Stories from Putin's Economist

Transcript

Trevor Burrus: Welcome to Free Thoughts. I’m Trevor Burrus.
Matthew Feeney: I’m Matthew Feeney.
Trevor Burrus: Joining us today is Andrei Illarionov, a senior fellow at the Cato Institute Center for Global Liberty and Prosperity. From 2000 to December 2005 he was chief economic advisor for Russian President Vladimir Putin. Illarionov has also served as the president’s personal representative at the G8. Welcome to ‘Free Thoughts’, Andrei. I’d like to start with, [00:00:30] before we get into politics, your life before involvement in political things. Where were you born?
Andrei Illarionov: I was born in a small town near St. Petersburg in [Vadin 00:00:45] of the former Soviet Union. I grew up my first 30 years on the Soviet Union. Life there was pretty different compared to what we have here in the United [00:01:00] States or even today in Russia. It was a totalitarian Communist regime with a very special rules and a very special type of life, which is rather hard to imagine for anyone who did not have such an experience.
Trevor Burrus: What did your parents do?
Andrei Illarionov: My parents were teachers. My mother was teaching the preschool, college, [00:01:30] giving basic education for those who were working with kids in kindergarten. Development of the language, the mind. This kind of basic stuff. My father initially was a teacher and after that became the person that was teaching all the teachers. Teach how to teach Russian language at the schools. [00:02:00] He became very advanced and good specialist in this particular area. He had written five books. My mother has written one book. They are a family of teachers with some kind of interest and skills for academic work.
Trevor Burrus: How did your parents, because I know it was different families, different social strata, different professions [00:02:30] had different relationships with the Soviet regime in terms of having to be party members or things like that. Your parents, did they have to be party members to have their jobs?
Andrei Illarionov: Fortunately, both of them, they were not party members. They had very negative attitude towards Party, the Communist regime. I’m very grateful to them because from early on they were teaching me how bad these political system, political regime. One of the reason of that because parents of both [00:03:00] of my parents have been repressed. They have been repressed and sent in gulag camps early on long before I was born. That is why each of them did have experience in their own families what does it mean to be in the Communist regime.
Matthew Feeney: What inspired you to go and study economics specifically?
Andrei Illarionov: Exactly my parents. My father first of all [00:03:30] who was always talking over the family dinner or any encounters about how wrong the system. You cannot even to reproduce how many times he said so, not only said but just attracted my attention to some kind of obvious stuff, from deficit of food to the deficit of basic consumer goods to [crosstalk 00:04:00] democracy, [00:04:00] about gulag, about the people who have been repressed, killed, exiled and so on. They were not able to travel abroad. He had very good friends in different countries, even in Bulgaria, in France. They had some communications with them, but he was not only to travel there, but at some point he was forced even to stop communicating with those because it became dangerous for himself and also [00:04:30] some of his friends and colleagues from the institute that he was working were able to emigrate to the United States. After that, any kind of communication with them were forbidden.
That is why they have accumulated huge experience what does it mean to live in such a Soviet Communist system. Fortunately they give me from early on this is a basic understanding of this system. That is why I started [00:05:00] to think how to change it. At some point I was thinking about different options, but at some point I decided, okay, the basis of any society is economics. That is why it is necessary to change basic economics and after that all other things including political system, ideology, culture would follow suit. That is why I chosen economics faculty, Department of Economics at Leningrad University and [00:05:30] went there.
Matthew Feeney: I’m particularly fascinated to hear what it was like to study economics in a Communist regime. What were you being taught? What if any outside economic thinkers were you made aware of?
Andrei Illarionov: You’re absolutely right. Because it was a Marxist/​Leninist political economy, which have not much common with the normal economics. Whatever you can find in any normal university [00:06:00] regardless in the whole world. Micro economics or macro economics or price theory, you would not find it at all because Marxist/​Leninist political economy is a very different stuff. They tried to brainwash us. Some of us were brainwashed. Not me because once again I am really thankful to my parents who gave me really a very good dose [00:06:30] of skepticism and critical thinking.
That is why from early on we need to decide at the [third 00:06:40] grade to choose because we all, Department of Economics, who would specialize in two main specializations. One is political economy of socialism. The other political economy of capitalism. It was obvious for anyone who would like to make a career in the Soviet Union would go to socialism [00:07:00] because it’s opportunity to get the good position whether in education or the government sector, in the administration or whatever, it’s absolutely clear. Also who would choose to go to political economy of capitalism is really strange kind of people because clearly they were not interested in career in administration. There was some kind of sitting but not where, would be reading books that would be absolutely irrelevant in the [00:07:30] Soviet Union, but even outside of the Soviet Union because we have been told that capitalism will die and socialists will win. That’s why it’s no reason. It’s kind of like archive, to study archive. A few people could study archive, some kind of ancient Rome or medieval period, but just it’s absolutely irrelevant to the modern days.
Not me, I knew that it was the future. That is why in the third grade I have chosen to study political economy of capitalism, [00:08:00] because I knew for myself. It was rather strange. It was 1980, so it’s 11 years before the collapse of communism and five years before Gorbachev came to power. In the middle of the most depressed situation, political, moral, cultural situation of the Soviet Union, I voluntarily have chosen to go to study political economy of capitalism because internally I was absolutely sure that is the future.
Trevor Burrus: [00:08:30] Were you sure that the Soviet Union was going to collapse?
Andrei Illarionov: No, I didn’t know when it happen, how it happen, but I knew that if I’d like to study anything serious, not just kind of the artificial creation of the fantastic dreams, I need to study political economy of capitalism. I started to study it. Suddenly, it’s one again, it’s not micro economics or macro economics or the real economics as we know [00:09:00] here, nevertheless it was much closer because it has something reality. Even most of those books and all the studies were some kind of critical, critics of these parts of element of capitalism. These critics, that critic, studying how it is wrong, capitalism.
Internally I knew that okay, maybe not everything is wrong. I need to understand how the system works. That is why it was first step for my personal education. This is political economy [00:09:30] of capitalism.
Trevor Burrus: You hear a lot of stories when you read about the functioning of the Soviet economy, how prices were chosen or figured out. Is that, for your colleagues, your students who went to study the political economy of socialism, did they become experts, I’m putting that in air quotes, in figuring out the price of coffee or something? I’m just trying to figure out what they would do when they got jobs in the party.
Andrei Illarionov: I like your question and even your comments, because [00:10:00] even you, a very advanced person, could not even figure out what the situation was in the Soviet Union because not only in the other institutions, other universities, but even in the Department of Economics of Leningrad University, the second most important university in the former Soviet Union, prices were not studied.
Trevor Burrus: At all?
Andrei Illarionov: At all. Moreover, not only were they not studied, there were prices were forbidden.
Trevor Burrus: [00:10:30] I can’t believe it.
Andrei Illarionov: Because if you would use word ‘prices’ in the very best case, you would come under very serious suspicion. What are you thinking about and what are you thinking about? Because it was not included at all. It’s rather hard to imagine. Once again, I’m just going to think. Those people who were thinking about prices were very few people in the administrative structures, in the power. That is why [00:11:00] even just those people who studied the Department of Economics, they did not study prices. Only if some of them, who would graduated, who would accumulate some experience, and who could be promoted later to some kind of higher echelons of power, would be allowed to jump in the particular business of assigning or setting prices for different goods. That is what. It’s not even for general profession of economist.
That [00:11:30] is why some of my friends who were think about why don’t write something like a thesis or some grades, talk about the prices? They were given very clear signal. If they would write it, they would depart from the university right away. That is why nobody did it. That is why until year 1983 in the Leningrad University nobody was studying [00:12:00] price theory. Nobody was using this term. Only in the course that was called ‘Critics of Bourgeois Ideologies’ or ‘Critics of Bourgeois Political Economy’ we have touched price theory. We had been explained how wrong those bourgeois ideologies and the bourgeois political economist who were talking about prices.
Matthew Feeney: [00:12:30] Just to give our readers some idea of this strange world that they might not be able to imagine, if in Leningrad in the 1970s or 80s you walked into a bakery to buy some bread or food of some sort, who was in charge of determining the price? Was it a party member who would enter into the shop and tell the people who worked there? What was the mechanism by which these prices arrived?
Andrei Illarionov: There was part of the executive [00:13:00] branch, because executive branch did exist in the Soviet Union. It was called Executive Committee or [Russian 00:13:08]. They had some kind of particular branch. It was called Price Committee. It was several people who were assigned or set prices for all goods and services.
Matthew Feeney: How many people would be in this committee?
Andrei Illarionov: I don’t know. For example, first of all, most of the prices in the country have [00:13:30] been established from one place: Moscow.
Trevor Burrus: For the whole country.
Andrei Illarionov: For the whole country.
Trevor Burrus: It’s a very big country.
Andrei Illarionov: It’s a substantial country. For example, I was living in Leningrad, in a small town near Leningrad, but if I would travel not only to Leningrad but to Moscow or to Estonia or to Uzbekistan, as I did, I would find in the state shops the same bread at the same price. For example, I still remember because those prices not [00:14:00] only had been set, but they were constant. They were permanent for a very substantial chunk of my life before this price destabilization and reforms and so on. Since I have been sent regularly by my mother to the shop to buy food for the family. That is why I still remember the prices for basic foodstuff. For example, I know that the standard loaf of white bread cost 13 kopeks. The [00:14:30] black bread, 16 or 18 depending on the [inaudible 00:14:34]. One kilo of potatoes was 10 kopeks and so on. You can ask me. I still remember because for many years for a couple of the kids, those prices, in my memory, never changed. That is why. It’s not hard to remember how much was cost sausages or cheese or butter or some kind …
Even vodka, a half liter of standard [00:15:00] vodka, was 3 rubles, 62 kopeks. It’s a part of national culture because many songs or lyrics are using this 3 rubles 62 kopeks in different combinations because it’s a very important product, as you can imagine. That is why it’s very clear. When the price of vodka later had been changed, it was increased to 4 rubles 12 kopeks, it was a huge, huge shock. Not only economic shock because it was [00:15:30] 50 kopeks more expensive, but it was cultural shock people after decades of having some stuff, food stuff or drink stuff, the same constant prices all of a sudden [inaudible 00:15:47], it is not constant. It’s sudden changes, and it is possible to change prices. That was really culture shock. It’s maybe even the shock for [00:16:00] some people who are living in a market economy if they saw the prices not changing. It’s much much stronger shock.
Trevor Burrus: It seems that I would think that the economic forces that are kind of hard to ignore would have people at least selling in a black market or being able to pay more out the back window. You need to have people who walked around and enforced those prices, it would seem to me. You would need to have a lot of people who were government people who enforced all these [00:16:30] rules, and that created a lot of ability for corruption of the system in general.
Andrei Illarionov: You know, it was remarkably low level of corruption, at least petty corruption, because everybody knew prices everywhere. Everybody could go to the shop and to buy all the stuff on these prices. Any attempt to change these prices to higher level, it would be criminal offense, and those people who were involved [00:17:00] would be sent to the jail.
Trevor Burrus: Even if there’s no bread and there’s a shortage of something and somebody goes to the guy and says, “Hey, I will give you 25 kopeks for this.”
Andrei Illarionov: Right. It is very important to keep in our mind until last few years of the Soviet Union, what we’re using in the modern language of economics, demand and supply were balanced in the Soviet Union, at least for [00:17:30] most of the stuff. That’s a very important one. Not many people understand because people who were working in these economic committees, they actually knew some basic laws of demand and supply. That is why for most of the stuff like bread, milk, butter, sausage, cheese, they were balanced. You would find it at least in such places like St. Petersburg or Leningrad or Moscow, Baltic countries, Ukraine, main industrial centers of [00:18:00] Russia. It was available.
Situation was different in smaller towns, in provincial towns. In such places like central Asia, Caucasus, South Caucasus, North Caucasus. When I studied [inaudible 00:18:20] I found for myself, it was also quite a cultural shock for me. Very important role, those places have been plagued by the so called [Kolhaus 00:18:30] market. [00:18:30] It was also legalized. It was not black market. It was legal Kolhaus market, the so called peasants or some kind of members of Kolhaus could bring their stuff that would grow on their plots, starting from potatoes or vegetables or berries or fruits or even the meats, the cow or whatever, the sheep, some kind of butter of their own produce to the Kolhaus market.
Trevor Burrus: Like a farmer’s market today.
Andrei Illarionov: [00:19:00] Yes, here it would be called. In Russia it could be called a farmer’s market. At that time it’s called Caucasus market because only collective companies can produce something. The prices on Kolhaus markets were much higher than in the state trade shops, very substantial. That is why when I found that they exist I will shrug because we in our family, we did not have such money to [00:19:30] allow us to go to Kolhaus and to buy the stuff because prices were three, five, ten times higher than in the state shops. Maybe in the very special cases, for example early summer when you knew fruits and berries would appear, [inaudible 00:19:48], mother would allow to buy half kilos of, for example, cherries, just to please kids, but as a regular we could not allow. [00:20:00] At least, teacher family could not allow it. I don’t know who could allow it to do it, but it was really, really expensive for us.
Those who would allow, the quality was good. It was better. There was a choice. All these market forces worked perfectly over there. Once again, it was not for so called capital. It’s not for industrial centers. I would say half of population of the country [00:20:30] lived through supply through this kind of state shops. Maybe another half through this Kolhaus market or something like that.
Black market did exist, but at least according to my experience, I had some experience with the black market in the Soviet Union, but it was really very marginal, very, very marginal. It happened only on very special occasions. For example, you have a New Year celebration. That is why you’d [00:21:00] like to have a very good table to invite friends or family and so on. That is why you need to have a bottle of champagne. Champagne is for the moment in deficit. There is no available champagne in the shop, but you need because the New Year is coming, and you cannot miss this. Or you have some kind of really good hard sausage, and it did not [00:21:30] exist. That is why you would come to probably the same people in the state shops. They could sell it.
Trevor Burrus: They could get you things maybe.
Andrei Illarionov: The prices, if I recall, maybe were twice as high as official state price. That would be manageable for this particular occasion or for example you have a wedding or you have a birthday party or some kind of really very special occasions that according to social standards you cannot avoid. [00:22:00] Champagne, vodka, good wine or kind of sausage, something like that. At least for tradition families or for most of families it would be only those occasions, not others.
Trevor Burrus: As you were studying economics, before we get to the post-​Soviet stuff, I do have one question about access to reading people like Milton Friedman. That’s probably a little bit too extreme. Let’s say Samuelson or something like that. Did you ever get to read these [00:22:30] people? How were you able to learn something more about markets?
Andrei Illarionov: Probably it’s a good moment just to tell a little story about how I was writing my PhD thesis on economics and how I used the stuff that you’re mentioning or such type of stuff. All these foreign economists were not only available. They were strictly forbidden. [00:23:00] You could not find them. You could not find them in the library nor in the book shops. They did not exist at all. If you’re a student, you don’t need to do it. You just need to go to library and to read Karl Marx or Frieda [inaudible 00:23:17] or Vladimir Lenin or some people who just based their studies on this Marxist/​Leninist approach.
If you moved further, if you were [00:23:30] already promoted to be some kind of applicant for writing PhD thesis, you have slightly more rights. You can apply for participation [inaudible 00:23:44] for reading in the special reading room of the public library in St. Petersburg, special [inaudible 00:23:51] in public libraries, a central one. Actually a very good library. For that purpose you need to go through particular procedures.
In my case procedure [00:24:00] was such. I was their assistant professor. I was writing my PhD, but I was assistant professor in the chair of international economic relations. I was giving course on international economic relations and international economic organizations and so on. I decided because I never read it, I decided to read something from the bourgeois ‘Economist’. I needed to get access to this particular room, [00:24:30] which was a special, it’s called [Russian 00:24:33], the reading room of special approach, special permissions to get there.
I had written a special letter explaining how badly I need for writing my PhD to read these bourgeois stuff. I went with this lady to the head of my chair. The professor has signed this letter. After that, I went to the dean of the Department [00:25:00] of Economics. He look at this. Okay, he sign it. After that I went to the vice rector of St. Petersburg University, which is a pretty high position because university had at that time 6 or 7000 profession and about 20,000 students. There is why you can do easily. You can sign special time. If he has the time you should be there.
Trevor Burrus: This is the third signature [00:25:30] you needed.
Andrei Illarionov: Yes, it was signature. He gave me. Actually, nobody gave any problems. Usually they say, “Oh, no. You’re not allowed.” That would be finish. Fortunately they all sign. Finally I went with this piece of paper to the director of the public library. Also he read this letter in which I explain how badly I need to read Samuelson on economics, basic [00:26:00] stuff. As I remember exactly it was a textbook of 1962 edition-
Trevor Burrus: The Samuelson 1962 edition?
Andrei Illarionov: Yes. I got it in 1984, 22 years after in St. Petersburg. When finally I was given access to this particular room, which was open only eight hours. The whole library was open for 13 hours from nine in the morning until ten PM, [00:26:30] so it was 13 hours. The special room was open only eight hours, from ten in the morning until six PM. It was shorter. I went there. I found this Samuelson economics. It was only copy of this book in this library which means only one copy of this book for whole St. Petersburg, for whole St. Petersburg region and maybe for the whole northwester Russia of Soviet Union. Maybe the other place where some of it could be found would be Moscow. That’s all.
[00:27:00] One of the rules of having access to this room was not having any paper with you nor any notebooks that you can carry out of this room. You can have a special notebook with numbered pages. The person who check upon your arriving this room and leaving this room whether all these pages are in the same place. [00:27:30] You cannot take this notebook out of this room. You can just make notes. It’s possible, you’re allowed to do, but you need to leave this notebook in this particular room and special place. That was the procedure to get to this particular book or similar books.
Okay, I got it. I started to read Samuelson. I was and to very much impressed, frankly speaking. I don’t know why, but it did not impress me. It sound very strange. Especially [00:28:00] in Samuelson textbook there was a particular chapter about convergence or some kind of importance of having special relations with Soviet Union. Soviet economy not so bad. It can develop very fast. I look at this guy, “Come on. What stupid stuff he’s writing here.” They told me about these bourgeois economists. Really, it’s very bad stuff. [00:28:30] That’s why I was not very much impressed.
Instead of that, since I already got into this particular room and I found what is there, and I’m not very much impressive, I then went to something which was absolutely open and which served to me as a very important element of my economic education. It is statistics. Public library in St. Petersburg had huge collection of statistical publications [00:29:00] from different countries. Regular statistics, annual books or yearbooks, annual statistics for United States, Canada, Sweden, Germany, France, whatever, for almost all countries of the world. Plus international financial statistics from the IMF. Annual publications, monthly publications on particular topics. Because it was mostly numbers, not many [00:29:30] words, the authorities did not consider this dangerous for poisoning minds of Soviet people. That is why it was open, because who would read numbers? [inaudible 00:29:45] not interesting.
I found it’s absolutely fascinating because I look at some kind of concepts I found very interesting. Money supply, M0, M1, M2, M3. What is it? I look at explanation, because they have a little explanation [00:30:00] there. I look for numbers for each particular month, for each particular year. I have some kind of constructed [to these 00:30:06] time series. I look into what is a money supply, what is a credit [admission 00:30:10], what is budget deficit for the national accounts. I studied what students in normal universities in the West do study during their courses. I studied through statistics which was available from the Soviet Union in this library thanks to IFS, [00:30:30] International Financial Statistics, thanks to government finance, GFS from the IMF, thanks to the annual statistics publications from different countries. From that, I got basic understanding of the modern economics.
Trevor Burrus: Where were you when the Soviet Union collapsed?
Andrei Illarionov: It was ’91. I was in St. Petersburg. Actually, [00:31:00] I did participate very actively in the special group of [columnists 00:31:05], historians, journalists who had been created by my two friends in 1986. At that time it was the so called Perestroika. You remember Mr. Gorbachev had pronounced-
Trevor Burrus: Does that mean opening up?
Andrei Illarionov: It’s like opening up. That was a very good time because all of a sudden the country started to open up, and it was possible. [00:31:30] It was a deliberate position of Gorbachev and the leadership to create different organizations, different clubs. That is why two of my friends had created a special club, a discussion club for discussing different issues. Because we were economists, mostly it was economic stuff, a little bit political, a little bit historical, historic stuff and so on. For five years from ’83 to ’91 I [00:32:00] was a very active participant of this club. I was another, very important, at university.
That is why I would say the first university were my parents. The second [regal 00:32:11] university is the public library in St. Petersburg with these statistics. The third university is this club which was called [Cintas 00:32:21], organized by my friend Boris [inaudible 00:32:24] and Andrei [inaudible 00:32:25] where we discussed the [00:32:30] hot topics, painful topics both from national, political history from history of the neighboring countries and from economic stuff. From there in other very substantial breakthrough in understanding the world.
Just by ’91, once again, thanks to these young guys, because most of them were 25-​years-​old, 26-​years-​old. Just my age. We were open. We were very [00:33:00] ambitious. We did not feel that we have any limitations, that we could do everything. Just for young people that is very normal. That is why we were not cautious, we move forward. By ’91 we got pretty good understanding, at least by Soviet standards of that time, what is necessary to do. For example, Boris [inaudible 00:33:27], my friend, [00:33:30] in 1988 went with the idea that Soviet Union inevitably will be dissolved. He could not leave in this situation. It will be dissolved according to the national principle, according to the principle of this republic. If you remember, Soviet Union consisted of 15 republics. Russia, Ukraine, Belarus, Baltic Republic, Georgia, [00:34:00] Armenia=
Trevor Burrus: Turkestan.
Andrei Illarionov: Exactly. Because he started a [inaudible 00:34:05] of ethnic questions, nationality questions. He came with absolutely revolutionary idea. Nobody at that time was even close. He came, okay, Soviet Union is doomed, doomed to fail because of ethnic issues. Because of issues of nationals. Not because of economics. Not because [00:34:30] of anything else, but because of nationalities. Nationalities are so different the life in each republic is so different, cultural, political, economic as well. The political liberalization, economic liberalization, cultural, ideological liberalization. Those republics would not be in the same political [00:35:00] entities. That is why it will be dissolved.
It was absolutely revolutionary. You cannot imagine a person in 1988 would say, “Okay, Soviet Union could not live.” We had many discussions.
Trevor Burrus: Are you saying he wrote it down or did he just-
Andrei Illarionov: I don’t know. This was oral. He want several reports on [inaudible 00:35:22]. It was widely discussed in our circles, even with some other people who became after that, leaders of the Russian so-​called [00:35:30] reforms. Anyway, we had a very special session devoted to his report. Somebody asked him, “Okay, you’re saying the Soviet Union is doomed and will collapsed, will be dissolved. How many years would you give Soviet Union to live?” It was July 1988. I still remember I was sitting near the fireplace because we got a nice place [00:36:00] in nature on the lake shore. I was near the fireplace, and he said, “I think not more than three years.” It was July ’88. It is now August ’91. It was cool, and after that Soviet Union in a few months ceased to exist. That’s unbelievable. I still do remember. The guy who at that time was 26-​years-​old, gave such a clear prediction, [00:36:30] forecast, about the fate of the Soviet Union.
Matthew Feeney: Of course, after the collapse you became very involved in Russian government. I think many of our listeners would be interested to hear your thoughts on the president, Vladimir Putin. Do you remember first meeting him?
Andrei Illarionov: Right. Fast forward. In ’91 when the Soviet Union collapsed and had [00:37:00] been dissolved, there was a huge demand for people who understand a little bit of economics because as we know, 95% of our people have learned how to live under political economy of socialism. That is why they did not have any clue about market. That is why those people who understood something was very limited. We started to collect all these people and found maybe 30, 40 people for the whole country. Such a huge country, but people who thought about this.
[00:37:30] That is why when this collapse happened, we all had been mobilized. It was a total mobilization of anyone who understands a little bit into the market economy. That is why I had been recruited as well as a lot other people into the Russian government. We occupied different positions, and were working on some sort of transformation. That was ’91 ’92. It was a very special and very interesting period. Maybe next time [00:38:00] we can talk about this.
Fast forward to year 2000. It was already Boris Yeltsin officially stepped down. Okay, so he’s not going to run for next presidency. He appointed acting president. He appointed Mr. Putin. It was February 2000. Election was scheduled for March 24th. [00:38:30] I have been invited by him, by Vladimir Putin, to his dacha, his real estate outside of Moscow to discuss future economic policy, future economic program. It was on February 28th, year 2000.
As I was told, Putin was looking for economic advisor to him. He [00:39:00] had some ideas whom he wanted to appoint as the Minister of Finance, Minister of Economy, Prime Minister, but he didn’t have, because he didn’t study economics at all. He studied some other courses and was employed in some other activities.
Trevor Burrus: How to kill a man silently.
Andrei Illarionov: He wanted to understand a little bit about economics. People suggested that, okay, there is a guy who might be interesting for him. Actually, he saw about ten people before me. Somehow [00:39:30] he did not like them. Finally, somebody suggested, “Okay, why don’t you meet that guy. Maybe you find something.” We spend three hours with him. It was in the evening. It was very late. It was after 11 PM, so it was already dark. Everybody was falling asleep.
Just I was leaving his estate, his dacha, and he told me, “Okay, I’d [00:40:00] suggest, offer position of economic advisor,” to me. Everyone assumes that he will be elected as the president in four weeks. I said, “Oh no, I’m too busy. I cannot accept your offer because I have much more interesting problem in my institute,” because I was working in institute on economic analysis. He was visibly shocked, because he didn’t expect such a response. He said, [00:40:30] “Okay, you’re too busy to work with me on a regular basis, but can you come tomorrow? We’ll continue our discussion about the economic policy and economic reforms.” I said, “Okay, I’m really too busy tomorrow because I promised my advisor to go to restaurant with her. Sorry. She asked me. I gave her word to her, so I cannot do it. Just to make your life easier, I need to tell you that my wife is American citizen,” so that he would [00:41:00] understand whom you are dealing with.
He said no words. Only his eyes became slightly larger. He would look at me. He shook hands with me. “Good bye.” I said to him, “Okay, good bye.” I completely understood that was the first and last time that I saw that person because afterwards … We discuss, actually, one issue during this three hours, we also touched issue of war [00:41:30] in Chechnya. That was the time of the Russian Chechnya war, second Chechen war. It was some point, the officer came to Putin informing him about the Russian troops taking last tenth of the Chechens against Russians. Putin was very excited about this. He was sharing with me such great news, his joy that we took them, we crushed them and so on. I said, “Okay, you committed crime, killing [00:42:00] people,” because this war is a real crime. It’s a crime you’re killing people, Chechens. You’re killing Russians. Sooner or later Chechnya will be independent. That is why since it will be independent in any case, it’s better not to kill people on both sides, but just to give them independence.
Okay, we had a little conversation about this issue. At some point he said, “Okay, let’s talk about economics.” That is why we have accumulated interesting information [00:42:30] about each other. He learned about my views about Chechnya war. He learned about my wife, who is American citizen. He’s from KGB. He’s thinking about inviting the position of economic advisor, a person whose wife is an American citizen. It’s interesting. Also, when he suggested let’s meet together. He’s busy be my economic advisor. No, I’m not interested. That’s kind of interesting. [00:43:00] I was completely sure it was the last time that we see each other. I even forgot about this, almost forgot.
Next day was a special day because it was the anniversary of my wife coming to Russia because she came eight hours before on the [inaudible 00:43:20] day of the old year because it’s a February 29. That is why anniversary could be celebrated only once in four years, not once in one year, so it’s [00:43:30] a very special occasion. March 1st I was sitting in my institution, writing some stuff on my computer. The telephone rang. The person said, “You were busy yesterday, but are you busy tonight?” I looked at my calendar. It looks like I don’t have any special occasion nor any special event for tonight. “Okay, looks like I’m free.” “Okay, would you like [00:44:00] to come to dacha again, and let’s discuss economic issues?” I said, “Why not?” Okay, let’s go. I went there again, and we continue.
After some kind of two months of almost daily meetings with Putin because he invited me either every day or every second day. He started to invite me to different travels with him around country. Actually, I’ve been in some places in Russia where I never been before and where I would never be in [00:44:30] any other circumstance because it’s very special places. I knew him a little bit because I saw him from the very short distance how he behaves with different people, what his attitudes and so on.
Suddenly I realized he’s really serious about economic reforms. Really serious. It was not a joke. It was not primitive approach, not superficial like other people with whom I worked before. He was absolutely serious.
[00:45:00] One story was really remarkable. As you probably know in the Soviet Union on the former communist countries, there was such a holiday they called International Women Day, March 8th, which is maybe not very popular in the West, but in that part of the world it is popular. There is why the day when man and boys are congratulating ladies: mothers, sisters, wives and so on. It’s a very important element of the culture. [00:45:30] Because Putin was participating in this presidential campaign, he went to the city of Ivanovo. It’s a kind of center of textile industry in Russia and also called ‘Women’s Capital’ because of all the industry. 70% of population are women. It’s maybe awful for them, but that’s the story.
He went there to congratulate them with this international holiday, Day of Women [00:46:00] and so on. I’d’ been in Moscow. I didn’t went with him to Ivanovo. That day it was probably March 6th or March 7th. Somebody stomped in my room in the institution, one of my colleagues in the institution, saying, “Have you heard what Putin said in Ivanovo?” I said, “No.” The person said, “It’s better for you to know what he said in Ivanovo.” “Okay, what he said?” “He was talking about necessity to have economic freedom.” [00:46:30] “Where” “In Ivanovo.” “To whom?” “To ladies in textile industry.”
Oh my god, that’s interesting because by that time, by March 6th or 7th, year 2000, the only person in the whole country who was using this expression, this term, economic freedom, was me. Nobody else. I was telling him during our first meetings [00:47:00] that the way to do, if we’re talking about economic policy, is just to increase economic freedom. I explained what does it mean, economic freedom, in terms of regulation, in terms of taxation, in terms of [inaudible 00:47:12], all these kind of different elements. Not in detail, but just the concept. Each day I was explaining, describing, giving examples. I gave him this idea, economic freedom. Actually, when I was trying to talk to Mr. [Gaidar 00:47:28], to Mr. [Chubais 00:47:29] about economic [00:47:30] freedom, they became really absolutely uninterested in that. The first generation of the so called Russian reformers.
Putin became very interested. He was asking me different issues and so on. All of a sudden when he went to Ivanovo and he saw those ladies who are working on the textile industry, he started to talk about economic freedom to them, so to the whole country. He started to tell them how it is necessary, how it is important the [00:48:00] the country would be economically free.
Trevor Burrus: He really believed in it is what you’re saying? Then you believed in him?
Andrei Illarionov: It’s a different story whether he believed or not believed, but he was telling that. He was talking about that. You can imagine the ideological earthquake that happened in the government, in the authorities, in the Kremlin because all of a sudden their person, who they consider their person, they’re [00:48:30] grooming, educating, training. All of a sudden he started to talk about something that they have no clue about, economic freedom. That is why they started to look around. Who is that source who could supply him, Putin, with these ideas of economic freedom. They look around, and it was not very hard to find the problem.
Trevor Burrus: The source?
Andrei Illarionov: Yeah, the source, because there was only one person in the whole problem. They [00:49:00] called me. “All right. Looks like you are meeting with Mr. Putin.” “Yes.” “It looks like it was you who tell him about economic freedom?” I said, “Yes.” “Can you please come to us and explain what is economic freedom means.”
Trevor Burrus: I want to clarify who ‘they’ are in this.
Andrei Illarionov: The Kremlin administration, some people. I was meeting with Putin personally. There was nobody around. There was no advisors, assistants, some kind of new ministers. Just [00:49:30] only two people. We spent, once again, the first night we spent three hours. Others will be three hours, two hours, hour and a half.
Trevor Burrus: These people who called you were people who served in the government for a long time?
Andrei Illarionov: Yes, probably like somebody would be from the White House in the American situation. They would be calling, “Are you meeting with our president and you are talking about something that we have no idea. Could you please come to us and explain that we would understand [00:50:00] what he’s going to do, what is his understandings, that we would include in his next speeches or whatever. Just these concepts, and they would be right, correctly explain that.”
That’s why I started additionally some little course of education of speech writers, of assistants, of the presidential administration about economic freedom. We continue our meetings with Putin from two more months. He [00:50:30] invited me once again, second time. I also refused to join him. When he invited me for the third time, I said, according to [fairytale 00:50:39], you need to pick up because there will be no fourth try. By that time, after two months, I learned him. I knew him. I saw him in different circumstances, and I understand that he’s absolutely serious about economic reforms, at least partially about economic [00:51:00] freedom. He really serious. He’s a serious person about that. He remembers. I said, “Okay, that’s a historic chance. That’s a historic chance. Not so much for me, but historic chance for the country that after these ten years of previous so-​called reforms when these guys who claim to be economist or reformist or liberals, they completely destroyed everything.”
This is a very strange situation. [Kolonov 00:51:28] from KGB [00:51:30] was very clear the background. Very clear [inaudible 00:51:34]. There is no doubt at all for me who he is. Nevertheless, in one particular area, economic reforms, economic policy, he’s very serious about reforms.
Trevor Burrus: When you say that there was no doubt about who he is, would you consider that period when you were working with him and spending all these nights together and presumably just talking about economics that you became friends with him or is he the kind [00:52:00] of person that you really don’t become friends with?
Andrei Illarionov: No, you cannot be friends with the head of the country, especially if you are both adult people. It’s impossible. If you are some kind of youngsters, if you are kids, if you are teenagers and maybe you were in university or students, there is a chance you can befriend someone. If you [doubt 00:52:24] person, especially if you’re dealing with the head of the country it’s impossible to become a friend. It’s [00:52:30] a different type of relations.
Nevertheless, that’s very important because suddenly I saw his approach in Chechnya, also his approach towards some particular, what we call, human rights, or some story. It was very clear. There was no doubt. At that time I had the impression actually that that was a very important element.
It was a theoretical background for transformation that existed at that time. It actually was only that [00:53:00] theory existed. The theory was based on somebody’s materialistic approach or even something Marxist approach. First the most important part is economics. If you change economic fundamentals, after that slowly or gradually economics would help to change other elements like social structure. There will be appearance of middle class. Middle class will have new ideas. That is why it will lead to new ideology and to new culture [00:53:30] and so on. That is why if you start with economics, not you yourself, but some other people, not maybe immediately but after that, would contribute to transition of totalitarian communist society to free society. That is why I consciously have chosen the work. Okay, I’m studying. I’m going to make first step with economics. If I succeed or other people succeed with me, then there [00:54:00] is somebody that will come later with social structure, with ideology, with politics, with culture, would make some other elements.
Now, once again fast forward because it’s already 17 years since then. I see how wrong this idea … Maybe not wrong, but incorrect. It’s impossible to do like this. By that time I strongly believed, you asked me what do I believe, I thought that it is possible to change. That is why I cautiously [00:54:30] have picked up this offer. I said, “Okay, there is a chance. Let’s do as much as we could do.” If it is possible to help to change his attitudes in other areas it will be really great. Even if not possible, but I thought that it would be possible. At least we will do economic reforms.
Matthew Feeney: I have a question I suppose outside of economics, most Americans will be familiar with Putin by [00:55:00] watching the news about Ukraine and Syria and more recently the American election. The question I would really like your answer to is what does Putin want? What is his world view? How does he see Russia in the world? What does he want? What is his foreign policy agenda? That’s, I think, been something on all of our minds recently.
Trevor Burrus: Yeah, just to add onto that, just some of the stuff like fomenting a coup in Montenegro if that in fact seems to be the [00:55:30] case. These all seem kind of crazy. What is he going for?
Andrei Illarionov: There are many stories that we can start from. Montenegro or some kind of involvement in the US election, involvement in the German election, involvement in French election. Not only involvement, but actually participating in Armenian coup in 1999 or in attempt to assassinate candidate for Ukrainian presidency, [Yushenko 00:55:57] in year 2004. The real [00:56:00] assassination of presidential hopeful [Chernovol 00:56:05]in Ukraine in 1999.
Trevor Burrus: It’s a lot.
Andrei Illarionov: It’s a lot. It’s a long list of all this stuff. That is why we definitely not have time even just to mention all of this because it’s already not dozens. I think it’s maybe hundreds cases both within Russia and outside of Russia because his foreign policy is pretty active, [00:56:30] if you can use such particular terminology.
All right. In terms of what he wants. We need to distinguish at least two very clear periods in his overall 18 years presidency because this year will be 18 years since he’s top of the Russian power. This first period will be until the year 2003, which I call this kind of the year of the radical [00:57:00] turn. Before that and after that. That year is concerning with the Iraq war and the decision of George Bush to intervene into Iraq. This is very important year because it has changed attitudes and approaches of Putin radically.
In the first three last years of his power as a president, his attitudes towards [00:57:30] West was extremely friendly. You probably still remember that he was the first person who called George Bush after 9/11.
Trevor Burrus: Yes, I do remember that.
Andrei Illarionov: It was not a thing by coincidence. It was because it was his attitude. He was really interested in establishing very good, very special, very friendly, maybe very special personal relations, which is slightly different from what is expected between leaders. It is important to remember what [00:58:00] his official attitude was towards NATO. Official attitude of Vladimir Putin and the Russian government from year 2000 to year 2003 was that Russia wants to be a full fledged member of NATO.
Trevor Burrus: Yeah, I remember that. That all seems like a crazy dream now.
Andrei Illarionov: No, it was very interesting. It was not a joke. He was talking about all this both on the private meetings in the negotiations with [00:58:30] foreign leaders and in public statements. He was pretty serious as with economic freedoms. He was pretty serious about, okay, yes, he probably was not ready to abandon some of his bad habits. We should be absolutely accurate about this, but nevertheless, his intentions were very clear. He wanted to be in the western alliance, a special western alliance. Actually, to some extent he still wants to be part of the West. [00:59:00] He wants meetings with Mr. Trump today, not with Robert Mugabe by the way. He was not [inaudible 00:59:12] to be invited into Harare or to Pyongyang. He was once in Pyongyang in year 2000 with me. I was also in that-
Trevor Burrus: You went to Pyongyang?
Andrei Illarionov: Yes, it was unforgettable experience. We were three days there. I was sitting or listening [00:59:30] with the father of this Kim who is sitting. That’s a very special stuff.
Trevor Burrus: Kim Jong Il?
Andrei Illarionov: Kim Jong Il, yes. Very, very special stuff. When everybody there are carrying guns in the official negotiations, it’s not customary in Russia, but in some other countries you have to carry guns. [01:00:00] They were pretty open. Finally, because this was the first visit. It was July, year 2000. Putin was flying from Moscow to Beijing in China. We had that negotiations with Chinese. After that we flew to Pyongyang. We had three days of negotiations in Korea. After that we flew to Okinawa in Japan where we had G8 summit. That is why it was one of the very first visits of [01:00:30] Putin abroad.
At that time Koreans, or Kim Jong Il, thought, “Okay, finally we have our guy in Moscow who will help us to militarize, to continue preparation for the war.” They were openly saying, “Finally, since now we have the right guy in Moscow we can launch a war against South Korea and to destroy it.” Openly, absolutely. In other words they [01:01:00] were saying, “Okay, we need so many thousand tanks, artillery units, planes,” and so on. The concert in the evening, it was unbelievable because they were singing songs, Korean songs and Russian songs, Russian military songs. The translation was our translation. The main slogan were finally, now with Russia we will destroy South Korean capitalism and American [01:01:30] imperialism.
We arrived there, even Putin I found him, and he was absolutely shocked because he was not having such a plan to destroy South Korean capitalism and especially American imperialism. No, he was very far from that. It was quite shocking for them. After July year 2000 he never ever traveled to Pyongyang anymore. That is why coming to your question. He’s not some kind of not sleeping [01:02:00] through the night dreaming about being invited into Harare or Pyongyang. No.
He was dreaming about invited into G8, into Washington.
Trevor Burrus: Into NATO.
Andrei Illarionov: Into Bonne, into Berlin, into London, into Paris. He wanted to be a part of the Western world. It’s absolutely clear, but he thinks, and he’s absolutely some kind of firm belief that the world, [01:02:30] the real world, is organized not in such a way as it has been described in textbooks or in declaration of the United Nations, but it is organized in the way how big guys reach agreements among themselves. If they reach agreements about the division of the world, that is real world.
That is why he wanted actually with Obama [inaudible 01:02:57] and to have okay, you have your sphere [01:03:00] of influence, and I have my sphere of influence. I promise I do respect your sphere of influence. I am not going to intervene there. Just don’t worry. Please respect my sphere of influence, and you would not interfere there. Georgia, Ukraine, Belarus, Baltics, it’s my sphere of influence and interest, and I can do whatever I like. I have free hand over there. Please don’t touch it. Syria, by the way, is also [01:03:30] my sphere of influence because Syria is my old client, the former Soviet client.
That is why he is kind of, “You violated some kind of unwritten rules of international order because you intervened in my garden.”
Trevor Burrus: His garden is all the former Soviet states?
Andrei Illarionov: That’s unclear.
Trevor Burrus: That’s part of the question.
Andrei Illarionov: That is [unplanned 01:03:56]. That is one of the reasons why he wanted this meeting with Obama. Now he’s [01:04:00] interested in meeting with Trump. Let’s clarify borders, our spheres of interest.
Trevor Burrus: It seems like bargaining over the world.
Andrei Illarionov: Because it was exactly what has been achieved in the Ribbentrop Molotov pact in 1939 when Ribbentrop arrived in Moscow and in the presence of Stalin he agreed with Molotov about the division of Europe between Nazi Germany and the communist Soviet Union. [01:04:30] To some extent, something similar has happened six years later in Yalta and in Potsdam. One part would be the same, Stalin, but on the other side would be Mr. Roosevelt. It would be Mr. Churchill. The idea was to divide the world. Okay, this is your sphere of influence, and this is our sphere of influence. This will be our [inaudible 01:04:55]. Mr. Churchill would call it later.
Probably Mr. Roosevelt and [01:05:00] Mr. Churchill did not realize in Yeltin Potsdam, because the [text 01:05:06] was the same, but the content, the understanding of these words was different for Roosevelt and for Churchill and for Stalin because they said, “Okay, that’s free choose of their governments.” This would be free election. For Mr. Stalin, the free choose of power means that just I freely choose the government for those countries. That’s the interpretation [01:05:30] of those words would be different.
Trevor Burrus: Which is also what Putin is thinking it seems like.
Andrei Illarionov: It looks like he is. He wanted from earlier Obama, now he wants from Trump some kind of legitimation or legalization of his pretenses, of his desires in these spheres. That is why if he would get orally or reasonably some confirmation, “Okay, we understand that you have a special [01:06:00] culture, historic, political, interest in Ukraine.” Many American experts in many areas, “Oh, we understand that Ukraine has a very special place for Russia because of history, because of literature, because of politics, because of religion, because of everything.” They do not understand in the very best case, maybe some understood. If understood that is they are committing [01:06:30] crime. Even I hope that some of them do not understand that by saying so they’re giving Ukraine politically over to Putin because some kind of acceptance from their point that Ukraine or Belarus or Baltic countries, Georgia, play some particular role in the Russian psyche in the circumstances of today means that they’re giving those countries, [01:07:00] those nations to Moscow, the Kremlin.
Trevor Burrus: What about something like … We shouldn’t concede these points you’re saying, but why … Montenegro, the Balkans. You mentioned before, would Putin want Finland?
Andrei Illarionov: No, Montenegro would be exactly the same point. If you look into the law about the compatriots that have been adopted under Putin, that’s very interesting because there is at least four categories [01:07:30] of the so-​called compatriots. It means not only citizens of Russia, but also former citizens or those who have been born from the parents who are citizens of the Soviet Union-
Trevor Burrus: Or eastern bloc states.
Andrei Illarionov: Or Russian empire, and Finland would be part of the Russian empire.
Trevor Burrus: What about former Yugoslavia would be part of the Russian empire?
Andrei Illarionov: Former Yugoslavia would be Slavic Brotherhood.
Trevor Burrus: Is that the third one?
Andrei Illarionov: Yes, there [01:08:00] are different levels. That is why-
Trevor Burrus: What’s the fourth one?
Andrei Illarionov: The Orthodox religion.
Trevor Burrus: Wow, that’s like half the world pretty much.
Andrei Illarionov: No. Not half the world. If you look into the concept of the Russian world, this concept, on one hand it looks like it’s a pretty cultural concept. Brits have the British Commonwealth where they develop many cultural projects, [01:08:30] linguistic projects, and many nations are happy because of the access to British culture, to literature, to knowledge. Great. French do Francophonia, also some people happy about that. Germans because of this painful experience, they produce this Institute of Goethe, Goethe Institute, which is also very good because the German culture is very rich and so on. Spaniards have [inaudible 01:08:59] Institute. [01:09:00] It’s kind of regular stuff to do with the culture.
That’s why to create whatever Russian world or Pushkin Institute, it looks like same cultural approach. Unfortunately it is not only because Kremlin would like to put more into this cultural project. It’s not only culture project. There is a political element. That is why Montenegro is considered to be some kind of outpost of the Slavic Orthodox [01:09:30] world in the Balkans. That is why Mr. Putin, at least he thinks about himself, has particular rights there that nobody else has.
Trevor Burrus: We’re almost out of time, but we’ve got to get Matthew’s.
Matthew Feeney: We could talk for hours about this. I wanted to get your thoughts especially in this town Washington there’s a flurry of debate about if the Russians were involved in interfering with the last American election [01:10:00] and if so, how involved they were and why they would have picked a particular side. I’d be very interested to hear if you have any theories-
Andrei Illarionov: You mean about the American election?
Matthew Feeney: Yes.
Trevor Burrus: You took the question out of my mouth. We’ve got to get to that. Even though we’re over time, we’ve got to get to it.
Andrei Illarionov: That’s actually a new chapter in the Soviet, former Soviet, and new Russian approach to the United States. Actually, interestingly enough in the Soviet times [01:10:30] Soviet KGB were not allowed to participate in active measurements of, it’s called, active measures on the territory of the United States. I don’t know what was the reason, but it was, at least according to what we know, KGB was allowed actually, recommended to participate in active measures in Europe. They actively participating. For the territory of the United States, only gathering of information, collecting [01:11:00] of information, not any active measures.
The arrival of Mr. Putin has changed this dramatically because for the first time for this last century, since 1917, exactly it will be one century from the October socialist coup in Russia. They have changed this approach FSB and GRU, military intelligence, not only allowed, but they invited to participate [01:11:30] in active measures on the territory of the United States. They started it not today, not yesterday. We can recall it from at least year 2006 because the first presidential elections in the United States, the year 2008 when the Soviet intelligent, Freud speaks about this, Russian intelligence did participate actively in the elections of year 2008, actively working against election of Mr. McCain. [01:12:00] That time was McCain, also Hillary was participating, and there was Obama.
They have calculated, the kind of intelligence, the worst case for them would be if McCain would be elected because McCain was participating in the Vietnam war. He had been taken prisoner of war. What does it mean communism. He knows very, very well. He has demonstrated his position [01:12:30] towards totalitarianism very, very clearly. That is why out of all possible candidates they found that Mr. McCain would be the worst possible candidate. That is why they have agonized several actions that would put some kind of stuff on Mr. McCain and would distract American electorate from participating and supporting McCain. It was year 2008. They were relatively accurate, but I saw it. I was able to see how they did do it.
[01:13:00] Strangely enough, Americans didn’t bother, didn’t care about this. Now, in the election of year 2016, they also calculated. From their calculations it turned out that Hillary Clinton would be worst candidate for him. Seems to me they have committed mistake, but it’s up to them. Even such great people like them can make mistakes.
Trevor Burrus: Less pro Trump, more [01:13:30] anti Hillary?
Andrei Illarionov: Yes. That is why as we all know it was a very active participation in a number of actions. Some of them we have some understanding. Some we don’t know yet much. I hope it will be revealed soon through these investigations. There is why, because Mr. Trump, looks like had some special business interests in Russia. Looks like some Russian business people and oligarchs did supply him with loans. [01:14:00] Looks like they have saved Mr. Trump from bankruptcy, not once with Russian money. Looks like Russian business people bought a lot of property from Trump’s projects in different places. Since Mr. Trump traveled to Moscow participating in Miss Universe competition with different ladies, it looks like Mr. Putin has [01:14:30] a very particular attitudes towards his participation there and even mentioned several times in his comments. That is why they thought that Mr. Trump would be better candidate for them, better person that either work with them or produce pressure or to use some different instruments. They were absolutely clear that Trump would be much better person.
Even today it looks like Mr. Trump turn out not completely as [01:15:00] they have expected. Nevertheless, we still don’t have any propaganda campaign against Mr. Trump in Russia. It’s incomparable what we have seen just a few months ago against Obama or against overall United States. Even Mr. Trump, okay, sent [inaudible 01:15:22] to Syria or some kind of [Winston 01:15:26] to shores of North Korea, nevertheless [01:15:30] it is interesting to see how reserved Moscow propaganda towards Mr. Trump until today.
That is why it indicates that Mr. Putin himself still does not exclude possibility of special arrangement and special agreement between him and Mr. Trump. As we know, they are going to meet relatively soon in July in Germany, maybe even before. [01:16:00] Maybe in June somewhere in Europe. It cannot be excluded that some particular agreement, at least some particular mutual understanding, can be reached. That is still what we don’t know yet, but it cannot be excluded.
Trevor Burrus: Thanks for listening. This episode of Free Thoughts was produced by Tess Terrible and Evan Banks. To learn more, visit us on the web at www​.lib​er​tar​i​an​ism​.org.