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Episode
6

How Did The Russian Oligarchs Get So Rich?

First published on
December 6, 2019
Economics
-
15
minutes
Corruption
Russia
Oligarchs
The Cold War
Entrepreneurship

Ever wondered how the Russian oligarchs actually managed to get so rich?

Today we're going to be taking a look at how 22 men managed to gain control of 39% of Russia's entire economy, while the the rest of the country suffered.

You can then decide whether you agree with Putin, who in 2019 said "We do not have oligarchs in Russia anymore".

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Download transcript & key vocabulary pdf
Download transcript & key vocabulary pdfDownload transcript & key vocabulary pdf

Transcript

[00:00:00] Hello and welcome to the English Learning for Curious Minds podcast by Leonardo English. 

[00:00:08] I'm Alastair Budge, and today we are going to be looking at a Russian oligarchs. 

[00:00:14] Specifically, how did they get so incredibly rich? 

[00:00:20] At the end of the Soviet Union there were 150 million people living in Russia, in theory at least, equal, as private property had largely been abolished. Within a few years, 22 individuals ended up owning 39% of the entire economy with a large part of the rest of the population living in poverty.

[00:00:44] Today, we are going to be looking at how that happened. 

[00:00:48] But before we get right into it, I just want to remind those of you listening to this podcast on Spotify, Apple Podcasts or whatever other podcast app you might be listening to it on that you can get a copy of the transcript and key vocabulary for this podcast on the website, which is Leonardoenglish.com.

[00:01:07] The website is also full of loads of helpful tips, tricks, and guides about learning English with podcasts. So if you haven't checked that out, it's well worth doing so, if I may say so myself. 

[00:01:19] If you're already listening to this on the website, then congratulations, you're one step ahead of the game already.

[00:01:25] Okay, so oligarchs. 

[00:01:27] The word oligarchy comes from the Greek. Oligoi means few, and arkhein means to rule. 

[00:01:35] So it means the rule of a few, and an oligarch, well, an oligarch is one of the few who rule. 

[00:01:43] When we talk about Russian oligarchs, we're talking about the men, and I'm afraid it is almost exclusively men who managed to achieve vast wealth after the fall of the Soviet Union in 1991.

[00:01:56] Names you may be familiar with include Khodorkovsky, Berezovsky, Friedman or the owner of Chelsea football club, Roman Abramovich. 

[00:02:07] To properly understand how the oligarchs managed to amass such riches, it's important to understand a bit, not just about Russia, but also the world in 1991. 

[00:02:19] The Soviet Union or the USSR was formed in 1922.

[00:02:24] For almost 70 years it had existed as a socialist republic and in the postwar period it had been pretty economically stagnant while much of neighbouring Western Europe and archrival the US had been enjoying the economic spoils of capitalism.

[00:02:42] In 1991 Russia was still a very poor country, or rather, Russians were very poor. 

[00:02:49] GDP per capita was three and a half thousand dollars, about a seventh of that of America. When the USSR collapsed, Russia wanted some of that economic growth that the West had been enjoying. 

[00:03:03] However, private ownership as a concept didn't exist in the same way.

[00:03:08] Everything from schools to shops to the factories you worked in. Everything was owned by the state. 

[00:03:17] Although some privatisation initiatives had been launched by Mikhail Gorbachev in the late 1980s it wasn't until the early 1990s that the real push towards privatisation began. 

[00:03:29] As everything had historically been owned by the Russian state, the state had to figure out a way to transfer ownership from itself directly to the people. 

[00:03:43] In theory, the aim for this was to be as equitable, as equal as possible, but in practice it was far from it. 

[00:03:52] They didn't want to sell the state assets to the highest bidder as they feared that this would lead to ownership being concentrated among the Russian mafia and bureaucrats.

[00:04:02] So they had to figure out a way of transferring ownership away from the state in a way that gave it directly to the Russian people. 

[00:04:12] Although they went about this in a number of ways, one of the most interesting, and one of the ways in which the oligarchs managed to get so much power in such a short period was through something called the voucher system.

[00:04:26] The system was actually pretty simple. 

[00:04:29] To transfer assets from the state to the people, the Russian government gave a voucher to every man, woman, and child. These vouchers formed 30% of the state owned enterprises in Russia, of the state businesses in Russia. The idea here was that the Russian state was passing ownership back to the people.

[00:04:53] Ultimately the state belonged to the people, and this was a way of formalising the transfer of ownership. The vouchers had a nominal price of around $20 and there were 150 million of them. 

[00:05:08] If you're doing the maths, this means that there were a total of $3 billion worth of vouchers for almost a third of the Russian economy making the entire Russian economy worth $10 billion.

[00:05:21] For a country that now has an economy of one and a half trillion dollars, and with a quarter of the world's natural gas reserves and 10% of the world's oil, that's quite a bargain price. 

[00:05:35] As most normal Russians didn't have any real understanding of how share ownershipworked, it wasn't really clear that they could do anything with these vouchers. And they had more pressing concerns, like having enough food and drink, and a huge number of these vouchers were sold off to other enterprising Russians who would typically then sell them off for a small profit.

[00:05:58] Ultimately, these shares from the voucher scheme ended up in the hands of a small group of investors and powerful individuals, who managed to get ownership of 30% of the Russian economy and paid significantly less than what the assets were actually worth.

[00:06:15] It's exactly the opposite of what was intended, at least in theory by the Russian state.

[00:06:22] That wasn't the only way though. By the time this had happened, a small group of men had managed to amass a large amount of wealth, through a series of what some might call ingenious schemes, others might call well, somewhere between scheming and plain theft.

[00:06:40] As we know, Russia was transitioning from a centrally planned and state run economy to a market economy. Very few people in Russia had any idea of how to do this, and there were many, many loopholes that were exploited by enterprising Russians. Khodorkovsky, for example, one of the most famous oligarchs and one who ended up getting on the wrong side of Vladimir Putin, managed to set up his own bank after having found a loophole in factory subsidies, and he amassed a pile of cash

[00:07:16] As one of the only private banks in Russia, he managed to get vast amounts of money from the Russian state, with which he would then speculate on the currency markets and make a sizable profit from. Others had managed to make millions through arbitraging the cost of Russian goods.

[00:07:36] That means they would buy something that was cheap in Russia and cheap, typically because it was subsidised by the state, and then sell it on the world markets where it could command a much higher price.

[00:07:50] By the mid 1990s there were around two dozen incredibly wealthy oligarchs in Russia, a group of whom controlled practically all of the media. 

[00:08:00] At the same time the president Boris Yeltsin was deeply unpopular with the Russian people and heading for defeat in the presidential elections of 1996. 

[00:08:12] Yeltsin's challenger was a man called Gennady Zyuganov, who ran on an anti-oligarch pro-communist message. 

[00:08:20] The oligarchs stood to lose everything. And so the powerful men controlling the media threw all of their weight behind Yeltsin, and he came back to win a second term. 

[00:08:33] The agreement between Yeltsin and the oligarchs, according to many commentators, was, give me a second term and you'll get free rein to do whatever you want. 

[00:08:45] Indeed, by the year 2000 a group of seven bankers known in Russia is semibankirskina controlled anything from 50 to 70% of all Russian financial activity. 

[00:09:00] But how did they amass such incredible wealth and how did their wealth continue to grow in the latter half of the 1990s? 

[00:09:09] Well, yes, they had managed to get control of cut-price Russian assets partly through the voucher scheme, but there are two more ways that we're going to cover today. 

[00:09:21] Firstly, something called investment tenders

[00:09:25] Even after the voucher scheme, the government left 20% of every state company still owned by the state.

[00:09:33] By the mid 1990s they were so anxious to continue the sell-off of state assets they would sell the remaining 20% to anyone who promised to invest in the company. 

[00:09:46] As we know, a large proportion of the state owned enterprises were very unproductive. They were just really bad, inefficient companies, and they needed a large amount of investment to allow them to compete in a market economy.

[00:10:01] The Russian state was just desperate for someone to come along and fix these useless companies. And so in many cases, a promise of investment was enough to get the deal. So this means that a load of these companies were snapped up at rock bottom prices, and they've since been turned around, made more efficient and some are very valuable. 

[00:10:23] The final way in which they acquired their loot was through something called the loans for shares scheme. It was definitely the most scandalous of the ways in which the oligarchs became so wealthy.

[00:10:37] How this worked was that the banks run by the oligarchs were charged with auctioning off some of Russia's largest state companies from steel manufacturers to oil and gas companies.

[00:10:50] The bankers rigged the auctions, meaning that in many cases they were also participating in the auction, so they were the auctioneer and the participant, and they could just pick themselves as the winner. Evidently, if you are choosing yourself to be the winner of an auction, you want to pay as little money as possible, and this is exactly what happened.

[00:11:14] Khodorkovsky for example, received a stake in the oil and gas company Yukos for $310 million. Right, that might sound a lot of money to me or you, but that stake was actually worth $5 billion. 

[00:11:29] Quite a bargain. Right? 

[00:11:32] Unsurprisingly, this made the oligarchs incredibly unpopular with the regular non-oligarch Russian population.

[00:11:40] You know, the 99.99999% of the population. 

[00:11:46] The discounts that these oligarchs got on the state assets didn't come from nowhere. It was money that should have gone into the Russian state, but instead, all of the profits flowed straight into the oligarchs’ pockets. 

[00:12:00] Key to the oligarchs' success, in case you hadn't already guessed, was relationships with government. Although the Russian state was weak, none of these favourable deals would have been possible without close relationships with government officials. So knowing who to speak to and when was absolutely everything.

[00:12:20]Then in the year 2000 along came Vladimir Putin. While Putin's reign has been excellent news for many of the oligarchs, several have found themselves purged and unable to return to Russia, including Khodorkovsky. There are several theories which are uncorroborated of course, that deals were struck between Putin and the oligarchs, whereby he promised that he wouldn't go after them in return for their support.

[00:12:48] There are also several theories that Putin asked for a lot more, and by a lot more, I mean a chunk of their wealth. However, that's a conversation for another day. 

[00:13:00] So where does this leave the oligarchs in 2019? 

[00:13:05] A large proportion of all the wealth of Russia is still concentrated in the hands of very few, with 35% of all the wealth in Russia owned by only 110 individuals.

[00:13:20]Some of these individuals are still the same as those that amassed vast wealth in the 1990s in the wild west days of Soviet capitalism . 

[00:13:30] Indeed, a research paper in 2018 suggested that there is more than three times as much money held by Russians outside of Russia as there is held in Russia. 

[00:13:45] Just to underline on that final point, and given that this wealth will largely be held by the oligarch population, there is more than three times the amount of money held by Russians outside Russia, which isn't going back into the economy or helping regular Russians than there is in the entire Russian economy.

[00:14:06] in July of 2019 the president of Russia, Vladimir Putin said, we do not have oligarchs in Russia anymore.  

[00:14:17] I think I'll let you be the judge of that. 

[00:14:20] As always, if you've enjoyed this podcast and you want to get notified whenever we release a new one, then just hit that subscribe button.

[00:14:27] If you're looking for the key vocabulary and transcript, you can grab that over on the website, which is www.leonardoenglish.com it's also in the show notes. 

[00:14:38] And as one final thought, if you've enjoyed this podcast, please do consider taking 20 seconds out of your day and leaving a review.

[00:14:46] Every review helps more people find out about the podcast and the more people who listen well the better it'll get for everyone. 

[00:14:54] You've been listening to the English Learning for Curious Minds podcast by Leonardo English with me, Alastair Budge. I'll catch you in the next episode.



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[00:00:00] Hello and welcome to the English Learning for Curious Minds podcast by Leonardo English. 

[00:00:08] I'm Alastair Budge, and today we are going to be looking at a Russian oligarchs. 

[00:00:14] Specifically, how did they get so incredibly rich? 

[00:00:20] At the end of the Soviet Union there were 150 million people living in Russia, in theory at least, equal, as private property had largely been abolished. Within a few years, 22 individuals ended up owning 39% of the entire economy with a large part of the rest of the population living in poverty.

[00:00:44] Today, we are going to be looking at how that happened. 

[00:00:48] But before we get right into it, I just want to remind those of you listening to this podcast on Spotify, Apple Podcasts or whatever other podcast app you might be listening to it on that you can get a copy of the transcript and key vocabulary for this podcast on the website, which is Leonardoenglish.com.

[00:01:07] The website is also full of loads of helpful tips, tricks, and guides about learning English with podcasts. So if you haven't checked that out, it's well worth doing so, if I may say so myself. 

[00:01:19] If you're already listening to this on the website, then congratulations, you're one step ahead of the game already.

[00:01:25] Okay, so oligarchs. 

[00:01:27] The word oligarchy comes from the Greek. Oligoi means few, and arkhein means to rule. 

[00:01:35] So it means the rule of a few, and an oligarch, well, an oligarch is one of the few who rule. 

[00:01:43] When we talk about Russian oligarchs, we're talking about the men, and I'm afraid it is almost exclusively men who managed to achieve vast wealth after the fall of the Soviet Union in 1991.

[00:01:56] Names you may be familiar with include Khodorkovsky, Berezovsky, Friedman or the owner of Chelsea football club, Roman Abramovich. 

[00:02:07] To properly understand how the oligarchs managed to amass such riches, it's important to understand a bit, not just about Russia, but also the world in 1991. 

[00:02:19] The Soviet Union or the USSR was formed in 1922.

[00:02:24] For almost 70 years it had existed as a socialist republic and in the postwar period it had been pretty economically stagnant while much of neighbouring Western Europe and archrival the US had been enjoying the economic spoils of capitalism.

[00:02:42] In 1991 Russia was still a very poor country, or rather, Russians were very poor. 

[00:02:49] GDP per capita was three and a half thousand dollars, about a seventh of that of America. When the USSR collapsed, Russia wanted some of that economic growth that the West had been enjoying. 

[00:03:03] However, private ownership as a concept didn't exist in the same way.

[00:03:08] Everything from schools to shops to the factories you worked in. Everything was owned by the state. 

[00:03:17] Although some privatisation initiatives had been launched by Mikhail Gorbachev in the late 1980s it wasn't until the early 1990s that the real push towards privatisation began. 

[00:03:29] As everything had historically been owned by the Russian state, the state had to figure out a way to transfer ownership from itself directly to the people. 

[00:03:43] In theory, the aim for this was to be as equitable, as equal as possible, but in practice it was far from it. 

[00:03:52] They didn't want to sell the state assets to the highest bidder as they feared that this would lead to ownership being concentrated among the Russian mafia and bureaucrats.

[00:04:02] So they had to figure out a way of transferring ownership away from the state in a way that gave it directly to the Russian people. 

[00:04:12] Although they went about this in a number of ways, one of the most interesting, and one of the ways in which the oligarchs managed to get so much power in such a short period was through something called the voucher system.

[00:04:26] The system was actually pretty simple. 

[00:04:29] To transfer assets from the state to the people, the Russian government gave a voucher to every man, woman, and child. These vouchers formed 30% of the state owned enterprises in Russia, of the state businesses in Russia. The idea here was that the Russian state was passing ownership back to the people.

[00:04:53] Ultimately the state belonged to the people, and this was a way of formalising the transfer of ownership. The vouchers had a nominal price of around $20 and there were 150 million of them. 

[00:05:08] If you're doing the maths, this means that there were a total of $3 billion worth of vouchers for almost a third of the Russian economy making the entire Russian economy worth $10 billion.

[00:05:21] For a country that now has an economy of one and a half trillion dollars, and with a quarter of the world's natural gas reserves and 10% of the world's oil, that's quite a bargain price. 

[00:05:35] As most normal Russians didn't have any real understanding of how share ownershipworked, it wasn't really clear that they could do anything with these vouchers. And they had more pressing concerns, like having enough food and drink, and a huge number of these vouchers were sold off to other enterprising Russians who would typically then sell them off for a small profit.

[00:05:58] Ultimately, these shares from the voucher scheme ended up in the hands of a small group of investors and powerful individuals, who managed to get ownership of 30% of the Russian economy and paid significantly less than what the assets were actually worth.

[00:06:15] It's exactly the opposite of what was intended, at least in theory by the Russian state.

[00:06:22] That wasn't the only way though. By the time this had happened, a small group of men had managed to amass a large amount of wealth, through a series of what some might call ingenious schemes, others might call well, somewhere between scheming and plain theft.

[00:06:40] As we know, Russia was transitioning from a centrally planned and state run economy to a market economy. Very few people in Russia had any idea of how to do this, and there were many, many loopholes that were exploited by enterprising Russians. Khodorkovsky, for example, one of the most famous oligarchs and one who ended up getting on the wrong side of Vladimir Putin, managed to set up his own bank after having found a loophole in factory subsidies, and he amassed a pile of cash

[00:07:16] As one of the only private banks in Russia, he managed to get vast amounts of money from the Russian state, with which he would then speculate on the currency markets and make a sizable profit from. Others had managed to make millions through arbitraging the cost of Russian goods.

[00:07:36] That means they would buy something that was cheap in Russia and cheap, typically because it was subsidised by the state, and then sell it on the world markets where it could command a much higher price.

[00:07:50] By the mid 1990s there were around two dozen incredibly wealthy oligarchs in Russia, a group of whom controlled practically all of the media. 

[00:08:00] At the same time the president Boris Yeltsin was deeply unpopular with the Russian people and heading for defeat in the presidential elections of 1996. 

[00:08:12] Yeltsin's challenger was a man called Gennady Zyuganov, who ran on an anti-oligarch pro-communist message. 

[00:08:20] The oligarchs stood to lose everything. And so the powerful men controlling the media threw all of their weight behind Yeltsin, and he came back to win a second term. 

[00:08:33] The agreement between Yeltsin and the oligarchs, according to many commentators, was, give me a second term and you'll get free rein to do whatever you want. 

[00:08:45] Indeed, by the year 2000 a group of seven bankers known in Russia is semibankirskina controlled anything from 50 to 70% of all Russian financial activity. 

[00:09:00] But how did they amass such incredible wealth and how did their wealth continue to grow in the latter half of the 1990s? 

[00:09:09] Well, yes, they had managed to get control of cut-price Russian assets partly through the voucher scheme, but there are two more ways that we're going to cover today. 

[00:09:21] Firstly, something called investment tenders

[00:09:25] Even after the voucher scheme, the government left 20% of every state company still owned by the state.

[00:09:33] By the mid 1990s they were so anxious to continue the sell-off of state assets they would sell the remaining 20% to anyone who promised to invest in the company. 

[00:09:46] As we know, a large proportion of the state owned enterprises were very unproductive. They were just really bad, inefficient companies, and they needed a large amount of investment to allow them to compete in a market economy.

[00:10:01] The Russian state was just desperate for someone to come along and fix these useless companies. And so in many cases, a promise of investment was enough to get the deal. So this means that a load of these companies were snapped up at rock bottom prices, and they've since been turned around, made more efficient and some are very valuable. 

[00:10:23] The final way in which they acquired their loot was through something called the loans for shares scheme. It was definitely the most scandalous of the ways in which the oligarchs became so wealthy.

[00:10:37] How this worked was that the banks run by the oligarchs were charged with auctioning off some of Russia's largest state companies from steel manufacturers to oil and gas companies.

[00:10:50] The bankers rigged the auctions, meaning that in many cases they were also participating in the auction, so they were the auctioneer and the participant, and they could just pick themselves as the winner. Evidently, if you are choosing yourself to be the winner of an auction, you want to pay as little money as possible, and this is exactly what happened.

[00:11:14] Khodorkovsky for example, received a stake in the oil and gas company Yukos for $310 million. Right, that might sound a lot of money to me or you, but that stake was actually worth $5 billion. 

[00:11:29] Quite a bargain. Right? 

[00:11:32] Unsurprisingly, this made the oligarchs incredibly unpopular with the regular non-oligarch Russian population.

[00:11:40] You know, the 99.99999% of the population. 

[00:11:46] The discounts that these oligarchs got on the state assets didn't come from nowhere. It was money that should have gone into the Russian state, but instead, all of the profits flowed straight into the oligarchs’ pockets. 

[00:12:00] Key to the oligarchs' success, in case you hadn't already guessed, was relationships with government. Although the Russian state was weak, none of these favourable deals would have been possible without close relationships with government officials. So knowing who to speak to and when was absolutely everything.

[00:12:20]Then in the year 2000 along came Vladimir Putin. While Putin's reign has been excellent news for many of the oligarchs, several have found themselves purged and unable to return to Russia, including Khodorkovsky. There are several theories which are uncorroborated of course, that deals were struck between Putin and the oligarchs, whereby he promised that he wouldn't go after them in return for their support.

[00:12:48] There are also several theories that Putin asked for a lot more, and by a lot more, I mean a chunk of their wealth. However, that's a conversation for another day. 

[00:13:00] So where does this leave the oligarchs in 2019? 

[00:13:05] A large proportion of all the wealth of Russia is still concentrated in the hands of very few, with 35% of all the wealth in Russia owned by only 110 individuals.

[00:13:20]Some of these individuals are still the same as those that amassed vast wealth in the 1990s in the wild west days of Soviet capitalism . 

[00:13:30] Indeed, a research paper in 2018 suggested that there is more than three times as much money held by Russians outside of Russia as there is held in Russia. 

[00:13:45] Just to underline on that final point, and given that this wealth will largely be held by the oligarch population, there is more than three times the amount of money held by Russians outside Russia, which isn't going back into the economy or helping regular Russians than there is in the entire Russian economy.

[00:14:06] in July of 2019 the president of Russia, Vladimir Putin said, we do not have oligarchs in Russia anymore.  

[00:14:17] I think I'll let you be the judge of that. 

[00:14:20] As always, if you've enjoyed this podcast and you want to get notified whenever we release a new one, then just hit that subscribe button.

[00:14:27] If you're looking for the key vocabulary and transcript, you can grab that over on the website, which is www.leonardoenglish.com it's also in the show notes. 

[00:14:38] And as one final thought, if you've enjoyed this podcast, please do consider taking 20 seconds out of your day and leaving a review.

[00:14:46] Every review helps more people find out about the podcast and the more people who listen well the better it'll get for everyone. 

[00:14:54] You've been listening to the English Learning for Curious Minds podcast by Leonardo English with me, Alastair Budge. I'll catch you in the next episode.



[00:00:00] Hello and welcome to the English Learning for Curious Minds podcast by Leonardo English. 

[00:00:08] I'm Alastair Budge, and today we are going to be looking at a Russian oligarchs. 

[00:00:14] Specifically, how did they get so incredibly rich? 

[00:00:20] At the end of the Soviet Union there were 150 million people living in Russia, in theory at least, equal, as private property had largely been abolished. Within a few years, 22 individuals ended up owning 39% of the entire economy with a large part of the rest of the population living in poverty.

[00:00:44] Today, we are going to be looking at how that happened. 

[00:00:48] But before we get right into it, I just want to remind those of you listening to this podcast on Spotify, Apple Podcasts or whatever other podcast app you might be listening to it on that you can get a copy of the transcript and key vocabulary for this podcast on the website, which is Leonardoenglish.com.

[00:01:07] The website is also full of loads of helpful tips, tricks, and guides about learning English with podcasts. So if you haven't checked that out, it's well worth doing so, if I may say so myself. 

[00:01:19] If you're already listening to this on the website, then congratulations, you're one step ahead of the game already.

[00:01:25] Okay, so oligarchs. 

[00:01:27] The word oligarchy comes from the Greek. Oligoi means few, and arkhein means to rule. 

[00:01:35] So it means the rule of a few, and an oligarch, well, an oligarch is one of the few who rule. 

[00:01:43] When we talk about Russian oligarchs, we're talking about the men, and I'm afraid it is almost exclusively men who managed to achieve vast wealth after the fall of the Soviet Union in 1991.

[00:01:56] Names you may be familiar with include Khodorkovsky, Berezovsky, Friedman or the owner of Chelsea football club, Roman Abramovich. 

[00:02:07] To properly understand how the oligarchs managed to amass such riches, it's important to understand a bit, not just about Russia, but also the world in 1991. 

[00:02:19] The Soviet Union or the USSR was formed in 1922.

[00:02:24] For almost 70 years it had existed as a socialist republic and in the postwar period it had been pretty economically stagnant while much of neighbouring Western Europe and archrival the US had been enjoying the economic spoils of capitalism.

[00:02:42] In 1991 Russia was still a very poor country, or rather, Russians were very poor. 

[00:02:49] GDP per capita was three and a half thousand dollars, about a seventh of that of America. When the USSR collapsed, Russia wanted some of that economic growth that the West had been enjoying. 

[00:03:03] However, private ownership as a concept didn't exist in the same way.

[00:03:08] Everything from schools to shops to the factories you worked in. Everything was owned by the state. 

[00:03:17] Although some privatisation initiatives had been launched by Mikhail Gorbachev in the late 1980s it wasn't until the early 1990s that the real push towards privatisation began. 

[00:03:29] As everything had historically been owned by the Russian state, the state had to figure out a way to transfer ownership from itself directly to the people. 

[00:03:43] In theory, the aim for this was to be as equitable, as equal as possible, but in practice it was far from it. 

[00:03:52] They didn't want to sell the state assets to the highest bidder as they feared that this would lead to ownership being concentrated among the Russian mafia and bureaucrats.

[00:04:02] So they had to figure out a way of transferring ownership away from the state in a way that gave it directly to the Russian people. 

[00:04:12] Although they went about this in a number of ways, one of the most interesting, and one of the ways in which the oligarchs managed to get so much power in such a short period was through something called the voucher system.

[00:04:26] The system was actually pretty simple. 

[00:04:29] To transfer assets from the state to the people, the Russian government gave a voucher to every man, woman, and child. These vouchers formed 30% of the state owned enterprises in Russia, of the state businesses in Russia. The idea here was that the Russian state was passing ownership back to the people.

[00:04:53] Ultimately the state belonged to the people, and this was a way of formalising the transfer of ownership. The vouchers had a nominal price of around $20 and there were 150 million of them. 

[00:05:08] If you're doing the maths, this means that there were a total of $3 billion worth of vouchers for almost a third of the Russian economy making the entire Russian economy worth $10 billion.

[00:05:21] For a country that now has an economy of one and a half trillion dollars, and with a quarter of the world's natural gas reserves and 10% of the world's oil, that's quite a bargain price. 

[00:05:35] As most normal Russians didn't have any real understanding of how share ownershipworked, it wasn't really clear that they could do anything with these vouchers. And they had more pressing concerns, like having enough food and drink, and a huge number of these vouchers were sold off to other enterprising Russians who would typically then sell them off for a small profit.

[00:05:58] Ultimately, these shares from the voucher scheme ended up in the hands of a small group of investors and powerful individuals, who managed to get ownership of 30% of the Russian economy and paid significantly less than what the assets were actually worth.

[00:06:15] It's exactly the opposite of what was intended, at least in theory by the Russian state.

[00:06:22] That wasn't the only way though. By the time this had happened, a small group of men had managed to amass a large amount of wealth, through a series of what some might call ingenious schemes, others might call well, somewhere between scheming and plain theft.

[00:06:40] As we know, Russia was transitioning from a centrally planned and state run economy to a market economy. Very few people in Russia had any idea of how to do this, and there were many, many loopholes that were exploited by enterprising Russians. Khodorkovsky, for example, one of the most famous oligarchs and one who ended up getting on the wrong side of Vladimir Putin, managed to set up his own bank after having found a loophole in factory subsidies, and he amassed a pile of cash

[00:07:16] As one of the only private banks in Russia, he managed to get vast amounts of money from the Russian state, with which he would then speculate on the currency markets and make a sizable profit from. Others had managed to make millions through arbitraging the cost of Russian goods.

[00:07:36] That means they would buy something that was cheap in Russia and cheap, typically because it was subsidised by the state, and then sell it on the world markets where it could command a much higher price.

[00:07:50] By the mid 1990s there were around two dozen incredibly wealthy oligarchs in Russia, a group of whom controlled practically all of the media. 

[00:08:00] At the same time the president Boris Yeltsin was deeply unpopular with the Russian people and heading for defeat in the presidential elections of 1996. 

[00:08:12] Yeltsin's challenger was a man called Gennady Zyuganov, who ran on an anti-oligarch pro-communist message. 

[00:08:20] The oligarchs stood to lose everything. And so the powerful men controlling the media threw all of their weight behind Yeltsin, and he came back to win a second term. 

[00:08:33] The agreement between Yeltsin and the oligarchs, according to many commentators, was, give me a second term and you'll get free rein to do whatever you want. 

[00:08:45] Indeed, by the year 2000 a group of seven bankers known in Russia is semibankirskina controlled anything from 50 to 70% of all Russian financial activity. 

[00:09:00] But how did they amass such incredible wealth and how did their wealth continue to grow in the latter half of the 1990s? 

[00:09:09] Well, yes, they had managed to get control of cut-price Russian assets partly through the voucher scheme, but there are two more ways that we're going to cover today. 

[00:09:21] Firstly, something called investment tenders

[00:09:25] Even after the voucher scheme, the government left 20% of every state company still owned by the state.

[00:09:33] By the mid 1990s they were so anxious to continue the sell-off of state assets they would sell the remaining 20% to anyone who promised to invest in the company. 

[00:09:46] As we know, a large proportion of the state owned enterprises were very unproductive. They were just really bad, inefficient companies, and they needed a large amount of investment to allow them to compete in a market economy.

[00:10:01] The Russian state was just desperate for someone to come along and fix these useless companies. And so in many cases, a promise of investment was enough to get the deal. So this means that a load of these companies were snapped up at rock bottom prices, and they've since been turned around, made more efficient and some are very valuable. 

[00:10:23] The final way in which they acquired their loot was through something called the loans for shares scheme. It was definitely the most scandalous of the ways in which the oligarchs became so wealthy.

[00:10:37] How this worked was that the banks run by the oligarchs were charged with auctioning off some of Russia's largest state companies from steel manufacturers to oil and gas companies.

[00:10:50] The bankers rigged the auctions, meaning that in many cases they were also participating in the auction, so they were the auctioneer and the participant, and they could just pick themselves as the winner. Evidently, if you are choosing yourself to be the winner of an auction, you want to pay as little money as possible, and this is exactly what happened.

[00:11:14] Khodorkovsky for example, received a stake in the oil and gas company Yukos for $310 million. Right, that might sound a lot of money to me or you, but that stake was actually worth $5 billion. 

[00:11:29] Quite a bargain. Right? 

[00:11:32] Unsurprisingly, this made the oligarchs incredibly unpopular with the regular non-oligarch Russian population.

[00:11:40] You know, the 99.99999% of the population. 

[00:11:46] The discounts that these oligarchs got on the state assets didn't come from nowhere. It was money that should have gone into the Russian state, but instead, all of the profits flowed straight into the oligarchs’ pockets. 

[00:12:00] Key to the oligarchs' success, in case you hadn't already guessed, was relationships with government. Although the Russian state was weak, none of these favourable deals would have been possible without close relationships with government officials. So knowing who to speak to and when was absolutely everything.

[00:12:20]Then in the year 2000 along came Vladimir Putin. While Putin's reign has been excellent news for many of the oligarchs, several have found themselves purged and unable to return to Russia, including Khodorkovsky. There are several theories which are uncorroborated of course, that deals were struck between Putin and the oligarchs, whereby he promised that he wouldn't go after them in return for their support.

[00:12:48] There are also several theories that Putin asked for a lot more, and by a lot more, I mean a chunk of their wealth. However, that's a conversation for another day. 

[00:13:00] So where does this leave the oligarchs in 2019? 

[00:13:05] A large proportion of all the wealth of Russia is still concentrated in the hands of very few, with 35% of all the wealth in Russia owned by only 110 individuals.

[00:13:20]Some of these individuals are still the same as those that amassed vast wealth in the 1990s in the wild west days of Soviet capitalism . 

[00:13:30] Indeed, a research paper in 2018 suggested that there is more than three times as much money held by Russians outside of Russia as there is held in Russia. 

[00:13:45] Just to underline on that final point, and given that this wealth will largely be held by the oligarch population, there is more than three times the amount of money held by Russians outside Russia, which isn't going back into the economy or helping regular Russians than there is in the entire Russian economy.

[00:14:06] in July of 2019 the president of Russia, Vladimir Putin said, we do not have oligarchs in Russia anymore.  

[00:14:17] I think I'll let you be the judge of that. 

[00:14:20] As always, if you've enjoyed this podcast and you want to get notified whenever we release a new one, then just hit that subscribe button.

[00:14:27] If you're looking for the key vocabulary and transcript, you can grab that over on the website, which is www.leonardoenglish.com it's also in the show notes. 

[00:14:38] And as one final thought, if you've enjoyed this podcast, please do consider taking 20 seconds out of your day and leaving a review.

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[00:14:54] You've been listening to the English Learning for Curious Minds podcast by Leonardo English with me, Alastair Budge. I'll catch you in the next episode.