56 Business The Economist March 12th 2022
It’snoteasybeing an oligarch
R
ussia is knownfor its trapeze artists. Few have mastered the
art as well as Vladimir Potanin, Russia’s richest businessman,
a stocky 61yearold with a fortune of about $23bn. Born into the
Soviet nomenklatura, he survived the fall of communism and then
played a role in designing Boris Yeltsin’s “loans for shares”
scheme, through which Russia’s late president hoped to put the
country’s assets in private hands. Mr Potanin used this scheme to
take ownership of natural resources. He is one of only a few Yelt
sinera oligarchs to have thrived under Vladimir Putin; the two are
icehockey chums. He retains the biggest stake in Norilsk Nickel,
one of the world’s largest nickel and palladium producers, though
for years he and fellow moguls squabbled over its ownership. Un
like other Kremlinlinked oligarchs, neither he nor his business is
subject to Western sanctions levied after Russia invaded Ukraine.
But the war has cost him. His wealth has fallen by about a quarter
this year, even as the prices of nickel and palladium have soared.
Such is life for tycoons in an increasingly tyrannical world. It is
one of the strange features of globalisation that autocracies, such
as Russia and China, are breeding grounds for billionaires. For a
while, Moscow minted more of them than any other city on Earth.
Now three Chinese cities, Beijing, Shanghai and Shenzhen, out
strip liberal honeypots like New York. The collapse of the Soviet
Union and the opening up of communist China have done as
much to spur a new gilded age for the superrich as all the techno
logical wizardry of Silicon Valley. The early years of freewheeling
capitalism in both Russia and China unleashed a shift in wealth—
both from genuine enterprise and the transfer of public assets into
private hands—perhaps unparalleled in human history.
And yet such fortunes can fall as fast as they rise. The same
cocktail of opportunism and risk that generates the bonanzas also
makes them vulnerable. That is the biggest lesson from the $100bn
or so that the Bloomberg Billionaires Index reckons the top 20
Russian ultrarich have lost since the start of the year. But it is not
unique to Russia. Tycoons in China, subject to the whim of Presi
dent Xi Jinping, would have similarly bruising tales to tell were
they not, like their Russian counterparts, forced to stay silent. The
same is true of Saudi billionaires locked up by Muhammad bin
Salman, the kingdom’s crown prince, in late 2017.The original sin of these regimes is the fluid laws—or sheer
lawlessness—that existed when market forces were unleashed. In
Russia’s case, it started with the privatisations of the mid1990s in
which assets like Norilsk Nickel, based in a former gulag in the
Russian Arctic, were auctioned for a song. The firstgeneration oli
garchs wielded influence in the Kremlin until Mr Putin changed
tack. Under him, a new wave of tycoons were given lucrative state
contracts. The deal was that as long as they stayed out of politics,
the Kremlin would keep out of their hair. Mr Putin, though, keeps
a heavy cudgel over their heads.
In China, Rupert Hoogewerf of the Hurun Report, a publisher
of global rich lists, recalls the “five colours” reportedly used in the
1990s to describe the provenance of plutocratic wealth: red for the
Communist Party, green for the army, blue for customs, white for
drugs, black for the black market. After that, says Minxin Pei, the
ChineseAmerican author of “China’s Crony Capitalism”, dirty
money turned into easy money. Property developers received land
and access to credit from the state. China’s selfmade tech ty
coons, such as Jack Ma of Alibaba and (unrelated) Pony Ma of Ten
cent, also took advantage of nonexistent regulation and used
their own skill to forge a dazzling digital duopoly. When an anti
trust blitzkrieg started last year, it may have been economically
justified. But it had the hallmarks of a political vendetta, too.
To sidestep the autocrats, the plutocrats sometimes try to win
the public’s support. That is a dangerous gambit. Mikhail Khodor
kovsky, a former oligarch, spent a decade behind bars from 2003,
ostensibly for tax fraud. His main crime was daring to contem
plate running against Mr Putin for president. Alibaba’s Mr Ma
made the mistake of acquiring rockstar status just as Mr Xi’s re
gime was becoming more paranoid. In its eyes, the tech sector had
strayed too far from core Communist Party values. Its fintech aspi
rations represented a threat to stateowned banks. Most sinful of
all, it represented a rival source of power. So Mr Ma was rebuked by
the party and is now rarely seen in public.
Another potential escape route is overseas. For years, a global
supporters club of lawyers, flacks and other hangerson have
helped Russia’s oligarchs hide their wealth in offshore tax shelters
and fluff up their reputations. While Russian firms flocked to the
London Stock Exchange, Chinese ones preferred New York and
Hong Kong, often using complex financial structures that enabled
them to get around China’s curbs on foreign capital.
But geopolitics has made that tougher, too. The West’s re
sponse to Russia’s aggression is to shine a spotlight on the oli
garchs’ hidden wealth, including yachts, homes and private jets.
The sanctions will hurt some of them, but so may a growing aver
sion to touching anything Russian. China has witnessed the same
assault on Huawei, its telecomsequipment giant. It leaves the
plutocrats few alternatives than to cosy up to the rulers back
home—whatever the cost. Belle Époque or Apocalypse Now?
None of this looks likely to end the gilded age. According to Hu
run, its upcoming global rich list will contain 200 more billion
aires than a year ago, and reach a new record. Chinese ones are
multiplying. Many, though, are ditching ostentation for a new
trait: humility. “In China, the very top entrepreneurs are almost
never in the public eye,” says Mr Hoogewerf. Mr Potanin’s survival
instinct is also to keep his head down. When interviewedbythe
Financial Timesin 2018, he was living in his own country clubout
side Moscow. Hiding away, he professed. “From everybody.”nSchumpeter
What makes you a plutocrat can also bring you down