• 14 Sep 2006 at 12:18 PM
  • Oligarchs

How Russia’s Oligarchs Got That Way

Back in 1993 we were living in Washington DC, playing cub reporter in the nation’s capital and trying to uncover dirt on young members of the Clinton administration. As you can imagine, this job was not the most satisfying in the world. So we cooked up a different plan—get some financial backing and hightail it over to Russia’s oil reserves. We were pretty sure there was a fortune to be made in the privitization of the former Soviet Union’s state assets.
To this day we still tease the guys who almost backed us but lost the spirit at the last moment. We could have been oligarchs, we tell them. You’d likely be dead, they tell us. You see, apparently there’s this theory that what made the oligarchs rich was not entrepreneurial activity but political connections and shady dealings that more resemble organized crime than venture capital
Today Bryan Caplan offers a, uhm, courageous response to such scurrilous talk.

You’ve heard about the Russian “oligarchs,” right? They’re the richest men in Russia. The insinuation is almost invariably that they owe their riches not to entrepreneurial ability, but to political connections. It’s not “what you know,” but “who you know,” right?
If this theory were true, you would expect the oligarchs to have unusual demographics for business leaders. In particular, they should be:
# Unusually likely to have been important members of the Communist Party before they went into business.
# Unusually unlikely to come from groups – like Jews and Armenians – known around the world for their entrepreneurial talent.
Both predictions are wrong.
Most of the oligarchs are too young to have been Communist Party bigwigs. As one interesting paper explains, “Most of the individuals… are relatively young: nine of them are in their 30s, and 13 are in their 40s.” The older oligarchs generally had Communist backgrounds, but were hardly leading figures in the Party: “The older oligarchs have typically come from Soviet-era nomenklatura. Prior to transition, they were either managing the respective enterprises or working in government agencies supervising the enterprises, and when the Soviet-era firms were privatized, they converted their de facto control into ownership rights.”
Even more striking: The oligarchs are disproportionately Jewish. 90% of Russian Jews have left the country over the last 30 years, but 6 out of the 7 leading oligarchs have Jewish ancestry. This would be hard to explain if their success were primarily due to political connections – but expected if their success largely reflected entrepreneurial ability.

Demographics of the Oligarchs [EconLog]