The oligarchy’s rise to power was strange in that it occurred in an industrialized country. Many studies done have shown that it was the Russian culture as well as its exceptional historical events that contributed to this state. Even though the culture allows an environment for corrupt dealings to occur to gain power as well as wealth, there are also people in those societies who would be willing to take the illegal route to gain wealth if they deem the cost to be less. In societies where the wealthy use legal means sometimes they only do so because the law is enforced against illegal trade but if they had their way some would engage in corrupt dealings to increase their wealth. In Russia some people were able to be corrupt and get away with it. This paper will look at, firstly the corrupted system of Russia which led to the oligarchs taking control of the country. Secondly, the power the oligarchs had and their control over the oil companies that were formerly run by the soviet union as well as how the oligarchs were able to get the companies’ assets for free. Thirdly, it will examine the transition of power from Boris Yeltsin to Putin and its impact on ending the power of the oligarchs.
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Russian society had a different concept of property rights unlike in the west. In the west the bourgeois were strong and therefore they could demand rights but in Russia it was a different scenario. The strong did not need rights because their strength allowed them to do whatever they wanted and to whomever they wished. There was no struggle for universal rights in Russia rather rights for exceptions. This means that only a few people could say and do what they wanted while the rest remained silent and obeyed the strong. This led to consequences on the rule of law (Yavlinsky, p. 1).
During the Tsarist rule Russia operated on communism. The system then was called serf, in this system land was owned by the Tsar. They gave the nobility long term temporary control over the land who in turn took control of all resources and the serfs who resided on the land. This system did not work and by the nineteenth and the early twentieth century a capitalist form of economy was on the rise. However this was not the typical free market that exists in a capitalist economy. The government put in place some system that would ensure gains. Moreover the nobility in addition to the ruling families were the ones engaging in business. These businessmen were mainly of the Jewish descent and therefore the aristocracy looked down on them and they could not run autonomous businesses. They had to rely on the government’s approval to operate and the government often gave monopolies to businessmen according to their connections and this meant that laws were flouted or enforced depending on who the businessman was (Weichsel, p. 1).
The Russian system was corrupt as the businessmen swindled the government as well as foreigners. In addition they stole from one another. The powerful businessmen could not be differentiated from the government officials. In fact for one to get a job in the government one needed to have business connections or money and to enter big business one had to have the connection of a politician. Therefore even after the serfs had been freed they did not enjoy freedom in the market as it was controlled by a chosen few. The situation got worse when the little freedom enjoyed in the market was taken away and this led to a revolution (Weichsel, p. 1).
The Bolshevik Revolution took place and the Bolsheviks after gaining control went ahead to nationalize private property. However this system was not successful and something needed to be done. The country could not run its affairs well after the huge losses suffered during the world war one.
A solution was found and Lenin brought about the New Economic Policy (NEP). This policy was formulated to return the markets as well as private trade (Brown and Shevtsova p.45). On the other hand the plan was not capitalism. It was supposed to encourage people to continue producing; a tax was introduced to the producers instead of confiscating quotas from the produce. This way they hoped to boost production by the peasants producing more. Lenin had no intention of giving up the big industries that had been nationalized by the Communists. He saw this as the way to go and hoped that the economy would mend itself (Weichsel, p. 1).
Corruption increased with the creation of a new political elite. The people who took up leadership during the Nomenklatura system did not have the same ideological motivations as the former leaders. This new leaders were to control the single party system which allowed limited economic freedom and political opposition was not tolerated. The elite created conditions that allowed economic corruption and they could not resist the desire to make profits in this system. The businessmen could get whatever privileges that wanted as long as they could bribe (Gaidar and Yegor, pp. 67-68).
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This system eventually gave way to real communism in Russia. During this period Stalin was very powerful and he grew the Soviet Union through violent ways. Though there was a reduced level of corruption during this time the managers still used underhand dealings to get the results the plan demanded. Stalin was very demanding and would even kill if one got in his way of achieving what he wanted. These unlawful practices were tolerated because the people wanted to concentrate on wealth creation. The managers were allowed to break rules to achieve their targets by the government. They did it to protect their lives more than out of a desire to make more profits (Braguinsky, Serguey and Grigory Yavlinsky, pp.39-41)
The managers were not allowed to have real power. They had to be stopped so that hierarchical structures could not be formed that would ask for power. This led to the formation of a parallel economy. The managers no longer feared for their lives and they realized they could engage in corrupt activities for their personal gains (Weichsel, p. 1). This parallel economy resulted in a free place that Stalin had not envisioned and eventually it assisted in ending the Soviet Union.
After the collapse of the Soviet Union the population had access to the black market. They were not given adequate economic freedom therefore they could not become rich in this environment. The Nomenklatura therefore granted rights that enable others to trade illegally and use state enterprises for private gains. The enterprises were run as if they were private property because the Nomenklatura wanted to retain their economic dominance and they did this by asking for restructuring that would benefit themselves (Weichsel, p. 1).
The corrupt Russian system led to oligarchs taking control. The system encouraged a few strong individuals to control the system. These individuals did so through corrupt ways as long as it assured them of power. Therefore corruption became a norm and for anyone one to retain their power in this system they had to toe the line or risk being eliminated from the system altogether. This meant that only the powerful would continue controlling the state because they had the right connections in business and in politics. The system also set a bad precedent in property rights. Only the strong could protect their private property and the oligarchs had the means to do so and therefore they did everything to protect their property (Braguinsky, Serguey and Grigory Yavlinsky, pp.39-41). The oligarchs took control of the states assets through their political power, illegal means like rigged privatizations as well as outright stealing.
The oligarchs had power and therefore control. They exercised their power through the media, politics, violence and economy. The political power enabled an oligarch to buy protection of their property because they could get the property rights from the political elite. Some were in politics and this made it easier for them to exercise their power. Many of the oligarchs were form the Nomenklatura class of the communist era. They could access the natural resources found in Russia. Russia is among the top producers of natural gas in the world. Therefore the oligarch turned the ministry concerned with extraction into a company called Gazprom in 1989. this enabled them to control the natural gas extraction by converting the company into a private company. They used the company to gain enrich themselves. Therefore their political connection helped them and this often leads to monopoly which eventually destroys competition at the expense of economic growth in a country (Weichsel, p. 1).
The economy allows an oligarch to form a basis for his or her power. Through money they can bribe their way into any office they desire. In Russia one becomes a true oligarch if they have money and good political connections. The oligarchs who depended on economic power alone have had to go into exile after falling out of favor with the political elite, for example Vladir Gusinsky. On the other hand if one has economic power and they see that politics will not help them to achieve their goals they result into violence management.
Violence management was use to protect businesses that were under threat from gangs or from more powerful businessmen. This need arose when the government could not offer protection during the early 1990s. Therefore businessmen had to rely on private firms or mafia to provide security. Private firms have armed bodyguards and also the police. The mafias provided security in the beginning but later they started interfering in the businesses. This led to a government cracked down and some were killed. Nevertheless, some form of mafia still exists and is very strong. The oligarch used violence to retain their power rather than as a way of gaining it (Volkov, pp. 25-45).
Media control is very useful for the oligarchs. They use it to manipulate the public perceptions about themselves as well as the politicians who are useful to them. The media is a very powerful tool that helps very much in politics. For example the media was used to change the perception about Yeltsin during his reelection when his popularity had dropped so much that he was considering canceling the election. About eighteen billion dollars was used in the campaign to ensure that Yeltsin won.
Transition of power from Boris Yeltsin to Putin saw the participation of the oligarchs. When Yeltsin won the election the oligarchs had put him in office and their position was solidified. The question of transition was a very important one for the oligarchs. Who would replace Yeltsin and would he serve the interests of the oligarchs and they in return would ensure that he remained in office as long as he wanted. Yeltsin appointed Putin in his government and later Putin ran for the top job. With Putin in power he started to try and regain control of the state as Yeltsin had allowed a free economy and he gave the oligarchs this warning
When you demand political guarantees for yourselves and your businesses from the government, I want to draw your attention to the fact that you built this state yourself, though a great degree through the political or semi-political structures under your control. So don’t blame the reflection on the mirror (Goldman, p. 22).
Winston Churchill once described Russia as “a riddle wrapped in a mystery inside an enigma”. From the look of events in Russia this description fits Russia because each president who takes over rules in a way that guarantees hold in power. For example when Putin came into power he is said to have had a crackdown on some oligarchs though they are said not to have been true oligarchs. He did this to ensure that nobody would run against (Weichsel, p. 1). The transition had
an impact on the power of the oligarchs; Their control the media is waning away and their impact during an election will definitely not be like in the past (Weichsel, p. 1).
Russia needs to address the issue of oligarchs. The system needs to change to allow free trade. The government has to think about the best way to do this because any radical decisions like revising the privatization laws that were used acquiring of state companies could lead to a major problem in the country. The country should separate business and state. This will ensure that those who engage in business are doing so in a transparent manner rather than through bribery due to political connections. The country should address the issue of monopoly in the business arena. This would allow competition and improve the economy of the country. The property rights should also be restructured to protect the property of all its citizens. The media should also be allowed to be independent from the control of the oligarchs. This will ensure that the public is protected from the manipulation of the oligarchs. The media will be in a position to give fair and honest information to the public to enable them to make sound judgments. Lastly, today the debate is whether Putin is really the one in charge of the country in his position as the prime minister or is the president really in charge. Could the oligarchs still be controlling the country from behind the scenes? Changing a system is not easy but with determination and willingness from those in leadership Russia can be transformed and become a truly democratic country.
- Braguinsky, Serguey and Grigory Yavlinsky. Incentives and Institutions: The Transitions to a Market Economy in Russia. Princeton University Press, Princeton. 2000.
- Brown, Archie and Lilia Shevtsova editors. Gorbachev Yeltsin and Putin: Political Leadership in Russia’s Transition. Carnegie Endowment for International Peace, Washington D.C. 2001
- Gaidar, Yegor. State and Evolution: Russia’s Search fro a Free Market. University of Washington Press, Seattle. 2003.
- Goldman, Marshall I. The Privatization of Russia: Russian Reform Goes Awry.
- Weichsel, Louis, Jeffrey. Privately Enforced Capitalism: The Rise and Fall of Russia’s oligarchs.
- The School of Russian Studies and Asian Studies. 2005.
- Yavlinsky, Grigory. Reforms that corrupted Russia. 2003.