Leon Trotsky

The First Five Years of the Communist International

Volume 2

The Economic Situation of Soviet Russia
from the Standpoint of the Socialist Revolution

December 1, 1922

1) The question of the direction taken by the economic development of soviet Russia must be appraised and understood by the class conscious workers of the whole world from a twofold standpoint: Both from the standpoint of the destinies of the first workers’ republic in the world, its stability, its strength, its enhanced well-being and its evolution toward socialism, as well as from the standpoint of those lessons and conclusions to be drawn from the Russian experience by the proletariat of other countries for their own constructive economic work, upon their conquest of state power.

2) The methods and tempo of economic construction by the victorious proletariat are determined:

  1. by the level of development attained by the productive forces in economy as a whole as well as in its separate branches, and especially the reciprocal relation between industry and agriculture;
  2. by the cultural and organizational level of the proletariat as the ruling class;
  3. by the political situation consequent upon the conquest of power by the proletariat (resistance of the overthrown bourgeois classes, the attitude of the petty bourgeoisie and the peasantry, the extent of the civil war and its consequences, military interventions from outside, and so forth).

It is perfectly clear that the higher the level of the productive forces of a country, the higher the cultural organizational level of the proletariat, all the weaker will be the resistance of the deposed classes, the more regularly, systematically, rapidly and successfully can the transition from capitalist to socialist economics be carried out by the victorious proletariat.

Owing to a peculiar combination of historical conditions, Russia is the first country to enter the path of socialist development, and this, although Russia, despite the high concentration of the most important branches of her industry, is economically backward: although Russia’s worker and peasant masses, despite the extraordinarily superb revolutionary political qualities of the proletarian vanguard, are backward in culture and organization.

These contradictions in the economic, social and political structure of Russia, coupled with the fact that the soviet republic has been, as it remains, encircled by capitalism during the whole of its existence, determine the fate of the economic construction by the workers’ and peasants’ power; determine the turns made in this construction and the reasons for adopting the present so-called New Economic Policy.

3) The wholesale expropriation not only of the big and middle bourgeoisie but also of the petty bourgeoisie in city and country was a measure dictated not by economic expediency but by political necessity. The continued rule of capitalism over the rest of the world resulted in this, that not only the Russian big bourgeoisie but also the petty bourgeoisie refused to believe in the stability of the workers’ state; and this tended to convert the petty bourgeoisie into a reservoir for the landlord-bourgeois counter-revolution. Under these conditions the resistance of the landlords and the bourgeoisie could be broken and the Soviet power maintained by no other means than the complete expropriation of the bourgeoisie and the exploiting upper layers in the villages. Victory for the workers’ state was secured only by this resolute and ruthless policy which forced the vacillating peasant masses to choose between the restoration of landlords and the workers’ state.

4) The workers’ state, as soon as it began functioning, thus came into possession of all the industrial enterprises down to the very smallest ones. The internal reciprocal relations among the various branches of the industry, including, above all, the basic branches, had already been completely disrupted and distorted by the conversion of industry for the war. The personnel of the main apparatus of economic administration had either emigrated or flocked to the White Guard fronts. As for those who remained in Soviet service, they served in the capacity of saboteurs.

The conquest and maintenance of power by the working class was paid for by a swift and ruthless destruction of the entire bourgeois apparatus of economic administration from top to bottom, in every enterprise and all over the country.

These were the conditions under which the so-called “War Communism” originated.

5) The new régime had as its most un-postponable task to secure food for the cities and for the army. The imperialist war had already forced the change from free trade in grain to monopoly. The workers’ state, having destroyed all the organizations of trading capital, under the pressure of the civil war was naturally unable to make a beginning by re-establishing free trade in grain. It was compelled to replace the destroyed trade apparatus by a state apparatus, which operated on the basis of compulsory confiscation of the peasant grain surpluses.

The distribution of foodstuffs and other articles of consumption took the form of issuing uniform state rations, almost completely without regard to the skill and productivity of the workers. This “communism” was rightly called War Communism not only because it replaced economic methods by military ones but also because it served military purposes above all others. It was not a question of assuring a systematic development of economic life under the prevailing conditions but of securing the indispensable food supply for the army at the fronts and of preventing the working class from dying out altogether. War Communism was the régime of a beleaguered fortress.

6) In the field of industry, a crude centralized apparatus was created, based on the trade unions and aided by them. This apparatus pursued the immediate aim of at least extracting from industry – totally ruined by the war, by the revolution and by sabotage – the minimum of products necessary to enable the civil war to be carried on. Something resembling a unified plan was obtained only by utilizing the existing productive forces to a very limited extent.

7) Had the victory of the Western European proletariat followed shortly upon the victory of the Russian proletariat, this would not only have very much shortened the civil war in Russia, but would have also opened up new possibilities of organization and technology for the Russian proletariat by firmly coupling soviet Russia’s economy to the more advanced economies of other proletarian countries. In that case the transition from “War Communism” to genuine socialism would doubtless have taken place in a much shorter time and without the convulsions and retreats which isolated proletarian Russia has had to endure during these five years.

8) The economic retreat, or more accurately the political retreat on the economic front became absolutely unavoidable as soon as it became finally established that soviet Russia was confronted with the task of building her economy with her own organizational and technical forces and resources during the indefinite period required to prepare the European proletariat for the conquest of power.

The counter-revolutionary events of February 1921 [1] showed that it was absolutely impossible to postpone any longer a major adjustment of economic methods of socialist construction to the needs of the peasantry. The revolutionary events in March 1921 in Germany showed that it was absolutely impossible to postpone further a political “retreat”, in the sense of preparing the struggle for winning over the majority of the working class. Both of these retreats, which coincided in point of time, are, as we have seen, most intimately connected. They are retreats in a qualified sense, for what they demonstrated most graphically was the necessity, in Germany as in Russia, of our passing through a certain period of preparation: a new economic course in Russia; a fight for transitional demands and for the united front in the West.

9) The soviet state has shifted from the methods of War Communism to the methods of the market. The compulsory collections of grain surpluses have been replaced by taxes in kind, enabling the peasantry to freely sell its surpluses on the market; monetary circulation has been restored and a number of measures taken to stabilize the currency; the principles of commercial calculation have been reintroduced into the state-owned enterprises and the wages again made dependent on skill and output of workers; a number of small and medium industrial enterprises have been leased to private business. The gist of the New Economic Policy lies in the revival of the market, of its methods and of its institutions.

10) On the fifth anniversary of the soviet republic, its economy may be roughly outlined as follows:

  1. All land belongs to the state. Approximately 95 per cent of the arable land is at the disposal of the peasantry for cultivation in return for which the peasantry has during the current year made payments in taxes in kind amounting to more than 300 million poods of rye from a crop approximately three-fourths of the average pre-war yield.
  2. The entire railway network (more than 63,000 versts) is state property. Staffed by more than 800,000 employees and workers, the railroads are now fulfilling about one-third of the work done before the war.
  3. All industrial enterprises belong to the state. The most important of these (more than 4,000 enterprises), employ about a minion workers, and are operated by the state on its own account. Up to 4,000 enterprises of second and third rank, employing about 80,000 workers, are leased. Each state enterprise employs on an average 207 workers each; each leased enterprise averages 17 workers. But of the leased enterprises only about one half are in the hands of private businessmen; the others have been leased by various state institutions or co-operative organizations.
  4. Private capital accumulates and operates at the present time chiefly in the sphere of trade. According to initial estimates which are very rough and unreliable, about 30 per cent of the total trade turnover falls to private capital, with the remaining 70 per cent consisting of sums owned by the state organizations and the co-operatives closely connected with the state
  5. Foreign trade, amounting during the current year to one-quarter of the pre-war import and a twentieth of the pre-war export, is completely concentrated in the hands of the state.

11) The methods of War Communism, that is, the methods of an extremely crude centralized registration and distribution are superseded under the new policy by market methods: by buying and selling, by commercial calculation and competition. But in this market the workers’ state plays the leading part as the most powerful property owner, and buyer and seller. Directly concentrated in the hands of the workers’ state are the overwhelming majority of the productive forces of industry as well as all means of railway traffic. The activity of the state organs is thus controlled by the market and to a considerable extent also directed by it. The profitability of each separate enterprise is ascertained through competition and commercial calculation. The market serves as the connecting link between agriculture and industry, between city and country.

12) However, insofar as a free market exists, it inevitably gives rise to private capital which enters into competition with state capital – at first in the sphere of trade only, but attempting later to penetrate into industry as well. In place of the recent civil war between the proletariat and the bourgeoisie there has come the competition between proletarian and bourgeois industry. And just as the contest in the civil war involved in the main which side would succeed in attracting the peasantry politically, so today the struggle revolves chiefly around the peasant market. In this struggle the proletariat has mighty advantages on its side: the country’s most highly developed productive forces and the state power. On the side of the bourgeoisie lies the advantage of greater proficiency and to a certain extent of connections with foreign capital, particularly that of the White Guard émigrés.

13) Special emphasis must be laid on the taxation policy of the workers’ state and the concentration of all the credit institutions in the hands of the state. These are two powerful mediums for securing the ascendancy of state forms of economy, that is, of forms socialist in their tendency, over private capitalist forms. The taxation policy provides the opportunity for siphoning off increasingly greater portions of private capital incomes for the purposes of state economy, not only in the sphere of agriculture (taxes in kind) but also in the sphere of commerce and industry. Thus under the proletarian dictatorship private capital (the concessions!) is compelled to pay tribute to primitive socialist accumulation.

On the other hand the commercial-industrial credit system concentrated in the hands of the state supplies – as is proved by the statistical data of the last few months – the state enterprises, to the extent of 75 per cent, the co-operatives, 20 per cent and the private enterprises, 5 per cent at the most.

14) The assertion of the Social Democrats to the effect that the soviet state has “capitulated” to capitalism is thus an obvious and crass distortion of the reality. As a matter of fact the Soviet government is following an economic path which it would doubtless have pursued in 1918-19 had not the implacable demands of the civil war obliged it to expropriate the bourgeoisie at one blow, to destroy the bourgeois economic apparatus and to replace the latter hastily by the apparatus of War Communism.

15) The most important political and economic result of the NEP is our obtaining a serious and stable understanding with the peasantry who are stimulated to expand and intensify their work by gaining access to the free market. Last year’s experience, especially the increase of winter sowing, affords every reason to expect a continued systematic rehabilitation of agriculture. There is thus being created not only a reserve of foodstuffs for Russia’s industrial development but also a highly important reserve of commodities for foreign trade. Henceforward Russian grain will appear in ever increasing quantities in the European market. The significance of this factor for the socialist revolution in the West is self-evident.

16) The branches of industry working for immediate consumption. and especially for the peasant market, have already made undoubted and quite noticeable progress during the first year of the NEP. Heavy industry is admittedly still in an extremely difficult situation, but the reasons for this lag in heavy industry, stemming entirely from the conditions during the last few years, are likewise to be found in the conditions for the incipient reconstruction of a commodity economy: Only after the first successes have been gained in the agricultural field and the field of light industry can a real impetus be given to the proper development of machine building, metallurgy and coal, oil and other fuel production, which are naturally assured of receiving the utmost attention from the state. The state will constantly expand its field of operations, concentrate in its hands an ever-increasing volume of turnover capital, and later likewise renew and increase its basic capital by way of state accumulation (“primitive socialist accumulation“). There is no ground whatever for assuming that state accumulation will proceed more slowly than private capitalist accumulation and that private capital will thus be likely to emerge from the struggle as the victor.

17) As touches foreign capital (mixed companies, concessions, etc.), separate and apart from its own super-hesitant and super-cautious policy, its role on Russian territory is determined by considerations and calculations of the workers’ state, which grants industrial concessions and enters into commercial agreements only within such limits as will safeguard the foundations of its state economy from being undermined. The monopoly of foreign trade is in this respect an extraordinarily important safeguard of socialist development.

18) The workers’ state, while shifting its economy to the foundations of the market, does not, however, renounce the beginnings of planned economy, not even for the period immediately ahead. The single fact that the whole railway system and the overwhelming majority of industrial enterprises are already being operated and financed by the state directly for its account renders inevitable that the centralized state control over these enterprises will be combined with the automatic control of the market. The state is centring its attention more and more on heavy industry and transport, as the foundations of economic life, and adjusts its policy with regard to finances, revenues, concessions and taxes to a great degree to the requirements of heavy industry and transport. Under the conditions of the present period the state economic plan does not set itself the utopian task of substituting omniscient prescience for the elemental interplay of supply and demand. On the contrary, taking its starting point from the market, as the basic form of distribution of goods and of regulation of production, our present economic plan aims at securing the greatest possible preponderance of state enterprises in the market by means of combining all the factors of credit, tax, industry and trade; and this plan aims at introducing in the reciprocal relations between the state enterprises the maximum of foresight and uniformity so that by basing itself on the market, the state may aid in eliminating the market as quickly as possible, above all in the sphere of the reciprocal relations between the state-owned enterprises themselves.

19) The inclusion of the peasantry in planned state economy, that is, socialist economy, is a task far more complicated and tedious. Organizationally the way is being paved for this by the state-controlled and state-directed co-operatives, which satisfy the most pressing needs of the peasant and his individual enterprise. Economically this process will be speeded up all the more, the greater is the volume of products which the state industry will be able to supply to the village through the medium of co-operative societies. But the socialist principle can gain complete victory in agriculture only through the electrification of agriculture which will put a salutary end to the barbaric disjunction of peasant production. The electrification plan is therefore an important component part of the overall state economic plan; and because its importance will doubtless increase in proportion to the growing productive forces of Soviet economy it is bound to gain in ascendancy in the future, until it becomes the basis for the overall socialist economic plan as a whole.

20) The organization of economy consists in a correct and expedient allocation of forces and means among the various branches and enterprises; and in a rational, that is, the most efficient utilization of these forces and means within each enterprise. Capitalism attains this goal through supply and demand, through competition, through booms and crises.

Socialism will attain the same goal through the conscious up-building first of the national and later of the world economy, as a uniform whole. This up-building will proceed on a general plan, which takes as its starting point the existing means of production and the existing needs, and which will be at one and the same time completely comprehensive and extraordinarily flexible. Such a plan cannot be made a priori. It has to be worked out by departing from the economic heritage bequeathed to the proletariat by the past; it has to be worked out by means of systematic alterations and recastings, with increasing boldness and resoluteness in proportion to the increase of economic “know-how” and technical powers of the proletariat.

21) It is perfectly clear that a lengthy epoch must necessarily elapse between the capitalist régime and complete socialism; and that during this epoch the proletariat must, by making use of the methods and organizational forms of capitalist circulation (money, exchanges, banks, commercial calculation), On an ever increasing control of the market, centralizing and unifying it and thereby, in the final analysis, abolishing the market in order to replace it by a centralized plan which stems from the whole previous economic development and which supplies the premise for the administration of economic life in the future. The soviet republic is now following this path. But it still is far nearer to its point of departure than to its ultimate goal. The mere fact that the soviet state, after being compelled by domestic conditions to adopt War Communism, found itself driven by the delay of the revolution in the West to execute a certain retreat – a retreat, by the way, more formal than substantial in character – this fact has tended to becloud the picture and has afforded the petty-bourgeois opponents of the workers’ state a pretext for discerning a capitulation to capitalism. In reality, however, the development of soviet Russia proceeds not from socialism to capitalism but from capitalism – temporarily pressed to the wall by the methods of so-called War Communism – to socialism.

22) Completely untenable and historically absurd is the contention that the decline of Russia’s productive forces is a product of the irrationality of socialist or communist economic methods. In point of fact this decline came above all as a result of the war and then as a result of the revolution, in the form it assumed in Russia, that of a bitter and protracted civil war. The Great French Revolution which created the premises for the mighty capitalist development of France and the whole of Europe had for its immediate result the greatest devastation and decline in economic life. Ten years after the start of her Great Revolution, France was poorer than before the revolution. The circumstance that the soviet republic’s industry did not produce last year more than a quarter of the average pre-war output does not go to prove the bankruptcy of socialist methods. Because it has not even been possible to apply these methods as yet. All this shows is the extent of economic, disorganization unavoidably attendant on revolution as such. But so long as class society exists, among mankind, every great advance will ineluctably be paid for by the sacrifice of human lives and material wealth – whether the transition be from feudalism to capitalism or the incomparably more far-reaching transition: from capitalism to socialism.

23) In and by itself the foregoing answers the question of the degree to which the economic policy designated as new in Russia forms a necessary stage of every proletarian revolution. In the New Economic Policy two elements must be distinguished:

  1. the element of “retreat” already characterized above: and
  2. of economic management by the proletarian state on the basis of the market, with all its methods, processes and institutions.

a) As regards the “retreat”, it may also occur in other countries owing to purely political causes, that is, owing to the necessity, in the heat of civil war, of wresting from the enemy a far greater number of enterprises than the proletariat is able to organize economically. Partial retreats consequent upon this are not excluded in every single country. But in other countries such retreats are not likely to bear so severe a character as in peasant Russia where the civil war, moreover, did not actually start until after the seizure of power by the proletariat. Today we can no longer entertain doubts that in the majority of capitalist countries the proletariat will come to power only after a fierce, stubborn and lengthy civil war. In other words the proletariat of Europe will have to crush the main forces of the enemy before conquering power and not after this conquest. At all events, the resistance of the bourgeoisie – militarily, politically and economically – will be the weaker all the greater is the number of countries in which the proletariat succeeds in wresting power. And this means that the moment of military seizure of industry and the following moment of economic retreat will in all likelihood play a far lesser role elsewhere in the world than in Russia.

b) As regards the second element: the utilization of methods and institutions created by capitalism for regulating economic life, all workers’ states will, in a greater or lesser degree, have to pass through this stage, on the road from capitalism to socialism. In other words, every new workers’ government – after unavoidably destroying to a greater or lesser degree the capitalist economic organs during the civil war – the exchanges, banks, trusts, syndicates – will find itself compelled to restore these institutions again, subordinating them politically and organizationally; and after linking them up with the entire mechanism of the proletarian dictatorship, will have to master them by creative work in order to carry out gradually with their aid the reconstruction of economic life on socialist beginnings. The greater the number of countries in which the proletariat is already in power; and the more powerful is the proletariat seizing the power in any country, all the more difficult will it be for capital, or even the individual capitalists to emigrate, all the less and all the weaker will be the support afforded for sabotage on the part of administrative-technical intellectuals, and, in consequence, all the slighter will be the destruction of the material and organizational capitalist apparatuses – and all the easier the work of restoring them.

24) The speed with which the workers’ state traverses this stage, during which socialism while under construction still lives and develops in a capitalist integument – this speed, as already indicated will depend, separate and apart from the military and political situation, upon the level of organization and culture and the conditions of the productive forces existing when the workers’ state comes into power. It is absolutely clear that the higher both of these levels are, all the more rapidly will the workers’ state accomplish the transition to socialist economy and from this to complete Communism.

Deccember 1, 1922

Trotsky’s Footnote

1*. These theses are a summary of the report delivered by me to the Fourth Congress of the Communist International on the economic position of Soviet Russia and the perspectives of the world revolution. – L.T.


1. The reference here is the Kronstadt mutiny.

Note by MIA

Another version of this text was published in International Press Correspondence, Vol. 3 No. 3, 9 January 1923, pp. 31–34 & strong>International Press Correspondence (weekly), Vol. 3 No. 1, 16 January 1923, pp. 1–4.

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