Fomento de la creatividad

In the rural areas of most Central and Eastern European countries, the adoption of share-holding amounted to nothing less than the adoption of a new ideological paradigm. Earlier on, collective arrangements had been essentially labour-based, whereby claims to the income derived from one's labour could not be transferred, while land and agricultural infrastructure were regarded as virtually indivisible assets. The shift to a capital-based arrangement implied a change in the yardstick for income distribution -now based on each member’s amount of shares-, but also a different approach to decision-making. While in pre-war co-operatives as well as in later collectives (at least on paper) deliberations were usually subject to the unanimous approval of all members (cfr. Tamosiunas, 1974; Ramanauskas, 1996), decisions were now taken on the basis o f majority voting, where the weight of each member is proportional to the amount of shares he or she controls. From the perspective of property rights theory, share-holding should represent a superior arrangement, as it enables to define in a clear and flexible manner the boundaries of the different claims to the co-operative's income, thereby greatly facilitating transactions. It also functions as a simplifying device in the mechanism of entry and exit from the co-operative- when a member decides to leave, asset indivisibility may pose serious obstacles (cfr. Leontieva on industrial restructuring, 1998; also Damauskas in Variai, 20/03/2000), which can be circumvented if control over assets is exerted through share-ownership.

Across the region, the share-holding model of co-ownership has been applied to transformed collectives that have undergone little structural change and are often termed “successor farms", as well as to new farming units set up by the owners of restituted or privatised land (cfr. Bauern- Zeitung, 1995-96; Wegren, 1997, 1998). In most cases, the transfonp^tion of kolkhozy into share-holding co-operatives took place through the redefinition of already existing property rights through ordinary or

preferred shares, which were either distributed or sold to members of the collective. As mentioned in the previous chapter, central governments, sometimes aided by local administrations, would establish guidelines to ensure a "fair" treatment of incumbent farmers. In addition, a number of shares were set aside and sold, often in auction, but with the proviso that the purchaser resided in the local area (eft*. Lietuvos zinios, Jan ./Feb. 1992; Bojnec, 1994 on Slovenia). As a result, assets were not necessarily assigned to individuals who were best qualified to dispose of them- "fair" treatment resulted in senior farmers and former kolkhozy leadership receiving the largest proportion o f shares in recognition of their prolonged period of work in the collective or ftie "quality" o f their contribution (cfi*. Bauern-Zeitung, Oct.-Dec.1993). The situation was not dissimilar in those farms established on the spoils of earlier sovkhozy- the only essential difference was in the fact that the leadership of the state- farm would be Augmented across more concems, so that, paradoxically, share distribution in each concern tended to be less distorted than in former kolkhozy (eft*. Zile, 1992; Gustaitis in Mokesciii zinios, 06-12/10/1997).

The most problematic aspect o f share-holding conversion, however, was the amount of influence that in some countries it granted to the representatives o f state authorities. In Romania and Bulgaria, for instance, a substantial proportion o f shares was attributed to local administrations that could support the development o f the agricultural sector by granting preferential loans, fiscal exemptions or VAT refunds (cfr. Gavrilescu, 1994). By-laws o f co-operatives would sometimes permit the issue of further shares in order to raise capital, but in most cases representatives of local authorities were the only members-holders entitled to purchase them (eft*. Tiesa, March 1991; Vilpisauskas, 1993). The shares held by these representatives o f the state acted as a multiplier for the influence exerted by the latter on rural organisations, thereby strengthening their tendency to reproduce earlier collectives' relation of dependence from the directives of political authorities.

The resiliency o f the ties linking agricultural organizations to state institutions -and local governments in particular- emerges clearly as we consider for instance the manner in which successor farms and local administrations liaise in former Czechoslovakia. In Slovakia, many former kolkhozy have granted to local administrations an amount of voting shares carrying the value of the assets acquired thanks to state financial support. In the Czech Republic, agricultural co-operatives that have received substantial credit from local governments have rewarded the latter with non-voting shares with fixed dividends (cfr. Veidas, 04/05/2000). In fact, the cases where state authorities have been able to achieve majority control in the share­ holding assembly o f agricultural co-operatives have been very few; nevertheless, the very fact of their presence in the decision-making bodies o f these organizations enables them to exert a substantial degree of control over the development of the agricultural sector as a whole. O f course, there have been some instances whereby organisations have succeeded in breaking away from state control- in Estonia, agricultural co-operatives responded to state support establishing a special fund in aid o f the development of rural areas, but granted no shares to representatives of local administrations (cfr. Baltic Times, May 2000). In either case, however, the redefinition of property rights by means o f co-ownership has effectively ratified the existent allocation of resources and the underlying path dependence of organisational arrangements.

Despite a general belief as to the contrary, allocative efficiency was not substantially better in so-called "new" farms. Individual farmers acquired land and other agricultural infrastructure assets either through restitution or by investing the compensation funds received. In the majority of cases, the plots acquired in this way were turned into small-scale subsistence ferms tilled by members of the same household- as we mentioned in the first chapter, farmers often faced restrictions as to the sale/lease of newly received plots, and were generally reluctant to forego their newly regained independence to enter new co-operative arrangements (cfr.

Ramanauskas, 1993, 1996; Ciuleviciené/C iule vicias, 1999). In countries such as Latvia, the Czech republic and Slovenia, however, some new co-operative experiments were set up, mainly in the shape o f middle-sized processing units (cfr. Veidas, 04/05/2000). In order to raise capital and increase farmers' attachment to the newly established concems, as early as 1991-92 most of these entities adopted share­ holding co-ownership. The significant problems with the initial valuation of infrastructure, however, resulted in members of the "new" co-operatives holding shares whose value was not an adequate reflection of the concern's assets.

The record on the valuation o f assets to be privatised or set aside for restitution indicates that procedures were ofl:en haphazard and lacked consistency even within the same country. In some cases, competent authorities used as benchmark the estimates included in the records kept by collectives (cfr. Mackevidius/Poskaité, 1998). Such values, while systematically inflated, were in fact meaningless in a context characterised by new currencies and high rates o f inflation- in former Soviet republics, however, they were often used in the hope that high valuations would attract capital into the rural sector (cfr. Ramanauskas/Motuziene,1998). At the opposite end o f the spectmm, local authorities wishing to spread share-holding models among the rural population sometimes kept the initial value of assets deliberately low in order to avoid paying high compensation whenever restitution was not possible (cfr. Leontieva, 1997; Grizibauskiené in Lietuvos aidas, 11/04/2000).

Sometimes formers expecting compensation would refiise to accept the estimate drawn by state-appointed agencies and the valuation finally recorded reflected a bargaining process between the two sides (cfr. Leontieva on industrial restmcturing, 1998; on the role o f the LFMI, 2000). In Latvia, despite the obvious inconsistency, different benchmarks were used for different assets originating in the same collective as they were now controlled by different local administrations (cfr.

Zile, 1993). To all these considerations, we must add that the absence across CEEC's of any share-dealing tradition resulted in very little scope for exchange in agricultural stock, so that share value tended to stick to its initial level even whenever it was not adequate. We see therefore that even outside of the context of transformed collectives the redefinition o f property rights through share-holding was no guarantee o f an appropriate allocation of resources and was in fact likely to ratify existing distortions.

The final negative feature of rural share-holding in CEEC's was its inability to overcome the persistent dichotomy between individual contribution and remuneration that still characterised many agricultural units. In the more blatant cases (such as a number of kolükiai in Aukstaitija, Kontrimavicius in Vartai, 24/01/2000), collectives were transformed into large share-holding co-operatives, but individual share-ownership was not clearly delineated, as all members would own only one share collectively (cfr. KZÜR conference acts, 2000). This practice was justified by the contention that within rural communities unused to the system, one could not de facto approve a pattern of resource allocation when individual entitlements were yet to be settled and access to litigation was limited. In fact, such decision could only increase the generalised climate o f uncertainty and exert a negative influence on the overall development of the areas involved.

The situation was not ideal even in those co-operatives where individual share-holding was the norm. In the Baltic countries, most share-holding co­ operatives in the agricultural sector hardly paid any dividends in the first years after their transformation- this was justified as an attempt to build capital reserves, but certainly could not re-enforce members' control over the co-operative's assets (cfi-. Rinkotyra, 2(4)1999; also the law on state control in Vz, 30/05/1995). Later on, despite the general improvement in economic conditions, farmers were induced to trade dividends for more stock, which lost a substantial proportion of its value as the

Russian crisis hit the local economies. In 1998-99, there were on the other hand reports o f virtually bankrupt agricultural units falsifying their accounts and paying dividends to ensure the continued allegiance of their members (cfr. LAT-CBS pareiskimas on fraudulent bankruptcy in LAT aktai, 28/12/1998). All this indicates that the adoption of share-holding, unless accompanied by binding guidelines, does not automatically result in a complete transfer o f property rights to the members of an agricultural unit.

We mentioned earlier how in former Czechoslovakia share-holding conversion has resulted in the emergence o f rural organizational stmctures that are controlled by local authorities and therefore perpetuate the dependence of the former from the latter. In Chapter III, we shall see how the control exerted by Lithuanian local administrations over agricultural co-operatives has actually continued to grow from the early 1990’s to the present day. The experience o f these countries indicates how share-holding conversion does not automatically guarantee that control over the co-operative's assets is transferred to the private sector, nor that shares adequately reflect the actual value of land and infrastructure. Three considerations follow:

• in the first place, share-holding co-ownership serves to define more clearly patterns of property rights allocation. At the same time, however, share-ownership is not incompatible with an inefficient distribution of property rights- on the contrary, it does increase the negative impact of the latter on the usage of the assets involved;

• in the second place, the initial valuation of the assets may fail to reflect their real maricet value, so that share co-ownership might in feet ratify a distorted valuation and ensure its survival through time;

• in the third place, the adoption of share-holding has in many cases failed to ensure that remuneration would be proportional to each member's contribution to the concern's over-all income.

As a result, an inadequate distribution of property rights has combined with distorted valuation of assets, resulting in a situation where share-holding is the main vehicle for the regressive tendencies implicit in local organisational structures. The establishment in Central and Eastern Europe of rural co-operatives structured after Northern European models is not likely to take place in the short-term. In feet, in the course o f the next section, we shall see how the manner whereby financial instruments have been deployed in transition countries, instead of laying the conditions for more efficient forms o f agricultural organization, has strengthened the dependence of existing rural structures fi-om state authorities.