Russia's Crony Capitalism

Aslund, an economist who advised the Russian government during the early reform period and later became a critic, argues that Russia under Putin is not a market economy with corruption problems but a system in which the state exists to extract rents for a small group.

His structural account describes four connected circles: Putin's personal circle of friends from St Petersburg and the KGB who hold assets directly; the state corporations and their managers; the wider group of oligarchs who retain wealth conditional on political loyalty; and the security services, which supply the coercive capacity. He argues that property rights in Russia are conditional rather than legal, so any asset can be taken from its owner by someone with more political weight, and the Yukos case established this publicly.

The mechanisms he documents include state procurement at inflated prices to connected contractors, particularly in construction and pipelines; the use of state banks to lend to connected parties; the capture of export revenues; and the movement of the proceeds offshore through anonymous companies, real estate and financial centres in the West, which he argues makes Western jurisdictions complicit and also creates the leverage for sanctions.

His policy conclusion is that sanctions should target the individuals and the offshore mechanisms rather than the Russian economy broadly.

Aslund writes as an advocate and his estimates of the amounts extracted are necessarily inferred rather than measured. The book was published in 2019 and predates the full-scale invasion of Ukraine and the sanctions regime that followed, which tested his prescriptions directly. Readers should also note that his account gives little weight to the argument that the 1990s reforms he helped design created the conditions for what followed.

Swedish economist who advised Russia and Ukraine on market reform in the 1990s; later a fellow at the Peterson Institute and Atlantic Council.

How Capitalism Was Built compares the post-communist transitions country by country and argues that fast liberalisation with early stabilisation produced better outcomes than gradual reform. Russia's Crony Capitalism follows the money from those reforms into a state organised around asset seizure and offshore ownership, which is the operating environment for anyone holding assets in the region.

Center for Social and Economic Research, Atlantic Council, Peterson Institute