America's Oligarch Strategy

a.k.a. Empire in the Age of the 1%

At US behest, Austria arrested a Ukrainian oligarch named Dmytro Firtash in Vienna on some corruption and bribery charge that appears to be involved tangentially with the United States. 

 

Apparently, Firtash was small fry, 14^th on the Ukraine list, worth only $673 million.  Being an oligarch is, in itself, no crime in Ukraine.  Yulia Tymoshenko is an oligarch (the “Gas Queen); the new Ukrainian government openly appointed oligarchs Igor Kolomoisky and Serhiy Taruta as governors in two western provinces in order to keep a lid on pro-Russian sentiment; and the great white hope of the Maidan activists, the “good oligarch” Petro Poroshenko, a.k.a. “The Chocolate King” is the seventh-richest man in Ukraine, worth about $1 billion.

Firtash’s problem is that the US identified him with the Yanukovych camp and close to Russia because of his gas dealings.  It also looks like Firtash moved into Tymoshenko’s gas interests while she was in prison, which may account for the FBI obligingly dropping the hammer on him.

More importantly, I expect, Firtash’s arrest is meant to send a message to another oligarch-heavy area, Russia, in anticipation of Western sanctions for the Crimea referendum.

And, I think, the message is “Work with the US and against Putin if you want your Western assets to be protected and respected.”

This message is likely to be heeded.  After all, most oligarchs are laser focused on their personal wealth and their personal interest.  In an era of globalized finance, the dependence of the wealthy on the nation states that spawned their biological integument is less important than the matrix of trans-national institutions that sustain their finances and cater to their need for personal impunity.  Personal profit, in other words means more than patriotism or even national prosperity.

This state of affairs is magnificently illustrated by the story of a magnificent yacht currently docked in New York, courtesy of  the town herald of the globalized wealthy, CNBC:

New Yorkers have been tweeting, instagraming and posting countless photos of a gleaming blue megayacht docked off midtown Manhattan. It's called "Serene." At a staggering 436-feet, with five levels, several swimming pools, two helicopter pads and soaring chrome exhaust pipes at the top, it nearly outshines the Intrepid Museum next door. (Its best amenities are inside: the "underwater viewing room," an indoor climbing wall, children's playroom and cabins for 24 guests and 52 crew, according to the yacht builder.) Anyone doing a quick Google search learns that the owner of Serene is Yuri Scheffler, the vodka-and-spirits magnate behind the Stolichnaya brand. And with the turmoil in Ukraine and Russia , many have also speculated that Serene's sudden presence is a sign of the worried oligarchs-the Putin-connected, Russian super rich who now face a financial backlash from the West for Russia's actions. But they would be wrong. Scheffler is no Putin oligarch. And he has a surprising perspective on Ukraine.

In an email interview, Scheffler said he is in New York on business-hence the boat.

Although Scheffler's company, SPI Group, started in Russia, it's now based in Luxembourg. Scheffler is now a British citizen who spends much of his time abroad and hasn't been to Russia in 12 years. Scheffler has publicly battled President Vladimir Putin for years as the Russian government tried to seize the company and "renationalize" its assets. The government even issued a warrant for Scheffler's arrest in 2003 after he refused to hand over the company. So when asked about his views on Ukraine, Scheffler was highly critical of Russia's government.

One might think that, the feelings of a British citizen with a Luxembourg company about Russia might not be newsworthy, even if he is a rich fuck who owns a yacht longer than a football field.

Well, you’re wrong.  Oligarchs are not only rich guys and gals.  They also invest in media and politics to give their interests the greatest possible weight.  So they can bring down governments.

One of the most interesting takeaways of the Ukraine crisis was the report that Victoria Nuland had threatened sanctions against the Western interests of key Ukrainian oligarchs if violence was used against protesters…which erupted with suspicious alacrity.  Since the various oligarchs controlled dozens of deputies in the Ukrainian parliament, Yanukovych’s Party of Regions imploded and the rest is regime change history.

It is safe to say that the US has a similar strategy to pressure Russia’s 19 billionaires, first indirectly through sanctions against Russia and then, if British squeamishness over attacking one of the props of London’s prosperity are overcome, against the oligarchs’ personal wealth.

We even have a “good” oligarch, Mikhael Khodorkosky, the oil tycoon who was imprisoned by Putin ten years ago on the well-founded suspicion that he was ready and willing to serve as the vehicle for American interests and mischief in Russian politics and the strategic Russian oil industry.  

Khodorkovsky, although he had promised to eschew politics in return for a pre-Sochi Olympics pardon, emerged in Maidan Square recently with an impassioned attack on the Russian adventure in Crimea, and on Putin personally.  Khodorkovsky, prior to his imprisonment, had spent lavishly on think tank funding and PR in the West and he apparently still has his soft power mojo; his remarks were recorded and broadcast to the world by a small army of prestige media scribes.

Apparently the Forbes list of the world’s richest people had 424 billionaires on it with $1.1 trillion worth of wealth ($2.5 billion per capita and about 3% of global world product) in 1996;  now it’s 1,565 billionaires with $6.5 trillion ($4 billion per capita and around 10% of the global nut).  In case you’re wondering, the growth in billionaires and their wealth is outrunning inflation (about 50% since 1996), real GWP  (about 40%), and my 401K (don’t ask). All I can say is, “Waiter!  I’ll have what they’re having!”

I suppose it’s good that the United States is keeping up with global economic trends and has a strategy to exploit the proliferation of oligarchs who view national governments as just another item in their portfolios of assets and interests, to be rebalanced as pressure from the United States indicates.

Even though the PRC has largely maintained the Communist Party’s political and media monopoly, China has an oligarch problem, too, and has been aggressive in making sure that rich people with reformist inclinations and large followings on social media are cut down to size.  The PRC also cares about rich people who have evaded capital controls and stashed their ill-gotten gains in the West, making them vulnerable to US and EU extortion.  The PRC has to tread carefully in its anti-corruption drive, since the threat of local prosecution will drive the rich to put more of their money overseas and out of the Party’s reach and within range of US sanctions.  I expect some thought is being given to identifying and cultivating a safe overseas haven for cash and investments, to deal with the headache that the West is still the most attractive destination for investment, liquidity, and the free movement of capital.  

In passing, I might note that for lefty liberals it is one of those inconvenient truths that the countries that occasionally attempt to subordinate the interests of the wealthy to those of the state (and possibly to the occasional benefit of the huddled masses of the 99%) are often, by a funny coincidence, America’s most detested enemies, i.e. Russia, China, Cuba, and Venezuela.

The United States also has an oligarch problem.  Rich guy Michael Bloomberg ran New York for several years.  We’ve got the Koch brothers lavishly funding political candidates at the state and national level, and turning Wisconsin into a petri dish for their economic agenda.  A California billionaire, Tim Draper, is engaging in the oligarch version of nation building, funding a ballot initiative to split California into six states.  And of course Tom Perkins came straight out and said it: it should be one dollar not one person one vote.  I suppose we should be grateful that some oligarchs are still interested in restructuring the balky United States operation instead of just “going Galt” and abandoning it outright.

Maybe you haven’t noticed the oligarch problem because the rather dubious decision has been made to shield the identities of the malefactors of great wealth behind the anonymizing “1%” tag, allowing their defenders to deploy the “class warfare” trope and talk about economic growth and tweaks to the minimum wage as a solution for the “income inequality” crisis.  

I doubt that giving burger flippers an extra two dollars an hour will restore prosperity and dignity to the working poor.  But there is no mainstream constituency for redistributing oligarch wealth to solve our problems, on the valid basis that any attempt to mess with the oligarchs will simply send them and their billions scampering to a more amenable jurisdiction.  

When Bill Clinton went whole hog on globalization, we pretty much let the oligarch cat out of the bag.  Now the national government of the United States has committed to globalization with the idea that the America’s globalization-related problems of employment and investment can be solved…with more globalization, a rather dubious assertion that resembles the voodoo-economics mantra of Republican conservatives that the problems encountered in cutting taxes will be solved by…cutting more taxes.

So we have a solution for manipulating and exploiting oligarchs overseas.  Too bad we don’t have one for oligarchs at home.  Welcome to the 21^st century.