The Oligarchs Who Turn Democracy Into Something Else

The Oligarchs Who Turn Democracy Into Something Else

In 2015, Daniel Obajtek was the county commissioner of Pcim, a tiny district south of Kraków and north of the Polish-Slovak border. “County commissioner” is perhaps a grand-sounding title, but I can’t find a better one. In Polish, the term for the job he held is wójt, an old-fashioned word that means something like “village headman.” It signifies that you run something very small. Pcim, population 4,900, is very small.

Today, Obajtek is the chief executive officer of PKN Orlen, the largest company in central Europe. Orlen runs oil refineries and gas stations in multiple countries, owns a range of energy assets, and is listed on the Fortune 500. It is also, in practice, a state company: Although traded on the stock exchange, its largest shareholder is the Polish state treasury, which means that the Polish government gets to name its CEO. Obajtek was the choice of the current ruling party, the Law and Justice party, and he has done well out of this decision. His personal wealth recently became a major news story in Poland (at least among independent, nongovernment media) because it now includes, among other assets, 38 properties, including houses, apartments, parcels of land, even a seaside pensjonat.

[From the October 2018 issue: A warning from Europe: the worst is yet to come]

He says he acquired this real-estate empire legally, but the speed with which he did so has raised eyebrows, though it probably should not have. Obajtek is an oligarch, and in the hybrid democratic-autocratic political systems now emerging around the world, many newly minted oligarchs make their money at an extraordinary pace.

Until very recently, Poland didn’t have oligarchs. Of course the country had some very rich people, including a number who got rich through corruption or deception. But they didn’t have that specific combination of characteristics that we have come to recognize as typical of the very wealthiest Russians, Ukrainians, Kazakhs, or Chinese. In fact, contrary to popular belief, corruption is not necessarily the means by which modern oligarchs acquire wealth and property, if corruption is defined as actually breaking the law. Oligarchs are wealthy because they have friends in high places who arrange for them to be wealthy, and these arrangements can be perfectly legal. Obajtek, for example, is wealthy because the Law and Justice party named him first to run one state company, and then another. (Full disclosure: I am married to a Polish opposition politician who, when previously in office, never earned more than a standard civil-service salary.)

Oligarch and oligarchy are very old words. Aristotle defined oligarchy as what happens “when men of property have the government in their hands.” Nowadays, the word has acquired new connotations, for in a full-blown 21st-century oligarchy, distinguishing men of property from the government isn’t easy, because they have become one and the same. What truly defines the modern oligarch—and what makes him (or, more rarely, her) different from the typical well-connected rich person—is that his relationship with the state is not just close, but symbiotic. His business career exists solely because of his relationship with the autocrat or the ruling party. The regime knows this, and it expects favors in return.

This new kind of oligarch appeared first in post-Soviet Russia. David Hoffman, the author of The Oligarchs: Wealth and Power in the New Russia—one of the first attempts to describe how the original Russian billionaires made their money—explains that their path to riches was different from that of Western tycoons. Even though plenty of wealthy people in America and Europe “feasted off both the government and private capital,” Hoffman writes, Russia’s first tycoons “drew their early sustenance almost entirely from one source: the state.” They never invented anything, never organized anything, never built anything. Instead, they were simply in the right place at the right time when things were being divided up.

Gazprom, for example, now a very large private company run by an oligarch named Alexey Miller, was formerly known as the Soviet Ministry of Gas Industry. Its history is complicated; many in the West were pleased by its privatization in the late 1990s, and some made money out of it. But in 2000, soon after Vladimir Putin became president of Russia, the company revealed its true nature. Using financial pressure—and helped out by the arrival of armed, masked “tax police” at the company headquarters, and the arrest of its CEO—Gazprom acquired Media Most, then the largest independent media company in Russia and owner of NTV, a prominent independent television station. Immediately, Gazprom-Media fired and locked out staff, and closed several publications; the new editor of NTV arrived to take over at 4 a.m., surrounded by his own security detail.

Since then, Gazprom-Media has absorbed many other media properties. Why does a gas company need to own newspapers and television stations? The answer is that it’s not an ordinary gas company, one that exists solely to extract and sell fuel. Gazprom is rather a gas company that, in addition to extracting and selling fuel, also helps ensure that Putin remains in power. Thus it controls a large chunk of the press, pursues his foreign-policy initiatives—most notably the Nord Stream 2 pipeline, which will enable Russia to sell gas directly to Germany, cutting out transit across Ukraine—and funds his friends. Dmitry Medvedev served on the Gazprom board from 2000 until 2008, during which time he also served as Putin’s chief of staff and as Russia’s deputy prime minister (he then served one term as president of Russia, before stepping back to let Putin run again). Miller, the current CEO, worked with Putin in the St. Petersburg mayor’s office in the 1990s. Gazprom makes space for family too: In 2018, it named Mikhail Putin, the president’s relative, as deputy chair of its management committee.

[Read: We’re headed for oligarchy]

In the two decades that have passed since Gazprom gained control of Media Most, political leaders elsewhere have followed Vladimir Putin’s lead and sought to create oligarchs, and oligarchic companies, of their own. Usually this happens in autocracies, where no one bothers to look too closely at rules about conflicts of interest or nepotism, even if such rules exist. But more and more, it happens in democracies too, especially in rickety democracies dominated by a leader who wants extra help to remain in power. In Hungary, for example, Viktor Orbán created a small group of oligarchs by ensuring that state contracts went directly to them, and by loaning them money using state-controlled development banks. They then returned the favor. One has constructed a large soccer stadium in Orbán’s home town. Others—of course—bought up the media, which are now almost entirely under either state or, via oligarchs, ruling-party control.

Now Poland’s nativist ruling party has followed suit. Obajtek’s rapid rise doesn’t yet match that of the Hungarian oligarch Lőrinc Mészáros, who, when once asked how he had managed to grow his business faster than Mark Zuckerberg’s Facebook, responded, “Maybe I’m smarter.” (Another time he said: “My fortune is thanks to three factors: God, luck, and Viktor Orbán.”) Still, Obajtek hasn’t been embarrassed to copy Gazprom. In December, Orlen announced that it would purchase Polska Press, a media company that controls, among other holdings, 20 regional newspapers, 120 weekly magazines, and 500 online portals. The company had been up for sale for some time. Unsurprisingly, no foreign or Polish investors thought that this would be a good moment to put money into local Polish newspapers.

The story unfolded the way all of these stories unfold: Within weeks of announcing the acquisition, the energy company began dismissing board members and firing editors in chief and replacing them with editors or activists who had previously demonstrated loyalty to the ruling party. Orlen has also bought the most important Polish press-distribution agency, and launched its own media advertising agency, both of which could give it the power to support other pro-government media—and punish independent media—should it so desire. (That’s a nice little magazine you have there … pity if you couldn’t get it onto any newsstands.) Following the Gazprom model, Orlen has also set about employing the friends and family of Law and Justice party members. The wife of one member of parliament has, for example, been given several lucrative posts. Remember, the state treasury controls a portion of Orlen’s stock, and the state should therefore benefit from company investments. Instead, the company is investing in ruling-party propagandists. Try to imagine U.S. taxpayers’ money being spent propping up Fox News—or indeed MSNBC—and you can see why this angers people. One Polish court has already questioned the legality of the acquisition.

Orlen has justified its media expansion by talking about “synergies” and “diversification.” When I asked about the change of editors, as well as the sharply falling circulation of many of the new media properties, the company insisted that it “does not interfere” in “HR issues” at Polska Press. A spokesperson gave no other specifics about the takeover. “The transaction was thoroughly analysed both by our in-house experts and external advisors,” she wrote in an email, “with a due diligence exercise undertaken to investigate the target’s financial, legal and tax affairs … Our acquisition of the publishing house is thus primarily a business move expected to deliver economic benefits.” In fact, its purchases are a useful reminder, in an era when so-called neoliberal economics has become deeply unfashionable, of just how illiberal state companies can be. This much was obvious when communism collapsed in 1989; recent events in Poland, Hungary, and Turkey should once again demonstrate this dynamic for those who have forgotten. A national railroad or power company can make sense if, like public media in some well-run countries, it can be surrounded by a culture of strict, apolitical control. It’s hard, for example, to imagine Amtrak buying up local newspapers in the United States and turning them into narrowly partisan vehicles on behalf of either political party. But in places lacking a nonpartisan ethos, public ownership can be easily corrupted.

There’s a bigger story here too. The Orlen saga is a warning not just about state companies, but about democracy, a political system that nowadays rarely disappears the way it used to do. In order to undermine a democracy, you no longer need tanks on the streets or colonels bursting into the presidential palace. You can create your one-party state very slowly, over many years, just by massaging the rules, shifting money around, putting pressure on courts and prosecutors, eliminating unpleasant media, and above all by creating the oligarchs who will fund your projects, block your enemies, enable you to use state money to enrich your party or your family. This method is much more lucrative, and much less stressful than the old-fashioned coup d’état, and it’s coming to a democracy near you.

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