Carlsbad There’s a lot of back and forth in the news about whether the sanctions being employed fiercely by the western world as a weapon to pressure Russia over its invasion of Ukraine will work. The theory would be that sanctions on close associates of Russian leader Putin among the rich oligarchs, military, and others will influence him to end or moderate his attack by putting the heat on him on the home front. A month into the attack and its sanctions, it is clear that the sanctions are hurting his associates and the Russian people, but it is unclear that anything other than the Ukrainian people and its forces on the ground are having any impact on his thinking or his continued advance.
Nonetheless, the sanctions do have an impact on rent-seeking capitalists who made their way through cozying up with the state on sweetheart deals in banking, resources, and other deals at the heart of crony capitalism. Roman Abramovich has become the poster child for their impact thus far. Within hours of the invasion, he had to put his soccer club in England up for sale. He made his original fortune by buying a Russian oil company from the state as the USSR fell, and then selling it back to the government at a huge profit leading to his estimated fortune of $15 billion. For two decades, Abramovich has deployed a string of shell companies …routing money through a small Austrian bank and tapping the connections of leading Wall Street firms — to quietly place billions of dollars with prominent U.S. hedge funds and private equity firms, according to people with knowledge of the transactions.” This is perhaps why the US has not sanctioned him as the UK, Canada, and the EU have.
The Economist produces a crony-capitalism index by measuring the percentage of GDP that comes from such ill-gotten billionaire wealth. Of the top 22 countries in their index, Russia leads by a large margin. “Some 70% of the 120 Russian billionaires, who hold 80% of its billionaire wealth, fall within …[their] crony-capitalist definition. Wealth equivalent to 28% of Russia’s GDP in 2021 came from crony sectors, up form 18% in 2016.” That’s a pretty big hunk, but here’s the problem I see with my limited imagination. A Russian billionaire is rolling in the dough because of the special favors of the state, which these days pretty much means Putin. Having benefited hugely from such wink-and-nod deals, is he really going to call Putin and whine about Ukraine because western governments are stepping on his neck? I don’t think so, and if he were to call, and they are all men to my limited information, I don’t think Putin would take the call, but I do think the oligarch would pay dearly for having made the call, once this is all said and done.
There’s a whole story about the enablers, including in the United States, among the legal and financial outfits that make it possible for crony-capitalists here and abroad to flourish. In general, these broad sanctions may make the difference, even if I’m skeptical of the impact on Putin of putting our foot on the neck of his buddies. On the other hand, whether these individual sanctions impact the war or not, it’s a good thing to expose the enablers, and it’s always good to see the superrich pay their dues for their public profiteering and greedy gains.