New Economic Policy
Encyclopedia
The New Economic Policy (NEP) was an economic policy
proposed by Vladimir Lenin
, who called it state capitalism
. Allowing some private ventures, the NEP allowed small animal businesses or smoke shops, for instance, 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 21 March 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. The New Economic Policy was replaced by Stalin's First Five-Year Plan
in 1928.
. Whilst some leading Bolsheviks were opposed to it, it seemed necessary due to circumstances to allow limited private commercialism in the form of the NEP.
Rather than repossess all goods produced, the Soviet government took only a small percentage of goods. This left the peasants with a marketable surplus which could be sold privately.
The state, after starting to use the NEP, moved away from Communist ideals and started the modernizing of the economy, but this time, with a more free-minded way of doing things. The Soviet Union stopped upholding the idea of nationalizing certain parts of industries. Some kinds of foreign investments were expected by the Soviet Union under the NEP, in order to fund industrial and developmental projects with foreign exchange or technology requirements.
The move towards modernization rested on one main issue, transforming the Soviet Union into a modern industrialized society, but to do so the Soviet Union had to reshape its preexisting structures, namely its agricultural system and the class structure that surrounded it.
The NEP was primarily a new agricultural policy. The Bolsheviks viewed traditional village life as conservative and backward. The old way of village life was reminiscent of the Tsarist Russia that had supposedly been thrown out with the October Revolution
. With the NEP, which sought to repudiate the “old ways,” methods were put in place which promoted the pursuit by peasants of their self-interests. However, the state only allowed private landholdings because the idea of collectivized farming had met with much opposition.
” was the last stage of capitalism before socialism evolved.
Leon Trotsky
and Joseph Stalin
disagreed over how to develop the Soviet Economy after the World War and the Civil War. Trotsky supported by liberals in the Communist Party believed that socialism in Russia would only survive if the state controlled the allocation of all output. Trotsky believed that the state should repossess all output to invest in capital formation. On the other hand, Stalin supported the more conservative members of the Communist Party and advocated for a state run capitalist economy. Stalin managed to wrest control of the Communist Party from Trotsky. After defeating the liberals, Stalin reversed his opinions about economic policy and implemented the First Five-Year Plan.
" (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-World War I) level. However, unemployment skyrocketed under the NEP and a wider gap was created between classes.
had become the foremost supporter of the New Economic Policy. It was abandoned in 1928 after Joseph Stalin
obtained a position of leadership during the Great Turn
. Stalin had initially supported the NEP against Leon Trotsky
, but switched in favour of Collectivization as a result of the Grain Procurement Crisis and the need to accumulate capital rapidly for the vast industrialization programme introduced with the 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. (Stalin proclaimed: "Either we do it, or we shall be crushed.") Stalin proposed that the grain crisis was caused by the NEP men, who sold agricultural products to the urban populations for 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.
For Lenin and his followers, the NEP was intended as an interim measure. However, it 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" (НЭП — это всерьез и надолго), which has been used to surmise that if Lenin were to stay alive longer, NEP would have continued beyond 1929, and the disastrous 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, though the NEP pointed to another direction, it would provide the economic conditions necessary for socialism eventually to evolve.
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 much of the economy, and from the late 1920s onwards introduced a policy of rapid industrialization. Stalin's collectivization of agriculture was his most notable and most destructive departure from the NEP approach. It is often argued that industrialization could have been achieved without any collectivization and instead by taxing the peasants more, as similarly happened in Meiji
Japan
, Otto von Bismarck
's Germany
, and in post-World War II South Korea
and Taiwan
.
Economic policy
Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy.Such policies are often...
proposed by Vladimir Lenin
Vladimir Lenin
Vladimir Ilyich Lenin was a Russian Marxist revolutionary and communist politician who led the October Revolution of 1917. As leader of the Bolsheviks, he headed the Soviet state during its initial years , as it fought to establish control of Russia in the Russian Civil War and worked to create a...
, who called it state capitalism
State capitalism
The term State capitalism has various meanings, but is usually described as commercial economic activity undertaken by the state with management of the productive forces in a capitalist manner, even if the state is nominally socialist. State capitalism is usually characterized by the dominance or...
. Allowing some private ventures, the NEP allowed small animal businesses or smoke shops, for instance, 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
10th Congress of the RCP(b)
The 10th Congress of the Russian Communist Party was held during March 8-16, 1921 in Moscow. Halfway through the Congress, the Kronstadt uprising started.Major points discussed included:...
of the All-Russian Communist Party
Communist Party of the Soviet Union
The Communist Party of the Soviet Union was the only legal, ruling political party in the Soviet Union and one of the largest communist organizations in the world...
. It was promulgated by decree on 21 March 1921, "On the Replacement of Prodrazvyorstka
Prodrazvyorstka
Prodrazvyorstka , translated as food apportionment or surplus appropriation system, was a governmental program in Russia which obliged peasantry to surrender the surpluses of almost any kind of agricultural produce for a fixed price...
by Prodnalog
Prodnalog
Prodnalog or Продналог is the Russian word for a tax on food production, paid in kind in Soviet Russia, and sometimes known as "the Tax in Kind"...
" (i.e., on the replacement of foodstuffs requisitions by fixed foodstuffs tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
). In essence, the decree
Decree
A decree is a rule of law issued by a head of state , according to certain procedures . It has the force of law...
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. The New Economic Policy was replaced by Stalin's First Five-Year Plan
First Five-Year Plan
The First Five-Year Plan, or 1st Five-Year Plan, of the Union of Soviet Socialist Republics was a list of economic goals that was designed to strengthen the country's economy between 1928 and 1932, making the nation both militarily and industrially self-sufficient. "We are fifty or a hundred...
in 1928.
Beginnings
The NEP replaced the policies of War CommunismWar communism
War communism or military communism was the economic and political system that existed in Soviet Russia during the Russian Civil War, from 1918 to 1921...
. Whilst some leading Bolsheviks were opposed to it, it seemed necessary due to circumstances to allow limited private commercialism in the form of the NEP.
Policies
The laws sanctioned the coexistence of private and public sectors, which were incorporated in the NEP, which on the other hand was a state oriented "mixed economy."Rather than repossess all goods produced, the Soviet government took only a small percentage of goods. This left the peasants with a marketable surplus which could be sold privately.
The state, after starting to use the NEP, moved away from Communist ideals and started the modernizing of the economy, but this time, with a more free-minded way of doing things. The Soviet Union stopped upholding the idea of nationalizing certain parts of industries. Some kinds of foreign investments were expected by the Soviet Union under the NEP, in order to fund industrial and developmental projects with foreign exchange or technology requirements.
The move towards modernization rested on one main issue, transforming the Soviet Union into a modern industrialized society, but to do so the Soviet Union had to reshape its preexisting structures, namely its agricultural system and the class structure that surrounded it.
The NEP was primarily a new agricultural policy. The Bolsheviks viewed traditional village life as conservative and backward. The old way of village life was reminiscent of the Tsarist Russia that had supposedly been thrown out with the October Revolution
October Revolution
The October Revolution , also known as the Great October Socialist Revolution , Red October, the October Uprising or the Bolshevik Revolution, was a political revolution and a part of the Russian Revolution of 1917...
. With the NEP, which sought to repudiate the “old ways,” methods were put in place which promoted the pursuit by peasants of their self-interests. However, the state only allowed private landholdings because the idea of collectivized farming had met with much opposition.
Disagreements in leadership
Lenin considered the NEP as a strategic retreat. However, he justified the NEP by insisting that it was a different type of capitalism. He insisted that this form of “state capitalismState capitalism
The term State capitalism has various meanings, but is usually described as commercial economic activity undertaken by the state with management of the productive forces in a capitalist manner, even if the state is nominally socialist. State capitalism is usually characterized by the dominance or...
” was the last stage of capitalism before socialism evolved.
Leon Trotsky
Leon Trotsky
Leon Trotsky , born Lev Davidovich Bronshtein, was a Russian Marxist revolutionary and theorist, Soviet politician, and the founder and first leader of the Red Army....
and Joseph Stalin
Joseph Stalin
Joseph Vissarionovich Stalin was the Premier of the Soviet Union from 6 May 1941 to 5 March 1953. He was among the Bolshevik revolutionaries who brought about the October Revolution and had held the position of first General Secretary of the Communist Party of the Soviet Union's Central Committee...
disagreed over how to develop the Soviet Economy after the World War and the Civil War. Trotsky supported by liberals in the Communist Party believed that socialism in Russia would only survive if the state controlled the allocation of all output. Trotsky believed that the state should repossess all output to invest in capital formation. On the other hand, Stalin supported the more conservative members of the Communist Party and advocated for a state run capitalist economy. Stalin managed to wrest control of the Communist Party from Trotsky. After defeating the liberals, Stalin reversed his opinions about economic policy and implemented the First Five-Year Plan.
Results
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 breakup of the quasi-feudal landed estates not only brought agricultural production to pre-Revolution levels but surpassed 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, and did not allow it to be facilitated by the same private incentives that were increasing agricultural production, this created an imbalance in the economy where the agricultural sector was growing much faster than 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 "NEPmenNEPmen
The NEPmen were businessmen and women in the young Soviet Union who took advantage of the opportunities for private trade and small-scale manufacturing created by the New Economic Policy . The NEP was a response to revolts against meager rations in the USSR during the early 1920s under Lenin's...
" (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
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
, the Russian Revolution
Russian Revolution of 1917
The Russian Revolution is the collective term for a series of revolutions in Russia in 1917, which destroyed the Tsarist autocracy and led to the creation of the Soviet Union. The Tsar was deposed and replaced by a provisional government in the first revolution of February 1917...
and the Russian civil war
Russian Civil War
The Russian Civil War was a multi-party war that occurred within the former Russian Empire after the Russian provisional government collapsed to the Soviets, under the domination of the Bolshevik party. Soviet forces first assumed power in Petrograd The Russian Civil War (1917–1923) was a...
. 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-World War I) level. However, unemployment skyrocketed under the NEP and a wider gap was created between classes.
End of NEP
By 1925, the year after Lenin's death, Nikolai BukharinNikolai Bukharin
Nikolai Ivanovich Bukharin , was a Russian Marxist, Bolshevik revolutionary, and Soviet politician. He was a member of the Politburo and Central Committee , chairman of the Communist International , and the editor in chief of Pravda , the journal Bolshevik , Izvestia , and the Great Soviet...
had become the foremost supporter of the New Economic Policy. It was abandoned in 1928 after Joseph Stalin
Joseph Stalin
Joseph Vissarionovich Stalin was the Premier of the Soviet Union from 6 May 1941 to 5 March 1953. He was among the Bolshevik revolutionaries who brought about the October Revolution and had held the position of first General Secretary of the Communist Party of the Soviet Union's Central Committee...
obtained a position of leadership during the Great Turn
Great Turn
The Great Turn or Great Break is the radical change in the economic policy in the Soviet Union in 1928/1929, which primarily consisted in abandoning the New Economic Policy and the acceleration of collectivization...
. Stalin had initially supported the NEP against Leon Trotsky
Leon Trotsky
Leon Trotsky , born Lev Davidovich Bronshtein, was a Russian Marxist revolutionary and theorist, Soviet politician, and the founder and first leader of the Red Army....
, but switched in favour of Collectivization as a result of the Grain Procurement Crisis and the need to accumulate capital rapidly for the vast industrialization programme introduced with the 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. (Stalin proclaimed: "Either we do it, or we shall be crushed.") Stalin proposed that the grain crisis was caused by the NEP men, who sold agricultural products to the urban populations for 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.
For Lenin and his followers, the NEP was intended as an interim measure. However, it proved highly unpopular with the Left Opposition
Left Opposition
The Left Opposition was a faction within the Bolshevik Party from 1923 to 1927, headed de facto by Leon Trotsky. The Left Opposition formed as part of the power struggle within the party leadership that began with the Soviet founder Vladimir Lenin's illness and intensified with his death in January...
in the Bolshevik
Bolshevik
The Bolsheviks, originally also Bolshevists , derived from bol'shinstvo, "majority") were a faction of the Marxist Russian Social Democratic Labour Party which split apart from the Menshevik faction at the Second Party Congress in 1903....
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" (НЭП — это всерьез и надолго), which has been used to surmise that if Lenin were to stay alive longer, NEP would have continued beyond 1929, and the disastrous 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, though the NEP pointed to another direction, it would provide the economic conditions necessary for socialism eventually to evolve.
Lenin's successor, Stalin, eventually introduced full central planning
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
(although a variant of public planning had been the idea of the Left Opposition, which Stalin purged from the Party), re-nationalized much of the economy, and from the late 1920s onwards introduced a policy of rapid industrialization. Stalin's collectivization of agriculture was his most notable and most destructive departure from the NEP approach. It is often argued that industrialization could have been achieved without any collectivization and instead by taxing the peasants more, as similarly happened in Meiji
Meiji period
The , also known as the Meiji era, is a Japanese era which extended from September 1868 through July 1912. This period represents the first half of the Empire of Japan.- Meiji Restoration and the emperor :...
Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, Otto von Bismarck
Otto von Bismarck
Otto Eduard Leopold, Prince of Bismarck, Duke of Lauenburg , simply known as Otto von Bismarck, was a Prussian-German statesman whose actions unified Germany, made it a major player in world affairs, and created a balance of power that kept Europe at peace after 1871.As Minister President of...
's Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, and in post-World War II South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...
and Taiwan
Taiwan
Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following...
.
Multimedia
- Vladimir I. 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.
- NEP Era Journal: http://www.d.umn.edu/cla/NEPera/main/index.php
- Nenovsky. N,(2006). „Lenin and the currency competition. Reflections on the NEP experience (1922-1924),“.International Center of Economic Research Working Paper,Torino, No 22, 2006
External links
- The New Economic Policy And The Tasks Of The Political Education Departments V.I Lenin 17 Oct. 1921
- Role and Functions of the Trade Unions Under The New Economic Policy V. I. Lenin. 12 Jan 1922