The Russia 100

Having recently looked at the list of Russia's 100 richest people I was overwhelmed by anger. Anger over the monumental fraud that has been perpetrated on the people of Russia.

As I look at that list and compare it to the Forbes 400 list, none of the people on the Russian list can claim they got there as a result of decades of hard work. None of them can claim past record of excellence in entrepreneurial activity or business in general. All that they ever excelled in was at playing the game of influence at a unique time in Russian history. They have very simply just taken advantage of the situation and while I cannot blame them individually for doing so, it is simply not right and there is nothing admirable about it.

If you look at the top 10 of the Forbes list, you have people who have truly invented things that nobody has seen before or built enterprises unique in their excellence or people who simply did something very well for a very long time (Warren Buffet). There are in some cases generations involved in creation of wealth and the wealth comes from creation of value.

By contrast, not a single one of the Russian billionaires have ever taken meaningfull entrepreneurial risk or exhibited skills in creating value in a business context. Their "skill" consisted entirely of acquiring assets at their depreciated value (approximating zero) instead of their replacement cost or market value, with money they got from the state to begin with. What enabled this was the voucher privatisation program which, in retrospect, was an experiment that went horribly wrong.

The way this worked was that in the period of 1990 - 1993 you formed a bank and took out Rouble loans from the Central Bank which you promptly converted into hard currency. You did nothing with it for a while and Rouble depreciation took care of it so that by the time you needed to return the loan, the USD value you needed to convert was half or less of the amount you initially obtained. (Inflation, and the associated depreciation of the Rouble was running at 12% per month in 1991.)

Having accumulated a bit of capital this way, you were ready for voucher privatisation which was half of a good idea. To create "title" certificates for all Russian citizens to all Russian assets was a good idea. To allow those to be actively traded was a huge mistake. The certificates should have been placed into mutual fund / pension fund equivalent vehicles and left there for a minimum of 5 years until a rational market had a chance to develop. Since there was no liquidity to speak of in the economy, anyone who made some money (see above) was in a position to acquire the vouchers at what should now be viewed as a discount of 99% and more.

"Loans for shares" was simply a delectable desert that made the whole thing that much better for people now called the oligarchs.

We were all complicit in this. Every one of us who did not yell "Don't do it!" or even worse, who advised the Russian government how the voucher privatisation was actually a good idea. The people who should be mad as hell are the people of Russia who were cheated out of what they and their parents have invested in over decades. The only reason they are not screaming and hollering more is that just about everyone is better off then they were in 1991 and the theoretical "how much better off they could be", is not really real for them.


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