March 21, 2022: Who is the richest politician in the world?

Vladimir Putin, and it is not even close.

However part of the conflict in Ukraine can be understood by learning about how Putin’s wealth works, where it works, and the limits he faces.

The other richest politicians in the world have the unlimited ability to control the resources of their country as a private piggy bank.

North Korea’s GDP is less than 30 billion, but the dictator can still get his stubby sausage fingers on billions privately.

Saudi Arabia has a GDP of 793 billion and the UAE 421 billion, so there are a lot of billion dollar plus princes and sheikhs in the Middle East.

Reasonable minds can differ about how much of the money Hunter Biden got paid as he smoked crack for access to his father, ultimately made it to the coffers of the “big guy”, but no one argues that Joe Biden is even worth 100 million.

Corruption exists in America, but it is hard for us to comprehend the scale of the corruption Putin presides over.

History of Putin’s Rise

In 1999 when Putin took over Russia as President, he still had enemies and different groups vying for power. I remember because I was an idealistic young person who spent time in Europe and wanted to see Yabloko (a pro western party) succeed. The GDP of Russia was 195 billion USD.

In 2000 Putin struck what was termed the “grand bargain” where he would let the oligarchs who were the richest men in Russia, the men who took over massive state monopolies with incredible natural resource wealth, maintain their wealth and their power as long as they backed him and did what he said.

To give some idea of Russian wealth, it is really important to note the size of the natural resources in Russia. It took some time for stability to be clear (that is that the owners of Russian resources could maintain control to extract those resources) but once it was clear, massive fortunes were made. Russia has the 5th largest number of billionaires in the world. Russia by some estimates has over 30% of the world's natural resources. It has the world's largest reserves of natural gas, the second largest reserves of coal, the eighth largest oil reserves, the largest shale oil reserves in Europe, and massive amounts of gold, tin, copper etc.

It has the seventh largest labor force in the world, and is the world's second largest weapons exporter.

To understand Putin it is hugely important to understand the story of Yukos and the story of Mikhail Khodorkovsky. In 2003, Mikhail was on his way to potentially becoming the richest man in the world, with a fortune estimated at over 15 billion dollars, by 2013, his fortune was estimated to have fallen to as low as 100 million dollars, and he was exhausted after spending a decade fighting in courts and prisons for his life. He dared to criticize Putin, and Putin ruined him. Now those who know the history of Putin and know the way in which he had many opponents and critics killed, may wonder why he arrested and tried Mikhail instead of killing him, but understand that using the mechanism of the state to deprive Khodorkovsky of his company, to take away his assets and to redistribute them, was an important warning for every other oligarch. In 2003 Russia’s GDP had risen to 430 billion from 195 billion in 1999, and Putin is taking down the richest man in Russia, and replacing him with those who are loyal to him.

In 2005 Putin said from the Kremlin that the collapse of the Soviet Union is the “greatest geopolitical catastrophe of the Twentieth Century.” He seeks, he says, to stop the disintegration and grow Russia back from weakness. By the time his second term ends in 2008, the economy has grown to 1.661 trillion, and barred from serving another term as President by the Constitution, Putin puts in his hand-picked President, while taking over the parliament as Prime Minister.

Russia is hit hard by the global economic collapse of 2008, with GDP dropping to 1.2 trillion in 2009, but recovers to 1.5 in 2010 and runs up all the way to surpassing Italy at almost 2.3 trillion in 2013.

In 2014 Russia was hit very hard by a decline in oil and gas prices. Its economy is deeply dependent on high gas prices because energy is its primary export. In 2014 it accounted for half of Russia’s fiscal revenue, by 2015 it reached 68%. Between June and December of 2014, the Russian ruble declined in value by 59% relative to the U.S. dollar. Inflation in Russia caused the central bank to raise interest rates as high as 17%.

The GDP dropped to 1.3 trillion GDP in 2015, and into the high 1.27 trillion range in 2016. These are just absolutely massive losses. Russia economically is up to 1.6 trillion in 2018 and almost 1.7 trillion in 2019 but drops again with COVID.

Shadow Economy

Russia has one of the largest shadow economies in the world. What is a shadow economy? It is the underground economy that doesn’t show up on official records. It is employees who do not file taxes and are paid in cash. It includes complex systems of bribery where there are official costs for governmental approval or compliance, and then unofficial costs that everyone pays. Estimates for our country estimate our shadow economy at around 5% and it explains some confusing things for some folks in terms of people buying $25,000 dollar trucks with cash while claiming to make less than $30,000 a year. It also explains why some folks have such massive incentives to engage in illegal activity, when they lose benefits if they have on the books employment, but do not if their work is unreported. In a country with a GDP of $20 trillion, that is a massive amount of money on an annual basis.

Where are shadow economies massive as a percentage of the economy? Places like Zimbabwe (16 billion GDP), and Haiti (13 billion GDP) have shadow economies that are considered highest in the world by percentage at between 55% and 60% of the economy. Yet where corruption is ubiquitous and economic ruin is rampant, even at 60% of the economy, their shadow economy is not that big.

In terms of larger economies, much has been written about Greece where 20% of the economy is shadow economy (and has caused massive problems for them with the EU) and in the home of mafia corruption, Italy, the shadow economy is estimated at 12 to 15% despite attempted crackdowns.

Some of the most corrupt shadow economies in the world are found in Ukraine, Moldova and Georgia where the shadow economy is between 25% and 35%. This will be highly relevant to the final aspect of what I believe is Putin’s motivation with this invasion.

Putnins and Sauka, two academics, estimate that the size of the Russian shadow economy is over 40%. Imagine then that the size during the last decade of Putin’s reign has averaged over the size of the official economy he grew in 2003 to a size that made him confident in taking down the richest man in Russia.

Putin does not own all of the shadow economy. But if the shadow economy is worth 400-600 billion dollars a year, it is easy to see how quickly Putin can become the richest politician in the world.

How To Launder the Money

I did overseas work in Moldova, and while assisting orphans there we were taken to a place where there were orphans whose heartbreaking political situation meant no one could adopt them or take them in. They lived in Transnistria, a non state. I had never heard of it before I went to it. It was immediately striking that Russian soldiers were the military there, and yet I was inside Moldova. There were still loads of statuary from Soviet times, lauding Lenin and Stalin and they still are up today. The fake country is controlled by a dictator who owns their equivalent of Walmart (and the only large stores in the country) and even owns their sports teams.

This situation is similar to the false states set up inside Georgia (South Ossetia and Abkhazia) and that Putin is seeking to set up in Ukraine (Luhansk and Donetsk) in the Donbas region. Imagine that a U.S. President was able to control Baja California, Alberta Canada and the Bahamas, installing petty tyrants, protecting it with U.S. forces despite no recognition from any of the world powers (who would all say these are illegal occupations). Yet imagine the theft, the smuggling, the money laundering, the hiding of assets, the arms dealing, and the human trafficking that occurs within. Now that you have imagined it, I urge you to read about it.

Putin uses military controlled areas of these fake states like oligarchs use private companies. He engages in crime through them, enriches himself with them, rewards subordinates, and through extensive contacts with the corrupt people inside the countries with false borders, continues to rule and profit from human misery.

Because of these “breakaway” Republics, Putin’s belief that he would quickly get in, remove the pro Western government, and get back out with a stalemate that keeps him in charge of the Donbas and Crimea and allows more profit for him makes tremendous sense. I welcome your thoughts and feedback!