The title of today’s blog echoes the influential book, Wealth and Democracy: A Political History of the American Rich, published by the American political commentator Kevin Phillips in 2002. It’s a great book.
Among other things, Philips came up with a way to quantify the dynamics of economic inequality for historical eras for which we lack detailed data on distributions of wealth or income. He suggested that a good index is simply the size of the largest fortune scaled by the median household wealth or income. I have used the same approach in investigating cycles of economic inequality in the Ancient Rome, early modern England and France, and in modern America. (See my blog on the double helix of inequality and well-being, as an example).
Philips also argued that wealth and governance are closely connected. Large fortunes come from the “power and preferment of government.” In return, wealth-holders have a disproportionate effect on government policy, even in democracies. In fact, as economic inequality becomes more extreme, the government becomes much more responsive to the rich. This thesis was recently supported by the empirical research of Martin Gilens (see his book, Affluence and Influence: Economic Inequality and Political Power in America).
In a similar vein, I have also written on how economic inequality can serve as an indicator of elite overproduction, which leads to growing intraelite competition, unraveling of social cooperation among the elites, as well as between the elites and the rest of the population, and may ultimately result in an outbreak of serious political violence. (See the previous blog for links to these posts)
These ideas have been much on my mind as I watch the unfolding crisis in Ukraine, which has already lead to the state collapse there and now possible territorial fragmentation (it appears that the defection of Crimea to Russia is rapidly becoming irreversible, see here). Much has been written about Ukraine recently, focusing on the personalities of leaders such as the deposed president Yanukovich and, particularly, on the centrifugal forces tearing Ukraine apart, with a large part of population (in the West) attracted to Europe, while an equally large part (in the East) attracted to Russia.
But what I am interested in is the deeper dynamic—structural-demographic forces underlying the latest Ukrainian revolution. My analysis shares many points with what Jack Goldstone, the father of structural-demographic theory, has recently written in his blog (see, in particular, Angry Protests of the Middle Classes on Ukraine and other “cross-road countries,” and Back to the Future at Forbes? on America).
The key question is: how is social power structured in Ukraine? And who are the primary power-holders? Following Michael Mann, we can classify the sources of social power into four categories: coercion/military, economic, administrative/political, and ideological/religion. Interestingly enough, ruling elites in different societies tend to specialize in different sources of power. Thus, Egypt is traditionally ruled by generals (from Nasser to Sadat and Mubarak, and now Al-Sisi), China and France are dominated by bureaucracies, the United States – by economic elites (see Bill Domhoff’s Who Rules America?), and Iran by ideological elites (the ayatollahs have the final say). And Ukraine? Without doubt, it’s the economic elites.
Although protests in Kiev were triggered by the decision of Yanukovich government to turn away from the association agreement with the European Union in favor of closer integration with Russia, the motivations of protesters quickly shifted to a general rejection of the oligarch-dominated policies of Yanukovich’s Party of Regions. It is generally believed that the main financier and the real leader of Party of Regions is Rinat Akhmetov, the richest Ukrainian oligarch (with Forbes-estimated fortune of $12.5 billion).
President Viktor Yanukovych (foreground, second from left) and Ukrainian billionaire Rinat Akhmetov (to Yanukovych’s left) gather with supporters at the Party of Regions convention in 2009. (Yaroslav Debelyi) Source
It would be nice if we could point an accusing finger at the Party of Regions as the only corrupt, oligarch-dominated element in Ukrainian politics. Unfortunately, other parties are no better. All Ukrainian politics is thoroughly dominated by billionaire oligarchs. The second richest man in Ukraine, Victor Pinchuk, is married to Olena Pinchuk, the daughter of former President of Ukraine Leonid Kuchma.
Viktor Pinchuk, Leonid Kuchma, Bill Clinton, and Olena Pinchuk (Source)
The main party that was in opposition to Yanukovich, the Fatherland Party, is lead by the fiery Yulia Tymoshenko, sporting her customary braid. Tymoshenko herself is an oligarch, worth probably close to $1 billion. She is commonly known as the “Gas Princess,” because she made her fortune in the gas industry during the chaotic 1990s. Tymoshenko has been the Prime Minister until 2010, and she has a good shot at the Ukrainian presidency in the elections scheduled for May 2014.
Another potential candidate, who has a good chance of winning presidential elections, is Petro Poroshenko, the number 7 in the Forbes’s list of Ukranian billionaires (estimated fortune: $1.3 billion).
When the corrupt Yanukovych government fell, the Maidan protesters (Maidan is the central square of Kiev, which became the symbol of the Ukrainian revolution – actually, both of them – the Orange one in 2005 and the current one) declared that they don’t want to return to the old oligarch-dominated politics. But the protesters wishes were ignored by the new rulers of Ukraine. The acting president, Oleksander Turchynov, and the prime minister, Arseniy Yatsenyuk, are both long-standing members of Tymoshenko’s Fatherland party. Turchynov began his political life in close association with Serhiy Tihipko (number 9 on the Forbes list of Ukrainian billionaires) and with the same Leonid Kuchma, the Ukrainian president from 1994 to 2005. No wonder the Maidan protesters objected to Turchynov elevation – in vain.
“This new bunch of leaders we’ve got are just the same as the last ones, and the ones before that. … We’re staying put till we get what we want,” said a Maidan protester.
Perhaps the most striking evidence of the domination of the Ukrainian state by the wealthy oligarchs is the appointment by the newly installed government in Kiev of two billionaires, Ihor Kolomoysky and Serhiy Taruta, as governors in Dnepropetrovsk and Donetsk.
An investigation into Ukrainian power structures leads one to a depressing conclusion: all power holders are either billionaire oligarchs themselves, or are merely oligarch stooges.
Next: what are the consequences of the oligarch domination of the Ukrainian polity?
In my opinion everything in the “east” revolves around who will become rich and who will be left behind. I guess there were periods in the history of western economy, legislature etc. which were analogous to what had been happening in ex USSR, ex Yugoslavia for the last 2 decades. Could the analysis of these periods at least inform if nobody else then social scientists about the pitfalls on the road those countries are taking. How did the West solve the puzzle of “who’s watching the watchmen?”. If, of course, it solved it at all.
It did, at least temporarily. Between 1920 and late 1970s the American society became progressively more equal, social cooperation was high, and the society and polity was quite functional. There are many theories that attempt to explain why some countries during some periods manage “to get it” and others not. We will empirically test them with the massive historical database (SESHAT), building which has become the core of my research program.
I hate the conclusion (as a political liberal) but I suspect it had to do with the Cold War and being threatened existentially. In the early days of the Roman republic, the common people only got things when the elite needed them to go to war. And for Athens as well, it is often believed that they developed democracy because they needed to sweeten the deal for the common people to get them to row ships.
Without war or religion, the best deal for the elite is to raid the rest. Competition is insufficient because it’s too easy to be for the losing elite in denial, or for the elite as a group to dig in and fight the need for competition tooth and nail. In the short/medium term, the elite might get fooled that they need to pay underlings better to win elite competition, but in the longer term, they’ll just reorganize through mechanisms like M&A and eliminate the need for it. Or a small group will win most of it, and impose it de facto.
Maybe natural disasters or plagues to reset the competition periodically might work too. Those things also tend to go along with re-igniting war or religious fervor, so it’s hard to tell.
Will your database be able to test hypotheses like this?
With Ukraine, having the West (through setting an international order) to subsidize their security, there’s absolutely no need for the elite to give any sort of deal to the common people. So no surprise to me it’s dominated by oligarchs.
Yes, this is one of the ‘Big Questions’ that we want to test with the Seshat database.
‘the main financier and the real leader of Party of Regions is Rinat Akhmetov, the richest Ukrainian oligarch (with Forbes-estimated fortune of $12.5 billion).’
Rinat Akhmetov shifted sides instaneously. Now he is falling over himself to support and finance the new powers that be. So he is OK.
On the other hand, a Ukrainian oligarch, Dmitry Firtash,who made his fortune importing Russian natural-gas, was arrested in Austria a couple of days ago – on FBI warrant .
‘While Forbes estimates his fortune at $673 million, a 2008 secret U.S. cable said he was previously worth $5 billion and “had low-balled his true worth.” ‘
Sure enough, Firtash will be stripped of his assets. I wonder who is going to get them? Will it be somebody from the newly installed leaders who wants his/her share? Or will it be ExxonMobil or BASF of Germany?
‘Perhaps the most striking evidence of the domination of the Ukrainian state by the wealthy oligarchs is the appointment by the newly installed government in Kiev of two billionaires, Ihor Kolomoysky and Serhiy Taruta, as governors in Dnepropetrovsk and Donetsk.’
(In Ukraine regional governors are appointed by Kiev, not elected by the local people.)
It turns out, that’s fine. People on Kiev Maidan might have been anti-oligarch, but people of Eastern Ukraine love and “admire” their oligarchs, according to the Guardian (!)
“People here respect power, the oligarchs are wealthy, well known and well respected. They are seen as guarantors of stability,” says local journalist Denis Tkachenko.
“Those who think there was an alternative are not being realistic. Now the Party of the Regions [the pro-Russian party led by Yanukovych] has effectively gone, the oligarchs are the only actors with potential to stabilise this region,” says Adam Swain, economic geographer at the University of Nottingham and a field researcher in Donetsk for more than 20 years.
Tkachenko agrees: “It’s a smart move to bring in the oligarchs – their business interests are here and they will fight to protect the region because of this.”
But perhaps no one is more admired in Ukraine’s east than the country’s number one oligarch, Rinat Akhmetov. Worth an estimated $15.4bn, according to Forbes, Akhmetov has not become politically involved, although he has entered the debate about the country’s future. He is the owner of one of Ukraine’s top two football clubs, Shakhtar Donetsk, and the biggest player in the Donbas region mining industry. In 2011 he paid a whopping £136.4m for a penthouse at One Hyde Park in London.