Oligarchs and the forever rotten foundation of Russia’s post-Soviet economy.

For once, this note is not all about Putin’s destruction — of Ukraine, of Russia, and everything related. Well, it’s about that… But he’s part of the wider problem. And let me be upfront — I am about to make a bunch of negative observations without even attempting to suggest what could have been done differently, or what can be done going forward. Because no one knows. There is no solution. There is no going back in history.

For the uninitiated, here is a very simplified note on Russia’s infamous privatizations that gave birth to oligarchs.

The Soviet Union collapsed in 1991 and the transition to the market economy, under Russia’s first president Yeltsin, wasn’t easy (an understatement!). The government was bankrupt; it printed money and raised funds through privatizations, by selling state-owned assets at dirt cheap prices to the so-called insiders — managers or savvy financiers. So the ownership of oil fields and Soviet-era factories in different industries got transferred to private individuals. These private individuals in return supported Yeltsin and his family. This “partnership” was crony capitalism or outright corruption. But it was also needed to mitigate the risk of Yeltsin losing to communists and the country going back to the old regime.

Was there an alternative to these privatizations? Well, those state-owned assets could have been sold to foreigners, but the valuations would have been too low. So much of the country would have been “sold” to foreign corporations. Selling to insiders had to be done at equally low prices, but this must have seemed a lesser evil. The state could have pursued a more gradual approach to privatizations and the whole transition, but that’s a fruitless “could have been” debate.

In any case, a select few got extremely rich and powerful, and the vast majority of the population was impoverished throughout the nineties.

Then in the 2000s those companies cleaned themselves up, packaged themselves to be attractive to foreign investors, and went public. Their valuations also skyrocketed because of rising oil and metal prices. For example, in 1995 oil prices were in the teens ($15–20 per barrel), in 2005 they were approaching $60.

When Putin came to power in 1999, he faced the risk of being controlled by those rich oligarchs who had sponsored Yeltsin and his family. Putin established an agreement with…