RESTORATION of CAPITALISM in the USSR - NEP

RESTORATION of CAPITALISM in the USSR

Martin Nicolaus

NEP

The years of imperialist intervention and civil war in Russia, from 1918 to 1921, were the new Soviet power's baptism by fire. 

Did the new state command the loyalty of the majority af workers and peasants? Was its apparatus cohesive and effective? Were the policies of its leadership adequate to cope with the all-sided onslaught? 

By 1921 there was no longer much doubt. The Soviet power had survived challenges that would have crumbled every other state in the world at that time. 

"We have, no doubt, learned politics," Lenin told the 8th All-Russia Congress of Soviets in December 1920. "Here we stand as firm as a rock. But things are bad as far as economic matters are concerned. Henceforth, less politics will be the best politics." (Collected Works, Vol. 31, p. 514) 

The restoration of the country's ruined economy became the highest political priority. 

Among the measures adopted beginning in early 1921 under the name of the New Economic Policy (NEP) were the following: 

-- Restoration of commercial relations between town and countryside. The wartime emergency system of military requisitioning of grain from the peasants had to be stopped. In its place Lenin proposed, and the Soviet power adopted, a "tax in kind." The peasantry would no longer have to give up its entire grain surplus to the state, but only a fixed and known percentage of it. There was thus a material incentive to increase food production. The peasant would be left with a portion of the grain surplus to exchange on a regular market basis for the products of industry. 

-- Restoration of retail trade. The Soviet power retained the state monopoly of grain trade at the wholesale level and kept control of wholesale trade in most products of large-scale industry operating on a nationwide scale. But private retail trade, and limited wholesale trade on a regional and local scale, were again legalized. Private merchants were encouraged to operate. 

-- Restoration of small- and medium-sized private industry, working on a capitalist basis under loose state supervision. 

-- A limited reopening of the Soviet economy to foreign investments, by offering concessions on a highly profitable basis for investors in raw materials extraction and industry. 

-- Reorganization of the nationalized large-scale mass-market industries, placing these, too, to a large extent, on a capitalist footing under the direct supervision and control of the proletarian state. 

Of all these measures, the last was the boldest and most drastic. For the large-scale state industries working for the mass consumer market made up -- almost as much as the heavy machine-building industry -- the main economic pillar of the Soviet state. This was the socialist bastion in which new, socialist relations of production were to become entrenched first of all, and from which they were to advance throughout the rest of the economy. 

As Lenin put it in May 1921, "the manufactured goods made by socialist factories and exchanged for the foodstuffs produced by the peasants are not commodities in the politico-economic sense of the word, at any rate they are not only commodities, they are no longer commodities, they are ceasing to be commodities. " (CW Vol. 32, p. 384) 

In other words, in this sector -- and here alone -- the capitalist relations of production, founded (as Marx analyzed in Capital) on the production of commodities, were being suppressed and the new socialist relations were arising. 

Yet here, too, a partial retreat was required. Already by November of the same year, the direct exchange (barter) of manufactured goods for foodstuffs had broken down. The link between town and country had become highly capitalist again, with "ordinary buying and selling" for money and monetary gain restored in its place. (CW Vol. 33, p. 96) 

As in the relations between state industry and private agriculture, so was a retreat required in the internal structure of state industry. As Lenin put it in his "Draft Theses on the Role and Functions of the Trade Unions Under the New Economic Policy" (December 1921-January 1922): "A free market and capitalism, both subject to state control, are now being permitted and are developing; on the other hand, the state enterprises are being put on a profit basis, i.e., they are in effect being largely reorganized on commercial and capitalist lines. He repeats: "With the free market now permitted and developing, the state enterprises will to a large extent be put on a commercial, capitalist basis." (CW, Vol. 42, pp. 375-376) 

In specifics, this reorganization meant that every state enterprise (with exceptions made for heavy industry) must "pay its way and show a profit." (Ibid., p. 376) It meant that "it is absolutely essential that all authority in the factories be concentrated in the hands of the management. The factory management, usually built up on the principle of one-man responsibility, must have authority independently to fix and pay out wages and also distribute rations, working clothes and all other supplies; it must enjoy the utmost freedom to maneuver, exercise strict control of the actual successes achieved in increasing production, in making the factory pay its way and show a profit and carefully select the most talented and capable administrative personnel, etc." (Ibid., p. 379, see also Vol. 33, pp. 184-196.) 

To give them a material incentive, moreover, the directors of factories and trusts were paid on a partly commission basis, so that their income was made dependent on the profitability of their enterprises. There were experiments also with tying workers' wages to enterprise profitability. 

All this and more, it will be shown, has made its appearance again 40 years later in a new guise. 

But what is remarkable in looking back on this turn in Soviet policy -- which has been sketched only very briefly here -- is the utter and complete frankness with which Lenin advanced it and characterized it. "Freedom to exchange implies freedom for capitalism. We say this openly and emphasize it. We do not conceal it in the least. Things would go very hard with us if we attempted to conceal it." (CW, Vol. 32, p. 490) 

Some 40 years later, in a wholly different historical context, when a wholly different Soviet party leadership undertook a far more sweeping restoration of the freedom to trade," and a far more profound reorganization of state enterprises "on a commercial capitalist basis," this frankness was gone, replaced by a stultifying, crushing hypocrisy. 

Lenin's clarity and frankness about the significance of NEP testified to the fact that throughout this limited and temporary restoration of capitalism in the USSR, the proletariat remained the ruling class. The state capitalism that the NEP temporarily fostered was not the state capitalism found in bourgeois economics texts, in which the bourgeois holders of economic power collectively subordinate the state and state property to their interests. On the contrary, the proletarian political power subjected the bourgeoisie to its interests. No matter how great the freedom given to the bourgeoisie in economic matters, the proletarian power always kept the reins in its own hands and loosened or tightened them in accordance with its own economic and political policies. 

The NEP period of Soviet history comprised three broad phases: the retreat in the direction of capitalism, the consolidation and the new offensive toward socialism. All three phases, and not only the retreat, formed part of the NEP design. Taken as a whole, NEP was the policy of transforming the capitalist (and even precapitalist) economic foundation of the USSR into a socialist foundation; it was the policy of laying "the economic foundation for the political gains of the Soviet state" (CW, Vol. 33, p. 73); it was the policy of transition during the period when "capitalism has been smashed but socialism has not yet been built." (CW, Vol. 30, p. 513) As Lenin said in one of his last speeches, in November 1922, "NEP Russia will become socialist Russia." (CW, Vol. 33, p. 443) 

It was Lenin himself, in March 1922, who called a halt to the "retreat" that was the first phase of NEP. It fell to his successors to decide how to consolidate, and when and how to pass on to the general offensive against the capitalist elements. 

In all respects the easiest part of the battle during the second and third phases of NEP was the elimination of the private merchants and small manufacturers from the scene. From the mid-1920s on, the share of the country's total trade in the hands of private companies declined, while the share of the state increased. By 1932, the hated private traders, who were called NEPmen, were all but gone. In manufacturing, where about one-eighth of the country's workers in 1923 were employed by private enterprise, the private share had been reduced in 1932 to less than 1 percent. (See the periodic reports of the Soviet State Planning Commission, presented at party congresses by Stalin, [Works, Vols. 12 and 13] and the modern revisionist Outline History of the Soviet Working Class by Y. S. Borisova et. al., Moscow 1973.) 

The gradual liquidation of foreign investments and leases presented few problems, as these never amounted to any significant proportion of output. Few capitalists had accepted Lenin's offer to invest in the proletarian state. 

More difficult and protracted was the struggle to reverse the capitalist measures introduced in the state industrial sector during the first phase of NEP. Necessity dictated progress here: the managers of the state industrial trusts quickly used their freedom to jack up prices beyond the point where the peasant and worker masses could afford to pay. In 1923 and 1924, the state cracked down on its trusts, imposing first a rigid credit control and then price controls that severely limited the managements' freedom of action. In the spring of 1924, the first serious start was made to design a comprehensive long-term economic plan for all branches of nationalized industry; meanwhile the socialist planning principle made gradual headway on a patchwork, branch-by-branch basis. (See E. H. Carr, The Interregnum, Pelican Books 1969.) By 1927, Stalin was able to report that the state now "has every possibility of directing nationalized industry in a planned way, as a single industrial enterprise," (Works, Vol. 10, p. 309); and in 1929, the capitalist relations in the state sector had been so far suppressed that this possibility, with the adoption of the first five-year plan, became -- at least in approximation -- for the first time a reality. 

The hardest battle of all, during the third and final phase of NEP, was not however in industry but in agriculture. The restoration of the free market during the first phase of NEP had led, as was its intent, to a revival of agricultural production -- and class struggle. Instead of suffering famine as before, the Soviet state in 1922 had been able to export grain, and there was a salutary improvement in the food situation. But the revival of agricultural production meant a revival of capitalist relations in agriculture: a growing concentration of landholdings, of grain surpluses, of capital in the hands of the richest peasants (kulaks), a growing impoverishment of the poorer peasants and of the landless laborers, who were forced to flee to the cities where they aggravated the problem of unemployment. By 1928-29, after a succession of good harvests, the kulaks had grown strong enough (they thought) to thumb their noses at the Soviet state. They refused to pay the grain tax, refused to sell grain except at highway-robbery prices and in a number of areas engaged in open sabotage and armed rebellion. The agricultural cooperatives that had begun, following Lenin's directives, as part of NEP had become largely a dead letter. 

This new emergency confronted the Soviet state once more with the specter of famine and civil war.