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New Economic Policy

 
Britannica Concise Encyclopedia: New Economic Policy
 
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Economic policy of the Soviet Union (1921 – 28). A temporary retreat from the failed War Communism policy of extreme centralization and doctrinaire socialism, the new measures included the return of most agriculture, retail trade, and light industry to private ownership (though the state retained control of heavy industry, banking, transport, and foreign trade) and the reintroduction of money into the economy. The policy allowed the economy to recover from years of war. In 1928 chronic grain shortages prompted Joseph Stalin to begin to eliminate private ownership of farmland and to collectivize agriculture under state control, effectively ending the NEP. By 1931 state control was reimposed over all industry and commerce.

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Russian History Encyclopedia: New Economic Policy
 
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As the civil war wound down in late 1920 and famine caused millions of deaths, peasant rebellions broke out against the compulsory grain procurements (prodrazverstka), which had been extracted by force and had led to reduced plantings. Strikes occurred in Petrograd and elsewhere. Late that winter an uprising occurred at Kronstadt, the naval base near the northern capital. Fearing counterrevolution from within, Vladimir Ilich Lenin accepted a "retreat" at the Tenth Party Congress in March, 1921. Under the New Economic Policy (NEP), Russia would have a mixed economy "seriously and for a long time," as Lenin said. It would be based on an alliance (smychka) between the workers and the peasants.

Requisitions from the peasantry would be replaced by a tax in kind (prodnalog) based on the rural household's level of income and its number of dependents. (By 1923 - 1924, by which time the inflation was halted, this tax was converted to cash.) Peasants would be free to market any surplus left after mandatory deliveries, which were reduced from the quotas imposed in 1920 - 1921. Some effort was made to establish scientific farms and to persuade peasants to enter cooperatives, but few did until the forced collectivization of 1928 - 1929. Rural, interregional, and retail trade was freed, somewhat reluctantly, and taken up by privateers, known universally as "nepmen." Prices were effectively free, despite the government's efforts to fix them for such monopolized commodities as tobacco, salt, kerosene, and matches. Trade unions became voluntary, and workers were free to seek whatever employment they could find.

In 1921 the Soviet government decided to lease back or sell back most medium- and small-sized enterprises to private owners or cooperatives. The largest 8.5 percent of them, called the "commanding heights," were retained. They employed sixsevenths of all the industrial workers and produced more than nine-tenths of all industrial output even at the peak of NEP in 1925 - 1926. These larger factories were coordinated by the Supreme Council of National Economy (Vesenkha) and its "trusts." Banks, railroads, and foreign trade also remained in the hands of the state. But the state had insufficient fuel and materials to keep the larger plants open. Unemployment grew. Efforts to attract foreign concessionaires to provide timber, oil, and other materials were mostly unavailing. The sixty-eight foreign concessions that existed by 1928 provided less than 1 percent of industrial output. Foreign capitalists were rather reluctant to invest in a hostile and chaotic environment with a Bolshevik state that had defaulted on all tsarist debts, confiscated foreign property, and declared its intentions to overthrow the capitalist order worldwide.

To achieve some measure of efficiency the state now required industrial enterprises to operate on commercial principles (khozraschet), paying wages and other bills and to sell, even at distressed prices relative to the rising relative price of foodstuffs. By 1923 - 1924, the government balanced its budget by levying excise taxes, enterprise and personal taxes on income and property, and a forced bond issue. The tsarist vodka monopoly was reintroduced, to the dismay of many. Centralized expenditures, especially on education, were cut, and school fees introduced. All this allowed stabilization of the new currency (chervonets), which had replaced the ruined ruble or sovznak notes used before.

The NEP period was also the golden era of Soviet economics, with many different points of view, mathematical and sociological, permitted to publish and debate. Nikolai Kondratiev, Alexander Chayanov, Yevgeny Preobrazhensky, Grigory Feldman, Stanislav Strumilin, and the young Vasily Leontiev, inventor of input-output analysis, were active at this time. In addition to theoretical matters, the industrialization debate centered on whether Russia's peasant economy could produce enough voluntary savings to permit industrialization beyond the recovery phase. That debate, and most free inquiry, would end in 1928. Political freedom had already been closely limited to the Bolsheviks alone; by 1922 publications had to pass prior censorship.

In practice, planning was still rudimentary. There was no operational program for command allocations, as there would be during the 1930s, but the "balance of national economy," patterned on German wartime experience, served as a kind of forecast for key sectors and basis for discussion of investment priorities.

These policies were strikingly successful in allowing the Soviet economy to regain its prewar levels of agricultural and industrial production by 1926 - 1927. School enrollment exceeded the prewar numbers. But food marketings, both domestic and export, were down significantly, probably owing to the higher cost and relative unavailability of manufactured goods the peasants wanted to buy and also the breakup of larger commercial farms during the Revolution and civil war. Yet by 1927 reduced grain marketings convinced many in the Party (particularly the so-called left opposition) that administrative methods would be needed in addition to market incentives. Even though this was largely due to a mistaken price and tax policy by the government - comparable to the earlier Scissors Crisis - the authorities now began to use "extraordinary measures" to seize grain early in 1928. This policy and its consequences effectively ended the NEP, for once it was decided that industrialization and military preparedness required more investments than could be financed from voluntary savings in this largely peasant country, the way was open for Josef Stalin to pursue a radical course of action, once advanced by his enemies Leon Trotsky and his allies on the left.

Bibliography

Carr, Edward Hallett. (1958). Socialism in One Country, 1924 - 1926, vol. 1. London: Macmillan.

Davies, R. W. (1989). "Economic and Social Policy in the USSR, 1917 - 41." In The Cambridge Economic History of Europe from the Decline of the Roman Empire, Vol. 8: The Industrial Economies: The Development of Economic and Social Policies, ed. Peter Mathias and Sidney Pollard. Cambridge, UK: Cambridge University Press.

Erlich, Alexander. (1960). The Soviet Industrialization Debate, 1924 - 1928. Cambridge, MA: Harvard University Press.

Nove, Alec. (1969). An Economic History of the USSR. London: Allen Lane.

—MARTIN C. SPECHLER

 
Columbia Encyclopedia: New Economic Policy
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New Economic Policy (NEP), official economic reconstruction program of the USSR from 1921 to 1928. It replaced the economic policies of “war Communism” (1918–21), an emergency program established by Lenin during the civil war. War Communism had included forced requisition of grain, nationalization of all trade and industry, strict control of labor, payment in kind, and confiscation of financial capital. As a result of this program and of the ravages of the war, industrial and agricultural production declined sharply, and the population suffered severe deprivation. General unrest erupted in an insurrection in the Kronstadt naval base. At this time (Mar., 1921) Lenin introduced the NEP in order to revive the economy. The new program signified a return to a limited capitalist system. Forced requisition of grain was replaced by a specific tax in kind; peasants could retain excess produce and sell it for a profit. Smaller businesses were permitted to operate as private enterprises. Large industries remained under state control. They operated on the open market, but the state controlled the fixing of prices and the appointment of boards of directors. Private trade and wages were restored, and compulsory labor service was abolished. By 1928, the NEP had raised the Soviet national income above its prewar level. However, the NEP policies proved inadequate for the expansionist aims of Stalin and were reversed (1928) by the first Five-Year Plan.

 
Wikipedia: New Economic Policy
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Silver Rouble 1924
Gold Chervonetz (1979)

The New Economic Policy (NEP) (Russian: Новая экономическая политика - Novaya Ekonomicheskaya Politika or НЭП) was an economic policy proposed by Vladimir Lenin to prevent the Russian economy from collapsing. Allowing some private ventures, the NEP allowed small businesses or shops, for instance, to reopen for private profit while the state continued to control banks, foreign trade, and large industries.[1] 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.[2] Further decrees refined the policy and expanded it to include some industries.

Contents

Beginnings of NEP

The New Economic Policy (NEP) replaced the policies of War Communism which attempted to obliterate any signs of the market economy in the Soviet Union. War Communism’s policies had been particularly destructive to the Soviet economy and thus, the state was in dire need of economic reform. Political and economic grievances would boil over with the Kronstadt rebellion of 1921, where sailors and citizens called for an end to Soviet tyranny.[3] With the Soviet Union in desperate need of an economic jumpstart towards modernization, strides were made to mold the economy so that the Soviet Union would be able to compete with the industrial giants of Europe and the ever growing United States.

Policies of NEP

The NEP was a "mixed economy" in which the coexistence of private and state sectors was sanctioned by laws.[4]

The first steps towards creating the New Economic Policy included ending the state’s requisition of peasant produce and the introduction of a new kind of tax. Rather than repossess all goods produced, the Soviet government took only a fixed quota of goods. This left the peasants with a marketable surplus which could be sold privately.[5]

Under the NEP, the state moved away from Communist ideals and embraced a more liberal approach to modernizing the economy. The Soviet state abandoned the idea of nationalizing particular industries. The Soviet government reformed the private sector under the NEP and severely cut the central government budget. The Soviet Union under the NEP welcomed foreign investment, notably from Western nations, in order to fund industrial and developmental projects.[6]

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.[7] The Bolsheviks’ view towards village life was dismal. The old way of village life was reminiscent of the Tsarist Russia that had been thrown out with the October Revolution. With the NEP, which sought to repudiate the “old ways,” methods were set in placed which promoted peasants to pursue their self-interests. However, the state only allowed private landholdings because the idea of collectivized farming was met with much opposition.[8]

Disagreements in Leadership

Lenin was vehemently opposed to the NEP stating that it was a repudiation of communist principles. However, he justified the NEP by insisting that it was a different type of capitalism. He insisted that this form of “state capitalism” was the last stage of capitalism before socialism evolved.[9]

There were also disputes between Trotsky and Stalin as Trotsky believed in a more internationalist approach when revamping the economy. Stalin, on the other hand, believed that the NEP was a patriotic and nationalizing mission which would further Soviet grandeur in the international system.[10]

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 "NEPmen" (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. Some people, mainly the 'old Bolsheviks' within the party saw the NEP as a betrayal of Communism and Marxism.

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. However, unemployment skyrocketed under the NEP and a wider gap was created between classes.[2]

End of NEP

By 1925, the year after Lenin's death, Nikolai Bukharin had become the foremost supporter of the New Economic Policy. 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.[2] 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 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 and instead by taxing the peasants more, as similarly happened in Meiji Japan, Bismarck's Germany, and in post-World War II South Korea and Taiwan.

References

  1. ^ Ellis, Elisabeth Gaynor; Anthony Esler (2007). "Revolution and Civil War in Russia". World History; The Modern Era. Boston: Pearson Prentice Hall. pp. 483. ISBN 0-13-129973-5. 
  2. ^ a b c Service, Robert (1997). A History of Twentieth-Century Russia. Cambridge, MA: Harvard University Press. pp. 124–5. ISBN 0-074-40348-7. 
  3. ^ Sheldon L. Richman "War Communism to NEP: The Road from Serfdom." The Journal of Libertarian Studies V, no. 1 (1981): (accessed Mar 4, 2009), 92.
  4. ^ 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.
  5. ^ Sheila Fitzpatrick, The Russian Revolution, (New York: Oxford University Press, 1984), 95.
  6. ^ Ibid., 96.
  7. ^ Vladimir P. Timoshenko, Agricultural Russia and the Wheat Problem (Stanford, Calif.: Food Re- search Institute, Stanford University, 1932), 86.
  8. ^ 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.
  9. ^ 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.
  10. ^ Sheila Fitzpatrick, The Russian Revolution, (New York: Oxford University Press, 1984), 115.

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Britannica Concise Encyclopedia. Britannica Concise Encyclopedia. © 2006 Encyclopædia Britannica, Inc. All rights reserved.  Read more
Russian History Encyclopedia. Encyclopedia of Russian History. Copyright © 2004 by The Gale Group, Inc. All rights reserved.  Read more
Columbia Encyclopedia. The Columbia Electronic Encyclopedia, Sixth Edition Copyright © 2003, Columbia University Press. Licensed from Columbia University Press. All rights reserved. www.cc.columbia.edu/cu/cup/  Read more
Wikipedia. This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "New Economic Policy".  Read more

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