Dangerous Speculation Th E Appeal of Pyramid Schemes in Rural Siberia
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ARTICLES Dangerous speculation Th e appeal of pyramid schemes in rural Siberia Leonie Schiff auer Abstract: Th e people of Aga, a small district in southeastern Siberia, have in recent years become managers, missionaries, and victims of a wave of pyramid and Ponzi schemes. Th e schemes come with the promise to make people rich. In reality, they benefi t only a small minority of investors while increasing fi nancial diffi culties for the majority of participants and causing severe social confl ict. Th is article deals with the local manifestation of these economic forms. Based on the ethnographic investigation of a pyramid scheme, I discuss techniques of make-believe in order to show how ordinary people become involved in a fi nancial hoax. My discussion provides insights into the ways in which speculative thinking shapes imaginative horizons, pervades social logics, and impacts economic realities in a post-Soviet environment. Keywords: capitalism, fi nance, gambling, multilevel marketing, postsocialism, pyramid schemes, Russia, Siberia Following the demise of the Soviet Union, a cialism. Sooner or later, however, as is bound to wave of pyramid and Ponzi schemes swept happen with fi nancial pyramids, all the schemes over formerly socialist territory. Get-rich-quick collapsed. Whereas a small minority of people schemes were proliferating in several newly at the top of the pyramids had made money, the capitalist countries such as Romania, Albania, majority of participants lost their investments. and Russia. Th e promise of wealth appealed to Some of the schemes that proliferated during millions of people who paid money into the the 1990s were huge in scale. Caritas, a scheme schemes hoping that these investments would launched in 1992, touched at least every fi ft h make them rich. Prominent politicians sup- household in Romania and involved sums that ported pyramid and Ponzi schemes in various came close to the country’s gross domestic places, claiming that they would help people product (Verdery 1996: 174). In Russia, it was a manage their precarious situation in the eco- Ponzi scheme called MMM that became hugely nomic tumult that followed the end of state so- popular and spread across the entire country. Focaal—Journal of Global and Historical Anthropology 81 (2018): 58–71 © Stichting Focaal and Berghahn Books doi:10.3167/fcl.2018.810105 Dangerous speculation | 59 Th e scheme was initiated by the mathematician both create networks of enthusiastic devotees Sergei Mavrodi and developed between 1992 spanning national borders; and both promise and 1994 into one of the largest fi nancial scams health and wealth. Th e appeal of charismatic on formerly socialist territory. Massive adver- Christianity in formerly socialist countries has tisements in public spaces and on television been seen as being linked to the disturbances, promised 50 percent interest on investments. chaos, and problems caused by the fall of the Investors, however, were paid with the money of Soviet state and the confrontation with the free subsequent investors. Aft er six months, 15 mil- market (Pelkmans 2009). Under conditions of lion people had paid money into the pyramid. uncertainty, disorientation, and a struggle for When it collapsed, those who had come fi rst survival, the new vision of the future and new made a profi t, but masses of people lost their forms of meaning off ered by these religious money and several investors committed suicide movements proved attractive. Pyramid schemes as a result (Borenstein 1999; Smirnova 2012). may be appealing to people for the very same Because of their proliferation during the reasons in such a context. Jean Comaroff and period of post-Soviet transformation, it can be John Comaroff (2001), for example, understand assumed that the schemes’ popularity must be religious resurgence and the widespread ap- understood in the broader context of social and pearance of “occult economies” as being linked economic change. Th e heavy economic crisis, to the culture of neoliberalism. Especially in which characterized the economic situation in societies that have recently been subject to sig- the former Soviet Union during the 1990s, cer- nifi cant economic change, disrupted lives and tainly contributed to the appeal of moneymak- increasing inequalities make people feel left ing schemes. Like in other parts of the world, out of global prosperity. Comaroff and Coma- high infl ation, a drastic drop in income, and roff see both money magic such as pyramid problematic access to money drove the prolif- schemes and the rise of Pentecostal Christianity eration of speculative schemes (Verdery 1996). as responses to the experience of an enigmatic Th e new signifi cance of money in the newly capitalism that express an attempt to come to capitalist economy was not merely because of terms with the puzzlement resulting from new the economic crisis, however. Th e former Soviet forms of wealth. citizens’ relation to money changed fundamen- When the economic situation began to im- tally with the transition to capitalism. Whereas prove aft er the turn of the millennium, the Rus- personal connections had oft en been more im- sian people’s concerns over money shift ed to a portant than money when it came to getting new sphere: debt. Whereas borrowing money access to desired commodities, these relations in the Soviet system had been highly regulated became increasingly monetized in post-Soviet and therefore largely devoid of risk (Rona-Tas Russia (Ledeneva 1998; Pesmen 2000; Rogers and Guseva 2014: 33), in Russia’s new neoliberal 2005). Money was no longer the medium of economy banks started off ering consumer loans exchange that it had been during Soviet times, with high rates of interest that quickly became but it became an object of constant concern a problem for borrowers. In 2013, the Interna- as much as of great fascination (Lemon 1998). tional Monetary Fund (IMF) warned Russia Moneymaking schemes encouraged people to regarding its increasing household debt bur- dream of a better future, and they promised new den. Unsecured loans on consumer purchases hope in a destitute economic environment. were growing at a rate of up to 60 percent. Loan Before moving on, it is worth briefl y point- growth in banks was outpacing deposits, which ing out the striking parallels between pyramid the IMF evaluated as being a threat to the fi nan- schemes and Pentecostal Christian movements: cial stability of banks (Reuters 2013). Th is situ- both have proliferated globally in recent de- ation provided fertile ground for moneymaking cades and fl ourished in postsocialist societies; schemes that attracted investors by promising 60 | Leonie Schiff auer to relieve them of their debt burden. Recent to be multilevel marketing companies and thus schemes do not reach the scale of those in the part of a global industry that has developed suc- 1990s, but some of them manage to draw in con- cessfully in Russia. Th is article explores how siderable numbers of people. According to the people are attracted to pyramid schemes in or- Russian Ministry of the Interior, more than 160 der to better understand the nature of specula- Ponzi and pyramid schemes were operated in tion. I am interested in how hopes and dreams, the country in 2014 and resulted in a loss of theories regarding the hidden mechanisms of $46 million for their victims (Zamakhina 2015). the capitalist system, and ideas about the “cap- Until 2016, there was no clear legislation with italist elsewhere” are promoted through specu- regard to pyramid schemes in Russia. Only aft er lative schemes and how they impact local eco- the collapse of these schemes, when the scam nomic realities. had become obvious, could initiators of said My discussion is based on one year of ethno- schemes be legally persecuted (Eremina and Bi- graphic fi eld research conducted in Aga’s district ianova 2015). In 2016, in an attempt to fi ght the center Aginskoe in 2014–2015. Th e fi eldwork I problem of pyramid schemes more eff ectively, a carried out included participant observation in new law was released that declared them illegal. offi ces from where pyramid schemes were op- In 2011, Mavrodi relaunched his MMM erated and at business seminars that were held Ponzi scheme, claiming to off er a system of mu- regularly to promote the schemes and motivate tual help. In Aga, a small district in southeastern investors. Moreover, my fi ndings are based on Siberia with high levels of household indebted- numerous interviews and informal conversa- ness, the scheme became hugely popular before tions with pyramid scheme participants and it collapsed in 2012. Although people remem- their families, as well as with people who had bered the MMM scheme of the 1990s, they were invested money in Ponzi schemes or who were nevertheless ready to risk large sums of money, involved in multilevel marketing. However, I hoping to be among the scheme’s winners. will fi rst discuss in more detail what type of eco- Around the same time, several smaller pyra- nomic phenomenon we are dealing with before mid schemes emerged, pretending to be “com- I move on to my ethnographic case study. panies” (kompanii) and to run serious business projects. Th e representatives of these schemes were either selling services such as insurance Gambling or business? and legal advice, or they were selling products, claiming to be multilevel marketing companies. When risky fi nancial investment takes place What they really off ered, however, was the op- outside the spheres of what is perceived as pro- portunity to earn quick money by recruiting fessional fi nance, it is commonly associated with further participants who all had to make con- gambling. In contrast to fi nance, gambling is siderable investments to join the schemes.