Too Big to Rise: Why Russian Oligarchs Lost a Lot, but didn't Rebel

Big business, it seems, is that segment of the Russian elite which has lost most of all in the last year. Russian oligarchs have transformed from yesterday’s welcome guests in London, Monaco or Nice into personae non-grata. Their accounts are emptying, the list of Forbes billionaires is shrinking, and maintaining their usual standard of living is no longer sustainable. However, the ‘revolt of the oligarchs’ expected by many did not happen. We will try to understand how realistic such expectations were, why big business remains an organic part of the Russian political regime without requesting democratisation, and what has changed in its position within the system over the last year.

According to Forbes, during the last year, 35 Russians have ceased to be billionaires; their number has been reduced from 123 to 88, and those who have remained on the list have become much poorer. The biggest losses have been to the owner of ‘Severstal’, Aleksei Mordashov (although even after losses of $11 billion, he remains one of the top five richest people in Russia), the founder of the largest Russian online-retail company ‘Wildberries’ Tatiana Bakalchuk, and Oleg Tinkov, who has fallen off the list (now his fortune is slightly less than one billion). In total, according to Bloomberg, since February 2022, Russian billionaires have lost $93 billion, of which half fell on one day — 24th February. Recent Russian history recalls even more dramatic losses; for example, in 2008, the year of the world financial crisis, Russian millionaires lost $250 billion, and their number decreased by more than half — from 87 in 2008 to 32 in 2009. And yet, hardly anyone from the Russian super-rich class has ever lost money so rapidly.

The sanctions which followed led many to talk about ‘the end of the era of oligarchs’, and that ‘the oligarchs are finished’:

‘They're an endangered species now. They can't open bank accounts anywhere in the world. They can't travel. They can't do business with anyone. It used to be that every jewellery dealer and concierge and so on was bowing to them, wanting their business, just making them feel like they're the most important people in the world. Now, they're toxic, radioactive. Nobody wants to touch them.’

Russian loyalists also wrote about the "dispossession of the oligarchs" and even an "announcement of war with the oligarchs" (1, 2); in their view, the oligarchs had finally lost the basis of their power, and for the first time in post-Soviet history they would have to put "state" interests above their private ones.

Luxury_yacht_Tango_in_Barcelona.jpgThe luxury yacht "Tango", owned by the oligarch and State Duma deputy Andrey Skoch, was arrested in the Balearic Islands in April 2022. Photo: wikimedia.commons

At the same time, it was from the oligarchs, as those who had lost the most in the first months after the start of the war, that effective action was anticipated, right up to the organisation of a ‘palace coup’. As Bloomberg wrote, sanctions against Russian billionaires were motivated by an attempt to compel the oligarchs to influence the Russian president. At the same time, the oligarchs themselves (at least those who were not afraid of speaking to the media) tried to emphasise that they did not have any political weight. One of these Russian businessmen, who preferred to remain anonymous, described the situation as follows in a conversation with the Financial Times: ‘To do a palace coup and overthrow the tsar, you need to be in the palace first. None of these people are there.’

This is a fairly popular view, even outside the narrow circle of the super-rich. Thus, in an interview with Yuri Dud, researcher and associate of Aleksei Navalny Maria Pevchikh disputes the correctness of the term ‘oligarch’ in relation to Russian billionaires; in her opinion, ‘oligarch’ can only refer to those representatives of business who influence politics and participate in it, and Russian oligarchs were removed from power at the start of the 2000s. She also blames Michael Fridman and other super-rich people; being ‘clever and educated’ and ‘understanding everything’, they were not decisive enough to support the opposition, for example, during the protests of 2011-12. In this case, it is usually taken as a given that the interests of big business and the ruling political elite in Russia are fundamentally at odds — it’s simply that the former is under the strongest pressure from the repressive apparatus and can do nothing about it. It is partly true that the interests of business elites do not coincide with the geopolitical ambitions of the Russian leadership. But was the fear of the security forces the only reason why business did not ‘cast a vote’ after February 24th?

Let’s try to figure out whether the ‘end of the oligarchs’ is really approaching, and whether Russian billionaires have no opportunity to influence the authorities.

The most profitable deal of the Russian oligarchs

A year ago, on February 24th, Vladimir Putin’s first public engagement after the declaration of the launching of hostilities was a ‘meeting with representatives of the Russian business community’ in which the Russian president addressed businessmen ‘with an appeal to treat what is happening with understanding, and to work with the Government with solidarity in the search for those tools which would support production, the economy, jobs, but based on those realities which are emerging’, and promised to ‘ensure greater freedom of entrepreneurial activity’; in his traditional neoliberal logic, calling this the main task of the Government in relations with business today. The meeting was planned in advance, and nothing fundamentally new was said there — but it was already clear that a key date for Russian oligarchs took place on February 24th. And after all this, the oligarchs were confused; as the Financial Times wrote, one of the oligarchs literally caught Lavrov leaving the hall to ask for an explanation.

Symbolically, the meeting took place in the Yekaterinsky hall of the Kremlin — the same one where 22 years earlier, the new president of Russia, Vladimir Putin, had gathered oligarchs to promise that there would be no revision to the results of privatisation, in exchange for ‘equidistance’ from politics (only one of the participants of the meeting on 24th February 2022, Peter Aven, was then sitting in the hall). The principle ‘no clan, no oligarch should be close to the authorities; they should be equidistant from the authorities’, announced by the president six months before at a meeting with confidants, had now become a rule. In retrospect, this meeting was perceived as ‘an offer that could not be refused’ and the first link of the chain leading to the ‘return of the state’. Thus, the liberal economist Andrei Movchan believes that after the year 2000, a new ‘redistribution of property’ would begin (Boris Berezovsky would write about the same in 2003). Sergei Guriev considers the first act of ‘equidistancing’ the oligarchs from the authorities to be the arrest of Gusinsky in the summer of 2000. This version of events seems convincing; the arrest of a major, politically active oligarch, and the sale of his main asset, ZAO Media-Most to Gazprom (the so-called protocol No. 6, which Gusinsky supposedly signed in exchange for the case being closed) happened shortly before the president’s meeting with big business, which Gusinsky literally left Russia two days before. The journalist Yevgeny Kiselyov recalls the disturbing atmosphere prevailing at the beginning of the meeting, but qualifies it with ‘by the end, all fears were dispelled’. He also says that ‘there was no fear that, well, today it is Gusinsky, tomorrow it will be me — no one had any.’ Nine years on from this meeting, one of the businessmen commented on the reaction of the oligarchs to the pressure on Berezovsky and Gusinsky, ‘In 2000, business did not feel much pressure from the authorities. There were only two victims, and these were the politically-obsessed Berezovsky and Gusinsky.’

Vladimir_Putin_28_July_2000-1.jpgMeeting with the heads of the largest companies and commercial banks in Russia, July 2000. Vladimir Putin with Gazprom Chairman of the Board Rem Vyakhirev (center), LUKOIL President Vagit Alekperov (left), and Interros President Vladimir Potanin. Photo: wikimedia.commons

The remaining oligarchs had no reason to be dissatisfied with the new rules of the game. As Russian researcher Ilya Matveev writes, after the 1998 crisis, big business discovered that ‘post-crisis recovery of income is impossible without investment in the real sector [note: the sector of the economy which produces goods and services], which in turn requires the stable rules of the game only a functioning state can provide.’ He distinguishes two types of big business power — instrumental (that is, the ability to lobby for their interests individually in the corridors of power, as the oligarchs did in the 1990s) and structural (when politicians pursue policies in the interests of big business as a whole, understanding its decisive role in stable economic growth). And if the new conditions after 1998 had reduced the demand for instrumental power, conversely, structural power increased.

On this was overlaid the fears of the oligarchic class, faced with the idea of reversing the results of privatisation. ‘The aspirations of the people have not changed in 86 years — ‘take [everything] away and divide it up’, suggest 77% of Russians’ — Boris Berezovsky wrote for Kommersant. This explains why ‘two and a half hours later, big business left the Kremlin inspired’ after the meeting with Putin on 28th July 2000; for these oligarchs, this was the beginning of an era of stabilisation and the ability to calmly turn appropriated wealth into even greater wealth. The historical significance of the ‘Pact of 28th July’ was aptly summarised by its participant Boris Nemtsov: ‘The curtain was dropped on the decade-long history of primitive accumulation. The revolutionary period has come to an end.’

And yet, far more often, the ‘Yukos Case’ is called a turning point in relations between the state and big business. So, in the opinion of Ekaterina Shulman, these events ‘were a kind of fracture, after which it became clear that the liberal-reformist agenda was faced with significant restrictions, significant adjustments. From whom? From a powerful new group of interests — those who later began to be called siloviki. Indeed, as Ilya Mateev writes, ‘the Yukos Case marked a new shift in the Russian political economy’, towards the dirigiste model (for example, the state’s participation in the energy sector has sharply increased and state corporations have emerged). Regardless, ‘large capital remained a key source of investment, which could not be completely replaced by direct state intervention in the economy’. All this, according to Mateev, ensured the preservation of the structural power of big business, even after 2003.

That is why the Yukos Case did not meet with a united response from the oligarchs. The banker Oleg Viyugin recalled, ‘When we say, there was the Yukos Case, then, generally speaking, as a whole everyone supported it at the beginning. That is, they said, ‘Well, yes, they have almost created a faction in the State Duma, which lobbies for private interests, and not state interests, and tries to influence the decisions of the government. This needs to be stopped, this is a good lesson.’ Furthermore, political scientist Daniel Treisman notes that since 2005, only a few Russian billionaires have lost their fortune due to state pressure; most of them have dropped from the list due to market factors.

In subsequent years, the dynamics of the relationship between Russian authorities and oligarchs have not changed significantly, despite international sanctions in 2014 and 2018. As the researcher Elisabeth Schimpfossl notes, ‘no one in the world, during the late 2010s, was doing better than the top ten Russian billionaires. Their wealth has increased by 11%, whereas their counterparts in the United States — only 7%.’

Does big business need democracy?

Despite the fact that, objectively, oligarchs have been no lesser beneficiaries of the Russian political regime than, for example, the siloviki (and during the last 15 years, these have often been overlapping sets), it is usually they who are credited with an interest in changing the political regime, or even have hopes of democratisation pinned on them. The source of such conviction, as Alexander Zamyatin notes, is ‘liberal-market dogma, which states that the freedom of unlimited enrichment is the most important freedom’.

At the same time, in some cases, big business has serious reasons to prefer dictatorship. Democratisation is associated with a lot of risks for the super-rich, from public demand for higher taxes and higher social spending (as in Brazil, Argentina and Mexico) to revision of the results of privatisation (as in Ukraine). It is distrust of democracy, as Russian researcher Vadim Volkov writes, that forces large owners to choose an alternative in the form of mutual personal obligations, also known as ‘cronyism’. Volkov calls this system, which assumes the interdependence of government and business, vertical political integration. Related to this, it is not surprising that the only participant in both meetings in the Yekaterinsky Hall, Peter Aven, openly admired Pinochet even in 2013 (although he said he was disillusioned with the idea of authoritarian modernisation for Russia).

It is important to note that the problem is not only the oligarchic class of semi-peripheral countries like Russia in itself, but neoliberalisation in general, including in liberal democracies. As the researcher Jeremy Morris rightly points out, in recent years scholars have increasingly linked authoritarianism and neoliberalism, with its inherent techniques of discipline; from surveillance cameras to feelings of individual guilt for ecological catastrophe. Moreover, Russian oligarchs are not the only ones who have become extremely rich in recent decades. Faith in the institutions still present in old liberal democracies did not save them from the influence of big capital on the political process, which, in this case, is expressed through expenditure on election campaigns and pressure on legislators. Perhaps one of the most striking examples of this influence is the lobbying activity of pharmaceutical companies in the USA, which resulted in the ‘opiate epidemic’. The latter has already claimed the lives of hundreds of thousands of people (the role of lobbyists in the epidemic has been shown perfectly in the HBO documentary ‘The Crime of the Century’).

As Ilya Mateev notes, ‘the interests of big proprietors frequently come into conflict with the interests of other representatives of the elite; for example, the heads of large state-owned companies’. However, the costs associated with this may be lower than the costs under the conditions of institutionalised democratic representation. Situations in which the potential costs of other alternatives outweigh the costs of democratisation do not happen often. It appeared to many that such a situation had developed after February 24th.

Oligarchs — a dying class?

Indeed, there were several objective reasons to expect discontent, first of all, from big business. As Tatiana Stanovaya points out, it is this group within the Russian elite (she highlights five such groups in total) who is ‘the least interested in conflict with the West, new sanctions and new rounds of confrontation…it is Putin’s state oligarchs who unwillingly find themselves in the role of systemic liberals, who are most afraid of the conservative, isolationist trend in the country’s development.’ This is due to the internationalisation of the Russian elite over the previous decades, about which the researchers Pappe and Galukhina write in detail. Internationalisation entailed two processes; the emergence of strategic foreign investors in Russian companies and enterprises, and the acquisition of productive assets by Russian companies in other countries.

Despite this, major businessmen, in contrast to representatives of other segments of the Russian elite, are far more interested in international legitimation — this can be seen even in the amount of real estate held by Russian oligarchs in London, about which Maria Pevchikh talks in an interview with Yury Dud. The super-rich often live in the West, send their children to school there, and ‘belonging’ to the global elite is an important motive for many of them, which can be discerned in many of the interviews with Elisabet Schimpfossl’s interlocutors in her book ‘Crazy Rich Russians’. Unsurprisingly, many of them were annoyed when their status, built in the West for so long, turned to nothing, and they became toxic figures.

Paradoxically, this brings them even closer to the Kremlin. Schimpfossl notes that ‘now, when some of them have been put under sanctions by the West and have become persona non-grata there, they depend more strongly than ever on the Russian authorities and legal system built within the country.’ In a comment for the Telegraph article ‘What the Russian oligarchs did next’ on this topic, businessman Dmitry Tsvetkov, who has lived in Moscow for a long time, says, ‘Sanctions are just bonding these guys with the Russian state, bringing them closer to Putin not further away. It’s the only place they are now safe. They have paid so much money not to be touched; they depend on Putin, he’s their security. And sanctions have made them even closer, even more dependent. But they have zero influence. Sanctions have done more damage to the West.’

Vladimir Putin understands this too, calling on oligarchs to invest in Russia because ‘it’s safer at home’, mocking those who preferred to store their wealth in foreign jurisdictions and were targeted by Western governments.

Vladimir_Putin_at_award_ceremonies_(2018-11-27)_15.jpgAlisher Usmanov, the main shareholder of USM Holdings, receives the Order of Merit for the Fatherland (3rd class) from Putin, 2018. Photo: wikimedia.commons

Against this backdrop, another, as yet implicit problem has re-emerged — the transfer of wealth to a new generation. Forbes estimates that in the near future, 52 representatives of the second generation of oligarchs may inherit $268 million. In the opinion of Schimpfossl, this process is one of the largest-scale transfers of property in human history. It is unsurprising, that among other things Vladimir Putin addressed the parental feelings of oligarchs at the PMEF [St Petersburg Economic Forum]: ‘For the heirs of capital, it is still unknown what is more important — their money and property, or the good name and merits of their ancestors before the country. No one will squander this for sure, no one will drink it away.’

The oligarchs themselves are thinking about legitimising the wealth they will pass on to their heirs in old age. Thus, Vladimir Potanin (who has 7 heirs, each of whom with a share amounting to $4.05 billion) put forward the idea of ‘people’s capitalism’, where, as he plans, workers for his enterprises should become co-investors of the enterprise. Potanin himself sees in this a ‘restoration of historical justice’, meaning the results of privatisation. Anyway, over the last year, the Russian super-rich have become even more tied to Vladimir Putin; at the same time, it cannot be said that sanctions against them have been particularly effective. As shown by the recent WSJ investigation of Sergey Chemenov and Alisher Usmanov, even many months after the onset of hostilities, oligarchs effectively bypass the sanctions restrictions.

Perhaps, in the long run, the economic recession will hit their wealth as well, and then the costs of maintaining the status quo will become too high not to try and find an alternative. However, as the experience of protest mobilisation in the second half of the 2010s shows (associated in the first instance with the activities of Aleksei Navalny and his allies), an increase in popular participation in politics and democratisation will almost certainly be associated with demands for a fair distribution of wealth and an expansion of social programmes. For oligarchs, such a development is unlikely to be more desirable than the preservation of wealth, even under sanctions, and passing it onto descendants. Like the heroes of ‘Don’t Look Up’ the super-rich, it seems, are much easier to come to terms with the possibility of a global catastrophe (for example, in the form of World War 3) than to see someone in the presidential chair who stands for the reduction of social inequality and fair distribution, which — as they already know now — will be carried out at their expense.

Translation: Rachael Horwitz