Lenin’s New Economic Policy – a Necessary Retreat from War Communism
Introduction
In
this article, we look at one of Vladimir Lenin’s more controversial decisions -
the decision to permit a limited capitalist oriented economic system after the
Russian Civil War ended.
We will also examine some related questions:
a)
What impact did Lenin’s decision have on the Soviet economy?
b)
Why was the New Economic Policy abandoned after only a few short years?
Origins of
the New Economic Policy
The
New Economic Policy, proposed by Vladimir Lenin, replaced the unpopular “War
Communism” of the Civil War period (1917-1921).
During the period of “War Communism” the Russian economy was
characterized by rigid socialist dogma, State control of property and
centralized economic planning.
As
the Civil War entered its final months in the winter of 1920, economic and
social conditions continued to deteriorate.
Poor harvests created widespread famine, resulting in millions of deaths. These severe food shortages were acerbated by
the resistance of peasants to the mandatory large quotas of food that had to be
surrendered to the central government.
In
addition to the crisis in agriculture, there were general strikes in several
cities as urban workers reacted to reduced bread rations, as well as the mutiny
of sailors at the Kronstadt naval base. In
the midst of this unrest and high levels of unemployment, with Lenin’s blessing
the Tenth Party Congress (March 1921) adopted the New Economic Policy
(NEP).
Key Features of NEP
The forceful
expropriation of their crops was one of the major grievances of Russian
peasants. Instead of expropriating their
grain, the New Economic Policy introduced a “payment in kind.”
- Based upon their income and the number of dependents in a family, the State levied a reasonable tax on the farmer. After this tax was paid, the peasant was free to sell the remainder of his produce privately to generate income. By 1923 – 1924, the “tax in kind” was replaced by a cash payment.
- Outside of agriculture, the New Economic Policy created greater freedom in terms of trade within the Soviet Union. Prices were no longer set by government fiat, although the State did maintain a monopoly in some commodities (e.g., tobacco). On the labour front, trade union membership was no longer mandatory and workers were free to seek any type of employment.
- In 1921, the Soviet government decided to relinquish its ownership of most small and medium sized businesses, allowing them to be owned privately. Larger industrial enterprises as well as banks and railways remained state-controlled as did foreign trade.
Successes
under NEP
Under the New Economic
Policy, the Soviet government was able to balance its budget relatively quickly
(1923 - 1924). This was the result of
new excise taxes as well as corporate and personal taxes on income and
property. The government also
re-introduced the previous government monopoly of vodka sales, reduced spending on
education and introduced school fees.
All of the above measures contributed significantly to the stabilization
of the new Soviet currency (chervonets).
All of the measures
introduced as part of NEP were very successful in restoring Russian
agricultural production to its pre-World War I level. However, there were still some persistent
weaknesses in Russia’s ability to produce food.
While the breakup of the larger commercial sized farms did result in
more peasants having access to farmland, these smaller holdings were less
efficient. Access to more efficient
farming equipment also remained a problem as the high cost of machinery worked
against the implementation of more efficient farming methods. As a consequence, overall food production continued
to lag behind. By 1927, many members of
Russia’s Communist Party became convinced that some additional administrative
measures would be needed in addition to the market based incentives already in
place.
In
the case of industrial activity, production did return to pre-World War I
levels by 1926 - 1927. However, larger
scale industrial enterprises continued to face significant problems. It was very difficult to keep these
businesses in operation as critical supplies of fuel and materials remained
largely unavailable. Foreign companies
were very reluctant to extend supplies or credit to the new regime, after the Bolsheviks
had defaulted on all Tsarist bonds and had confiscated foreign owned
businesses.
Beginning in early 1928, the
Communist Party leadership started implementing more coercive measures to increase
food production, reverting to the forced confiscations that had characterized
the period of “War Communism”. From this
point forward, Lenin’s New Economic Policy was effectively dead.
Under Joseph Stalin, the new priorities were rapid
industrialization, military preparedness and the collectivization of
agriculture. These goals required far
more capital than could be accumulated through the voluntary individual savings
of a predominately agrarian economy.
Conclusion
Lenin’s New Economic Policy was a
success, particularly in dealing with the food problem. It is also clear that the Soviet Union needed
a “breathing space”, an opportunity to rebuild and recover from the turmoil of
the previous several years and the significant damage inflicted on the Russian
economy. While Lenin felt that the New
Economic Policy would exist in the Soviet Union for a long time to come, it was
defunct four years after his death as Stalin planned a new course for Russia.
It would have been interesting to see how the
Soviet Union developed, had the New Economic Policy endured for an extended
period of time. While Lenin’s successor eventually
succeeded in developing Russia’s industrial base, this victory was achieved at
a very high cost.
