Russia's Oligarchs

Russia has not been as front and center in western news and political conversation since perhaps the Cold War. With their involvement in foreign elections, possible collusion with the Trump campaign, and the indictment of political operative Paul Manafort, Russia is grabbing headlines left and right. But the Russia we see now in the 21st century is far different from the Russia we saw back in the 50’s and 60’s. Oligarchs have risen to prominence in Russia. As attention turns towards Russia, many can not help but become intrigued by their ever powerful and wealthy elite. An oligarch is a member of an oligarchy; which Oxford Dictionaries define as “a small group of people having control of a country or organization”. How did such a concentrated group of individuals become so rich whilst the rest of the country remained relatively poor by western standards? It seems especially ironic that such a process would take place in the country that used to profess total equality through centrally planned economies and communism. It is the breakdown of that economic style, and transition from a planned economy to a market economy that funneled such great wealth to only a well-connected few. The story of how Russian oligarchs came to be is the story of privatization in Russia.

Beginning in the late 1980’s under President Gorbachev, the Soviet Union realized that if it wanted to catch up to the economic might of the US and Western Europe, it would have to implement more capitalist policies. Yet it was with the collapse of the Soviet Union that Russia privatized its assets, moving ownership from the government to the public sector. This process, referred to as Voucher Privatization or “loans for shares”, was how the government privatized its means of production and simultaneously gave birth to the Russian oligarchs we see today. Business Insider’s senior finance correspondent Linette Lopez describes the process as follows: “Russian banks lent the government money in exchange for temporary stakes in state-owned companies. If the government defaulted on its loan [which it did], the banks got to keep their stakes.”

Two important components of this process led to the formation of an extremely wealthy few. Firstly, no foreign investors were allowed to acquire these shares. Secondly, the Russian government picked certain banks to facilitate the auctions of these state-owned companies, often giving those banks the advantage of winning ownership of the most valuable assets for very good deals. As the executives of these Russian banks gained more and more of these companies, they used their power to coerce less wealthy people to sell their shares upwards to them. Thus, the mountains of wealth formed and the valleys below dried out. Pre-established Russian businessmen rode the wave of capitalism through Russia and Eastern Europe, today finding themselves among the wealthiest people in the world.

Moscow is home to almost 70 billionaires. The only cities to top this many billionaires world-wide are Hong Kong and New York. Russian citizens are paying the price for having so many oligarchs. This extremely wealthy top 1% owns over two-thirds of the country’s total wealth. The bottom 10%, composed of 20 million people, lives below the national poverty line (200 USD per month). In response to the verdict on election meddling, the US Treasury Department released a list of “senior political figures and oligarchs in the Russian Federation”. Of the 114 people on the list, 96 of them were oligarchs. The richest of them all is a man named Aleksey Mordashov. With investments in Russia’s largest tourism, mining, and engineering companies, among other things, Forbes values his net worth at approximately 19.6 billion USD. With a GDP per capita of 8,748 USD, that means Mordashov has accumulated wealth worth 2,240,420 times more than what the average Russian citizen spends in a year.

Aleksey Mordashov, net worth 19.6 billion USD. || The Telegraph.

Aleksey Mordashov, net worth 19.6 billion USD. || The Telegraph.

Such stark inequality has fueled an all-too-familiar communist and anti-elitist populism in Russia. The rise to power of Vladimir Putin has pushed back against the political might of the oligarchs, but has not necessarily attempted to reallocate their wealth. Shortly after Putin rose to power in the early 2000s, he had the billionaire oligarch Mikhail Khodorkovsky arrested and thrown in jail. This was “widely interpreted as a declaration of war against the so-called oligarchs” (Foreign Affairs). So the war between Putin and the politically inclined oligarchs began. The deal that Putin would leave the oligarchs’ business dealings alone if they remained out of the political realm did not last long. Oligarchs with media empires, such as Vladimir Gusinsky, used their influence over the nation’s news outlets to attack Putin. But Putin was determined to not be overpowered, thus yielding the government’s authority, Putin furtively threatened his challengers. He issued “charges of underpayment, tax evasion, bribery, [and] murder” against them, warning the result would be either exile or jail-time. The current state of affairs between Putin’s government and Russian oligarchs remains mutually hostile, as Putin and his government continue to believe that these oligarchs obtained their wealth through the flawed process of “loans for shares” back in the 1990’s.

The future of Russian oligarchs may seem dim, but nothing is for sure. All that is for certain is the fact that they continue to rank among the wealthiest and most captivating individuals in modern history.