Who Collaborates with the Soviets? Financial Distress and Technology Transfer during the Great Depression.

During the 1920s and 1930s the Soviet Union attempted to catch up to the technological frontier by signing Technology Transfer Agreements (TTAs) with foreign firms. Many U.S. firms signed these contracts, particularly during the Soviet Union’s first Five Year Plan (1928 to 1932). However, it is not clear why. Promised payments were small and often unrealized (Link, 2020), with no guarantee that the newly-established or improved Soviet plants and factories would not become competitors. Historians have hypothesized that financial distress during the Great Depression and banking panics of the early 1930s drove desperate firms to sell their technology cheaply to foreigners, including the Soviet Union. However, this explanation is complicated by the fact that many firms signed TTAs prior to the U.S. stock market crash in late 1929.

We quantitatively investigate the motivations of U.S. firms to sell their technology to the Soviet Union for the first time by building a spatial dataset in which we locate the firms who signed these agreements in various U.S. counties. To do so, we use lists of TTAs published by the Soviet Union to advertise its business with U.S. firms.1 These lists name each firm and describe the technology being transferred. While some firms are large and well-studied (e.g. Ford Motor Company, which we associate with its headquarters in Detroit) most are not. For small firms, we use industry publications, patent records, the proceedings of anti-communist congressional investigations and other sources to establish locations for 128 firms that signed TTAs in 64 US counties, plotted in Figure 1. Table 1 demonstrates that populous, literate counties with a high share of Russian Nationals were more likely to have TTAs.

To investigate whether financial distress led firms to sell their technology, we use TTA lists published at different dates to determine whether a particular firm signed its first TTA before or after the stock market crash. We then build a panel dataset with two periods: before and after the crash, where we have for each county a measure of TTAs signed and financial distress in each period, measured using bank failures following Nanda and Nicholas (2014). This allows us to establish that counties with relatively more financial distress did sign more TTAs, though the effects are small: hitting 1000 US counties with a one-standard deviation increase in financial distress results in between one and eight additional TTAs (see Table 2’s estimates). This preliminary analysis suggests a role both for “cultural affinity” as proxied by the share of Russians in the population, and for financial distress, with potentially informative implications for the many developing countries today who continue to pursue such agreements.

1 Our sources include Bron (1930); publications of the Economic Review of the Soviet Union in 1929 and 1930; and proceedings from anti-communist congressional hearings (“the Bogdanov Papers”) in 1930 as well as some secondary sources (e.g. Sutton’s Western Technology and Soviet Economic Development).

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Jacob Weber is an applied macroeconomist and Economics Ph.D. candidate at U.C. Berkeley, who will start as a Research Economist at the Federal Reserve Bank of New York in Fall of 2023. His research focuses on understanding the role that investment plays in the transmission of monetary policy and other shocks to the broader economy, and how that role has changed over time. More broadly, his research interests lie at the intersections of macroeconomics and monetary policy, international economics, and economic history.