Russian Property Rights in Transition

Nysten-Haarala, S. (2001). Russian Property Rights in Transition. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-01-006

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Abstract

Property rights are an important political and economic issue in Russia. A weak property rights system is a significant hindrance for economic growth and transition in Russia. This report aims at showing that the problems in creating a new property rights system are institutional. Formal rules are complicated and blurred, because of the lack of consensus in society. Informal institutions prevail and, in spite of the privatization of enterprises, the same elite as before benefits.

The privatization of enterprises made managers the owners of former state enterprises and enabled them to keep things going in the same manner as before. The relations of the new economic elite with the governmental sector maintained monopolistic markets. Financial markets are still weak and because of the bank crisis of 1998, banks become bankrupt and the markets change into an even more monopolistic direction. The government can choose who stays in business.

Restructuring has not occurred even in spite of the economic boom caused by oil prices and devaluation. It will take a long time before Russia gets rid of the virtual economy with artificial prices and barter trade. Transaction costs for legal trade are too high and keeps the gray market going as well.

Land and natural resources are still mainly state property. The land reform, which started with agrarian reform, made land transferable. Enterprises can buy land and family farms are a legally available form of agricultural production. However, the agrarian reform did not transform the Russian countryside to become more productive. There is no proper infrastructure for family farms and the state supports joint stock companies, which are the former state or collective farms.

There are regional differences depending on the interests and opinions of regional authorities. The obstacle for building a uniform system of land law is legislative chaos. In the absence of political consensus a new federal land code has not been passed. Regional legislation differs from region to region. There is still a battle going on between the regional and the federal levels on the ownership of natural resources. Even if reorganization is going on, the state management of natural resources has remained quite unchanged. Forest management is the best example of maintaining the old institutions in spite of the privatization of forest enterprises.

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