Russia's Economy Turns to a Blast from the Past: The New Economic Policy

"Russian commentators have added Lenin’s New Economic Policy (NEP) to their current political vocabulary."

A wave of Soviet nostalgia has swept Russia over the past few years. So it is not surprising that in a time of economic trouble, Russian commentators have added Lenin’s New Economic Policy (NEP) to their current political vocabulary. NEP ironically provides justification to competing economic viewpoints. It also carries troubling undertones for Russia’s broader participation in the global economy.

NEP was born out of economic and political necessity in 1921, when an exhausted Soviet Union reintroduced market-based reforms to ease the transition between capitalism and socialism. Joseph Stalin famously abandoned NEP at the end of the 1920s, replacing it with a campaign of forced collectivization and rapid industrialization in an effort to build “socialism in one country.”

NEP suddenly is back in vogue with several recent headlines referring to the possibility of a “new economic policy.” NEP’s great appeal is that it provides a specific Russian framework to an ongoing economic debate, a potential useable past to justify a variety of policies. Ironically, both sides of the current debate—state thinkers and free marketers alike—are taking economic solace in NEP. In a global economy, however, NEP’s uniquely domestic approach to solving economic problems may send out the wrong message at the wrong time to the international business community.

The competing visions of NEP have been on public display in Russia’s leading newspapers. Kommersant announced in early June that Igor Sechin, the chairman of the state-owned oil company Rosneft, had proposed a Russian “NEP” for the energy sector. The article highlighted Sechin’s plan to diversify Russia’s energy market but also to make sure that only majority-owned Russian companies controlled these resources. Sechin further made a pitch for the creation of a national ratings agency so that Russia no longer would have to rely on foreign agencies to assess the creditworthiness of national companies.

In April, the business newspaper Vedomosti published an article that called for a “new economic policy” in light of current Russian stagnation. The article placed Russia’s choice in rather stark terms—either allow private business to spur economic growth, or have a less open, more state-controlled economy.

Mikhail Prokhorov, the Russian oligarch and owner of the Brooklyn Nets, has gone so far as to propose a NEP 2.0. In his manifesto, Prokhorov bemoaned the vast expansion of the post-Soviet bureaucracy, emphasizing how the current model of state investment and administrative control had failed to produce economic growth. Prokhorov called for a radical rethinking of the current economic and political paradigm that would include the reform of the banking sector, lower taxes, decreased government spending, a revived property market and increased national productivity.

Why NEP, and why now? For titans of state industry like Sechin, NEP provides a justification for the status quo and the Russian state’s continued control over the “commanding heights” of the economy. After all, while NEP may have allowed for the return of small-scale traders and retailers, the Communist Party never considered surrendering its control of Russia’s raw materials and major industry. Similarly, Putin has pursued his own form of state capitalism that dominates Russia’s most profitable sectors, and he shows no signs of abandoning this strategy.

Yet the NEP experience has been co-opted not only by statist thinkers, but also by other more market-oriented liberals, such as Prokhorov. For them, NEP represents economic flexibility, a policy that rewards private initiative and promotes the development of Russia’s small- and medium-sized enterprises. This sector currently is the most depressed—and overregulated—part of the Russian economy. Boris Titov, Russia’s business ombudsman, recently announced that government inspections alone drained an estimated $35 billion from the economy in 2013.

A twenty-first century NEP, therefore, does not only rationalize reinforcing the commanding heights of the economy, it equally holds open the prospect of reviving the country’s entrepreneurial spirit. Russian policy makers and pundits—on either side of the spectrum—would be wise, however, to examine NEPs’ actual economic results, for they are unlikely to back up anyone’s claims. The Soviet economy recovered to pre-1913 levels during NEP, but it did not grow significantly beyond its pre-WWI capacity. So NEP analogies may not be all that user-friendly as a source of answers to current economic problems.

NEP carries a broader historical message as well, mainly because of what occurred in its aftermath. NEP ended largely because in the absence of the much-anticipated world revolution, Stalin decided that the Soviet Union would go it alone and build communism on a national, not international, level.