by Amy Chua
With Yeltsin’s victory, the loans-for-shares deal was finalized, catapulting the oligarchs from a small group of millionaires to a small group of billionaires. A few years later the oligarchs “guaranteed”6 (to use Berezovsky’s term) that Vladimir Putin, like Yeltsin before him, would get elected in Russia’s 2000 presidential elections.
Russia has roughly 147 million inhabitants. The National Conference on Soviet Jewry estimates that Jews make up less than 1 percent of the population.7 Given these demographics, how is it that six Jewish businessmen came to wield such astounding economic and political power?
Russian Jews in Historical Perspective
In general, it is much harder to talk about Jewish economic dominance than that of any other group. This is because of the numerous episodes in which exaggerated or even patently false claims of Jewish economic dominance led to vicious discrimination, ghettoization, and some of the worst atrocities in human history. As a result, whereas one can relatively freely explore and talk about the phenomenon of, say, a 3 percent Chinese minority controlling 70 percent of a country’s wealth, it is far more difficult to ascertain or even discuss the extent of Jewish economic influence in any given context.
Nevertheless, Jews have been in many ways the quintessential market-dominant minority. Jews do not appear to have been particularly economically successful during antiquity—but that’s about the last time in history that they weren’t, at least when left alone to pursue their livelihoods. During the Middle Ages, despite recurrent anti-Jewish restrictions and persecutions, Jews prospered visibly and disproportionately as merchants and middlemen and eventually as international traders, particularly between Christian Europe and the Muslim lands. Indeed, Jewish entrepreneurialism during this period played a crucial role in the economic development of Europe. The enormous wealth that Jews were forced to leave behind when expelled from Spain in 1492 helped finance the voyage of Columbus that led to the discovery of the Americas.8
Fast forwarding five hundred years, Jews occupied a commanding economic position in many Eastern European countries during the early twentieth century. Jews in interwar Romania, although just 4 percent of the population, controlled most of the private capital in the export, transportation, insurance, textile, chemical, housing, and publishing industries. Although their access to universities was restricted, they were also strongly represented in law, medicine, journalism, and banking. In Poland, as of 1921 over 60 percent of all commerce was conducted by Jews, who comprised just 11 percent of the population. Around the same time, Lithuania’s Jewish minority accounted for more than three-quarters of the country’s commercial activity. Meanwhile, in Hungary, Jews in 1910 represented nearly one-quarter of the population of Budapest—earning the capital the epithet “Judapest.” As of 1920, Jews constituted 23 percent of Hungary’s actors and musicians, 34 percent of the country’s authors, 51 percent of the attorneys, 60 percent of the doctors in private practice, and the overwhelming majority of those “self-employed” in business and finance.9
Discussing Jewish economic success in present-day Russia is especially fraught because of the virulent history of Russian anti-Semitism. For centuries, anti-Jewish policies in Russia—expulsions (dating to as early as 1727), harsh economic restrictions, coerced twenty-five-year terms of military service, persecutions, pogroms, and so on—were to a large extent successful in preventing Jews from prospering, let alone being economically dominant.
In the late eighteenth century, Russia annexed much of eastern Poland and, along with the territory, acquired large numbers of Jews. Not wanting them to “spread throughout the country,” the tsarist government confined the Jews to certain relatively undeveloped regions, collectively known as the Pale of Settlement. Moscow, St. Petersburg, and, for a while, Kiev and Warsaw, for example, were all “beyond the Pale” and thus off-limits to Jews.10
The 1800s saw periods of relatively benign neglect toward the Jews, campaigns to assimilate them, and campaigns to annihilate them. The Russian statesman Konstantin Pobedonostsev, adviser to the tsars, supposedly predicted that Russia’s “Jewish problem” would be solved “by having one-third of them killed, one-third of them converted to Christianity, and one-third driven out of the country forever.”11 Some Jews prospered. Around the thriving port of Odessa—on the Black Sea coast and within the Pale—Jewish bankers, traders, and businessmen were commercially prominent (and frequent targets of anti-Jewish mob violence). Jews also played a central role in Russia’s lucrative vodka industry, operating many of the large commercial distilleries on Great Russian estates as well as smaller-scale enterprises in the Pale. Trade in vodka—one of the largest sources of imperial income—made millionaires out of Jewish financiers, such as the Ginzburg and Poliakov families, both of which played major roles in the building of Russia’s railroads. The Ginzburgs were eventually ennobled. Meanwhile, at the other end of the social spectrum, the Jewish tavern-keeper cut a familiar figure throughout Eastern Europe.12
Nevertheless, restricted to the Pale, subjected to economic discrimination, and victimized by recurrent anti-Jewish plundering and violence, most Russian Jews at the turn of the twentieth century lived in cruel poverty. (Of course, most other Russians also lived in poverty; the Russian population, was, after all, one of the world’s poorest at the time.) From Warsaw to Lodz in the Polish territories, in Vilna (Vilnius) in the north and Odessa in the south, the Jewish proletariat, along with the Russian, eked out a hungry, miserable existence. At the turn of the century it was not uncommon for Jewish factory employees to work seventeen, even twenty hours a day, usually with only primitive sanitation. In many Jewish communities within the Pale it was typical for up to 40 percent of the population to be unemployed at any given time; begging was commonplace. Around 1900 an estimated 35 percent of Russia’s Jewish population depended on relief provided by Jewish welfare institutions. Between 1881 and 1914 over a million and a half Jews left Russia for the United States.13
Although Jews were disproportionately represented among the leaders of the Bolshevik Revolution of 1917, Russia’s deep ambivalence toward Jews persisted throughout the Communist era. Jews paid an especially terrible price during Stalin’s purges; virtually all the cultural leaders of Soviet Jewry were executed, and many Jewish academics and students were purged from institutions of higher learning. On the other hand, Jews tended to be overrepresented among the bureaucratic elite (although never at the top level), among doctors and lawyers, and in the Soviet Academy of Sciences.14 In addition, along with other “outsider” ethnic groups such as Chechens and Azerbaijanis, Jews played a disproportionate role in the Soviet Union’s black market system—a vast array of underground enterprises which, in the dysfunctional, shortage-stricken Communist economy, were a crucial source of necessities and consumer goods. Nevertheless, no one (outside the Politburo) got billionaire-rich in the former Soviet Union, and Jews were no exception.
Not so in the post-Soviet era. During the 1990s, seven cutthroat entrepreneurs, six of them Jewish, came to control the overwhelming part of Russia’s newly privatized economy, including most of its vast natural resource wealth. Despite what one occasionally hears, these men did not become billionaires principally through violence or mafiya tactics. Rather, they became billionaires by playing the game more effectively and ruthlessly than anybody else during Russia’s free-for-all transition to capitalism. Russia’s incipient corporate economy operated in practically a legal vacuum at the time, with no laws prohibiting insider trading or other forms of self-dealing. “Russia has been looted all right,” says Freeland, “but the biggest crimes haven’t been clandestine or violent or even, in the strict legal sense, crimes at all. Russia was robbed in broad daylight, by businessmen who broke no laws, assisted by the West’s best friends in the Kremlin.”15
The Rise of the Oligarchs
When I first began to research the oligarchs, I arranged a series of informal interviews with recent Jewish émigrés from the former Soviet Union. One of the people we spoke wi
th was a financial analyst named Sonia living in New York’s Brighton Beach, who still has many relatives in Russia and speaks Russian at home.
At one point we asked Sonia if she had any thoughts as to why so many of the oligarchs were Jewish.
Sonia shook her head. “You don’t understand,” she said dismissively. “These oligarchs—they are 95 percent Russian and only 5 percent Jewish. They are fully assimilated, products of the Russian environment. The Jews in Russia, it is not like the Jews in the U.S. In the U.S., there is an active Jewish community, synagogues, organizations. In Russia there is nothing. For most people, it is just something they have stamped on their passport.”
But wasn’t it strange, we persisted, that so many of the oligarchs should be Jewish?
“You know Jews!” Sonia laughed. “They gravitate towards business! So, many became involved in the black market. In the Soviet era it was difficult to get goods, so the black market prospered. Everyone, from regular people to Communist officials, used the black market. Of course, it was against ‘official policy,’ but it was an open secret and mostly tolerated by the government. These black market types, they had a head start when private business began to be allowed.”
Sonia’s impression that Jews were significant in the former Soviet Union’s black markets was repeated by another interviewee named Tanya, who is also Jewish and whose family moved to New York from the Ukraine six years ago.
“‘Black market’ sounds terrible,” she said. “But what are considered black markets in a Communist economy would be perfectly legitimate businesses in a capitalist system. My uncle, for example, had one of these underground firms. He manufactured shoes on his own. Later he sold the shoes either at the weekend flea market or through an ‘off-the books’ arrangement with a state-owned shoe store. What my uncle did was considered illegal. Yet everyone liked him and depended on him. There would have been no shoes on the shelves without people like my uncle.”
In 1987 and 1988, as part of Gorbachev’s initial tentative embrace of markets, small private businesses were legalized (with certain restrictions). By January 1990 roughly two hundred thousand businesses—misleadingly named kooperativs—were in operation.16 The underground shoe business run by Tanya’s uncle was, after 1988, one of the early, authorized private enterprises operating in Russia’s incipient capitalist economy. “It made sense,” Tanya explains. “The people who ran the illegal businesses in the Soviet era were the people who understood at least the basics of how the free market functioned. That gave them an advantage over the rest of the Russian public when the country transitioned to capitalism.”
Despite the (generally accurate) stereotype of former directors of Soviet enterprises as inept, fist-thumping Communist Party officials representing everything markets do not, some Soviet directors were more entrepreneurial than others. The father of Tanya’s boyfriend (who is also Jewish), for example, transformed himself from a middling manager of a state-owned enterprise into one of Russia’s wealthy “new businessmen.” “In the former Soviet Union,” recalls Tanya, “he was one of the more business-minded directors of a state-owned railroad line. As soon as individuals were permitted to set up private enterprises, Mr. Yurkovsky organized a company for transporting raw materials—using not just railroads, but also ships and planes. He made a massive fortune—and very quickly. He eventually moved to San Francisco, where he bought a huge house and a BMW for each member of his family.”
Like Tanya’s uncle, all the Jewish oligarchs were dabbling in quasi-clandestine private enterprise before glasnost. Mikhail Friedman—who was rejected by the “MIT of the Soviet Union” because of his Jewish origins and relegated instead to the less prestigious Institute of Steel and Alloys—started a ticket scalping agency while a student in the economically stagnant early eighties. Friedman paid Moscow university students to wait in line to buy theater tickets, which could then be bartered on the black market. Although ticket scalping existed long before Friedman came on the scene, he was the first to organize it into a well-disciplined business, employing 150 scholars—on full salary if they waited overnight, or half salary if they queued up in the early morning—and “managers” from every university department. Friedman, as a kind of controlling shareholder, would meet once a week with his managers to review their business plans.17
When private enterprises were legalized in 1987, Friedman and some college friends jumped at the opportunity. Friedman’s kooperativ—the predecessor of Russia’s now incredibly powerful Alpha Group—tried everything, from selling Siberian wool shawls to breeding white mice for laboratories. Friedman hit pay dirt with a window washing business. Within half a year his income was over ten thousand rubles a month, a pittance in dollar terms but forty times the combined salaries of his parents. After that, Friedman branched out to importing Western cigarettes and photocopy machines, then to exporting oil. By 1991 he was a dollar millionaire. A few years later, drawing on government connections formed during the glasnost era, Friedman set his sights on Russia’s mass privatization process. He quickly mastered the art of buying up large stakes in firms that would interest Western multinationals when shares in those firms were still selling at steep discounts. Western banks, including Credit Suisse First Boston, were astonished by how astutely Friedman’s Alpha Group anticipated where the profits lay in this first stage of privatization.18
Next, Friedman recruited Pyotr Aven, Yeltsin’s first trade minister, who later became an oligarch in his own right. Suddenly, Alpha had access to “the golden trough” of government contracts and oil export licenses. In 1996, Friedman and Aven were at the core of the clubby group that underwrote Yeltsin’s presidential campaign. Today the Alpha Group controls Russia’s largest private bank, 50 percent of Tyumen Oil Company (TNK), Russia’s fourth-largest oil company, as well as Crown Resources, an international commodities trading company with an annual turnover of some $5 billion.19
According to John Lloyd, there are allegations in Russian security agency dossiers that Friedman (“born in 1964 in the city of Lyov, former Ukrainian Republic, a Jew”) along with Aven (“born 1955 in Moscow, a Jew”) engaged in criminal activities to further Alpha’s business activities, even organizing drug shipments from Central Asia to Europe. When Lloyd asked Friedman about these accusations during an interview, Friedman shrugged and said, “That stuff’s always around.”20
The other Jewish oligarchs followed roughly similar paths. Vladimir Gusinsky’s boyhood dream was to be a physicist, but, like Friedman, he was rejected from his university of choice because of his Jewish background. In 1987 he abandoned his career as a provincial theater director for the turbulent new world of Russian business. From driving a gypsy cab to hawking blue jeans on the black market, the hustling, volatile Gusinsky finally broke through with copper bracelets, a kind of New Age fad that was supposed to prevent high blood pressure. Gusinsky then put his money in real estate and construction before realizing that the real money was to be made in banking. Shamelessly cultivating his relationship with Yuri Luzhkov, Moscow’s powerful mayor, Gusinsky was soon making millions managing the city’s operating capital. Snapping up newspaper, magazine, and television interests right and left—in some cases letting the business run into the ground while pocketing the assets—Gusinsky became in the nineties the most powerful man in Russian media. By turning his television station NTV into a massive propaganda machine for Yeltsin, Gusinsky—along with his sometimes-ally, sometimes-nemesis fellow oligarch Boris Berezovsky—played a crucial role in Yeltsin’s 1996 victory over the Communists.21
“I cannot say I am an absolutely honest man, an example for everyone,” Gusinsky admitted in an interview with Chrystia Freeland. “Nor can any person who survived in this country before 1985, or who built great things after 1985. We all have things that we would not like to tell our children.”22
Like Friedman and Gusinsky, Mikhail Khodorkovsky was unable to realize his childhood dream, which in this case was to work in a leading Soviet defense plant, because
of his Jewish ancestry. But Khodorkovsky had an important advantage over his fellow Jewish oligarchs: He had served in the Communist Youth League and from the outset enjoyed the patronage of senior Soviet-era government officials. Thus in the late 1980s, when Khodorkovsky ventured into private business with the establishment of Menatep Bank, he had the support and protection of the Communist regime. After 1990, Khodorkovsky served as economic adviser to the prime minister of the Russian Federation—a role he apparently had no trouble playing while continuing to run Menatep.
Just as Gusinsky made his initial fortune managing Moscow’s money, Khodorkovsky made untold millions managing the federal government’s finances. In the early nineties, Khodorkovsky’s Menatep went on a “mass privatization shopping spree” in which it bought, at bargain basement prices, everything from a titanium-magnesium plant to glass and textile factories to food-processing companies.23 In 1996, Khodorkovsky emerged from the loans-for-shares deal as the powerful chairman of Yukos, Russia’s second-largest oil company, with an estimated $170 billion in oil reserves. In addition to Yukos, Khodorkovsky today controls massive mineral and timber interests as well as the Moscow Times, St. Petersburg Times, and other newspaper interests. In 2002, Forbes named him the richest man in Russia.24
Many, to put it mildly, have a low opinion of Khodorkovsky. He is famous for his ruthlessness. In one company he took over, he installed surveillance cameras in every office to monitor his new employees. He decided that over a third of them weren’t working hard enough, so he fired them.25 He flagrantly swindled his minority shareholders, setting what one Moscow brokerage firm called “a benchmark for unacceptable behavior.” After his Menatep Bank collapsed in 1998, Khodorkovsky transferred its good assets to a different entity, leaving its creditors empty-handed. A court-appointed manager was unable to trace the transactions, as a truck carrying most of Menatep Bank’s records mysteriously drove off a bridge into the Dybna River.26