The Soviet's government's policy of War Communism during the Civil War created social distress and led to riots, strikes and demonstrations. The Kronstadt Uprising reinforced the idea that the government was unpopular and accepted and had made a mistake "of deciding upon an immediate transition to communist production and distribution."
Vladimir Lenin came to the conclusion that "only by coming to an agreement with the peasants can we save the socialist revolution". In March, 1921, Vladimir Lenin announced details of his New Economic Policy (NEP). Farmers were now allowed to sell food on the open market and could employ people to work for them. Those farmers who expanded the size of their farms became known as kulaks.
Victor Serge recorded: "The New Economic Policy was, in the space of a few months, already giving marvellous results. From one week to the next, the famine and the speculation were diminishing perceptibly. Restaurants were opening again and, wonder of wonders, pastries which were actually edible were on sale as a rouble apiece. The public was beginning to recover its breath, and people were apt to talk about the return of capitalism, which was synonymous with prosperity."
Raymond Gram Swing of the Chicago Daily News, who visited the countryside, had a different interpretation of events: "Before boarding our boat (at Samara), we visited the market, where, under the so-called New Economic Policy recently adopted by Lenin, we watched the peasants selling food for their personal profit, food they had grown on their small private garden plots. But the peasants had little food to sell, and they themselves were haggard and undernourished. We bought some black bread and goat cheese to eat on the boat... I have never seen a more harrowing sight than people starving to death. After an overnight ride from Samara, we stopped at an encampment of refugees, several hundred of them, who had come to the river from the interior in the hope of being taken away by the government to regions where they could obtain food and lodging. They had built shelters of leafless branches, but they had little to eat but grass. The state had done nothing to save them."
The NEP also allowed some freedom of internal trade, permitted some private commerce and re-established state banks. Factories employing less than twenty people were denationalized and could be claimed back by former owners. Eugene Lyons, the author of Assignment in Utopia (1937) has pointed out: "A new middle class of Nepmen - private merchants, artisans, small-scale manufacturers, professional men, bureaucrats in comfortable berths, more prosperous peasants, the criminal elements which are the excrescence of private initiative-had come into being. Some of them were resuscitated middle-class people of the pre-revolutionary era, others were tasting affluence and the sweets of privilege for the first time."
The NEP did improve the efficiency of food distribution and especially benefited the peasants. However, many urban workers resented the profits made by private traders. Joseph Stalin announced the abolition of the NEP in January, 1929 and replaced it with the first of his Five Year Plans.