CASE STUDY: Saying that a country is an autocracy or a flawed democracy is another way of saying that its elites are corrupt

[This post is a sequel to posts Saying that a country is socialist is another way of saying that it is poor (1) and (2)]

Crony capitalists’ wealth has risen from $315bn, or 1% of global GDP, 25 years ago to $3trn or nearly 3% of global GDP now 

We classify the source of wealth into rent-seeking and non-rent-seeking sectors. An economic rent is the surplus remaining once capital and labour have been paid which, with perfect competition, tends towards zero. Rent-seeking is common in sectors close to the state, including banking, construction, property and natural resources. It can sometimes be possible for rent-seekers to inflate their earnings by gaining favourable access to land, licences and resources. They may form cartels to limit competition or lobby the government for cosy regulations. They may bend rules, but do not typically break them.

Russia is, once again, the most crony-capitalist country in our index (see chart 2). Billionaire wealth from crony sectors amounts to 19% of gdp. The effects of the Ukrainian war are clear, however. Crony wealth declined from $456bn in 2021 to $387bn this year. Only one-fifth of Russian billionaires’ wealth is derived from non-crony sectors, which shows just how distorted the economy is.

In March last year, the g7, the eu and Australia launched the Russian Elites, Proxies and Oligarchs (repo) Task Force to “isolate and exert unprecedented pressure on sanctioned Russian individuals”. A year later it announced that it had blocked or frozen $58bn of assets. But repo admits that in some cases oligarchs have found it easy to evade sanctions by using shell companies, passing assets to family members or investing in property. Wealth is increasingly stored in manicured lawns and marble columns.

Pressure on the oligarchs comes from Russia, too. In March Mr Putin chastised them for becoming “dependent on foreign authorities” by hiding their assets offshore. Mr Putin is a hypocrite. By one estimate he has stolen more than $100bn from Russia—which has helped pay for a compound on the Black Sea estimated to cost $1.4bn and a $700m yacht impounded by the Italian authorities last year. But he is not on the Forbes billionaires’ list.

The 2023 crony-capitalism index