There is a pre-
mium for efficiency in ?
mium for efficiency in ?
Soviet Union - 1931 - Fighting the Red Trade Menace
Here are parquet floorings, ply-
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
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? 10 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 11
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
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? 12 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 13
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.
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? 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
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? FIGHTING THE RED TRADE MENACE 15
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
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? 16 FIGHTING THE RED TRADE MENACE
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.
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? FIGHTING THE RED TRADE MENACE 17
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
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? 18 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 19
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 to 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
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? 20 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 21
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 32 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
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? 22 FIGHTING THE RED TRADE MENACE
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 $20,000,000 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
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? FIGHTING THE RED TRADE MENACE 23
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.
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? 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
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? FIGHTING THE RED TRADE MENACE 25
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
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? 26 FIGHTING THE RED TRADE MENACE
"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
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? FIGHTING THE RED TRADE MENACE 27
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 264,000
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
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? 28 FIGHTING THE RED TRADE MENACE
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.
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? FIGHTING THE RED TRADE MENACE 29
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
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? 30 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 31
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? "
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? 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
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? FIGHTING THE RED TRADE MENACE 33
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
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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
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? 10 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 11
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
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? 12 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 13
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.
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? 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
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? FIGHTING THE RED TRADE MENACE 15
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
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? 16 FIGHTING THE RED TRADE MENACE
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.
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? FIGHTING THE RED TRADE MENACE 17
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
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? 18 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 19
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 to 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
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? 20 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 21
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 32 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
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? 22 FIGHTING THE RED TRADE MENACE
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 $20,000,000 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
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? FIGHTING THE RED TRADE MENACE 23
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.
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? 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
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? FIGHTING THE RED TRADE MENACE 25
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
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? 26 FIGHTING THE RED TRADE MENACE
"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
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? FIGHTING THE RED TRADE MENACE 27
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 264,000
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
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? 28 FIGHTING THE RED TRADE MENACE
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.
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? FIGHTING THE RED TRADE MENACE 29
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
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? 30 FIGHTING THE RED TRADE MENACE
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
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? FIGHTING THE RED TRADE MENACE 31
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? "
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? 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
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? FIGHTING THE RED TRADE MENACE 33
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
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