Sowing Market Reforms

The Internationalization of Russian Agriculture

M. Crumley

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137313201
• Topic: Negocios y empresa
• Subtopic: Negocios internacionales

By examining a sector of the economy that was exposed to increased imports more than four decades ago, Crumley illuminates the economic pressures, resistance, and reform that help to shape Russia's agrarian sector today.

1

THE IMPACT OF TRADE ON RUSSIAN AGRARIAN INSTITUTIONS: AN INTRODUCTION

Policy analysts, political economists, and practitioners in the West have long recognized and advocated the merits of liberal free trade. Promoting free trade and market economies have been key components of policies encouraged by intergovernmental financial institutions such as the World Bank and International Monetary Fund. After Asian NICs developed and expanded their economies relatively fast in the 1970s with the adoption of policies that supported liberal free trade, other states took note. For example, the lessons of development in the Asian NICs encouraged Latin American states to change economic strategies in the 1980s. Leading economists, such as Jeffrey Sachs, confidently advised governments in various regions of the world on the policies required to shift their economies to reflect free trade and export substitution strategy. The growth of states adopting similar policies was further enhanced as the Soviet economic model of a centrally planned economy became discredited in the 1980s. Central East European states began turning toward marketization of the economy, as did the Soviet Union by the late 1980s. The trend seemed to mark the emergence of a true global free trade economy by the end of the twentieth century.

The movement toward a global free trade economy is significant because the growing internationalization of economies through trade and international interactions undoubtedly affects state interests, and even domestic institutions. In fact, liberal economic theorists imply that domestic institutions will be similar across states in that they will support greater free trade when the benefits of free trade are realized. Frieden, Rogowski, Keohane, and Milner articulate this point more clearly by suggesting that greater internationalization of the economy affects domestic actors’ interests to the extent that pressures will build up to change institutions so that the institutions reflect an interest in supporting greater trade and greater interaction with the global economy.¹ While this assumption is supported in many of the states that adopted export substitution strategy, it does beg the question about how non-liberal economies are impacted by increased trade and other global economic interactions. In this light, a state with a command economy that increased imports and exports before adopting the tenets of free trade becomes an interesting study of liberal economic assumptions and expectations.

Liberal economic theory is fundamentally similar to the approach international financial institutions (IFIs) and Western governments recommended to developing countries in the 1990s. Although structural adjustment policies and austerity programs dominated policy prescriptions for development in the 1980s, the “Washington Consensus” became the dominant influence in shaping the policies of states which were attempting to develop or were struggling with balance of payments problems in the 1990s. The Washington Consensus consisted of ten policies that were developed by John Williamson. The original policies include deregulation, privatization, property rights, foreign direct investment, trade liberalization, tax reform, public expenditures priorities, fiscal responsibility, reasonable interest rates, and financial liberalization.²

Reform policies that encouraged privatization, trade liberalization, and deregulation were being introduced or were ongoing in Latin America and Sub-Saharan Africa during 1989–1992 when, coincidentally, former communist countries in Eastern Europe and the former Soviet republics were also beginning to adopt market reforms. It is widely believed that more privatization, trade liberalization, and deregulation occurred globally at this time as a result of the Washington Consensus than at any other time in history. Although many states were opening their economies, privatizing, and promoting trade liberalization, the “one size fits all” approach to creating market economies fell short in producing the level of expected growth for a variety of reasons. Nevertheless, the Washington Consensus profoundly impacted domestic economies. In practice the Washington Consensus manifested in challenging the developmental state; that is, state intervention into the economy was to be minimal.³ Liberal economic theorists also suggest a limited role of the state. Instead, economic actors and institutions react to price signals and exogenous forces.

The liberal economic theorists Frieden and Rogowski argue that centrally planned economies are not immune from price changes that affect economic actors’ interests. The impact of trade on relative prices affects shadow prices, subsidies, tariffs, price controls, and rationing. Moreover, the shifts in relative prices indirectly influence many economic actors, such as producers of complimentary or substitutive foodstuffs and products.⁴ If Frieden and Rogowski are correct in their basic assumptions about trade, then the ripple effect of relative price change in the Russian agrarian sector should have begun with the increased agricultural imports in 1972. The implication of this argument suggests that we should see some liberal economic expectations fulfilled in the Russian agrarian sector as early as the 1970s.

The only other Russian economic sector impacted by increased trade for as long as the agrarian sector is the energy sector. Although the Russian energy sector is important, this study focuses on the agrarian sector because of its relative importance and potential impact on the entire domestic economy. For example, 15 percent of the total Russian work force was employed in agriculture, and the agrarian sector comprised nearly 15 percent of the Russian gross domestic product in 1990. While these statistics indicate greater input and output percentages than those found in other developed countries, it is important to note that even in the 1990s nearly 40 percent of the total Russian population still lived in rural areas. By 2002, the number of Russians working in agriculture had decreased, but 11 percent of the total work force continued to work in agriculture.⁵ Given the relatively large percentage of the population in rural communities, the success or failure of institutional reform may have some predictive salience in determining the chances of a market economy and democracy taking root in all of Russia.⁶

This study, therefore, examines the impact of increased trade on domestic institutions (i.e., the central and local administrative bureaucracy) of the Soviet Union and post-Soviet Russia from 1972 to 2012. More specifically, I analyze the desire and ability of Russian domestic actors to change institutions in order to take advantage of free trade opportunities in the agrarian sector. In effect, this project seeks to explain whether assumptions found in liberal economic theory—that trade creates economic pressures for agrarian institutions to change in order to become more efficient, more competitive, and more productive—hold true in the case of the Russian agrarian sector. Have institutions wanted and been able to change in order to promote greater trade?

I hypothesize that in the agrarian sector, institutional change as reflected in liberal economic expectations was inhibited by domestic structures and political culture. In spite of astounding political and economic changes that led to the dismantling of the Soviet centrally planned economy and ultimately the fracturing of the sovereign state of the USSR, vested interests in existing decision-making institutions from 1972 to 2012 inhibited changes in the agrarian sector that were needed in order to take advantage of free trade. Given the institutional constraints found within centrally planned economies and the general conservative nature of political culture found in rural communities throughout the world, it is logical to assume that domestic structural approach and political culture are potential intervening variables in liberal economic theoretical assumptions. To determine from where changes and constraints arose in the agrarian sector, I propose three basic questions.

(1) Do new institutions in the agrarian sector support free trade?

(2) Are the new institutions created to encourage free trade constrained by political culture?

(3) Is the institutional response to free trade constrained by domestic structures?

These questions help to direct the research about the salience of the liberal economic model in the case of institutional change in the Russian agrarian sector. Moreover, the questions also offer a general inquiry in the salience of political culture and domestic structural approach as explanations for why some institutional changes were adopted and others were not.

In this chapter I examine the assumptions of liberal economic theory and briefly explain the plausibility of domestic structural approach and political culture as heuristic approaches that can best explain the constraints on institutional change. Next, I clarify the problem statement of this study and explain the importance of the Russian agrarian sector as a significant case study. Lastly, I describe the research design concerns in this study, and I describe the organizational overview of the chapters to follow.

BACKGROUND OF STUDY

When examining liberal economic theory, conventional wisdom suggests that external pressures, such as world prices, impact domestic interests and institutions. More importantly, the immediate cause of domestic institutional change is the implicit shift in economic actors’ interests and policy preferences, which are conditioned by price signals. The relationship of interests to institutions, as explained by Keohane and Milner, is assumed to be that the most influential actors support existing institutional structures. Therefore, when preferences of those actors change due to price shifts or opportunity costs, new policies will reflect those preferences and it is likely that institutional change will follow.⁷ Given that causal argument, the examination of institutional change alone is ipso facto insufficient for determining the salience of liberal economic theory in a single case study. Hence, it is necessary for this study to discern the economic interests and policy preferences of actors in the Russian agrarian sector. In other words, given the institutional changes in Russia after 1972, what were the factors conditioning interests that pressured institutions to change or not to change?

According to liberal economic theorists such as Keohane, Milner, Frieden, and Rogowski, economic interests are shaped by changes in relative prices and opportunity costs that result from greater trade and the flow of capital.⁸ Frieden and Rogowski specifically note that liberal economic theory expects that greater internationalization of the global economy affects relative domestic prices, thereby leading to a change in economic actors’ interests and policy preferences. The shift in interests inherently creates conditions that lead to institutions being pressured to change—even in closed economies.⁹ In spite of Frieden and Rogowski’s assertions that the pressure to change institutions in highly insulated communist and developing countries resemble countries with open economies, Evangelista concluded that many groups within the energy sector of the Soviet Union were unable to perceive their interests as a function of potential opportunity costs and relative prices from 1972 to 1993.¹⁰

It is essential in this study of the Russian agrarian sector, therefore, to determine if kolkhozniki, collective farmers, and sovkhozniki, state farmers, were able to perceive their economic interests in relation to relative prices after increased agricultural imports in 1972. In addition, it is necessary to evaluate the ability of kolkhozniki and sovkhozniki to perceive their interests after 1990 when institutional constraints created by the Soviet administrative hierarchy and command economy began to be abolished.¹¹ Again, the primary research question of this study seeks to answer whether Russian domestic actors wanted or were able to change institutions in order to take advantage of free trade opportunities in the agrarian sector.

Resistance and Prospects for Change

The internationalization of an economy is the process in which transaction costs change and ostensibly produce observable movements in capital, goods, and services. It is important to note that internationalization accounts for the potential for capital movement, not just the actual flow itself, since opportunity costs can affec...

Table of contents

• Cover
• Title
• 1 The Impact of Trade on Russian Agrarian Institutions: An Introduction
• 2 Conceptualizing Alternative Approaches to Institutional Change in Russia
• 3 Soviet Agrarian Institutions and Interests
• 4 Administrative and Organizational Changes as Agrarian Reform, 1972–1990
• 5 The Decentralization of Decision-Making Institutions in the Era of Market Reforms, 1990–2002
• 6 Government Incentives, Traditional Values, and the Shaping of Agrarian Interests
• 7 Changes and Constraints in Agrarian Institutions: Summary and Discussion
• Appendix A
• Appendix B
• Appendix C
• Notes
• References
• Index