Blowing Thomas Piketty’s academic fraud, Awara’s new study debunks the myths about overreaching oligarch grip on the Russian economy and supposed extreme economic inequality in a global comparison
This post first appeared on Russia Insider
There is no love lost between the Russian people and the oligarchs. You just can’t erase from history the theft of the century when the 1990s oligarchs looted the country through sham privatizations staged by the liberal government. The press has done its best to imprint the memory of those years of robber capitalism on the Western public. It’s a scandalous memory all too easy to exploit and rehash for the purpose of vilifying Putin and “his cronies.” At the same time, everybody seems to have forgotten how the present ruling plutocrats of America made their capital a century earlier.
The United States has already slapped sanctions on influential Russian businessmen, which they refer to as oligarchs. They are supposedly punished for their proximity to the Russian president who is incriminated with imaginary charges of meddling in US elections, a nerve agent attack on a former Russian spy and his daughter in England, and other fabricated allegations. And echoing antisemitic racial slurs of Hitler’s Germany, now with the Russians as the villains, the UK parliament has launched a crusade against “dirty Russian money” of the Russian “super-rich kleptocrats.”
But, the real reasons to go after Russian “oligarchs” and the “super-rich” have nothing to do with a newfound sense of social justice or their supposed ties with the Russian president. (By the flawed logic of the accusers anybody who is rich in Russia must be connected with the president). This time around this image of malign Russian oligarchs is used by the West in a full-frontal attack on Russian capital and Russia’s industry as the United States is hysterically trying to find ways to contain the country. By attacking Russian business tycoons, in addition to the state corporations, the US strives to block out Russian industry from the West and the wider world.
New study demonstrates that talk about Russia's economic inequality has been greatly exaggerated
Yet, the idea that the rich own a vastly disproportionate share of the Russian national wealth has been disproved in a recent study by the Moscow based Awara Accounting. The study takes aim at Thomas Piketty’s high-profile report about Russia’s economic inequality. The Awara report does not aim at deflecting from the problem of economic inequality in Russia as the authors merely want to put the problem in its right global proportion. Economic inequality is not any more “extreme” in Russia - as Piketty falsely claims – than in the major Western countries in general. In fact, the Awara study shows that it could be less.
The Awara report exposes the bias and reveals the multitude of methodological errors, distortions and misrepresentation of data, which have informed the Piketty report. After identifying the deficiencies, Awara adjusted the main findings to reflect the actual data. The corrected data shows that instead of owning more than 70% of the national wealth, the share of the top 10 percent of the population was 39% of private wealth and 32% of total national wealth.
Below charts demonstrates the differences in the Piketty study and the corrected data of Awara. Top chart from the Piketty report, bottom, Awara's corrected findings.
Correspondingly, instead of earning 45-50% of national income as claimed by Piketty, the top 10% of Russians earned less than 30% of the income. The Piketty research team had said that their study expressly replaces the findings of earlier income inequality studies like that of the EBRD, which had allocated 30% of income to the Top 10% richest. After revealing the multitude of flaws in the Piketty study, Awara found it natural to return to those earlier findings. his also puts the wealth figures in perspective as it is obvious that the share of wealth must closely correlate with the share of income.
Western propaganda can’t decide if Russia is owned by oligarchs or by the state
A big contribution towards mitigating economic inequality is delivered by Russia’s substantial public property. But in his study Thomas Piketty has written off the value of Russia’s public wealth as if it did not play any role as an equality inducing factor. It is actually very strange when one set of Western propagandists claim that Russia’s state sector has totally taken over the economy comprising 70% of the total, and another (like Piketty) maintains that the super-rich owns 70% of Russia’s wealth. It seems to us that the propagandists better make up their mind.
The Awara study reports that experts conclude that the state sector makes up a much higher share of the Russian economy than it is the case in all Western countries. The estimates vary from 35% – 70%. The European Bank of Reconstruction and Development (EBRD) has estimated that the share of the public sector (state sector) of the total economy was 35% in 2009. Experts agree that the state sector share has grown since. The Russian competition authority, the Anti-Monopoly Committee, estimated in its annual report for 2015 that the state sector had grown to comprise 70% of the Russian economy.
Small business enterprise value exceeds that of the Russian billionaires
A remarkable finding in the Awara report is that the total value of small and medium businesses (including shadow business) at 35% of total business assets stands way higher than all of “oligarch” wealth, and even at the same level as the combined wealth of the top 10 percent (39%). (Hereby, it should be noted that there is overlap between the categories of small and medium business wealth and top 10 percent wealth).
The 35% share assigned to small and medium businesses (SMEs) is backed up by reference to a study done by the global consultancy EY together with the European Investment Bank, which assessed that SMEs cover 20-25% of Russia’s GDP, in addition to estimates of the size of the shadow economy. The Russia statistics authority (Rosstat) has the shadow economy at 10 – 14% whereas liberal economists assess it at 32%.
When everything else failed, Piketty conjured up Russian “offshore wealth”
When all the other methodological biases, misrepresentations and distortions failed to produce the screaming inequality – which the scholars undoubtedly had set out to prove – they resorted to adding, some supposed “offshore wealth” to the possessions of the top 10% of Russians. We have all heard about assets Russian “oligarchs” have abroad, like the Chelsea football club, villas and yachts, therefore this one would seem like a safe bet. When the figures don’t prove that the superrich in Russia are so much richer than the Western plutocracy, throw in their offshore wealth. What Piketty therefore did was to add offshore wealth to the tune of the equivalent of 75% of the GDP to the richest top 10%. And Voila! The Piketty figures show extreme inequality for Russia in comparison with other countries.
Not only is there no evidence on the amounts and distribution of such “offshore wealth,” but it also represents a major transgression of Piketty’s own method as such assets abroad have not been taken into consideration in the studies concerning any of the other countries that his research team has examined. After all, the Piketty studies are supposed to represent global comparisons of economic inequality - the comparison is the very point they make. Yet Piketty blatantly breaches his own method just to make Russia look bad. See, no such “offshore wealth” has been summed up to the wealth of the rich in any of the other countries studied.
Piketty’s colonial ideal model
Obviously, the offshore wealth (i.e. assets outside home country) of the capitalist classes of the major Western countries is vastly more (as a share of) than that of the Russian rich. Just think about the holdings of the Western transnational corporations around the world. But Piketty et co. don’t even want to consider the Western transnational capital, going so far as to totally exclude foreign owners as factors of inequality in a given country. In their colonial model foreign owners are a benign class, above criticism. With this kind of logic, Piketty runs into total absurdities. Praising the relative inequality of Eastern European countries, he puts the success down to their colonial economic model, as the Pikettys express it: “the fact the holders of top capital incomes tend to be foreigners rather than domestic residents contributes to lower top income shares in countries like the Czech Republic or Poland or Hungary (as compared to countries like Russia or Germany). I.e. foreign owned countries tend to have less domestic inequality (other things equal).”
So, in Piketty’s perverted logic it is good that foreign capitalists own everything, because that makes the natives more equal between themselves. But in case of Russia it is the other way around, because some nasty rich Russians own property in third countries, it makes Russia’s wealth distribution more inequal.
Why would you call the Russian rich “oligarchs” but those of the West “billionaires”?
Why does the media call the Russian rich “oligarchs” while their peers in the West are just “billionaires”? The reason is obvious, oligarch sounds nastier and therefore it must be reserved for the Russians. That’s what Piketty does, too, calling his report “From Soviets to Oligarchs,” thereby clearly flaunting his biases. This is precisely what drove him, to tarnish the Russian state by alleging it’s a country ruled by a vile oligarchy and Putin’s cronies.
The Awara study demonstrates that the true income and wealth figures on Russia – especially when considering Russia’s substantial state sector – does in no way qualify Russia as an oligarchy any more than any of the other major economic powers in the world. But even if that would not have been the case and Russia’s wealth distribution would be as Piketty mendaciously claims, then still there would be no reason to pick on Russia by calling it an oligarchy. An oligarchy is foremost a political concept signifying that real power in a given country rests with a small number of super-wealthy people termed oligarchs. But, the fact that a country would have a skewed division of wealth with a disproportionate share of billionaires would yet not mean that the country is an oligarchy in the true political meaning of the concept. And certainly, the Russia of today does not qualify as one. It has been widely acknowledged that since his ascendance to Russia’s presidency (2000) Vladimir Putin has effectively stripped the super-wealthy individuals from the political power they actually wielded in the 1990s. Throwing around that disparaging epithet, Piketty has completely omitted any analysis of the political aspect of supposed Russian oligarchy. This clearly demonstrates his ideologically bias to revile the Russian nation and to flag his politically motivated preconceived conclusions
Piketty relies on Forbes billionaire gossip
Apart from the trickery with “offshore wealth,” Piketty builds his case on “data” drawn from the Forbes’s billionaire gossip. Of course, the Forbes billionaire data is an interesting and entertaining source and certainly can serve to guide the reader in the direction of who are the billionaires of one or another country. However, it seems that the Forbes exercises considerable editorial discretion in its reporting exposing and exaggerating the wealth of some billionaires while choosing not to disclose that of certain other billionaires. In any case, it is not a scientific study. The methods of compiling the data are not explained and sufficient details of the composition of the alleged wealth is not disclosed. The validity of that data would then at best be dubious, even in a transparent study.
Lies, damned lies, and statistics
The Awara report is not only a criticism of the dubious studies of the Piketty team, but also more in general an attempt to reveal how scholars manipulate public opinion under the cover of statistical methods to advance their ideological or pecuniary objectives. In this regard, the Piketty studies excellently illustrate the old adage "Lies, damned lies, and statistics." A perfect case of how authority combined with the persuasive power of numbers is employed to bolster false arguments.
Awara explains the glaring differences in its findings with gross methodological errors and skewed or even fabricated data in the Piketty study. When the transparent data sources failed to back up Piketty’s prejudices about Russia, he resorted to blatant distortions.
In general, the Piketty reports never demonstrate to what extent the scholars have relied on one or another set of source data, rather their method is like a recipe for a potpourri, throw in generous amounts of Forbes billionaire data, a bit of survey data, some homemade tax tabulations, and stir everything with a Pareto spatula. The scholars merely tell that they have relied on those sources to make the blend, but the share of emphasis on one or another set of source data is not given and the choices are not discussed. There are also no scientifically falsifiable computations, which would show how the various data sources would supposedly have been mathematically combined to yield the results that these scholars claim to be their science. This is in itself renders the Piketty reports invalid as academic science and relegates them merely to the level of personal opinions.
Their starting point is said to be earlier household income survey data, which then is “corrected,” as they claim, with income tax data on high-income individuals, supposedly drawn from the referenced fiscal data. But the fiscal data does not represent any “raw tabulations by income bracket” as the scholars wrongly maintain. Furthermore, that data source does not contain any data on “high-income-taxpayers income tax data,” as was further gratuitously claimed. The national accounts and wealth inequality data is then somehow applied to all that in order to – supposedly – “impute tax-exempt capital income.”
Obviously, there cannot possibly be any mathematical model that could achieve the feat of combining the multitude of those disparate and overstretching data sources. In reality, the Piketty scholars have by an artful manipulation of the sources picked and chosen what aspects of all that welter of data to refer to in order to verbally motivate their conclusions. All the references to statistical models serve only as smoke and mirrors designed to lend academic credibility to the resulting computations.
The Piketty study is a potpourri of sources without any falsifiable scientific method to combine them.
Propaganda for war
There is no doubt that the scandalous history of Russian “oligarch” wealth and contemporary urban legends about the malicious grip of oligarchs on Russia have initially informed the Piketty scholars in their quest to prove “extreme inequality” in Russia. More than that, I am inclined to see the Piketty report as one more installment in the Russia bashing propaganda in line with notorious propaganda hoaxes like Assad’s supposed chemical attacks, the Salisbury incidents, Russian Olympic doping scandal, invasion of the Ukraine etc. At the end of the day, the question is about propaganda for war, which we must expose.
The Piketty research team is financed by the European Union, needless to say.
Here is the link to the full Awara Study: The Case Against Thomas Piketty. Lies, Damned Lies, and Statistics.
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