New Economic Policy

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The New Economic Policy (NEP) was a course launched by the Communist Party and the Soviet government during the period of transition from capitalism to socialism.


The foundations for the NEP were laid by Lenin in his work "The Immediate Tasks of the Soviet Government" and it was initiated in the spring of 1918. The military intervention by international imperialism and the Russian Civil War, however, made it imperative to launch War Communism, a special, extraordinary economic policy. In March 1921, it was abolished by decision of the 10th Congress of the RCP(B) as not meeting the requirements of building the economy in peace time, and the food surplus appropriation system (a system of procurement of agricultural produce the Soviet government applied during the Civil War and the military intervention of 1918–1920, under which all surpluses from peasant holdings had to be sold to the state at a fixed price) was replaced by a tax in kind; the peasants were also granted the right to sell their surplus produce on the market once the tax had been paid. That was the first step taken from the policy of War Communism in the direction of the NEP.


The substitution of the tax in kind for the food surplus appropriation system and the development of commodity-money relations made the peasants materially interested in expanding agricultural production. In order to effect a further rise in peasant economies and transfer them gradually on to the road of socialist development, measures were taken to introduce the simplest forms of co-operation in the village, which would prepare the peasants for engaging in joint production on collective farms. Lenin’s co-operative plan was a component part of the NEP.

The Soviet government’s policy in the sphere of industry was also based on the use of economic levers, commodity money relations, and the principle of the workers having a material interest in the development of production. The government concentrated all large- and medium-scale industry in its hands and leased small enterprises, including to individuals. A small number of enterprises were leased out as concessions to foreign capitalists. Both lease and concession were forms of state capitalism allowed in the Soviet economy; they did not take deep root, however. Industrial enterprises, especially in the light and food industries, were gradually transferred to a system of self-financing. The wages of industrial workers were fixed proceeding from the socialist principle of remuneration according to the quantity and quality of work done. The excessive centralisation of industrial management that existed during the Civil War was abolished, and it was largely entrusted to production trusts based on the cost-accounting principle, and syndicates engaged in the planned realisation of the trusts’ output. Attention was focused on the principle of one-man management as the most suitable for enterprises operating on the cost-accounting principle.


Objectively speaking, the transition to the NEP brought about a revival and a certain growth of the capitalist element in the economy, such as private trade, private capitalist industries, a certain growth of the kulak section as a result of the development of commodity-money relations in the countryside, the lease of land and the use of wage labour in tilling it, concessions and the lease of public enterprises to individuals. The only correct policy in these circumstances was to make use of capitalism (the development of which was strictly limited and controlled by the state) in order to step up the productive forces.

The NEP provided for the accelerated development of the socialist element: while giving free rein to small-commodity production, it channelled this development, in forms acceptable to the working people, towards socialism, restricting and ousting the capitalist element. The NEP is essentially a method for building socialism, characterised by the following features: the proletarian state controls the economy; capitalism is admitted in to the economy, but within certain limits and under state control, which inevitably implies an economic struggle between the socialist and capitalist elements over the issue of "Who triumphs over whom”; trade develops as the basic form of economic relationships between socialist industry and small-commodity peasant production; economic levers and commodity-money relations are used widely to develop all branches of the economy; socialist industrialisation is implemented as a decisive condition for establishing the material and technical base of socialism; a voluntary transition is gradually effected through co-operation, from small-commodity production to a largescale socialist economy. The NEP ensured the establishment of a close and mutually beneficial link between town and country, between industry and agriculture. Its political importance consisted in that, at the current stage of the country’s historical development, it strengthened the alliance of the working class and the peasantry, and was a vital condition for consolidating the dictatorship of the proletariat. On the one hand, the NEP promoted the restoration and advance of the economy and the consolidation of the socialist element while, on the other, it created conditions conducive to the strengthening of capitalist tendencies. It therefore signified a continuation of the class struggle, though in new forms, rather than its termination. The NEP was instrumental in the rapid restoration of the economy ravaged by the intervention and Civil War. Over two five-year periods, industrialisation and the transfer of the peasants to large-scale collective production were accomplished. The NEP helped overcome the multistruclured system and establish the economic foundations of socialism. By the end of the second five-year period socialism had been basically achieved. The transition period from capitalism to socialism came to an end, and the NEP, the economic policy applied during that period, had outlived itself.


In the first few years agricultural production increased and was successfully purchased by state trading companies. However, as kulaks amassed resources, there was more and more of a tendency to trade in grain, both by selling it to private traders and storing it in hope of realizing a better price than was available at harvest time. This tendency manifested itself in the fall of 1927 when substantial grain was withheld from market and a campaign of encouraging, and in some cases, forcing sales was mounted. In this effort a recently passed anti-hoarding law was employed.[1]


The NEP was of major international significance. It ensured successful economic development, socialism’s victory in the economy, where the world-wide struggle between capitalism and socialism was continued after the Civil War. At the same time the NEP was a science-based method for building socialism and involved the multi-million masses in it—the task that, as Lenin emphasised, would eventually face Socialists in all countries. The experience of building socialism gained in other countries has fully borne out Lenin’s prediction: allowing for their specific historical conditions, all of these countries pursued an economic policy fundamentally similar to the NEP in the transition period from capitalism to socialism.


  1. Edward Hallett Carr and R.W. Davies, Foundations of a Planned Economy 1926-1929, Macmillan (1969), hardcover, 542 pages