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Institutional Change in Russia: the Case of Urban Land Rights, 1990-2013

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Institutional Change in Russia: the Case of Urban Land Rights, 1990-2013 INSTITUTIONAL CHANGE IN RUSSIA: THE CASE OF URBAN LAND RIGHTS, 1990-2013 By Marsha McGraw Olive A dissertation submitted to Johns Hopkins University in conformity with the requirements for the degree of Doctor of Philosophy Baltimore, Maryland April 2015 © 2015 Marsha McGraw Olive All rights reserved Abstract Institutional Change in Russia: The Case of Urban Land Rights, 1990-2013 Why, when, and how do institutions change? The dissertation contributes to theory- building on these questions by examining variation in urban land rights in Russia after seven decades of state ownership. Urban land privatization is taken as a proxy for institutional change. Using inductive methods to identify patterns of urban land privatization, three cities are selected to represent institutional change that is either rapid (Kazan), incremental (St. Petersburg), or in stasis (Moscow). Case studies test the hypothesis that the motivation for institutional change will be a function of the revenue-maximizing incentives of political authorities. Consistent with Levi’s (1988) theory of predatory rule, at a given time, political authorities will opt for the highest- yielding and most feasible revenue sources that strengthen their hold on power and security in office. Why and when land was privatized correlated with these factors in the case study cities. How institutions change is hypothesized to vary according to consistency in policy actions by political authorities and the bureaucracy (explanatory variables), with public engagement in decision-making as an intervening variable. The variables are compared in the three case study cities in the 1990s and 2000s, using a land governance model to simplify the change process. Based on qualitative and quantitative indicators, the pace of land privatization (dependent variable) was found to be rapid only when political authorities, the bureaucracy and society were aligned on policy actions. Such alignment was rare. In all case study cities, administrative barriers to privatization declined sharply following the transformation of the land rights registration agency into a rule-bound bureaucracy, and public engagement contributed to institutional change. ii Dissertation Defense Committee Dr. Bruce Parrott, (Faculty Advisor), Professor and Director of the Russian and Eurasian Studies Program, Johns Hopkins University School of Advanced International Studies Dr. Deborah Brautigam, Professor and Director of the International Development (I-Dev) Program, Johns Hopkins University School of Advanced International Studies Dr. Carlos Vegh, Fred H. Sanderson Professor of International Economics, Johns Hopkins University School of Advanced International Studies Dr. Blair Ruble, Vice President for Programs and Director, Urban Sustainability Laboratory; and Senior Advisor, Kennan Institute Dr. John Wallis, Professor of Economics, University of Maryland iii Preface and Acknowledgements This dissertation culminates a twelve-year educational odyssey undertaken while working full time at the Europe and Central Asia Region of the World Bank. Without the advocacy and mentorship of Professor Bruce Parrott of Johns Hopkins SAIS, completion of a lifelong dream would not have been possible. The research is dedicated to Professor Parrott for his enduring faith in my quest for academic excellence, and to my family and friends for their encouragement and patience. Lectures at the World Bank by leading scholars such as Daron Acemoglu, Douglass C. North, Elinor Ostrom, James Robinson, Dani Rodrik and John Wallis stimulated my interest in the New Institutional Economics, as did coursework at SAIS taught by Francis Fukuyama and Dorothee Heisenberg. I was inspired to explore the interlinkages of urban land and political economy in Russia by a thoughtful mimeo written by Leonid Limonov, Director-General of the Leontief Institute (St. Petersburg, Russia), on Power and Land Ownership in Russia: To the Question of Reliance on Path Dependency (Vlast’ i sobstvennost’ na zemliu v Rossii: k voprosu o zavisimosti ot traektorii predshestvuiushchego razvitiia). His insights and assistance in Russia were invaluable for this project, as was his perception that the New Institutional Economics offered the best conceptual framework for analysis of land relations in Russian history. I am grateful to several individuals for their time and wisdom, including World Bank colleagues Brian Levy, Jana Kunicova, Kimberly Johns (governance), Alain Bertaud, Gavin Adlington, Malcolm Childriss (urban land policy), Indermit Gill, Chor-Ching Goh (economic geography), Vera Matusevich, Gregory Kisunko, Juan Navas-Sabater, Sylvie K. Bossoutrot, Tatyana Ponomareva (Russian land relations and Doing Business), and Georgi Panterov (data analysis). Nargiza Tukhtaeva provided exceptional research and editorial support. iv Table of Contents Chapters 1. Introduction…………………………………………………………………… 1 2. Analytical Framework and Research Design...…………………………………. 17 3. Urban Land in Russian and Soviet History…………………………………… 85 4. The Struggle for Urban Land Rights, 1990-2013…………………………….. 137 5. Moscow: A Case of Institutional Stasis……………………………………….180 6. St. Petersburg: A Case of Incremental Institutional Change………………….235 7. Kazan: A Case of Rapid Institutional Change…………………………………276 8. Urban Land Privatization and Development Outcomes……………………….314 Bibliography…………………………………………………………………………...361 Curriculum Vitae ……………………………………………………………………...385 v Chapter One: Introduction How do countries acquire institutions favorable to growth and prosperity? For development policy analysts and practitioners, this is the singular puzzle underlying the divergence in living standards between developed and developing nations. Institutions are rules and shared beliefs that influence the behavior of public and private actors. A large literature is devoted to examining institutions as a critical if not the primary explanatory variable in economic and political development.1 Buoyed by several Noble prize- winners of diverse disciplines,2 research in the field of the New Institutional Economics (NIE) is advancing the search for solutions to the puzzle of divergence in wealth among nations. Yet a generalizable theory to predict the path and pace of institutional change remains elusive.3 The term “institution” is highly elastic and used differently among the social science disciplines; even official publications of the World Bank apply divergent definitions. This confusion complicates the research agenda in an otherwise promising field of inquiry. The dissertation contributes to theory-building by taking a narrow interpretation of institutions and providing empirical content through the aperture of urban land privatization in the Russian Federation. The 1993 Constitution recognizes and guarantees the right of private property, including in land, thus reversing seven decades of state ownership under the Soviet Union. To date, urban land privatization in Russia for both firms and citizens has not received 1 For an excellent overview of the literature on institutions and practical applications, see Brian Levy, Working with the Grain: Integrating Governance and Growth in Development Strategies, (Oxford University Press, 2014). 2 Leading theorists of the NIE who received Nobel prizes are Douglass C. North, Elinor Ostrom, Herbert Simon, Ronald Coase, and Oliver Williamson. Levy, Working with the Grain, 19. 3 As Oliver Williamson noted, “The new institutional economics is a boiling cauldron of ideas. Not only are there many institutional research programs in progress, but there are competing ideas within most of them.” Oliver E. Williamson, “The New Institutional Economics: Taking Stock, Looking Ahead,” Journal of Economic Literature, Vol. 38, No. 3 (Sept 2000), 610. According to Fukuyama, we lack a theory of institutional change that can be generalized and applied as policy guidance. Francis Fukuyama, State-Building: Governance and World Order in the 21st Century, (New York: Cornell University Press, 2004), 22-23. 1 scholarly attention. It merits investigation as a self-standing case because it represents a radical institutional change in a country without a history of predominant private land ownership.4 Moreover, private urban land ownership holds the potential to transform Russia spatially, economically and politically. Yet in contrast to the rapid pace of enterprise privatization in the 1990s, the sale of municipal land to citizens and firms is proceeding slowly, with significant variance in rates of privatization. The puzzle is this: why are some cities privatizing land while others are not? What is driving the difference among cities in private land ownership? Using urban land privatization as a proxy for institutional change, the dissertation hypothesizes that the property rights regime will be a function of the revenue-maximizing incentives of ruling elites. Why and when institutional change occurs will depend on a policy decision by political authorities at a given time to privatize, lease, or seize privatized land. Following the theory of predatory rule (Levi 1988), political authorities will opt for the highest- yielding and most feasible revenue sources that strengthen their hold on power and security in office. Put simply, the choice for political authorities is to own land and collect rents, or to sell land and collect property taxes. This choice determines whether or not private land rights are established. The dependent variable is the outcome: it measures urban land privatization, i.e. the share of
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