The Treisman (2016) paper analyses the profile of Russia’s billionaires over the past 30 years, who are found to have diversified across sectors. It also investigates whether Russia has an uncharacteristically high amount of billionaires given the economy’s size, access to foreign markets, interest rate, marginal tax rate, reliance on natural resources, and private property institutions. Russia is found to have the largest number of ‘unexplained’ billionaires out of all countries analysed, with the drivers of this remaining unclear.
The origins of Russia’s billionaires
Treisman (2016) highlights two monumental events in the creation of Russia’s billionaires: the post-Soviet privatisations of the 1990s and the 1998 financial crisis. In fact, out of the 88 billionaires present in Russia in 2015, the author identifies 34 (39%) whose wealth can be traced in the former period. As for the 1998 financial crisis, it saw the immense value depreciation of domestic companies, which were subsequently cheaply acquired by individuals who already had amassed cash in trade and banking. These events were found to be key enablers of fortune building for a number of contemporary Russian billionaires.
Russia’s billionaires have become more diversified
The paper uses Forbes billionaire data to identify the sectors in which Russia’s billionaires have been active over time. Despite its imperfections, this data allows us to observe a variety of trends. As it is shown in Table 1 below, while Russia’s billionaires were primarily active in the oil, gas, coal, and metals markets in 2005, by 2015 they had diversified to other sectors such as fertilizers, real estate, and food production. Moreover, their number more than doubled over the same period, going from 27 to 88. However, Treisman (2016) highlights that the 226% increase in the number of billionaires from 2005 to 2015 is in line with the global trend.
Table 1: Share of Russia’s billionaires active in each sector in 2005 and 2015, %
DATA: Treisman (2016). Illustration by Bonsai Economics. Note: the percentages do not add to 100% as some billionaires operate in multiple sectors.
Market forces alone cannot explain the number of billionaires
Treisman (2016) also investigates whether the number of Russian billionaires in 2008 can be explained simply by the market’s total size, access to foreign markets, real interest rate, top marginal tax rate, natural resource dependence, and property rights. To do this, the author tried to predict the number of billionaires in a number of countries, using the following control variables:
GDP per capita was used as a proxy of the size of the domestic market. If billionaires are created by disproportionate returns to “super-stars” a larger market size would lead to more billionaires.
Duration of membership in the GATT and WTO was used as an indicator of access to foreign markets, which increases potential business returns, leading possibly to more billionaires.
The domestic real interest rate captured the extent to which the rich got richer simply through lending and compounding interest.
Top marginal tax rate, as the higher it is the harder it is for people to accumulate wealth.
Natural Resource rents as a share of GDP, as natural resources revenues are typically collected by a small pool of individuals, and therefore the higher they are the more billionaires a country may produce.
The World Bank’s rule of law index, which captures the security of property rights. A higher index value would strengthen incentives to accumulate wealth.
The author uses the above controls to estimate the number of billionaires which can be explained by market forces alone in 2008. These were then compared with the real billionaire count, to estimate the number of ‘unexplained’ billionaires. As it is shown in Figure 1 below, from the countries analysed, Russia had the largest number of billionaires which could not be explained by market forces alone.
The reason Russia has the largest number of ‘unexplained’ billionaires is, as Treisman (2016) admits, partially a mystery. For example, while the 1990s privatisations in Russia can explain part of this surplus, even after controlling for it Russia remains the country with the largest surplus, as it drops to 33. Moreover, while corruption could explain why Russia has more ‘unexplained’ billionaires than Germany, it fails to explain why Germany has more ‘unexplained’ billionaires than India. Consequently, it is possible there is some other distinct characteristic of the Russian political economy which drives up the billionaire count.
Figure 1: Russia has the most ‘unexplained’ billionaires out of all countries analysed
DATA: Treisman (2016). Illustration by Bonsai Economics. 'Unexplained' billionaires = Real bn count - Estimated bn count due to market characteristics
Conclusion
Overall, the paper is helpful in highlighting some key events which led to the creation of Russia’s billionaire wealth. At the same time, it fails to explain why Russia has such a large number of billionaires compared to its domestic economic characteristics. Corruption is not found to be a sufficient explanation for this discrepancy.
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