Russia is a nuclear power. But an economic power it is not. Last year, the country’s GDP totaled around $1.6 trillion, less than that of the state of Texas. Nor is its wealth growing: Russia’s GDP in 2017 was smaller than it was in 2013, adjusting for price changes.

And yet there’s no question of Russian president Vladimir Putin’s international influence. Witness his ability to hack bigger, richer countries’ democratic elections, or, as this week’s Helsinki summit highlighted, to cow Donald Trump. The Kremlin’s knack for punching above its weight when it comes to geopolitics is a reminder that wealth sometimes matter less than what you do with it.

Or, more precisely, to whom you give it. Oligarchs are an essential part of Putin’s power apparatus. And as a recent working paper (pdf) by economists Thomas Piketty, Gabriel Zucman, and Filip Novokmet reveals, the wealth that won their fealty came directly from the country’s reserves—and, indeed, from the pockets of the Russian people.

The Russia that should have been

By any reckoning, Russia should be rich. It has a bounty of natural resources—oil and gas, obviously, but also coal, grains, seafood, and vast stores of minerals. Though it exported little under the Soviet regime, that changed rapidly after its collapse in 1991. Between 1993 and 2015, Russia exported around 10% more each year, on average, than it imported.

But whether trade surpluses are economically healthy depends on what you do with them.

When nations and businesses run a surplus, they have to find something to do with all the foreign cash they earn. This is why running persistent trade surpluses is usually a surefire way to rack up wealth overseas, typically in the form of assets or loans to foreigners. Some investments are more lucrative than others. The central banks of China and other Asian countries, for example, buy a lot of low-yielding US debt, while Germany’s corporations spend a lot of their trade earnings on building factories abroad. Over time, those overseas riches accumulate, creating a steady stream of income.

So what about Russia? Add up its two-plus decades of fat export surpluses and it should have socked away investments abroad equal to about 230% of national income—and that’s not including the return earned on the gains on those investments, which should have yielded a heck of a lot more.

Most of that wealth, however, doesn’t turn up in Russia’s official ledgers. As of 2015, its official net foreign assets—the value of what a country owns overseas, minus the value of domestic assets owned by foreigners—totaled a mere 26% of national income, according to the economists’ calculations.

Simple math implies that a share of those accumulated surpluses worth more than 200% of Russia’s current national income has disappeared. Considering the steady annual returns that would likely have been earned on those investment, the economists put the total missing foreign wealth on the order 300% of Russia’s current national income, or more.

What happened to all this money?

Missing billions

The economists argue that much of the missing money was likely whisked out of the country through offshore transactions out of official statistical view. The rapid “privatization” that followed the fall of the Soviet Union set this in motion. The process was notoriously corrupt, involving state assets sold off for far too cheap and concentrating what had been vast public resources in relatively few private hands.

However, that shifting of wealth offshore seems likely to have continued in the decades since. Using a patchwork of available official data, they conservatively estimate that offshore wealth is, as of 2016, around three times bigger than Russia’s net holdings of foreign assets. In other words, they add, “there is as much financial wealth held by rich Russians abroad—in the United Kingdom, Switzerland, Cyprus, and similar offshore centers—than held by the entire Russian population in Russia itself.”

Some of that spirited-away money might even have been invested back into Russia. The authors interpret the available data to suggest a hefty share of what counts as foreign liabilities is actually owned by Russians, snaked through offshore accounts.

Reversal of fortunes

Smuggling capital offshore—where it can’t be reinvested in Russia’s productive capacity or taxed to fund socially beneficial programs—isn’t good for Russia’s 144 million non-oligarchs. Neither is the distribution of wealth onshore.

After the fall of the Soviet Union, the share of income claimed by the bottom half of earners collapsed. Perhaps that’s not surprising given the hyperinflation and unemployment battering the economy during those chaotic years. But the persistence of that shift of income distribution is just as staggering.

How did this happen? The sweeping scale of post-Soviet privatization was undoubtedly a huge factor, as was the hyperinflation in the years that followed. But the Russian government has turned this disruption into the status quo. Take, for example, Russia’s flat tax policy. Russians pay 13% on their income in taxes, regardless of how much they make. Inheritances aren’t taxed at all.

Inequality in Russia isn’t necessarily a post-Soviet thing; the economists note that Russia’s inequality levels are far higher than in many formerly communist eastern European countries.

Putin, who has run the country since 2000, is in no small part responsible for keeping offshore and onshore wealth flowing into the hands of the few. Measured by his ability to sabotage liberal democracy, that heavy investment in the allegiance of Russia’s ultra-rich may be paying off. Russian oligarchs have been connected with many of his efforts to undermine elections, particularly in the US.

In terms of the Russian people’s wellbeing, though, Putin’s leadership has been disastrous. That includes not just his wealth distribution policies, but also the international sanctions his geopolitical machinations have provoked.

The Russian public has yet to demand a return on Putin’s plutocratic gamble. As the economists note, “extreme inequality seems acceptable in Russia, as long as billionaires and oligarchs appear to be loyal to the Russian state and perceived national interests.” But it is, they say, a “fragile equilibrium.”