Tycoon Takeover; A new report measures the oligarchs' influence.

Byline: Christian Caryl

It's no secret that a handful of "oligarchs" dominate the Russian economy, but until now the details have been murky. No one knew all the names in the oligarchy, exactly what they own, how many industries they dominate or to what effect. Are oligarchs leading the modernization of Russia, as they claim, or crippling progress? Answers have been hidden behind the thicket of shell companies that still obscure Russian accounting. "This is an absurd situation," says the World Bank's chief economist in Russia, Christof Ruehl. "It is one of the biggest countries on earth and no one knows how concentrated the economy is."

The World Bank dispatched dozens of researchers to cut through the murk and produce the first clear view of just who controls Russia. Last week it released the surprising findings: the 23 biggest oligarchs control 35 percent of industrial sales, high by European standards but less than the 50 percent claimed by earlier estimates. The oligarchs do dominate the heights of the Russian economy--including oil, gas, metals, autos and banks--but not much else. They have only a 2 percent share of the fast-growing service sector. Yet they may also be a bigger threat than even some pessimists thought.

The World Bank echoes those who say Russia's recent boom is a precarious "jobless recovery," with annual growth inflated by high oil prices, productivity built on restarting empty factories, and a fat public sector growing fatter. To create lasting economic growth and diversify away from oil, these bears argue, Russia needs to create a more efficient private sector, on which the oligarchs now act as a drag.

Some of this is the fault of Soviet central planners, who built standardized factories and cities and spread them across the breadth of Russia, creating a unique industrial structure that makes no economic sense. Most factories are too big, in the 1,000-worker range, and cities too small, around 500,000 to 1.5 million people. When leaders began to privatize the economy in the 1990s, they sold factories one by one, creating one-plant companies; again, the plants are too large and the firms too small. What Russia needed were efficient conglomerates like General Electric or Siemens. What it got were oligarchs--cutthroat bosses who own many firms but run most badly.

The World Bank distinguishes the bad from the good, focusing attention on the men Ruehl describes as "classic robber barons." Typically, they are bankers who in the mid-'90s granted free loans to the Kremlin in exchange for shares in state companies, handed out in rigged auctions that the bankers themselves often ran. The report doesn't name names, but bank insiders say the "classic" examples are Vladimir Potanin, Roman Abramovich and Mikhail Khodorkovsky.

All three are in the top 10 of the new World Bank list of 23 major oligarchs (chart). Khodorkovsky was recently jailed on tax charges after he threw his billions behind political opponents of President Vladimir Putin. The others have stayed out of election politics and thrived, gaining ...