262 



In telescoping these three revolutions, cenain economic variables •will play critical roles. It 

 will be wrenching to acknowledge that: 



1.) Credit is credit, not welfare 



2.) Interest is a cost of the use of capital, not a tribute to a sovereign. 



3.) Property rights are efficient arrangements for conveying information, and not Just 



permits for the exercise of monopoly power. 

 4.) Profits are essential for the growth of capital. 

 5.) Prices that fluctuate are integral elements of a market economy. 



The majority of the people in the FSU are unfamiliar with uncertainty. They had had the 

 longest continuous period of stable consumer prices of any large population in modern times. The 

 transition to a market economy will be espeddly difficult in those sectors in which price distortions 

 have been greatest, namely: housing, transportation, energy, and land. 



The most fundamental distortions arise from the lack of a price on land and natural 

 resources. This reflects a failure to recognize the fact that a market economy involves markets for 

 inputs as well as for ontputs-for factors of production as well as for products. The most direct 

 threat to the ideology guiding a planned economy arises from the prospect of a market for land. 

 Yet without a market for land, there can be no market-derived basis for choosing among 

 production alternatives involving space and dme. 



This necessity for a price on land is central to an understanding of the complexities of the 

 privatization issue In Russian agriculture. At the outset, support for continuing privatization 

 requires patience. The supporting institutional structure will take time to construct. Those who 

 wish to derail or defeat privatization of asset ownership will seize on this argument as a basis for 

 delay. This is a danger that must be faced. It must be weighed against the fuel that a too-hasty 

 privatization can have long-lasting consequences that will be difflcull to remedy in the future. 



One of these consequences relates to the faa that there has been no functional market for 

 agriculture land in the FSU since the fint world war. The zonal pricing system used for 

 agricultural products was designed to capture economic rent for the state. The highest commodity 

 prices were typically paid for products produced at locations most distant from markets. The lowest 

 prices, particularly for grains, were paid for products from the better lands, or those close to 

 market 



It will be impossible to derive realistic prices for land until this inverted product pricing 

 system is reformed. This is under way, but it will take time. In the transition there will be a 

 massive reordering of ideas regarding the relative profitability of agriculture at different locations. 

 This will be reflected in changes in relative land prices that cannot now be predicted. 



Any distribution of land based on values calculated firom present land uses will be wildly 

 distorted. This argues for caution m proceeding with prhratization. In the transition it will almost 

 surely be wise to rely on variant forms of use permits or leasing. In the existing structtire of 

 te\&th/c product values, outright sale or purchase of land could lead to give-away pricing or 

 impossible debt burdens. Privatization can be defeated by unsupportable efforts to achieve too 

 much too soon. 



