Mikhail Khodorkovsky - Yukos
When I first heard that Russian President Vladimir Putin had jailed Russia's richest man, Mikhail Khodorkovsky, and confiscated his oil company, it looked like a totalitarian government seizing the assets of its citizens. Considering Putin's KGB past and the historic prevalence of such activities, Khodorkovsky's support for Putin's opponents, and Putin's authoritarian control of the Russian media, the conclusion seemed reasonable.
Was it really more of the same for Russia, or was it just thieves stealing from thieves? Perhaps it was merely an example of someone who was ungrateful for what had literally been given to him. Or is Khodorkovsky's story typical of the rise and fall of tough players in a corrupt system?
If you were to list all the ways a person can get rich, the methods would fall into two categories. The first is wealth creation. Wealth creation is the miracle of free-market capitalism. Wealth is created by combining available resources so the value of the sum is greater than the value of the parts. Resources can be time, labor, iron ore, land, energy or chemicals.
If the market determines the value of your combined resources to be greater than the sum of the parts, you get to keep the difference. That profit is your incentive to take the risk. If the combined value is less than the sum of the parts, you lose the difference and will go out of business. In this way, capitalism engenders the most efficient use of resources.
The second category is wealth transfers. In a wealth transfer, no wealth is created; it simply changes ownership. Wealth transfers include gifts and inheritance. Winning the lottery is a wealth transfer, as are criminal activities. Robbing a bank transfers wealth by force from one owner to another. If everyone in society created wealth, society would be much better off. If everyone only transferred wealth, society would be no richer.
Most if not all the individuals profiled so far have created wealth. Bill Gates' resource was a team of programmers he used to develop software considered valuable by the market. Donald Trump combined the resources of concrete and steel to build hotels, casinos and condominiums. Even the speculative actions of investors Warren Buffett and George Soros manipulated the resources of market liquidity and investment capital.
By contrast, the riches gained by Khodorkovsky came through transfers. Wealth shifted from the collapsing Soviet state to the hands of a few hard-nosed individuals who happened to be in the right place at the right time. While Western businessmen risk fortunes for even bigger fortunes, Khodorkovsky and Russia's other oligarchs risked their lives and freedom.
The risk was quite real…Khodorkovsky currently resides in a Siberian prison, and many other oligarchs eventually lost their fortunes and were exiled. Just how Mikhail Khodorkovsky went from young communist to Russian oil oligarch is more captivating and instructive than many of the businesses successes seen in the West every day.