A New Institutional Approach to Entrepreneurship and Inequality in Rural Russian Villages: Survey Findings from 1991 t

1. A New Institutional Approach to Entrepreneurship and Inequality in Rural Russian Villages: Survey Findings from 1991 to 2006* David J. O’Brien Department of Rural Sociology Division of Applied Social Sciences University of Missouri-Columbia Columbia, MO 65211, USA obriendj@missouri.edu Presented at the Meetings of the Association for Slavic, East European and Eurasian Studies – Los Angeles, California, November 18-21, 2010 * The following provided funding for different portions of the research reported in this paper: The National Science Foundation USA, The Ford Foundation, the National Council on East European and Eurasian Research, IREX, the Moscow Public Interest Fund, The University of Missouri, Southern Methodist University and the Russian Academy of Sciences

2. Institutional Change and Inequality in Post-Soviet Rural Russia • The introduction of Market Reforms as a “Natural Experiment” in the relative impact of formal versus informal institutions on entrepreneurship and stratification in post-Communist societies • New Institutional Economics focuses on the role of formal institutional arrangements on entrepreneurship and inequality • New Institutional Sociology focus on the role of informal institutional arrangement on entrepreneurship and inequality • Household survey data shows the precise time frame within which these different institutional elements impact on entrepreneurship and stratification in rural Russian villages

3. New Institutional Approaches to Stratification • New Institutionalism is an Alternative to Traditional Approaches of Economists and Sociologists to the Study of Economic Systems. • The New Institutional Paradigm is Helpful in Understanding How Stratification Systems Change as Entrepreneurial Opportunities emerge in Post-Communist Economies.

4. Core Elements in New Institutional Economics • NIE – New Institutional Economics retains the “rational individual” and the “methodological individualist” assumptions of neo-classical economics, but introduces institutional elements that affect the efficiency and certainty of contracts in the market place. • NIE focuses on Formal Institutional Elements – contracts, third party enforcement, transaction costs – that affect market performance • NIE sharpens our insights into ways in which changes in formal institutional elements during the reform period in Russia in the 1990s and first decade of the current century affect entrepreneurship and stratification in rural villages.

5. Core Elements in New Institutional Sociology • NIS – New Institutional Sociology retains the traditional sociological core belief in the importance of social relationships as explanatory variables, so that economic actions are assumed to be embedded in social relationships, but their research agenda also includes more “individualistic” and “rational choice” elements. • NIS sharpens our insights into the way in which informal social institutions affect the way that households respond to changes during the reform period in Russia.

6. NIE, NIS And Stratification in Post-Soviet Russia • NIE and NIS complement one another by focusing on the complex relationships Between formal and informal institutional elements • And how these, in turn, affect stratification in rural villages

7. Four Hypotheses from NIE & NIS • H1 In the absence of secure formal property rights informal institutional elements can be expected to play the dominant role in household entrepreneurship and inequality between households. • H2 As the formal institutions of a market economy become more legitimized, however, we would expect that entrepreneurship would become a relatively less important part of the overall rural household rural economy. • H3 More entrepreneurial, and more economically successful, households will be more apt than other households to utilize new formal institutional elements to support traditional informal institutional resources • H4 Economic inequalities between regions will be explained by the ability of each region to provide support for both new formal market institutional supports and traditional informal institutional supports supporting household enterprises

8. Support for Hypothesis 1- Informal Institutions Pick Up the Slack in a Weak Formal Institutional Environment

9. Evidence of Gradual Legitimization of New Formal Institutional Arrangements

10. Further Evidence of Stabilization

11. Further Evidence of Stabilization

12. Support for H2 - As Formal Institutions Become Legitimized, Entrepreneurship is Relatively less important in household Economies

13. Support for H3 - More Entrepreneurial Households will Utilize New Formal Institutional Elements to Support Traditional Informal Institutional Resources

14. Support for H3 – Regions that Provide Support for Both New Formal Market Institutional Supports and Traditional Informal Institutional Supports have Higher Mean Household Incomes • Low Income Regions – Krasnodar krai, Voronezh oblast; Medium Income Regions – Republic of Tartarstan, Kurgan oblast, Krasnoyarsk krai, Moscow oblast, Leningrad oblast; High Income Regions – Altai Krai and Amur oblast . • ANOVA of Per Capita Income by Region: F(2)=38.673, p<.001. Scheffe: middle income regions > low income regions; high income regions > middle income regions, p<.001. • ANOVA of Mean Household Salary and Wage Income by Region: F(2)=23.337, p<.001. Scheffe: middle and high income regions > low income regions, p<.001. • ANOVA of Mean Household Enterprise Income by Region: F(2)=14.249, p<.001. Scheffe: high income regions > low and medium income regions, p<.001.

15. Conclusion • The findings of the Russian Village Surveys illustrate that informal and formal institutional elements are not necessarily in competition but must be understood as playing different roles at different time periods in the process of market reforms. • Informal institutions that support a peasant household economy are the best predictors of both entrepreneurial activity and differentiation between households in the early phase of reform when formal institutional elements of a market economy are not fully legitimized. • But, as formal institutional elements become more legitimized, especially in the eyes of rural residents, they will begin to produce a “mixed” rural household economy, in which informal institutional elements become relatively less important than they were in the initial period of reform.

16. Conclusions continued • Households that take advantage of new formal institutional arrangements, especially land rental, will be substantially better off than their counterparts who rely exclusively on the informal institutional supports of the traditional peasant moral economy. • Local differences in creating institutional supports for a “mixed economy,” which depend on both informal and formal institutional foundations will produce substantial inequalities in mean household income levels between regions. • The complex relationships between formal and informal institutional change means that we need to develop empirical indicators that measure both “bottom up” informal institutional structures and processes as well as “top down” formal structures and processes imposed by governments over a considerable period of time.