The reason they are rich is because they bought the property of the state for a fraction of the market value, back in the 1990s. The state was the ultimate owner of everything, but needed/wanted to sell things, starting in the early 1990s. Not long after the oligarchs bought these assets so cheaply, they were able to exploit them to their true value. This made them rich.

I.e. they bought something valuable at bargain prices. Classic way to get rich. But there were other factors as well.

They bought natural resources of various kinds, like metals, minerals etc.
Or factories which were outdated by Western standards, but still fully functional. Some just bought stuff cheaply that could be resold for extremely high profits abroad. All this was possible in Eastern Europe 1989 - late 1990s.

When the Soviet Union started allowing some private ownership towards late 1980s there was no proper understanding of the true value of the assets.
Everything belonged to the state, and corrupt state officials sold assets to people who could pay. The prices were extremely low, from an international perspective.

Then, after the USSR formally dissolved and communism ceased to have any influence, it was an absolute free-for-all. Not only Russians, but people or companies from other parts of Europe, and from the USA, went to Russia and Eastern Europe and bought natural resources and factories at a fraction of the real price. Regular people went East and bought things like vintage wines (a relative of mine did that), antiques, art or a truckload full of anything that could be sold at home.

Nobody could really do honest business there at the time. My dad had done legitmate business with the USSR in the late 70s-80s. He got quite badly ripped off in 1992 and pulled out completely. Maybe if he had stayed involved and been a bit ruthless, he could have become a billionaire lol! But it was rumoured to be physically dangerous to do business in Russia at the time, that's how extreme the situation was.

People actually laughed at the fact that the Eastern Europeans did not understand the value of assets, or were not in a position to demand the true value. The reason they didn't know the monetary value of things, was because in the socialist economies the state simply decided how much of something should be produced, and what the price should be. Whereas in capitalism this is decided by "the market".

So they really had no idea what the actual value of their property was, and there was not much to compare with. Western Europeans took down the prices further, by claiming that everything in Eastern Europe was totally outdated or didn't work, therefore not worth anything. But something that is a bit outdated can still work and fulfill a need. This was disregarded though. In Eastern Europe previously, particularly in the USSR, things were priced in a very odd way and as a visitor you could both make tremendous bargains or be badly ripped off. I have no idea how they set the prices in the USSR, but it seemed almost random at times - or it was based on something that I just wasn't familiar with.

Early 1990s for these oligarchs was a crazy bonanza and the shrewdest most ruthless people snatched the output of what socialism had built up in Eastern Europe. Unfortunately for this region, it still haunts them to this day. If you go to EU Eastern Europe you'll find that they have almost no big brands of their own - Western European brands dominate the market in most fields. Their local stuff is cheap and totally unknown outside their borders. Personally I think they were brutally taken advantage of, at a weak moment. I think Russia has somewhat reversed that though, and Belarus never allowed it.

All the oligarchs needed to do was come up with fairly low sums of money (which they borrowed abroad, or got from international development funds).
Then it was like a gangster in Santa Claus' toy land.

Also, another problem was that the Soviet state was almost broke and had lost its motivation for doing anything. It regarded the socialist system of state ownership as failed.

People who had the authority to sell this stuff were broke themselves. So even if they knew they were selling the goods too cheaply, they didn't care because they wanted cash for themselves, to cope. Lots of people went for months without receiving salaries, but still working. Many of them got by through corruption, bribes and thievery instead.
So they allowed this to happen even though in hindsight, it seems crazy.

The oligarchs were very ruthless and were able to eliminate competitors and make money much faster than you can in a regulated Western society with mature capitalism, or in the old state regulated system that had been in place earlier. They were almost as ruthless and criminal as the mafia in Italy.

Putin decided to try to reign in the oligarchs. They had to either co-operate with the state, or leave the country. This was critisized a lot in the Western world (Khodorkovsky, Berezovsky etc). But it put a stop to the worst excesses of the oligarchs.

However, there are still many around. Some extremely rich Russians live in the neighbourhood where I live too. My gut feeling about them is that they are probably crooks. It doesn't matter how much they try to be chic and sophisticated.

Finally, there are oligarchs from other ex-USSR countries as well. For example Ukraine and Kazakhstan in particular, but also other places. I think they tend to speak Russian, but technically that's not their nationality.


So to sum up:

  • They bought things cheaply, not at the true value of the assets.
  • They were corrupt, criminal and ruthless, to a level you could not get away with in Europe.
  • The situation in Russia at the time was such, that they got away with that.
  • Nobody bothered to stop them because everybody had urgent problems of their own.
  • The state in the 1990s in Russia was weak and corrupt.
  • It is better in Russia today, but the problem is still not fully solved.



PS - if any Russian person thinks that I have got any of this wrong, please feel free to correct it. That is how it seemed to me at the time, and certainly in hindsight. But I don't have the "inside story" of course, and I didn't not personally live through it in Russia.