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S.Nickolsky (2) CONTEMPORARY AGRARIAN REFORM IN RUSSIA:
Sergei Nickolsky:
CONTEMPORARY AGRARIAN REFORM IN RUSSIA:
BLUEPRINTS, IMPLEMENTATION AND ALTERNATIVE
PERSPECTIVES
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PART 2
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b. Reform legislation of Russian Governments under Yeltsin's
presidency.
One of the first legislative measures of the newly formed Russian
government in 1991 was the passage of a presidential decree which
aimed at a radical transformation of property rights in the Russian
agrarian system.
On December 27, 1991, just a few days after the dissolution of the
Soviet Union, the Presidential Decree called "Procedures of
Reorganisation of Kholhozs and Sovhozs" was announced. This
decree ordered that a reorganisation of all agricultural organisations
(kholhozes and sovhozes) had to take place during the year of 1992.
It made the local authorities assume responsibility for allowing
members of the former collectives to freely start their individual
farms. In order to facilitate this process, all state and collective farms
were required to transform themselves in a period of two months into
joint-stock companies, limited liability companies or other similar
private business enterprises. The Decree guaranteed the rights of
individuals to purchase, sell or mortgage land without any
restrictions. Those who tried to interfere with these rights were
threatened with criminal prosecution. The December 27, 1991 decree
was indeed a radical departure from earlier legal or constitutional
regulations of land ownership and agricultural businesses. The
Russian Constitution during Soviet times prohibited private
ownership of land and made a critical distinction between collective
and state farms (though in the practice of the Soviet Union the two
forms were not all that different from each other). As recently as
April 25, 1991 × that is during the last month of the existence of
Soviet power × a Decision by the Supreme Soviet did allow private
ownership of land, but confirmed the legality of kholhozes and
sovhozes, which were later to be condemned to extinction. The
transformation of ownership rights was, however, much slower than
anticipated by the authors of the December 27, 1991 decree.
The transformation of kholhozes and sovhozes was not completed in
two months. During early 1993 daily newspapers published articles by
respected economists, who complained about the slow space of the
reform and accusing kholhoz and sovhoz directors of obstruction. By
the end of 1993, 93 per cent of agricultural enterprises had re-
registered themselves, but only 59 percent formally became joint stock
companies while 34 per cent re-registered themselves as either a
kholhoz or sovhoz. On October 27, 1993, in order to put the reform
back on track, a new Presidential Decree was announced which
became known as the "Regulation of Land Relations and
Development of Agrarian Reform in Russia" This decree
reconfirmed the unrestricted right to individual land ownership,
though it allowed individuals to join joint stock companies and also
to form co-operatives with or without foreign capital investment. The
decree also allowed individuals to combine their labour shares into
common property.
This decree made an effort to create mechanisms by which the transfer
of former state or collective ownership to individuals could be
achieved. One possible reason for the ineffectiveness of the December
27, 1991 Decree can probably be attributed to the fact that it did not
spell out how the transformation of ownership was supposed to
happen. The October 27, 1993 decree goes a long way towards filling
this gap. The key tool of this property transfer was the so-called
"certificate". All property (both land and means of production) of the
former state or collective enterprise was to be distributed among its
members or workers. People with longer service or higher income
were to receive proportionally larger shares. Ownership of such share
certificates did not however entitle the individuals to any identifiable
piece of land or equipment - it represented only a certain percentage
of the monetary value of the assets of the formerly collective
enterprise.
While the October 27, 1993 Decree made an effort to be specific
concerning property right transfer mechanisms, actual transfer of
ownership was made extremely difficult due to the absence of a land
market. Without market for land, it was also very difficult to establish
its value. This is, incidentally, a problem Russian agriculture has
been struggling with for a very long time. Even in 1861, after
emancipation when there was an attempt to sell some of the land
owned by landlords to peasants it turned out there was no objective
way to determine what the price of land should be. The October 27,
1993 Decree was therefore soon amended by another Presidential
Decree on "State Land Cadaster", which sets up at government
expense a team of specialists charged with the evaluation of each piece
of agricultural land in Russia.
The Yeltsin administration was rather disappointed with the speed at
which the second decree was implemented. In February 1995 a
report was prepared by the Research Center on Economic Policy,
operating at the President's Office under the direction of P. Filippov.
The report claimed that "many peasants stood up for divided small
farms, but they encountered opposition from directors of kholhozes
and sovhozes who do not want to lose their power". The report also
warned the government about the dangers of the "populist slogans of
the Agrarian and Communist Parties". The report urged the
government to take "preventative measures against the Agrarian and
Communist Parties". Indeed, in July 1995 Parliament passed a new
law which was supported by the Communists and the Agrarians. The
Communists, headed by Zyuganov still maintain the necessity of
nationalisation of the land, but in this piece of legislation they
compromised with the Agrarians, headed by Lapshin whose
preference is to leave land ownership in the hand of the co-operatives.
The new law is a major step backward in comparison with the
October 27, 1993 Presidential Decree. The aim of the July 1995 law is
to keep land and means of production within collective enterprises
and prevent, or at least slow down the development of private farms,
be they of an individual or agribusiness nature. The Liberals, led by
Gaidar, opposed the new law, but they do not have more than a
fourth of the votes, so lost out on this issue. Yeltsin too supported
Gaidar in this matter, and also opposed the July 1995 law. He did not
yet sign the new piece of legislation into law, and he is likely to
demand major concessions from Parliament before he will do so.
The political deadlock thus continues. Yeltsin's decrees and the
measures of his opposition are all centred around the issue of
ownership. All of Yeltsin's decrees aim at the creation of private
ownership of the North American and West European type, but little
or no effort is being made to address the other issues the Russian
agrarian system is struggling with. As I pointed out in the
introduction, the problem with current reforms is excessive emphasis
on property reform and too much faith that the straight forward
replication of Western-style private ownership will automatically
solve all other problems. Thus no real effort is being made to solve
the other dimensions of the agrarian problem, such as
decentralisation, shortage of resources in agriculture and the problem
of prices.
All Russian reform attempts have so far failed because they were all --
though all in different ways -- incomplete, and/or sequenced their
reform measures in an inappropriate way. Let's summarise
schematically from this point of view the reform attempts since
Khrushchev and their short-comings:
Reform Period 1953-64 1965-85
1986-90 1991-95
Harmony in growth - + +
-
Prices - - + +
Property - - - +
Decentralisation + - + -
I carried out an investigation at a sovhoz, located in Belaya Kolp, to
monitor the social effects of the implementation of post-1991 agrarian
reforms.
My impression was that ordinary people were first surprised by the
December 27, 1991 Decree, but eventually they arrived at the
conclusion that it would not effect them in any significant way.
The leaders of the Sovhoz, though, responded quite differently. They
quickly understood the opportunities which privatisation represented
for them. They began a process of spontaneous privatisation. As a
first step, they sold themselves the most valuable equipment of the
Sovhoz, cars, shops, instruments of production. As a next step they
began to purchase dairies, other agricultural buildings and land. With
members of their families and friends they then formed small co-
operatives. Meanwhile the Sovhoz reduced its production
substantially and now it is only a third of what it used to be. The
Sovhoz leadership managed to maintain the financial stability of the
Sovhoz by borrowing heavily from banks after resources previously
redistributed by the government dried up. Sovhoz management
therefore followed a dual strategy: creating efficient, small private
firms on the side, but retaining its position in the Sovhoz. The latter
part of the strategy enables them to unload their liabilities onto
publicly owned banks which, in the worse case scenario, will have to
be bailed out by the banks and/or their owner, which is likely to be
some government agency.
Peasants could not benefit from this opportunity for spontaneous
privatisation. Their best bet was to try to cultivate the limited land at
their disposal. Many were able to cultivate 25-30 sotkas of land (1
sotka= .01 hectare), which was just enough to keep a couple of cows,
pigs and grow enough potatoes and vegetables to feed themselves and
their relatives, who live in cities. As a result a subsistence economy
was encouraged. The growth of these tiny subsistence farms however,
could not compensate for the decline of production which resulted
from the disintegration of the large "estates".
Finally, a substantial proportion of the population of Belaya Kolp,
probably as many as 20-25 per cent of the former employees of the
Sovhoz were unable or unwilling to join any of these new forms of
agrarian production - they were left out of the process of spontaneous
privatisation and could not run their own private mini-farms so they
are doomed to become the future lumpen proletarians of the village.
c. Balakhninskii and Gorodetski Districts, Nizhny Novgord Oblast:
the Nizhny Novgorod Experience .
The events I am reporting here took place between November 1993
and March 1994. During this period I spent × along with several of
my colleagues × seven days in this area to monitor a major
experiment of privatisation under the guidance of the International
Finance Corporation (IFC, an affiliate of the World Bank) and
supervised by V.Ya. Uzun himself. This experiment was of such
importance that even the Prime Minister, V.S. Chernomyrdin visited
one of the auctions at which -- according to IFC blueprints -- land
and property shares were auctioned off. The idea was to create a
model in Nizhny Novgorod of how privatisation through auctioning-
off communal assets in exchange for certificates can work.
I followed particularly closely the process of privatisation in one
agricultural enterprise, called Pravdinskoe. In this firm, after long
deliberations all members and pensioners became owners of equal
amounts of land share certificates (5.96 hectares) and unequal
amounts of property share certificates. After this was achieved there
were two alternative scenarios as to how to proceed with the actual
privatisation. First, there were some subdivision heads of the former
collective enterprise who tried to persuade the members not to sell
their property certificates but to leave them with the subdivisions. In
this way former management would have been able to retain power
and control.
But this scenario did not quite work. Just before the auction a farmer,
who left the Sovhoz about a year earlier bought certificates from some
67 pensioners with the help of his brother. While the subdivision
heads offered modest rents in exchange for the use of land and
equipment shares, this farmer spent about 240 thousand roubles to
purchase share certificates and this way he became owner of 366
hectares of land, 12 tractors and other equipment. One subdivision
head also broke ranks, and decided to lease land directly from
peasants. This individual was the head of a machine repair unit,
which was subsequently left without work. Now this subdivision
head promises his former workers that he will provide them with
potatoes if they allow him to use their land. Many co-operated and
this way he also gained access to some 350 hectares of land. As a
result, before the auction could take place, some 700 hectares from
the original 3,000 hectares were already privatised in various ways.
The auction itself was messy. One peasant bought a trailer, but it
turned out to be without wheels. Another bought the roof of a garage,
but the garage was no-where to be found. The final outcome was that
management purchased most of the valuable assets and peasants were
left frustrated.
My two case studies demonstrate that privatisation × be it conducted
in the spontaneous manner or in the context of an apparently
competitive auction × leads to similar results. Privatisation, like the
enclosure movement in early modern Britain, is a mechanism by
which direct producers are separated from the means of production.
The beneficiaries are those who were in charge of agricultural
production before, or who were the first to "jump from the ship".
d. The Condition of Russian Agriculture, 1995.
So far the results of agricultural reforms of 1991-95 are
overwhelmingly poor (one might even say "underwhelming") to say
the least. As reforms were implemented agricultural production
declined rapidly and the agrarian system is in the process of
disintegration. So far there are no signs that this trend will bottom out
and Russian agriculture may turn around. After 4 years of
experimentation, the possibility that economic liberalism is directly
responsible for this deep crisis of Russian agriculture and that the
reform models it offers may not be adequate for Russian social,
economic and cultural conditions now deserves serious consideration.
One important implication of the 1991-95 reforms in Russian
agriculture was that the peasants, after a long period of dependence
on the state, became free. This was an advantage of reforms, since
peasants could try to act as independent producers without state
interference or control, but it had its negative consequences too.
Peasants were "freed" from resources as well, and thus they had to act
without government help. After the December 27, 1991 decree many
peasants believed that it was just another piece of law, without real
consequences as in the past, and that it represents only further
discussion about change or reform. By 1992-93 however, they realised
that this time the change was real, that the government had indeed
disappeared from the agrarian system and they now have to rely on
themselves if they want to survive. Following the October 27, 1993
Decree, when the peasant received certificates it became obvious to
them that the state was really out of agriculture at last. The
withdrawal of the state from agriculture is economically
problematical however. This process is guided by ideas of 19th
century liberalism, which sees no role for government in the process of
production. It is doubtful whether this thesis will stand up to critical
scrutiny in the case of agriculture. Sustained agrarian growth may
need government support; when it is withdrawn, agriculture is
threatened with destruction.
This can be seen in the changes of industrial input (means of
production) and agricultural output (food) prices. During 1991-95 the
difference between industrial and agricultural prices increased 4.3
times in favour of industry. Between energy prices and food prices,
the difference grew even faster: gasoline prices for instance rose 7
times faster than food prices. In 1995 the incomes of industrial
workers are twice as much as the incomes of peasants - this income
gap between workers and peasants was much smaller before 1991.
Agricultural production declined by 25 per cent between 1991 and
1995 (See Table 3 for details). This incidentally is much less than the
reduction of industrial production, which is around 50 per cent.
There is however little hope for stabilisation of agricultural
production. The relatively "modest" decline of the past 5 years can
be attributed to the fact that agriculture had good resources around
1991 including proper equipment and land in good condition. By 1995
agriculture had exhausted these resources. Therefore a further and
probably even faster decline in production cannot be excluded as a
possibility. One indication of the exhaustion of resources is the
decline of chemical fertilisers, pesticides and other chemicals (See
Table 10). In 1995, five time less chemical fertilisers were used than in
1991. As a result of declining production and productivity there is a
substantial dependence on imports of food (Table 12). In 1995, 35 per
cent of all foodstuff sold in Russia was imported from abroad. In fact
the government's fiscal plan for 1996 anticipates that 40 per cent of
food will be imported. Though Russian agricultural exports are also
substantial (and in fact even greater than its imports) most of the
imports are food, while the bulk of the exports are of chemical and
mineral products.
One reason for the agrarian crisis may be related to the high degree of
uncertainty and unpredictability agrarian producers have to operate
under. For instance, government management of agriculture has
disintegrated. Prior to 1991, from the level of ministries down to local
organisations there was a system of government management, which
was subsequently dismantled and not replaced. One consequence was
that specialists "escaped" from the agrarian sector in considerable
numbers. Without such experts any future reform will be difficult to
implement.
The ongoing property reform and government insistence on
introducing a market for land further adds to the uncertainties for
agricultural producers. They don't know any longer which
government agencies they have to deal with and they are also unsure
about what the official position on ownership relations will be in the
foreseeable future.
III. An Alternative Scenario For Reform.
So far in this paper I tried to offer an objective description and
analysis of the economic conditions and reform attempts in Russia. I
did make, however, some critical comments on various reform
attempts and was critical of the reform strategies of the current
government in particular. I therefore now feel obliged to offer an
alternative model which, in my opinion, could facilitate the
transformation of the Russian agrarian system which I believe badly
needs far reaching reforms.
Let me begin with some of the immediate tasks such an alternative
model of reform should face. If I were asked to design such an
alternative reform strategy I would first recommend taking stock of
all means of production, equipment, land, animals, all production
organisations and labour sources. After such a stock-taking was done
we may conclude that some land has to be taken out of cultivation,
since we do not have the resources to keep them in agriculture. We
also may conclude that certain government organisations which
regulate agrarian production should be eliminated, since they are not
necessary. For example, in some regions there is no effective
organisation of production, but the government bureaucratic
structure is nonetheless still there. In such districts a far reaching
reduction of bureaucracy therefore may be justified.
One main task of such stock-taking would be to identify where and
how many viable large, middle sized and small, co-operative, private
or public enterprises exist. The state should develop a clear policy as
to which productive organisations it wants to support. I operate with
the assumption that given the current conditions of Russian
agriculture there is a need for a relatively strong state, which has
substantial resources to subsidise agriculture. There are good historic
reasons why it is unthinkable that Russian agriculture can get moving
again without substantial government subsidies (and also some degree
of protectionism) initially. As I pointed out earlier in this Chapter,
during the long decades of communism agriculture was under-funded
and mismanaged. It is not reasonable to demand that Russian
peasants now suddenly compete on the "free market" with Dutch,
Danish or American farmers, who start from a much better condition
(and incidentally DO receive government subsidies). Rational
allocation of these subsidies though presumes that we develop and
inventory of firms which are a good investment for such subsidies,
which are eventually capable of developing into organisations which
stand on their own feet. I am not advocating therefore the
continuation of the state socialist re-distribute economy, which
systematically subsidised the least productive firms and transferred
resources from profitable to non-profitable sector of the economy. On
the contrary, I recommend a system in which the most viable
organisations of production receive government support, and only for
a limited period of time. Furthermore the nature of subsidies could
and should be different from what it used to be under communism. In
a socialist re-distribute economy budgetary resources were allocated;
a new policy of subsidies would rather use more indirect methods,
such as a credit system and the like. In order for such a system to be
operative the land-holding system has to be stabilised.
The foundation of sustainable growth is predictable and stable
ownership relations. What these ownership relations will look like is
difficult to predict. Those property rights which are adequate to the
Russian economic, historical and cultural conditions will have to
evolve gradually by the process of trial-and-error. It may not be
premature, however, to suggest that these ownership forms are likely
to be rather diverse, from different types of co-operatives through
various forms of public or communal ownership to private property.
It follows that it may be inappropriate for the government to give
preferential treatment to one type of property over another. Instead,
government policy would be more rational if it is neutral as far as
property forms are concerned. If in the process of the search of
appropriate ownership forms one type of ownership proves to be
inefficient, under severe budget constraints those firms would go
bankrupt anyway, their land would be auctioned off and transferred
to owners who operate more efficiently.
The model I describe here assumes an active role for the government
in the whole credit system. Unlike the liberals who believe that private
banks can do this job most effectively, I believe that government in
co-operation with private capital or on its own has to have a foot in
financing the agrarian system. At least for the time being this is
necessary in order to create a predictable and stable economic
environment. Peasants are used to dealing with the government, and
they know that the state is a stable entity. They do not have the same
experiences with the new, mushrooming private banks, which in
Russia are heavily involved in land-market operations and are
supposed to solve the financing of the agrarian sector.
It was assumed that establishment of "free markets" would quickly
and automatically solve the relationship between agricultural
producers, the food market and the suppliers of agricultural inputs.
This has not proved to be the case. Hence for the time being some
degree of price regulation may be unavoidable. A good example is
fuel prices. As pointed out before gasoline prices increased 7 times
faster than food prices. This kills agriculture. In order to sustain
agricultural production there is no alternative but to regulate, at least
temporarily, the price-gap between industrial inputs and agricultural
output and food products.
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** Conference: Privatization of Russian Agriculture **
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** Email Contact: Alex Makeev: con-mgt@fadr.msu.ru **
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