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Problems of NEPNEP Economics

In the course of restoration period NEP model became clear to need serious correction. First of all, maintaining the same figures of industry development was turning impossible. Considerable rate of industrial growth in the time of NEP were explained by so called restoration effect: already existing but standing idle as a result of economic dislocation of the time of the Civil War equipment was assigned to work. When, in the end of 1920s those resources exhausted, the country faced the need of large investment in industry in order to reconstruct old plants and create new industries.

Meanwhile, the situation developed when Soviet government couldn't take in its disposal even those small funds, found in the country, because people were afraid of showing their welfare and instead of keeping money in saving-banks or government loans kept them at home or used for profiteering.
Foreign investments for industrialization also weren't found.

The situation with accumulating resources inside the government sector developed rather unsuccessfully.
The degree of agricultural sector participation in modernization of Russian economy considerably decreased in comparison with the pre-revolutionary time. Because of the low export rate of agricultural sector the country couldn't afford buying industrial equipment abroad, so the plans of industrialization to remained unrealized.

In 1925 the government tried to make an appropriation for industry development. But the results could be observed only in several years. As a result of numerous credits the amount of circulating money increased, but goods supply remained the same; as a result 'hard' chervonets was depreciating. The trust to it was decreasing inside the country as well as abroad. In summer 1926 chervonets export and operations with it were stopped. Soviet currency stopped being free, having turned into the mean of domestic circulation. Repudiation of golden standard in less than 2 years after its introduction made harm to the reputation of the Soviet Union in the world.
As a result of those processes economical lag of Russia behind the progressive western countries was growing.

Having faced the lack of state financial resources for industry development, not having managed to mobilize domestic and foreign private capitals, since the middle of 1920s Bolsheviks chose the way of centralization of financial and material resources of the country.
Since that time the policy of exclusion of private capital started working. As a result private and concession industry, giving gross output of 1467 million rubles in 1923/24 economical year, 2478 million rubles - in 1925/26 economical year, since 1926/27 started to cut production down; and by 1928/29 gross output was 1975 million rubles. The same processes took place in the sphere of trade, during 1925/26-1928/29 private sector in mediator trade turnover went from 6100 million rubles down to 3110 million rubles.

According to the new statute about government industrial trusts, established by All-Russian Central Executive Committee on June 29, 1927, trust activity were to submit the planned tasks of the organ under which jurisdiction a trust was, and deriving benefit as the aim of trust activity was excluded from the definition of a trust.
Choosing further way of development of Soviet economy was defined by the complicated combination of social-economical and political-ideological factors.

The first were:
1)weakness of the domestic private enterprise, being a sequent of its long (since 1917) prohibition or intensive government regulation; as a result, even if had the most favourable turn of government policy, private capital wasn't able to modernize quickly Russian background industry;
2) unfavourable world economical background; in 1929 the acutest, unseen before economical crisis burst out in the West, which made the perspective of considerable intake of foreign capital in Russia very vague, even in case of government policy promoting it.

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