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New Economic Policy
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The New Economic Policy (NEP) (Russian: ????? ????????????? ???????? - Novaya Ekonomicheskaya Politika or ???) was an economic policy proposed by Vladimir Lenin to prevent the Russian economy from collapsing.
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The New Economic Policy (NEP) (Russian: ????? ????????????? ???????? - Novaya Ekonomicheskaya Politika or ???) was an economic policy proposed by Vladimir Lenin to prevent the Russian economy from collapsing. Allowing some private ventures, the NEP allowed small businesses to reopen for private profit while the state continued to control banks, foreign trade, and large industries. It was officially decided in the course of the 10th Congress of the All-Russian Communist Party. It was promulgated by decree on March 21 1921, "On the Replacement of Prodrazvyorstka by Prodnalog" (i.e., on the replacement of foodstuffs requisitions by fixed foodstuffs tax). In essence, the decree required the farmers to give the government a specified amount of raw agricultural product as a tax in kind. Further decrees refined the policy and expanded it to include some industries.
Policies
Under the policy of NEP, grain requisitioning ceased.
Peasants were permitted to sell their produce for a profit. However, they had to pay an agricultural tax set at 14%.
This was, in reality, the introduction of a State-mandated and regulated market, in which peasants were able to sell any extra surpluses.
Money was reintroduced and workers were paid in cash rather than goods.
Trade unions were given limited freedom to operate and
hours of work were shortened.
Heavy industry, transport, banking and international trade were to remain under government control.
Results of NEP
Agricultural production increased greatly. Instead of the government taking all agricultural surpluses with no compensation, the farmers now had the option to sell their surplus yields, and therefore had an incentive to produce more grain. This incentive coupled with the break up of the quasi-feudal landed estates not only brought agricultural production to pre-Revolution levels, but further improved them. While the agricultural sector became increasingly reliant on small family farms, the heavy industries, banks and financial institutions remained owned and run by the state. Since the Soviet government did not yet pursue any policy of industrialization, this created an imbalance in the economy where the agricultural sector was growing much faster than the heavy industry. To keep their income high, the factories began to sell their products at higher prices. Due to the rising cost of manufactured goods, peasants had to produce much more wheat to purchase these consumer goods. This fall in prices of agricultural goods and sharp rise in prices of industrial products was known as the Scissor crisis (from the shape of the graph of relative prices to a reference date). Peasants began withholding their surpluses to wait for higher prices, or sold them to "NEP men" (traders and middle-men) who then sold them on at high prices, which was opposed by many members of the Communist Party who considered it an exploitation of urban consumers. To combat the price of consumer goods the state took measures to decrease inflation and enact reforms on the internal practices of the factories. The government also fixed prices to halt the scissor effect.
The NEP succeeded in creating an economic recovery after the devastating effects of the First World War, the Russian Revolution and the Russian civil war. By 1925, in the wake of Lenin's NEP, a "...major transformation was occurring politically, economically, culturally and spiritually. Small-scale and light industries were largely in the hands of private entrepreneurs or cooperatives. By 1928, agricultural and industrial production had been restored to the 1913 (pre-WWI) level.
End of NEP
By 1925, the year after Lenin's death, Nikolai Bukharin had become the foremost supporter of the NEP. It was abandoned in 1928 by Joseph Stalin who had initially supported the NEP against Leon Trotsky, in favour of Collectivization; which came as a result of the Grain Procurement Crisis, and the need to rapidly accumulate capital for the vast industrialization programme introduced with Five Year Plans. It was hoped that the USSR's industrial base would reach the level of capitalist countries' in the West, to prevent them being beaten in another possible war. (As Stalin famously proclaimed: "Either we do it, or we shall be crushed"). Stalin proposed that the grain crisis was caused by the NEP men, who sold their agricultural products to the urban populations at a high price. An alternative explanation for the grain crisis (which is more popular among western historians) revolves around the focus on heavy industry creating a significant consumer goods shortage; which meant peasants had nothing to spend their resources on, thus resulting in the hoarding of their grain.
The NEP was generally believed to be intended as an interim measure, and proved highly unpopular with the Left Opposition in the Bolshevik party because of its compromise with some capitalistic elements and the relinquishment of State control. They saw the NEP as a betrayal of communist principles, and they believed it would have a negative long-term economic effect, so they wanted a fully planned economy instead. In particular, the NEP created a class of traders ("NEP men") whom the Communists considered to be "class enemies" of the working class. On the other hand, Lenin is quoted to have said "The NEP is in earnest and long-term" (??? - ??? ??????? ? ???????), which has been used to surmise that if Lenin were to stay alive longer, NEP would have continued beyond 1929, and the controversial collectivization would have never happened, or it would have been carried out differently. Lenin had also been known to say about NEP: "We are taking one step backward to later take two steps forward", suggesting that the NEP would slowly morph into something else as soon as the economy was prepared.
Lenin's successor, Stalin, eventually introduced full central planning (although a variant of public planning had been the idea of the Left Opposition, which Stalin purged from the Party), re-nationalized the whole economy, and from the late 1920s onwards introduced a policy of rapid industrialization. Stalin's collectivization of agriculture has been his most notable, and most destructive departure from the NEP approach. It is often argued that industrialization could have been achieved without any collectivization just by taxing the peasants more, much like what happened in Meiji Japan, Bismarck's Germany, and in post-WWII South Korea and Taiwan.
External links
- Vladimir Lenin: About Natural Tax (Text of the speech in Russian, )
Further reading
- Davies, R. W. (ed.) (1991). From tsarism to the new economic policy: continuity and change in the economy of the USSR. Ithaca, N.Y.: Cornell University Press. ISBN 0801426219.
- Fitzpatrick, Sheila, et al (ed.) (1991). Russia in the Era of NEP. Bloomington, IN: Indiana University Press. ISBN 025320657X.
- Golitsyn, Anatoliy (1984). New Lies for Old - The Communist Strategy of Deception and Disinformation. New York, Dodd, Mead & Company
- Golitsyn, Anatoliy (1995). Perestroika Deception - Memoranda to the Central Intelligence Agency - The World's Slide Towards the Second October Revolution (Weltoktober). London, New York, Edward Harle Ltd.
- NEP Era Journal: http://www.d.umn.edu/cla/NEPera/main/index.php
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