Autocracy, Inc.

Law in the hierarchy of finance

“…the binding nature of legal and contractual commitments tends to be inversely related to the hierarchy of finance: Law tends to be binding on the periphery and relatively more elastic at the apex of the financial system.”p. 317

Economics and politics

• “a more fundamental schism: that between economics and politics. Exit belongs to the former realm, voice to the latter.” (p. 15)
• “Voice is political action par excellence.” (p. 16)
• Exit in politics: “branded as criminal, for it has been labeled desertion, defection, and treason.” (p. 17)
• Voice is used “whenever the exit option is unavailable” (p. 33, quoted in Sharafutdinova & Dawisha 2017: 363)

Monday demonstration, Leipzig, 23 October 1989 · Bundesarchiv, Bild 183-1989-1023-022 / Friedrich Gahlbeck, CC BY-SA 3.0 DE

Exit from the state

“Still, the principal weapon is wielded by the country’s own citizens—particularly of course by the more opulent ones among them—as they engage in capital flight on a massive scale whenever they feel threatened by domestic developments.”Hirschman 1978: 100

Credit Suisse building, Paradeplatz, Zürich, 2011 · Dietmar Rabich / Wikimedia Commons, CC BY-SA 4.0

Stationary bandits and Russia’s billionaires

“As Olson argued, stationary bandits have a stake in seeing their sovereign dominion grow and prosper and therefore they tax less, commit more credibly, and provide other public goods…”p. 362, citing Olson 2000

“Despite the growth in the number of billionaires in Russia, however, institutional quality only worsened and the cronyism within the executive branch increased.”p. 362

• “35 percent of the country’s wealth is controlled by 100 or so oligarchs” (p. 365)

Moscow Exchange, main building, 2013 · Fitiss / Wikimedia Commons, CC BY-SA 3.0

Institutional arbitrage

“…business elites take advantage of weak institutions at home to make profits, while using strong institutions abroad to safeguard them. We call this phenomenon institutional arbitrage.”p. 363

• “when exit is available at a relatively low cost, actors will choose it over voice” (pp. 363–64)
• “The cost of voice in such countries—a defining characteristic of authoritarian regimes—far exceeds the cost of exit.” (p. 364)

Federal Supreme Court of Switzerland, Lausanne, 2008 · Archipat / Wikimedia Commons, CC BY-SA 3.0 (cropped)

Capital leaving Russia

Limassol Marina, Cyprus, 2017 · A. Savin / Wikimedia Commons, Free Art License (cropped)

Russia’s foreign direct investment by partner, 2009–2013

• A Moscow bank analyst: “most of Cyprus’ Russia-bound investments are nothing other than Russian oligarchs’ capital that was shipped overseas during the turbulent period of the ’90s.” (p. 368)
• In the text: “Cyprus alone accounts for around 35–40 percent of annual outward investments from Russia” (p. 367)

Cyprus: A hiding spot for Russian money

▶  youtube.com/watch?v=kZnU60zLMxw

Round-tripping

• “‘Round-tripping’ capital, i.e., when funds are transferred abroad first and then brought back into the country as foreign investment, is an important example of institutional arbitrage.” (p. 368)

London: courts, contracts, property

• London Court of International Arbitration, London Commercial Court, Stockholm: “the most popular destinations” for dispute resolution (p. 369)
• Berezovsky v. Abramovich, 2008–2012 · Cherney v. Deripaska, 2006–2012 (Table 3, p. 370)
• “Most of the cases in the list are about the ownership of significant Russian domestic assets with no direct relationship to England.” (p. 370)
• Commercial transactions “in contracts governed by English law” (p. 370)
• London, 2006: “a fifth of all the prime real estate sold for above £8 million was bought by Russian buyers” (p. 367)

The Rolls Building, London: Royal Courts of Justice, Business and Property Courts, 2021 · Roger Green / Wikimedia Commons, CC BY-SA 4.0

“The best of both worlds”

“These business elites that take advantage of weak institutions at home for profit maximization rely on the best of both worlds—secure institutions in the West to protect profits over the long term and weak institutions in Russia to get super-profits in the short term.”p. 369

“‘A chicken can exercise ownership of eggs,’ he said, ‘and it can get fed while it’s sitting on the egg. But it’s not really their egg.’”Putin, as reported by Myers and Becker 2014, quoted on p. 371

Vladimir Putin at the congress of the Russian Union of Industrialists and Entrepreneurs, 17 December 2021 · kremlin.ru, CC BY 4.0

Asset control and foreign ownership

“Each episode follows the same pattern: powerful domestic business interests at first opposed foreign ownership, while they sought to lock in control over the contested properties. Once they gained outright control, the winning group changed its posture and began favoring financial openness policies that made it easier for non-resident investors to obtain minority ownership stakes in their companies.”p. 696

Three episodes, 1992–2006

Rule of law and foreign ownership restrictions, 1997–2006

Financial openness after 2006

• 2006“non-residents could invest in Russian domestic securities without restrictions”
• 2006Rosneft offering on the London Stock Exchange: “over $10 billion”
• 2004–05 → 2006Portfolio inflows: “on the order of $1 billion” → $14.3 billion
• 2012–2017Moscow Exchange joins “the two biggest international clearinghouses”; Sponsored Market Access
• 2003 → 2011Billionaires in Russia: 17 → 95

Billionaires in Russia, 2000–2026

• Combined wealth, Forbes Russia count: $353 bn (2022) · $695.5 bn (2026)

Capital controls since February 2022

• 28 Feb 2022Decree 79: exporters sell 80% of foreign-currency revenue; Bank of Russia halts securities sales by non-residents
• 3 Mar 2022London Stock Exchange halts trading in 27 Russian companies
• 5 Mar 2022Decree 95: payments to “unfriendly” foreign creditors go to restricted “type C” accounts
• 12–13 Jun 2024United States sanctions the Moscow Exchange; exchange trading in dollars and euros stops
• 1 Jun 2026Bank of Russia extends the ban on transfers abroad by “unfriendly” non-residents to 7 Dec 2026

Capital and investors, 2021–2023

Bank of Russia reserves immobilized abroad

• 12 Dec 2025European Union immobilizes the assets indefinitely
• 18–19 Dec 2025Reparations loan not agreed; €90 bn joint-borrowing loan to Ukraine by 24 member states
• 15 May 2026Moscow Arbitration Court grants in full the Bank of Russia’s €200.1 bn claim against Euroclear

State seizures of private companies in Russia, 2022–2026

Offshore centres and enforcement, 2022–2026

Members named in the Introduction

Russia

China

Iran

North Korea

Venezuela

Nicaragua

Angola

Myanmar

Cuba

Syria

Zimbabwe

Mali

Belarus

Sudan

Azerbaijan

• “and perhaps three dozen others”
• “…not like a bloc but rather like an agglomeration of companies, bound not by ideology but rather by a ruthless, single-minded determination to preserve their personal wealth and power: Autocracy, Inc.”

Xi Jinping and other leaders at China’s Victory Day parade, Beijing, 3 September 2025 · kremlin.ru, CC BY 4.0

“not through ideals but through deals”

• Belarus: “More than two dozen Chinese companies have invested money”; in 2020 “Russia sent Russian journalists to replace” Belarusian journalists who “refused to report a false election result”

Kleptocracy

• “Russia plays a special role in the autocratic network, both as the inventor of the modern marriage of kleptocracy and dictatorship and as the country most aggressively seeking to upend the status quo.”
• “An influx of kleptocratic cash can also empower regimes to become more autocratic and repressive.”
• Ch. 1: February 1970, West German and Soviet officials conclude the agreement for “the first gas pipelines from the U.S.S.R. to Western Europe”; Wandel durch Handel, “change through trade”
• “Autocracy, Inc., offers its members not only money and security but also something less tangible: impunity.”

The texts, this week’s cases

Twenty terms

Two classifications

Capitalism, order, and growth

Four essay questions

1. Explain the logic of a spin dictatorship. Why would a dictator give up mass violence, and under what conditions does spin work better than fear? Apply the model to one case it fits and one case it does not.terms 9, 10, 15–17
2. What is the nature of economic growth under dictatorship?terms 10–15
3. Has globalization made autocracy weaker or stronger?terms 1, 3, 4, 6, 8, 15, 17, 19, 20
4. Are Africa’s recent coups evidence that Africans are turning against democracy?terms 1, 4, 17, 18

• Two of these four will be on the exam and you will answer both. Each answer: about 2–3 paragraphs.

Outline one answer

Thursday and after

• Thu Oct 8Blue-book midterm, in class
• Tue Oct 13No class
• Oct 15–16Fall Break
• Sun Oct 18Connector/Applier posts on today’s readings due in the shared doc; moved from Wed Oct 7 because of the midterm
• Oct 20 & 22Digital Authoritarianism & Surveillance; Tuesday opens with a short midterm debrief
• Week of Oct 22Guest by Zoom: Sarah Hummel (Harvard), information technology and autocracy
• Thu Oct 22Book review due

Global Finance, Local Control

“…financial internationalization allowed local elites to raise capital from foreign investors while maintaining control over local assets. They legitimized their wealth using Western institutions, but they did so on their terms.”

“…without strong domestic rule-of-law protections, financial internationalization entrenches oligarchic capitalism and strengthens authoritarian regimes.”

• Sharafutdinova & Dawisha 2017, n. 25: “For an extension of this argument linking capital mobility and authoritarianism, see Logvinenko 2013.”