Dorothy Thompson

Buffalo Evening News/February 11, 1928

Foreign Capitalists, However, Often Obtain Favorable Contracts—Money Is Needed.

Foreigners can make profits in Soviet Russia, Dorothy Thompson, a Buffalo girl, writes in today article, the sixth of a series of 22.

Can foreigners make money in Russia? How far are their investments protected? And what co-operation can they expect from the Soviet government? This question has been asked continuously ever since the institution of the new economic policy. Experience has answered it.

The answer, as I have got it from American, British, German and Norwegian business men holding trade, manufacturing and mining concessions in Russia: Yes—provided.

Provided that the foreign businessman in Russia understands a great many things, and not least among them the psychology of the government with which he is dealing.

“Concession” in Russia retains its literal meaning. For the Russian government a grant to capitalists of land for agricultural exploitation, of the right to mine gold, or manganese, or iron, or phosphates, of the right to import and export certain goods, is a concession of political policy.  

Needs Foreign Co-operation

Such a grant is only made in the realization of Russia’s need for foreign capital and foreign help in stimulating her economic progress. It has got to be worthwhile for the Russian government to grant it. If it proves to be not worthwhile, it will be sabotaged to the point where it must liquidate.

There is a fundamental division in the Russian mentality. Russia is at war, in her ideology, with the capitalist world. Yet, Russia cannot possibly exploit her natural resources and build up with sufficient speed the industrial state which is a necessity for the perfection of her system of proletarian state capitalism unless she can win the increasing co-operation of foreign capital. 

As I pointed out in yesterday’s article, Russia has now reached the stage where she cannot expand any further on the basis of the capital inherited from the old regime. She must augment it. And her earnings from the state industry are insufficient. 

Trotsky on Trusts

Since Russia is the most theoretical country in the world, and must find a theory to fit every practice, even if the latter is enforced by uncontrollable necessity, she has worked out a rather Machiavellian attitude toward co-operation with foreign capital, which has expressed with admirable clearness by Leon Trotsky, who was until a few weeks ago chairman of the concessions committee.

Trotsky said: 

“The ordinary capitalistic trust is at pains to protect itself against acute fluctuation in supply and demand. Even a trust which practically has a monopoly doesn’t aim to fill the market completely with its products. 

“In a period of emphatic prosperity trusts frequently tolerate the existence of non-trustified enterprises, permitting the latter to cover surplus demand, thus freeing themselves from risky investments of new capital. These non-trustified enterprises than fall victims to ensuing crises, after which they are bought up for a song by big trusts. The next boom is then faced by the trusts with larger productive forces…. In other words, the trusts aim to cover only absolutely assured demands and expand only with assured expansion of demands, assigning all risks…. to weaker organizations. 

“Trusts of Trusts”

“Socialist industry in Russia is a trusts of trusts. It can afford even less than specific capitalist trusts to undertake to follow all the curve of the market. It must make use of private capital as a reserve army. Loans and concessions involve dangers, but the delay of economic progress in Russia is even a greater danger.

“And,” he adds, speaking of the danger of an economic blockade against Russia, “the more varied become our international relations, the more difficult will our enemies find it to disrupt those relations.” 

In other words: Let foreign and other private capital in; let it help take the edge off crises, and let it keep up good relations for us with the outside world. The problem which remains for Russia is: How to prevent private domestic and foreign capital, which indubitably functions more efficiently, from competing too efficiently against the state industries and interests. 

One way of preventing the concessionaire from competing too effectively is not to grant him equality with state industries. The whole tendency in Russia is to give state and co-operative ventures advantage over private interests. This shows itself in relations with labor, in matters of credit and in contracts for supplying the inner market. 

Makes Pact With Labor

The foreigner who goes to Russia takes out a concessions contract. His labor conditions, however, are not arranged in this contract, but with the trade unions. 

Like all industries in Russia, including those of the state, he makes a collective contract, good for from three to six months and covering every phase of relationship between employer and employee, fixing wages, determining what part of the social insurances shall be paid by each party to the contract, deciding whether work shall be paid for by piece or weekly wage, or both, defining the conditions under which a worker may be discharged, defining what the duties of the employer are in furnishing rest and club rooms, suitable working conditions, etc.

Such a contract may cover a hundred or more pages. Strikes are precluded so long as the contract is adhered to by the employer. The greatest disadvantage to the employer is that he cannot conclude it for a sufficient period of time.

On the whole, the demands of labor in Russia are higher than in any European country. Wages are not particularly high, but a fortnight’s vacation on pay annually for every worker is the rule, and workers engaged in unhealthy industries often demand and get a month or six weeks’ holiday on pay.

Demands Costly

Every industry must furnish the workers with clubrooms and often the additional social demands of the workers—for day nurseries, lunch rooms, etc., amount to a great deal.

There seems to be no question that secret directions have been issued by the government to the trade unions, tipping them off that, whereas they must be somewhat modest in their demands upon the government, which is, after all, an organization working exclusively in their interests, they are free to get as much as they can from foreign concessionaires. It thus comes about that whereas the state assumes responsibilities for the social welfare of the workers employed in its factories to the extent that on wages, private industries, domestic or concessions, often have to pay up to 40 per cent. 

This, it seems, would lure the best workers away from the state industries, but the trade unions, operating on a tip from the government, have an unpleasant way of shutting out of their ranks all foremen and higher groups of workers employed by concessionaires.

Higher Bank Rates

This makes it extremely difficult for the concessionaire to get qualified workers, because trade union membership is proof that one belongs to the proletariat and carries with it numerous privileges in Russia, and is not willingly sacrificed, even for higher pay. Many foreign concessions choose, therefore, to employ exclusively foreigners in the more important positions in their factories or works.

But these difficulties with labor are not the only problems confronting the concessionaire, which make it difficult for him to place his business on a basis of equality with state enterprises. He often finds it difficult to get credits from Russian banks, and, if he succeeds, he usually pays a higher rate of interest than the state enterprises must pay.

The latter get money for four to six per cent, interest: the concessionaire pays 15 or 16 per cent.

Profit Is Possible

Given a favorable contract, however, and given experience in the industry, the foreign concessionaire has great opportunities in Russia, especially if he does not have to import any raw materials and produces goods which can be partly sold inside the country.

The demand for goods is enormous; the quality and price of the state-produced goods makes competition easy.    

An ideal concession is that of a Danish company which make buttons from pressed blood obtained from Russian slaughterhouses, and has acquired a fortune in a very short time. Very successful are numerous concessions worked by firms who had experience in Russia before the war. 

All concessionaires must be very careful to make clear their right to obtain foreign currencies and export them. The British gold mining concession, the Lena goldfields, is the largest concession in Russia and the richest fields of placer gold in the world.