What Is an Oligarchy? Pros, Cons, Examples

What Is an Oligarchy? Pros, Cons, Examples explained by professional Forex trading experts the “ForexSQ” FX trading team. 

What Is an Oligarchy? Pros, Cons, Examples

Definition: An oligarchy is an organization controlled by just a few businesses or individuals. They have enough power to turn the organization to benefit them to the exclusion of other members. They maintain their power through their relationships with each other. Oligarchy is from the Greek word oligarkhes. It means “few governing.”

A plutocracy is a subset of an oligarchy. A plutocracy is when the leaders are rich.

The leaders in a oligarchy don’t have to be rich, even though they usually are. For example, a high school ruled by a popular clique is an oligarchy. A plutocracy is always an oligarchy, but there could be some oligarchies that aren’t plutocracies.

An oligarchy can occur in any political system. In a democracy, oligarchs are not elected by the people. Instead, they use their relationships and money to influence the elected officials. In a monarchy or tyranny, they have enough power and money to influence the king or tyrant.

The iron law of oligarchy states that any organization or society will eventually become an oligarchy. That’s because the people who learn how to succeed in the organization gain a competitive advantage. The larger and more complicated the organization becomes, the more advantages the elite gain.

Oligarchs only associate with others who share those same traits. They become an organized minority as opposed to the unorganized majority.

They groom protégés who share their values and goals. It becomes more difficult for the average person to break into the group of elites.


Oligarchies exist in any organization that delegates power to a small group of movers and shakers. Some power must be delegated to a group of expert insiders so that an organization can function.

In other words, it’s not efficient for everyone to make all the decisions all the time.

An oligarchy allows most people to focus on their day-to-day lives. They can ignore the issues that concern society as a whole. They can spend their time doing other things, such as working on their chosen career, cultivating relationships with their families, or engaging in sports.

The oligarchy allows creative people to spend the time needed to innovate in new technologies. That’s because the oligarchy manages the society. They can be successful as long as their inventions and success benefit the oligarchy’s interests as well.

The decisions made by an oligarchy are conservative since the goal is to preserve the status quo. It’s therefore unlikely that any single strong leader can steer the society into ventures that are too risky.


Oligarchies increase income inequality. That’s because the oligarchs siphon a nation’s wealth into their pockets. That leaves less for everyone else.

As the insider group gains power, it seeks to keep it. As their knowledge and expertise grow, it becomes more difficult for anyone else to break in.

Oligarchies can become stale. They pick people like them who share the same values and worldview.

This can sow the seeds of decline since they can miss the profitable synergies of a diverse team.

If an oligarchy takes too much power, it can restrict a free market. They can agree informally to fix prices which violate the laws of supply and demand.

If people lose hope that they can one day join the oligarchy, they may become frustrated and violent. Consequently, they may overthrow the ruling class. This can disrupt the economy and cause pain and suffering for everyone in the society.

Three Causes of Oligarchies

An oligarchy forms when leaders agree to increase their power regardless of whether it benefits society. The people in charge are very good at what they do, otherwise they wouldn’t have risen to that level. That’s how they can continue to take more wealth and power from those that don’t have those skills or interests.

  (Source: Ashley Crossman, About Expert on Sociology, Oligarchy.)

A monarchy or tyrant system can create an oligarchy if the leader is weak. The oligarchy increases its power around him or her. When the leader leaves, the oligarchs remain in power. They select a puppet or one of their own to replace the leader.

Oligarchies can also arise in a democracy if the people don’t stay informed. This happens more when a society becomes extremely complex and difficult to understand. People are willing to make the trade-off. They allow those with the passion and knowledge to rule to take over.


Three examples of the most well-known oligarchies are Russia, China and Iran. Others include Saudi Arabia, Turkey and apartheid South Africa. For more, see Oligarchy Countries.

What About the United States?

Is the United States an oligarchy? Many economists, such as Thomas Piketty and Simon Johnson, say that either it is now or it’s headed that way. One sign is that income inequality is worsening. The incomes of the top 1 percent of earners rose 400 percent between 1979 and 2005.

Two-thirds of that increase went to the top 0.1 percent. These are corporate executives, hedge fund and other financial managers, lawyers, and real estate investors. They go to the same schools, travel in the same social circles, and sit on each others’ boards.

For example, the Koch brothers, David and Charles, made their wealth by investing in oil derivatives. They support conservative politics through the Koch Foundations. Another is Harold Hamm, owner of Continental Resources, who opened up the Bakken shale oil fields and supports Republicans. (Source: “Five Oligarchs Whose Names You Need to Know,” Jen Alic, Oilprice.com, September 5, 2012. “Oligarchy, American Style,” Paul Krugman, The New York Times, November 3, 2011.)

Research published by Northwestern and Princeton universities supports the oligarchy claim. It reviewed 1,800 federal policies enacted between 1981 and 2002. The researchers compared them to the preferences of four groups. It found that the policies most frequently aligned with the wishes of the elite and special interest groups rarely aligned with those of average citizens or mass interest groups.

As a result, most Americans feel disenfranchised. If not, they feel helpless in influencing their society. Gallup reports that 76 percent feel dissatisfied with the way things are going right now. Also, 67 percent are dissatisfied with income distribution. As a result, 43 percent feel that there is not much opportunity to get ahead. That’s up from 17 percent in 1997.

That led to populist protest groups such as the Tea Party and the Occupy Wall Street movement. However, the Tea Party directed people’s anger toward the federal government, not the oligarchy. The Occupy Wall Street movement didn’t carry out real change.

This dissatisfaction became a critical force in the 2016 presidential campaign. It created momentum for candidates on both ends of the political spectrum. Bernie Sanders railed against those policies that perpetuated income inequality. Donald Trump lumped the Tea Party, traditional Republicans, and Democrats into the same “swamp.” Trump used the anger at the status quo to win the election.

President Trump then filled his Cabinet positions with many of the same elite he had campaigned against. He also granted waivers to former lobbyists to direct policy in areas they had once lobbied for. (Source: “The Wall Street White House,” Salon, March 16, 2017. “The Daily 202: President Trump’s Commitment to Drain the Swamp is Being Tested,” The Washington Post, June 1, 2017.)

What Is an Oligarchy? Pros, Cons, Examples Conclusion

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