E.A. Preobrazhensky

From N.E.P. to Socialism

Lecture 7

The industry of Soviet Russia in the decade of NEP

In the lecture we shall study the development of industry in Soviet Russia during the first decade of what was called the New Economic Policy.

After the transition from War Communism to NEP the fortunate enterprises were found to be those state enterprises which were able somehow or other to trade with the free market. The Soviet State’s heavy industry, however, remained in a very difficult situation, as it sold only a small part of its products on the free market the bulk of its production being handed over, or, if you like, sold, to the state and to state enterprises which were extremely unpunctual payers. Transport in particular was in a bad way, with receipts falling substantially short of expenditure. The deficit in transport was not completely covered, owing to the deficit in the state budget as a whole, and the restoration of the fixed capital of transport proceeded very slowly indeed. However, even the branches of industry which were beginning to trade, on the basis of the wretchedly small purchasing power of the population, again began to ask for the breast of state supply, that is, in plain words, to ask for a share in the resources which the state received by way of the tax in kind, taxes paid in money, and the issue of paper money. To this period belong the howls of the industrial executives about what was called the sales crisis. The harvest of 1922 altered the picture. As a result of the harvest, demand increased in the countryside for manufactured products, and the trading part, that is, in fact, the greater part, of state industry, increased its resources from the springs of the free market. No sales crisis occurred. On the contrary, shrieks now began to be heard regarding a goods famine: it was said that the countryside would readily buy anything offered and that industry was short of raw material.

At the same time, the tax in kind was coming in better, and the state, having to maintain only a reduced army and bureaucracy, was in a position to satisfy fully the demands of industry for agricultural produce, now it sometimes came up against a sort of ‘sales crisis’ of its own. In this period the nationalization of large-scale industry and transport played a colossal role in the development of the country’s economy generally, because the government supported with state resources such socially-necessary branches as transport and the fuel and metal-working industries which, if they had been subjected to the destiny of the market, not only would have been utterly ruined but would have dragged down with themselves into the abyss all the rest of industry. Of very great importance also was the subsidizing of the electrical industry and the building of new electric power stations. The state industry of this period received the raw material, fuel and foodstuffs it needed from two sources: from purchases on the free market and from purchases from state enterprises and the state itself, since the latter disposed of large resources through the tax in kind. The products of industry were also distributed through two channels: sale on the free market and sale to the state and state enterprises.

These relationships of buying and selling among enterprises of the state-owned group, though outwardly they bore a capitalist appearance, were in essence only a special way of distributing values within the circle of socialist economy. What is necessary in order to understand both this period and the subsequent evolution of socialist industry is always to distinguish the two sides: the linking of large-scale industry through the market with the non-socialized part of the economy, and the linking of state enterprises with each other on the basis of buying and selling. State enterprises were divided, in accordance with this distinction, into two groups: those which obtained the greater part of the elements of production they needed through exchange with the non-nationalized part of the economy, on the basis of the private market, and those which kept the greater part of their production within the socialist circle, whether through non-paying transactions with the state or through transactions for payment with other state enterprises.

Extreme examples of the two types were: a factory which sold all or nearly all of its products on the free market and which bought all its raw material there, as also did its workers all their food; and a works making military equipment, or a shipbuilding enterprise, whose production remained almost entirely within the state circle and which bought or sold only a very small amount on the free market. In order to define the degree of connection with the free market of socialist industry as a whole, it would be necessary to add up all the purchases and sales by state enterprises in the non-socialized part of the economy, and to compare them with the total of mutual exchanges between state enterprises and between them and the state. An analysis like this would reveal the very great difference in the situation of enterprises of the first and second types and the duality in the position of those enterprises which were connected to approximately the same extent with the state and with the circle of private economy. Those enterprises which existed mainly by exchange with private economy were, of course, completely dependent on their market for sales and their source of raw material, that is, on the condition of the peasant economy, that is, on the harvest. The second group depended above all on the amount raised by the tax in kind and on the resources of the state which were free to be made available to subsidize heavy industry and transport, the market for which was the state itself or state enterprises working for the market. The state functioned here as the main source from which deficits were covered, just as in the case of transport; either it was the only market for sales, as with the war industry, or it was the collector of capital for new construction, as was the case with the building of new electric power stations. True, the amount raised by the tax in kind also depended, in the last analysis, on the harvest, but not so directly as in the first case, because the tax in kind was collected in years of bad harvest, too, when the peasants were left with very little to spend on buying the products of industry working for the market.

In any event, in the 1920s the position of industry was such that the burden of heavy industry and transport was too great to be borne by that section of industry which worked for the market. This burden would have knocked over and crushed light industry too with its great weight, if the state had not brought to the aid of heavy industry the resources which it received by way of taxes both in kind and in money from the non-socialized part of the economy, that is, above all from petty production. In this period industry was turning out only about one-fifth of its pre-war production, while the profitability of peasant and artisan economy had been reduced only to half of its pre-war level. Political power in the hands of the proletariat was thus a powerful factor working for the redistribution of the total national income, a factor working to subsidize large-scale industry from the resources of less-disrupted petty economy. In this period they also finished building such very large electric power stations as the Kashira, Kizel, Utka and Volkhov hydrostations and a number of smaller ones. This restoration of the fixed capital of heavy industry would, of course, have been quite impossible without state support. Thus, with state aid, heavy industry was enabled to hold out until better days arrived. At the same time, light industry working for the peasant market, thanks to good harvests and the increase in the purchasing power of the peasantry, itself became more solvent. It was now able to pay in full for freight to the transport organization, for fuel to the coal trust, for machines and equipment to the engineering works, for electric power to the power stations, and in this way it rendered support to heavy industry.

But industry in the first years still developed more slowly than might have been expected given this great stimulus provided by the advance of agriculture. If, thanks to successful collection of the tax in kind, on the one hand, and, on the other, intensified commodity-exchange with the countryside, industry was in a position to process 200-300 million gold roubles’ worth of raw material more than in previous years, this meant that it was possible to expand industry not only by this but by a much greater amount, since this figure was doubled and trebled in the process of working-up and augmentation of the raw material (for example: a raw hide would be bought for, say, 10 gold roubles. but the leather articles made from it would be worth, say, 50 roubles; and so on). The progress of industry was hindered, however, by the fact that, after creating its circulating capital, it had to restore its fixed capital and also to increase wages considerably, year by year. As regards the increase in the number of working enterprises, here the expansion was even slower, as the industry of this period, owing to the fact that some enterprises were not work ing at full capacity, produced very expensive goods, in spite of the low level of wages. The task of the economic organs consisted not so much in getting going as many enterprises as possible as in compelling those working to work to their full capacity. This concentration of production led to a reduction in the prices of industrial products and greatly intensified exchange between town and country. The rapid expansion in the number of working enterprises set in only when grain prices began relatively to fall.

Let us now see how particular branches of industry developed over that decade from the standpoint of the quantitative aspect of production.

Those branches began to recover more quickly, of course, which worked in the main for the peasant market and which did not require especially large outlays for the restoration of their fixed capital. The textile industry recovered fairly rapidly, and likewise that part of the iron-working industry which worked for the rural market. But manufacturing industry very soon carne up against another obstacle – the shortage of cotton. Cotton production in Turkestan was re-established much more slowly than manufacturing industry. The state had to buy large consignments of cotton abroad, and a considerable part of the republic’s gold reserve went to pay for these purchases. Subsequently the fate of the textile industry was found to be compietely dependent on the success of our foreign trade. The difficulty was made all the worse by the circumstance that for several years our petroleum industry had a very small surplus for export, and the principal export commodities were timber, furs, platinum, and an ever-growing quantity of grain. As regards flax, hemp and raw material of animal origin, foreign trade in these goods began to develop only after peasant production of them had begun to exceed the demands of home industry.

As regards the fuel industry, the Donets basin reached its pre-war volume of production in five years, while the Ural, Siberian and Moscow mines considerably exceeded it. The output of peat was in excess of pre-war already at the beginning of this period, and in connection with a number of inventions in the field of the extraction and burning of peat this branch of industry was soon on the upgrade. The petroleum crisis of 1923 and 1924 was overcome, partly through an increase in production achieved by our own resources and partly by the help of foreign concessionaires. The output of petroleum in the Emba district was considerably increased. The metal-working industry was restored at the same time as the coal industry went forward. Metal-working in the South reached the pre-war level sooner than the Urals area, which found itself in a blind alley owing to the predatory extermination of timber carried out in the preceding period. The Urals began to develop only as a result of the joining of this area with the Kuznetsk area by a main railway line, and on the basis of Kuznetsk coke. In this first decade they began to work the newly discovered copper deposits in Bogoslovsk district and the iron ore in the area of the Kursk magnetic anomaly.

The engineering industry developed in two directions: in the field of agricultural engineering and in that of the production of instruments of production for industry and transport. As the chief weakness of the agricultural implement works was that they produced machines of a variety of types, the basic task here was to unify production. To attain this was all the barder because special works for making agricultural machinery were few in Russia, and the making of this machinery was carried on by most engineering works, as a sideline. To build new works would have required special resources which the state did not possess. At the same time the production of tractors began to return to normal. The other section of the engineering industry, which worked for industry and transport, developed in the first place mainly at the expense of the state, from which it received constant subsidies. Its chief centres, apart from the South, were Petrograd and the Urals; the fuel problem was solved for Petrograd by the building of the Volkhov hydro-station. The transport industry attained its pre-war level already in the first decade. Shipbuilding for internal waterways was also restored, with the aid of British capital. As regards sea transport, owing to the cheapness of British freight-charges and the possibility of obtaining the necessary vessels abroad, it proved unnecessary to provide Soviet Russia with a merchant fleet of its own. The aircraft industry made great progress in Russia, developing with the collaboration of German capital. Especially worthy of mention in the field of the chemical industry in this period was the rapid growth in the production of artificial fertilizers. The phosphorus deposits in Vyatka, Kostroma, Tula, Orel and Chernigov provinces were worked on a large scale. These workings, which were at first carried on by semi-handicraft methods, were gradually transformed into one of the most important branches of our industry, producing not only for home demand but also for export. Also to be mentioned are the oil-mills which were built in Siberia to process cedar-nuts on a large scale.

The transport situation at the beginning of this period was indeed tragic. Transport is a branch of the economy which can function and progress only if the entire economic organism is in adequate health and there is a lively process of exchange going on within it. It exists and develops on the basis of excess accumulation of capital in the rest of the economy. At the beginning of the period under examination the whole of industry in general was hardly ticking over. All the worse was the state of the transport system. Having begun to fall to pieces already in the second year of the world war, it survived through the revolutionary years by wasting its fixed capital and savagely exploiting its labour power. Furthermore it was, in terms of mileage of track, disproportionately large for the level of the economy as a whole – one-fifth of pre-war for industry, one-half for agriculture. The improvement in the receipts from the tax in kind, and also in the financial resources of the state, together with the increase in the profits of light industry working for the market, the expansion of trade generally, and of paid freights, all increased the resources of the transport system. Some help was also rendered to transport by small railway loans from abroad, chiefly taking the form of the railway material needed. It proved impossible to revive transport as a whole in the first years. First of all the most important main lines, leading to the ports and connecting the capital with the South, the Caucasus and Siberia, had to be restored. The rest of the network began to revive only subsequently, and then rather slowly. Fresh railway construction began only in the fifth year of NEP, and mainly took the form of completing lines and spur-tracks which had been begun previously. At the same time motor and air transport began gradually to develop. At the start of NEP travel by car was available only to a very narrow circle of people, above all to the so-called ‘commissars’, about whom you now read so much in historical writing about the great revolution. The motorcar was beyond the reach of the ordinary worker. But already half-way through the decade every factory possessed motor vehicles, not only for carrying goods and for administrative journeys but also to serve the factory’s workers and their children. The motor-car also began gradually to oust the horse-drawn cab; at the end of the decade, travel by horse-transport in the big centres of population was undertaken only as either a luxury or a joke.

It now remains for me to say a few words about the progress of electrification in this period. If you realized, comrades, how poor the country was at the time of the revolution, if I were to describe to you the daily menu of an average worker and his family in those days, you would appreciate what heroism, what reckless bravery in the struggle against devastation, the republic showed in embarking already at this period on carrying out a plan for electrification. Any new piece of construction which will give a result in terms of production only after the passage of several years can be realized only in a society where accumulation is proceeding adequately, where part of the surplus value (if it is a capitalist society) or of the surplus product (if it is a socialist society) can be withdrawn from current expenditure to maintain labour power, and reproduction on the old scale, on the new construction works. In the Soviet Russia of the 1920s there was, of course, no such surplus available. On the contrary, the most elementary requirements of the country’s population, and in particular those of the working-class population, went unsatisfied. Under such conditions the building of new district electric stations meant a deduction from the already miserable budget of the worker and the peasant for the sake of the future; it was a great, mass act of sacrifice by the people in their striving for progress. Soviet Russia’s electrification plan was conceived for a ten-year period. In its original form, however, it was not realized in this period, though on the other hand something was achieved in this field which had not been foreseen by the plan. Actually, after the building of the power stations at Shatura, Kashira, Utka, Kizel, and the Volkhov hydro-station near Petrograd, they then went on to build district power stations in the Donets, Nizhny-Novgorod and Chelyabinsk areas, newly electrified the Baku district, built a station on the Dnieper rapids, and so on. In addition, a specially-formed Russo-German transport company began surveying for the laying of an electrified super-trunk-line to extend from Berlin through Moscow and Irkutsk to Vladivostok, which necessitated the establishment of a number of new hydro-electric stations along the track. Furthermore, small power stations were put up on a wide scale. Every county [1] town regarded it as a matter of honour to have a small power station to serve the neighbouring countryside, if it could not be linked to the nearest district [2] power station.

All these new power stations began to exert an enormous influence both on economic life and on social and everyday relations in the republic. The electrification of that period, even though on a scale which now seems to us infinitesimal compared with what we have achieved, led

  1. to a very great saving of fuel in all enterprises which went over to electric power;
  2. to a very great saving for the transport system, relieved of millions of poods of wood, coal and petroleum (most of the power stations worked on local fuel, that is, local coal, peat, shale, and so on);
  3. to a very great saving of labour-power in the enterprises where, after electrification, mechanization of labour took place and crude physical labour was replaced by the work of machines (chopping and sawing of wood, loading and unloading and so on).

At an approximate calculation, already in this period electrification resulted in an annual saving equivalent to the work of more than a million men in one year.

Here I shall conclude for the present my account of the state of industry, and in the next lecture I will deal with the position of the working class and the system of distribution in that period.


1. uyezdny

2. rations

Top of the page

Last updated on 24.1.2009