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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. 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. Further decrees refined the policy and expanded it to include some industries.

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. With the Soviet Union in desperate need of an economic jump-start towards modernization, strides were made to mould 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 state-oriented "mixed economy" in which the coexistence of private and state sectors was sanctioned by laws.

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.

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.

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. 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.

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.

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.

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 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-WWI) level. However, unemployment skyrocketed under the NEP and a wider gap was created between classes.

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 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. (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 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. 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 the whole 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 that industrialization could have been achieved without any collectivization and instead by taxing the peasants more, as similarly happened in Meiji Japanmarker, Bismarck's Germanymarker, and in post-World War II South Koreamarker and Taiwanmarker.


  1. V N. Bandera "New Economic Policy (NEP) as an Economic Policy." The Journal of Political Economy 71, no. 3 (1963):. (accessed Mar 4, 2009), 268.
  2. Sheila Fitzpatrick, The Russian Revolution, (New York: Oxford University Press, 1984), 95.
  3. Ibid., 96.
  4. Vladimir P. Timoshenko, Agricultural Russia and the Wheat Problem (Stanford, Calif.: Food Re- search Institute, Stanford University, 1932), 86.
  5. 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.
  6. 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.
  7. Sheila Fitzpatrick, The Russian Revolution, (New York: Oxford University Press, 1984), 115.


Further reading

  • Davies, R. W. (ed.) (1991). From tsarism to the new economic policy: continuity and change in the economy of the USSR. Ithaca, N.Y.: Cornell University Press. ISBN 0801426219.
  • Fitzpatrick, Sheila, et al. (ed.) (1991). Russia in the Era of NEP. Bloomington, IN: Indiana University Press. ISBN 025320657X.
  • NEP Era Journal:

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