From Russia, with regression analysis

No market economy here: An economist crunches some numbers on the rise and fall of oligarchic capitalists in the post-Soviet era.

Published April 30, 2007 8:58PM (EDT)

In his new blog, Harvard economist Dani Rodrik recommends a "fascinating" paper on the rise and fall of oligarchs in post-Soviet Russia by Serguey Braguinsky, an assistant professor of economics at the State University of New York. If your idea of "fascinating" includes regression analysis aimed at coming up with quantifiably supportable observations about such things as whether or not reporting your income to the tax authorities (or whether or not you were Jewish) means you were more or less likely to be purged by Putin, then go for it. Otherwise, you'd probably be better off reading Perry Anderson's terrific analysis of the current state of Russia in the January London Review of Books.

Which is not to say that Braguinsky's paper is uninteresting. His data analysis is aimed at helping to answer a key question: whether the oligarchic capitalism that replaced communism in Russia "represents a transition stage that will eventually lead to a true market economy and political democracy, or whether it is a blind alley that can only lead to another inefficient socioeconomic system."

Braguinsky is no optimist. The core of his paper is his diligent efforts to construct a database of some 200 oligarchs, who can be divided into roughly two groups, the "old oligarchs" who were part of the Soviet state apparatus, the "nomenklatura," and managed to grab hold of key sectors of the economy, and the "new oligarchs" who came from outside the old order, and who, in a perfect world, one might hope would represent an emerging class of market-based entrepreneurs who would help move Russia quickly into an enlightened age of democratic reform.

But no. "Instead of changing the rules of the socio-economic game established by the 'Soviet Mafia,' the new entrepreneurial entrants were themselves changed by those rules ... The Yeltsin-era oligarchs had built their empires on a shaky foundation of rent-seeking and political patronage, and once the political regime changed, especially Jewish oligarchs found themselves in an extremely vulnerable position given the latent anti-semitism ever-present in the Russian society."

The correlation between the Putin-orchestrated crackdown of the Yeltsin-era new oligarchs and their ethnicity has been widely noted. But Braguinsky's summation is worth repeating in full:

One of the most striking changes that happened to the business elite in Russia following the collapse of communism was a very high share of ethnic Jews among new entrepreneurial entrants. During the Yeltsin era many of those new Jewish oligarchs built huge business and media empires and were constantly ranked by experts among the most influential members of the amalgamated Yeltsin-era oligarchy. But they, alongside with their non-Jewish colleagues, failed to build a truly long-lasting foundation for those empires that could only have come from a competitive market economy and a western-style democratic political system. Instead, as Mr. Yeltsin's term neared its end in 1999, the new oligarchs tried to hand-pick a successor who would guarantee them "stability" and "continuity." Mr. Berezovsky, the most influential oligarch of the time and a close friend of the Yeltsin family, is particularly credited by the Russian media to have orchestrated two changes of the Prime-Minister, the position second-in-line to Presidency under the Russian Constitution, within the span of just 3 months. When Mr. Putin became the third and final choice in early fall of 1999 and Mr. Yeltsin announced him as his "official" successor, the new leader was practically unknown to the public and widely regarded as Mr. Berezovsky's puppet. Once Mr. Putin assumed powers in 2000, however, he very quickly showed that he was no one's puppet. Not surprisingly, Mr. Berezovsky was one of the first among those whose fortunes took a plunge under the man he had helped bring to power.

Braguinsky's contribution is to support his observations with carefully crunched data -- in other words, his conclusions are scientifically replicable. The above-mentioned London Review of Books essay is equally convincing, although sheerly via the weight of its compelling narrative. Both stories converge on one point -- the corrupt Yeltsin regime bears massive responsibility for squandering whatever opportunity Russia had to successfully evolve into a "competitive market economy" with a "western-style democratic political system." He may be dead, but he won't be soon forgotten.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

MORE FROM Andrew Leonard

Related Topics ------------------------------------------

Globalization How The World Works Russia