New Economic Policy (NEP)

An important economic policy of Soviet Russia which was launched in 1921, which was also the surpassing of the war communism economic policy of 1918-1920.

In March 1921, the 10th Congress of the Communist Party of Russia (Bolshevik) was held, which decided to change the surplus grain collection system into grain tax (tax-in-kind), and from then on, the Soviet Russia formally began to implement the New Economic Policy (NEP).

In the early stage of implementing the New Economic Policy, although Lenin realized that it was a long-term task to transform the small-scale peasant economy of Russia, and that the recovery and development of large industry must be realized through the way of adapting to and supporting the small-scale peasant economy, he could not overcome the influence of the thought of “direct transition to socialist society”, and tried to establish a direct exchange system between workers and peasants which would be controlled by the state and be realized through cooperatives. This kind of exchange which was not mediated by money, was called “organized socialist commodity exchange” by Lenin. Lenin pointed out in his “The Tax—in—Kind” that “state regulated socialist exchange of products” was a form of transition from wartime communism to “socialist exchange of products.”

Considering that at that time the state-owned factories could not produce all the agricultural industrial products and other goods needed by the small farmers to exchange with the small farmers, Lenin thought that it had become inevitable to pass to the policy of “state-regulated socialist commodity exchange”, and start the policy of limited free trade.

Lenin said: If we insist to completely prohibit this kind of limited free trade, it would be nonsense or mean committing suicide. But Lenin wanted to restrict this inevitable free trade idea at that time within a partial and limited scope, but reality had soon proved impossible. (See. Lenin’s Speech in Seventh Moscow Gubernia of the R.C.P.(B) Since small-scale farmers accounted for the vast majority of the Russian population, allowing free trade inevitably caused the commodity exchange break through the restrictions and developed rapidly, that meant “our policy of regular exchange of products” had failed, thus Lenin concluded, “we must make a further retreat”.

In October 1921, Lenin pointed out that: the private market proved too strong for us; and instead of the exchange of commodities we got ordinary buying and selling, trade replaced “our regular socialist exchange of products”. “We must admit that we have not retreated far enough, that we must make a further retreat, a further retreat from state capitalism to the creation of state-regulated buying and selling, to the money system.” Since then, the implementation of the New Economic Policy (NEP) had entered its second period.

In the second stage of NEP, Lenin’s understanding of socialist construction broke through the original concept and he reached a series of new conclusions. Firstly, we should build socialist economic construction on the basis of adapting to and supporting the small-scale peasant economy. Lenin pointed out: “The whole importance of the New Economic Policy lies in and only lies in: to find a way establishing a link between the new economy which we are creating with such enormous effort and combine it with the peasant economy.”

With the implementation of tax-in-kind and the free trade by farmers, the Soviet Russia’s agriculture and industry recovered rapidly. Two years after the implementation of the New Economic Policy, Russia’s economic situation had fundamentally improved. Secondly, we should use commerce to combine the socialist large-scale industry with the small-scale peasant economy. Lenin pointed out in his article “The Importance of Gold Now and After the Complete Victory of Socialism” that trade is the only possible economic link between the scores of millions of small farmers and large-scale industry. In order to adapt to the development of commodity economy and the formation of domestic market, Lenin timely proposed to transform socialist industrial enterprises’ work according to commercial principles, instructed implementing the system economic accounting, reform the wage system, reform the industrial management system, etc. Thirdly, we should guide farmers to follow the socialist path in the form of cooperatives. Lenin pointed out in “On Cooperation” that cooperatives would be a good form to guide farmers to take the socialist path, since they make farmers feel simple and easy to accept, find the degree of combination of private interest, of private commercial interest, with state supervision and control of this interest, that degree of its subordination to the common interests. Lenin stressed that we should build socialism on the basis of drawing attention for material interests of the individuals, implementing the principle of material interests, and achieving the correct combination of collective interests and personal interests. Fourth, on the strategy of socialist construction, Lenin proposed that we should make full use of and absorb the achievements of capitalist civilization to serve our socialist construction, for example, we should absorb the capital, technology and management experience of capitalism in the form of “leasing of our enterprises to capitalists” in order to promote the development of socialist productive forces.

In the process of implementing the New Economic Policy, Lenin found a correct way to transition to socialism in Russia which was an initial breakthrough, suiting to a country with relatively backward economy and culture like Russia, this was a major development in the theory of building socialism and a great advance in people’s understanding of socialism.