The popular concept of the oligarch is now synonymous with the superyachts, sports washing and shady geopolitical manoeuvring of post-Soviet Russia, compounded by the rise to international prominence of Russian billionaires like Roman Abramovich, Alisher Usmanov, Boris Berezovsky and Oleg Deripaska over the last couple of decades.
But there’s nothing intrinsically Russian about the notion of oligarchy. Indeed, the word’s Greek etymology (oligarkhía) refers broadly to ‘the rule of a few’. More specifically, oligarchy implies power that is exercised through wealth. You might even conclude that oligarchies are borne of high-level corruption and democratic failure. Encyclopedia Britannica, for example, describes oligarchies as “a debased form of aristocracy”.
Nonetheless, while oligarchies are not inherently Russian, the concept has now become closely associated with the country. It conjures up images of opportunistic, well-connected businessmen who made billions by plundering the remains of the collapsed Soviet state and reinventing Russia as a haven for wild west capitalism.
But how exactly did Russia’s oligarchs get rich during the collapse of the Soviet Union?
Invariably, the Russian oligarchs who came to prominence in the 1990s were opportunists who took advantage of the messy, wildly corrupt market that emerged in Russia after the dissolution of the Soviet Union in 1991.
In the aftermath of the collapse of the USSR, the newly formed Russian government set about selling off Soviet assets to the public via a voucher privatisation program. Many of these Soviet state assets, including hugely valuable industrial, energy and financial concerns, were acquired by a clique of insiders who subsequently stashed their earnings in foreign bank accounts rather than investing it in the Russian economy.
The first generation of Russian oligarchs were mostly hustlers who had made their money on the black market or by seizing entrepreneurial opportunities in the late 1980s, when the Soviet Union began to loosen its stringent restrictions on private business practices. They were smart and wealthy enough to exploit a poorly organised privatisation program.
Arguably, in his haste to transition Russia into a market economy, Boris Yeltsin, the first President of the Russian Federation, helped to create a set of circumstances that perfectly suited the emergent oligarchy.
Assisted by the influential economist Anatoly Chubais, who was tasked with the role of overseeing the privatisation project, Yeltsin’s approach to transforming the Russian economy – a process that no one expected to be painless – was to deliver capitalism via economic ‘shock therapy’. This entailed the sudden release of price and currency controls. Though this approach was widely advocated by neoliberal economists and the International Monetary Fund (IMF), many felt that the transition should be more gradual.
In December 1991, price controls were lifted and Russia felt the first jolt of Yeltsin’s shock therapy. The country was plunged into a deep economic crisis. As a result, the soon-to-be oligarchs were able to take advantage of impoverished Russians and pay knockdown prices to amass huge quantities of privatisation scheme vouchers, which, lest we forget, were designed to deliver a distributed ownership model.
They were then able to use those vouchers to buy stocks in previously state-run firms, at extremely undervalued prices. Yeltsin’s accelerated privatisation process provided the first wave of Russian oligarchs with a golden opportunity to rapidly acquire controlling stakes in thousands of newly privatised companies. In effect, the ‘liberalisation’ of the Russian economy enabled a cabal of well-positioned insiders to become very rich, very quickly.
But that was only phase one. The transference of Russia’s most valuable state firms to the oligarchs carried on into the mid-1990s when a ‘Loans for Shares’ scheme was devised by the Yeltsin administration in an apparent act of collusion with some of the wealthiest oligarchs. At that point, the cash-strapped government needed to generate funds for Yeltsin’s 1996 re-election campaign and sought to secure multi-billion-dollar loans from the oligarchs in exchange for shares in numerous state-owned corporations.
When, as was anticipated, the government defaulted on those loans, the oligarchs, who had also agreed to help Yeltsin win re-election, retained a controlling stake in many of Russia’s most profitable organisations. Once again, a handful of tycoons were able to take advantage of an increasingly compromised privatisation process and seize control of hugely profitable state enterprises – including steel, mining, shipping and oil companies.
The plan worked. With the backing of his increasingly powerful lenders, who by that point controlled large swathes of the media, Yeltsin won re-election. At that moment a new power structure was confirmed in Russia: Yeltsin had transitioned the country into a market economy, but it was a deeply corrupt, cronyish form of capitalism that concentrated power in the hands of a few extraordinarily wealthy oligarchs.