Knickerbocker, Hubert Renfro - Fighting The Red Trade Menace

'/
FIGHTING
I THE
RED TRADE MENACE
BY
H . R . KNICKERBOCKER
AUTHOR OF
I ~~THE RED TRADE MENACE, "

Winner of the Pulitzer Prize
for Journalism, 1931
($
(i
i
~DODD, MEAD AND COMPANY
NEW YORK 1931
COPYRIGHT, 1931
BY H. R. KNICKERBOCKER
ALL RIGHTS RESERVED

NO PART OF THIS BOOK MAY BE REPRODUCED IN ANY FORM
WITHOUT PERMISSION IN WRITING FROM THE AUTHOR
MANUFACTURED IN THE UNITED STATES OF AMERICA

BY THE VAIL-BALLOU PRESS, INC ., BINGHAMTON, N . Y .

CONTENTS
CHAPTER PAGE
I MILAN 1
II ROME . . . 14
III SAVONA,ITALY 24
IV GENOA . 32
V MARSEILLES . 41
VI PARIS . 50
VII PARIS 60
VIII BRUSSELS 74
IX ANTWERP . 82
X AMSTERDAM . 91
XI ROTTERDAM . 100
XII LONDON 112
XIII LONDON 124
XIV LONDON . 137
XV MANCHESTER . 150
XVI LIVERPOOL . 161
XVII COPENHAGEN 173
XVIII OSLO 186
XIX STOCKHOLM 201
XX HELSINGFORS . 217
XXI RIGA 231
XXII BERLIN 246
XXIII BERLIN . 262
XXIV BERLIN . 278
v
FIGHTING
THE RED TRADE MENACE
CHAPTER I
Milan :
Largest department store on earth, the Soviet Un-
ion Foreign Trade Monopoly, is conducting the great-
est permanent bargain sale in history andd in fifty-two
lands its agents today are offering a thousand varie-
ties of wares at prices that bring despair to their
competitors .
What these offers mean first of all to America, one
of the Soviet Union's chief competitors for the
European market, is a principal object of this in-
vestigation of Soviet trade in Europe's chief indus-
trial cities, ports and capitals, an investigation un-
dertaken on the eve of the spring and summer export
campaign of the Soviet Union that is expected to
bring increased quantities of Soviet goods on a mar-
ket already groaning from oversupply .
Milan, Naples, Rome, Genoa, Savona, Marseilles,
Paris, Brussels, Antwerp, Amsterdam, The Hague,
Rotterdam, London, Liverpool, Manchester, Oslo,
Stockholm, Helsingfors, Riga, Copenhagen, Ham-
burg, Bremen and Berlin are the stopping points for
this investigation . All are rich sources of information
on the questions that are absorbing the attention of
the world's business men and economists, namely, to
what extent is Soviet trade expanding, how great is it
1
2 FIGHTING THE RED TRADE MENACE
today, how great will it be tomorrow, with whom does
it come in conflict and what influence has it had on
the world economic crisis?
Europe recognizes the "Red trade menace," but
what is Europe doing to meet it? This is a matter for
particular concern in the United States at this mo-
ment when conflicting interests at home are repre-
senting both sides of the dispute pro or contra trade
with the Soviet Union, and whether it can be estab-
lished that Europe is doing little or doing much to
check Soviet economic expansion, it remains of sig-
nificance to America to know how the rest of the
"capitalist" world is reacting to the sudden appear-
ance in international trade of this new and fast grow-
ing anti-capitalist competitor .
What is the outlook that success of the Five-Year
Plan will add to the flood of Russian petroleum,
lumber, coal, grain, flax and other raw materials a
corresponding export of manufactured articles is
another of the questions that American and Euro-
pean business men are asking and that this investiga-
tion will attempt to answer .
Finally a visit to the eleven European countries is
intended to throw light on the complex of questions
that most excites Moscow, that interests all Euro-
pean nations, that is asked by every country and
every corporation doing business with the Soviet
Union, namely : What chance is there of the forma-
FIGHTING THE RED TRADE MENACE 3
tion of a European economic bloc to boycott the
Soviet Union and what chance is there of the estab-
lishment of either national or international trading
centers to provide for the non-Soviet world in its com-
mercial contacts with the Soviet Union a counterpart
to the Soviet foreign trade monopoly? Depending on
the answer to this set of inquiries is the whole fabric
of Russian credit abroad, and supplementary to these
answers must be presented an analysis of Europe's
credit policies toward the Soviet Union .
This much may now be said to be fairly well es-
tablished by the investigation so far carried out : In
a period when foreign trade of all non-Soviet coun-
tries is falling rapidly, Soviet foreign trade is in-
creasing by leaps and bounds . The fact that the So-
viet Union's exports proceed in part from a surplus
obtained by depriving the population of much they
require is a fact irrelevant to the objective effect of
these exports upon the world market .
American and other producers of the great Soviet
staples are feeling Soviet competition . European
manufacturing countries profit for the moment by
purchasing cheap Soviet staples offered in competi-
tion to the products of America and other raw ma-
terial sources . They profit by their own exports
of machines and factory equipment for fulfillment of
the Five-Year Plan . They are vaguely aware of the
possibilities in store for them from an industrialized,
economically independent, militarily powerful Soviet
Union, but are acutely aware of the immediate gains
to be had from Soviet trade .
European commerical dislike of America is aston-
ishingly widespread and exerts strong influence on
European policy toward the Soviet Union . In some
countries an effort has been made to check Soviet
"dumping" by restrictive systems, but in no country
visited has the effort been successful . In most coun-
tries the realization is strong that if anything effec-
tive is to be done by the non-Soviet world to counter
Soviet economic expansion it must be done by a
united front of all nations .
In conclusion, if it must be formulated in a single
sentence, it may be recorded as the writer's unavoid-
able impression that Europe can arrive at no special
accord in respect to combating the Soviet Union
until it has arrived at a general accord on all of the
manifold questions that now divide this continent,
and that if Europe were to arrive at such a general
accord, remote though the prospect is, Europe would
do so with as much intention of directing it commer-
cially against the United States as of directing it
commerically against the Soviet Union .
Like every department store, the Soviet Foreign
Trade Monopoly has its specialties to attract cus-
tomers, cow rivals, and impress the public . Russian
coal in Pennsylvania, Russian textiles in Lancashire
and Russian razor blades in Germany have been
looked upon by producing interests in the nations
in question as insults added to the injury felt from
more voluminous exports under the Five-Year Plan .
For Italy, though, the Five-Year Planners have
reserved their most audacious bit of specialty sales-
manship and here today in the Milan Fair, in the
home of spaghetti, one may see displayed fourteen
varieties of Soviet Russian macaroni-fresh, tooth-
some, unashamed !
The world at large, American and European, is
alarmed at the sales abroad by the Soviet Union at
prices below the utmost ability of their bourgeois
competitors to meet . "Russian Dumping" is a world-
wide cry and has been advanced as an explanation
for nearly every economic ill from unemployment to
the break in the wheat market . But few persons,
even among that increasing number of observers who
are keenly interested in the problem of Soviet eco-
nomic expansion and who declare it the most im-
portant development of our times, are aware, spe-
cifically and concretely, of just what the Soviet
Union is shipping abroad, of how various and volu-
minous its offers of goods upon the world market are .
An examination of the Soviet Union in European
trade, of the Five-Year Plan from the outside, of
the Bolshevik behind the counter and of efforts or
the lack of them by European nations to checkmate
the "Red trade menace" could have no better intro-
duction than a visit to the Soviet exhibit in the
Milan Fair.
A stroll around this big rectangular, two-storey
permanent building, decorated with hammer and
sickle and Soviet star and flying the red flag of Com-
munism undisturbed in the birthplace of Fascism, is
more instructive than volumes of prophecy on Soviet
foreign trade.
Two things are worth the time of the most hurried
visitor to Milan : To reflect upon the past under the
marble vault of the Milan Cathedral, grandest
Gothic structure in Europe, symbol of the oldest
Christian church ; to speculate upon the future
among the crowded booths of the Red trade exhibit,
symbol of the newest economic faith.
Here at hand in the flesh, in the can, in the bale
and in the bolt, is a visible part of the inventory of
the biggest sales organization in the world, ready to
furnish anything from worm medicine for overfed
lapdogs to marble gravestones and linen doilies, ready
to meet and cut anybody's price from cotton to coal!
It is an astounding exhibition and Soviet macaroni
in Italy is only one of its revelations . There in a
corner is a stand taller than a man, brilliantly lit
with thin-necked globular electric light bulbs . They
are for sale . They are Soviet products. Three years
ago the best the Soviet Union could do in the way
of producing instruments of illumination was to turn
out with the help of Swedish concessionaires poor
quality kerosene lanterns . Today they are export-
ing electric light bulbs indistinguishable to the lay-
man from the most modern products of American or
German factories . Patents, it may be remarked, are
one of the least of Soviet worries .
In another section of the building is a food depart-
ment. One wonders what the reaction would be if a
Russian worker or peasant could be transported sud-
denly and without the intermediary surprises of
bourgeois European restaurants from his table of
salt herring, dry grits and black bread to this food
department . Here are stacks and stacks of canned
goods, all with labels in English, salmon tinned and
dried, patties of fish liver, a dozen varieties of smoked
delicacies, a huge refrigerator laden with every sort
of caviar from gray-grained de luxe Beluga Malosol
to the cheaper varieties of amber . Here are long
shelves full of preserves in glass, the light glinting
from appetizing contours of strawberries, ripe cher-
ries, plums, pears and peaches . Tall jars of jams and
marmalades stand opposite other jars of candied
fruits and a hundred varieties of confections fill all
the chinks and crevices of this opulent display .
Under current conditions of Soviet popular faith
in the Five-Year Plan it is perfectly possible that
the Russian visitor might be satisfied with the ex-
planation that these Lucullan foods could properly
be spared for the sake of the lire, the pounds and
the dollars, the machines and the factories necessary
to carry out the plan .
Next door are more fundamental foods . Many of
them have virtually disappeared from Russian tables
since the Five-Year Plan began .
Here are wheat, thirty-nine varieties, and flour,
four kinds, for white bread last seen in Russia in
1928 . Here are six sorts of cornmeal, eleven of beans
and four grades of sugar . Last autumn in the con-
siderable city of Dniepropetrovsk we could find no
sugar. Distribution difficulties were to blame, we
were told, and it is true that sugar was available
everywhere else en route through the Soviet Union .
But distribution runs smoother when the outlet is
abroad and foreign currency the goal .
Here are twenty-six sorts of peas and seed vege-
tables, barley, oats, rye and finally the macaroni .
Not just macaroni though, but all calibers in be-
tween, from finger-thick noodles to hair-fine vermi-
celli. In this department is material for every sort of
nutriment, from French pastry to mast for swine .
Every department has its director, anxious to dis-
tribute literature, ready to explain that the objects
on exhibition are only a fraction of those the Soviet
Union could supply . The display is quite enough .
Description of it reads like a catalogue, and from
any other country in the world its relation would be
purposeless. Lacking time for a trip to the Soviet
Union, however, an outsider interested in what the
Five-Year Plan means for his world would find it
profitable to continue a stroll through the exhibit,
observing next chair-backs, gelatine, cigarette cases
and chess boards .
One whole section is devoted to petroleum and
every conceivable variety of petroleum product, and
another to lumber and wood products, now the larg-
est Soviet exports. Here are parquet floorings, pl y-
wood, ready-made doors, sashes, sawn timber, planks .
Upstairs are rugs, antique and new ; forty-one
kinds of bristles ; eighteen of feathers ; twelve sorts
of sausage casings ; twenty-four samples of hemp
goods, including ropes, mats and nets, twenty-five
kinds of horse hair ; sixty-five of furs ; 150 exam-
ples of fine porcelain ; two shelves full of common
crockery ; a whole department for peasant handwork
-toys, dolls, embroidered linen, balalaikas and man-
dolins.
Downstairs, on the other side, we came up short
before three bales of Russian cotton . In 1928, the
first year of the Five-Year Plan, the Soviet Union
imported nearly 500,000 bales of cotton, 300,000 of
them from the United States . American irrigation
engineers have been working for the last two and a
half years on vast projects for watering the Central
Asian plains, the chief source of the Russian staple .
In this, the third year of the Plan, the Russians are
exporting cotton .
I asked an American cotton broker here what it
meant.
"For the present, a daring gesture : for the fu-
ture, I don't know," he replied .
"It's possible that, because of the remote distance
of their mills in Central Russia from the cotton fields
of Turkestan, they may find it cheaper to transport
some cotton to foreign markets and import foreign
cotton by shorter routes for their own manufacture .
At any rate, as far as I know, Americans are not
selling any more cotton to Russia this year ."
The Soviet Union sent 600 bales of cotton to Milan
this spring . It was snapped up at prices averaging
$5 a bale below American cotton of the same class .
According to foreign experts who examined it it
was good staple-very bright, strict middling, a lit-
tle coarse and irregular, but very strong and of
good character . Soviet trade representatives here
offered for sale indeterminable quantities in three
classes of strict middling and three of middling, all
at prices about $5 a bale less than American cotton
and on terms inacceptable to American sellers, in-
cluding a clause that buyers could reject the cotton
before delivery .
This was at any rate an interesting forecast of
FIGHTING THE RED TRADE MENACE ii
what may be anticipated from the Soviet Union in
another of the world's great staple commodities . But
what of manufactured articles? The Soviet exhibit
gives a partial answer . A short distance from the
baled cotton stand cases of textile samples . More
than 300 varieties of Soviet cotton and linen goods
are offered for sale .
We hurry along past thirty kinds of hides and
leather, water-proofing oil, wax, vermifuge for dogs,
ninety-three kinds of chemicals, prepared and raw ;
fifteen sorts of granite and marble, a case of semi-
precious stones and forty-five kinds of other min-
erals and pause once more before a corner full of
silk-raw silk and silk cocoons . There is much to
learn in the Soviet trade exhibit . Last year Italy
bought more than $1,000,000 worth of cocoons and
about $200,000 worth of raw silk from the Soviet
Union, where a pair of silk stockings is rarer than
white bread. At the exit nuggets, lumps and boul-
ders of anthracite and bituminous coal decorate one
side of the doorway . Don Basin coal mines are, with
the railroad system, the furthest behind of all
branches of Soviet economy under the Plan, but de-
spite the need for fuel at home, the need for foreign
exchange abroad is greater and coal is offered in a
dozen varieties.
We ask about prices. They are trade secrets and
nowhere so strictly as in trade with the Soviets . Not
here but in the markets of Milan, Genoa and Naples
is it possible to obtain an accurate picture of the
price practices of the Soviet trade delegation . Not
here but in Rome it is possible to obtain a satis-
factory explanation for the economic ties that bind
Communist Russia to Fascist Italy today and that
constitute one of the most effective hindrances to that
union of bourgeois states which the Soviet Union
has feared so long .
As one leaves the Soviet exhibit a score of ques-
tions clamor for answer . It is true that the total
Soviet exports in 1930 only reached 66 per cent
of the pre-war Russian exports . Russia under Czar
Nicholas, in 1913 sent $750,000,000 worth of goods
abroad. The Soviet Union under Stalin in 1930 ex-
ported $500,000,000 worth . From 1911 to 1913, ac-
cording to the United States Department of Com-
merce, Russia's share of world exports was 4 .1 per
cent ; in 1929 it was 1 .4 per cent. Why, then, the
excitement, why the protests?
Partly because the world for nearly a decade, from
1915 to 1924, when Russian exports sank to almost
nothing, had become accustomed to doing without
Russian goods and their place had been filled from
other sources . In this sense the Soviet Union is only
regaining the old Russian markets .
Partly, however, the world is alarmed not so much
at what Soviet exports are now but at what they may
become when the Five-Year Plan is carried out and
at the use to which devotees of the world revolution
may ultimately put the proceeds from a vastly in-
creased foreign trade . For the Plan, be it remem-
bered, makes it the task of the Soviet Union not
merely to overtake but to outstrip the "capitalist
nations ." Not until the czarist total of $750,000,000
worth of exports is overtaken, outstripped and mul-
tiplied will the Five-Year Planners be as happy over
their foreign trade balance as they are now over
their petroleum production, for example .
Finally, however, the world is uneasy precisely
because of the picture given here by the Milan Soviet
exhibit. No other country on earth ever had its ex-
ports concentrated in the hands of a single organiza-
tion. This huge national department store, capable
of supplying wares not by the dozen items but by
the dozen shiploads, possesses the inestimable advan-
tage of unified organization . It can maneuver, take
losses on some goods to be recouped from profits on
others. It can play off its rivals against one another,
take bids from a world of competitors, throw its
orders here or there as economic or political expe-
dience dictates . Whatever may be the criticism of
the workings of Soviet State Capitalism as a sys-
tem of production and of domestic distribution its
virtues as an instrument of foreign trade have at
least impressed its competitors .
CHAPTER II
Rome :
A Fascist journalist, a Bolshevik diplomat, a Ger-
man industrialist and an American banker were
gathered for dinner at the home of an American
newspaper man . Introductions over, the conversa-
tion swept swiftly into political channels and in five
minutes the Fascist and Bolshevik had ranged them-
selves solidly against the citizens of republican states .
United in their respect for dictators, agreeing in
their contempt for democracy, these individuals be-
trayed an attitude that today has made Fascist
Italy one of the two most reliable safeguards of
the Soviet Union against the formation of any kind
of anti-Soviet front in Europe.
"To save Italy from Bolshevism," Italy turned
Fascist in October, 1922 . Two years later Italy rec-
ognized the Soviet Union in February, 1924, and ex-
changed Ambassadors . Italy and the Soviet Union
signed a trade agreement in July, 1930, and by the
irony of events on May 1, 1931, premier Red holi-
day, international celebration day for the Com-
munist Party, there was announced the renewal of
this trade agreement on terms extremely satisfac-
tory to Moscow, guaranteeing a sure outlet for con-
siderable quantities of Soviet exports, no matter
14
what other European countries might do, and pro-
viding on liberal credit terms for the Soviet Union
to obtain from Italy some of the instruments of pro-
duction indispensable for fulfillment of the Five-
Year Plan .
It was somewhat surprising to learn here that re-
sentment against America-ill feeling over our tariff
-had played a role in the development of Italy's
economic rapprochement with the Soviet Union .
"Offer Italy the same goods at the same price, one
set of goods from America and one from the Soviet
Union," said an American of unimpeachable reli-
ability and experience to me, "and Italy will prefer
to take Soviet goods . Chiefly because of our tariff,
which has hit Italy hard, and partly because Italy
is playing with the Soviets ."
American trade with Italy, of course, is still in-
comparably greater in volume than Soviet trade with
Italy, but in view of this sentiment the direction of
development is perhaps significant . Italian foreign
trade in general has declined since 1929, but Italo-
American trade has declined in particular and Italo-
Russian trade has increased .
In 1929 Italy imported from America $187,000,-
000 worth of goods, in 1930, $134,000,000 . She ex-
ported to America $90,000,000 worth of goods in
1929, and $70,000,000 worth in 1930 . Italy imported
from the Soviet Union $18,000,000 worth of goods
in 1929 and $28,000,000 worth in 1930 . She ex-
ported to the Soviet Union $3,700,000 worth of
goods in 1929, and $5,000,000 worth in 1930 .
In the Soviet Union not the faintest whisper of
criticism of the Five-Year Plan may be uttered with
impunity . Nor in Fascist Italy is criticism of the
Government one of the healthiest of occupations . It
is therefore difficult to determine what, if any, at-
titude the broad public here has toward the question
of trade with the Soviet Union. I talked with a score
of business men and from all received the identical
answer that they had never heard expressed by Ital-
ians the least apprehension over possible consequences
of Italian aid to the Soviet economic expansion . There
is no talk about the Five-Year Plan, for nobody
knows anything about it . References to it in the press
are meager and from a short-period of observation
it was my impression that the Italian public must be
the least informed of any in Europe on Russia .
In every other country on the continent, including
Germany, the country doing the largest trade with
the Soviet Union, there are at least groups of public
men who assert that aid to Soviet economic growth
is a suicidal policy for the bourgeois world . In its
complete lack of any critical expression, the Italian
public is unique, perhaps unwillingly silent, perhaps
merely ignorant, perhaps genuinely acquiescent in
the Government's attitude .
This attitude is fairly clear : Italy, it claims, from
a purely commercial standpoint at this moment has
everything to gain and nothing to lose from trade
with the Soviet Union . The financial status of the
government with a confessed budget deficit estimated
at more than $100,000,000 and with about $150,-
000,000 payments on treasury bonds coming due in
October, 1931, does not permit Italy to let any trade
chances slip . In a period of economic depression and
loss of foreign markets Italy cannot afford to ignore
any opportunities for business .
Specifically, the American tariff has cost Italy
money and Italy hopes to make up some of her losses
by trade with the Soviet Union . Italy, it is true, buys
five times as much from the Soviet Union as she sells
to the Soviet Union, and this is serious at a time when
the Italian foreign trade balance is $250,000,000 pas-
sive, but the new trade agreement, it is hoped, may
remedy that . And, anyway, the products that Italy
takes from Russia are products Italy has to have
but cannot supply herself, four-fifths of all Italian
imports from the Soviet Union being petroleum and
wheat. As to the "Red Trade Menace," says the
Italian Government, "Fascist Italy fears no menace,
least of all Russia ."
These are the economic arguments of Italy for
trade with the Soviet Union . Political considerations
have placed at least as large a role . On bad terms
with France, distrustful in general of democratic
regimes, the Fascist Government has not yet given
up hope of establishing some kind of understanding
among the defeated nations of Central Europe, in-
cluding Germany, together with the Soviet Union
as a political counterpoise to the French post-
Versailles hegemony in Europe. As will appear later,
Italian military and naval circles are obviously in
favor of developing closer relations with the Soviet
Union, scarcely with the hope of any sort of active
alliance, but with the intention of insuring, in the
event of war with France, secure sources of petro-
leum and wheat from Russia through the Black Sea,
and this development may be observed actually tak-
ing place.
These were considerations that led up to the Italo-
Soviet trade agreement that has just been extended .
A glance at the text shows how advantageous are its
terms to the Soviet Union .
The first trade agreement of 1930 provided for
Soviet purchases from Italy of at least $10,000,000 ;
the new agreement provides for purchases of at least
$15,000,000 and foresees Soviet purchases next year
of at least $20,000,000 . American observers here are
of the opinion that Soviet purchases will probably
exceed the stipulated figure .
There is good reason to believe that some part of
these Soviet purchases have been and will be diverted
from America . Bogdanoff, head of the Amtorg Trad-
ing Agency, recently announced that Soviet pur-
chases in the United States had declined from $60,-
441,000 in the six months ended March 31, 1930,
to $33,385,000 for the six months ended March 31,
1931, and that this decline was largely attributable
to lack of credit facilities in the United States and
improvement of credit facilities in "some European
countries ." He meant, among others, Italy.
The Italo-Soviet trade agreement provides, first,
that the Soviets need only buy in Italy "in so far as
technical and commercial conditions are the same as
those existing in other countries for the products
requested ." Thus the Soviet Union is safeguarded
against losing the advantage of playing off the Ger-
man industrialist against the Italian industrialist,
of shopping around, of choosing the best quality at
the least price . Italy must deliver at least as cheaply
and excellently as any other seller .
The most important clause in the agreement is the
well-known section providing that the Italian Gov-
ernment guarantees tq Italian business men 75 per
cent of the value of their sales to the Soviet Union,
enough to cover labor and materials and requiring the
seller to take the risk only on the estimated profits and
overhead. This liberal guarantee exceeds by 5 per cent
the German guarantee . It is sufficient, particularly
in a country where the banks are under Government
control, to make the question of discounting Soviet
bills in Italy of subordinate importance .
For comparison with the credit time terms previ-
ously granted in America to Amtorg, it is interesting
to note the length of time Italy grants the Soviet Un-
ion on twelve categories of products subject to Soviet
orders which were distributed by the Italian Govern-
ment in this manner in order to spread trade evenly
throughout her industry : On ships, payments must
be made in a maximum of fifty-four months, aver-
age forty-two ; on ball and roller bearings, maximum
thirty-six, average twenty-four ; machinery for ma-
chine shops, maximum thirty-six, average twenty-
nine ; electrical machinery, maximum, thirty-six ;
average twenty-nine ; machinery for chemical in-
dustry, maximum thirty-six, average twenty-four ;
other machinery, maximum thirty, average twenty-
one ; automobiles and tractors, maximum thirty-six,
average twenty-four ; auto parts, average twelve ;
airplanes and airplane motors, maximum thirty-six,
average twenty-eight ; precision, measuring and op-
tical instruments, maximum twenty-eight, average
twenty ; metals, average twelve ; chemicals and dyes,
twelve, and fertilizers, twelve months . General aver-
age payment will take place in twenty-five months .
But an Italian Government official would object if
one commented that Fascist Italy has faith in Com-
munist Russia's solvency for at least two years . He
would point out that as far as payments go Italy
feels secure, inasmuch as she pays out to the Soviet
Union five times what she receives, and there should
always be a balance in the Soviet trade delegation's
treasury here.
An important item in Soviet purchases from Italy
is ships . The new agreement limits them by Italian
stipulation to $5,000,000 worth, sufficient, however,
to buy four . Two have been ordered by Soviets and
are now under construction, but do not appear yet
in trade statistics . Why Italy limited the Soviets to
$5,000,000 worth of ships is also interesting . The
Italian ship subsidy law, designed to stimulate the
creation of a merchant marine that would be of serv-
ice as well in war as in peace, has some remarkable
provisions .
There is a basic subsidy of 32 lire per gross ton
for all metal hulls and drawback, tariff exemption,
of 100 per cent on all customs duties for metal ma-
terial imported for ship construction . There is a pre-
mium for efficiency in fuel consumption running
from 16 lire to 12 lire per 100 kilograms of weight
for all auxiliary machinery installed . This is to pro-
mote the use of labor-saving devices . Finally, the
basic subsidy of 3 2 lire per ton may be increased by
30 per cent if the speed of the boat reaches fourteen
knots, and this increase scales upward until if the
boat reaches as high as twenty-seven knots, the basic
subsidy is increased by 235 per cent . These subsidies,
that apply as well to the construction of foreign
ships, mount very high and though they are limited
to a total of 114,000,000 lire a year from 1930 to
1934, they enable the Italian shipbuilders comfort-
ably to compete with older shipbuilding countries .
Hitherto, the Soviet Union has placed most of its
shipbuilding contracts in Germany . Today Italy has
made her shipyards so attractive that the Soviet
Union would like to place more orders here, but
the Italian Government will only permit shipbuilding
for the Soviet Union in proportion to total Soviet
orders at a ratio of $5,000,000 worth of ships out
of a total of $910,000,000 for all purchases . This is
a feature of Italo-Soviet relations being closely
watched by France, for the Soviet Union needs tor-
pedo boats, small cruisers and submarines for the
minimum requirements of its long neglected navy
and Italian yards are well equipped to supply them .
Another item of interest that does not, however,
appear as yet in the Italo-Soviet statistics concerns
airplanes . Early in March the Soviet Union ordered
seventy-five Savoya Macchetti hydroplanes equipped
with 750-horsepower Fraschini single motors, the
order including 150 spare motors . They were the
type of planes used by Balbo in his South American
flight and Maddalena for his rescue flight to the
Pole for Nobile .
Besides this deal, Italian manufacturers recently
had almost closed the sale to the Soviet Union of
150 Savoya Pomillo planes, deliverable fifty per year,
Italy to take wheat for them, but the transaction
broke down for causes unknown . The barter feature,
however, was taken up by the Fiat Company, and
according to unofficial information, Italy has agreed
to deliver 2,000 Fiat trucks for grain, the Italian
Government Treasury giving two-year notes for 75
per cent of the sum to Fiat who are to discount
them. The Government promises to take up the notes
within a year, the Soviet Union to deliver wheat to
the amount of the sales price, and the Italian Gov-
ernment to sell the wheat and with the proceeds re-
deem the Fiat notes .
Included in the new treaty is a clause wherein the
Italian Government promises to invite the attention
of Italian engineers hitherto seldom employed in the
Soviet Union to the opportunities for rendering
technical assistance in the Five-Year Plan . Italian
industry is hopeful over the agreement and for the
moment producer interest is in the foreground of
Italian economic thinking about the Soviet Union . It
is, however, the consumer interest in Italy that is
really decisive for the Italian attitude toward Rus-
sia . And it is the Italian market for wheat, oil, lum-
ber, coal that interests most the American and other
exporters, who, under Soviet competition, have seen
or fear they may see their Italian customers slip-
ping away from them into Russian hands .
CHAPTER III
Savona, Italy :
Tucked away in this little Mediterranean port,
surrounded by vineyards, almost hidden in a hollow
of the hills and unknown to any except the alert
observers of foreign oil companies, there is going up
an outpost of the Soviet's Five-Year Plan in Europe .
A huge oil depot for the storage of Soviet petro-
leum and petroleum products, the Savona station
of the Soviet Oil Trust provides one of the most
impressive evidences to be found anywhere in Eu-
rope of the far-reaching plans and self-confidence
of the Soviet foreign trade monopoly and of the
hospitality the Russians have found in Italy .
Here is a bit, and a very significant bit, of Soviet
Russia in Italy . After a prolonged tour of Soviet
industrial plants in Russia under the Five-Year
Plan, it brought a flood of familiar recollections to
find in Savona just such another plant, also not
quite completed, also very large, also packed full of
meaning for the future .
Only the environment is quite different from the
bleak surroundings of most great Soviet plants in
Russia. A fast hour and a half drive along a highway
that skirts the Gulf of Genoa, past coves and bays
24
improbably blue, through tunnels that pierce pro-
jecting cliffs, through sleepy towns, where sun-
browned girls sit knitting at flowery doorways,
brings one to Savona . The port is full of idle ships,
beflagged . It is a national holiday . We inquire the
way to the new Soviet oil station . The car winds and
turns through narrow village streets, walled high on
either side by gray stone, topped by nodding blos-
soms. Out of such an alley we emerge into a broader
way and there before us lies a huge complex of
freshly built buildings encompassed by a brick wall
and dominated by a tall water tower . The plant
looks foreign-an intruder among the peaceful hills .
Designed to accommodate an initial capacity of
50,000 tons of petroleum, the plant's liberal use of
space makes it appear even larger, The walled in-
closure is about 400 yards long by 150 wide . Inside
there are an administration building, a double row
of fifteen of the largest size oil tanks, two rows of
warehouses, various auxiliary buildings, all con-
nected by narrow-gauge railroad tracks .
Nearly completed, the plant should be ready to use
this summer . There is no doubt about the permanent
character of the structure . It would do credit to any
great bourgeois oil trust .
Walking about the interior of the enclosure, I
thought involuntarily of Baku, the oil capital of the
Soviet Union, of its streets placarded with signs
"Five-Year Plan for oil in two and one-half years ."
Just this spring Moscow announced that the Five-
Year Plan for oil actually had been accomplished
in two and a half years . On that occasion the presi-
dent of the Soviet Oil Trust announced "our daily
production now has reached 58,000 tons, compared
with an estimate of 57,000 tons for the conclusion of
the Five-Year Plan in 1933."
Here in Savona this new Soviet plant will hold
about one-tenth of all the petroleum Italy imports
in a year, but it would lack 8,000 tons of holding
even one day's production of the Soviet Oil Trust .
Second oil producing country in the world, now
having leaped ahead of Venezuela and only behind
-though, of course, far behind-America, the So-
viet Union plans to produce this year 27,500,000
tons as compared with the original estimate of 20,-
800,000 tons for 1933, and has shoved its production
goal for 1933 ahead to 46,000,000 tons . The United
States produced 137,000,000 tons in 1929 . If Amer-
ican production under restrictive measures remains
about static, and if the Soviet Union carries out the
Five-Year Plan for oil in the future as it has done in
the past, the Soviet Union by 1933 will have nearly
one-third of the production of the United States .
These are considerations that are bringing wrin-
kles to the brows of representatives of foreign oil
companies in Italy, as well, it may be said, as almost
everywhere else in the world . "The Five-Year Plan
for oil," remarked one American oil man in a neigh-
boring country, "is a catastrophe for us ."
Why the sober-minded representative of one of the
most realistic business organizations on earth should
feel justified in using such strong language may per-
haps be understood by consideration of the oil situ-
ation in Italy .
Until Russian oil re-entered the field, Standard
and Shell divided between themselves the Italian mar-
ket, Russian production had sunk from the pre-war
figure of 8,000,000 tons to 5,000,000 in 1924 and
the field was clear for the Americans and British .
It took until 1926 for the Soviet Oil Trust to re-
cover lost ground and reach approximately pre-war
production . There had been some Russian oil coming
into Italy, but not much until the formation about
this time of "Acienda Generale Italiana Petrolio,"
called "Agip" for short, which under Italian Govern-
ment control took over on contract all Soviet oil for
Italy and in a short time was disposing of 25 per
cent of all the petroleum and petroleum products
consumed in this country . Soviet imports of fuel
oil alone into Italy rose from 102,000 tons out of
a total import of 420,000 tons in 1928 to £64,000
tons out of a total of 705,000 tons in 1930 . In crude
oil Soviet imports reached one-third of the total by
1930 and in benzine Soviet imports were one-fifth
of the total in 1930, compared to one-eighth in 1928 .
Shell and Standard were hit but could do nothing
effective, for "Agip," an Italian Government cor-
poration, was selling the Russian oil and if any
charge of "dumping" was to be made, it would have
to be a charge of Italian, not Russian, dumping .
"Agip's" contracts with the Russians were an in-
teresting example of Soviet price practice . They pro-
vided for the sale of oil products f .o .b . Batum or
Novorossisk at a base price always a bit below that
of similar American products f.o .b. Gulf ports . With
this initial advantage, the Italian purchaser then
had the advantage of difference in transport costs
between Gulf-Italy and Black Sea-Italy, a difference
that sometimes mounted as high as thirty-five shil-
lings per ton, although it is now four shillings per
ton.
Even with this diminution in transport price dif-
ference, the net advantage of Soviet over American
and other foreign oil in Italy is very considerable .
It enables the "Agip" to sell Russian gasoline at
from three-quarters to one and one-half cents per
gallon less than the Americans' price, or about 18 to
20 per cent lower at the present market .
On bunkering oil the resale price of Russian
Mazout here is 35 shillings per ton, against 45 to 50
for American fuel oil, but no American fuel oil is
now being offered in face of this competition .
All this is not well and not good for the other
foreign oil companies operating in Italy, but until
now they have been able at least to keep a good
share of the market and have not suffered fatally .
What they now fear, however, is that the Italian
Government intends to permit the Russians to open
their own direct selling agency . The Savona plant
seems to them clear proof that this is the Govern-
ment's intention, for the Savona plant has been
built by and belongs directly to the Soviet Govern-
ment. Somewhere on the books of the Five-Year
Planners, among countless items of Russian fac-
tories, is one item, "Savona plant ."
Hitherto, other foreign oil companies have felt
Soviet competition only through the . Italian Govern-
ment agency. "Agip" has been able to sell Russian
oil under the market and thus to cause discomfort to
foreign competitors, but there was a limit to "Agip's
price-cutting capacity . It could never go below the
price it had paid the Russians . Now foreign com-
panies fear that if the Russians are permitted to
open their own importing and distributing agencies
the specter of real Russian "dumping" will be upon
them, for the Russians, independent of intermedi-
aries, may fix what price they please . This is why
Savona is an unpleasant spot for foreign oil men in
Italy .
Behind this fear is the apprehension that the
Italian Government may be planning to give the
Soviet Union a virtual monopoly on the importation
of fuel and crude oil . The Italian navy uses large
quantities of Soviet fuel oil now and from year to
year is progressively using more .
American and other foreign oil men are looking
at Italo-Russian rapprochement anxiously, but not
more anxiously than the French Government . De-
spite Italian protestations that there is nothing
political in the economic cooperation of Rome with
Moscow, the French worriedly check off : Soviet oil
to Italian navy, Italian ships and Italian airplanes
to the Soviets, to mention only items of immediate
wartime significance . Oil men and Frenchmen have
their own special interests in Italo-Soviet relations .
For the world at large the important conclusion is
that Italian Fascism has, for business and political
reasons, joined hands with Russian Communism .
Six years ago I attended the trial in Moscow of
three students, two German youths, one Esthonian,
charged with entering the country for the purpose
of attempting to assassinate Stalin and Trotzky .
Attorney General Nicholas Krylenko, who had
charged the defendants with being members of a
Fascist organization, wound up his address to the
court with the flaming sentence, "Bayonets and ma-
chine guns are our welcome to Fascists who come
to the Soviet Union ." Upon the conclusion of the new
Italo-Soviet trade agreement, the Soviet Government
invited a group of Italian industrialists to follow
the example of the German business tourists and
come to Moscow as guests . The invitation has been
accepted.
From the Italian side one is bound to admit the
cogency of the comment made by the Fascist organ,
"Lavoro Fascista," upon the conclusion of the Italo-
Soviet trade agreement, "It is true we are aiding in a
way the execution of the Five-Year Plan, which in-
tends to put Russia in a state of complete economic
independence . But are not there quite a few demo-
cratic countries which have not refused to have com-
mercial relations with the Soviet Union?"
CHAPTER IV
Genoa :
"Red Trade Menace?"
"Please give us more of it ."
This is the attitude of Italians in Italy today .
For it is not the Italians, but Americans, Canadians,
British, Argentinians, Swedes, Finns, Jugoslavians,
Rumanians, in fact, all exporters of countries sup-
plying the great staples, grain, oil, lumber and coal
who are suffering from Soviet competition in Italy .
Soviet prices are the chief object of criticism on
the part of Soviet competitors . As a general rule, the
complainant charges broadly that the Soviets for
other than economic reasons are "dumping" to "ruin
the market," "upset trade," "cause unrest ." A sub-
jective examination of Soviet intentions at present
is just as impossible as a certain forecast of what
they may do in the future, but an objective examina-
tion of the actual comparative prices of Soviet and
other goods, at least in Italy, does not bear out this
particular description of Soviet export policy .
Summarily, this examination shows that Soviet ex-
port policy just now, is designed first and last to
get the business and that Soviet prices are, as a rule,
just low enough-but always low enough-to get the
32
business and not, if the Soviets can help it, any
lower. On a commodity market, where business is
done on exchanges, as in the grain market, Soviet
prices are just a shade below their competitors . On
a market where the Soviets must compete with power-
ful foreign trusts, as in oil, the Soviets cut fairly
heavily, because only fairly heavy cuts may not be
equaled by countercuts from competing trusts . On a
market where the Soviets are new, where they must
"muscle in," they do so ruthlessly with slashing re-
ductions, as in the lumber market here .
This market presents a classical example of Soviet
methods of conquering a new field. Italy is a large
user of plywood and the Russians in the last two
years have developed an extraordinary production
of that commodity, admitted even by competitors to
be of first-class quality . They only began this spring
to campaign for the Italian market seriously . It was
necessary to make the campaign a determined one,
since the Baltic countries, Jugoslavia and Rumania,
had for years enjoyed a firm and, as they believed,
unshakable position in the Italian trade . A few quota-
tions will show just how determined the Russian
campaign was and how shakable the old-established
purveyors proved to be.
A leading lumber broker supplied the informa-
tion . On grade BB plywood the Russians quote a
price about 30 per cent under the Finnish price on
similar material, and, surprisingly enough, deliver
grade B plywood, one grade better. Buyers here
now have become accustomed to this practice and are
sure that when they order from the Russians BB
quality they will get B quality . Such competition, not
only on price but on quality, makes Russian plywood
almost irresistibly attractive to brokers, even though
they may wish to remain loyal to their old sources .
Prices are illustrative . On BB plywood the Rus-
sians quote from $32 to $38 .80 per cubic meter
against Baltic countries' quotations of from $44 .37
to $53 .35 . On B grade plywood the Russians quote
$37.31 to $43 .65 per cubic meter against Baltic
quotations on similar material to $61 .56 to $69 .10 .
In addition to these price differences of 30 or more
per cent, the Russian prices carry a flat discount of
4 per cent, plus 3 per cent cash discount, while Bal-
tic prices are net . Taking quality and price differ-
ences into consideration, the Russians, it may be esti-
mated, offer a 50 per cent advantage on plywood .
All prices given are c .i.f. Italian ports .
Other plywood exporters complain that as soon as
they reduce their prices, down go the Russian prices
still lower. Under these circumstances, lumber deal-
ers in Genoa and Baltic, Finnish Rumanian and
Jugoslavian exporters are convinced that the Soviets
soon will control completely the Italian plywood
market . It is reported that Soviet exports of ply-
wood into Italy will reach 24,000 cubic meters this
year, while Italy's entire consumption last year was
only 25,000 cubic meters . At the present moment,
however, the market is stagnant, for consumer brok-
ers are reluctant to buy, uncertain whether the Rus-
sians have touched rock bottom with their prices .
Lumber brokers, and these are the only Italian
merchants I found dissatisfied over Soviet trade, are
not cheerful over their cheap plywood because many
of them were caught with supplies or contracts for
supplies with the Soviet's competitors, and the ply-
wood market having slumped so heavily considerable
sums of money must be lost before the market is
readjusted .
As concerns the United States, there is no Amer-
ican plywood competing on the Italian market, but
there is a tendency here to substitute cheap Russian
white pine where before American long leaf yellow
pine or Swedish redwood had been used . For doors
and window sashes, the Russian product at the usual
price advantage is being accorded preference.
In all Russian exports it is not so much the ab-
solute figures that are meaningful but the direction
and rate of change . The Soviets are just beginning
to develop their anthracite industry . It is not today
a serious competitor in the Italian market . But
whereas in 1928 the Soviet Union sent 66,000 tons
of anthracite to Italy, or six-tenths of one per cent
of Italy's total imports, Soviet anthracite exports to
Italy in 1930 were nearly 300,000 tons, or about two
and five-tenths per cent of a total of 12,000,000 tons
imported .
The United States only exported 366,000 tons of
anthracite to Italy in 1930 and it is anticipated that
this year the Soviet anthracite will pass the American
product . Neither the Soviet Union nor America are
yet important factors in the Italian anthracite
market, as Great Britain supplies 60 per cent of the
total imports and Germany 30 . Important, however,
is the declaration of Italian anthracite dealers that
they are prepared to take all the anthracite the Soviet
Union has to offer, declaring it is of superior quality
and cheaper. This "most backward" sector of the
Soviet's Five-Year Plan is suffering difficulties but
produced last year 17 per cent more than the year
before.
Much more important for the United States is
Russian competition in wheat here . The wheat market
presents a quite different picture from that, for ex-
ample, of the plywood market . It only takes a shade
to get the business on the grain market, but that
shade will usually get it . The Soviets have cut the
shade regularly . Their share of the Italian grain
market is growing steadily, although it is difficult
to speak of a steady line of development in grain
exports of a country that, according to the London
"Grain Seed and Oil Reporter," exported 37,736,-
000 bushels in 1927 ; 8,000 bushels in 1928 ; 7,088,-
000 bushels in 1929 ; and already in the period of
this season from August 1, 1930, to April 2, 1931,
had exported 89,880,000 bushels .
The general expectation that the Soviets would
resume grain shipments this spring has been ful-
filled . Their shipments in January had fallen to
1,536,000 bushels . In February Soviet shipments
picked up to 5,800,000 bushels and in March to
6,800,000 bushels .
How large a part of Italy's wheat needs have been
met by these spring shipments of Soviet wheat is
indicated by "Bulletin of Arrivals" published in
Genoa, showing that out of a total of 1,980,000
bushels of wheat arriving in Italy in January, 759,-
000 were from the Soviet Union, while in February
out of a total of 3,234,000 bushels, 1,518,000 were
from the Soviet Union and in March out of 7,689,000
bushels, 2,156,000 were Russian .
It is most interesting to observe on the general
question of Russian wheat how its role in the world
market varies from month to month . In August,
1930, Soviet shipments of wheat were ten per cent of
world shipments ; in September they were 11 per
cent, in October thirty-seven : November, thirty-
eight ; December, twenty-one ; January, 1931, two
per cent ; February, nine per cent, March, ten per
cent .
It was in October and November when the Soviet
Union was pouring on the market more than one-
third of the total world wheat supply that cries of
pain were loudest from the other wheat-producing
countries . The injuries inflicted during those two
months have not been forgotten and the wheat world
is looking anxiously toward the Black Sea .
This anxiety is explicable on the part of Amer-
ican wheat exporters, for to consider the Italian
market alone it would appear from the Italian Gov-
ernment's figures on wheat imports that in the calen-
dar year 1930 the Soviet Union took away from the
United States a quite perceptible share of the Ital-
ian wheat business . Italy bought a total of 6,600,000
bushels more wheat in 1930 than she did in 1929, yet
the United States, that sold Italy 13,8 27,000 bushels
in 1929, sold her only 11,385,000 in 1930, although
American supplies in 1930 were the largest in his-
tory, while the Soviet Union, that sold no wheat to
Italy in 1929, sold her 9,900,000 bushels in 1930 .
American sales of wheat to Italy fell off 2,442,000
bushels in 1930, while Soviet sales increased by the
total amount of her sales-nearly 10,000,000 bushels .
Most of last year's Soviet wheat, however, re-
placed that of the Argentine, whose sales to Italy
declined 8,000,000 bushels from 14,421,000 in 1929
to 5,511,000 in 1930 . These figures shed some light
on the bitter complaints of the Argentine repre-
sentative at the world wheat conference in Rome
over Soviet competition .
Grain dealers handling Soviet wheat here assert
it is only reasonable that Italy should buy from the
Soviet Union ; that the shorter haul from the Black
Sea to Mediterranean ports makes it naturally
cheaper than American, Argentine or Manitoba
wheat. They say that the high gluten content of
Russian hard wheat is particularly desirable for
macaroni and that this quality of Russian grain is
just as good as the more expensive Manitoba and
American hards .
Italy is the third largest wheat-importing country.
Her average yearly import is from 60,000,000 to 90,-
000,000 bushels . Despite the most determined efforts
of the Italian Government to develop its home sup-
ply, the "battle of wheat" appears to have been
stale-mated at the 1929 domestic production of 260,-
000,000 bushels, the top limit ever reached, 32,000,-
000 more than the previous year, itself a record .
In 1930, the Italian crop was 216,000,000 bushels,
34,000,000 less than the 1929 high . In 1929 the
best year, Italy, nevertheless, had to import 63,000,-
000 bushels . This would appear to be her minimum
requirement from abroad, enough to make the Ital-
4o FIGHTING THE RED TRADE MENACE
ian one of the most attractive of markets for foreign
wheat growers .
Last year out of a total import of 69,000,000
bushels, Italy took 11,000,000, or 16 per cent, from
the Soviet Union . Before the war Italy took in in
some years as high as 60 per cent of her wheat from
Russia . Today one hears on every hand from the
Soviet's competitors that Italy now intends to take
more and more Russian wheat until eventually she
will be drawing most of her supplies from the Soviet
Union . One hears the same of oil, of lumber, of coal .
These gloomy forebodings may be exaggerated, but
in these commodities American and other foreign
exporters must be prepared for severe competition
from the Soviet Russians in the Italian market .
CHAPTER V
Marseilles
This sleepy, noisy, lazy, busy, twelfth port of the
world, country town and big city, with morals that
make Paris blush and food that makes Paris envious,
has one link left with the Soviet Union, since the
French license system cut Franco-Soviet trade to a
minimum. The link is visible by day and by night in
the trim forms of French sailors in their cruisers,
destroyers, torpedo boats at anchor, in the curling
wisps from funnels of the oil-burning vessels of the
fleet.
For the link is one of fuel, Soviet fuel for the
French Navy . And what is more important to a navy
than fuel?
The curious facts are that Soviet petroleum is
treasured by France as her most effective weapon in
the battle she has just begun to wage with redoubled
energy with American and other foreign oil com-
panies ; that for the sake of maintaining France's
independence or comparative independence of the
American petroleum supply, the French Government
will not break with the Soviet Union, no matter if the
other reasons for not breaking were absent, and that
the French Navy, instrument of war of the one
41
country in Europe that was supposed to harbor an
undying resentment against the Soviet Union, is one
of the largest single consumers of Soviet petroleum in
the world . To complete the picture one must recollect
that the other largest single consumer of Soviet
petroleum is the Italian Navy .
The struggle for the French oil market is one of
the most dramatic in the never-dull history of the
greatest international trusts . It has been going on
for seven years in its present setting, with the Irak
Petroleum Company noisily in the fore-front, the
Soviet Oil Trust silently in the background .
Stakes are, for the foreign oil trusts, the market
for the 30,000,000 to 35,000,000 barrels of petro-
leum consumed by France yearly ; for the French
Government, independence of foreign oil in time of
war ; for the Soviet Union-guarantee that France,
most feared by Moscow of any European country,
shall not take up arms against her, nor lead an
economic boycott . In other words, in a sense, the
Soviet stake is the Five-Year Plan, for war or boy-
cott are the two elements beyond Soviet control that
the Kremlin daily dreads .
France has nearly one million automobiles . She is
one of the largest consumers of petroleum . She has
none worth mentioning within her own boundaries .
Foreign oil companies are thinking of the French
peacetime market. France is thinking of that mo-
ment at the height of the battle of Verdun when
German submarines had sunk so many tankers that
France's gasoline reservoirs went nearly dry. The
Soviet Union is thinking that it is worth selling the
French Navy oil at any price to keep the nation
with the strongest military establishment in the world
satisfied to continue relations, unwilling to take
leadership of the anti-Soviet crusade .
Arena of this struggle appears to be France . In
reality it is a distant Eastern kingdom, the realm of
Irak, British mandate, but ruled by Feisal, wily
prince . He makes the fourth in the game. His trump
is political power over the Irak dominions, where
France wants to obtain her independent oil . Trump
of the foreign oil companies, Standard, Shell and
Anglo-Persian, is their financial power, their expe-
rience and their influence on French officials . Trump
of France is the just established license system re-
quiring all oil companies to refine their petroleum in
France, forbidding import of other than crude oil .
Finally, the trump of the Soviet Union, in this oil
game, is simply oil, cheap oil, good oil and oceans
of it.
The story of Mosul oil would fill a book, has filled
many, but it is doubtful if the role of the Soviet Oil
Trust ever has been properly portrayed . For an
examination of the chances, or lack of them, that
capitalist Europe should unite in one form or an-
other against the Red power in the East, the gap in
the story deserves to be filled in .
One of the events, it will be recalled, that formed
the background to the outbreak of the war was the
acquisition by Germany from Turkey not only of the
concession for the Bagdad Railway, but for the
Mosul oilfields . Nobody knows just how rich those
fields are . They lie inland, some 450 miles from the
coast, on the left bank of the Tigris River, not far,
perhaps, from the Garden of Eden . Oil experts, how-
ever, know that the fields are rich enough probably to
supply France with all the oil she needs, if it could
only be moved .
The German concessions led at the time to inter-
national complications that were finally settled by
the organization of an international company known
as the Turkish Petroleum Company, in which Ger-
man and British interests predominated . The French
were left out until during the war, after Turkey had
entered against the Allies, France succeeded, under
the Sykes-Picot agreement, in obtaining title to the
former German concession, when and if the allies won
and could take it .
Defeated, Germany relinquished Mosul . Victorious,
France demanded possession, but in 1920 at San
Remo, France gave up to England her territorial
rights in the Mosul district in exchange for Eng-
land's recognition of her right to have a share in the
petroleum produced in that district . Under the "open
door" the United States also demanded and received
a share.
Thus was born the Irak Petroleum Company, Brit-
ain with the lion's share, Anglo-Persian Oil Com-
pany 233/4 per cent, Anglo-Saxon Oil Company, or
Royal Dutch Shell, 23 3/4 per cent ; the United States
-Near East Development Company, or Standard
Oil, 23 3/4per cent and France 233/4 per cent, with 5
per cent to Mr . Gulbenkian, original promoter of
the Turkish Petroleum Company . In 1924 the Com-
pagnie Francaise des Petroles was organized to take
title to the French Government's shares in the capital
stock of the Irak Petroleum Co.
At the time of the organization of the Irak Com-
pany every one concerned was more or less keen to
develop the fields, get the oil out . Then came a rush
of world production, and today there is so much oil
that "limitation" is the worldwide cry . Everywhere,
be it said, except in the Soviet Union .
All this world oil, however, was doing France no
good . She wanted badly to develop her own oil sup-
ply. If she did so, it would mean loss to the foreign
oil companies of their rich French market . Without
reference to their interest in the French market, the
British and American oil companies do not want to
move their own oil out of this field because of the
over production in British and American territory .
It is much more economical to use the Mosul oil as a
future reserve, leaving it in the ground, the cheap-
est warehouse .
The foreign oil companies selling to France about
78 per cent of all her oil were the same companies
representing American and Great Britain in the
Irak Petroleum Company . It was then to the interest
of the French to speed production and delivery of
Irak oil ; to the interest of her partners in the com-
pany to prevent production . On this issue the battle
has been fought, is still being fought between the
French and the Americans and British, and in this
issue the Soviet Oil Trust has played a role in the
past important, today decisive .
There has never been much dispute about the abil-
ity of the Mosul Field to produce oil . The only ques-
tion was how to get it out . The most direct route is
due west through Syria, a French mandate, about
450 miles in a straight line from the Mosul Field to
Tripoli, Syrian port . By a southwestern route
through Irak, trans-Jordan and Palestine, all Brit-
ish mandates, the British port of Haifa can be
reached by a pipe line about 550 miles long.
The Compagnie Francaise des Petroles, a national-
ist company, formed under the auspices of the French
Government for the purpose of administering
France's interest in the Mosul Field and for the
further specific interest of securing for France in-
dependent sources of oil, struggled for years with
the American and British stockholders to try to in-
duce them to consent to do something effective about
moving the Mosul production . Balked at every turn,
the French Government has finally found what it
believes is a way out.
On April 4 of this year the French Government
published a decree revolutionizing the petroleum in-
dustry in France . It is a complicated document, much
too long even for summary, but the important pro-
visions are : all imports of other than crude petroleum
into France must cease for three years ; after those
three years all petroleum products used in France
must be refined in France ; all imports of crude
petroleum are contingented among French and
foreign companies, Standard, Vacuum, Royal Dutch
and Anglo-Persian getting 51 .8 per cent of the im-
port licenses, the Cie . Francaise des Petroles getting
19 .8 per cent and independent French producers
getting 28 .4 per cent .
Lastly, but most important, the Cie . Frangaise is
given the right during twenty years to import, treat
and distribute one-fourth of the total amount of
petroleum products consumed in France . This oil
may come from Mosul or from any other source that
is approved by the Government, Soviet oil not ex-
cluded . Here is the crux of the battle for the French
oil market . Soviet oil is the threat, Soviet oil the
weapon used by the French to force the American and
British interests to consent to the building of the
Irak pipe line, an enterprise that it is estimated
will cost around $50,000,000, may or may not be
profitable to the French, certainly will be unprofit-
able to the British and Americans .
But faced with the alternative of Mosul oil, in
France, or an increase of the Soviet's share in the
Market to 25 per cent, France's partners in the Irak
Company have gone at least far enough to have
enabled an announcement in the Chamber of Deputies
that an agreement had been reached whereby a trunk
line would be built part of the way from Mosul, with
a branch line to the French port of Tripoli and a
branch line to the British port of Haifa . The French
apparently had triumphed, but the line is not yet
built, and, until it is, there is no likelihood that they
will let drop the weapon that brought about the
victory .
Nobody knows exactly how large Soviet oil ex-
ports to France are, for nobody outside the con-
fidence of the French Government knows exactly
how much Soviet oil the French military and naval
establishment takes . For civil consumption there is
listed an import of 375,748 tons of Soviet oil out
of a total oil import of 3,5 25,000 tons, or a little
over 10 per cent. It is believed, however, that the
navy uses not less than 260,000 tons of Soviet fuel
oil and oil products yearly, while the army is said to
use around 40,000 tons, making a total of 300,000
tons for the two services .
This large quantity, about 2,000,000 barrels, not
included in the foreign trade statistics and intended
exclusively for the French military and naval es-
tablishments, amounts to more than one-half of the
total imports by Italy of petroleum and petroleum
products .
Both the Italian and French navies nurse at the
oil reservoirs of the Soviet Union, the Italian navy
to strengthen itself against France, the French to
strengthen itself against whom? Only the French, or
time, perhaps can say . But as far as oil politics are
concerned, Soviet oil serves France as its best arma-
ment against American and British oil interests . And
"disarmament" is an unpopular cry in France today .
CHAPTER VI
Paris
If the Soviet Union has nothing more to fear than
the present French efforts at "defense against the
Bolshevik menace" the future is rosy for Red
economic expansion . With more reasons than any
other nation to resent and fear the Five-Year Plan,
France, whom Moscow perpetually charges with
leadership of the anti-Soviet front in Europe, is to-
day actually thinking of nothing more aggressive
than a method to improve its trade relations with
the Five-Year planners .
Tight-lipped and determined, France announced
October, 1930 that she had found the way to curb
Russian "dumping ." It was in the month when more
than one-third of all the wheat, more than three-
fourths of all the rye, more than half of all the bar-
ley, and a third of all the oats coming on the world
market were pouring from the holds of Soviet and
Soviet chartered steamships .
In that month alone the Soviet Union sent abroad
eleven million bushels of wheat, nineteen million
bushels of rye, four million bushels of barley, twelve
million bushels of oats .
The Little Entente, Rumania, Czecko-Slovakia,
50
Poland, France's allies, and Bulgaria and Hungary,
most of them heavy grain exporters, were stricken
with alarm, had met, passed protests, appealed to
France to help them, at Geneva, unite the nations to
dam the avalanche of Russian grain . At the League
in September, Fascist Italy, Republican Germany
refused to cooperate . Sympathetic, the others shared
the general regret, remembered their industrialists'
contracts to sell to the Soviet Union, asked France to
show what ought to be done .
France did . By decree under article 17 of her
customs laws, authorizing the Government to take
urgent measures in case foreign governments behave
in a way calculated to impede French commerce, the
Cabinet of Andre Tardieu, the man of the strong
line, on October 4 announced an edict subordinating
the importation of Soviet merchandise in fifteen
categories to special authorization of the Minister
of the Budget .
Applause was not only national but international .
The rest of the world saw France, defender of
Europe against the Red, as one time against the Ger-
man tide, taking the lead to check the Soviet march
toward industrialization, toward power, toward a
future heavy with portent for this continent and the
world. Moscow painted pictures of Briand, Poin-
care, Weygand, plotting war .
High point of world reaction to the alarm over
Soviet "dumping," the French license system turned
out to be, however, not a measure for the defense of
Europe, not one for the defense of the capitalist
principle in France, but a measure for the defense
of the French balance of trade-of trade with the
state that avows eternal war with capitalism, pre-
dicts the eventual fall of all capitalist Governments .
Seven months after the license system was in-
augurated, the French Government admitted that it
had failed of even this modest goal .
The then Minister of Commerce, M . Flandin, in
October declared that French trade with the Soviet
Union was extremely adverse, that France in the
first six months of the year had bought $14,000,000
worth of products from the Soviet Union, and sold
but $4,000,000 worth, that this could not continue,
and that the license system should be the remedy .
He reckoned without Moscow . For despite all the
fanfare, and because of various somewhat intricate
reasons, having something to do with the attractive-
ness of low prices, Soviet or otherwise, and having
something to do also with the strong commercial
antagonism felt in France toward other countries
than the Soviet Union, the French Government could
not bring itself actually to refuse licenses to many
categories of Soviet products . Yet the Soviet Govern-
ment canceled contracts right and left, retaliating
with a brusque effectiveness that evoked pain in
French industrial and official circles .
France's trade balance with the Soviet Union is
now worse than ever. In the five months, October 1,
1929, to March 1, 1930, the Soviet Union exported
to France goods to the value of $14,300,000 ; in the
same five months, 1930-31, after the license system,
Soviet exports to France fell off to $12,300,000 . But
in the five months October 1929 to March 1930,
France exported to the Soviet Union goods to the
value of $5,700,000, while in the same five months,
1930-31, French exports to the Soviet Union fell off
to $1,300,000 . The Soviet Union lost $2,000,000 ;
France lost $4,400,000 . The Soviet Union's exports
to France fell off by 14 per cent ; France's exports to
the Soviet Union fell off by 80 per cent .
If the purpose of the license system had been to
sacrifice French trade in order to hurt the Soviet
Union, it might have been said to have achieved a
meager success, but nevertheless a success . For the
Soviet Union was hit. If the purpose had been to help
French trade and only incidentally to hurt the Soviet
Union, the license system must be said to have failed .
For France was hit harder .
Proof that the French Government did really only
intend to protect French industries and agriculture,
and only incidentally to hurt the Soviet Union is
provided by an examination of the articles subjected
to the license system, . and of those omitted and of the
way it has been applied . It is at the same time of
particular interest to the United States to note the
degree to which the French Government has been
embarrassed in its possibly sincere, if incidental, de-
sire to strike a blow at Bolshevism by its unwilling-
ness to deprive the French people of the advantages
of low priced Soviet commodities if the competing
commodities are of other than French or of French-
allied origin .
The decree listed as requiring special authoriza-
tion for import : cereals and their derivatives, sugar,
molasses, common woods, flax, live poultry, refriger-
ated pork, killed poultry, eggs, isinglass and glue,
gelatine, oleine, stearine, and oleic and stearic acid .
Omitted was the largest item of Soviet export to
France, petroleum and petroleum products, an item
that made up nearly 30 per cent of Soviet sales to
France in 1930, one of the items of Soviet exports
with which the United States products compete in-
tensely in this country .
After the license system was invoked, France in-
creased her purchases of petroleum from the Soviet
Union, buying more than twice as much in the first
two months of 1931 as in the first two months of
1930, or 108,900 tons as against 42,300 tons . The
fact that France has no petroleum production of her
own was certainly decisive f or the omission of
petroleum from the list of Soviet goods requiring
licenses, and was an indication of the absence of any
French intent merely to block Soviet trade . But the
part played in this omission by the French attitude
toward American and other foreign oil importers re-
quires more detailed treatment in a further chapter .
The feeling of France toward America also played
a role in her attitude toward Soviet wheat . It was
joyfully expected by the wheat exporting countries
of the world, including the United States, that the
French license system would mean a flat embargo
on Soviet wheat. Had the license system not come
partly as a result of the protest that Soviet wheat,
selling in October at 73 to 75 cents a bushel, c .a.f.
ports, before customs, as compared with Manitoba
and American wheat at 91 cents a bushel, was ruin-
ing the French wheat grower even when protected
by a tariff of 90 cents a bushel? Even today the im-
pression prevails that the French did embargo Soviet
wheat, but the foreign trade statistics of the Min-
istry of France tell a different story .
According to these statistics, France in the five
months after passing the license decree, from October
4, 1930, to March 1, 1931, imported a total of 1,764 .-
000 bushels of Russian wheat, in October 788,000
bushels, in November 637,000, in December 235,000,
in January 83,000, and in February 21,000 bushels .
The Soviet Union's total exports of wheat to all
countries in January and February fell off to x,900,-
000 bushels, so that it is difficult to say whether the
decline in French imports of Soviet wheat in January
and February was due to the license system or due to
the diminished supply of Soviet wheat .
A part but not all of the October imports may
have been due to the clause exempting from the
operation of the license decree "merchandise which
it can be shown was shipped directly for France be-
fore October 4 ." In other words, while it is certain
that Soviet wheat entered the country in smaller
volume after the license decree than would have been
the case had there been no license decree, it is equally
clear from the French official statistics that the Gov-
ernment issued licenses for the import of a consider-
able quantity of Soviet wheat .
To have forbidden it entry after the French grow-
ers had disposed of their crop would have been to
benefit whom? The principal competitors of the
Soviet Union for the French wheat markets are
America, Canada, Australia .
A similar picture is provided in the records of
timber imports from the Soviet Union, another item
placed on the list of commodities requiring licenses .
After the license system had been established, in the
five months from October, 1930, to the end of March,
1931, France imported 128,080 metric tons of timber
from the Soviet Union, compared to 125,250 metric
tons in the same period 1929-30 . To have forbidden
its entry, in any case, after the artificially stimulated
French timber industry had taken its share of the
market would have been to benefit whom? The prin-
cipal competitors of the Soviet Union for the French
timber market are America, Germany, Austria, Fin-
land, Sweden and, to a less extent Poland .
These three commodities, oil, wheat, timber, with
flax constitute the most important Soviet exports to
France. But the French Government's treatment of
flax provides an instructive comparison . It, too, was
put on the license list .
French flax growers complained they were over-
whelmed by Russian flax . In this case the Govern-
ment acted energetically, so energetically, in fact,
that, whereas Soviet imports of flax into France in .
the five months October to April in 1929-30 had
been 18,086 metric tons, they amounted to only
3,003 metric tons in the five months after the license
system was passed . To prohibit its introduction
would benefit whom? Belgium, firmest ally of France,
large flax producer, has heretofore shared with the
Soviet Union the privilege of supplying France with
the seventy to eighty thousand tons of flax France
needs to import yearly .
America and other countries compete with the
Soviet Union for the French oil market . Oil is omitted
from the license system decree against Soviet prod-
ucts . America and other countries compete with the
Soviet Union for the French wheat and timber
market . Soviet wheat and timber are put on the
license system, but considerable quantities permitted
admission . Not America, nor Germany, nor Great
Britain, but only Belgium competes with the Soviet
Union for the French flax market. Flax is put on
the license system, and the Soviet imports choked
down to nearly nothing .
Illuminating were the remarks of M . Louis Rollin,
successor in the Laval Cabinet to M . Flandin as
Minister of Commerce, at an official celebration of
the Lille Fair, on April 12, 1931, after six months
of experience with the license system on Soviet im-
ports . With regard to Russia, he said, France had
no intention of breaking off trade relations and was
far from desiring the economic isolation of that
country ! It would be better for all, he declared, if
Russia could take her place in the international ex-
changes and improve both her economic situation
and the well being of her people . But commercial ex-
changes, he emphasized, must be based on equality
and reciprocity, at present completely absent .
The Minister went on, however, to observe that
"certain overseas countries" were disregarding the
facilities accorded them in the French market and
were confronting French goods with insurmountable
tariff walls. The French Government, he said could
not tolerate this and would take appropriate meas-
ures of retaliation.
It has become evident that the French attitude
toward the Soviet Union, though it may have a dif-
ferent affective tone, is in its concrete application
not much different from her attitude toward all other
nations not bound to her by ties of national selfinter-
est, by common f ear of a common enemy . In par-
ticular the resentment now lessened but still keen felt
in all circles against America's refusal to cancel the
French debt, is so strong that it is not an exaggera-
tion to compare it with the resentment felt against
the Soviet Union for having repudiated the Czarist
pre-war debt to France that amounted on April 30,
1926, to 6,738,000,000 gold francs ($1,347,000,-
000) .
This, the original basis of French hostility to the
Soviet Union, was a business matter. Today the
French, whatever their sentiments may be and con-
trary to widespread opinion abroad, regard their
relationship with the Soviet Union as a business mat-
ter . The Roland of the capitalist world against the
"Red Trade Menace" must be sought elsewhere .
CHAPTER VII
Paris
A new sect of Russian racketeers had grown up in
Paris, and their motor cars and villas, their mis-
tresses and champagne parties have pre-empted a
place of their own in the life of this pleasure capital
of the world. They enjoy one of the oddest of advan-
tages . They live on assassination, insurrection, bomb
assaults and mutinies . Every time Joseph Stalin is
killed, every time the Kremlin is blown to bits, every
time Trotsky returns to the Soviet Union at the head
of an army to throw out the rascals and every time
the peasants of Mother Russia rise as one man to
destroy their oppressors, the Parisian money lenders,
men of the "Black Bourse," knot their ties more hur-
riedly in the morning, get down to business earlier,
for that day there will be fat pickings .
Into their offices come streams of business men, or
their agents, bearing Soviet notes-Soviet promises
to pay to American, French, Austrian manufac-
turers.
"But you promised to take this bill and charge me
only 2 2 per cent," exclaims one .
"My friend, love you as I do! Have you not seen
the morning paper. What? Yes, I see you have, but
60
FIGHTING THE RED TRADE ME14ACE 61
you didn't think I had . What? Twenty per cent and
the paper says the Red Army has mutinied, Kron-
stadt rebelled, peasant uprisings in the Ukraine !
Why here it is, from Bucharest . The correspondent
says that drum fire was heard in the distance across
the Bessarabian border all night last night . Twenty
per cent! I wouldn't take a piece of Soviet paper for
100 per cent ."
The customer pleads, offers 25, 30, 35 per cent .
"No-not for any price ."
He turns to go . The broker waits until the lagging
feet cross the threshold and calls .
"See, here, you are an old customer, I am an old
Russian . I know I shouldn't do it, but I feel that now
those things are happening in Russia and my dear
fatherland is about to throw off the Bolshevik yoke,
it will be worth the money to me . I'll take your note ;
45 per cent!"
Which is to say that for a note drawn by the
Soviet Trade Delegation for $100,000 payable in
full with 6 per cent interest in one year to the French
or American or other manufacturer who has sold
electrical machines to the Soviet Government, the
"Black broker" pays $55,000 . He tucks the note
away in his safety deposit box, and at the end of the
year, if the Soviet Government has not resigned and
fled to Sweden disguised in green spectacles, the
patriotic emigre will collect . He has been collecting
for many years, and the profits from the chronic
collapse of his fatherland's tottering Government
have filled out the frame that was meager when he
left Russia in 1919 .
It was one of the most curious and instructive
events of this trip to learn here that most of the
business of discounting Soviet bills is done by Rus-
sian emigres . The majority are men of the merchant
class willing to turn an honest penny at anything,
who started on a shoe string and, by constantly re-
investing their winnings in the same business, have
acquired fortunes . While Russian princes tend bar,
drive taxicabs, play the balalaika in dance halls, the
lowly merchant turns his penny so swiftly that al-
ready he has become a minor power in the financial
world.
To these worthies of the Bourse, the "Red Trade
Menace" is an abominable idea . Their dialectics are
interesting . "Menace ! Of course they are a menace .
They don't pay their bills," exclaims the broker of
Soviet notes . "Five-Year Plan? Already completely
failed . They will never be able to export enough to
meet their obligations . Anyway, they spend all their
money on propaganda ."
Any argument that the Five-Year Plan is succeed-
ing, that the Soviet Government is more powerful
than ever, that its future growth has become a matter
of a great deal more concern to European Govern-
ments than the mostly imaginary sums spent by the
Third International for foreign Communist parties,
is met by the glance of suspicion, the sure and ready
word, "Bolshevik ."
A real Bolshevik, an official of the Government,
remarked once that the Soviet Union's enemies were
her best friends ; they were so in love with Soviet
collapse that they refused to pay attention to Soviet
power .
An official of a great Government, anxious however
that neither his identity nor that of his Government
should be cited, told me that after a world-wide check-
up by his department in the attempt to determine
the total amount of outstanding Soviet obligations
of every variety, they had just arrived at the esti-
mate of $240,000,000 to $400,000,000, a very wide
discrepancy, it is true, but interesting minimum and
maximum limits . The Soviet Union exported last
year to the value of $500,000,000 . With a decent
crop this year the total exports are expected to in-
crease considerably, as timber and oil will certainly
go out in larger quantities, and if the weather is
favorable, the grain crop, European grain merchants
anticipate, will be still larger than last season when
the Soviet Union threw the outside world into a panic
over its grain exports. A total export for 1931 of
$600,000,000 to $750,000,000 is considered not im-
possible, barring the usual reservations against the
possibilities of foreign war, economic boycott or crop
failure.
The rate on Soviet bills in Paris is down now .
Nothing worse is happening in the Soviet Union
than the interminable bankruptcy of the Five-Year
Plan, and the usual starvation, so when I visited an
American banker and asked him to ascertain the
day's quotation for me, the answer came after a tele-
phone call, "27 per cent."
"Twenty-seven?" I exclaimed, "Why?"
"I don't know," he answered . "It's seldom much
lower. But you understand that is for privately dis-
counted bills that have not gone through a Soviet
Bank ."
"How long will it last?" I asked . "Two years more,
three?"
Not so very long ago that question put to an
American banker would have been taken as a request
for his opinion on the probable duration of the Soviet
regime. Today the banker friend, European director
of one of the oldest, most conservative houses in
America, replied : "One year," snorting . "One year,
I give them, one year, and they'll be getting nearly
normal discounts ."
The views of this American banker, shared by a
few of the better informed French Government ex-
perts, must also be taken into account in judging the
French attitude toward the problem of Soviet
economic expansion . The ranks of the old guard of
observers of the Soviet problem, who persist sin-
cerely in the opinions held for commercial reasons by
the brokers of Soviet bills, are rapidly thinning . The
current attitude of the French Government and its
plans for the future are based on the assumption
that there is a better than even chance that the Five-
Year Plan will succeed . But whatever time may hold
for Europe as a consequence of the success of the
Five-Year Plan and of its successors, the French
business man holds to the opinion that a present
profit in the hand is worth two threats in the bush
of the future . The loss of Soviet orders injured him
at this moment out of proportion to the actual mag-
nitude of the business done with the Soviet Union,
for France is now feeling keenly the pinch of the
economic depression, and, as one Frenchman re-
marked
"When you have got 1,000 francs in your pocket,
you don't miss the loss of ten, but when you've only
got 100 francs in your pocket, you don't overlook
the loss of ten ."
The French Government has studied its trade
balance with the Soviet Union before and after the
license system . When M . Flandin spoke in October
the ratio of French sales in the Soviet Union to
Soviet sales in France was one to three . Today the
ratio is one to twelve. And that, say the entire Cab-
inet and members of all political parties, has to be
remedied .
Four remedies are proposed . The first, aired by
Stephen Lauzanne, editor of L'Echo de' Paris,
fathered by Senator Joseph Caillaux, famous former
Premier, sponsored by Senator Henri Berenger, one
time French Ambassador to Washington, and others,
is most ingenious. It proposes the erection of a cen-
tral governmental organization to be known as the
"Office National for Trade with the Soviet Union ."
This office shall be a counterpart of the Soviet
Monopoly of Foreign Trade, with the distinction
that it is to handle only trade with the Soviet Union .
The committee will be glad to accept sales from
the Soviet Union at any price the Soviets want to
make, the heavier the cut the better . For the com-
mittee will buy Russian commodities as cheaply as
possible, limiting in theory their purchases to the
amount of Soviet purchases in France, then sell to the
French public at the prevailing French market price .
The profits are to be turned into a fund for com-
pensation of holders of Russian Imperial bonds .
Thus at one stroke a whole flock of harassing
problems, the debt question, the dumping question,
the balance of trade question, are solved . There may
be many objections to this proposal, but one is per-
haps sufficient . Three years ago Germany tried a
modified form of it . The German National Associa-
tion of Manufacturers, anxious to obtain for them-
selves the same advantages of concentrated sales-
manship and elimination of competition enjoyed by
the Soviet Foreign Trade Monopoly, set up a "Rus-
sian Committee" through which were to pass all
Soviet orders for German industrial products . The
Soviet Government anxiously but resolutely declared
it would buy absolutely nothing of German manu-
facturers who submitted their bids through the Rus-
sian committee .
Charged with bad logic, inconsistency, since the
Soviet Union itself had a Foreign Trade Monopoly,
the Soviet Government replied that it would not
object if Germany or any other country set up a
Foreign Trade Monopoly for trade with all coun-
tries, but would consider such a monopoly for trade
with the Soviet Union alone as an intolerable dis-
crimination . The Germans' "Russian Committee"
still exists, but exclusively as an organ of informa-
tion.
In view of this Soviet attitude, adoption by the
French of the Caillaux-Berenger scheme would re-
sult effectively in complete cessation of trade with
the Soviets, for experience has shown that Moscow
will no more consent to such an arrangement than
she would consent to abandon her own Foreign Trade
Monopoly, keystone of her structure of state capital-
ism. The French Government is aware of this ob j ec-
tion, and a high official, eminently authoritative on
matters of Franco-Soviet trade, in a conversation
with me, alluded to the scheme as an opportunity
for the Senate and possibly the Chamber to ventilate
their views on Russia .
Nevertheless, those students of the problem of
Soviet foreign trade not inclined to advocate boy-
cott, but interested in the working out of a more ac-
ceptable relationship than now exists between the
huge, unified organ of state-capitalistic trade repre-
sented by the Soviet Foreign Trade Monopoly, on
the one hand, and competitive private-capitalist trad-
ing corporations of the non-Soviet world on the other
hand, are convinced that in the Caillaux-Berenger
scheme exists the germ of a solution. It seems to them
to be one method that would be effective even against
Soviet rejection if all nations were to adopt it, and
that it might be much easier to persuade at least a
good many nations to adopt it than to induce them
to cut off their trade with the Soviet Union entirely,
if that were the goal desired .
The great obstacle to the erection of a state
monopoly for trade with the Soviet Union, is to be
found in most countries in the opposition of private
business men who do not want the Government in-
terfering in their affairs . The German attempt was
made under the direction of the Government which
through its state guarantee for the payment of Rus-
sian bills, had a means of exercising pressure upon
those business men who would have preferred to
operate independently. The only other step in this
direction essayed by a non-Soviet state was taken by
Persia which on March 11, 1931, installed a system
of state monopoly of foreign trade . But Persia is an
absolute monarchy and when Mirza Reza Pahlevi,
impressed by the trade methods of the Russians, de-
cided to emulate them, he simply decreed the law .
Its prime intention, like that of the Italo-Soviet trade
agreement, and the present French plans for remedy-
ing their commercial relations with the Soviet Union,
was to balance the foreign trade account.
Meanwhile M . Briand is credited with one of the
four plans under discussion here for solution of the
Soviet trade problem . As might have been expected
from the Nestor of European politicians, the plan
is original. The germ of its idea was at one time
ascribed to Montague Norman, governor of the Bank
of England, but he denied paternity, and M . Briand
is popularly credited with its authorship .
The plan, still very vague, but perceptible in its
outlines, is to set up an international credit institute
in Europe for the rediscounting of all Russian bills,
through which every member of the League of Na-
tions would pass its trade with the Soviet Union . It
would be, in other words, an International Institute
for Trade with the Soviet Union . Participation of
all members of the League of Nations in the In-
ternational Institute would make it necessary either
for the Soviet Union to submit to its authority, or
cease virtually all trade with the outside world .
It is suggested that if it were difficult or impos-
sible to induce all nations to pass laws requiring
their nationals to do business with the Soviet Union
only through the International Institute, it would be
possible to accomplish the same end by financial pres-
sure . That is to say, the Institute, by offering to dis-
count Soviet bills at a rate approaching the usual
bank rate for non-Soviet bills, would destroy the
private market, the "Black Bourse," and make it
necessary for the seller of goods to the Soviet Union
either to carry the entire burden of financing the
Soviet one-year, two-year or even longer notes him-
self, or to do his business through the Institute and
submit to its control . Thus, with all Soviet credit in
its hands, the Institute, it is conceived, could also
regulate Soviet sales, curb "dumping," by limiting
or refusing credit unless the Soviet Foreign Trade
Monopoly conformed to the ideas of the Institute .
The subject is not, however, considered ripe for
serious discussion, for without capital it could not
be realized and whatever may be private opinions,
the international banking world has not yet been
willing openly to espouse Soviet solvency .
The third proposal for the remedy of Franco-
Soviet relations is suggested among others by Gaston
Bergery, secretary of the so-called Russo-French
Parliamentary Group in the Chamber, a loose organi-
zation composed of deputies from various parties who
believe that the Russian problem is perhaps the most
important one facing Europe today, but who are not
at all unanimous in their views as to its solution .
This proposal, apparently simple but in reality full
of thorns, is to resume the Franco-Soviet negotia-
tions over the debt question where they were left off
five years ago .
Chief objection to this proposal is the fact that
the Soviet Government has grown not less, but more
hard in its attitude since 1926 when the negotiations
were broken off upon Moscow's insistence that before
it pay a cent on the Czarist bonds, the Soviet Union
would have to have a considerable money credit . The
debt at that time was reckoned at 6,738,000,000 gold
francs, $1,347,000,000 . The average Frenchman has
not yet entirely abandoned hope of getting something
back on this huge sum and the bonds are occasion-
ally traded in at a fraction of 1 per cent to 4 or 5
per cent on days when assassinations in the Kremlin
are particularly numerous .
But another prime difficulty in the way of solu-
tion of the debt question is the lack of a Soviet
representative here whom the French can under-
stand and who understands the French . In this re-
spect the Trotzky-Stalin controversy in the Russian
Communist Party is still making its effects felt, for
Christian Rakovsky, stanch friend of Trotzky and
one of the few who have held out without capitula-
tion for four years in the exile to which he was sent
by Stalin, was perhaps the one Soviet representative
who could match French diplomacy.
But it is the French this time who are anxious to
remedy the stagnation in Franco-Russian relations .
The fourth and last proposal to this end, most sweep-
ing of all, is made by Senator Anatole de Monzie .
He, one of the original proponents of French recog-
nition of the Soviet Union, and in this sense com-
parable to our own Senator Borah, is in favor of
negotiating a trade agreement with the Soviet Union
and postponing consideration of the debt question
to a "more convenient time ."
It is difficult to forecast what will be the solution
finally evolved . Perhaps it will be one different from
any of those listed, but these are all that are being
discussed at present . Important for the outside world
is the observation that of all the solutions suggested
the outer limit of aggressiveness is represented by the
Caillaux-Berenger project for control, but not ces-
sation of trade with the Soviet Union . This is from
the country that suffered most heavily from the
Bolshevik revolution . For France that revolution
meant not only the loss of the huge amount of money •
in Czarist bonds distributed almost literally among
every French family . It meant prolongation of the
war with Germany and might have meant its loss had
not America intervened . It meant after the war that
Germany, friendly to the Soviet Union for its own
reasons, could be much more independent than if she
had been bordered by Czarist Russia. Nevertheless
France recognized the Soviet Union in October,
1924, nine months after the British Labor Govern-
ment showed the way.
Today France views with distrust and a vague
growing uneasiness, the climb to power of the Soviet
Union, friend from expedience, but nevertheless
friend of Germany and Italy . French courts make
trouble for the Soviet trade representatives, her
press fumes at the disappearance of a General Kutie-
poff, the flight of a Bolshevik diplomat from the
"Claws of the Cheka ." But the French business man
is making trouble for the French Foreign Office, and
through the rattle of persistent popular agitation
against the Soviet Union penetrates to governmental
chambers only the clear cold voice of business : "We
want our Soviet orders back ."
CHAPTER VIII
Brussels
It was in Antwerp . I asked a newspaper vendor
"Ou se trouve-t-il le consul Americain?"
No answer. A sullen look .
"Wo ist der amerikanische Konsul?"
Instantly came the reply, shot back in Flemish so
like German it was easy to understand.
"Don't you speak French?" I asked the Antwerp
citizen.
"Oh, yes," he replied, "but we prefer German if
we have to speak a foreign tongue ."
French a foreign tongue in Belgium! German pre-
ferred in the land that suffered the yoke of German
military rule the whole long length of the war !
But Antwerp is Flemish, Brussels Walloon, and
their differences, so easily forgotten by the outside
world, are playing a curious role today in the rela-
tion of Belgium to the Soviet Union . The Walloon-
Flemish, Brussels-Antwerp conflict, interminable and
never settled, has helped make it impossible for Bel-
gium to achieve any satisfactory results in its efforts
to protect itself against Soviet imports, has helped
make this sector of the "anti-Soviet front" illusory .
In this country, in miniature, for convenient in-
spection, as on a small-scale model of a Continental
74
map, may be observed in classic form the nationalis-
tic, local patriotic, commercial reasons why Europe,
though partly convinced that the economic expan-
sion of the Soviet Union means trouble, and wholly if
vaguely convinced that it is undesirable, has done
nothing effective to check that expansion .
Seldom can one find conflicting interests in such
profusion as exist here, and each has its bearing on
Belgo-Soviet relations . The traditional conflicts ex-
istent everywhere are here between industry and ag-
riculture ; between producer and consumer ; between
those who want to buy Soviet goods because they
are cheaper, and those who want to keep Soviet
goods out because they compete with their own prod-
ucts ; between those industrials who long for Soviet
orders and those who fear Soviet industrial competi-
tion. And to these conflicts are added the uniquely
Belgian conflict between the Walloons and the Flem-
ish . Looming over all is the Belgian national rivalry
with the old antagonist, Holland .
The Walloon-Flemish controversy must surprise
any observer coming in from the outside with the
war-time American picture in his mind of the hotly
patriotic nation of Belgians, united as a monolith
under the aegis of Albert .
To learn that radicals in the Flemish party agi-
tate for separation from Belgium, that moderates in
the same party, in very considerable numbers demand
a revision of the constitution and organization of a
sort of dual, federal state, and that the police fre-
quently have to use their clubs to quell the treason-
able public demonstrations of the secessionists, is to
realize that the Walloon-Flemish conflict has more
serious aspects than the mere fact that it requires
knowledge of two languages to get a place in the pub-
lic service.
This is an aspect of Belgium that has more sig-
nificance as an illustration of one of Europe's most
acute post-war ailments than for its importance in
itself. And particularly in any study of the relation-
ship of Europe to the Soviet Union is it desirable
correctly to estimate the part played by the astonish-
ing growth since the war of the spirit of nationalism,
of sectional patriotism . Upon these centrifugal
forces the Soviet Union is depending in large part
for the undisturbed execution of its ambition to erect
an economically independent, militarily potent Com-
munist state, in a world of capitalist enemies too
busy hating each other to band against a common foe .
Hardly a nation in Europe is free from the dis-
integrating element of national minorities, bent on
having their independence even if they have to tear
up the Continent into scraps of States . Poland has its
Ukrainians, its Germans and its Jews ; Germany has
its Poles ; Czecho-Slovakia has its Slovaks ; Jugo-
slavia its Croats ; Rumania its Hungarians ; Italy its
Austrians ; France its Germans, and the Spanish rev-
olution has shown what the Basques and the Cata-
lonians thought of Spain .
These are by no means all . There are many more
groups of peoples dissatisfied and bitter against
their Governments . It may be remarked that of the
examples named, all except the Spanish dissenters
blame their troubles on the Versailles peace treaty
that rearranged Europe's boundaries with awkward
hand . For that very reason it was interesting to find
in Belgium a "national minority" problem that had
nothing to do with the Versailles peace treaty.
The Belgians have had 100 years since the founda-
tion of their present nation in 1830 in which to
reconcile the differences between the Flemish inhabit-
ants of the coast and the Walloon inhabitants of the
interior. The conflict still exists ; the Flemish lan-
guage was given equal official rights with the French
in 1898 ; in 1923 the formerly French speaking uni-
versity at Ghent was converted to the Flemish tongue,
and today in Antwerp it is easier to get a civil an-
swer from a man on the street by speaking German
than by speaking French .
The Flemish, proud masters of the Port of Ant-
werp, claim that the Walloons pre-empt the plums
of government. The Walloons propose to continue the
pre-empting . Thus when Brussels takes a step toward
checking Soviet imports, Antwerp is urged by no
exaggerated feelings of friendliness toward the capi-
tal to refrain from pressing its local claims to con-
sideration . Brussels is forced to compromise ; Mos-
cow profits.
How Antwerp actually behaved when Brussels tried
to curb Soviet imports, and the role played by Rot-
terdam, and the dramatic circumstances of the rift in
Belgo-Soviet trade will be discussed in another chap-
ter . Here it is necessary to record the formal course
of events .
Belgium has no diplomatic relations with the So-
viet Union . This is one of the few important in-
stances in which Brussels has failed to follow the lead
of Paris . Belgium industrial investments in Czarist
Russia are estimated to have been worth around
$800,000,000 . This was all lost when the Soviet
Government nationalized property and not a penny
has been recovered .
Feeling over this loss is still strong and the pre-
dominance in politics here of the clerical Catholic ele-
ment has made the assumption of diplomatic relations
with the Soviet Union an academic question . So far
Belgo-Soviet diplomatic relations consist of an agree-
ment for the return of citizens, signed April p20,19 20 .
Despite the lack of diplomatic relations, Belgium
and the Soviet Union by last year had developed a
trade that, though small in itself, made Belgium
seventh largest taker of Soviet goods . In 1930 Bel-
gium imported Soviet grain, flax, oil, lumber and a
few other products to the value of $12,800,000 . She
exported to the Soviet Union, however, only $3,750,-
000 worth of machines, tools and boilers .
The Belgo-Russian balance of trade was distinctly
unfavorable to Belgium but not large enough in itself,
out of a total Belgian foreign trade of $1,700,000,-
000, to worry about so long as prosperity was abroad
in the land . Last autumn the flood of Soviet grain
disturbed Belgian farmers, the general economic de-
pression made even the small unfavorable trade bal-
ance with Russia irritating and the action of the
French in establishing their license system for Soviet
imports convinced Belgium she should do the same .
The license system, it was hoped, would throttle Rus-
sian "dumping" and improve the trade balance .
France decreed its license system October 4, 1930 .
Belgium followed on October 26 . Less extensive even
than the French, the Belgian list of Soviet products
requiring a license for import included only cereals
and cereal products, wine, glue and oleic and stearic
acid. The results of the French experiment have been
described. The Belgian findings have been if any-
thing even more discouraging .
Although Soviet grain has ceased to come into the
country legally, it is conceded by the Government
that it comes in in large quantities illegally, smuggled
by Belgian, Dutch and French traders . Petroleum
and timber were not put on the license list because
they are products not produced in Belgium, and, as
in France, the Government had no interest in pro-
tecting American, Canadian or Scandinavian oil and
timber interests . Flax was not put on the list for
reasons given later .
Leaving grain entirely out of account, official Bel-
gium statistics show that in the first two months of
this year, after two months of operation of the license
system, Belgian imports of Soviet petroleum, lumber
and flax have averaged a little over a million dollars
a month, almost precisely as much as last year, while
Soviet imports of Belgian goods had fallen off from
a monthly average in 1930 of $300,000 to a monthly
average in 1931 of $100,000 .
As in France the trade balance is now considerably
worse. As in France, Moscow had peremptorily cut
off orders from Belgium while Belgian desire for
cheap Soviet goods not competing with their own had
induced her traders to continue buying nearly as
much as they had before the license system .
As in France the Soviet export trade had suffered
very little, while that of America and the other great
producers of the Soviet staples, oil and lumber, con-
tinues to meet the pressure of Soviet competition
here. In both these products America competes di-
rectly with the Soviet Union for the Belgian mar-
ket, the United States having sold to Belgium in 1929
more than $15,000,000 of petroleum and petroleum
products, and $3,200,000 of timber .
The Belgian Government is admittedly uncertain
what to do. It is sure of but one thing : that its license
system has failed to accomplish the ends for which it
was created . The opinion in governmental circles is
that nothing can be done effectively against Soviet
economic expansion by one state acting alone, that
only united action can avail, but that the possibility
of united action appears remote as a dream .
Only a few objective Belgians realize that the rea-
sons why Europe cannot unite against the Soviet
Union are contained in substance in Belgium itself,
where not even within its own boundaries can the
citizens agree to carry out loyally the policy of the
Government .
While members of militant anti-Bolshevik organi-
zations speak of Briand's Pan-Europe as the coming
cure for Communism, Belgian smugglers ship quan-
tities of unlicensed Soviet grain across the border,
others falsify bills of lading and forward freight car-
loads of unlicensed Soviet timber into France, still
others buy Soviet flax, oil, and timber in preference
to the more expensive products of non-Soviet coun-
tries, and Antwerp, anxious over her port fees, steve-
dore wages and her trade rivalry with Rotterdam,
presses hard for complete abolition of all checks on
Soviet trade .
Moscow worries over the "anti-Soviet front" in
Europe. One wonders why.
CHAPTER IX
Antwerp :
Miles of brilliant flower beds, tulips, crocuses,
scarlet yellow, purple, lie between the tiny states of
Belgium and Holland . Spring makes their frontier
the pleasantest in Europe . But a great deal more
than flowers divides the Belgians from the Dutch
and to their many grounds for mutual national an-
tagonism has been added today the question of trade
with the Soviet Union .
Twenty-nine ships flying the red flag with the So-
viet hammer and sickle approached the port of Ant-
werp . Two million bushels of grain were in their
holds .
Strung out along the ocean track from the Black
to the North Seas the twenty-nine ships steamed for-
ward oblivious of world events, their twenty-nine cap-
tains busy only with the chart, course, Antwerp .
That forenoon there met in Brussels twelve men,
the Belgian Cabinet . They reflected on the "Red
Trade Menace," the falling price of wheat, on the
protests of their farmers, on the example set by
France . They framed a law, and thenceforth Soviet
grain required a license to enter Belgium .
That afternoon there met in Moscow nine men,
82
the Politburo of the Russian Communist Party.
That night the twenty-nine captains of the Soviet
grain fleet simultaneously by radio received one la-
conic message : "Pass Antwerp ; dock Rotterdam ."
Now, Antwerp, Belgium, is the fifth greatest port
in the world . Rotterdam, Dutch, is the fourth. Ant-
werp hates Rotterdam ; Rotterdam hates Antwerp .
For Antwerp the menace is not Red ; it is Rotterdam .
For Rotterdam the menace is not Moscow, it is
Antwerp .
It took the Antwerp Chamber of Commerce just
twenty-four hours to awake, but in twenty-four
hours a long and burning telegram was laid before
the Belgian Cabinet.
"For the sake of this, for the sake of that you
cripple our trade, you help our rival. The Soviet
Government has ordered its Antwerp cargoes to Rot-
terdam, has boycotted our port. We are even going to
lose the Soviet transit trade . Help!"
Not in these words, but in this sense, the Antwerp
Chamber of Commerce framed its protest .
Before the Belgian Cabinet loomed the threat to
Antwerp . It had been forgotten in the larger threat
to Belgium . Now it nearly dimmed the "Red Trade
Menace ." Embarrassed, unable incontinently to
withdraw a royal edict, the Cabinet compromised and
two days after its first decree, issued another that
the license law did not apply to transit grain . Too
late, for the Soviet Government announced its boy-
cott on Antwerp as port of transit would be main-
tained so long as the Belgian Government kept any
license system discriminating against the import into
Belgium of Soviet goods . The Antwerp Chamber of
Commerce has reckoned that it will lose in a year
on the transit of Soviet grain alone around 200,000
tons of traffic and from 800,000 to 1,000,000 tons of
imports .
The nine men in Moscow happily observed that
the twenty-nine ships were hospitably received in
Rotterdam ; they observed the indignation in Ant-
werp, not against Moscow but against Brussels, and
summing up their observations they noted that the
Five-Year Export Plan was holding up nicely .
To the many reasons why the bourgeois world has
not been able to unite against Soviet economic ex-
pansion, to the reasons of European national rivalry,
mistrust and fear, to the reasons of individual busi-
nessmen's desire for profit from Soviet trade, the
Moscow observers were able to add as a curiosity the
special reasons of local patriotism operating in two
of the greatest ports of the world .
Rotterdam and Antwerp are favored in almost
equal degree by nature . Both have canal systems
reaching deep into the heart of Europe, and because of
these canal systems and their excellent harbor facil-
ities, the two cities, though belonging to the smallest
of continental nations, have developed into world
ports behind only New York, London, Hamburg and
Los Angeles . Their natural advantages being equal
the two ports can only compete through their hos-
pitality to trade .
The two ports covet each other's shipping to such
a degree that consideration of international scope re-
cede behind the foreground of their local ambitions .
Antwerp has made it hard for the Belgian Govern-
ment to maintain any sort of control system on So-
viet imports ; Holland has made it virtually im-
possible.
The license system was established in late October.
Since that time sufficient has transpired to confirm
the impression that it has been unsuccessful . Bel-
gium's experience is worth attention as an example of
the difficulties that must be met by any bourgeois
nation that attempts individually to exert measures
of control over trade with the Soviet Union. For the
history of the Belgian license system on Soviet im-
ports is the history of the development of a new boot-
legging racket, the business of smuggling Soviet
wares under false certificates of origin .
It is not so picturesque a racket as the business of
liquor dealing in the United States, nor is it as profit-
able, but it is profitable enough . Its methods afford an
instructive view of a sort of individual disloyalty of
citizens to their state during its attempt at trade war
with the Soviet Union-a disloyalty that Marxists
contend is inseparable from the private capitalist
system.
Bootlegging Soviet grain into Belgium is made
easier by the fact that the canal systems of the two
countries interlace and frequently a Belgian canal
passes for a short distance through Dutch territory .
One spot where this occurs has been exploited heav-
ily by the grain smugglers . Down in the extreme
southern tip of Holland a little tongue of Dutch ter-
ritory runs in between Germany and Belgium .
Through this tongue of Holland runs the Belgian
"Zuid-Willems" canal . It runs from Liege to Ant-
werp and save for the few miles on Dutch territory
is exclusively Belgian .
In the little strip of Dutch territory through
which the canal passes it touches the Dutch town of
Maastricht . Boats coming up the canal had been long
accustomed to carry wheat from Antwerp to Liege .
After the Belgian Government subjected Soviet
wheat to an import license, Belgian customs author-
ities remarked an extraordinary increase in the canal
traffic from Antwerp to Liege . Dutch importers of
the Soviet grain that had been refused admittance to
Belgium had sold quantities of it to Belgian brokers
and shipped it to Maastricht.
As the Belgian canal boats came through they
were loaded with the contraband wheat and provided
with false bills of lading attesting that the grain was
of American or Canadian origin, pursued their dig-
nified way on back into Belgium . In this way many
thousands of tons of Soviet grain have entered the
country . Other thousands, also on false bills of lad-
ing, have been brought on lighters from Rotterdam
into Antwerp. One Antwerp business man told me he
estimated that more Soviet grain had been brought
into the country in this illegal manner than before the
license system was passed .
"It's like trying to dam a river with a fish net ;
like trying to sweep the tide back with a broom," he
exclaimed. "There is no use in any one country try-
ing to keep out the cheap products of the Soviet
Union. So long as any nation in the world takes
Soviet goods, those goods will eventually find their
way into all the other nations . How can you identify
Soviet wheat, oats, rye, barley ; how can you spot
Soviet timber, coal or oil? It is not as though you
put up a tariff on all grain, timber, coal or oil . That
is easy to enforce . But when you put up restrictions
only against Soviet products, you have to be able to
identify the stuff as coming from the Soviet Union .
How can you do it? We have not been able to find
out."
He shrugged his shoulders .
As a matter of fact the Belgian Government is now
trying the experiment of requiring importers of
grain from all countries to show samples as well as
produce certificates of origin, and it is hoped that ex-
pert grain men may be able to distinguish the Rus-
sian growths if they continue to be offered under false
bills of lading .
Worth noting is the fact that the smugglers of
Soviet wares are never the Soviet trade representa-
tives but always citizens of the country that has laid
down the restrictions, or of neighboring countries .
So for the last several months there has been a
heavy traffic in Soviet timber through Belgium into
France .
France, it may be remembered, last October in-
cluded timber on its list of Soviet products requiring
special import licenses. But French timber brokers,
operating through Rotterdam agents, buy their
quantities of Soviet timber and, shipping it through
Belgium, send it across the French frontier on false
bills of lading, alleging its origin in Finnland, Swe-
den, Poland, or some other non-Soviet timber pro-
ducing country . The Soviets would not permit this,
for they have refused to send any more transit
through Belgium. Nevertheless the Soviets profit
thereby .
All of the familiar aspects of capitalist inter-
necine contention are present in Belgium to par-
alyze the efforts of the few who believe that Soviet
economic expansion is not a threat merely to the in-
dividual producers now feeling the pinch of Soviet
state capitalist competition, but a threat to the en-
tire structure of private capitalism in Europe . So
far, in Belgium as in France, the only capitalists who
react are those immediately hit, and there are al-
ways to be found other capitalists whose profits from
Soviet trade make them active in counteracting the
efforts of their injured countrymen to defend them-
selves .
Flax in Belgium provides a useful example . Rus-
sian flax dominates the world market and under the
Five-Year Plan the Soviet production has already
outstripped the pre-war output . In 1913 Russia
grew 330,000 tons of flax ; in 1929, 427,700 tons,
out of a total world production of 689,100 tons .
About two-thirds of all the world's flax is grown in
Russia, and last year the Soviet Union exported 71,-
583 tons of it . After Russia come Poland with 67,500
tons annual production, Latvia with 34,600 tons and
Belgium fourth with 27,400 tons . In Belgium the
flax industry is especially important, for the plant
is not only grown there, but is worked up into linen .
But the Belgian flax industry is sharply divided
between the growers and the weavers . The growers
suffer under Russian competition, the weavers profit
by it . When the Government was considering its im-
port license plan for Soviet products, the flax grow-
ers asked that Russian flax be put on the list . The
weavers demanded that it be kept off the list . It was
kept off, and today even under the bad relations ex-
isting between Belgium and the Soviet Union, exports
of flax into Belgium have increased enormously . In
the first two months this year they amounted to
2,746 tons against 836 tons in the same period the
year before, or an increase of more than 600 per cent .
The Flemish fight the Walloons, they both fight
the Dutch ; Belgian industry fights Belgian agricul-
ture while Moscow marks triumphant red the North
Sea sector of the "Anti-Soviet Front ."
CHAPTER X
Amsterdam :
Twenty-nine ships carrying Soviet cargoes passed
Antwerp in a huff last October when the Belgian
Government decreed a license law for Soviet imports .
The twenty-nine ships went to Rotterdam instead .
Today the twenty-nine ships have been followed by
307 more .
With wide outstretched arms Holland eagerly has
received the Soviet trade that Belgium denied its
doors and the Netherlands are doing an import busi-
ness from the Soviet Union that for volume and va-
riety is nothing short of phenomenal, and in rela-
tionship to American trade with Holland is most
instructive.
Three hundred and seven steamships carrying
Soviet cargoes have discharged in Holland during
the seven months up to May 1, 1931 . Three hundred
and seven merchant vessels can carry a great deal
of goods . So much, in fact, that not only has the
Dutch import from the Soviet Union risen by far
above that of the same period in the previous year,
but it has exceeded the combined Belgian and Dutch
imports from the Soviet Union for the same period
91
in the previous year . If any evidence were needed
that Soviet exports are on the sharp upgrade, it is
offered by an examination of the contents of this Red
armada .
Furthermore, although it is impossible to establish
a causal connection between the decline in American
exports to Holland and the increase in Soviet ex-
ports to Holland, the statistical record of this move-
ment nevertheless is more interesting than statistics
are wont to be .
In blunt terms, the United States lost $5,000,000
worth of exports to Holland and the Soviet Union
gained precisely $,5,000,000 worth of exports to
Holland in the three months, January to March,
1931, as compared with the same period in 1930 .
American exports to Holland in the first three months
of 1931 were just one-half as much as they were in
the first three months of 1929, and Soviet exports to
Holland in the first three months of 1931 were just
nine times more than in the first three months of
1929.
Wheat, corn, lumber and petroleum are the prin-
cipal products in which the United States competes
with the Soviet Union for the Dutch market .
The movement of trade thus indicated is so ex-
traordinarily violent that it had better be fully
documented . The official figures are
(Last three ciphers omitted)
-In First Three Months of-
1999 1930 1931
Total Dutch imports . $250,400 $259,200 $197,600
From U. S 32,400 21,600 16,409
From Soviet Union . . . 800 p2,644 7,600
American exports to Holland sank from $32,400,-

000 in the first quarter of 1929 to $16,400,000 in
1931, while Soviet exports to Holland rose from
$800,000 to $7,600,000 . America's share of total
Dutch imports sank from 13 per cent in 1929, March
quarter, to 8 .45 per cent in the corresponding quar-
ter this year, while the Soviet Union's share in all
Netherlands imports rose from .37 per cent in 1929
to nearly 4 per cent in 1931 .
If one has no taste for statistics but is skeptical
still of the ability of the Soviet Union to export any
considerable quantities of the copious assortment of
goods observed as for sale in the Soviet pavilion of
the Milan Fair, there could be no more easy and en-
lightening reading than the ships' manifests of the
Soviet armada.
Here on the docks of capacious Dutch ports may
be seen in bulk the items displayed to the public in
the samples in Milan . In bales, blocks, sacks, cases,
tons, standards, barrels, from Archangel, Leningrad,
Kherson, Mariupol, Murmansk, Nicolaieff, Novoros-
sik, Odessa, Poti, Sevastopol, Theodosia and Vladi-
vostock, "a great variety of commodities," as the
official report says, arrived . They came in ships flying
flags of virtually every maritime nation, British and
Italian companies leading and Soviet ships of
"Sovtorgflot" carrying perhaps 40 per cent of the
cargoes . To be quite exact about it, there arrived
goods in more than 200 different categories from
Russia, most of them either not mentioned at all in
the ships' manifests of 1929 and 1930 or appearing
in small volume . The list is much too long to repro-
duce. Alphabetically, it ranges from four cases of
"advertising-printed matter," to fifteen barrels of
"zinc ash ."
Grain men will be interested to observe that in
these first three months of 1931 there entered Hol-
land from the Soviet Union 85,222 tons of barley,
1,920 tons of buckwheat, 18,741 of corn, 58,970 of
oats, 28,799 of rye and 46,117 of wheat .
Rotterdam quotations on wheat as of May 16,
1931 showed Russian wheat selling at only a slight
advantage in price under wheat of similar quality
from other countries, a difference in fact of only five
Dutch cents per hundred weight . Russian rye was
quoted the same day at exactly the same price as rye
from other countries . This bears out the observation
already made that in the grain market the Soviet
does not always or often find it necessary to cut prices
more than a shade . Informed circles here are aware
that there is still a stock of surplus grain in Russia .
How much of this stock from the old crop will be
sold depends on the prospects for the new crop . If
the new crop is favorable, it is anticipated the Soviet
Union will come on the market again with fairly large
quantities . If the new crop is unfavorable, the mar-
ket may be spared further Soviet exports of grain
until the actual harvest in the Summer and Autumn
of 1931 has proved the supplies are sufficient both
for the Russian internal consumption and for ex-
port .
But grain is only one set of items worth pausing
before in these ship manifests from Russia . The mani-
fests, it must be recorded, have been made available
in the reports of the American consular service in
Holland-reports on Dutch imports from the Soviet
Union that for comprehensiveness surpass any piece
of official reporting on Soviet trade yet encountered
on this trip .
Here one reads that the Soviets imported into Hol-
land 853 cases of frozen eggs, 157 cases of egg yolks,
although the Soviet foreign trade delegations abroad
have frequently sought to give the impression that
so long as the acute shortage of eggs for the popu-
lation persisted at home, export of eggs would be
eliminated .
Of particular value for the light it throws on the
attitude of the German Dye Trust toward the Soviet
Union is the list of chemicals Holland imported from
Russia. It may be recalled that the German Dye
Trust, Europe's greatest chemical concern, is ad-
verse to trading with the Soviet Union, although in
that respect it differs not only from the official
policy of the German Government but from the gen-
eral attitude of most of the larger German manu-
facturing concerns . Few of these concerns have been
hit by Soviet competition . Here in the ports of Hol-
land one finds the reason for the German Dye Trust's
unwillingness to keep step with its own Government
on the Russian problem.
The infant Soviet chemical industry has sent to
Holland in the first three months of this year 990
sacks of calcined soda, 180 drums of calcium chlo-
ride, 440 drums of calcium carbide, 3,362 drums of
caustic soda, 19 drums of chromic acid, 340 demi-
johns of formic acid, 325 drums of glycerin,
9,528 bags of magnesite and 3,858 tons of sodium
sulphite.
One surprising item of Soviet exports was clothing.
No specifications were given and one was left in the
dark as to what sort of clothing it could have been
or who could have been the prospective wearers, but
at any rate there is the fact-three bales and 1,262
cases of Soviet clothing exported into Holland .
Of other manufactured articles there are items in
plenty, although the total volume is not sufficient to
be evidence that any serious export of manufactured
goods has begun from the Soviet Union to this
country . The list nevertheless is long and various .
According to the ships' manifests Holland took from
the Soviet Union in the first quarter of this year
among other things various quantities of aniline
dyes, billiard balls, blankets, brass ware, brushes,
buttons, cables, carpets, celluloid, cotton textiles,
drugs, embroideries, electric light bulbs, lacquered
goods, lampsteads, finished leather, matches, metal-
ware, paint, paper, pencils, porcelain, rubber ga-
loshes, rubber tires, shawls, shoes, silk, window glass,
plywood and telegraph poles .
But what a really large place Soviet wares have
won recently in the Dutch market can best be judged
by the fact that in the period under consideration
Russia contributed more than two-thirds of all the
wheat Holland imported, 93 per cent of all rye, 73
per cent of all oats, 64 per cent of all lumber, 99 per
cent of all pulpwood, 94 per cent of all manganese
and so on down a long list of products including forty
of the more important Dutch imports, of which on the
average Holland took from the Soviet Union more
than 30 per cent of her total acquirements from
abroad.
A similar study of Soviet exports to Holland in the
year 1930 reveals that during the year the quantity
and value of exports steadily rose, although not so
rapidly as after Belgium and France laid down their
restrictive measures . During these months, however,
when the Soviet grain crop was being rushed to the
market, the Rotterdam market had a busy time of it,
as a large part of the total Soviet grain exports went
through that port. Rotterdam grain merchants are
unanimous in their opinion of the quality of the sales-
manship and the mastery of market tactics displayed
by the Soviet foreign trade monopoly .
According to one grain broker, the Russian or-
ganization for the marketing of their grain was
"elaborate, farflung and farsighted ." The Russians
received in their headquarters, he said, from every
important grain center in the world information
covering supplies both on hand and expected from
crops and other sources, as well as on the market
trend, demand and other factors . They not only
gauged correctly the trend of 1930 prices as strongly
downward, helped by their own knowledge of gener-
ally unsuspected Russian supplies, but they maneu-
vered arrivals of their grain in various market cen-
ters, so as to take the utmost advantage of any local
conditions favoring them .
In view of the fact that the Soviet grain exporters
knew the market was going to decline continuously,
they hastened to sell their own grain as fast as pos-
sible. It was reported in Rotterdam that a ship often
would be chartered by the Soviets, loaded and dis-
patched on its way with instructions to deliver the
cargo as indicated later . Sometimes the point of des-
tination was not decided until almost at the last
moment . Sometimes on arrival at the designated port,
instructions were received to deliver the cargo at an-
other port . With its hand on the pulse of the market,
the Soviet Foreign Trade Monopoly made the best
of its advantage and Rotterdam is convinced that
even if the Russians were willing to shade prices to
dispose of their stocks, they probably made more out
of the quantities they had to sell than any other na-
tions' traders divided among many competing firms,
could have made out of the same volume of trade .
CHAPTER XI
Rotterdam:
It is impossible to get away from superlatives in
dealing with the Soviet Union and here in Rotter-
dam one is compelled to use a timeworn phrase to
record that the largest grain elevator in Europe-
one of the largest in the world-has just been pre-
empted for Soviet grain .
Another monument to the Five-Year Plan in trade,
this huge structure, whose bins had been intended for
wheat from the Dakotas, Manitoba and the Argen-
tine, today embraces in its capacious hold the prod-
ucts of the North Caucasian plains, the Ural steppes,
the Ukrainian fields of Russia.
It is the sort of building that young Soviet poets
choose for subject of their odes and its dimensions
would be spelled in dithyrambs if Demyan Bedny,
Kremlin troubadour, could stand beneath its looming
bulk. Two million bushels of grain can lie within its
walls .
All Holland is proud of the "Graansilo" of Rot-
terdam . Its builders, a Dutch "Maatschappi j," ad-
mit it is magnificent . It is worthy of pride . It is mag-
nificent, but the wheat growers of America and
Canada may perhaps be pardoned for contemplating
100
its contents with less enthusiasm than does "Export
Chleb," the Soviet grain export company that at one
leap in one year has become the greatest single mer-
chant of cereals on earth.
One is irresistibly reminded in the block-long
shadow of the "Graansilo" of the remark the manager
of one of the principal Soviet state farms made last
autumn . He declared soberly and without excitement
"It is probable that American wheat farmers will be
compelled to confine their production to domestic
consumption, for Russia is the logical granary of
Europe."
Rotterdam makes the dull term "commerce" ex-
citing. Its crowded ways are populated by ships of
every nation bearing wares from every portion of the
globe . The sirens of the harbor are never still and
the white plumes of its steamers paint romance on
the sky.
For Rotterdam trade is romance. It means the one
thing that has a universal interest for mankind-a
fight . And today Rotterdam is excited at the entrance
of the new contestant in the age-old fight for the
market, at the entrance of the Soviet Union in the
lists of commerce .
"They are doing a big business here, sir," said a
boy on the docks, pointing at a Soviet steamship .
"Oh, yes, the Russkies 'ave got the grain all right,"
remarked a stevedore as he jerked this thumb in the
direction of a fleet of 210 great barges anchored side
by side in the Waalhaven .
So great was the inflow of Soviet grain last au-
tumn, and so large the stock still remaining that when
combined with the quantities that came in from other
countries the grain elevators of this fourth largest
port in the world could not accommodate it all and
millions of bushels had to be stored in barges .
Grain receipts totaled as high as 3,600,000 bushels
a week. Rotterdam stocks at the end of the year were
nearly 30,000,000 bushels and even the dock employ-
ees, chauffeurs and newsboys of Rotterdam today dis-
cuss Russian trade with almost as much avidity as they
do football .
It is a huge game for Holland and her traders are
enjoying it . As one very competent observer formu-
lated the attitude here : "Whether Russian imports
are looked upon favorably or condemned, those in
need of any article generally buy it where it can be
had to advantage and with but very few exceptions
do not care whether it originates from Russia or from
any other country in the world provided the com-
modity meets the requirements .
Holland is simply not aware of any "Red trade
menace" any more than Italy is . It only exists here
in the apprehensions of those firms of other countries
which deal in the export of wares competing with
Soviet wares . The Dutch, however, look upon this
competition as an excellent opportunity to get bar-
gains, and inasmuch as in this country consumer in-
terest far outbalances producer interest at least in
those articles which the Soviet Union has to offer it
was not surprising that the feeble protest recently
made in the Dutch Parliament against Russian
"dumping" of grain was answered by the Foreign
Minister
"While Holland is at liberty to raise its tariffs, this
does not mean that it will do so nor will it now fix any
special tariffs against dumping ."
The Dutch attempt at organizing an anti-
dumping, anti-Soviet campaign met a melancholy
end . Its history deserves to be related as an example
of the sort of surrender that often has taken place
when capitalist groups in Europe, at first inveighing
against Soviet trade, are offered definite immediate
profit . The central office of the "Dutch Agrarian
Committee," an organization of more than 400
farmers' cooperatives, last June took a strong line
on the Russian question and published resolutions to
the effect that no patriotic Dutchman should trade
with the Soviet Union, no upright merchant should
lend his hand to aid the Soviets, no right thinking
citizen should become "an accomplice to Soviet
methods," in the words of the resolution .
Nine months later the Dutch Agrarian Committee,
on behalf of its member cooperatives who were in
need of barley for fodder, succumbed to the attractive
prices offered by the Soviet trade representative and
purchased a quantity described by the Dutch press
as "considerable ." At one stroke the Soviet trade
representative had disposed of a "considerable" quan-
tity of barley fodder, had silenced forever the pious
protestations of the Dutch Agrarian Committee and
had made it difficult for similar protests to be taken
seriously by Dutch governmental authorities in the
future . Dutch wits had material for their lampoons
and the prestige of the Soviet trade representative
rose.
So far only two important Dutch interests have
been so nearly touched by Soviet competition that a
movement toward reprisal could have been expected .
There are the sugar and petroleum interests . The
very important Dutch Java Corporation, producing
nearly one-sixth of all the world's supply of cane
sugar, possesses thirty of the ninety votes in the In-
ternational Sugar Council organized in Brussels by
Thomas L. Chadbourne . This council was able to
unite in its attempt to limit the export of sugar all
sugar-producing countries in the world with the ex-
ception of the Dominican Republic, Peru and the
Soviet Union .
It is recalled with deep feeling by the Sugar Coun-
cil that at a previous assembly of sugar magnates the
Soviet Union was represented and that at the moment
when the comfortable impression had got about that
even the Soviet Union was about to enter the agree-
ment, news reached the Council that the Soviets in
one transaction had disposed of 100,000 tons of sugar
in India at a price and on terms that were declared
to be completely offside. It was asserted that the Rus-
sians had not only sold at a price considerably be-
low the market, but had agreed that if the market
sank still lower before delivery a sum would be ac-
cepted equivalent to the market price on delivery .
The significant fact in this incident is that India
is the bailiwick of the Java sugar producers, is known
as "the Java market ." Dutch sugar interests were
hit hardest by the Soviet's sales in the Java market
but so far the voice of Dutch sugar interests has not
been publicly audible in Holland itself in any serious
protest against the continuance of trade relations
with the Soviet Union .
The reason for this reluctance on the part of the
injured Dutch sugar interests to launch reprisals
against the Soviet Union in the form of a demand for
an embargo or limitation upon Soviet imports into
Holland is the fact that the Sugar Council still hopes
to bring the Soviets into their agreement . In this hope
they are encouraged by the Soviet's generally favor-
able attitude toward attempts at restrictive schemes
for raising world commodity prices .
It is a mistake to believe that the Soviet Union
is in principle or practice against participation in
world pools for the control of commodity prices .
There are only two conditions indispensable for
Soviet cooperation in any such pool . The first is that
the net return in foreign currency to the Soviet
Union from its exports under a control pool shall be
at least as much as the return would have been from
a larger volume of Soviet exports outside such a pool ;
second, that no such pool shall impose restrictions as
to the total Soviet production, be it in wheat, sugar,
oil, timber, or what not .
These two conditions made plain by the Soviet
delegates, both at the international negotiations over
sugar and over wheat, point at the same time to the
conclusion that the Soviet Union is only participat-
ing in such international efforts out of the necessities
of the moment and not from any intention perma-
nently to cooperate with the capitalist world .
Temporary cooperation is justified in Soviet's
eyes at the present juncture of Soviet affairs . For
once the principle had been adopted of building up
the Soviet Union and letting the world revolution
take care of itself until the Soviet Union became in-
dependent, the requirements of the Five-Year Plan
had to come ahead of any objections to helping out
the bourgeois world .
The Five-Year Plan peremptorily demands that
imports be kept up to the Plan level ; that means that
returns from exports must be retained at the Plan
level . The decline of world commodity prices, how-
ever, by forcing the Soviet Union to export up to 50
per cent more than had been planned in order to ob-
tain the planned level of the returns from exports
has hit the Soviet Union harder than it has any other
country, and for this reason the Soviet Union for the
moment has more to gain than any other country by
a world pool agreement that would permit an equal
return in value from a diminished export quantity .
It may be remarked that this would be the atti-
tude equally of any non-Soviet country . But the
Soviet Union's inexorable refusal to accept any
scheme such as that proposed by the Americans at
the London wheat conference, that by limitation of
production might bring about the desired rise in
prices, differentiates the Soviet Union from all bour-
geois countries . Some bourgeois countries have also
protested against the limitation of production, argu-
ing that the trouble in the world markets is not over-
production but faulty distribution and undercon-
sumption . But these countries are open to argument
on the point, are willing for concessions to give in .
Not the Soviet Union .
For the Soviet Union is in a unique position . Un-
der an export quota scheme that would return for a
smaller quantity of exports an amount of money
equivalent to that which would have been obtained
from a larger quantity of exports outside a quota
scheme, the Soviet Union is able to continue to in-
crease production and yet dispose advantageously of
its increased production on the home market .
And the Soviet Union is the only country in a po-
sition to do this, for it is the only country whose in-
ternal market is not saturated .
At the same time by entering into any export
quota system, the Soviet Union encourages the de-
crease of production in all other countries except the
Soviet Union, for the natural effect of an export
quota system restricting the outlet should ultimately
be to reduce the amount produced in a capitalist
country . And this tendency toward a reduction is
encouraged in most capitalist countries by govern-
mental advice to farmers to diversify crops and limit
the area sown to the great staples . While this is going
on in capitalist countries, however, the Soviet Union,
alone among the principal producing nations, not
only does not discourage increased production but
strives with every ounce of energy to raise produc-
tion to ever higher levels . Enabled during the dura-
tion of the quota system to dispose of its increased
production on the home market, but always able to
take it away again from the home market if desir-
able, the Soviet Union is thus in a position at the
expiration of an export quota agreement to appear
upon the world market with a still larger volume of
FIGHTING THE RED TRADE MENACE log
the commodity in question or, in case of a new ex-
port quota agreement, to claim a larger quota by
reason of its larger supplies . But even if the Soviet
internal market were saturated, it is conceivable that
the same policy would be feasible for the Soviet
Union and only for the Soviet Union . For through its
unique state control of national economy the Soviet
Union would be in a position, if necessary, to store
quantities of commodities against the time when, the
export quota having accomplished its effect of reduc-
ing production in bourgeois countries, Soviet reserves
could be released to the market in a volume and at a
price calculated to achieve the desired goal of obtain-
ing permanent control of the market .
That this is the ultimate Soviet goal for many
commodities is not denied by Soviet spokesmen . Cer-
tainly not in the case of wheat, for the assertion too
frequently has been made by the Soviet authorities
that Russia is the natural source of Europe's supply
of bread. It is considerations like these that move
American, British and Dutch petroleum trusts to in-
creasing apprehension over the growth of the Soviet
oil production . So obvious has this apprehension be-
come that a responsible American oil man, occupied
for many profitable years in observation of the inter-
national oil game, told me that in his opinion the
time was not far distant-he named three years-
when Standard, Shell and Anglo-Persian would sink
their differences and approach the Soviet oil trust
with an offer of a very large loan in return f or the
privilege of a monopoly on the distribution of Soviet
oil products in the world . Not, be it observed, that
the capitalist oil trusts would combine their re-
sources to inflame public opinion, lay down embar-
goes, choke off Soviet oil, but that the capitalist oil
trusts, that have in part and on occasion tried these
methods and found them wanting, would approach
the Soviets with gifts to purchase by persuasion what
they could not achieve by force . This was the Ameri-
can oil man's considered opinion . "Now," he said, "I
think the Soviets would take such an offer if the loan
were large enough . In three years, perhaps, they
won't."
Meanwhile, Europe's chief agitator against the
"Bolshevik menace" is Sir Henri Deterding . Sir
Henri's name is used to frighten naughty children in
Soviet Union. Sir Henri does not deny, indeed af-
firms that his efforts have been extensive, intensive
and well financed to organize international public
opinion against the Soviet Union . Yet in Holland
itself, home of Sir Henri's Royal Dutch Shell Com-
pany, where Sir Henri rates as the country's most
influential figure, Sir Henri has not been able to in-
duce even his own Government to impose the faintest
restriction upon Soviet trade .
For one definition of "dumping" is giving much,
FIGHTING THE RED TRADE MENACE iii
and asking little, while Holland's traders relate of
themselves
"In matters of commerce the fault of the Dutch
Is in giving too little and asking too much ."
Whatever the rest of the world may say, think or
do about the Soviet Union, the Russians and Dutch
appear for the moment to be pleasantly contented
with each other's commercial policies .
CHAPTER XII
London:
A top hat shone in the dim light of the doorway .
Tall, slim, bemonocled, the owner of the hat strode
in, seated himself on a bench, pulled the topper down
over his eyes . He then extended his long legs, elevated
them to a level with his chin and settled his feet
firmly on the table in front of him .
The man with his feet on the table was flanked on
both sides by other men with their feet on the table .
Most of these men wore black cutaway coats and pin-
striped gray trousers.
On the other side of the table sat another row of
men, also with their feet on the table . They wore
business suits .
At the far end of the table sat a man in a black
gown . He read a paragraph . Sir Austen Chamberlain
thereupon took his feet off the table, his colleagues,
the Tory leaders of the Opposition, took their feet off
the table, Mr . Ramsay MacDonald, Prime Minister
of his Majesty's Government, and all his Ministers on
the other bench took their feet off the table and Sir
Austen, doffing his topper, rose, adjusted his monocle
and drawled, "I naturally regret-"
It was the House of Commons about to listen to the
best dressed ex-Foreign Minister in Europe open the
112
FIGHTING THE RED TRADE MENACE in
debate on Russia . In the next three hours in this
oldest, most important Parliament in the Eastern
Hemisphere, where extreme formality is linked with
the intimacy of a club, a listener could detect if not
the precise future of Russo-British relations at least
all the elements that determine that future . He could
establish that if the Labor Party stays in, the United
Kingdom will continue to trade with the Soviet Union,
but if the Conservative Party comes in, the United
Kingdom will also continue to trade with the Soviet
Union, though perhaps with reservations . These possi-
ble reservations deserve more detailed treatment later .
Nevertheless this is the one country so far visited
in Europe where Russia is a major public issue,
where there is an active violent anti-Soviet movement,
an equally active, equally violent pro-Soviet move-
ment, dozens of private organizations to wage the
battle on individual issues and masses of information
and huge masses of misinformation about it all.
Around the Conservative Party group the antago-
nists of the Soviet Union . Around the Labor Party
group the proponents of close cooperation with the
Soviet Union .
The fog of dispute is deepened uniquely here by the
fact that the British alone among European peoples
possess the typically Anglo-Saxon capacity to be
moved by arguments of sentiment to let moral issues
play a genuinely effective role in politics . The British
people have been moved to a degree by the Soviets'
treatment of the church . They have been moved to
another degree by the campaign against "slave la-
bor" in Russia . Neither of these issues interests the
Continent at all . Here they play a role and Tory
spokesmen were delighted when they coined the
phrase, "Slave Labor Party" to fling at MacDonald .
These elements cannot be overlooked, yet the rec-
ord of the House of Commons puts the emphasis of
British interest in their relations to Russia on a dif-
ferent note . The House has just refused to pass a bill
to prohibit the import of the products of forced la-
bor, and Winston Churchill, most brilliant, most bit-
ter and most Chauvinist British arch-enemy of the
Bolsheviks, despite his indignation at Communist
propaganda in India, despite his profound sympathy
for "Russian conscripts," concluded his contribution
to this debate in the House with an argument that
boiled down meant "let us break diplomatic relations
with the Soviet Union, for if we do so, we shall re-
ceive more Soviet orders . America proves it ."
To any one interested in the present condition and
future prospects of the world's relations with the
Soviet Union this debate in Commons must be of in-
terest.
For in all Europe Great Britain is the only country
where even a threat to Soviet economic expansion can
be detected and this threat could conceivably have
such consequences that, no matter how remote its
execution into action may appear, it deserves the clos-
est attention .
Great Britain takes nearly one-third of the Soviet
Union's total exports . If Britain were to embargo these
Soviet goods it is difficult to see where they could be
sent. It was this consideration that led the German
Government to refuse to take any more than $75,000,-
000 worth of new orders from the Soviet a few months
ago, though Moscow offered to buy $125,000,000
worth over and above the normal year's purchases .
The reduction by one-third or even by one-fourth
or fifth of the Soviet Union's exports, especially if
it came suddenly, would impose a serious strain upon
Moscow's ability to meet her obligations . Informed
opinion in conservative banking circles believes that
Moscow would meet her obligations anyway, even if she
had to sell the treasures of the Hermitage and dump
the crown jewels of Nicholas in one glittering $100,-
000,000 heap on the Amsterdam diamond market . For
Soviet credit is an imperative condition for the fulfill-
ment of the Five-Year Plan. But the risk, nevertheless,
of credits to the Soviet Union, whatever that risk may
normally be, would indubitably be increased by a
British embargo and it was apprehension of a Brit-
ish embargo on Soviet goods that more than anything
else kept Germany from taking that extra $50,000,-
000 of orders badly as she wanted them .
To what degree that apprehension was justified is
one of the most important points to be established in
this entire investigation of Russo-European relations .
Moscow itself is puzzled . Moscow believes that profits
come before patriotism in every capitalist country .
But Moscow has trouble judging when politics come
before profit . And Moscow is quite confused when pity
and passion join politics in obscuring the otherwise
matter of fact view that greed rules the world.
On this puzzle the House of Commons debate shed
much light. And had it not been the least instructive,
its entertainment value remained high .
Said Mr . Haycock, Labor, "Russia is the most
wonderful country in the world ."
Said Commander Locker-Lampson, Conservative,
"Lenin was a German agent and today Russian
rubles would be found in the pockets of Mr . Gandhi,
if he wore breeches like the rest of us ."
Said Sir Rennell Rodd, Conservative, "A former
colleague of mine who at one time represented in
Russia a foreign Government told me of a discovery
which he made in his own bedroom at the Embassy,
of a microphone fixed into the wall behind the cur-
tains of his bed which would enable any observations
he might make to his wife to be transmitted at once
to headquarters ."
Said Mr . Haycock, "Scotland Yard forged a copy
of Pravda to mislead British workers ."
Said Mr. Churchill, "I see that a gentleman named
Menjinsky, chief of the GPU . has said `as long as
there are idiots to take our signature seriously and
to put their trust in it we must promise everything
that is being asked and as much as one likes, if we
can only get something tangible in exchange ."'
Mr. Churchill cited no source . Nobody cited any
sources save Mr . MacDonald. The Prime Minister,
replying to Sir Austen Chamberlain's plea for break-
ing relations merely cited Sir Austen Chamberlain,
who in June 25, 1926, when he was Foreign Minister
and when the members of his own party were urging
him to break with Russia, had said : "It would create
division where we seek union and would in its echoes
abroad increase the uncertainty, increase the fears,
increase the instability of European conditions, which
it is and ought to be our chief object to remove ."
This, declared MacDonald, is precisely the view of
the Labor Government today . But MacDonald went
further, and, with singular frankness, took up the
challenge to discuss "The Red Menace" in realistic
terms. "Germany is closer to the danger, closer to
propaganda, has suffered far more, not merely in
words thrown at her but in deeds done within Ger-
many. If there was any uprising, any trouble, Ger-
many would be in trouble, would be involved and
whirling in the maelstrom long before we either at
home or abroad would be involved, and yet Germany
today retains diplomatic relations with Moscow ."
This statement deserves more than casual atten-
tion for the light it throws on two remarkable charac-
teristics of Europe's attitude toward the Soviet
Union : First, the matter-of-fact assumption that
"trouble" from the Soviet Union, "whirling in the
maelstrom," may be admitted to the realm of possi-
bilities, may even be publicly and officially mentioned
by the Prime Minister of a Government maintaining
correct relations with Moscow, and, second, the com-
fortable assurance on the part of all that Germany
will receive that impact first .
Finally, however, out of the fog emerged the real
substance of the debate. Sir Austen had intended to
attack MacDonald on the charge that the Soviets had
violated their promise not to spread propaganda, had
incited to rebellion in India . Curiously enough, he
had completely omitted to specify the indictment, an
omission that a colleague later made good with quo-
tations from a Communist International circular on
the new program of the Indian Communist Party .
But at the end of his speech Sir Austen did remem-
ber the one concrete charge, "the Government have
never succeeded with their diplomatic relations in se-
curing as much trade as America has constantly had
without diplomatic relations ."
On this key the debate continued . "We all wish,"
retorted the Prime Minister, "that trade returns
from Russia were better, but when the trade- agree-

ment was abrogated and denounced in 1927 what
happened? Trade went down . When relations were
resumed trade began to go up, and it is very extraor-
dinary that in the first three months of 1930 the ex-
ports of British products to Russia were £1,000,000
sterling and in the first three months of 1931 they
were £1,500,000 sterling ."
This did not satisfy Mr. Churchill, but in his dis-
satisfaction he too revealed that not the existence of
trade with the Soviet Union but lack of more trade
with the Soviet Union was what rankled . "You," he
exclaimed to the Prime Minister, "are responsible for
the lamentable failure to trade between the two coun-
tries . The United States have done far more trade
and more profitable trade . They have sold a much
larger quantity of goods ."
If any further statement of the Conservative posi-
tion were required Commander Locker-Lampson, he
who believed that Lenin was paid by the Germans
and Gandhi by the Bolsheviks, provided it when in
the same address he summed up with, "there is no
one on this side of the house who is against trade with
Russia . We signed the trade agreement of 1921 and
voted for it . We would vote again for agreements
that would facilitate and encourage trade with that
great country . We are ready to trade with Mormons
or with anybody else who is ready to pay ."
Back on this familiar ground the Under Secretary
of State of Foreign Affairs, Mr . Dalton, struck the
note that harmonizes not only the conflicting parties
in the House no matter how they vote but that repre-
sents as well the feeling of the entire Continent of
Europe . It is the one sentiment common to Italians,
Frenchmen, Belgians, the Dutch, the Germans, the
British . "We shall be gravely disappointed," he as-
serted, "unless in the near future we get a consider-
able increase of orders from the Soviet Union ."
The vote was taken . Two hundred and twenty-three
who said they believed that more Soviet orders could
be gotten by breaking off diplomatic relations voted
against the Government . Two hundred and forty-
three who believed that more Soviet orders could be
gotten by maintaining diplomatic relations voted
with the Government . The Government was saved .
Soviet trade had never been in danger .
This matter of stating the result of the vote is
open to one objection . It is certainly true that many
of the Conservatives, who today argue somewhat spe-
ciously perhaps and perhaps without meaning it that
more trade would follow from a break in diplomatic
relations because America had enjoyed more trade
without diplomatic relations, would not have troubled
about trade at all in more prosperous times . There
was a time when Winston Churchill and his fellow
extremists were in principle and in practice against
FIGHTING THE RED TRADE- MENACE 121
all relations with the Soviet Union whether profit-
able or unprofitable .
But the world economic crisis has had this curious
double-edged effect on the Soviet Union in its rela-
tions to the outside world . On the one hand the fall
in commodity prices has had a most injurious effect
upon the Soviet's economic plans . On the other hand
that same crisis has made virtually the entire world of
bourgeois business men and politicians much more
sensitive to opportunities for trade with the Soviet
Union . In the present state of the economic affairs
of Great Britain no party could afford to take a
stand that would exclude chances of trade, not even
with "Forces of Evil Incorporated" as many Con-
servatives believe the Soviets to be .
Despite this acknowledged fact, however, there are
individuals and individual organizations whose prin-
ciple remains "better bankruptcy than barter with
the devil ." There for example is Commander Carlyon
Bellairs of the Conservatives, who has organized "The
Trade Defense Union" to fight for a common front
against the "Soviet slave war" and who together
with the "American Coalition of Patriotic Societies"
is laboring for a complete embargo on Russian trade .
The fact that the Soviet factory worker considers
himself not merely no slave but the master of his
country, the fact that the proletariat of Russia
thoroughly approves the expropriation and exile to
timber camps of "kulaks," the fact that the Five-
Year Plan is being pushed to completion as much by
zealotry as by terror and more by piecework and
premiums than by disciplinary measures-these facts
do not prevent the Trade Defense Union from de-
claring in its pamphlets that "Russia has been trans-
formed into a vast slave state with an enslaved popu-
lation of 160,000,000 . Working with slave labor in
shifts day and night for 560 days out of 365, they
gain on us one year in every five . It is a question of
fighting for the life of free labor in civilized coun-
tries against the greatest menace the world has ever
known, namely, the slave labor of 160,000,000
people, increasing by 3,650,000 a year, harnessed to
the most modern mass production machinery ."
The Trade Defense Union believes the Five-Year
Plan will succeed but cannot conceive that it can suc-
ceed except by the use of slave labor . Commander
Bellairs is not interested in maintaining trade with
the Soviet Union, but his arguments against it are
by no means widely accepted in Britain, even among
those not personally acquainted with the inaccuracy
of the statements concerning the 160,000,000 Rus-
sian slaves .
There too is the "Christian Protest Movement" un-
der Prebendary Gough, counterpole of the Moscow
"League of the Godless," to arouse the conscience of
the Christian world against the Soviet persecution
of the church . "The Christian Protest Movement"
also has no interest in maintaining trade with the
godless .
There are the "Young Britons" and the "British
Fascists Ltd ." who have furnished Aldous Huxley
with rich material for satire . There is the "Economic
League" that supplies speakers with notes for dia-
tribes on dumping . It has no objection to British ex-
ports to the Soviet Union, but regards Soviet exports
to Great Britain as an unqualified catastrophe .
Finally, there is the "Anti-slavery and Aborigines
Protection Society" that exposed to the world the
slave barracks of the Belgian King Leopold's Puta-
mayo rubber plantations and by that exposure put
an end to the system, and that intends to do the same
for the timber camps of Russia . It intends, in the
words of an authority who certainly should know
its intentions "to awaken the conscience of the Soviet
authorities, to bring the moral pressure of the world
to bear to enforce reforms ."
Some persons in Britain today recall the days of
Gladstone and his nation wide, successful campaign
against the Turkish atrocities in Bulgaria . But a
city banker analysing the prospects in Russo-Britain
relations said to me, "if the Soviets would only put
a few more orders in this country the chances of a
break in relations would be materially diminished ."
CHAPTER XIII
London:
England alone of all the countries in Europe so
far visited on this trip of investigation is genuinely
excited about "The Red Trade Menace" and the
fight against it, though at times partaking of the na-
ture of shadow boxing, is at the forefront of public
consciousness .
Organs of the Conservative press attend to this .
From their columns the Red threat glowers daily .
Hardly a pound of Russian goods can cross a gro-
cery counter without the finger of Tory reproach
pointing at the purchaser . Every boatload of Soviet
wares that touches British land is welcomed with
headlines, "Red Russia's Ruthless Trade War,"
"Moscow's Shock' Dumping," "Grave Peril ." The
"Alexy Rykoff," a Soviet ship, put in at Hays
Wharf and the correspondent of the most violently
anti-Soviet newspaper in England, visiting her, re-
ports in an aggrieved half column, "Cold Reception,"
"No one to Greet Us ."
It is precisely this phase of "Fighting the Red
Trade Menace" that may be described as partaking
of the nature of shadow boxing . For under the influ-
124
ence of political expediency this phase of the con-
test is carried out with so little regard for propor-
tion and so little reference to reality that proponents
of Soviet trade are able to counter it with simple and
effective arguments .
In one breath the anti-Soviet Party announces that
the Soviet Government is bankrupt and that it is
purchasing vast amounts of war material . In another
breath it declares the Five-Year Plan an utter failure
and that it will overwhelm the British market with
manufactured goods.
The arrival of two shiploads of Soviet butter
evoked a panic in the Tory press that could hardly
have been exceeded if ships loaded with dynamite
had arrived . It was days before representatives of
the British Butter Trade managed to point out that
whereas Russia before the war was the second largest
exporter of butter in the world, she is now the sixth,
and whereas she exported in 1930 about 10,000 tons,
and that England last year took but one-fiftieth of
her butter imports from Russia, and that when all
was said and done the menace to British dairy
farmers was from Danish, and not Russian, butter .
Quieter, but no less bitterly, goes on the fight over
trade returns as they come in from month to month .
In this fight there have developed two whole schools
of foreign trade students, who in their zeal to prove
different points from the same figures resemble theo-
logians expounding Scripture or Bolsheviks disput-
ing paragraphs from the works of Lenin .
The chief concern of one school is to prove that
trade with the Soviet Union is a delusion and a snare
and more particularly that the resumption of diplo-
matic relations in November, 1929 and the signing
of a temporary commercial agreement in April, 1930,
were followed by a decrease in Soviet orders to
Britain . Furthermore, to prove America has enjoyed
more profit from Soviet trade without diplomatic
recognition than Britain has enjoyed with full rela-
tions .
The chief concern of the other school is to prove
the opposite . Both use the same exegetical methods,
both quote chapter and verse .
The anti-Soviet party cites with satisfaction the
figures of the British Customs House showing that in
the first quarter of 1931 the Soviet Union sold
Britain goods to the value of 6,433,886 pounds ster-
ling and bought from Britain only to the value of
1,425,113 pounds . This passivity of balance they
exclaim is ruinous .
Was it ruinous, retort Soviet friends, when in 1913
Britain bought from imperial Russia 40, 270,539
pounds worth of goods and sold to imperial Russia
only 18,102,683 pounds? And, anyway, point out
Soviet sympathizers, Britain is selling more and more
to the Soviet Union, for in the first quarter of 1929
British sales to Russia were 729,344 pounds sterling ;
in the first quarter of 1930 they were 1,127,258
pounds and in the first quarter of 1931, 1,425,113
pounds.
Undismayed, the anti-Soviet party calls in a
pundit, former employee of the Soviet trade delega-
tion in London, one of the "new emigration" of those
who, having been ordered to return to Moscow, find it
expedient often for perfectly sound reasons having to
do with their health to refuse to go .
This authority discovers and announces in "The
Statist" of London that in the six months from
October, 1929, to March, 1930, after the resumption
of diplomatic relations, but before the signing of the
temporary trade agreement, Soviet purchases in
England amounted to only 6,308,853 pounds, obvi-
ous proof that trade agreements ruin trade .
But the pundit meets his equal when the editor of
the "Bank for Russian Trade Review" swears on his
oath that the total value of Soviet purchases from
Britain in the whole year, October, 1929, to Septem-
ber, 1930, amounted to £15,400,000 sterling, com-
pared to £9,346,322 worth of Russian purchases in
the year from October, 1928, to September, 1929 .
Obvious proof that trade agreements help trade .
The latest communique from this battle of statis-
tics gives voice to the emigre authority broadcasting
that "according to absolutely reliable private in-
formation" Soviet purchases for the half-year, Octo-
ber, 1930, to March, 1931, amount to no more than
£5,000,000 sterling, compared to £6,308,853 ster-
ling of purchases in the six months, April, 1930, to
September, 1931 .
Speedier foreign trade tabulations would enable
the two schools to carry on their comparisons from
day to day with twenty-four hour reports on the last
shilling's worth of business done . In the present tem-
per of the British business world the tabulations
would find readers . For others, however, this phe-
nomenon is chiefly significant as proof of the intense
interest British business takes today in every chance
to turn a penny, as proof of the predominant impor-
tance given to the trade aspect of British relations
with the Soviet Union, and as confirmation of the
city banker's remark that a few more Soviet orders
in this country would change the complexion of Brit-
ish feelings toward "the Red Trade Menace ."
Meanwhile, behind the political racket and behind
the hairsplitting over trade returns there is go-
ing on a much more significant effort in serious busi-
ness circles to find a solution for the problem of com-
mercial relationships between the Soviet Union and
the non-Soviet world . These circles have already to a
large extent defined their field of action . The best in-
formed among them have ruled out international po-
litical action as hopeless in the present condition of
Europe . Even if the apparently impossible should
occur and Briand's scheme for the United States of
Europe were effectuated on the Continent, it is doubt-
ful if Britain would join it, not even to combat the
Soviet Union .
These earnest business circles have ruled out to all
practical intents and purposes the hope of interna-
tional private commercial action except on the part
of these great firms whose international connections
already give them a dominant position in more than
one country. For when the International Chamber of
Commerce held its last congress in Washington it had
been planned to put "Soviet dumping" in a promi-
nent place on the list of topics for debate. But the
German and Italian delegates announced they would
be compelled publicly to oppose measures against
unrestricted trade with the Soviet Union . Since una-
nimity was required to pass a resolution, it was
agreed that rather than risk public defeat it would
be better to leave the subject untouched . So the In-
ternational Chamber of Commerce delegates went
home without a word having been officially uttered on
one of the topics uppermost in their minds . These
British business men, however, have ruled in first of
all careful inquiry into the actual status of "the Red
Trade Menace" as it affects British trade . The As-
sociation of British Chambers of Commerce, meeting
in April last, accepted the following resolution pro-
posed by Sir John Sandeman Allen, M . P . of Liver-
pool :
"That the executive council be requested to study
the effect on the trade and industries of this country
through exports from Russia to the United King-
dom and its important world markets, especially of
manufactured goods which are steadily increasing
as the Five-Year Plan develops and the offering of
such goods for sale at prices which bear no relation
to the true cost of production calculated on a regular
commercial basis and to consider what, if any, steps
can be taken in this country by the Government or
the business world jointly or separately to counteract
this entirely new method of marketing, which mani-
festly constitutes an organized and serious attack on
the commercial system of the whole world ."
It will be noted that the emphasis is on "the method
of marketing" and on manufactured goods . It is con-
ceivable that the investigation now under way may
result in the discovery that Russian exports at this
stage are no menace to a predominantly industrial
population, heavy consumers of agricultural imports .
Or it may be discovered they are a menace, but there
is nothing to be done about it . In either case, no pub-
lic report may be anticipated . It now seems probable,
however, that the association may report that Russo-
British trade relations are unsatisfactory and that
something must be done about it . In any case, Sir
John's formulation of the question has the unique
merit of having isolated the practical problem for the
bourgeois world of disunited, disharmonious, com-
petitive, conflicting business interests to reflect upon,
namely, how to meet "the methods of marketing" of
the world's largest industrial and commercial trust,
uniting the resources of one-seventh of the earth's
land surface under the harmonious, purposeful con-
trol of its board of directors, the leaders of the Com-
munist Party of Russia .
Already several adumbrations of solutions have
been proposed as a result of the Association's pre-
liminary investigations . The first and most impor-
tant is sponsored by the London Chamber of Com-
merce, though it must in advance be emphasized that
nothing has yet been arrived at definite enough to
present as the official opinion of that body .
The scheme the London business circles now are
considering, however, is sufficiently developed to be
usefully discussed . It resembles in principle that of
Caillaux and Berenger in France, but without the
French complication of the desire to compensate
owners of the czarist Russian bonds.
The scheme has the double interlocking purpose
By control over Russian exports to Britain to exer-
cise a check on the sale here at low prices of products
competing with British products and possibly also
with Empire products, and through this control over
Russian exports to exercise a coercive stimulation of
Soviet purchases from Britain . In other words, in the
last analysis, to force the Soviet to buy more in
Britain .
It is proposed that either by voluntary consent of
all British firms buying from or selling to the Soviet
Union or by act of Parliament or by an Order in
Council all purchases from the Soviet Union should
be required to be made through a "Clearing House
for Soviet Trade," or whatever it might be called .
The voluntary consent of British sellers to the Soviet
Union might be obtained for such an arrangement,
for it is proposed that the money due to the Soviet
Union from British purchasers of Soviet goods
should not be turned over directly to the Soviet trade
representative, but should be turned into a fund out
of which British sellers to the Soviet Union should
be paid. All transactions should be in cash . To carry
out the intention of such a scheme to balance the
British trade with the Soviet Union it is proposed
that the Soviet trade representative should be allowed
to receive for his sales to Great Britain only as much
as the value of his purchases. Since the British indus-
trialists who now grant credit to the Soviet Union
averaging twelve months would under this scheme re-
ceive cash instead, there could be no doubt that other
things being equal they would require no legal com-
pulsion to enter under such an agreement .
What the attitude would be of British consumers
and of merchants now purchasing consumption goods
from the Soviet Union is open to much more serious
doubt. Particularly is this true of British co-
operative societies who, numbering several millions
of members, serve every corner of the British Isles,
have always maintained cordial relations with the
Soviet cooperatives and are in fact the mainstay of
the Soviets in England . Their negative attitude to
such a scheme could be forecast with almost complete
certainty . But the attitude of the Soviet Union to
such a scheme is open to no doubt at all .
In this as in every case of an attempt on the part
of the capitalist world or of any single capitalist na-
tion to unite its economic forces against the united
economic forces of the Soviet Union, the Soviet re-
tort, it may without fear of contradiction be said,
would be unqualified defiance . Immediate cessation
of all Soviet orders to British firms might be antici-
pated. Yet in this case the advantage might not so
clearly be on the side of the Soviet Union and the
outcome not easy to foresee. For the fact that the
Soviet Union sends nearly one-third of its exports
to Great Britain, the fact that the rest of the world
is already nearly saturated with Soviet products, the
fact that the present juncture of affairs in the Five-
Year Plan makes any recession in the returns from
Soviet exports a grave hazard to Soviet solvency-
all these facts would insure that such a trade war
would be most bitter, most decisive, fraught with des-
tiny for the relationships not only of Britain with
the Soviet Union, but of the Soviet Union with the
non-Soviet world .
The trial of such a scheme in France would almost
certainly be futile, for the Soviet Union could af-
ford to cease entirely its almost insignificant exports
to France and feel, but not too painfully, the loss .
But the Soviet Union could not be indifferent to the
loss of the exports to Britain.
The outcome of such a Russo-British trade war
would depend in the degree to which British authori-
ties, commercial or Governmental, could unite the
nation behind the effort, would depend, on the other
hand, on the degree to which the Soviet Union would
be willing to sacrifice swift completion of the Five-
Year Plan for a very important fighting principle .
French experience with their license system on Soviet
exports has shown that for such a trial of strength it
would be essential to answer Soviet cancellation of
orders by a complete embargo on Soviet exports into
Britain . Otherwise, as in France, the consumer in-
terests would continue to buy from the Soviet Union
and the net result would be a further worsening of
the British-Russian trade balance .
With such an embargo, the British could settle
down and wait to see which could hold out longer, the
Soviet Union with its desperate necessity to main-
tain its exports at the planned level, or British manu-
facturers with their desperate need to keep their fac-
tories going, flanked by British consumers with their
keen desire to buy as cheaply as possible. One could
guess what the public reaction might be in Britain
to the loss of the Soviet's $40,000,000 to $50,000,000
worth of orders . The closure perhaps of a few f ac-
tories more, short time in others and the increase if
even by a few thousands of unemployed . One could
reckon the effect upon other nations' markets of the
sudden diversion to other countries of even part of
the $170,000,000 worth of goods that the Soviet
Union annually sells Great Britain, diverted in this
emergency with the imperative direction, "sell at any
price ."
After Belgium's experience one would anticipate
the brisk business that would spring up on the Conti-
nent in the transfer of Soviet cargoes of staple com-
modities into neutral bottoms to be introduced into
Britain under false certificates of origin . In short,
one could foresee that such a scheme might prove a
notable contribution to the world's attempt to redress
its economic balance .
Perhaps, of course, the outcome might be dif-
ferent . Perhaps the Soviet Government would give
in. But nobody who knows that Government believes
they would without fighting . For acceptance by the
Soviets of the British scheme would constitute a prec-
edent almost as dangerous in Soviet eyes as the
precedent that would be established should the Soviet
Union agree to pay the United States, say, the re-
pudiated deb of $230,000,000 with the Russian debt
to France of $1,347,000,000 in the background .
For the British the conjectural fight would be a
fight to overcome the enormous commercial advan-
tages possessed by the Soviet Foreign Trade Mo-
nopoly, but more than that a fight for more Soviet
orders. For the Soviets it would be a fight to retain
liberty of action in buying where the Soviet Foreign
Trade Monopoly pleases, but more than a fight to
check in its beginnings any attempt at capitalist
combination against the Soviet Union .
The prospect of such a trial of strength is fasci-
nating if not comfortable. In any case it could hardly
be attempted under the present British Government,
for though it is conceivable that the Labor Party
would look with complacency on a scheme to balance
trade with the Soviet Union it could never be induced
to use the weapon of embargo to make the Soviet
Union accept such a scheme . The Tories might and
that is why Moscow and a good many other capitals
no less are restless at the thought of MacDonald's
fall .
CHAPTER XIV
London :
Whatever difficulties the Soviet Union is facing,
whatever checks it has suffered in the past, is suf-
fering in the present, may suffer in the future, its
huge mercantiling trust, the Monopoly of Foreign
Trade, continues today to pour out upon the world
a quantity of goods unprecedented in the history of
the Soviet Union, steadily mounting from month to
month .
Released by spring from the ice that bound the
northern shores of Russia, the whole battery of Soviet
ports from Archangel and Murmansk to Odessa and
Vladivostock has begun to discharge a steady stream
of ships pointing for nearly every harbor of impor-
tance on the globe .
The volume of the flow is difficult to estimate .
Months pass before the customs returns of import
countries can be compiled, and even were they in-
terested in accelerating public acquaintance with the
export figures Soviet authorities could issue their
statistics only after a comparatively long lapse of
time.
Yet the outside world now is concerned in knowing
those figures today more than ever, when Russia is
137
at the forefront of discussion and merchants, bankers,
wheat farmers, lumber dealers, Governments are won-
dering what will be the export total of the Soviet
Union . The answer is : it is going up, steadily up .
There is one spot where Soviet exports can be ac-
curately measured months in advance of customs
statistics . That spot is the one that imperial Russia
coveted more than any other spot on earth, so keenly
that she fought a bloody war for it and lost and
helped precipitate the last great conflict in the hope
of its possession . The place is Istanbul, one time
Constantinople, and there, far ahead of Soviet in-
formation, can be weighed, ton for ton, the Soviet
exports that come from out the Black Sea . Istanbul
knows first the symptoms of Soviet foreign trade de-
velopment, can tell today what Europe finds out later,
will be first to note that check in Soviet exports some
observers have predicted must be the consequence of
overstraining the Russian population . But Istanbul
reports no such check today .
While the latest Soviet bulletins have just an-
nounced that the first two months of 1981 showed an
increase of 556,000 tons of Soviet exports over the
first two months of 1930, Istanbul reports already
that Black Sea ports of Soviet Russia alone poured
out in the first four months of this year 801,193 more
tons of goods than in the same period the year before .
There have still to come the heavy export months
when the new crop upon which the Soviet Union
builds such hopes and wheat farmers of non-Soviet
countries build such fears will be hastened to market .
The Soviet spokesman at the London wheat con-
ference, I . E . Lubimoff, announced that in wheat
alone the Soviet Union expects a crop of 1,314,000,-
000 bushels, 25 2,000,000 bushels more than last
year. Such a surplus would exceed by twice the total
Soviet exports for the season year 1930-31, the year
when Russia exported more than one-tenth of all the
wheat exported in the world .
It is not necessary to presume that the Soviet
Union will export all its anticipated surplus to realize
that Soviet wheat exports in the season year 1931-32
may leap far ahead of pre-war Russian exports, may
"overtake and outstrip" those of Canada and of the
United States if the crop is as good as Lubimoff ex-
pects it to be.
Soviet wheat exported in the season year 1930-
1931 by August will amount to around 125,000,000
bushels, Lubimoff said . If the crop this year were no
bigger than last year's crop, the Soviet Union could
export at least 125,000,000 bushels again . The
Soviet Union's total wheat crop last year, according
to Lubimoff, was 1,044,000,000 bushels . He said that
consumption within the country amounted to 842,-
400,000 bushels. This would indicate that after 125,-
000,000 bushels had been exported, there still re-
mained in Russia a reserve of about 80,000,000
bushels . Granted the accuracy of these figures and
that the reserve to be held in the coming season will
not exceed that held last season, the Soviet Union will
have available for export this season 377,000,000
bushels-last year's export of 125,000,000 plus the
anticipated increase of 25 2,000,000 in the coming
crop .
Soviet authorities, of course, will not affirm that
they intend to export it all . But it occurs to any one
who was in the Soviet Union during the current sea-
son year to ask why not? Everybody in the Soviet
Union had all the bread he could eat. Russians eat
more rye than wheat bread, but last year the average
consumption of wheat was 300 pounds per person. If
3,500,000 persons are added to the population at
Russia's normal rate of annual increase, there should
be consumed next year 17,500,000 more than last
year, reducing the amount available for exports to a
round 360,000,000 bushels, about 60,000,000 bushels
more than Canada's average export for the years
1927-1930 and about 160,000,000 bushels more
than America's average export for these years, and
more than twice the average export of Imperial Rus-
sia in pre-war years when she was the greatest wheat
exporter in the world, the granary of Europe . In the
face of this prospect, one begins to understand why
the Soviet trade representative in Rotterdam wanted
space in Europe's largest grain elevator. It is a
prospect no less interesting to wheat farmers of
America and Canada than to students of the course
of Soviet economic expansion who remember the
prophecy made not only by the outside world but by
many Communists that the Soviet's collectivization
of farms was premature and doomed to failure .
Just now it is only a prospect, yet Istanbul has
furnished some significant figures that may help to
estimate its chances of being realized. These figures
are worth recording as a possible indication of the
Soviet authorities' private opinion of the size of
their coming wheat crop.
One of the criteria of this private opinion of
Soviets is how much they dare to export of their
reserve stores of wheat from the 1930-31 crop.
Istanbul's record of ship cargoes passing through
the Dardanelles shows that in the first four months of
1931 the Soviets have exported from Black Sea
ports alone nearly 18,000,000 bushels of wheat, com-
pared with 4,000,000 in the first four months of
1930 . The extent of this early Spring export is taken
by the trade as an indication that the Soviet au-
thorities are genuinely confident of the size of their
this year's crop and therefore grain merchants on
this continent are preparing for an even larger flood
of Soviet wheat exports than that which last year
was the sensation of the world market . Nature, of
course, may run a blue pencil through the Soviet's
calculations, but those whose business it is to look
ahead on world commodity markets are this time
taking Soviet announcements about their wheat
program seriously .
Wheat is a subject that has the world's attention
just now, but all other exports of the Soviet Union
recorded in Istanbul are worthy of attention . The
total exports passing through the Dardanelles
amounted in the first four months of 1931 to 3,595,-
438 tons, compared to 2,794, 245 tons in the same
period in 1930, an increase of nearly 30 per cent . In
the month of April alone total cereal exports from
Black Sea ports almost doubled, 132,000 tons, com-
pared to 740,000 last year : petroleum products went
from 389,000 to 408,000 tons, minerals from 195,-
000 to 244,000 tons and so on,-the only diminution
being registered in timber, and that a very slight de-
crease, from 15,500 to 15,110 tons .
This sort of increase of exports taking place on an
over-saturated market, an increase that as every in-
dication shows may sharply accelerate when the new
crop begins to move, appears to competitors of the
Soviets to be not merely uneconomic but maliciously
uneconomic .
It certainly is uneconomic from almost any view-
point save the highly special viewpoint of the Five-
Year Plan, but that it is malicious at the present
juncture of Soviet affairs or that it is deliberately
intended to break the market is not borne out by the
latest returns on Soviet foreign trade .
These returns show even more clearly than had
previously been brought out that in order to keep
up the planned level of returns from exports, the
Soviet Union had to increase its quantity of exports
immensely above that which had been planned, and
this feature of Soviet foreign trade cannot be over-
emphasized as the duration of the world economic
crisis bids fair to make it one of the decisive elements
in the success or failure of the Five-Year Plan . To be
specific, according to figures given in "The Statist"
of London, in the year 1930-31, the quantity of
grain exported by the Soviets increased nearly
twenty-three times over that exported in 1929-30,
and the value only seven times ; the quantity of
timber exported increased by 53 per cent and the
value by '30 per cent ; exports of oil products in-
creased by 25 per cent and value by 17 per cent and
so on .
Nevertheless, however free from immediate politi-
cal intentions the management of the Soviet Mo-
nopoly for Foreign Trade may or may not be the
fact of exports remains and their effect upon the
exports of competing lands remains, and no matter
how one may analyze the motives of the Soviet au-
thorities, the sufferers abroad from Soviet competi-
tion continue to suffer. It must by now have become
a platitude to anyone watching the effects of Soviet
exports upon the outside world to observe that the
interest hit by cheap Soviet goods are almost never
in that land that is importing those goods, but nearly
always in other countries supplying the importing
lands . Soviet competition, in other words, seldom
strikes directly but strikes through each country's
export markets.
It may seem to be laboring an obvious point to
dwell on this, but one constantly meets persons who
exclaim, "Well, if the Soviet Union keeps on dump-
ing this way it is bound to force the world to get
together and protect itself." It is not bound to do so
at all, for the countries unfavorably affected by
Soviet exports are affected not at home where they
could put up bars, but abroad in some other country
where for the most part the consumers are glad to
receive Soviet goods at prices beneath those of the
complaining exporters from the injured nations .
The only suggestion yet advanced for interna-
tional action against the Soviet exports that has
taken this fundamental factor into account was that
of the Argentine delegate to the Rome wheat con-
ference, who in the extremity of distress caused by
the Soviet's deep inroads into the Argentines wheat
markets, proposed that the nations of the world
FIGHTING THE RED TRADE MENACE - 145
should agree among themselves to cancel trade
treaties with any country that accepted Soviet ex-
ports . His suggestion was ignored .
If the Soviet Union exported wheat to the Ar-
gentine and Canada, or petroleum to Venezuela or
Texas at prices undercutting local production, it
can be ventured that all the centrifugal forces of the
non-Soviet world could not have prevented unani-
mous international bars to Soviet trade . But who
for example are feeling most the pressure of Soviet
competition in England? Not the British, though
the Tory press has had partial success in convincing
some of the public that this is so . It is the Americans,
Canadians, Argentinians, Scandinavians, once again
the producers of great staples, that are hit here .
The Association of British Chambers of Com-
merce in its investigation of the effects of Soviet ex-
ports upon British economy has recognized this point
at once and in their preliminary researches have
wasted little attention on what to do about Soviet
imports into Britain that compete, not with British,
but with other foreign producers and have con-
centrated attention upon the one fear of this pre-
dominantly manufacturing country, namely that the
Soviet Union industrialized may become a serious
competitor in manufactured articles . Already mem-
bers of the association have compiled a list that at
first glance seems imposing of articles of Soviet
manufacture that have become or, threaten to be-
come, competitive with British products .
Heading it is anthracite coal, not of course a
manufactured article but so important to Britain
that the association's investigators were moved to
include it and to note that "Russia has always been
more or less a normal supplier of certain Mediter-
ranean markets, but in recent times has displaced us
in Italy and in the last year had made a determined
attack at very low prices in the American and Ca-
nadian markets and more recently sent consignments
into France, Belgium and Germany ." This state-
ment, though it does not coincide with Italian foreign
trade statistics showing Britain still supplying about
two-thirds of Italy's imports of anthracite and
Germany nearly a third, with the Soviet Union just
beginning to enter the market, is nevertheless a
striking illustration of the sensitiveness of the British
business world to any threat to her coal industry,
one of the keynotes of the British economic system .
Hackled flax, it is recorded, is sent by the Soviets
to Britain at a price about $60 per ton less than the
price at which the raw material can be obtained and
hackled here, with the result, it is alleged, that many
hackling machines here have suspended operations .
In the fur trade, it is observed, Russia exported
some lines of dressed pelts before the war, but the
Soviet Union now has greatly extended this business
and is also exporting dyed furs and these, it is al-
leged, are sold at prices considerably below what the
British have to pay for the raw article . The British
glucose industry, say the association's investigators,
has been built up over a number of years against
American competition, and now that it has about
won its footing against the Americans, it has to face
the Russian imports at $15 to $25 below the normal
price of $100 per ton .
Cornstarch, note the reporters, now is coming into
Britain from the Soviet Union at prices greatly be-
low the cost of production here . The amount im-
ported has been comparatively small, but contracts
for very large amounts are said to have been ar-
ranged .
More than 3,000 tons per year of Russian glues are
being shipped into Britain, say the investigators, at
prices alleged to be about one-third the cost of pro-
duction here .
A really important Soviet manufactured export is
ready-made wooden doors, and the investigators re-
port about 600,000 will be imported this year, ap-
proximately the quantity usually imported from
Sweden and at a price alleged to be 25 to 30 per cent
below normal . Soap, it is said, is coming in from the
Soviet Union where, be it noted, it has been for
nearly two years on the deficit list . Over 500 tons of
Russian candy have been imported into Britain re-
cently at prices reported ranging around $251 a ton,
compared with British prices of $360 a ton.
A considerable quantity of malt extract recently
has been offered by the Soviet trade representative,
according to the reporters, at a price of $65 per
ton, or about one-half the British production price .
Fruit pulp, pit props, rubber goods, asbestos are
mentioned as Soviet products that are beginning to
make progress in British markets, while of Soviet
matches it is remarked that "export of these at cut
prices is greatly increasing ."
The list is long and varied, but it will at once
strike the reader that in it is contained not a single
article except anthracite coal that plays a decisive
role in British economics. The only Soviet manu-
factured articles that might conceivably have be-
come a serious competitor to a genuinely important
British industry in Britain itself were textiles . In
Britain textiles and coal lead big business, and were
textile and coal operators genuinely alarmed, their
influence might be sufficient to introduce serious
checks to Soviet trade . By this may be judged the
disappointment of the more radical in the Anti-
Soviet Party when the announcement was made that
the Soviet trade representative in Britain had
promised the Manchester Chamber of Commerce that
the Soviet Union would export no textiles either to
Britain or to the Empire. With this gesture the
Soviets offered a truce to one of the most powerful
sets of business interests in England . As will be seen
later, some of these interests have even developed an
active desire to see at least one category of Soviet
exports that competes chiefly with American wares
increase .
CHAPTER XV
Manchester :
This textile center of the British Empire that on
Sundays has a population of 700,000 and on week-
days a population of double that number, this his-
torical home of Liberalism and piety with the statue
of a bishop on its central square, is receiving a lesson
in methods of Soviet trade . It is paying careful at-
tention, for the chimneys that smoked for decades
over some of Manchester's factories are smokeless to-
day and the town's elders declare that times have
not been so moldy since memory of man runneth not
to the contrary .
Manchester's instructor is Saul G . Bron, one-time
head of Amtorg, today chief of Arcos, the British
corporation acting for the Soviet trade delegation .
Manchester likes its teacher personally but has not
yet been able fully to comprehend the course of
study . This course is not yet ended and no one is
able to forecast what its conclusion will be, but for
the rest of the world perhaps it is worth passing on
as far as it has proceeded to date .
Bron, be it said, has accomplished a job remind-
ing one that the Soviet foreign trade monopoly not
only has all the well-known advantages of a trust
150
but disposes over diplomatic talent of a high order .
His task was to take over an organization "Arcos,"
that had been literally dynamited out of existence by
British authorities in the famous raid that led to the
break in diplomatic relations in 1927 and as that
organization's head to regain the confidence of the
British trading public .
Plainly, no easy assignment, but Bron, the target
today of innumerable attacks in the Conservative
press, has achieved something when a Manchester
business man says of him as he did to me, "He made
a good impression, an honest man ; a capable fellow
who puts his case well ."
Just the same Manchester is puzzled and its
puzzlement mirrors in fine the uncertainty and even
the bewilderment of the trade and industrial world
of Europe in the face of this strange new phenome-
non-the Bolshevik in business . More than that,
Manchester is today a perfect example of a divided
personality, of that sort of neurosis that occurs
among Bourgeois business groups when brought in
commercial contact with the Soviet, in contact with
its lure and with its threat . For Manchester is the
home of men who make machines that make cloth,
and the Soviet Union is buying these machines and
pleasing thus their makers, while the cloth that the
Soviet Union is making and will make from these
machines is to Manchester textile manufacturers an
extremely displeasing addition to the world's over-
supply of that commodity . So Manchester is torn
between satisfaction over the present profit of its
textile machine manufacturers and dissatisfaction
over the few slight present losses and expected larger
future losses of its cloth manufacturers from Soviet
competition.
The city has been trying to make up its mind what
it thinks . To help the process, it invited Bron to
address the Chamber of Commerce shortly after his
arrival in England . He came . The hall was crowded
as seldom before . For this was the first session the
Manchester Chamber of Commerce had devoted to
Russia since before the war, when Lancashire did a
rushing business with the great Eastern empire.
Herbert W . Lee, president of the Chamber,
cordially welcomed Bron with the statement that
Manchester was now of the opinion that, "the pos-
sibilities of safe and profitable trade with Russia are
rather better than formerly," and that "if Russia
places large orders, if she keeps to the spirit as well
as the letter of her contract, what more do we need
as business men?"
Then diplomatically but in clear enough language,
Mr. Lee asked Mr . Bron to tell the Chamber two
things : first, was Russia going to buy much textile
machinery ; second, was she going to sell much tex-
tiles, and, if so, where? Mr . Bron answered to every-
body's satisfaction and made one announcement that
sent the Chamber's members home in high spirits .
The Soviet Union, he said, had decided not to sell
any more textiles in England . Not only would it not
sell any more here, where a few consignments had
been shipped in a more or less experimental or
desultory way, but it would not sell any in any part
of the British Empire. This, he said, was official,
authorized by the Soviet Government, "We will," he
declared, "abstain from competition with your pro-
ducers in British colonies and British dominions ."
As to textile machinery, he sincerely hoped that
the last word had not been said in the Soviet's rela-
tions with the textile machinery industry of Lanca-
shire, and as to the Five-Year Plan, Mr . Bron ex-
plained in a few words that it was a plan for raising
as quickly as possible the standard of living of the
Russian people .
After the announcement that the Soviet Union
intended to "abstain from competition," at any rate
in Britain's own home territory, the textile makers of
the Chamber had few thoughts left for the Five-Year
Plan and indeed the news was sufficiently significant
to have a world-wide echo . At one stroke the Soviet
Union had pulled the teeth of one of England's key
industries and had stepped out of a field of competi-
tion that might have led to really serious economic
friction.
A month later the president of the Chamber, hav-
ing had time to reflect, addressed the Chamber's
semiannual meeting and among other things about
Russia remarked, "it would obviously be unreason-
able for them to expect us to supply them with ma-
chinery on long credit terms unless we had some as-
surance that this machinery would not be used under
the cheap conditions under which they are working
to take trade away from us in markets on which we
depend for keeping our own workers employed . They
state that they have decided to give an undertaking
that they will not export textiles to any part of the
Empire in competition with our manufacturers . We
are willing to believe in Mr. Bron's good faith, but
we are not yet convinced that circumstances will per-
mit him to guarantee the full safeguards we should
desire." Reserved, the Chamber was still cautiously
friendly.
Six months later, having had much more time to
reflect, and equipped with somewhat more experience,
Mr. Lee in the annual report of the Chamber of
Commerce expressed himself as follows : "Mr. Bron
made an official statement that Russia would not at-
tempt to sell cotton goods in competition with us in
the British market and would abstain from competi-
tion with us in British colonies and British dominions .
These assurances seemed to the Chamber of con-
siderable value and calculated to encourage among
Lancashire business men a more favorable attitude
toward the policy on the part of the British Govern-
ment of fostering Russian trade and assisting it by
credits.
"After the meeting, however, facts were brought
to the notice of the Chamber concerning a large con-
tract designed to run for a long period for the sale
of Russian textiles in a market within the British
Empire at prices much below those obtainable in any
other producing country, especially Lancashire .
"Mr. Bron complied with the request from the
Chamber to investigate this matter . He found that
there was such a contract . He stated that it was made
before the policy which he announced had been de-
cided upon . He explained that it was being executed
not through his office in London but through another
European center and he declared that it arose from
an unfortunate but now irretrievable error which
would not be repeated ."
Mr. Lee went on to say that the board had con-
vinced itself of the good faith of the Russian au-
thorities in promising to abstain from direct sales to
Britain and the British Empire, but it had convinced
itself likewise that it was impossible to guarantee
that no purchaser of Russian cotton goods would
seek to resell them in British markets . "Therefore,
despite all assurances," said Mr . Lee, "the board are
of the opinion that the situation is one which must
provoke considerable anxiety and they believe the
British Government should seek to promote some
stable arrangements to remove all grounds of ap-
prehension possible in concert with other powers ."
No longer even cautiously friendly, the Chamber
now was calling for international action .
Further, Mr . Lee delivered some reflections on the
Five-Year Plan : "Russia makes all trade the busi-
ness of the state and it may suit so gigantic an
amalgamation at any given moment to sell at very
low prices . Controlling production and wages as well
as distribution within its own borders, the Russian
state may theoretically feel able so to arrange mat-
ters that these prices will not necessarily involve loss
on its operations for a whole year or five years . But
Russia must realize that such action on her part,
whilst apparently of temporary advantage to her,
causes such disturbance in the economic situation
elsewhere that other countries in the long run will be
obliged to protect themselves ."
Another month later at the annual meeting of the
Chamber in February, 1931 Mr. Lee had dropped
diplomatic phraseology entirely and exclaimed : "I
want to emphasize as strongly as I can that the
granting of further credit facilities to Russia should
be made absolutely conditional upon obtaining
satisfactory assurances from Russia that the Rus-
sians will not jeopardize our trade by selling goods
in competition with us at prices which bear no rela-
tion to cost of production . Some of my textile ma-
chinery friends who are anxious to get more orders
from Russia backed by the British Government's
credits may take exception to this view, but I think
they would be penny wise and pound foolish to go on
selling machinery to Russia if the goods which that
machinery was used to produce are going to be
thrown on markets in which we are interested at a
price which will completely disorganize those markets
for other supplying countries ."
All of which, as one Britisher remarked, is only
proof that Manchester wanted to have its cake and
eat it too . Sales of textile machinery to Russia con-
tinue and when Lancashire textile machinery manu-
facturers meet Lancashire Textile Manufacturers in
the Club the most frequent remark heard is, "Well
if we didn't, somebody else would ." Nobody blames
Bron, particularly since Manchester is beginning to
realize now it is a literal fact that there is no way to
guarantee enforcement of any such Soviet agreement
to abstain from competition, no matter how sincerely
the agreement may have been meant .
As a matter of fact, Soviet textile exports ac-
tually fell off in the year from October, 1929, to
September, 1930 . According to Soviet returns, 14,-
924 tons of textiles were exported in the 1928-1929
period and 14,378 tons in 1929-1930 . Nevertheless,
Manchester cannot understand why the Soviet Union
should export textiles at all at this stage when, as
Bron took pains to emphasize, Russian internal con-
sumption of textiles is now only sixteen meters per
person per year, that figure representing, however, a
great increase over his figure of pre-war consumption
of eleven meters per person .
Now when British salesmen in Persia write home
that it is useless to send any more samples of Lan-
cashire fabrics to that once good British market, be-
cause Persian merchants declare the Russian cotton
goods not only are too cheap to resist but are actually
of better quality than the British goods, and when
east and west Africa and numerous Far Eastern
markets report initial signs of the Soviets "muscling
in," Manchester's gloom deepens . First it was Japan,
that little country that also industrialized itself with
foreign engineers and by following foreign example,
and that also had been the object of forecasts of in-
evitable failure . But Japan industrialized herself to
such a point that she now has taken a very painful
slice from Lancashire's one-time near monopoly of
the Far Eastern market . Then it was reconstructed
Poland with her Lodz mills . Then came the Indian
boycott . And now comes Russia . British exports of
cotton piece goods fell from 7,075 million square
yards in 1913 to 2,407 million square yards in 1930 .
Manchester looks at those figures with quite other
feelings than those of mild astonishment they may
evoke in an outsider .
They help to explain why the bewilderment that
is shared by all Manchester is bitter bewilderment
on the part of textile manufacturers when they hear
the explanation that the Five-Year Plan does not
necessarily mean that the new textile machinery is to
be used to make textiles just now for the Russian
population, but that the new machinery will make
cloth to sell abroad to buy more machinery to make
more cloth to sell abroad and so on, until Russia has
all the textile machinery she can possibly use for
home consumption or for export . Manchester's
Chamber of Commerce president, even as late as
July, 1930 expressed the optimistic sentiment that,
"As Russia increases in prosperity, and we hope it
may do so rapidly, it ought to be able not only to
take our machinery but to have room also for con-
siderable quantities of our textiles ." Slowly but
finally Manchester is coming to realize that every
textile machine sent to Russia means just so many
less bolts of cloth that Russia will have to import .
Meanwhile, it may have occurred to some ob-
servers to wonder why the Manchester Chamber of
Commerce should feel so closely touched by competi-
tion that is as yet mostly a threat and especially after
a year when Soviet textile exports actually, if
slightly, decreased . A partial answer may be found
in the report of the British customs authorities that,
whereas in the first quarter of 1929, 2,504 tons of
textile machinery were shipped to the Soviet Union,
in the first quarter of 1930 only 396 tons were
shipped . Decreased Soviet orders equal increased
British bitterness, appears to be the equation that
holds true in Manchester as well as in the rest of Eng-
land .
CHAPTER XVI
Liverpool :
"Like a cloud the size of a man's hand" Soviet ex-
ports creep up on the horizon of world trade . For
grain growers all over the world it is a cloud that
already covers a considerable portion of the heavens .
For American cotton planters it is a cloud that can
best be observed from latitude 53 degrees 24 minutes
5 seconds North and longitude 3 degrees 4 minutes
.0 seconds West, namely Liverpool.
9
It may be the general world depression that has
caused a major portion of the uneasiness among
American cotton agents in this city, but the 163,000
bales of Soviet cotton imported into Britain this year
at prices averaging $3 a bale less than the same
quality of American cotton certainly did nothing to
decrease that uneasiness .
Liverpool itself is unconcerned . Cotton is cotton
to Liverpool and commissions on the sale of Soviet
cotton are just as high as commissions on the sale of
American cotton . In fact, this is another instance
where, search as one will, one can find not even a
chemical trace of excitement on the part of European
nations over the Soviet export of goods competing
not with their own but with American products . One
161
hundred and sixty-three thousand bales of cotton is
not a very large amount compared to the American
sales in Liverpool of 847,000 bales from August to
March, especially when one must take into considera-
tion that the Russian bale weighs but 375 pounds
against the American bale's 500 pounds . Neverthe-
less, these 163,000 bales have attracted more atten-
tion in Liverpool than all the rest of the 1,575,000
bales of cotton imports in this greatest cotton im-
porting port in the world, and to Americans they
came at an unusually inconvenient time when, for the
first time in history, sales of non-American growths
exceeded total American sales .
Attention on the part of Liverpool in general was
coolly professional . The city's experts established
that Soviet cotton, known to the trade as "Turkes-
tan," was incomprehensibly "of bread and butter
Texas type, but of Memphis character," meaning
merely that it was like middling to good middling
American with staple up to one and one-eighth inch,
whitish, clean and in good condition .
Attention on the part of the Lancashire mills was
less cool, ever warm . Under present day conditions
here every penny shaved is a penny saved and mill
owners are seeking economies as never before . They
snapped up the Soviet cotton . None of them adver-
tises nor willingly lets it be known that they are us-
ing Soviet cotton, for Bolshevik is still a term of
reproach in this part of the world, but nevertheless
they bought it . Furthermore, they indicated they
would be glad to get more . And when some remark
was passed in Liverpool cotton circles as to the ad-
visability of cutting loose from old business friends
for the sake of new ones, an anonymous contributor
to the Liverpool "Post and Mercury" in a letter to
the editor avowed : "Spinners who have found out
the merits of this cotton are buying it from Liver-
pool brokers and merchants in the usual way . There
is no reason why there should be a prejudice against
this cotton any more than there should be against
Peruvian, Argentinian or American ."
American cotton men here reluctantly admit the
argument and declare that so far they have not been
hurt perceptibly but observe with some anxiety that
if, as seems quite possible, Soviet cotton comes in
during the next years in greater quantities, it is
going to meet no hindrance in the Liverpool trade
despite all of Britain's grumbling about the Soviets,
and that if it continues to be offered at prices averag-
ing 1 point under the American prices it will be
bought in preference to the American cotton .
American cotton men would not perhaps have dis-
played even what little anxiety they do permit to be
displayed about Soviet cotton if they were not
acquainted with so many grain men in this cotton
and grainman's town. It is recalled that only a little
while ago the world was convinced that Russia under
Soviet rule would be lucky if she could produce
enough grain to feed herself . Now, after the Soviet
Union shipped to this country alone more wheat, for
example, in the last quarter of 1930 than all other
wheat exporting countries together with the sole ex-
ception of Canada-shipped to Britain in the entire
year, cotton men are not so inclined to discount en-
tirely the statements of the president of the Soviet
Cotton Syndicate . These prophecies, made more than
a year ago, were to the effect that the Soviet Union
was going to supply not only all its raw cotton needs
previously supplied by America at the rate of several
hundred thousand bales yearly, but was going to be
in the export field before the end of the Five-Year
Plan. Ignored at the time, these statements have now
been taken out of the file and reexamined by Liver-
pool cotton men . They observed that the president of
the Soviet Cotton Syndicate estimated Russia's 1931
crop would be more than double the 1930 crop, or
3,000,000 bales more than last year . They observed
that Russia's cotton crop in 1921 was 57,000 bales,
in 1930 was 2,500,000 . The question of how much
she can export in 1931 is one that nobody here will
risk answering .
But one significant . fact deserves to be recorded .
No cotton men, American or otherwise, think the
Soviet's export of 163,000 bales is a mere gesture .
Some had been inclined to believe that exports had
been made from Turkestan over the Black Sea in
order to save the long rail haul to the mills of Central
Russia and that these exports would be compensated
by imports . But the Soviet Union in the 1930 season
bought only 6,000 bales via the British market and
in the first four months of 1931 imported none, ac-
cording to the Liverpool Chamber of Commerce . All
her cotton exports came out of Leningrad and Mur-
mansk, still further from Turkestan than the Soviet
milling centers . Liverpool trade takes Soviet exports
seriously.
They think that the President of the Soviet Cot-
ton Syndicate meant what he said . Liverpool hopes
he did . Liverpool is like every great port yet visited
on this trip . The more Soviet trade the more harbor
fees, the more stevedore wages, the more warehouse
rent . These are in the main Liverpool's reflections on
the "Red Trade Menace," and if it were not for
echoes from the Tory press that occasionally pene-
trated Liverpool counting rooms, the attitude of this
city probably would be no different from that of
Rotterdam. As it is, on a rough estimate about 75
per cent of Soviet imports into Britain come through
this port and it is all welcome .
Through here came last year most of nearly
3,000,000 loads of wood and timber that made
Britain one of the Soviet's best lumber markets . It
was one of the best, but nevertheless, it contained
seeds of anxiety for the Soviet Union, and the history
of the Central Softwood Buying Corporation's fa-
mous $36,000,000 contract to buy all Russian soft-
wood imported into Britain this year is the history of
a business development not nearly so agreeable to the
Soviet Union as it appeared when announced . The
size of the contract, the fact the Soviet Union was go-
ing to receive such a large sum of money, the fact
that Britain took such a large consignment of Soviet
timber at a moment when American timber men were
complaining most about Soviet competition obscured
for the time being the really important feature of
that transaction .
For its chief significance was that for the first time
in the history of the Soviet Foreign Trade Mo-
nopoly, at least for the first time since it became
strong enough to stand upright, that Monopoly was
beaten by a syndicate of bourgeois business men . It
has been the principle of the Soviet Foreign Trade
Monopoly not to deal with bourgeois syndicates .
There is, of course, no objection to dealing with big
firms . The Soviet prefer big firms, since the bigger
the firm, usually, the lower the prices for goods the
Soviet has to buy and the more prompt the payment
on the goods the Soviet has to sell . But the Foreign
Trade Monopoly always made a point of having at
least two firms bidding against each other .
British lumber men for several years had watched
the operations of the Soviet Foreign Trade Mo-
nopoly, noted its superiority as an instrument of
commerce, agreed among themselves to counter it,
and last autumn to Russia's surprise they suddenly
presented a united front of firms representing four-
fifths of the entire British lumber purchasing ca-
pacity . Seven of the largest British firms pledged
themselves not to buy a stick of Russian timber
separately, but to buy together and not to buy at all
unless the Soviets gave their syndicate a monopoly on
Russian softwood, and not to buy more than a maxi-
mum of 600,000 standards, or 100,000 to 200,000
less than the Russians had expected to export to
Britain this year . The price terms they offered were
not so bad, but the Soviet trade representatives here
were extremely reluctant to enter into a contract to
deliver only so much and no more to the British
market . And most reluctant were they to permit the
precedent of a bourgeois business combine operating
successfully against or with the Foreign Trade Mo-
nopoly .
The Russians held out as long as they could, used
all the arts of trade cajolery on the members of the
syndicate to try to pry individual firms loose, but
to no avail . Finally, when it become evident that if
the Soviets did not deal with the British Softwood
Buying Corporation, Soviet sales to the one-fifth of
[68 FIGHTING THE RED TRADE MENACE
British lumber buying capacity outside of that
corporation would total only a fraction of Soviet
planned sales, the Russians succumbed and signed
the contract . The Swedes and Finns set up a violent
protest and sent a petition to all the members of
Parliament because the contract completely excluded
them from even a chance at competition, and its
effects still are being felt in Scandinavia . Sympathy
here, though, with the Scandinavians, is much less
than one would expect since the British insist upon
recalling that when the war shut Russian timber out
of the market Scandinavian wood skyrocketed in
price . For those fat years, say the British, the
Scandinavians must now suffer a few lean ones .
The future of the Russo-British timber trade, con-
sidered apart from possible change in general rela-
tions of the two governments, appears certain to
this extent that through the unique example of busi-
ness loyalty, dictated though it is by self interest,
British timber dealers will be able to negotiate again
with the Foreign Trade Monopoly on even or better
than even terms .
In softwood America does not compete in this
market to any considerable extent with the Russians,
but in another timber product, this time a manu-
f actured article, the Americans have been pushed
severely. Ready-made doors from Soviet factories
are winning a leading role in Britain, as they have
begun to do in France and Italy . Britain takes from
all sources an average of 2,000,000 doors a year, of
which the United States for the last several years
contributed seventy-five per cent, the Swedes twenty-
five per cent . Last year for the first time and at one
leap the Soviets brought into Britain 120,000 doors .
This year they have contracted to sell in Britain
400,000 to 500,000 doors to one concern, the Mer-
chant Trading Company, on a sliding scale price
agreement that will keep Soviet prices automatically
a shade, about 18 cents, per door under American
competitors' prices . This form of contract, making it
literally impossible for a competitor to undercut the
Soviets unless he gives his product away, is particu-
larly irksome to the trade .
Miscellaneous as is the list of Soviet goods for sale
to the world markets, just so miscellaneous but not
nearly so long is the list of Soviet products that com-
pete with America in Britain . One rather important
minor item is canned salmon . In 1924 the United
States sent 33,000,000 pounds of canned salmon and
the Soviet Union sent 9.6,000,000 to Britain while in
1930 the United States share had dropped to 9.4,-
000,000 pounds and the Soviet share had risen to
64,000,000 pounds . The Soviets have more than
doubled their exports of canned salmon : the United
States exports declined about 9.5 per cent .
The old familiar figure of Soviet petroleum is very
much in evidence in Britain also as a competitor not
only with American but with all other foreign oils .
Here, however, there is a strict price agreement .
Anglo-American, Standard, Anglo-Persian and Shell
have an arrangement with the Soviet oil trust
whereby they maintain not the same price but the
same price differential, amounting now to about one
cent a gallon, so that no matter what price the non-
Soviet trusts fix the Soviet trust sells just a shade
cheaper . This arrangement applies only to gasoline .
There is also a quantity agreement whereby each
concern's imports are confined to a certain quota
proportional to its 1928 sales, each to receive a cer-
tain percentage of increase each year . Details of this
agreement never have been published . The report is
now afloat it may soon be abrogated by the Soviets,
who desire a free hand .
Not any of these products, however, had anything
like the significance for American producers that
wheat did in the Soviet big wheat year 1930-31 .
What Russian wheat did to American wheat in the
British market is indicated as well by the 1931
spring export figures as by those in the heavier ex-
porting months of 1930 . While the Soviet Union in
the first four months of 1929 exported no wheat to
Britain and in the first four months of 1930 ex-
ported 845,161 bushels, she exported in the first
four months of 1931 11,876,391 bushels-while the
United States in the same periods under considera-
tion exported to Britain 10,125,146 and 8,249,564
and 3,346,736 bushels respectively .
At the same time, Canadian wheat exports to
Britain suffered, if not quite so heavily, coming down
from 16,129,032 bushels in the first four months of
1929 to 11,290,322 in the same period of 1931 .
Britain was the largest single taker of Soviet wheat
and absorbed a third of all Russian wheat exports in
1930 . This one circumstance may become decisive for
Russo-British commercial relations . The British
realize it gives them a powerful lever to move the
Russians in the direction of placing more orders in
this country. After all other schemes have been dis-
cussed whereby this movement might be promoted,
the one quite practicable project remains of the
Empire quota system by which grain from the out-
side could be controlled . No other commodity lends
itself so well to this method of pressing the Soviets as
does wheat .
There is not enough or not enough of the right
kind of timber, oil, furs, etc ., in the Empire to satisfy
Britain, but there is enough grain for Britain in
Australia and Canada . The idea of applying this
thumbscrew to one Soviet thumb and the credit
thumbscrew to the other thumb is one that appeals
just now to the Conservatives . Under the Labor
Government the British Treasury, like the treasuries
of Italy and Germany, guarantees up to 60 per cent
of the face value of the Soviet bills of exchange
drawn to favor British sellers. If the Conservatives
came in they could threaten to withdraw the credit
guarantee, offer to extend it, threaten to decrease
the Soviet share of it, threaten to decrease the Soviet
share of the wheat quota, offer to buy more wheat
and in the long run if they were favored by fortune,
they might get some more Soviet orders .
CHAPTER XVII
Copenhagen :
Economics, like politics, makes strange bedfellows,
and here in this cheerful North Sea capital one may
observe how economics has made of tiny Denmark an
ally, even though an unwilling one, of the giant Com-
munist empire on the east ; while economics again,
though perhaps misunderstood economics, has
aroused in Denmark a strange antagonism to com-
merce with the United States .
"The Red Trade Menace" is not regarded here
with apprehension . The "menace," if there is one,
exists here in the minds of an exceptionally vocal if
not nationally representative group of large land-
owners as an American menace-"the Red, White
and Blue menace," if Danish landlords were given to
headline phrases .
On this entire all-European survey there has ap-
peared no more interesting if complicated example
of the effect of economic forces upon the relationship
of Europe to America and Europe to the Soviet
Union than here in Denmark . The "melancholy sci-
ence" of Adam Smith, dreariest of studies, becomes
alive and fascinating in Copenhagen .
Here today spring sunshine lights a city, smiling
173
people populate the public gardens, the Tivoli is
crowded with animated coffee drinkers and in the
streets a throng of automobiles gives evidence that
somewhere in the world the "crisis" has held its hand .
Hotels are full, dance music issues from a dozen
doorways and theatre advertisements bear out the
city's fame as the Paris of the North .
Denmark, in short, is the happiest country in
Europe, least troubled by the world depression . Just
six flight hours away lies England, gloomy, black
browed . Just two flight hours away lies Germany,
worried, despondent. In England one in fifteen in-
habitants is jobless, in Germany, one in twelve . In
Denmark one in sixty-six is unemployed and many
of these temporarily .
Danish critics may object, and point a score of
instances where Denmark, too, begins to feel the
pinch . But to one who has just flown here from Lon-
don, a short twenty-four hours from the dark per-
spectives of Manchester and Liverpool, the contrast
is great. It demands explanation, and as all economic
forces operate interdependently it happens, too, that
this attempt at explanation, may do its share to
clarify comprehension of the three-way traffic tangle
of Europe, America and Russia .
Before the effort at explanation, however, one
must lay the phenomena upon the table and, first of
all, the strangest of them, the anti-American boycott
movement . This is not the first time nor the first
country in which resentment against the American
tariff has been observed, nor is it the first instance in
which the thesis has been borne out that if Europe
were ever able to combine commercially against the
Soviet Union it would direct that combination
equally against the United States . But nowhere has
the thesis been so clearly confirmed as here in Den-
mark .
Not sentiment but economics determine trade .
Thus argue Marxists and a good many non-Marxist
hardheaded business men of the capitalist world too .
At any rate here in Denmark, where Americans are
received with a kindness and hospitality that leaves
one unwilling to speak critically, there are a sufficient
number of persons who believe that economics dictate
against acceptance of American wares to have given
rise to a regular boycott movement . Boycott of all
American wares is the goal of an association of 500
of the largest landowners of the country, an associa-
tion that calls itself "The Twelve Men ." Its printed
appeal to the Danish public deserves citation .
"The commercial policy of the United States
against us is of such a character that no considera-
tion of them on our part is warranted ." This the
thesis .
The appeal then sets forth that the United States'
yearly purchases of Danish goods amount only to
18,000,000 crowns, (about $4,680,000), while Den-
mark buys 289,000,000 crowns (about $62,140,000)
of American goods yearly . It stresses that on a per
capita basis every Dane buys about $17 worth of
American goods yearly while Americans buy only
about 4 cents worth of Danish goods apiece a year .
each month the "Twelve Men's Association" an-
nounces they are going to issue a manifesto appeal-
ing for a boycott of American goods and each month
are going to point out some particular item of
American imports that ought not to be bought . They
will watch import returns, they announce, and as
each new packet of American wares arrives will warn
the Danish public not to buy it .
Thus in one month the "Twelve Men" warned
against buying American kerosene . "No American
kerosene on our farms . We have no use for American
kerosene. We are able to change our consumption
from American to British kerosene without a single
penny's expense and without the least trouble . Do
what you are able to do to shift importation from
America, to whom we are indifferent, to our big
customer on the west-England ."
In another month it was flour . "It should be plain
to everybody that there is no sense in giving work to
American mills when our own are idle . During 1930
Denmark imported about 700,000 sacks of wheat
flour . The United States supplied about 500,000 of
these sacks, which might as well have been manu-
factured in our own mills ."
Again it was binder twine. "A few days ago a
shipment of 300 tons of American binder twine ar-
rived. Don't buy American binder twine ."
Ekstrabladet, excellent afternoon newspaper of
the "Politiken group" interviewed the director of
the anti-American campaign, V . Kronman, and ob-
tained an illuminating statement .
"Yes, this is the beginning of a real campaign
against American goods," declared Kronman . "We
look upon America as a country being the least
friendly to us from a commercial point of view .
America is so big that it won't make any special im-
pression upon America if we react, but despite that
fact we do it . Even if we are small we still have the
opinion that in all commerce there ought to be a
spirit of reciprocity ."
"Americans flood us with their goods without re-
ciprocating in the least and every time we have
worked up a sale of a special kind of goods in Amer-
ica they run over us with a tariff increase, closing the
market for our goods .
"We have therefore started on a systematic survey
to determine where our members can assist us in
shifting purchases from the United States to Dan-
ish industry or to England or, alternatively, Ger-
many, both of which are our customers .
"It is our intention every month to draw the at-
tention of our members to new fields, for example
rubber, transmission belting, typewriters, rubber
footwear, agricultural machines, etc ."
The spokesman was asked if as a matter of fact
imports from the United States were actually declin-
ing . His answer is interesting : "At any rate it has
declined substantially in cattle feed . America on
account of the heavy drought has not been able to
export cottonseed cakes, but this fact has not bet-
tered our trade balance, as Americans only have been
replaced by Russians ."
There is the phenomenon . If it were really true
that this anti-American campaign were based only
upon the simple theory that international trade
should be done on a two-way barter system, "You
take a ton of goods from me and I take a ton of
goods from you," one might counter it effectively by
asking if a landowning member of the "Twelve Men's
Association" expects his tailor to take a dozen firkins
of butter in exchange for a suit of clothes . As a mat-
ter of fact this sort of kindergarten economics is
applied by a good many European nations in their
attitude toward trade with the Soviet Union as well
as with the United States, and the greatest single
objection to Soviet trade encountered in France,
Belgium and even England was that the Soviets sold
more in those countries than they bought.
But it will be noted that in the Danish movement
against American goods the argument constantly is
to shift Danish purchases from America to Britain .
There is a very good reason for this and behind the
reason are factors that have made Denmark an
ally, even though an unconscious ally, of the Soviet
Union .
Secure though she is for the present and still com-
paratively prosperous in a situation that has given
her cheaper food for her cattle while her chief ex-
ports, animal products, have fallen off less in price
than have the raw materials that go to make them,
Denmark has one large shadow on her economic
horizon . That shadow is the possibility that Great
Britain may adopt the long-discussed system of
Empire preference, that England may agree with
her dominions and colonies to establish a tariff favor-
ing an exchange of goods among members of the
British commonwealth to the disadvantage of im-
ports from countries outside the commonwealth .
It is, of course, still uncertain what form the Em-
pire preference system would take . It is uncertain
whether it would be effectuated under a Labor gov-
ernment ; it is uncertain whether it will come to pass
at all. But it is clear that if it does come to pass it
will bring about a substantial price difference in
England in favor of Empire products and especially
of Empire agricultural products-grain, butter,
bacon, eggs, etc .
Denmark is not concerned about grain, but Den-
mark is most concerned about the British butter, egg
and bacon market . Denmark is the big butter and
egg man of Europe . Her exports to England make
her so . Denmark literally lives from butter, eggs and
bacon. Eighty per cent of her entire exports last
year was agricultural and of this 80 per cent, 4 2 per
cent was of milk products, 51 per cent was of meat
and slaughter products and 7 per cent was of eggs .
And of this majority portion of the total Danish
exports, Great Britain took 68 per cent of all Danish
butter exported, 99 9 1o per cent of all Danish bacon
exported and 85 per cent of all Danish eggs ex-
ported.
It is plain why for Denmark the British market is
of paramount importance . It is plain why Denmark
should be nervous about England's Empire prefer-
ence scheme, for even if New Zealand butter does lie
six weeks steamship travel away from England it is
even now being sold there and Danes argue that if
Empire preference is to mean anything at all it will
mean that preferential customs must be fixed high
enough to give New Zealand butter a perceptible ad-
vantage over Danish butter .
Free traders, of course, have here a striking ex-
ample of the effect of an economic nationalism that
would send a man to a grocery store half way around
the world to buy a pound of butter rather than to
the grocery store next door because the grocery store
dealer half way around the world was related to the
wife of the man that wanted a pound of butter .
The Danes, however, are not interested in the
theoretical economics of the Empire preference .
They are interested in its practical effect on them
and they are practically interested in trying to head
it off . Therefore they wish to encourage Danes to
buy more British goods, hoping against hope that
this demonstration of Danish good will will soften
Tory hearts in England . But to buy more from
Britain, Danes must buy less from some one else .
In itself and quite independent of the Danish fear
of Empire preference, the American tariff is an an-
noyance ; so what could be more logical than a
campaign to buy less American goods and buy more
British goods?
But it so happens that the one other country in
the world that could be most injured by Britain's
proposed Empire preference system is the Soviet
Union . Of all the projects encountered on this trip
for checking Soviet exports the British Empire
preference scheme seems to hold a more genuine
threat to Soviet trade than any other . As Denmark
sends two-thirds of her exports to Britain, so the
Soviet Union sends one-third of hers to Britain . In
this involved and roundabout way Denmark, less
than life-sized model of an efficient bourgeois agri-
cultural country, has been ranged on the same side
of the world economic fence as the anti-capitalist
colossus.
It will not help to clarify this picture but should
be noted that on the other hand the Soviet Union's
existence is one of the reasons for the movement in
England to favor Empire preference, so that if it
were not for Soviet exports to Britain, Danish ex-
ports to Britain might not be threatened .
Probably few Danes have taken the trouble to con-
sider these aspects of their role in the four-cornered
foreign trade bridge game among Denmark, Eng-
land, the United States, and Russia, nor is it clear
why they should or what they could do about it if
they did . About all that occurs to Denmark to con-
sider in respect to its direct trade with the Soviet
Union is the fact that the Soviet Union sells to Den-
mark about $10,000,000 worth of products a year
and buys only about $3,000,000 worth of Danish
goods and that this is undesirable and ought to be
corrected, but that of all Denmark's purchases from
the Soviet Union last year more than three-fourths
were of grain and cattle feed and that cheap grain
can do little harm to a country that depends for its
prosperity upon selling no grain but products of
animals that live on grain .
Like Germany, Italy and England, Denmark, too,
wishes the Soviet Union to increase its purchases
and, like those countries, Denmark puts its Govern-
ment credit back of the industrialists who wish to
sell to the Soviet Union . The Danish export credit
system, like most of its counterparts in Europe, was
a post-war development established in 1922, to en-
courage foreign trade by relieving the exporter of
credit risks . Beginning modestly, the system has been
developed until now Government funds for insuring
exports amount to $18,200,000 .
During nine years of operation, the Credit Board
reports, it lost but $120,000 on dishonored bills,
none of which were Soviet bills . Having been estab-
lished before Denmark's resumption of trade re-
lations with the Soviet Union April 23, 1923, it can-
not be said to have been intended primarily as an
instrument to promote trade with the Soviet Union .
Nevertheless, although no official statement could be
obtained, it is presumed that most, if not all, of Den-
mark's exports to the Soviet Union are covered by
Government guarantee . This guarantee in the case
of other countries is sometimes as high as 85 per
cent, but in the case of the Soviet Union is limited
to 60 per cent . That is to say, the Government
guarantees the exporter to the Soviet Union pay-
ment of 60 per cent of the amount of the Soviet's
promissory note . For this guarantee the Government
charges a commission of 3 per cent of the guaranteed
portion of the bill .
With this guarantee the exporter can then dis-
count his bill at a Danish bank at a rate correspond-
ing to the prevailing discount rate for the guaranteed
portion of the bill and at a rate that was reported
to me from authoritative sources as not more than
5 per cent for the unguaranteed portion of the bill .
These charges would total about 8 or 9 per cent for
the whole bill and would thus mean that Soviet bills
in Denmark are discounted cheaper than in any
country yet visited in Europe .
A necessary qualification to this statement, how-
ever, is that the Government limits the amount of
Soviet bills it will guarantee and that without Gov-
ernment indorsement Soviet paper here would be
charged as high discount rates as prevail for un-
guaranteed Soviet bills in Berlin, Paris, London and
New York, where "the Black brokers" do a thriving
business in lending money on Soviet notes at 20 or
30 per cent .
In conclusion one cannot help but revert to the
objective fact that as far as could be ascertained
during a very short time in Denmark there is no
trace of a movement to discourage trade with the
Soviet Union, but that in that very short time
the existence of a movement to check trade with the
United States became apparent . And this despite the
fact that Denmark has as little friendliness for Com-
munism as any non-Communist state and that Den-
mark has no discoverable inclination to be antago-
nistic to Americans as Americans . Nevertheless here
are the same arguments used against America that
are used in France, Belgium and England against
the Soviet Union . It is some satisfaction that nobody
claims American workmen produce more cheaply be-
cause they are slaves .
CHAPTER XVIII
Oslo:
The Five-Year Plan for whales has made its
debut and the unwitting beasts, happy today in the
security afforded them by Norway's decision to
cease whaling for a whole year, are living in a fool's
paradise . For the Soviet Union has just ordered
three whaling vessels from Norwegian shipyards .
Were whales skilled in Five-Year Plan perspec-
tives they might realize that it is only a matter of
time when Moby Dick's last descendant may sur-
render to a red-flagged ship and slip down the maw
of a Soviet refinery .
Lacking the capacity to visualize this melancholy
prospect, unmindful as are many European nations
of "The Red Trade Menace," and perhaps with as
much and as little reason, the world of whales may
celebrate now while the celebrating is good . This
year for the first time in fifty years they may in-
crease and multiply, safe from Norway's eager hunt-
ers, not yet victims of the Five-Year Plan .
For Norway's whaling fleet of thirty giant "float-
ing cookeries," 166 hunting ships and 10,000 men, is
staying at home this season . Not a ship will sail .
There is Ross Sea where in 1923 the first Nor-
186
wegian whaler broke its way through the pack-ice
barrier and where in 1929 Admiral Byrd won fame,
Norway for the last seven years has won whale oil .
It has won so much from the Antarctic that in 1929
the catch of 1,210, 235 barrels, double the world
catch of 1922, made whale oil a drug on the market .
So the most romantic business left on earth, a
business that sent each year a whole armada of
Norsemen 12,000 miles away to the nether side of
the globe to spend our winter hunting whales under
the steady lights of the Antarctic summer, has been
suspended . There is too much whale oil in the world .
But it is in the non-Soviet world that there is too
much whale oil . In the Soviet world they need whale
oil and intend to have their own supply .
There is too much wheat they say, but the Soviet
plans more wheat this year than ever in Russia's
history ; there is too much petroleum, they say, but
the Soviet wells have doubled their production since
1928 and will double it again by 1933 if the Five-
Year Plan is followed ; there is too much timber, they
say, but the Soviet planners for 1932 will lay the
axe to 109,000,000,000 board feet, three times the
total cut in the United States, if the Five-Year goal
is reached.
Now whales are next in line. Three whaling ves-
sels of course are only a beginning and a small one .
And too much need not be made of it, but if anything
were needed to emphasize once more the all-inclusive
character of the Soviet's Five-Year Plan, the plan
for whales provides the emphasis . From whale oil to
Chakwa tea the Soviet Union proposes to make itself
utterly independent of the outside world if necessary,
with a strong line under the qualifying clause, "if
necessary ."
In another respect too this curious discovery in
Norway of a fresh example of Five-Year Plan am-
bition deserves attention . Manchester men who make
textile machinery sold quantities of it to the Soviet
Union . Today Manchester men who make textiles are
complaining of Soviet competition . Swedish men who
make saws sold scores of modern gang frames to the
Soviet Union . Today Swedish men who make sawn
timber complain of Soviet competition. Now Nor-
wegian men who make whaling ships are selling them
to the Soviet Union . One wonders if their colleagues
who catch whales will ever join the chorus of com-
plainers. The Russians whaled before the war off the
Korean and Murmansk coasts . They say they want
these whaling ships to resume operations in the east
Asiatic waters and probably it will be some time be-
fore the Ross Sea feels a Soviet keel .
Oslo has other things to think about than "The
Red Trade Menace." This city of 260,000 has the
prettiest girls, the best whale meat, the biggest labor
lockout, the most rhythmic jazz bands, the largest
number of ships laid up and the most liberal interest
rates on Soviet credits of any city yet visited .
It has a surprising capacity to fill its excellent
hotels with diners and dancers after two months of a
nationwide lockout that has thrown two-thirds of the
workers in key industries out of work and closed most
of the nation's factories and mills . Only this lockout
has halted temporarily the profitable process of buy-
ing pulpwood from the Soviet Union, grinding it
here and selling the wood pulp to America .
Moscow may and doubtless does appreciate this
item on its Five-Year Plan, but more fundamentally
important for the Marxist observers of capitalist dis-
sension is the Nationalist spirit now rife in Norway .
It may be recalled that it is the profound belief of
many party leaders in the Kremlin that the non-
Soviet world is going to assemble its forces to attack
the Soviet State before Communism has consolidated
its strength . It may also be recalled that in opposition
to these Communist Jeremiahs there is a little group
of cheerful spirits who claim that Nationalist rival-
ries, capitalist competition will save the Soviet Union
from assault .
Scandinavia affords good arguments for the sec-
ond group . Here in Norway public opinion is excited
or disturbed or merely interested over two principal
questions, leaving out of account for the moment the
now chronic lockout and the now historical decision
to take a whaling holiday . One is the question, "Shall
Norway permit foreign capital to gain a foothold in
the country, or shall she not?" The "shall nots" have
won the day and John Ludwig Mowinckel's Cabinet
was overthrown because it granted a concession to the
British soap and margarine trust to acquire an in-
terest in a Norwegian concern .
Even more indicative and typical of Europe's
nationalistic trend is the fraternal dispute now going
on between Norway and Denmark over Greenland, a
dispute that has reached the point where imaginative
persons even in this city, where the Nobel Peace Prize
is awarded, think back to days when such disputes
were settled by Norsemen's strong right arms and not
by The Hague Court that probably will be called upon
to settle it in the end .
Since 1814 when Norway broke away from Den-
mark this country has remembered with none too
friendly feelings the 364 years of its unwilling union
with that state . Today the two nations, speaking a
language that differs chiefly in pronunciation, shar-
ing centuries of common history, are again at odds
and the feeling between them recalls the mutual af-
fection of the Belgians and the Dutch.
Denmark owns Greenland . Norway hunts on Green-
land . With that imposing spirit of adventure that has
sent her pioneers to do the world's most perilous
jobs, the Norwegian hunters have established them-
selves on Greenland's east coast, have set up eighty
base huts and carry on in their customary way the
business of hunting and fishing in places where citizens
of other nations would only venture with an exploring
expedition . Likewise Norsemen, the Danes, not less
venturesome, for years have preempted Greenland's
west coast for their own . Norwegians and other
hunters were forbidden to make camp on the west
coast and could only land for food and water .
This differentiation between Denmark's admin-
istration of the west and east coasts led Norway to
claim that the east coast did not belong under Danish
sovereignity at all, but really should be Norway's,
and at any rate was a no man's land . The Danes re-
plied by obtaining from twenty-three Governments
recognition of Danish sovereignty over all Green-
land . Norway alone denied this recognition . In retort
to this denial, the Danes organized an expedition
to visit the east coast of Greenland in the summer
of 1931 . Norway is sure that the expedition intends
to establish police authority over Norwegian hunters .
The Danes hint darkly that the Norwegians have been
poisoning fur animals, spoiling the stock . Incensed,
the Norwegians, speaking through their "Arctic
Council," a semi-official advisory commission of prom-
inent citizens and patriotic organizations, have pub-
licly demanded of Parliament that Norway proclaim
the east coast of Greenland Norwegian territory,
plant the Norwegian flag upon it and "occupy" the
disputed land . Meanwhile the Danes are hastening to
get there first and The Hague Court may be pre-
pared for another knotty case .
More weighty in its effects upon this country's
economic life is the lockout . It is strange that so little
should have been published abroad of this worst labor
conflict that any country in Europe has experienced
since the British general strike . It virtually amounts
to a general strike, and although Norway's 2,89.1,000
inhabitants class her numerically as one of the small-
est nations, in point of world importance she occupies
a much greater place than her numbers would in-
dicate, and a practical paralysis of her entire in-
dustry cannot be a matter of indifference to Europe
or America .
The lockout is based in the last analysis on the
Norwegian's character . They have more of that com-
modity than most . Their workmen are the best paid
in Europe, and are likewise the best organized and
the most stubborn, and when last April employers
proposed a cut in wages of 15 per cent, the trade
unions replied by demanding a 10 per cent increase
and a reduction in the working day from eight to
seven hours. They agreed to disagree and since that
time Norway's leather, tobacco, paper, pulp, electro
chemical, rubber, soap, electrical, clothing, chocolate,
shipyard, shoe, textile, sawmill, building trades and
printing industries have been as good as hermetically
sealed . The unions are air tight, dock workers and
transport men refuse to handle any wares from
locked-out plants and the net balance of the first
two months of the conflict was estimated at $9,000,000
in lost wages and a $32,000,000 loss to industry . The
trade unions paid out to the unemployed $6,000,000
from the war chest. With all this labor trouble, there
is not a single Communist in Parliament. And with all
its internecine wrangles within its own household and
within the broader household of Scandinavia,
wrangles that divert attention from the problem of
relationships between the Soviet and the non-Soviet
worlds, Norway has nevertheless taken several im-
portant measures that bear on those relationships .
For Norway already has moved so far in the direction
of state monopolies that it is possible to draw a cer-
tain comparison between her system and that of the
Soviet Union .
In four important commodities the state in a dif-
ferent degree and in a different form is in control :
in grain and flour, in herrings and in wine . The wine
and spirits monopoly is an expression of the Nor-
wegian attempt at prohibition dictated more by
sociological than by economic considerations . The
herring monopoly, semi-private but under govern-
mental supervision, is for export alone . The grain and
flour monopoly, the most interesting of all, is a
straight state organ monopolizing all export and im-
port buying and selling.
Norway has to import grain . She wishes however
to encourage as much as possible local production .
For Norway remembers her slim rations of wartime
when German submarines sank nearly one-half of
her merchant fleet.
With this in mind and only incidentally in a year
when the Soviet's Five-Year Plan began,-in 1928,
the Government established a "state grain monopoly ."
The essential task of the monopoly is to buy all home
grown grain produced at a price above the price of
imported grain . The price differential is very large .
It amounts to about 30 cents per bushel on wheat,
rye, barley and to a fraction less on oats .
The important point is that the monopoly always
pays home growers more than it pays for foreign
grain and that the home growers is always sure of
disposing of all of his crop . Of course, if foreign
grain prices fall, so do the prices for home-grown
grain, but never below those of foreign grain and the
home grower is never in danger of having his crop rot
on his hands while foreign grain, be it Russian or
otherwise, floods the market . Having bought all the
grain produced at home and sufficient more from
abroad to fill out the country's needs, the monopoly
then sells it at a price that will enable just enough
profit to meet the overhead-the same price for simi-
lar qualities whether domestic or foreign and the
same price to all buyers .
This obviously is one way of meeting "dumping ."
It is a system that is said to have worked well during
the initial three years of its operation under the en-
ergetic management of Oscar Jahnsen, who, as the
managing director with an advisory council of seven
members, by reason of this office is the chief of Nor-
way's largest business enterprise.
In one respect it worked a hardship on the Ameri-
can exporters of flour to Norway, for the monopoly
decreed all trade marked flour should have the trade
mark removed, be classified and branded with the
monopoly's own brands . In this way the American
millers, who had spent large sums in advertising, lost
sales appeal to the Norwegian public . In another
and more important respect the monopoly, however,
certainly has not been disadvantageous to the Ameri-
can producers, for in 1930 when Russian wheat was
avalanching down on Europe, the Norwegian mo-
nopoly, it is true, bought 150,000 tons from the
Soviets against none in 1929, but it continued to buy
in 1930 more from America than it bought in 1929 .
The record of Norway's wheat purchases for those
two years shows again that it was the Argentine that
suffered most from Soviet competition and that Can-
ada lost some, but much less than the South American
producer, handicapped by a long freight haul . In
1929 Argentina sold to Norway 137,157 tons and in
1930 under the pressure of Russian wheat, Argentina
sold only 16,380 tons . Canada in 1929 sold to Norway
82,864 tons and in 1930 sold 69,000 tons . But the
American exports to Norway in 1929 were 28,968
tons and in 1930 were 35,846 .
Several Central European countries have been
watching this Norwegian experiment with interest and
already Sweden has adopted it . The Norwegians them-
selves on the whole are satisfied with it, even though
the consumers have complained that grain and flour
cost more under the monopoly than under free trade .
It is obvious, however, that if the Norwegian farmers
are to make more money somebody has to pay for
it and the final payer is always the consumer .
The Norwegians as a matter of fact liked the mo-
nopoly idea so well that important groups in Parlia-
ment that were behind the late Mowinckel Govern-
ment have brought forth a serious proposal for a
general State monopoly for export . For Americans
it is especially interesting to observe that the purpose
of the state export monopoly scheme is to promote the
formation of syndicates and trusts exactly contrary
to the efforts of the American Government to prevent
their formation . Price fixing is held in Norway to be
beneficial to the national economy and under the state
export monopoly as projected in the bill only those
persons or corporations would be permitted to export
what belonged to an export association .
This idea developed from the herring trade export
syndicate, which, by reason of the fact that it con-
trols the entire herring output of Norway is able to
determine the extent of the catch, limiting it to a
figure calculated to give a maximum profit, is able
to limit and direct exports and is able to present a
united front to purchasers abroad . The clear ad-
vantages of such an organization, proved in practice
in the herring trade, gave rise to the suggestion that
it be extended to all branches of export trade, al-
though it has been suggested that the wood pulp
manufacturers' syndicate, desiring to force several
strong outsiders to join the combination, have been
chiefly instrumental in promoting the project .
Whatever special interests may be concerned, it
will strike the observer at once that such export or-
ganizations are effective counterparts to the Soviet
Foreign Trade Monopoly. They are able to equalize
the advantage the Soviet monopoly has in its com-
mercial dealings with the unorganized, mutually com-
petitive bourgeois concerns and are equivalent to the
sort of organization the Germans tried to bring to life
three years ago with their Russian committee of the
Reich's Manufacturers' Association. The decisive dif-
ference is that the German committee, formed to unify
German industrialists for trading with the Soviet
Union, but only with the Soviet Union, was killed by
the Soviet objection that this was discrimination,
whereas the Soviets cannot oppose or refuse to deal
with an export monopoly that is intended to deal
with all countries .
In the same way that the Norwegian state grain
and flour monopoly is an effective instrument of de-
fense against "dumping," so the Norwegian export
monopoly would be especially useful for sales to the
Soviet Union. These sales as far as Norway is con-
cerned have been profitable, for the Five-Year Plan
has put the Russian population on the cheapest fish
diet possible and Norway supplied in the second year
of the plan in 1929, 50,000 tons of salt herring . She
also has supplied to the Soviet Union aluminum and
ferro-alloys in such volume that in that year her
foreign trade balance was strongly active, showing
about $4,500,000 in exports to the Soviet Union
against $1,800,000 in imports from the Soviet Union .
Lumber was Norway's chief import from the Soviet
Union until 1930, when the Russian grain came for-
ward. It needs to be emphasized that Norway is one
Scandinavian country that suffered but little if any-
thing from Soviet timber exports . Norway exports
chiefly finished, planed, sawn timber or wood pulp,
while the Soviet exports so far chiefly have been rough
products . So that the Norwegian mills actually prof-
ited from the import of Russian wood to finish here
and re-export . In this, however, as in most countries,
there is a conflict of interests and the forest owners
here protest against Russian imports while the mill
owners defend them .
Meanwhile the Norwegian Government does its
share to promote the Soviet trade by the export credit
system, guaranteeing 75 per cent of the face value of
Soviet bills. The fund available has just been raised
from $3,900,000 to $5,200,000 and the terms of in-
terest are even more reasonable than Denmark's . The
payments on Soviet purchases of herring afford a
good illustration . Against the presentation of a bill
of lading for purchased herrings, the Soviet com-
mercial representative gives the exporter two twelve-
months promissory notes dated the day of shipment
for 25 per cent and 75 per cent of the invoice value
in Norwegian crowns, plus the current discount rate
and an additional 13/4 per cent . In other words, if
the invoice f .o.b. port is 100 crowns, the notes would
be for 105 .75 crowns, the difference being the Norges
bank discount rate of 4 per cent plus a 1 3/4 per
cent additional charge. Having obtained the Govern-
ment's export credits guarantee on the 75 per cent
bill, the exporter can then present his notes to the
Norges Bank and receive 75 per cent in cash against
the normal discount rate and the other 25 per cent
if he wants it at a rate that would bring the total cost
to the exporter up to around 6 or 7 per cent . The
law, however, only provides for twelve months' credit
and notes may not be renewed except for ships under
construction by Norwegian yards for the Soviets .
At no discoverable point has Soviet competition
touched American trade with Norway, although the
American and other foreign oil companies are nerv-
ous. A Soviet delegation just came here to choose
and buy sites for gasoline and kerosene tanks . The
Norwegians are willing to do business . It is only now
and then that the Norwegian gazing at the map of
this part of the world looks at that 600 mile long
imaginary line separating Finland from the Soviet
Union and exclaims, "The poor Finns!"
CHAPTER XIX
Stockholm :
Standing in the center of Kungstraed Garden in
Stockholm, Charles XII, heroic figure of Sweden's
brilliant military period, stretches a bronze left arm
eastward, holds in his right hand an unsheathed
sword . Russia is the target of his pointing forefinger .
Danger lies in the East for the Sweden of Charles
XII. It lies in the East for Sweden now, but Sweden
holds no sword in her right hand today . Not war but
peace with the Soviets is the hope of Sweden's key
industry, the timber trade . "Fight" has been the
slogan of this industry and the struggle has been
bitter, costing each side more than either can afford .
"Pact" is today the talk in Stockholm, and although
the war may go much further there are many signs
that on this particular sector of the conflict of the
non-Soviet with the Soviet world an armistice is in
sight .
This country is the one European land where the
Soviet Five-Year Plan has struck harder than in any
other, with the possible exception of Finland . Sweden
is feeling Soviet competition in timber more painfully
than any other country save Finland . And for Sweden
201
timber is a matter of economic life or death . Half her
exports are timber and timber products .
Chief timber exporter of the world, Sweden is
proud of that title . Sweden now is about to relinquish
it. The same power that 200 years ago crushed
Sweden's great military king under the sheer weight
of numbers today is bringing an unbearable pres-
sure on Sweden's primary industry and by sheer
weight of timber is forcing a decision . One does not
have to have a keen appetite for economics to be in-
terested in this conflict . Here are all the elements of
a drama, of warfare, even of a great sporting event,
though of a sporting event that has a good deal more
significance for the world than the mere totaling up
of scores . And it is a game in which no one can proph-
esy when the whistle will blow to end it .
Stockholm itself, one must observe, shows no out-
ward sign of injury in this timber-war, though this
is a "timber-minded" city, where every one knows
and talks timber and where in the last analysis of
a very large section of the population is dependent
on timber for a living. Stockholm's famous standard
of living is still very high, her waterways are full of
ships, her streets of American automobiles, her hotels
of fashionable folk, and one of the first stories one
hears is the perhaps misleading tale that the Swedish
bricklayers are better paid than Cabinet Ministers .
Specifically, it is related that there have been times
when bricklayers working on piece work toward the
end of a job that must be finished, are able, by holding
up a contractor, to get as much as $25 a day, while
a Cabinet Minister receives but $15 a day . This, it
must be admitted, is a record worthy of a place beside
some exploits of the American building trades unions .
Whether it is typical of Swedish wages may be
doubted, but those wages still are generous and
Sweden as a whole has suffered, according to the
reports of its own citizens, less than most European
countries from the world economic crisis . Some even
deny that Denmark deserves the title of the most
prosperous country in Europe, pointing out that
Sweden, too, has but one unemployed in every sixty
inhabitants . These optimists are not, however, to be
found in the timber trade itself . In this trade there
is one dominating thought : Russia. And here in this
trade may be found the most sharply outlined and
clearly defined sector of the broader economic con-
flict now going on between the Soviet and non-Soviet
world .
In most sectors of this world-wide front the factors
are too complicated and the contestants too widely
separated to permit a comprehensive view . Here the
lineup is in sight of every one . On one side the "Swed-
ish Wood Exporters' Association" and the "Finnish
Sawmill Owners' Association" ; on the other side the
"Exportles," the Soviet timber export syndicate .
Here, too, the battlefield is limited . England, the
world's best timber market for exporters, is the site
where the contest will be decided .
The timber war began in 199.8, the first year of
the Five-Year Plan . Until that year England's im-
ports of softwood from the Soviet Union amounted
to but 17 per cent of the total of her softwood timber
imports, while Sweden's share was 20 per cent, and
Finland's 27 per cent . Canada sent 5 per cent . Back
in 1921 the Soviet Union had only 5 per cent of Eng-
land's total imports . It was a long jump for the Soviet
Union to climb from 5 per cent to 17 per cent, but
Sweden and Finland still had so much of the market
that no particular anxiety was felt about the Soviet
competition . Russia, it was believed, would scarcely
do more since for the four years from 192 to 199.7
her timber exports had remained about the same . The
Five-Year Plan was the occasion at first for sniffs,
next for doubts, then for alarm, now for something
approaching panic, though of course no combatant
will admit defeat . The comparative record of the Rus-
sian, Swedish and Finnish exports to Great Britain
since the Five-Year Plan began tells the story. The
Soviet's share of England's total softwood imports
leaped by 1930 to 32 per cent, Finland's fell to 22
per cent ; Sweden's to 19 per cent and in 1931 the
share of the Soviet Union will probably be more than
50 per cent .
This would be bad enough from the Swedish and
Finnish standpoint, if the situation rested there . Pre-
war Russia also supplied 51 per cent of the British
softwood timber requirements . But the Five-Year
Plan foresees exports that far surpass anything that
Czarist Russia did. Pre-war Russia exported from
the territory occupied by the Soviet Union about
800,000 standards of sawn and planed timber . In
1926 the Soviet Union exported 320,000 ; in 1928,
560,000 ; in 1930, 965,000 and in 1931 the Swedish
exporters estimate the Soviet export will be more than
1,000,000 standards, although they hope it won't
reach the 1,300,000 called for by the plan . In 1932
the plan calls for the export of 1,500,000 ; in 1933,
1,800,000, although one of the maximum variations
of the plan fixes even 3,000,000 as the goal for 1933 .
That is as much as the total exports of the Soviet
Union, Sweden and Finland put together in 1930 .
Meanwhile, the Swedish total exports of sawn and
planed timber decreased from 1,200,000 standards
in 1929 to 996,000 in 1930 and an estimated 850,000
in 1931, and Finland's exports decreased from
1,200,000 in 1929 to 899,000 in 1930 and an esti-
mated 750,000 in 1931 . These are statistics sent by
the Swedish and Finnish exporters to the British
Members of Parliament after the Soviets last autumn
disposed of from 600,000 to 750,000 standards of
timber in their famous deal with the British Soft-
wood Buyers Corporation . The statistics meant, said
the Swedish and Finnish representatives, that the
producers in their two countries had been forced to
agree to reduce their exports next year to 80 per cent
of the 199.9 exports . I asked authoritative sources in
Stockholm, "Does that mean you surrender 20 per
cent of your market to the Soviets?" "It does," was
the reply .
"And if the Five-Year Plan is fulfilled?"
"It means the Swedes and Finns will have to give
up 50 per cent of their exports ."
"And what is there to be done about it?"
Then followed a reasoned statement that deserves
the attention of anybody who is interested in know-
ing what Europe is doing or thinking of doing to
protect itself against "The Red Trade Menace," a
phrase that may or may not be justified as the des-
cription of the effect of the Soviet exports upon some
countries and upon some industries, but that would
be admitted even by Soviet partisans to be thoroughly
applicable in the case of the Swedish and Finnish
timber industry .
"There are three conceivable ways to check the
Soviet competition, or to ameliorate its effects upon
us . One is war . One is an international boycott . One
is an agreement . War," continued the speaker, "is
absolutely out of the question . An international boy-
cott is impossible . There remains agreement . This
forced export of the Soviet Union is hurting her as
much as it hurts us, if not more . It is a question
whether she will be able to carry out her Plan in full,
since she has cut a good deal of the most conveniently
situated timber and from now on the problem of
transporting felled trees to waterways will become
increasingly difficult . The average distance the
Soviets have to carry their logs to water now is
about five miles, compared to half that distance in
Sweden .
"From month to month this distance will increase
for the Soviets . In watching the Five-Year Plan re-
sults you must pay attention now to the timber trans-
ported, not the timber cut . Up to April 10 of this
year that had cut 118,000,000 cubic meters of timber,
77 .6 per cent of the amount called for by the plan .
True that is an enormous lot of timber, but of it
they transported in that time only 81,000,000 cubic
meters, or 61 .3 per cent of the timber transport
called for by the plan . We can afford to wait until
they come to us with a proposal for an arrangement
or some kind of export quota system . The position
of the three countries, Sweden, Finland and Russia,
is favorable for such an agreement . Among the three
of us we produce half of the world's sawn and planed
timber for export . Our normal production for ex-
port should be about the same, each turning out about
1,000,000 standards . We can afford to wait ."
But from the Soviet side comes precisely the same
statement : "We can afford to wait ."
And here the matter stands today . Both sides
beyond doubt want a truce . Allowance has been made
for any statement made by one side about the other
side, yet the burden of evidence seems in favor of
the correctness of the Swedish and Finnish allega-
tions that some of the Soviet export is too costly to
be worth while, even under the peculiar economic
conditions of the Five-Year Plan . They cite, for ex-
ample, an instance of how expensive the Soviet's load-
ing difficulties are in Leningrad, where one ship is
said to have waited so long for her cargo that after
it had been loaded the demurrage charges when added
to the freight exceeded the value of the cargo, and
this loss was not in paper troubles, but in precious
foreign currency .
This cannot be typical, but in timber as in other
exports it is plain that the Soviet Union has every-
thing to gain and nothing to lose by entering into
an export quota pool that would insure as large re-
turns from the smaller quantity of exports as could
be obtained outside the pool by a greater quantity
of exports . Yet in the opinion of the timber trade
the Soviets, for the sake of obtaining a still better
tactical position, probably will continue for some
time, perhaps a year, perhaps two, to strain every
nerve to accomplish the extreme limits of the Five-
Year Plan for her timber exports. The bigger the
share of the world market they can seize, the bigger
share they can claim when the time comes to talk of
export quotas .
Meanwhile, in the timber trade the period has
arrived resembling the year 1917 in the World War
when both sides were weary and wishing peace, but
neither side willing to take the first step for fear
of showing weakness .
If there is any lesson to be drawn by the outside
world from this experience of the Swedes and Finns,
one lesson would seem to be that the non-Soviet ex-
porters have little hope of sympathy from the im-
porters . The Swedes and Finns took much pains to
lay their case before the British importers, appealing
to them not to ruin Swedish and Finnish business
and not to forsake old trade friends . But the Brit-
ish, who could become quite excited about the pos-
sibility of Soviet manufactured articles competing
with the British products, showed but faint traces of
interest in the effect of Soviet timber on the Swedish
and Finnish trade .
All this is highly instructive to the student of
Soviet commercial relations with the outside world,
but Americans probably will be more interested in
the developments in the oil business in Sweden, where
two American companies, the Standard and the
Texaco, are keenly concerned . The war on this sector
is, if anything, more ferocious than it has been in
the timber trade . Here conflicting statements render
judgment of the immediate balance of forces dif-
ficult, but the trend toward an ultimate Soviet vic-
tory appears clear and is even partly admitted by
their opponents .
While there is constant talk of the chances of a
great capitalist oil trust coming to some agreement
with the Soviet Oil trust, few persons have realized
how far along toward obtaining and insuring its
share of the world oil market the Soviet Oil Trust
already has gone in the form of regional agreements .
Under such agreements, the Soviet Oil Trust already
has 35 per cent of the German market, 22 per cent
of the English market and, without any agreement,
more than 25 per cent of the Italian market and a
certain 10 per cent, but estimated 15 to 20 per cent,
of the French market, counting the French navy's
imports .
For a concern so rankly outside, this is a fairly
large share of Continental imports, but the Soviet
Oil Trust appears to be only gathering speed . Until
two years ago it virtually ignored the Scandinavian
market . Today it is putting direct sales organiza-
tions into Denmark and Norway and here in Sweden,
through the "Naphtha Syndicate," selling directly,
it has 25 per cent of the market and is holding out
for 40 per cent when and if the Standard, Texaco,
Shell and Anglo-Persian are willing to make an
agreement .
While the Soviets' competitors refuse to admit
that the Naphtha Syndicate has more than 15 per
cent of the trade, they grant that the Soviet share
probably will climb to 20 per cent this year . Mean-
while the price war is vicious and admittedly un-
profitable to anybody except the Swedish consum-
ers, who are buying gasoline cheaper than ever in
their history .
In 1926 gasoline here was forty cents a gallon ; in
1927, thirty cents ; January, 1930, twenty-seven
cents ; October, 1930, twenty-two cents ; April, 1931,
twenty cents and today with rebates of one kind and
another consumers are getting gasoline as cheap as
fifteen cents a gallon . With a tax of eight cents a
gallon, transport costs of one cent a gallon and
estimated overhead and distributing costs of six cents
a gallon, the price of fifteen cents a gallon would
leave precisely nothing .
Earning nothing, each party at the moment is
waiting for the other to weaken, but the Soviet share
of the market, whether 15 or 25 per cent, is ad-
mittedly growing and an appreciative public is
keeping in touch with the Naphtha Syndicate's prog-
ress through half page advertisements in newspapers
announcing that Soviet oil imports climbed to second
place among all the oil companies the first quarter
of 1931 . This touch of American publicity sense, un-
usual in a Soviet enterprise, may have been due to
the fact that the manager of the Soviet Oil Com-
pany here is American ; probably the only Amer-
ican employed anywhere in the world is a respon-
sible position in the sales organization of the Soviet
Foreign Trade Monopoly .
Excited as are the Swedish timber exporters over
the purchases by other nations of Soviet exports of
timber, the Swedish public maintains a grateful calm
in the face of Soviet exports of oil to Sweden, and
while Soviet competition in timber has evoked pro-
longed Swedish protests, the only voices audible in
Sweden against Soviet competition in oil are Amer-
ican and British voices . Sweden, it may be recalled,
produces no oil.
Sweden does produce wheat and rye . Not enough
for the whole consumption, but enough to be heavily
affected by the Russian grain if it were permitted to
come unchecked into the country . It is not surpris-
ing, therefore, that now just before the Soviet grain
export season gets under way, Sweden has estab-
lished a state grain and flour monopoly, the "Swedish
Grain Association," for the import and sale of wheat,
rye, grain and flour . On the lines of the Norwegian
system, the Swedish monopoly has the same purpose
to protect domestic growers and to that end has an-
nounced it will buy all the wheat and rye offered by
the Swedish producers at prices averaging from
forty to fifty cents a bushel more than the market
price for foreign grain . This is an even greater price
differential than that paid by the Norwegian mo-
nopoly, and the Swedish farmers are happy at the
genuine protection against the Soviet, American and
Canadian competition .
Of any other move directly or indirectly to check
or control the Swedish trade with the Soviet Union
there were no indications discoverable in a short visit .
Sweden has an active trade balance with the Soviet
Union showing about $3,000,000 on the plus side in
1927-1928, nearly $4,000,000 in 1928-1929, and
$7,000,000 in 1929-1930 . She sells chiefly cream
separators, boring machines, turbines and saws-the
saws used to cut the timber the Soviet Union now is
exporting at the expense of the Swedish sawmill
owners .
But the men who make the saws 'are not the same
men who run sawmills, so the record shows that while
the Swedish timber exporters were growing more
vehement in their protests against the Soviet timber,
the Swedish saw manufacturers were selling more
saws with which to cut that timber . In 1927-1928
they sold saws to the value of $650,000 ; in 1928-
1929, to the value of $700,000, in 1929-1930 to the
value of $1,300,000 . Sweden's total exports to the
Soviet Union in 1929-1930, counting the imports
into the Soviet Union by the Swedish concessions
operating there, amounted to nearly $11,000,000
while the total Swedish purchases from the Soviet
Union, chiefly of oil and grain, amounted to about
$4,000,000 .
All the Swedish sales to the Soviet Union are
made without a Government guarantee and I was
assured that several of the largest Swedish export
firms carry their own Soviet notes . The average
credit time granted to the Soviet trade representa-
tives here is thirteen months . Those concerns that
wish to discount their Soviet notes will be refused
by the Swedish banks if they wish to discount with-
out recourse . They may, however, discount at the
Soviet Bank here . This Soviet financial practice is
worth attention . For example : A Swedish manufac-
turer sells a bill of goods for $100,000 to the Soviet
commercial representative, who gives a promissory
note for $106,000, payable in thirteen months .
Unable to discount the bill without recourse to
the Swedish Bank, the manufacturer may, however,
take it to the Soviet Bank here and receive for the
bill around $90,000 to $95,000 cash . The Soviets
thus have bought back their own bill at a discount
of 11 to 16 per cent and have in effect merely ob-
tained a rebate of that much for cash payment on
the goods they purchased . Such are the pecularities
of finance, however, that the Soviets find this method
gives them more leeway than the payment direct in
cash, as their bank here can borrow from Swedish
sources up to a certain amount to use for discounting
bills . When that sum is exceeded, however, and the
Soviet Bank has no more funds for discounting then
the Swedish manufacturer who wants to discount
without recourse must take his bill to Paris or else-
where, where "black brokers" will favor him with
cash at 27 per cent .
All these other features of Swedish-Soviet com-
mercial relationships, oil, saws, active trade balance,
are important to recollect in judging the great
timber war that dominates the picture . In that war
the Swedish and Finnish timber trade appears to
be losing faith in the effectiveness of the forced labor
issue . They have observed that prices, not pathos,
have decided the business in England, and when the
British Parliament turned down the bill to forbid
the import of products of forced labor, interest in
the "Russian conscripts" flagged . Swedish and Fin-
nish exporters have not entirely abandoned the hope
of affecting the hearts of the British and other con-
sumers, but the attention of the trade now is directed
largely toward the hopes of affecting the pocket-
book of their competitor .
An agreement to divide the market with the Soviet
Union seems the only solution to many who have
seen how difficult it is to keep the Soviet Union out
of the market . Sentiment has been retired to reserve
stations and "sound business sense" brought up to
the front line . With these troops the Soviet forces
are accustomed to deal and signs are not lacking
that the timber war may end in "peace without
victory ."
CHAPTER XX
Helsing f ors
On the hotel tables of Helsinfors stand round green
boxes for the reception of coins . On each box is the
inscription : "Give your bit for gas defense ."
Many builders in Helsingfors and other Finnish
cities have included in the specifications for their
homes and factories gas-proof rooms . The Red Cross
Hospital now being erected here, to be the largest
hospital in Helsingfors, has one gas-proof ward .
Most striking of many manifestations of anxiety
in this country, the agitation for gas defense is only
one evidence of the feeling that Finland's three mil-
lion folk harbor for their huge neighbor on the east,
the land that for a hundred years held Finland sub-
ject and that today, with its 150,000,000 mobilized
behind its Five-Year Plan, seems to Finland much
more than a mere trade menace .
Soviet exports of timber have cut more deeply
into this country's economic life than Soviet exports
of any other commodity have affected any other
country, here much more than in Sweden, yet Fin-
land is not thinking primarily of timber . She is
thinking of gas .
Before the nation looms a nightmare : On one white
217
night like tonight, when one can read a newspaper
without artificial light at 11 in the evening, a swarm
of Red army airplanes rises from the Leningrad
airdrome, just a step across the Finnish border. High
above the Gulf of Finland fly the Red planes . One
short hour from their base they circle . Below them
sleeps Helsingfors .
Now Helsingfors has been taught that such a
fleet of airplanes could discharge enough gas bombs
at one visit to exterminate the population of a com-
munity much larger than this city of 230,000 . On
land the Finnish army believes that it is good enough
to hold back the Red army . In the air the Finns
know that they are virtually helpless, with a maxi-
mum of 300 planes to the Red army's estimated
1,500 .
Hence gas masks on hotel tables, gas-proof rooms,
and public agitation to instruct the nation in defense .
It may be fantastic, it may be quite unnecessary, it
may be futile, but whatever justification or lack of
justification there is for this fear, the fear exists .
It is real enough to the Finns to make them spend
money, and one doesn't spend money on measures to
meet a danger one only faintly fears .
Finland, with its recollections of the war of in-
dependence against the Reds just thirteen years ago,
is like a property owner who once suffered a dis-
astrous fire . Finland is taking out fire insurance .
And Finland fears fire more than any country could
that has not experienced it . This is the first nation
encountered among nine already visited on this strip
where deep-seated and ever-present apprehension
exists as to what the Five-Year Plan may mean for
its own people.
It is necessary to record these facts to complete
the picture of Europe's attitude toward the Five-
Year Plan. It is equally necessary, however, to put
these facts into perspective and to balance them with
the opinions of many students of the Five-Year
Plan in other countries besides those bordering on
the Soviet Union. Many of these students without
any political purpose to serve and conversant with
the program of the Soviet authorities for the Soviet
Union and with the program of the Communist In-
ternational for a world revolution, do not credit
Moscow with aggressive military intentions today .
To this school of observers belongs the present writer .
Those acquainted with the change in tactics of
the world revolution adopted by Moscow since the
Five-Year Plan went into effect are aware that today
the plan is first to make the Soviet Union strong,
economically independent, militarily powerful and
to elevate, if possible, the standard of living of the
Russian worker to such a level that the proletariat
of Western Europe will find in the existence of the
Soviet system the greatest incentive to emulate it .
When this hypothetical condition arises and the
Communist Party of some European nation seizes
power and the Soviet Union at the same time has be-
come strong, the Russian Communist Party, as every
reader of its proclamations must admit, would be
untrue to its own avowed principles if it did not
promote by every means in its possession the effort
to establish also in other countries a dictatorship of
the proletariat.
First of all, though, the Soviet Union must have
become strong and must have gone considerably
further than it has toward presenting the European
working class with an enviable example of proletarian
comfort . And that, if it is to happen will take time .
So to this school of observers it appears plain that
the Soviet Union now has more reason to wish peace
and more reason to desire stability in the world
markets, where it sells its commodities in order to
achieve the Five-Year Plan, than have any of its
neighbors, lacking such a plan, anxious though they,
too, are for peace and hard-pressed though they,
too, are by the world economic depression .
For to the Soviet Union peace today is a means to
an end . To other nations it is an end in itself . And
if war tomorrow is to be necessary f or the sake of
world revolution it can only be successful, accord-
ing to this program, if the Soviet Union today is
permitted the years of peace required to establish
its economic independence and to elevate if possible
the standard of living of Soviet workers above that
of their Western neighbors .
This analysis appears to impartial observers to
explain equally well the present comparative qui-
escence of the Communist International, the shifting
of emphasis in Moscow for the moment from the
world revolution to the national constructive effort
of the Five-Year Plan and the obviously genuine
fear of war expressed almost daily by the Kremlin .
But just as Moscow cannot conceive that the bour-
geois world is going to permit the Soviet Union to
attain its strength undisturbed, so Helsingfors can-
not conceive that Moscow wants at this moment
nothing so much as to be let alone .
To all Finns save that 10 per cent of the popula-
tion which voted Communist before the Communist
Party was outlawed, the Five-Year Plan is a very
black cloud on this nation's horizon . The view that
the Five-Year Plan is going to succeed is gaining
ground rapidly here and only a few Finnish leaders
venture to express the hope that it may be true that
when the Five-Year Plan is achieved the Soviet Union
will divert some part of its export to domestic con-
sumption and thus will relieve the world markets of
the excess of Russian products . It was curious to
hear this view advanced by a man prominent in the
anti-Soviet movement.
Most curious, however, was another view outlined
by a leading citizen of Helsingfors who declared that
it was his belief that the breakdown of the Five-Year
Plan would be the worst thing for Finnland, since
Moscow would then seek an outlet for the disappoint-
ment of its people and would send Red hordes across
the Finnish border to loot and plunder.
Thus Finland expresses its fundamental convic-
tion that nothing good can come out of Russia .
Failure or success, the Five-Year Plan is bound to be
bad for Finland.
This anti-Russian feeling, based at least as much
on the resentment at the century of Russian oppres-
sion under the Czars as at apprehension of Soviet
aggression, reaches deep into Finnish hearts . I of-
fered a Finnish girl a cigarette and said the Russian
word for "please ." She rejected it and said : "I had
to study Russian four years when our country was
under Russia and our schools under Russia . I never
want to hear the word Russia again . We hate the Rus-
sians."
These old historical grievances are enough to war-
rant the assumption that Finland would be on bad
terms with Russia under any Government . But to
them has been added a very real fresh grievance in
the form of the Soviet Union's competition in the
timber market. For Finland this market is much more
important than for Sweden . Of Finland's total ex-
FIGHTING THE RED TRADE MENACE 22'3
ports 85 per cent are wood or things that come from
wood.
The progress of the timber war between the Soviet
"Exportles" on the one hand and the Swedish Wood
Exporters' Association and the Finnish Sawmill
Owner's Association on the other hand, has been told
from Stockholm .
There it appeared that an armistice was in sight
and that an agreement to divide the market with the
Russians might eventually come . That still appears
a possibility even a probability in Helsingfors, but
not so probable as in Stockholm . For the Finns have
lived for the last hundred years on the principle that
the only way to get along with the Russians is to
fight them . And fighting a price war is the method
recommended by Risto Ryti, governor of the Bank
of Finland, in an address that has had sufficient res-
onance in the timber world to have evoked already
complaints from London that not the Russians, but
the Finns, were upsetting the market by offering
their timber at dumping prices .
Mr. Ryti's speech was a most refreshing docu-
ment after two months' experience of listening to the
plaints and pleas of business men in other parts of
Europe for government protection and international
protection, but above all for protection by somebody
else against Russian dumping . Mr . Ryti's advice
was : "Protect yourselves . Undersell the Russians ."
It was typical of Finland that while European
nations twenty times the size of this tiny land have
quivered before the "Red Trade Menace," it re-
mained for a Finnish banker to launch the slogan,
"Fight," and to get an immediate response . Mr . Ryti
by this speech became a financial Paavo Nurmi . For
without employing the word, Mr . Ryti called, in
substance, for the Finns to use "seesoo," and it is
with "seesoo," that Nurmi wins his races and makes
his records.
This strange word rendered here phonetically was
the object of much curiosity at the Amsterdam
Olympic games, where Nurmi proved again his title
as the greatest runner of all time . Nurmi, it was said,
used "seesoo ." He went into a trance before each
race, contemplated his navel and gained superhuman
strength therefrom. "Seesoo" was conceived to be a
Finnish form of Yogi . "Seesoo," however, it was
explained to me by a Finnish scholar, is simply Fin-
nish for that quality which the English call "intesti-
nal fortitude" and Americans call "guts ." In the
Finnish scholar's terms it is "the unconscious capital
of a man after he has exhausted his conscious re-
sources ." This capital is what Mr . Ryti told the
Finnish saw-mill owners to draw upon .
After analyzing the various reasons why it ap-
peared improbable that the Five-Year Plan could
succeed Mr . Ryti proceeded to make some remarks
that undoubtedly should be interesting to other than
Finnish competitors with Soviet exports .
"If we were to assume, however, that the Five-Year
Plan succeeds it would theoretically only be to the
advantage of world economy, for the greater the
production the more complete the satisfaction of
demand for commodities," he said, "and even though
Russia were to continue to export at low prices, world
economy would still theoretically be the gainer . For
why does Russia export? Naturally in order to be
able to import goods and pay for them ."
"So that," continued Mr . Ryti, "if they sell cheaply
and buy dear the result is that Russia must slave
for the benefit of the rest of the world . In practice,
however, the drawback to this system is that those
who export the same commodities as Russia, lose, and
if their economy is brought into disorder, others lose
indirectly by it. We, and in particular our saw-mill
industry, belong to those fated to lose ."
The banker went on to admit that Finland had
greatly increased her timber export by reason of Rus-
sia's decade of absence from the market and said
that the Soviet Union had now attained Russia's
1913 average export and that Finland's had cor-
respondingly declined also to her 1913 average, and
that this was tolerable, but that any more losses would
be intolerable.
"We cannot withdraw from the market . We must
fight for it . But people say that we cannot compete
with Russia owing to the economic methods employed
by that country . We must, however, do so, and we
can do so with hopes of success . Our forests are better
situated, our waterways are better and shorter, our
men and horses are better provisioned, and the skill
and efficiency of our workers are higher than those
of the conscripted workers of Russia .
"Our organization is more elastic and has a greater
sense of responsibility, our saw-mills are more ef-
ficient, our shipping conditions are better and our
freights are lower. We can offer specifications more
satisfactory to buyers and guarantee prompter and
more regular shipments than can Russia .
"Even Russia does not get her timber for noth-
ing, and the deeper they cut the further they must
go for their timber, and even if Russia cared noth-
ing for making profit the fall in the price of timber
comes at a very inconvenient time for her . Its effect
on the success or non-success of the Five-Year Plan
can be great .
"Every fall in timber prices," the banker finished,
"will affect Russia's trade balance and hinder the
realization of the Five-Year Plan . In our case com-
petition for the markets will demand great efforts-
close cooperation between shippers, and temporary
contentment with low forest prices . It demands also,
regrettably enough, the maintenance of wages at
levels lower than before . All this, however, is essential
if we are to retain our markets, for if we lose them
we will have to fight hard to get them back . We must
fight to keep them now ."
Mr. Ryti's recommendations were delivered against
a background that made the possibility of their being
carried successfully into operation appear good . After
all one had heard of the terrific slice Russia had taken
out of Finland's export trade it was natural to expect
to see something like destitution in Helsingfors, to
see mobs of unemployed, to observe, in short, a coun-
try flat on its back .
Nothing of the sort . Helsingfors, like all Northern
cities, has an air of asceticism but in a short sojourn
here, I could discover no signs of real poverty, and
I was credibly informed that there are none who
hunger. The so-called "sum" sections consist of houses
much better than those in Berlin's famous model tene-
ment district . And in Helsingfors I saw more new
apartment houses than I have ever seen since Baku,
where the Soviet oil trust covered several square miles
with homes for workers .
The American Legation, commercial attache and
consular officers are housed in a new office building
that "towers" seven stories and justifies its name of
skyscraper by possessing all the finish and equip-
ment of the most up-to-date structures of that type
in America . Its lower floors are occupied by a de-
partment store that would do credit to an American
city three times the size of Helsingfors . One depart-
ment especially is a real cause for civic pride . It is
a book store "The Academic," said to be the third
largest in the world, and with an English section
larger than many good-sized New York book stores .
It has twelve miles of shelf space, stocks volumes
enough to fill a National Library, and is only one
of thousands of book stores in this land of 1 per cent
illiteracy .
Most of the astonishing number of new houses in
Helsingfors were built since the Finns' war of libera-
tion in 1918, and a good many of them were built
on surplus profits earned when Finland was able to
sell timber to the customers Russia used to have and
has now regained . In part these buildings, too, were
erected on some eighty to ninety millions of dollars
in foreign loans, chiefly from American banks that,
to judge by their long term confidence in Finland, do
not take "the Red Menace" here as seriously as do the
Finns.
The Finns belabored the British market with the
argument that if the Britons bought Russian timber
tens of thousands of Finnish lumbermen would join
the jobless . But the Ministry of Social Affairs re-
ports that in April 11,584 unemployed registered
at the labor exchanges, or about one in 300 popula-
tion, and the highest figures quoted of all jobless,
registered and unregistered is 60,000, or one in every
fifty of the population .
Soviet competition, however, explain the Finnish
saw-mill owners, resulted in more part-time employ-
ment than in actual dismissals.
The Lappo League, that super-Fascist organiza-
tion named for the first battleground of the war of
independence, virtually has eliminated strikes as it
also eliminated the Communist Party, and now would
like to eliminate trade with Russia . The Govern-
ment was willing to suppress the Communist Party,
but not trade, and another surprise of this investiga-
tion not lacking in surprises was to find that Finland,
bitterest of all the anti-Soviet front, furnishes govern-
mental guarantees for sales to the Soviet Union with
75 per cent insurance in a general scheme of export
credits similar to England's and Germany's .
Finland has an active trade balance with the Soviet
Union and last year sold $6,000,000 worth to her
best disliked neighbor and bought $3,000,000 worth
from her . And Finland, who claimed that Great
Britain was betraying her principles by buying
timber from the Soviet Union, herself bought nearly
$2,000,000 worth last year, and in the first quarter
of this year, $50,000 worth . This, it was explained
to me, was nearly all bought by one man, who has
been severely criticized for doing so .
To most Finns, though, the Russian menace is not
commercial. It is military . Finland has 32,000 regular
troops under arms, one-third as many as the United
States, with a population forty times as large . Be-
sides these, Finland has a Civic Guard of 100,000
men and 30,000 volunteer women for service of sup-
ply nurses and sanitary corps .
"Mussolini," said one of these women volunteers,
"is no good . He trades with Russia . He is a Red."
Out on the street a regiment marched past . I asked
her who they were .
"White Guards," was the reply.
"And will they suffice to defend Finland?"
"They and Finnish `seesoo !' "
CHAPTER XXI
Riga :
Out of the loft of the blue Baltic sky the Helsing-
fors express plane wings down over the roofs of Riga
and follows the winding Dvina . Along its banks one
gazes down on lumber yards, their stacked planks
like innumerable decks of cards ready to be played
in the international game of commerce . Over the fields
beyond the city the plots of green and dark brown
earth alternate beneath one's eyes like patterns on
Scotch tartan . Smoke from a score of factories streak
the landscape and tells of industry in this tiny chip
off the massive block of Russia .
So unpretentious is this little land that the out-
side world has often forgotten that Riga is the capi-
tal of an independent state and letters come addressed
to "Riga, Russia ." Latvia, though, has not forgotten
that she used to be a Russian province . She has not
forgotten that her whole economic existence is de-
pendent upon commercial contact with the vast hinter-
land that now is Soviet, and in this country may be
found a most perfect microcosm of the non-Soviet
world's relations with the strange new state to the east .
How Latvia suffers and how she profits from Soviet
trade is interesting enough, and her flax warehouses,
231
lumber yards, her rubber factories, car barns and
paper mills are rich sources for an investigator of the
influence of the Five-Year Plan on European trade .
But all these places have not a fraction of the interest
and significance of No . 20 Elizabeth Street.
No. 20 Elizabeth Street has a wide show window .
In that show window stands a tractor . Heaped
around it and back of it are a dozen other varieties
of agricultural implements . Surely, not a very excit-
ing sight.
Nevertheless, to anyone who has asked himself
the question whether the Soviet Union under the Five-
Year Plan or after the Five-Year Plan can produce
manufactured articles for competition with the non-
Soviet world would hardly have been able to restrain
an exclamation of surprise upon entering the agri-
cultural implement store at No . 20 Elizabeth Street.
I paused long enough outside to read on the radiator
of a tractor in Russian "Fordson, Krasnaya Puti-
lovetz Leningrad ."
Inside, before I could ask about the tractor, a sign
on the side of a trim, red threshing machine caught
my eye . "Made in U. S . S. R." The same sign was
on a broad horse rake in another corner, on a reaping
machine, on a row of milk separators, on a bundle of
pitchforks and of scythes, on two kinds of flax
breakers, on disc harrows and tooth harrows, on a
grain sorter, on ten varieties of plows all neatly
ranged in rows, on several kinds of pumps and churns,
on a series of implements whose use I did not know,
and, finally on a twelve-horsepower fuel oil engine .
Back in the dim recesses of the store, handles stuck
out of wrappings on indiscernible machines and light
glinted from rows of metal receptacles .
"You only sell Soviet products here?" I queried
the salesman .
"Oh, yes," he replied, "they make a pretty com-
plete line ."
"How's business?" I asked .
"Fair and getting better," was the answer.
When I told the salesman that I had been in the
Soviet Union and seen a good many of the factories
whence came the implements he was selling, the man
became cordial. "But I must admit," I said, "that I
didn't expect to find them exporting agricultural im-
plements abroad . Are you really selling them? How
do your prices compare?"
"Really selling them! Of course we are . We've been
selling them now for a couple of years, though this
year is the first that we've done real business . See that
big horse-drawn rake there? We've sold 1,000 of them
already . And the prices? Well, nobody can touch
us there ."
We began with the tractor, an exact model of
Ford's ten to twenty horse-power wheel tractor,
turned out by his Cork plant for the European
market.
"This tractor," said the salesman, who was a Lett,
"is really good . I think it is better than the original .
It stands up better . It is built out of stronger ma-
terials."
"That's probably a matter of speculation, isn't it?"
I said, "but how much do you want for it?"
The price he said, was $900 . "But we only ask 20
per cent down and give the buyer thirty months in
which to pay the balance. The original Fordson costs
$1,000 and you only get eighteen months' credit ."
We went from one machine to another. The price
differential on all other implements was much greater .
The thresher, bearing the mark of the Elizavetgrad
factory, formerly Ellworthy works, a British concern,
was priced $300, against the price for a similar
thresher by the International Harvester Company
of $700 . A flaxbreaking machine from the Pskov
factory, "Metallist," was priced $40, against $90
for a similar machine of German make . A seeder from
the Petrovskovo factory in Kherson was priced $74,
against $96 for a German or Czechoslovakian machine
of the same kind . Another flaxbreaking machine of
a different model was priced $20, against $40 for a
German make .
The horse rake of which the salesman said he had
sold 1,000 was priced $34, against $46 for German
and Swedish rakes . This rake came from the Soviet's
prize new implement factory, "Selmashstroi," that
I had visited six months ago in Rostov-on-the-Don .
When I was there last October they told me they had
produced 4,000 such rakes, but were scheduled to
turn out 100,000 in 1931 .
Many of the implements on sale here in Riga were
produced in pre-revolutionary factories renovated
under the Five-Year Plan, but the horse rakes, of
which they had sold the most, came from the one im-
plement manufactory that has been erected since the
Five-Year Plan without the help of foreign engineers .
A grain sorter from the factory, "Trier," at Voro-
nezh, was priced $64, against $110 for a German
make. Finally, the stationary fuel oil engine, trade-
mark "Vozrozhdenie," from Markstadt on the Volga,
was priced $320, against the $540 of a German com-
peting brand.
The salesman presented me with two catalogues in
Lettish, one containing pictures and description of
fifty varieties of agricultural implements, the other
describing four types of heavy oil stationary and
portable engines as well as one for motor-boats . All
these Soviet products the salesman assured me, could
be obtained on order, and only lack of space prevented
him from showing them in stock .
The Lett salesman explained that his company,
"Standartlini," had exclusive rights for the sale of
Soviet agricultural implements in Latvia . I asked
if Soviet implements were being sold elsewhere . "Oh,
yes," he replied, "all through the border states,
Esthonia, Latvia and Lithuania, and I understand
they are also being sold in Persia and Turkey ."
All this provided a large, substantial mass of ma-
terial upon which to ruminate . It was not possible,
however, so quickly to digest a phenomenon that was
the most surprising discovery of a tour that has not
been lacking in new views of Soviet economy . For,
despite the anxiety of Manchester textile manufac-
turers and of other makers of fabricated goods about
Soviet competition, it has not seemed likely to many
observers of the Five-Year Plan that any serious
export of manufactured products from the Soviet
Union could be expected in some time . At any rate,
not the export of comparatively complicated products
such as agricultural machinery .
It was, therefore, natural that one should view
even this display of implements with considerable
skepticism and the remark of an American, who has
lived long in Latvia and studied the ways of the Rus-
sian trade representatives with care, sounded plausi-
ble . "This is all window dressing, I think," he said .
"Just window dressing . It makes a good impression
on the Latvian public . It is fine propaganda for the
Soviets here, but that's all ."
Prepared to have this impression confirmed, I
visited the head of the Baltic agency of one of the
largest agricultural implement concerns in the world
and asked him what it all meant .
Before replying he pressed a button and ordered
files. A clerk brought a thick bundle of papers .
Thumbing them he began, "This is what it means .
Two years ago they began this . We all thought it
was a bluff. Last year they had sold, however, 10 to
12 per cent of the total market . Not much, but enough
to make us sit up and take notice .
"This year," he continued, "they plan to sell in
Latvia alone to the value of $400,000, which would be
equal to our total sales and would be about 40 per
cent of the market. And that is only in Latvia . They
are operating on the same scale in Esthonia and
Lithuania."
"And how much do you think they actually will
sell?"
"Maybe $200,000 worth . If they do, they will be
doing well. But," he exclaimed, "how can you meet
this sort of thing?"
He turned a sheaf of pages, paused at one and be-
gan to read
"On spring-tooth harrows, five teeth, they ask $3 .
We ask $5 . On seven-tooth harrows they ask $3 .60.
We ask $7 . On nine-tooth harrows they ask $4 .20 . We
ask $8.
"On disc harrows, eight discs, they ask $26. We
ask $44 . On disc harrows, ten discs, they ask $29 .
We ask $48 . On seven-tooth one-horse cultivators
they ask $9 . We ask $18. For a nine-tooth cultivator
they ask $9 . We ask $23 . On a five-foot reaper they
ask $50 . We ask $96 . On a four-and-one-half-foot
mower they ask $33 . We ask $66 . On horse rakes
they ask $9.0 . We ask $36 . And so on . All along the
line just about 50 per cent less .
"But that is not the worst. What really cuts us
down are the terms they offer. On nearly all their
sales they let the farmer take the machines with no
cash payment and only ask for a first payment after
six months . On small machines they give from six to
eighteen months' credit, while we can only afford to
give from six to nine . On machines like reapers, mow-
ers and rakes they give up to twenty-four months'
credit. We give six to nine . On tractors they give
thirty months' credit . We give eighteen ."
The gentleman spoke without agitation . His tone
was reflective .
"Well, you can't offer the peasant any better terms
than that . All he has to do is come in the store, pick
out the machine and walk off with it . He doesn't have
to pay a cent of money ."
Hopefully, he continued . "But what will that peas-
ant do after six months when he is called upon to pay?
I think a lot of them will use their reaper to harvest
their crops and after six months bring it back, say
it is no good and refuse to pay ."
This note of optimism disappeared when I asked,
"How about the quality of Soviet implements?"
"Last year they looked so rough and unfinished
that I think that was one reason they did not sell
many. That and the fact that they actually could not
deliver. This year, though they are delivering and-
well, here is the report on two machines my agent
observed ."
He read . The machines in question, according to
the report, were so brightly painted, varnished, pol-
ished, nickled, so gleaming spick and span, that the
agent had written he was almost sure they must be
machines for a special exhibition . Also there was the
fact that these machines had been packed so care-
fully, with so much extra boarding, that it seemed
incredible that they should have been intended for
the regular market .
"And so," he said, "I figure in the first place that
they will lose 25 per cent of their turnover from the
machines the peasants return in order to avoid pay-
ing at all . And then I don't think they can afford to
put out a fancy product like those we've seen . As to
their durability and real efficiency, we haven't had
time to judge . We can tell after this season . But as
to sales . Well, all over this country and in Esthonia-
and Lithuania they keep turning up, here, one car-
load, there one carload . It is hard to keep track of
them."
He paused . "At any rate," he finished, "It's no
joke."
It is just because this topic of the Soviet Union's
sale abroad of manufactured articles is so hotly de-
bated and because the evidence upon it is so likely to
be called in question that the writer has put this par-
ticular report in quotation form and attempted to
render as nearly as possible, a dictaphone account of
these first-hand findings . From another source, but
not first-hand, were obtained more data of interest .
In the first place, as to tractor sales . As far as
could be ascertained only one has been sold . And this,
apparently, will be the only one sold for awhile . Not,
however, because the Latvians did not want to buy
Soviet tractors, nor because they could not be de-
livered, but because Ford has protested against the
sale abroad of a tractor made on his blueprints and
his patents that had been licensed for use in the Red
Putilov factory at Leningrad for the manufacture of
tractors for Soviet domestic consumption, but not for
export . While Ford is still cooperating with the
Soviets under a $30,000,000 contract to supply
plans, engineers and automobile parts for the Nijny
Novgorod plant, it appears unlikely that the Soviets
should ignore his protest against the sale abroad of
Soviet model Fordsons .
Very interesting in this respect was the statement
of the salesman in the "Standartlini" store that "we
expect in six months to be selling Soviet automobiles ."
I asked, "Where from?"
"From Ni j ny Novgorod."
I objected that the Ni j ny plant was apparently so
far behind schedule that it was hard to conceive that
they would be producing so soon, much less export-
ing Soviet Ford cars abroad .
"Well," said the salesman, "that's what we've been
told . We've been told to get ready to push Soviet au-
tomobile sales here this coming autumn . Anyway, we
are already selling Soviet sewing machines ."
"Standartlini," the implement sales concern, it ap-
pears, has been granted the territory in the three
border states, Lithuania, Latvia and Esthonia, by the
Soviet Foreign Trade Monopoly for the sale of Soviet
implements . Prices, it is said, shall be fixed at about
25 per cent below rival prices, but prices at which the
Soviet factories sell to the agents shall be such that
agents will still have a profit of at least 25 per cent .
These items of information came at second hand .
Data on turnover and actual prices charged do not
admit of doubt, coming, as they do, from both the
Soviet and their competitors . More difficult, but not
insoluble, is the problem of why the Soviet Union,
that is working so hard to supply its farms with im-
plements and is still spending considerable sums on
the importation of implements, and especially of
tractors, should be exporting these products .
If one wishes to understand this situation and not
merely to dismiss it as too infernally paradoxical, it
is necessary to observe first, that all implements on
sale, despite their number and variety, are compara-
tively small implements suitable for use by individual
farmers on small or moderate sized farms . Even the
tractor and thresher are the smallest types of these
machines .
Now the Soviet Union has gone over definitely to
big-scale farming and on the state and collective
farms tractors of the Fordson size already are being
discarded as too small . On Gigant and Verblud, the
two huge state farms in the Northern Caucasus, they
were even complaining last autumn that ten-ton cater-
pillar tractors were scarcely up to the job of hauling
the batteries of plows or of seeders that they wanted
to use in plowing or seeding as fast as possible, on
fields comprising an area equal to the state of Rhode
Island . But the Red Putilov factory at Leningrad is
geared to turn out only the Fordson type of ten to
twenty horse-power wheel tractors . And the Lujbert-
sky factory, employing 3,600 men and geared for
small reapers and mowers, turned out 100,000 of
each last year .
From these considerations alone it is conceivable
that the Soviet authorities might consider it more
economical to sell abroad their small implements than
either to use them at home on farms that need larger
implements or to close the factories that make them or
to remodel those factories for manufacturing the
larger implements suitable for the state collective
farms . From another standpoint also, however, the
Soviet sale abroad of agricultural implements does
not appear so puzzling as at first .
The one big aim of the Five-Year Plan, beside
which all other aims sink into insignificance, is to in-
troduce into the country sufficient of the instruments
of production to be able, after the plan is completed,
to continue the process of industrialization, even if
the outside world should impose a boycott and cut off
the Soviet Union from its present sources of the in-
dispensable, fundamental, first tools of production .
Until these tools are present in sufficient quantity
within the Soviet Union, no consideration, or little
consideration, will be paid to the production of con-
sumption goods . Tractors and agricultural imple-
ments are instruments of production . They are not,
however, the sort of fundamental instruments of pro-
duction, that is, machines that make machines, that
are of most importance in the Five-Year-Plan . As
long, though, as tractors help produce grain that may
be sold abroad to buy the machines that make ma-
chines, tractors are entitled to be regarded as primary
tools of production and, hence, should not be ex-
ported under the Five-Year Plan .
Now, however, the grain market is so depressed
that it appears plausible to reckon the more cash
might be obtained from direct sale of agricultural
implements abroad than could be obtained by the
sale abroad of the grain produced by those agricul-
tural implements . Nor does any of this argument dis-
turb the indubitable fact that the sale of these Soviet
agricultural implements in Latvia, Esthonia and
Lithuania is good propaganda and that, even if there
is something back of the window dressing, it is effec-
tive window dressing .
For American, German and Swedish manufacturers
of agricultural implements it does not make much
difference what motives lie back of the Soviet cam-
paign to sell implements abroad. That campaign has
ceased to be a mere curiosity to the representatives of
those non-Soviet concerns in this country and it is
just as difficult to try to get one of them to "laugh
off" the Five-Year Plan for Agricultural Implements
as it is to try to get an oilman to dismiss the Five-
Year Plan for Oil or a grain man to take the Five-
Year Plan for Grain on the light shoulder.
None of this should be interpreted to mean that it
is the writer's opinion or the opinion of the non-
Soviet agricultural implement agents here that the
Soviet Union in the near future is going to flood the
world with manufactured products .
It does appear, however, that anyone interested in
knowing what the Soviet Union is doing, and not in
mere ejaculations of approval or of disapproval, may
find something valuable in this view of the activities
in one small corner in Europe of one branch of the
Soviet economy .
CHAPTER XXII
Berlin :
Canada, Rumania, Hungary, Jugoslavia, Bul-
garia and Albania have all put down the equivalent
of absolute bans on the importing of Soviet goods .
Crying protests against Soviet "dumping," protests
that crescendoed to a world-wide chorus last autumn,
these six nations took the most rigorous measures that
nations can take . They closed their borders hermeti-
cally against anything from Russia, and the world,
checking off, one by one, their entrance into the
"anti-Soviet front," exclaimed that this was a
doughty blow to the economic expansion of the dan-
gerous new competitor state .
Moscow was once more aroused from chronic to
acute alarm . Fanfares of warning were blown in
every Soviet newspaper, and the proletariat of Rus-
sia and the world was called upon to make ready to
defend "the first workers' and peasants' republic ."
Newspapers elsewhere published headlines "Eu-
rope checks Soviet dumping ." Bankers thought it a
good time to put up the rates of interest on Soviet
notes, and the gentlemen of the "black bourse" added
a modest 5 or 10 per cent to their exactions from
frightened sellers of goods to the Soviet Union . If
246
Soviet exports were blocked by six nations, it meant,
did it not, that Soviet trade was in a fair way of run-
ning on the rocks, that Soviet economic expansion
was suffering a check?
It did not .
What it meant was that the Soviet Union, out of
its total exports of $500,000,000 had to find a new
outlet for $1,050,000 worth of goods, that the Soviet
Union had lost one-fifth of 1 per cent of its exports .
To Canada, the Soviet Union, in 1930, sent $500,000
worth of goods ; to Rumania, $400,000 ; to Jugo-
slavia, $50,000 ; to Bulgaria, $130,000 ; to Hungary
and Albania, nothing. These, at any rate, were the
official exports of the Soviet Union, officially listed
and entering the country of destination with the
Soviet Union as the country of origin . Indirect Soviet
exports via other countries and the Soviet exports
under false certificates of origin cannot be counted
and would probably continue in an equal quantity
also under embargo bans .
But these were only the actual sales lost by the
Soviet Union to the six nations in question . What
were the potential sales that might have been made ;
what proportion of the world's buying power was lost
by the Soviet Union through the determined meas-
ures taken by Canada, Rumania, Hungary, Jugo-
slavia, Bulgaria and Albania? Their total buying
power, as represented by their share of world imports
in 1929, was 5 per cent of the world's total buying
power. The six countries in question imported in
1929 $1,854,000,000 in goods, but the total world
imports were $35,361,000,000 . The Soviet Union,
knocking on 100 doors of 100 possible customers,
found but five shut in its face.
Nevertheless, the list of six nations was long enough
to be impressive, and when France and Belgium were
added, with their license systems imposing not em-
bargoes but certain restraints on Soviet imports,
again the world exclaimed that something serious was
being done about Soviet "dumping ." The results of
the French and Belgian license systems and their al-
most complete failure to exercise even a check on
Soviet imports have already been pointed out, but
the total effect of these measures on Soviet exports
has not yet been computed .
This computation, however, shows that if French
and Belgian purchases from the Soviet Union con-
tinue during the whole year under their license sys-
tems as they have developed in the first five months of
those systems the total Soviet exports to those coun-
tries will have fallen off in the case of France by
$5,000,000 ; in the case-of Belgium, by $2,000,000 .
Which means that the Soviet Union, losing $7,000,-
000 in exports, will have lost, by reason of the re-
strictions placed by these two countries upon Soviet
trade, a total of 1 .4 per cent of its total exports. These
losses from France and Belgium added to those from
the six countries that laid down complete embargoes
would mean that the Soviet Union had lost a grand
total of 1 .6 per cent of all its exports, unless it found
other takers for this amount of goods .
Furthermore, in suffering even a partial restric-
tion on its sales to France and Belgium, the Soviet
Union has suffered a partial restriction on sales to
countries that, important as they are in world trade,
represented only 9 per cent of the world's purchasing
power, or imports of $3,268,000,000 in 1929 out of a
world total of $35,000,000,000 . If the Soviet Union,
however, were disconsolate over even so infinitesimal
a setback in its opportunities of trade, the prospect
would appear much more cheerful upon contempla-
tion of England, Germany, Italy, Austria, Denmark,
Norway, Finland, Latvia and Esthonia .
These nine countries present 31 per cent of the
total buying power of the world . In 199 .9 they im-
ported $11,769,000,000. And these nine countries
not only have not done anything, and are not doing
anything, and most probably will 'not do anything to
check Soviet imports, but, by putting the financial
guarantees of their Governments back of trade with
the Soviets, are doing, and probably will continue to
do, everything possible to encourage trade with the
Soviets .
While headlines were large over every accession to
the ranks of those countries that had embargoed
Soviet trade, few, even among those most interested
in Soviet affairs, noted that from year to year, al-
most from month to month, the number increased of
those countries which were guaranteeing Soviet
credit and thus not only expressing governmental be-
lief that trade with the Soviet Union was a profitable
affair good for national economy but expressing, in a
certain sense, their official belief in the solvency of
the Soviet Government and their official faith in its
capacity and willingness to meet its obligations .
Every one of the nine countries named have systems
of export credits, in some cases intended to insure
trade with any foreign country, and in some cases in-
tended to insure trade only with the Soviet Union,
but in all cases operating chiefly to insure trade with
the Soviet Union . These credit guarantees usually
cover 75 per cent of the total amount of Soviet obliga-
tions, insuring sellers of goods to the Soviet Union
that the Government will pay three-fourths of a bill
owed by the Soviet Union if the Soviet Union were to
fail to pay. From these nine countries the Soviet
Union bought in 1930 39 per cent of its total pur-
chases abroad .
This is a generous percentage, it would seem, yet,
curiously enough, the export credit systems of these
nine countries have been accompanied by a much
greater import of Soviet goods into their territories
than an export of their goods into Soviet territory .
Whether there is any causal connection or not may
be difficult to establish, but it is interesting to observe
that, whereas these nine countries sold $193,000,000
worth of goods to the Soviet Union in 1930, they
bought from the Soviet Union $340,000,000 worth .
The Soviet Union spent 39 per cent of its total funds
available for purchases abroad on purchases from
these nine countries, but of all the Soviet Union's
sales abroad 67 per cent went to these countries .
An export credit system, granting government
guarantees on the sales by its citizens to the Soviet
Union, may be interpreted in a way as an expression
of good will toward the Soviet Union, or, at any rate,
as an expression of a desire to improve trade rela-
tions . Curiously enough, however, those countries,
that grant such governmental guarantees, enjoy but
39 per cent of the Soviet Union's total purchases and
buy from the Soviet Union two-thirds of all Soviet
Union exports .
However that may be, a more important conclu-
sion from this analysis of Soviet foreign trade is that,
while cries against "Soviet dumping" were making
the World's economic welkin ring and while some ob-
servers noted with satisfaction that Europe was tak-
ing adequate measures, these measures, when added
up, result in the following balance : The Soviet Union
lost 1 .6 per cent of its total exports .
It was effectively debarred from submitting its
goods to 5 per cent of the world's purchasing power.
It was ineffectively debarred from presenting its
goods to another 9 per cent of the world's purchasing
power . It was encouraged to present its goods to 31
per cent of the world's purchasing power, while na-
tions representing 55 per cent of the world's purchas-
ing power did nothing one way or another officially
to influence Soviet trade, but continued privately to
do normal business .
All of the countries that put effective embargoes on
Soviet goods were countries with no diplomatic re-
lations with the Soviet Union, most of them were
countries with long standing political grudges against
the Soviet Union, and all were countries that really
suffered from Soviet exports, not in their home mar-
kets to any important extent, but in their foreign
markets. Special political differences and historical
reasons made it easy for Rumania, Hungary, Bul-
garia, Jugoslavia and Albania to cut off Soviet trade .
In Rumania, the question of Bessarabia has re-
sulted in a permanent state of latent war between the
two nations . One of the world's great rivers, the
Dniester, separates Rumania from Russia . It is not
so wide but that a row boat can cross it in half an
hour. But so wide are the political differences of the
two countries that a Rumanian citizen who wishes to
visit a relative just across the river, five miles away,
has to travel about four thousand miles to reach his
relative's home. Quick-triggered sentries guard the
river on both sides and hardly a week passes without
report of some incautious citizen meeting death in
an attempt to slip across . This risk leads most Ru-
manians to prefer to travel to Berlin and wait there
weeks or months on the improbable chance of getting
a Soviet visum which, when obtained, will permit them
to enter Russia by way of Nigorelye, thence to Mos-
cow and down to the Soviet side of the Dniester River .
The Soviet Union still claims Bessarabia and has
repeatedly declared it will never relinquish the claim .
It was Rumanian until 1812, when Czar Alexander I
seized it for Russia . The Rumanians, therefore, ar-
gued in 1918 that they were only reoccupying Ru-
manian territory when their troops took possession
of Bessarabia . In 1924 a Russian-Rumanian con-
ference was held in Vienna in an attempt to come to
some agreement, but after sharp conflicts the con-
ference broke up without results . The two countries
living now on the worst possible terms have never had
any trade save that of smugglers . The Rumanian
Government's decree last year against imports of
Russian goods was merely a gesture emphasizing this
long established fact .
More threatening to Soviet trade was Rumania's
recent attempt to bar the Danube to Soviet cargoes .
The Soviet Union, however, appealing to the Euro-
pean Danube Commission, established to guarantee
freedom of navigation on that river, obtained a ver-
dict ordering Rumania to open traffic to Soviet boats .
With this decision Rumania lost her only chance ef-
fectively to influence Soviet trade.
Rumania has as many reasons to wish to retaliate
against the Soviet Union as any other country, for
in addition to her territorial quarrel and historical
differences, she has suffered from Soviet competition
in three categories : oil, lumber and grain, the three
largest Soviet exports and the three largest Ru-
manian exports . All this competition, however, takes
place in foreign markets over which Rumania has no
control, so that her efforts at reprisal remain futile .
Hungary's quarrel with the Soviet Union is essen-
tially based on international political reasons in a
country that will never forget during this genera-
tion the five months of its own Soviet regime under
Bela Kun . The so-called "white terror," that for two
years took the place of Kun's red variety, left a
habit of mind that still governs Hungarian views of
the Soviet Union . Hungary went on the principle that
the Bolsheviks had at least taught their opponents
one thing : that by far the most effective method of
disposing of one's enemies is physically to destroy
them. This system effectually removed most of Hun-
gary's domestic "red menace" during the first years
of the "white terror" and, while now there are few
death sentences passed on Communists, hundreds
have been sent to prison for long terms during the
last few years . Fear of Bolshevism, and not of Bol-
shevik trade, has been dominant in Hungary's atti-
tude toward the Soviet Union, and the Government's
decree last March requiring licenses for the import
of Soviet goods was also only a gesture confirming
the fact that Soviet trade is virtually non-existent .
Unlike the case in France and Belgium, the Hun-
garian license system operated as a real embargo, for
the Government reports that, since its inauguration,
not a single application has been received for a license
to import Soviet goods . With its license system Hun-
gary, too, had hoped to do what it could to strike a
blow at the Soviet Union out of resentment at Soviet
competition in grain in Hungary's markets abroad .
The sole effect of the license system, however, has
been to eliminate the Soviet purchases of Hungarian
livestock that, in 1930, amounted to $125,000 . Mean-
while, Italy, the great patron of Soviet trade and the
patron, too, of Hungary, has been bringing pressure
on Budapest, not only to withdraw the restrictions
on Soviet imports, but to establish good commercial
relations with Moscow. While these efforts have been
going on, Italian dealers manage to ship a considera-
ble quantity of Soviet products into Hungary under
false certificates of origin .
For Jugoslavia, too, it cost no heart searching to
cut off Soviet trade . Historically, Jugoslavia, a de-
voted protege of the Russian Czars, is no friend of
the Soviets . Czarist Russia always backed the Serbs,
backed them, indeed, into the great war . A common
religion ties the Serbians with the orthodox Russians,
but not with the atheist Russian Bolsheviks . These
sentiments rendered Jugoslavia hospitable to Czarist
emigres and Wrangel's army was for a long time
quartered there .
With no official relations of any kind between the
two countries and with almost no trade, it was again
rather a futile gesture when Jugoslavia decreed a ban
on Soviet products. The ban stopped official Soviet
exports to Jugoslavia of $50,000 yearly, but re-
ports from Susak, the Jugoslav half of Fiume, have
it that, through Fiume, Italian merchants send Soviet
goods to at least that value into Jugoslavia, also
under false certificates of origin .
The fourth of the Balkan quintet against Soviet
trade is little Bulgaria, too poor to have much trade
in any case, but too thoroughly frightened of the
Communists within her borders to permit any sort of
contact with the Soviet Union . Albania, included for
the sake of completeness, has an odd reason for not
doing business with the Soviet Union .
Indirectly, the present King Zog owes his crown
to Moscow . Zog's predecessor, pious, pink Bishop
Fan Noli, was about to recognize the Soviet Govern-
ment and the great Powers looked with much dis-
favor upon what they thought would be equivalent to
Moscow's gaining a foothold on the Adriatic . Out of
these considerations the Powers gave their permission
to Zog to make a "revolution," overthrow Fan Noli
and set up a kingdom . There is,, therefore, no per-
ceptible inclination on the part of Zog to do business
with the Soviets .
This completes the roster of European nations that
have taken any effective measures to keep out Soviet
imports . But in the Balkans alone the loss of the
Soviet Union in these five nations of $1,050,000 in
goods is more than compensated by the Soviet trade
with Greece. The only Balkan nation that has given
diplomatic recognition to the Soviet Union, Greece,
buys an average of $2,000,000 worth of Soviet goods
a year and, lacking within her own territory the goods
the Soviet Union has to offer, Greece takes the atti-
tude toward Soviet "dumping" that the lower the
prices, the better for Greek consumers . Her imports
from the Soviet Union are chiefly grain and she is so
glad to get that cheaply, that she raises no protest at
the fact she sells to the Soviet Union only a yearly
bill of around $30,000 worth of miscellaneous prod-
ucts .
When Austria, Czecho-Slovakia and Poland are
taken into consideration, the Soviet trade with these
countries is so large and is growing so rapidly that
the importance of anti-Soviet embargoes in the out-
spokenly unfriendly Balkan states becomes nil . Aus-
tria is one of the governments that guarantee Soviet
credit. Her trade balance with the Soviets is active .
In 1930 she sold $3,000,000 worth of goods to the
Soviet Union and bought $2,000,000 in goods from
the Soviet Union .
Once, and only once, did Austria make a motion
toward restraining Soviet trade . It supplied in minia-
ture a perfect example of the sort of thing that has
constantly recurred in the Soviet Union's commercial
relationships with other and larger countries . Under
the influence of the clerical journals of Vienna,
which in turn, had been impressed by the Vatican's
manifestoes against the Godless Muscovites, the Aus-
trian Minister of Agriculture, a young, enthusiastic
man, suddenly issued a decree forbidding the import
of Russian eggs . The poultrymen and clericals ap-
plauded, but the Soviet foreign trade representative
countered with telephone messages to all Austrian in-
dustrialists, to whom the Soviet Union had given or-
ders for machines, telling them that their orders were
canceled .
Dumbfounded, they asked why. The Soviet repre-
sentative replied, "You don't take our eggs, we don't
take your machines ." In precisely twenty-four hours
the Minister of Agriculture withdrew his ban on
Russian eggs and nothing has since occurred to mar
the Austro-Soviet commercial harmony . With full
diplomatic relations, the two countries look back upon
their egg quarrel as one of the most serious of their
differences .
Between the Soviet Union and Czecho-Slovakia
exist formally cool de facto but not de jure relations,
but, commercially, very lively connections . No pro-
test against Soviet "dumping" has been raised in
Czecho-Slovakia because the chief Czecho-Slovakian
imports from the Soviet Union are petroleum prod-
ucts, which compete not with Czecho-Slovakian
products but with those of foreign oil countries .
It is worth noting that the Czech friendship for her
Little Entente ally, Rumania, has not prevented her
from buying Soviet petroleum in preference to that
of her political friend . The Czechs are also grateful
for the fact that the Soviet Union buys about $9,500,-
000 worth of her products, while the Soviet Union
sells about $1,000,000 less per year to Czecho-
Slovakia .
Poland, most important of all the countries under
consideration here and quite unique in her relation-
ship to the Soviet Union, deserves a whole chapter .
Suffice it is to say, Poland is the one country in Eu-
rope which, even more than Rumania, is under per-
manent Soviet suspicion and is constantly being
charged by Moscow with plotting war.
Poland ended its last war with the Soviet Union
just ten years ago and the Kremlin has lain awake at
the dawn of every spring, listening to Pilsudski
sharpening his saber . Yet Poland today is discussing
a bill to follow the example of so many European
governments and guarantee Soviet credits, and Po-
lish industrialists are vying with their German col-
leagues in singing the praises of a Five-Year Plan
that bring such welcome orders .
These orders have wrought a marvelous change in
Warsaw's attitude . Since they began, two years ago,
border incidents have ceased and quiet has settled on
the Pripet marshes . Last year Poland sold Russia
$15,000,000 in goods and bought only $5,000,000 in
goods and cheered the active balance .
This year a group of Polish industrialists visited
the Soviet Union and returned with promises of more
orders . Details for the realization of these promises
are being worked out . Meanwhile, cynical Berlin
newspapers, which are not, however, cynical when the
same observations might be made of Germans take
pleasure in relating an illuminating tale concerning
Pan Wierzbicki, director of the Federation of Polish
Industry, Finance and Commerce and leader of the
Polish delegation to view the Five-Year Plan . Pan
Wierzbicki, magnate of parts and a conservative
Pole and with all of a conservative Pole's profound
distrust of the Soviet Union, experienced a conversion
when he arrived in Moscow and found Soviet orders
waiting in profusion for his factories . Full of en-
thusiasm, he visited a small Russian village where,
incognito, he attended a conference of peasants dis-
cussing the necessity of ordering machines . Wierz-
bicki, master of the Russian language, joined in the
discussion eloquently . Whereupon as he finished his
speech, the peasants rose as one man and cried, "Let's
elect this comrade chairman ." "Comrade Wierzbicki"
and his colleagues report that the Soviet Union will
buy $20,000,000 worth from Poland by the end of
this year.
CHAPTER XXIII
Berlin :
A race, a sweepstakes, is deciding today the destiny
of Europe . The race is between the "tempo" of the
Soviet Union's Five-Year Plan and the "tempo" of
this continent's efforts to organize a United States
of Europe. The Five-Year Plan so far is a length
ahead.
This is the German formulation of the meaning of
the Five-Year Plan for Europe . It is of course not
every German's formulation . It is only one German's
formulation, printed in the most remarkable series
of articles on the Five-Year Plan that has appeared
in the German press since the plan passed its two-
year mark, a series printed in the Berliner Tageblatt
under the pseudonym "Z."
Herr "Z" whoever he may be, while retaining his
anonymity has achieved among informed circles in
this country an influence that justifies calling his
opinion "the German formulation ."
His anonymity is worth pausing to consider for it
throws a most instructive light upon the German at-
titude toward the Soviet Union . For the fact of the
matter is that no "bourgeois" German can yet afford
to write under his own name in the non-Communist
262
press of Germany that the Five-Year Plan is suc-
ceeding . That bare admission with no conclusions
and no prophecies is much too great a risk in a coun-
try that has seventy-seven Communists in a Reichstag
of 589 members .
It is much too great a risk in a country whose in-
dustrialists believe they may safely deliver machines
to Russians because Russians won't know how to use
them. It is much too great a risk for a country whose
government since 199.2 has based its entire foreign
policy upon the hope that the Soviet Union may grow
strong enough to frighten France but not so strong
that it may injure Germany.
In Italy, in France and in England they all say
today, "Germany is next in line . Let Germany
worry." Prime Minister MacDonald put it crystal
clear in his recent address to Parliament : "If there
were any trouble Germany would be in trouble, would
be involved and whirling in the maelstrom long before
we either at home or abroad would be involved ."
This Germany knows better than England, France
or Italy, but, as one observer of this country's foreign
policy has said, Germany's answer is, "If my house
catches fire so will that of my neighbor, France . I
want to make friends with my neighbor and go into
partnership with him. But my neighbor is afraid of
me and won't take me into partnership on my terms .
Therefore I will feed this fire on the other side of me
until my neighbor becomes so frightened of the fire
reaching his house that he will make friends with me
and take me into partnership on my terms . I hope
this will happen before the fire really sets my own
house ablaze ."
This simile has flaws and is too simple to fit all the
facts, especially since there are economists, business-
men and statesmen beyond reproach of Bolshevism
who declare that the fire is not a fire to burn down
houses but one to warm world trade . Nevertheless, it
is a simile as good as any other for an explanation of
the intricate relationship between Germany and the
Soviet Union on one hand, and Germany and France
on the other hand . It explains why Germany watches
the progress of the Five-Year Plan more closely than
any other country in Europe does . It also explains
why Germany does not want to admit that the Five-
Year Plan is going ahead too fast and hopes that
France will see the light before the paint on Ger-
many's house begins to scorch .
Finally, it explains why the leaders of German
foreign policy are more disturbed today at the recent
French overtures to Moscow than at all of France's
protests against the Austro-German customs union .
For if France too begins to feed the fire what becomes
of the chance that France may eventually, from fear
of the Soviet Union capitulate to German terms?
Today, too, Germany has an added anxiety . She
sees Poland sending industrialists to the Soviet Union,
accepting joyfully Soviet orders and discussing now
the establishment of a system of government guaran-
tees for Polish credits to the Soviet Union . And Ger-
many remembers the statement of one Polish Govern-
ment spokesman that, "Rather than give two villages
to Germany we will invite the Bolsheviks into Poland."
Down the map a little further southeast lies
Czecho-Slovakia, like Poland, for a long time at outs
with the Soviet Union ; like Poland one of Germany's
least well disposed neighbors, and like Poland, allied
to France. In Czecho-Slovakia, too, the atmosphere
has turned pro-Soviet, the Government is said to be
contemplating de jure recognition . of Moscow and
also to be planning a system of government guaran-
tees on credits to the Soviet Union .
With France talking of a trade treaty with the
Soviet Union, and Poland and Czecho-Slovakia mak-
ing unmistakably friendly overtures toward Moscow,
Germany's former monopoly on good relations with
the Soviet appears threatened . And Germany is
frankly worried .
Recent developments between the Soviet Union on
the one hand and Germany, France, Poland, Czecho-
Slovakia and Austria on the other hand, afford a
classic example of the beneficial effect upon the Soviet
Union of every quarrel that arises among non-Soviet
European nations . For it is not merely the growth of
Soviet trade that has attracted France and her allies
to Moscow. A large role was played by the Austro-
German customs union . That issue will be settled
juridically before The Hague Court . But before the
court's decision comes, France and her allies, who ob-
jected most strongly to Germany's step toward amal-
gamation with Austria, intended to take practical
measures against Germany's "active foreign policy ."
In other words, it appears and, Germany believes,
that France, Poland and Czecho-Slovakia today are
trying to drive a wedge between Germany and the
Soviet Union and Germany's hope, though a faint
one, is that the French, however, don't really mean it.
If they do mean it-and to one outside observer it
looks as though they do-its significance for the
Soviet Union is that the last possible hindrance to
Soviet economic expansion on the Continent has dis-
appeared . To Germany it would mean that her
French neighbor had turned the tables . With the Bol-
shevik fire, France, it may transpire, intends to scorch
Germany into submission to France's terms for that
famous Franco-German "understanding" upon which
it is admitted rests the future of Europe .
In any case, Moscow has profited . How much she
has done so economically is shown by examination of
the recent transaction whereby Germany was said to
be going to receive an "extra" $75,000,000 worth of
orders from the Soviet Union "over and above the
orders the Soviet Union would normally have placed
in Germany in a year."
This transaction has been the object of consider-
able misunderstanding both abroad and here . It was
popularly believed to mean that Germany at the end
of the year would show exports to the Soviet Union
of at least $75,000,000 more than last year when
Germany sent into Russia $107,000,000 worth of
goods . This was hailed in Germany as a stroke of
great good fortune and abroad was variously but
chiefly estimated as an example of the Soviet Union's
commercial friendliness to this country . In America
it was taken for granted that it meant the Soviet
Union had switched most of those new orders from the
United States to Germany .
It now appears, however, that the transaction must
be judged as better proof of Germany's commercial
friendliness to the Soviet Union than vice-versa . For,
as now transpires, it meant not that the Soviet Union
would purchase in Germany goods to the value of
$75,000,000 more than she purchased last year, but
it meant that the German Government had extended
its guarantees to cover $75,000,000 of Soviet pur-
chases more than the Reich already had insured, and
that was quite another thing .
Germany was the initiator of the now widespread
system of Government guarantees on Russian credits .
Eight other countries have now adopted that system
and France, Poland and Czecho-Slovakia are said to
be about to follow suit . This country guarantees 70
per cent of the face value of Soviet notes, 40 per cent
of the guarantee being taken over by the Reich, 30
per cent by the German states .
By April 1, 1931, these guarantees on Soviet busi-
ness totaled coverage of $125,000,000 . That was the
sum the Soviet Union owed German manufacturers .
And that was the sum the German Government was
inclined to believe should be the limit beyond which it
should not go . It was willing to keep up to that limit
and use its funds to guarantee new Soviet purchases
as fast as old ones were paid for, but it did not wish
to pledge any more guarantees than on a total of
$125,000,000 .
Early this spring, however, Moscow invited a dele-
gation of German industrialists to visit the Soviet
Union . There the prospect was held out that if they
offered sufficiently good credit terms they would re-
ceive $75,000,000 worth of new orders . The indus-
trialists returned to Germany enthusiastic, pressed
the Government to extend its credit guarantees to
include new orders and finally succeeded. Some ap-
prehension was felt, however, as to public opinion on
the advisability of the Government extending its
credit guarantees to cover what would then amount to
$200,000,000 worth of Soviet notes .
It may not have been calculated, but nevertheless
the impression certainly was allowed to prevail at
that time that the $75,000,000 of "new" orders were
to be "over and above the normal amount of Soviet
purchases in Germany," "normal" being taken to
mean the amount purchased last year . Under the in-
fluence partly of this belief the German public -was
agreeable to the Government's action and only one
man raised his voice in the Reichstag to warn that
Germany "should not sell her political birthright for
a tip ."
Supported by public opinion, the Government ad-
vanced the necessary funds, so that when all the
Soviet orders are placed by August 31, 1931, as re-
quired by the agreement entered into between the
Germans and the Russians, the Soviet Union will owe
German firms a total of $200,000,000 secured to 70
per cent by German Government guarantee .
It now appears, however, that the transaction's
chief effect was to extend the length of credit time
granted by Germany to the Soviet Union by from
two to five months and that while this extension of
credit will, it is true, increase German exports to the
Soviet Union probably by $15,000,000 to $20,000,-
000 in 1931, it will not mean the increase of $75,000,-
000 which had been anticipated by an ill-informed
public .
In the case of orders on which up to now twelve
months' credit had been granted the Soviet Union an
average time credit of fourteen months was estab-
lished : in the case of orders on which eighteen months'
credit previously was granted an average of twenty-
one now is granted, and in the case of orders on which
twenty-four months hitherto was granted an average
of twenty-eight now is granted . Twenty per cent of
each order must be pledged by the Soviet Union by
bill of exchange with the order, payable, however,
thirteen months after delivery running up to a maxi-
mum of thirty-three months . In other words the So-
viet Union pays no cash down and makes the first
payment thirteen months after delivery .
Obviously this would provide German industrial-
ists few funds with which to run their plants on Soviet
orders if they were unable to discount Soviet bills
and for all except the very largest and most responsi-
ble German firms it was necessary to have the Govern-
ment's guarantee in order to borrow on Soviet
business . It was equally obvious that these were excep-
tionally good credit terms for the Soviet Union and
that credit guarantees to cover $200,000,000 worth of
trade with the Soviet Union represented a large sum
for the Government to invest in any single foreign
trade enterprise .
It was therefore plain that there was a certain ad-
vantage to a government desirous both of serving
its own political interests with the Soviet Union and
of serving what it believed to be economic interests of
the country and of aiding legitimate industrial enter-
prise if public opinion at the moment was under the
impression that the total German sales to the Soviet
Union were immediately to rise by $75,000,000 . Ac-
tual German exports this year, however, are expected
on an authoritative estimate to equal no more than
$115,000,000 to $120,000,000 or considerably less
than the $140,000,000 that the United States ex-
ported to the Soviet Union last year.
It must, however, be mentioned that had the Ger-
man Government been willing to extend its credit
guarantees to cover another $50,000,000, or, rather,
if German banks had been willing to discount that
much more of Soviet bills, the Germans would have
received another $50,000,000 more of Soviet orders .
But the German banks declared they could spare
funds for no more than the $75,000,000 and when the
Germans applied to the Basle Bank for International
Settlements to rediscount some of their Russian paper
they were not satisfied with the reception they re-
ceived .
This German attempt to rediscount Russian notes
at the Bank for International Settlements deserves
more than passing notice . In it is contained an epi-
tome of Franco-German-Soviet relations and a por-
tent, perhaps, for the future of Soviet relations with
Europe .
In the normal course of affairs the German indus-
trialist who sells 100,000 marks' worth of goods to
the Soviet Union receives from the Soviet trade rep-
resentative two promissory notes, one for 70,000
marks and one for 30,000 . With the Reich's guaran-
tee on the 70,000-mark note, the industrialist takes
it to the so-called Gold Diskont Bank, which will ad-
vance him the total amount of the face value of the
note, less the Reichsbank discount rate and 2 per
cent and about 1 per cent commission, making a total
of about 7 per cent . The 30,000-mark note that does
not bear the Government guarantee must either be
bucked away in the industrialist's strong box to be
carried until maturity or else must be submitted
for discount with the industrialist's own indorse-
ment.
If the concern in question possesses good credit and
the bank is possessed of sufficient funds the bank may
discount even this unguaranteed 30,000-mark bill
for only slightly more than the Government guaran-
teed bill . If, however, the industrialist either is not
strong enough for the credit or wishes to obtain dis-
count without recourse on himself he must peddle his
bill on the "Black Exchange" at the usual discount
of 20 to 30 per cent . Here, in other words, one meets
again the odd situation that banks will not advance
money at normal discount rates on the Soviet Union's
unsupported promise to pay, although eight govern-
ments in Europe are willing to guarantee the Soviet
Union's promise to pay up to 70 per cent of its ob-
ligations.
At any rate, in the course of its business of dis-
counting Soviet notes on these terms the Gold Diskont
Bank exhausted the funds it had available for that
particular branch of its activities . It applied to the
Bank for International Settlements, the bank that
had been founded to promote international commerce,
and asked the Basle directors to rediscount some of
the Soviet notes . It is important to emphasize that
these notes were guaranteed by the German Govern-
ment. At the time this occurred it was announced at
Basle that the notes in question were not notes that
had been guaranteed by the German Government,
but the writer was authoritatively informed that
every one of them was indorsed by the Reich .
The Bank of International Settlements refused to
rediscount the notes . Its French members explained
to Reich Bank President Luther that the Basle Bank
that had for one of its duties the task of encouraging
all countries to stabilize their currencies could not
afford to rediscount bills of a country such as the
Soviet Union, whose currency was not "regulated ."
What Soviet currency has to do with payment of
Soviet bills that are always paid in foreign currency
obtained by the sale of Soviet exports and never paid
in Soviet rubles remained unexplained .
The Germans, however, were convinced that the
real reason the Bank for International Settlements
did not want to rediscount the Soviet bills was be-
cause they were Soviet bills issued to Germans and
the Basle Bank, under French influence, did not want
to promote German-Soviet trade . The Germans are
equally convinced that if France really reaches an
understanding with the Soviet Union, negotiates a
trade treaty and establishes perhaps its own Gov-
ernment guarantees for Soviet credits, the Bank for
International Settlements will change its mind and
accept Soviet notes for rediscount .
What this would mean for Soviet credit and for
Soviet trade may be estimated from the fact that if
the Basle Bank had been willing now to rediscount
Soviet bills Germany would have been able to take
that extra $50,000,000 worth of orders offered her by
Moscow . Even as it is, the Basle Bank, it is reliably
reported, was forced to yield to German pressure to
the extent of granting the Gold Diskont Bank a
short-term loan said to have totaled around $25,000,-
000 . The Gold Diskont Bank then used this loan to
rediscount Soviet bills itself, so that the Basle Bank's
principles were saved and no precedent established
for its rediscounting Soviet bills while in effect Ger-
many obtained in part and by indirection what she
wanted .
More interesting than all these evidences of Ger-
many's resolute intention to pursue to the end the
path of cooperation with the Soviet Union upon
which she entered in the Treaty of Rapallo in 1922 is
the appearance in this country of a small but growing
group that, while admitting that progress of the
Five-Year Plan means fire in Europe, contends that
fire can only be fought with fire . Leading the proph-
ets who foresee the possible adoption by Germany of
a state economic form similar to that of the Soviet
Union, these men declare the only salvation of the
present non-proletarian classes is to see to it that the
change comes about from the top and not from the
bottom.
The initial impulse to this movement, which it must
be admitted has not yet penetrated to governmental
circles, was observation of the great tactical advan-
tages possessed by the Soviet Union in its Foreign
Trade Monopoly . Adoption by private capitalist
states of foreign trade monopolies will become a more
pressing necessity, it is argued, as the Soviet Union
expands economically, but this adoption, they say,
will necessarily bring about within the domestic econ-
omy of the countries in question a gradual concentra-
tion of industry into the hands of the state, with a
corresponding concentration of banking and com-
merce.
The net result will be, they believe, a transition
from private to state capitalism with the same sort of
planned national economy now being attempted by
the Soviet Union . If the Soviet Union fails with its
planned national economy, if the Five-Year Plan
fails, then it is argued, there will be no necessity for
other states to adopt state capitalism . If the Soviet
Union succeeds, however, it will have provided such a
powerful argument for the superiority of the state
capitalist system as an instrument of production and
of trade if not as an instrument for the achievement
of human happiness that other states will be forced to
follow suit or be crushed by the juggernaut from the
East. And, they say, it will be much better for this
generation if this transition, granted it has to come,
should come from above than from below . For the
Soviet Union has provided a sufficient example of
what happens to a governing class when the transi-
tion comes from below to make the governing class
chary of achieving state capitalism under the Marx-
ist banner of "class struggle ." This movement's prin-
cipal significance lies in the fact that its proponents
form the intellectual fringe of the National Socialist
Party, exercise a constantly growing influence upon
that party and conceivably may make their ideas de-
cisive for that party's program should it advance to
the position of power it hopes for itself .
Thinking Germans are profoundly and sincerely
pessimistic over the future of their country and over
the future of Europe . I asked one of them for whose
knowledge and insight into this continent's affairs I
have great respect to tell me what he would advise
America to do in view of the findings made on this trip
of investigation into the prospects of Soviet success
in Europe .
"I would advise America to cancel the interallied
debts on condition Europe disarms," he said . "Make
cancellation conditional upon disarmament and you
will save Germany from Bolshevism ."
"But you are speaking as a German," I objected,
"What would you say if you were an American?"
"Tell America to get out of Europe and stay out,"
he laughed .
French fear of Germany prevent France and Ger-
many from reaching an understanding. Germany
seeks by cooperation with the Soviet Union to en-
hance French fear until France will accede to an
understanding with Germany . Germany now believes
France is about to seize the same weapon this coun-
try has hoped would be an effective threat to France
and by Franco-Soviet cooperation to checkmate
Germany. Either way, any way, the Soviet Union wins
and the formula "pan-Europe or Soviet Europe"
has become Germany's definition of this continent's
alternatives .
CHAPTER XXIV
Berlin :
Between the upper and nether millstones of Amer-
ica and Russia all the important nations of Europe,
as nearly as one can determine from a visit to eleven
of them and after a long-distance survey of ten more,
have embraced "The Red Trade Menace ."
If the Five-Year Plan is succeeding at home it is
succeeding in equal degree abroad, irrespective of
what Soviet exports may mean to the undernourished,
ill-clad Russian population . America is scarcely more
popular as a commercial force in Europe than is the
Soviet Union, and if Europe were to achieve the in-
credible and unite it would unite as well against the
United States as against the U. S . S . R .
This is the balance sheet, unpleasant though it may
be to America, that one is forced to present at the
end of a two-month investigation in the principal
capitals and ports of this continent . Itemized, the
sheet shows the following
Italy takes 5 per cent of the Soviet exports, asks
for more, encourages sales to the Soviet Union by
Government credit guarantees, is politically deter-
mined to maintain cordial relations with Moscow,
278
resents deeply the American tariff and American im-
migration laws .
Germany takes 2 2 per cent of the Soviet exports,
welcomes them, encourages sales to the Soviet Union
by Government credit guarantees, is politically de-
termined to maintain the best possible relations with
Moscow, resents the American tariff and American
financial "penetration" of Germany and the Amer-
ican refusal to cancel the inter-Allied debts and thus
alleviate reparations.
If all the other nations in Europe were to unite
against the Soviet Union, these two would hold out
and prevent any effectual blockade.
England takes nearly 30 per cent of the Soviet ex-
ports, wages an audible but futile campaign against
Soviet trade on other than economic grounds but
complains that Soviet orders are not larger and en-
courages them with Government credit guarantees ;
resents American competition all over the world and
resents intensely America's refusal to cancel or reduce
the inter-Allied debts .
France takes 4 .5 per cent of the Soviet exports,
has tried by reducing them with a license system to
achieve an increase of Soviet orders, has failed in this
attempt and is now seeking to better her trade rela-
tions with the Soviet Union and may introduce a sys-
tem of Government credit guarantees to stimulate
Soviet purchases . France hotly resents our tariff,
publicly resents our refusal to cancel inter-Allied
money debts, privately resents her debt of gratitude
for America's part in the war .
Belgium takes 2 .5 per cent of the Soviet exports,
has had the identical experience of France with Soviet
trade, probably will follow the French example in her
further relationships with the Soviet Union and
shares French feelings toward America .
Holland takes 3 .4 per cent of the Soviet exports, is
eager to take more and is glad when bad Belgian-
Soviet relations improve Dutch-Soviet trade .
Denmark takes nearly 2 per cent of the Soviet ex-
ports, has factually the same interests as the Soviet
Union in her apprehension of the British Empire
preference system and encourages Soviet purchases
by government credit guarantee . Her big land owners
lead a campaign to boycott American wares .
Norway takes less than 1 per cent of the Soviet ex-
ports, sells the Soviet Union three times as much as
she buys, encourages these sales with government
credit guarantees, protects itself against all grain
producing countries by a government grain monop-
oly, resents any foreign financial penetration and
just threw out a government that permitted it .
Sweden feels Soviet competition in timber but be-
lieves an agreement may correct it ; meanwhile takes
one-half of 1 per cent of the Soviet exports but sells
five times more . Despite her suffering from Russian
FIGHTING THE RED TRADE_ MENACE 281
"dumping," she harbors no movement to embargo
Russian products .
Finland fears the Soviet Union militarily and suf-
fers worse than any other country from Soviet com-
petition in foreign timber markets, but takes one-half
of 1 per cent of the Soviet exports, sells the Soviet
Union more than twice as much and encourages these
sales with government credit guarantees .
Latvia takes 7 per cent of the Soviet exports for
consumption and for transit and profits greatly
thereby, suffers greatly through Soviet competition
in the flax market abroad and various enterprises at
home but enjoys a contingent agreement to guaran-
tee a certain amount of Latvian sales to the Soviet
Union yearly and encourages these sales by govern-
ment credit guarantees .
Esthonia, Lithuania, Poland, Austria, Czecho-
Slovakia and Greece, with a varying but almost uni-
formly increasing interest for Soviet trade, are, in
varying degree, promoting it . To a varying but al-
ways perceptible extent they resent American com-
mercial penetration of Europe and the American
tariff policy at home .
There remain the five nations that have put down
embargoes-Hungary, Rumania, Jugoslavia, Bul-
garia and Albania . Their total share of Soviet ex-
ports, as has been pointed out, was one-fifth of 1 per
cent. Not one great European nation or important
taker of Soviet goods has put down an embargo, nor
has this investigation revealed the slightest likeli-
hood that they will do so, though to this statement
must be added the qualification that the Tory tem-
perament in Britain has sometimes upset all likeli-
hoods .
They have not put down embargoes because the
majority interests and majority population of Eu-
rope have not suffered but benefited by cheap Soviet
grain, oil and timber . They have not done so because
Soviet exports hit almost no country in its home
markets but only in its foreign markets, over which
it has no control and upon which its own embargo
could have no effect . Those small European agricul-
tural countries which have put down embargoes have
done so in the hope of setting an example and from
political, moral or sentimental reasons but never
under the illusion that an embargo at home would
prevent directly Soviet competition abroad .
Finally, the European nations of any significance
in the question of Soviet trade have not put down em-
bargoes because the products they take from the
Soviet Union compete not at all, or to a very limited
degree, with their own, but with products of the
United States, Canada, Argentina, Venezuela, the
Scandinavian and Baltic countries and with the five
Balkan countries which tried to "lead the way"
against Soviet grain, oil and timber .
Of all these countries the United States comes into
closer commercial competition with Soviet exports in
foreign markets than almost any other country . The
size and power of America makes her feel Soviet com-
petition much less than, say, Sweden or Finland, but
neither Sweden nor Finland nor any other country
competes with the Soviet Union on as many fronts
and in as many articles as does America .
For America, like Russia, produces grain, timber,
oil, cotton, coal, manganese and fish . There is no ques-
tion but that American wheat growers have suffered
considerably from Russian competition in foreign
markets notwithstanding the obvious fact that there
would have been too much wheat or too few takers of
wheat whether Russian wheat had been on the market
or not . It appears, moreover, that Russian wheat
competition will not diminish but increase .
It is equally beyond doubt that American oil com-
panies have suffered, are suffering and probably will
continue even more to suffer from the competition of
the rising river of Soviet oil pouring from the Cau-
casian wells . Though the only really significant part
of this competition is in foreign markets, the latest
development in the Soviet oil campaign to force agree-
ments with Standard and Shell is of exceptional in-
terest . It may or may not be common knowledge at
home that the Soviet Union shipped 52,000 tons of
gasoline and allied products to Baltimore in the pe-
riod from October, 1930 to May 15, 1931, according
to Soviet official statistics, and that the Soviet Union
intends to erect there a storage station for 35,000
tons of Soviet oil products .
This audacious move, invasion of the American
domestic oil market from a source 6,000 miles away,
may be taken as an evidence of the determined strat-
egy of the Soviet Foreign Trade Monopoly in its
ambition to obtain the markets it needs for a pro-
duction of oil that one day may rival that of the
United States . But this strategy may be easily mis-
interpreted . In the judgment of European oil men
with whom the writer discussed this curious item of
Soviet commercial news, the Soviet Union does not in-
tend seriously to attempt to compete in the American
domestic market . It does, however, in the opinion of
these expert observers, intend, by shipping oil to
Baltimore, to say to American oil companies, "I know
this is your natural market . But Europe is our nat-
ural market. You fight me in Europe, I fight you
there and in America . You pact with me in Europe, I
may get out of America ."
American coal producers have suffered perhaps a
little, and fear they may suffer more . American tim-
ber producers view with little anxiety the immediate
competition of Soviet timber, but look with appre-
hension on the immense strides contemplated by the
Five-Year Plan for Soviet timber exports . American
cotton growers have scarcely felt Soviet competition
and have in the past profited largely by Soviet pur-
chases of cotton, but they, too, are uneasy at the im-
mense additions of acreage to the Turkestan bearing
areas . American manganese producers are among the
few who actually keenly feel Soviet competition in
the American domestic market . American salmon
canneries have lost half their British market to Soviet
canneries . A few more items might be added, but not
many nor of much significance .
It is plain that Soviet competition with America is
not to be measured by the fact that Soviet imports
into the United States itself make up but eight-tenths
of 1 per cent of the total United States imports . These
American present or prospective sufferers from So-
viet competition are numerous and diverse and in-
clude large groups, such as grain farmers, cotton
growers and timber producers who, being dependent
upon the sale of raw materials for their livelihood,
have suffered more than most in the economic depres-
sion wherein raw materials have sunk lower on the
price scale than any other articles of commerce .
On the other hand if one lists those who gain from
Soviet imports into America, obviously consumers
gain immediately, else they would not purchase
Soviet goods . They include the great steel corpora-
tions which require high grade Chiaturi manganese,
wearers of Russian furs, eaters of Russian caviar,
consumers of the small quantities of Russian anthra-
cite, pulpwood, fish, sausage casings, lumber, licorice,
rags, bristles and flax that together made up $24,-
000,000 worth of Soviet products we purchased last
year . To these consumer gainers from Soviet trade
must be added our exporters, whose machines, auto-
mobile trucks, agricultural implements, electrical
equipment and metals made up our sales of $114,500,-
000 to the Soviet Union last year .
It is impossible to estimate numerically how many
Americans lose, how many gain and to what extent
from the forced Soviet exports under its Five-Year
Plan and from the forced Soviet imports under the
Five-Year Plan . It is even more difficult to estimate
to what degree Soviet trade may touch America in
the future, though it appears from this survey of the
European markets, following last year's survey of
the Soviet sources of production, that America will,
at any rate, feel the Soviet economic expansion for
good or for ill as much as any other country, if not
more.
Our trade balance with the Soviet Union has been
strongly active, and this is supposed to represent a
gain in a nation's economy . It has become abruptly
less active recently under the influence of American
moves toward barring Soviet products and reported
restrictions on credits to Amtorg.
Let these factors, however, be ignored for the mo-
ment and let it be granted that from a coldly commer-
cial point of view America's ledger in account with
the Soviet Union shows a debit . Let it be admitted
that many more Americans lose than gain by Soviet
trade .
If it is then desired that the results of this investi-
gation of Europe's attitude toward the Soviet Union
be submitted for reference in^our attempt to answer
the question, "What shall we do about it?" the follow-
ing data, gathered in twenty-one industrial, commer-
cial and political centers of Europe, may be pertinent .
In most of the countries of Europe where thought
has been devoted to the question of how the non-
Soviet world is to meet, greet or combat Soviet eco-
nomic expansion, five alternatives have been listed as
comprising about all the measures conceivable . They
are (1) war, (2) embargo, (3) import license sys-
tem, (4) a foreign trade monopoly and (5) unre-
stricted trade .
This list leaves out of account the ordinary instru-
ments of customs tariffs and of such regulations as
those adopted by many European countries requiring
domestic millers to use a certain percentage of do-
mestic grain, requiring domestic movie theatres to
show a certain percentage of domestic films, etc . For
these instruments are usually applicable to all foreign
trade . In Europe they have been used with percepti-
ble effect to check American as well as Soviet imports .
Here, however, the question at issue is what has been
Europe's experience in facing the specific and unique
problem of Soviet economic expansion .
No. 1-War. Coldbloodedly Europe has consid-
ered it . There's no shirking the fact that it has been
considered. Moscow believes it is still being consid-
ered . But if there is one unquestionable conclusion
from this survey of Europe it is that Moscow errs
profoundly in this fear . None but "the lunatic fringe"
of Europeans want war with the Soviet Union . Others
beside lunatics have weighted the idea but found it
distinctly wanting . No European nation could afford
to go to war today and least of all with the Soviet
Union.
For the existence of the Soviet Union has had this
curious influence upon Europe : It has increased pro-
foundly the fear that war must some day inevitably
come between the Soviet and non-Soviet worlds, but
it has diminished considerably the appetite of non-
Soviet nations to war either among themselves or
with the Soviet Union . And from the Soviet stand-
point there ensues the anomaly that whereas ortho-
dox Communist doctrine teaches that world revolu-
tion will follow the next war of "capitalist" nations
among themselves, the fact that the capitalist nations
indubitably, fear this result exercises a restraining
influence upon their belligerence . Thus the Bolshe-
viks have to put up with the melancholy reflection
that perhaps if there were no Soviet Union the world
revolution might get along faster than it does .
At any rate the war alternative has been rejected
by Europe for about the following reasons, leaving
entirely out of account any humanitarian, pacifistic
or moral considerations that may or may not have
played a role : Present war has many certain dangers .
Future war may be probable, but is not certain .
Presumptive dangers are preferable to certain dan-
gers . Hence no war .
Solution No. 2-Embargoes on Soviet imports .
Five Balkan countries have imposed them in the vain
hope that their example might move the hearts of
world consumers to reject Soviet goods . They argued,
"You may profit immediately by buying cheap Soviet
products in preference to our dearer ones, but you
will lose indirectly when Soviet competition reduces
our capacity to buy your goods ."
But in this, as in every instance among the many
that have been subjected to observation, the indirect
future presumptive loss failed to impress the recipient
of a direct present real gain, and the consumer na-
tions refused to be disturbed at the plight of the non-
Soviet producer nations . Even France, who listened
sympathetically for a moment to her ally, Jugoslavia,
and reflected upon the possibility of winning from
Italy political territory in the Balkans by helping
Hungary, Rumania, Bulgaria, Albania, concluded
her sympathetic interlude with the negotiations now
going on for improvement of Franco-Soviet trade
relations .
An American embargo on Soviet imports, it may
safely be hazarded, would exercise hardly more ef-
fective influence on the nations of Europe which now
profit by receiving Soviet exports than did the ex-
ample of those nations which, up to now, have hope-
fully held out with their embargoes-all of them, be
it noted nations that consumed next to no Soviet
wares.
Europe has found that exemplary embargoes, in-
tended to work by indirection, have failed . The direct
effect of an American embargo on Soviet wares would
be to cut off 4 .46 per cent of the total Soviet exports .
Stoppage of all American exports to the Soviet
Union, which include a good many machines and other
articles nearly indispensable to the execution of the
Five-Year Plan, probably would have a more serious
effect upon the Soviet Union . The possibility of such
a check on exports may be judged in the light of a
statement of the American representative to the Lon-
don wheat conference, that America could enter into
no export quota agreement due to constitutional limi-
tations, a remark presumably having reference to
Article I, Section 9, Paragraph 5, of the United
States Constitution : "No tax or duty shall be laid on
articles exported from any State ."
Solution No . 3-A license system to control Soviet
imports has been tried by France and Belgium and
found to have had an effect directly opposite to the
desired effect of obtaining more Soviet purchases and
lessening French and Belgian purchases from the
Soviet Union . The effect of these two attempts at
license restriction upon Soviet exports has been in-
considerable and both countries admit failure . Con-
sumer interest was too strong, bootlegging of staple
commodities was too easy and Soviet retaliation in
withdrawal of orders was too painful for these two
pioneers in the use of the license weapon against the
Soviet Union to plan its retention .
Solution No. 4-The foreign trade monopoly sys-
tem has been adopted fully only by Persia . Her ex-
perience is too brief to afford conclusions as to the
system's practicability or efficacy in a non-Soviet
state . Norway's Government that recently resigned
had planned to experiment with a foreign trade mo-
nopoly . It is regarded by many Europeans as the
only logical and effective reply to the Soviet Foreign
Trade Monopoly, with all its advantages of concen-
trated buying and selling and all its imposition of dis-
advantages upon the Soviet's competitors .
It may be noted, in addition to those other charac-
teristics of the Soviet Foreign Trade Monopoly, that
already have been described, that under it no foreign
tradesmen may submit their wares in the Soviet Union
unhindered to Soviet consumers, while the Soviet
Foreign Trade representatives abroad enjoy the cus-
tomary freedom of trade, ability to lay their goods
before the world of customers and to use the com-
petitive habits of non-Soviet businessmen to their
own advantage . As one German put it, the Soviet
Foreign Trade Monopoly was at one time regarded
by the outside world as a nuisance but as a nuisance
operative chiefly within the Soviet Union, whereas
today it is being realized more and more that the
Soviet Foreign Trade Monopoly reaches far beyond
the confines of the Soviet Union with an effect upon
trade that tends from year to year to become more
world-wide .
Nevertheless, objections in any "private capital-
istic state" to a foreign trade monopoly are too nu-
merous to make this solution more than the subject of
interesting speculation on the part of most countries,
and the difficulties of putting such a system into effect
in a democratic land would appear almost in-
superable .
There remains Solution No . 5 : unrestricted trade
with the Soviet Union . This, in substance, is Europe's
choice . It must be-fairly plain by now that it was as
much involuntary as voluntary choice on the part of
the Continent, that has far more reason to shiver be-
fore "the Red Menace" (nota bene, not "the Red
trade menace") than has America . America's geo-
graphical position, if nothing else, gives us a com-
fortable, if selfish, right, whether we exercise it or
not, to look upon Europe much as MacDonald said
England might look upon Germany . But Europe has
chosen quite voluntarily to add to "unrestricted
trade" with the Soviet Union encouragements of
trade in the shape of government credit guarantees,
that, in the last analysis, operate as export subsidies .
So that if America should attempt to learn from
the example of Europe's experience with the Soviet
Union, and if America should arrive at the conclusion
that, however unpalatable it may be, the only practi-
cable way to recover losses from Soviet competition in
markets unreachable by American Governmental
measures is to make up the losses from the sale of
goods to the Soviet Union, America would be faced in
this, as in many other respects by European state
competition .
All these solutions that have been under discussion
have concerned measures by governments . In the
sphere of private business European concerns have
found it helpful to unite as far as possible in syndi-
cates and trusts in their dealings with the biggest
trust of all, the Soviet Foreign Trade Monopoly .
Nor do European governments put any hindrances
in the way of this concentration of resources . They
rather encourage the process and regard our Sher-
man law as a curiosity .
International cooperation of the states of Europe
in any effective form to meet the Soviet economic ex-
pansion has been excluded from discussion in this
summary not because its primary importance has not
been realized, but because the component parts of
this Continent as a whole have provided as yet no
example of cooperation to achieve any major end .
The Soviet Union's Five-Year Plan has been men-
tioned as a possible incentive for non-Soviet Europe
to consolidate . European nations, indeed, have
achieved a certain harmony in their common desire
to enjoy the benefits of Soviet orders . So far these
have outweighed in European estimation the deficits
of "Soviet dumping ."
Though the Five-Year Plan has warmed the appre-
hensions of most countries, one observation by a
British student of Soviet progress is worth nothing .
"We have never experienced a five-year plan before .
We have never witnessed the effect upon ourselves of
a nation, Communist or otherwise, operating under
a planned national economy . It seems to be getting
warm for us now, and that before long it may become
very hot . But perhaps we are in the position of the
man who, being born full-grown in June and alone
in the world, with no one to tell him of the seasons,
notes the temperature rising . In July it is very warm ;
in August, almost unbearable, and the mercury goes
steadily upward . So he says to himself, in a panic
of fear : `By Christmas I shall be fried to a crisp .' "
Whether amenable to effective external control or
not, the Five-Year Plan may be subject to certain
internal correctives .
If this is cryptic it is because the Five-Year Plan
is cryptic and only Marxists claim the future can
be mapped .
THE END

Knickerbocker, Hubert Renfro - Fighting The Red Trade Menace

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'/

I ~~THE RED TRADE MENACE, "

ALL RIGHTS RESERVED

MANUFACTURED IN THE UNITED STATES OF AMERICA

American exports to Holland sank from $32,400,-

from Russia were better, but when the trade- agree-

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