What are Economic Bubbles?

We reflected earlier in a previous article on whether we, as humans, were rational actors- to be rational is to be objective and well reasoned in all decision-making (it’s an unclear concept, one could say there’s no real definition for it).

Anyway, the main conclusion arose that we are not rational actors as individuals- though perhaps as a large population irrationalities may balance each other out, even still we are humans- subject to emotion (we often get excited easily, and make silly decisions as a result), and often a basic lack of knowledge of the effects of what we are doing- sometimes we are at fault for this, sometimes not. 

Now let’s explore something that perhaps exemplifies human irrationality best in the field of economics- bubbles.

No, not the soapy ones, but economic bubbles are certainly similar in nature (hence the name)- in essence, an economic bubble is a massive economic boom that has grown so quickly and expansively that it is, like a soap bubble, in danger of being popped in an instant. An economic expansion, followed by a prompt plunge- that’s pretty much the basic structure of an economic bubble.

The South Sea Bubble caused spectacular devastation.

Bubbles aren’t some abstract theoretical idea, they have occurred numerous times throughout history- the earliest formally recorded bubble is believed to be from the early 18th century. The bursting of the South Sea Bubble of 1720 was the result of wildly heightened expectations of the South Sea Company, which had taken responsibility of the entire British national debt in exchange for total control of all trade in the South Sea. In January 1720, SSC stocks were priced at £128. February 1720, £175. April 1720, £330. By June, a whopping £1050- almost 10 times what it had been just 6 months ago. 

But this was the peak. The bubble had grown too much. 

Pop.

By September, just 3 months after South Sea Company stocks had reached a record price, it was almost back to square one- stock price shrunk to just £175. 

This had devastated numerous investors- who were caught up in the initial hype of this company ambitiously taking on all of Britain’s debt in promise of finding profit. But in truth, the South Sea Company had little chance at all. They were a massive failure; partly during to their own mismanagement, partly due to the crippling debt they had just taken on and partly due to the huge reduction in South Sea trade after the Treaty of Utrecht was signed in 1713. Whatever/whoever was responsible, the bubble had burst and proven all the hype, all the investment, all the trust, to be false.

The California Gold Rush, the ‘dotcom' bubble of the 1990s and early 200s, the 2008 financial crisis- all examples of bubbles and/or their catastrophic burstings. 

Take the most recent financial crisis of 2008. Now there’s much to talk about when it comes to the causes of the crash, but simply put, it was caused by a massive housing bubble that had developed not just in the US (although perhaps most seriously here), but throughout the world. 

Like all bubbles, the housing market in the USA had initially seen a massive boom- caused by radically low interest rates (which had been at an all time low of 1% in 2004), irresponsible lending from financial institutions and the power given to banks to be able to conduct such activity.

Low interest rates made purchasing housing a very attractive option- a rate of 1%, set by the Federal Reserve with the aim of boosting spending after the 2002 post-dotcom recession, was almost a free loan, and therefore many Americans went on to grab the opportunity and buy their own houses.

For the financial institutions (the banks), this 1% provided an issue- it meant their profit margins would be far lower than before, when the rate was closer to 5%. In seeking increased profits, they took on more loan requests. The regular system of financial discretion was almost abandoned, and banks began lending to more and more risky individuals, many of whom ended up being unable to pay their loan and thus homeless.

The banks had such a huge pot to lend from because every bank has customers- people who deposit their money, in the trust that the bank will keep it available for them whenever they need it. But gradual recession of the Glass-Steagall Act, which initially prevented the lending side of banks to use the customers’ deposits, meant that banks eventually were able to use money deposited by customers to fund lending and other investment activity. This gave them a huge amount of money- and thus the banks could afford to be more reckless and risky with their money management. 

Wall St.- responsible for the 2008 financial crisis?

This increase in house buying caused a surge in house prices- causing even more people to jump onto the bandwagon, presenting what seemed to be a great investment in an asset that appeared to be endlessly growing in value. The bubble was pumped up more and more- house prices peaked in 2006, then the big burst came in 2008- the burst that cost the USA an estimated $648 billion lost in economic growth between September 2008-December 2009, roughly $5,800 in lost income for every US household, and is still haunting the global economy.

The bubble had popped, and the liquid stains are going to take a long time to rub off. 

The problem with bubbles is that their usual steps of boom then bust are very tricky to work out. The initial boom is by no means a promise of an oncoming burst; indeed an economic boom is often good, providing employment, wealth that can potentially itself prevent a bubble from arising.  

Economist Hyman Minsky is famous for calling out symptoms of an oncoming bubble- yet mystery still hovers over which booms of today are going to become the popped bubbles of tomorrow. Will it be the housing market again? The technology industry, again? Another industry altogether, or none of them?

Only time will tell.

3 Reasons Why Advertising Works (With Textbook Examples)

Advertising is perhaps the most omnipresent symptom of the modern global economic system. It is something that is not just pretty much unavoidable in one's regular daily life, but something that has grown to become far more than just a piece of material promoting a single product. Prominent pioneer of media studies Marshall McLuhan famously dubbed advertising "the greatest art form of the 20th century": look at the tearjerking recent Sainsburys ad, or Aleksandr Orlov from 'Compare the Market', and one could argue this claim to be applicable to today. 

Advertising has developed rapidly along all forms of media. Beginning largely in newspapers, ads moved onto our streets, onto our radios, onto our tv screens, onto the internet, and now, onto our smartphones and computer technology. 

The very fact that Britain's expenditure on advertising is set to hit £20bn next year shows that it is a method clearly relied upon by businesses to attract customers. Research suggests that on average, US supermarket sales increased by $89 per $1 spent on advertising. 

While many of us would attest that we are unaffected by advertising ("we know it's not real!"), one cannot deny that it does what it is intended to do: seduce us, make us want more- unleashing the consumers within us, as well as the money out of our pockets. 

So why exactly is advertising so effective? And furthermore, why is it so when most of us understand that advertisements are not always accurate representations of the real world/product? There are numerous answers to this of course, but let's have a look at three such reasons why advertising is so effective that even we are not always aware of its charm.

1. Personal Connection

A key to unlocking the minds of those a company is advertising to is the development of a close connection with the target audience. This creates trust, confidence and a love for the brand that simply cannot be bought.

One way in which this is done is by marketing their products as something the audience will genuinely like and lead to self betterment. Take 'Special K' cereal for example- this ad connects with women, by particularly attaching itself to the 'embrace yourself' movement. Many women (well, people in general) have worries about their size- and this ad allays those worries by spreading the message that size does not matter, that those potential customers watching are 'More than a number'. 

The advert does not actually feature anything related to cereal, it shows no more of the product than its logo, and it potentially goes against Special K cereal's appeal as a product consumed to lose weight- but this ad develops trust and admiration for the brand in the viewer that arguably is more powerful when it comes to buying decisions than the cereal itself. 

Another way a personal connection can be developed is by identifying with the viewer via a familiar face. Think George Clooney advertising Nespresso coffee, Taylor Swift advertising Diet Coke or Gary Lineker opening a pack of Walkers crisps; these are faces that people trust, admire, and brands can use them effectively to translate this trust with their products.

2. Exaggeration 

It goes without saying that a major way that advertisers rope us in is by simply exaggerating their product or service. 
Whether it's that internet provider's exaggeration of its download speeds or the over the top claimed health benefits of a familiar blackcurrant soft beverage, exaggeration is part and parcel of any modern advertisement, and it comes in many forms. 

Take a quick look at this Samsung Note advert, in particular the small text at the bottom of the screen beginning 0:04- "Screen images simulated... sequences shortened". This message must appear for legal reasons, but most people are unlikely to pay much heed to it- they will watch the entire ad thinking that all that watching-film-while-simultaneously-checking-emails action will be as buttery smooth in real life as in the video (if you've owned any multitasking smartphone of any sort you may understand that this is rarely the case). 

Another form of exaggeration that really needs little introduction is most commonly seen in fashion-related advertisements- that is the copious amount of editing of the bodies of the participants. Again, they exaggerate the effects of the product- unless the product they are selling is Photoshop, that is. 

But exaggeration is certainly only part of the art of advertising. Its effect is arguably dulled by the fact that most of us know it is there in almost every ad we see: a Lab42 survey of 500 consumers reported that just 3% of respondents described claims made in advertisements to be very accurate. 
So why are we still enticed by adverts when we know they are likely to be exaggerating? The next and final reason may perhaps be the most subtle yet significant.

3. Development of Inadequacy

This is the big one, that pretty much all the other advertising techniques culminate in. 

Advertisements make us feel incomplete, insufficient, inadequate. It's their job- to make us feel like we have a hole in our lives shaped exactly like their product.

This is a feature of every advert. Feeling hungry? Walkers' crisps will fill you up. Bad hair day? L'Oreal shampoo will ensure it never happens again. In need of entertainment? Buy a PS4.

But the most prominent, exaggerated use of this technique can be seen particularly in the advertising of upmarket, luxury products. This Mercedes 'Video Brochure' for example, promotes far more than just the car itself. Yes the car is indeed the main feature of the video but subtle things, like the house we are shown at the beginning that the 'owner' lives in, the 'owner's' clothes, the conveniently handsome young 'owner' himself.

The video promotes not just the car but the whole lifestyle, packaging the car as a part of it. Chances are, most people don't have a house that nice and clean, and aren't that photo (or video)-genic- and so we compare, we re-evaluate our own lifestyle in comparison with what we see on the screen and, unfortunately, many of us see our own as incomplete, inadequate, because we don't have a mansion or a luxury sports car.

One could ask- if most viewers of the promotional material can't afford to buy such an expensive product, why do companies like Mercedes bother with marketing? The answer is pretty straightforward, and it's why we see more adverts on TV from broader car companies like Mercedes rather than niche brands like Ferrari. One could call it the 'halo effect' of advertising, branding. We may take a look with our jaws dropped at the beauty of the Merc in the ad- and although we know we can't afford it, the company does sell cars at a considerably cheaper price, but ones that follow a similar design template. The S-Class Coupe in the video costs well over £100k, but the Mercedes C Class Coupe costs closer to £30k. So we may not be able to afford the former, but the latter may appear more attractive an option due to it being from the same carmaker. So the viewer may not buy the car directly advertised, but they'll still be more likely to buy a Mercedes. Ferrari don't sell cheap cars, so this halo effect is not present because if you can't afford one Ferrari model, you probably can't afford any of them.

The rose-tinted lifestyles presented in advertisements have the negative effect of constantly unsettling viewers, creating 'aspirations' that are often disguises for being unhappy with what may have previously been a perfectly comfortable life. You may have been happy with your 40 inch Sony TV, but when you see some celebrity showing off a 60 inch 4K curved-screen TV, your perception of your TV may completely change. You may therefore strive to be able to afford said 60 inch TV by working yourself harder while sacrificing social and family commitments, stressing more over finances, and generally in more of a rut. Should you finally make the purchase, after a few years your TV will soon inevitably be dwarfed by some new technology shown off on your TV. Your perception of your TV may change, and the deadly cycle of stress and consumption starts again.


Advertisements are not inherently dangerous. They can in fact be incredibly informative and entertaining, but that's not to say one should not be careful in assessing the impact of promotional material on our lives. Over-susceptibility to the bells and whistles of adverts can lead to dangerous consequences indeed.

SOURCES: 

http://www.theguardian.com/media/2014/apr/28/britain-advertising-spend-20bn-2015

http://blackinkroi.com/blog/does-your-advertising-increase-your-sales/

http://www.telegraph.co.uk/technology/news/10301661/BT-Infinity-broadband-ad-banned-due-to-misleading-speed-claims.html

http://www.cmo.com/articles/2014/5/7/ribena_ad_banned_for.html

http://cdn2.hubspot.net/hub/53/blog/images/adperception1.jpg

An Introduction to Bitcoins: the £3m Pizza.

Back in 2010, Laszlo Hanyecz convinced someone to accept 10,000 units of a currency he had just ‘mined’ with his computer to buy pizza for him, from Papa John’s.

 On an online forum, Hanyecz asked someone to order two large pizzas, worth $25 dollars (£15) for him in exchange for 10,000 Bitcoins- a virtual currency, young and relatively unheard of at the time.

Little did the anonymous volunteer who responded to him know that soon, he would be very well paid for this job; as of the 1st of April 2014, 10,000 Bitcoins are worth £2,955,271.52.

What is Bitcoin, and why is it so popular?

‘Bitcoins’ are a virtual, online-only currency that is far different from the Pound, or the Dollar that we are used to. Unlike conventional currencies, Bitcoins are un-centralised. They don’t need a bank, or central authority to control any aspects of it- and they are fully global, not tied to any specific country.

This is a particularly attractive aspect of Bitcoin- it removes the need of a third party (such as a credit card company) in a transaction- making it quicker, more private and cheaper. For example, to transfer pounds over to someone in China from Britain you'd have to pay high transaction rates, extra money that would go to the company you’re using for the transaction. Bitcoin allows you to transfer this money straight to the receiver, without any extra fees or parties involved.

Contrary to regular currencies extra Bitcoins cannot be produced- there will only ever be 21 million Bitcoins; 12 million of which already exist.

Rising demand has seen Bitcoin prices skyrocket recently- at the time of Hanyecz’s pizza purchase 1 Bitcoin was worth 1 two-hundredth of a pound- currently 1 Bitcoin is worth almost £300.

Sounds great! How can I get these Bitcoins?

Bitcoins are produced through a process of ‘mining’- you get your computer to solve a series complex maths puzzles via a program, and after long enough, you receive a quantity of Bitcoins. But it’s takes a long time- on average it’d take over 100 days to mine a single Bitcoin.

Where does Bitcoin get its value?

Well, no one knows exactly, but it’s generally accepted that Bitcoin gets its worth from trust- similar to conventional money, but instead of relying on gold it relies on complex mathematical properties.

Essentially, people who accept Bitcoin value it as something someone else will accept for another good- just like how you’ll take a fiver from your dad, because you know the local Tesco will accept it for what you want to buy.

So what can I get with Bitcoins?

Anything, provided the vendor accepts Bitcoins; you can hire a private jet, order a takeaway, and a more notorious use has been in the drug trade.

It’s difficult to tell whether Bitcoins are just part of a huge ‘crypto-currency’ bubble, along with other equivalents such as the short-lived ‘Coinye West’ and ‘Dogecoin’- and what will happen when the 21m Bitcoin limit is reached? Only time will tell.

SLOW DOWN: How Our Impatience Is Ruining Us.

One of the most significant features engrained into almost every aspect of our modern society is undoubtedly our desire for speed. Modern lifestyle is at such a rapid pace that often we forget to see it that way- we all get fast food from McDonalds, spend extra to get extra fast One-Day delivery on our Amazon order, and we all want a fast Italian car. More than ever, speed really is of the essence in today's world, and it's unsurprising that this is the case.

A primary reason for this impatience is our lack of leisure time. One of capitalism's great claims is the reduced workload it puts on every individual who partakes in it, but a fascinating paper by Juliet B. Schor of MIT suggests that we, as an industrial capitalist workforce, actually have less leisure time than most of our medieval ancestors- who, according to former Oxford don James E. Thorold Rogers, rarely had a work day of more than 8 hours. Altogether, holiday leisure time in medieval England took up around 1 third of the year- something we today can only dream of.
Work dominates the lives of so many modern citizens- economic pressures are primarily the root of this. Americans work more than anybody else- also taking less leave, working longer days and retiring later than citizens of any other country in the world- even often taking up multiple jobs to help make ends meet. Perhaps this is an interesting statement for the the world's bastion of capitalism to put across.

Anyway, people have less leisure time in today's world and undoubtedly this is a reason for why we like to 'live life in the fast lane'- time is precious, and everyone wants to fit everything in to what time we have outside of work, be it the weekends or just a single lunch break.

This impatience has helped us in many ways- in particular with regards to the overall productivity of society. Over the past few decades economic productivity has drastically increased, one of the reasons for the rapid socio-economic modernisation that the world has seen in past decades. The extra productivity has gone into developing and producing revolutionary technology like computers, goods like clothes and food, allowing the supply to be there for more people around the world to be able to purchase such items, and thus enjoy an improved standard of living (though the effect of some consumer goods on standard of living is debatable). Capitalism may not be pretty, but ideas of Adam Smith's such as division of labour have certainly streamlined the economies of the world, in many cases leading to better lives for ordinary people.

But on the other hand, the damages of this rapid, impatient lifestyle are evident throughout our society.
Our impatience has been damaging to our health- fast food has unfortunately become the staple of the workers' diet, due to its sheer convenience. People don't want to spend their whole valuable lunch break sitting down at a table any more- McDonalds, Burger King and co. offer a far more convenient, grab and go system that lets you enter a store, place an order, grab your food and be out of there within 5 minutes. The drive-thru system means you don't even have to enter the store. Minimum fuss, minimum time lost, but pretty much maximum damage done to your health- the ingredients these companies use to provide such a quick and addictive experience for their customers are dangerous both in the short and long term for the health. Meanwhile, 'healthy' food, notorious for its supposedly  painful, long preparation time, goes ignored by many (though thankfully this trend has been reversing in recent years due to an increase in health-consciousness). Nevertheless, much of the damage has been done in the obesity rates of today's world, and is continuing to be done in how fast food remains among the world's most popular choices of food.
Further health concerns have grown along with the rise in popularity of cars in recent decades. Pretty much everyone has a car, and people who use an alternative form of transport in their daily commute are probably in a very small minority. Cars allow us to stay at home in the mornings longer, and get home sooner, without breaking a sweat- just like fast food, they are quick and easy, and our impatience and lack of time makes us particularly weak in fighting their attraction.

By no means is this to say that neither cars nor fast food have benefited society at all- the positive effects cars have had in bringing closer the world and in terms of convenience is undeniable, and fast food's affordability and convenience similarly cannot be ignored- but, the indulgent society that we can often be, when these have been used to the extremes they have proven to be catastrophic- just as an example, obesity has grown to the extent that it currently costs the world $2 trillion to deal with. And this is just the tip of the iceberg- further health problems such as stress, and social problems such as decreasing family interaction can also be attributed to the fast and busy lifestyle we live.

And our impatience does have direct economic implications on our lives. Combined with our materialist tendencies it has driven us to make many financially unwise decisions, on a daily basis. Just a small example one can witness on a daily basis at any newsagents is the lottery. In Britain, over 32 million people play the lottery every week, buying on average three tickets at a time. These people, driven by the prospect of becoming rich quick and easily, as a result overlook the fact that the chances of winning are just one in 14 million. The lottery is a small but recurrent drain on income- if those who bought lottery tickets maybe decided to invest the money spent on tickets in a savings fund they are far more likely to be better off economically.

The most significant example however comes in the shape of the borrowing phenomenon. Gone are the days of saving for many people- a 2012 survey found that 28% of Americans had no savings whatsoever, up from 24% the previous year and 49% had less than what would be necessary to cover three months of expenses, up from 46%. A significant reason for this lies in the increasing cost of living and the great stagnation of wages in America (see Seven Shocking Facts About Economic Inequality in the USA)- but considering that overall consumer spending actually increased in this period (see graph), the possibility that people are being less prudent with their finances is strong.

How is borrowing, and a lack of financial linked to our impatience? The link is clear- we no longer want to save up money for investments like a car or a house- we prefer to get them immediately, and credit allows us to do just this- transferring what is usually a greater cost to our future selves. It is pretty clear that paying for a car with cash is the best option- one significant reason being that the car itself is cheaper, with no need for extra interest payments to be made. But we don't like waiting, so we take the option of finance- spreading the (greater) cost of the car over multiple years, but gaining access to it now- you can buy a car worth £40k for example, even if you don't have £10k in your bank account. And there's nothing to stand in the way of our desire to do this- companies and banks are continuously offering seemingly attractive finance deals, making access to credit incredibly loose- affecting more significantly the housing market, where access to credit inflated the deadly housing bubble of the noughties- and we know where that led us. People borrowed more than they could afford to repay, and as a result when this was realised the bubble popped- creating one of the biggest global economic messes in the modern era.

The process of borrowing can lead to disastrous consequences- it can entail addiction, spiralling debt and subsequent homelessness. And the root of it, more often than not, is our desire to get that new car today- to get that new house as soon as possible, it is our impatience that leads us towards borrowing and putting our future at risk rather than being prudent and saving.

One cannot say that our own deficiencies can be easily resolved- as one could argue desire for speed is part of human nature- and nevertheless, the promotion of quick and easy credit by various financial institutions certainly has played a role also in our development of addiction to debt. Change will only come in the long term.

Old habits die hard, and the habit of borrowing, taking short term gains for long term losses is one that will certainly not go down without a fight.

An Introduction To The Russian Billionaire Oligarchy

You probably will have heard of the phrase 'oligarch'- a term most commonly associated with the wealthy business elite of Russian society- the natural resource and media men primarily. This group of people are widely known not just for their massive wealth (the combined fortune of the 131 oligarchs almost $450bn), but also often for their political power- amassing such a wealth has meant that Russian oligarchs have played a role in not just Russian politics but also that of other countries- recently Britain's ruling Conservative Party has come under the spotlight for facilitating this. 

And the fascinating thing is that while the group itself is relatively well known, receiving much media spotlight, most people know little about the individuals within- even those most well-known, such as Roman Abramovich of Chelsea Football Club or Arsenal Football Club's Alisher Usmanov, remain much of a mystery to even football's biggest followers. Russian oligarchs, while being wealthy, certainly contrast to their Western counterparts- tending more to live reclusive, closed personal lives. 

So who are these Russian oligarchs- and why are they so rich?

The story of the Russian oligarchy begins in the latter years of the Soviet Union. For the majority of the Soviet period, the rulers pursued protectionist economic policies- policies that sought to boost domestic trade by taxing highly, or even outlawing, certain imports. It's a common practice for many nations, developing and developed- for example, Obama placed a 35% tariff on Chinese tyres entering the USA in 2009. The rationale behind such protectionist policy is to discourage purchasing of products from foreign businesses, but facilitate more trade with local, domestic ones.

The AGAT-4, Soviet Russia's answer to Apple.

Anyway, these protectionist policies in Russia, especially towards the end of the century, meant that the Russian people were missing out on many of the western developments, particularly with regards to technology. Cars, for example- as Toyota, Fiat, Volkswagen and the like entered the global market from the 50s onwards, they were simply either unaffordable for the Russian public due to high tariffs, or commonly banned altogether from being imported. The Soviet government, seeking the development of Russian industries, responded by making their own competing car- the wonderful Lada Riva; perhaps an example of how state protectionism does not always produce the best results.

Protectionism affected not just cars but other everyday consumer products- computers, for example. The state's attempt to create a computer system to rival Apple's II, the AGAT computer was almost seventeen times as expensive as Steve Jobs' original computer that it was essentially a clone of. And it wasn't a very good clone either- a reviewer in BYTE magazine in 1984 stated that "even if they gave it away for free, it wouldn't stand a chance". 
So a few people saw solutions to this- such as Mikhail Khordovsky, who in 2003 was Russia's wealthiest man- among his first few business ventures was in the black market, where he bought western computers and resold them for a huge profit back home.

Protectionist policy therefore almost itself triggered the beginnings of these oligarchs, who were in fact largely self-made individuals, with no significant backing from family members as is sometimes the case with businessmen. Roman Abramovich, for example, was in his early years a soldier, and went on to become a mechanic. His first business moves were selling imported rubber ducks and dolls.

Such 'black market' activity was only helped by Mikhail Gorbachev's policy of Perestroika (translated restructuring)- this, among other things, sought to put down barriers to international trade, giving already established traders such as Khordovsky and Abramovich a better platform upon which they could do business, with less concealment.

Boris Yeltsin took Gorbachev's Perestroika policy further
transforming Russia into a capitalist economy.

But without doubt the biggest boost to the oligarchy, verily the match that lit its fire, was the fall of the USSR and the subsequent entrance of Boris Yeltsin into power- now as elected President of Russia. Seeking to overwrite the past seven decades of Communism, Yeltsin pushed for dramatic capitalist movement to be made in the Russian economy. The most significant change he made with regards to the oligarchs came in the mass privatisation of key Russian industries.

The industries in Russia dominated by the oligarchs of today were, during the time of the Communist regime, kept extremely close to the state. As we've already seen, the consumer goods industry was largely under state monopoly, but the biggest profits for the USSR were to come from the natural resource industry. Coal, oil, gold and numerous other valuable commodities were abundant throughout Russia and its associated countries- and the state wished to keep them under their control for numerous reasons, but primarily to a) keep hold of revenue to boost the economy and b) prevent any private party from becoming so wealthy and thus powerful through resources and perhaps challenging the rule of the authorities. 

Yeltsin's rapid privatisation (known informally as Catastroika), the auctioning off of key national industries, did the exact opposite of this. Russian state revenues dropped as some key industries were sold to private hands at prices that were too low (remind you of the Royal Mail?) and as a result those certain 'private hands', certain individuals who had a steady footing in Russian business, became extraordinarily wealthy.

And who exactly these individuals were was determined largely by not just their status in Russia as businessmen, but also their relationship to the authorities. According to The Guardian, "by 1996, at the age of 30, Roman Abramovich had become so rich and politically well-connected that he had become close to President Boris Yeltsin, and had moved into an apartment in the Kremlin at the invitation of the Yeltsin family."- this relationship was one that indeed did play a significant role in Abramovich's subsequent acquisition of most of Sibneft (one of Russia's largest oil producers) for just $100m (the entire company being worth $2.7bn)- one of the biggest sources of profit for him. From this point on, Abramovich's career only went up- and many other oligarchs began their billion-dollar ventures in a similar manner. 

So to conclude- the Russian oligarchy was the controversial product of Russia's rapid shift from Communism to deep Capitalism under Boris Yeltsin- from a totally nationalised economy to a largely privatised one. Vladimir Putin later went on to re-nationalise certain natural resource industries, but the spark that the initial rapid privatisation provided for these individuals is undoubtable- and it has created a generation of Russian business elite who are spreading out their wings internationally- one Russian billionaire purchasing Britain's most expensive home is just a part of it.

It may seem such a phenomenon is exclusive to Russia, but in fact this type of instance can be seen in parts throughout the world- the Middle East, for example. Unlike in Russia, the natural resource industries were almost from the beginning privately owned- but similarly a select group of business individuals have benefited hugely from exploitation of resources available to them, notably oil.

Recommended Reads:
Computing in the USSR http://www.lituanus.org/1980_4/80_4_09.htm

Inside the Hidden World of Roman's Empire http://www.theguardian.com/world/2006/dec/24/sport.football

The Russian Oligarchs of the 1990s www.sjsu.edu/faculty/watkins/oligarchs.htm

Why are rich Russians so obsessed with buying up London property? http://www.theguardian.com/cities/2014/may/09/rich-russians-buying-london-property-real-estate