Nikolai Bukharin and the New Economic Policy: a middle way?

• Author: Bean, Jonathan J.
• Position: Soviet leader's policies during the 1920s

Socialists have long searched for a "middle way" between the free markets of capitalism and the hypercentralization of a Soviet-style command economy. In the late 1980s Soviet reformers returned to the New Economic Policy (NEP) of the 1920s and the ideas of Bolshevik leader Nikolai Bukharin, chief apologist for the NEP. The reformers argued that Bukharin's NEP, with its mixed economy, was a viable model for "market socialism." The NEP alternative, however, was a failure. Bukharin had hoped the NEP would demonstrate the superiority of socialist enterprise, but after its implementation capitalist entrepreneurs prevailed in open competition with state-owned firms. Bolshevik price controls distorted market relations and led to the demise of the NEP. Various attempts to revive the NEP occurred in the ensuing years, most markedly when Soviet leader Mikhail Gorbachev described his perestroika as a return to NEP-like policies, but the NEP model could not meet the crisis that plagued the Soviet Union. By rejecting socialism and committing himself to the principle of private property, Boris Yeltsin moved beyond Bukharin and the NEP.

Origins of the New Economic Policy

When the Bolsheviks seized power in 1917 they had no economic plan. Lenin first introduced "state capitalism" to regulate big business, but stopped short of nationalization. In 1918, wartime emergency, coupled with ideological fervor, led to more extreme measures. The state nationalized all industry, banking, and trade. The Bolsheviks forcibly requisitioned grain from the peasants, abolished money, and paid workers in kind. The new government established a Supreme Council of the National Economy (VSNKh) to supervise industry and plan the entire economy (Ball 1987, 28, 6-8).(1)

The results were disastrous: industrial production declined to one-fifth the prewar level, and real income per capita dropped by 60 percent (Ball 1987, 6-8; Volin 1970, 163). The collapse of the economy contributed to the social unrest and uprisings of 1921. Consequently, at the Tenth Party Congress (March 1921), Lenin abandoned "War Communism" in favor of his "New Economic Policy" (NEP). He conceded that the NEP was a "retreat" and a "turning back toward capitalism"; however, he regarded "special transitional measures" as necessary to build socialism in a peasant country (Lenin [1921] 1960a, 188-89; [1921] 1960b, 214-18; [1921] 1960c, 429-30; [1921] 1960d, 329-36).

The party now sought a smychka (alliance) with the peasantry. The Bolsheviks replaced arbitrary grain requisitions with a tax in kind, thereby reducing the burden on the peasants. They abolished private property in land, but allowed free use of the land as long as it was cultivated. The government continued to control the "commanding heights" of the economy (large industry, foreign trade, banking, and transport), but created a private sector by denationalizing small industry and leasing factories to cooperatives and capitalist entrepreneurs. State factories were authorized to buy and sell goods on the open market and to do business with "Nepmen" (private merchants). By 1926, the private sector handled 75 percent of retail trade and produced 90 percent of agricultural output. Nepmen industrialists produced one-third of all consumer goods and played an important role in the service sector by opening restaurants, inns, and publishing houses (Nove 1982, 84-89, 98-100; Zaleski 1971, 28-29; Bandera 1963, 266-69; Ball 1987, 21-22, 140-47).

As the architect of the NEP, Lenin sought a technological solution to the problem of low productivity in Soviet industry. He appointed "bourgeois specialists" (non-Bolshevik engineers and economists) to positions on GOELRO (the state electrification commission) and GOSPLAN (the state planning agency). The Soviets acquired additional technical assistance through the granting of foreign concessions (Guroff 1983, 211-17; Bailes 1978, 48-62; Sutton 1968-73, 1:5).

The NEP brought economic recovery. Prosperity increased tax revenue, and by 1925 the government enjoyed a surplus. However, in the years 1922 to 1923 a brief "scissors crisis" arose as agricultural recovery outpaced industrial recovery. Manufacturing prices rose to an extremely high level, while the state kept grain prices artificially low. Rather than sell their grain to the state, farmers sold it on the market, where prices were higher, or produced only enough for themselves, and urban food supplies were threatened. The crisis passed when the government lowered industrial prices through cost cutting and price controls (Nove 1982, 90-96; Volin 1970, 184-88).

Despite the return of prosperity, the party rank and file were ambivalent toward the NEP. Workers welcomed the end of rations and the reintroduction of money wages, but they opposed other aspects of the policy (Ashin 1988, 295-302, 306-12). To many, Lenin's "retreat" toward capitalism seemed a betrayal of the revolution -- workers labeled the NEP the "New Exploitation of the Proletariat" (Ball 1987, 16). The egalitarian spirit of the revolution remained strong, and many resented the inequalities that developed under the NEP. Party members despised the luxurious lifestyles of the Nepmen and bourgeois specialists. The Bolsheviks hated merchants, whom they considered "speculators," not producers, even more than they hated industrialists (Ball 1987, 3-4). This anticapitalist mentality was consistent with Marxist doctrine: Marx taught that a person's outlook depended on his relation to the means of production; thus, if people engaged in capitalist pursuits, they would become capitalists in outlook (Millar 1981, 9).(2) Party loyalists also feared the corrupting influence capitalism might have on the communists themselves. Victor Serge noted with dismay that some Red partisans had become Soviet millionaires (Serge 1963, 201).

Poor working conditions intensified worker resentment of the Nepmen's success. Although real wages increased, unemployment remained high as the overpopulated countryside sent workers to cities. Rents were low, but housing was crowded and in disrepair. Worker control of factories gave way to stricter management discipline. Furthermore, industrial workers were now supervised by three layers of management: union representatives, factory managers, and party secretaries, who pressured workers to increase productivity. Factory managers hired workers on a temporary basis, enabling them to fire at will, and turnover and absenteeism were high (Chase 1987, 109-22, 142-44, 159-61, 176-95; Filtzer 1986, 25-27; Nove 1982, 115-16).

The NEP Debate

Although the NEP spurred economic recovery, the party leadership disagreed about the desired rate of industrialization and the methods used to finance it. The left wing of the party, led by Leon Trotsky and E. A. Preobrazhensky, called for accelerated industrialization. Preobrazhensky developed his "primitive socialist accumulation" theory, arguing that it was necessary to finance industrialization by extracting as much capital as possible from the peasantry through taxation and higher industrial prices. He predicted growing class divisions within the peasantry and the rise of a kulak (rich peasant) threat. Fearing foreign control, he preached economic isolationism and called for an immediate worldwide revolution. Preobrazhensky hoped for a quick end to the NEP and a shift toward a fully planned economy (Preobrazhensky [1922] 1979d, 20-30; [1925] 1979a, 33-41; [1926] 1979b, 48-49; [1926] 1979c, 65).(3)

Lenin and Bukharin, on the other hand, defended the smychka as a long-term policy. After Lenin's death in 1924, Bukharin became the leading defender of the NEP. He called the smychka "the fundamental question of our revolution" (Cohen 1973, 145). Like Lenin, he saw a "dual outcome": peasants could ally with the capitalist Nepmen or with the proletariat ([1926] 1982g, 111). Bukharin emphasized the importance of industrialization, but he believed that excessive exploitation of the peasantry might provoke a rebellion that could overturn the state.

Bukharin also rejected Preobrazhensky's static, zero-sum assumptions about the economy. He argued that the economy was dynamic and that peasant demand for manufactured goods was elastic. Lower industrial prices, he reasoned, would result in higher volume and greater aggregate profits ([1926] 1982c, 166-69). He cited the United States as an example of a nation that had built its industry upon a strong agricultural sector ([1928] 1982d, 310); he called for balanced growth and a slower "tempo" than that proposed by the Left; and he argued that the kulak threat was a myth, because the "rich" farmers represented only 3 percent to 4 percent of the peasantry (Cohen 1973, 187-92).(4) As all peasants (including the kulaks) prospered, he explained, tax revenue would increase and could be used to finance industry or be redistributed to poorer peasants ([1925] 1982a, 197-99). Most important, under NEP the peasantry would see the advantages of socialism (e.g., cheaper credit from the state, lower selling costs through coops) and eventually come to prefer it to capitalism ([1925] 1982a, 198-99, 204-205).(5)

Bukharin had high hopes for the NEP experiment. He aspired to have the smychka serve as a model for developing nations and believed it might inspire a world smychka (Cohen 1973, 149, 169-70). Although his ultimate goal was a planned economy, Bukharin insisted that "we will reach socialism only through market relations" (Ball 1987, 45). Confident that the state could eventually "squeeze out" the Nepman, he called for a peaceful economic struggle with the private sector (Bukharin [1921] 1982b, 102-5; [1926] 1982g, 113).

The economist Peter Boettke notes the similarity between Bukharin's "creeping socialism" and the gradualism advocated by the Fabians. Like the Fabians, Bukharin envisioned a slow evolution toward sosialism: "We are moving forward, little by little, pulling the heavy peasant carriage...