Why Nations Fail: The Origins of Power, Prosperity, and Poverty

part of Russia … of children taken from their parents and
sold to cruel or dissolute masters; of flogging “in the
stables,” which occurred every day with unheard of
cruelty; of a girl who found her only salvation in drowning
herself; of an old man who had grown grey-haired in his
master’s service and at last hanged himself under his

---

master’s window; and of revolts of serfs, which were
suppressed by Nicholas I’s generals by flogging to death
each tenth or fifth man taken out of the ranks, and by
laying waste the village … As to the poverty which I saw
during our journeys in certain villages, especially in those
which belonged to the imperial family, no words would be
adequate to describe the misery to readers who have not
seen it.
Exactly as in Austria-Hungary, absolutism didn’t just create a set of
economic institutions that impeded the prosperity of the society.
There was a similar fear of creative destruction and a fear of industry
and the railways. At the heart of this during the reign of Nicholas I
was Count Egor Kankrin, who served as finance minister between
1823 and 1844 and played a key role in opposing the changes in
society necessary for promoting economic prosperity.
Kankrin’s policies were aimed at strengthening the traditional
political pillars of the regime, particularly the landed aristocracy, and
keeping the society rural and agrarian. Upon becoming minister of
finance, Kankrin quickly opposed and reversed a proposal by the
previous finance minister, Gurev, to develop a government-owned
Commercial Bank to lend to industry. Instead, Kankrin reopened the
State Loan Bank, which had been closed during the Napoleonic Wars.
This bank was originally created to lend to large landowners at
subsidized rates, a policy Kankrin approved of. The loans required the
applicants to put up serfs as “security,” or collateral, so that only
feudal landowners could get such loans. To finance the State Loan
Bank, Kankrin transferred assets from the Commercial Bank, killing
two birds with one stone: there would now be little money left for
industry.
Kankrin’s attitudes were presciently shaped by the fear that
economic change would bring political change, and so were those of
Tsar Nicholas. Nicholas’s assumption of power in December 1825 had
been almost aborted by an attempted coup by military officers, the
so-called Decembrists, who had a radical program of social change.

---

Nicholas wrote to Grand Duke Mikhail: “Revolution is on Russia’s
doorstep, but I swear that it will not penetrate the country while
there is breath in my body.”
Nicholas feared the social changes that creating a modern economy
would bring. As he put it in a speech he made to a meeting of
manufacturers at an industrial exhibit in Moscow:
both the state and manufacturers must turn their attention
to a subject, without which the very factories would
become an evil rather than a blessing; this is the care of
the workers who increase in number annually. They need
energetic and paternal supervision of their morals; without
it this mass of people will gradually be corrupted and
eventually turn into a class as miserable as they are
dangerous for their masters.
Just as with Francis I, Nicholas feared that the creative destruction
unleashed by a modern industrial economy would undermine the
political status quo in Russia. Urged on by Nicholas, Kankrin took
specific steps to slow the potential for industry. He banned several
industrial exhibitions, which had previously been held periodically to
showcase new technology and facilitate technology adoption.
In 1848 Europe was rocked by a series of revolutionary outbursts.
In response, A. A. Zakrevskii, the military governor of Moscow, who
was in charge of maintaining public order, wrote to Nicholas: “For
the preservation of calm and prosperity, which at present time only
Russia enjoys, the government must not permit the gathering of
homeless and dissolute people, who will easily join every movement,
destroying social or private peace.” His advice was brought before
Nicholas’s ministers, and in 1849 a new law was enacted that put
severe limits on the number of factories that could be opened in any