What Is an Oligarchy? Pros, Cons, Examples

Why the Rich Keep Getting Richer

Oligarchy
Oligarchs travel in the same circles, so it's easy to create more wealth for each other. Photo: Morsa Images/Taxi/Getty Images

Definition: An oligarchy is when a few businesses, or even individuals, control most of the money and economic power in an economy. As opposed to a democracy, they are not elected by the people. Instead, they maintain their wealth and power through relationships with each other. 

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.

As the larger organization becomes grows and becomes complex, that only adds to the elites' advantage. They associate with others who share those same traits. They become an organized minority as opposed to the unorganized majority.  They groom proteges who share their values and goals.  it becomes more difficult for the average person to break into the group of elites. 

Pros

Oligarchies exist in any organization that delegates power to a small group of movers and shakers. Some power must be delegated to a group of expert insiders so an organization can function. In other words, 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, instead of the issues that concern the 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.

The oligarchy allows creative people to spend the time needed to innovate in new technologies. That's because the oligarchy manages the society. They can be successful as long as their inventions and success benefit the oligarchy's interests as well. 

The decisions made by the group are conservative since the goal is to preserve the status quo.

Therefore, it's unlikely that any single strong leader can steer the society into ventures that are too risky.

Cons

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 like them who share the same values and world-view. 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. They can agree informally to fix prices, violating the laws of supply and demand

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

3 Causes of Oligarchies

Oligarchies can form from a monarchy or tyrant system. Even though the single leader leaves office, the group that supported him/her remains in power.

Oligarchies can also arise in a democracy if the people don't remain informed. This happens more when a society becomes extremely complex and difficult to understand. People are willing to make the tradeoff, and allow others with the passion and knowledge to rule to take over.

 

In any society, an oligarchy can form if a group in power agree to use their influence to keep themselves in power, regardless of whether it benefits society. Since the people in charge are very good at what they do (otherwise they wouldn't have risen to that level), it's highly likely they can continue to take more wealth and power from those that don't have those skills or interests.  (Source: Ashley Crossman, About Expert on Sociology, Oligarchy)

Examples 

Russia, China, and Iran: are three examples of the most well-known oligarchies. Others include Saudi Arabia, Turkey, and apartheid South Africa.

For more, see Oligarchy Countries.

What About the United States?

Is the United States an oligarchy? Many economists, such as Thomas Piketty and Simon Johnson, say that either it is now or it's headed that way. One sign is that income inequality is worsening. The incomes of the top 1.0% of earners rose 400 percent between 1979-2005.

Two-thirds of that increase went to the top 0.1%. These are corporate executives, hedge fund and other financial managers, lawyers and real estate investors. They go to the same schools, travel in the same social circles, and sit on each others' boards. For example, the Koch brothers (David and Charles) who got their wealth investing in oil derivatives. They support conservative politics through the Koch Foundations. Another is Harold Hamm, owner of Continental Resources, who opened up the Bakken shale oil fields and supports Republicans. (Source: Jen Alic, "Five Oligarchs Whose Names You Need to Know," Oilprice.com, September 5, 2012. Paul Krugman, "Oligarchy, American Style", The New York Times, November 3, 2011.)

Research published by Northwestern and Princeton universities supports the oligarchy claim. It reviewed 1,800 federal policies enacted between 1981 and 2002. The researchers compared them to the preferences of four groups. It found the policies most frequently aligned with the wishes of Elites and Special Interest groups.  They rarely aligned with the those of Average Citizens or Mass Interest Groups. 

As a result, most Americans feel disenfranchised, if not helpless, to influence their society. Gallup reports that 76 percent feel dissatisfied with the way things are going right now. Also, 67 percent are dissatisfied with income distribution. As a result, 43 percent feel that there is not much opportunity to get ahead. That's up from 17 percent in 1997. 

That led to populist protest groups, such as the Tea Party and the Occupy Wall Street Movement. However, the Tea Party directs people's anger toward the federal government, not the oligarchy itself. The Occupy Wall Street Movement didn't carry out real change.

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 those policies that perpetuated income inequality.  Donald Trump lumped the Tea Party, traditional Republicans, and Democrats into the same "swamp."  Trump used the anger at the status quo to win the election.