“We are 100 years behind the advanced countries. We must make good this lag in ten years. Either we do it, or they crush us!” Josef Stalin, 
speech to the Fourth Plenum of Industrial Managers, Feb. 4, 1931.
Lenin had decided abandon the socialization of agriculture and the communization of property under the NEP of 1921. He would allow for private ownership in the rural sector and private production.The result of this was that Soviet agriculture soon returned to its prewar levels. The war and revolution had cost Russia 13 years of economic growth, but by the late 1920’s it appeared that Russia stood on the verge of another period of growth.
But events prompted Stalin to believe that there would not be enough time for economic development to follow its own course and Russia laboured under its traditional economic weaknesses.
There was no foreign investment available for development and Russia would have to rely on domestic sources to finance the development of large-scale industry, as well as the creation of a substantial armed forces in the face of a increasingly threatening world. By 1926 the Russian middle class had been eliminated, which could have been a source for investment capital, and 78% of the Russian population worked in the agricultural sector. The vast majority of Russian farmers farmed on private plots and produced private surpluses. In such a context, Stalin saw that there would only be one way for the state to raise money and accumulate capital, and simultaneously transform the economic base of Russia from farming to industry.
The solution for Stalin was to collectivize agriculture, forcing the peasants into communes, destroying the kulaks, controlling agricultural output, and fixing the prices of wages and food. In essence the state interposed itself between rural producers and urban consumers, and extracted money from each.The result of this was that the share of Russian GNP devoted to private consumption, which in other countries going through the same “take off” developmental stage was around 80% was driven down to 50% with the state expropriating the other 50% for its own uses.
There were two momentous consequences of this strategy to create a socialist command economy. First, Soviet agriculture declined catastrophically, as the peasant resisted the forced collectivization of agriculture. In a sense in Stalin’s mind peasants were expendable as they, in the future would not be useful. Millions of peasant starved to death in 1933 because of the dislocations in the countryside, and cannibalism was rampant throughout the rural sector.
The second consequence was somewhat more positive, at least for the development of Soviet economic and military power. Having driven private consumptions share of the GNP down to levels unmatched in 20th century history, the state was able to deploy over 25% of GNP for industrial investment and still have considerable sums for investments in science, education and the armed forces. Russian society was literally transformed in the period from 1928 to 1940. The percentage of the population working in agriculture fell from 75% to less than 50% by 1940.
Industrialization on the gigantic scale envisaged by Stalin would have baffled and defeated a government less ruthless than Stalin’s. Between 
1930 and 1938 alone, 25 million peasants were forcibly relocated from rural areas to developing industrial centers and transformed into factory workers by means of intensive training, ideological indoctrination, and extremely harsh industrial discipline.Throughout the Stalin era the USSR became an increasingly urban country.
In order to free labor for industry and to secure food for the swelling urban population Stalin sped up the collectivization of farming. In 1929 there were 25,000,000 small peasant farms, by 1952 these had been transformed into 100,000 large and highly mechanized collective farms.
The resulting upturn in manufacturing output and national income was something unprecedented in the history of industrialization. Soviet manufacturing boomed during the Great Depression. If one examines the period of the two five year plans of 1928 to 1937 Soviet national income rose from 24.4 to 96.3 billion rubles, coal output increased from 35.4 to 128 million tons, steel production from 4 to 17.7 million tons, electricity output rose 700%, machine-tool production 20,000% and tractor production (factories that could be easily converted in tank production) rose 40,000%.
By the late 1930’s, the Soviet Union that had been last in terms of economic development and output in Europe only 8 years before had pulled off a stunning achievement. It had become the 2nd largest economy in the world. But behind this impressive and unparalleled rate of development there still lurked many deficiencies. By the mid-1930’s Soviet farm output was less capable of feeding the growing urban population, let alone produce a surplus for export. Farm yields per acre were appallingly low and the infrastructure of Russia was still underdeveloped.
Having been born out of war and feeling acutely threatened by potential enemies—Poland, Japan, Germany, Britain—the USSR devoted more than 16% of its GNP to defense and the military which skewed industrial development towards military production and produced private surpluses.
