NEP – New Economic Policy Revision Notes

What was it and why was it introduced?

• The NEP was introduced in 1921 to replace the failed War Communism – too little too late!!!
• By 1921 almost 25 million people were facing starvation – a conservative estimate is almost 5
million deaths!
• The NEP was almost a capitalist approach.
• Wages were paid in cash not kind and surplus staff were dismissed.
• Despite being a little late to prevent famine the NEP did prove to be a success economically and
politically for Lenin.

Did it Work?
• It brought some form of economic sense back to Russia’s economy.
• It eased peasant discontent – by Lenin’s death in 1924 the economy was vastly improving.
• Trade operated on an economic and commercial accounting basis.
• Industry was divided into ‘trusts’, which controlled various ‘enterprises’.
• In the first stages of NEP, 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.

Did it do all that was needed?

• However, the NEP did not totally solve Russia’s economic problems.
• Recovery has been described by historians as erratic and uncertain.
• Agriculture recovered faster than industry – incentive was there – now that he could ake money
it meant that farmers could grow surplus and therefore make some money.
• The disaster that had been WWI and the pain of the Civil War and War Communism had
devastated the Russian economy.
• Sustained advances in the economy would take centuries.
• Factories did start to produce goods but few people had the expendable `1money to buy them.
• As workers could be dismissed, unemployment started to grow.
• Lenin allowed industry to use foreign capital – but few countries were brave enough to invest in
the fledgling Communist state.
• Money had to be earned from exporting produce that could not be sold in Russia.
• Exporting grain and coal helped to kick-start Russia’s economy and by 1924-25, Russia’s imports
were nine times higher than 1921-22 level.
• Though this would seem a major achievement in just 3 years, the 1921-22 figure was so small
that the increase is not as spectacular as it would first appear – not that they admitted this to
the people.

Why did it anger some Bolsheviks?

• Loyal Bolsheviks were angry at a new class of ‘get rich quick’ businessmen who took advantage
of this new ‘capitalist’ approach.
• They were unhappy at how these new men flaunted their new wealth.
• ‘NEPmen’ as they were called flaunted their wealth in bars, nightclubs and newly opened
casinos.
• Some people declared that NEP actually stood for ‘New Exploitation of the Proletariat’.
• Lenin never pretended that the NEP was anything other than a surrender of his principles for the
sake of political survival.
• He described it as a tactical economic retreat.
But why was it needed?
• However, an expanding economy needed a decent transport system.
• The civil war had decimated Russia’s rail system.
• 1921: 50% of Russia’s trains were off the tracks due to a lack of repairs and skilled men needed
to repair them.
• 1923: a huge effort was needed to build up the rail system and the rail system carried 45% more
passengers and 59% more goods than two years earlier.
• 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.

Currency Issues
• 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.
• The new economy was backed by gold so the demand for the chervonets was high and it
became the sole currency in February 1924.
• The task of moving Russia 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’.

Still Major Issues despite a New Government

• October 1923: industrial prices were three times higher than agricultural prices.
• An 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.
• Farming was still based around physical labour so 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 stil starved of their most basic raw material as
the farmers knew that food was a much better bet to grow.
• The Bolsheviks 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.
• Nobody was making much profit!!!
• 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 pigs 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.
• 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.
• The Bolsheviks could not allow people to think that a relaxation of control over the economy
through the NEP could be followed through in other areas.
• Lenin made it very clear that there was to be no let up in his ‘iron rule’.
• SR’s and Mensheviks were suppressed.
• The OGPU enlarged its targets to include political detainees.