New Economic Plan

The New Economic Plan was Lenin’s economic policy in order to revive the Russian economy. It can also be referred to as state capitalism or limited capitalism. The NEP allowed some private ventures with small businesses allowed to be set up to make small profits. Banks, foreign trade and larde industries however were still nationalised. Farmers and some industries were still required to give the government a specified amount of raw agricultural product as a tax, however there was a coexistence of private and public sectors. Instead of all goods being seized like the policy under War Communism the government only took a small percentage. This led to peasants having an incentive to yield large amounts of crops in order to market their surplus.

The NEP signalled a move away from strict Communist ideals and a creation of a modernised economy.  The agricultural production in Russia increased greatly. Production passed pre-Revolution levels as there was greater incentive to work and make profit. The heavy industries, banks and financial institutions remained owned and run by the state. The Bolsheviks had no policy of industrialization. As there was no private incentive to grow heavy industries, there was an imbalance in the economy. This was because the agricultural sector was growing faster than heavy industry. Due to this factories began to sell their products at higher prices to raise profits. Hence, peasants had to produce much more wheat to purchase these consumer goods which causing agricultural prices to drop. This was known as the Scissor Crisis. This led to peasants withholding their surpluses to wait for higher prices or selling their goods them to traders or middle-men who then sold these goods on at high prices. The Bolsheviks opposed this as they believed the urban consumer was being exploited. In order to halt the Scissor Effect the government fixed prices.

Although unemployment may have skyrocketed under the NEP and a wider gap was created between classes, the new measures adopted by the Bolshevik Party led to greater economic activity and agricultural production which far surpassed the levels under War Communism.