New Economic Policy Nep

The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

New Economic Policy (Nep)


the policy pursued by the CPSU and the Soviet state during the period of transition from capitalism to socialism; called new to distinguish it from the economic policy of the Civil War period (1918–20). NEP was launched in 1921 by a decree of the Tenth Congress of the RCP (Bolshevik) and came to an end in the second half of the 1930’s, with the victory of socialism in the USSR.

The essence of NEP consisted in strengthening the alliance of the working class and the peasantry on an economic basis, establishing a link between socialist industry and small-scale peasant enterprises through the extensive use of commodity-money relations, drawing the peasants into socialist construction, and providing for “a maximum increase in productive forces and improvement in the situation of the workers and peasants” (V. I. Lenin, Poln. sobr. Soch., 5th ed., vol. 43, p. 398). Although NEP permitted some development of capitalist elements, control of key sectors of the national economy remained in the hands of the state of the dictatorship of the proletariat. NEP ensured the growth of productive forces by providing for the growth of socialist elements, by supplanting capitalist elements, and by transforming a mixed economy into a single socialist economy through industrialization and the establishment of cooperative agriculture.

The principles of the economic policy for the transitional period were developed by Lenin as early as the spring of 1918 in the article “The Immediate Tasks of the Soviet Government” and in other works. The Civil War and economic devastation forced the Soviet state to adopt the policy of “war communism,” which was essential to victory in the Civil War. During this period the disruption of the trade link between industry and agriculture and the reduction in trade turnover had undermined the material incentives for the development of the peasant economy. The decline of agriculture made the reconstruction of industry difficult.

The peasantry as a whole understood the need for the policy of “war communism” during the Civil War, but during its concluding stages the requisitioning of grain and the absence of free trade aroused discontent, which was used by anti-Soviet elements to incite counterrevolutionary actions by the petite bourgeoisie, including the peasants (for example, the Antonov revolt, the Makhno movement and the Kronstadt Anti-Soviet Rebellion of 1921). The alliance of the working class and the peasantry was threatened. The military and political form of the alliance had been exhausted, and the party faced the task of consolidating it on an economic basis.

Lenin provided the scientific substantiation for NEP in 1921–22 in reports and speeches delivered at the Tenth and Eleventh Party Congresses, the Tenth Party Conference, the Third and Fourth Congresses of the Comintern, and the Ninth Congress of Soviets, as well as in many works written during those years (for example, “The Tax in Kind” and “The Importance of Gold Now and After the Complete Victory of Socialism”). In his speeches and written works Lenin elaborated the doctrine of the laws of the development of the economy during the transitional period and discussed the ways and methods of surmounting the mixed economy. According to Lenin, NEP entailed the use of commodity production, commodity-money relations, economic methods of management, cost accounting, and material incentives in the interests of building socialism. He demonstrated that trade was the only possible link between socialist industry and petit bourgeois peasant farming.

In working out the problems associated with NEP, Lenin emphasized that industrialization on the basis of electrification was of decisive importance for the victory of socialism. He pointed out that NEP and the GOELRO plan had the same purpose: “The New Economic Policy does not change the single state economic plan, and does not go beyond its framework, but alters the approach to its realization” (ibid., vol. 54, p. 101). The new approach involved changing the order in which the problems of building the foundation for a socialist economy would be solved. First, agriculture and small-scale industry would be revitalized. Then large-scale industry would be reconstructed and developed, a socialist reorganization of agriculture would be prepared and carried out, and the material and technical basis for socialism would be created.

In January-February 1921, Lenin and the Central Committee of the RCP(B) worked out the basic problems of the transition to NEP. In accordance with a decision of the Tenth Party Congress, on Mar. 21, 1921, the All-Russian Central Executive Committee ratified a decree replacing the requisition of grain with a tax in kind. The Council of People’s Commissars of the RSFSR set the maximum tax in kind on grain crops for 1921–22 at 240 million poods (3,931,200,000 kg). Under the requisition plan for 1920–21, 423 million poods (6,928,740,000 kg) were to be collected. By a decree published on March 28 the Council of People’s Commissars authorized the exchange, purchase, and sale of agricultural products in provinces that had met their grain requisitions for 1920–21. The tax in kind was instituted in the Ukraine in March 1921, in Byelorussia in April of that year, in Armenia in June, and in Georgia in July. Owing to economic hardships, Azerbaijan was declared exempt from the tax for 1921.

The substitution of a tax in kind for requisitioning was the crucial but not the only measure in the transition to NEP. It was an expression of the party’s fundamentally new economic policy, which was expected to solve the immediate problems of reconstructing the national economy and to serve as a tool for building socialism. The introduction of the tax in kind gave the peasants an opportunity to sell surplus products, thereby stimulating the development of agriculture.

To improve commodity circulation and satisfy the demand for industrial goods, the decree of May 17, 1921, partially denationalized small-scale industry and preserved private ownership of enterprises that had not yet been nationalized. The decree of May 24, 1921, permitted private trade. In conformity with the decisions of the Tenth Party Congress, trade within the limits of local economic circulation was organized, and direct barter was established between industry and peasant farming through the cooperative system. It was assumed that barter would become a weapon in the struggle against speculation and would limit the role of private capital as a middleman between socialist industry and peasant farming. The state gave the cooperative system special marketable funds to exchange for grain.

However, it proved impossible to limit development to local circulation and to stay within the framework of barter. Buying and selling became increasingly widespread. In the autumn of 1921 the large fairs were revived, and commodity exchanges were opened. Decisions were made concerning the use of state capitalism in the form of concessions, leasing, and mixed companies. The July 5, 1921, decree of the Council of People’s Commissars gave the Supreme Council on the National Economy (VSNKh) the right to lease small industrial enterprises to state and cooperative organizations and to private individuals. On July 7 the All-Russian Central Executive Committee and the Council of People’s Commissars of the RSFSR authorized the organization of private enterprises with no more than 20 workers. Later, larger enterprises were permitted.

The state created the conditions for the development of cottage industry. To expand production and increase marketability in agriculture the policy of limiting the kulak element was combined with a policy of permitting the leasing of land and the use of hired labor. The Order of the Council of People’s Commissars on Putting the Principles of the New Economic Policy Into Effect, which was issued on Aug. 11, 1921, gave a detailed exposition of the tasks of the VSNKh, the All-Union Central Council of Trade Unions, and the Council of Labor and Defense in implementing NEP.

The authorization of free trade under conditions of small-scale commodity production led to some revitalization of capitalist elements in the country. A new bourgeoisie known as the nepmen emerged—merchants, lessees, commodity speculators, entrepreneurs, and brokers. In 1926 they and their families accounted for about 2.3 million people (1.6 percent of the population of the USSR). The state exercised strict control over the nepmen and raised their taxes. The interests of the working people employed at private enterprises were protected by the state and the trade unions.

The conditions of NEP demanded a restructuring of the administration of the national economy. In May 1921, 16 central boards for various branches of industry were formed as part of VSNKh. They managed industrial enterprises through the oblast (provincial) councils on the national economy—the local agencies of VSNKh. To administer the larger enterprises, trusts were established (430 during 1921–22). The most important ones (for example, Iugostal’ [Southern Steel], Donugol’ [Don Coal], and Azneft’ [Azerbaijan Petroleum]), were directly subordinate to VSNKh. State industry was switched to the system of cost accounting, and payment in kind for labor, which had been the practice under “war communism,” was replaced by monetary payments based on the quantity and quality of labor.

The system of state trusts and syndicates created a close link between industrial enterprises and the market. Lenin assigned the state and economic agencies the task of taking control of the market, strengthening state trade and the cooperative system, and regulating currency circulation. In October 1921 the Gosbank (State Bank) was formed and made responsible for regulating currency circulation. The first stable bank notes, the chervontsy, which were issued in late 1922, ensured a stable exchange rate for the ruble on the world market. After the implementation of the currency reform of 1922–24, the tax in kind in agriculture was replaced by a money tax. The Central Agricultural Bank was opened in February 1924 to provide cheap credit for the peasants.

In permitting the development of capitalism within certain limits (a temporary retreat in the economy from the position taken under “war communism”) and allowing an economic competition to the end between the capitalist and socialist sectors, the party and the Soviet government were following the Leninist thesis that it would be possible to win this competition and that, as a result, “NEP Russia will become socialist Russia” (ibid., vol. 45, p. 309).

In 1922 the supply of agricultural products and industrial raw materials to the cities and industrial centers increased, and the reconstruction of industrial enterprises was undertaken. Heavy industry, as well as light industry, gradually revived. The Eleventh Congress of the RCP(B) proclaimed that the retreat was over. In 1922–23 forces were regrouped, and preparations were made for an offensive against the capitalist elements. The leading position of the state sector in the national economy was strengthened as a result of the growth of socialist industry and state and cooperative trade. In three years (October 1923-October 1926) the share of the state and cooperative sector in the total trade turnover rose from 44 to 76 percent, and the share of the capitalist sector dropped from 41 to 19 percent. The party had acquired economic mastery over the market, thus fulfilling a task set by Lenin. From the very beginning of NEP, private capital played only a minor role in industry. In 1925–26 private capital was associated with 4 percent of large-scale industry (figured on the basis of total gross output). On the basis of the average number of workers in all of industry, private capital accounted for only 2.6 percent of large-scale industry. Of 92 foreign concessions operating in the USSR in 1925, 43 were in industry. The foreign enterprises employed a total of 54,000 workers. However, the concessions produced only an insignificant share of the country’s industrial output. In 1924—25 privately owned industry (including small-scale and cottage industry) accounted for 24.2 percent of the industrial output. However, a significant percentage of this small-scale industry consisted of home handicraft workers and artisans who did not rely on hired labor. The village bourgeoisie accounted for 3.3 percent of the peasants in 1924–25, but more than 2 million hired laborers were employed on their farms. The socialist sector accounted for 73.3 percent of industry in 1925, 87.9 percent of wholesale trade, and 55.9 percent of retail trade. In 1927 the socialist sector’s share in industry reached 86 percent, and the private share dropped to 35 percent in retail trade and 5 percent in wholesale trade.

Under NEP the building of socialism was accompanied by a party struggle against opportunist groupings. Failing to understand the objective laws of the economic development of the proletarian state during the transitional period, they tried to make the party revise the Leninist principles of NEP. The “leftists” saw NEP as a capitulation to capitalism, a rejection of communist strategy and tactics. The “rightists” advocated the entry of private capital into large-scale industry, the authorization of the purchase and sale of land, and efforts to attract extensive investments of foreign capital. The party proved that the views of both the “leftists” (the Trotskyites, or the New Opposition) and the “rightists” were indefensible.

While implementing NEP, the party set its future tasks: the industrialization of the country (Fourteenth Congress of the ACP[B], 1925) and the establishment of small-scale producers’ cooperatives in agriculture (Fifteenth Congress of the ACP[B], 1927). Progress in socialist reconstruction of the national economy created the conditions for eliminating the exploiter classes in the USSR. By 1928 the socialist sector accounted for 82.4 percent of the gross industrial output and 76.4 percent of retail trade. The mass collectivization of agriculture, which began in 1929 and entailed the elimination of the kulaks as a class, showed that the economic competition had been decided in favor of socialism. As a result of the policy of restricting and forcing out private capital and taking administrative steps to combat violations of socialist law by the nepmen and the kulaks, the exploiter classes were finally eliminated in the USSR by the early 1930’s. Socialist production relations began to prevail throughout the economy. Many of the important elements of scientific national economic management that had emerged under NEP (the use of economic levers in the national economy and the principle of material incentives, for example) were included in the economic policy of the CPSU and the Soviet state under the conditions of the victory of socialism.

The basic principles of NEP, which were formulated by Lenin, and the experience of the CPSU in following these principles have international importance. The economic policy of the dictatorship of the proletariat—an inevitable and essential policy for every country during the transition to socialism—is designed to use commodity production and market links to establish a stable economic and political alliance between the working class and the peasantry, to involve the latter in socialist construction, to eliminate the mixed economy, and to create a socialist economy. The other socialist countries make creative use of the experience of the USSR, taking into account their own historical characteristics and specific conditions.


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The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.