According to Forbes Magazine thirty-nine of the world’s hundred richest people are Americans. Their fortunes amount to 4.6% of US GDP. Fourteen of the world’s hundred richest people, the next largest group, are Russians. The Russian concentration of super-wealth – at 26 per cent of GDP – is much higher, since Russia’s national income is one-seventh of America’s. These figures are reported by Martin Wolf in the Financial Times of 7 November. Wolf writes that such extreme inequalities of wealth, and the inequality of power which goes with it, are bound to call into question the legitimacy of the political and economic system which allows it.
He goes on to say that it is easier to justify wealth earned in competitive markets than wealth earned by exploiting a monopolistic or protected position. This is the classic distinction between profit (прибыль) and rent (рента). Entrepreneurs earn profits, monopolists earn rents. The American super-wealthy made their fortunes through competitive success, now or in the past; the Russians by ‘appropriating much of the wealth of a collapsing superpower’.
In the subsequent debate in the FT’s online forum, it was pointed out that Wolf’s criterion of legitimacy was insufficient. Whether earned competitively or under conditions of monopoly, great wealth gives rise to illegitimate power. For example, successful entrepreneurs use their wealth to block the entry of competitors. Bill Gates [of Microsoft] is an example of the tendency, even in a dynamic industry, for profit to turn itself into rent. The economist William Buiter noted that even ‘legitimately acquired extreme wealth’ is dangerous for liberty, because ‘too often the extremely rich are no longer under the law, but either beyond the law or busy subverting or changing the law to serve their private interests’ – notably by bribing or corrupting governments, parliaments, and judges. This aborts the accountability of governments to those who elected them.
This is the traditional social democratic critique: unequal wealth leads to unequal power. Joe Stiglitz’s latest book, Making Globalization Work, is a good example of this quasi-Marxist approach. He says that multinational corporations have created a global trading regime to suit their interests, undermining the benefits of globalization. However, it should be noticed that in this type of argument the economy and the political system are considered, and analysed, as separate entities. This is the western tradition, and reflects the historical separation of the two realms. The issue is then whether and how the plutocracy subverts the democratic process to its aims.
It is not clear that such an analysis applies to contemporary Russia, because it locates power in the wrong place. In Russia power and wealth are fused in a system of state capitalism, with the state in control. This is what Putin managed to do when he crushed the independent oligarchs by dismantling Yukos and destroying the political ambitions of Khodorkovsky. Today the oligarchs are entirely subservient to the Kremlin, and will even become philanthropists on the President’s orders.
In the west, huge concentrations of wealth threaten to bend the state to their will; in Russia the state bends wealth to its will. Wealth is part of the state apparatus, a power resource like the army or police force, to be deployed primarily for public purposes, and only secondarily for private enrichment. Because they have no independent power, the Russian oligarchs are tolerated, even though their wealth is based on rent. If they step out of line, they can be disposed of, to popular acclaim.
But there is a big downside. The American billionaires form entrepreneurial elite; the Russian billionaires are an off-shore aristocracy who siphon as much of their wealth as they can abroad. To have a business leadership with no commitment to their country is a menace to Russia’s future.