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. Last Updated: 07/27/2016

Populist Land Reforms

Russian history is largely an odyssey of Russians searching for land -- land that most inhabitants could rarely call their own. Since the 1917 revolution, this has been truer than ever. After the revolution, the historical lack of property rights was exacerbated by a series of adventurous and self-defeating drives on the part of the state to surmount economic backwardness. Agriculture was sacrificed for the sake of a more "progressive" industrialization. The result was short-lived growth in the industrial sector, which later led to even greater economic backwardness well into the days of former Soviet President Mikhail Gorbachev's perestroika.

Today there is virtually nothing left to "squeeze" from the villages. Although the agricultural sector no longer has great economic significance, it still carries enormous political weight, serving as the main stronghold for the opposition. This, in turn, reflects the high political costs of ignoring the need for agriculture reform and introducing market institutions in rural areas. Once again, agriculture has found itself on the periphery of economic development. The agricultural sector has been resistent to reform, which only reinforces the alienation of regions from the center, and the young from the elderly.

It took the coming presidential elections to remind reformers of the need to reach out to regional rural areas. Contrary to conventional wisdom which holds that electoral populism always has an adverse effect on economics, Russia's experience with land reform proves otherwise. This was the case in October 1993, when President Boris Yeltsin signed a decree permitting the sale and purchase of land. There was one serious limitation, however: The land could be used only for agricultural purposes, which effectively barred the participation of commercial enterprises from the reform process. This piecemeal approach had undesirable results. During the December 1993 parliamentary elections, the opposition gained the upper hand, with most of its support coming from rural regions.

A new decree signed by the president in March goes further in promoting market-oriented activities in agriculture. As in the case of the October 1993 decree, land sold to kolkhoz members can be used for agricultural purposes only, although this clause no longer applies once the land is sold to an outsider. There still are, however, constraints on selling land. Other members of the kolkhoz, or collective farm, have priority over outsiders in the purchase of land. This will inevitably slow the development of market institutions in rural areas for some time to come. What may occur instead is a significant degree of redistribution of land ownership within collective farms, with some of the insiders holding large concentrations of land shares.

Who are the possible lucky winners? First of all, Article 1 of the decree specifies that it concerns only those plots that were acquired prior to 1991. Hence, the land owners that tend to be most conservative have effectively been given pre-eminence over more entrepreneurial farmers. Article 7 of the decree also provides kolkhoz managers and local administrations with land. Again, this article concerns only those managers of farms who have worked there for more than 5 years.

The rationale behind giving preference to "experienced" managers is based on the need to create incentives for the regional agrarian elite to support the land privatization process and thus the reformist center. The benefits are accorded to the regional bosses who are able to control the voting patterns on the local level. On the whole, the mechanism set forth in the land decree appears to be strongly reminiscent of the mass privatization scheme implemented during the first phase of reforms in the industrial sectors, whereby the opposition of insiders at the enterprise level was surmounted by giving them the majority of the shares. As a result, economic interest supplanted political opposition, and the privatization that has resulted has been widely seen as a success. The same insider approach to agriculture could bring it the much needed reforms in the short term.

Still, the possible gains of winning over the regional elite and furthering reforms could have their economic costs. In this respect, historical parallels seem to shed some light on the problem. Sergei Witte, who served as prime minister before the creation of the First Duma, was an outspoken advocate of granting private ownership of land to the peasantry. But at the same time, he cautioned against the high speed and politicization of the process: "With the launching of hasty, reckless and politically motivated land reform, the resolution of a good number of the basic problems of the peasants is overlooked. As a result, chaos could become pervasive, while the conversion of the peasants into tens of millions of proletarians is beyond any doubt."

Thus, the social implications of land reform should be borne in mind. Unlike industrial privatization, where managers continued to rely on paternalistic over-employment, compensating it through wage arrears and part-time employment, full-scale privatization of land implies the dismantlement of the kolkhoz-based social framework, and this calls for better safety-net policies on the part of the government. Finally, according to some estimates, about 65 percent of the land plot owners are pensioners who have a very limited ability to work and are likely to exhibit short-run preference for cash. This could lead to the land being undervalued initially with respect to its long-term market value.

The current situation, however, is not all that dark. While privatization may be slowing down in the industrial sector, it is now being launched in agriculture. Reformers are certainly gaining political ground, and the reforms themselves, despite the odds, are continuing. Could it be then that, after the election, the Russian agricultural worker may finally escape the endless chain of political traps?

Yaroslav Lissovolik is an expert with the Russian-European Center for Economic Policy. He contributed this comment to The Moscow Times.