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Konrad Hagedorn Humboldt University of Berlin, Department of Agricultural Economics and Social Sciences

Nearly ten years ago, transformation of the political and economic system started in the Central and Eastern European countries and at that point in time people in the former socialist societies were disappointed because of the failure of the old system, and most of them may simultaneously have had great expectations for the new system which was still to come. Hopes and fears, discouragement and new motivation were somehow mixed together. The struggles and upheavals which led to the fundamental changes in institutions and policies differed from country to country and were accompanied by tremendous insecurities. However, two points seemed to be rather clear for the politicians and the political advisors in transition countries:

1. The frame of reference for transforming the centrally planned economies had to be the western societies and economies because they had proven to be more successful. As a consequence, the rules and institutions of western democracies and economies, above all market mechanisms, had to be introduced.

2. Because of this clear objective, most of the politicians and economists were convinced that this change would be feasible within a limited number of years although it would take some time to complete the transformation. Only a few people predicted that there would be tremendous difficulties connected with the task of transforming deeply rooted norms, habits and informal institutions.

However, there is a German saying which goes: "Wenn man vom Rathaus kommt, ist man klüger". This means: "When you return from the town hall you are more clever". As far as the second point I mentioned is concerned, many of us were surprised how difficult and how slowly transformation of agriculture turned out to be.

In particular, the discussions among agricultural economists first focused predominantly on the farm level, and they mainly raised two questions related to the transaction costs economics of farm enterprises:

(a) Which farm size will emerge? To what extent will decreasing production costs - due to economies of scale - be accompanied by likewise decreasing transaction costs or, on the contrary, be outweighed by progressively increasing transaction costs?

(b) Which organizational structure of farming will be the most competitive, if production co-operatives, limited companies, joint-stock companies, partnerships, for example, are compared with family farms?

Then, however, many authorities recognized that this conception was incomplete: Which system of agricultural production will be dominant depends not only on the transaction costs in the farm enterprises. The level of transaction costs within these economic units is interrelated with the level of transaction costs in other areas of economic activity which are in permanent interaction with farms. Accordingly, institutional solutions to reduce transaction costs of agricultural production also have to take into account product markets, factor markets, the farm family, institutions to internalize external effects (with special reference to environmental problems), training and education institutions, price information systems, extension systems and many other agrarian institutions.

Nevertheless, yet another issue was more or less excluded. The evolution of agrarian institutions still appeared to be a question of minimising transaction costs by means of self-organization within the domain of private action. If this were true, the political economy of collective action would not play any role in this process. Since agricultural policies are strongly influenced by group interests, this assumption had to be dropped and political determinants of institutional change of socialist agricultural systems became a part of the game: electoral control and party competition, interpretation systems for legitimating agricultural policies, collective action by interest groups, coalition building, log rolling, bureaucracy, negotiation processes, only to mention some examples.

In other words, it may be reasonable to solely consider the farm unit as a transaction-cost saving entity if we are in a well-developed and stable agricultural sector which is not affected by major changes due to structural adjustment or reform policies. In a period of fundamental transformation of the farm sector, however, the whole network of relationships has to be taken into account. But after we have learned that we have to consider the whole network of interrelationships between the many institutional and political elements, what does this mean for the feasibility of transformation? This means that - if we take an idealistic view - all elements and relationships within the institutional network must change in a harmonious manner when passing from collective or state ownership to private land ownership or from collectivized to de-collectivized agricultural structures. Some of the components may have to change quickly, others more slowly, some may have to be reformed in early, others in later stages of the process. This depends on the question of what kind of evolutionary interaction will maintain and improve the workability of the system. Furthermore, this means that all actors in the various parts of the system must be willing and must be able to perform these changes in a coordinated or even co-operative way and do not act against the transformation process. Most of the difficulties in the transformation process can be explained by the fact that such a harmonious change is nearly impossible.

As far as the first point I mentioned earlier is concerned, as a frame of reference for transforming Central and Eastern European countries, Western economies and societies appear to be a less reliable model which can be copied without any modification and additional considerations. This is due to the fundamental insight that the systems developed in the Western countries are not in accordance with the requirements of sustainability. In other words, not only the Central and Eastern European economies have to be transformed, but also the Western economies need fundamental transformation towards sustainability and, up to now, nobody has refuted the hypothesis that this transformation towards sustainability may be even more fundamental and more difficult than the transitions taking place in the former centrally planned economies.

In fact, the changes required to achieve sustainability may have been underestimated. This can easily be explained if we refer to Herman Daly, an ecological economist from Maryland, who likes to point out, as he for instance did in his book "Beyond Growth", that we as economists do have a stop rule in microeconomics, but have forgotten to establish a similar stop rule in the macroeconomic sphere. In microeconomics, we often have to make decisions on how far we should extend economic activity by applying the principle of equalising marginal costs and marginal yields. However, in macroeconomics we usually recommend maximizing economic growth and do not apply a similar stop rule. This appears to be only rational, because we conceive of the economy as being the only entity we have to take into account, an entity which has no relationships with other entities in our society.

But this is not the case. We all know that besides the economy there is the social system, the cultural system and above all ecological systems, nature and landscape. And, in principle, we also know that marginal gains in the economy are, in most cases, linked to marginal costs in the other areas I have just mentioned: loss of social cohesion and social hardship, destruction of natural capital and disturbances in the functions of the ecosystems, negative impacts on culture and on the identity of people concerned. Instead of concentrating on economic growth, decision makers should change to an integrated view on these different spheres of human activity and human well-being. And this integrating view is what environmental and ecological economists mean by "sustainability".

Sustainability as a new paradigm may also serve as the leading principle of our network. What is this network supposed to be: CEESA, that means Central and Eastern European Sustainable Agricultural Network, is intended to focus on countries in transition and to discuss the topic sustainable agriculture in these countries. It consists of agricultural and environmental or ecological economists and social scientists and it will hopefully stimulate research and communication among the members of the network and develop co-operative relationships with many groups and actors.

We will go into more detail about the goals and the structure of the network in the next session, but before doing so I would like to thank all those who helped to establish the network and made this first workshop possible. First of all, I would like to express my gratitude to Stjepan Tanic and all those people involved from the FAO/SEUR Budapest for providing the financial and organizational pre-requisites for this workshop. I am very grateful that we found such a friendly and constructive partner for the first step of the network's activities. I also want to thank the staff of the Institute of Environmental and Landscape Management from Gödöllö Agricultural University, in particular Laszlo Podmanicky, who acted as local organizer of this workshop and has done a lot of work in preparing this meeting. Let me also address all those of you who have prepared country reports and other papers for this workshop. We appreciate your co-operation very much. Without your papers about the situation in the participating countries we would have no basis for our discussion. And last but not least let me mention the organising group from our institute at Humboldt University, the Department of Agricultural Economics and Social Sciences and, above all, Ms Antonia Lütteken, who is a PhD student of mine and has very enthusiastically developed the idea of this network and has done most of the preparations in Berlin. She has received support from two people who have recently joined the group. These are Mrs Renate Judis and Ms Beate Holthusen, who are also involved in the sessions, in particular in activities of moderation and documentation.

I wish and I think, that we will have a very fruitful workshop, and that this will be the start of a co-operative network and that in the end we will have produced some results which can contribute to both scientific progress and applied solutions to our problems as well.

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