Seminar Minorities and Industrialisation: Evidence from the Russian Empire

Abstract

We investigate the successful entry of ethnic minority entrepreneurs into industry. Using a novel micro-dataset covering all manufacturing establishments in the Russian Empire at six cross-sections between 1809 and 1908 and a new name-matching algorithm to identify ethnicity, we show that minorities’ share among factory owners rose from 10% to 55% over the course of the century. Moreover, minority-owned factories are concentrated in the most dynamic sectors and are more productive than those owned by ethnic Russians. We further document that this commercial success of ethnic and religious minorities occurred despite these groups facing systematic discrimination and despite them being excluded from state patronage. We identify and causally test three mechanisms for this apparent paradox: (1) restrictions on rural property ownership forced minorities into industry, generating sectoral specialization; (2) co-ethnic networks substituted for state patronage; (3) Russians’ preferential access to government careers created a “state access trap,” diverting their talent from business into bureaucracy. Paradoxically, discrimination imposed immediate costs on minorities but generated long-run advantages through forced adaptation. Our findings connect Schumpeterian creative destruction to ethnic economies, showing how rigid social hierarchies coexist with dynamic growth when outsiders drive innovation.