When we think of Russia’s economy, the first word that pops into our heads is often “oligarchs.” While this is a stereotype, the owners of (or managers of state-owned) major companies in Russia do play an outsize role in the economy. The term, though, masks the fact that Russia has had two sets of oligarchs over the past 30 years. The oligarchs of the 1990s were largely removed from power and replaced with a new set of economic elites. Scholar Dan Treisman has labeled these new elites “silovarchs” – oligarchs with deep connections to Russia’s security services (or siloviki). This video outlines this shift in economic power in Russia.
Oligarchs – the 1990s
Privatization left Russia’s biggest companies in the hands of a few sudden billionaires. Boris Berezovsky, one of the richest, claimed in 1996 that seven bankers controlled 50 percent of the Russian economy. While that was an exaggeration, the oligarchs did wield outsize influence in the economy – and in politics.
The three best-known oligarchs were Boris Berezovsky, who owned Russia’s main TV station, Vladimir Gusinsky, another media tycoon, and Mikhail Khodorkovsky, who owned oil company Yukos.
All three were deeply embedded in Yeltsin’s political and economic networks, funding his election campaigns and sometimes holding official positions. Berezovsky, for example, was a deputy director in Yeltsin’s NSC. They epitomized a fast and loose style of politics and a winner-take-all approach to economics.
Downfall of the oligarchs
Putin reined in the oligarchs upon taking power in 2000. He essentially offered them a new deal – if they stayed out of politics and cooperated in implementing Putin’s new economic policies, they could retain their economic assets.
A few oligarchs did this — Mikhail Fridman, the owner of Alfa Group, a banking and investment company with assets in telecommunications, banking, retail, and oil, built his economic empire under Yeltsin and shifted his support to Putin. Vladimir Potanin, owner of a wide range of mining interests (most notably in nickel), sold a few key assets back to the state and retained the rest of them.
But the most prominent of the oligarchs were arrested on corruption-related charges and stripped of their assets. Berezovsky and Gusinsky had used their media assets to criticize Putin and both fled the country to avoid charges. Khodorkovsky was arrested in 2003, which allowed the state to take over control of Yukos, and was jailed until 2013.
Putin and the silovarchs
A new business elite has now replaced the departing oligarchs. These billionaires differ from their predecessors in three key ways:
- Their networks
- Their political views, and
- The type of companies they lead.
First, while the background of the original oligarchs was varied, the new group of executives mostly come from the network of security service veterans who form the backbone of President Putin’s administration.
Second, while the oligarchs generally favored a weak, but open political system, in which they could buy access and power, the silovarchs favor Putin’s vision of a strong, hierarchical state.
Finally, while the oligarch’s corporate assets were largely independent of the state, the silovarchs lead state-owned or affiliated companies.
I offer two examples:
Viktor Ivanov had a twenty-year career in the Soviet KGB and Russian FSB, ending as deputy director. He worked as an aide to Putin in St. Petersburg and Moscow and was the head of Russia’s Narcotics Enforcement Agency from 2008-2016. Simultaneously, he chairs the boards of Almaz-Antei, a conglomerate of more than 40 defense companies, and Aeroflot, the national airline.
Similarly, Sergei Chemezov, the general director of Russia’s arms-exporting monopoly, is a retired lieutenant-general with extensive personal ties to Putin.
Impact and reception
Putin’s takedown of the oligarchs was popular – they were a highly visible symbol of the chaos and economic decline of the 1990s. A 2007 poll found that only 5% of the general public viewed the Yeltsin era favorably (compared to 34% who preferred the 2000s and 47% nostalgic for Soviet times). While the charges against Berezovsky, Guzinsky, and Khodorkovsky were politically motivated, they were also valid.
The economic system that replaced the free-wheeling capitalism of the 1990s is one of state-based capitalism largely rooted in exploiting Russia’s natural resources. It has not produced a more equal distribution of wealth in the country, but has produced relatively stable growth and an opportunity for a middle class to emerge in Russia. And when Russians look back on which model they prefer – greater freedom and economic decline in the 1990s or less freedom and economic stability in the years since – many prefer the present.