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Debate: Restricting Russian oligarchy

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Should the power of Russia's oligarchy be curbed by the state?

Background and context

This issue refers to the powerful men who rose to power during the privatization reforms of the late eighties and early nineties. The most powerful of them have attempted, with very mixed results, to involve themselves in politics and public life in the new Russia. This powerful group of billionaires and millionaires have often come to their wealth through the massive corruption, fraud and inequity of Russian privatisation. Often, oligarchs, through their holding banks and by exploiting their connections, bought state property at drastically undervalued prices. They continue to face corruption charges relating to these sales into the present, but are also threatened by investigations into their accounting and taxation arrangements that many see as arbitrary. The Russian government has portrayed efforts against the oligarchs as restoring law and order, whereas the oligarch’s supporters think that substantive power in the hands of private individuals or civil society is unacceptable to the authoritarian Russian government. Six of the most important oligarchs to know, referenced in The Oligarchs (see Books list below) are: Boris Berezovsky, Vladimir Gusinsky, Mikhail Khodorkovsky, Alexander Smolensky, Anatoly Chubais, and Yury Luzhkov.

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Argument #1

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Yes

Russia’s oligarchs should be punished for the questionable sources of their wealth to serve as an example to the rest of Russian society. Imposing the rule of law on a society is not just a matter of institutional reform, but of changing popular political culture, as well. A highly visible and effective anti-corruption campaign is effective in that it stops corruption, but also in that this campaign is observed by the general public. This helps install a feeling of pride in the law and a willingness to follow it, as well as deterring other potential corporate criminals. Cracking down on the oligarchs will let everyone know that ill-gotten wealth is illegitimate wealth.

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No

Russia’s oligarchs are viewed by 85% of the population as being able to “do whatever they please”; 86% think the same of the government. Heavy-handed repression of the oligarchs on Putin’s model includes harassment, inflated charges and questionable tactics. Any action by the Russian government to decisively crush the oligarchs will raise the perception that the state has nearly total control of the country, and create sympathy (too late) with oligarchs. This will ennoble and justify the criminal, me-first attitude of the oligarchs in the face of continual state repression. While reforms to curb the oligarchs are needed, current actions do more damage to Russia’s political culture than the continued existence of oligarchs. The only acceptable action is one that will reduce the cynical perception of both state and entrepreneur.

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Argument #2

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Yes

The persistence of a miniscule elite prospering at the expense of every other strata of Russian society mirrors precisely the class structure of the Soviet Union – only now, the Russian government has begun to deny essential transportation, medicine and support to needy Russian citizens. Inequality, as measured by the Gini coefficient, from the World Bank Development Indicators 2004 stands at a staggering 45.6 - putting Russia in a position comparable to most developing countries in sub-Saharan Africa. The richest 10% of Russians holds 36% of the income, whereas the bottom 40% only receive 14.4% of income. Measures to curb the extreme excesses of the oligarchs will help redistribute assets and reform business practices to better aid society.

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No

The Russian government’s intervention inherently violates the rights of the individual and the rule of law. The very popular persecution of oligarchs is motivated by class envy and hatred. “Taming” the oligarchs is an excuse for class warfare that will tear at the already-frayed fabric of Russian society. If Putin panders to class envy, it will only stifle private enterprise and give the state a monopoly on wealth and power. If Russia’s citizens give Putin a mandate to harass wealthy business men, citizens will still lose out. They will exchange private oligarchs for corrupt and lawless public administrators who will steal from Russians as often as the oligarchs they replace.

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Argument #3

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Yes

The oligarchs' continued questionable business practices prevent the establishment of a truly free market in Russia. A strong example of how this lack of transparency hurts the Russian economy is in the 1998 IMF bailout. There have been repeated claims and investigations that up to 90% of a 4.8 billion rouble bailout paid to the Russian central bank went directly from the central bank to the accounts of Russian and foreign banks (see http://www.russianlaw.org/bridge1.htm). This kind of corruption was engendered and perpetuated by the oligarchs and an elite business class who promote and profit from continued corruption.

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No

Oligarchs are responsible for economic growth in Russia. According to a March/April 2004 Foreign Affairs article by Andrei Shleifer and Daniel Treisman, Khodorkovsky’s gas company, Yukos, has seen profits rise 40 times between 1996 and 2004. Vladimir Potanin’s Norlisk Nickel, one of the world’s largest mineral extractors, quintupled its profits. They have invested in capital and personnel for those businesses. Yukos is cited as investing nearly a billion dollars in 2001 into capital, and seen its assets double in value to twelve billion dollars since privatization began. Shleifer and Treisman contrast these private examples with state-owned gas-company Gazprom and airline Aeroflot, whose assets depreciated in the late nineties. Allowing what oligarchs remain to do business can only help the Russian economy.

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Argument #4

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Yes

Business corruption has spilled over into political corruption. One example is Mikhail Khodorkovsky, who has been accused of orchestrating the 1998 assassination of Vladimir Petukhov, the mayor of Nefteyugansk, who complained about Yukos’ non-payment of local taxes. He was killed on Khodorkovsky’s birthday, just before he was to file a formal complaint in federal court. In an article from The Electronic Telegraph (UK), 23 July 2000, Guy Chazan offers an example from Vladimir Gusinsky, owner of Media-MOST, among other media assets. He employed numerous ex-KGB operatives to form a private army of spies to investigate and conduct surveillance on his own media empire’s journalists. The oligarchs' greed, arrogance and power form a dangerous combination that will continue to undermine Russian democracy.

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No

Oligarchs, acting as powers independent of state control, are crucial to the development of civil society and freedom in Russia. For example, Vladimir Gusinsky, a powerful banker, started the independent NTV news network. After critical coverage of the first Chechen war and support for a presidential candidate other than the Kremlin’s favourite, Putin, in the 2000 races, vengeance was swift. In 2001, Putin used Gazprom, the state-owned oil company, to stage a hostile takeover of NTV. The Gazprom-backed board sent in private security guards and evicted all journalists from their offices. For Putin, “taming the oligarchs” is nothing more than pragmatic political repression.

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Argument #5

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Yes

Simply drawing a line under the past is not acceptable. If the oligarchs stole from the state, both through rigged privatisations and from massive tax evasion, then they should be called to account. Although a few companies are making a show of adopting western business ethics, this is just a cynical public relations exercise with little real impact. Not only does justice demand that past crimes are investigated and prosecuted, but Russia desperately needs the money that was stolen to provide welfare services for its needy citizens.

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No

Despite past excesses and the dubious nature of privatisations more than a decade ago, the oligarchs who remain are cleaning up their business practices. After a decade of questionable accounting, tax avoidance and enriching themselves at the expense of foreign investors and minority shareholders, Russia's business tycoons now see advantages in playing by developed world rules. Accounts are becoming much more transparent, management more professional and the rights of other stakeholders are being given more respect. Even if we deplore the origins of their business empires, we must recognise that the period after the collapse of the former Soviet Union was a chaotic one. The past behaviour of almost everyone with wealth and influence in Russia today could be called to account, but it would be hugely damaging to the economy. Worse, present government investigations into the pasts of some, but not all, oligarchs appears arbitrary, based upon current political expediency. This undermines the rule of law by putting anyone at the mercy of the government.

Motions

  • This House would tame Russia's oligarchs
  • This House would undo the mistakes of privatisation
  • This House would free Khodorkovsky
  • This House would tax Yukos
  • This House would repeat the Russian Revolution

This debate in legislation, policy, and elsewhere in the world

See also

External links and resources:

Books

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