Plutocracy and oligarchy refer to power structures where a small group controls everything.
Whereas a plutocracy is defined as a system where a small group of wealthy people hold power, an oligarchy is defined as a system where a small group holds power, regardless of how they’ve amassed it.
In other words, we can conceptualize a plutocracy as a type of oligarchy where, specifically, the small group in power also amass outsized amounts of wealth of the society.
These terms usually come with a pejorative connotation, but some see their occurrence as being inevitable.
Plutocracy and Oligarchy Definitions
Plutocracy and oligarchy are related terms. Dieter Rucht defines them in the following way:
Oligarchy denotes a political regime in which the power is concentrated in the hands of a small group, regardless of whether this power is based on wealth (usually referred to as a plutocratic system), weapons, or other sources of influence and control. (2007).
In contemporary times, we generally use the term “oligarchy” when a small group holds power through whatever means; “plutocracy” is reserved for instances when this power is derived from wealth.
From Aristotle’s times, these terms have carried a pejorative sense, implying an unjust rule where the larger community suffers at the hands of a small group of leaders. However, some scholars see their occurrence as being inevitable.
They argue that human begins always differ in their capacities to accumulate resources because of nature or due to opportunities (Rucht). As such, power will always be distributed unevenly, especially in large & complex societies.
Therefore, oligarchy is not the exception but the rule, in every society (even if it’s a democracy). In such a view, oligarchy is not inherently bad as long as those in power can be replaced, say through democratic elections.
There are also economic explanations for plutocracy. When a country goes through rapid economic growth, income inequality increases as the rate of innovation grows (Piketty, 2013). Free markets also tend to move towards oligopolies because of the greater efficiency of large businesses—a phenomenon called “economies of scale”.
The Iron Law of Oligarchy
Robert Michels developed the concept of “the iron law of oligarchy” to describe the inevitable process of large societies becoming oligarchic.
He built this concept by studying the German Social Democratic Party. The SPD had originated from the socialist labor movement, but eventually, it became preoccupied with enlarging its own organization (ditching the socialist goals).
Michels argued that this was an instance of a general phenomenon that occurs whenever a large group comes together—including democracies and libertarian organizations. When people come together, there is an organization, which then leads to an oligarchy.
This is often summarized with a famous dictum: “Whoever says organization, says oligarchy”. However, Michels believed that even if oligarchy is inevitable, it should be limited. We must always try to fight against it.
- Modern United States: The United States is widely considered the starkest example of plutocracy in contemporary times. The top 400 wealthiest Americans have more money than half of all Americans combined (Kertscher). This has its roots in the 19th century when large corporations gained monopolistic control over industries and began influencing politics & public opinion. Joseph Stiglitz famously wrote an article called “Of the 1%, by the 1%, for the 1%” to aptly describe the state of US democracy. Gilens & Page also write that the average American has little influence on politics; their demands can only be met if wealthy Americans also want them.
- The City of London: The City of London is another plutocracy due to its political system. The City is a financial district of about 2.5 km2 and has a unique local electoral system where two-thirds of the voters are not residents; instead, they are representatives of businesses situated in the City, with votes distributed according to the number of their employees. The argument behind this political system is that most of the services provided by the local government are used by businesses. Only 7000 people reside in the financial district while 450,000 non-residents come to work there.
- Roman Empire and Greek Cities: Plutocracy is not just a modern phenomenon but goes back to the Classical period. The Roman Empire, for example, had a senate that consisted of wealthy aristocrats. They had the power to elect local government officials and influence policy decisions. Similarly, in ancient Greek city-states, only citizens who owned property were eligible to vote. Even Athens, with its democratic ideals, had the concept of “Eupatridae” or “good fathers”; these were the wealthiest citizens who had a significant influence on government.
- Iran (Power Held by Religious Authority): After the 1979 Iranian Revolution, a religious government was formed in the country, which is a kind of clerical oligarchy. Driven by Khomeinist and Shia ideals, the society is ruled by a system called “Velayat e-Faqih”—governance by a class of Twelver Shia. The Shia clergy (known as “Ayatollah”) supervises the parliament and regulates the national economy. Their leader (called Rahbar or Supreme Leader) is the military chief of the Iranian armed forces; he also leads the IRGC, a group of Khomeinist paramilitaries.
- Russia (Power Held by Political Machiavellianism): Russia has a ruling oligarchy whose roots go far back in history. After the dissolution of the Soviet Union, many (former) Soviet republics accumulated massive amounts of wealth during the 1990s through the country’s privatization. They then effectively became Russia’s oligarchs, who played a huge role in the country’s politics, such as getting Boris Yeltsin re-elected in 1996. Since 2014, the United States has imposed sanctions on many oligarchs for supporting the government’s “malign activity around the globe” (Kolesnikov), including the war in Ukraine.
- Apartheid South Africa (Power Held by Racial Group): Just like religion, race can also become a factor in an oligarchy, as was the case in Apartheid South Africa. After the Second Boer War ended in 1902, the whites gained power over the entire country, despite constituting only 20% of the population. They had access to all educational as well as business opportunities, and they denied these to the Black majority. In 1948, the Whites established this as the official government policy, known as apartheid. It lasted till 1994 when democracy was established in the country, allowing Blacks to finally gain power.
Similarities Between Plutocracy and Oligarchy
In both plutocracy and oligarchy, a small group of people holds all the power and there is unjustness in society.
- Self-Interested Minority: Both plutocracy and oligarchy are political regimes in which power rests in the hands of a small group, although the basis of that power (money, family, military, etc.) may differ. Further, this small group is usually concerned with serving its own interests, often at the expense of the larger majority. Therefore, since Aristotle’s times, the terms have carried a pejorative connotation.
- Unjust and Oppressive: Since both these political regimes are ruled by small minorities that primarily serve their own interests, the respective societies are usually unfair. There is a high level of income inequality and little to no social mobility (economic status remains unchanged over time & generations). These power structures operate best in totalitarian forms of government, where people cannot remove the leaders through elections.
Differences Between Plutocracy and Oligarchy
In a plutocracy, wealth is the primary basis of power and influence, while in an oligarchy, there are various factors.
- Ruling Leaders: The ruling leaders in a plutocracy are always rich. In contrast, the leaders in an oligarchy may or may not be rich. Their power can be rooted in various things, such as family connections, religious positions, military power, etc. So, all plutocracies are oligarchies but not the other way around.
- Scope of Influence: In a plutocracy, wealth is what allows individuals to influence the political sphere. For example, in democracies, rich businessmen can lobby, bribe, or make campaign contributions to get politicians on their side. On the other hand, oligarchies can involve various factors. For example, a religious leader can use the authority of sacred texts to make decisions (which may secretly be beneficial to themselves.)
In both plutocracy and oligarchy, power is concentrated in a few hands; however, the source of this power differs in the two.
In a plutocracy, wealth is the only means through which the ruling leaders gain control. Oligarchy, on the other hand, can involve religion, race, or any other factor through which a small group gains power.
While both terms often carry a pejorative sense, some scholars also see them as being inevitable—organizations always lead to oligarchy. However, despite this, scholars like Michels believe that we must always fight against oligarchy, promoting ideals of democracy & fairness.
Kertscher, T. & Borowski, G. (2011). “The Truth-O-Meter Says: True – Michael Moore says 400 Americans have more wealth than half of all Americans combined”. PolitiFact. Poynter Institute.
Kolesnikov, A. 2019) “Russian Oligarchs in the Era of Sanctions”. Carnegie Moscow Center.
Piketty, T. (2013). Capital in the Twenty-First Century. Harvard University Press.
Rucht, D. (2007). “Oligarchy and Organization” in (ed.) George Ritzer’s The Blackwell Encyclopedia of Sociology. Wiley-Blackwell.
Stiglitz J. E. (May 2011) “Of the 1%, by the 1%, for the 1%”. Vanity Fair.