New Economic Policy
The New Economic Policy was an economic policy of the Soviet Union proposed by Lenin in 1921 as a temporary expedient. Lenin characterized the NEP in 1922 as an economic system that would include "a free market and capitalism, both subject to state control", while socialized state enterprises would operate on "a profit basis". Nouveau riche people who took an advantage of the NEP were called NEPmen.
The NEP represented an early form of market socialism to foster economic growth for the country, which had suffered severely since World War I and the Russian Civil War. The Soviet authorities partially revoked the complete nationalization of industry and introduced a mixed economy which allowed private individuals to own small and medium-sized enterprises, while the state continued to control large industries, banks and foreign trade. The Bolshevik government adopted the NEP in the course of the 10th Congress of the All-Russian Communist Party. The decree on 21 March 1921: "On the Replacement of Prodrazvyorstka by Prodnalog" abolished forced grain-requisition and introduced a tax on farmers, payable in the form of raw agricultural product. Further decrees refined the policy. Other policies included monetary reform and the attraction of foreign capital.
NEP was abandoned in 1928 with Joseph Stalin's "Great Break" and gradually phased out during 1928–1931.
Beginnings
In November 1917, the Bolsheviks seized control of key centres in Russia. This led to the Russian Civil War of 1917–1922, which pitted the Bolsheviks and their allies against the Whites and other counter-revolutionary forces. During this period the Bolsheviks attempted to administer Russia's economy purely by decree, a policy of the War Communism. Farmers and factory workers were ordered to produce, and food and goods were seized and issued by decree. While this policy enabled the Bolshevik regime to overcome some initial difficulties, it soon caused economic disruptions and hardships. Producers who were not directly compensated for their labor often stopped working, leading to widespread shortages. Combined with the devastation of the war, these were major hardships for the Russian people and diminished popular support for the Bolsheviks.At the end of the Civil War, the Bolsheviks controlled Russian cities, but 80% of the Russian population were peasants. Although almost all the fighting had occurred outside urban areas, urban populations decreased substantially. The war disrupted transportation, and basic public services. Infectious diseases thrived, especially typhus. Shipments of food and fuel by railroad and by water dramatically decreased. City residents first experienced a shortage of heating oil, then coal, until they resorted to wood. Populations in northern towns declined an average of 24%. Northern towns received less food than towns in the agricultural south. Petrograd alone lost 850,000 people, half of the urban population decline during the Civil War. Hunger and poor conditions drove residents out of cities. Workers migrated south to get peasants' surpluses. Recent migrants to cities left because they still had ties to villages.
Urban workers formed the core of Bolshevik support, so the exodus posed a serious problem. Factory production severely slowed or halted. Factories lacked 30,000 workers in 1919. To survive, city dwellers sold personal valuables, made artisan craft-goods for sale or barter, and planted gardens. The acute need for food drove them to obtain 50–60% of food through illegal trading. The shortage of cash caused the black market to use a barter system, which was inefficient. Drought and frost led to the Russian famine of 1921, in which millions starved to death, especially in the Volga region, and urban support for the Bolshevik party eroded. When no bread arrived in Moscow in 1921, workers became hungry and disillusioned. They organised demonstrations against the Bolshevik Party's policy of privileged rations, in which the Red Army, Party members, and students received rations first. The Kronstadt rebellion of soldiers and sailors broke out in March 1921, fueled by anarchism and populism.
In 1921 Lenin replaced the food requisitioning policy with a tax, signaling the inauguration of the New Economic Policy. Leon Trotsky had also proposed the principles which would underlie the NEP in 1920 to the Politbureau in an effort to mitigate urgent economic matters arising from war communism. He would later reproach Lenin privately about the delayed government response in 1921–1922.
The famine of 1921–1922 epitomized the adverse effects of war communism, and to mitigate those effects, Lenin instituted the NEP, which encouraged private buying and selling. However, many Bolsheviks saw the policy as "a step backwards". That included Lenin himself, who defended the measure as "taking one step backward to take two steps forward later on".
Policies
The laws sanctioned the co-existence of private and public sectors, which were incorporated in the NEP, which was a state oriented "mixed economy". 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.The NEP was primarily a new agricultural policy. The Bolsheviks viewed traditional village life as conservative and backward. With the NEP, the state only allowed private landholdings because the idea of collectivized farming had met strong opposition.
Lenin understood that economic conditions were dire, so he opened up markets to a greater degree of free trade, hoping to motivate the population to increase production. Under the NEP, not only were "private property, private enterprise, and private profit largely restored in Lenin's Russia", but Lenin's regime turned to international capitalism for assistance, willing to provide "generous concessions to foreign capitalism". Lenin took the position that in order to achieve socialism, he had to create "the missing material prerequisites" of modernization and industrial development that made it imperative for Soviet Russia to "fall back on a centrally supervised market-influenced program of state capitalism". Lenin was following Karl Marx's precepts that a nation must first reach "full maturation of capitalism as the precondition for socialist realization". Future years would use the term Marxism–Leninism to describe Lenin's approach to economic policies which were seen to favor policies that moved the country toward communism. The main policy Lenin used was an end to grain requisitions and instead instituted a tax on the peasants, thereby allowing them to keep and trade part of their produce. At first, this tax known was paid in kind, that is in the form of agricultural service, but as the currency became more stable in 1924, it was changed to a cash payment. This increased the peasants' incentive to produce, and in response production jumped by 40% after the drought and famine of 1921–22.
NEP economic reforms aimed to take a step back from central planning and allow the economy to become more independent. NEP labor reforms tied labor to productivity, incentivizing the reduction of costs and the redoubled efforts of labor. Labor unions became independent civic organizations. NEP reforms also opened up government positions to the most qualified workers. The NEP gave opportunities for the government to use engineers, specialists, and intelligentsia for cost accounting, equipment purchasing, efficiency procedures, railway construction, and industrial administration. A new class of "NEPmen" thrived. These private traders opened up urban firms hiring up to 20 workers. NEPmen also included rural artisan craftsmen selling their wares on the private market.
Disagreements in leadership
Lenin considered the NEP as a strategic retreat from socialism. He believed it was capitalism, but justified it by insisting that it was a different type of capitalism, "state capitalism", the last stage of capitalism before socialism evolved. While Stalin seemed receptive towards Lenin's shift in policy towards a state capitalist system, he stated in the Twelfth Party Congress in April 1923 that it allowed the "growth of nationalistic and reactionary thinking". He also states that in the recent Central Committee plenum there were speeches made which were incompatible with communism, all of which were ultimately caused by the NEP. These statements were made just after Lenin was incapacitated by strokes.Leon Trotsky and Joseph Stalin disagreed over how to develop the Soviet economy. Trotsky would elaborate on his views concerning the prospects and challenges associated with the NEP in his work, Towards Socialism or Capitalism?. Because of Trotsky's history with Menshevik ideology, he believed in the importance of creating a basis of capital for communism to build on. In Trotsky's mind, the New Economic Policy helped lay a foundation of economic opportunities that would aid in a gradual transition to Collective Farming. Additionally, Trotsky saw the New Economic Policy as a means to prevent the stratification of the classes. Trotsky believed the state should repossess all output to invest in capital formation. On the other hand, Stalin supported the more moderate members of the Communist Party and advocated for a state-run capitalist economy. Stalin would later play on Trotsky's support of New Economic Policy to gain political influence over him by stating that Trotsky lacked confidence in his people. Stalin managed to wrest control of the Communist Party from Trotsky, and after defeating the Trotsky faction, Stalin reversed his opinions about economic policy. Stalin believed that creating a socialist society was achievable in the Soviet Union without aid from outside sources or capitalist ideology. Backed by Stalin's Bolshevik-leaning ideology, he believed there was no need to build a basis of capital upon communism and implemented the first five-year plan.