Anders Aslund, a senior fellow at the Institute for International Economics and adjunct professor at Georgetown University, spoke on the role of wealthy oligarchs in the transition of post-communist economies on September 27. Aslund, who has served as an economic adviser to the governments of Russia and Ukraine, said that the proliferation of oligarchs in these nations is not only a natural outcome of their economic conditions, but is in fact an important step in their progress toward capitalism. The lecture was the first in the Arthur Levitt Public Affairs Center's series on "Inequality and Equity."
Aslund, who is widely published on the topic of economic transformation in former Soviet states, said that when he first began advising President Askar Akaev of Kyrgyzstan he was a "good Western liberal economist" and focused on ensuring the growth of small enterprise. Over time, however, Aslund said that he found that the problem is often not with the well-being of small companies, but of large ones. In states such as Kyrgyzstan, large successful companies are often closed down, or have their assets confiscated by the state. If a nation doesn't guarantee the property rights of its wealthiest citizens, Aslund says, it will not have respect for property rights in general, the cornerstone of capitalist success.
Who are the oligarchs in Russia and Ukraine? Aslund described them as the young, self-made billionaires who own the nation's corporate conglomerates and have close ties to its political power structure. Many are engineers who made their career using their technical skills. They should not be confused with the organized criminals of these countries' pasts, Aslund said.
Instead, he argued, they can be compared to the Robber Barons of 19th century America. Aslund said that both the Robber Barons and the modern Russian and Ukrainian oligarchs have benefited from great economies of scale, massive structural change, monopoly rent, available land, government subsidies, and corrupt legal institutions. Also, in a time of uncertain economic conditions, both groups relied on vertical integration to ensure the reliability of their production.
Oligarch-owned companies have been shown to be highly adaptive, Aslund said, and it is wrong to equate them with inefficient state-run enterprises. Large private enterprises in Russia are part of the reason that the country has seen 7% annual growth in its economy. Oil and metals have been a large part of this, but the most spectacular success has been the coal industry, he said, in which it is particularly useful to be a large conglomerate. "You can't have mom and pop shops in the coal industry," Aslund said. Overall, he argued, the oligarchs in Russia and the Ukraine are a natural outcome of the economic environment in a transitioning post-communist state.
People in these countries don't like oligarchs simply because they can see their wealth and they find it disgusting, Aslund said. In fact, he said, transparency in financial dealings only serves to make an oligarch less popular, because people can more easily see just how much he is making. An ideological inability to accept businessmen's large private fortunes is a significant problem in many former Soviet nations according to Aslund. The people of these nations need to be taught an ideology of private property, he said. Without it, they will begin to move back towards nationalization of property and industry.
In conclusion, Aslund said that transitioning post-communist states must guarantee the property rights of oligarchs if they are to defend the economic rights of all their citizens. Eventually, he argues, oligarchies will grow and change into normal market economies and democracies, as took place in the US and the UK. In the meantime, he said, it is better to have oligarchs than consolidated state industries which will eventually become authoritarian.
-- by Caroline Russell O'Shea '07
