The Leninist Heritage of the Socialist Market Economy

C.J. Atkins

Just as China’s socialist market economy is today dismissed by many in academia and the bourgeois press as a return to capitalism, it is important to recall that Lenin too faced similar criticism during the early years of Soviet power. His New Economic Policy (NEP) was often characterized by critics, both outside and inside the Communist movement, as an abandonment of socialism and Marxist ideology. While the conditions which necessitated the NEP in 1920’s Soviet Russia and those which brought about the need for economic reform in China following the chaos of the Cultural Revolution were quite different, the ideological challenges the Russian Communist Party faced in the aftermath of the civil war and those that Chinese Communists were forced to address in the late 1970s do share some similarities.

Lenin understood there could be no successful advance to socialist relations of production without highly-developed productive forces to sustain socialist methods of distribution. Addressing the Tenth Congress of the Russian Communist Party in March of 1921, referring to the necessity of cooperation with foreign and domestic capitalist elements, Lenin stated:

“We are now in a transitional stage, and our revolution is surrounded by capitalist countries. As long as we are in this phase, we are forced to seek highly complex forms of relationships.” (1977a, 189)

A component of these “highly complex forms of relationships,” of course, was the institution of market methods of distribution in, first, the agricultural sector (and later other sectors) of the economy. In further remarks to the Congress, Lenin assured delegates that the gravest problem in the immediate period was not the policy of concessions to capitalism as some, particularly those on the left, warned. Rather, it was the very low level of the productive forces that threatened the survival of the October Revolution:

“We must not be afraid of the growth of the petty bourgeoisie and small capital. What we must fear is protracted starvation, want and food shortage, which create the danger that the proletariat will give way to petty-bourgeois vacillation and despair.” (1977b, 237-8)

Many of Lenin’s writings from the early 1920s demonstrate the conclusion that in a predominantly peasant country with low levels of productive forces and education there could be no leap to socialist or communist lines of production and distribution. Instead, the transition would have to take place in stages. These kinds of measures were intended to build up the material-technical foundations for socialism that Marx and Engels had envisioned being already developed by capitalism in advanced industrial societies, where they had predicted the first socialist revolutions would take place. The proletarian revolution was expected to occur in the most technologically and economically advanced capitalist countries because of the development of a large industrial working class and the acute contradictions of advanced capitalist development which would serve as a catalyst for raising class consciousness.

The socialist revolutions of poor, underdeveloped, and usually overwhelmingly agrarian countries created a new challenge; once the working class succeeded in capturing state power, it was confronted with the task of trying to develop socialism in economies that were in no way prepared to support socialist relations of distribution. Lenin and the Soviet Communists were the first to face the real-life situation of building a socialist system on an underdeveloped base. Lenin proposed what has recently been described as a “socialist market economy in embryonic form.” (Sargis; 2004, 33) Shortly after the victory of the October Revolution, Soviet Russia became embroiled in a civil war and came under attack by interventionist armies from fourteen nations, among them the United States, Britain, Canada, France, and Japan. Under these conditions, with food and industrial shortages plaguing the country, a harsh system of surplus extraction from the peasants was introduced and wages were levelled – the policy of “war communism.” After the civil war was won by the Red Army and the foreign interventionists were pushed out of the country, the Soviet economy was in ruins. The productive capacity of the nation had dwindled; agriculture was below even pre-1914 levels. There was an urgent need to raise capital and jumpstart the development of the productive forces.

In 1921, Lenin introduced the New Economic Policy to replace the extreme measures of war communism, “with which,” in Lenin’s words, the country had been “saddled by the imperative conditions of wartime.” (1977a, 187) The NEP allowed limited denationalization, foreign-domestic joint ventures, some foreign-owned enterprises, cooperatives running on market principles, and the use of economic administrators who had been trained in capitalist management methods. State-owned enterprises, which for the most part only occupied the commanding heights of the economy, had to be self-reliant and operate on profit/loss principles. The “commanding heights” referred to the lifeline sectors of the economy, such as energy, transport, finance/banking, and steel – those sectors that effectively control or support most other areas of the economy. Under the NEP, the state still formulated an overall plan for the economy, but it was achieved primarily through market, not administrative, means. Production of individual goods and services would be based on supply and demand, not on the decree of a central planning authority. Economic competition defined relations between public and private sectors. Of primary importance in this competition was which sector would win out. Addressing the Second Congress of Political Education Departments in the fall of 1921, Lenin stated the matter bluntly:

“We must face this issue squarely – who will come out on top? Either the capitalists will succeed… Or the proletarian state power, with the support of the peasantry, will prove capable of keeping a proper reign on these gentlemen, the capitalists… The question must be put soberly.” (1980a, 66)

Lenin admitted that such an arrangement was not fully socialist. “Retreat is a difficult matter, especially for revolutionaries who are accustomed to advance.” (1980b, 280) He realized, however, that market relations were necessary until the capacity and infrastructure of a fully socialized economy could be constructed and secured. This was a task which he foresaw as encompassing years, even decades of transition. Lenin spent much time trying to explain what the New Economic Policy was and why it was an absolute necessity:

“What is free exchange? It is unrestricted trade, and that means turning back towards capitalism… How then can the Communist Party recognize freedom to trade and accept it? Does not the proposition contain irreconcilable contradictions? The answer is that the practical solution of the problem naturally presents exceedingly great difficulties… How this is to be done, practice will show.” (1977b, 218)

“Since the state cannot provide the peasant with goods from socialist factories in exchange for all his surplus, freedom to trade with this surplus necessarily means freedom for the development of capitalism. Within the limits indicated, however, this is not at all dangerous for socialism as long as transport and large-scale industry remain in the hands of the proletariat.” (1977d, 457)

The development of such a form of capitalism controlled and regulated by the state, which Lenin time and again referred to as “state capitalism,” if directed carefully by a socialist state, would be not only advantageous, but even necessary, in an underdeveloped country.

Like Soviet Russia in the years following the October Revolution, China today also finds itself facing a world economy dominated by and structured in the interests of the most powerful imperialist countries. Just as Lenin did in the 1920s, the Communist Party of China (CPC) has, since 1978, reached the conclusion that the development of the productive forces is the key to building the foundations for a transition to socialism. The rapid development of China over the past three decades has demonstrated the benefits of the CPC’s overall approach, though of course there are contradictions and new challenges which remain to be overcome.

For the socialist market economy to truly be a means of navigating the transition to socialism (whether in China, Vietnam, or anywhere else), there must be a workers’ state led by a proletarian party to promote a trajectory toward socialism. This has been recognized as a necessity since the days of Lenin’s NEP. In his pamphlet, The Tax in Kind, Lenin stated without reservation that “…socialism is inconceivable unless the proletariat is the ruler of the state.” (1977c, 334) There is always the danger in a socialist economy which contains a substantial capitalist sector that bourgeois ideology could threaten socialist development. As referenced above, Lenin warned his fellow Bolsheviks of such a possibility.

The main function of the state in a socialist market economy must be to maintain a path directed toward socialism and uphold the dominance of the working class. For contemporary China, with such a high level of foreign and domestic capitalist investment, this is a multi-faceted challenge. Particularly necessary are a concerted effort to quicken the development of the trade union movement and to increase the level of rank-and-file participation of the working class in formulating Party policy. Both of these, among many other measures, are necessary to maintain the socialist orientation of the reform program and of the Party itself.

The socialist market economy, however, should not be viewed as the end result of socialist development; the purpose of this article is not to advocate “market socialism” or the permanent desirability of a mixed economy. As Lenin said, mixed economic forms are transitional. Though the economic model of socialism based on the centralized plan and total public ownership of all sectors may have been instituted prematurely in the past, advances in technology and computer accounting makes a highly-efficient central plan a greater possibility for the future (assuming the productive forces are in place to support it). It is difficult to predict what the exact characteristics and details of socialist economies may be in the future, though public ownership, working class power, and planned development figure highly in any projection. However, under current conditions, there is no reason to conclude that the socialist-oriented market economy is necessarily a departure from the socialist path. Changing conditions necessitate new strategies for development.


Lenin, Vladimir I. 1977a. Report on the Political Work of the Central Committee of the R.C.P. (B.). In vol. 32 of Collected Works, 170-91. Moscow: Progress Publishers.

------. 1977b. Report on the Substitution of a Tax in Kind for the Surplus-Grain Appropriation System. In vol. 32 of Collected Works, 214-38. Moscow: Progress Publishers.

------. 1977c. The Tax in Kind. In vol. 32 of Collected Works. 329-65.

------. 1977d. Theses for a Report on the Tactics of the R.C.P. In vol. 32 of Collected Works, 453-61.

------. 1980a. The New Economic Policy and the Tasks of the Political Education Departments. In vol. 33 of Collected Works, 60-79. Moscow: Progress Publishers.

------. 1980b. Political Report of the Central Committee of the R.C.P. (B.) In vol 33 of Collected Works, 263-309. Moscow: Progress Publishers.

Sargis, Al L. 2004. Unfinished Business: Socialist Market Economy. Political Affairs, January, 32-34.