The Rise of the Oligarchs in Post Soviet Russia
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The Russian state has been characterized by its strong heritage of powerful, autocratic leadership. This domination by small ruling elite has been seen throughout Russias history and has transferred into its economic history. Throughout the Russian czarist period, to the legacy of seventy years of communism; Russia has been a country marked by strong central state planning, a strict command economy and an overall weak market infrastructure (Goldman, 2003). Self-interest, manipulation and corruption have all been present in the Russian economy, and have greatly helped the few as opposed to the many. To this day, Russia still struggles with creating a competitive and fair market.
Throughout the czarist period to the seventy years of communism, the Russian people have endured immense hardships both economically and socially. For ages, the Russian people have been accustomed to state benefit, an emphasis on middle class values and a social safety net which was provided by the strong state (McFaul, 2001). Anything necessary for survival during communism was divvied out and controlled by the state. These were the ideals of the social contract between the people and the state (Hoffman, 2002). No matter how hard the times were, the Russian people believed that the state would provide and push Russia through the worst of times.
Throughout history, especially during the seventy years of communism, the people of Russia believed in their strong leaders and did not question the motives or actions of these individuals. The priorities of the state were always greater than that of any individual. Those who did act against the state were considered anti-Russian and were dealt with accordingly. The Russian peoples unwavering belief in their rulers eventually evolved into a docile acquiescence. The Russian people were happy with their leaders as long as they could survive. Even if their was blatant corruption, an obvious dichotomy between the rich and the poor and terrible living conditions; the Russian people did not complain, accepted the status quo and never questioned the state.
The last few years of the legacy of communism and the Soviet Union were characterized by a widespread struggle for sovereignty and autonomy among the nations under the Soviet Union, a stable but terrible economy, political tension and upheaval, and a deep political battle for power between Gorbachev and Yelstin (McFaul, 2001). Gorbachev leaned more to the center-right and still believed in communism while Yeltsin was a liberal reformist who believed in democracy. Gorbachev wanted to improve the system he inherited while Yeltsin wanted to destroy that very system (Brown & Shevtsova, 2001). Following the August 1991 Coup, Yeltsin rose to power and became the unanimous leader of Russia.
Following the Fall of the Soviet Union in 1991, Russia jumpstarted its transition from communism and a command way of life to a more democratic and free market lifestyle. Yelstin had dreams of a more democratic Russia with a privatized economy. Russia needed to halt its dependence on foreign aid and needed internal economic autonomy (McFaul, 2001). The idea of capitalist reforms had a polarizing affect on both the people and elite of Russia, but Yelstin saw the market as the realization of Russias potential.
The Russia which Yelstin inherited had enormous deficit, an erratic currency, a sharp drop in foreign trade and many people dealing with the reality of starvation (Kuchins, 2002). Expectations for Yeltsins new Russia were high, and many Russians had hope in Yeltsin and his liberal economic plans. However, the economic reform in Russia during this time period was messy and misguided. Privatization in Russia was inefficient, generated little revenue and left those who needed the most help even further into poverty (McFaul, 2001).
To uproot the entrenched economic stagnation and depression in his country, Yeltsin consulted his trusted liberal economic advisors. Anatoly Chubais was chosen by Yeltsin to become the First Deputy Prime Minster. Although Chubais had a strong belief in the market, his actual experience with the market and private ownership was extremely limited (Goldman, 2003). Chubais was the most integral person in pushing the Russian privatization movement and constructing the semblance of a market which Russia soon had. However, this hodgepodge market was far from stable and tainted with corruption and confusion. Chubais did succeed in his most important goal, ensuring that the Communist Party did not regain power in Russia. Although he was successful with his political goal of ensuring that the Communist Party did not have a rebirth in Russia, a mixture of lackluster and hollow economic reform along with the reelection of Yeltsin in 1996 paved the way for the emergence of the Russian oligarchs.
The oligarchs came to be known as the concentrated centralized economic class of corrupt men who took advantage of Yeltsins privatization movement. These economic elite ascended to power during Yeltsins terms. Yeltsins economic plans lead to corruption, economic stagnation and increased power of the oligarchs. The oligarchs were adroit at finding loopholes and ways around any attempt Yeltsin had at privatization. They did not follow any market rules because there were really none in place in the infant Russian market. The oligarchs took money out of Russia by setting up offshore accounts from their enterprises; defeating the purpose of the economic reforms by not investing money back into the Russian economy (Hoffman, 2002). The manipulative nature and self-interest of the oligarchs would continue to evolve into a major detriment to Russias economy.
After failed attempts at privatization with infamous vouchers and his hollow 500 Day Plan, Yelstin gave it another try with an innovative, yet extremely shady program. The loans for shares program was one of the most infamous of Yeltsins economic reform policies. The original economic “goal” for the LFS program was to help the government reduce its humongous budget deficit (Goldman, 2003). But instead of helping Russias horrid economic situation, the LFS program proved to be a great detriment to the achievement of an effective and competitive market in Russia.
The program was actually planned by some of the wealthiest financiers and the present first deputy prime minister Anatoly Chubais in 1995 (Kuchins, 2002). The major scheme of the program centered on loans which the Russian banks would give to the government. The government would place share value on some of the biggest and most important enterprises in Russia. In return, the banks would have the power to manage the states shares for an allotted term (Kuchins, 2002). At the end of this term, the state was supposed to