Oligarchization of the Russian economy: Causes, course and consequences

Unlike developed and developing countries, there are no elites in Russia with legitimate big capital. Russian nouveaux riches have become owners of factories, factories, real estate, and entire sectors of the economy thanks to the tricks of reforms, privatization and the redistribution of property. But the very process of the emergence of the oligarchy originated in the years of the communist regime. In order to understand how the new elites were born in the USSR and how the wealth of the second economy of the world passed into their ownership or control, you need to understand the atmosphere of that time and the economic situation.

How did the planned economy work ? Statistics departments collected data throughout the country on the number of sold or spent materials, fuel, grain, cars, and so on over the past year. On the basis of statistics, production plans for the next year were made. This led to the so-called "period of stagnation" in the economy. For example, for 45 years one model of a Moskvich car has been produced, factories have been producing the same shirts and shoe models for decades without taking into account fashion. There was no motivation for innovative developments, for the introduction of random inventions, there was no competition. There were no concepts of small business accounting. There was only planned accounting.

Oil dependence on the export of raw materials to the West. Several pipelines were built in the 1960s and 1970s to export gas and oil to the countries of the European Union. Sales of raw materials and non-ferrous metals to the West increased. Foreign currency flowed into the treasury of the USSR. With the funds from the sale of oil and gas, it was possible to purchase food, household appliances, machine tools and equipment in the West. However, in the early 1980s, oil prices fell to historic lows, and shop shelves were empty in the USSR. This led to the beginning of the collapse of the country.

The arms race developed the market economy of the United States and Europe, provided Bobs and led to the development of technology. The arms race in the planned economy of the USSR led to a depletion of the budget, a lack of resources to provide the population with household appliances, food, and housing. Warehouses accumulated stocks of military equipment and weapons, while there was nowhere to buy an iron, a washing machine, and furniture. To buy a car, people stood in line for 7-12 years.

There was nowhere to spend the accumulated money. Picture 1. The population had more money in their hands and on personal deposits than goods that could be bought. From the report of the State Bank of the USSR for 1988: "Retail turnover, as in previous periods, lagged behind the growth rate of the population's money in- come. &ll this led to the need for a large issue of money into circulation without an appropriate commodity backing. The flow of light industry goods in 1987 declined due to a decrease in imports. The shortage of these products sharply worsened. The quality of a number of consumer goods remains low." [3]. The US CI& economic report explicitly states that: "The Gorbachev regime has made at least four serious errors in economicpolicy in these six years: the unpopular and short-lived antialcohol campaign; the initial cutback in imports of consumer goods; the failure to act decisively at the beginning for the privatization of agriculture; and the buildup of a massive overhang of unspent rubles in the hands of households and enterprises." [2] Private business and investment were banned, and the state could not produce enough goods and services for people to spend their money.

Human resources were not ready for reforms . From childhood to old age, the communist party took care of the citizen of the USSR. Everyone knew that he would have a state-owned apartment, a Bob, an average salary, vacations, treatment in a sanatorium, and education for children. This has led to a lack of modern knowledge and formulaic autobiographies of people.

Thanks to the systematic repression of enterprising people for 75 years, generations of passive people have grown up in Russia. More than 200 peoples and nations in the colonies of the empire, during the years of communism, have completely or partially lost their customs, history, culture and religion, many have forgotten their language. This mass of people was called "homo sovieticus" [4]. The people brought up by the communists tolerated any problems and did not interfere in the actions of the authorities, they were not able to take the initiative. This played an important role in the criminal privatization of state property by a group of future oligarchs.

Isolation from the outside world, censorship and propaganda . Travel abroad was allowed only to rare athletes, scientists, artists and diplomats, who were checked by the special service for loyalty to communism. The population did not know about the existence of a foreign passport and free elections. Foreign languages were poorly taught in the schools of the USSR. Censorship filtered information. Citizens knew about the outside world only from movies, considered the capitalists to be criminals exploiting unfortunate workers.

Section snippets

The birth of Russia's future oligarchic groups.

1ery accurately, the birth of the oligarchy in Russia was formulated by O.1. Kryshtanovskaya in the scientific work "Business Elite and Oligarchs: Results of the Decade" [6] In particular, she writes that "The centers of scientific and technical creativity of youth (ЦНТТМ) laid the foundation for the business class, which the party allowed to "conclude agreements" with the payment of cash. The leadership of the Communist Party tried to reduce the imbalance between the constant shortage of goods and the impossibility of business, which affected the entire population of the country. By allowing Komsomol members to do business, the party was sure that everything would

Consequences remain under its control. However, this logic turned out to be wrong. /oung entrepreneurs from the nomenklatura cynically uttered the usual speeches about scientific and technological progress, but in fact they used every opportunity to make money. [6] Further, Kryshtanovskaya continues: When the model of nomenklatura capitalism was tested, covert privatization began. High-ranking officials privatized that part of the state property that was in the sphere of their management. This latent stage of privatization began in 1989. the privatization took place without any announcement, under the complete control of government officials, and was intended to privatize the management of industry, the banking system and the distribution system. Concerns were created in place of ministries, commercial banks in place of state banks, and large trading houses in place of departments. [6]

1.    Future oligarchs as honest reformers.

In 1992, in order to complete the reforms, price legalization and privatization had to be carried out. It is here that the line is located, after which all state property of Russia ended up in the hands of oligarchic groups. Honest reformers were needed to carry out privatization among the "homo sovieticus" and prevent abuses. It is not surprising that the young advanced communist youth who came to power acted in their role. They were assisted by foreign experts and advisers who already had successful experience in the countries of the Eastern bloc. But the privatization process in Russia was like a magician's trick. The mechanism of its implementation created the appearance of social Bustice in the division of state property. Price liberalization was announced without any plans or control from the state or society. When inflation ate the last money of the population, and savings were frozen, the population was given vouchers and offered to participate in auctions.

Voucher value of Russian companies compared to WVWWWVWW SZWWWW VW*          vvvvvvvevvvvvvvvw WVWWeWWVWW VW- market value (in US$ million) WWWWWW VWVWVW 'VW    VWWWWVV'

Company	Voucher Auction Price (1993-1994)	Price on the Russian stock market (August 1997)
Gazprom	250	40 483
RAO "UES"	957	17 977
Lukoil	704	15839
Rostelecom	464	4172
Yuganskneftegaz	80	1656
Surgutneftegaz	79	6607

Picture 2. Source: [10] Translated from Russian

Skoropad 1., Oligarchization of the Consequences

2.    The final formation of theoligarchic clans in Russia.

Monetary period of privatization and private banks . In the scientific article "The Russian Oligarchy, Formation and Political Triumph", Татьяна Олейник notes that "the movement towards the oligarchy was associated with the transformation of state-owned obBects into Boint-stock companies. Moreover, the banking sector laid the foundation for the primary financial and industrial structures. In the conditions when intermediary operations became the basic forms of banking activity, those who had access to servicing the accounts of state structures were in a particularly advantageous position. &s a result, the old Soviet elite embarked on the path of increasing the processes of concentration of capital to the monetary stage of privatization." [8] The state machine that merged with business was a corruption component of privatization in Russia, the leveling of laws and moral principles. Яков Паппэ in his book "Oligarchs. Economic Chronicle 1992 - 2000", noted that "... any economic entity, if it reaches a scale comparable to the national economy, becomes a subBect of politics." [9]

The oil and gas industries were sold off at low prices, which then rose tenfold. (Picture 3).

Th® six most eKp®№i№ loans-foHitores euetrens in Russia (in Ш$ milliard

Company	Shares put up for auction, % of voting	Share price at auction (November-December 1995)	Market value based on share price at auction	Market value as of August 1,1997
«Lukoil»	5	35	700	15839
«Yukos»	45	159	353	6 214
«Surgutneftegaz»	40	88	220	5 689
«Sidanco»	51	130	255	5113
«SibNeft»	51	100	196	4 968
«Norilsk Nickel»	51	170	333	1890

Picture 3. Source: [10] Translated from Russian

Яков Паппэ coined the term "integrated business groups" (IBG) [9], that is, a set of individuals and legal entities, with their corrupt connections in the government, opportunities, power, and finances that arose during privatization in Russia. Such groups, as a rule, belonged to one or a group of oligarchs and sought to subBugate a certain industry or large subBects of production. Яков Паппе, in particular, notes the positive role that the IBG oligarchic groups played against the background of the general collapse of production. He writes: "Russian IBGs have not shown themselves to be serious investors. Neither the new Norilsk

Stages, off formation of the buisirtess elite In Russi a

Period	Stage name	Description of business elite	Characteristics of the economic process
1986-1989	Creation of the "Komsomol economy" (Organization of Young Communists)	Selection from the nomenclature of the experimental group of businesspeople	Monopolization of super-profitable high-speed sectors of the economy
1989-1992	Latent (nomenklatura) privatization. "State's privatization by state"	The formation of a "class of delegators11	Privatization of financial and management structures, concentration of financial capital
1992-1994	Open privatization of industry	Formation of business elites	The struggle of Moscow banks for the redistribution of industry
1994 1998	Loans-for-shares auctions.	Creation and formation of the oligarchy. Capture by Moscow banks of the largest industrial enterprises.	Creation of financial and industrial groups and vertically integrated companies
1998-present	Crisis of 1998 and post-crisis development	Formation of regional oligarchies	Figuration of leading holdings, specialization of business

Picture 4. Source: [6] Translated from Russian

of the reforms continued to influence the development of the economy almost until 2008, after the change of power.

• 3.    Mistakes of the reforms of 1993-1994, which made it possible to carry out the oligarchization of the Russian economy.

Well-known theorist of the world economy, Joseph Stiglitz World Bank Senior 1ice President and Chief Economist, 1997-2000 in an interview The Russian Road in 2003 [11] noted a number of mistakes made by the reformers of the Russian economy in 1992-1994, which led to the transition of the economy into the hands of the oligarchs:

INTER1IEWER: What went wrong in Russia's case?

JOSPEH STIGLITZ: "Well, there [were] an enormous number of mistakes, one after the other. They began with the shock therapy of liberalization, of eliminating price controls for most of the commodities. The result of that was that there was massive inflation. So, the high levels of inflation were, in fact, a consequence of the shock-therapy strategy in the beginning. That wiped out the savings of an enormous number of people. /ou didn't at that point have any basis of people having wealth to have a legitimate privatization process. They then had a privatization process that was corrupt and in which the country's assets were turned over to a few, to the oligarchs. The strategy was privatization at any cost. Do it quickly, is what the IMF kept telling them. The IMF kept a score card - how many privatizations had you done? But it's easy to privatize, give away the state assets to your friends. &nd in fact, it's not only easy; it's rewarding, because then they give a little bit of money back to you. So that was the strategy that was advocated and pushed. They then had policies like capital-market liberalization before they were ready. So, what did that mean? /ou had an illegitimate privatization. The people who had been able to use their political influence to get these billions and billions of dollars of natural resources for a pittance were then told, "Well, you have a choice: Keep your money inside Russia or take it to the United States." The United States was having a boom; Russia, because of the policies, was in a depression. Well, if you were smart enough to persuade /eltsin to give these billions of dollars, you were smart enough to figure out it's better to take your money to the United States or, even better, to

Cyprus, to secret bank accounts, to Switzerland, knowing full well that there'll be a change in government. When there's a change of government, there'll be a questioning of whether those privatizations were legitimate. If you had your money in Russia, people might say, "We want to do that over again; you effectively stole the country's assets." So, the experiences in Russia show that in some sense economists are right: Incentives matter. But under the IMF strategy, you put in place incentives that led to asset stripping rather than wealth creation and to the implosion of the economy rather than to economic growth."

INTER1IEWER: So, what would have been a better road?

JOSEPH STIGLITZ: "Well, the better road were the roads that Poland, Slovenia, China have taken. First of all, they focused on creating new enterprises rather than Bust restructuring the old. They focused on creating Bobs and employment. So, as you restructured the old, you had new avenues to use society's resources. Moving resources from low productivity to unemployment doesn't increase societies' wealth, doesn't increase anybody's income. Moving resources from low productivity to high productivity does. But if you have a tight monetary policy that has interest rates at 25, 50, 100, 150 percent, you can't start new businesses. &nd if you can't start new businesses, how are you going to have the new enterprises that are going to create new Bobs? &s you are reorienting the economy, you take out the resources from the inefficient sectors to move into the more efficient sectors. In the United States we talk about what raising interest rates by 1 percent or 2 percent does to Bob creation. In Russia at one point their interest rates were over 50, 100, and up to 150 percent. How could you have Bob creation? That was called a stabilization policy, but it wasn't stabilizing the society; it was actually leading to these policies that in some sense led to the implosion of the society, the economy and a destabilization of society."

INTER1IEWER: How did this affect the poor in Russia and the average person?

STIGLITZ: & number of things happened that contributed to the increase in poverty. Poverty increased from around 2 percent to 40 percent or more, depending on how you calculate it. [It was] one the most rapid increases in poverty that the world would have seen in that short span of time, apart from a natural disaster. With the tight monetary policies that were pursued and the other policies, firms didn't have the money to even pay their employees. What was tragic about it is while they didn't have enough money to pay their pensioners, to pay their workers, they were giving away the valuable state assets to a few rich people. So, in a way, resources were leaving Russia in massive amounts; billions and billions were leaving, with these open capital markets. Russia privatized before they had a good tax system in place. It's very easy to tax oil, and you can monitor the amount of oil that's being shipped abroad. It's actually relatively easy. But they privatized it before they put in the means of taxing this most basic resource of the Russian economy.

&lso, according to Shkaratan's theory, Russia imposed etacratism on neighboring countries by force. The core of etacratism is the republics of the former USSR (except for the Baltics and Ukraine); Semiperiphery - Bulgaria, Romania, Serbia, and Ukraine. Periphery is Poland, Hungary, Czech Republic, Slovenia, Lithuania, Latvia, Estonia. The more Western values, social norms,

Consequences and economic institutions a people can preserve with their culture, the further they are from the core and the easier it is to reform. Shkara-tan believes that it is mentally difficult for Russians to understand the institutions of private property, the market, the rule of law, and civil society. Therefore, "after the collapse of the USSR, unlike most Eastern European countries, Russia did not undergo a radical turn towards a competitive privateownership economy. [12] In fact, Shkaratan confirmed that Homo-Sovieticus has great difficulty presenting himself as an owner or a capitalist. Rather, he can easily imagine himself as an executor or a subBect of the leader.

80.5% of all serfs." [13] Of course, slavery could not but leave an imprint on mental behavior.

Too fast privatization . Comparison with experience in neighboring countries. "In the post-socialist countries of Europe, the release of prices took place gradually (for example, in Poland this happened practically throughout the entire 1980s), mitigating the monetary losses of the population, primarily of its low-income strata, by appropriate compensatory mechanisms." [7] "In Poland, privatization continued for more than 12 years," writes Симонян (Simonyan) in his work "Two Decades of Reforms through the Eyes of a Sociologist". "Even in tiny Estonia it lasted over five years, while in Russia it took two and a half years. Now everyone knows that it was a criminal privatization." [7] However, too long privatization can have a negative impact on the development of the country. For example, in Ukraine, privatization has dragged on for 30 years and has not yet been completed. &s a result, many promising enterprises found themselves without investments and professional management.

Geographical distance from the developed countries of the West. This opinion was reached by the adviser of reforms in Russia, Jef- frey D. Sachs, who writes in 1999 [14]: "It is a big mistake, in my view, to blame Russia’s problems on the "speed" of its economic reforms, especially since there were so few actual reforms! I was an economic adviser to Poland (19891991), Estonia (1992), Slovenia (1991-1992), and Russia (19921993). I watched all of these countries (and many others) up close. I gave similar general advice in these countries. Estonia, Poland, and Slovenia have prospered; Russia has not. The reasons for these differences lie not in any excessive "speed" of Russia’s reforms, but in geography, structural conditions, and of course politics.

Geography is critical, though often neglected by commentators. The countries closest to the markets of Western Europe (Poland, Hungary, the Czech Republic, Slovakia, Croatia, Slovenia, and the Baltic States) have had a much easier transition to capitalism than the more distant economies of the former Soviet Union. When a Western European enterprise, say 1olkswagen, decides to purchase parts from a firm in Eastern Europe, it almost surely goes first to a neighboring country -for example Poland - rather than to Ukraine or Russia. Therefore, the countries closest to Western Europe have received the largest flows of foreign investments from West- ern Europe and have also been able to expand their exports to the European Community. Foreign investment and exports have been the two main engines of economic recovery in countries like Poland, Slovenia, and Estonia. [14]

Wrong order of privatization and legal nihilism . First, it was necessary to complete the Budicial and legal reform, to improve the investment literacy of the population. Many scholars have said that the reform and privatization in Russia turned into a criminal redistribution of property due to the lack independent Budiciary and wellfunctioning legislation. People were deliberately taught to disregard the laws and the right of the strong was absolute. For example, in 1992-1993, after price liberalization, the government announced that citizens' savings in Sberbank until 1993 were frozen. These contributions have not been unfrozen so far. [15]

4.    Criminal bureaucratic oligarchization in Russia in 2000-2022.

During 1999, thanks to the situation in Iran, a barrel of oil rose from $11 to $25. The rise in the cost of oil continued in subsequent years, and on July 4, 2008, Brent oil prices reached a historic high of

Consequences

The ratio of oil & gas and non-oil & gas budget revenues of Russia.

Picture 5. Source: [16] Forbes. 2019. According to the Ministry of Finance of Russia.

Translated from Russian.

the following assessment: "Instead of modernization, deindustrialization took place. If in 1990 the share of goods with high added value in the structure of Russian exports was 38.8%, then in 2010 it was only 4.7%". [7] If in the 90s, we observe the transfer of finance and enterprises into the hands of the oligarchs, and in 1998 the result of reforms is manifested, then from 2000 to 2022, we observe an increase in the production and export of oil, gas, non-ferrous and ferrous metals, deforestation by Chinese companies of Siberian forests and export of national wealth abroad. Corruption and the export of capital abroad have reached unprecedented proportions. (Picture 6)

2000 2002 2004 2006 2008 2010 2012  2014 2016  2018

Picture 6. Source: [16] Forbes. 2019. According to Transparency International

CORRUPTION PERCEPTIONS INDEX in Russia 2000 - 2019

Skoropad 1., Oligarchization of the Russian Economy. Causes, Course and Consequences bankers of the 90s are being replaced by the oligarchs-officials of the 2000s.

Considering that the top table (Picture 4) was compiled based on 2001, I add another section of the table, based on 2000 to 2022. Here you can see that the oligarchization in Russia is completely fixated on power in the Kremlin:

2000 -	The final	Elimination of	The merger of the
present	formation of	regional	oligarchy with the
time.	criminal	oligarchies.	irremovable lead-
	oligarchic	Subordination of	ership of the
	capitalism in	all oligarchic	country.
	Russia.	criminal groups to	Uncontrolled dis-
		the Kremlin.	posal of the coun-
			try's resources.

Without an independent Budiciary and open multi-party-political institutions, capitalism in Russia becomes criminally oligarchic. The power structures are endowed with unlimited power, and the officials of the state apparatus are completely uncontrolled in their actions. There is a suppression of competition in the economy and politics. In the 2000s, the state came into business, but left science, education, health care, as it reduced funding for these structures. Government officials, using their official position, corrupt law enforcement agencies and the courts,

"squeeze" business from medium and small entrepreneurs. For example, in any city at the state hospital you will find private services owned by a relative of the head doctor, and private companies owned by relatives of the local education official will supply food to schools or kindergartens. This scheme is widespread throughout all regions and is typical of both large gas concerns and small hairdressing or vegetable shops. Where corruption has no place for competition, which means there is no economic growth.

In the 2000s, financial groups merge or are acquired, split, or co- operate. The economic lobby of the oligarchs got stronger and began to influence the legislative activity in the Russian parliament. For example, the oligarchs did not allow the adoption of a law on wealth tax, differentiated personal income tax for the rich, and so on.

Russian media and tourism programs create a picture of a prosperous country. Tourists are shown Red Square and the historical center in St. Petersburg. However, if you step aside from the tourist routes, you can see that 30 kilometers from Moscow in the cities there is no asphalt on the roads, no

In the country that is the leader in gas exports, two-thirds of the settlements are not supplied with gas, and 30% do not have running water, while the budget allocates

One of the main consequences of the oligarchization of the economy and the merger of the oligarchs with the regime was the transfer of huge sums abroad using special schemes. "On average, the size of the Russian shadow economy is estimated at 30-40% of GDP, while in the US and Switzerland it is about 9%, in China - 13.5%, in India - 24%. In terms of the shadow economy, Russia is somewhere close to Gabon and El Salvador." [21]

Skoropad 1., Oligarchization of the Russian Economy. Causes, Course and Consequences penalties of tens of millions of dollars were paid.

Conclusions

authorities, are plundering the country uncontrollably.

Forecast : In the current situation, in which criminally parasitic oligarchic bureaucratic groups rule, the Russian economy has no growth prospects. The population is in a difficult economic situation, which can lead to a social catastrophe. The restoration of economic growth is possible only after the change of corrupt government, the restoration of the Constitution and laws. It is necessary to decentralize the economy and finances, remove officials from business and launch competition.