Oligarchies: Pros and Cons, With Causes and Examples

Is the United States an Oligarchy?

Aristocratic men in top hats sipping champagne

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An oligarchy is a power structure that allows a few businesses, families, or individuals to rule. Those few ruling members have enough power to create policies that benefit them to the exclusion of the rest of society.

They maintain their power through their relationships with each other. The term "oligarchy" comes from the Greek word oligarchia, and it means "few governing."

Three of the most well-known countries with oligarchies are Russia, China, and Iran. Other examples are Saudi Arabia, Turkey, and apartheid-era South Africa. 

A plutocracy is a subset of an oligarchy. In a plutocracy, the leaders are rich. The leaders in an oligarchy don't have to be rich, even though they usually are. For example, a high school ruled by a popular clique is an oligarchy. A plutocracy is always an oligarchy, but there could be some oligarchies that aren't plutocracies. 

Traits of an Oligarchy

The "iron law of oligarchy" states that any organization or society will eventually become an oligarchy. That's because the people who learn how to succeed in the organization gain a competitive advantage. The larger and more complicated the organization becomes, the more advantages the elite gain.

Oligarchs only associate with others who share those same traits. They become an organized minority, while average citizens remain an unorganized majority. The oligarchs groom protégés who share their values and goals. It becomes more difficult for the average person to break into the group of elites. The following pros and cons summarize some of the benefits and issues:

  • Power is centralized within a leadership team, rather than involving everyone in every decision.

  • People can participate in activities, relationships, and work while the group in power handles the larger issues of the society.

  • An oligarchy strives to keep the status quo, which breeds conservatism instead of taking on risky ventures.

  • It can foster creativity and innovation because people are free from worries about running society.

  • The ruling class controls policies and legislation, and ends up with much more wealth than the rest of society.

  • As the ruling class gains more expertise, it tends to exclude outsiders, making it tough for people to break in.

  • It prevents new perspectives and diversity.

  • It can limit available supplies to certain classes, fix prices, provide selective benefits, and restrict the economy by hindering basic supply and demand functions.

  • When people feel they can't join the ruling class, they may no longer feel compelled to follow the rules set by the ruling class, leading to rebellion, disruption, and war.

Pros of an Oligarchy

Oligarchies exist in any organization that delegates power to a group of expert insiders so that the organization can function. It's not efficient for everyone to make all the decisions all the time. 

An oligarchy allows most people to focus on their day-to-day lives without too much involvement in the issues that concern society as a whole. They can spend their time doing other things, such as working on their chosen career, cultivating relationships with their families, or engaging in sports.

Oligarchies can make innovation possible, as well. Because the oligarchy manages society, creative people can spend the time needed to invent new technologies. Of course, these creatives will only be successful so long as their inventions and success benefit the oligarchy's interests as well.

The decisions made by an oligarchy are inherently conservative since the goal is to preserve the status quo (keep the ruling class in power). Therefore, it's unlikely that any single leader can steer an oligarchical society into ventures that are too risky.

Cons of an Oligarchy

Oligarchies increase income inequality. That's because the oligarchs siphon a nation's wealth into their pockets. That leaves less for everyone else and fosters greater social inequalities as well. As the insider group gains power, it seeks to keep it. As their knowledge and expertise grow, it becomes more difficult for anyone else to break in.

Oligarchies can become stale. They pick people who share the same values and worldviews and this can sow the seeds of decline since they can miss the profitable synergies of a diverse team.

If an oligarchy takes too much power, it can restrict a free market. For example, members of the oligarchy could agree informally to fix prices, which violates the laws of supply and demand. 

If people lose hope that they can one day join the oligarchy, they may become frustrated and violent. Consequently, they may attempt to overthrow the ruling class. This can disrupt the economy and cause pain and suffering for everyone.

How Oligarchies Rise

The people in charge are good at what they do—they wouldn't have risen to that level, otherwise. That's how they can continue to take more wealth and power from those who don't have those skills or interests. 

An oligarchy forms when leaders agree to increase their power regardless of whether it benefits society. This can happen in any political system.

If the leader is weak, an oligarchy can form under a monarchy or tyranny. An influential group increases its power around this person, and when the leader leaves, the oligarchs remain in power. They select a puppet or one of their own to replace the leader.

Oligarchies can also arise in a democracy if people don't stay informed. This happens more often when a society becomes extremely complex and difficult to understand. People are willing to make the trade-off of ceding power to those with the passion and knowledge to rule—or they simply don't see an alternative.

US Oligarchies

Is the United States an oligarchy? One troubling sign is that income inequality is worsening. Upper-income households in the U.S. enjoyed a 64% income increase in the past half-century, from a median annual income of $126,100 in 1970 to $207,400 in 2018. In that same timeframe, median middle-class income increased just 49% to $86,600, and median lower-income household income grew 43% to $28,700.

As a result, the share of aggregate income going to upper-income households increased from 29% in 1970 to 48% in 2018, while the share for middle-class households fell from 62% to 43%.

Upper-income households represent an elite class of executives, investors, and aristocrats. They go to the same schools, travel in the same social circles, and sit on each others' boards. However, if these individuals are to be considered American oligarchs, it's worth noting that they are not within the same families, nor do they all support the same causes. Instead, these wealthy people donate to campaigns and causes that help their businesses and promote their ideologies.

The Washington Post found that just 10 mega-donor individuals and couples contributed nearly 20% of the $1.1 billion raised by super PACs in 2016. Super PACs are political action committees that can shield the identity of their donors. The top givers included both Democratic and Republican donors.

These backers are well-known on both sides. For example, Charles Koch and his late brother David made their wealth by investing in oil derivatives, and now the Koch family supports conservative politics through the Koch foundations. Another example is Harold Hamm, owner of Continental Resources, who opened up the Bakken shale oil fields. Continental Resources has used its money to support Republican candidates, PACs, and causes.

Comcast lobbyist David Cohen is a millionaire who donates to Democrats. He also successfully lobbied the government for the merger of Comcast and NBC. S. Donald Sussman is a hedge fund manager who supports liberal candidates.

A study reported by researchers from Northwestern and Princeton universities supports claims of an American oligarchy. The study involved reviewing nearly 1,800 federal policies enacted between 1981 and 2002. It found that government policies are substantially influenced by both the economic elite and organized groups representing business interests, while "average citizens and mass-based interest groups have little or no independent influence."

American Disenfranchisement

As a result, many Americans feel disenfranchised or helpless to influence their society. Gallup polls in 2020 found that as many as 86% of Americans feel dissatisfied with the way things are going right now. Also, polls taken in January 2020 found that only 43% were satisfied with income distribution, though those same polls found that 72% of Americans were satisfied with their opportunity to get ahead in society.

These attitudes have led to populist protest groups such as the Tea Party and the Occupy Wall Street movements.

This dissatisfaction became a critical force in the 2016 presidential campaign. It created momentum for candidates on both ends of the political spectrum. Bernie Sanders railed against policies that perpetuated income inequality. Donald Trump lumped Republican opponents, Democrats, and powerful corporate lobbyists into the same "swamp" that prevented the federal government from doing the will of the people.