New Miracles in Russia

Russia's traditional capacity to puzzle and surprise observers has always been revealed in the economic developments. Early in the Russian transition period, few outsiders could understand how the population survived such a massive decline in output, the collapse of basic infrastructure, and the nonpayment of wages. Similarly surprising was the recovery since the post-revolutionary crisis. Most observers at the time predicted that it would take many years for Russia to recover from debts and ensuing loss of international confidence. Instead, Russia experienced its first period of sustained growth, and financial markets became increasingly bullish about Russia's economic prospects, despite a high degree of uncertainty about prospects for the world economy.

Task 1. Discuss and consider the following questions.

1. What other historical periods of Russia (the USSR) can be called ‘miracles’. Why?

2. What other miracles can be expected in the Russian Federation in the foreseen future? Why?

3. How do miracles influence on common people and their life?

The "New Economic Policy"

During the Civil War of 1917-1921, Vladimir Lenin adopted a policy of War Communism, which entailed the breakup of the landed estates and the forcible seizure of agricultural surpluses. Realizing this plan Vladimir Lenin consequently ended the War Communism period and instituted the New Economic Policy (NEP), in which the state allowed a limited market to exist. Small private businesses were allowed and restrictions on political activity were somewhat eased.

However, the key shift involved the status of agricultural surpluses. Rather than requisitioning agricultural surpluses by force, the NEP allowed peasants to sell their surplus yields on the open market. Meanwhile, the state still maintained state ownership of what Vladimir Lenin deemed the "commanding heights" of the economy: heavy industry such as the coal, iron, and metallurgical sectors along with the banking and financial components of the economy. The "commanding heights" employed the majority of the workers in the urban areas. Under the NEP, such state industries would become profit-maximizing and largely free to make their own economic decisions.

The Soviet New Economic Policy of 1921-29 was essentially a period of "market socialism" that foresaw a role for private entrepreneurs and markets based on trade and pricing rather than centralized planning. With new market incentives to raise productivity, agricultural yields not only recovered to the levels attained before the Bolshevik Revolution, but greatly improved. It gave peasants their greatest incentives ever to maximize production. As a result of the NEP, the Soviet Union became the world's greatest producer of grain.

Agriculture, however, recovered from the civil war more rapidly than heavy industry. Factories, badly damaged by the civil war and capital depreciation, were far less productive. The slower recovery of industry would pose some problems for the peasantry, who accounted for eighty percent of the population. Since agriculture was relatively more productive, relative price indexes for industrial goods were higher than those of agricultural products.

Comprehension Check

1. A policy of War Communism was characterized by…

2. Was the policy of War Communism successfully finished?

3. What did the New Economic Policy allow peasants?

4. What was determined as ‘commanding heights’?

5. How can the Soviet New Economic Policy be characterized?

6. Was the heavy industry recovering with the same speed as agriculture?