The Ask
On governments turning to private wealth
Vladimir Putin, the President of Russia and Daniel Laurie, the Mayor of San Francisco, are antithetical political figures. One is a former KGB officer who has ruled Russia for over two decades and launched the largest war in Europe in 70 years. The other is an heir to the Levi Strauss fortune, recently elected, and posts daily on social media.
There is a single thread connecting them: both lead governments with comparatively rich resources. Russia has the world’s largest natural gas reserves and is also a top producer and exporter of oil. San Francisco the highest per capita budget of any major US city — over four times as high as Tokyo’s. And yet, despite these resources both leaders have turned to the same instrument: mobilizing private wealth to fund their priority projects.
Putin, facing mounting costs of the war in Ukraine, recently summoned a group of Russia’s wealthiest citizens to a private meeting and pressed them to contribute personally. One attendee, Suleiman Kerimov, a close Putin ally and major oil trader, pledged ~$1B.
The episode is a reminder of Putin’s personal power and the dependence of Russia’s oligarchs on him for the maintenance of their wealth, much of which was achieved through ties to his inner circle. Putin’s move mirrored that of Crown Prince Mohammed bin Salman’s (MBS), who in 2017 detained dozens of Saudi businessmen in Riyadh’s Ritz Carlton hotel and demanded they hand over funds in exchange for their freedom. Over ~$100B was reportedly taken.
Laurie’s approach is different in form, but not in logic. He has raised $40 million in private funds — legally and in the open — to support homelessness and opiate addiction programs, establishing a parallel funding stream outside of the city’s budget.
The state governments of California and Washington State are taking a more formalized approach. California has proposed a new one-time 5% levy on the net worth of billionaires. Washington State recently enacted a 9.9% tax on millionaires. The taxes in both states are legal versions of what Putin and MBS did behind closed doors; what is done through law in one system is enabled through coercion in another.
Extracting concentrated private wealth to fund the state is an ancient practice. Roughly 2,000 years ago Roman legions were often funded by wealthy elites. Some 500 years ago the city-states of Florence and Venice developed systems to require wealthy citizens to lend money to their governments. And 400 years ago, the English king Charles I imposed forced contributions on wealthy landowners outside of Parliament, imprisoning those who refused.
Critics of the California and Washington State initiatives note that the adoption of the proposed taxes sets a worrying precedent for raising additional taxes on the wealthy, while forecasting that the measures will drive out some of the most productive residents to other states.
There is some merit to these critiques. But opposing new wealth taxes while nothing is being done to address underlying fiscal deficits is to mistake the symptom for the cause. In the face of unremitting increases in the cost of government, compelling wealthy citizens to shoulder a heavier burden is all but inevitable.
Peter Turchin, who researches the structural pressures inside complex societies, describes these patterns as evidence of a “structural-demographic crisis” endemic in later stage modern societies, where fiscal strain rises and state capacity weakens, and governments focus on extracting more from concentrated wealth while working around their own bureaucratic frameworks.
What is striking is not the turn to private wealth. It is what that turn avoids. The spectacle of the mayor of San Francisco setting up a parallel funding mechanism and the furor over wealth taxation in California and Washington obscures a more basic failure: the inability of the state to spend vast sums effectively.
The chief problem of modern government systems today is not a lack of funds. It is mismanagement and misallocation.
San Francisco offers a visible case. In recent years, multiple senior officials have been convicted in connection with misuse of public funds tied to homelessness and infrastructure programs. Most recently, a former nonprofit executive was charged with misappropriating more than $1M associated with a homelessness-services. Similar patterns appear in other large US cities, including Boston, Chicago and Los Angeles.
The $250M “Feeding our Future” fraud within a federally supported child-nutrition program in Minnesota was not an anomaly in scale so much as it was unusually visible.
Public estimates in California suggest up to ~$1B in recurrent annualized waste and fraud. At the Federal level, estimates of annual improper payments exceed $100B per year. This estimate notably excludes the US Department of War, one of the five largest recipients of federal funds, which has never passed a full audit.
These are not marginal leakages. They are systemic and structural. Against this backdrop, efforts to extract additional state funds from private wealth — whether made through legislation or informal pressure — do nothing to resolve the underlying problem. They serve as an institutional soporific, enabling governments to defer reforms while the costs of mismanaged programs compound.
The deeper issue is not how much governments should tax wealthy residents. It is whether they can manage and reform ossified bureaucracies. One day a leader or political movement that understands this will reforge the machinery of government.
The question is when.
Facts do not cease to exist because they are ignored.
And when they are ignored long enough, they have a way of asserting themselves.
— Aldous Huxley