Russia's Crony Capitalism
How the rent-extraction system is organised under Putin.
Summary
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.
Key takeaways 7
- Property rights in Russia are conditional on political loyalty rather than legally secure, which the Yukos case established publicly.
- State procurement at inflated prices to connected contractors is a primary mechanism of rent extraction.
- State-owned banks lend to politically connected parties on terms that would not survive commercial assessment.
- Extracted wealth moves offshore through anonymous corporate structures and Western real estate, which creates both complicity and leverage.
- The security services supply the coercive capacity that makes conditional property rights enforceable.
- Sanctions targeting individuals and offshore structures are more effective than broad economic measures because the system's beneficiaries hold assets abroad.
- Russian economic policy decisions are best predicted by asking who captures the resulting rents rather than by macroeconomic reasoning.
Who should read it
Investors and operators with Russian or post-Soviet exposure who need a structural account of how ownership and political power interact there.
About Anders Aslund
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.
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