The New Economic Policy (NEP) (Russian: Новая экономическая политика, НЭП,

Novaya Ekonomicheskaya Politika) was an economic policy proposed by Vladimir Lenin.

Allowing some private ventures, the NEP allowed small animal businesses or smoke 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 21 March 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
[hide]

 1 Beginnings
 2 Policies
 3 Disagreements in leadership
 4 Results
 5 End of NEP
 6 See also
 7 Footnotes
 8 Multimedia
 9 Further reading

[edit] Beginnings
The NEP replaced the policies of War Communism. While it went against Marxist
theory[citation needed], it seemed necessary due to circumstances to allow limited private
commercialism in the form of the NEP.

[edit] Policies
The laws sanctioned the coexistence of private and public sectors, which were incorporated in
the NEP, which on the other hand was a state oriented "mixed economy." [3]

Rather than repossess all goods produced, the Soviet government took only a small
percentage of goods. This left the peasants with a marketable surplus which could be sold
privately.[4]

The state, after starting to use the NEP, moved away from Communist ideals and started the
modernizing of the economy, but this time, with a more free-minded way of doing things.
The Soviet Union stopped upholding the idea of nationalizing certain parts of industries.
Some kinds of abroad investments were expected by the Soviet Union under the NEP, in
order to fund industrial and developmental projects.[5]
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.[6] The Bolsheviks’ attitude towards village
life was dismal. The old way of village life was reminiscent of the Tsarist Russia that had
supposedly been thrown out with the October Revolution. With the NEP, which sought to
repudiate the “old ways,” methods were put in place which promoted the pursuit by peasants
of their self-interests. However, the state only allowed private landholdings because the idea
of collectivized farming had met with much opposition.[7]

[edit] Disagreements in leadership

Lenin considered the NEP as a strategic retreat.[8] 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 Leon Trotsky and Joseph 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]

[edit] Results
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 surpassed 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 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-World War I) level. However, unemployment skyrocketed under the
NEP and a wider gap was created between classes.[2]

[edit] 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 after Joseph Stalin obtained a
position of leadership during the Great Turn. Stalin 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 accumulate capital rapidly for the vast industrialization programme
introduced with the 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. (Stalin proclaimed: "Either we do it, or we shall be crushed.") Stalin proposed
that the grain crisis was caused by the NEP men, who sold agricultural products to the urban
populations for 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
disastrous 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 much of the economy, and from the late 1920s onwards introduced a
policy of rapid industrialization. Stalin's collectivization of agriculture was his most notable
and most destructive departure from the NEP approach. It is often argued[citation needed] that
industrialization could have been achieved without any collectivization and instead by taxing
the peasants more, as similarly happened in Meiji Japan, Otto von Bismarck's Germany, and
in post-World War II South Korea and Taiwan.

[edit] See also

 Economic calculation problem
 Planned economy