In this interview, EUI History researcher Georg-Henri Kaup tells us more about his interpretation on the gradual transformation of the USSR in a mercantilist empire and how it helps us understand the present economic climate.
Based on your research, what elements of mercantilism did the USSR adopt? How did they reconcile with the official socialist ideology?
The USSR adopted, from the get-go, several policies that any economic historian would recognise as “mercantilist”: firstly, extracting natural resources solely for export to fill state coffers, while keeping them assiduously from the hands of the citizenry. This is an extreme iteration of William Cunningham’s idea of mercantilism—an economic policy of strengthening the power of the state (or empire) over the “private tastes and personal convenience” of its citizens. Oil, which Lenin had begrudgingly nationalised in 1918, was de facto privatised again through concession agreements, which saw western investors develop the drilling and refining infrastructure in exchange for up to half of the profits. The Soviet share of the profits was then used to industrialise the USSR by using other sources of fuel. Thus, oil was knowingly kept away from the Soviet population as a “precious currency material”. This policy continued after the nascent USSR got its own export infrastructure into place. While the zenith of the export-frenzy ended in the 1930s, exporting oil for foreign currency was later resumed in the 1960s under Brezhnev. Thus, while the USSR had truly gargantuan oil production for most of its existence, the type of benefits westerners would typically associate with oil wealth—private cars, for one—were rare in the USSR up to its collapse. One only needs to peruse Google Maps to see the difference between the motorway systems of Western Europe and the former USSR. Ukraine, for one, has not got a single motorway in the Western European sense (Autobahn/autostrada)! Russia itself completed its first bona fide motorway only a few years ago.
Another, distinctly mercantilist, policy of the Soviets was the forceful integration of local economies into the Soviet whole. The bulk of Soviet cotton, for example, was not processed in Central Asia, where it was grown, but in Central Russia.
Thirdly, the USSR, mirroring the practices of mercantilist European empires of yesteryear, had, resource colonies and industrial centres. For example, as mentioned before, the centre of Soviet textile production was not in Central Asia, where the cotton was grown, but in Central Russia. Starting from the 1960s, most Soviet oil came from Western Siberia, but it was refined anywhere but there. In the end, you had regions with immense poverty—Central Asia, Western Siberia—where people were still living in shanty towns in the early 1980s, which provided the raw materials for the industrial areas, which, while by no means affluent by Western European standards at the time, still had a standard of living not too dissimilar to our own (indoor plumbing, central heating, etc.).
As for reconciling mercantilism—which Marx had deplored as “primitive accumulation”—with socialist ideology, Lenin came up with an ingenious idea: he called all his unpopular economic decisions “aspiringly socialist measures,” effectively meaning “hard compromises that will (hopefully) leave us better-off in the end.” Lenin had to compromise every day since coming into power. He was also an excellent sophist, and a completely sincere radical pining for world revolution, so his prose describing why, for example, the Soviets should surrender vast swathes of land to unknown Norwegian businessmen in hopes of maybe making a profit, is marvelous to read.
What do you think are the main legacies of the process you analysed on the current economic strategies of the Russian Federation, especially after the 2022 invasion of Ukraine?
In my view, Putin kicked mercantilism a la the USSR into hyperdrive: oil profits continued to be kept from the population (to buy gold and accumulate Russian overseas state assets), but, in addition, the type of social guarantees that the Soviet Union, for all of its faults, had provided—a free apartment, accessible free healthcare, guaranteed employment—and that had eroded under Yeltsin, were not reinstated in the 2000s. The Russian population—those connected to the oil and gas business in some way excluded—were left to fend for themselves, in an environment marked by deregulation, economic insecurity, and weak labour protections. Currently, on the Russian side, men sign up to the army mostly due to economic reasons. In essence, the Russian government has done away with what we would conceive of as the “social contract”: you pay taxes and get social guarantees—sick pay, healthcare, pensions—in return. The Russian government could theoretically do without the population’s taxes (as long as it taxes oil and gas), and thus, it leaves the population without much of anything, unless people are willing to risk dying for that government (or at least build weapons for it). Then, wages comparable to those in Europe can be handed out, along with social benefits and guarantees. In a word, mercantilism in Russia has become more brutal since 1991—merely going to work and paying taxes is not enough to get a piece of the vast natural resources you, a Russian citizen, are constitutionally entitled to get a piece of. However, I see a silver lining in that—it is much easier to dole out money and benefits than take them away. I will be curious to see if the former soldiers and munitions factory workers will meekly accept a downturn in their living standards once the war ends, or if they will start demanding a more equitable sharing of Russia’s resource wealth also during peacetime. After all, to compete with wages in the military and arms factories, other Russian businesses have already had to increase their salaries.
In your research, you also connect the concept of mercantilism with that of empire. Do you think your analytical framework could be applied to investigate some aspects of the current trade policies of other economic powers? (e.g. the U.S. or the European Union)
Absolutely. Mercantilism is all the rage now—tariffs are making a comeback to an extent nobody could have predicted only a decade ago (not only in the U.S., but in the EU as well—tariffs on Chinese electric vehicles, for instance). “Reshoring” industrial production, from medicine and steel to computer chips, is an explicit goal of the Trump administration, after all. The U.S. is re-embracing mercantilism (as well as old-school imperialism—see Greenland) wholeheartedly. It should not be surprising: mercantilism (as well as imperialism) has a long tradition in the U.S. (the former going back to Alexander Hamilton). Back then, Britain was the workshop of the world, and promoting free trade was seen as de facto furthering the cause of British global domination. Now, with China being the workshop of the world, the same logic applies. While the EU must thread a thinner line compared to the U.S.—it is a confederation in the classical sense, after all, with national governments still exerting a lot of power—the European Commission at least would like to take a similar course. The ReArm Europe initiative is a prominent example—EU funds will now be spent on European arms. Combined with the ongoing trade war with the U.S., it is hard not to see the EU moving in a more mercantilist direction, and, in the course, also becoming more of a federation (akin to the U.S.). Local economies like that of Hungary—which is dependent on refining Russian crude, selling the gasoline, and taxing the profits at a high rate—are increasingly becoming a hindrance to the EU Commission, and things will probably reach an impasse at some point, eventuating in either an EU without Hungary or a Hungary without Orban. In a word, we might experience a kind of repeat of the nineteenth century in the twenty-first—only the preeminent workshop of the world (Britain then, China now) will be advocating for free trade, while all its main competitors will embrace mercantilism to varying degrees. Free trade, in general, seems to be the preference only of those who either lead the world in manufacturing, or, are too small to conceivably vie for the top position themselves. Thus, empire and mercantilism will continue to be connected for the foreseeable future.
Georg-Henri Kaup is a researcher in the Department of History of the European University Institute (EUI). His PhD thesis, titled ‘Socialist in form, mercantilist in substance: The transformation of Soviet Russia into a mercantilist empire, 1917–91’, is supervised by former EUI History Professor, Alexander Etkind, and EUI Professor Nicolas Guilhot.