British journalist Stephen Armstrong shares his concern about oligarchs pushing democratic institutions in the world to the sideline
What should the world do with oligarchs? In Ukraine, some suggest people should appreciate and honor the nice guys for giving thousands of jobs at their plants and mines, building a stadium and splurging on exotic football players to entertain their workers on a weekend. Some can be aggressive or sarcastic about oligarchs and the stories of their villas, yachts, jets and model girlfriends in the print and on silver screens. British investigative journalist Stephen Armstrong calls on the readers of his book titled The Super-Rich Shall Inherit the Earth to look closer at where their billions come from and how much political, not just economic power they have. “We are sleepwalking into a new era of feudalism,” he writes. What matters most is not a bright idea, a genius invention or skills – it is people in power you know.
This is a global system. The essence of Chinese Communism today is the fact that 91% of Chinese millionaires are children of the top officials in the party. 70% of Chinese wealth is in the hands of 0.4% of its population. Once Vladimir Putin made himself comfortable in the Kremlin he went on to fray tycoons. First, it looked like Russian oligarchs would go extinct like mammoths. According to Mr. Armstrong, though, Mr. Putin turned out a paper tiger. Most of the country’s rich survived the first panic attack, gained support in the hard times, and joined the Russian machine churning windfall profits for those in power. The US has its powerful Goldman Sachs whose representatives migrate from one public office to another helping officials to take decisions on huge bail outs to banks including Goldman Sachs that were actually the source of the global financial and economic crisis.
Russian, Chinese, Indian and Brazilian oligarchs most often deal with oil, gas and steel. They have miniature armies of bodyguards, yacht fleets and private aviation. Having enough cash to buy the world, they can avoid government control and taxes. With huge resources and political power in hand, they can change laws or simply move to another country once the jurisdiction they are in is no longer comfortable.
Stephen Armstrong uses an episode from George Orwell’s Animal Farm to illustrate current global socio-economic situation: “we are animals who peek at politicians and oligarchs partying through the window.” On the verge of yet another global financial and economic crisis Mr. Armstrong believes “the question today is not what is best for the economy but how we find a better way to protect democracy.”
SOCIAL PURPOSE OF WEALTH
The Ukrainian Week talked to Stephen Armstrong in his North London office packed with people and books. Shortly before the meeting, we learned that Steve Jobs died. Obviously, the first question was whether Mr. Jobs could qualify as a positive example from the super-rich crowd with his estimated wealth at USD 7bn and his company as an ethically appropriate business for making windfall profits.
If you look at a rich technological baby boomer, I don’t think an oligarch is the right word but super rich like Steve Jobs or Bill Gates. Bill Gates is more of this example. He reaches a certain age and retires to do good work to kill malaria. This is particular historical time and place. I think the baby boom generation grew up in the time of security in the West and with a particular set of ideas that probably came from the 1930’s depression and their parents having gone through that, in particular from the States where family after family after family had been through free market capitalism. Perhaps, at the time of Keynesianism there was this idea that a completely unfettered free market was dangerous and it didn’t solve social problems. It left people in the bottom very vulnerable. So, Keynesianism had this idea that you had cooperation in society: you taxed those on top and raised those from the bottom. That brought people closer together financially. This thinking dominated in the West from 1940’s, 1960’s and mid 1970’s. Then there was an idea from a group of economists from the University of Chicago led by Friedman and Hayek that the state should disappear and give way to an unfettered free market. That is a dominating economic set of principles. Some economists say Keynesianism had its structural collapse in the late 1970’s and monetarism was there to replace it. And now monetarism is going through its systemic structural collapse and there is no set of ideas ready to take its place.
If you look at someone like Jobs and Gates, they grew up learning everything from technology to social responsibility at the time when there was a belief that capitalism served a social purpose as well as a financial purpose.
That’s why someone like Warren Buffet can say the rich don’t pay enough tax. He believes in it. With the oligarchs of the developing world you see people who grew up in a very different set of ideas and a different view of the benefits of the free market system. Russia, for instance, was a collapsing state effectively selling off the family silver for a short-term political game.
U.W.: You could say Jobs, Gates and Buffet are the socially responsible rich. Perhaps, what the countries in transition are going through can be called the period of accumulating wealth? In a generation or two all those robbers and oligarchs will be respected philanthropists and their children will be free thinkers educated in Oxford and Cambridge?
I think that’s one very possible alternative. If you look at the US which ultimately produced Gates, Jobs and Buffet, at the beginning of the 20th century you had the industrialists regionally called robber barons, such as Carnegie and Rockefeller. They owned companies like Standard Oil which were larger than anything that Mittal or Abramovitch have now. They had an oil company and a steel company, all these vast empires. In part, they were legislated against and in part they had a sort of a change of heart. By the end of their lives, we tend to know them by their philanthropic deeds. We know Rockefeller because of the Rockefeller Foundation and Carnegie for the Carnegie Hall. We know them by the things they gave rather than by the things they took. We see the same inquisitive behavior in the new generation of oligarchs. They are going into the same areas: oil, steel and aluminum – the basic fundamental elements of an industrial society.
U.W.: So, there is no problem with the superrich and oligarchs. But your book gives an impression there is!
The risk is that the robber-barons in America could be legislated against. The Sherman Antitrust Act was the law which basically broke those companies up. Standard Oil was broken up by the US government. What’s happened to globalization is that an oligarch today – an equivalent of an American robber-baron of the early 20th century – doesn’t really have a government. They may by the citizens of one country but they may not be living in that country. Look at Abramovich and Mittal: they live in London but they don’t pay tax in London. They don’t really pay tax. They move around the world all the time because of the way they structure their companies. They sell shares but these are simply investment shares while the controlling shares are sort of family shares. The company is where they are. When regulation starts to threaten them in one country they simply move to another one. I don’t see a body that could act against them. I don’t see the equivalent of the US government who could say, your practices are unethical; your business is what UK would call a monopoly!
So, the business is globalized but controlling mechanisms are not. Lakshmi Mittal, for instance, owned about 20-25% of the world steel when I was doing the book, but probably more now. He had some factories in South Africa where there were some very serious issues about pollution, environment and labor problems. People in the local union were worried that if they applied too much pressure he could easily close down a steel factory and move elsewhere. In Kazakhstan he has an enormous operation. When the Kazakh government tried to introduce environmental laws he said, “I’ll leave.” They had to give him exemptions.
In some countries, you can’t become rich only because you have good ideas or money. You need to know people or be a player, tough and competitive. If you go to China and want to launch a tin mining company, it doesn’t matter how much money you borrow from a bank. It’s who you know in the Party. You can’t be a straightforward business person. You need to know someone with connections. I think that’s true for almost everywhere now.
Oligarchs have so much power in certain countries that they can change any laws they don’t like. Normally, they are not stupid people, nor necessarily evil. All the rich had started as outsiders. They had been outside the system.
U.W.: There is no political control, no consumer control over the superrich. Is there anything that controls them?
Their own morality. There are attempts by governments in various legal and illegal ways to rein their oligarchs. If you look at China and the Forbes global rich list which comes out every year and the country-specific rich list of, for instance, China’s billionaires, you will see the self-made oligarchs rather than princelings (children of the people who are in the party) tend to vanish from the top of the list next year. In China, the Forces rich list is known as the death list. The Chinese government is a very complicated organism. It acts with astounding brutality when it needs to. For instance, against the Rio Tinto mining corporation, when it was trying to take over this Australian mine and it resisted, the executives of the mine were imprisoned. But this is not because they have democratic intentions with people in heart. Usually, it’s because the governments resent the fact that the oligarchs have more money than they do. The government simply removes their business rivals in some countries.
U.W.: Many people were saying that the capitalism that was developing in China, for instance, would turn the country into a democracy. Would you say that China or Russia is moving in that direction?
I believe that democracy is largely driven by the middle class. Voting is one way to exert your opinion and ideas. It’s the countries with a large middle class that have strong democratic systems. It’s the middle class that produces democracy, not the other way around. At the moment, there is no sign of a real middle class in China. In Pakistan, the middle class is diminishing. It’s moving further into superrich and superpoor because the middle class is leaving the country. In Brazil, there is an emerging middle class but it has not yet grown into a serious power. In India, there is middle class in Bombay and Delhi but in some places you see poverty and isolation while in others you have incredible areas of huge wealth. There is hardly a strong focal middle. In a short-term prospect, the middle class is not in a healthy state, even in the UK.
U.W.: You didn’t write in your book about Mr. Lebedev. Isn’t it important that an ex-KGB officer is buying UK newspapers?
It’s important to the media commentators, people like me. But if you live in Manchester it does not affect your life directly. The thesis of the book was about survival-level industrial ownership, things like steel, oil and aluminum. In the beginning of the book I was trying to explain to the British reader why it matters to them. The example I used was the gas pipe that Russia employed on Ukraine, cutting off gas. Britain’s North Sea oil and gas reserves are running out. The people it makes sense to turn to are Russian oligarchs. Around the time gas has been shut off to Ukraine, there was also a strike by tanker drivers in the UK. The Government commissioned a report to find out what would happen if the oil ran out. The report said that by the end of first day people would panic buying food and by the end of the second day the supermarket shelves would be empty because you couldn’t drive the food to the supermarkets. By the third day, they’d be rioting. The author of the repot called this “nine meals from anarchy.” What you’re trying to say to a British reader is “You may not think it matters, if BP loses control over 50% stake; it doesn’t concern you, but these are oil and gas, the two fundamental things for your survival!”
U.W.: You say many oligarchs are very clever. Look at Abramovich and his navy. He has two submarines. Is it a bit disturbing?
It is always dangerous for high-profile rich individuals. There are people in all countries who would like to see the oligarchs without their wealth. And we’ve seen examples when people who were friendly with oligarchs, such as Aleksander Litvinenko, die under mysterious circumstances and the British establishment argue whether Russian security forced are involved. It’s not hard, looking at Litvinenko, to see who he was friends with, see what he was saying and assume that someone like Roman Abramovich is equally paranoid and fearful that something like that might happen. What he likelihood of that is, I couldn’t say. But it’s not good for anyone because paranoid superrich individuals with armed security guards and a small navy are not good for economic security.
U.W.: Ukraine has Rinat Akhmetov, its richest oligarch. Some people say he’s a very good manager who kept lots of mines and steelworks afloat and made them profitable. People have jobs, he’s building football stadiums. Some people say we should thank him.
It’s worth looking at how much money he is making and how much money the people who work for him are making to see how grateful people need to be. A football club is essentially a money pit, you don’t make money out of it. Even the greatest clubs have the spending worth hundreds of millions of pounds. Why would you do that? That’s not a rational decision. People who own football clubs have a sense of self-grandeur or create an identity, a persona. That could be literally PR.
Way back in the old days there were these old Quaker families in the UK, such as the Cadburies, who would invest heavily in building houses for their employees, build theaters and cinemas, and make sure their workers were well-paid and had good health care. Even then there were slightly controlling: in Bournville, the Cadbury town, there were no pubs. You couldn’t drink if you worked for the Cadburies, you had to be good, you had to have a Bible in your house. They wanted to control the way you behaved.
I don’t think people become billionaires for the good of their employees. Those who say you should be grateful to oligarchs, perhaps, believe the oligarchs are the only alternative when the state collapses. This meant putting state assets to a handful of individuals who make themselves rich and now have an enormous say in the way the government is run, and you should be grateful for that? That’s just not true. That’s not the only option. That almost always leads to people losing democratic rights. Their voice gets heard less and less. I’m not saying in any way that the Soviet Union was a representation of democratic freedom. But there are ways you could have come out of it with more people benefit. Oligarchs are not the answer. The intention of oligarchs is to move their money around the world, to have no national loyalties. In the UK and London we may be dazzled by people who own football clubs putting on a great show in tabloid papers and having fantastic lifestyles. If you look at someone like Mittal, they employ something like 200-300 people in the UK. They pay almost no tax. One way oligarchs could show their gratitude to the country is by paying a higher income tax on the money they earn. But none of them do.
U.W.: What do you think of the demonstrations in big countries protesting against corporate greed and using taxpayers’ money to bail out financiers who pay multimillion bonuses to themselves in the times of crisis? They demand to restore fairness and put an end to “financial terrorism.” But do they see any way out? What are the alternatives?
Partly, you can say there is no coherent economic alternative, an image of the global economy that is not dominated by oligarchs and banks. It’s hard to find the sets of ideas that aren’t already discredited, such as Keynesianism. There are people who work on it. There is one very good team at Manchester University. They are pulling ideas together about how you’d structure an alternative. They research the prospect of small amounts of taxation on financial transactions. It’s like Robin Hood’s tax. There are ways to consider reining in the unfettered power of certain ways of moneymaking and encouraging other ways of moneymaking. That’s why demonstrators don’t have any certain demand because we’re in Catch-22 now. If we kick all leaders out, we’ll be poorer. If we keep them in, we’ll be poorer. The only thing you can do is stand in the street and scream with rage because there is nobody you could put in their place. Whom could you offer as an alternative? If you don’t like Obama in the Wall Street, would you put Republicans there? Would you put Miliband in the UK? Would you put Putin back in Russia?
I think there are answers but that’s another two-hour conversation. There are people who are working on really interesting things, and those answers could be on a small national level, not global. These could be little steps even on the village level.
U.W.: Do you mean alternatives to capitalism and liberal democracy?
I think debating an overthrow of a system makes no sense now. It’s only worthwhile if it’s going to happen anyway. The great Karl Marx line was, “When capitalism collapses, the choice will be socialism or barbarism.” And the argument is, if you don’t have something, you get barbarism. Maybe barbarism is what we have now, going out in the streets and saying we want a complete overthrow of the global economy. But, in fact, you want practical solutions now. There are ideas which operate within the market but aren’t subordinate to the market. That’s where the market is a tool, like a spade or a car, not a god to be working for. The market now is a beast in itself. Our job is to tame its flame. We’ve accepted the idea of certain kinds of freedoms, cheap consumer durables, labor market, and flexibility. But we’ve realized they are not really the solutions. We’ve opened up a global labor pool competing against each other to bring their salaries down, to bring oligarchs with their factories to the country. What did we get in the end of the 1980s? We though, let’s not have our pensions and salaries and jobs for life. What did we get in exchange?
I don’t believe we are on the verge of the end of the world. Humans are infinitely inventive and adaptable. The thing that worries me is that institutions by which we had all our say are being marginalized and damaged. Democratic ideas are under threat.
THE RICHEST OLIGARCHS IN THE WORLD
Mexico Carlos Slim, USD 74bn
India Lakshmi Mittal USD 31.1bn
Brazil Eike Batista USD 30bn
Russia Vladimir Lisin USD 24bn
Ukraine Rinat Akhmetov USD 16bn
Nigeria Alico Dangote USD 13.8bn
Saudi Arabia Mohammed Al Amoudi USD 12.3bn
Kuwait Nasser Al-Kharafi USD 10.4bn
Source: Forbse’s The Richest People in the World 2011