#7
Moscow Times
October 29, 2001
Land Code: Next Steps
By Leonard Rolfes Jr.
Leonard Rolfes Jr. is a lawyer and deputy director of the Seattle-based Rural
Development Institute and has worked on land reform issues in Russia since 1992.
He contributed this comment to The Moscow Times.
On Friday, after nearly a decade of heated debate, President Vladimir Putin signed into law a new Land Code. The new code provides clear rights for private parties to own urban and industrial land, and reconfirms private rights to small plots, notably dacha and household plots. It also provides clear authority for private owners to decide how to use and transfer their land.
Among other things, secure, transferable rights, provide new scope for using land as collateral under Russia's 1998 mortgage law. Banks are unwilling to make loans backed by land unless it is saleable upon foreclosure. And mortgages are of vital importance to the small and medium-sized business sector, for which borrowing provides an important source of investment funds.
However, the Land Code has one major shortcoming. As part of the compromise needed to secure its passage, the key issues of agricultural land transactions and agricultural "land shares" were deferred to a future "federal law on turnover of land of agricultural designation."
The Putin administration has stated its intent to pursue this law's adoption. On the other side, the Communists and their Agrarian allies obstinately oppose full private ownership of agricultural land. Some believe it will bring harm to the owners, others fear it means the end of the collective farms (which still exist in practice), and still others are simply ideologues who will not accept private ownership. Thus the stage is set for a major political struggle.
What should this law on agricultural land turnover contain to be both effective and politically viable? Experience from the past decade suggests that the following key elements are needed.
The law must allow private owners to sell, bequeath, give, exchange, lease and mortgage their agricultural land as they see fit, subject only to the limited restrictions described below. Without such transfer rights, "ownership" remains a delusion.
During the Yeltsin era, 12 million farm workers, pensioners, and other rural workers received ownership to 120 million hectares of farm land in the form of "land shares." A land share is an individually controlled right to a specified quantity of land from the erstwhile collective farm. In theory, a land share can be withdrawn in-kind as a separately demarcated farm, or transferred at the discretion of its owner. The new law must unambiguously confirm this withdrawability and transferability, including a workable method for allocating a land parcel of average quality and in a decent location.
Many of the Communists' objections to full private ownership stem from purported concerns that powerful outside interests, such as foreigners, banks and new Russians, will descend on the countryside, buy up all rural land and turn rural dwellers into serfs. While experience in Eastern Europe shows that this threat is minimal, restrictions are available to assuage such concerns. Foreigners could be prohibited from owning agricultural land, banks could be required to quickly sell off land acquired during mortgage foreclosure, and a ceiling could be set on land ownership. These are compromises worth making in exchange for ordinary Russians gaining full private ownership rights.
The Soviet system of collective farms was highly inefficient and unproductive, and was a repressive force in the countryside. These farms, now recast as private companies or cooperatives, still predominate. A very real threat exists -- greater than any threat from foreigners or new Russians -- that these farms will use their power to acquire long-term control over agricultural land, thus defeating the whole point of rural land reform. To minimize this threat, the new law should limit the length of leases and prohibit the deceptive practice under which an unwitting new owner contributes his land to the former collective farm in exchange for a virtually worthless equity stake.
The new Land Code is without doubt a giant step forward. Full private ownership of agricultural land is now required to finish the job. If this is achieved, entrepreneurial private farmers will be able to acquire the land needed to expand their operations. Babushkas who own a land share will be able to lease it to the highest bidder, or sell it if they wish. And even the old collective farm will be able to acquire and invest in land, though it will have to do so under market rules. Such small steps, repeated across the whole of rural Russia, would give the privatized lands a market value of trillions of rubles, vastly multiplying the wealth of ordinary households and helping to revive the moribund countryside.
