New Economic Policy

New Economic Policy

The New Economic Policy (NEP) was introduced to replace the failed policy of War Communism. The NEP advanced with almost a capitalist approach to economic growth. Wages were paid in cash not kind and surplus staff were dismissed. Under War Communism, Lenin employed the communist belief that everybody had the right to a job and people were employed regardless of whether they were actually needed or not. The NEP brought some form of economic sense back to Russia’s economy. Trade was to operate on an economic and commercial accounting basis. Industry was divided into ‘trusts’, which controlled various ‘enterprises’. In the first stages of NEP, theoretical restrictions were placed on a firm’s freedom to buy and sell but by 1922, these limits were dropped and profit-making became the main aim of those in industry. No industry was obligated to supply the state and, as Lenin had commented, the Communists had to learn how to trade.

However, the NEP did not totally solve Russia’s economic problems. The disaster that had been World War One and the tribulations of the civil war and War Communism had devastated the economy. Any sustained advances in the economy would take centuries. Factories, freed from the shackles of War Communism, did start to produce goods but few had the money to buy them. As workers could be dismissed, unemployment started to grow. Lenin allowed industry bosses to use foreign capital – but few countries were brave enough to invest in the fledgling communist state. Therefore, money was earned from exporting produce that could not be sold in Russia. The export of grain and coal helped to kick-start Russia’s economy and by 1924-25, Russia’s imports were nine times higher than the 1921-22 level. Though this would seem a major achievement in just three years, the 1921-22 figure was so small that the increase is not as spectacular as would first appear.

However, an expanding economy needed a decent transport system. The civil war had decimated Russia’s rail system. In 1921, 50% of Russia’s trains were off the tracks due to a lack of repairs and the skilled men needed to repair them. A huge effort was needed to build up the rail system and by the end of 1923, the rail system carried 45% more passengers and 59% more goods than two years earlier. By the end of 1927, the number of people/goods carried by trains passed the 1913 figure. If advances were made in the rail system, roads remained massively backward with transport being almost wholly based on horse and cart.

The NEP also needed a stable currency and this was difficult to achieve after such huge economic dislocation in such a short space of time. The rouble of 1922 had an inflationary value of 60,000 over the 1913 figure – and the 1922 budget was based on the pre-war rouble. The rouble was discredited and associated with the old regime. Therefore, a new currency was needed, and a decision to do this took place in July 1922. It was to be called the chervonets. By 1923, the paper rouble became worthless. Because the new economy was backed by gold, the demand for the chervonets was high and it became the sole currency in February 1924. The task of moving Russia over to a new currency was handed over to the State Bank. Such was the move to this new currency, that the state had a financial budget surplus at the end of 1925. This was a major achievement – but as with anything in Russia, it did disguise problems. Many financial transactions in rural areas were still done in a form of bartering as the economic modernisation being witnessed in the cities had yet to fully transfer itself to the countryside. This imbalance was to lead to a major economic problem – the so-called ‘Scissors Crisis’.

The Scissors Crisis started in October 1923 when industrial prices were three times higher than agricultural prices. The incentive to produce more food in the countryside had led to much higher production. With so much food around, prices for farm produce fell when compared to industrial prices as industry, by the very nature of it, took longer to recover (the re-building of factories/equipment etc). Compared to the countryside, costs in industry were high. As farming was still based around physical labour, there was never a shortage of workers in the countryside. Equipment remained primitive and cheap. However, the farmers were producing in quantity. Their produce was food, primarily grain, as they knew that this could be sold in the cities – and the driving force was legally to make a profit. Industries based on cotton found that they were starved of their most basic raw material as the farmers knew that food was a much better bet to grow. The government could not allow the cities to get hungry again. Therefore, the government became the principle purchaser of food but they used their position to force down the price that the farmers wanted. With less money, the farmers had less capital to buy products from the cities. The government responded to this by forcing down the prices of manufacturing produce and decrees were issued that controlled prices. Government interference in the economy was never far away.

The NEP transformed agriculture. War Communism had taken away any incentive to produce as the state requisitioned all surplus food. NEP brought back the incentive to farm productively as surplus food could be sold and profits were taxes. The introduction of a food tax – prodnalog – was a simple recognition that the food produced equalled private property. If it was anything else, how could it be taxed?

After 1917-18, land was reapportioned. The huge estates of Nicholas II’s reign were now divided up. By 1927, there were 25 million peasant holdings in Russia (98.3% of all farmed land) and given decent weather, many of these holdings, post-War Communism, made a reasonable living. The extremes of poverty and riches in the countryside had diminished.

However, farming was still relatively backward and many peasant communities used strip farming and the three-field system. Modern crop rotation was rarely used and even by 1928, 5.5 million households still used the sokha – a wooden plough. Therefore, while the production of food increased greatly, it could have been so much better. The most powerful of the peasants were the wealthier kulaks who made extra money by selling their surplus seed to the poorer peasants in times of need.

Lenin saw the way ahead for the peasants as mechanisation. This would increase food production and stimulate industrial production in the factories. Above all else, Lenin wanted to restore agriculture to pre-war levels so that it recovered from the devastation caused by two wars. In this he was very successful.

In 1913, the area of sown land was 105 million hectares. By 1922, this had dropped to 77.7 million hectares but by 1925 had recovered to 104.3 million hectares.

In 1913, the number of horses on farms was 35.5 million. By 1922, this had dropped to 24.1 million but by 1925, the number of horses stood at 27.1 million.

In 1913, the number of pigs on farms was 20.3 million. By 1922, this had dropped to 12 million but by 1925, the number of horses stood at 21.8 million.

In 1913, the amount of grain grown was 80 million tons. By 1922, it had risen to 50.3 million tons and by 1925, the figure stood at 72.5 million tons. The government bought 75% of this. What could be exported was, but this figure declined as the 1920’s advanced as Lenin and his successors wanted the cities fed. The government hoped to get the perfect solution – the peasants had their produce bought and the city workers were able to feed themselves.

Can the NEP be classed as a success? Compared to the disaster of War Communism, it was. Compared to the utter economic dislocation caused by World War One, it can also be seen as a success. There were many major problems to address post-1918. The NEP had started to do just this by the late 1920’s. There were still many more problems to solve and Stalin attempted to do this with collectivisation.

MLA Citation/Reference

"New Economic Policy". 2014. Web.

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