Putin’s Oligarchs and Yeltsin’s Oligarchs: All the Same?

Vladimir Putin’s summer 2019 interview with the Financial Times understandably attracted lots of attention. It seemed that just about everybody felt the need to respond. Many commentators have focused on Putin’s intentionally insulting comments regarding migrants, as well as his “end of multiculturalism” statement.

Still others seized on what Putin said with regard to Russian oligarchs.

It is with the latter one that I would like to deal. Asked if there are oligarchs in Russia, Putin boldly claimed that there were none:

We do not have oligarchs anymore. Oligarchs are those who use their proximity to the authorities to receive super profits. We have large companies, private ones or with government participation. But I do not know of any large companies that get preferential treatment from being close to the authorities.

Contradicting the facts

His statement is, of course, in manifest contradiction of the facts. The names of the richest Russians are not a secret, and almost all of them are in one way or another linked with the state — and often with Putin personally.

Caroline Freund, in her book “Rich People, Poor Countries,” shows that in 2014 63% of Russian billionaires’ wealth came from dubious sources such as privatization schemes, mineral resource wealth (which is almost always connected with state-given privileges) and outright political connections.

In comparison, the equivalent figure in Latin America is only 8.8% and in OECD countries 4.2%.

Thus, Putin’s statement is wrong factually. Yet, in a different sense, it contains some truth. The term oligarch can be applied to two different types of powerful rich people.

Putin oligarchs

The Putin oligarchs are billionaires who “serve” at the discretion of the state. As a Russian commentator once said, they should all consider themselves to be temporary custodians of their wealth.

If and when they fall from grace with the regime, they could be stripped of their assets either through dubious legal proceedings or, if needed, more forcefully by being imprisoned.

The original kind of Yeltsin-type oligarchs, who “popularized” the term, were different. These oligarchs owned the state. The state essentially existed only at their discretion.

Roving bandits

At the peak of their power after Yeltsin’s reelection in 1996, which they had helped him win (in the deal that led to the infamous “loans for shares” trade), the oligarchs effectively controlled Yeltsin as well as practically all of the levers of state power.

Since the oligarchs also jockeyed for power among themselves (with some being allied with the military, others controlling natural monopolies, and a third group having their own media), Russia at the end of the 1990s was a country on the verge of civil war.

In fact, it stood not so far from where Libya stands today. Under that “regime,” life expectancy fell from 69 to 64.5 years — the largest decline in life expectancy ever recorded in peacetime. It was today’s U.S. opioid crisis multiplied by a factor of ten or more.

Russia was a country that was ruled, to borrow Mancur Olson’s terminology, by roving bandits. What Putin accomplished through reining in these roving bandit oligarchs was to create a system of stationary bandits.

Their wealth depends on proximity to the state. As with every stationary bandit, they have more of an interest in the strength of the state and the welfare of its population simply because their welfare is more closely intertwined with their own.

It is in that sense that Putin’s oligarchs represent an improvement. Since foreign commentators do not necessarily have to live in countries on whose democratic records they write, they are often wont to confound the two types of oligarchs.

But for people who have to live under the two alternative regimes (i.e. roving or stationary bandits), the choice is rather simple.

Random violence

It is a choice of living in a state of incipient civil war. Hence, on any given day, you do not know what might happen to your children in school, where you could be randomly beaten up in the street, abducted by different private militias or evicted from your home by one mafia today and another tomorrow.

Of course, the same things can happen under the centralized kleptocratic regime (such as Putin’s), but there these things happen with a certain “logic” and “order.” Differently put, under Putin, punishment is exacted for political disobedience and the rules of conduct are well known.

In the system of disorderly roving bandits, punishment can be meted out randomly, or can be done for entirely different actions or reasons—some of which may displease one baron/bandit but not another.

Under a chaotic system such as Yeltsin’s, violence can come from any direction, for any reason and at any time.

To the outside observer, the system of random violence might seem more democratic. This is because foreign observers are exempt from it, as indeed foreigners were exempt during Russia’s “decade of humiliation.”

There are indeed alternative centers of power in competition with each other. There is also freedom of speech. One media empire owned by one baron may well attack the media empire owned by another baron. There thus appears to be political life, despite the absence of the rule of law, rampant corruption and physical insecurity.

The system of stationary bandits is monochromatic by comparison, but for people who live under it, it is more predictable and much safer.

Global implications

It is no surprise that most ordinary people will prefer stability over chaos, predictable violence over random violence and some administration of justice over none.