New Economic Policy

For the Malaysian policy enacted in 1971, see Malaysian public services. Infectious diseases thrived, especially tyNew Economic Policy.
phus. Shipments of food and fuel by railroad and water dramatically decreased. Residents rst experienced
The New Economic Policy (NEP) (Russian: , , Novaya Ekonomicheskaya a shortage of heating oil, then coal, until they had to
resort to wood. Although the armies fought the Civil
Politika) was an economic policy of Soviet Russia proareas, urban popposed by Vladimir Lenin, who called it "state capital- War battles mostly outside of urban
ulations dramatically decreased.[5] Populations in north[1]
ism".
ern towns (excluding capital cities) declined an average of
The NEP represented a more capitalism-oriented eco- 24 percent.[6] The breakdown of transportation deprived
nomic policy, deemed necessary after the Russian Civil northern towns of relatively more food than southern
War of 1917 to 1922, to foster the economy of the towns because more agricultural production took place
country, which was almost ruined. The complete na- in the south. Petrograd itself lost 850,000 people and
tionalization of industry, established during the period accounted for half of urban population decline during
of War Communism, was partially revoked and a sys- the Civil War.[6] Workers migrated south to take hold of
tem of mixed economy was introduced, which allowed peasants surpluses. Recent migrants to cities left because
private individuals to own small enterprises,[2] while they still had ties to villages.[7] Poor city conditions drove
the state continued to control banks, foreign trade, out residents.
and large industries.[3] In addition, the NEP abolished
prodrazvyorstka (forced grain requisition)[2] and intro- Since the Bolshevik base of support came from urban
duced prodnalog: a tax on farmers, payable in the form workers, the exodus posed a serious problem. Hunger
of raw agricultural product.[4] The Bolshevik government drove factory workers out of the cities and towards the ruadopted the NEP in the course of the 10th Congress of the ral cottage industry. At the end of the Civil War, Bolsheviks controlled cities, but eighty percent of the Russian
All-Russian Communist Party (March 1921) and promul[8]
gated it by a decree on 21 March 1921 On the Replace- population was peasants. Factory production severely
slowed or halted. Factories lacked 30,000 workers in
ment of Prodrazvyorstka by Prodnalog". Further decrees
1919. Residents needed to adopt self-sucient behaviors
rened the policy.
in order to survive. Residents searched for valuable perOther policies included the monetary reform (1922 sonal belongings, started creating artisan crafts, and be1924) and the attraction of foreign capital.
gan gardening to trade for and grow food. The acute need
The NEP policy created a new category of people called for food encouraged residents to obtain 5060 percent of
food through illegal trading (see meshochnik). The shortNEPmen (), nouveaux riches due to NEP.
age of cash caused the black market to use a barter sysStalin abolished the New Economic Policy in 1928.
tem, which was inecient.[9]

Despite these eorts, a drought, frost, then famine in

19201921 caused millions to starve to death, especially
in the Volga region, and urban support for the Bolshevik party eroded.[10] When no bread arrived in Moscow
in 1921, workers became hungry and disillusioned. They
organised demonstrations against the partys policies of
privileged rations, in which the Red Army, members
of the party, and students received rations rst. In
March 1921, Kronstadt soldiers and sailors staged a major rebellion. Anarchism and populism, brewing since the
tsarist bureaucracy of the 17th and 18th centuries, fuelled
the rebellion.[9]

Beginnings

On November 9, 1917, the Bolsheviks took control of

Petrograd and ousted the provisional government from
the Winter Palace. The Bolsheviks declared state power
under the Congress of Soviets, but that did not complete
the seizure. A brutal Civil War ensued, pitting the Bolshevik Red Army against the White Army. After the Red
Army won, economic hardships were faced by Russian
citizens. The dramatic decrease in Bolshevik support inspired Lenin to retract his policy of War Communism and In 1921, Lenin replaced the food requisitioning policy
shaped how he crafted his New Economic Policy.
with a tax, signaling the inauguration of the New Eco[11]
The Civil War exacted a devastating toll on Russian cities. nomic Policy.
The war destroyed lines of communication, modes of
transportation (especially railroads), and disrupted basic
1

Policies

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

The NEP represented a move away from full nationalization of 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.[13]

RESULTS

Leon Trotsky and Josef Stalin disagreed over how to develop the Soviet economy after the World War and the
Civil War. Trotsky, supported by left-wing members of
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 wrestle control of the Communist Party from Trotsky. After defeating the Trotsky faction, Stalin reversed his opinions
about economic policy and implemented the First FiveYear Plan.[20]

The NEP was primarily a new agricultural policy.[14]

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
4 Results
been thrown out with the October Revolution. With the
NEP, the state only allowed private landholdings because
the idea of collectivized farming had met with much Agricultural production increased greatly. Instead of the
government taking all agricultural surpluses with no comopposition.[15]
pensation, the farmers now had the option to sell some
Lenin understood that economic conditions were dire, so
of their produce, giving them a personal economic inhe opened up markets to a greater degree of free trade,
centive to produce more grain. This incentive, coupled
hoping to motivate the population to increase production.
with the breakup of the quasi-feudal landed estates, not
The main policy he used was an end to grain requisitions
only brought agricultural production to pre-Revolution
and instead instituted a tax on the peasants, thereby allevels but also surpassed them. While the agricultural
lowing them to keep and trade part of their produce. At
sector became increasingly reliant on small family farms,
rst this tax was paid in kind, but as the currency became
the heavy industries, banks, and nancial institutions remore stable in 1924, it was changed to a cash payment.[2]
mained owned and run by the state. This created an imThis increased the peasants incentive to produce, and in
balance in the economy where the agricultural sector was
response production jumped by 40% after the drought
growing much faster than heavy industry. To keep their
and famine of 192122.[16]
income high, the factories began to sell their products at
NEP economic reforms aimed to take a step back from higher prices. Due to the rising cost of manufactured
central planning and allow the economy to become more goods, peasants had to produce much more wheat to purindependent. NEP labor reforms tied labor to productiv- chase these consumer goods which led to an increase in
ity, incentivizing the reduction of costs and the redoubled supply and thus a fall in the price of these agricultural
eorts of labor. Labor unions became independent civic products. This fall in prices of agricultural goods and
organizations. NEP reforms also opened up government sharp rise in prices of industrial products was known as
positions to the most qualied workers. The NEP gave the Scissor crisis (from the shape of the graph of relative
opportunities for the government to use engineers, spe- prices to a reference date). Peasants began withholding
cialists, and intelligentsia for cost accounting, equipment their surpluses to wait for higher prices or sold them to
purchasing, eciency procedures, railway construction, "NEPmen" (traders and middle-men) who then sold them
and industrial administration. A new class of "NEPmen" on at high prices, which was opposed by many members
thrived. These private traders opened up urban rms hir- of the Communist Party who considered it an exploitation
ing up to twenty workers. NEPmen also included ru- of urban consumers. To combat the price of consumer
ral artisan craftsmen selling their wares on the private goods the state took measures to decrease ination and
market.[17]
enact reforms on the internal practices of the factories.
The government also xed prices, in an attempt to halt
the scissor eect.

Disagreements in leadership

Lenin considered the NEP as a strategic retreat from

socialism.[18] However, he justied the NEP by insisting
that it was a dierent type of capitalism. He viewed it as
a form of "state capitalism" which was the last stage of
capitalism before socialism evolved.[19]

The NEP succeeded in creating an economic recovery

after the devastating eects of the First World War, the
Russian Revolution, and the Russian Civil War. By 1925,
in the wake of Lenins 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 re-

3
stored to the 1913 (pre-World War I) level.[4]

End of NEP

By 1924, the year after Lenins death, Nikolai Bukharin

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 during 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 USSRs 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 kulaks, relatively wealthy farmers who hoarded grain and participated in the speculation of agricultural trade. The peasant farms were too
small to support the massive agricultural demands of the
Soviet Unions push for rapid industrialization and Soviet economists asserted that only the collectivization of
farms could support such an expansion. Thus, Stalin imposed collectivization to replace private farms. The collectivization process also involved the stripping of land
from the kulaks in order to distribute it among agricultural cooperatives (kolkhozes and sovkhozess).[21]
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.[4] They saw the NEP
as a betrayal of Communist principles, and they believed
it would have a negative long-term economic eect, so
they wanted a fully planned economy instead. In particular, 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 Lenin
is quoted to have said The NEP is in earnest and longterm ( ), which has been
used to surmise that if Lenin were to stay alive longer,
NEP would have continued beyond 1929. 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 in another direction, it
would provide the economic conditions necessary for socialism eventually to evolve.
In spite of Lenins opinion that the NEP should last several decades at least, until universal literacy was accomplished, in 1928, after only seven years of NEP, Lenins
successor, Stalin, eventually introduced full central planning, re-nationalized much of the economy, and from the
late 1920s onwards introduced a policy of rapid industrialization. Stalins collectivization of agriculture was his
most 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 the
speech in Russian, Record )

8 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 0-8014-2621-9.
Fitzpatrick, Sheila, et al. (ed.) (1991). Russia in the
Era of NEP. Bloomington, IN: Indiana University
Press. 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 competition. Reections on the NEP experience (1922
1924),.International Center of Economic Research
Working 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 from
the Beginning to the End. Cambridge: Cambridge University Press. pp. 4748.
[3] Ellis, Elisabeth Gaynor; Anthony Esler (2007). Revolution and Civil War in Russia. World History; The Modern
Era. Boston: Pearson Prentice Hall. p. 483. ISBN 0-13129973-5.
[4] Service, Robert (1997). A History of Twentieth-Century
Russia. Cambridge, MA: Harvard University Press. pp.
1245. ISBN 0674403487.
[5] Koenker, Diane P., William G. Rosenberg, and Ronald
Grigor Suny, ed. Party, State, and Society in the Russian
Civil War (Bloomington: Indiana University Press, 1989),
5880.

10

[6] Koenker, Diane P., William Rosenberg, and Ronald Suny,

ed. Civil War, 61.
[7] Koenker, Diane P., William Rosenberg, and Ronald Suny,
ed. Civil War, 5880
[8] Siegelbaum, Lewis H. Soviet State and Society: Between
Revolutions, 19181929.(Cambridge: Cambridge University Press, 1992), 68
[9] Koenker, Diane P., William Rosenberg, and Ronald Suny,
ed. Civil War, 58119.
[10] Kenez, Peter (2006). A History of the Soviet Union from
the Beginning to the End. Cambridge: Cambridge University Press. p. 48.
[11] Siegelbaum, Soviet State and Society, 85.
[12] V N. Bandera New Economic Policy (NEP) as an Economic Policy. The Journal of Political Economy 71, no. 3
(1963):. http://www.jstor.org/stable/1828984 (accessed
Mar 4, 2009), 268.
[13] Fitzpatrick, The Russian Revolution, pg. 96.
[14] Vladimir P. Timoshenko, Agricultural Russia and the
Wheat Problem. Stanford, CA: Food Research Institute,
Stanford University, 1932; pg. 86.
[15] Sheldon L. Richman War Communism to NEP: The
Road from Serfdom. The Journal of Libertarian Studies
V, no. 1 (1981): (accessed Mar 4, 2009), 93.
[16] Siegelbaum, Soviet State and Society, 90.
[17] Siegelbaum, Soviet State and Society, 97116.
[18] New economic policy and the politprosvets goals. Lenin
V.I. Collected Works v. 44. p. 159
[19] Sheldon L. Richman War Communism to NEP: The
Road from Serfdom. The Journal of Libertarian Studies
V, 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. Pearson
Prentice Hall. ISBN 0-205-70517-0.

Alan M. Ball, Russias Last Capitalists: The NEPmen,

19211929 (Berkeley: University of California Press,
1987)

10

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

EXTERNAL LINKS

11
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