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Can Russia's Oligarchs Challenge Putin?

(Washington, DC--May 12, 2003) Can Russia's business oligarchs become a challenge to Putin? That was the question posed by Marshall Goldman, Kathryn W. Davis Professor of Economics at Wellesley College to an RFE/RL audience on May 1. Discussing his new book, "The Piratization of Russia: Russian Reform Goes Awry," Goldman, who is also Associate Director of the Davis Center for Russian Studies at Harvard University, said that the oligarchs influence has solidified in recent years, noting that four oligarch-owned business empires generate profits that exceed Russia's gross state revenue.

The origin of the oligarchs' influence lies in the 1991 collapse of the Soviet Union, when a small group of Russians emerged to claim ownership of the country's most valuable petroleum, natural gas and metal deposits. By 1997, five of these individuals were on Forbes Magazine's list of the world's richest billionaires.

According to Goldman, most of the individuals who became "obscenely wealthy" were not members of the nomenklatura -- the Soviet bureaucracy -- who simply seized control of the ministries they worked at. Rather, they were "ne'er-do-wells," Goldman said, who had been denied participation in government and legitimate opportunities to advance. Forced onto the fringes of society, "they engaged in marginal activities in order to accomplish things." Having accumulated both capital and tactical experience through black-marketeering and other illegal practices, Goldman noted, these bright and ambitious individuals "knew how to operate in a scarcity society." Using illicit capital and lending practices, many of the oligarchs established banks, utilized profits to exploit the reformist voucher system, and bought up the country's resources. "They brought their underground tactics to the surface," said Goldman, "They had an edge." Moreover, he added, "they used guile, intimidation, and violence to reap their rewards."

Goldman's book also asks whether Russia's privatization efforts "might have been less calamitous?" Noting that American advisers contributed to the corruption, Goldman said "western specialists in corporate governance were establishing principles while their wives and mistresses were running hedge funds and engaging in insider trading." Based on the Russian experience, Goldman asked how any country could be recreated once its entire internal distribution system had been destroyed, and how future efforts could avoid the pitfalls of mafia and government corruption.

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