How Did Russian Oligarchs Get So Rich?

Russian Oligarchs have become synonymous with superyachts, luxury mansions and the shady political maneuvering of post-Soviet Russia. Since the Russian invasion of Ukraine, Russian billionaires like Roman Abramovich, Vladimir Potanin, Alisher Usmanov and Oleg Deripaska have been all over the news.

The word Oligarch conjures up images of opportunistic, well-connected businessmen who made billions by plundering the remains of the collapsed Soviet state. But how exactly did Russia’s oligarchs get so rich?

Patrick's Books:

Patrick Boyle On Finance Podcast:

Join this channel to support making this content:

[quincylarsonmusic]

“In a country where the rule of law was frequently trumped by the rule of in-laws.” I love that turn of phrase and I’m stealing it.

[youtubeusrname]

Patrick, I'm typing this to you from a city in a European part of Russia. This is a stellar piece of content. You did an amazing job covering so many things at once, it was almost as if my dad was explaining the same thing to me - and my dad literally lived through all of these events.

Thank you for what you do, take care.

[enilenis]

I lived through that. My father ended up owning a water tower. And he formed a co-op, which was registered to the water tower address. When the vouchers were distributed, most people weren't told what they were. The word "privatization" was just that - a word with no concept behind it. The video has it right about the post-soviet mentality and how it threw a wrench into the plans, that probably looked good on paper. Due to poor financial literacy, the system was indeed, flooded with scams, and people bought all of it without resistance. Oligarchs were waging wars on eachother. Plenty of assassinations over turf. New Russians were always targeted by smaller criminals. Protection rackets etc. Underground crime and private enterprise eventually reached a point of symbiosis, and they exist as such to this day.

[peter.g]

I really love the pacing of your videos. Traditional documentaries would be filled with a lot of fluff - family members, pets, properties of these oligarchs and so on, only to anyway say the same thing in the end - they got rich by seizing natural resources. Love this high-info-concentration style.

[RussianPinoy]

I sold my 10, 000 R voucher at the time for 600 rubles to a solicitor on the street that was buying them from public, I used it to buy a Soviet made stereo that broke 3 days later because it started chewing my casette tapes and it drained batteries very quickly. If I knew that I could buy up more of these vouchers (shares) to buy a stake in a local factory I would have probably acted more strategically, however lacked any information as to what a heck was going in in the country as a high school student.and thats my Soviet to Russian story. Thank you Patrick for VERY accurate chronological history you are amazing you hit on points spot on as I was a witness to everything you said when I was in High School in Soviet Union/ Russia. Also its not "Chubai" it is "ChubaiS_ you pronounce the S

[chesswithivan]

Great vid, I'm from Bulgaria which is a microcosm of everything described. Same tactics (often supported by Russia), just our oligarchs are poorer, since there is less to steal, and since we managed to politically align with the West, there are some controls preventing total corruption. But oligarchs still very powerful to this day!

[LiborTinka]

This happened in my country (Czech Republic) as well - once the communist regime fell, the state assets ended in hands of the few people connected to the former regime (they had better information on which assets are most profitable), benefiting hugely. One such oligarchs - a former secret service member - even made it to a PM and now running for president. Unfortunately, people here are economically and financially so ignorant and uneducated they give this a pass.

[CanadianNemesis]

"Economic Shock Therapy"... I died! LOL🤣

[Theopenwindowmaniacs]

It is often said around me that post-Soviet Russia is in many ways worse than during Soviet rule, but no one has ever been able to explain to me why other than "it is corrupt." Thank you for taking the time to organize this video and enlighten me on the subject. Everything makes so much sense now!

[perihelion]

I gleaned some of this information from other sources.

However, this video was the most in-depth look at the oligarchs I have ever seen. It is exceptional.

Thank you Patrick for all of the great research you did to provide us with is information. It's amazing!

[taniadavenport]

Pretty well explained what had happened to my country. Every time I am listening to this or trying to tell others about it I feel almost physical pain what happened then. Imagine living in society, maybe not perfect, but with a thought- it’s all OURS (like say National parks in some countries), schools, factories, forests, hospitals, plants ;and suddenly someone claims it and you can not use it anymore ( or certainly it becomes NOT OURS, meaning NOT MY too). I lived there in 90s and can vouch almost for everything that was said. I did not know about that 51% share rule. I just saw how directors and their accountants ( who’s paycheque was maybe just two or three times more of worker ) suddenly became owners of whole factories basically for free ( before the whole factory belonged to government). And yes, no one went to protest, because not one had experience of shareholding, since there were all government entities ( say like government schools or hospitals in capitalistic countries).Unfairness on the greatest scale. I even dare to say, if privatisation was done better and not such disparities were created, if everyone could feel that they could do business big or small from privatisation, probably even recent big conflict would not be possible, because who really wants to die for money in foreign land in mass. But now it is so easy to coerce poor young soldier to fight since in such rich country he doesn’t have any other prospects to live for, been robbed by oligarchs.

[doncarlodivargas]

I worked in an earlier soviet Republic in the middle of the 90'ties, only a few years after the collapse of the soviet Union, and one of the locals had married and was about to get an apartment, and he told us westerners that he was even struggling to understand the concept of interest, it was for him totally unknown word when he contacted the bank for a loan

[benjamingoldstein]

"In a country where the rule of law is frequently trumped by the rule of in-laws." That line alone is already genius!

[antonkushnikov]

My uncle was a kind of mayor of a small yet capital town of an oil-mining region in western Siberia in the 80s-90s. Now he owns a pretty big (non-government) tv channel and some other businesses. My mother was telling stories about how such entrepreneurial people were buying vouchers for bottles of vodka. I also heard stories that some of our relatives were in the middle of a process of privatization of their primary residences, though it was in the late 2000s. But I know a person who could hold her voucher and buy a piece of Gazprom: now the dividends are covering her rent easily

By the way, you can still buy a solid plot of land in Russia for something like $300/acre, because those people still have no idea what to do with that land acquired during the privatization. You'll have to do a hell of a job to find that plot of land though, but it is still possible :D

[mattj]

That's one of the best pocket squares I have ever seen

[burgersuperking]

Very good presentation, but one thing missing from this explanation, and its a very common mistake since Patrick looks at Russia through western eyes. Thing is all those three groups of oligarchs were not random sneaky go-getters, they were 'allowed' to privatize assets because they belong to certain ruling soviet clans that took roots in the past. Further examination would show, that they were merely a walking wallets even during the Eltsins period, and they never had any significant political power, despite a common misconception that they did. Putin did not change the system, he is a talking head of his St. Peterburgs clan, and they just raided other oligarchs from another Muskovite clan, which had strong connections to Eastern Ukraine and Dnipro, because once in soviet union Donetsk-Dnipro clan moved to Moscow as a dominant one when Khruschev and Brezhnev were in power. They brought their fellow east ukrainians (friends and relatives) and gave them positions in Soviet elite after Stalins death.

[EmilNicolaiePerhinschi]

only one thing was missed:

Soviet companies were not really companies. They were subsidiaries of a very few very large vertically integrated companies. A factory might have an accountant but they were dealing with paying wages and inventories, and very likely not with depreciation or return on investment or EBITDA. All these specialized functions were fulfilled by small bureaucrats likely not party members that worked directly for the government. The banks were not for commercial banks, they were government departments. Factories received money from the government through the banks and produced what the government believed was needed. Research was not done by factories, there were separate research institutes that answered only to the government.

The local managers were not really managers in an economic sense of the word: they were more like foremen than CEOs, and implemented directives received from the government.

When privatization happened local "companies" that were previously very simple subsidiaries with the minimum of management were left loose. Imagine all the Apple shops becoming independent companies, or the the consumer Windows division, the Windows server division, the research division and the upper management with their auxiliaries becoming four independent companies, then every separate office building of these newly created companies becoming independent if they were located in another town.

Then these companies were not all run as profit centers.

Then since the 1960s Soviet Union had introduced a version of the JIT: not everywhere but they tended to work with small buffers and not produce to stock. This was not an exception, Soviet Union adopted Fordism/interchangeable parts produced to standards since the 1920, while Western Germany and UK still had difficulties understanding the concept during the 1980s.

On top of these huge vertically integrated companies were the Party elites. By the late '80s the party elites were the third generation, those who got their jobs by getting good grades in school at literature, philosophy, Math and maybe Marxism-Leninism and being born in the right family. They did not understand free markets: they understood monopolist capitalism XIXth century style very well though, that was the Capitalism their grandparents and parents fought against. They did not understand how the economy of the Soviet Union worked: during late '80s after the first wave of very limited liberalization the production of food increased slightly, and they extrapolated that to the whole economy and decided they no longer needed central planning, liberalization will fix everything. When they decided that central planning was obsolete, the whole Soviet Union project was perceived as obsolete :-): free market solved the supply of strawberries, this means free market can solve everything: yes, the success a limited right to free enterprise had in increasing the supply of strawberries was a subject of economic projection on the Moskva 1 TV station in 1988 or 1989 (I remember because the strawberry season had already passed in Romania and we were living very close to the border and could receive one Russian and one Ukrainian TV station). The same projection happened in Romania in 1990: I think it was the prime minister Petre Roman (second generation Party but very well educated in languages, philosophy and literature) who was talking on TV about one third of the land (which was cultivated directly) producing 2/3 of the food in Romania, and about how much was going to be produced if all the land would be given to the former members of the state ran farms :-) .

When central planning stopped they were left with the people who knew what to do but were living without any authority in Moscow (lots emigrated and did well abroad) or in regional centers, and with theoretically powerful local "managers" and "accountants" that had little experience actually running companies, and with a former Party elite that controlled the government but really understood very little (proof: after losing his job Gorbachev lived from a government pension and conference fees).

Now imagine the managers of the companies that were producing exactly what their downstream consumers needed, then the official link between them is severed, financing is severed, their link to the shops (assuming they were producing for the consumer market) is gone and those managers who only used to walk around looking fearsome, and signing documents sent from the center, and their accountants who were experienced in doing payrolls, had to find their equivalents in other companies, strike deals, find money from somewhere to keep things going another day until production adjusted to the new conditions.

It is possible that all the thieving and cheating saved Russia :-).

[incremental_failure]

In the Baltics, my dad was dealing in Led Zeppelin vinyls. That said, Baltics were far more liberalised compared to Russia.

[eIonmusk]

When I was in college, a classmate asked me if I wanted to get into scheme involving buying up workers allocations to buy up their assets. He said for $100k, I could own a share of a mine with him and his family. Since he was studying in the US I assume his family were pretty connected insiders. I didn't have $1000 much less $100k and I knew a lot of scams were going on. He went on to work for Goldman Sachs and is pretty wealthy. Interesting times.

[szamiduzaable]

as a Pole I totally agree: in '90s there was just not enough to steal here.