CC BY
102
UDC 631/635
IMPLEMENTATION OF THE RIGHTS OF LAND OWNERSHIP IN TERMS OF INSTITUTIONAL CHANGE IN AGRO-INDUSTRIAL COMPLEX
Nechaev N.G., Professor Zhavoronkova N.S., Assistant Professor Elets State University named after I.A. Bunin, Elets, Russia E-mail: [email protected]
ABSTRACT
The article presents the analysis of the legal framework of land ownership formation. It gives a careful consideration to the realization of some legal rights of ownership in the process of land reform in the Russian Federation. Special attention is paid to the problems of share ownership of the land.
KEY WORDS
Land; Rights; Ownership; Agro-industrial complex.
The present stage of development of the institution of ownership is characterized by decomposition of proprietary relations into elementary components that served as the basis for the formation of the theory of property rights, the ancestors of which were the institutionalists R. Coase and A. Alchian. Under this theory, a common property right is differentiated into separate ownership powers that can be assigned to different subjects of economic relations. The main powers making the frame of property relations include the right to own, use, dispose of, and receive revenue and capital value. Besides, the contemporary institutional theory identifies a set of additional rights including: security of tenure, the transfer of property by inheritance, permanence, residual liability in the form of sanctions, a ban on the use of the facility to the detriment of third parties. Under this theory it is not the benefit itself that is a property but a bunch or a share of rights to its use. Property rights are authorized by the society (laws, traditions, customs) behavioral relationships associated with the assignment of some or all of the powers for limited benefits.
Division of ownership into a system of powers is of great practical importance, since through the mechanism of market exchange it allows not only to transfer the property but also to exchange certain rights to these objects so that they bring maximum impact. Clustering of separate powers takes place through the market and such a configuration of the rights to property is generated to which, in our opinion, the criterion of Pareto-efficiency could be applied. Its interpretation of the case is that the property is effective if the distribution of powers between the subjects of the economy can't be changed without deteriorating the use of property and the state of the counterparts of the proprietary relations. Note that their optimal distribution can be achieved in case there is a clear specification of the rights. Besides, the effectiveness of specification depends on the implementation of principles of prohibition and legitimacy principles that shut the illegal access to resources possessed by a certain owner for other subjects of market relations without the consent of the owner.
The major object property in the proprietary relations in agrarian sphere is land, which, in fact, simultaneously appears as the main tool and the main object of labor. It is a basic condition for agricultural reproduction, it determines the territory dispersion of agriculture, actively influences the intensity and efficiency of production in the industry. In our opinion, land ownership is a form of appropriation of plots of land as both subjects of nature and previous business activities and products made on them by the individuals, collectives or community. The primary role of land ownership in agriculture, as well as in the economic system as a whole, is specified by the fact that the products of labor, produced on land, providing about 95% of consumer goods baskets, are mostly indispensable and are not reproduced otherwise than by using the land directly or indirectly. The strategic importance of land as a means of production has been perceived throughout the history of the world. That is why the intersystem transformations in our country in the 20th century always begun with a radical land reform. In the world agricultural practices two fundamentally different institutions of land ownership exist:
private, in which all or major powers are set for private individuals, and public - at the level of the State or municipalities with the powers attached to the authorities concerned.
Within these paradigms two opposite points of view on the land institution still exist in our country. Supporters of private property often refer to the experience of foreign countries, where the dominant role in the production of agricultural products belongs to enterprises based on this form of land ownership.
Indeed, in the United States, for example, 58% of farmers are rightful landowners, 31%-partial (using rented land along with the land of their own), 11% are tenants; 99% of farmland in the Uk and 68-53% in Belgium and in France is privately owned. The advantage of private property is the owner's personal interest in increasing the efficient use of land, increasing its fertility and productivity. Their opponents point out that the privatization through the allocation of land shares leads inevitably to fragmentation of land ownership, which could lead to restrictions on the development of agricultural production and the loss of the effect of scale in agriculture. In addition, there is a positive experience in the use of land within the state property (China, Israel).
In our opinion, the dynamics of land ownership relations to a certain extent reflects the general processes of proprietary relations convergence. Private property, which forms the base of the main forms of economic management in developed countries at the present stage is transforming by way of a partial restriction on the individual rights of the owner. This is done through State control over targeted use of land, the establishment of professional educational qualifications for businesses on land, extension of the powers of the tenant of the land, etc.
It is characteristic that these processes are reflected in economic science, where the concept of "full" and "limited" private property is generally accepted. On the other hand, in accordance with the land code of the Russian Federation providing land plots on the land which is state or municipally-owned to both physical and legal persons is a provision in a broad sense, that is, use, lease of land and property. Thus, a single title to lands in State or municipal ownership can be divided into ownership (article 15), lease of land (article 22), permanent use (article 20) or temporary free use (article 24). The Russian Constitution provides for three legal regimes of ownership: state, private and municipal (Chapter 8, p. 2).Chapter 17 of the Civil Code of the Russian Federation establishes the possibility of appearance of different types of property rights to land: property rights, the right of lifetime inheritable possession, right of unlimited possession, right of restricted use of a land plot owned by another person (easement). It should be noted that no form of land ownership gives absolute ownership of land. Harvard Professor W. Dolb stresses that no one has complete and absolute ownership of the land. People do not own land; they own a package of rights relative to land.
In native studies examining the characteristics of the implementation of land ownership there are significant methodological differences. So, М. Gusakov writes in his monograph "The economics and organization of agriculture in conditions of market development: research, problems, solutions" that attribution and alienation constitute the basis of the right of ownership whereas in fact these concepts form the basis of the property as a more general category [3]. According to the author, the title may include the use and disposal means possession and use. Here we see a consolidation of individual powers and violation of co-ordination between them. Unfortunately the author, despite the theme, does not disclose how this set of property rights is realized in agriculture. S.G.Golovina in her work “The institutional approach to the selection of agricultural holdings "is limited to only three rights of ownership of an asset: use an asset, appropriate the income from that asset, change its shape, condition and location. However, she omits such basic components of property as possession and the right of the capital cost [2]. On the contrary, S.G. Pokrovsky and A.E. Osetrov consider in detail the categories of ownership and use of land, as well as regulations which they interpret broadly, including the right of the capital cost, but at the same time ignore the right of income [7]. N.I. Kresnikova and
S.B. Ognivcev hold the opinion that the core elements of land ownership are: 1) the right to physical use of land plots; 2) the right to possess the income from land use; 3) powers of the management including alienation of land [6].
In our opinion, the specification of property rights of land should, in the first place, systematically address all fundamental rights: the right of ownership, use, income, and capital cost.
In the theory of property rights ownership means the right of an exceptional physical domination over the property arising from the fact of possession. You can mark out individual
owners who are property holders legally or illegally. Both have the right to judicial protection. And it is only at the Court that the object can be passed from the unlawful owner to the lawful one. Besides, economic and judicial practices of some countries use the concept of a dependent owner, who may be a tenant, a leaseholder, a mortgagee, etc. In general, this rule of law is central in a set of powers, as it proclaims an absolute power of the owner over the object. Moreover, it makes no sense to talk about the property when title of ownership is missing.
In the context of land relations the right of ownership is the right of physical possession of the land, domination over it, which creates the possibility for the owner to influence it directly. So, for example, virtual allocation of land shares in the framework of the agrarian reform in the Russian Federation does not allow to speak about the formation of a layer of real farm owners. Analysis of share ownership of land shows that at the present time almost 5.5 million of 9.2 million real estate investors (97.6 million ha of agricultural land) let the land shares on lease, without plots of land being marked out, in most cases to the same farms that had used this agricultural land before. About 2 million owners transferred the land shares or the right to use them to the authorized capital of agricultural organizations. About 300 thousand citizens have identified plots of land as their land shares for farms or subsidiary farm. As for the remaining owners who constitute almost a third of the initial total number of land share owners they have not make any orders. Many owners have not even received title to land; some having received these documents have never made attempts to dispose of their land. Thus, in the process of granting land titles to individuals in Russia a number of problems have arose including the problem of unclaimed land shares.
This situation is due to a number of factors, among which, firstly, is the fact that the bulk of the rural population was not prepared for the transition to private ownership of land, the more so, as the regulatory framework of this transition was not sufficiently developed. Secondly, the economic conditions of the use of private property were almost completely absent, as the industries producing basic kinds of agricultural machinery in the RF, were focused on major agricultural structures. Formally possessing land the new owners were economically weak, as there were no means of production for small farming (as to power, performance, prices, etc.) in the market. Thirdly, the establishment of personal part-time farms and farms implies the existence of active rural population, first of all, in the age group of 25 to 40 years, but this group makes only 21.1 per cent in the structure of the rural population, while its share of the urban population is 24.5%. Fourthly, the entrepreneurial activity of the majority of villagers turned out to be very low because of inertness of rural residents, accustomed to work in agricultural organizations, which under the Socialist system followed the policy of paternalism towards their employees.
The right to use, that is, the right to direct or indirect deriving useful properties of the object of ownership is the legal right of exploitation, economic use of land to produce agricultural products. Taking into consideration the specific properties of land, the procedure of use implies search for such forms of exploitation that would ensure conservation and (or) improvement of fertility. However, one must keep in mind that the land should be used by market participants on a long-term basis, as the quality and efficiency of land are manifested through crop rotation, but not annually, as is typical for the industry. Unfortunately, this is not always maintained in the agriculture of the Russian Federation. For example, farmers who rent land shares from their fellow villagers, in most cases, conclude contracts with them for a period of not more than eleven months since longer contracts are intended for state registration, resulting in significant transaction costs in the form of money and time (processing of documents is a month or more). Short-term lease contracts destroy tenants’ incentives for long-term activities related to cultural and technical work, organic and mineral fertilizers application, etc. The practice of Western countries shows that land users should also have experience in agriculture and special training, and legal persons must include agriculture in their statutory objectives and have the necessary means of production and specialists. In case of non-use or waste of land when it brings low-impact within 3-5 years compared to previous periods, in our opinion, the question of direct alienation of land from the owner or user and transfer relevant rights to others on a competitive basis should be raised.
The right to an income, that is, the right to attribute the results of the use of property in land relations is realized as the right to preferences arising from the direct use of land by the owner or from transferring it to others. In the first case it is implicit, and in the second it is
explicit, in money or natural products. The explicit form of income depends on the parties involved in the transaction for the transfer of the rights of land. In particular, in Lipetsk region when the land shares are transferred to agro-holdings possessing significant financial resources and oriented at increasing the production of commodity grain and sugar beet, the payment is made mainly in cash. If the same shares are transferred to the farmers, with their limited financial resources and poorly organized system of selling products, the payment is in the form of feed grain. However, the level of rent in both cases remains low. As our analysis of the leases in Lipetsk region shows payment of rent may be 2-2, 5kg of grain and tilling a vegetable garden. A simple calculation shows that if you do not take into account plowing the croft, the landlord gets only 10.0-12.0% of grain produced by the tenant. In our opinion, there is a need to regulate the landlord-tenant interaction by the state to achieve a more parity relationship between the two.
Right of disposal is the power of the owner to identify the forms of using land and access to it by other persons. Taking into account the value of the land the developed countries have a set of administrative methods to limit the validity of this law for national development, including non-agricultural land use (United States, Germany, Canada, etc.) and undesirable division of land (United States, New Zealand, etc.). For the chaotic land relations in the transition economy of the RF the observance of the principle of purpose-oriented land use is essential, especially when the object of the deals is agricultural land. Unfortunately in the period of 19902011 the area of agricultural land, including the land for personal use, has decreased in the RF by 2.1 million hectares, the arable land decreased by 10.8 million hectares while hayfields and pastures increases by 4.1 million ha and fallow land by 4.6 million ha. Diversion of agricultural land from agricultural production reduces the basis for the development of the industry, and its transition into less valuable land, for example, if arable land is turned into hayfields and pastures and, especially, into fallow land, prevents the intensification of land resources.
The right to the capital cost proclaims the owner's power to alienate the land in the form of sale, gift, let it on lease - however, the right of the destruction can not be applied to the land. Taking into consideration the strategic importance of the land as an object of economic management, the use of this provision is limited by the state. Not all sorts of land can be sold as a product; it is prohibited, for example, to sell the land with environmental responsibilities, state nature reserves and national parks and land occupied by state property to private ownership. Particularly protected is agricultural land, its withdrawal from the agrarian sector is strictly limited. Unfortunately, in Russia, as it was shown above, this legal requirement has not been respected during the reform period.
At the time when ownership of resources is granted to various subjects of the economy there is an objective need to find such organizational forms of their cooperation that would ensure market competitiveness and maximize profits. A fruitful approach to organizational forms of production in terms of maximizing the impact of resources used in them is proposed by Agency theory (R.Coase, A. Alchian, V. Meckling, etc.). According to this theory production of economic goods is carried out by the owners of resources (principals) in the framework of coalitions (clusters) who delegate certain rights (e.g. the right to the use of a resource) to agents by means of formal or informal contracts in exchange for a reward. An agent can be either an owner of one of the most important resources or a hired manager. Thus, a classic entrepreneurial firm, according to this theory, turns into a network or combination of contracts through which powers of property are delegated. This approach is fundamentally changing the status of a businessman within a firm. The Nobel Prize laureate R.Coase writes that it is only at first glance that it seems that a businessman buys and uses the physical unit of a production factor (acre or a ton of fuel...). In reality, the landowner has the right to carry out a series of actions with this factor of production [5]. An agent within the authority to resources delegated to him directs his activity at the most advantageous ways of their transformation into market-demanded goods and services. The stimulus determining the agent’s rational actions is a residual income, i.e. income left, according to Alchian, once all other factors are paid the remuneration due them as per contract [1].
Note that the "principal-agent interaction" in practice is not ideal. It is connected with a number of subjective and objective factors. In practice, for example, the more risky the agent (Manager) is, the higher is the uncertainty of his functions, the better informed he is about the market situation, the more residual rights to the management of the firm he has, and, therefore, he can claim the residual income. In its turn, the compensation to owners of resources for their
use also depends on a number of conditions. If for example, a resource presented by its owner can be used in the production of various goods, his position in bargaining over the price of the resource is more advantageous compared with the owners of specific resources, and therefore he has more grounds to claim a quasi-rent.
The capital of the industrial and financial structures invested in agricultural production is very flexible, that is, it has a wide range of use and, therefore, can easily flow from agriculture to other sectors. At the same time, the land offered by the owners of land shares or labor of agricultural workers are narrow-profile assets which substantially hinders bargaining of their owners over a price. What makes the situation even more complicated is that the land share holders, as well as agricultural workers are perfect competitors from the point of view of market relations, while agents represent monopolized or oligopolised market structures, and that is why they have the ability to impose their will on contractors.
The dictates of tenants (especially of large agro holdings) becomes even stronger because of the imperfection of land relations in modern Russia. Today there is lack of clear rules of the specification of rights of ownership, at the same time there is still no connection between new organizational and legal forms and their liability in relation to land introduced in agriculture. Therefore, when they are functioning, and especially in the reorganization, bankruptcy and other forms of transformation, the legal regime of land remains uncertain which contributes to transfer speculation, irresponsible use and over-exploitation. The analysis of the leasing contracts in Lipetsk region shows that there are no requirements for tenants to improve the land. Furthermore, if such work is carried out, landlords are to offset the cost of the improvement of the land plot to the tenants in accordance with the rental contracts (the recoverable sum is not specified in them), which allows the latter to render overestimated expenditures significantly exceeding the rent to their shareholders.
All this undoubtedly has a negative impact on the quality of farmland. The monitoring of agricultural land in 2012 confirmed the deterioration of soil fertility. The authors of “The report on the status and the use of land for agricultural purposes” note that due to the economic activity the loss of minerals from the soil is 3 times as much as the amount applied with mineral and organic fertilizers [4]. As a result areas with low content of phosphorus-21.9% in 2011, exchange potassium-8.7%, organic matter-31.2% are steadily growing. During the years of the reform areas with acid soils have greatly expanded - up to 35.2%. Chalking of soils, which was carried out on a large scale before the 1990-ies, has decreased sharply. In 2011 only 213.6 ha or 0.2% of the arable land was chalked. In the circumstances the value of land as the major property in agriculture is dropping, deteriorating the conditions of reproduction in the industry today and in the future.
In general, it should be recognized that the system of land ownership in Russia is still in the stage of formation, its further improvement presupposes consideration of natural and economic features of land as the principal means of production in agriculture, the increase of the owners and users’ responsibility for maintaining soil fertility.
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