The Oligarchy’s Rule of Law: From Boris Yeltsin’s Russia to Aubrey McClendon’s Oklahoma

Class Warfare / May 23, 2012

By Mark Ames

Oklahoma oligarch Aubrey McClendon with his niece-in-law, swimsuit model Kate Upton

This article was first published in the Daily Banter

At the end of the 1990s, after the total collapse of the mass-privatization experiment in Boris Yeltin’s Russia, some of the more earnest free-market proselytizers tried making sense of it all. The unprecedented collapse of Russia’s economy and its capital markets, the wholesale looting, the quiet extermination of millions of Russians from the shock and destitution (Russian male life expectancy plummeted from 68 years to 56 years)—the terrible consequences of imposing radical libertarian free-market ideas on an alien culture—turned out worse than any worst-case-scenario imagined by the free-market true-believers.

Of all the disastrous results of that experiment, what troubled many Western free-market true-believers most wasn’t so much the mass poverty and population collapse, but rather, the way things turned out so badly in Russia’s newly-privatized companies and industries. That was the one thing that was supposed to go right. According to the operative theory—developed by the founding fathers of libertarianism/neoliberalism, Friedrich von Hayek, Ludwig von Mises, Milton Friedman and the rest—a privately-owned company will always outperform a state-run company because private ownership and the profit-motive incentivize the owners to make their companies stronger, more efficient, more competitive, and so on. The theory promises that everyone benefits except for the bad old state and the lazy.

That was the dominant libertarian theory framing the whole “shock doctrine” privatization experiment in Russia and elsewhere. In reality, as everyone was forced to admit by 1999, Russia’s privatized companies were stripped and plundered as fast as their new private owners could loot them, leaving millions of workers without salaries, and most of Russia’s industry in far worse shape than the Communists left it.

If only they had “rule of law” the libertarian experiment would’ve turned out so much better!

Most of the free-market proselytizers—ranging from Clinton neoliberal Michael McFaul (currently Obama’s ambassador to Moscow) to libertarian Pinochet fanboy Andrei Illarionov (currently with the Cato Institute)– blamed everything but free-market experiments for Russia’s collapse.

But some of the more earnest believers whose libertarian faith was shaken by what happened to Corporate Russia needed something more sophisticated than a crude historical whitewash.

Lucky for them, Milton Friedman provided the answer to a Cato Institute interviewer: Russia lacked “rule of law”—another neoliberal/libertarian catchphrase that went mainstream in the late 80s. Without “rule of law,” Friedman and the rest of the free-market faithful argued, privatization was bound to fail. Here’s Friedman’s answer in the Cato Institute’s 2002 Economic Freedom of the World Report:

CATO: If we reflect upon the fall of communism and the transition from the centrally planned economy to a market economy, what have we learned in the last decade of the importance of economic freedom and other institutions that may be necessary to support economic freedom?
MILTON FRIEDMAN: We have learned about the importance of private property and the rule of law as a basis for economic freedom. Just after the Berlin Wall fell and the Soviet Union collapsed, I used to be asked a lot: “What do these ex-communist states have to do in order to become market economies?” And I used to say: “You can describe that in three words: privatize, privatize, privatize.” But, I was wrong. That wasn’t enough. The example of Russia shows that. Russia privatized but in a way that created private monopolies-private centralized economic controls that replaced government’s centralized controls. It turns out that the rule of law is probably more basic than privatization. Privatization is meaningless if you don’t have the rule of law. What does it mean to privatize if you do not have security of property, if you can’t use your property as you want to?

Others expanded on Friedman’s rationalization, arguing that without this “rule of law” to protect their private property, the new private owners of Russia’s industries were incentivized to plunder their companies as quickly as possible for fear that the state would steal their companies back. Of course, all this rationalizing was undermined by fact that Russia’s oligarchs stole their companies in the first place, and thieves do tend to steal what they’ve stolen. But never mind—the libertarian ideology was salvaged, as Russia’s privatization experiment was declared “not a real free-market” without Friedrich Hayek’s “rule of law” in place.

The Kochs’ Americans For Prosperity also has a rule-of-law fetish

The reason I’m bringing this up now is because over the past month, one of America’s most rapacious oligarchs, Aubrey McClendon, was exposed by Reuters for plundering Chesapeake Energy, the second-largest natural gas producer in the country after Exxon-Mobil. McClendon, co-founder, CEO and until a few weeks ago Chairman of Chesapeake, was discovered running a hedge fund inside of Chesapeake, personally profiting on the side from large trading positions that his public company Chesapeake took in the gas and oil markets.

Reuters also discovered that McClendon took small personal stakes in natural gas wells bought by Chesapeake, then borrowed against the wells’ reserves from the same banks that Chesapeake borrowed from—basically, the banks kicked back sweet lending deals to McClendon on the side as McClendon arranged less-than-sweet loans to his publicly-owned company, Chesapeake, kicking profits from Chesapeake’s shareholders and employees’ pockets into the banks and into Aubrey’s accounts.

The loser in all this, as always: Employees, retirees, and shareholders. As Reuters reported, Chespeake is one of a small handful of companies whose employee 401k retirement packages consist mostly of Chesapeake stock, and the company requires employees to hold on to their stock for the maximum amount of time allowed by law:

Thousands of Chesapeake workers have retirement portfolios that are heavily invested in Chesapeake stock, which has declined sharply following revelations about Chief Executive Aubrey K. McClendon’s business dealings.
But while retail and institutional investors have sold the stock, employees don’t always have that option.

It’s not the first time McClendon has been caught plundering Chesapeake at the expense of shareholders, pension fund investors and employees: In 2008, McClendon bet and lost about $2 billion worth of Chesapeake Energy stock he owned—94% of Aubrey’s personal stake in Chesapeake– on a margin call when natural gas prices collapsed. Aubrey bet that natural gas prices would continue soaring, you see.

But like his peers in the oligarchy class, Aubrey’s loss became everyone but Aubrey’s loss: He was awarded a “CEO bailout” by his board of directors, who honored Aubrey with a $75 million “bonus” to bring his total pay in 2008 to $112 million, making Aubrey McClendon the highest-paid CEO in Corporate America that year. Even though Chesapeake’s earnings dropped in half, and its stock fell 60%, wiping out up to $33 billion in shareholder wealth.

Now, we’re learning, Aubrey was profiting in other ways off of Chesapeake that same year.

There is so much more to hate about Aubrey McClendon than this—the millions McClendon poured into Gary Bauer’s gay-bashing outfit “Americans United To Preserve Marriage” and the Swift Boat Veterans for Truth, the role McClendon and his Whirlpool heiress wife played in stealing waterfront land from Benton Harbor, an African-American slum and the poorest city in Michigan, in order to expand an exclusive golf course country club for residents of St. Josephs, where McClendon owns several plots of land. McClendon’s wife, Katie, is from St. Joseph’s; so is Katie’s cousin, Fred Upton, the Republican Congressman from St. Joseph’s. Aubrey and his wife are what pass for royalty (sans noblesse oblige) these days: Katie from the Whirpool fortune, Aubrey an heir to the Kerr-McGee fortune. (If you’ve seen the movie Silkwood, you might remember Kerr-McGee as the company that iced the labor union activist played by Meryl Streep.)

This is just one of many stories about how publicly-traded companies have been and can be transformed into elaborate schemes to loot and steal from the public and enrich a tiny handful of oligarchs. We saw this in the 1980s when Reagan deregulated the Savings & Loans, which were quickly transformed into a means of looting, fraud and plunder; we saw it in the 2000s, after the de-regulation of the financial sector.

The problem goes much deeper than Milton Friedman’s “rule of law” fetish. “Rule of law” is just another red herring diversion to provide cover for continued oligarchy plunder, failure and barbarism. The problem is systemic, and more importantly, ideological. We still operate under the same neoliberal/libertarian major premises we inherited from the Hayek-Mises-Friedman era, an ideology that considers notions like “the public good” to be quaint delusions at best—as opposed to today’s still-dominant, still-standing foundational ideology, which says that freedom equals the ruthless pursuit of individual self-interest, the unlimited acquisition of private property and wealth, framed within a cold, dystopian “rule of law.”

That is where the problem starts. That is why, every week, I could tell another story about another Aubrey McClendon or Dick Parsons, and it will never end until the ideology that enables them is buried.

Would you like to know more? Read previous “Class Warfare” columns by Mark Ames including “Failing Up With Citigroup’s Dick Parsons” and “The One-Percent’s Doctrine For The Rest Of Us: We Are Not Human Beings, But Livestock Whose Meat They Extract As ‘Rent'”.

Mark Ames is the author of Going Postal: Rage, Murder and Rebellion from Reagan’s Workplaces to Clinton’s Columbine.

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38 Comments

Add your own

1. eh | May 23rd, 2012 at 5:23 pm
“the unlimited acquisition of private property and wealth, framed within a cold, dystopian ‘rule of law.’ ”
Friedman’s “rule of law” is the rule of Pinochet. Neo-liberal policy encourages authoritarianism. We see this in the neoliberal EU’s behavior replacing elected governments with ‘technocrats’, and attitude that if people reject them in referendums, that just means they’re stupid and made a mistake, they must vote again until they answer properly. They must heel to the sage wisdom of the ‘experts’ who know better than them about such things.
2. Anarchy Pony | May 23rd, 2012 at 6:46 pm
Everybody just needs to calm down, take a deep breath, and start preparing their bodies for the thunderdome. That is the new law.
3. Generalfeldmarschall von Hindenburg | May 23rd, 2012 at 9:27 pm
“Rule of Law” is a code word right out of the Rhodes-Milner Group, as recorded by Carroll Quigley (Clinton’s mentor at Oxford – Rhodes scholar- get it?)
“Rule of Law” was an obsession- on one level the laudable goal of a society founded on rules that everyone has to adhere to, rather than the arbitrary whim of a monarch. Nothing much to complain about there, but when the machinery of the law is being interpreted by people like John Yoo and Antonin Scalia, then hang on Hannah!
4. rick | May 23rd, 2012 at 10:30 pm
“Ideology”? Have you been reading those abysmal university press liberal books? If you like the American 50s, note that there was a 90% tax rate on the “golden age of capitalism,” biggest economic expansions of the 20th century–that tax rate tends to encourage hiring people since you don’t want the government to steal all your surplus wealth, and you care about your company like you care about your “team” in sports, at the very least. Milton Friedman imbeciles never veer into recognizing huge tax rates lead directly to hiring–all surplus wealth goes into economic expansion. It’s a Fact economic expansion was larger with ridiculous tax rates on top earners.
5. Davrus | May 24th, 2012 at 3:25 am
#4 Yeah those 90% tax rates were good for the society in general, too bad they were bad for the individual self interest of the top 1%, (and the perceived self interest of thousands of libertarians). Too bad there is an ideology which drives these people to get rid of such tax rates.
6. TG | May 24th, 2012 at 5:34 am
Yes, rule of law only when it comes to protecting property — in practise the property of politically connected incumbent corporate entities and executives thereof.
I’d love to see how Galtian supermen like McClendon and Parsons would fare in an actual “free market” paradise — Somalia perhaps. Plenty of competitive local warlords already incentivised to provide them with all “the rule of law” they need.
7. ralph chaplin | May 24th, 2012 at 7:21 am
Capitalism is the collection of rents on the labor of others. The entire point is theft.
It’s a feature, not a bug. Much like the Scotsman, there’s no true capitalism.
8. blavag | May 24th, 2012 at 10:15 am
For an interesting longer discussion on this kind of thing and a general political economy of oligarchy see Jeffrey Winters recent book, OLIGARCHY.
9. Trevor | May 24th, 2012 at 11:17 am
Алты́нного во́ра ве́шают, а полти́нного че́ствуют.
10. Fissile | May 24th, 2012 at 4:12 pm
“Russia’s industries were incentivized to plunder their companies as quickly as possible for fear that the state would steal their companies back.”
Or like my grandma used to say, “Only a cannibal is afraid that someone will eat him.”
“the role McClendon and his Whirlpool heiress wife played in stealing waterfront land from Benton Harbor, an African-American slum and the poorest city in Michigan, in order to expand an exclusive golf course”
It seems that stealing waterfront property is a common pathology among the 1%. In New Jersey they have stolen long stretches of the Jersey shore, and closed it off to the proles, in direct violation of federal law. While they thumb their noses at federal law as concerns beach access, they demand, and receive, federal money to maintain those very same beaches.
11. DrunktankDan | May 24th, 2012 at 5:27 pm
So, when SHAME launches, will it include Dan Rather for doing a 1 hour report on Aubrey McCuntnock in which he practically fellated him during a car ride in a “Clean Natural Gas” vehicle?
Also, what the fuck kind of name is Aubrey?
12. super390 | May 24th, 2012 at 5:53 pm
It’s easy to rob shareholders, because most of the less wealthy ones rely on complex funds to spread risk. People like my 76-year-old mother who barely can read English but has hundreds of thousands in investments have no choice but to trust their local clergy – their stockbrokers – to make the right calls. But stockbrokers are paid fees for making more transactions happen, and they tend to be capitalist-cornucopians, or why else would they be in that line of work?
However, in total America’s shareholders have vastly outstripped the rest of us in growth of wealth since 1980. They seem willing to get ripped off every now and then rather than let us rebuild the case for the New Deal model of capitalism. They’re like the Southern rednecks and small tradesmen who were losing ground to the plantation owners who ran everything, yet continued to support slavery and Jim Crow because it ensured that they were still “better” than several other categories of human beings.
13. Hick | May 25th, 2012 at 12:28 am
#12 Excellent. What pisses me off the most is the misunderstanding of the term “Capitalism”. Capitalism isn’t the lady making temales in her kitchen and then selling them in the Safeway parking lot, keeping an eye out for the cops. It’s not the local shoe repair shop, where the guy inherited the place from his dad, and fixes shoes and boots all day long.
Capitalism is the big boys. It’s companies large enough to sell stock in themselves, impersonal enough to be artificial beings called corporations. As a friend of mine put it, “you push a button, people die, you make money… you push a button, people die, you make money … so then you design a machine to push the button for you…”
The outcome of this smearing and muddying of the term “capitalism” is, when someone says capitalism is evil and ought to be done away with, they think they mean taking all these little tradesmen and independent shopkeepers and putting them in a prison camp. In the US we’ve been taught to see no difference between Wal-Mart and a mom’n’pop shop that’s been in the same family for 100+ years.
14. Nazidethpig | May 25th, 2012 at 12:58 am
Kill it with fire:
“… it will never end until the ideology that enables them is buried.”
It’s the only way to deal with zombies.
15. Coccyx | May 25th, 2012 at 3:53 am
No comments yet about the hot chubster at his side in that photo?
16. damn red | May 25th, 2012 at 11:48 am
He’s right free neo liberal free market economies work great when you torture stadiums full of people. The secret don’t be part of the working class.
17. darthfader | May 25th, 2012 at 1:48 pm
Consider this a microcosm of the libertarian experiment.
When America is reduced to a state of Greater Somalia, and people are trading RPG rounds back and forth across the highway over who owns those rusty pickups full of water jugs, libertarians will finally begin to lament the lack of “rule of law” here at home.
Probably around the time the machetes come down on their pretty young nieces’ wrists.
18. darthfader | May 25th, 2012 at 1:50 pm
@11
“Aubrey” is the sort of name given to the great-nephew of a governor, U.S. senator, and oil CEO – someone who can get anyone who kicks his ass over it expelled and jailed, and someone who only goes to the sort of school where everyone is afraid of that.
19. Anarchy Pony | May 25th, 2012 at 6:00 pm
@17 yeah but instead of warlords like in Somalia, people in what was previously the US will pledge allegiance to corporations, which will war with one another for market share and property and capital.
20. smileman | May 25th, 2012 at 9:20 pm
shame will happen and i’m going to be swallowing my cock with some crow pie soon
21. Jim | May 26th, 2012 at 12:22 am
No comments yet about the hot chubster at his side in that photo?
Go back to your kennel and and rub your cocyxx while whimpering about her. He bought her clit, tit, and cock.
22. Skeeve | May 26th, 2012 at 2:38 am
@21
She has a cock? Well, what with the Fukushima rain pissing down on you American douchebags, I guess anything is possible. Maybe your next President will have two heads, instead of the just the usual two faces.
23. Merv | May 26th, 2012 at 6:53 am
@15 & 21
I want to care about her problems and the environment.
24. NoPast | May 26th, 2012 at 9:01 am
Libertarianism is basically a secular religion for the privileged ,white,straight,culturally protestant-anglosaxon male…A mixture of protestant ethic and darwinism, combined with contemporary reliance on spectacle and immediate gratification(“Social security??I’m not old!!!Public school??I don’t have any child!!give me tax cut,tax cut,tax cut !!!NOW!”)
The Market is GOD that,they argue, reward the
worthy and punish the unworthy.
Man is,by nature,a sinner….you are expected to redeem yourself by HARD WORK so the unemployed,the homeless are all sinner,unworthy peace of trash who deserve eternal damnation
Instead the rich will inherit the kingdom of GOD(for the atheist libertarian this meant the world itself), since MONEY=HARD WORK(the market always rewards the worthy since GOD is fair),so they deserve all the money they can grab and since they are by nature smarter,stronger,faster and wiser(because they have been chosen of God,aka the market)they will make a better use of it
25. Jim | May 26th, 2012 at 9:20 am
She has a cock?
he likes, he wishes.
26. Jim | May 26th, 2012 at 9:23 am
she’s a swimsuit
27. Jim | May 26th, 2012 at 11:41 am
PLease censor my 3 comments. I did not realise she was his niece-in-law. He would have the public’s sympathy if he set the lawyers on me.
WHAT’S IT WORTH TO YOU, PAL?
28. Okie | May 26th, 2012 at 3:42 pm
Can’t believe you left out the bit where McClendon got Chesapeake to buy his collection of maps for $12 million when he was in need of a quick cash infusion. Could only have been worth it if they showed where he buried all the treasure.
http://commonsense2.com/2012/05/naturalgasdrilling/aubrey-mcclendon-chesapeake-energy%E2%80%99s-little-problem/
29. Dimitri Ratz | May 26th, 2012 at 8:41 pm
Yeltsin era was distinguished for hits and assassination. In a society where mayors and governors are not dropping like flies it’s just not a good comparison. McClendon shouldn’t try to keep the money in the family at all costs. I mean sure she’s a swimsuit model, but she’s his niece-in-law.
30. Anarchy Pony | May 27th, 2012 at 5:03 pm
@24, that’s a pretty good observation really.
31. Homer Erotic | May 28th, 2012 at 5:05 am
I can’t help but note that this sort of behavior (and the lack of societal consequences for it) seems to occur mainly in cultures where people have a reputation for not treating one another very well at all.
32. The ebst that ever was | May 28th, 2012 at 7:15 pm
@24 NoPast
You are wrong when you say “straight” most market fundamentalist or Libertarians, what ever you brand them are actually non-hetros, also there are these type of individuals everywhere regarldess of skin colour
33. John | May 29th, 2012 at 6:48 am
As they lay, “Libertarianism can never fail; it can only be failed.”
34. dpatch | May 29th, 2012 at 3:47 pm
@32 nooo you do not try to blame libertarianism on the queers, peter thiel, HRC are .not. representative of working class queers which make up the majority
35. Ohio | June 2nd, 2012 at 12:35 pm
“Rule of law” is a red herring for what?
36. Oelsen | June 10th, 2012 at 7:30 pm
Yes, but a recent discussion with a truther (yes, they exist in real life) showed me, that this apparently doesn’t matter at all. You know, because the illuminazis and the NWO are the culprits. Those stealing only billions are the mere minions and not those we should care about. I was flabbergasted.
Oh, and btw, this gas thingie is a scam to pull out money from the banks, and, in last consequence, from us. Those leaks *cough* wells won’t a hand full of years. So if they steal billions, they should leave the country faster…
Go all to hell, please?
37. Timur | June 16th, 2012 at 10:39 pm
You guys don’t know this but MC clendon was in a tonne of trouble with the crash in Natural gas prices. In fact he was forced to take the bitter pill and sell of a chunk of his assets to the BIG BOYZ. Namely Blackstone/chesapeake. In fact he is being replaced as chairman of his own company. Maybe you guys are a bit behind the curve hmm?
Also you cant be koch-addicts and also bash Mc clendon. Theyre enemies! Mc clendon wants you to run your car on locally produced clean burning natural gas, and the kochs don’t!
38. CHEESE | July 1st, 2012 at 7:38 am
capitalism is a word thought up by Karl Marx