Could the Soviet New Economic Policy Have Been Kept on Indefinitely?

I’d like to present to you a portion of a video I’m currently working on about the Five Year plans in the Soviet Union. The work is based on “Farm to Factor: A Reinterpretation of the Soviet industrial Revolution” by Robert C. Allen. This portion I present deals with the claim by some detractors that the New Economic Policy could have been carried on indefinitely and that Stalin’s Five Year plans were unnecessary for industrialisation. Here we’ll see how this claim is false and that doing so would have been antithetical to the construction of socialism.

While the revolution took power on the 7th of November 1917, the first Five Year Plan did not take place until 1928. From 1918-1920 the Bolsheviks carried out what Lenin called “war communism.” This included the tail end of World War 1 and the civil war which followed after. Once their power was consolidated, the economy was destroyed by years of fighting. What followed after was the New Economic Policy (NEP) from 1921 – 1928.The goal of the NEP was to carry out an economic recovery and to appease the peasants with land reform.

The NEP has socialised production but left agriculture and most trade to be carried out privately. Markets at this point had a significant amount of power. During this time the government was communist, but political debate took on radical forms as party members looked for solutions to economic problems. While the NEP was successful at revitalising the economy, some wondered if it would have been better to keep it, instead of switching to the 5 Year Plans. Would the NEP have been best for industrialisation?

The Bolsheviks carried the slogan “peace, land and bread.” These were the primary desires of the Russian population. These desires were quickly pursued with mixed results.

Firstly, Lenin carried out a nationalisation of all land and gave its use to the peasants. Large landlords had their land seized and distributed to the peasants. A great equalisation was carried out. Large land holdings were broken up, and small holdings had been increased in size.  The peasants had gotten what they had yearned for such a long time: the elimination of nobles and unequal farms.

The hostilities did not end with the Russian withdrawal from World War One via the Brest-Litovsk treaty. War began again that summer as domestic and international enemies of the revolution launched their offenses against the Bolshevik victory.

The most difficult task was the “bread” of the slogan. Economic development proved quite tumultuous as policy was created and hardships appeared. The largest immediate obstacle was the fallout of the civil war which left the Bolshevik power concentrated in the immediate area around Moscow. Because of this, taxes could not be collected. The printing presses resorted to pumping out new money to finance the state – which resulted in hyperinflation. It was the Imperial government who first required the peasants to sell their surpluses, and rationed bread in the cities. The Bolsheviks continued this policy, but also formed a state monopoly on trade. During this difficult time, grain production significantly decreased, requiring troops to commandeer surpluses. When the drought struck the already devastated conditions, the 1921 famine took place that killed several million.

“The urban economy almost disappeared during war communism. Between 1917 and 1920, the output of cigarettes dropped by 78 percent, cotton yarn by 93 percent, pig iron by 96 percent, and horse-driven threshers by 99 percent. The industrial workforce fell from 2.6 million in 1917 to 1.2 million in 1920. In 1926 peasants made up 82 percent of the Russian population as compared to 72 percent in 1913.”[i]

The Bolshevik government seized control of industry as it was failing. On November 27th, 1917 they handed power over the businesses to the workers’ councils. The railways were managed by the unions until March 1918.

It should be noted that Lenin opposed this move, he opposed labour management because he saw it as incompatible with national planning.  It wasn’t long after that nationalisation became the goal of the Bolsheviks. In November and December 1917 the banks were nationalised into a single People’s Bank.  The Supreme Council of National Economy (VSNKh) was created on the 15th of December the same year to manage state-owned enterprises. Unfortunately, by June 1918, a mere 487 firms had been nationalised, most of which was accomplished by local action.

In the year 1921, the Bolsheviks controlled most of the country but the economy was in ruin. “Grain output was 56 percent below its 1913 level, livestock production was down 73 percent, and industrial production had dropped 70 percent.”[ii] Because of this hardship, Lenin introduced the NEP to stimulate growth and to appease the peasants.

As the NEP took hold policies changed. Instead of requisitioning food, they levied moderate taxes. Factory production was placed on a commercial basis and organised as a profit-maximizing trust. Private trade was legalised and economic exchanges were conducted as market transactions. These measures were successful and returned output to pre-war levels by the late 1920s.

Could the NEP have been kept on permanently? No, because the Bolsheviks had three main goals:

  1. Build socialism
  2. Industrialization
  3. Rapid increase in the standard of living

The construction of socialism was hindered by the very nature of the NEP. While large industry was held by the state, a good deal of trade and small industry were in private hands. This reality created a class of capitalists and merchants – known as Nepmen. This is antithetical to socialism. Agricultural land was owned by pre-capitalist-style communes. The problem of privately owned land was that it had a strong tendency to return to scale. Eventually each village fractured into a few capitalist farmers, and landless labourers. These capitalists were known as Kulaks. This is also antithetical to socialism. These new classes were enemies of socialism.

The goal of industrialization was hindered by peasant agriculture from a technical and economic point of view. During the mid-1920s, midsized farms were mostly self-sufficient and thus least likely to sell food to the cities. Trouble was anticipated if industry boomed causing demand for food to boom. Peasant farms needed transforming into large-scale, socialized food factories.

“…[T]he NEP failed to grasp the advantages that socialism offered a backward country trying to industrialize. NEP industry was state-owned but operated in the capitalist manner. As a result, there were two potential shortcomings. First, in deciding on investments, businesses looked only to their own profits and ignored the advantages their investments created for other firms in the economy. In such a case, socially profitable investments might not be undertaken. Planning could overcome that problem. Second, businesses hired workers only if they generated enough sales to cover their salaries, that is, if the presence of structural unemployment like that in the Soviet Union, output could be increased by hiring unemployed workers with a positive marginal product even if it was less than the wage. State-owned firms could do this, while private firms could not. Abandoning capitalist employment practices, consequently, could increase growth through employment expansion. The NEP was not well adapted to realize either of these possibilities. Both were realized by Stalin’s system of economic organization and proved highly productive.”[iii]

The third goal was to create a rapid increase in the standard of living. The plan was to have socialism increase it by increasing economic growth. This growth would create consumer goods for the public. A socialist society would also ensure that the gains from economic growth would reach the whole population by increasing employment beyond what capitalism was capable of, and by ending exploitation. This was accomplished by ending the profits of nobility and capitalists – which was seen as an illegitimate form of social welfare payment – not a return for performing labour. The workers instead would receive the income. This was opposite to the imperial patterns of growth, where output per worker grew but real wages remained constant.

“Was socialism really necessary to realized these goals? Sometimes, they have been achieved by capitalist economies, notably the OECD countries and, more recently, a few in East Asia. The demand problem can be met by the export of manufactures and by their sale to the farm population. The Depression of the 1930s mean that neither of these markets was buoyant for the USSR: the protectionism of the capitalist countries precluded exports of Soviet manufactures, and the collapse of agricultural prices reduced the potential purchasing power of the countryside. The weak rural demand would have been further hampered by the low labor productivity of Russian agriculture, which meant that disposable income was much less than in economically successful wheat-exporting countries like Canada. Slow growth would have precluded a rapid rise in the standard of living since labor markets would not have been tight. Rapid population growth would have compounded the problem. In theory, capitalist development can achieve rapid growth and rising real wages, and sometimes it has in practice, but the poor growth records of many countries… show that success depends on favourable conjunction of economic and social conditions that has not often been realized. The Soviet growth model sidestepped some of the factors that have prevented successful capitalist development in other times and places.”[iv]


[i] Allen, Robert C. Farm to Factory: A Reinterpretation of the Soviet Industrial Revolution. Princeton, NJ: Princeton UP, 2003. 6-7. Print. pp. 48

[ii] Allen, 2003. pp. 49

[iii] Allen, 2003. pp. 50

[iv] Allen, 2003. pp. 51