In 1899, Sergei Witte (1849-1915), Russia's minister of finance, prepared a report for Tsar Nicholas II on the necessity of industrialization. The report offers insights into the tsarist empire's economic weakness and the problems of trying to overcome that weakness. The Witte system, as it came to be called, justified the high tariff on imports originally imposed in 1891. The tariff raised the prices of imported manufactured goods (as well as of luxuries), which upset the landed nobility-Russia's chief agricultural producers and exporters and the tsar's major support group. In his report, Witte left no doubt that rapid economic development would bring much hardship for the Russian people, and he therefore pressed the emperor to be bold in his support for these policies. Excerpts from his report follow.

Russia remains even at the present essentially an agricultural country. It pays for all its obligations to foreigners by exporting raw materials, chiefly of an agricultural nature, principally grain. It meets its demand for finished goods by imports from abroad. The economic relations of Russia with western Europe are fully comparable to the relations of colonial countries with their [ruling states]. The latter consider their colonies as advantageous markets in which they can freely sell the products of their labor and of their industry and from which they can draw with a powerful hand the raw materials necessary for them. This is the basis of the economic power of the governments of western Europe, and chiefly for that end do they guard their existing colonies or acquire new ones. Russia was, and to a considerable extent still is, such a hospitable colony for all industrially developed states, generously providing them with the cheap products of her soil and buying dearly the products of their labor. But there is a radical difference between Russia and a colony: Russia is an independent and strong power. She has the right and the strength not to want to be the eternal handmaiden of states which are more developed economically. She should know the price of her raw materials and of the natural riches hidden in the womb of her abundant territories, and she is conscious of the great, not yet fully displayed, capacity for work among her people. She is proud of her great might, by which she jealously guards not only the political but also the economic independence of her empire. She wants to be a metropolis herself. On the basis of the people's labor, liberated from the bonds of serfdom, there began to grow our own national economy, which bids fair to become a reliable counterweight to the domination of foreign industry.

The creation of our own national industry-that is the profound task, both economic and political, from which our protectionist system [that is, tariffs to protect emerging Russian industries from foreign competition] arises. .. . The task of our present commercial and industrial policy is thus still a very difficult one. It is necessary not only to create industries but to force them to work cheaply; it is necessary to develop in our growing industrial community an energetic and active life- in a word, to raise our industries qualitatively and quantitatively to such a high level that they cease to be a drain and become a source of prosperity in our national economy.

What do we need to accomplish that? We need capital, knowledge, and the spirit of enterprise. Only these three factors can speed up the creation of a fully independent national industry. But, unfortunately, not all these forces can be artificially implanted. They are mutually interconnected; their own proper development depends upon the very growth of industry….

We have. . . neither capital, nor knowledge, nor the spirit of enterprise. The extension of popular education through general, technical, and commercial schools can have, of course, a beneficial influence; and Your Majesty's government is working on that. But no matter how significant the promotion of enlightenment, that road is too slow; by itself it cannot realize our goal. The natural school of industry is first of all a lively industry. Institutions of learning serve only as one aid toward that end. The first investment of savings awakens in man the restlessness of enterprise, and with the first investment in industry the powerful stimulus of personal interest calls forth such curiosity and love of learning as to make an illiterate peasant into a railway builder, a bold and progressive organizer of industry, and a versatile financier.

Industry gives birth to capital; capital gives rise to enterprise and love of learning; and knowledge, enterprise, and capital combined create new industries. Such is the eternal cycle of economic life, and by the succession of such turns our national economy moves ahead in the process of its natural growth. In Russia this growth is yet too slow, because there is yet too
little industry, capital, and spirit of enterprise. But we cannot be content with the continuation of such slow growth….

We must give the country such industrial perfection as has been reached by the United States of America, which firmly bases its prosperity on two pillars-agriculture and industry…. I have now analysed the chief bases of the economic system which has been followed in Russia since the reign of Alexander III….

To obtain cheaper goods, of which the population stands in such urgent need, by a substantial tariff reduction would be too expensive. It would forever deprive the country of the positive results of the protective system, for which a whole generation has made sacrifices; it would upset the industries which we have created with so much effort just when they were ready to repay the nation for its sacrifices.

It would be very dangerous to rely on the competition of foreign goods for the lowering of our prices. But we can attain the same results with the help of the competition of foreign capital, which, by coming into Russia, will help Russian enterprise to promote native industry and speed up the accumulation of native capital. Any obstructions to the influx of foreign capital will only delay the establishment of a mature and all-powerful industry. The country cannot afford to defer that goal for long….

Your Imperial Highness may see from the foregoing that the economic policy which the Russian government has followed for the last eight…. years is a carefully planned system, in which all parts are inseparably interconnected.