The System was introduced by Walter Ulbricht to try to improve the performance of the existing central planning, so that the economy might be run in as efficient a manner as possible.
Its main aims were to reduce the wastage of raw materials, increase the level of mechanization used in production methods and, most significantly, to create a system in which quality rather than quantity was foremost.
Ulbricht tried achieving higher economic growth by introducing very limited free market elements into the existing Stalinist state-plan model.
Due to ideological reasons, the NES was never fully implemented, did not generate the expected results, and after 1967–68 was reorganized into the new Economic System of Socialism, which caused even more disruptions to the rigid socialist economy.
Besides Ulbricht, the main architects of NES were Günter Mittag, Erich Apel, Herbert Wolf [de] and Wolfgang Berger.
At the 6th SED congress in January 1963, Ulbricht criticized the existing bureaucratic and centralized ways of managing the economy and announced the basic principles of NES: Jeffrey Kopstein writes that “The primary goal of the reform was to overcome the yearly plan mentality that neglected long-range structural changes in technologies and production processes.”[3] The International Monetary Fund explains that within the NES, Ulbricht stressed "Economic Levers" (ökonomische Hebel), which shifted the focus from fundamental quantitative indicators to a more holistic "profitability and premiums wages" perspective.
[4] To succeed NES needed to overcome two problems: to ensure steady supplies of raw materials from USSR and to increase productive capacity of economy.
[5] In 1963, faced with its own shortages, the USSR informed the GDR that it would receive less oil than promised because of the need to support revolutionary Cuba.
Instead of increasing the markets control in the economy they returned to a system of economic planning and sought to improve it through application of technology and less centralized decision making.
Critics of the NES pointed out that a command economy was the basis of a socialist system, and that emphasis on profits and the market were capitalist concepts.
This meant that Ulbricht had no clear Soviet political backing, which left him vulnerable to internal criticism not only from conservatives but also from those responsible for the economy.
Besides stabilizing the East German regime by improving the living situation of its citizens, Ulbricht was still dreaming about uniting both Germanies under SED leadership.