Scholarly article on topic 'Institutional impact and agricultural change in Russia'

Institutional impact and agricultural change in Russia Academic research paper on "Law"

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Journal of Eurasian Studies
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{"New institutionalism" / "Institutional change" / "Rural Russia" / "Property rights" / Stratification / Inequality}

Abstract of research paper on Law, author of scientific article — Stephen K. Wegren

Abstract Set within the context of New Institutionalism, this article analyzes the impact of institutional change on Russian agriculture. Institutions are important because they create opportunity and incentives. The market-based institutional framework introduced in the 1990s acted as an independent variable that facilitated growth in entrepreneurial income and an increase in rural stratification. Further, institutions contributed to land expansion by a stratum of upper income households. As a dependent variable, indigenous factors influence the economic outcomes that flow from new institutions with a twofold effect: regional variance is significant for entrepreneurial income and land expansion; and some households experienced much higher entrepreneurial income and land expansion.

Academic research paper on topic "Institutional impact and agricultural change in Russia"

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Institutional impact and agricultural change in Russia

Stephen K. Wegren*

Department of Political Science, 3300 University Blvd., Carr-Collins Hall, Rm. 220, Southern Methodist University, Dallas, TX 75275-0117, USA



Article history: Received 17 August 2011 Accepted 3 January 2012


New institutionalism Institutional change Rural Russia Property rights Stratification Inequality

Set within the context of New Institutionalism, this article analyzes the impact of institutional change on Russian agriculture. Institutions are important because they create opportunity and incentives. The market-based institutional framework introduced in the 1990s acted as an independent variable that facilitated growth in entrepreneurial income and an increase in rural stratification. Further, institutions contributed to land expansion by a stratum of upper income households. As a dependent variable, indigenous factors influence the economic outcomes that flow from new institutions with a twofold effect: regional variance is significant for entrepreneurial income and land expansion; and some households experienced much higher entrepreneurial income and land expansion.

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1. Introduction

New Institutionalism seeks to explain institutions and their functions instead of merely assuming their existence (Nee, 1998, 2). An understanding of institutional change requires a realization that an institutional framework is created and does not just appear; that an institutional framework develops through a process that is shaped by a variety of factors; and that the institutional framework is a variable—acting as both an independent and dependent variable. The questions raised by New Institutionalism are especially relevant to understanding the transformation of Russian agriculture in the post-Soviet period. The purpose of

this article is to analyze the impact of institutional change on Russian agriculture. The general arguments are fourfold: (1) institutions matter, and their design and impact are crucial in understanding behavioral responses during market reform; (2) due to institutional chaos during the 1990s, an accurate understanding of the impact of institutions can only be accomplished in an environment of institutional clarity where actors understand "the rules of the game" and what is permissible; (3) institutional impact differs across regions owing to myriad factors, in other words, variance in institutional impact at the regional level is to be expected; and (4) household behavior impacts the institutional outcomes examined herein more so than human capital variables.

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2. The analytical problem

In 1992 Russia introduced a set of new economic institutions that were designed to build a market economy.1 A core analytical question concerns the role and efficacy of

1 Following the definition used by North, institutions consist of informal constraints, formal rules, and the enforcement of both (North, 1989, 239).

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institutions in impacting behavior. Neoclassic economics deemphasize institutions based on the assumption of perfect knowledge and market efficiency. One critic of neoclassic economics argued that, "the usual treatment of institutions was superficial.either these systems were regarded as neutral in their effect on economic events and ignored, or they were taken as given and then specified in so perfunctory a way as to suggest that institutional influence was not of much importance. By contrast, the new institutional economics seeks, at a minimum, to demonstrate that institutions truly matter" (Furubotn & Richter, 1991, 2).

In contrast, Nobel prize winner in economics Douglass North, whose work represents a major revision of neoclassic economics, argues that institutions are central in shaping and affecting behavior. Institutions matter because they are "humanly devised constraints that structure human interaction" (North, 1990, 3). Taken together these constraints "define the incentive structure of societies and, specifically, economies" (North, 1998, 248). Institutions are not static but change over time. Institutional change is important because it "shapes the way societies evolve through time and hence is the key to understanding historical change" (North, 1990, 3). He argues that, "there is no set formula for achieving economic development. While the sources of productivity growth are well known, the process of economic growth is going to vary with every society, reflecting the diverse cultural heritages and the equally diverse geographic, physical, and economic settings" (North, 2005,165). North concludes that institutional change occurs as a result of learning—behavioral change occurs and institutions are altered because individuals perceive that the existing institutional structure is insufficient and that they could do better by restructuring political or economic exchanges through new institutions and norms of behavior (North, 1998, 250).

Neoclassic economists assumed that in post-Soviet countries economic transformation would be accomplished merely by introducing changes that had worked elsewhere, based upon the core elements of privatization, liberalization, and free trade (Aslund, 2007; Wolf, 2005). Little attention was paid to sequencing, to how new institutions would operate in the post-Soviet environment, or whether these nations possessed the social and political infrastructure to make markets work. As a result, the reforms introduced by Yegor Gaidar and Anatoly Chubais were criticized for assuming "that the best way to create institutions necessary for an efficient market economy.would be to create private property owners out of the state managers and blue collar workers.. Reformers predicted that institutions would come into being after private property was created rather than the other way around" (Goldman, 2003, 74). The institutions-will-come approach was also criticized by renowned economist Joseph Stiglitz, who argued that, "the officials who applied the Washington Consensus policies failed to appreciate the social context of the transition economies" (Stiglitz, 2002, 160). Russian reformers, backed by their Western advisors, believed that, "if a group with vested interests in

property could be created, it would demand the establishment of an institutional infrastructure necessary to make a market economy work.. That is why, advocates of privatization argued, one didn't really need to pay close attention to how privatization was accomplished" (Stiglitz, 2002, 164).

3. Problems of measurement

Core ideas from the theoretical literature regarding the salience of institutions in shaping behavior and the incentive structures that are embedded in institutions may be applied to the agricultural sector in post-Soviet Russia. The direct measure of institutional impact may be difficult, however, because the link between national level institutional change and micro-level behavior is fraught with complications. The mere creation of institutions does not guarantee behavioral responses that follow a predetermined desired course. Instead, we should understand that institutions create opportunity and incentives. The actual responses to institutions depend upon a set of intervening variables that define personal characteristics and propensities—age, gender, education, skill set and training, occupation, location, and risk-taking proclivity are examples.

Further, the problem of understanding and measuring institutional change is complicated by additional factors:

(1) the chaotic period between the deconstruction of old institutions and the point at which newly created institutions became the dominant paradigm to guide behavior;

(2) the notion that directionless behavior during the institutional void was synonymous with resistance to new institutions; and (3) the impact of an economic free fall on household behavior. Each is discussed in turn.

The demise of communism in the USSR was mostly nonviolent and bloodless as far as great revolutions are concerned, and for that reason it is easy to forget how chaotic the first half of the 1990s was; for that matter, almost the entire decade of the 1990s lacked direction and institutional coherence. One Western journalist argued that, "Thrown into capitalism, but lacking every institution it takes to make capitalism work. Russia in those days was an arbitrage trader's wet dream, a country of so much incomplete information and so many mismatched markets that for a few heady months it felt as if anyone with a few connections and a nose for a deal could get rich" (Freeland, 2000, 14). Thane Gustafson, who wrote one of the earliest books about Russian capitalism, perceived both positive and negative trends as Russia tried to escape its communist past. On the positive side, the 1990s was "a time of feverish building, not only of offices and kottedzhi for the rich, but of new businesses and institutions based on new skills and products" (Gustafson, 1999, 6). On the negative side he observed the rise of "crony capitalism" and the difficulty of overcoming the Soviet past. He argued that, "Overcoming the Soviet legacy is more than a matter of culture. Russia remains 'hardwired' to its Soviet past..There is also an institutional legacy, which shows up in the way accountants measure costs or the financial system treats value, in the managers' habit of relying on their friends instead of their

lawyers.all these and a myriad more are inherited from the Soviet past" (Gustafson, 1999, 5, 8).

In agriculture the decade was characterized mostly by institutional chaos. In the early post-Soviet years there was a partial removal of limitations and regulations that had previously stifled entrepreneurship, but full-fledged property rights were absent. Take, for example, land ownership. Private land ownership was first legalized in Russia (then RSFSR) in November-December 1990; subsequently, Yeltsin's October 1993 decree mandated private ownership and rights of disposal through selling agricultural land, and the Civil Code of 1994 confirmed private ownership, but reality was complicated. The existing Land Code allowed regions to decide questions of land ownership, and at least 10 regions had land laws that did not recognize private ownership of land as late as 1995 (Lerman, Csaki, & Feder, 2004, 69). Other regions had land laws that did not prohibit land ownership, but did not explicitly allow it either. Some regions were compliant with federal law and allowed full ownership of agricultural land; some allowed ownership only of household garden land, and others allowed only land leasing for small-scale farming. Thus, regional land laws were a hodgepodge of varying rights and freedoms and carried significant limitations on land disposal. As a result, individuals' behavior reflected significant continuity from the Soviet period regarding forms of land tenure that favored land leasing instead of purchases (rental rights rather than ownership rights). Further, the federal executive and legislative branches battled over property rights during most of the 1990s, each postulating drastically versions of desired policy, which led to confusion about what was permissible and what was not. Improved clarity in new institutions occurred after 2001 when a new land code was adopted, followed by a 2002 law on land turnover that regulated the disposal of agricultural land, but even so complete transparency was absent.2

Institutional muddiness after 2001 created obstacles to land ownership even where ownership was permitted. For example, bureaucratic obstacles made it difficult to understand the privatization process and costly to convert land shares to real land. Russian academic Natalya Shagaida describes a sales process for agricultural land that is not only expensive but also time consuming, resulting in high transaction costs. Getting a land plot cadastred can take up to two months alone, and to complete the entire multi-step process can take up to six months (Shagaida, 2005,134-5). To complicate matters, the list of documents needed to register one's land is not strictly defined by law, necessitating multiple trips to the various offices and rendering the process essentially ad hoc, as local officials set their

2 The 2002 law was not entirely "liberal" in that it placed maximum and minimum limits on land transactions and gave local governments the right of first refusal for any agricultural land purchase. This law also had institutional barriers to private ownership by making the division of private property held as collective ownership difficult. The law was revised and amended all the way through 2010, as the government sought to simplify the procedure for division of collective property and to lower transaction costs of private land ownership.

own requirements about which documents are needed (Shagaida, 2004).

Another example of institutional chaos in agriculture concerns "market" relations that were introduced as part of economic reform in January 1992. The myth is that economic liberalization brought free markets and free domestic trade. It is often forgotten that federal and regional food funds based upon food requisitioning existed until the middle of the 1990s and that the federal government regulated retail food prices through 1994; in some regions it was longer and included regulations on wholesale markups as well. Further, after a brief interim period when food funds faded away and "market-based" food prices emerged, regulated food prices were reintroduced in many regions following the disastrous 1998 harvest. Thus, for much of the 1990s agricultural markets remained regulated or semi-regulated.

This reminder about food markets that were not free is important because institutional chaos creates incentives that differ from the original intent of institutions. A move to full market relations in which large farms, private farmers, and individuals could freely market their produce creates one set of incentives in which producers presumably would want to maximize their profit-making ability. Another set of incentives entirely is created if food cannot be freely marketed but either is requisitioned by the government or channeled through imperfectly functioning and mostly manipulated wholesale markets. Agricultural production declined significantly during the 1990s and it should not be discounted that at least some of the decline may be attributed to the disincentives that occurred as a result of the institutional arrangement in which bureaucratic entities continued their standard operating procedures from before and new institutions had yet to emerge as dominant. Similar to property rights, institutional clarity with regard to market relations increased only during the second decade of reform was begun.

A second factor that complicates an analysis of institutional impact is the notion of resistance to new institutions. Carole Leonard, for example, sees resistance from below, maintaining that risk-taking, entrepreneurship, and private property are eschewed in favor of a peasant moral economy based upon Soviet-era welfare security (Leonard, 2000). A contrasting view is presented by Maria Amelina who argues that rural dwellers' rationality is reflected in behavioral responses that are derived from their calculations of direct and indirect benefits (Amelina, 2000, 487). Amelina's argument is supported by Liesl Miller who contends that, "the fact that they [collective farm members] cling to the kolkhoz is being misinterpreted as a sign that they are averse to risk and change. I argue that this behavior signals a deeper understanding of their cultural and economic needs" (Miller, 2002, 222).

Resistance from above is argued by Allina-Pisano, who sees a grand coalition of bureaucrats and officials from the local level to Moscow united in covert action to resist and obstruct land privatization. These interests were "different, yet aligned," and they coordinated their efforts to hinder land privatization (Allina-Pisano, 2008, 82-83). This grand conspiracy of actors included leaders of district administrations, state economists, land tenure specialists, land committee members, village councils, and farm managers.

Subsequently, she joins Leonard in arguing that ordinary rural dwellers resisted land privatization as well (Allina-Pisano, 2008,193).3

The larger point is that the formative period of reform in Russia yielded the partial dismantling of Soviet-era institutions combined with imperfectly defined and functioning market-based institutions, leading to a situation that any rational actor would find confusing and would want to avoid. Institutional confusion was hardly unique to Russia—other authors found similar chaos in other post-Soviet states with specific application to land and property rights (Verdery, 2003). Even though anecdotal evidence suggests that some low-level resistance did occur in the earliest years of reform, a context of institutional chaos makes it very difficult to categorize most behavior as resistance.

A third factor that complicates the measurement of institutional impact concerns the relationship between an economic free fall and adaptive household behavior. The collapse of Russia's economy in the 1990s, culminating in financial collapse in August 1998 (a collapse that occurred in agricultural production during the 1990s as well), gave rise to households' priority goal of survival—maintaining or if possible improving their standard of living in an environment of economic decline (Kalugina, 2000). The quest for survival above all else for a large percentage of rural households made it difficult for Western analysts to understand behavioral change, a point emphasized by a well-known Russian specialist on agriculture who argued that, "recessionary times do not create economic incentives for production units and therefore do not induce real transformation" (Serova, 2000,103).

Even though survival may have been paramount, the literature characterizes the 1990s as a time when people were scrambling to figure out ways to adjust, to become one of the fortunate ones in new Russia. Of course, there were groups of people who were not able to adapt for a variety of reasons, poverty rates rose, and economic differentiation became significant. But among those who were not trapped in the past, survival was achieved by adaptation to new economic realities and opportunities. As

3 Both Leonard's and Pisano's arguments are problematic. Neither of these analyses regard time as a variable—that the impact of new institutions takes time—nor, with their end of history scenarios, can they account for the emergence of a successful private farming sector after 2004. Moreover, resistance was not a primary characteristic of Russia's agrarian or land reform. Leonard's thesis is unable to explain the emergence of an upper stratum of rural household producers that has been

shown to not only have increased land holdings by significant amounts, but also are distinctive in their level of income, food production, and food sales, occurrences that have also been found by several authors. Absent from Allina-Pisano's analysis is the fact that reform instructions were often vague, unspecific, contradictory, and incomplete, thereby requiring local actors to improvise as best they could. Further, her argument neglects to mention that the design of reform asked farm managers to distribute land and allow workers to leave, at the same time that mangers continued to be responsible for food deliveries to the state, and later, to be profitable. Thus, what is postulated as resistance may be alternatively understood as rational responses to contradictory goals within a context of institutional uncertainty. A rational actor would be expected to utilize formal institutions when they are more stable and secure, and there are mechanisms for third-party enforcement. Evidence of rational responses to institutions includes an increase in land purchases by individuals and businesses over time, and the conversion of land shares to real property.

time passed the old ways of survival—dependence on transfer payments and state wages—became increasingly untenable as pensions were too low to survive and lagged inflation, and as chronic wage arrears became the new reality. Thus, those who could adapt to survive, did so, and they did so by decreasing reliance on traditional survival strategies of rural households: household labor and informal networks. The transition to new survival strategies is measurable in two ways. First, the effects of household labor and the effects of rental land on household income exerted influence independently as time went on, that is, the effect were separate effects could be quantified, showing the property holdings became more and more important (O'Brien, Wegren, & Patsiorkovsky, 2007, 42-3). Second, during 1995-2006 the percentage of household income that was non-monetized declined, that is, reliance on food produced and consumed by the household declined, thus indicating that as time passed the quest for survival was replaced by a pursuit of growth (O'Brien, Wegren, & Patsiorkovsky, 2010, 603).

To be sure, adaptation to new institutions was not always unilinear, consistent, or successful. Some households had better skill sets and resources that could be converted to income making activity in a market economy. Further, missteps occurred for reasons that households could control, for instance, a misallocation of resources or a failed household business; and because of factors outside of their control—for example, unclear, contradictory, and confusing land rights; wholesale markets and input supply lines that were often manipulated; and a credit market that was anything but transparent (Serova & Shick, 2008; Shagaida & Lerman, 2008; Yastrebova, Subbotin, & Epshtein, 2008). Nonetheless, incremental, but important, adaptive behavior was taking place at the household level even during the 1990s (O'Brien, Patsiorkovski, & Dershem, 2000). As time passed the economy stabilized and then grew, and institutions gained clarity and predictability. As a result, the incremental adaptation of the 1990s began to transform itself into significant stratification after 2000 (O'Brien and Patsiorkovsky, 2006, 95-107). It became clear that an adaptive cohort of rural actors, not just private farmers, had embraced the opportunities embodied in the new institutional framework and were successful in achieving economic growth, increased welfare, and income differentiation (Uzun, 2010).

4. Institutional impact as an independent variable

Post-Soviet institutions have experienced many shortcomings: by their absence at critical times, by the contradictions in design and in implementation. Nonetheless, market-based institutions have had a demonstrable impact on economic behavior. The theoretical literature suggests that institutions create opportunity and incentives that shape behavior. Market reform institutions as an independent variable and their effect on economic behavior can be illustrated by two components of wellbeing: income and property.

4.1. Household income

Continuity with the Soviet period is found in the fact that households continue to pursue mixed income strategies.

During the post-Soviet period, however, institutional change affects sources of income in a positive way that is accessible to most households. Institutional change created new opportunities to develop household enterprise. Rural residents may become self-employed and start a household business, or can hire themselves out in whatever employment they find, either agricultural or non-agricultural. Uncovering collective adaptation during the economic downturn, Allina-Pisano writes that, "agricultural cooperatives set up sewing shops, smokehouses, carding and combing shops, oil presses, and brick factories." Other collectives sewed polyethylene bags and fur hats (Allina-Pisano, 2008, 39). As a result of entre-preneurship and seizing new opportunity, the portion of household income that came from farm employment and transfer payments decreased (O'Brien, Wegren, & Patsiorkovsky, 2005, 272-5). In addition, reform institutions deregulated the labor market and allowed rural dwellers to search out non-farm employment. Based on survey data Lerman and his colleagues discovered an increase in non-agricultural employment whereby an increasing portion of rural households' income came from non-agricultural work (Lerman, Serova, & Zvyagintsev, 2008, 66-7).

The effect of these processes was twofold. First, attendant with a rise in household income, household enterprise began to occupy a more prominent place in the structure of total income. In upper income households the income from household business became very significant, although there is significant regional variation. Second, because levels of income from household enterprise far outstrip the level of transfer payments and exceed income levels from farm employment, the gap between the entrepreneurial and non-entrepreneurial widened and rural stratification increased (O'Brien and Patsiorkovsky, 2006, 95-107). Thus, the countryside became more differentiated, and this reality is illustrated by region in Table 1.

The increase in income stratification may be measured at the household level using a coefficient of differentiation.4 For example, in a 2001 survey of 800 rural households the coefficient of differentiation was 5.6; the coefficient of differentiation rose to 6.3 in a 2003 survey of382 rural households; and it increased to 10.8 in a 2006 survey of900 rural households. In other words, in 2006 the households in the upper 10 percent had almost 11 times the mean monthly monetary income as the lowest 10 percent of households. Therefore, since 2000 it is clear that stratification increased as more monetary income was concentrated in upper income households.

4.2. Property rights

Institutional change legalized private land ownership and the buying and selling of agricultural land. The institutional design of land reform affected individuals' property rights in fundamental ways. For private citizens and rural households, the design of reform determined or greatly influenced: (1) the predominant types of land that would be used and owned; (2) howmuch land could be owned; (3) the

4 A coefficient of differentiation is defined as the ratio of monetary income by the top 10 percent of households compared to the bottom 10 percent of households.

Table 1

Mean per capita monetary income for rural population, by federal district, 1995-2009 (rubles per month).

1995 2000 2005 2009

Mean for Russian federation 237 985 3646 9619

Central 182 645 2260 6605

Northwest 256 956 3133 7884

Southern 150 629 2293 6467

Volga 184 759 2675 7210

Urals 302 1207 4088 10,321

Siberia 245 850 2872 7015

Far East 320 1099 3824 9496

Notes: a. per capita income is nominal. b. numbers have been rounded. c. income for rural population was calculated using rural incomes as % of national income based on government averages. d. monetary income for rural population excludes non-monetized income that is consumed. e. income is not adjusted for regional differences in cost of living.Sources: Regiony Rossii 2001, 2001, 110-11; Regiony Rossii 2005, 2006, 157-8; Regiony Rossii 2010, 2010, 164-5; Rossiiskii statisticheskii ezhegodnik, 2001, 187; Rossiiskii statisticheskii ezhegodnik, 2007, 184; Rossiiskii statisticheskii ezhegodnik, 2010,180; and author's calculations.

incentives that individuals had to lease their land shares to large farms, in effect helping to keep them intact; and (4) imposed inherent limits on income due to the small amount of land that most households held in ownership or was in use (Wegren, 2009,136-7).

The positive effects of liberalized property rights are somewhat less straightforward than rising household income and increased earnings from entrepreneurship. On the one hand, more agricultural land is in private hands than at any time in Russia's history. Formally, at the beginning of 2010 private citizens and business owned more than 133 million hectares of land in Russia; most privately owned land is agricultural land, and with 190 million hectares of agricultural land in use in 2010 it means that private ownership of land constituted about 70 percent of agricultural land that was in use (Gosudarstvennyi (natsional'ny) doklad o sostoianii i ispol'zovanii zemel', 2010, 38, 47). On the other hand, farm members who received land shares held theoretical rights to ownership, but these shares were seldom converted to actual land for a variety of reasons. At the beginning of 2010, private citizens owned 123 million hectares, of which, 104 million were owned as land shares (Gosudarstvennyi (natsional'ny) doklad o sostoianii i ispol'zovanii zemel', 2010, 47). Thus, for the overwhelming number of rural dwellers, their real private land continued to be their garden plot, and the size of these plots tended to increase only incrementally if at all. For most rural dwellers, the amount of land that they owned or used did not differ significantly from the amount that they had used in the Soviet period. Significant increases in land holdings are evident for only a relatively few, mostly upper income households, and the number of high-income households is small. Only a thin stratum of households significantly expanded their land holdings and economically differentiated themselves from the rest of the community (Petrikov, 2007; Uzun, 2010).5

5 Behavioral responses to reform institutions are differentiated by household income level and by profession. Private farmers and farm managers increased the size of their land holdings the most, while common farm workers may be considered "losers" in terms of the amount of real land they hold as private property.

5. Institutional impact as a dependent variable: regional variance

The discussion in Section 4 indicated that market-based institutions act as an independent variable, creating incentives and influencing behavior in discernible ways although with variegated impacts. Institutions also act as a dependent variable, which is to say that institutions will be impacted by different influences. Centrally-crafted institutions define the parameters for what is possible, but specific behavior will vary according to regional factors and conditions. In contrast to North and other scholars who theorize about the role of institutions at the state level, Hopcroft emphasizes the "importance of local." Using late 17th and early 18th century England as a historical case study, her analysis serves as a "reminder that local institutions play an important role in development in the same way that state institutions do" (Hopcroft, 1998, 278).

Hopcroft's emphasis on the local applies to agrarian change in Russia. Because Russia is so large, outcomes from reform institutions differ across regions. This section uses institutions as a dependent variable and demonstrates regional variance. Proceeding from the hypothesis that institutions matter and that their impact can be measured at the national level, we now are interested in behavioral outcomes that are consistent with those institutions but that play out somewhat differently across regions. The point is to show that regional differences may, and do, occur within the framework of national level institutions. The analysis below illustrates differing institutional impact at the regional level. As before, the measures representing market institutions are income and land ownership, and these are used as the dependent variables.

Turning first to income, official government statistics disaggregate the structure of personal income and one of the categories is "income from entrepreneurial activity." As one would expect there is considerable regional variance in the portion of income coming from entrepreneurial activity, ranging from a low of 5.9 percent in the Northwest Federal District to 15.3 percent in the Southern Federal District (Rossiiskii statisticheskii ezhegodnik, 2010,178-9). Ethnic regions located in the Southern district tend to derive the highest percentages of total income from entrepreneurial activity. I was able to calculate mean rural monetary per capita income by federal district (Table 1); from that and using the structure of income reported by the Russian government I estimated how much income is derived from entrepreneurial activity. Regional trends during 2000-2009 are illustrated in Table 2.

The table provides an approximate measure of regional differences—absent of specific data certain assumptions had to made.6 Nonetheless, the table reflects two realities: (1) localized influences lead to regional variance in the level of entrepreneurial activity; note for example that the spread between high entrepreneurial income and low

6 For example, government data do not differentiate the structure of

income between urban and rural dwellers and only one percentage per

region or district is indicated. Therefore, I assume that the reported percent was accurate for rural incomes.

Table 2

Mean per capita entrepreneurial income for rural population, by federal district, 2000-2009 (rubles per month).

2000 2005 2009 Difference from national mean in 2009

Mean for Russian Federation 152 416 933 -

Central 91 221 515 -418

Northwest 124 241 465 -468

Southern 136 408 989 +56

Volga 136 361 757 -176

Urals 124 417 1094 +161

Siberia 146 370 723 -210

Far East 166 421 1035 +102

Notes: a. per capita income is nominal. b. numbers have been round-ed.Sources: Table 1; Rossiiskii statisticheskii ezhegodnik, 2010, 178-179; and author's calculations.

entrepreneurial income is 629 rubles per person per month in 2009, a considerable difference; and (2) an increase in per capita income from entrepreneurial activity over time across all regions. The larger point is that the data reflect the effects of regional factors on national level institutions that facilitated entrepreneurship and market-based behavior.

The second measure that illustrates varying institutional impact due to regional factors concerns property rights, expressed as private land ownership. For the country as a whole, private citizens and business have not and continue not to own a large percent of all the land in Russia, and this reality has not changed much over time. For instance, in January 2002 state and municipal ownership accounted for 92.4 percent of Russia's total land. In contrast, private individuals owned only 7.6 percent of Russia's land—citizens held 122.8 million hectares and another 6.2 million hectares were owned by businesses (Gosudarstvennyi (natsional'ny) doklad o sostoianii i ispol'zovanii zemel', 2002, 34). Most privately owned land in Russia is agricultural land, and of the agricultural land area owned by citizens, 112.9 million hectares (88 percent) were owned as land shares in 2002. Land shares are paper entitlements to land but seldom converted to real land. Most agricultural land, therefore, had theoretical, but not real, owners. The remaining 12 percent of agricultural land was owned by private farmers, private plot operators, and other small-scale agricultural users.

After several years of solid economic growth, the bulk of land ownership remained in state hands. Combined, citizens and business owned only 7.8 percent of Russia's land at the beginning of 2010, whereas federal and municipal ownership accounted for 92.2 percent—a decline of only .2 percent from 2002 (Gosudarstvennyi (natsional'ny) doklad o sostoianii i ispol'zovanii zemel', 2010, 47). Within the category of privately owned land, by January 1, 2010 the amount of land owned by citizens rose slightly to 123.1 million hectares, and businesses increased their ownership to 10.3 million hectares. As before, agricultural land constituted the vast majority of privately owned land—97 percent of land owned by citizens and 99.9 percent of land owned by business (Gosudarstvennyi (natsional'ny) doklad o sostoianii i ispol'zovanii zemel', 2010,49). Although there was some increase in the conversion of land shares after

Table 3

Regional variation in private land ownership, January 2010.

Total land area Amount that Land area owned Land area owned % of regional % of regional arable

in region is agricultural by citizens by business agricultural agricultural land that

(million hectares) land (million hectares) (million hectares) (million hectares) land that is owned by citizens is owned by citizens

Russian federation 1709 400 123.1 10.2 31% 56%

Central 65 38.7 21.3 3.1 55% 64%

Northwest 169 34.2 4.4 .46 13% 69%

Southern 42 33.0 18.0 1.1 55% 57%

Volga 104 59.0 32.5 3.2 55% 59%

Urals 181 49.5 9.3 .51 19% 57%

Siberia 514 100.9 30.8 1.3 31% 54%

Far East 617 70.8 2.2 .16 3% 28%

Notes: a. Numbers have been rounded. b. Land ownership by citizens includes land shares.Sources: Gosudarstvennyi (natsional'ny) doklad o sostoianii i ispol'zovanii zemel' Rossiiskoi Federatsii, 2010,16, 178-82,186-90; author's calculations.

2002, they still accounted for 81 percent of agricultural land held in ownership at the beginning of 2010 (Gosudarstvennyi (natsional'ny) doklad o sostoianii i ispol'zovanii zemel', 2010, 49-50).

Significant differences in private land ownership are evident at the regional level. Table 3 illustrates that regional differentiation exists for land ownership by citizens and by business. The table shows the total land area of each federal district, the amount of land that is classified as agricultural, and the number of hectares owned by citizens and by business. Land ownership rates by citizens are low for the country as a whole when total land is used for measurement (7 percent); this is especially true in the northwest district (3 percent) and districts east of the Urals (5 percent in Urals, 6 percent in Siberia, and less than 1 percent in Far East).7 Of course, ownership rates of total land is somewhat misleading because such land includes types of land that a person would not own, for example, forested land, national parks and protected land, land used for industrial plants, land zoned for urban development, land surrounding bodies of water, and land reserves. These categories of land constitute more than 75 percent of Russia's total land mass, with forests and protected lands accounting for 67 percent (Gosudarstvennyi (natsional'ny) doklad o sostoianii i ispol'zovanii zemel', 2010, 8).

Ownership rates improve significantly if agricultural land is used as the basis for measurement, and because most privately owned land is agricultural, this is a more accurate measure than total land. The most important column in the table is the one showing ownership rates of agricultural land in each federal district. The table shows significant regional variance—from a low of 3 percent in the Far East district to a high of 55 percent in the Central, Southern, and Volga districts. Importantly, two of the three districts with the highest ownership rates are favorable to agriculture. This column, therefore, provides an interesting picture of land ownership rates by rural households.8 At the

7 Rates of ownership for total land in a region were calculated but not included in the table.

8 Other than private plot operators, a landowner will have a mix of arable and non-arable land, the latter including some forested land, some land used for roads, some swamp and marsh land, some land surrounding water, and other land that is unsuitable for agricultural production.

same time, if land owned as land shares was excluded the percentages would be much lower.9

The larger point from the table is that regional factors affect the way in which institutions play out. Although this analysis looks only at federal districts, at the oblast level land ownership rates are influenced by structural factors such as the percentage of land that is forested, how much agricultural land exists, natural conditions and climate, and the demographic profile of the population in a given region. Thus, local factors matter and influence outcomes from market institutions.

6. Institutional impact as a dependent variable: household-level influences

Similar to Section 5, this section uses entrepreneurial income and land ownership as dependent variables to measure the effects of household influences on institutional outcomes. The task here is to examine the factors that affect entrepreneurial income and land expansion at the household level. Survey data are used for the analysis.10

Significant differences exist in level of household income and income generated from entrepreneurial activity depending on the region, location within the region (peri-urban, rural, remote), the mixed income strategy of the households, the age structure of the household, the profession of the main breadwinners, the gender of head of household, and production capital (livestock, car, truck) possessed by the household. Space constraints prohibit a detailed examination of the effects of each of those variables on entrepreneurial income at the household level, although there is reason to believe that the effects would be statistically significant.

9 The last column in the table shows ownership rates if arable agricultural land is used as the basis for measurement. Of course, in reality, a landowner, particularly a private farmer or individual entrepreneur, will not have only arable land in his land holdings. The calculation of arable land is simply included to illustrate that, theoretically, land ownership rates by citizens for arable agricultural land are respectable and support the idea that institutions matter.

10 The survey consists of data from 900 rural households obtained in person-to-person interviews in nine regions of Russia, with at least one region from each of the federal districts.

Instead, a regression model is presented below that uses human capital and real land as independent variables. The model examines their impact on entrepreneurial income. The human capital variable includes the number of household members, number of pensioners, and a weighted value of adult labor. Two iterations of the land variable were run, the first using the increase in real land during 1991-2006, the second using the amount of real land possessed by the household at the time the survey was taken. Real land excludes land held as land shares and includes rental land, a household garden plot, and other actual land used by the household. The human capital and land variables were regressed on entrepreneurial income, with the results indicated in Table 4. Both models in the table are statistically significant.

The human capital variables are not statistically significant at or below the .05 level, but they are signed in the expected direction. The number of pensioners has a negative effect on entrepreneurial income; and both adult labor and size of family have a positive effect, which means that households with more members who are of working age may have higher levels of entrepreneurial income. Most important, the table shows clearly the effects of real land on entrepreneurial income: households that increase their holdings of real land (the main method of increase is through land rental) are more likely to have higher levels of entrepreneurial income. Likewise, households with larger holdings of real land (the result of land expansion) are more likely to have higher levels of entrepreneurial income. The increase in real land and total holdings of real land are statistically significant and both variables have strong explanatory power, as indicated by the standardized coefficients .478 and .498. The regression coefficients reinforce what Pallot and Nefedova found in their fieldwork. Although there is regional variation in what households produce, in general, increases in rental land are normally used to feed or support more livestock, which in turn contributes to enhanced income from food sales (Pallot & Nefedova, 2007). The level of entrepreneurial income is important because it is one of the primary mechanisms of stratification in the Russian countryside. Households with high entrepreneurial income and larger holdings of real land are poised to benefit going forward, and thus stratification in the countryside is unlikely to abate.

The second dependent variable representing market institutions is land expansion, and again we are interested in real land, not expansion through land shares. The

Table 4

Regression of human capital and land variables on entrepreneurial income (standardized coefficients).

Model 1 Model 2

Adult Labor .031 .026

Size of Family .064 .060

Number of pensioners -.039 -.037

Increase in real land .478* -

Total holdings of real land - .498*

Adj. R squared .24 .26

*p < .01.

Note: a. real land excludes land held as land shares.Source: Author's survey data, n = 900.

analysis employs two independent variables: the same elements of human capital used above, and total monetary household income. The income variable includes income from a number of sources—salaries from employment, entrepreneurial income, and food sales are primary sources of household income. This variable excludes non-monetary income that is consumed by the household, for instance the value of food produced on the household garden plot. Further, the monetary income variable is important because it includes (but does not specify) a range of behavior—suppose the husband obtained a second job to increase his total compensation, or that the household increased its food sales, or that a household member obtained non-agricultural employment. There are a number of different routes and strategies to higher income, but the point is that households with higher income were distinctive.

Two models were run, the first using the increase in real land since 1991 as the dependent variable, and the second using the increase in rental land since 1991 as the dependent variable. Both models in the table are statistically significant. Because most increases in real land consist of rental land, the results indicated in Table 5 are very similar for the two models.

For both models, the table shows that human capital is signed negatively, which means that it has little to no effect on land expansion. Households that want to expand land holdings will do so without being held back by their demographic profile. Further, the negative signature of adult labor suggests that households are willing and able to find substitutes for manual labor. The variable with the strongest explanatory power is total monetary income, which indicates that decisions to expand real land holdings center around monetary means more so than labor to work the land. This finding makes sense because aside from private farmers, most households enlarge their land holdings by modest amounts, usually not more than a hectare or two on average.

The larger point from these two tables is that they show how household characteristics and behavior impact institutional outcomes. In the case of entrepreneurial income, household behavior is paramount—the decision to increase real land holdings. In the case of land expansion, human capital is secondary to monetary capital. Thus, to

Table 5

Regression of human capital and income variables on land increase (standardized coefficients).

Model 1 (increase in real land since 1991) Model 2 (increase in rented land since 1991)

Adult Labor -.154 -.154

Size of Family -.003 -.004

Number of pensioners -.046 -.045

Sum of monetary income .332* .332*

for all household members

Adj. R squared .08 .08

*p < .01.

Note: a. real land excludes land held as land shares.Source: Author's survey data, n = 900.

understand institutional outcomes, it is necessary to take into account household level influences.

7. Conclusion

When one thinks about the characteristics of Russia's agricultural economy today, the core elements that defined Soviet agriculture do not come to mind—state ownership of agricultural land, obligatory plans and production quotas, regulated food and labor markets, the dominance of state-owned large farms, state controlled income levels, and strict regulation of entrepreneurial activity. Today, those aspects have been replaced by a significant degree of private ownership of agricultural land, producers that respond to market conditions and demand, functioning wholesale markets, freedom to choose one's place of employment, a mixed agricultural economy comprised of large farms, medium farms, private farms, and private entrepreneurs, the absence of state control over incomes, and opportunities for entrepreneurship. Were these developments an accident? Did they just happen? Was the transformation of Russia's agricultural economy a coincidence? No. This article argues that change occurred because institutions matter.

This broad argument was pursued in separate sections. Section 4 argued that market-based institutions created opportunity and incentives that led to an increase in entrepreneurial income and expanded land ownership of agricultural land. Traditional sources of rural household income (labor) were combined with opportunities created by new institutions (entrepreneurship and property). In effect, households' adaptation strategy blended traditional institutions with new market-based institutions. This finding is entirely consistent with New Institutionalism.

The article proceeded to show that institutions are also influenced by different factors. Section 5 used entrepreneurial income and private land ownership as dependent variables representing market institutions, showing that indigenous regional factors affect the way in which institutions play out. In other words, institutional impact differs across regions because each region has its own constellation of factors that impinge upon the functioning of institutions. Specifically, this section showed significant regional variance in per capita entrepreneurial income, a range of 629 rubles per capita per month; and in the amount of agricultural land that is privately owned, ranging from 3 percent to 55 percent.

Section 6 used entrepreneurial income and an increase in real land as dependent variables to measure the effects of household influences on institutional outcomes. For each, two models were run. For entrepreneurial income, households that increase their holdings of real land and that have larger holdings of real land are more likely to have higher levels of entrepreneurial income. For land expansion, it was shown that total monetary household income has a strong and statistically significant effect, in contrast to human capital variables whose effects are weak and not statistically significant.

To conclude, this article makes two important contributions. First, the article adds to our knowledge of agrarian reform in post-communist Russia—specifically, the effects

of agrarian reform policies and how regional and household variance is occurring with regard to household income and land. Second, the article contributes to our understanding of New Institutionalism. In particular, the article contributes to the discussion of how institutions originate. At one extreme, institutions are said to arise spontaneously, while at the other extreme institutions are organized by a central authority (Furubotn & Richter, 1991, 3). Sections 5 and 6 of this article add nuance to the theory, showing that regional and household influences are important, and in that way institutions are neither entirely spontaneous nor fully centrally driven. In that respect, Russia's reformers of the 1990s had it wrong on both accounts—institutions would not magically appear following privatization, and institutional outcomes are not wholly controllable from the center.


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Stephen Wegren is professor of political science at Southern Methodist University, Dallas, TX, USA. He has published extensively about land reform and agrarian issues in Russia. His most recent book is titled Land Reform in Russia: Institutional Design and Behavioral Response (Yale, 2009). He is currently writing a book on inequality in Russia.