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S.Nickolsky CONTEMPORARY AGRARIAN REFORM IN RUSSIA:
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To: sard-room4@tempo.undp.org
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Subject: S.Nickolsky CONTEMPORARY AGRARIAN REFORM IN RUSSIA:
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From: con-mgt@qku.msk.ru (Co-owner of Conference)
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Date: Fri, 5 Apr 1996 12:11:34 +0400 (MSD)
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Organization: Foun.Agr.Dev.Res.
Sergei Nickolsky:
CONTEMPORARY AGRARIAN REFORM IN RUSSIA:
BLUEPRINTS, IMPLEMENTATION AND ALTERNATIVE
PERSPECTIVES
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PART 1
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Introduction
In this paper I will analyse the process of economic transformation in
Russia over the last decade by relying on the theoretical framework
proposed by Janos Kornai and presented in the Introduction to this
volume. According to Kornai, reforms of socialist economies had to
deal with a number of issues such as decentralisation, overcoming
accelerated growth, price reform, property reform and
democratisation.
This approach enables us to make cross-national comparisons but the
reform issues and problems Kornai identified cannot be ordered into
some universally applicable sequence. Depending on the history of
individual countries, the mentality of its population and other factors
the process can vary depending which country tried to implement
what kind of reform in what sequence. For instance, an important
hypothesis of this paper is that while in Eastern Europe land
ownership was a crucial problem to be solved, this was not the case in
Russia. My rather provocative hypothesis is that in Russia the first
problem what has to be addressed is the question of social justice
rather than land-ownership. Soviet agriculture was eminently
inefficient. This inefficiency however was primarily caused by the
Soviet obsession with industrialisation which led to redistribution of
resources from agriculture to industrial development, and thus to an
excessive exploitation of the peasantry and the countryside.
Overcoming what Kornai called "accelerated growth", creating a
fairer, more just allocation of resources between industry and
agriculture, between city and countryside would go a long way toward
resolving the underlying problems of efficiency.
The Russian peasantry has been abused and exploited for too long.
No reform scenario has a chance to succeed and to receive the support
of the peasantry unless the peasants see that it addresses the problem
of social justice and that it will bring their exploitation to an end.
Reforms without the approval of the peasantry, if they are pushed
through by the government, can only destroy agriculture and set the
country back to subsistence production. The great Russian economist
Nikolai Kondratiev wrote in 1917 that: a/ rational reform has to be
pragmatic and proceed step-by-step; b/ it has to improve productivity
and c/ it has to guarantee social justice, which means that peasants
should persuaded that reforms will assure a decent living standard for
all members of the rural community.
According to these criteria, reforms which were implemented between
1991 and 1995 were not rational. They were imposed on the
countryside, many of their components remained only on paper, and
those measures which became effective only disrupted existing
institutions and paved the way toward a subsistence economy.
To put it within the framework of Kornai: the Russian government
during the past few years has focused its efforts exclusively on the
reform of ownership, but without first solving the inequity in prices
between agriculture and other sectors of the economy and the
problem of harmonious growth and therefore without eliminating the
unequal distribution of resources between industry and agriculture.
To summarise the conclusions of this Chapter: in my view the
sequence of reform measures which would be appropriate for Russian
conditions is the following: reform has to begin with prices and
harmonisation of growth. Only after this has been achieved, a
gradual, relatively slow, step-by-step movement towards private
ownership is feasible. Democratisation and decentralisation can come
only last. As a consequence of such a reform progress, the role of the
state will eventually change. In the first phase - in establishing the
right prices and reallocating resources - a strong government is
needed. In the phase of property reform the role of government can be
somewhat reduced and the third phase presupposes a very modest
degree of direct state intervention.
I will reach these conclusions by offering an analysis of the current
conditions of Russian agriculture and by assessing the potential
alternatives for its future development.
I. Why was Reform Necessary? The Political Economy of Russian
Agriculture, 1985-1990.
a. Conditions of agriculture before 1985 and the reform efforts of
Khrushchev and Brezhnev.
In the Soviet literature, the concept of an agricultural complex was
frequently used. This referred to the whole agrarian system, which
included agriculture and forestry, its infrastructure, food processing
and distribution. Those sectors of the industry which produced inputs
for agriculture were also regarded as parts of the agricultural
complex. This agricultural complex produced about a third of GNP
before 1991. About a third of the work force worked in agriculture
itself and in industries related to agriculture, and hence in the
agricultural complex. For the whole Soviet epoch therefore
agriculture was a major branch of the economy. Despite the
extraordinary importance of the agricultural complex for the whole
Soviet economy, agriculture was generally neglected and mismanaged
through most of the Soviet period. Collectivisation had at least two
disadvantageous implications for agriculture. First, the purpose of
collectivisation was to re-channel resources from agriculture to
industry, to support what Kornai calls the strategy of "accelerated
growth". Second collectivisation as it was carried out during the early
1930's produced an inadequate organisational form in agriculture.
Firm sizes were too large, food processing was inadequate and the
system of distribution of food was inefficient. As a result agricultural
production stagnated between 1930 and the early 1950's and this fact,
aggravated by distribution problem, resulted in chronic food
shortages in cities.
It was in 1953, with the ascendancy of Khrushchev to power, that
these problems were first recognised by the Soviet leadership.
Khrushchev tried to address the organisational problems of agrarian
production. As early as 1953 he implemented some degree of
decentralisation of the management of agriculture, which meant an
increase of the decision making power at the level of the kholhoz. He
also allowed peasants to cultivate private plots and expanded peasant
markets. During the late 1950's and early 1960's he also initiated an
expansion of agricultural production in new areas: in particular the
"virgin lands" of Khazakhstan and West Siberia were opened up for
agricultural production . Khrushchev's reforms moved the sector in
the right direction and produced results. Food supply in cities
improved substantially. His reforms however were not radical
enough. In terms of organisational matters Khrushchev went a long
way towards decentralisation, but did not address the problem of
ownership: the relationships between the producer and the land and
the producer and the means of production remained unresolved.
Furthermore, under Khrushchev the strategy of extensive and
accelerated growth continued. The imbalance between industry and
agriculture was not addressed; agriculture kept subsidising industrial
development and Khrushchev tried to solve the problem of increasing
agrarian production not by channelling more resources into agrarian
production, but by extensively expanding land under cultivation.
Brezhnev was sensitive to the political problem represented by food
shortages and therefore also made an attempt to deal with this issue --
but in a rather different manner than Khrushchev. In one respect he
went beyond Khrushchev and tried to deal with the imbalance
between industry and agriculture. During the Brezhnev era agriculture
did receive investments proportionate to its role in the national
economy. In another respect, however, Brezhnev represented a step
backward in comparison with Khrushchev. Khrushchev was a
decentraliser who increased the autonomy of peasant producers.
Brezhnev on the other hand was a re-centraliser and a bureaucrat.
Instead of continuing the organisational reforms Khrushchev had
started, Brezhnev tried to solve the Soviet agrarian problem by
throwing money at it. Ironically, the larger volume of resources
channelled into agriculture required a considerably larger
bureaucratic structure to manage the allocation of those resources.
As a result, the size of kholhozes grew, and the scale of investments in
agriculture imitated those in industry. The increased investment
inflow created large scale, industrial type of complexes. Between 1965-
85 for instance about 28 percent of all investments were allocated to
the agricultural complex (See Table 1).
These investment had results (See Tables 3-5). Agricultural
production and productivity substantially increased. But this increase
had a very high costs. Most investment was oriented towards
technology and the production of the means of production. The
number of tractors and combines was greatly increased, new
industrial type of buildings were erected to house both the means of
production and the industrial type of production technologies. This
expansion also coincided with the rapid increase of use of chemical
fertilisers and pesticides. In other words this strategy was highly
capital intensive and not particularly friendly towards the
environment. Growth was achieved at prohibitive financial and
environmental costs: this was indeed unsustainable growth.
The neglect of the organisational problems of agricultural production
by the Brezhnev regime also had negative consequences. One
important indicator is the fact that food consumption did not increase
as rapidly as food production (see Table 6). According to some
estimates, as much as 40% of all food produced was wasted and never
reached the consumers.
b. The Condition of Agriculture Between 1985-1990 and Gorbachev's
Reform Attempts.
In terms of investments and growth of production, improvement of
productivity the Gorbachev years are extensions of the Brezhnev era
(See Tables 1-5). The amount of investment in constant prices during
Gorbachev's years increased even further and there was substantial
growth in the production of major crops. There was a thorough
change in investment policy. A substantial proportion of investments
under Gorbachev were directed towards the food processing industry,
since Gorbachev tried hard to solve the problem of food shortages
and get food from the producer to the consumer. Gorbachev was
however also aware that money alone would not solve the problems
of Russian agriculture and that organisational reform was also
needed. In this respect he returned to the spirit of the Khrushchev era
reforms. Gorbachev was particularly aware of the regional diversity of
Russian agriculture and the impossibility of managing it on a
centralised basis: thus decentralisation of the system of decision
making was very high up on his reform agenda. Gorbachev also
supported the private plots of kholhoz peasants. In this respect he
moved even beyond Khrushchev who, after initial support for private
plots, had as a result of bureaucratic pressure by the early 1960's
began to discourage production з especially commodity production
з on individual plots. In terms of de-centralisation and support for
private plots Gorbachev pursued coherent policies. On the whole, the
1985-1990 period was an era of great promise. Gorbachev combined
the strength of the policies of Khrushchev and Brezhnev, he pursued a
policy of decentralisation and encouraged more autonomy for the
agricultural firms and peasants and he also still had resources to
spend in the agrarian sector. In this sense he continued the
harmonisation efforts of the Brezhnev era.
There was, however, a major shortcoming in the Gorbachev reform
policies: The fundamental weakness of his policy was that he did not
confront the problem of ownership. In fact, until the very end of his
rule he did not admit that property reform in agriculture would
eventually be necessary. This shortcoming in his reform scenario was
not accidental. His major ambition was to keep conservatives and
pragmatists together, a task which was impossible to accomplish. For
example, until the bitter end he kept Ligachev on his team and in
charge of agrarian policy. The conservatives' main aim was to keep
communist ownership relations intact. In order not to lose their
support Gorbachev never even hypothetically posed the question as
to whether communist property rights are sustainable. He remained
faithful to the ideal of communism and left property relations
unreformed.
During 1985-1990 there was little effort to resolve the price problem
either. Agrarian prices remained low, there was insufficient incentive
for collective farm and farmers to produce. This again may have been
the consequence of Gorbachev's unwillingness to bite the bullet, to
alienate the urban population з and in particular the urban working
class з with higher food prices. The implications for agricultural
production, however, were negative.
II. Agrarian Restructuring After 1991 and Yeltsin's Agricultural
Reforms
With the fall of Gorbachev, Yeltsin took the road of radical reform
and certainly cannot be accused for not being radical enough.
Furthermore, unlike his predecessors, Yeltsin has indeed focused on
changing property relations. Still the result are devastating. During
the past five years Russian agriculture has in terms of decline in
production, productivity and employment experienced a crisis which
was deeper - though not as costly in human life - than the crisis
created by Stalinist collectivisation. Why? The main hypothesis of
this chapter is that Yeltsin's radicalism has been misdirected. First, he
sequenced the reform measures the wrong way. Rather than starting
with decentralisation and channelling resources into agriculture he is
trying to start the process with changes in property rights, assuming
that ownership reform will automatically solve all other problems. A
further hypothesis of this paper is that Yeltsin and his economic
advisers are trying to implement the wrong type of property reform.
They are simply trying to borrow the Western institution of private
property and create capitalism by design. The thesis of this chapter is
that ownership reform is indeed vitally important, but that it has to
come at a somewhat later stage and it has to result from a process of
trial an error during which a search for a possibly new form of
ownership which is appropriate for the conditions of rural Russia will
take place. In this part of my Chapter first I acknowledge that Yeltsin
was indeed operating under very difficult circumstances:
implementing reform in Russia after 1991 is not an easy task. Next I
review the type of legislation the Yeltsin government passed during
the past four years. I will then present a few case studies of attempts
to implement these reforms and report on peasant movements. Finally
I conclude this part by offering a description of the current state of
agriculture in Russia.
a. The Brakes on Reform: Why is Reform in Russia Particularly
Difficult to Implement?
Soviet agriculture during the whole history of the Soviet Union faced
even more severe problems than agriculture in the East European
socialist countries. There are a number of reasons for this:
1/ Socialist economies typically use agriculture to subsidise economic
growth. The unique feature of the Soviet Union however was that it
was a highly militarised society and agriculture from the very
beginning was treated as a major resource to build up the military
might of the Soviet World Empire.
2/Furthermore, the size and diversity of Soviet agrarian system
aggravated the difficulties a centrally planned economy faces in
economic management. The agrarian sector in the Soviet Union was
huge, its natural, climatic and other conditions vary a great deal and
the task to centrally plan such a sector was particularly difficult.
3/ Over the past 80 years there were too many changes in the agrarian
system of Russia and the Soviet Union. Stolypin's reforms of 1906
were followed by War Communism (1918-1921), by the New
Economic Policy (1921-29), forced collectivisation (1929-35),
Khrushchev's reform, Brezhnev's anti-reforms, Gorbachev's reform
attempts and the current wave of agrarian restructuring. The aims,
objectives and methods of these policies were highly contradictory.
4/ While there has been, on the whole, too much unpredictability and
too much change in the Russian country-side, in those areas where
change would have been desirable з namely in ownership relations з
property rights were frozen with collectivisation for a half a century.
For far too long it was impossible to identify the real owners of the
land and other means of agricultural production.
5/ In Russia, ideology played a greater role than in China or in
Eastern Europe. The Russian population is better educated than the
Chinese and therefore ideology is more important to them. While in
Eastern Europe communism was superimposed on societies by Soviet
military force, in Russia communist ideology had deeper roots. In
Russia, therefore, reform required more of a change in ideology than
elsewhere. This may be one of the reasons of Gorbachev's failure. He
did not go far enough in creating a new ideology. He remained
committed to reform within the framework of socialism, and
therefore lost potential support from among those who could have
been won over by a more radical ideological break with the past. He
even lost the potential support of pragmatists within the Party due to
his relative ideological conservatism.
There is one common problem what all post-socialist economies face
and in which respect Russia is in the same boat with Eastern Europe:
a major restructuring which ideally would require substantial
resources is being attempted in a resource poor environment. When
Gorbachev tried his reforms, the conditions were in this respect at
least somewhat better. Reasonably good financial and technical
resources were available to him, agricultural enterprises had assets
they could rely on during the short few years required for
restructuring. These resources were exhausted and wasted by
Gorbachevвs unsuccessful reform attempts. There were also
organisational resources available until the early 1990's : pragmatic
agricultural experts in agricultural firms, in the government and the
party, and research establishments which could facilitate timely
reforms. Gorbachev could not exploit these organisational resources.
He persisted in making too many concessions to the conservatives in
order to maintain the unity of the Party. Conservatives managed to
marginalia the pragmatists and block the reform process. As a result
by 1991 not much remained from these organisation resources , and
even what little survived was subsequently destroyed, making the
formulation and implementation of reforms now all the more
difficult.
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