Who are the Russian oligarchs and where do they come from?

On the 24^th of February, the president of the Russian Federation, Vladimir Putin, began the invasion of Ukraine, pursuing the announced objectives of “demilitarization” and “guarantee of neutrality” of the country. Rapidly, the European Union, articulated with the governments of the United Kingdom and the United States of America started imposing heavy economic sanctions on Russia, which affected the major owners of the economic activity in the country, the oligarchs. However, who are these oligarchs? Where do they come from?

In order to answer the first question, the article The Role of Oligarchs in Russian Capitalism (2005) by Sergei Guriev and Andre Rachinsky, describes what an oligarch is, what sectors of economy are under their control, and compares the Russian reality with other major economies. Sergei Guriev and Andre Rachinsky define the term “oligarch”, in the Russian context, as a businessman who has in his control sufficient resources to influence national politics. According to this article, oligarchs dominate the largest industrial sectors, in particular natural resources and automotive. The only large sectors that are not controlled by oligarchs are natural gas, energy, and manufacture of machinery, since the first and the second ones are dominated by federally owned monopolies (Gazprom and Unified Energy Systems), and the last one is a diverse sector populated by defense equipment suppliers (controlled by the federal government). When analyzing the Russian oligarchy in international perspective, we can note that ownership concentration in modern Russia is higher than in any other country. The top 10 families or ownership groups had 60.2% of Russia’s stock market in June 2003, which is much higher when comparing to continental Europe (35% in small countries and below 30% in all large countries), and the US and the UK where this share is a single-digit percentage.

Regarding the second question, besides the already mentioned, the article From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016 (2017) tries to explain the origin of the Russian oligarchy and how inequality evolved between the Tsarist Russia, the Soviet Union, and the modern times. According to Novokmet, F. et al (2017), the top 10% richest owned about 44-50% in 1905, dropping to around 20-25% during the Soviet Union, and rose again to 45-50% in the 1990s before stabilizing at this very high level since then. Regarding the top 1% richest income share, it was below 20% in 1905, dropping to 4-5% during the Soviet period, and growing exponentially to 20-25% in the recent decades. As a result, we can state that after the collapse of the Soviet Union income inequality rose: the top 10% richest income share rose from less than 25% in 1990-1991 to more than 45% in 1996, and a massive collapse of the bottom 50% share, which dropped from about 30% of total income in 1990-1991 to less than 10% in 1996, before gradually returning to 15% by 1998 and about 18% by 2015.

Although, in the article from Novokmet, F. et al (2017), the authors emphasize  that there is high limitation regarding data sources needed to elaborate a complete analysis of the inequality gap between Russia and other ex-communist countries, and one aspect that must be considered are the different post-communism transition strategies that were conducted in the different countries. In Russia, particularly, there was a very fast “shock therapy” through a voucher privatization strategy. An interpretation of available data shows that this voucher privatization happened very fast, mixed in an unstable monetary and political context, in which small groups of individuals were able to buy back large quantities of vouchers at relatively low prices, and, in some cases, to obtain highly profitable deals with public authorities. This process coupled with a capital flight and the rise of offshore wealth led to a much higher level of income concentration in Russia.

All in all, the Russian oligarchs dominate large and important sectors of the Russian economy, mostly those related with natural resources and the automotive industry. This small group of businessmen mainly emerged after the Soviet Union collapse, when a fast and uncontrolled process of privatization took place in Russia, allowing highly profitable deals with the federal government. This process conducted to a society in which the gap between the richest and poorest is one of the largest in the world. However, there are still a lot of important factors which have not been analyzed due to lack of data, and that might have played a significant role in this inequality

Sources:

Guriev, S., Rachinksy, A. The Role of Oligarchs in Russian Capitalism (2005). Journal of Economic Perspectives, Volume 19, Number 1, 131-150.

Novokmet, F., Piketty, T., Zucman, G. From Soviets to Oligarchs: Inequality and Property in Russia, 106-2016 (2017). NBER Working Paper, Number 23712.