American Enterprise Institute
November 13, 2006
[Edited transcript from audio tapes]
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11:45 a.m. |
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Noon |
Luncheon |
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12:30 p.m. |
Introduction: |
Christopher DeMuth, AEI |
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12:45 |
Lecture: |
Judge Stephen F. Williams, U.S. Court of Appeals for the D.C. Circuit |
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1:10 |
Discussant: |
Yegor Gaidar, Institute for the Economy in Transition |
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2:00 |
Adjournment |
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Proceedings:
Christopher DeMuth: I would like to welcome one and all to this book forum on the just-released Liberal Reform in an Illiberal Regime: The Creation of Private Property in Russia in 1906 through 1915 by Judge Stephen Williams of the DC Circuit Court of Appeals. I was going to say “for sale in the reception room,” but they have already sold out. This book was just published by the Hoover Institution and is available in bookstores around town. 2006 is the year of two important anniversaries in the history of liberal reform and good government.
The first is the Czarist land reforms of 1906, of which this is the 100th anniversary; and the second is the ascension of Professor Stephen Williams of the University of Colorado Law School to the Federal Bench in 1986, of which this is the 20th anniversary. Judge Williams has, in his 20 years on the bench, become a one of the most important appellate court judges in the country. I warned him that I was going to introduce him by giving an extensive exegesis on my favorite of his opinions, but he warned me that the subject of this afternoon’s colloquium is a different one.
Judge Williams has been, throughout his life, a student of the Soviet Union and Russia and its history. He has been a frequent participant in AEI conferences on developments in Russia and economic and legal policies, especially in the past 15 years, and he has taken time from writing for the Federal Courts and his frequent articles in law journals to write this fascinating, really engrossing study taking the Czarist reforms as an example of a certain kind of reform detached from any democratic development, to look at the merits and pitfalls of such an important but unusual episode in history of economic reform. We are delighted to having published this book with our cross coast rivals at the Hoover Institution that he would be willing to come to AEI and give a talk on the book.
And of course, we are thrilled that Dr. Yegor Gaidar of the Institute for the Economy in Transition who gave most of us a wonderful lecture on the history of the Soviet collapse earlier today would participate. He has read the book and has comments on it, and I know that there are several people around the audience who have comments to make as well.
Judge Williams, congratulations. Thank you for coming and the podium is yours.
Stephen F. Williams: I thank AEI for giving me an opportunity to talk about the book and particularly for having found such an insightful, an incisive person to comment on it. I look forward very much to that part of today’s event. What I have tried to do in the book is to consider these, the Stolypin reforms, these agricultural reforms that Chris mentioned through the lens of a question. And the question is how effective is top-down reform likely to be. By “top down,” I mean situations where liberal reformers get enough influence in a liberal society to bring about the adoption of liberal reform. But the reform is not in any way a response to social pressures demanding a reform in that direction.
In a sense, my definition of “top-down reform” is negative; it is the type of reform that I guess you would say Douglas North, who has written the most, I think, interestingly on the topic, would probably come close to saying “cannot exist,” or at least cannot exist in an effective way because he depicts effective reform coming about only when, for example, people acquire a certain amount of economic clout and then therefore able to put pressure on the government to acknowledge rights in them and the result of those rights is a liberalization of the regime. So the question for me is how likely such a reform to move society towards a level of democracy and how much of the way might it move society.
The book is, of course, a case study so it has inconclusive -- it is inconclusive. But I think it points to the view that such a reform can make real progress but it is likely to be woefully incomplete, and that its long-term success depends on the society getting quite a number of good breaks down the road. What Fred said, those are sort of an initial puzzle for me. I found Douglas North’s account of the origins of reform extremely persuasive and I’ll come to that in a second. But I also had a sense that these leaping reforms mark serious advance, so the question to my mind was whether these views could be reconciled.
Before I talk about the reforms themselves, there are three initial things I want to say a word about. One is liberal democracy, the other is transitions generally, and the third is pre-reformed conditions in rural Russia. On liberal democracy, the concept is broad. I’m not ready to exclude many varieties, so it ranges from the Night Watchman state on one hand to the dirigiste regime in continental Europe.
But that said, I do want to make special mention of private property and civil society. As far as private property is concerned, first let me take the economic role. The argument is made that private property is essential for investment; without protections of private property there will be no investment. As against the alternative anarchy, the argument is of course correct, but anarchy is not the alternative. The real alternative, I think history suggests, is various kinds of hierarchical and patrimonial relationships, and of course the Soviet Union represented it and Russia before it represented that sort of relationship between economic actors. In a hierarchical relationship, there are a number of malfunctions that can be expected going under the name of influenced activities, and I would include in these backbiting, backstabbing, gossip, intrigue, use of the entity’s assets for individual or family advantage. I’ll come back to those later.
The problem with the hierarchical and patrimonial regime is not that it fails to protect property interests or it fails to protect invested resources; the problem is that it does not send very good signals about the interests of consumers. The signals that it sends are how do you please someone higher up or how do you appear to please someone higher up, and that is radically different from the question of how you will please consumers.
Politically, private property represents essentially diffusion of power. I think this is something that is true by definition. Private property is diffusion of power, certainly compared to the pure hierarchical patrimonial regime; and the more dispersed private property is, obviously, the more diffusion of power.
Second, civil society to me, and let me say generally about that, is the force behind protection of private property and all other rights. Judges, and I know this personally, cannot do the job. There is a wonderful passage from Marx in which he talks about peasants. He pinpoints their isolation from the market, their inexperience in dealing with other social and economic actors and their lack of opportunities to forge alliances with other social and economic actors. He argues that as a result, peasants are characteristically exploited by the government. And actually, a modern-day observer can see this in Africa and Latin America, where typically the government will arrange for low prices for the farm produce and high prices for the inputs to farming. So that essentially is using the political helplessness of peasants to exploit them.
Now pre-reform conditions, these I think are so unfamiliar to most people; it is hard to picture. In the first place you have a periodic reallocation of a household’s land interest called repartition, the end being to match each household’s land resources with its working capability.
Second, you have collective management of the operations of all these plots within a village. A centralized management which is necessary because the plots held are so tiny and so scattered that the coordination has to be centrally imposed. Who is doing this? Superficially viewed, it can be seen as very democratic. It is the heads of households. The heads of households of course are males, so that is standard patriarchy, but much more so because in fact the household is typically not just one generation but has multiple generations, so that a grandfather or even great-grandfather is making the decisions, is representing what we would call households, the households below him and the hierarchy in these decisions.
Incidentally, there is a radical disconnect between the people who are actually going to work and the people who are the making the decisions about how it should be done. At any rate, these villages fit very well with Marx’s picture of a peasantry which is isolated and politically disconnected, certainly not a group suitable for forming alliances with other social groups. Another way of putting it is that the commune itself, the village, was a hierarchical patrimonial society in microcosm and not competing in markets either to make sales, or get labor, to get capital, or any other input. I should say that in the decades before 1906, there were gradual changes in the picture, but the basic structure of the commune was little changed and was a serious obstacle to these other marketizing changes having much effect.
Now, the word on transitions, and I want to talk basically just to very quickly put forward to you Douglas North’s image of how serious reform comes about. It is basically a theory of path dependency; that is to say a society may be in such a position that moving to a more liberal democratic regime is virtually impossible. And he identifies, I think it’s fair to say, three problems.
One is rather obvious: The political elites’ resistance to any changes to the extent that liberal democracy is a diffusion of power; obviously the people who have power at the outset are going to be reluctant to accept that.
Second is mindset; if you are accustomed to a world where people advanced by manipulating people in the hierarchy may be rather hard to change to a world where you might advance by doing things better, by actually achieving, by real accomplishment.
And finally, there is the issue of scale of economies. A transformation to a liberal democracy can produce enormous surge in productivity, but it is not the sort of thing that can happen step by step, at least not easy steps, not steps the way an entrepreneur in a market can. And those of you who follow current economic and legal discussions will be familiar with path dependency from another area, and that is economic path dependency. A classic example, and I do not want to speak in any way conclusively about it because it is complicated, but the Windows operating system represents something for which supplanting by a superior operating system essentially encounters all these three problems - mindsets, resistance of groups who have been enjoying the current status of Windows.
And finally, economies of scale, the person who comes up with the better operating system cannot get the full benefits of that until millions of people have changed their behavior. This is not to say that the Windows operating system will not be overthrown at some time. It is just to suggest that the level of superiority necessary to overthrow it may be quite substantial and it is a parallel to the obstructions to transformation and the direction of liberal democracy.
So at last we have reached the Stolypin reforms themselves. It is possible to describe them very simply and I would try to do that. First, villages are enabled to vote to end either the repartitional system, or really and, to end the scattering of plots which necessitated this collective control of the farming process. And actually, that aspect of the reform is surprisingly uncontroversial. In addition, individual households were authorized to do the same; that is to say to elect out of the repartitional process and to demand that their plots of land be consolidated.
But the second, the consolidation could occur only if it was not inconvenient - a slippery term obviously - for the remaining members of the village. To take you quickly to the issue of sort of numerically how much do these succeed, the numbers are rather low. So far as ending repartition was concerned, it probably increased by about 25 percent of the land area, the amount of land that was not subject to repartition. And as far as consolidation was concerned, somewhere around 10 percent, a little more than 10 percent. This may seem slow progress and indeed it was but I think it speaks on the whole the voluntary process that was involved.
Sort of a preliminary question is was the reform process itself illiberal? So the left-wing critics of the reform say and someone who regards Douglas North’s basic take on the process of reform is bound to be at least open to being convinced on that score. And so I approached the criticisms with an expectation that they would, to a significant extent, prove correct. The end result is that I think they are somewhat correct but not terribly correct.
There is one issue called in the Russian discourse on the subject, administrative pressure, and what that really refers to is the fact that you did not have truly neutral institutions able to mediate between essentially the peasants who wanted to go forward with the reform and the peasants who did not. The reform was, in effect, administered by people who were not peasants, who may have been sympathetic to peasants but certainly were socially, extremely different from them.
And I think it is fair to say we are accustomed to shoving them around is perhaps a strong way of putting it, but at least not dealing with them on equal basis. These institutions after all that have to decide, for example, would consolidation in particular owners’ tracts be inconvenient for the other owners or would it not? And whatever the actual correctness of decisions, one can certainly see how those whose views lost in that process be resentful and suspicious of what had gone on.
The process, of course, was done essentially by a Czarist bureaucracy which had been in place. To paraphrase someone else, you carry out a reform with the bureaucracy you have, but you pay a price for it. And when the price is a certain amount of degree of resentment, but essentially -- I mean it seems to me that that is a problem that came with the territory. I will not discuss now - we can go back to it if someone is a glutton for punishment - problems more closely related to the design of the reform, problems in getting out of the repartition of title and the details of the problems of consolidation. But I will say that essentially they were problems.
I think it is fair to say that they flow intellectively from the character of the previous regime on the farm, essentially in absence of clear rights or in absence of institutions able to draw suitable lines between competing claims. But I will say this that I think these flaws are ones which over time would have worked themselves out. That is to say to the extent that peasants adopted the options which were presented to them. Over the course of time, the flaws in the process would have become history, and they would have left some mark, but my guess is not a desperately big mark.
There were two other defects or two other categories of defects in the reforms, which one cannot say the same; that is to say they would not have automatically run their course. The first is the incompleteness of reforms, and that takes primarily the form of the inadequacies of title that peasants pursuing their elections were able to obtain. First, there is a ban on sale or mortgage to non-peasants. And second there were ceilings on the maximum holding that a peasant would acquire.
So what are the effects of these? They are really quite substantial when you think about it. First is it stifles any useful agricultural credit system. You cannot have any secured lending except from other peasants who are not likely to be the best source.
Second, you blunt the market’s effectiveness as a provider of incentives. One of the many functions of the market is that a person who is mismanaging his property is likely to receive bids from people who perceive that they can manage it better than he, and this provides them an incentive either to sell or to figure out what it is that they are doing wrong and bring their productivity up to the level that the bid for the asset implies. But with many of the potential buyers cut off from buying, the effectiveness was greatly diluted.
Third, rather obviously, it stands in the way the people aggregating plots where efficiency so dictated.
And finally and, again, built into it is that it stifles the development of a broad range of size of holdings which would presumably fit economic conditions so that the reforms were distinctly incomplete. Why were they incomplete in this way? I would argue that this is almost entirely a function of one of the problems I have talked about and that is the preexisting mindset - essentially a view that peasants were unable to handle their own problems and if allowed to try manage their own problems, they would get it wrong and destitution would follow.
There is another spin on this and that is the fear of proletarianization, which is that to the extent the better farmers require more land and farm it efficiently, the less good farmers will go to the cities and become part of an urban proletariat, essentially threatening the security of the regime. Again, it is built on, at least on significant part, a notion that these are people who cannot well figure out how to protect their own welfare.
The second area of problems with the reform going forward is not strictly speaking in the reform and in the policy adopted roughly the same time and which is very closely related to the reform, and that is government sponsorship of so-called cooperatives. When you first hear about cooperatives, you think, “Oh great.” Instead of the rather coercive character of the commune, this is being supplanted by voluntary agreements among people which is exactly what you would hope to happen. And actually there are some writers who are enthusiastic about reforms who point to this with the private pleasure. I think not. We tell you what the cooperatives -- I think it is fair to say —- amounted to. The government provided the loans, provided resources to agencies which were extending the loans and it did so at a price.
Essentially the function was to manipulate behavior in the countryside. First, the government subsidizes credits for cooperatives that compete with entirely private unsubsidized ones, and the policy was really quite successful in driving those truly voluntary cooperatives out of business.
Second, the people administering reform imposed entirely artificial limits on who could participate, who could be on the board of these cooperatives receiving the money from the government, and there was an enormous bias against essentially anyone in the countryside who was sort of successful. So there is a wonderful story, wonderful in the sense that it fills you with shock, horror, of someone who is not on the board of the cooperative, but he was an accountant and properly trained so far as it appears, but the government agents in the countryside could not stand the thought of him becoming influential with a cooperative, and so they finagled behind the scenes to have him drafted into the Army and therefore removed from the countryside. So it is a war on talent, really.
Third, the agencies refused to take security for loans, so all these loans were unsecured and therefore a very high risk of not getting paid back. How did the agencies respond to the failure to pay back? They responded essentially by concealing the fact with rollover loans so that the true character of the policy was not evident. In other words, it instituted a very soft loan policy toward the favored entities.
Again, how do you explain this? How do you explain the government adopting this, and I think it is a matter of power and partly a matter of mindset. You have the elite condescension towards peasants. They are okay as long they do not get too good at it. But then certainly it is a form of condescension, elite hostility toward markets and elite preference for top-down control, and all of these are manifested in the policies that followed [sounds like].
So with that slightly gloomy description of an aspect of the reform and certainly part of the surrounding policy, what hopes were there that this would help usher in liberal democracy? You have to picture a number of things happening. One is peasants not withstanding the limits acquiring certainly more political power than they had; and second, peasants using some of this greater political power to remove some of these artificial limits on development in the countryside. I think that is not implausible. In fact, in a sense, even before the reform was launched you had signs of this development, but with more private property ownership, with some ability of better farmers to acquire larger tracts.
I think it is possible to imagine the development of the agricultural component of civil society inching forward. The picture is one of incomplete reform and of hope for a certain amount of good luck going forward for the reform actually to move us significantly towards liberal democracy. One thing you can ask yourself and I, of course, was asking myself because of my view on the one hand that Douglas North was fundamentally probably right, and on the other hand the view that the Stolypin reforms were pretty good, how could these come about?
I think the answer has to be that reforms of this sort can be undertaken and can succeed if but only if the ruling elite cannot see or at least cannot see too well where they may be heading. As a thought experiment, ask yourself what the czar would have said if he were told this is the way to look at liberal democracy. I think that is a killer argument for the reform. I wish on those reforms I could come up with some wonderfully conclusive observations, but it is one of very cautious optimism about such reforms.
I want to close by comparing the agricultural situation in Russia now with the agricultural situation 100 years ago; I’m very lucky to have someone here who has been actually involved in that, so anything I say should obviously be taken with a grain of salt. I would summarize it by saying that the difference over the 100-year period is the physical problem in the countryside is the exact opposite of what it was 100 years ago; and that the social problem in the countryside is just about exactly what it was 100 years ago. The physical problems has changed in this way. Instead of this enormous number of plots gathered over a village being farmed by a household, you now have these vast formerly state farms, collective farms, now quasi-privatized in the sense of conveyed to entities, which in certain respect are like private entities. But instead of tiny plots, you have Soviet gigantism largely unchanged.
In terms of social relationships, we saw in 1906 the hierarchical patriarchal regime in microcosm, a regime in which economic actors are not subject to the ordinary incentives of a well-functioning market. What do we have now? We have soft loans to the entities which hold these gigantic farm enterprises. You do not have a well-functioning market. Certainly you have something in a market, but you certainly do not have a well-functioning market by which people who perceived that they can do better on a particular tract of land embittered away from a combine. And you do not have a market for corporate control which would enable entrepreneurs who saw under-use of assets in these combines to buy ownership, take over, and make profit through their improved management.
I think the social structural problem has very little changed over 100 years and, actually, the physical problem is relatively minor compared to the social problem. So anyway, to Dr. Gaidar.
Christopher DeMuth: Judge Williams, thank you very much. We now turn to Dr. Gaidar. Yegor.
Yegor Gaidar: Thank you very much. It was extremely interesting. First of all, I would like to report to both my very serious mistake. I had something to do with reforms in Russia. I had the chance to write the books about reforms in Russia. In this case, I have been related to the hero… very far family relative to the hero because our families are somehow related. So to tell you frankly, for me to understand that very distinguished American could write the book which would tell me anything new about Stolypin reform, I had some doubts before I read the book because, really, the book is absolutely splendid in very important details. For instance, the part of all the cooperatives is extremely interesting for me.
Another thing about the details of this Stolypin policy towards the strips: I knew something about this, but there was a lot of additional interesting information. So in very short terms I would strongly recommend to everybody to read the book. Just usually short comments. When I’m reading a lot of books published in the America or in the West about the institutions, it is easier for me - and that is exception - to interpret them approximately like this. It is much better to be healthy and rich than to be poor and ill and sick.
Yes, of course, it is splendid if you are speaking about development. It is splendid to have a long history of the liberal democracy supporting the private property on the land and then developing and increasing the support the liberal democracy. Splendid. Tell it to, for instance, I do not know, to Stolypin, splendid, but you do not have this history. And you have the challenge of the West, which is evidently going forward very rapidly exactly because it has this specific history. You cannot import this institution. You cannot import that Western professor who will tell you how to establish liberal democracy with a high regard to the private property in Russia. You can get advice. You will know how to use.
What was essentially the problem of my point of view or with the land in Russia at the time before Stolypin reform. Of course it was that specific stimuli which the system of redistribution of the land created. When and if you know that you have this land, and then you will have this land. Then you are thinking, when you are for instance thinking about how much sons you would to prefer to have, you are thinking that this land could not provide the food for four sons. So you are starting to limit them the amount of sons you have. Or you are starting to prepare and to create the stimuli for the sons to some kind -- some will be prepared to go to the city and find the place. But if there is a city for redistribution and the more sons you do have, the more land you will have. You are creating the stimuli which are preventing you from pushing the excessive population to the cities and in preventing you from any kind of the policy to limit the speed of the increase of the families.
That was really the trouble with the Russian agricultural policy, more or less understood by the policy makers in the late 19th century. Very good data is shown that in the regions of Russia when there was no redistribution of land and these regions existed, the rates of population growth which were much smaller than in the regions when there was a distribution of land. So if you are going through all of the discussions about Russian agriculture, all of this is about obezzemelivanie, the lack of land.
And the problem was entirely real. There was a serious decrease of the amount of land for each household during the late 19th and beginning of 20th century. Political support for the redistribution was strong. It was the tradition and the government, at least before the beginning of the century, supported it. Peasants did not understand that there was a problem. They were unprepared to change the habits so what is the problem then? To take the land from the landowners. Landowners are the biggest industrial producers of the surplus of grain which we are exporting to the world.
When and if you eliminate big landowners - and this is what happened during the revolution - you are not resolving the essential problem. But once again, there are those and also the situation of revolution proved it quite evidently that there is no support in countryside to changing the system of the distribution of land. That is the real problem. It is not the problem in which Witte was confronted. Stolypin was confronted and Bunge before him was confronted. You get to address it in a political situation which existed. He could not change the political regime of the country. He had to confront it in a situation of when their problems was evident and very difficult to resolve. He had done it being extremely courageous, very talented, absolutely charismatic and very dedicated to the improvement of the situation in Russia.
Well, strategically he failed. Strategically he failed because he could not prevent this, first of all, war and the revolution. But that does not mean that he could not done all the best to save our country from the problems which we confronted during the 20th century. Maybe you could find a lot of researchers which will tell you, “Well, probably it was too late. It should have been done 20 years earlier where Bunge first advised this idea.” Maybe, but everybody is confronted with the task on his own place. If Stolypin all the time will be thinking well, Bunge should have done it. Now it is too late. You will be a strange person. I do not think the so good book would be written about him. Thank you.
Christopher DeMuth: We are going to open to questions and comments from the floor. I want to say that I read Judge Williams’ book at a time I was working on some AEI projects concerning contemporary agricultural policies in the United States and in Europe and planned the work that we are doing on next year’s farm bill.
The thing that struck me most strongly from this book was that a system where farmers are remote and politically disorganized and disconnected seemed to me to be a pretty good system, and I was wondering if there is some way we could reserve some of these features of the old, of this ancient regime. I want to ask Judge Williams this question. Beyond the failures that you document of the reforms to achieve what in retrospect we can see they might have achieved if there had been a greater ability to actually finance, attract investment, grow farms to an efficient scale and so forth, I wonder about what we know about the reaction among the peasants and the very modest minor improvements that they could make in their circumstances given just these reforms themselves.
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