Land-Reform Fight About Votes

Question: When is a pro-reform policy not a pro-reform policy? Answer: when it's land privatization. Pro-reform policies are, by definition, vote losers. They mean flailing enterprises, bank crashes and striking miners. Why, then, does President Boris Yeltsin appear set to make probably the one major pro-reform policy move that Russia has yet to make? The reason is simple: Done right, land privatization is a potential vote-winner.


Part II of the Civil Code -- Russia's economic constitution -- comes into force March 1, covering almost every type of contract except land sales.


Seemingly, or at least according to Gennady Zyuganov, the Russian soul could not stomach private ownership of land, the one that feeds, the zemlya-kormilitsa. While the 1993 constitution does allow for private land ownership, the relevant clause is contradicted by the current Land Code -- a bill rammed through the Duma by the Communists and Agrarians last July.


A revised land code, in line with the constitution, is currently hostage to the Duma's Agricultural Committee. If it ever reaches the voting floor, committee chair Alexei Cheryshev, an Agrarian, is unlikely to make positive noises. Having recently spoken out about private land ownership -- both in Chelyabinsk and Yekaterinburg -- Yeltsin has finally grown impatient of the Duma's sclerotic lawmaking, and is now reportedly planning to privatize land by decree.


Yeltsin's reasoning makes a lot of economic sense. There are serious revenue gains to be made: If holding rights are established, property taxes can be levied on landowners. Nikolai Komov, head of the Russian Committee on Land Allocation and Use, argues that some 13 trillion rubles ($2.7 billion) could be raised from land taxation each year. Moreover, once land rights are established, the tax burden could move away from profits and toward property. Profits taxes in Russia account for almost 25 percent of all revenues, compared with an OECD average of 7 percent.


At the local level, enterprise managers keen to restructure but lacking credit access could collateralize loans on the strength of the land under their feet. Land privatization will also enable regional governments to collateralize municipal bond issues, kick-starting local stock exchanges and allowing more decentralized revenue-raising. In fact, once Russia's banking nouveau riche can put its money in "Mother Russia" rather than in short-term state treasury bills or Swiss bank accounts, even macroeconomic stability could become a reality. The government has long been in favor of land privatization; in fact, a decree is in the offing precisely because the relevant bill is unlikely to be carried by the Communist-dominated Duma. In the run-up to the June elections, given the general movement of policy-making initiative toward the Kremlin, Yeltsin is likely to make increasing use of decrees relating to economics.


But a decree on land privatization could be dangerous for the president. Given the special place of public land in the heart of many Russians, the Duma will sense there is serious political capital to be made by standing up to the Kremlin on this one. Given a voting pact between the Communists (33 percent of the seats), the Agrarian deputy group (7 percent) and the Power to the People deputy group (8 percent), a simple majority is within reach. If Yabloko (8 percent) and a few independents can be hauled on board, the Duma could gain the magic two-thirds required to overturn a presidential veto.


Here's the scenario. Yeltsin serves private land deep to the Duma's backhand; the quick-footed Duma biffs back a new contradictory law; Yeltsin -- coming to net -- uses his veto; the Duma, stretching cross-court, overturns with a two-thirds majority. Game, set and public victory: Zyuganov.


Yeltsin will have to be careful about issuing decrees likely to draw explosive action from the Communists. In fact, even if the Duma did overturn a presidential veto, there is no way the new Federation Council -- comprised mostly of Yeltsin loyalists -- would do the same. Nevertheless, that Yeltsin's decree would remain in force would pale in significance compared with the political fallout of a pre-election Duma veto reversal on a supremely sensitive policy issue.


Any pre-election dogfight on land privatization, picked by the government to expose the Communists on the personal liberty front, is more likely to take the form of a referendum. If the public endorses private land -- and opinion polls suggest voters might -- the government could convince the crucial "middle third" of the electorate that it is, despite the pain of reform, fundamentally reform-minded, and voters should therefore avoid casting ballots for Zyuganov. Now that would be a pro-reform policy.