The New Economic Policy (NEP) of Vladimir Lenin (1870 to 1924), leader of Soviet Russia, was the introduction in 1921 of a limited form of capitalism in light industry and agriculture. Contrary to Marxist economic ideas, the NEP was viewed as a necessary measure to recover from the economic disasters of WWI and the Russian Civil War. Although the NEP did lead to an economic recovery, it did not create a significantly expanded and technologically advanced economy. The NEP created certain economic problems, notably a fall in food prices but a rise in consumer goods prices. The debate over the NEP's use of capitalist ideals continued through the 1920s and necessitated a strengthening of the one-party system. The NEP was ended in 1928 by Joseph Stalin (1878 to 1953) when farms were collectivised and industries fully nationalised.

Radical socialists seized power with the Bolshevik Revolution of November 1917. The Bolsheviks were immediately required to fight the Russian Civil War against reactionary pro-Tsarist and foreign forces, a conflict which only added to the economic turmoil caused by the First World War (1914 to 18). The Bolsheviks instituted a policy of 'War Communism', where all agriculture and industrial and commercial activity must serve the single goal of winning the civil war and defending the achievement of the proletarian revolution. The Bolsheviks, who changed their name to the Communist Party, won the war, but the economic turmoil was acute.

By 1921, Lenin believed that a new approach to the economy was required after the turbulent strikes, riots, and peasant uprisings that had blighted Russia since 1914 and even before. As recent as the spring of 1921, the Kronstadt rebellion of sailors, strikes by industrial workers, and serious peasant uprisings demonstrated that such 'War Communism' policies as simply requisitioning produce from farmers would not be tolerated, and, in any case, the 'command economy' approach was clearly not able to guarantee a regular and adequate food supply. For Lenin, the Kronstadt rebellion and resulting massacre of the sailors had been the "flash that lit up reality better than anything" (Wood, 61). On top of that, 'War Communism' had simply not worked. Industrial output in 1921 was just 12% of the output in 1913, and the agricultural harvest that year was less than half of the pre-war average. The economy and currency had crashed to such an extent that everyone was paid in kind, and bartering became an essential survival skill. It was time for a change.

Lenin presented a new approach to the economy at the 10th Party Congress in March 1921. The soviet leader was able to get his ideas passed thanks to the convincing practical reality of rebellions and uprisings. This new approach was to involve a measure of free market capitalism and was called the New Economic Policy. It is important to note that the NEP was not a single coherent plan, but rather, "a label pinned eventually on a series of measures that appeared over the course of several months beginning in the spring of 1921" (Suny, 169).

The new approach was supported by figures on the Communist right, notably Nikolai Bukharin (1888 to 1938). Those on the left were rather more dubious. The NEP seemed to be allowing what the socialist movement had long striven to remove: capitalism. Further, such a return would surely create a new wealthy middle class, which might then challenge the proletarian control on power. In order to resist such a challenge, the socialist movement must be more united than it had ever been before. In the end, the seriousness of the peasant uprisings, strikes, and Kronstadt rebellion convinced the majority of Bolsheviks that Lenin was right in declaring that something had to change. Lenin promised that a little free-market capitalism would, in the long term, only strengthen the chances of Russia achieving a full socialist society.

By having the government manipulate the economy, Lenin "was in effect standing Marxism on its head, since the basis of power was now to be the political structure rather than the economic order" (Wood, 62). Lenin acknowledged the paradox of the NEP in Soviet Russia but insisted he was "building socialism with capitalist hands" (Freeze, 322). To ensure unity, all political factions within the socialist movement were removed. This included not only factions which were rivals to the Bolsheviks, such as the Mensheviks and Social Revolutionaries, but also any dissenters within the one permissible party, the Communist Party.

Further, the NEP was not necessarily a temporary measure but rather a policy that would, long-term, help bridge the huge gap between the reality of Russia's industrial backwardness and the socialist utopia of an absolutely fair society for all. For this reason, the "NEP, according to Lenin, was in no sense a temporary device in order to secure a breathing-space: and part of a plan designed to last 'not centuries, but generations'" (Brown, 106). As Lenin repeatedly stated, the NEP was not a retreat, but, rather, 'the right road' and one to be followed "for a long time" (Shukman, 150). It was the NEP's critics both at the time and since who have claimed the policy was meant as an embarrassing and temporary retreat from full communism. Lenin's position was more ambivalent.

Lenin now advocated a new progressive tax system based on income levels and the number of a person's dependents. This and other policy changes were immediately achieved via government decrees. At first, the tax could be paid in kind, but from 1923, cash took over. The quantity of grain requisitioned from peasant farmers was reduced, and they were allowed to trade any surplus they could grow. To combat the rampant inflation that had crushed the economy for the last five years, the currency was now partially backed by gold, and the money supply was much more rigorously controlled than during the civil war, when the Soviet government had rashly printed money on demand.

Immediately after the Bolshevik Revolution, the property of the wealthier classes had simply been appropriated and redistributed, but this policy was now reversed. Factories and businesses had been taken over by the state. The result of this U-turn was that, under the NEP, only 8.5% of Russia's industrial businesses remained nationalised. Significantly, though, this 8.5% involved 84% of the total workforce. Lenin could then claim that workers and the state remained in a harmonious partnership, which was working towards a better future. The notable areas of free enterprise included the right of anyone to "engage in small-scale trade and manufacturing" (Suny, 169). Foreign concessions (notably in the timber and minerals industries) were also granted from March 1923. That same year, 76% of retail business was in private hands. This period also saw an increase in the use of innovative technology, notably electricity installations and oil drilling.

The government continued to control heavy industry, banking, and foreign trade. Larger industries could no longer rely on the government picking up surplus products, and much more attention was paid to the real costs of production. To achieve better control, the government formed a new state planning agency, Gosplan. One of the government's main concerns was to raise labour productivity since only this would lower the costs of production and so allow businesses to acquire a profit.

Lenin died in January 1924, and the ruling party debated whether to continue or not with the NEP. Ultimately, the policy was continued for another four years. From 1921 to 1928, there were successes, not least a much-needed period of relative stability, and "the NEP certainly enabled Russia to make an economic recovery" (Wood, 63). By 1928, agricultural and industrial output had regained pre-war levels. The standard of living was raised. However, economic growth was slow and unemployment was still too high for comfort (14% in industry in 1927). There was a 'scissors crisis' – so-called because of two lines crossing on a graph – as agricultural output (much quicker to fix than industry) boomed, causing overproduction which resulted in falling food prices, while, in the other direction, as industry performed less well than hoped, scarcity resulted in the prices of industrially-produced goods going up. In short, farmers had less money to spend on goods, which were becoming ever-more expensive. State cost-cutting during the NEP had badly affected services such as transport, health, and education. Russia was still lagging behind other European states in terms of technology, for example, in 1928, only 1% of agricultural land was farmed using tractors instead of draught animals.

The NEP led to a greater number of women employees than ever seen before, but, as a proportion of the ever-growing workforce, the percentage actually fell. "Women's share of the labour force dropped from 45 per cent in 1918 to under 30 per cent, where it remained throughout the 1920s" (Suny, 475 to 6). This reduction was because millions of male soldiers were able to return to work after the civil war ended in 1921 to 2. Factory owners, now given more freedom of action, were also replacing women with men since the former could incur maternity or daycare costs. Some male workers also sabotaged women's training opportunities to ensure only they had the necessary skills to acquire certain jobs. The government's drive to save costs resulted in a reduction in daycare centres, and this, too, harmed many women's chances of finding employment.

The NEP had some positive effects regarding culture. The ethos of the NEP led to much less state interference in literature, music, and the visual arts. There was, too, a return to international cooperation, notably the release of scores by Russian composers, which were published in Vienna and from there to the rest of the world. Culture moved in the other direction, too, with such global phenomena as jazz music and Hollywood's silent films being permitted to entertain the masses.

Lenin himself, had he lived, may well have moved on to a project of collectivisation and nationalisation in the 1930s. Other key figures in the Communist Party, Leon Trotsky (1879 to 1940) for one, had long advocated a greater exploitation of agriculture, which could then be used to speed up industrialisation. Stalin, Lenin's successor as leader, wanted to extract a tribute tax from the peasantry to switch the state's focus to industry.

Stalin ended the NEP in 1928 for two reasons. Firstly, it allowed him to discredit his main rival for the party leadership, Bukharin, who supported it. Secondly, the policy was no longer achieving the results hoped for. Grain supplies, in particular, were greatly reduced. Collectivising agriculture might solve these problems. Further, two scapegoats could now be identified and blamed for the economy's sluggishness and as obstructors of socialism: the richer landowning peasant (kulak) and the 'money-grabbing' merchant (NEPman). The latter had particularly upset traditional socialists with the perception of their conspicuous consumption of furs, diamonds, and champagne. Five-year plans were drawn up, the first beginning in October 1928, which saw a huge new investment in industry, but also a massive increase in state intervention. The USSR's brief flirtation with capitalism was over.

From 1928 to 1937, Russia's industrial production "increased by 12 to 18 per cent a year" (Brown, 393), particularly in the areas of industrial and agricultural machinery. From 1929 to 1931, "20 million individual farms were amalgamated into 250,000 collectives" (ibid), which permitted labour to be released for industry. This huge upheaval of Russia's economy brought modernisation, but such intense state interference often stifled incentives to produce more. Planning was crude, and the quality of goods produced was often poor. Put simply, uncountable human suffering and deaths were considered a price worth paying by Stalin in order to maintain his iron grip on power and achieve the long-dreamed goal of making Russia a major industrial power.