Embedded institutions and the persistence of large farms in Russia

Differences in farm structures between Russia and western market economies can hardly be made consistent with the neoclassical textbook idea of a technologically determined farm size operating in a perfect market environment. The main aim of the paper is to identify embedded institutions that provide an explanation for the persistent differences. It is shown that these institutions vary widely across countries. We argue that the historical contingency of a patrimonial society that is both hierarchical and egalitarian also has an important bearing on the current persistence of large farming structures in Russia. The cultural beliefs based on this contingency explain the relative absence of entrepreneurial attitude in the rural society, the lack of trust in formal transactions with strangers, and the unwillingness to deviate from collective behaviour. Managers of former collective farms together with regional government authorities had strong incentives to secure their status-quo rents by inhibiting individualisation in agriculture. In addition, based on their ideological background in communism and their lifelong experience, many of them simply could not imagine how food security and social safety in the countryside should be provided without large farms. It is argued that the evolution of super-large farms could only arise because cooperative and corporate farms survived up to bankruptcy and because embedded institutions impeded the foundation of family farms. Mental models of policy makers did contribute to the amalgamation of corporations and cooperatives into super-large farms. The paper ends with an evaluation from the economic point of view of the existence of super-large farms and with a projection of what may happen in the future.