Science - October 28, 2004

Former Soviet collectives still mask unemployment

Big agricultural enterprises in Russia have huge debts, but in the current situation that does not trouble them. The economic reforms of the past ten years have brought few changes in the internal organisation of enterprises. In the current unstable economy of Russia, however, they play an important role as a social buffer for millions of rural people.

Economist Irina Bezlepkina analysed the performance of large agricultural enterprises in Russia, the former state-run and collective farms. They are not doing well economically: 88% of them ran at a loss in 1998. The enterprises were established in the 1930s by the Soviet government, which decided centrally what to produce and how. On paper, Bezlepkina concludes, the enterprises were transformed into market-oriented companies in the first half of the 1990s, but in reality they are very slow to react to market prices and in reallocating inputs and outputs.

The level of subsidies has decreased by 93%, but Bezlepkina found that these have been replaced by soft loans, resulting in huge debts. The loans are not from commercial banks, but from input suppliers. Moreover, loans also come indirectly from the government and the workers: the enterprises simply do not pay taxes and delay paying wages. The government accepts this because it is probably cheaper to keep workers in the enterprises than to pay unemployment benefits. And the workers, who have no choice because there are so few other jobs, accept the situation. They use inputs from the enterprise to produce food on their own small plots of land, the real basis of their livelihood.

In sum, the enterprises are a masquerade for hidden unemployment, just like they were under the Soviet regime. How can things be changed? Institutions in the form of regulations and organisations need to work. Bezlepkina recommends tightening up the regulations for getting loans and reconsidering subsidy programmes. It would be better, she says, to invest in food processing industries thereby creating new work places, than to subsidise agricultural enterprises, most of which are ‘simply eating up the subsidies’. Well-functioning land and labour markets would enable enterprises to shed surplus land and labour, thus increasing their efficiency. The managers of the enterprises need to become more responsible, and lastly, wages need to rise. In 1990 the average agricultural wage was 130 US dollars a month; now that has dropped to 40 dollars a month. With that income, workers have no option but to extract other benefits, Bezlepkina concludes. / JT

Irina Bezlepkina receives her PhD on Friday, 29 October, for her thesis entitled Microeconomic analysis of Russian agricultural enterprises. Her promotors are Professor Arie Oskam, chair of Agricultural Economics and Rural Policy, and Professor Alfons Oude Lansink, chair of Business Economics.