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Ack! Another Libertarian Apologist For Oligarchs!

You’ve heard about the Russian “oligarchs,” right? They’re the richest men in Russia. The insinuation is almost invariably that they owe their riches not to entrepreneurial ability, but to political connections. It’s not “what you know,” but “who you know,” right? If this theory were true, you would expect the oligarchs to have unusual demographics […]

You’ve heard about the Russian “oligarchs,” right? They’re the richest men in Russia. The insinuation is almost invariably that they owe their riches not to entrepreneurial ability, but to political connections. It’s not “what you know,” but “who you know,” right?

If this theory were true, you would expect the oligarchs to have unusual demographics for business leaders. In particular, they should be:

 

  • Unusually likely to have been important members of the Communist Party before they went into business.  
  • Unusually unlikely to come from groups – like Jews and Armenians – known around the world for their entrepreneurial talent. Both predictions are wrong.Most of the oligarchs are too young to have been Communist Party bigwigs. As one interesting paper explains, “Most of the individuals… are relatively young: nine of them are in their 30s, and 13 are in their 40s.” The older oligarchs generally had Communist backgrounds, but were hardly leading figures in the Party: “The older oligarchs have typically come from Soviet-era nomenklatura. Prior to transition, they were either managing the respective enterprises or working in government agencies supervising the enterprises, and when the Soviet-era firms were privatized, they converted their de facto control into ownership rights.” 
  • Even more striking: The oligarchs are disproportionately Jewish. 90% of Russian Jews have left the country over the last 30 years, but 6 out of the 7 leading oligarchs have Jewish ancestry. This would be hard to explain if their success were primarily due to political connections – but expected if their success largely reflected entrepreneurial ability.

    Of course, in a corrupt and chaotic environment like post-Communist Russia, no successful businessman is going to have a perfectly clean record. You’ve got to compromise with the system to get by, and cut corners to get ahead. The real question is: “How much of the oligarchs’ success stems from entrepreneurial ability, and how much from political connections?” Demographic information alone can’t resolve the question, but it does tilt the scales in the direction of ability. ~Bryan Caplan, EconLog

    Via Steve Sailer

    Mr. Sailer does a good job pointing out the crooked and corrupt way that many of these oligarchs acquired their incredibly vast fortunes (as a friend of mine reminded me as we were going to church this past Sunday, Moscow has the most billionaires of any city in the world–and it aint because they’re the most entrepreneurial folks on the planet).  He answers the silly “where are all the Communists?” line like this:

    Bryan, Yeltsin overthrew Communist Party rule when he came to power. His runoff opponent in 1996 was Gennady Zyuganov, a Communist.  Of course, the crooks Yeltsin turned to to finance his re-election campaign in return for his handing them much of the newly privatized national industries of Russia (through the loans-for-shares rigged auctions) tended to be newer men. They had frequently been clever fixers and black marketeers whose machinations had been tolerated under the Communists. But they hadn’t wormed their way into the heart of political favor until Yeltsin’s anti-Communist regime.
     

    A little history never hurts to save us from the sophisters and the economists.  The privatisation process was, of course, notorious for unleashing criminality and the sell-off of national companies for a pittance which, particularly in the energy sector, the oligarchs used to build their private empires and finance their criminal (I’m sorry, I mean entrepreneurial!) enterprises.  This is not a secret.  This is not something that anti-market propagandists have invented to discredit the glorious Invisible Backhands delivered to the face of the Russian people, but has demonstrated to all and sundry that the private sector without the rule of law is nothing better than predatory capitalism with corruption and cronyism smoothing the path before those with power and connections. 

    In some ways, this has not changed under Putin, because those who got the ill-gotten gains have largely kept them, except when they got in Putin’s way (see below), but instead of those with connections with “the family” of Yeltsin benefiting the most those tied into the siloviki of the intelligence and security services are dominant.  All I can say is that you can consider these people entrepreneurial only in the sense that Al Capone was entrepreneurial.  Someday someone will be able to explain to me why some libertarians can look past the crimes of such people because these are the fruits of “the market” while they will scream bloody murder about state oppression if they encounter a particularly haughty meter maid (this is only a slight exaggeration). 

    For some reason, mostly because of the agitations of criminals like Boris Berezovsky and their friends in high places in this country (see The Wall Street Journal), oligarchs are somehow seen as being equivalent to the “robber barons” or even protectors of Russian freedom (!) against Putin the autocrat.  (Now Putin is a democratic authoritarian who does all sorts of untoward things against the opposition and the free media, and there are all kinds of problems with that kind of rule, but ordinary Russians find it more desirable than being ripped apart by jackals in a lawless free-for-all and no wonder.)  Now our “robber barons” were not exactly princes, and the strange libertarian and modern conservative adulation of American plutocrats is a subject worthy of an entire book, but to liken the Berezovskys and the Rockefellers is to insult the latter.  Our plutocrats exploited political connections in a way that drove many ordinary 19th century Americans crazy, and often had the laws shaped to suit their interests as much as they could, but they were still subject to the law in a way that never applied to the oligarchs in the ’90s.  It wasn’t so much that they were the law, as that the law was powerless to check them once they had acquired their massive holdings through chicanery (and they also tended to be chummy with the people in the Kremlin, which made the law worse than powerless).  

    People in the West complain about the rough treatment of Khodorkovsky–not really because they think he is innocent of the crimes of which he was accused and convicted (tax evasion being the big one–just like Capone!), because they know that probably isn’t true, but because he is anti-Putin (and a political “liberal”) and was supposed to have been protected by the understanding Putin had with the oligarchs that he would not dig too deeply into the crimes of privatisation (since it would mean he would have to go after essentially all of them).  He has made exceptions for those oligarchs brave or stupid enough to make challenges to Putin’s hold on power and treated them as any good authoritarian would treat a rival to the throne–he throws them in prison.  It makes you remember the good old days of Byzantium, does it not?  But before we get too misty-eyed, let’s move on.

    For those still inclined to feel sorry for the poor, abused Mr. Khodorkovsky, consider this from Mr. Sailer’s post:

    But being Yeltsin’s bankroller was lucrative indeed. Khodorkovsky, for example, bought about 1% of the world’s oil reserves for $159 million in an auction that he himself ran for the Russian government! (He’s currently serving 9 years in prison for tax evasion.) Similarly, Roman Abramovich bought the giant Sibneft oil company for $100 million. The Russian government recently bought 73% of it back from Abramovich for $13 billion.

    Khodorkovsky and Abramovich didn’t discover the oil or pump it out of the ground as Caplan imagines – they just bought proven reserves in rigged auctions. I’m sure they are talented wheeler-dealers, but they aren’t exactly Henry Ford or Thomas Alva Edison when it comes to increasing national productivity.

    As has been noted elsewhere, privatisation is always inevitably a political process, and in Russia it was particularly advantageous to have connections to or to be the ones deciding on who won these auctions, since the energy businesses these men acquired for relatively low cost were extremely lucrative and guaranteed to make back  instantly what they had paid for them.  This makes them very clever and very, very rich, but it does not make them into Andrew Carnegie.

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