Russia's Gilded Age?

In early September, Boris Berezovsky--one of Russia's (in)famous oligarchs--announced that he would transfer control of his stake in Russia's largest television network to a group of 14 journalists to keep it out of government hands. This move may be just another shady deal in the byzantine world of Russian business and politics. But it might also be the beginning of a trend where Russia's powerful oligarchs finally turn from exploiters of the system into major stakeholders--just like their U.S. counterparts did in the 19th century.

Russia, it's often argued, remains an economic basket case because of the presence of oligarchs like Berezovsky, who often used the country's transition from socialism to today's would-be capitalism to ruthlessly enrich themselves. Controlling them is believed to be the key to kick-starting serious reforms in Russia. President Vladimir Putin has made it clear that he shares that view. But despite the still rather bleak outlook for the Russian economy, there's a precedent in U.S. history that gives cause for optimism for Russia's future.

Back in the late 1800's in America, the emergence of a rather distasteful group of individuals who controlled America's emerging industries with iron fists turned out to be a key feature of economic development. As monopolists, oligarchs initially exploited the system. Their watchword was the famous exclamation by Commodore Vanderbilt: "The public be damned."

There's little difference between the once-upon-a-time Rockefellers, Vanderbilts, and Morgans and the Berezovskys, Alikperovs, and Abramovitzes of today's Russia. In the U.S. then, as in Russia now, there was little government regulation to keep entrepreneurs in check. Yet, both governments had an enormous impact on the economy as they disposed of vast amounts of property--with little or no thought to what would be considered appropriate procedures in today's industrialized countries.

Consider the following description of the relationship between business and government: The hotels in the capital are "crammed with businessmen toting suitcases full of cash to get government contracts. The President admires the industrial captains, aspires to their society, and assembles a government full of cronies. And businessmen prefer to think of themselves as victims of political extortion, not as initiators of bribes," all the while "government degenerates into a sea of iniquity." Amazingly, these words are not taken from current news columns on Russia, but from The Titan, Ron Chernov's biography of the oil magnate John D. Rockefeller.

The result: wealth beyond measure amassed by people lucky enough to have government connections, or smarter and more ruthless than their peers. This new class of tycoons (the word was invented to describe them) saw nothing wrong with buying judges and legislators. Government, after all, was simply another commodity--like oil or steel. Mark Twain famously dubbed this period the "Gilded Age," alluding not only to the prominent decorating style, but even more to the thin exterior coating of public morals over private greed.

Having amassed wealth, however, America's tycoons became worried about their reputations--and whether a society with such stark poverty side-by-side with their riches could indeed survive. And so, the wealth was increasingly used for the new activity of philanthropy. The fortunes amassed through manipulation and monopoly found their way into libraries, museums, and other public institutions, and into the newly invented charitable foundation--which ensured that money, however ill-gotten, would be used for the general good.

Berezovsky & Co. have amassed enough personal wealth to force them to think just as seriously about the future. They must be keen to turn from exploiters of the system into major stakeholders to make their newly gained wealth last over the long haul. To do so, they must take an active part in establishing the kinds of institutions we take for granted in the West: The rule of law, transparency, judicial independence--in short, the rules and arrangements we use to spread power around and make sure that no one economic faction can trump another. Of course, it's far from assured that the final outcome in Russia will be as benign as it was in the U.S. There certainly will be many setbacks along the way. There's no denying that the oligarchs have much to lose--but even more to gain--by becoming a positive force of change within Russia. After all, that's what happened here in the U.S.

Stephan-Gotz Richter is publisher of TheGlobalist.com