Important as the textile industry was, it relied on imported equipment and did not solve the overall problem of Russian economic development. The results of the Crimean War made it abundantly clear to the government that something had to be done. As the state moved toward emancipation of the peasantry, it simultaneously moved to encourage a massive program of railroad building. Railroads were the crucial infrastructure of the nineteenth century, providing the freight services essential to industrialization. In a country with Russia’s vast distances and natural resources spread over thousands of miles, they were even more necessary. Without railroads Russia could not enter the modern age. The center of the efforts to build railroads was the Ministry of Finance, especially in the tenure of Mikhail Reutern (1862–1877), a Baltic German nobleman who had worked under Grand Duke Konstantin Nikolaevich. Reutern had a difficult problem, for the Crimean War had left the treasury depleted, and the emancipation settlement demanded even more expenditures. Though a principled supporter of private industry, he realized that Russia lacked capital. Reutern and most of the progressives in the government were convinced that railroads were vital, and that they could be built by private initiative, given an adequate supply of capital. Reutern’s predecessors had turned to the French Credit Mobilier bank, which formed a large company to build Russian railroads. This attempt proved an expensive failure, and only after 1866 did the real boom begin, this time with Russian financing at the center of the operations. The Russian treasury continued to provide guarantees and sometimes direct subsidies often kept secret from the public, but most of the initiative and capital was private.
The private investors not surprisingly came from the ranks of businessmen with good government contacts and often from the ranks of government officials. Some, like P. G. von Derviz and K. F. von Meck, were Russian-German officials who left government service to build railroads. Others had gotten their starts in farming the state vodka monopoly. The vodka monopoly had produced huge fortunes, and provided much of the private capital for investment, as well as the crucial government contacts.
The great “railroad king” of the era, Samuel Poliakov, had started out working in the vodka monopoly around his native town of Orsha in the Jewish Pale of Settlement. He came into contact through that activity with Count I. M. Tolstoi, briefly the Minister of the Post and the Telegraph. Poliakov quickly abandoned the vodka business to become a construction contractor, working on a variety of railroad projects with the patronage of Tolstoi. By the 1870s he was famous throughout Russia for the speed and efficiency (if not always the quality) of his work, landing lucrative contracts with the army during the Russo-Turkish War. The Jewish Poliakov had plenty of Christian rivals as well as business partners, and the partners were Moscow textile manufacturers and bankers and a variety of aristocratic grandees. Railroad building necessarily involved collaboration between business and government, and thus every railroad builder had his patrons and paid agents throughout the administration. As in other countries engaged in rapid railroad construction (France and the United States, for example) the age’s greatest technical marvel was also the most powerful engine of corruption. To complicate matters, foreign capital remained crucial, and the treasury stepped in with guarantees to reassure the French, German, and Belgian investors. Though the state guaranteed and regulated virtually all of the rail companies, until the 1890s most Russian railroads remained in private hands.
Railroads required great amounts of iron, steel, and coal, and Russia had plenty of iron ore and coal, but few facilities to process them. The Urals iron industry was old-fashioned – technically backward – and just too small to supply Russian needs. The government thus adopted a tariff policy that allowed the importation of rails, rolling stock, and industrial materials like scrap metal at low tariffs. It encouraged Russian metal working plants, like the Putilov factory in St. Petersburg, to produce rails and other equipment with imported scrap metal and pig iron. By the 1890s Russia was moving toward an industrial society.
Engineering was an important part of that development. Russia, however, lacked modern engineering schools. The only institution of that sort was the Mining Institute that dated from the time of Catherine the Great. Such schools stood under the jurisdiction of the Ministry of Finance, the principal state agency behind economic development from the Crimean War onward, and it quickly moved to encourage engineering education. The St. Petersburg Technological Institute, founded in 1828 as a trade school and named for tsar Nicholas I, reorganized itself in the 1860s under rector Ilya Tchaikovskii (the composer’s father) into a thoroughly modern engineering school. It was joined by similar schools in Riga (1862) and Khar’kov (1885). Older trade schools in Moscow were reorganized on the St. Petersburg model. The end of the century saw another new wave of foundations. The Warsaw and Kiev Polytechnical Institutes came in 1898, followed by another school in Siberian Tomsk in 1900. In St. Petersburg the Technological Institute had concentrated on mechanical and chemical engineering and did not address many emerging engineering specialties that had come to play increasing roles in the industrial age. The young Abram Ioffe, the future builder of Soviet physics, found its physics department small and antiquated. In 1899 the minister of finance Sergei Witte and the now world famous chemist Dmitrii Mendeleev organized yet another new institution, the St. Petersburg Polytechnic Institute. Here the students could specialize in electronics, shipbuilding, metallurgy, physics, or even economics. Ioffe, after more training in Germany, moved to the new institute, a move fraught with major significance in later years. Russia was beginning to train more and more engineers alongside the foreigners heretofore so prominent in building Russia’s railroads, bridges, and factories.
Russian agriculture did not keep pace with industrialization. The Emancipation Statute burdened the peasantry with redemption payments, but also conserved the village structure that had existed under serfdom. The now free peasants did not own their land, which remained the property of the community. To leave the village, the peasant had to have the permission of that community, which in practice meant the village elders. The village was responsible for the redemption payments and taxes, not the individual peasant. Better-off peasants could and did own or rent land outside the village allotments, but the great mass of the peasantry survived on the village land alone, still occasionally redistributed as families grew or died out.