Return of the Robber Barons

Will Russian oligarchs eventually go the way of the robber barons in the United States?

November 21, 2000

Will Russian oligarchs eventually go the way of the robber barons in the United States?

These deals may just be additional shady deals in the Byzantine world of Russian business and politics. But it might also be the beginning of a trend where Russia’s powerful oligarchs are finally turning from exploiters of the system into major stakeholders — just like their U.S. counterparts did in the 19th century.

Russia, it is argued, remains an economic basket case because of the presence of its oligarchs. These businessmen used the country’s transition from socialism to today’s would-be capitalism to enrich only themselves. Controlling them is believed to be the key to kick-starting serious reforms in Russia. President Vladimir Putin has made it clear that he shares that view. But irrespective of the still bleak outlook for the Russian economy, there is a precedent in U.S. history that should give Russia cause for optimism.

In the late 1800s in America — as in Russia today — a key feature of economic development turned out to be the emergence of a distasteful group of individuals who controlled America’s emerging industries with iron fists.

As monopolists, oligarchs — even thugs — they initially exploited the system. Their watchword was the famous exclamation by Commodore Vanderbilt: “The public be damned.”

There is little difference between the once-upon-a-time Rockefellers, Vanderbilts, and Morgans on the one hand — and the Berezovskys, Alikperovs and Abramovitzs of today’s Russia on the other. Then in the United States, as now in Russia, there was little government regulation to keep entrepreneurs in check.

Yet, both governments had an enormous impact on the economy as they disposed of vast amounts of property — with little or no thought to what would be considered appropriate procedures in today’s industrialized countries.

Consider the following description of the relationship between business and government: The hotels in the capital are “crammed with businessmen toting suitcases full of cash to get government contracts. The President admires the industrial captains, aspires to their society, and assembles a government full of cronies.”

The writer to describe businessmen who “prefer to think of themselves as victims of political extortion, not as initiators of bribes,” even as “government degenerates into a sea of iniquity.” Amazingly, these words are not taken from current news columns on Russia, but from Ron Chernov’s “The Titan,” his biography of the oil magnate John D. Rockefeller.

The result: wealth beyond measure amassed by people who were lucky enough to have government connections, or smarter and more ruthless than their fellows in business. This new class of tycoons (the word was invented to describe them) saw nothing wrong with buying judges and legislators.

Government, after all, was simply another commodity — like oil or steel. Mark Twain famously dubbed the period the “Gilded Age” alluding not only to the prominent decorating style, but even more to the thin exterior coating of public morals over private greed.

Having amassed wealth, however, America’s tycoons became worried about how they were perceived — and about whether a society with such stark poverty side-by-side with their riches could indeed survive. And so, the wealth was increasingly used for the new activity of philanthropy.

The fortunes amassed through manipulation and monopoly found their way into libraries, museums and other public institutions, and into the newly invented charitable foundation — which insured that money, however ill-gotten, would be used for the general good.

Russia’s oligarchs have amassed enough personal wealth to force them to think just as seriously about their future as the Carnegies and Rockefeller at the turn of the century. They must be keen to turn from exploiters of the system into major stakeholders to make their newly gained wealth last over the long haul.

To do so, they must take an active part in establishing the kinds of institutions we take for granted in the West: the rule of law, transparency, judicial independence — in short, the rules and arrangements that spread power around and make sure that no economic faction can trump another.