In 1925 Stalin appointed Kaganovich as general secretary of the Ukrainian Communist Party. This was his first major assignment and a sign of the high regard in which he was held. The appointment was part of the shuffling of personnel in the struggle for succession following Lenin's death. The Ukrainian leadership was deeply divided over key issues concerning the best way to consolidate Soviet power, the nature of the Soviet federal system and the degree of autonomy to be retained by the republic within the USSR. Nationalities policy and the measures taken to placate Ukrainian national feeling, embodied in the strategy of ‘Ukrainization’, generated intense disagreement. Economic policy provided another issues of conflict. The struggle to control Ukraine was bound up with the wider struggle to gain control of the party at the all-union level. With his assignment to Ukraine, Kaganovich was required to steer a course between the contending factions in the republic while satisfying Stalin's desire to consolidate his control.

The New Economic Policy was primarily an economic strategy aimed at fostering economic recovery by using the market, taxation and pricing policy. But NEP was also a political strategy. Within the limitation of the one-party state, an attempt was made to nurture a degree of popular compliance, if not consent, for the Soviet regime. Within this framework a broader strategy for the development of the Soviet regime began to be evolved.