New Economic Policy

For the Malaysian policy enacted in 1971, see MalaysianNew Economic Policy.

TheNewEconomic Policy (NEP) (Russian: Новая эко-номическая политика, НЭП, Novaya EkonomicheskayaPolitika) was an economic policy of Soviet Russia pro-posed by Vladimir Lenin, who called it "state capital-ism".[1]

The NEP represented a more capitalism-oriented eco-nomic policy, deemed necessary after the Russian CivilWar of 1917 to 1922, to foster the economy of thecountry, which was almost ruined. The complete na-tionalization of industry, established during the periodof War Communism, was partially revoked and a sys-tem of mixed economy was introduced, which allowedprivate individuals to own small enterprises,[2] whilethe state continued to control banks, foreign trade,and large industries.[3] In addition, the NEP abolishedprodrazvyorstka (forced grain requisition)[2] and intro-duced prodnalog: a tax on farmers, payable in the formof raw agricultural product.[4] The Bolshevik governmentadopted theNEP in the course of the 10thCongress of theAll-Russian Communist Party (March 1921) and promul-gated it by a decree on 21 March 1921 “On the Replace-ment of Prodrazvyorstka by Prodnalog". Further decreesrefined the policy.Other policies included the monetary reform (1922–1924) and the attraction of foreign capital.The NEP policy created a new category of people calledNEPmen (нэпманы), nouveaux riches due to NEP.Stalin abolished the New Economic Policy in 1928.

1 Beginnings

On November 9, 1917, the Bolsheviks took control ofPetrograd and ousted the provisional government fromthe Winter Palace. The Bolsheviks declared state powerunder the Congress of Soviets, but that did not completethe seizure. A brutal Civil War ensued, pitting the Bol-shevik Red Army against theWhite Army. After the RedArmy won, economic hardships were faced by Russiancitizens. The dramatic decrease in Bolshevik support in-spired Lenin to retract his policy ofWar Communism andshaped how he crafted his New Economic Policy.The CivilWar exacted a devastating toll on Russian cities.The war destroyed lines of communication, modes oftransportation (especially railroads), and disrupted basic

public services. Infectious diseases thrived, especially ty-phus. Shipments of food and fuel by railroad and wa-ter dramatically decreased. Residents first experienceda shortage of heating oil, then coal, until they had toresort to wood. Although the armies fought the CivilWar battles mostly outside of urban areas, urban pop-ulations dramatically decreased.[5] Populations in north-ern towns (excluding capital cities) declined an average of24 percent.[6] The breakdown of transportation deprivednorthern towns of relatively more food than southerntowns because more agricultural production took placein the south. Petrograd itself lost 850,000 people andaccounted for half of urban population decline duringthe Civil War.[6] Workers migrated south to take hold ofpeasants’ surpluses. Recent migrants to cities left becausethey still had ties to villages.[7] Poor city conditions droveout residents.Since the Bolshevik base of support came from urbanworkers, the exodus posed a serious problem. Hungerdrove factory workers out of the cities and towards the ru-ral cottage industry. At the end of the Civil War, Bolshe-viks controlled cities, but eighty percent of the Russianpopulation was peasants.[8] Factory production severelyslowed or halted. Factories lacked 30,000 workers in1919. Residents needed to adopt self-sufficient behaviorsin order to survive. Residents searched for valuable per-sonal belongings, started creating artisan crafts, and be-gan gardening to trade for and grow food. The acute needfor food encouraged residents to obtain 50–60 percent offood through illegal trading (see meshochnik). The short-age of cash caused the black market to use a barter sys-tem, which was inefficient.[9]

Despite these efforts, a drought, frost, then famine in1920–1921 caused millions to starve to death, especiallyin the Volga region, and urban support for the Bolshe-vik party eroded.[10] When no bread arrived in Moscowin 1921, workers became hungry and disillusioned. Theyorganised demonstrations against the party’s policies ofprivileged rations, in which the Red Army, membersof the party, and students received rations first. InMarch 1921, Kronstadt soldiers and sailors staged a ma-jor rebellion. Anarchism and populism, brewing since thetsarist bureaucracy of the 17th and 18th centuries, fuelledthe rebellion.[9]

In 1921, Lenin replaced the food requisitioning policywith a tax, signaling the inauguration of the New Eco-nomic Policy.[11]

1

2 4 RESULTS

2 Policies

The laws sanctioned the co-existence of private and pub-lic sectors, which were incorporated in the NEP, whichon the other hand was a state oriented “mixed economy”.[12]

The NEP represented a move away from full national-ization of certain parts of industries. Some kinds offoreign investments were expected by the Soviet Unionunder the NEP, in order to fund industrial and devel-opmental projects with foreign exchange or technologyrequirements.[13]

The NEP was primarily a new agricultural policy.[14]The Bolsheviks viewed traditional village life as conser-vative and backward. The old way of village life wasreminiscent of the Tsarist Russia that had supposedlybeen thrown out with the October Revolution. With theNEP, the state only allowed private landholdings becausethe idea of collectivized farming had met with muchopposition.[15]

Lenin understood that economic conditions were dire, sohe opened up markets to a greater degree of free trade,hoping to motivate the population to increase production.The main policy he used was an end to grain requisitionsand instead instituted a tax on the peasants, thereby al-lowing them to keep and trade part of their produce. Atfirst this tax was paid in kind, but as the currency becamemore stable in 1924, it was changed to a cash payment.[2]This increased the peasants’ incentive to produce, and inresponse production jumped by 40% after the droughtand famine of 1921–22.[16]

NEP economic reforms aimed to take a step back fromcentral planning and allow the economy to become moreindependent. NEP labor reforms tied labor to productiv-ity, incentivizing the reduction of costs and the redoubledefforts of labor. Labor unions became independent civicorganizations. NEP reforms also opened up governmentpositions to the most qualified workers. The NEP gaveopportunities for the government to use engineers, spe-cialists, and intelligentsia for cost accounting, equipmentpurchasing, efficiency procedures, railway construction,and industrial administration. A new class of "NEPmen"thrived. These private traders opened up urban firms hir-ing up to twenty workers. NEPmen also included ru-ral artisan craftsmen selling their wares on the privatemarket.[17]

3 Disagreements in leadership

Lenin considered the NEP as a strategic retreat fromsocialism.[18] However, he justified the NEP by insistingthat it was a different type of capitalism. He viewed it asa form of "state capitalism" which was the last stage ofcapitalism before socialism evolved.[19]

Leon Trotsky and Josef Stalin disagreed over how to de-velop the Soviet economy after the World War and theCivil War. Trotsky, supported by left-wing members ofthe Communist Party, believed that socialism in Russiawould only survive if the state controlled the allocationof all output. Trotsky believed that the state should re-possess all output to invest in capital formation. On theother hand, Stalin supported the more conservative mem-bers of the Communist Party and advocated for a staterun capitalist economy. Stalin managed to wrestle con-trol of the Communist Party from Trotsky. After de-feating the Trotsky faction, Stalin reversed his opinionsabout economic policy and implemented the First Five-Year Plan.[20]

4 Results

Agricultural production increased greatly. Instead of thegovernment taking all agricultural surpluses with no com-pensation, the farmers now had the option to sell someof their produce, giving them a personal economic in-centive to produce more grain. This incentive, coupledwith the breakup of the quasi-feudal landed estates, notonly brought agricultural production to pre-Revolutionlevels but also surpassed them. While the agriculturalsector became increasingly reliant on small family farms,the heavy industries, banks, and financial institutions re-mained owned and run by the state. This created an im-balance in the economy where the agricultural sector wasgrowing much faster than heavy industry. To keep theirincome high, the factories began to sell their products athigher prices. Due to the rising cost of manufacturedgoods, peasants had to produce much more wheat to pur-chase these consumer goods which led to an increase insupply and thus a fall in the price of these agriculturalproducts. This fall in prices of agricultural goods andsharp rise in prices of industrial products was known asthe Scissor crisis (from the shape of the graph of relativeprices to a reference date). Peasants began withholdingtheir surpluses to wait for higher prices or sold them to"NEPmen" (traders andmiddle-men) who then sold themon at high prices, which was opposed by many membersof the Communist Party who considered it an exploitationof urban consumers. To combat the price of consumergoods the state took measures to decrease inflation andenact reforms on the internal practices of the factories.The government also fixed prices, in an attempt to haltthe scissor effect.The NEP succeeded in creating an economic recoveryafter the devastating effects of the First World War, theRussian Revolution, and the Russian Civil War. By 1925,in the wake of Lenin’s NEP, a "... major transformationwas occurring politically, economically, culturally andspiritually.” Small-scale and light industries were largelyin the hands of private entrepreneurs or cooperatives. By1928, agricultural and industrial production had been re-

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stored to the 1913 (pre-World War I) level.[4]

5 End of NEP

By 1924, the year after Lenin’s death, Nikolai Bukharinhad become the foremost supporter of the NewEconomicPolicy. It was abandoned in 1928 after Joseph Stalin ob-tained a position of leadership during the Great Turn.Stalin had initially supported the NEP against Leon Trot-sky but switched in favour of Collectivization during theGrain Procurement Crisis and the need to accumulatecapital rapidly for the vast industrialization programmeintroduced with the Five Year Plans. It was hoped thatthe USSR’s industrial base would reach the level of capi-talist countries in the West, to prevent them being beatenin another possible war. (Stalin proclaimed: “Either wedo it, or we shall be crushed.”) Stalin proposed that thegrain crisis was caused by kulaks, relatively wealthy farm-ers who hoarded grain and participated in the specula-tion of agricultural trade. The peasant farms were toosmall to support the massive agricultural demands of theSoviet Union’s push for rapid industrialization and So-viet economists asserted that only the collectivization offarms could support such an expansion. Thus, Stalin im-posed collectivization to replace private farms. The col-lectivization process also involved the stripping of landfrom the kulaks in order to distribute it among agricul-tural cooperatives (kolkhozes and sovkhozess).[21]

For Lenin and his followers, the NEP was intended as aninterim measure. However, it proved highly unpopularwith the Left Opposition in the Bolshevik party becauseof its compromise with some capitalistic elements andthe relinquishment of state control.[4] They saw the NEPas a betrayal of Communist principles, and they believedit would have a negative long-term economic effect, sothey wanted a fully planned economy instead. In par-ticular, the NEP created a class of traders ("NEPmen")whom the Communists considered to be “class enemies”of the working class. On the other hand, Vladimir Leninis quoted to have said “The NEP is in earnest and long-term” (НЭП – это всерьез и надолго), which has beenused to surmise that if Lenin were to stay alive longer,NEP would have continued beyond 1929. Lenin hadalso been known to say about NEP, “We are taking onestep backward to later take two steps forward,” suggest-ing that, though the NEP pointed in another direction, itwould provide the economic conditions necessary for so-cialism eventually to evolve.In spite of Lenin’s opinion that the NEP should last sev-eral decades at least, until universal literacy was accom-plished, in 1928, after only seven years of NEP, Lenin’ssuccessor, Stalin, eventually introduced full central plan-ning, re-nationalized much of the economy, and from thelate 1920s onwards introduced a policy of rapid industri-alization. Stalin’s collectivization of agriculture was hismost notable departure from the NEP approach.

6 See also• Capital accumulation

• Dirigisme

• Mixed economy

• Planned economy

• State capitalism

• Soviet-type economic planning

7 Multimedia• Vladimir I. Lenin: About Natural Tax (Text of thespeech in Russian, Record )

8 Further reading• Davies, R. W. (ed.) (1991). From tsarism to the neweconomic policy: continuity and change in the econ-omy of the USSR. Ithaca, N.Y.: Cornell UniversityPress. ISBN 0-8014-2621-9.

• Fitzpatrick, Sheila, et al. (ed.) (1991). Russia in theEra of NEP. Bloomington, IN: Indiana UniversityPress. ISBN 0-253-20657-X.

• NEP Era Journal: http://www.d.umn.edu/cla/NEPera/main/index.php

• Nenovsky. N,(2006). „Lenin and the currency com-petition. Reflections on the NEP experience (1922–1924),“.International Center of Economic ResearchWorking Paper,Torino, No 22, 2006

9 Footnotes[1] Lenin, V.I. Left-Wing Childishness, April/May 1918

[2] Kenez, Peter (2006). A History of the Soviet Union fromthe Beginning to the End. Cambridge: Cambridge Univer-sity Press. pp. 47–48.

[3] Ellis, Elisabeth Gaynor; Anthony Esler (2007). “Revolu-tion and Civil War in Russia”. World History; The ModernEra. Boston: Pearson Prentice Hall. p. 483. ISBN 0-13-129973-5.

[4] Service, Robert (1997). A History of Twentieth-CenturyRussia. Cambridge, MA: Harvard University Press. pp.124–5. ISBN 0674403487.

[5] Koenker, Diane P., William G. Rosenberg, and RonaldGrigor Suny, ed. Party, State, and Society in the RussianCivil War (Bloomington: Indiana University Press, 1989),58–80.

4 10 EXTERNAL LINKS

[6] Koenker, Diane P., WilliamRosenberg, and Ronald Suny,ed. Civil War, 61.

[7] Koenker, Diane P., WilliamRosenberg, and Ronald Suny,ed. Civil War, 58–80

[8] Siegelbaum, Lewis H. Soviet State and Society: BetweenRevolutions, 1918–1929.(Cambridge: Cambridge Uni-versity Press, 1992), 68

[9] Koenker, Diane P., WilliamRosenberg, and Ronald Suny,ed. Civil War, 58–119.

[10] Kenez, Peter (2006). A History of the Soviet Union fromthe Beginning to the End. Cambridge: Cambridge Univer-sity Press. p. 48.

[11] Siegelbaum, Soviet State and Society, 85.

[12] V N. Bandera “New Economic Policy (NEP) as an Eco-nomic Policy.” The Journal of Political Economy 71, no. 3(1963):. http://www.jstor.org/stable/1828984 (accessedMar 4, 2009), 268.

[13] Fitzpatrick, The Russian Revolution, pg. 96.

[14] Vladimir P. Timoshenko, Agricultural Russia and theWheat Problem. Stanford, CA: Food Research Institute,Stanford University, 1932; pg. 86.

[15] Sheldon L. Richman “War Communism to NEP: TheRoad from Serfdom.” The Journal of Libertarian StudiesV, no. 1 (1981): (accessed Mar 4, 2009), 93.

[16] Siegelbaum, Soviet State and Society, 90.

[17] Siegelbaum, Soviet State and Society, 97–116.

[18] New economic policy and the politprosvet’s goals. LeninV.I. Collected Works v. 44. p. 159

[19] Sheldon L. Richman “War Communism to NEP: TheRoad from Serfdom.” The Journal of Libertarian StudiesV, no. 1 (1981): (accessed Mar 4, 2009), 94.

[20] Sheila Fitzpatrick, The Russian Revolution, (New York:Oxford University Press, 1984), 115.

[21] Kagan, Donald (2010). The Western Heritage. PearsonPrentice Hall. ISBN 0-205-70517-0.

Alan M. Ball, Russia’s Last Capitalists: The NEPmen,1921–1929 (Berkeley: University of California Press,1987)

10 External links• The New Economic Policy And The Tasks Of ThePolitical Education Departments V.I Lenin 17 Oct.1921

• Role and Functions of the Trade Unions Under TheNew Economic Policy V. I. Lenin. 12 Jan 1922

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