Экономические науки/14. Экономическая теория

Oleksandr Virchenko, post-graduate student

economic faculty of Taras Shevchenko National University of Kyiv

department of economic theory

Key problems of Land Market Formation in Ukraine

Land market formation can lead to such a serious threat for Ukrainian economy, as generating a new model of land market - a virtual market, in which planning expectations are unconnected with real current demand and attain an inordinate role, siphoning off capital which will thus become unproductive, or which will be non-taxable if the money is black [2].

Land market formation can be considered as a final stage of national economy liberalization. Therefore, this process can lead to serious problems in land ownership and land redistribution, while decreasing role of government in land use regulation. Moratorium on land sale will soon be repealed in Ukraine and agricultural land market will start functioning [1]. Sure enough, legal basis, land condition, as well as the condition of land improvement systems and facilities should have been well prepared by that time – which is still arguable question. Uncertainty about results of land market formation in Ukraine causes necessity for detailed research of possible consequences, opportunities and threats of land reform.

Problems of land use and land market formation considered in scientific papers of Pavlo Sabluk, William H. Scofield, Stephen K. Wegren, Jim Higgins, Emery N. Castle. Wide range of issues concerning land tenure and land distribution was researched by Edward F. Renshaw, Frank H. Maier, Robert Innes, William G. Murray.

Land market formation in Ukraine aimed for more efficient agricultural land use by redistributing land to more efficient landowners. Meanwhile current economic situation demonstrates negative trends in land tenure and land use. Ukrainian capitalism model creates favorable conditions for land concentration by financial groups. In other words, there is a possibility of large-scale merger and acquisition between financial, industrial and agricultural capital while monopolizing land market because of market failures, unadjusted by the government.

Land market should establish and defend private land ownership as a traditional triad – full juridical faculty.

Current situation illustrates controversial trend in Ukrainian economy - land market formation while unprofitable agricultural production. And this problem can’t be solved only with mortgage or bankruptcy procedures.

Land market formation may transform to land redistribution to more efficient landowners only whereas fully unadjusted by government land market will be imbalanced with demand-supply land pricing. Meanwhile, land as a strategic resource would be underestimated [3].

Besides that, global financial crisis demonstrates possibility of land market “overheating” with derivative operations and mortgage.

Typical problems of land reform and land market formation are:

- land reform usually conducts administratively and land distribution decisions makes not by the market but by bureaucratic procedures. Therefore, in the rural sphere, for example, farm members can be given equal land shares, irrespective of the recipient's age, ability to use the land, or skill level. Such approach can lead to inefficient land redistribution and high social and pension costs in agricultural sector, thus creating a heavy burden on agricultural enterprises' budgets and exacerbating their financial condition;

- non-use of rights conferred on land owners (taking into account previous problem, we must admit, that right to sell land shares is often not utilizes for a variety of reasons). One reason is that in most cases land shares remains little more than a paper entitlement. Another reason is related to the demographic problem discussed above: persons of pension age often do nothing with received land shares, thus freezing the land reform process. Moreover, even if a person obtains physical possession of a land plot, the tendency is to use it to meet subsistence needs;

- land use is often regulated. Typically legislation creates a number of restrictions on land use – it obligates the land user to meet certain requirements: to cultivate agricultural land and not to let it lie idle, to use agricultural land for agricultural purposes only and to maintain the land's fertility [4];

- possible land use conversion, large-scale transformation of agricultural land into urban or suburban land.

Colossal land improvement program in Ukraine failed to meet the expectations. Therefore, land market formation in Ukraine placed a number of specific problems in front of land improvement, related to such specific features of the sector as natural monopoly, considerable dependence on governmental funding, insufficient development of self-sustaining and contractual relations between water supply organizations and manufacturers.

Land reform policy in Ukraine also reveals key false beliefs, which can lead to unsuccessful results. For example, the erroneous assumption that land restitution and private ownership of the land could by themselves solve the problems of low labor productivity definitely needs to be compared with foreign experience. The paradoxical resilience of the idea that large farm size is an ideal form of organization of production in agriculture, and the only one capable of capturing economies of scale in agriculture also can lead to numerous mistakes, such as imbalanced infrastructure of agricultural market. The misplaced belief that rural markets, for example, for labor, and capital, were to emerge naturally as a result of the reintroduction of private property rights over land can lead to unreasonable land policy. Another false belief is a compartmentalized view of the economy, with the consequent view that agricultural policies can be designed in isolation from the policies concerning other sectors of the economy [5].

In general, strategic role of land market in Ukraine stipulates active governmental participation in land ownership and land use regulation. For example, government should establish special fiscal regimes for agricultural land sales on derivative market and prohibit conversion of agricultural land to urban land, while stimulating exhausted land purchasing. Government should provide sound land cadastre management and monitoring of such indices as: land exhaustion, soil depletion, land development and land reclamation. Also, information system development for registration, arbitrage, controlling of land sale and lend lease [6] and avoiding of market shocks, overestimation of assets, fictitious capital expansion, derivative “overheating” of land market should help to stabilize land market.

Conclusion. Land market formation in Ukraine strongly influenced by different contradictions such as: liberalization of land market while unprofitable agricultural production, active use of derivative instruments under global financial crisis, total large-scale transformation of agricultural land into urban or suburban land etc.

Private land ownership abridgement, responsibility for improper land use and land conversion, restriction of TNC participation in land concentration is a subject for further researches.

1. Kozhushko L. F., Velesik T. A. Land Improvement and Land Market Formation / Kozhushko L. F., Velesik T. A.// Rural Development, 2009. - p. 234-239.

2. Wegren S.K. Land Reform and the Land Market in Russia: Operation, Constraints and Prospects / Wegren S.K.// Europe-Asia Studies, No. 6, 1997. - Vol. 49. - p. 959-987.

3. Murray W.G. Land Market Regulations / Murray W.G.// Journal of Farm Economics, 1943. - Vol. 25. - p. 203-218.

4. Castle E.N. The Market Mechanism, Externalities, and Land Economics / Castle E.N.// Journal of Farm Economics, No. 3, 1965. - Vol. 47. - p. 542-556.

5. Aligica P.D., Dabu A. Land Reform and Agricultural Reform Policies in Romania's Transition to the Market Economy: Overview and Assessment / Aligica P.D., Dabu A.// Eastern European Economics, No. 5, 2003. - Vol. 41. - p. 49-69.

6. Maier F. Prevailing Land Market Forces / Maier F.// Journal of Farm Economics, No. 5, 1957. - Vol. 39. - p. 1510-1513.