President Oligarch

Charles Kurzman, “President Oligarch,” May 31, 2014.

This month the wealthiest industrialist in a mid-sized country decided he was sick of the political protests that had brought business to a halt. He ordered his factory managers to organize thousands of workers into battalions to intimidate protesters and drive them from the streets. Another industrialist offered bounties for the capture of leading activists.

Welcome to eastern Ukraine, testing ground not just for geopolitics – Russia vs. the European Union and the United States – but also for oligarch politics, where the wealthiest capitalists no longer trust the state to protect their interests and have stepped in to run things themselves.

The oligarch who created this private paramilitary force, Rinat Akhmetov, owns vast mining and industrial operations in the region. With the Ukrainian state incapable of suppressing independence movements in the Donbass region, Akhmetov decided that separatism was bad for business. In a video statement posted on his company’s website, Akhmetov accused the activists of anarchy. ” Cities are witnessing banditry and looting,” he said, shaking his finger at the camera for emphasis. “Is this a peaceful life? Is this a strong economy? Is this good jobs and salaries? No!”

Two other Ukrainian billionaires, banker Igor Kolomoisky and steel magnate Sergei Taruta, were appointed governors of Ukraine’s eastern provinces this spring. Last week, Ukrainians elected yet another billionaire industrialist as president, “chocolate king” Piotr Poroshenko.

This is not the first time that oligarchs have taken over the state.

Horacio Cartes was elected president of Paraguay last year, months after a left-leaning predecessor was ousted. Bidzina Ivanishvili, the richest person in post-Soviet Georgia, was elected president in 2012. Other recent examples: banker Sebastián Piñera (Chile, 2010); supermarket tycoon Ricardo Martinelli (Panama, 2009); Armando Guebuza, nicknamed “Mr. Gue-Business” (Mozambique, 2005); Marc Ravalomanana, dairy products (Madagascar, 2001); Thaksin Shinawatra, mobile phone service (Thailand, 2001); Rafiq Hariri, construction industry (Lebanon, 1992, 2000).

Best known, perhaps, is Silvio Berlusconi, owner of a media empire and other business interests, who ran Italy for most of the last two decades.

As in Ukraine, many of these oligarch presidents came to power at moments of political turmoil, proposing that their track record of wealth accumulation qualified them to restore order and improve the country’s economic prospects.

Except for their extreme wealth, however, their political message is not so different from other politicians, usually on the center-right, with law-and-order and pro-business agendas. That may be why so few oligarchs bother to enter politics – they’ve got plenty of friends and allies who will carry their political water for them, in exchange for campaign donations or invitations to luxurious parties.

Once in office, oligarchs generally face the same messy challenges as non-billionaire leaders do – opposition groups, turf-protecting bureaucrats, international pressures, and so on.

These days it is rare to find direct and unfettered capitalist rule like the notorious Anglo-Peruvian Amazon Rubber Company, an autonomous colonial outpost a century ago that tortured its workers when they didn’t meet production quotas. Today, there are relatively few “company towns,” where a business owner controls all aspects of employees’ lives, at least in functioning states.

Ukraine is unlikely to become a company town, even with billionaires in charge – there are too many other businesses in the country for them to monopolize all economic activity, and portions of the country are outside of the central state’s control. Nevertheless, for all its chaos and uncertainty – perhaps because of all the chaos and uncertainty – what is left of Ukraine has come to exemplify the “bourgeois republic” envisioned by Karl Marx, the prophet of communism, where the bourgeoisie has “conquered for itself, in the modern representative State, exclusive political sway,” and the government “is but a committee for managing the common affairs of the whole bourgeoisie.”

This was the vision of the original proponents of capitalism, as well. Albert Hirschman’s classic study, The Passions and the Interests, describes how Adam Smith and other of pro-capitalist thinkers of the 18th century expected the self-interested calculations of commerce to tame the intemperate aristocracy. The desire for wealth would undermine arbitrary power.

Adam Smith’s famous book, The Wealth of Nations, proposed that “Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen.”

At the same time, Smith and others worried that capitalists might accumulate too much power themselves. “The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public.” These business owners “have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”

Smith was particularly concerned that “master manufacturers” would “enflame their workmen to attack with violence and outrage” any proposals for freedom of trade that expose their business to competition and “attempt to diminish in any respect the monopoly which our manufacturers have obtained against us.”

That is a useful definition of “oligarch”: a business owner who is able to advance private interests through the deployment of state protections.

The oligarchs of Ukraine have long met this definition, capturing state assets after the fall of communism and using the power of the state strategically as they built their business empires. Having manipulated the state for years, they are now expected to subjugate their private business interests to their public roles. Adam Smith’s concerns and Berlusconi’s antics suggest that this may not be easy.