Enserfment in The Great Princedom of Moscow: institutional perspectives

1. Enserfment in The Great Princedom of Moscow: institutional perspectives Mikhail Vdovin, SU-HSE April, 8th, 2010

2. Key issues to discuss during these 15 minutes: 1. What does affects the history most: resource endowment or political decisions of the elites? • What are the sources of the “good” and the “bad” government? • Can power elites form social institutions in their favor? • How important the political and economic inequality is? 2. Forced labor, serfdom and slavery. Are they “good” or “bad” institutions? • Forced labor: institutional perspectives • The reasons for enserfment of peasants in Russia: overview 3. Enserfmentin The Great Princedom of Moscow • A model • Historical parallels: a brief look at the modern Russia

3. The objective: • To provide a historical example on how and under what conditions the “bad” institutions can be developed. • In general, we’d like to show how the rent-oriented behavior of power elites can lead to the development of inefficient social institutions.

4. Ambrogio Lorenzetti. "Ill-governed Town and Country", 1337-39.  Palazzo Pubblico, Siena, Italy

6. Ambrogio Lorenzetti. “Effects of Good Government on Town and Country”,1337-39гг.  Palazzo Pubblico, Siena, Italy

8. Why do the “bad” government and institutions arise? • Version 1. «Initial endowment» [Toynbee , Myrdal, La Porta, Acemoglu, Diamond,Sachs, etc.]: Exogenous factors(natural resources, climate, legal institutions brought through the colonization) =>institutions(mostly, property rights) =>economic performance.

9. An example: “The Reversal of Fortune” • The colonies that used to be rich 500 years ago, are the poorest countries for now. • It’s because the Europeans has established extractive institutions 5 centuries ago. • On the contrary, they were forced to established the institutions that promoted investments and the security of property rights for the colonies with poor initial endowment. [Acemoglu, 2002].

10. Why do the “bad” government and institutions arise? • Version 2. “Rent-seeking behavior of the power elites”: [Alesina& Rodrik, Persson & Tabellini, Engerman & Sokoloff, Glaeser, Galor, Sonin]: • Resources are scarce. Elites do have their own interests. That’s why they want to change the allocation and establish the institutions they need. • The established institutions may be advantageous to the elites, but not to the whole society. • A switch to other institutions can be blocked by the elites. Especially, when there’s a strong political and/or economical inequality.

11. Inequality and the economical growth • Inequality leads to the institutions that reflect the personal interests of the power elite. • When one man is much richer than another and the courts are corrupted, they will act in the interests of a richer man, but not in the interests of truth or economic effeciency. [Glaeser, 2003]. • Political inequality => property rights are not secured=> economic stagnation. Shemyakin’s court. An illustration for a fairy-tale. (copperplate, XVIII century. 

12. An example: «Railroads in Russia” • In the Tsarist Russia there was just 1 railroad line developed during 1825 -1855. • Just when the Crimean War was lost, Alexander II made an attempt to reform the society and switch to the industrial type of development. The government has started railroad system development [Acemoglu, 2006].

13. Conclusions: • External factors do affect the development of institutions and economic development. • However, the institutions are not static. They can be modified by the pressure groups that maximize their own utility (economical and political one). • The maximization of the social utility occurs when the interest of the power elites correlates with the interest society only. • On the other hand, the elite (or a part of it) can support a “bad” institution, if it corresponds with the elite’s pay-off. • Political and economical inequality decreases the investments in the human capital and damages the security of property rights. By turn, it affects the social welfare.

14. A long history of the forced labor • Free labor is just a type of various labor relations that became prevailing in the world’s economic history just a few centuries. • “[I]n the context of universal history, free labour, wage labour, is the peculiar institution” [Finley]. • Forced labor was widespread not only in Russia and Eastern Europe, but also in England and France[Stanziani]. • So why did it took place in various times and places?

15. Forced labor: institutional perspective Serfdom and the forced labor contradict the notion of a “good” institution. • No competitive labor market. The lord (slave-owner) is a local monopsonist, who sets the price of the labor and appropriates the slave’s surplus. • Peasant’s property rights are weak and are combined with strong duties (and even a punishment). • Loss from the agency problem. Relatively primitive labor contract (corvee – “barshina”) with a lord’s control needed and no incentives for the peasant. Nevertheless, various historical examples testify that not-free labor can be more productive, so it may be preferred by a single social group and even the whole society.

16. Example 1. Slavery in the US • Slavery agriculture of the Southern states was 35% more efficient than the free agriculture of the North. [Fogel, Engereman].

17. Example 2: Serfdom in Russia • Despite many arguments that the serfdom was demolished because of its non-efficiency, it was profitable to the landowners even in the mid of the 19th century. That’s why they blocked institutional reforms [Domar, Machina]. • Serfdom decreases landowner’s transaction costs (e.g. hire new peasants, maintenance of a contract).

18. Why does the serfdom arise? • Version 1. [Klyuchevskiy, Niboer, Domar]: Low labor/land ratio =>high labor costs decreases landowners’ rent=> it’s a threat to the whole government and its securuty =>serfdom appears. • However, serfdom doesn’t arise at some historical cases (the Plague in Europe, colonization of the North America) even there’s lot of free land and few people to work it [Brenner, Krugman].

19. Why does the serfdom arise? • Version 2. [Kahan, Conning, Lagelof, Rosa]: Power elites choose the institutions in their favor and establish monopsony on the labor market to increase their profits. The cartel is formed. Recent papers: • Conning J. “On ‘The Causes of Slavery or Serfdom and the Roads to Agrarian Capitalism: Domar’s Hypothesis Revisited”, 2004 • Lagerlof N.-P. “SlaveryandOtherPropertyRights, 2009 • Rosa J.-J., “Freedom and Serfdom: Domar’s puzzle revisited, 2009

20. The emergence of the serfdom in Russia in the 16th century: brief overview • Economy: The Moscowian princes support the class of landed gentry and government “pomest’e” land ownership. At the same time they try to undermine the power of major landowners (the Church, boyars, local princes) and decrease the amount of private hereditary lands. • Politics: Ivan the Terrible stops advising with the nobility for political matters and becomes the only ruler at the State. He’s able to develop the institutions that maximize his rent and the pay-offs of the landed gentry. • The result: The kind of “political collusion” is formed. The Tsar and the landed gentry can exercise their power on the labor market by introducing the serfdom.

21. Let’s compare the background of these persons

22. XVI century: the crossroads

23. Our logic: • The Tsar and the landed gentry developed a social contract. • The government enforces serfdom and let the gentry extract an additional surplus by establishing a monopsony on the labor market. • In exchange the gentry is obliged to provide the government with a military service and agrees to weaken their land property rights andpolitic rights. • To support the historical evidence and previous economic researches let’s show that the serfdom is more likely to be introduced, if there’s: • Abundance of land (resources) • Increase of the price of products • Political inequality enforces the serfdom as social contract and leads to the path-dependence.

24. Serfdom as a monopsony • The social contract results in the decrease of labor used in the economy: from L’ to L. • The wage decreases from w’ to w. • There’s a deadweight loss in the economy. • However, the land gentry is now able to extract peasants’ surplus. • Let’s see, when the contract can be established.

25. Step 1. Monopsony’s profit maximization • Production function: Q = S*L - L2 • Labor supply: W=L • Profit maximization of a monopsonist: • Then, we can find: • and

26. Step 2. Nash Equilibrium in the serf-based economy • Let A denote the net revenue of a monopsonist(which is equal to π) when the social contract is enforced and the landlors are able to extract peasants’ surplus. • There are n landlords who can share A in between them. • Let F denote the costs of a social contract for landed gentry which are now obliged to be on the military service. • Landlords compare their pay-off’s with and without the social contracted enforced. • The serfdom will be the Nash Equilibrium for landlords, if • The lower the landlord’s discount factor σ* is, the more likely the introduction of serfdom is. • Let’s see what does affect σ* and how that lead to different institutional results.

27. Step 3. Factors that affect the equilibrium • The landlord’s discount factor is • The lower the σ* is, the more probable the introduction of serfdom is. • If S (land) ↑, then A (monopsonist’s profit)↑, σ*↓and the serfdom is more likely to be introduced (the emergence of serfdom in Russia in the 16th century). • If P↑, then A↑, σ*↓and the serfdom is more likely to be introduced (“second serfdom in Eastern Europe”).

28. Results and next steps • Serfdom can be viewed as a social contract between the landed gentry and the Tsar. • That’s why the introduction of serfdom as labor monopsony of landed gentry is connected with the development of the Tsar’s property rights in land. • Serfdom is more likely to be the Nash equilibrium, when • P (price of the product) and S (land) are relatively high as predicted by the previous observations. • Political inequality makes the “rules of the game” unchangeable. The Tsar and the only ruling party (landed gentry) can’t be forced to switch to another institution by any other internal political force. That lead to path-dependence. • Introduction of a new parameter called “political inequality” to this model can be a next step to explore the problem.

29. Historical parallels