-range radio transmitter: 'The Soviets desired . . . strangely enough, 
the right to use Radio Corporation patents for manufacturing purposes. The latter 
request had somewhat amused Mr. Roosevelt as he found the Soviets brazenly 
copying many foreign products.' [U.S. Consulate in Stockholm, Report 248, 
April 10, 1928 (U.S. State Dept. Decimal File, 316-108-791).] In October 1924, 
the Norton Company complained that the Ilytch works in Petrograd was marketing 
a grinding wheel under the name of NORTON. (316-108-815.) 

" For examples see U.S. State Dept. Decimal File, 3 16-10B. Also, see Ford Delegation 
Report (1926). 

s " Izvestia, No. 273, November 29, 1924. That patents -were not protected, even for 
Russians, is confirmed by V. N. Ipatieff, op. cit., p. 287, who noted that his patent 
for 'Ipatite,' a gas-absorbent material, was immediately turned over to the Revolu- 
tionary War Council. 



Organized and Disorganised Governments 301 

An internal indicator of the change is treatment of an official Soviet notice 
on patents issued ic June 1925. The United States Commissioner of Patents 
and the United Statts Department of Commerce questioned the State Depart- 
ment as to whether the notice on patents received by them should be published 
in the Official Gazette at all 'in view of the fact that this circular is published 
by or in the interest <;£ the Soviet Government.' The State reply to the 
memorandum was simply to enclose a draft of the phraseology to be employed 
in publishing the notii », without directly answering, either way, the substance 
of the questions.* 1 

In advising American firms, after about 1926, on the patent position in the 
U.S.S.R., a policy of active encouragement was followed. In September 1927 
the State Department received a letter from Gleason, McLanahan, Merritt, 
and Ingraham, attorneys at law, which indicated that a client had an 'invention 
of international importance' which he wanted to protect. Further, they said 
that 'we fear that if the process should become public in Russia and no 
protection can be secured, much of the value of our invention may be lost.' 
To be consistent with previous replies and the policy of noninterposition, 
the State Department reply should have indicated that it could not intervene, 
that there were neither diplomatic nor trade relations between the two 
countries and therefore that no protection could be given to a United States 
citizen. 

The actual State Department reply gives the address of the Leningrad 
patent office (Ulitza Herzena, 24, Leningrad) and then adds: 

In as much as there are no official representatives of the Soviet regime 
in the United States, documents required for the registration of patents 
in Russia should be certified in the United States by the diplomatic 
officers of a nation with which the Soviet regime has diplomatic relations. 
Among such countries are Germany, France, Italy and Poland. . . » 

Instructions then follow on the procedures to be followed with the Soviet 
authorities after the necessary signatures have been obtained. There is nothing 
in the reply that would suggest for all practical purposes a patent could not 
be protected, as we know it in the West, under Soviet law and practice. 

The Automatic Damper Company sent a scribbled, almost illegible, half- 
page note requesting general information on Soviet patent laws, obviously 
with the intent of patenting one of its devices. 

The Automatic Damper Company must have been pleasantly surprised 
with the detailed two-page reply which indicated precisely how to go about 
patenting a device and gave two addresses in the U.S.S.R. One of these was 

11 U.S. State Dept. Decimal File, 316-108-^83/6. 

" U.S.State Dept. Decimal File, 316-108-691/3. Also see Lacey and Lacey inquiry, 
October 6, 1927 (316-129-687/8). Jin 



30a Western Technology and Soviet Economic Development, 1917-1930 

the Inventions Bureau (TsBRIZ), under the control of Martens Committee. 81 
One wonders if the State Department realized that all stoking appliances, 
including dampers, were being produced by the Richard Kablitz concession 
and that this was an area where purely Russian technology was nonexistent. 
Work in this field was dependent on Western equipment. For example, the 
report of Professor L. K. Ramzin at the meeting of the 1930 World Power 
Conference in Tokyo covers his experiments utilizing Moscow brown coals, 
which have a moisture content of 32 percent. Ramzin reported that predrying 
had been a failure but that these coals could be completely burnt with the 
aid of hot-air draught as follows: 'The fuel was ground in a high speed 
Atritor mill of Messrs Alfred Herbert and the aerated dust was blown into 
two long flame burners located in the upper arch of the furnaces, the flames 
then being diverted downwards and forming a U. The bottom of the furnace 
was fitted with a Babcock and Wilcox water screen. . . .' S4 

In short, a policy was instituted of suggesting how to overcome absence of 
diplomatic relations and ensuring that patentable techniques would, in fact, 
be transferred to the U.S.S.R. without protection. If the reader is dubious, 
then indication of the treatment afforded another type of patent inquiry— 
those from individuals in trouble and requesting help— will complete the 
picture. 

On November 21, 1928, Rector, Hibben, Davis, and Macauley, attorneys 
in Chicago, requested advice on behalf of the Burroughs Adding Machine 
Company, which 

has been requested to furnish ... all sorts of publications describing 
the products of the Burroughs firm ... we hesitate to advise the Bur- 
roughs Company to furnish the information without a little more accurate 
advice as to what is really going to be done with the information after it is 
obtained. 25 
The firm had been told by the Soviets that the information would be used 
in considering applications for patents, but obviously both Burroughs and 
Rector were skeptical. The State Department reply was that it had no infor- 
mation, and no means of ascertaining the purpose for which such publications 
might be desired and 'cannot advise you in the matter.' 28 

An appeal for help from B. Singer, a specialist in trademark and patent law 
who represented clients with patents registered in the U.S.S.R., was rejected. 
A number of patent applications had been filed through a Soviet citizen, 
Blau, who had been arrested by the GPU and whose office had been closed. 

" U.S. State Dept. Decimal File, 31 6-108-694/6. 

M Engineering, CXXX (February 7, 1930), 184- 

" U.S. State Dcpt. Decimal File, 316-108-690. 

» Ibid. 



Organised and Disorganized Governments 303 

Singer requested the good offices of the State Department to facilitate the 
transfer the Blau's office records to a new associate, one Feldman. The reply 
curtly indicated regret but inability to help Singer in any way 'as this Govern- 
ment has not recognized the regime now functioning in Russia.' 1 ' 

Thus, the State Department was willing to aid the transfer of patent 
information, or tacitly encouraged Soviet acquisition of information (Bur- 
roughs), but not willing to warn of possible confiscation, which was known to 
the department, nor outline the Soviet record or philosophy. Formal state- 
ments of noninterposition in trade relations were followed by advice or 
suggestions running counter to the implementation of a doctrine of non- 
interposition. 28 

The promotion of Soviet technical data acquisition by the State Department 
is particularly curious in the light of the fact that knowledge of expropriation 
was widely known in industrial and commercial circles, and one presumes 
that State Department had access to the same knowledge. 

For example, the 1926 Ford Delegation Report makes the following pertinent 
comment After pointing out that the Soviet Union has a patent law, the report 
adds: 

This law does not seem in any way to hinder the reproduction in Russia 
of foreign patented products. In the automotive line the Fordson tractor 
is reproduced in Leningrad under the name of the 'Red Putilov' Tractor. 
The Italian Fiat i$ ton truck is reproduced in Moscow under the name 
AMO and the Bosch spark plug is reproduced in Leningrad by the 
Avtopromtorg organization. 2 * 

The U.S. Consul in Riga, among other U.S. representatives abroad, 
pointed this out on a number of occasions. It is a reasonable presumption 
that the State Department was encouraging transfer of technical information 
knowing that the result would be expropriation without compensation or 
permission. The reasons behind such a policy are beyond the confines of 
this study. 



U.S. State Dept. Decimal File, 316-108-763. 

This raises the question of the extent to which the State Dept. is able or required 
to go in order to protect United States citizens. In another context, State Dept. 
letters suggest it was not aware of any dangers for engineers or firms entering the 
U.S.S.R., but usually added that it could not provide protection in the absence of 
diplomatic relations. The State Dept. was aware in May 1918 that Rykov had ordered 
three German engineers involved in the Shakhta affair to be shot. This had been 
stricken from the official record of the Rykov speech. Yet the engineers may have 
been sentenced to death because Rykov was compromised by the Shakhta affair in 
the eyes of Stalin. It appears to the writer that United States firm* are entitled to 
knowledge of the likelihood of this type of arbitrary action. The Baaghom and Mott 
cases are more recent examples. 
Ford Delegation Report (1926), p. 38. 



304 Western Technology and Soviet Economic Development, 1917-1930 

THE MONOPSONISTIC POWER OF THE SOVIET 
TRADE ORGANIZATION 

Foreign trade was a state monopoly under Vneshtorg from the beginning, 
and superb use was made of this monopoly in trade relations with the West, 
especially in playing one company, or country, off against another. 

Little thought was given to this process of 'divide and conquer'; the Soviets 
stumbled onto it in their pragmatic search for foreign assistance. 

There is an interesting report, of uncertain origin (probably written in the 
German Foreign Ministry in 1928), which provides a clear discussion of this 
problem and the pressures and counterpressures that a united front of 
Western firms and countries would encounter. 30 In essence the report pro- 
posed concerted action by Western powers in relation to trade with the Soviet 
Union. The writer expresses surprise that a decade of trade with the monopoly 
trade organization of the Soviet Union had elapsed before discussion of 
'organized counteraction.' 31 Brief examination of the factors making for 
diversified rather than a unified approach leads the writer to the conclusion 
that the 

Soviet government in a masterly fashion took advantage of these con- 
flicts of interest between the powers, for a consolidation of the monopoly 
of foreign trade. ... 

The author argued that little good could come of carefully worded articles 
and treaties with the U.S.S.R. Monopoly of foreign trade was one of the 
'commanding heights' of the Soviet economy; and attempt to create an 
international 'united front' had been met with claims of an 'anti-Soviet front.' 
In 1938 only the German and French chemical industries were able to agree 
with the Soviets on prices and joint deliveries. Finally, the author suggested 
that such international cooperation would have to take the initial form of 
uniform credit and delivery conditions. 

Hilger suggests that neither the Germans nor the Soviets were aware in 
1 92 1 -2 of the potential power of a trade monopoly, and that the opportunity 
of meeting the Soviet trade monopoly with a central German business organi- 
zation was missed 'because of the tenacity with which the predominantly 
Socialist Government of Germany stuck to the principles of free enterprise.' 
Later Germany formed the Russian Committee of the German Economy 
(Russland Ausschuss der Deutschen Wirtschaft) to provide advice and orien- 
tation on German-U.S.S.R. business. Hilger comments that, once the Soviets 

10 U.S. Consulate in Riga, Report 5156, March 26, 1928 {316-109-579). 

31 The author of the report would be even more surprised to learn that in 1966, 
almost fifty years after the Bolshevik Revolution, there was still no unified counter- 
action although NATO, SEATO, and CENTO are the military and political 

equivalents of such counteraction. 



Organized and Disorganized Government* 305 

realized the importance of the trade monopoly, they were suspicious of any 
attempt to impede its value and began to block embassy aides from aiding 
German firms in negotiations, especially with the Main Concessions Com- 
mittee.** 

The Soviet Union, supposedly the opponent of monopoly, has in fact been 
the greatest recipient of monopsonistic profits in the history of industrialized 
society. Neither has it been slow or backward in recognizing and protecting 
the value of this monopoly. 

THE BOLSHEVIK ATTITUDE TOWARD THE FOREIGN FIRM 
Bolshevik unity was split by Lenin's concession policy. The rank and file 
Bolshevik questioned the wisdom of, and the necessity for, the return of the 
capitalist— after all, had not the Revolution just ejected him? The Party had 
difficulty in convincing its ranks that foreign capitalists were a necessary evil. 
In particular, the OGPU, charged with the purity of the Revolution, was 
dubious concerning foreign elements. Whenever it had the chance, as in the 
Shakhta affair, the OGPU exercised punitive measures with great zeal. 
The pleas to the Party faithful to accept foreign capitalists and engineers give 
the clue that Communist intent was to absorb capital, skills, and technology, 
and then, 'when the lemon was sucked dry,' to discard it. There are numerous 
speeches and articles in contemporary Soviet literature which suggest both 
the captive nature of the concession and, on the other hand, the necessity for 
the concession in the reconstruction and development of a socialist society. 8 * 
The Urquhardt negotiations in 1922, although a failure, are interesting in 
this regard. Urquhardt was president of Russo-Asiatic Consolidated, Ltd., 
which had held very iarge concessions in tsarist Russia. Negotiations with 
Urquhardt for operation of his former properties, then lying idle, would have 
led the way for other entrepreneurs. Although Urquhardt was well aware of 
Bolshevik strategy, he ; nade a concession agreement with Krassin in 1921 ; the 
latter then went to Moscow for ratification by Lenin and Trotsky. Before this 
could be obtained, word leaked out and the hue and cry within the Party 
forced Lenin to scuttle the agreement, using British activities in the Middle 
East as a pretext, 

" Hilger, op. cit, pp. 166--S7. This may have colored Hilger's interpretation of the 
value of concessions. If .!■; embassy was denied data, they could have assumed a 
minute impact of the cor.crssion. 

" See Volume II. Not all the clumsiness was on the part of Western businessmen. 
In a conversation between Mr, Arlt of the KSnigsberg Chamber of Commerce 
and a 'high Soviet official tfvs latter, in reply to a question concerning the safety of 
German investments in Russia, said, 'Until Germany goes through a successful 
World Revolution they will be Bafe. If Germany goes Bolshevist, however, it will 
make little difference to German industrialists whether their possessions are 
expropriated in their own country or in Russia.' (316-133-140.) 



3 06 Western Technology and Soviet Economic Devehpmen t, igry-ipjo 

Some early Bolsheviks were clearly aware of the necessity for foreign 
help. Krassin had formerly been managing director of Siemens Schukert in 
Petrograd, He then became a revolutionary, and in 1920-1, as Soviet Trade 
Representative in London, he argued that 

Russia . . . cannot without assistance organize her trade. She cannot 
bring together her resources in a productive manner and she must rely 
upon capital, the experience and initiative of foreign capitalists. . . « 

An article by Arsky in Krasnya Gazela in 1921 in effect clarifies this policy: 
'The question of concessions has been under discussion for the last half year 
but so far it has mostly been in the air . . . nothing has been done.' 36 The 
writer then describes the proposed Northern Telegraph concession, argues its 
advantages as a generator of foreign exchange, and the alternative of not being 
able to use the line at all. 'As a result of this treaty,' he writes, 'we shall get a 
repaired telegraph line and hundreds of millions of francs in gold to carry on 
trade with abroad.' 

Arsky then discusses a Kuban sulphates concession in the same glowing 
terms : 'Of course the concessionaires will profit hugely but let them do so for 
it will bring wealth to us and we must pay for that.' Finally, considering a 
Baku forest concession, Arsky argues that, although the concessionaire will 
profit, 'as Lenin foretold we shall have to pay a high price to foreigners for 
their help, science and energy in enterprise.' He then adds that in any event 
there are not enough skilled Soviet workmen, nor could the Soviets feed them, 
nor will they be able to in the near future— 'We must seize the moment.' The 
Soviets, he says, are well able to take care of their own interests, certainly in 
the matter of concessions: 'They will demand from those who get them the 
maximum of profit for the country and its re-establishment.' 

The Party line had to be sold to the rank and file, and it would appear that 
the closer the explanation got to the factory and farm level the less circum- 
scribed was the description of the fate awaiting the foreign specialist. For 
example, Ipatieff quotes a collective farm chairman, Kopylov, in a speech at 
Tikhonova Pustyn in Kaluga Province: 

Of course we need bourgeois specialists for a short time. As soon as 
Party members learn what these specialists know we'll get rid of the 
specialists fast enough. Right now we must treat and feed them far better 
than ourselves; but their time will come, just as it did for the rest of the 
bourgeoisie.' 19 

" New York Times, June 12, 1921, p. 2, col. 3. 

" Krasnya Caseta, September 3, 1921. Arsky was, at least, able to look after his own 
interests ; by 1024 he had acquired 30,000 shares in Moskust, a joint-stock company 

in Moscoiv. r ' 

" Ipatieff, op. cit., p. 486. 



Organized and Disorganised Governments 307 

The opposition to foreigners at the plant level became overt on numerous 
occasions, but it is not always clear whether this was due to ideological dislike, 
counter-revolutionary activity or just plain antipathy for those who came along 
to improve plant discipline. It is reasonably likely that the majority of Party 
members were kept in line by Party discipline, whatever they thought. It is 
more likely that the opposition came from non-Party bureaucrats and perhaps 
counter-revolutionary segments, except where discord was created on direct 
orders of the Party, as part of a campaign to eject a specific concessionaire. 
It is entirely conceivable, on the other hand, that the OGPU overtly attempt- 
ed to scuttle the introduction of foreign elements in the name of protecting 
the Revolution. Douillet, Belgian consul in Russia, relates how the OGPU 
arrested and jailed an Austrian aircraft worker at the Junkers plant and a 
diesel specialist in Shelkotrust. They were retained without charges and then 
expelled." 

The Americans at the Kuzbas project (the American Industrial Corporation) 
had clearly ideological opposition. The newcomers were classified as either 
Communists or sympathizers and neither was particularly popular among 
Kuzbas coal miners. McDonald, an engineer with a technical-assistance 
agreement with Uralmed, met opposition from Soviet engineers, whom he 
accused of 'seriously interfering with the progress of important work.' 88 
This is rather similar to the opposition met by Ruykeyser at Uralasbest — fear 
that technical inadequacy might meet dismissal, or worse. 

By the end of the decade opposition had become serious, especially at the 
Dniepr generating plant, the largest in the world, being built by American 
and German engineers. There was a rather natural conflict between the two 
foreign groups, but there was also an 'unfriendly attitude' on the part of the 
local workers serious enough to warrant the attention of V. V. Kuibyshev in a 
speech to the Supreme Soviet: 

But, have these foreign and alien hands not been brought by the proletar- 
ian state, and is the transplantation of foreign technique not necessary 
in order to enable socialist technique . . . first to overtake and then excel 
European capitalist technique? Without resorting to foreign assistance on 
a still greater scale, this is impossible. The application of foreign technique 
is one of the keys to hasten the tempo of our development. . . . Such 

'* Douillet, op. cit., pp. 74, 76. 

" Pravda{Moscovi), No. 239, October 1 6, 1929. Similar cases were reported in a special 
supplement on foreign specialists in Ekonomtchetkaya Zhizn, No. 443, October so, 
1929; for example, German engineer Scheibil at the Karl Liebknect work* of 
Ugostal was 'abused and persecuted. 1 Another engineer (Mashik) at the Tomsky 
plant of Ugostal was subjected to an 'inquisition' and put to work in a shop 
(316-130-927/8). Two German engineers at the Komintem pottery works under 
reconstruction were isolated because one of them (the technical director) gave 
'strong orders' to the workers (Ekonomicketkaya Zhizn, No, 245, October 23, 1929). 



308 Western Technology and Soviet Economic Development, igT^~ig$o 

assistance is absolutely necessary in the ferrous and non-ferrous coal and 
chemical industries. 39 

Kuibyshev then went on to add that in the non-ferrous, ferrous, and pottery 
industries there were cases of hostility to foreign workers. 

Hilger, economic attache 1 at the German Embassy in Moscow, confirms that 
resistance to concessions and foreign aid came from the lower levels of the 
Communist Party, the bureaucracy, and the OGPU. 10 He also suggests that 
the Soviet leaders intended duplicity in the long run and that 'it was never 
more than a retreat,' although he quite correctly points out that it is difficult 
to distinguish cause from effect. In retrospect, it seems that the Soviets were 
never honest in their concessions operations. Hilger avoids, or perhaps 
momentarily forgets, the numerous references in Lenin's speeches in which 
concessions were held to be temporary and destined for expropriation when 
their purposes had been achieved. 

BOLSHEVIK LEADERS AND THE JOINT-STOCK COMPANIES 

Some of the Bolshevik leaders found this a suitable time to improve their 
personal fortunes and a number had holdings in private enterprises and mixed 
companies. 

Moskust, one of the most important stock companies, controlled a cloth 
mill and paper, shoe, tarpaulin, glass, and leather factories. Trotsky owned 
80,000 chcrvontsi shares, while Arsky held 30,000, Sklyansky 45,000, and 
Muralov, the Commander of the Moscow Military District, an unknown 
number. It was believed other leaders participated through relatives. 

Zinoviev was interested in Arcos and the Leningrad Tobacco Trust and 
owned 45 percent of the Volkhovstroi stock company. Chicherin held an 
interest in the mixed company Turksholk (Turkish silk), and Dzerzhinsky was 
chairman and held 75,000 chervontsi shares in the Coal Mines Exploitation 
Joint-Stock Company. 11 

Krasnatchokov, former Chicago lawyer and President of the Far East 
Republic (later absorbed into the Soviet Union), rose to become a member of 
Vesenkha and President of Prombank. While in the latter position he made a 

. . . rather liberal contract with a Russo-American concern, with which 
he was personally connected, and from which his wife drew monthly 
assignments payable in the United States. 42 

" Speech at Sixth Plenary Session of the Supreme Soviet, October 1929. 

" Hilger, op. cit., pp. 170-1. 

" U.S. State Dept. enclosure to U.S. Consulate in Riga, Report 2394, September 24, 
I0 . 2 4 (3 I 6-I29-I229). Ipatieff comments acidly on the behavior of Party function- 
aries attached to the Berlin Trade Delegation and Purchasing Commission. 
(Op. cit., pp. 408-9.) 

42 Scheffer, op. cit., p. 129. 



Organized and Disorganized Governments 309 

Although these cases may prove shocking to the ideological purist who 
considers the Marxist to be above personal gain, they are insignificant, 
considering the opportunities available in a complete dictatorship, and are 
certainly less than the personal empires built up by Stalin and his henchmen 
in more recent times. 



CHAPTER NINETEEN 

The Necessity for Foreign Technology 
and the Process of Acquisition 

THE IMPACT OF REVOLUTION ON THE 
INDUSTRIAL STRUCTURE 

It has been assumed almost axiomatically that World War I, the revolutions, 
the Intervention, and the Civil War created the catastrophic collapse of the 
industrial and agricultural sectors in 1922. J 

The basic cause for the collapse was the economic illiteracy of an ideology 
which had neglected to think out its economic counterpart and drove a viable 
growing economy into a shambles. The campaign to innate the ruble to zero 
value, the demobilization of industry, the policy of 'free' transport, utilities, 
and other services, the massive decline in labor productivity, coupled with 
doubled and tripled wages, were contra-dcvclopmental in effect. 

In the first year of the war, the Russian economy had changeover problems 
which persisted until industry was on a war production basis; then growth, 
as measured in terms of output and employment, resumed. The industrializa- 
tion mobilization campaign of 191 6 created significant growth. New industrial 
centers were created at Nizhni-Novgorod, Rybinsk, and Samara, in addition 
to the expansion of existing centers in Moscow, Petrograd, and earlierindustrial 
areas. One result was an increase in the demand for raw materials, and the 

1 The following is a typical statement: 'Russian industry, agriculture and transporta- 
tion declined greatly during the war, and by 1917 were in a condition approaching 
collapse. The civil war served to accelerate economic disruption, with the result 
that by 1920-1 industry was practically at a standstill while agriculture was fast 
approaching the condition which, coupled with a severe drought,, precipitated the 
famine of 1921-22.' [American-Russian Chamber of Commerce, Economic Hand- 
book of the Soviet Union (New York, 193 1), p. 7-] 

This myth has been compounded by using 1913 as a comparative statistical base. 
In fact, some industries had a 1916 output twice that of 1913. Some chemical 
products (such as benzene, toluene, and zylene) not produced at alt in 1913 were 
produced in quantity between 1914 and 1917. (Ipatieff, op. at., p. 210.) 



The Necessity for Foreign Technology and the Process of Acquisition 3 1 1 

excess of imports over exports in 1916 was due to this upsurge in activity. 
Between January z, igz6 and January 1, 1917, industrial employment increased 
by 8.9 percent} 

The greatest increase was in metallurgy and food products. Agricultural 
implement works were turned over to munitions production : 'there was hardly 
a repair shop of any size connected with the textile, confectionery, macaroni 
or other industry which was not assigned to the manufacture of grenades, 
mines, field kitchens, or other war materials.' 3 In a few industries output 
declined due to enemy action: most sugar refineries were in occupied territory, 
cement production declined because of a shortage of hoop iron for barrels, 
and there was a shortage of spare parts. But on balance, in the year before the 
revolutions, Russia had resumed her economic growth, new industries were 
being created, and industrial employment was greater than ever. 

The first revolution was a shock to this expanding structure. The Ministry 
of Trade and Commerce undertook a survey which covered five months 
between the Kerensky Revolution and the Bolshevik Revolution. Between 
March and July, 568 industrial enterprises were closed down and 104,000 
employees lost their employment. Almost one-third of the enterprises closed 
were engaged in manufacture of food products, with textiles and metalworking 
next in importance. The most important single reason for failure was lack of 
fuel. Less than 10 percent closed for lack of orders, a condition which could 
well have come about as a secondary result of lack of fuel and supplies else- 
where. Excessive demands of workmen and financial difficulties comprised a 
very small proportion of failures, considering that this was a period of revolu- 
tionary unrest. Most firms closed were small and unable to plan against these 
factors. In spite of this decline in industrial activity, concentrated in smaller 
enterprises, all the larger and important plants were operating at the time of 
the Revolution ; nor is there a reported case in the two major industrial centers 
of Moscow and Petrograd of a large plant looted, burned or destroyed by the 
Revolution itself. 4 

The largest single blow to the structure of industry was a decree issued by 
the Soviet Commissariats of Labor and War on December ax, 1917, calling 
a halt to all military production and dictating a return to peacetime activities 

* Report of the Ministry of Trade and Commerce, August 19:7 (316-111-1015). 

* U.S. Military Intelligence Report, Russian Industries, October 1018 (3l6-l*o-35)' 
4 There are reports in the U.S. State Dept. Archives which mention 'looting' of 

plants, but this always refers to removing specific items of value (especially brass 
or copper) and not to physical destruction of the plant or its equipment. Overt 
destruction was limited to institutional symbols of the tzars. For examples, see 
the Soltoloff collection of photographs at the Hoover Institution, Stanford Univer- 
sity. In toao Petrograd was deserted but intact. For instance, in photograph No. 34, 
taken on the Neva, large plant buildings and smoke stacks are still standing, but 
idle. 



312 Western Technology and Soviet Economic Development, 19x7-1930 

within one month. Industry at this time was working at full capacity on war 
material and had no alternate plans for consumer products. This simple order 
had a major adverse effect. One month was, of course, an insufficient time to 
change course completely. Not one factory was able to start peacetime 
production by January zi, 1918, and most were forced to close. The only 
exceptions were those plants where workers insisted on fulfilling military 
contracts as an alternative to closure. The resultant chaos compounded an 
earlier problem. The Bolshevik Revolution had caused most foreign and 
numerous Russian skilled workers to flee abroad along with the managers and 
engineers. The 'instant demobilization* decree hastened the exit of skills, 
but workers now went to the villages.* In brief, this single decree robbed the 
industrial structure of that skill and technical component which had not 
already left. This structure, which, despite supply difficulties, had been 
operating reasonably well, and in 19 16 was giving definite signs of renewed 
growth, was now placed on the road to collapse. 

The period of War Communism was entered with neither technical nor 
administrative apparatus, under a government of Soviets which had neither 
plans nor solutions for the chaos. Feeble attempts at planning civilian produc- 
tion were made by some worker's committees; this led to duplication of effort, 
and, in any event, neither financial nor technical problems were overcome. 
The Soviets then tried centralization, but lack of knowledge and information 
fed to conflicts among makeshift managements. Concurrently came a major 
decline in productivity as the discipline of a market system collapsed. Inflation 
led to payment in kind rather than in depreciated paper money. Lack of goods 
was instrumental in creating self-supply organizations in factories, until the 
principal task of the factory became feeding and clothing its own workers. 
Resultant losses were made up by state subsidy, thus furthering the inflation. 

The decline in production of one of the largest Moscow machine shops, 
which was producing iron and steel castings and forgings, was reported to 
the State Department. In January 1917, just before the Revolution, the index 
of production was at a base of 100. The difficulties of the inter-revolutionary 
period arc reflected by a decline in the index to 76. By the following January, 
just after the 'instant demobilization decree' the index had fallen to 45. By 
August 1 91 8, reflecting attempts at stabilization, the index had fallen only 
to 37. Data from other sources supports this chain of events. On the Northern 
Railways there was 0.67 a laborer per verst of line in 1913 and 5.8 laborers in 
1919; on the Moscow-Kursk line there were 6.48 laborers per verst in 1913 
and 18.9 in 1919. Railroad work was a preferred occupation as it gave access 
to food supplies in the villages. 

* Rykov, in a speech before the Third Congress of the People's Council in January 
1920, indicated that go percent of skilled workers left the factories at this time. 



The Necessity for Foreign Technology and the Process of Acquisition 313 

The labor supply position in the large plants confirms that skilled workers 
left in droves while the plants themselves were intact. In 1920 about 30 factories 
in Petrograd were attempting to work for the Red Navy. The major problem 
was lack of skills. The Baltic plant employed 3,500 and required another 5,800. 
The Franco-Russian factory had no workers and was looking for 1,500. The 
famous Putilovets had only 350 workers and wanted another 1,100. The 
Petrograd Metal Works employed 150 and was looking for another 1,000. 
In the 30 or so works listed, a total of 11,000 people were employed and a total 
of 22,000 additional workers were required. This counters the myth that the 
plants lacked equipment. The plants lacked skilled labor and management, 
both of which had been dispersed by the Bolshevik Revolution, 8 

In brief, as we already know, there was a complete collapse under War 
Communism. This collapse had little to do with the Civil War. It was created 
at the very beginning of the period of War Communism by dispersion of 
skills, absurd decrees, and the removal of disciplinary market forces. 

THE TROUGH OF THE INDUSTRIAL DECLINE 

In many sectors, production declined to almost zero by 1922. Cast iron 
reached less than 1 percent, cotton yarn 1.5 percent, rubber galoshes about 
.33 percent, and gold about .5 percent of 1913 production. Food products, 
especially if processed, fell to less than 5 percent. Per capita production of 
sugar was less than 1.5 pounds per year, and vegetable oils about .33 pound 
per year. 7 The accepted explanations for these abysmal declines were the 
war, revolutions, the Civil War, and the blockade. Actually production 
increased during the war, and the revolutions did little physical damage to 
production facilities. General Wrangel still occupied the Crimea, but this was 
a small part of the vast Russian geography. The allied blockade had been 
raised in 192 1 and foreign products began to flow in larger quantities. The 
decline continued after these 'reasons' had ceased to exist. The real cause 
must be sought elsewhere than in political and military factors; the decline 
was essentially caused by economic factors. 

THE NEW ECONOMIC POLICY (NEP) 

NEP was introduced to offset the economic problems caused by Bolshevik 
economic policy. Nonpayment for work removed incentives. Nationalization, 
when there was no managerial talent available, was suicidal, NEP was a 
temporary move to utilize the knowledge and experience of the capitalist class 

* U.S. State Dept. Decimal File, 316-1 11-1 157. 

* See Report by Vesenkha Co IX Congress of Soviets. 



3 1 4 Western Technology and Soviet Economic Development, 1017-7030 

to revive the economy, 'This is not an attempt to restore the capitalist class 
but to adapt it to our constructive work.' 8 The major impact of NEP was in 
the spheres of trading and small manufacturing, although it has also been seen 
as an accommodation to the reluctant peasant. Implementation turned nation- 
alized enterprises back to private operations. This was somewhat more 
widespread than Dobb has suggested.* Pravda {January 18, 1922) gives a 
summary by region of the number of enterprises remaining under government 
supply and finance after the initial NEP reorganization. 

Table 19-1 REGIONAL DISTRIBUTION OF ENTERPRISES 
UNDER GOVERNMENT AND PRIVATE CONTROL 
AFTER NEP REORGANIZATION, 1922 







PRIVATE 






STATE 




Region 


Number of 


Number of 


Average 

Workers 

per Plant 


Number of 


Number of 


Average 

Workers 

per Plant 




Factories 


Workmen 


Factories 


Workmen 


Moscow 


477 


"8,457 


248 


no 


78,375 


710 


Vladimir 


118 


7,262 


61 


74 


»3,487 


182 


Ivanov 


45 


7,887 


175 


10 


1,74* 


174 


Tver 


59 


1, i73 


20 


47 


5,199 


111 


Valuga 


54 


3.9*9 


73 


n.a. 


5i7 


n.a. 


Riazan 


23 


2,24* 


97 


16 


3,43* 


215 


Total 


776* 


140,950 


182 


257 


102,760 


400 



Source: Adapted from Pravda, January 18, 1922, p. 2. 
* 775 in original text in Pravda. 



A decree in Krasnya Gazeta for August 13, 1921 signed by Lenin divided 
all industrial enterprises into two groups: the first included those large enter- 
prises to be supplied with raw materials and operated by the state, and the 
second group included factories leased to private individuals and foreign 
concessions. All other plants were closed and the workers transferred to 
operating factories. It will be noted that those enterprises retained under 
state control were almost always the largest, irrespective of regional distribu- 
tion. The clash between the data in table 19-1 and in Dobb turns on a point 
of definition. Dobb argues that few were turned back to private ownership but 
that numbers were turned over to groups of workers including artels. The 



Krasnya Gaseta (Petrograd), December 20, 1921. 

"... there was a certain amount of denationalization. . '.' . The extent of 
this . . . should not be exaggerated ; and its economic significance was nothing 
like as great as foreign commentators at the time were inclined to suppose.' (Dobb, 
op. cit., p. 142.) Dobb then adds that private enterprise covered only 12.5 percent 
of workers in the 1923 census, but he does not mention the limits of the 1923 
census, which only covered part of the industrial structure. 



The Necessity for Foreign Technology and the Process of Acquisition 315 

enterprises listed in table 19-1 are those in which supply of inputs and finance 
is from private sources. It implies nothing about ownership, an academic 
question since 1917; the important point is the mechanism for overcoming 
deficient working capital and input supplies. It was to private mechanisms 
that the Soviet government turned. Any statement concerning ownership 
under a Soviet regime is illusionary. 

Bogdanov, President of the Supreme Economic Council, stated emphatically 
on December 20, 192s , that large scale industries could only be re-established 
by foreign investment and technology (i.e. by private mechanisms): 

The investment cf foreign capital is absolutely unavoidable as the equip- 
ment of whole briinches of our industry depends upon foreign countries 
in so far as they were never created and supported in Russia by our own 
resources. It will he necessary to support these branches of industry in 
the future for a certain time by means of foreign capital and the introduc- 
tion of foreign technical equipment. 10 

This capital and technology, added Bogdanov, were to be admitted in a 
controlled manner, 'only . . . where it is absolutely necessary, i.e., exploita- 
tion of new mines.' NE" iiad succeeded, he said, in moving industry from 
'almost a standstill' in June 1921 to 'very, very slight' progress; but then he 
added a warning against optimism and suggested the road would be a long 
one, although the turn had been made. The policy of decentralization — i.e., 
the improvement in supply conditions by private trade and small plant leasing 
— was the factor behind the reversal in fortunes. NEP had a limited objec- 
tive — to arrest the decline. In this it had been successful. The next step was 
reconstruction — restarting the numerous large and intact tsarist plants. 

CONCENTRATION, TRUSTIFICATION, AND CONTRACTION 

After several alternate solutions had been tried, it was decided to shrink the 
economic system by abandoning those plants making losses, grouping the 
remaining plants into trusts, and turning smaller or inoperable units back to 
domestic or foreign private enterprise. 

The trust was designed with the introduction of foreign technical assistance 
in mind. The declared intent was to make the trust the vehicle for the transfer 
of foreign capital and technology demanded by Bogdanov. Examination of 
those trust agreements that are available confirms this objective. As reported 
in Krasnya Gazeta, 11 the twin aims of all trusts were, to obtain capital and 
assistance from abroad, and to retain chief controlling interest in the hands of 
the Soviets. One presumes the order of ranking was not accidental. The original 

10 U.S. State Dept. Decimal File, 316-107-661. 
" January a6, 1921. 



3 1 6 Western Technology and Soviet Economic Development, 1917-1930 

intent was to encourage foreign participation only in those trusts with dormant 
plants which were backward technically or which required large injections of 
capital. In practice most of the trusts looked to the West for assistance. 

In the electrical and petroleum industries, technological progress was impos- 
sible without Western assistance, and so even comparatively well-run trusts 
looked westward. Trustification moved along fairly rapidly in late 1921 and 
1922 but did little to improve the economic situation. Industrial production 
continued to slide downhill at an alarming rate and reached a nadir in the 
summer of 1922. The adopted countermeasure was the 'contraction of 
industry' policy. In order to reduce government subsidies, it was proposed by 
Vesenkha to select and close down nonessential industries. 12 A curious ration- 
alization of this policy, made by Jacub, was that a socialist economy has 
alternate booms and slumps: 'each autumn and winter industry expands, 
while each spring it undergoes a crisis and contracts.' This statement was made 
in mid-summer and ignored the almost continual decline, winter and summer, 
which had been underway since the Bolshevik Revolution. Jacub viewed a 
condition of permanent crisis and suggested that a temporary contraction 
was not enough: 

There are only two ways to go— either pronounce our industry incurable 
. . . and close it down entirely , or else adopt measures, not for its contrac- 
tion, but to keep it operating at capacity. 1 * 

In other words, technical and managerial rationality had to be injected into 
the shambles that the Bolsheviks had created from a buoyant, viable economy. 

The end was reached in August 1922. There is a report in the State Depart- 
ment files concerning a meeting at Vesenkha. Bogdanov made the opening 
address and again stated in the bluntest language the condition of industry 
organization: it had 'reached its limit.' The situation was 'appalling and 
desperate.' The only hope, concluded Bogdanov, was the receipt of foreign 
capital and a good harvest coupled with complete denationalization." 

THE TREATY OF RAPALLO (APRIL 16, 1922) 

After the collapse of the Genoa Conference, the Soviets and the Germans 

signed the Treaty of Rapallo, under which they reciprocally renounced all war 

claims and war losses. Germany also agreed to renounce compensation for 

nationalized property in the U.S.S.R., 'provided that the Soviet Government 

This policy is described in the four issues of Ehoitomichesltaya Zhixn, Nos. 122-1;, 
for June 2, 4, 7, arid 8, 1922. Engineer Jacub read the report before a joint meeting 
of Gosplan and Vesenkha. Judged from the amount of space devoted to it, the 
report seems to have had top-level backing, but a lowly engineer was selected to 
present the total admission of failure. 
Bkonomicheskaya Zhixn, No. 125, June 8, 1922. 
IS Report (316-107-727). 



12 



The Necessity for Foreign Technology and the Process of Acquisition 3 1 7 

does not satisfy similar claims of other States.' Diplomatic and consular rela- 
tions were resumed, the most favored nation principles applied mutually, and 
the basis was established for resumption of trade and economic relations. 

Rapallo laid the groundwork for economic recovery. American and European 
relief stemmed the famine. The military agreement of 1922 was the basis for 
development of the Red Army, Navy and Air Force, and gave the Soviets 
the benefit of German military technology. The long-denied economic protocols 
were the basis for German economic and technical assistance and gave the 
Soviets sufficient breathing space to consolidate the Revolution and turn to 
other members of the Western world for capital and technical assistance. It 
was a successful three-pronged policy and brought the U.S.S.R. back from 
the brink of complete collapse. 

The State Department files contain a remarkable summary of the Com- 
munist viewpoint of Rapallo from a top-level source: 

... we are still the gainers from the Rapallo Treaty. Apart from the 
fact that our industry will be restored with the aid of German experts, 
our political activity and importance through the medium of Germany 
will increase very rapidly. . . . German specialists therefore are being 
welcomed into all branches of our State life and have already penetrated 
into the most important branches of industry. General Bauer's Commis- 
sion now in Moscow is acquainting itself with all sides of our military 
life and advising the General Staff, although its official mission is merely 
to improve our aviation. 16 

With Rapallo and its important military and economic protocols came the 
International Barnsdall agreement which effectively halted the decline of Baku 
and modernized production techniques to make this area the most important 
earner of foreign exchange. By late 1922 the Soviets felt sufficiently strong 
to recommence exports of grain and renationalize privately operated organiza- 
tions. The turning point of Soviet fortunes was mid- 1922 and was dependent 
on the Rapallo protocols. 

RECONSTRUCTION AND THE SECOND BOLSHEVIK 
REVOLUTION 

Reconstruction as used in this era does not mean physical reconstruction 
but the revival of dormant enterprises. The revival of trade and distribution, 
together with the limited contribution of NEP, enabled a return to the 
Bolshevik road. The growth of small retail and manufacturing enterprises 

14 U.S. State Dept. Decimal File, 340-7-10. The document originated with IS and 
was marked 'Confidential For Secretary and Under Secretary.' See Appendix A 
for reliability of IS. The above extract comprises about one- third the total report, 
so that, on the basis of space, the impact of German assistance should be considered 
as a prime objective of the Soviets. 



3 18 Western Technology and Soviet Economic Development, igij-ig^o 

was choked off in 1924 as reconstruction by German technicians placed the 
Soviets into a stronger overall economic position. Over 300,000 private 
enterprises were closed within a few months. 16 An article in Ekonomicheskaya 
Zhizn entitled 'Results of the struggle against private capital' summarizes 
these major changes. Such a revolution would not have been dared unless 
Vesenkha felt confident about the possibilities of economic revival. In textiles, 
44 percent were produced by private means in the first quarter of 1923-4 
and only 14 percent in the last quarter. In flax, the percentage declined from 
1 1 to 6 percent, and in woolens from 7 to 2 percent. The sugar trust had 
early German help and reported 27 percent in the first quarter and only 
5 percent in the last. The salt syndicate, also with German aid, reported 
a decline from 40 percent to 10 percent. Both the sugar and salt trusts benefited 
from American machinery, for example, the Fulton Iron Works made exten- 
sive shipments of sugar machinery in 1922-3." 

The early Soviet economy was full of paradoxes, not the least of which was 
the source of the strength enabling the Second Bolshevik Revolution. 
Destitute in 1922, they were back on their feet in 1924. As individual trusts 
gained strength, private Russian elements were eliminated and replaced once 
again by the Soviet state. The foreign elements, however, were still needed. 
Their turn was to come at the end of the decade. 

THE PROCESS OF ACQUIRING FOREIGN TECHNOLOGY 

The Bolsheviks were revolutionaries par excellence. But revolutionary 
dogma contained no hints on the operation of a socialist economy. On this 
subject Marx, Engels, and Lenin were silent. 

In spite of this silence, there was a clear recognition of the place of technology. 
The machine was the Marxian engine of progress. Given ignorance of the 
functions of the entrepreneur, it is not surprising that 'industrialization* and 
its superficial symbols, the tractor, the automobile, and machines in general, 
were seen as the high road to plenty. The assessment was superficial. It was 
assumed that the machine would work as well in a socialist environment as in 
a capitalist environment. The concepts of scarcity, rationality, and choice in 
relation to technology and innovation did not penetrate Leninist thinking. 
The end result was technological naivety, and this was compounded by an 
overriding concern with things political. 

Exhortations, slogans, shock methods, and ideological purity were seen as 
the solution to all problems, including machine and production problems. 
The collapse after the Revolution was a blow to the ideologues and was 

" Scheffer, op. cit., p. 174. 

" U.S. State Dept. Decimal File, 66 1 . 1115/484. See New York Times, November 16, 
1921, p. 13, col. a, for German assistance to the salt industry. 



The Necessity for Foreign Technology and the Process of Acquisition 319 

explained away on the basis of exogenous conditions and enemies of the 
Revolution rather than a deficiency in the political ideology applied to 
economic fact. It was not Lenin who saw the solution; it was Krassin, ex- 
director of Siemens-Schukert A-G in Petrograd — capitalist turned revolution- 
ary. Lenin had the pragmatic wisdom to adopt the Krassinist solution. 

Introduction of NEP, concessions, and foreign skills and technology did 
not completely inhibit experimentation with a 'socialist technology.' Attempts 
were made to develop an indigenous technology to reduce reliance on the 
West. No attempt in the 1920s was successful, unless one counts the 2 percent 
of drilling by the turbine method (an indigenous development). If we place 
to one side the technical incompetence of the trust personnel, the root cause 
for failure was the superficial political view of technology and the denial 
of the necessity for choice among innovations. Choice became a political 
decision. The attempt to manufacture the GNOM, a small Soviet-developed 
tractor was a complete failure. Machinery was purchased in Germany and 
installed in the old Balakov factory. No tractors were ever produced. There 
were two fully equipped automobile plants (the AMO and the Russo- Baltic) ; 
neither produced an indigenously designed automobile. The comic opera 
production of the Putilovets tractor (a copy of the Fordson) prompted Sorensen 
to suggest blowing the plant out of its misery. The 700 'tractors' produced 
held together only a few weeks. The German and American engineers who tried 
to re-design and re-start the Kertech steel works complained of political 
interference in decision-making. And so on. In the face of these failures, 
complete reliance was placed upon Western help, a solution rationalized 
as the necessary prelude to 'socialist construction.' The reliance became so 
great that the Five- Year Plan did not get off the ground until after contracts 
had been placed with Western companies and stiff penalty clauses inserted 
for failure to meet construction deadlines. 

THE GERMAN 'SECRET' ENGINEERING DEPARTMENTS 
The protocols to the 1921 trade agreement and the Rapallo Treaty with 
Germany were the foundation for the transfer of massive German technical 
aid. Inconclusive references to this transfer can be found throughout the 
State Department and German archives; nothing of substance has appeared 
in Western news media or books on Soviet development. This transfer has 
been as deeply buried as it was extensive. 

It has been extraordinarily difficult to quantify the transfer. The data is 
exceedingly fragmented — much more so than that for any other aspect of this 
study. 18 A number of lists of German firms marked 'Streng vertrauchlich,' 

" Material on German engineers in the U.S.S.R. is scattered throughout Microcopy 
T-120, Serials L»v3i I"3°S, and L391 to L395. 



3 ao Western Technology and Soviet Economic Development, 1917-1930 

for the attention of Minister Wallroth, were found in the German archives. 
Two of the lists were dated the 14th and the 19th of August 1922: a significant 
fact, as this was exactly the point at which Bogdanov proclaimed 'the end.' 
Material in the State Department files backs up the belief that when 'the end' 
was reached, massive German assistance moved in to restart the closed plants. 
In some cases the lists make reference to specific projects, such as Carbo II 
and some Agrar projects which have not turned up elsewhere and which cannot 
be identified. 

The 2,000 or so German engineers and technicians who moved into Soviet 
industry after Rapallo were replaced by a greater numberof American engineers 
after 1927-8. These were employed by almost all trusts, including Giprotsvet- 
met, Selmashtroi, Steklostroi, Giproneft, Gipromez, Resinotrest, Tsentro- 
boom, RKI, AKO, Zernotrest. 16 The most noticeable feature, apart from 
their numbers, was the fact that they were spread across the face of the Soviet 
economy (see table 20-3). They were employed by all design and construction 
bureaus. The only gap was in the furniture industry. Large numbers of 
American specialists were concentrated in 'key' activities. For example, in 
1929 there were 66 foreign engineers in the three trusts Tokmekh (instru- 
ments), Mosstroi (Moscow Building Trust), and Khimtrust (the Chemical 
Trust). 20 The range of employment went from water irrigation projects to 
candy manufacture. Nor were the Soviets reticent in admitting their acquisitive 
dragnet (although in more recent times they appear to have gone to great 
lengths to reduce dependence on Western skills) : 

In matters of technical assistance we follow neither an English, nor a 
German nor an American orientation. Our orientation is a Soviet orienta- 
tion. In every country we are ready and willing to learn in those areas in 
which that country is most advanced. When we had the problem of 
modernizing the petroleum, automobile and tractor industries we turned 
to the United States, as America is the leading country in these industries 
When it came to the chemical industry we asked for German help and it 
is no fault of ours if we were forced to go elsewhere for part of our technical 
assistance. . . . 21 

Planning and administrative posts were handed over to foreigners. H. J. 
Larsons was Deputy Chief of Currency Administration; Alcan Hirsch was 
Chief Engineer at different times for Chemstroi, Chemtrust, Giprokhim and 
Giproazot, as well as Chief Consultant to the heavy chemical industry; 

" See Bron, op. cit., pp. 145-6, for a more complete listing. 

*° Torgwo-Promysklennaya Gazeta, No. 166, July 23, 1929. 

" Ekonomickeskaya Zhizn, No. 225, September 29, 1029. Compare this Soviet state- 
ment, which is clear enough, to the numerous statements in Western literature 
which argue that the Soviets developed without any foreign assistance (See 
Holzman, op. at., L. Fischer, op. cit., and M. Dobb, op. cit.) 



The Necessity for Foreign Technology and the Process of Acquisition 321 

Littlepage was chief engineer, later Deputy Director of Soyuszoloto. Downs 
was Technical Director of the Altai Polymetal Trust and so on. Even the 
sacred post of planning director at Gosplan was at one time reportedly held 
by a Swede. 28 That these individuals were needed is reflected in Party 
speeches and articles. Rykov, speaking before the First Moscow Oblast Soviet 
Congress in October 1929, related that the U.S.S.R. had had considerable 
success with foreign technology and the use of foreign techniques and that 
this had overcome technical backwardness and the shortage of engineering 
cadres. He indicated the practice was to be extended, and mentioned cases 
in which Soviet institutions had been working *a great length of time' on 
projects when foreign consultants had checked and found the plans and 
construction deficient, which had necessitated starting again.* 8 Ruykeyser's 
experience at Uralasbest confirms this possibility. One problem was that the 
proportion of technical personnel to factory workers in the more advanced 
countries of the West was about 10-15 percent, while in the Soviet Union 
it was not more than 2 percent. Of this 2 percent, only half had more than an 
elementary education. Of the plant directors in 770 works, 3.5 percent had 
no school education whatsoever, 71.6 had an elementary education, and the 
rest a high school education.** Given this shortage, it is not surprising that 
large numbers of Russians were sent abroad for training. All technical-assist- 
ance agreements and most equipment-purchase agreements contained clauses 
enabling the Soviets to have groups of their personnel trained abroad. This 
training was normally a few months, and no case has been uncovered where it 
ran longer than one year. In 1925-6 about 320 Soviet engineers were sent 
abroad; this rose to more than 400 in 1927-8 and to more than 500 in 1928-9, 
These were individual training visits in addition to the much greater number 
of technical delegates who went abroad for exploratory purposes. 

Although there were ways of ensuring that these engineers returned to the 
U.S.S.R., it was more difficult, but not impossible, to retain Western 
engineers against their will. There are however some cases of the latter.* 5 

The concession itself was a method of technological transfer. All such 
agreements required the transfer of the latest in Western technology, and some 
of the trading agreements {such as RAITCO) appear to have been much more 



U.S. State Dept. Decimal File, 336-129-99. 
U.S. Consulate at Riga, Report 6496, October 22, 1929. 
U.S. Consulate in Vienna, Report zitf, April 9, 1929 (3 16-1 10-1079.) 
For example, see Fred E, Beal, Proletarian Journey (New York; Hillman Curk, 
I 937)- Seal met H. N. Swayne (an American) in Fergana, Uzbekistan. 'He was 
supervising the building of a ein mill for the Uzbekistan Soviet. He had two co- 
workers in this enterprise, an Englishman and a German. All of them were kept in 
the district against their will. How? The Russians couldn't find their passports. . . .' 
(P. 254.) Beal \4as a Communist Party member. 



322 Western Technology and Soviet Economic Development, igxy-igjo 

vehicles for the transfer of Western technology than means for the Western 
partner to 'trade' with the U.S.S.R. When the transfer was completed, the 
concessionaire was expropriated, as Leninist dogma dictated. There were few 
cases of compensation and these (Mologa and Harriman) were for tactical 
reasons involving the possibility of acquiring other fields of Western skills. 
After 1925, news of concessions was heavily restricted and in 1927 made an 
act of espionage. 

Foreign companies did little to enlighten the Western public, and indeed 
there are reports that the companies themselves put effective clamps on news 
concerning concessions. 

After 1927 the Type III technical-assistance agreement was widely used. 
Where assistance had previously been tied to the purchase of equipment on 
a 'turnkey' basis, it was now the subject of separate agreements. At the same 
time, the emphasis moved away from Germany and toward the United 
States, although the Soviets still had great interest in acquiring the fruits of 
German scientific endeavors. From January 8 to 1 5, 1 929, a German 'Technical 
Week' was held in Moscow, and a series of lectures was presented by German 
professors and experts who came (all expenses paid) for the occasion. The 
lectures included several by technical directors of German firms such as 
Telefunken Radio, A.E.G., and Frederich Krupp, and directors of technical 
institutes such as the Mulheim Coal Mining Institute and the Chemical 
Research Institute. The theme was the transfer of German work to the Soviet 
Union in the 'search for peace.' 2 * 

The Smolensk archives contain an example of the efficiency of the internal 
distribution of Western technology within the U.S.S.R. The State Institute 
for Foreign Technical-Economic Information published a monthly entitled 
Fruitgrowing Economy (presumably one of a series of such journals). This was 
a mimeographed circular which detailed in a summary manner the current 
results of Western research. It abstracted such obscure journals as the 
Agricultural Gazette of New South Wales, which would be difficult to locate in 
even a well-stocked Western library. Matching dates of the original articles 
with date of publication shows that the time difference was only a matter of 
months. 27 

PROBLEMS IN THE ACQUISITION OF FOREIGN TECHNOLOGY 

The transfer was by no means smooth and efficient. Ekonomicheskaya Zkizn 
made a survey of the inefficiencies resulting from use of foreign technology. ,a 

M U.S. Consulate at Riga, Report 5869, February 2, 1929. (340-6-499.) 
" Smolensk Archives, Microcopy T 87, Roll 31, File WKP 264. 
" Ekonomicheskaya Zkizn, No. 57, March 7, 1928; No. 72, March 25, 1928; and 
No. 83, April 7, 1928. 



The Necessity for Foreign Technology and the Process of Acquisition 323 

Enormous wastage of funds was found. This was partly due to lack of foresight, 
partly to inexperience and lack of coordination, and also to lack of funds at 
strategic moments.** Many British and German firms may have supplied 
inferior equipment, although this may be a Soviet rationalization of inability 
to cope with more advanced technical systems. However, it is difficult to see 
what protection was available if foreign manufacturers for one reason or 
another wished to foist second-rate and inferior equipment onto the Soviets. 
In the absence of an indigenous technology, they could compare performance 
only to their own antiquated plants or to other foreign purchases. There were 
no impartial arbiters built into the economic system. 30 It is also difficult to see 
how they could adapt a technology developed for another and presumably 
different set of relative factor scarcity patterns. 

There were many cases of machinery being bought before the plant had 
been erected, so that complete factories were left standing, often with inade- 
quate protection, until plants were erected. There were cases of plant and 
equipment not suiting each other. Given the very precise civil engineering 
tolerances required in modern construction, this is not too surprising. A paper 
factory in Leningrad had a building ready but only part of the equipment, 
'and even this [could not] be assembled before the arrival of special foreign 
technical personnel who [were] having difficulties in obtaining visas.' Lack of 
coordination between foreign suppliers of equipment for the same plant was 
quoted as a major delay. A textile mill with a capacity for 127,000 spindles 
had only received 15,360. Equipment for a power station in the Don was lying 
on the ground, as the project had been abandoned. There were no funds 
available to install equipment at the Marti plant in Nikolaev; two plants of 
Ugostal (Petrovsk and Lenin) — the railroad workshops at Dnepropetrovsk 
and the Ukrainian Silicate Trust— had the same problem. The Komintern 
locomotive plant at Kharkov changed its plans and would not use equipment 
imported for its use. Other equipment valued at almost 400,000 rubles at the 
same plant was idle because there was no electrical power for installation. 
Transportation, communications, and similar problems were delaying and 
confusing, and diverted quantities of imported materials. 

This problem of unused foreign equipment appears to have been wide- 
spread. Izvestia (March 31,1 928), in an article entitled 'Problems with imported 
equipment,' reported that Khimugol had imported 1.3 million rubles worth 



B&rmine and Kravchenko both made this point. 

For example, in 1931 the Soviet* bought one-third of the output of Ruston-Bucyrua 
(U.K.), ■ manufacturer of mechanical shovel*. 'The Soviet purchase* . . . not 
only helped to improve our earnings record, but also enabled Ruston-Bucyrus to 
clear out most of its stocks of obsolete Ruston and Homsby models.' Dtsigntdfor 
Digging, p. *6o. 



324 Western Technology and Soviet Economic Development, 1917-I93O 

of equipment which could not be used for at least two year*. Similar delays were 
reported for the Kharkov locomotive works, the Krivoi Rog power station, 
and a bolt-making works. Curiously enough, on the same day Pravda ran an 
article entitled 'Methods of transferring foreign techniques,* which described 
the channels to be used : first, sending Soviet engineers abroad ; second, 
importing foreign engineers ; and third, utilizing technical-assistance contracts. 
The actual ranking order of use appears to have been the reverse. This article 
laid the blame for mistakes on the procurement organs of the government and 
especially their failure to use up-to-date catalogs. There were cases of machin- 
ery imports in which the design was of 1890 vintage. 

Restoration and modernization of the electrical equipment industry was 
almost entirely dependent on imported machinery, and in 1930 this represented 
90 percent of all boilers, turbines, and generators installed. It was the resultant 
wide diversity of models which resulted 'in complicating the design, erection 
and construction of generating installations to a large extent.' 81 The balance 
of 10 percent was produced within the U.S.S.R. with foreign technical assist- 
ance and further compounded the diversity problem. Further problems arose 
because the Soviets insisted on non-standard features in turbine development ; 
these turbines were produced at the U.K. works of Metropolitan- Vickers, and, 
if the Soviets are to be believed, some 25 of these turbines were giving trouble 
by about 1930-1." 

The uninhibited copying of Western products may not always have been 
the outright gift it superficially appears. Sorensen, of the Ford Motor Com- 
pany, comments on this: 

What the Russians had done was to dismantle one of our tractors . . . 
and their own people made drawings of all the disassembled parts. I 
visited a department where the rear axle and the final drive were being 
assembled ... a lot of trouble with the worm drive ... it was 
apparent that, while the Russians had stolen the Fordson tractor they 
did not have any of our specifications for the material that entered into 
the various parts. And you can't find that out merely by pulling the 
machine apart and studying the pieces. 33 

Sorensen probably understates the problems. Even if a qualitative analysis 
was made, for example, on the axle steel, and a specification produced, the 
grade still had to be manufactured. The heat-treatment problems alone would 
be a major headache. Many Soviet products reported as of poor quality are 
probably no more than imperfect copies of Western products. Production 
of quality required concomitance of design, development, and production, 

" Electric Power Development in the U.S.S.R. (Moscow: 1NRA, 1936), p. 101. 

» Correspondence Relating to the Arrest of Employees 0/ the Metropolitan Vickers 

Company at Moscow, Command Paper 4286. (London: H.M.S.O., 1933), p. 9. 
" C. E. Sorensen, op. cit., p. 202. 



The Necessity for Forei°tt Technology and the Process of Acquisition 325 

THE SHAKHTA AFFAIR 

In 1928 the Soviets staged the first of their show trials involving foreign 
engineers. The Shakhta affair concerned five German engineers of A.E.G. 
working in the Shakhtinsky coal mines in the Don region." The official 
charge was discovery of 'a counter-revolutionary plot to destroy and disor- 
ganize the coal industry.' 36 The engineers were accused of having links with 
former mine owners and the Polish counter-espionage service. It was said 
they had started fires, created explosions, wrecked coal-cutting machines, 
broken-down shafts, and generally created mayhem in the mines. In sum, they 
were accused of sabotaging 'socialist construction.' The burden of the accusa- 
tion was placed on the foreign engineers as individuals and not on the foreign 
companies. Rykov carefully avoided accusing the firms of improper behav- 
ior. M The timing of the arrests, just as a German-Soviet treaty was to be 
negotiated and when the Soviets clearly needed German help, mystified most 
observers. U.S. State Department archives contain a number of foreign 
government reports, and their concensus is that the real reason for the arrests 
was the dominant place achieved by the Germans in Russian industry. They 
had become too powerful and threatened the hold of the Party. The move was 
against the 'united front' of specialists, old-time Russian engineers, trade 
unions, many of the workers, and some of the 'red' plant directors." 

The specialists controlled operation of many of the most important plants. 
They had supported and been supported by the old-time Russian engineers, 
not only because of similarity of political thinking but also by common 
background training and experience. The trade unions supported the foreign 
specialists as a means of getting production; many workmen viewed the 
foreign engineers with respect and the new 'red' engineers with derision. 
Many 'red' directors were interested primarily in output, recognized that the 
foreign specialists could get output, and placed day to day operations in their 
hands. 88 

Remaining Trotskyites used the question of specialists to 'prove' the Stalinist 
clique bourgeois; the latter then had common cause with the OGPU to 
attack thts threat to Stalinist power. Terrorism via mass arrests was used to 



About 35 German engineers were jailed at this time on various charges, but only 

five as a result of Shakhta; and two of these were immediately released. The 

number in prison is an interesting indicator of the large number of German 

engineers in the U.S.S-R. 

Isvestia, No. 6o, March 10, 1028. 

Izvestia, No. 61, March It, 19*8. 

U.S. State Dept. Decimal File, 316.6221/13 (Polish Foreign Ministry, Report); 

361. 6221/25 (German Foreign Ministry, Report); and 316-6221/28 (Greek Charge 

d' Affaires in Moscow, Report). 

Sevodnia (Riga), March 21, 1928 [article by 'K.C (Moscow)]. 



3 z6 Western Technology and Soviet Economic Development, 1917-1930 

frighten the foreign elements and their Russian allies. Choice of Shakhta was 
not accidental. Here the conflict between the 'red' and the foreign engineers 
was acute. Lambert, formerly a Belgian consul in Moscow, argued that the 
choice of the Ukraine was part of a reaction to Ukrainian nationalism which 
had sent many Muscovites back to Moscow and promoted native Ukrainians." 
The Polish Foreign Office pointed out that it was noticeable that the many 
Belgian, Austrian, English, and American engineers were not molested. The 
Ministry argued this was one major aspect of an attack on German engineers. 
Further they were to be seized as scapegoats for the general inefficiency." 



U S. State Dept. Decimal File, 316.6221/32. 

U.S. State Dept. Decimal File, 361.6221/13, Report 1671. , April 10, ,1928. In v.ew 
of the advice given to American firms in iga8 that it was safe to enter the U.S.S.R., 
the foltowS: facts should be noted: (1) There was no shred of evidence of sabotage 
a«in S tTe Germans. None was produced at the tr.als andnone has ever been 
o?oduced since 1928. They were 'acquitted' by the 'court.' {2) They were imprisoned 
Fn Conditions described by the German Embassy representative Legat.onssekretaet, 
nrSleo as 'incredibly horrible,' while one of the unfortunate Germans was 
fuffeing torn 'pneumonia' (U.S. State Dept. Decimal File, 3 6,.66«/. 3 , Report 

Thu'l^^i'n raises the question whether the U.S. State Dept is justified in 
S^dv« to Un ed" States firms and individuals which is contrary to the 
fStso th« e parties in the light of evidence with Departmental files. One 
Resumes the function of the State Dept. is to protect American citizens and yet 
today (1966), after the Baaghoro and Mott cases (among others), the State Dept. 
is stilt encouraging travel by tourists in the U.b.b.K. 



CHAPTER TWENTY 

The Western Contribution to Soviet Production 
and Productivity, 1917-30 

THE CONTRIBUTION OF THE EARLY CONCESSIONS 
The original intent of the concession was to acquire both foreign finance and 
technology; both were deemed equally necessary. As it turned out, only 
technology was acquired, but this was facilitated by sufficient private credits 
to enable the transfer to take place in a reasonably satisfactory manner. It is 
misleading to argue that economic development depends only on finance 
capital; the latter is only a vehicle for the transfer of technology. It is also 
misleading to argue that, because there were no government-to-govemment 
financial transfers, the Soviet Union developed without Western assistance. 
The major factor in development is technical progress. The key question to 
be asked in the case of Soviet development is, from what did its technology 
derive? From internal resources, or from external transfers? 

Examination of the role of the early concessions suggests that they played 
an important part in reversing the industrial decline and establishing the base 
for development. International Bamsdall introduced modern American 
methods of rotary drilling and deep-well pumping with results described in 
chapter z. The lumber industry was wholly dependent on the transfusion 
introduced by the operating sections of the mixed companies Russangloles, 
Hollandolcs, and Norvegloles. All transportation was dependent on early 
German concessions (Russtransit, Derutra, etc.). The locomotive repair 
program was undertaken abroad. Most modernization work in textiles and 
clothing originated with the Sidney Hillman concession. Foreign markets 
were developed by Type II mixed company concessions. These early conces- 
sionary arrangements (not numerous, but located in strategic sectors of the 
economy), when coupled with the post-Rapallo assistance from Germany, 
helped the Soviets to turn the corner. 



3a8 Western Technology and Soviet Economic Development, zgi^-ig30 

There was an interval in 1921-2 when contemporary sources were reporting 
industrial revivals in some sectors and shutdowns in others. These parallel 
but opposite movements are related precisely to foreign assistance and the 
concessions. McKeevsky was reporting its mines were closing down while 
the Kuzbas coal mines were responding favorably to the work of the American 
Industrial Corporation. In 1923 shafts in the Don were reduced from 202 to 
176, while AIK doubled Kuzbas output. While Embaneft and Grozneft 
were declining, Azneft was picking up new life with International Barnsdall. 

In sum, the upswing may be linked precisely to the introduction of the 
first concessions and German technical assistance. No case of an upswing 
was uncovered which was not so linked. 

SECTORAL IMPACT OF CONCESSIONS ON THE 
EARLY SOVIET ECONOMY 

The proposition that every industrial sector of the early economy had 
foreign technical assistance, specifically in the form of pure Type I, mixed 
Type II, or technical-assistance Type III contracts, has been examined in 
detail. The proposition is much too important to be dismissed with the verbal 
generalizations typical of much discussion of Soviet development. The next 
pages contain an empirical demonstration of the validity of the argument that 
every corner of the economy was penetrated by Western technology between 
1917 and 1930. 

The structure of the inherited tsarist economy was sufficiently broad that 
it can be spanned with the Standard Industrial Classification. 1 This economy 
contained in embryonic form representatives of most modern industries. The 
SIC is an identification code for the modern American structure, but the 
components of today's structure can be traced clearly to the first two decades 
of this century. All sections of the modern SIC were represented by at least 
one plant in tsarist Russia, and this was the structure inherited by the Soviets. 
The structure included aircraft and automobile manufacturing. The advantages 
of using the SIC code are that we may be sure that every sector in the 
economy presents itself for examination, that we are sure of discussing the 
whole economy, and that we do not dismiss some sectors because they happen 
to be inconvenient for the hypothesis. It has been, for example, inconvenient 
for the Soviets to admit there were aircraft and automobile technologies 
(of an indigenous nature) in tsarist Russia. 

• The Standard Industrial Classification (SIC) (Washington, D.C.: Bureau of the 
Budget 1957). Manufacturing is divided into 43 sectors, numbered o to 49. 
(Numbers 03 to 06, 18, and 43 are not used by the Bureau.) Sector 30 has been 
added by the writer to include trading. 



The Western Co/ttribution to Soviet Production and Productivity, 1917-30 329 

Tables 20-1 and 20-2 classify concessions by country of origin and relate 
these to major groups in the SIC. Table 20-1 covers Type I (pure) and Type 
II (mixed) concessions while table 20-2 covers Type III or technical-assistance 
agreements. Where a concession has been identified and described in the text 
for a specific sector, its name has been inserted into the relevant portion of the 
matrix. In some sectors more than one concession existed but the extent of 
duplication is not indicated and can be determined from the text. A later set 
of tables examines the depth of technological impact within each sector. It 
should be added that the identification of concessions is still incomplete; it is 
estimated that less than 70 percent have been described and listed in this 
study. The remaining 30 percent will not come to light until the Soviets 
decide to release their archival data. 

After compilation, the tables were scanned to determine the concession 
type and country making the greatest contribution to the Soviet industrial 

Table 20-1 SECTORAL IMPACT OF FOREIGN CONCESSIONS 

(TYPES I AND II) 



Standard 

Industrial r..J.. -#.... 

{Ma)Or Group) 



Source of Concessions Skill and Capital 
United States Germany Othert 



OI» 


Commercial fa-.ms 


Ware 


Druag 


Cannon (U.K.) 


02 


Noncommercial 
farms 


Communes 


Communes 


Communes 


07 


Agricultural services 


Hudson's Bay Druag 


Vinge (Norway) 






(Canada) 






08 


Forestry 


— 


Mologa 


Russangloles (U.K.) 


09 


Fisheries 


— 


Hochseefisch 
erein 


Romanoff Caviar 


10 


Metal mining 


Harriman 


Rawack & 
Grunfeld 


Tetiukhe (U.K.) 


II 


Anthracite 


RAITCO 


_ 


Lena Goldfields (U.K.) 


12 


Bituminous coal 


AIK 


— 


Grumant (U.K.) 


13 


Crude oil 


Int'l Barnsdall — 


Gouria (U.K.) 


14 


Quarries 


Int'l Mica 


Krupp 


Lena Goldfields (U.K.) 


IS 


Building, general 


ARK 


Kossel A-G 


Geoffrey & Curting 
(U.K.) 


16 


Building (not 


Ragaz 


Krupp 




housing) 








17 


Special trades 


ARK 


Russgertorg 


Kablitz (Latvia) 


19 


Ordnance 


— 


GEFU 


— 


20 


Food 


Morris 


Seyfurt 


Union Cold Storage 
(U.K.) 


21 


Tobacco mfr 


— 


— 


Lopato (China) 


22 


Textile mills 


RAIC 


__ 


Altmnn (Austria) 


*3 


Apparel 


RAIC 


Stock 


Trilling (Poland) 


24 


Wood products 


— 


Mologa 


Dava-Britopol (U.K.) 



330 Western Technology and Soviet Economic Development, Z917-1930 



TabU 20-1 Continued 



Standard 

ClamfiTalwn Industry 
(Major Group) 


Source of Concession! 


Skill and Capitol 


United States 


Germany 


Others 


25 


Furniture 


_ 


_ 


m 


26 


Paper products 


— 


_ 


Raby Khiki (Japan) 


27 


Printing 


— 


Berger & 
Wirth 


— 


23 


Chemicals 


— 


Bersol 


— 


39 


Petroleum refining 


Standard of 
New York 


_#• 


— 


30 


Plastics 


Kahn 


— 


S.I.M.P. (France) 


3> 


Leather products 


Eitingon- 
Schild 


Wostwag 


— 


3* 


Stone, glass 


AIK 


Krupp 


AGA (Sweden) 


33 


Primary metals 


Russian- 
American 
Steel 


Bergman 


Lena Goldfields (U.K.) 


34 


Fabricated metal 


— 


Derumetall 


Raabe (Finland) 


35 


Machinery (not 


Westinghouse 


Leitz 


SKF (Sweden) 




electrical) 


Brake Works 




36 


Electrical equipment 


International 
General 
Elect. 




Swedish General 
Electric (Sweden) 


37 


Transportation 


International 


Junkers 


Fiat (Italy) 




equipment 


Harvester Co, 




38 


Scientific 
instruments 


Russian- 
American 
Instrument 




Sovmetr (France) 


39 


Misc. mfg. 


Alamerico 


Block & 
Ginsberg 


Schulmann (Latvia) 


40 


Railroads 


— 


Mologa 


Lena Goldfields (U.K.) 


41 


Local transit 


— 


— 


Cunard Line (U.K.) 


42 


Motor freight 


— 


— 


— 


44 


Water transport. 


■ 


Hamburg- 
Amerika 
Line 


Norway-Russian 
Navigation (U.K.) 


45 


Air transport. 


— 


Deruluft 





46 


Pipelines 


— 


— 


— 


47 


Transportation 
services 


Russcapa 


Derutra 


Irtrans (Italy) 


48 


Communications 


RCA 


— 


Great Northern 
Telegraph(Denmark) 


49 


Utility services 


— 


Hecker A-G 


— 


50 


Trading 


Alamerico 


Russgertorg 


Rusavstorg (Austria) 



AH sectors in the SIC have been listed. Some numbers were not used in the original 
classification. This accounts for number gaps above. 

File 312 of the Bureau of Foreign and Domestic Commerce indicates the Germans 
obtained 'operating privileges' in the Maikop oil fields under the Rapallo Treaty 
protocols. No other data is known nor have other German Type I or II concessions 
been unearthed for this activity. 



The Western Contribution to Soviet Production and Productivity, 1917-30 331 

structure {i.e., which type is represented in most sectors). The type with the 
largest number of representations was United States Type III technical- 
assistance agreements, of which there were 36. This is consistent with our 
argument that United States technology was the preferred technology. 
Out of a total 43 sectors* that could have received concessions and the transfer 
of Western skills and technology we identified 36, or 84 percent. As the early 
economy consisted of only a few plants of prerevolutionary origin in each 
sector, the transfer could be rapidly spread within the sector. The agreements 
were made with either the trust overseeing the plants or with the best equipped 
and largest member of the trust group. Consequently, identification of even 
one technical-assistance agreement with a member of a narrowly denned indu- 
stry with only a few plants implied that the transfer could be rapidly spread. 
Bogdanov indicated that the trusts were created with the prime purpose c-f 
transferring foreign technology; in practice they were well suited for this 
purpose. 

It is interesting to note the contiguity of trusts and the SIC classification 
groupings; it is almost as if Lenin had the SIC Manual in front of him when 
he drew up the contours of the trusts. Crude oil (SIC 13) plus petroleum 

Table 20-2 SECTORAL IMPACT OF FOREIGN TECHNICAL 
ASSISTANCE AGREEMENTS (TYPE HI) 



Standard 

c£$wln Industry Nam* 

(Major Croup) 



Source of Technical Assistance 
United States Germany Others 



01 


Commercial farms 


None outside Type I and II 


. concessions 


02 


Noncommercial 


Campbell Druzag 


Truss (U.K.) 


07 


Agricultural services 


Sullivan Wostwag 
Machinery 


Langmann (U.K.) 


08 
09 


Forestry 
Fisheries 


z z 


Harry Ferguson, Ltd. 


10 


Metal mines 


Oglebay, Rawack & 
Norton Grunfeld 


— 


II 


Anthracite 


Stuart, James Steinback & 
and Cooke Taube 


— 


12 


Bituminous coal 


Allen & Knapp A-G 


— 


'3 
'4 


Crude oil 
Quarries 


Int'l Barnsdall Machinenbrau Mitsub'lhi (Japan) 
General Deilmann — 
Engin. Co, Bergbau 


IS 


Building-general 


Longacre Humboldt 


— 



Table 20-2 consists of 43 sectors, as commercial farms were not relevant for the 
U.S.S.R., but table 20-1 includes 44 sectors, as there were concessions operating 
commercial farms. In any event, it makes tittle difference to the basic argument. 



33a Western Technology and Soviet Economic Development, 1917-1930 
Table 20-2 Continued 



Standard 

Industrial *__ _»___»__-_ \r 


Source of Technical Aisistance 


Chtttficai 
(Major Gr< 


,j m inmuury name 
oup) 

Building (not 


United States 


Germany 


Othert 


16 


Koppers 


Koppers 


Karlsrads Mechaniska 




housing) 








17 


Special trades 


Austin 


Gefrierscha 
chbau 


~ "~ • 


19 


Ordnance 


— 


Krupp 


Fokker (Holland) 


ZO 


Food 


McCormick 


Harberger 


Maatschappij (Holland) 


21 


Tobacco mfr 


— 


— 


— 


22 


Textile mills 


Lockwood, 
Green 


Kohorn 


Soiertes de 
Strasbourg (France) 


23 


Apparel 


RAIC 


— 


— 


24 


Wood products 


— 


— 


— 


25 


Furniture 


— 


— 


— 


26 


Paper products 


Hardy, 
Ferguson 


~ 




»7 


Printing 


Fulton Iron 


— 


— 


28 


Chemicals 


Dupont 


I. G. Farben 


Casale (Italy) 


29 


Refining 


Graver 


Wilke & 
Pinsche 


Vickers (U.K.) 


30 


Plastics 


Seiberling 


— 


— 


3t 


Leather products 


— 


Steincrt 


■ — 


3* 


Stone, glass 


Thomas Co. 


— 


Vakander (Sweden) 


33 


Primary metals 


Freyn 


Demag 


SKF (Sweden) 


34 


Fabricated metal 


McDonald 


Faudewag 


R1V (Italy) 


3S 


Machinery (not 
electrical) 


Mechanical 
Mfg. 


Deutz 


Separator (Sweden) 


36 


Electrical equip. 


GE 


A.E.G. 


Metropolitan- Vickers 
(U.K.) 


37 


Transportation 


Koehring 


Hohern 


Armstrong- Whitworth 




equipment 




zollern 


(U.K.) 


38 


Scientific 


Sparry 


A.E.G. 


Compagnie Generale 




instruments 


Gyroscope 




de TSF (France) 


39 


Misc. mfg. 


Underwood 


Mcsser 


— 


40 


Railroads 


Baltimore & 


Siemens Bau 


Brown-Boveri 




Ohio 




(Switzerland) 


4< 


Local transit 


Seabrook 


Siemens Bau 


— 


42 


Motor freight 


Ford Motor 


— 


— 


44 


Water Transport 


Moissieff 


Friedlam 


— 


45 


Air Transport 


Irving Chute 


Junkers 


— 


46 


Pipelines 


J. I. Allen Co 


, Mann 


Crossley (U.K.) 


47 


Transportation 


Davis, Bishop Derutra 


— 




services 








48 


Communications 


RCA 


Tclefunkcn 


Ericsson (Sweden) 


49 


Utility services 


J. G. White 


Siemens 
Schukert 


Werksaden Kristine- 
gamm (Sweden) 


5° 


Trading 


Heller 


Derumetall 


Johnson, Mathey 
(U.K.) 



The Western Contribution to Soviet Production and Productivity, 1917-30 333 

refining (SIC 29) equals the Neftsyndikat, comprising Azneft, Grozneft and 
Embaneft. Anthracite mining (SIC 11) plus bituminous coal mining (SIC 
u) equal the coal trusts (Donugol, etc.). Ordnance (SIC 19) equals the 
military trust. Scientific Instruments (SIC 38) equals Tokmekh; SIC 30 
equals Resinotrest; SIC 33 equals Ugostal; and so on. There are two 
possible explanations. First, when the trusts were being designed with the 
objective of technological acquisition as their prime purpose, they may have 
been grouped in order to facilitate the transfer. Second, there is an internal 
logic to the structure of modern industrialization, and the early Soviet 
economy had the same structure as the early American economy, although the 
similarity has not persisted. In other words the grouping may have been 
obvious on grounds of logic. 

Examination of the 36 (out of a possible 43) sectors covered by United States 
technical agreements and the 7 sectors not covered by such agreements 
suggests that, in fact, coverage was greater than 84 percent and was virtually 
complete. In other words the Soviets transferred United States technology 
to every sector. 

Of the seven listed as not receiving technical assistance, several received 
informal aid as a by-product of purchases of large installations. Purchases of 
sawmill equipment included equipment installation. Fisheries received indirect 
aid from Pacific Coast manufacturers in the construction of large crab and 
salmon canneries. Even SIC 19 (ordnance) received indirect aid through 
the purchase of Curtiss engines. This problem is overcome in table 20-7, 
which examines the degree of impact and includes two types: direct and 
indirect technical impact. 

The second largest group of concessions is the 'other country' Types I 
and II category (table 20-1). These comprise pure and mixed concessions with 
countries other than the U.S. and Germany. Out of 44 possible 'other country 1 
sectors, these concessions were identified in 33 sectors, or 75 percent. They 
were concentrated in raw materials development. The category contains 
Lena Goidfields, Ltd., Tetyukhe, Kablitz, Trilling, the Japanese Sakhalin 
concessions, SIMP, ASEA, SKF, Union Cold Storage, Altman, Raabe, and 
so on. Pure 'other country' concessions were comparatively rare in the 
industrial and transportation fields. When they were granted, they were limited 
in scope, occupied prerevolutionary plants in decrepit condition, and 
were granted a technological area in which the limited company was an 
acknowledged world leader such as AGA, SKF, and the Cunard Line. 

There were no 'other country' pure concessions in the fields of ordnance, 
chemicals, petroleum refineries, and, generally, transportation. These were 
strategic sectors requiring the transfer of German or United States technology. 



334 Western Technology and Soviet Economic Development, lyx^lgjQ 

The third largest group is German technical-assistance contracts. There 
were 32 sectors with identifiable agreements of this type, or 74 percent. This 
group contains many of the largest and best-known German companies: 
Demag, Koppers, Humboldt, Krupp, A.E.G., Siemens, Junkers, and so on. 

The fourth largest group comprised German pure and mixed concessions 
representing work in 29 sectors, or 66 percent. This group also contained 
well-known German firms; Leitz, Krupp, Hamburg- Amerika Line, etc. 

The fifth group comprised United States pure and mixed concessions and 
is represented in 27 sectors, or 61 percent. This included also some well-known 
names: Harriman, International Oxygen, International Harvester, and Stand- 
ard Oil of New York. 

The last and smallest group comprised the 22 'other country' technical- 
assistance agreements, represented in 51 percent of the economy. This small 
group confirms the argument that the desirable technology was from Germany 
and the United States. When it was transferred from one of the 'other countries' 
it was always in a highly specialized and narrowly defined area, such as ball 
bearings, synthetic nitrogen, radio apparatus, telephone equipment, dairy 
apparatus, and artificial silk technology. In sum, the Soviets went to countries 
other than the United States and Germany when there was a decided supe- 
riority in the technology in question. 

Table 20-3 SUMMARY STATEMENT OF SECTORAL IMPACT 
OF TYPES I AND II CONCESSIONS 

Types I and II Concessions Associated With : 
United States Germany Other countries 

Sectors with Type I 
& II concessions 27 (61 percent) 29 (66 percent) 33 (75 percent) 

Sectors without Type 
I & II concessions* 17 (39 percent) 15 (34 percent) 11 (25 percent) 

Total sectors*" 44 {100 percent) 44 (100 percent) 44 {too percent) 

* This is a conservative statement, as less than 70 percent of operating concessions 
have been unearthed. 
*• Summary regardless of geographic association: 

95.0 percent of all sectors had concessions (42 sectors) 
5.0 percent of all sectors did not have concessions (2 sectors) 

There is another way of looking at tables 20-1 and 20-2 and the summaries 
contained in tables 20-3 and 20-4. How many sectors of the early Soviet 
economy received concession agreements? Of the 44 sectors of the economy 
open for Types I and II concessions, 42 sectors, or 95 percent, actually 
received them. Of the 43 sectors open for Type III technical-assistance 
agreements, some 40 sectors or 93 percent received them. 



Th* Western Contribution to Soviet Production and Productivity, 1917-30 335 

Table 20-4 SUMMARY STATEMENT OF SECTORAL IMPACT 

OF TYPE III TECHNICAL ASSISTANCE AGREEMENTS 



Technical Assistance Agreement! Associated with: 
United State* Germany Other countries 



Sectors with t/a agreements 36 (84 percent) 3a (74 percent) 91 (51 percent) 

Sectors without t/a agreements 7 (16 percent) 11 (a6 percent) 21 (40 percent) 

Total sectors 43 (100 percent) 43 (100 percent) 43 (100 percent) 

Note: Summary regardless of geographic association: 

93 percent of all sectors had technical assistance agreements (40 sectors). 

7 percent of all sectors did not have technical assistance agreements (3 sectors). 
Source: Table 20-2. 



Finally, if we assume that the technical transfers take place irrespective of 
legal ownership or operational status (i.e., that we do not distinguish between 
concession types), then only one sector out of the 44 (furniture and fixtures) 
did not receive a concession and thus had no opportunities for technological 
transfer. Of the total sectors 98 percent took advantage of foreign technology, 
and this was supplemented by indirect transfers. 

Table 20-5 SUMMARY STATEMENT OF THE SECTORAL IMPACT 
OF ALL CONCESSIONS, IRRESPECTIVE OF TYPE 



Concessions Associated with: 
United States Germany Other countries 



Sectors with concessions 38 (86 percent) 38 (86 percent) 39 (89 percent) 

Sectors without concessions 6 (14 percent) 6 (14 percent) s (11 percent) 

Total sectors 44 (' 00 percent) 44 (100 percent) 44 (too per cent) 

Note: Summary regardless of geographic association: 

98 percent of all sectors had some form of concession (43 sectors). 

a percent of all sectors had no form of concession (1 sector). 
Source: Tables ic-i and 20-2. 



SECTORS WITHOUT IDENTIFIABLE CONCESSIONS 
To this point discussion has been concerned with sectors possessing 
identifiable concessions. The results imply an infusion of Western skills and 
technology. As Krassin foresaw, 'Each concession (would) . . . infuse a 
spark of vitality into the country's industrial life and would be in itself a 
training ground for Russian technical specialists and workmen.'* Use of the 
SIC code ensured that all sectors came up for consideration in an impartial 
• Krassin, op, tit., p. 184. 



336 Western Technology and Soviet Economic Development, 1917-1930 

manner and that any possible biases on the part of the researcher would be 
eliminated. Possible criticism of the use of the SIC is far outweighed by 
the impartiality obtained. 

Examination of sectors without concessions indicates the thoroughness 
with which the Soviets undertook this program. It is difficult to see how the 
canard of 'no large number of concessions' arose and spread to the point of 
becoming part of State Department advice to a well known scholar.* It is 
interesting to note that the handful of books written in 1928-9 on the impact 
of concessions universally reduced its importance, and nothing has been 
written since that time. , 

Of 44 sectors, only one had no identifiable concession. This is SIC 25 
(furniture and fixtures): hardly surprising, as furniture making is a small 
scale industry with a static technology. Further only two sectors (apart from 
furniture) had fewer than two concessions: tobacco manufacturing and motor 
freight transportation, each of which had one concession. Given the extensive 
makhorka industry, the former exception is not surprising. The lack of motor 
buses until 1924 and absence of roads makes the latter exception understand- 
able. There was no Soviet automobile industry until the Ford-Fiat agreements 
of 1928-9. All other sectors had concession agreements with two or more 
countries Reliance was not placed on one source of technology. The net was 
spread wide enough to capture all the benefits of Western technology wherever 
they originated. 

THE DEGREE OF TECHNOLOGICAL IMPACT WITHIN 
SPECIFIC SECTORS 
It now remains to estimate the degree of impact within each sector. Table 
20-6 estimates the direct and the indirect impact of Western technology upon 
each of the sectors discussed in Part I. 

Table 20-6 DIRECT AND INDIRECT IMPACT OF WESTERN 
TECHNOLOGY BY SECTOR AND SU13SECTOR 



Industry Estimated Direct Impact Estimated Indirect Impact 



Oil industry (chap. 2) 




Exploration technology 


Complete 


Drilling technology 


Complete 


Pumping technology 


Complete 


Oil-field electrification 


Complete 


Pipeline construction 


Complete 


Refinery construction 


Complete 


Market acquisition 


Complete 


* See page jo. 





Not applicable 
Not applicable 
Not applicable 
Not applicable 
Not applicable 
Not applicable 
Not applicable 



The Western Contribution to Soviet Production and Productivity, 1917-30 337 



Table 20-6 Continued 



Industry Estimated Direct Impact Estimattd Indirect Impact 


Coal and anthracite mining (chap. 3) 






Coalfield*; Donets 


Heavy 


Significant 


Kuzbas 


Complete 


Not applicable 


Moscow 


Heavy to complete 


Not applicable 


Far East 


Complete 


Not applicable 


Sakhalin 


Complete 


Not applicable 


Shaft development 


Complete 


Not applicable 


Mine mechanization 


Complete 


Not applicable 


Ferrous metallurgy (chap. 4) 






Iron-ore mining 


Heavy 


Limited 


Blast-furnace repairs 


Limited to significant 


None 


Blast-furnace new design 


Complete 


Not applicable 


Steel-plant construction 


Complete 


Not applicable 


Rolling-mill construction 


Complete 


Not applicable 


Nonferrous Metallurgy (chap. 5) 






Zinc mining 


Significant 


Limited 


Zinc smelting 


Complete 


Not applicable 


Lead mining 


Significant 


Limited 


Lead smelting 


Complete 


Not applicable 


Copper mining 


Significant 


Limited 


Copper smelting 


Complete 


Not applicable 


Silver mining 


Complete 


Not applicable 


Silver smelting 


Complete 


Not applicable 


Manganese production 


Complete 


Not applicable 


Manganese markets 


Complete 


Not applicable 


Miscellaneous mining and smelting (chap. 6) 




Gold mining 


Complete 


Not applicable 


Platinum mining 


None 


Heavy 


Platinum markets 


Heavy to complete 


None 


Bauxite exploration 


Heavy 


None 


Pilot aluminum smelting 


Complete 


Not applicable 


Mica mining 


Complete 


Not applicable 


Asbestos mining 


Heavy to complete 


Not applicable 


Asbestos milt technology 


Complete 


Not applicable 


Asbestos shingles manufacture 


Complete 


Not applicable 


Agricultural technology (chap, 7) 






Wheat fanning 


None 


Significant 


Seed growing 


Limited 


Limited 


Cotton growing 


Limited 


Limited 


Merino flocks 


Complete 


Not applicable 


Dairy industry 


Significant 


Limited 


Egg and butter markets 


Complete 


Not applicable 


Tractors 


Complete 


Not applicable 


Other agricultural equipment 


Limited 


Limited 



338 Western Technology and Soviet Economic Development, 1917-1930 
Tablt 20-6 Continued 



Industry Estimated Direct Impact 


Estimated Indirect Impact 


Other food industries (chap. 8) 






Fishing 


Limited 


None 


Fur collection 


Limited 


None 


Fur sales 


Heavy 


None 


Fish canneries 


Heavy 


Limited 


Lumber industry (chap, o) 






Forestry production 


Heavy 


None to limited 


Lumber markets 


Complete 


Not applicable 


Pulp and paper mills 


Not applicable 


Complete 


Machine construction (chap. 10) 






Locomotive construction 


Heavy 


Not applicable 


Machine building 


Heavy to complete 


Not applicable 


Ball bearings 


Complete 


Not applicable 


Steam boilers 


Heavy 


Not applicable 


Precision engineering 


Complete 


Not applicable 


Electrical equipment industry (chap, n) 




High-tension equipment 


Complete 


Not appticable 


Electrical motive equipment 


Complete 


Not applicable 


Low-tension equipment 


Complete 


Not applicable 


Accumulators 


Complete 


Not applicable 


Turbines and generators 


Complete 


Not applicable 


Hydroelectric technology 


Heavy 


Limited 


Chemicals, compressed gases and dyes (chap, 12) 




Synthetic ammonia 


Complete 


Not applicable 


Nitric acid 


Complete 


Not applicable 


Superphosphates 


Complete 


Not applicable 


Sulphuric acid 


Complete 


Not applicable 


Coke oven by-products 


Complete 


Not applicable 


Oxygen and hydrogen 


Complete 


Not applicable 


Basic and intermediate dyes 


Complete 


Not applicable 


Glass technology 


Complete 


Not applicable 


Rubber technology 


Heavy 


Limited 


Clothing, housing, and food (chap. 13) 




Textiles 


Heavy 


Limited 


Clothing manufacture 


Limited 


Limited 


Artificial silk 


Complete 


Not applicable 


Buttons 


Limited 


None 


Food processing 


Significant 


Limited 


Construction industry 


None to limited 


Limited 


Misc. small items 


None to limited 


Limited 



The Western Contribution to Soviet Production and Productivity, 1917-30 339 
Table 20-6 Continued 



Industry 


Estimated Direct Impact 


Estimated Indirect Impact 


Transportation and trans,*- Nation 


equipment industries 


■ (chap. 


»4> 


Railroad operations 


None to limited 


Heavy 


Railroad electrification 


Complete 




Not applicable 


Telegraphic comnvuH'-ationa Heavy- 




None 


Radio eommunicatic-i; 


Complete 




Not applicable 


Automobile construction 


Complete 




Not applicable 


Truck construction 


Complete 




Not applicable 


Shipping 


Heavy 




Limited 


Shipbuilding 


Heavy 




None 


Port construction 


Significant 




None 


Freight transportation 


Limited 




None 


Military technology (chap, 15) 








Airplane construction 


Complete 




Not applicable 


Pilot training 


Complete 




Not applicable 


Poison gas production 


Heavy 




None 


Artillery and shells 


Complete 




Not applicable 


Armored cars and tanks 


Complete 




Not applicable 


Trading companies (chap. 16) 








United States markets 








United Kingdom markets 


All trading companies had heavy assistance 


German markets 


in the eai 


:ly years of the decade. 


Austrian markets 








Italian markets 









Note: This table summarizes the evidence presented in Part I concerning the degree 
of impact of Western technology on the Soviet economy. The 'direct impact treated 
in column 3 refers to identifiable technical associations between Western firms and 
Soviet institutions. This involves not only Soviet adoption of Western processes m 
toto but also the employment of foreign engineers in the U.S.S.R. for production or 
training of Soviet engineers. 

The 'indirect impact' treated in the last column refers to the acquisition of Western 
equipment not, however, operated by a foreign company. Such instances are compara- 
tively rare in this period, but they become more common in the periods to be covered 
by later volumes. The characteristic distinguishing the two types of influence is the 
supply ofsupplementary services ; training, installation, break-in operations and servicing. 
The degrees of impact are defined as follows: 

Complete So percent of all new capacity 

Heavy 60 to 80 percent of all new capacity 

Significant 40 to 60 percent of all new capacity 

Limited 20 to 40 percent of all new capacity 

None o to so percent of all new capacity 

Thus, in a sector such as oil-field rotary drilling, there was a complete and direct impact. 

TTie adopted technology was almost completely Western, and the equipment was 

installed and initially operated by a Western company. 



THE CONTRIBUTION OF IMPORTED TECHNOLOGY TO 

SOVIET PRODUCTION 
In 1921 production was zero or rapidly approaching zero. Large segments 
of the industrial structure were in a state of 'technical preservation.' The first 



340 Western Technology and Soviet Economic Development, 1917-1930 

task was to get these plants started ; the second was to repair plants damaged 
or in disrepair; and the third was to modernize. Although each industry solved 
its problems in a slightly different manner, the importation of foreign skills 
was common to all of them. 

The description in the preceding pages indicates that foreign technology 
had both an extensive coverage within the economy and a significant impact 
within each sector. No other factors were capable of bringing about the same 
end result. If internal skills or internal capital accumulation had existed then 
perhaps the answer would not be as obvious. As the facts stand, the conclusion 
is quite clear. The rapid growth of the 1920s was dependent on foreign 
operative and technical skills. Electrical energy grew more rapidly than any 
other sector; from a base of 100 in 1913 the index grew to 412 in 1929. There 
is no reason to doubt the basic accuracy of these figures. The assistance given 
Soviet trusts, together with the equipment known to have been imported, 
could have accomplished this increase, even allowing for the previously 
mentioned problems and inefficiencies in the transfer. By the end of the 
decade, Lenin's dictum that socialism equals electrification was well on the 
way to implementation. This was heralded as a triumph of socialist construc- 
tion, but unless one defines the latter as Western enterprise operating in a 
socialist economy, it should be hailed as a triumph of Western private enter- 
prise working under enormously difficult technical and political conditions. 
Western engineers were aghast, as their writings show, at the interference 
from political 'straw bosses' whose contribution to construction was purely 
verbal, generating great heat in a show of ideological fervor. The remarkable 
growth of production in the 1920s is in those sectors which received the 
greatest Western aid; coal, oil, pig iron, and rolled steel. Those sectors without 
a great deal of aid barely improved their position during the course of the 
decade. 

The Western contribution to Soviet production between 1917 and 1930 
was total. No important process has been isolated which was not a WesUto-East 
transfer. The Soviets quite rationally made no attempt whatsoever to develop 
completely new processes; even experimentation was limited and soon 
abandoned. They concentrated on acquiring new Western processes, training 
cadres of politically reliable engineers and establishing numerous basic and 
applied research institutes. The question was not whether to transfer Western 
technology but which process to transfer. Decisions were made on the basis of 
Western factor resource patterns and these may, or may not, have been 
applicable to the U.S.S.R. There are a few signs that the Soviets were aware 
of this problem and induced Western companies to undertake the necessary 
research and development work. 



CHAPTER TWENTY-ONE 



The Significance of Foreign Technology and 
Concessions for Soviet Exports 



THE COMPOSITION OF SOVIET EXPORTS 
The Bolsheviks were realists. There was little hope that largescale Western 
government credits would be forthcoming. World revolution was being actively 
promoted, and great things were expected daily from the German proletariat, 
for instance. It could not be assumed that even the most naive of Western 
Governments or the most grasp ing of capitalists was going to subsidize its own 
downfall on credit terms. The alternatives were concessions, gold, or exports. 
The concessions policy was closely related to the drive for exports. A decree 
signed by Lenin in August 1921 established an Extraordinary Export 
Commission to assemble, process, and store raw materials for export. The 
Commission had the right 'to impose fines and inflict punishment on persons 
guilty of delays.' l 



Table 21-1 


CAPITAL GOODS AS PERCENTAGE OF 






U.S.S.R. TRADE, 1920 


TO 1930 






Capital Goods 


Raw Materials, Foodstuffs 




% Imports 


% Exports 


% Imports 


% Exports 


IQSO 


39-7 





60.3 


1 00.0 


1931-2 


4S-6 


— 


54-4 


1 00.0 


1922-3 


76.2 


— 


»3.8 


100,0 


19*3-4 


i& 7 


O.I 


16.3 


99-9 


19*4-5 


68.5 


0-3 


30.8 


99.7 


192S-6 


82.6 


O.I 


16.2 


99.9 


1936-7 


89.5 


O.I 


9-3 


99.9 


1927-8 
1928-9 


86.4 


O.I 


12. 5 


99.9 


88.4 


°-3 


10.2 


99.8 


1929-30 


88.1 


0.2 


9.8 


99.8 



Source: Alexander Baykov, Soviet Foreign Trade (New Jersey: Princeton, 1946). 



Ekonomickeskaya Zkixn, August 26, 1921. 



342 Western Technology and Soviet Economic Development, IQ17-1930 

After this decree, a number of concessions were concluded under which 
foreign companies entered the Soviet Union to handle the assembly and 
export of animal products (eggs, butter, casings, fish and similar products). 
In 1920, imports were primarily food and raw materials; by 1923 imports 
were primarily capital goods. The first function of the concession was to help 
solve the supply crisis and then develop materials for export. After 1923, 
exports were between 99.7 and 100 percent raw materials and foodstuffs. 

Table 21-1 suggests the significantly high proportion of Soviet imports 
which consisted of capital goods, This is consistent with our hypothesis of 
complete technological dependence on the West. The counterpart was a very 
high proportion of raw material and foodstuffs exports. The U.S.S.R. was 
exchanging consumer goods and raw materials for capital goods. This is not 
just the mere exchange of resources; the gains from trade were far more 
effectively captured by the Soviets as a result of their monopsonistic trading 
organizations facing atomistic Western sellers. Further, even with equality of 
bilateral bargaining, the Western investment in research and development 
could not be recouped in sales to the U.S.S.R. Only if the Soviet Union were 
to export freely its own technological advances would the balance be approxi- 
mately even. 

Very early trading efforts by the Soviets suggests that they did not then 
appreciate the advantages of a monopoly trading organization, but after about 
1923, any attempt by Western sellers to form a buying group was met by 
vehement opposition and any concession (such as Russgertorg) which appeared 
to be gaining bilateral bargaining strength was quickly disbanded or had its 
wing clipped. Certainly the monopoly profits earned by the U.S.S.R. in the 
fifty years following the Bolshevik revolution far exceed that of the 19th 
century American trusts and 'robber barons' dealt with by the Sherman Act 

ofl8 9°' L . -, 

In sum, trade was used as a development mechanism. Manganese, oil, 

lumber, gold and butter developed by concessions operating inside the Soviet 

Union were sold on the Western markets by other concessions in which the 

Soviets held a controlling interest. The foreign exchange generated was used 

for purchase of capital equipment for the expansion and modernization of 

the industrial structure. 

THE SIGNIFICANCE OF PURE AND MIXED CONCESSIONS 

IN RAW MATERIAL DEVELOPMENT 
The concession may be related directly to the development of exports. 
Table 21-2 takes the twelve leading exports and lists the related importance 
of the concession as it has been detailed in Part I of this study. 



The Significance of Foreign Technology and Concessions for Soviet Exports 343 

Table 21-2 LEADING SOVIET EXPORTS AND SIGNIFICANCE 

OF CONCESSIONS 



Rank 
Order 



Exports 
(19*7-8) 



Value of 
Exports 

thousand rubles 



Percent of 
Total Exports 



Significance of Comtssions 1 
Type I Type II Type III 



1. 

2. 
3- 
4. 
S- 
6. 

7- 

8. 

9. 

10. 



oa 

Furs 

Lumber 

Clothing 

Eggs 

Butter 

Sugar 

Flax 

Manganese 

Wheat 

Casings 

Fish 



124,000 

1 (9,207 

j 18,540 

103,163 

40,462 

39.120 

33.803 

25.893 

13,781 

11,210 

10.659 

'0.367 

650,295' 



19.! 
18.3 
18.2 
15-9 

6.2 

6.0 

4.0 
2.1 

'•7 
1.6 
1.6 

99.9 percent 



X 
X 

X 



x 
X 

x 
X 
x 



X 
X 
X 

x 
X 
X 
X 



X 

X 



X 

x 
X 
x 
X 

X 
x 



Notes: l X -• major significance 
x — minor significance 
* Percent of all exports: 80.9 percent 



These items include just under 81 percent of all Soviet exports. Oil, furs, 
and lumber contributed just less than 20 percent each (together 55.6 percent) 
of this total; each activity was completely dominated by foreign assistance 
supplied through concessionary arrangements. 



CHAPTER TWENTY-TWO 

Conclusions 



The industrial structure of the Soviet Union between 1917 and 1930 was the 
reorganized tsarist structure. This consisted of several hundred medium-to- 
large manufacturing enterprises located in urban centers, notably Petrograd 
and Moscow. This manufacturing complex was supplemented by numerous 
self-contained mining enterprises in the Donbas and the Urals which were 
centers of incipient industrialization. Some of these plants were large by any 
standards. The International Harvester plant at Omsk for example was the 
largest in the company's world-wide network. The first major conclusion is 
that the tsarist industrial structure was not at all negligible. To say that 
'Russia prior to 1917 was not unlike a country such as India on the one hand 
or large areas of southeastern Europe on the other,' 1 is rank absurdity. Airplanes 
and automobiles of indigenous Russian design were produced in quantity 
before the Bolshevik revolution. Although industrialization was restricted to 
a few population centers, it utilized modern, efficient plants operating on 
scales comparable to those elsewhere in the world. Further, there were obvious 
signs of indigenous Russian technology in chemicals, aircraft, automobiles, 
turbines, and railroad equipment. 

The second major conclusion was that this structure was substantially 
intact after the Bolshevik Revolution. Intervention did not affect the main 
manufacturing areas. There was damage to the railroad system, particularly in 
the Donbas and Siberia, and the Port of Petrograd was heavily damaged and 
mined. Petrograd industry, however, was basically in operable condition. 
Industrial damage was concentrated in the Ukrainian sugar industry and in 
the Ural and Donetz Basin mines. 

What, then, created the economic debacle of 1921-2? 

It was not brought about by absence of operable production facilities. While 
plants were in a state of 'technical preservation,' work discipline collapsed, 

1 M. Dobb, op. tit., p. it. 



Conclusions 345 

and skilled workers, engineers, and managers fled into the villages or abroad. 
The distribution system was abandoned as unnecessary in a socialist economy. 
Productivity consequently sank to abysmally low levels, and the 'supply crisis' 
followed on the heels of the rejected distribution system. Systematic destruc- 
tion of a viable economy was aided by the inflation of the ruble to zero value 
(on the basis that money was not needed in socialism), the 'instant demobiliza- 
tion of industry' decree, 'free' public services, and the replacement of skilled 
managers with unskilled proletarians. By August 1922 the Soviet economy was 
at the point of collapse. This is not deduction. Lenin, Bogdanov, Arsky, 
Krassin and others have made the point clearly. The end had come. As Krassin 
phrased the problem, 'Anyone can help pull down a house; there are but few 
who can re-build. In Russia there happened to be far fewer than anywhere 
else.' 1 

The economic decline which directly followed the Revolution is unparalled 
in the history of industrialized society; however, the Soviets not only survived, 
but in 1924 were able to institute the Second Bolshevik Revolution and return 
to the path of State control of industry. The factors behind the miraculous 
recovery are detailed in the text. 

In mid- 1 922 Soviet industry was at a standstill. Soviet inability, for lack of 
skilled engineers and workers, to restart the tsarist plants is well illustrated 
by the Russo-Baltic plant at Taganrog, moved during the war from Reval. 
Four massive buildings were visited (and photographed) by the 1926 Ford 
Delegation. The plant had furnaces, hammers, hydraulic presses, and a power 
station, as well as approximately 2,000 machine tools. These had been idle 
since 1917, although coated with oil to keep the tools in some sort of preserva- 
tion. The photographs indicate the gigantic size of the plant, idle for at least 
nine years. It was operable although perhaps technologically out of date 
compared to the rapidly developing industries in the West. The urgent needs 
were two-fold: to restart the silent plants and modernize the equipment. The 
trust was the organizational vehicle adopted for these objectives. As Bogdanov 
pointed out, the primary aim of the trust was the transfer of foreign skills and 
technology to fulfill both these urgent requirements. 

Trustification and technical transfer were achieved step by step. First, a 
selection from among important industries was made. Choice was on an 
ideological basis. Railroads, mining, and machinery sectors were selected on 
the basis of political, not economic, choice; they were only coincidentally 
key sectors in the economy. In the process of selection, several key economic 
activities, such as gear-cutting (Citroen plant) and air-brake manufacture 
(Westinghouse Air Brake Company) were left in foreign hands. The pragmatic 

' Krassin, op. cit. 



346 Western Technology and Soviet Economic Development, 19x7-1930 

Communists understood their own inability to run these rather complex 
enterprises. After selection, the remaining operable units were isolated from 
the inoperable, and the latter were left outside the trust structure. The 
inoperable units were offered to foreign firms as concessions (the Berger and 
Wirth dye plant, the Bergman ferrous metallurgy plant, the Kablitz boiler- 
making operation, the AIK textile plants, the Lena and Kemerovo mines, 
etc.)- In sum, the isolation procedure eleminated two categories of economic 
activity from the trusts: first, complex operations requiring lengthy foreign 
assistance, and second, those units requiring substantial modernization. These 
were leased directly to foreign operators as pure concessions. 

The remaining or operable units were then grouped into trusts. Most were 
either dormant or working on an intermittent basis; given technical and 
managerial skills, they were operable. The names were 'proletarianized' and 
attempts were made to restart. In some plants 'white' engineers took over 
from unskilled 'red' directors — notably in the electrical and machinery sectors. 
But in all cases operation without the discipline of the market system led to 
hopeless inefficiency. The answer to a massive loss was a massive subsidy. 
These got out of hand by 1923 and were countered by the 'contraction of 
industry' policy. 

Contraction (i.e., elimination of the most heavily subsidized plants) was 
concurrent with the injection of foreign assistance. Although this began as 
early as 1919-1920, it received a strong assist from the German Trade Agree- 
ment of 1 92 1 and the Rapallo economic, military, and trade protocols. Exten- 
sive documentation in the German Foreign Ministry Archives attests to the 
thoroughness and completeness of German economic and technical help after 
1922. a Such assistance was at first almost completely German, in fact. The 
Shakhta affair reflects the influence of Germany in the U.S.S.R. The Soviets 
were concerned about the massive infiltration and influence of German 
specialists in Soviet industry. They had penetrated most large industrial and 
mining enterprises, and in many cases had formed understandings with the 
prerevolutionary engineers. Whatever the judicial failings of the Shakhta 
'trials,' the OGPU was probably correct in recognizing a threat to the 
Revolution. As late as 1928, Soviet industry was run by a partnership of 
German and prerevolutionary engineers independent of nominal Party control. 

The tendency at the end of the decade was to turn increasingly toward 
American technical leadership. Of the agreements in force in mid-1929, 27 
were with German companies, 1 5 were with U nited States firms and the remain- 

1 The writer examined rather cursorily more than 25,000 documents, including a 
small group of Russian documents relating to this cooperation and the work of the 
various committees and sub-committees formed to channel the assistance. Com- 
mittees IV and V were mainly concerned with the economic and technical aspects. 



Conclusions 347 

ing ones were primarily with British and French firms. In the last six months 
of 1929, the number of technical agreements with U.S. firms jumped to more 
than 40.* It is this change which forms a logical break in the examination of 
Soviet technology and industrial development. The usual break point — 1928 
(the beginning of the first Five- Year Plan) — is meaningful only in propaganda 
terms; the Plan was implemented after a sequence of construction and 
technical-assistance contracts with Western companies had been let. 

The Freyn-Gipromez technical agreement for design and construction of 
giant metallurgical plants is economically and technically the most important.* 
Despite the German work, the metallurgical industry was on a 1913 technical 
level. It had not incorporated current advances in rolling techniques such as 
the American wide strip mill or the powerful, heavy blooming mills developed 
in the mid- 1920*5. The A. J. Brandt-Avtotrest agreement for reorganization 
and reconstruction of the prerevolutionary car plant (the AMO) was 
overshadowed by the 1930 Ford Motor Company agreement to build a 
completely new integrated plant for the mass production of the Model A, 
the 2. 5 -ton Ford truck, and buses using Ford patents, specifications, and 
manufacturing methods. The plant was erected by Albert Kahn, the builder 
of River Rouge and so enabled the Soviets to duplicate the immense advances 
of American automobile engineering within a few years of inception in the 
United States. Two agreements with Orgametal by other American companies 
completed assistance in the heavy engineering field. The electrical industry 
had the services of International General Electric (in two agreements), the 
Cooper Engineering Company and RCA for the construction of long-range 
powerful radio stations. The Stuart, James and Cooke, Inc., contracts with 
various coal and mining trusts were supplemented by specialized assistance 
contracts, such as the Oglebay, Norton Company aid agreement for the iron 
ore mines and the Southwestern Engineering agreement in the non-ferrous 
industries. The chemical industry turned to Dupont and Nitrogen Engineering 
for synthetic nitrogen, ammonia, and nitric acid technology; to Westvaco for 
chlorine; and to H. Gibbs to supplement I.G. Farben aid in the Aniline Dye 
Trust. This was supplemented by more specialized agreements from other 
countries: ball bearings from Sweden and Italy; plastics, artificial silk, and 
aircraft from France; and turbines and electrical industry technology from 
the United Kingdom. 

* Bran, Soviet Economic Development and American Business. 

1 The U.S. State Dept. Decimal File contains a rather curious exchange of letters 
between Freyn Engineering and the State Dept. Obviously there had been a major 
communication of ideas and attitudes between both parties. Both sides, however, 
refrained from placing the understanding on paper; or at least an understanding 
has not been traced within the Archives. Those documents in the files suggest that 
Freyn was powerfully influenced by the State Dept. viewpoint. (See U.S. State 
Dept. Decimal File, 661. 1116/62.) 



348 Western Technology and Soviet Economic Development, igij-1930 

The penetration of this technology was complete. At least 95 percent of 
the industrial structure received this assistance. To demonstrate this, all sectors 
of the economy have been examined impartially. 

We may conclude therefore, that the basic Soviet development strategy 
was to learn from that country considered to have the most advanced processes 
within a given field of technology and to leave no industrial sector without the 
benefits of this transfer process. In 1929-30, some 40 million rubles were spent 
for technical-assistance agreements alone. When it is considered that the 
marginal costs to the Western supplier were very small, that this ensured 
extremely low purchase prices for technology {in the light of opportunity 
costs), and that much of the transfer was done informally at no cost as a part 
of equipment-supply agreements, then the magnitude of the benefits becomes 
very clear. The greater part of this sum was spent in the U.S. ; 'In America,' 
it was said, 'they do not guard manufacturing secrets so jealously.' 7 

The success of this strategy was not lessened by the fact that political 
interests always dominated economic requirements. When individual conces- 
sions threatened the hold of the Party even remotely, the reaction was sharp 
and ruthless. The Shakhta affair was an example of Leninist terror used to 
bring a 'united front' into line, whatever might be the economic consequences. 
The move from German to American technology was partially dictated by the 
probability the American engineers were less likely to get tangled in the meshes 
of counter-revolution, which had its origin in Europe rather than the United 
States. Import of equipment always reflected the domination of the political. 
One of the first imports from the U.S., after the lifting of the blockade, was 
1,300 printing presses from the Fulton Iron Works. Production of long-range 
radio stations went ahead rapidly with the help of RCA and International 
General Electric, at the time when the State Department files had ample 
evidence of subversion (see, for example, Microcopy 316, Roll 141 for Soviet 
activities in the Dutch East Indies in 1928, the cracking of the Bolshevik code 
and instructions to Soviet agents at precisely that time at which permission 
was given to RCA and IGE to export radio stations to Soviet Russia). 
One at least understands why RCA checked and then double-checked with 
the State Department on permission to export high-powered radio stations. 

The dominance of the political aspects over the economic did not restrain 
development; the Soviets correctly foretold the inaction of major Western 

* To place U.S. technical aid to the U.S.S.R. in perspective, the reader is referred to 
Current Technical Service Contracts (U.S. Dept. of State, 1966). Brazil is the largest 
country in this listing. Pages 62-6 list AID technical-assistance projects in Brazil. 
Comparison of these with U.S. aid agreements in the U.S.S.R, in 1028-9 will 
convey the enormous size and scope of the latter. There is nothing comparable to 
the Ford Motor Co. agreement, for example. 

' Ekanomicketkaya Zhisn, No. 225, September 29, 1929, p. 3. 



Cmchuiom 



349 



governments during the transfer of technology. The Soviets were determined 
and based their moves on accurate information. Western governments failed 
to cooperate one with another and made policy determinations inconsistent 
with material on file. 

The concessions policy itself had two aspects. On one hand the Soviets 
described to the Western businessman the profitable opportunities awaiting 
entrepreneurs in the U.S.S.R. These were presented in hopeful little booklets, 
backed up by trade journals and trade delegations. On the other hand, the 
Soviets had only limited interest in the concession hence their eventual 
expropriation of the Western entrepreneur naive enough to invest in the 
Soviet economy. There was no danger to the Revolution, said Lenin: 'They 
are a foreign thing in our system ... but whoever wants to learn must pay.' 
The West was needed to build up socialism, did it matter if the Soviets gave 
away a few tens of millions in resources? As Lenin said, 'afterward we shall 
get it back with interest.'* The closer the explanation got to the rank and file, 
the more explicit were the Communists in describing the fate awaiting the 
Western businessman. It was unlikely that W. Averell Harriman was reading 
Komsomohhaya Pravda, and on this the Soviets guessed correctly. It is less 
credible that the State Department did not investigate the ample data at its 
disposal — data backed by very accurate field reports — to determine the fate 
of investors in the U.S.S.R. 

As the lesson penetrated Western business circles, the pure and mixed 
concessions were replaced by the technical-assistance agreement, under which 
the assistance was either bought outright or was included as part of a large 
equipment order. After the 1928 Gillette Razor Blade concession, no further 
pure concessions were concluded. Mixed companies persisted for a few years. 
The technical agreement remains and is currently in use. 



Kmmomolskaya Pravda, October 9, 1928. 



APPENDIX A 

A Guide to Sources of Material 



Almost all of the material used in this study, including the microfilmed 
copies of State Department and other records, has been deposited with the 
Hoover Institution on War, Revolution and Peace, at Stanford University. 

THE STATE DEPARTMENT DECIMAL FILE 

The National Archives has published much of the State Department 
Decimal File for 1910-30 on microfilm. Microcopy 316 is the main source for 
this study, particularly Rolls 107 to 143. Wherever possible, references are 
given to the National Archives microfilm copy, not to the original Decimal 
File copy. 

The first three figures of such a reference consist of the Microcopy number 
(usually 316); the second group of figures refers to the roll number in the 
microcopy, and the last group refers to the frame number. 

Thus, 'U.S. State Dept. Decimal File, 3 16-13 1-228' means that the source 
is the Decimal File and the reference may be found in National Archives 
Microcopy 316, Roll 131, Frame 228. 

Some Decimal File records have not been microfilmed ; these are referred 
to by the original Decimal File number (i.e., 361.6221/1). They may be 
specially ordered on microfilm, or the original documents may be examined 
at the National Archives. 

For readers in Washington, D.C., wishing to see the original document 
(not the microfilmed copy), the National Archives has finding aids which 
make it possible to trace the Decimal File number from the Microcopy-Roll 
numbers given in the text. 

Documents of the Bureau of Foreign and Domestic Commerce are referred 
to by file number only. No roll and frame identification exists. 

For German Foreign Ministry records references are to National Archives 
Serial, Roll and Frame numbers. Thus, 'German Foreign Ministry, T120- 
3032-H108752' refers to Microcopy T120, Roll 3032, Frame H108753. 



3$2 Appendix A 

RELIABILITY OF DATA ORIGINATING 
INSIDE THE U.S.S.R. 

Archival material from United States and German sources was assessed 
according to the reliability given by the respective foreign offices. During 
the 1920s the United States had excellent sources of information inside the 
Soviet Union. Two agents (IS and IS/2) provided much political and economic 
material. IS was especially prolific and passed over many hundreds of docu- 
ments. These were assessed by the State Department as reliable, and a number 
were marked for the attention of the Secretary and Assistant Secretary. The 
writer checked a selection of IS material against later events and found it to 
be very precise. No case was found where IS was wrong in an important fact. 



APPENDIX B 

List of Operating Concessions, 1920 to 1930 



TYPE I (PURE) CONCESSIONS 



Name 

Aktiebolaget Svenska Kullagerfabriken (SKF) 

Aktiengesellschaft fur Biuaufurungen 

Alftan Concession 

Allezundsky Union 

Allgemeine- Warren Treuhand A-G 

Allied American Corp. (See Hammer, Julius) 

Allmanna Svenska Elektriska A/B (ASEA) 

Altebauag 

Altman 

Aluminum Company of America (ALCOA) 

American Asbestos Co. 

American Industrial Colony 

American Industrial Concession 

American Model Industrial Corp. 

American-Russian Constructor Co, (ARK) 

Anglo-Russian Grumant Co., Ltd. 

Aschberg Concession (Russian Bank of Commerce) 

Ayan Corp. Ltd. 

Beloukha Corp. 
Berger and Wirth A-G 
Bergman A-G 
Block and Ginsberg 
Boereznsky 
Bolton, August 
Brand, Leo 



Country of Origin 

Sweden 

Germany 

Lithuania 

Germany 

Austria 

Sweden 
Germany 
Austria 
United States 
United States 
United States 
United States 
United States 
United States 
United Kingdom 
Germany 
United Kingdom 

United States 

Germany 

Germany 

Germany 

Lithuania 

Germany 

Germany 



354 



Appendix B 



Name 


Country of Origin 


Brock A-G 


Germany 


Bryner & Co., Ltd. 


United Kingdom 


Cannon Co. Ltd. 


United Kingdom 


Caucasian-American Trading and Mining Co. 


United States 


Chatkeiama Gomei Kaisha 


Japan 


Chatma Co. 


Greece 


Christensen Concession 


Norway 


Control Co. 


Unknown 


Czestochova Concession 


Poland 


Deutsch-Russische Agrar Aktiengesellschaft 


Germany 


Deutsch-Russische Film Allianz A-G (Derufa) 


Germany 


Deutsch-Russische Saatbau Aktiengesellschaft 


Germany 


Dyer Concession 


United States 


Ericsson A/B 


Sweden 


Estonian-American Oil Co. 


United States 


Euroamerican Cellulose Products Corp. 


United States 



Far Eastern Prospecting Co., Inc. (Far Eastern Syndicate) United States 
Farquhar, Percival United States 

Gaso- Accumulator A/B Sweden 

German Fishing Union (Hochseefischerem) Germany 

GeseHschaft fur Wirtschaftliche Beziehungen mit den 

Osten (Eastern Relations Society) Germany 

Gesellschaft zur Forderung gewerblicher 

Unternehmungen (Gefu) 
Gillette Co. 

Gouria Petroleum Co., Ltd. 
Great Northern Telegraph Co. 

(Det Store Nordiske Telgraselskab) 

Hagakeyama Gomeikaisha Japan 

Hammer, Julius 

(see American Industrial Concession, etc.) United 

Hammerschmidt, D. A. United 

Harriman, W. A. Manganese Concession United 

Haywood Concession United 

Heller, L., and Son, Inc. United 

Hillman Clothing Concession United 



Germany 
United States 
United Kingdom 

Denmark 



States 
States 
States 
States 
States 
States 



Appendix B 

Namt 

Hokushinkai 

Holland-Ukraine Syndicate 

Hotter and Borgen 

Holz Industrie Aktiengesetlschaft Mologa 

Hudsons Bay Co., Ltd. 

Iasima Chatchiro 
Igerussko (I. G. Farben) 
ILVA Alti Forni e Acciaierie d'ltalia s.p.a. 
Indo-European Telegraph Co., Ltd. 
International Barnsdall Corp. 
International Harvester Co. 
International Mica Co., Inc. 
Italian Kuban Concession 

Junkers-Werke 

Kablitz, Richard (Gesellschaft fur Okonomie der 
Dampferzeugungskosten) 

Kahn, Montefiore 

Kita Karafu Tau 

Marchand et Cie. 

Netherlands Spitsbergen Co. 
Nichiro-Giogio Kabusiki-Kaisha 

Otopitel (Refrigeration) 



355 

Country of Origin 

Japan 

Holland 

Norway 

Germany 

Canada 

Japan 

Germany 

Italy 

United Kingdom 

United States 

United States 

United States 

Italy 

Germany 



Latvia 
/United States, 
\ Germany 

Japan 

France 

Holland 
Japan 

Unknown 



Polar Star Concession Unknown 

Priamur Mines, Ltd. United Kingdom 

Prikumskaya (See Russian-American Agricultural Corp.) United States 



Raabe A/B 

Resch Concession 

Rheinbaden 

Rorio Rengion Kumai 

Rorio Rengio Rumian 

Ruben and Bielefeld A-G 

Russian-American Agricultural Corp. (Prikumskaya) 

Russian-American Engineering and Trading Co. (Raito) 

Russian-American Industrial Corp. (Raico) 

Russian-American Mining and Engineering Corp. 

Russian-American Steel Works 

Russian Mining Corporation 



Finland 
Germany 
Germany 
Japan 
Japan 
Germany 
United States 
United States 
United States 
United States 
United States 
United Kingdom 



3S6 



Appendix B 



Name 


Country of Origin 


Separator A/B 


Sweden 


Serkovsky, Yan 


Poland 


Shirak Oil (see Societa Minere) 




Shova Kiuka Kabushiki Kaisia 


Japan 


Shulmann, EHa 


Latvia 


Siemens-Schukert 


Germany 


Sinclair Exploration Co. 


United States 


Singer Sewing Machine 


United States 


Skou-Keldsen 


Germany 


Societa Minere Italo-Belge di Georgia 


Italy, Belgium 


Societe Industrielle de Matieres Plastiques (SIMP) 


France 


Spies Petroteum Company, Ltd. 


United Kingdom 


Stock A-G 


Germany 


Storens, F. 


Norway 


Tetuikhe Mining Corp., Ltd. 


United Kingdom 


Tiefenbacher Knopfabrik A-G 


Austria 


Trans-Siberian Cables Co. 


Denmark 


Trilling, 0. 


Poland 


Tschemo A-G 


Germany 


Tsukahara 


Japan 


Union Miniere du Sud de la Russie 


France 


United German- American Corp. 


United States 


Vega 


Norway 


Vinge and Co. 


Norway 


Vint Concession 


United States 



Ware, Harold (see Russian-American Agricultural Corp.) United States 

Westinghouse Air Brake United States 

Windt 

Wirtschaftliche Verband der Deutschen 

Hochseefischerein Germany 



Yasimo Hachiro 
Yasimo Tanaka 
Yotara Tanaka 

Zatbaugesellschaft 

Zellugal 

Zhest-Western 



Japan 
Japan 
Japan 

Germany 
Germany 
Austria 



Appendix B 
TYPE II (MIXED COMPANY) CONCESSIONS 



357 



Name 

Alamerico (Berlin) 

Allied American Corp. 

American Foreign Trade Corp. 

American Industrial Corp. 

Amexima 

Arbor Co. 



Country of Origin 
United States 
United States 
United States 
United States 
Holland 
Estonia 



Baltische Russische Transport und Lager A-G (Baltrustra) Germany 
Bersol A-G Germany 

Brenner Bros. United States 



Compagnia Industriale Commercio Estero (CICE) 
Cunard Line 

Dava-Britopol (Ruspoltorg) 

Deruluft 
Deruneft 
Derutra (Deutsch-Russische Transport u. Lager 

Gesellschaft) 
Deruwa (German-Russian Merchandise Exchange) 
Deutsch-Russische Metallverwertungs 

Gesellschaft m.b.H. (Derumetall) 
Duverger Concession 
Dvinoles Export, Ltd 

Eggexport 

Eitengon-Schild 

Exportles 

French Steamship Lines 

German Orient Line 
German-Russian Krupp Manushka Co. 

Hamburg- Ameri! .a Line 
Holland-Amerika Line 

International Oxygen Corp. (see Ragaz) 
Internationale Warenaustauschgesellschaft (IVA) 
IRTRANS (Socieil Mista Italo-Russa di 
Commercio e Transporti) 



Italy 

United Kingdom 

/Poland, 

\ United Kingdom 

Germany 

Germany 

Germany 
Germany 

Germany 

France 

United Kingdom 

Germany 
United States 
United Kingdom 

France 

Germany 
Germany 

Germany 
United States 

United States 
Germany 

Italy 



358 



Appendix B 



Name 


Country of Origin 


Kazuli Co. 


Greece 


Kossayger 


International 


Kossel, P., A-G 


Germany 


Kossuryo 


International 


Krupp'sche Landconcession Manytsch G.m.b.H, 


Germany 


Narova Co. 


Estonia 


Nord-Ost 


Germany 


Norway-Russian Navigation Co., Ltd. 


f Norway, 

\ United Kingdom 


Ocean Travel Bureau 


United States 


Persaneft (Persian-Azerbaidjian Naphta Co.) 


Persia 


Perskhlopok 


Persia 


Persshold 


Persia 


Perssholk 


Persia 


Raby Khiki Kansha 


Japan 


Ragaz (Russian-American Compressed Gas Co.) 


United States 


RAIF Iron Co. for aid to Volga Colonists 


Germany 


Ratao (Russische-Oesterreichische Handels A-G) 


Austria 


Rawack and Grunfeld A-G 


Germany 


Repola Wood, Ltd. 


/United Kingdom, 
\ Finland 


Royal Dutch Shell 


/United Kingdom, 
\ Holland 


Ruben and Bielefeld 


Germany 


Rugerstroi (see Kossel, P., A-G) 




Russangloles, Ltd. 


United Kingdom 


Russavstorg (Russisch-Oesterreichische Handels und 




Industrie A-G) 


Austria 


Russgertorg (Russische-Deutsch Handels A-G) 


Germany 


Russhollandoles, Ltd. 


/"United Kingdom, 
\ Holland 


Russian-Asiatic Stock Co. 


International 


Russian Bristles Co. 


United Kingdom 


Russian-Canadian Navigation Co. (Russcapa) 


Canada 


Russian Land Concession Manytsch, Ltd. 


United Kingdom 


Russian Wood Agency, Ltd. 


United Kingdom 


Russnorvegloles, Ltd. 


/"Norway, United 
\ Kingdom 



Appendix B 



359 



Name 

Russo-British Grain Export Co. (Russobrit) 

Russo-Latvian Co. 

Russ-Nonvegian Navigation Company, Ltd. 

Russot 

Russotgorn 

Russo-Turkish Export-Import Co. (Russo-Turk) 

Russperssakhar 

Russpoltorg 

Russtransit (Russo-German Trading and Transit Co.) 

Sale and Company, Ltd. 

Seyfurt A-G 

Sibiko (Danish-Siberian Co.) 

Societa Mista Italo-Russa di Commercio e 

Transport! (IRTRANS) 
Soci6te Russo-Anglaise des Matieres Premieres (Raso) 
Sorgagen A-G 
Sovmetr 
Sovmong 

Standard Oil of New York 
Stern 

Suomen Nahkatehtaitten Osakeyhtio 
Sutta, Simon 
Sveaexport 

Truss, G. H. and Co., Ltd. 
Turksholk 

Ukrainian Brewing Co. (Okman) 
Union Cold Storage, Ltd. 
United States Lines 

Vlessing 

Warren, G. and Co., Inc. 

West-Oestliche Warenaustausgesellschaft (Wostwag) 

White Sea Timber Trust, Ltd. 

White Star Line, Ltd. 



Country of Origin 
United Kingdom 
Latvia 

{United Kingdom, 
Norway 
International 
Turkey 
Turkey 
Persia 
Poland 
Germany 

United Kingdom 

Germany 

Denmark 

Italy 

United Kingdom 

Germany 

France 

Mongolia 

United States 

United Kingdom 

Finland 

United States 

Sweden, Finland 

United Kingdom 
Turkey 

Estonia 

United Kingdom 

United States 

Holland 

United States 
Germany 
United Kingdom 
United Kingdom 



360 Appendix B 

TYPE III (TECHNICAL-ASSISTANCE AGREEMENT) 
CONCESSIONS 



Name 


Country of Origin 


Allen, J. I., and Co. 


United States 


Allen and Garcia, Inc. 


United States 


Allgemeine Elektrizkets A-G 


Germany 


Allis-Chalmers Manufacturing Co. (see RAITCO) 


United States 


Akron Rubber Reclaiming Co. 


United States 


Aufbau Trade and Industrial Co. 


Germany 


Austin Co. 


United States 


Badger, E. B., and Co. 


United States 


Baldwin Locomotive Works 


United States 


Birmingham Small Arms Co. 


United Kingdom 


Borsig, A. G.m.b.H. 


Germany 


Brandt, Arthur J., Inc. 


United States 


Brown Lipe Gear Co., Inc. 


United States 


Burrell-Mase Co., Inc. 


United States 


Compagnie de Prqduits Chimiques et 




Electrometallurgiques S.A. 


France 


Campbell, Thomas 


United States 


Casale Ammonia S.A. 


Italy 


Caterpillar Tractor Co. 


United States 


Chase, Frank, Inc. 


United States 


Cheretti i Tonfani 


Italy 


Compagnie Generale de TSF 


France 


Cooper, Hugh L., and Co., Inc. 


United States 


Davis, Arthur P., Lyman Bishop, and Associates 


United States 


Deilmann Bergbau u. Tiefbau Ges. 


Germany 


Demag A-G 


Germany 


Deutz Motorenfabrik A-G 


Germany 


Deutsch Tiefbohr A-G (Deutag) 


Germany 


Du Pont de Nemours and Co. 


United States 


Electric Autolite Co. 


United States 


Electrokemisk 


Norway 


Ferguson, Harry S., Ltd. 


United Kingdom 


Ford Motor Co. 


United States 


Foster-Wheeler Corp. 


United States 



Appendix B 



361 



Name 

Fr5hlich und Kniipfel Maschinenfabrik 

Freyn Engineering Co., Inc. 

Gasmotoren-Fabrik Deutz A-G 

Gebriider Sulzer A-G 

General Engineering Co. 

Geoffrey and Curting, Ltd. 

Harry D. Gibbs 

Goodman Manufacturing Co., Inc. 

Graver Corp. 

Harburger Eisen und Bronzewerke A-G 

Hect-Feifer A-G 

Henshien and Co., Inc. 

Hercules Motor Co., Inc. 

Hilaturas Casablancas S.A. 

Higgins, John J., Co. 

Humboldt-Deutz Motoren A-G 

International General Electric Co. 
Irving Air Chute Co., Inc. 

Albert Kahn, Inc. 

Karlstad Mechaniska Verkstaden A/B 

Kohorn, Oscar A-G 

Koppers Construction Co. 

Frederick Krupp A-G 

Lockwood, Green and Co. 

Longacre Engineering and Construction Co. 

Lurgie Gesellschaft fur Chemieund Huttenwerke m.b.H. 

Maschinenfabrik Augsburg-Nurnberg A-G (MAN) 

Maschinenbau A-G 

Maschinenbau-Anstalt-Humboldt 

Maatschappij Tot Exploitatie von Veredlinsprocedes 

McCormick Co. 

McDonald Engineering Co. 

McKee, Arthur T., and Co., Inc. 

Mechanical Manufacturing Co., Inc. 

Messer A-G 

Metropolitan- Vickers Electrical Co., Ltd. 

Multibestos Co. 



Country of Origin 
Germany 
United States 

Germany 
Germany 
United States 
United Kingdom 
United States 
United States 
United States 

Germany 
Germany 
United States 
United States 
Spain 

United States 
Germany 

United States 
United States 

United States 
Sweden 
Germany 
United States 
Germany 

United States 
United States 
Germany 

Germany 
Germany 
Germany 
Holland 
United States 
United States 
United States 
United States 
Germany 
United Kingdom 
United States 



36a 



Appendix B 



Name 

Neumeyr A-G 

Newport News Shipbuilding and Drydock Co. 

Nitrogen Engineering Corp. 

Officine Villar Perosa (RIV) 
Oglebay, Norton & Co., Inc. 

Penick and Ford, Inc. 
Pierce, Charles and Co. 
Pflanzennamme G.m.b.H. 

Radio Corp. of America (RCA) 
Radiore Co., Inc. 
Reidinger, A-G 
Roberts and Schaefer, Inc. 

Scintilla A-G 

C. F. Seabrook Co., Inc. 

Seiberling Rubber Co. 

C. V, Smith and Co., Ltd. 

Frank Smith Co., Inc. 

Societe de Prospection Electrique ProcSdes 

Schlumberger 
Soci£t£ du Duralumin S.A. 
SociSte Francaise Anonyme Lumiere S.A. 
Soieries de Strasbourg S.A. 
Southwestern Engineering Corp. 
Sperry Gyroscope Co. 
Standard Oil Co. of New York 
Stein A-G 
Steinert, C. T. 

Stuart, James and Cooke, Inc. 
Sullivan Co. (see RAITCO) 
Szepesi, Eugene, Consulting Management Engineers 

Telefunken Gesellschaft fur Drahtlose Telegraphie 
Thyssens A-G 
Timken- Detroit Axle Co. 
Torfplattenwerke A-G 

Underwood Typewriter Co. 
Union Shoe 



Country of Origin 

Germany 
United States 
United States 

Italy 
United States 

United States 
United States 
Germany 

United States 
United States 
Germany 
United States 

Switzerland 
United States 
United States 
Canada 
United States 

France 
France 
France 
France 
United States 
United States 
United States 
Germany 
Germany 
United States 
United States 
United States 

Germany 
Germany 
United States 
Germany 

United States 
Austria 



Appendix B 



363 



Name 

Vakandcr A/B 

Vattenbyggnadsbyran A/B 

Verein Deutscher Werkzeugmaschtnen Fabriken 

Ausfuhr Gemeinschaft (or Faudewag) 
Vereinigte Carborundum und Elekritwerke A-G 
Vereinigte Kugellager Fabriken A-G 

Warren, G. W., Co. 

Webber and Wells, Inc. 

Westinghotise Company (see Metropolitan- Vickers) 

Westvaco Chlorine Products, Inc. 

Wheeler, Archer E,, and Associates 

J. W. White Engineering Co. 

Winkler-Koch Engineering Co. 

W. A. Wood Co. 



Country of Origin 

Sweden 

Sweden 

Germany 
Germany 
Germany 

United States 
United States 

United States 
United States 
United States 
United States 
United States 



1 



i 



Selected Bibliography 

Aksamitnyi, Anatolii Sergeevich, Die Wolga-Don Grosswasserstrasse, Moscow 
1929. 

Amalgamated Clothing Workers of America, Bibliography of the Amalgamated 
Clothing Workers of America, New York, 1929. 

Amalgamated Clothing Workers of America, Report of the General Executive 
Board, Stxtk Biennial Convention, Philadelphia, May 1924. 

American Association to Promote Trade with Russia, Reports to the Associa- 
tion and Bulletins, New York, 1 920-1. 

American Bankers Association, Commerce and Marine Commission, Russia: 
A Consideration of Conditions as Revealed by Soviet Publications New 
York, 1922. 

American Industrial Colony, Kuzbas. 

American-Russian Chamber of Commerce, Economic Handbook of the Soviet 
Union, New York, 193 1. 

Amtorg Trading Company (New York), Amerikanskiai torgovlia ipromyshlen- 
nosti, New York, 1926. 

Amtorg Trading Company (New York), Economic Review of the Soviet Union 
New York, 1926-30. 

Association Financierc, Industrielle, ct Commerciale Russe, La situation 
iconomique et juridique de la Russie sovittique, Paris, 1924. 

Bank for Russian Trade Review, Moscow Narodny Bank Ltd., London, 1928. 

Bernstein, S. A., The Financial and Economic Results of the Working of Lena 
Goldfields Limited, Blackfriars, London and Leicester, n.d. 

Bron, Saul G., Soviet Economic Development and American Business, Horace 
Liveright, New York, 1930. 

Burrell, George A., An American Engineer Looks at Russia, Stratford, Boston, 
n.d. 

Butkovski, V. I., Inostranye Kontsessii v Narodnom Khozyetve S.S.S R 
Moscow, 1928. 



366 Selected Bibliography 

Clark, W. Gardner, The Economics of Soviet Steel, Harvard, Cambridge, 1956. 
Commercial Yearbook of the Soviet Union: 1925, Allen and Unwin, London, 

1925. 

Conolly, V., Soviet Trade from the Pacific to the Levant, Oxford, London, 1935. 

Conovcr, Htlen F., Selected List of References on Diplomatic and Trade 

Relations of the U.S.S.R., W9-35, U.S. Library of Congress, Washington, 

1935- 

Dobrovol'skii, Boris Nickolaevich, The Nizhne-Tagil Car Building Works, 

Moscow, 1929. 
Egorov, Pavel Ivanovich, The Magnitogorsk (Magnet Mountain) Metallur- 
gical Works, Moscow, 1939. 
Engineering and Mining Journal, New York, 1925-36. 
Ford Motor Company, Report of the Ford Delegation to Russia and the U.S.S.R. 
April- August 1926, Detroit, 1926, Ford Motor Company Accession 
Number 49. 
Foreign Claims Settlement Commission of the United States, Report, 

Washington, 1959. 
General Electric Company, The Monogram, Schenectady, 1943. 
Geologicheskii komitet, Godovoi obzar mineral'nykh resursov S.S.S.R. sa 

1923-6, gg., Leningrad, 1927. 
Gerschuni, G., Die Konzessionspolitik Sowjetrusslands, Berlin, 1927. 
Gershenkron, A., A Dollar Index of Soviet Machinery Output, 1927-8 to 

igjj, RAND Corp., Santa Monica, 1951. 
Glavnyi Kontsessionnyi komitet, Documents Concerning the Competence of the 
Arbitration Court Set Up in Connection with the Questions Outstanding 
Between the Lena Goldfietds Company Limited and the U.S.S.R., Moscow, 
1930. 
Goulevich, A. de, 'Les concessions et les societes mixtes en Russie sovletique,' 

Revue tconomique Internationale, Brussels, 1925. 
Great Britain, Correspondence Relating to the Arrest of Employees of the 
Metropolitan-Vickers Company at Moscow, Command Paper 4286, London, 
1933. 
Great Britain, Anglo-Russian Parliamentary Committee, Possibilities of 

British-Russian Trade, London, 1926. 
Hammer, Armand, The Quest of the Romanoff Treasure, Payson, New York, 

1932. 
Hilger, G. and Meyer, A. G., The Incompatible Allies, Macmillan, New York, 

1953. 
Hillman, Sidney, Reconstruction of Russia and the Task of Labor, New York, 

1922. 
Hirsch, Alcan, Industrialized Russia, Chemical Catalog Company, New York, 

1934- 



Selected Bibliography 367 

Hoover Institution on War, Revolution and Peace (Stanford University), 
The Perctval Farquhar Papers {4 boxes). 

, American Engineers in Russia. Special Collection. 

Indo-European Telegraph Company, Ltd., Annual Reports, London, 1927-8, 

IpatiefT, V., Life of a Chemist, Stanford, 1946. 

Izdaniye litizdata NKID, Annuake politique et iconomique: igss~s6, Moscow, 
1926. 

Jen, Hwang, Le rigime des concessions en Russie sovidtique, Gamber, Paris, 1929. 

Katty kontsessionniky ob'ektov S.S.S.R., Moscow, 1926. 

Keller, Werner, Ost minus west=null, Droemerschc Verlagsanstaldt, Munich, 
i960. 

Kelley, H. G., General Report on Ekaterina Railway, Donets Railway, New 
York, 1926. 

Kostrov, Ivan Nikolaevich, The Nadejdinsky & Taganrog Metallurgical Works, 
Moscow, 1929. 

Krimmer, Alexandre, Sociith de capitaux en Russie impiriale et en Russie 
soviitique, LibraLie du Recueil Sirey, Paris, 1934. 

Kruglyakova, V. I. (id.), Sbornikstatisticheskikh svedniipogornoi i gornozavods- 
koi promyshlennosd S.S.S.R., za 1927-8 gg., Moscow, 1930. 

Kukel'-Kraevskii, Sorgiei Andreevich, The Svir Hydro-Electric Station for 
the Leningrad District, Moscow, 1920. 

Larsons, H. J., An Expert in the Service of the Soviets, Benn, London, 1929. 

La Vie Economique des Soviets, Editions de la Representations Commerciale 
de U.R.S.S., Paris, 1927-30. 

Le Pitrole Russe, supo^ment to La Vie Economique des Soviets, 1927-30. 

Lee, Ivy, U.S.S.R.; /; World Enigma, Benn, London, 1927. 

Lewery, Leonard John, Foreign Capital Investments in Russian Industries and 
Commerce, Washington 1923. 

Ltberman, L., Trud i frj 1 gorniskov Donbassa, Moscow, 1929. 

Littlepage, J. D. and Bess, D., In Search of Soviet Gold, Harcourt Brace, 
New York, 1938. 

Mamonov, P., Forest Concessions, Khabarovsk, 1925. 

Mautner, Wilhelm, Der Kampfum. undgegen das Russische Erdol, Vienna, 1929. 

Melville, C. F., The Russian Face of Germany, Wishart, London, 1932. 

Monkhouse, A., Moscow igu~ig33, Little, Brown, Boston, 1934. 

The Nation, New York, 1923-3. 

Nutter, G. Warren, The Growth of Industrial Production in the Soviet Union, 
National Bureau of Economic Research, Princeton, N. J., 1962. 



3 68 Selected Bibliography 

Perm and Marshall (engineers), Report on Improvement of the Ugostal Steel 

Plants of South Russia, New York, 1926. 
Pim, A. and Bateson, E., Report on Russian Timber Camps, Benn, London, 

I93 1 - 
Russian Yearbook igi2, Macmillan, New York, 1912. 

Ruykeyser, W. A., Working for the Soviets, Covici-Friede, New York, 1932. 
Santalov, A. A. and Segal, L. (eds.), Soviet Union Yearbook: 1925, London, 

1926 (also 1926-1930 inclusive). 
Shimkin, Demitri B., Minerals; A Key to Soviet Power, Harvard, Cambridge, 

1953- 
State Law Publishing House, Wrecking Activities at Power Stations in the 

Soviet Union, Moscow, 1933. 
Swianiewicz, S., Forced Labour and Economic Development, Oxford University, 

London, 1965. 
Thompson, A. Beeby, The Oil Fields of Russia, Lockwood, London, 1908. 
Troyanovsky, A., Eksport, import i kontsessii soyuz S.S.S.R., Moscow, n.d. 
U.S. State Department, Decimal File 1910-1929 (available at National 

Archives, Washington). 
U.S.S.R. Chamber of Commerce, Economic Conditions in the U.S.S.R., 

Vneshtorgizdat, Moscow, 1931. 
Vysshii sovet norodnogo khoziaistva, Concession Agreement Between the Govern- 
ment of the U.S.S.R. and W. A. Harriman and Co., Inc. of New York, 

Moscow, 1925. 
Zinghaus, Victor, Die Holzbearbeitungsindustrie der Union der Sozialistiscken 

Sowjetrepubliken (Ud S.S.S.R.), Gustav Fischer, Jena, 1929. 
Zuev, P., Ugol'nya Promyshlennost' ee Polozhenie, Moscow, 1921. 



Index 



Accumulator Trust, 187, 197 
Adams, Arthur, 244 
Adiassevich, 24 
Adrian, Wilhelm, 178 
Advance-Rumley, 144 
A.E.G. See Allgemeine ElektrizitSts Ge- 
sellschaft 

AGA. See Gaso-Accumulator A/B 

Agro-Joint commune. See Joint Distribu- 
tion Committee 

AIK (commune). See American Industrial 
Colony 

Akotprom, 130 

Akron Rubber Reclaiming Company, 313 

Aktiebolaget Svenska Kullagerfabriken 
(SKF), t77-79, 287, 330, 332-33 

Aktieselskabet United Shoe Machinery 
Company. See United Shoe Machinery 
Corporation. 

Alamerico. See Allied American Corpora- 
tion. 

Alapaieveky asbestos concession, 285-86. 

See also Hammer concession 
Albatross Werke, 258 
Aldenzoloto trust, 97, 105 
Alexandrov, E. G., 203 
Alfa Laval, 13 

Alftan concession, 8, 183, 236 
Allen, J. I., Company, 33-34. 33* 
Allen & Garcia, Inc., 47, 53, 331 

Allgemeine Elektrmtats Gesellschaft, 185, 
187-91, 198, 306, 293-94, 3«, 32s, 
33a, 334 

Allied American Corporation (Alamerico), 
108-9, 1 !*■ 268-69, 185, 330 

Allied Chemical and Dye Corporation, 
108, 2ii, 237 



Allied Patriotic Societies, 290 
Allis-Chalmers Manufacturing Company, 

54, 260-70 
Allmanna Svenska Elektriska A/B (A.S. 

E.A.), 187-90, 197, 202, 204-7, 333 
All-Union Chamber of Commerce of the 

U.S.S.R., 293 
Altai Polymetal Trust, 77-79 
Altius and Company, 154 
Altman concession, 230-31, 233, 329, 333 
Aluminstroi, 107 

Aluminum Company of America 

(ALCOA), 106 
Amalgamated Bank of Chicago, 290-91 
Amalgamated Bank of New York, 329 

Amalgamated Clothing Workers of Ame- 
rica, 227-29, 279 

Amalgamated Trust and Savings Bank of 
Chicago, 239 

American Association of Manufacturers, 

*33 
American Car and Foundry, 285, 389 

American Commercial Association to 
Promote Trade with Russia, 287 

American commune, 47 

American Federation of Labor, 289 

American Industrial Colony (AIK), 

47-50, 133, 228, 283, 307, 338-30 
American Industrial Concession, 69 

American Industrial Corporation. See 
American Industrial Colony 

American Locomotive Sales, Case of 1 937, 
277, 291, 397 

American Locomotive Sales Corporation, 
90, 171, 389, 297-98 

American-Russian Chamber of Com- 
merce, to*, 119, 28s, 289 



370 



Index 



t 



American-Russian Constructor Company 
(ARK), 235, 3*9 

American-Russian Industrial Workers 
Associations (Artina), 228 

American Steel Foundries, 173 

American Tool Works, 268 

Amerikanskoi Ob'edinennoi Kompanii, 
285 

Amexima, 273 

Ammonia Corporation of New York, 2 1 1 

Amtorg, 246, 261, 269, 287 

Andersson, Gunnar W., 169, 269 

Anglo-Baltic Shipbuilding and Engineer- 
ing Company, 170 

Anglo-Russian Grumant Company, Ltd., 
47, SO. 329 

Aniline Dye Trust, 347 

Ansonia Clock Company, 182 

Arbor Company, 151 

Arcos, 42, 147, 152, 25s, »7C~7i 

"Arcos Affair," 26 

Argus Bank of Barcelona, 42 

ARK. See American-Russian Construc- 
tor Company 

Armmed Trust, 83 

Armour and Company, 292 

Armstrong, 139 

Armstrong- Whitworth, 174, 332 

Arsky, 222, 306, 345 

Artina. See American-Russian Industrial 
Workers Associations 

Asaultsehenko, P. B., 119 
Aschbcrg concession, 154 
A.S.E.A. See Allmanna Svenska Elek- 

triska A/B 
Asiatic Petroleum, 42 
Association Financtere, Industrielle et 

Commerciale Russe, 293 
Atbassvetmet Trust, 79, 83 
Athey Truss Wheel Company, 173 
Austin & Company, 247~49. 332 
Australian commune, 128 
Autoimport, 261 

Automatic Damper Company, 301 
Avery and Moline, 277 
Avtotrest, 248, 347 
Ayan Corporation, Ltd., 100, 103 
Ayers Airco, 261 
Azneft, 18, 20-22, 26-27, 3", 34. 38-40, 

43. 328, 333 



Babcock and Wilcox, 302 
Backe and Wagner, 154 
Backe and Wigg, 154 
Badger, E. B., and Sons, 39 
Baldwin Locomotive, 169, 171, J73-74, 
184 

Ballilo, 263 

Baltimore and Ohio Railroad, 240, 332 

Bank of Italy, 290-91 

Barbot-de-Marni, Professor E. N., 94 

Bartsch, 13 

Bary, B. W., 14, 185-86 

Bayerische Motor Werke, 263 

Bayerische Stickstoff Werke, 2t: 

Bebroff Foreign Trading Company, 288 

Beckmann, C. W., 169 

Bell Petrole, 42 

Belukha concession, 77 

Berdichevsky, 156 

Bergen Steamship Company, 255 

Berger, Julius, 253 

Berger and Wirth A-G, 220-21, 223, 330, 

346 
Bergman, 71, 330, 346 
Berlin Trade Delegation, 264-65 
Bersol, 214, 217, 264, 330 
Bethlehem Steel, 148, 292 
Better, van der, 77, 81 
Blair and Company of New York, ao, 277 
Block and Ginsberg, 233, 330 
Blue Bird Motor Company, 42 
Boeing B-17, 259 
Boereznsky concession, 39 
Bogdanov, 147, 315-16, 345 
Bolinder Company, 160 
Bolton, August, 255 
Bop und Reiter, 155 
Borah, Senator, 285 
Borman, 39 

Borsig, A., G.m.b.H., 175, 211 
Brand, Leo, Company, 222 
Brandt, A. J., Company, 244, 248, 347 
Braun and Company, 297 
Brenner Brothers, 146-47 
Brill Car Company, 173 
British Petroleum, 28 
British-European Timber Company, 162 
British-Mexican Petroleum Company, 42 
Brock, H., 222 



Index 



37* 



Bromley Brothers, 35 

Bron, Saul G., 246 

Bronart, Professor E„ 23a 

Brown, Lyman, 2t6 

Brown Lipe Gear Company, 14*, 247-48 

Brown-Boveri, 175. "88, I0Q > *°4> * 0D > 

33* 
Browning, 266 
Bryner and Company, Ltd. See Tetyukhe 

Mines, Ltd. 
B.T.M. Company, 193 
Bucyrus Company, 93, 97, 139, 269-70, 

3*3 
Budd, Ralph, 240 
Buiro Inostrannoi Nauki i Tekhniki 

(BINT), 176 
Burrell-Mase Engineering Company, 38 
Burroughs Adding Machine Company, 

183, 302 
Bussetti, Commendatore Ferdianando, 
"7 



California commune, 127 

Campbell, Thomas, 120, 331 

Canadian Society for Technical Aid to 

Soviet Russia, 129 
Cannon, 329 

Casale Ammonia S-A, 211-14, 223, 332 
Case Machinery, 140, 143 
Caterpillar Tractor Company, 137 
Central Concessions Committee. See 

Chief Concessions Committee 
Centroprobizol, 197 
Centrosoyuz, 237, 271^72 
Chadboum, Philip, 18 
Chandler, Harry, 296 
Chase, Frank, Company, Inc., 72, 176, 

184 
Chase National Bank, 90, 226, 262, 277- 

78, 289-91, 297-99 
Chaugat, 266 
Chemstroi, 212-15 
Chemtrust, 24 
Chichinadze, 205 

Chief Concessions Committee (Glavkont- 
sesskom), 7, 13, 28-29, 157-58, 184, 
269 
Choukov', 37, 43 
Christensen concession, I4S _ 46 
Citroen, 184, 144, 345 



Clayton Company, *77 

Cloudt, 211 

Coblitz, Richard, concession. See Kablitz 

concession 
Coleman, 1 19, 299 
Colt, 266 
Columbia Graphophone Manufacturing 

Company, 300 
Commissariats of Labor and War, 3ti 
Commission on Fixation of Nitrogen, 209 
Committee for Settling Jewish Toilers on 

the Land, 129 
Committee on Inventions, 300 
Compagnia Industrial Commercio Es- 

tero (CICE), 27s 
Compagnie de Produits Chimiques et 
Electromerallurgiques S.A. (France), 
107 
Compagnie Generale de TSF, 187, 194- 
0S. 33* 
Comparre Oil Company, 28 
Concessions : applications and agreements, 
1921-30, 9; definition, 8. See oho 
Appendix B 
Coolidge, President, 121 
Cooper, Colonel. See Cooper, Hugh L. & 

Company, Inc. 
Cooper, Hugh L. & Company, Inc., 202- 

4.347 
Cooper Engineering Company. See Coo- 
per, Hugh L. & Company, Inc. 
Cooperative Wholesale Society, 271 
Cox, R., 200 
Craig, Ltd., 36-37 
Cramming, 135 

Crossley Company, 33-34. 33* 
Cross process, 37-38 
Crouardi, 71 

Cunard Line, 255, 330, 333 
Curtiss, 261-62, 333 
Czech Mission in the U.S.S.R., 128 



Dalzol (Far East Gold Trust), 100 
Danish-Siberian Company (Sibiko). See 

Siberian Company 
Dava-Britopol, 272, 329 
Davis, Arthur P., 1*1, 33* 
Day, Mason, 20-21 
De Havilland Aircraft Company, 256-57, 

260, 263 
Deere Company, 102, 289 



37* 



Index 



Deilmann Bergbau und Tiefbau Gesell- 

achaft, 216, 331 
Demag A-G, 33*. 334 
Derop, 42 

Deruluft (German-Russian AviationCom- 

pany), 256, 26*, 272, 330 
Derumetall (Deutsche-Russische Metall- 

verwertungs G.m.b.H.). 272. *74> 330. 

33* 
Deruneft, 272 
Derutra (German-Russian Transport 

Company), 25s, 264. 274. 3*7. 33". 33* 
Deruwa (German-Russian Merchandise 

Exchange Society), 134, 271 
Det Store Nordiske Telgraselskab. -See 

Great Northern Telegraph Association 
Deterding, Sir Henri, 41 
Deutsch, Otto, 293-94 
Deutsch-Russische Agrar A-G (Druag), 

116, 3*9 
Deutsche Bank, 76, 36, 170, 279 
Deutsehe-Russtsche Film Allianz A-G 

(Derufa), 217 
Deutsche-Russische Naptha Company, 42 
Deutsche-Russische Saatbau A-G, 

(Drusag), 1 17-18, 331 
Deutz A-G, 142, 184, 33* 
Deutz Type UMX, 260 
Diabolo-Separator, 13 
Dickie, Frank E., 107 
Dillon, Reed and Company, 216 
Disconte Gesellschaft, 87 
Dobb, Maurice, 9, 226, 314 
Dobbs, 39 
Dobrolet, 256 
Dodge Brothers, 144 
Doheny, E. L., 296 
Dollar, Robert, Company, 286 
Donugo!, 51-53, 333 
Dornier, 256, 259 
Dornio-Wal, 263 
Dortmund Association, 153 
Douglas Aircraft Company, 260 
Downs, Frank E., 77, 321 
Drazhud gold fields, 102 
Drost, 53 
Druag. See Deutsch-Russische Agrar 

A-G 
Drusag concession. See Deutsche-Rus- 
sische Saatbau A-G 

Dubert Company, 182 



Dukhorbor commune, 128 

Dupont Company, 21 1-14, 223, 291, 332, 

347 
Duranty, Walter, 292, 298 
Duverger, 28-29 
Dvinoles, 150-51, 153, 155 
Dvinoles Export, Ltd., 155, 272 



EBY Company, 148 

Echo commune, 131 

Eddy, Sherwood, 117 

Edelmetall Verwertungs Gesellschaft, 106 

Eggexport, 272 

Eitingon-Schild, 147, 287, 330 

Electric Auto-Lite Company, 142 

Electric Controller and Manufacturing, 
173 

Electroexploatsia, 187, 198, 228 

Electroselstroi, 187, 197, 228 

Electro-Technical Trust (GET), 14, 186- 
87, 190, 200 

Elmashstroi, 187, 191, 200 

Embaneft, 39, 328, 333 

Emegess, 201 

EMSCO, 2i 

Epstein, 261 

Equitable Trust Company, 277-78, 291 

Ericsson Company, 187-88, t93-9&, 33* 

Erste Brun. Maschinen, 204 

Estonian commune, 126 

Euroamerican Cellulose Products Cor- 
poration of New York, 217 

Exploles, 150-51, 159 

Export ugol, 46 

Eybye, T. E., 245 



Fabrik (Czechoslovakia), 204 

Fairbanks Morse, 148, 288 

Fairmont Railway Motors, 173 

Far Eastern Prospecting Syndicate. See 

Far Eastern Prospecting Company, Inc. 
Far Eastern Exploration Company. See 

Far Eastern Prospecting Company, Inc. 
Far Fastem Prospecting Company, Inc., 

too, 102, 285. See also Smith, Charles 

H. 
Farben, I. G., 209, 211, 220-21, 293, 332, 

347 



Index 



373 



Farman-Goliath, 263 

Farquhar, Pereival, 72-73, 90, *4°-4« . 297 

Faudewag, 176, 184, 33a 

Fauser, an, a 14 

Ferguson, Harry, Ltd., 153, »6i, 331 

Fiat, 140, 244, *66, 303. 330. 33* 

Finnish commune, 128 

First All Russian Import and Export 

Company, Ltd., 270 
Fokker, 256, 260, 263, 332 
Ford Motor Company, 117, 134-35. 138- 

40, 165, 245-49, *6S, 291, 303, 332, 

336, 347-48 
Fordson (Putilovets), 138, 141, 144, 183, 

319 
Foreign Products Company, 277 
Foss, 183 

Foster-Wheeler Corporation, 39 
Fox and Company, 262 
Franco- Russian Association for the Study 

of the Metric System (SOVMETR), 

x8i 
Freyn and Company, Inc., 67, 73-75, 332, 

347 
Friedenberg, 171 
Friedlam A-G, 253. 33* 
Fulton Iron, 332, 348 
Furness Withy, 271 



Gaier, 234 

Gakkel, Professor, 174 

Gasmotoren-Fabrik Deutz A-G, 166-67 

Gaso-Accumulator A/B (AGA), 187, 197, 
330, 333 

Gay, Edwin F., 296 

Gefrierschachbau, 217, 332 

GEFU. See Gesellschaft zur Forderung 
Gewerbligher Unternehmungen 

Glesenkirchner Borgwerke A-G, 87 

General Chemical, 211 

General Electric Company, 161, 174-75, 
186-87, 189-92, 197, 201-4, 220, 243, 
249, 252, 285, 291, 332. See also Inter- 
national General Electric, Inc. 

General Engineering Company, 216, 331 

General Motors, 246 

Geoffrey and Cutting, Ltd., 235, 329 

German General Electric. See Allgemeine 
ElektrizitSts Gesellschaft 

German Orient Lines, 254 

German Volga Bank, 116 



German-Russian Agrarian Association, 

116 
Geirnan-Russian Krupp Manuskha Com- 
pany, 116 
German-Russian Merchandise Exchange 

Society. See Deruwa 
German-Russian Seed Cultivation Com- 
pany, 118 
German-Russian Transport Company. 

See Derutra 
Gesellschaft far Wirtschaftliche Bezie- 

hungen mit den Osten, 155 
Gesellschaft zur Forderung Gewerbligher 

Unternehmungen (GEFU), 258, 259, 

26s, 329 
GET. See Electro-Technical Trust 
Gibbs, H., 347 

Gillette Razor Blade concession, 237, 349 
Gipromez, 73^75, 246, 347 
Giproshaft (Institute for Designing Coal 

Mines), 53 
Glavelectro, 188, 192 
Glavkontsesskom. See Chief Concessions 

Committee 
Glavmashstroi, 176, 246, 248 
Gleason, McLanahan, Merritt, and Ingra- 

ham, 301 
GNOM, 319 
Goelro, 185, 201 
Gompers, Samuel, 227, 291 
Gomza, 33-35. 167-68, 172-73, 175-76 
Goncharov, 85 

Goodman Manufacturing, Inc., 47, 55 
Gosplan, 209, 316 
Gosspirt, 197 
Gosstrakh, 197 
Gouria Petroleum Corporation, Ltd., 29, 

329 
Graftio, 202 

Graver Corporation, 37~38, 332 
Great Northern Telegraph Association, 

249-50. 33° 
Grindler, 50 

Grozneft, 32, 38-39, 156, 328, 333 
Guaranty Trust, 285, 289 
Guedella, H., 100 



Haber process, 211 

Hamburg-Amerika Line, 255, 261, 274, 

330. 334 
Hammer, Armand, 109, 112, 285—86 



374 



Index 



Hammer, Dr. Julius, 285-86 

Hammer concession, S, 108, 147, 183, 

437, 2°8 
Hammerschmidt, D. A., concession, 100, 

103 
Hammond, John Hays, 12! 
Harbord, General, 250-51. 
Harburger Eisen und Bronzwerke A-G, 

234 
Harding, 296 
Harold commune, 127 
Harriman, W. Averell, 12, 15, 28, 86-91, 

136, 158, 237-38, 277, 291, 293. 297, 

299. 3". 329, 334, 349 
Harriman concession. See Harriman, W. 

Averell 
Hawkins, T. G., 47 
Haywood, Bill, 49, 279 
Haywood concession, 283 
Heald Machine, 268 
Hecker A-G, 253, 330 
Heckmann, 36-38 
Hect-Feifer, 234 
Heisler Company, 193 
Heller, A. A., 288, 332 
Henshien, H. G., 234 
Herbert, Alfred, 302 
Hercules Motor Company, 142, 248 
Hewlitt Company, 202 
Higgcns, John J., 187, 190 
Hilaturas Casablancas S.A., 47, S5 
Hilger, G.,239, 256, 258, 262-63, 273-74, 

286, 293-94, 304, 308 
Hill Electrical Drills, 21 
Hillman, Sidney, 227-29, 327 
Himmelsbach, 155 
Hirsch, Alcan, 24, 214-15, 320 
Hispano-Sutza, 263 
Hochseefischerein, 329 
Hohernzollern, 332 
Hollerith, 183 
Holt (Russian), 134-35 
Holtzman, A-G, 192 

Holz Industrie Aktien Gesellschaft Mo- 
loga, 151, 154-57, 272, 322, 329-30 

Hoover, Herbert, 121, 298 

Hudson's Bay Company, 146, 329 

Humboldt A-G, 1 10-1 1 , 33 1 , 334 



Hunt, Henry T„ 102 

IGE. See International General Electric, 

Inc. 
Igerussko, 220 
Ikor, 130 
Ilmarine, 170 

ILVA Alti Forni e Acciaierie d' Italia 

a.p.a., 51 
Imkommune Uhlfeld, 7, 129 
Indo-European Telegraph Company, 250 
Ingersoll-Rand Company, 73, 268 
Inter-Allied Railway Commission, 102, 

240, 284 
International B. F. Goodrich Company, 

148 
International Barnsdal! Corporation, 14- 

15, 18, 20-23, 25-27, 41, 48, 291, 317, 

328-29, 331 
International Electric Light Cartel, 192 
International Pur Exchange, 289 
International General Electric, Inc., 6, 14, 

26, 34, 39, j6, 1M, 187-88, 192, 198, 

207. 253. 289, 33". 347-48. See also 

General Electric Company 

International General Motors, 245 
International Harvester, 132, 135-36, 

139-40, 143-44, 156, 184,270,277,285, 

287, 289. 33o, 334. 344 
International Mica Company, Inc., 107, 

329 
International Oxygen Corporation, 34, 

2t9, 334 
International Packing Company, 149 
International Union of Cooperatives, 279 
Inventions Bureau (TsBRIZ), 302 
Ipatieff, V. I., 209, 211, 264-65, 300, 306, 

308 
Ira commune, 126, 13 r 
Irtrans, 330 
Irving Air Chute Company, Inc., 261, 

332 
Isaacson Iron Works, 148 
Iva, 272 



Jeffry, 54 

Jennings, Emerson P., 288 
Jewish-American Committee, 130 
Johnson, Mathey and Company, 106, 332 
Johnson, Professor A. A., 120 
Johnson, Senator, 285 
Joint Distribution Committee, 129-31, 
286 



Index 



375 



Joint Tractor commission, 130 

Joukoff, 193 

Junkers, 236-57, 259-60, a6a— 63, 307, 

330. 33*. 334 
Juut, Niels, of Christiania, 277 



Kablitz, Richard, concession, 180, 302, 

3*9, 333, 346 
Kahn, Albert, Ire, 141-42, 176, 184, 218, 

291, 330, 347 
Kahn, Montifiore, 218 
Kainer, Karl, 169 
Kaiser, 35 
Karlsrads Meehaniska A/8, 202, 204, 

208, 332 
Kazuli concession, 272 
Keeley, Royal, 135, 165, t86 
Kelley, R. F., 2+0-42, 25'. 297-98 
Kellogg, Secretary of State, 251 
Kelly, 261 
Kemna, 118 
Kharkov Provincial Council of People's 

Economy, 233 
Khlebexport, 271 
Khleboprodukt, 124-25 
King, Senator, 291 
Kiseltrust, 53 
Kita Karafuto Sekio Kabushiki Kasha, 29, 

47 
Kita Sagaren Sekio Kigio Koumaiy, 29 
Klemmer, M., 13, is7, 186, 595-96, 202 
Klimov, I., 264 
Klisko, 270 
Knapp A-G, 331 
Koehring Company, 173, 332 
Kohorn, Oskar, A-G, 233, 332 
Koksobenzol, 219 
Kolotchevaky, 193 
KSnigsberg, City of, 1 18 
Kopp, Victor, 258 
Koppers A-G, 51, 332, 334 
Koshsuryo, 272 
Kossayger, 272 
Kossel, P., A-G, 236, 329 
Krassin, Leonid, 7, 147, 270, 305-6, 319, 

335, 345 
Krasny Loutch commune, 127 
Krupp, Blohm and Voss, 258 



Krupp, Frederich, 47, 54, 115, 121. 13*> 

139, 204-6, 254, 265-^6, 322 
Krupp Agricultural concessions, 1 14, 1 16, 

329-30, 332, 334 
Krupp'sche Land concession Manytsch 

G.m.b.H. See Krupp Agricultural 
. concessions 
Ksandrov, 157, 158 
Kuban sulphates concession, 306 
Kubtrestpotash, 216 
Kuibyshev, V. V., 307-8 
Kuppe, Dr., 74-7S 
Kuzbas commune, 228, 307 
Kuzbaztrust, 53 

Labor Field commune, 126 

Lacey and Lacey, 301 

Ladd, Senator, 291 

Langmann, H., and Sons, 233, 331 

Lanz, 11S 

Larsons, H. J., 167, 320 

Laurence and Company, 271 

Ledeke, 254 

Lee, Ivy, 41, 292 

Leitz, 330, 334 

Lena Goldfields, Ltd., 8, 14, 47, 50, 76- 

78, 81,83, 95-99, 158, 269, 293, 3*9-30, 

333, 346 
Lenin, 6, 165, 198, 201, 218, 267, 296, 

305-6, 308, 318, 340-41, 345. 348-49 
Lenmashstroi (Leningrad Machine- 
Building Trust), 164-65 
Lensky Zolotopromishlennoie Tovari- 

chestvo, 95 
Lenzoloto trust, 93 
Leoning Aircraft Company, 261 
Lerva, 81 
Levin, 156 
Levy, N., 274 
Lewis gun, 266 
Lied, Jonas, 286 
Link Belt Company, 148 
Littlepage, J. D., 321 
Litvin-Sedoy, Z. T„ 245 
Liubimov, N., 9 
Lively, 285 

Lockheed Aircraft Company, 260 
Lockwood, Green and Company, 231, 

332 
Locomotive Design Competition of 1927, 

7 



37 6 



Index 



Locomotive Firebox Company, 174 
Locomotive Terminal Improvement 

Company, 174 
Lomonosov, 165) 168-69 
Lomov, 54 
London and Northern Trading Company, 

Ltd., 151-52 
Longacre Construction Company, 236, 

33' 
Lopato, A., and Sons, 235, 329 
Low-Tension Trust, 187, 103, 195, 200 
Lucey Manufacturing Company, i8 ( 21- 

22, 289 
Lurgie Gesellschaft filr Chemie und 

Hiittenwesen m.b.H., 214, 217 
Lyubertsy Agricultural Machinery Works, 

136-37. 1S6 



McClintock and Marshall, 141-42 
McCormick, T. H., 72 
McCormiek Company, 234-3S, 291, 332 
McDonald, 85, 236, 307, 332 
Maatschappij, N. V., Tot Exploitatie von 

Veredelinsprocedes, 234, 332 
MacLcan gun, 266 
Mamin, I, B., 133 
Mann A-G, 33~3+. 33* 
Marchant, 183 
Martens, Ludwig C. A. K., 170-71, 283, 

286. 288, 297, 300 
Maschinenbrau A-G, 25, 35, 331 
Maschinenfabrik Augsburg-Niirnberg 

A-G, 35. 176 
Mashinostroi, 199 
Maslocentr, 126 
Massey-Harris Company, 144 
Maxim gun, 266 
Mechanical Manufacturing Company, 

234. 332 
Melik-Pashaev, 205 
Mercantile Trust, 289 
Mercedes-Benz, 144, 245, 260 
Merchants National Bank, 297 
Meshlauk, 246 
Messer A-G, 220, 332 
Metallotorg, 274 
Metalosindikat, 34, 219 
Metropolitan-Vickers, Ltd., 21, 26, 165, 

187-89, 192, 198-200, 202, 204-6, 324, 

332 



Meyerovitch, J. A., 54 

Miemza concession, 18a 

Mitsubishi, 331 

Mitsui Shakeef, 47 

Mochkovitch, 193 

Moissieff, 332 

Mologa. Set Holz Industrie Aktien 

Gesellschaft Mologa 
Monkhouse, A., 192 
Monroe, 183 
Morgan Company, 148 
Morris and Company, 233, 288, 329 
Moscow Co-operative Bank, 279 
Moscow Tailoring Combine, 226 
Moskvugol, 52 
Mosmash, 25, 35, 166 
Mossukno, 230 
Mostroi (Moscow Construction Trust), 

156 
Muchnic, Charles M., 174 
Muitibestos Company (United States), 

nr-12 
Mulvihill, James P., 288 



Nagle Engine and Boiler Works, 148 
Nathan Manufacturing, 174 
Nansen Mission, 117 
Narkomvneshtorg(PeopIe's Commissariat 

of Foreign Trade), 254 
Narova Company, 151 
National Civic Federation, 289-90 
Neftsyndikat, 28, 35, 39, 41-42, 333 
New Economic Policy (NEP), 5, 182,313, 

319 
New Hide Manufacturing Company, 288 
New World commune, 126 
New York Life Insurance Company, 290 
New York Trust Company, 90, 297 
Newport News Shipbuilding and Drydock 

Company, 202, 204, 206 
Nicdermayer, Major Oskar Ritter von, 

262 
Nielsen and Winther, 260 
Nieuport aircraft, 263 
Nitrogen Engineering Corporation, 212- 

iS, 223, 347 
Nordiska Bensin Aktiebolaget, 42 
Nord-Ost concession, 272 
North Dvina-Vichegoda, 151 



Index 



377 



Northwestern Military Industry Com- 
mittee, 254 

Norton Company, 300 

Norway-Russian Nervation Company, 
UA., 153, 330 

Novik concession, 233 

Novy Mir commune, !;i 

Nutter, G. Warren, 112, 172, 190, 215, 
221 

Nyquist and Holm, 269 



Ocean Travel Bureau, 272 

Occidental Petroleum Corporation, 285 

Officine, S.A., Villar Perosa <RIV), 179 

Oglebay Norton Company, 331, 347 

OGPU, 160, 305, 307-8, 346 

Okman concession, 233 

Oolcura Gumei, 159 

Orgametal, 138, 176, 347 

Orient Bank, 255 

Orient Line, 355 

Osram Valves, 192 

Ossinsy, V. V., 246 

Oudin, Maurice A., 186 

Ozet, 130 



Pamp, 277 

Parker Company, 148 

Payne Export and Import Company, 262 

Pearson, A., 50 

Penick and Ford, Inc., 234 

Pennsylvania Boiler Works, 148 

Pennsylvania Railroad, 292 

People's Commissariat for Agriculture, 
"4. 197 

People's Commissariat of Foreign Trade, 
254. 269 

People's Commissariat of Supplies, 145 

People's Commissariat of Transportation, 
242 

People's Commissariat of Ways and Com- 
munications, 95 

Perin and Marshall, 72 

Perkins process, 31 

Persaneft, 272 

Persholk, 272 

Persian- Azerbaidjian Naptha Company, 
43 



Perskhtopok, 272 
Persshold, 272 
Petersen, Hugo, 214, 217 
Phillips Company, 192 
Phoenix A-G, 273 
Pierce, C, 47 
Pintsch, 36-37, 39, 33a 
Polar Star concession, 47, 50 
Polymetal Trust, 78 
Powell, J. W., 47 

Prikumskaya Russo-American Associa- 
tion, 117 
Proletarian Life commune, 127 
Prytz and Company, 134 



Raabe concession, 237, 330, 333 
Rabtnoff, Max, 262 
Raby-Khiki Kansha, 151, 159, 330 
Radio Corporation of America, 187, 190, 

19s, 201, 214, *S°-52, 3», 330, 33*. 

347-48 
Radiore Company of Los Angeles, 31 
Ragaz (Russian-American Compressed 

Gas Company), 33-34, 319-20, 329 
RAIK (RAIC). See Russian-American 

Industrial Corporation 
RAITCO. See Russian-American 

Engineering and Trading Company 
Ramzin, L. K., 302 
Rapallo Treaty, 86, 222, 235, 258, 293, 

316-17, 319, 3*7, 346 

Rappaport, G. L., 269 

Ratao. See Russische-Oesterreichische 

Handels und Industrie A-G 
Rateau, 204 
Rautanen, Lauri, 128 
Rawack & Grunfeld A-G, 58-59, 86-88, 

9i > 3*9,331 
RCA. See Radio Corporation of America 
Rechlin, Dr., 51 
Rector, Hibben, Davis, and Macauley, 

302 
Red Banner commune, 126, 131 
Reed, Dillon, 73 
Reed, John, si8 
Reed, John, commune, 126, 131 
Reichs Kredit Gesellschaft, 279 
Reidinger, L. A., A-G, 176 
Reinke, 14, 186, 194 
Renault, 144, 266 



378 



Index 



Repola Wood, Ltd., t55> *7» 
Resinotrest, 222-23, 248. 333 
Rheinische-Stahlwerke A-G, 273 
Rheinmetal A-G, 273 
Rhenish-Weatphalian Metal Products and 

Machine Company, 51 
RIV, 33a 

Roberts & Schaefcr, Inc., 47, 53 
Roesch, A. p 272 
Rohrbach, 259, 263 
Romanoff Caviar Company, 234, 319 
Roosevelt, H. L., 300 
Rorio Rengio Kumai, 151, 159 
Rorio Rengio Rumian, 131, 159 
Roscnbaum, Dr. G. L., 112 
Royal Dutch Shell, 32, 41-42. 292 
Rueben and Bielefeld, 274 
Ruhrfond (Relief Fund for Ruhr 

Workers), 264 
Rusavstorg, 330 
Rusplatina, 106 
Ruspoltorg, 272 

Russangloles, Ltd., 151-SS. 27*. 327, 3*9 
Russcapa, 272, 33° 
Russgertorg, 33, 220, 264, 273-74, 329- 

30. 342 
Russhollandoles, Ltd., 151, "53-55, 272. 

327 
Russian Bank of Commerce, 1 54 
Russian Committee of the German 

Economy, 304 
Russian Land Concession Manytsch, 

Ltd., 114 
Russian Oil Products (ROP), 42 
Russian Railway Service Corps, 240 
Russian Singer, 289 
Russian Wood Agency, Ltd., 153 
Russian-American Engineering and Trad- 
ing Company (RAITCO), 269, 321. 

Russian-American Industrial Corporation 

(RAIK or RAIC), 227-29, 329, 332 
Russian-American Instrument Company, 

1S0, 283, 330 
Russian-American Mining and Engineer- 
ing Corporation, 107 
Russian-American Steel Works, 283, 330 
Russian-Asiatic Stock Company, 272 
Russian-European Company, 277 
Russian-Norwegian Navigation Company, 
255 



Russische-Oesterreichische Handel* und 

Industrie A-G (Ratao), 274-7S 
Russland ausschuss der Deutschen Wirt- 

schaft, 304 
Russnorvegloles, 151, 153-S5. *72. 3*7 
Ross-Norwegian Navigation Company, 

Ltd., 153 
Russo-Asiatic Consolidated, Ltd., 76, 30s 
Russo- Austrian Trading Company (Rus- 
avstorg), 274 
Russo-Baltic Works, 170, 345 
Russo-Bclgian Company, 218 
Russo-British Grain Export Company, 

Ltd., 271 
Russo-Latvian Company, isi 
Russot, 267, 272 
Russperssakhar, 272 
Russtransit, 255, 272, 327 
Ruston-Bucyrus. See Bucyrus Company 
Rutgers, S. J., 48. 5° 
Ruykeyser, W. A., 109-12, 3°7 
Rykov, 18, 165, 303, 312, 321 



Sack, 118 

Sakhalin coal concessions, 51, 333 

Sakhalin oil concessions, 28-29 

Sakharotrust, 197 

Sale and Company, 41 

Sapodles, 150-51, "53 

Schalit, Morduch, 152 

Schlesinger, Dr. G., 137-38, «42 

Schley, Reeve, 289, 298 

Schlumberger, 3 1 

Schulmann concession, 330 

Scott, Hall, Motor Company, 261 

Scott, Sir Leslie, 98 

Seabrook, C. F., Company, 248. 33* 

Seattle commune, 128 

Seattle-Astoria Iron Works, 148 

Seeckt, General von, 258, 262 

Seeley, 148 

Seiberling Rubber Company, 223, 248, 

332 
Serebrovsky, 18, 20, 39, 43, 105 
Serkovsky, Yan, 192 
Severoles Trust, 130-55. J5 8 
Seyatel commune, 126 
Seyfurt concession, 276, 329 
"Shakta Affair," 294, 325, 34°, 34» 



Index 



379 



Shark (Russian-Persian Import and Ex- 
port Company), 43, 27a 

Shatof , 240 

Shelkotruat, 232-33, 307 

Shipton, Anderson and Company. 271 

Shorin, A. F.. 196 

Shova Kiuka Kabushiki Kaisia, 100, 103 

Shulhof, Otto B., 147 

Shulmann, Elia, 236-37 

Siberian Company (Sibiko), 125, 272 

Siberian fish canneries, 148 

Siemens A-G, 81, 188, 203-4, 207, 334 

Siemens Bau, 332 

Siemens-Schukert concession, 77, 83, 189, 

306, 319, 332 
Sikorsky, Igor, 259 
Sinclair Exploration Company, 20, 29, 

291 
Singer, B., 302 
Singer Sewing Machine Company, 181- 

8a, 184, 228, 244, 287 
SKF. S« Aktiebolaget Svenska Kullager- 

fabriken 
Skou-Keldsen, 233 
Slessarev, V., 259 
Smith, C, 102 

Smith, C. V., Company, (Canada), 1 1 1-12 
Smith, Charles H., 1 19. 284-86, 289-90 
Smith, Frank, Company, Inc., 165 
Smith Canning Machine Company, 148 
Societa Minere Italo-Belge di Georgia, 28 
Societa Mista Italo-Russo di Commercio 

e Transport!, 27s 
Sociite Anonyme Franco-Suedoise pour 

la Fabrication de Soie en Russie, 232 
Societe deProspectionElectriqueProcedes 

Schlumberger, 31 
Societe du Duralumin S.A. (France), 107 
Societe Industrielle de Matieres Plas- 

tiques (S.I.M.P.), 2'7. 33°, 333 
Sociite Miniere et Metallurgtque 

"Union," 62 
Society for Economic Relations with the 

East, 155 
Society for Technical Aid to Russia, 49, 

126 
Society for Technical Help to Armenia, 

127 
Society for Technical Help to the 

U.S.S.R., 128 
Society for Trade with the East, 157 
Society of Friends of Russia, 1 17 



Soieriea de Strasbourg S-A, 23a, 331 
Solnikov, 379 

Sommermeyer, Waldemar, 169 
Sorenson, K., 165, 248, 3 '9, 3*4 
Sorgagen A-G (Germany), aB 
Southwark Foundry and Machine, 174 
Southwestern Engineering Corporation of 

Los Angeles, 83, 347 
Soviet Volunteer Fleet, 254 
Sovmong, 27a 
Soyuszoloto, 104 

Sperry Gyroscope Company, 183-84, 332 
Spitalsky, E. I., 264 
Sredazvodkhoz, 121 
Standard Oil Company of New Jersey, 41 , 

191-92 
Standard Oil Company of New York, 37" 

38, 41-42, 17s, 292, 330. 334 
Standard Steel Car, 174 
State Aniline Trust, 221 
State Electrical Engineering Experimental 

Institute, 201 
State Electro-technical Trust, 952 
Stebbins Engineering and Manufacturing 

Company, 161 
Stein A-G, 47, 53~54 
Steinback and Taube, 331 
Steinert, C. T., 232, 332 
Steinitz, 59 

Steinmetz, Charles P., 186 
Steinschneider, 39 
Steyer, 144 
Stinnes, it8, 121 
Stock A-G, 233, 329 
Stockholms Superfosfat Fabriks A/B, at 1 , 

214 
Stolzenberg, 265 

Storens, F., 28 

Straube, Dr. lng., 107 

Stuart, James and Cooke, Inc., 47, 5' - 53> 

56, 59. 33' , 347 
Studebaker, 246 

Studiengesellschafc fiir die Aufnahme des 
gesamten Handels mit dem Osten, 293 
Stutzer, Professor, 99 
Sudotrust, 254 
Sullivan Machinery Company, 47, 54, 

369-70, 277, 33i 
Sunbeam Electric, 174 
Superheater Company, 174 
Sutta, Simon, 268 



38o 



Index 



Svetmetzoloto, 85 

Swedish Separator Company, 287, 332 

Szepisi, Eugin, 331 



Techmekh (Precision Engineering Trust), 

180, 183 
Telefunken Geseltschaft fiir Drahtlose 

Telegraphie, 196 
Telefunken Radio, 322, 332 
Tetiukhe (Bryner) concession. See Tet- 

yukhe Mines, Ltd, 
Tetyukhe Mines, Ltd., 47, 50, 78-79, 85, 

286, 3*9, 333 
Textilstroi, 132 
Third International Clothing Factory, 

283 
Thomas, Richard, Ltd., 75 
Thomas Company (United States), 202, 

332 
Thomson-Houston, 204 
Thyssen A-G, 47, 5'. 53~54 
Tiefenbacher Knopfabrjk A-G, 231, 233 
Timken-Detroit Axle Company, 142, 

247-48 
Tokmefch, 333 
Traktorstroi, 176 

Trans-Siberian Cables Company, 250 
Trilling concession, 230, 329, 333 
Trotsky, 305 
Troyer-Fox, 148 
Trud commune, 127 
Truss, G. H., and Company, 124-25, 272, 

331 
Tschemo A-G, 86 
Tsentrozhilsoyuz, 236 
Turkestan Company for Raw Materials 

Preparation, 28 
Turksholk, 272 



Ugostal, 63, 66, 72, 333 
Ukrchim, 210 
Ukr-Voidukh-Put, 256 
Underwood Company, 182, 184, 332 
Union Cold Storage Company, Ltd., 124- 

25, 176, 272, 329, 333 
Union Miniere, 46-48, 57 
Union Oil Company, 297 
Union Shoe Company, 23 1 
United American German Corporation, 

73 



United Shoe Machinery Corporation, 231 
U.S. Commissioner of Patents, 301 
U.S. Department of Agriculture, 212 
U.S. Department of Commerce, 301 
U.S. Department of State, 10, 13, ai, 167, 

195, 201, 213, 216, 250-51, 261-62, 

284, 289-90, 294-301 , 303 , 3 1 6-1 7, 320, 

326, 336, 347-48, 352 
U.S. Machinery, 268 
U.S. Military Intelligence (MID), 11, 

262, 266 
U.S. Rubber, 268 
U.S. Steel Corporation, 91, 148 
U.S. War Trade Board, 277, 288, 296 
Ural Industrial Bureau, 109 
Uralasbest, 109-10, 307 
Uralmed (Ural Copper Trust), 80, 85, 307 
Uralsvetmet, 81 
Urquhardt, 6-7, 76, 305 



Vakander, 197, 332 

Van Soon, 236 

Vanderlip, Washington B., 296-97 

Vattenbyggnadsbyran A/B, 302, 204 

Verein Deutschcr Werkzeugmaschinen 

Fabriken Ausfuhr Gemeinschaft (Fau- 

dewag), 176 

Verein ORT, Gesellschaft zur Forderung 
des Handwerke und der Landwirtschaft 
unter den Juden, 129 

Vereinigte Aluminumwerke A-G, 107 

Vereinigte Kugellager Fabriken A-G, 179 

Vereinigte Stahlwerke, 73 

Vesenkha, 59, 74, 176, 209, 216, 228, 246, 
316 

Vickers, 266, 332 

Vickers- Armstrong Company, 170 

Vimalert Company, 261-62 

Vinge and Company, 145, 329 

Vint, I. C, concession, 100-1 

Vlessing, 41 

Vneshtorg, 273-74, 3°4 

Voegele, iss 

Volga-Deutsch Bank, ti6 



Waite, E,, 112 

Wallace Bridge and Structural Company, 

148 
Ware, Harold M., 117, 329 



Index 



38l 



Warren, G., Inc., 47, 57 

Webber and Wells, Inc., 234 

Welder, Wilson, 174 

Wenkhouse, 255 

Werkstaden Kristinegamm A/B, 302, 104, 

3o6, 33a 
Western Electric, 157, 187-88, 193, 196 
Westinghouse Air Brake Works, 167-68, 

»74. 184, 289, 330, 34s 
Westinghouse Electric, 26, 54, loa, 189, 
19'. 199. a°4. 344. *5 2 -53. ^85, 287 

Westvaco, 423, 347 

Wheeler, Arthur E., 83 

Whttcomb, G. D. h 174 

White, Harry Dexter, case, 284 

White, J. G., Engineering Company, 202, 
204, 332 

White Sea Timber Trust, Ltd., 133 

White trucks, 140, 244 

Wiener, J., 147 

Wilke, 36-37, 33* 

Wimmler, Norman L., 83 

Winkler-Koch Corp., 35, 37, 39 

Wirth, 155-56, 286 



Wirtachafteliche Verband der Deutschen 

Hochsecnscherein, 146 
Wolff, Otto, Trading concession, (Russ- 

gertorg), 33, 73, »73 
Woll, Matthew, 289-90 
Wood, W. A., Company, 81, 85 
Worthington Pump Company, 148, 289 
Wostwag, 216, 27*, 274, 330-31 
Wright and Smith, 148 

Yotara Tanaka, 100, 103 
Young, Evan E., 296 
Yurt, S 8-S9 

Zakoshansky, A. A., 174 
Zausmer, Lew, 186 
Zautinsky, 261 
Zentrale Moskau, 258, 262 
Zemotrust, 114, 120 
Zhdanov, 63 
Zinoviev, 201, 308 
Zippen and Bissener, 273 
Zvetmetzoloto (Non-Ferrous Metals 
Trust), 77