I enjoy defending rich people. In part, that’s because I appreciate how rich entrepreneurs make life better for me and everybody else.
But I also defend rich people because of my deep disdain for the policy agenda of empty-suit politicians and envy-wracked demagogues.
If we want outcomes that are better for society and the economy, I’m 100-percent confident that Jeff Bezos and Elon Musk can spend their wealth better than the hacks and clowns in Washington.
But what if rich people get money from government cronyism? What if they became wealthy because of special favors from politicians?
Greg Ip of the Wall Street Journal wrote about this issue a couple of years ago and included this chart showing that cronyism is a small problem in the United States but a big problem in Russia.
Here’s some of what Mr. Ip wrote about Russia’s cronyism.
How a billionaire earns his or her fortune matters, of course. Some are “rent seekers,” meaning they skim off the productive efforts of others via corruption, royal prerogative or control of some valuable market or resource. That’s why Russia is an outlier in Ms. Freund’s research: lots of oligarchs, with not much economic benefit to show for it.
Since he wrote that article well before Russia’s invasion of Ukraine, he wasn’t focused on the geopolitical considerations that are dominating the discussion today.
So now let’s look at a very recent report from the U.K.-based Economist. Here are some key excerpts.
…the sanctions levied at Russian oligarchs have intensified scrutiny on the origins of tycoons’ wealth. …Rent-seeking entrepreneurs tend to use their relationships with the state to maximise profits. …Our index uses 25 years of data from Forbes’s annual stock-take of the world’s billionaires. …We have classified the main source of each billionaire’s wealth into crony and non-crony sectors. …Russia’s crony economy sticks out like a blinged-up Muscovite… Some 70% of the 120 Russian billionaires, who together hold 80% of its billionaire wealth, fall within our crony-capitalist definition. Wealth equivalent to 28% of Russia’s gdp in 2021 came from crony sectors, up from 18% in 2016.
The bottom line is that Russia’s “oligarchs” are not like the self-made billionaires that we’re fortunate to have in the United States.
Here’s the accompanying chart from the article. Russia does stand out…in a very bad way. If the numbers are accurate, getting in bed with politicians is the way to get rich.
Now that we’ve established that Russian billionaires generally don’t earn their money, this leads us to the more challenging issue of whether nations such as the United States should freeze and/or expropriate the wealth of the oligarchs in response to Putin’s invasion of Ukraine?
Since I’m not a lawyer or an expert on foreign and defense issues, I don’t pretend to know the best approach. I want Putin and his cronies to suffer, but I also have some qualms about the current approach.
- Is the “rule of law” being overlooked and “due process” getting trampled in the rush to go after the assets of wealthy Russians, some of whom may have emigrated because of their opposition to Putin?
- Are people being targeted simply because of their Russian ethnicity, just as an awful president targeted Americans of Japanese descent during World War II?
- If getting rich through cronyism is a sufficient pretext to confiscate wealth, does that mean it’s okay to seize the assets of ethanol producers and stockholders of Fannie Mae and Freddie Mac?
P.S. For what it’s worth, my gut instinct is that cronyism is a much bigger problem in China’s economy that we see in the data from the WSJ and the Economist.
P.P.S. Click here to learn more about “rent seeking.”
[…] a thorough discussion of how the oligarchs gained control of key sectors of the economy, as well as this discussion of other policy […]
[…] oligarchs don’t deserve much sympathy because they got their riches through cronyism rather than […]
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[…] Very Little Sympathy for Russian Oligarchs […]
John Wagner,
Yes capital gains are taxed as ordinary income at 13% except Russians do file income tax. Income tax is not listed as a revenue source in en.wikipedia.org/wiki/Taxation_in_Russia.
What is your evidence that 600 billionaires are not supported by government? Musk and Bezos are great contributors to the US economy but they did get government aid. The evidence for cronies is vague. Dan Mitchel lists 2 articles that make assumptions. He does not give evidence for cronies. Our billionaires make a tremendous contribution to our economy.
Wikipedia defines a “business oligarch” as 1st: “uses monopolistic tactics to dominate an industry.” Amazon, Google, and Microsoft use monopolistic tactics.
Many large companies use their size to get special favors from state governments as Tesla does.
I’m more concerned about them hurting Russian citizens than putting the (temporary) squeeze on oligarchs . However, people need to know the truth about the US’s involvement in Ukraine politics. They were spending billions in Ukraine even before this invasion.
Dear Evidence,
Maybe you should change your name to Selective Evidence. Yes, the electric vehicles of Elon Musk and Tesla are substantially supported by government policy (US and others). BUT… there are over 600 billionaires in the US, and the same is not true of them. Yes, Russia doesn’t have a capital gains tax. BUT… I believe that’s because they tax capital gains as ordinary income!!! And in any case, capital gains tax is only one issue among many, and Russia is hardly a good model of capitalism or economic freedom.
Elon Musk has got at least $7 billion most in tax breaks from California and Nevada for Tesla. See Wikipedia references for Tesla giga factories. Is Musk a crony? Amazon tax breaks are similar. Search Amazon tax breaks. Your WSJ chart shows the US has few billionaires with government connections. These crony capitalism studies are flawed.
You wrote “Russia Is More Capitalist than the U.S. (Again)” on 6/26/2010. They have no capital gains tax.
Wikipedia NATO: “Russia invaded Ukraine in February 2022 …to prevent it from aligning with NATO”. Carlson: “getting Ukraine to join NATO was the key to inciting war with Russia.”
We have nuclear bombs near Russian borders but they have none near ours. The United States has 150 B61 nuclear bombs in NATO countries Belgium, Germany, Italy, Netherlands and Turkey. Wikipedia: B61 nuclear bomb.
JF Kennedy blocked Russian nuclear bombs near our borders in the Cuban Missile Crisis in 1962.
We have NATO with nuclear bombs close to Russia. Why do we not have an organization to target nuclear weapons in France, India, Israel and the UK?
We are committed to war with Russia if they invade Estonia or Latvia, NATO members. Estonia and Latvia were part of Russia for 255 years of the last 312 years since 1710. Wikipedia: Latvia Estonia.
Putin has the highest approval rating of major world leaders:~75%. Far higher than Biden or Macron. en.wikipedia.org/wiki/Vladimir_Putin#/media/File:Vladimir_Putin_approval_(Levada,_2020).png
We are the aggressor.
[…] Very Little Sympathy for Russian Oligarchs — International Liberty […]
I abhor asset forfeiture in nearly all forms. These Russian oligarchs have committed no known crimes here in the US, the UK, Italy, etc, and yet their private property is seized in the name of…what? Once given the power to take private property under the guise of cronyism, the slippery slope will quickly follow to the private property and assets of people who do not agree with those in power. Take one look at Canada to see how easily it can happen.