New Economic Policy Totally Explained

Everything about New Economic Policy totally explained

:For the Malaysian New Economic Policy, see Malaysian New Economic Policy. 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 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" (for example, 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.

Policies

Under the policy of NEP, private ownership was restored to small parts of the economy, especially farming (but not to the land itself). It replaced the policy of "War Communism" which was introduced by Vladimir Lenin in 1918 as an emergency plan to help the Bolsheviks win the Civil War in Russia fought against the White Army. To explain the NEP, Lenin had said "We are not civilized enough for socialism", referring to the fact that Russia was still a primarily agrarian nation, with a very small urban population and a weak industrial base, and thus it didn't meet the economic criteria necessary for full socialism. Lenin further explained the introduction of the NEP by declaring that the "commanding heights" of industry, that is, the large factories producing coal, iron, electricity etc., would still be under state control. The NEP also loosened trade restrictions, which caused the nation to regain alliances with foreign countries. The NEP did improve the efficiency of food distribution and especially benefited the peasants. However, many urban workers resented the profits made by private traders. Joseph Stalin announced the abolition of the NEP in January, 1929 and replaced it with the first of his Five-Year Plans.
The NEP allowed peasants to lease and hire labor and they were allowed to keep a surplus after paying a certain proportion of their tax to the government. This has also led to the Fundamental Law of the Exploitation of Land by the Workers, which ensured that the peasants have a choice of land tenure.

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 further improved 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 didn't yet pursue any policy of industrialization, this created an imbalance in the economy where the agricultural sector was growing much faster than the 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 "NEP men" (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.
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 1928, agricultural and industrial production had been restored to the 1913 (pre-WWI) level.

End of NEP

By 1925, the year after Lenin's death, Nikolai Bukharin had become the foremost supporter of the NEP. It was abandoned in 1929 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 rapidly accumulate capital for the vast industrialization programme introduced with 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'll be crushed"). Stalin proposed that the grain crisis was caused by the NEP men, who sold their agricultural products to the urban populations at 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 benefited the Communists' so-called "class enemies", the traders (NEP men), while being detrimental to the workers, whom the Party claimed to represent. 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 controversial 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 has been his most notable, and most destructive departure from the NEP approach. It is often argued that industrialization could have been achieved without any collectivization just by taxing the peasants more, much like what happened in Meiji Japan, Bismarck's Germany, and in post-WWII South Korea and Taiwan.

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