This week in history: Lenin’s ‘New Economic Policy’

By the time the Soviet Union was first formed between Russia, Ukraine and Belarus, its economy was in turmoil, still reeling from the impact of World War I.

Its idea of imposing total state control of the economy was unpopular, especially among peasants. Knowing their farms would be collectivised, some farmers simply slaughtered their animals and neglected to plant new crops. The resulting food shortages led to protests.

The Soviet leader Vladimir Lenin decided to “take one step back to take two steps forward”. He loosened controls over the economy, culminating in the launch of the New Economic Policy (NEP) in 1921.

The state retained command of finance, heavy industry and trade, but individuals were allowed to run small private firms. While farmers still had to give a certain amount of food to the state, they would be allowed to keep the surplus.

The aim was to combine central planning with enough freedom to give people an incentive to invest. Limited foreign investment was allowed.

While the policy appeared to be a success, boosting production back to pre-war levels, many Soviet leaders worried that it would eventually lead to the return of capitalism.

In 1928, Joseph Stalin (who had originally supported the reforms) launched the five-year plan, which restored full central planning.

The NEP became a historical footnote. But the success of similar ‘bottom-up’ reforms launched by the Chinese leader Deng Xiaoping in 1979 has prompted some development economists to argue that this approach – rather than leaping straight into full-blown capitalism – is the best way to embrace markets.

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