 Welcome to Free Thoughts, I'm Trevor Burris. And I'm Matthew Feeney. Joining us today is Andrey Ilarionov, 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. Ilarionov has also served as the president's personal representative at the G8. Welcome to Free Thoughts, Andrey. I'd like to start with you. Before we get into politics, your life before involvement in political things, where were you born? I was born in a small town near St. Petersburg in that of former Soviet Union. So when I grew up, my first 30 years under Soviet Union, so that's life there was pretty different compared to what we have either here in the United States or even today in Russia. It was a totalitarian communist regime with a very special rules and a very special type of life. So, which is rather hard to imagine for anyone who did not have such an experience. What did your parents do? My parents were teachers. My mother was teaching in the preschool, college, giving basic education for those who were working with kids in kindergarten, so development of the language, the mind, some kind of basic stuff. And my father initially was a teacher, and after that became the person who was teaching all the teachers, how to teach Russian language at the schools. So he became a very advanced and very good specialist in this particular area. He had written five books. My mother had written one book. So they're just kind of the kind of teacher, the family of teachers with some kind of interest and skills for academic work. So how did your parents, as I know it was kind of different families, different socials, strata, different professions had different relationships with the Soviet regime in terms of having to be party members or things like that. Were your parents, did they have to be party members to have their jobs? Fortunately, both of them, they were not party members, and they had very negative attitude towards party, the communist regime, and I'm very grateful to them because from early on they were teaching me how bad this political system, political regime, and one of the reason of that because the parents of both of my parents have been repressed. They have been repressed and sent in Gula camps early on, long before I was born. So that is why each of them did have experience in their own families, what does it mean to be in the communist regime. And what inspired you to go and study economics specifically? My parents, my father first of all, who was always talking of whatever, the family dinner or in any other encounters about how wrong this system. And it just, 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, whatever, from deficit of food, from the deficit of basic consumer goods to a sense of democracy, about Gula, 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 able not only to travel there, but at some point he was forced to even to stop communicating with those because it became dangerous for him himself. And also some of his friends and colleagues from the institute that he was working were able to emigrate to the United States. And after that any communication with them were forbidden. So that is why they have accumulated huge experience. What does it mean to be, to leave in such a Soviet communist system? Unfortunately, they gave me from early on, this is a basic understanding of this system. So that is why I started to think, okay, how to change it. And at some point I was thinking about different options, but at some point I decided, okay, the basis of any society is economics. So that is why it's necessary to change basis economics. And after that, all other things, including political system, and biology, culture would follow the suit. So that is why I've achieved an economics faculty, Department of Economics of St. Petersburg then Leningrad University, and went there. And I'm particularly fascinated to hear what it was like to study economics in a communist regime. What were you being taught? What of any outside economic thinkers were you made aware of? All right, you were absolutely right, because it was a Marxist-Leninist political economy, which has not much common with the normal economics, whatever you can find in any normal university regardless in the whole world, microeconomics or microeconomics or price theory or whatever, just you would not find it at all, because the Marxist-Leninist political economy is a very different stuff. So but some kind of they try to brainwash us, and some of us were brainwashed, not me, because once again, because once again, I am really thankful to my parents who gave me really some very good dose of skepticism and some kind of critical thinking. So that is why from early on, we need to decide at the third grade to choose, because we are all Department of Economics, who would specialize in two, actually two main specializations. One is political economy of socialism, and another political economy of capitalism. But it was obvious for anyone who would like to make a career in the Soviet Union would go to socialism, because it's opportunity to some kind of to get to good positions, whether in education or in the government sector, in administration or whatever, just it's absolutely clear. Those who would choose go to political economy of capitalism, really, really strange kind of people, because it's clearly they were not interested in career in administration. There was some kind of sitting got nowhere and would be kind of reading books that would be absolutely irrelevant, neither in the Soviet Union, but even outside of the Soviet Union, because we have been told that capitalism will die and socialists will win. So that is like no reason. It's kind of like archive to study archive. Sometimes a few people could study archive, some kind of ancient Rome or medieval period, but just it's absolutely relevant to the modern days. Not me, I knew that it was a future, and that is why on the third grade I have chosen to study political economy of capitalism, because I knew for myself, it's rather strange. It was 1980, so just it's at least 11 years before the collapse of communism, 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 this is a future. Were you sure that the Soviet Union was going to collapse? No, I didn't know when it's going to happen, how it happens, but I knew that if I'd like to study anything serious, not just kind of the artificial creation of the fantastic dreams or whatever, I need to study political economy of capitalism. And even political economy, and I studied to study it, certainly it's once again, it's not microeconomics, not macroeconomics, not the real economics as we know here. Nevertheless, it was much closer, because it had something with reality, and even most of those books and all the studies were some kind of critical, so kind of critics of this part of element of capitalism, these critics, that critically, were studying how it is wrong, capitalism. In turn, I knew that, okay, maybe not everything is wrong, and just I need to understand how a system works. So that is why it was first step for my personal education. This is a political economy of capitalism. 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 scare quotes, in figuring out the price of coffee or something, as I'm just trying to figure out what they would do when they got jobs in the party? I like your question, and I even join your comments, because 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 form of the Soviet Union, prices were not studied at all. At all. At all. Moreover, none they were not studied. The word price or prices were forbidden. It's, no, no, no. I'm just, I can't believe it. No, no, no, because if you would use words, prices, in the very best case, you would come kind of under very serious suspicion. What are you talking about? What are you thinking about? Because it was not included at all. It's a rather hard to imagine once again. And I'm just kind of thinking. So those people who were thinking about prices were very few people in the administrative structures in the power. So that is why even just those people who studied at the Department of Economics, they did not study prices, only if some of them who would graduate, who would accumulate some experience and who could be promoted later to the some kind of higher echelons of power would be allowed to some kind of to jump in the particular business of assigning or setting prices for different goods. So that is why it's not even for general profession of economists. So that is why some of my friends who were thinking about why don't write something like a thesis like some kind of end of some grades, kind of talks about the prices. They were given very clear signal. If they would write to do, they would depart from the university right away. So that is why nobody did it. So that is why until yet to 1983 in the Langerett University, nobody was studying 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 prior theory and we have been explained how wrong those bourgeois ideologies and the bourgeois political economists or economists who were talking about prices. So just to give our reader 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? I mean, 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? Right. So there was a part of the executive branch because the executive branch did exist in the Soviet Union. It was a called executive committee or Hispanic committee. And they had a particular branch. It was called price committee and there were several people who were assigned or set prices for all goods and services. And how many people would be in this committee? I don't know, but just, for example, in the first of most of the prices in the country have been established from one place, Moscow. So for the whole country? For the whole country. It's a very big country. It's a substantial country. For example, I was living in Leningrad. OK, it's going to small town near Leningrad. But if I would travel to not only to Leningrad, but to Moscow or to Estonia or to Uzbekistan, as I did, just I would find in the state shops the same bread at the same price. So for example, I still remember because those prices not only have been set up, but they were constant. They were permanent for a very substantial chunk of my life before these price liberalization and reforms and so on. So that is why since I have been sent regularly by my mother to the shop to buy food for the family. So that is why I still remember the basic, the prices for basic food stuff. For example, I know the kind of the standard loaf of white bread cost 13 kopecks, some kind of the black bread, 16 or 18, depending on the sword or the one kilo of potatoes was 10 kopecks. So and so on. Just you can ask me, I still remember because because it kind of for many years, for a couple of decades, those prices in my memory never changed. So that is why it was not hard to remember how much was cost sausages or cheese or butter or some kind of whatever just you would take. Even vodka, then kind of half liter of standard vodka was three rubles, 62 kopecks. It kind of it's because it's kind of it's a part of national culture because many songs or lyrics kind of using this three rubles, 62 kopecks in different combinations, because it's very important product, as you can imagine. Okay. So that is why it is very clear. And when the price of vodka later has been changed, it was increased to four rubles, 12 kopecks. It was a huge, huge shock, not only economic shock, because it was okay, 50, 50 kopecks more expensive, but it was cultural shock because people after decades of having some stuff or the food stuff or drink stuff, the same constant prices all of a sudden found, oh, come on, it is not constant. It's not some changes and it is possible to change prices. That was really culture shock. It's maybe even stronger the shock for some people who are living in a market economy, we see the prices not changing. Right. So it's much, much stronger shock. So did they have, I mean, it seems that, you know, 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. Or because you'd need to have people who walked around and forced those prices, it would seem to me, you would need to have a lot of people who were government people who enforced all these rules. And that created a lot of ability for corruption of the system in general. You know, it was a remarkably low level of corruption, at least petty corruption, because everybody knew prices everywhere and everybody could go to the shop and to buy all the stuff on these prices. Because any attempt to change these prices to a higher level, it would be criminal offense and those people who were involved will be sent to the jail. But even if it was, if there's no bread and there's a shortage or something and someone goes, the guy said, Hey, I will give you 25 co-packs for this. Right. Okay. So it just, it is very important to keep in our mind that until last few years of the Soviet Union, they asked what we would use in kind of in the modern language of economic, the demand and supply were balanced in the Soviet Union, at least for most of the stuff. That's a very important one. So it just, it's kind of not very many people understand because people who were working on these economic committees, they actually knew some basic laws of demand and supply. So that is why for most of the stuff, like bread, milk, butter, sausages, cheese, so 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 Russia. So that was available. Situation was different in smaller towns, in provisional towns, in such places like Central Asia, Caucasus, South Caucasus, North Caucasus. But when I started to travel, I found for myself that was also quite a shock for me, cultural shock, that a very important role in those places had been played by the so-called kolkhoz market. So, and it was also, it was legalized. It was not black market, it was legal, legal kolkhoz market. So the kind of the called peasants or some kind of members of kolkhoz could bring their stuff that would grow on their plots, starting from potatoes or vegetables or berries or fruits or even meat, the cow or whatever they were thinking of, sheep, some kind of butter from that of their own produce to the market, kolkhoz market. Like a farmer's market today. Yeah, it was called, here would be called in Russia, even today called the kolkhoz market. But at that time it's called kolkhoz market, because only collective companies can produce something. Okay, so the prices on kolkhoz markets were much higher than in the state trade shops, very substantial. So that is why when I found that they exist, I was struck because we in our family, we did not have such money to allow us to go to kolkhoz market and to buy this stuff, because prices were three, five, ten times higher than in the state shops. So that is why maybe in very special cases, for example, early summer, when just kind of new fruits or berries would appear, kind of new season, we would allow us, our mother would allow the to buy half kilos of, for example, cherries just to please kids. But as a regular, we could not allow ourselves, at least for teachers family could not allow it. I don't know who could allow it to do it, but it was really, really expensive for us. Yeah, but those who would allow the quality was good. It was better. There was a choice that all these market forces did work perfectly over there. So, but it was once again, it was not for so-called capitals. It's not for industrial centers. I would say maybe half of the population of the country lived through supplies through this kind of the state shops, maybe another half through this kolkhoz 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. And it happened only on a very special occasions. For example, you have a new year celebration. Okay. And that is why you'd like to have a very good, whatever, table kind of to invite friends or family and so on. And that is why I knew to have a bottle of champagne and champagne for the moment is a kind of in deficit. There is no available champagne in the in the in the shop. That is what but you need because it kind of the new is coming. And that is why it just you cannot miss this or you have some kind of a really good sausage, some kind of hot sausage. It's kind of to kind of to do and it did not exist. So that is why you would come to probably same people in the state shops and they could sell your stuff. Yeah, 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 would you really think of according to social standards, you cannot avoid to have either champagne or vodka, good wine or kind of sausage, something like that, but at least for traditional families, for most of families, it would be only those occasions, not others. So 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, or maybe not maybe that's probably a little bit too extreme, but like, let's say Samuelson or something like that, how did you ever get to read these people? How did how were you able to learn something more about market probably it's a good moment to just to tell a little story about how I was writing my thesis, some kind of the PhD thesis on economics, and how I used the stuff that you were mentioning or such type of stuff. All these foreign economists were not, not only available, they were strictly forbidden. You could not find it, you just you could not find neither in the library, nor in the bookshops, just they did not exist at all. So, and 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 Friedrich Engels of Vladimir Lenin, or some people who would just based their studies on this Marxist-Leninist approach. But if you're so moved forward there, if you're already some kind of promoted to be some kind of applicant for writing PhD thesis, you kind of, you have slightly more rights, so that way you can apply for participators, I'm going to fall reading in the special reading room of the public library in St. Petersburg, special Saltikov children public libraries, essential one, actually very good library. But for that purpose, you need to go through particular procedures. In my case, procedure was such, I was the assistant professor, I was writing my PhD, but I was the assistant professor in the chair of international economic relations. So, and I was giving course on international economic relations, international economic organizations and so on. And I decided, because I never read it, and I decided to read something from the bourgeois economy, so that is why. And I needed to get access to this particular room, which is the special, it's called Spetskhrana, the reading room of special approach, special kind of permissions to get there. So I written a special letter explaining how badly I need for writing my PhD to read this bourgeois stuff. And I went with this letter to the head of my chair, so this professor has signed this letter. After that, with this letter, I went to the dean of the Department of Economics. He looked at this, okay, so he signed it. After that, I went to the vice rector of Saint Petersburg University, which is a pretty high position because university had that time about six or seven southern professors and about 20,000 students. So that is why it's not something you can do easily. You can kind of sign special time if he has this time, you know, you should be there. So this is the third signature you needed. Sorry? This is the third signature you needed. Yes, it was signature, so he gave me, actually nobody gave any problems, certainly it would be some particular situation. They said, oh no, you are not allowed, and that will be finished. Fortunately, they all signed. And finally, I went with this piece of paper to the head, to the director of the public library. Also, he read this letter in which I explain how badly I need to read. Samuelson, economics, the basic stuff of the, as I remember exactly, it was a textbook of 1962 edition. The Samuelson, 1962 edition. And I got it in 1984. So it's kind of 22 years after in Saint Petersburg. And when finally I was given access to this particular room, which was opened only eight hours, the whole library was open for 13 hours from nine in the morning until 10 p.m. So it's a 13 hours. This special room was opened only eight hours from 10 in the morning until 6 p.m. So it was shorter. And I went there and 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 Saint Petersburg, for whole Saint Petersburg region and maybe for the whole Northwestern Russia or Soviet Union. So maybe the other place where Samuelson could be found, it would be Moscow. That's all. So in one of the rules of having access to this room was not having any paper with you, no, no, any notebooks just with you that you can carry out of this room. You can have a special notebook with numbered pages and the person would check upon your arriving into the room and living room with all these pages on the same place. And you cannot take this notebook out of this room. You can just make notes. It's possible. It can be allowed to do, but you need to leave this notebook in this particular room and special place. So that is why, okay, that was a procedure to get to this particular book or similar books. Okay, I got it. I started to read Samuelson. I was not very much impressed, trying to speak in, I don't know why, but it just, it did not impress me. It, it sounds very strange and especially in Samuelson textbook, there was a particular chapter about whatever convergence or some kind of about the importance of kind of have special relations with the Soviet Union, Soviet economy, not so bad. It is, it can develop very fast. I look at this, come on, what a stupid stuff he's writing here because it's kind of, it's, they told me about this bourgeois economy, but it's something really it's really it's kind of, it's, it's, it's very bad stuff. So that is why I was not very much impressed, but instead of that, since I already got into this particular room and I found what is there and it was not very much impressive, I went to something which was absolutely open and which served to me as a very important element of my education, economic education. It is statistics. Public library in San Petersburg had huge collection of statistical publication from different countries, kind of the regular statistics, kind of annual books or yearbooks, annual statistics. For United States, Canada, Sweden, Germany, France, whatever, for almost all countries in the world, plus international financial statistics from the IMF, annual publications, monthly publications and some kind of, on particular topics. And because it was mostly numbers, no many words. So they would didn't, the authorities did not consider this dangerous for some kind of for poisoning minds of Soviet people. So that is why it was open, because who would read numbers? It's absolutely not interesting. I found it's absolutely fascinating because I look on some kind of concepts. I found very interesting money supply. M0, M1, M2, M3, what is it? I just, I look into explanation because they have a little explanation there and I look for numbers for each particular month, which particularly item kind of constructed this time series. I look into what is the money supply, what's the credit admission, what's the budget deficit, what the national accounts and I studied what students in normal universities in the West do study and during their courses studies through statistics that was available in, from the Soviet Union in this library, thanks to IFS, International Financial Statistics, thanks to government finance, statistic GFS, from the IMF, thanks to the annual statistics publications from different countries. And from that, just I got a basic understanding of the modern economics. So where were you when the Soviet Union collapsed? It was 1991. I was in St. Petersburg. Actually, in the kind of, I did participate very actively in the special group of young economists, historians, journalists, who has been created by my two friends in 1986. That time was the so-called Perestroika, you remember, Mr. Gorbachev has pronounced that. What do you mean, opening up? It's like opening up. And that, that was a time, very good time because all of a sudden countries started to open up and it was possible that there was a deliberate position of Gorbachev and the new leadership to somehow to create different organizations, different clubs. So that is why two of my friends have created a special club, sort of discussion club, discussion for discussing different issues because we were economists, so that is why mostly it was economic stuff, a little bit political, a little bit historian, historic stuff, so on. And for five years from 86 to 91, I was a very active participant of this club and it was another very important university. So that is why I would say the first university, my parents, second regular university is a public library of in St. Petersburg with the statistics. And the third university is this club was called Sintas, organized by my friend Boris Levine and Andrey Prokofiev. So where we discussed some kind of the hot topics, so some kind of painful topics both from national political history, from history of the neighboring countries and from economic stuff. And there another very substantial breakthrough in understanding the world. So and just by 91, once again, thanks to these young guys, because most of them were some kind of 25 years old, 26 years old. So just kind of of my age. But we were open. We were very ambitious. So we did not feel that we have any limitations that we could do everything as just for young people as a very normal. So that is why we were not cautious. So I'm going to move forward. So and by 91, we got pretty good understanding, at least by Russian Basilis sons of that time. What is necessary to do? For example, Andrey Boris Levine my friend, in 1988 went with the idea that Soviet Union inevitably will be dissolved so that he could not leave in this situation and it will be dissolved according to the national principle, according to the principle of this republic. As you remember, Soviet Union was consisting of 15 republics, Russia, Ukraine, Belarus, Baltic republics, Georgia, Georgia, Armenia. Exactly. So and he because he studied a lot of these so-called ethnic questions on nationalities questions, so he came with absolutely revolutionary idea. Nobody was that time was even close, reached this even clothing just he came. Okay, Soviet Union is doomed, doomed to fail because of ethnic issues, because of issues of nationality, not because of economics, not because of anything else, because of nationalities and because nationality are so different. The life in each republic is so different, cultural, political, economic as well. So just it and under liberalization, political liberalization, economic liberalization, cultural, ideological liberalization, those those republics would not be in the same whatever political mindset, yeah, entity. So that is why it will be dissolved. It was absolutely revolutionary. You cannot imagine because it just personally in 1988 would say, OK, Soviet Union could not could not leave. And we had many discussions and are you saying he wrote it down or did he just I don't know if it was a oral oral because something he was several reports and some it was widely discussed in our circles, even with some other people who became after that leaders of the Russian so-called reforms. OK, anyway, so we had a very special session devoted to his report and somebody asked him, OK, you're saying that Soviet Union is doomed and will collapse this kind of will be dissolved. How many years you would give Soviet Union to to live? It was July 1988. And I still remember how we sitting near the fireplace because we got it and not in the kind of the we was in a nice place in the nature on the lake shore. So near the fireplace and he said, I think not more than three years. It was July 88. And we know August 91. That was cool. And after that, Soviet Union in few months ceased to exist. That's unbelievable that just I still do remember the kind of the guy whom that time was twenty six years old. It's kind of who kind of gave this such a such a clear prediction about the forecast about the fate of the Soviet Union. And of course, after the collapse, you became very involved in Russian government. And I think many, many of our listeners would be would be interested to hear your thoughts on the president of Vladimir Putin. Do you remember first meeting him? Right. OK. Fast forward. Fast forward many years. Right. OK. So in 91, when the kind of Soviet Union collapse has been dissolved, there was a huge demand for people who understand a little bit in economics because because we know ninety five percent of whatever people have someone of learn how to live under political economy of socialism. So that is why they did not have any clue about market. So that is why those people who understood something was very limited. And just we started to collect all those people and found maybe 30 40 people for the whole country. Such a huge country. But people who thought about this. So that is why when the this collapse has happened. So we all have been mobilized. It was a total mobilization of anyone who understand a little bit into the market economy. So that is why I've been recruited as well as all other people into the Russian government. And we occupy different positions and kind of working on some kind of transformation. So but it was ninety one ninety two is a very especially very interesting period. OK. Maybe next time I can talk about this. OK. But fast forward to year 2000. It was already so. Boris Yeltsin officially stepped down and said OK. So he's not going to run for next presidency. And he appointed acting president whom he appointed Mr. Putin. It was February 2000. Election was scheduled for March 24th. And I have been in. I have been invited by him by Vladimir Putin to his dacha kind of a real estate outside of Moscow to discuss future economic policy of future economic program. It was on February 28th year 2000. And as I was told Putin was looking for economic advisor to him. So he had some ideas whom he wanted to appoint as the minister of finance, minister of economy, prime minister, other position. But he did not have a because he didn't study economics at all. He studied some other courses and was employed in some other activities. He wanted to understand a little bit about economics. Some people suggested that OK, there is a guy who might be interesting for him. Actually, he saw about 10 people before me and somehow he did not like them. And finally, some kind of somebody suggested, OK, why don't you meet that guy? So maybe you'll find something. OK, we spent three hours with him. It was in the evening and it was very late. It was after 11 p.m. So it was already dark, already kind of everybody was falling asleep. OK, so just I was living his estate, his dacha. And he told me, OK, so I'd like to suggest some kind of offer position of the economic advisor to me because everybody understood that he will be elected as a president in four weeks. And I said, oh, no, I'm too busy. Sorry, I cannot accept your offer because I have much more interesting program in my institute because I was working in the Institute of Economic Analysis. He was visibly shocked because he didn't expect such a response. OK, and that is like he said, OK, you're too busy for working with me on regular basis. But OK, can you come tomorrow? We can would continue our discussion about economic policy, economic reforms. I said, OK, I'm really too busy tomorrow because I promised to my wife that we'll go to restaurant with her. OK, sorry. Just she asked me. I gave my word to her so I cannot do it. And just to make your life easier, I need to tell you that my wife is American citizen. OK, that you would understand whom you're dealing with. OK, he said no words on his eyes became slightly larger. OK, he would look at me and kind of takshuk hands and say, goodbye. OK, as I said to him, OK, goodbye. And I clearly understood that it was the first and last time that I saw that person because after what we discussed actually it was one issue when we during these three hours we also touched issue of war in Chechnya. That was the time of the Russian Russian Chechen War, Second Chechen War. And it was some point the officer came to Putin informing him about the Russian troops taking last stand of the Chechens, again, Russians. And Putin was very kind of excited about this and he was sharing with me such a great news, such a his joy that, OK, we took them, we kind of crushed them and so. And I said, OK, you committed crime, you're killing people. OK, because this war is a real crime. It's a crime you're killing people, Chechens. You're killing Russians. And sooner or later it's going to Chechnya will be independent. So that is why since it will be independent in any case, so it's better just not to kill people on both sides, but just to give them independence. OK, we had a little conversation about these issues. But OK, so at some point he said, OK, let's talk about economics. So that is why we have accumulated interesting information about each other. So he knew he learned about my views about Chechnya war. He learned about my wife, who is an American citizen. And just he's a kind of the colonel from KGB is kind of thinking about the inviting on the position of economic advisor, personally, whose wife is an American citizen. Interesting. OK, and also when he suggested, OK, let's meet tomorrow. He's busy. Let's be my economic advisor. No, I'm not interesting. So that's kind of interesting. So I was completely sure that it was the last time that we see each other, so each other. And I even forgot about this. Almost forgot. OK, 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 odd day of the odd year because it's February 29. So that is why anniversary could be celebrated only once in four years, not once in one year. So that's just a very special occasion. OK, and much first I was sitting at my institute was writing some stuff on my computer and the telephone rang. And the person said, OK, but you kind of, you were busy yesterday, but are you busy tonight? I looked in my calendar and said, it looks like I don't have any special occasion, no any special events for tonight. OK, it looks like I'm free. OK, would you like to come to Deutsche again? Let's discuss economic issues. OK, why not? OK, let's go. And I went there again. And we continued. So and after some kind of two months of almost daily meetings with Putin, because he invited me either every day or every second day. And he started to invite me to different travels with him around country. And actually I've been in some places in Russia where I'd never been before. And I would never be in any other circumstances because it's kind of it's a very special places. And 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. And all of a sudden I realized that he's really serious about economic reforms, really serious. It was not a joke. It was not kind of primitive approach, not superficial, like other people with whom I worked before. He was absolutely serious. 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. So which is maybe not very some kind of popular in the West but in that part of the world it is popular. So there is why the day when men and boys congratulating ladies, mothers, sisters, wives and so on. So it's a very important element of the culture. So because Putin was participating in this campaign, presidential campaign, he went to the city of Ivanovo. It's a kind of center of textile industry in Russia and also so-called women's capital because of the industry, 70% of population are women. It's maybe awful for them but it's a kind of... No, that's a story. So he went there to congratulate them with this international holiday day of women and so on. I've been in Moscow. I didn't went to him with him to Ivanovo. And that day, it was probably March 6th or March 7th, somebody kind of stormed in my room in the institute, one of my colleagues in the institute, and I think, have you heard what Putin said in Ivanovo? I said no. And 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. Where? In Ivanovo. To whom? To the latest textile industry. Oh my God, that's interesting because by that time, by March 6th or 7th, yet 2000, the only person in the whole country who was using this expression, this term, economic freedom was me, nobody else. And I was telling him during our first meetings that the way to do, if we were talking about economic policy, is just to increase economic freedom. And I explained what does it mean, economic freedom in terms of regulation, in terms of taxation, in terms of kind of expenditures, all just kind of different elements, not in detail, but just the concept. And each day, I was kind of explaining, describing, giving examples and just kind of and I gave him this idea, economic freedom. Actually, when I was trying to talk to Mr. Gaidar, to Mr. Chubais about economic freedom, they became really absolutely uninterested in that. Those kind of the first generation of the so-called Russian reformers. Putin became very interested. He was asking me different issues and so on. And 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, certainly, and to the whole country and started to tell them how it is necessary, how it is important, the country would be economically free. So he really believed in it, is what you're saying? No, no. And then you believed in him? It's a different story, whether he believed or not did it, but he was telling that. He was talking about that. And you can imagine the kind of the, whatever, ideological earthquake that happened in the government, in authorities, in Kremlin, because all of a sudden, their person, whom they consider his or theirs person, kind of their grooming, some kind of educating, training, all of a sudden, he started to talk about something that they have no clue about, economic freedom. So that is why they started to look around who that source, who is that source who could supply him, Putin, with these ideas of economic freedom. And they look around and it was not very hard to find the problem. The source? Yeah, the source, because it was only one person in the whole country. Or the problem, as you said. Yeah, okay, they called me after that, okay. All right, looks like you are meeting with Mr. Putin. Oh, yes, okay. Looks like it was you who were telling him about economic freedom. I said, yes. Could you please come to us and explain what this economic freedom means? So I want to clarify who they are in this. I mean, the Kremlin administration means it's just some people because I was meeting with Putin personally. Yes. So there was nobody around. There was nobody advises, assistants, some kind of new ministers, just only two people. And we spent, once again, the first night, we spent three hours. Others will be about three hours something, two hours, hour and a half, depending on the situation. So these are the people that called you were people who had served in the government for a long time? Yes, from like, somebody from the White House would be in the American situation. Okay. Just would be calling, okay, something like, are you meeting with our president and you're talking about something that we have no idea? Mm-hmm. Okay. Could you please come to us and explain that we would understand what he is going to do, what is his understanding that we would include in his next speeches or whatever, just this concept and that would be right correctly explain that. So that is why I started additionalism, a little course of education, of speechwriters, of assistants, of the kind of presidential administration about economic freedom. So, and we continue some kind of meetings with Putin for a couple of, for two more months. He invited me once again, second, second time I also refused to join him. But when he invited me for the third time, it's according to fair tale, you need to, enough to pick up the third, so try, because there will be no fourth try. And by that time, but after two months, I learned about him, I knew him. I saw him in different circumstances and I understood that he absolutely serious about economic reforms, at least partially about economic freedom. And he really serious. He's, you know, serious person about that. He remembers he's some kind of, and some kind of, and I said, OK, that's a historic chance. This is historic chance not so much for me, but historic chance for the country that after these 10 years of previous so-called reforms when these guys who claim to be economists or reformists or liberals, they completely destroyed everything. And this is a very strange situation. Colonial from KGB with a very clear some kind of the background very clear approaches. 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. So when you say that there was no doubt about who he is. No, I mean, did you, 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 of person that you don't really become friends with? No, you cannot be a friend with the head of the country. And especially if you are both adult people, it's impossible. So if you are some kind of youngsters, if you are kids, if you are some kind of teenagers, maybe if you are in university, as students or something like that, there is a chance that you can befriend someone. But if you doubt person, especially if you are dealing with the head of the country, it's impossible to become a friend. It's kind of, it's a different type of relations. Nevertheless, that's very important because certainly I saw his approach in Chechnya. Also, his approach towards some particular, what we will call human rights, at least for some story, was very clear. It was no doubt. By that time, I had an impression actually that was a very important element. It was a theoretical some kind of background for transformation that existed that time. It was actually only that theory existed. The theory actually based on some materialistic approach or even to something a Marxist approach. First, the most important part is economics. And if you change economic fundamentals, after that, slowly or gradually, whatever, economics would help to change other elements like social structure. There will be appearance of middle class. Middle class would have new ideas. That is why it would lead to new ideology and to new culture and so on. So 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 the some kind of totalitarian communist society to free society. So that is why I consciously have chosen the work. Okay, I'm starting. I am kind of making first step with economics. And if I succeed or other people succeed with me, so that it was somebody else would come later and with the social structure, with ideology, with politics, with culture would make some other elements. Now, just once again, fast forward because it's already some kind of 17 years since then, I see how wrong this idea I would say maybe not wrong, but incorrect. So just it's impossible to do like this. But that time I strongly believe if you ask me, what do I believe? I thought that it is possible to change. And that is why I unconsciously have picked up this offer and said, okay, there is a chance. Let's do as much as we could do. Okay, and if it is possible to help to change his attitudes in other areas, it would be really great. Even if not possible, but I thought that it would be possible that just at least we would do economic reforms. So I have a question. I suppose outside of economics, most Americans will be familiar with Putin by watching the news about Ukraine and Syria and more recently the American election. And the question I would really like your answer to is, what does Putin want? What is his worldview? What is his, 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. Well, yeah, just to kind of add on to that, it's just some of the stuff like fomenting a coup in Montenegro, if that, in fact, seems to be the case. These all seem kind of crazy. What is he going for? No, there are many stories that we can start from Montenegro or some kind of involvement in the US election, involvement in German election, involvement in French election, or some kind of the, not only involvement, but actually participating in a minion coup in 1999 or in attempt to assassinate a candidate for Ukrainian presidency, Yushchenko in year 2004. And in real assassination of the presidential hopeful, Chernobyl in Ukraine in 1999. So just, it's a lot. It's a lot. It's a long list of all this stuff. So that is why just we definitely don't have time to just, even just to mention all of this because it's kind of, it's already not dozens. It's, I think maybe hundreds cases, both within Russia and outside of Russia because he's, what's it called? Foreign policy is pretty active. Yeah, let's go. If we can use such particular terminology. All right. In terms of his, what he warns, we need to distinguish at least two very clear periods in his overall, whatever, 18 years presidents because this year will be 18 years as he's at the top of the Russian power. And this first period will be until year 2003 which I call this one of the year of the radical turn. Before that and after that. And that year is coinciding with the Iraq war and with 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 plus years of his power as a president, his attitudes towards West was extremely friendly. You probably still remember that he was the first person who called George Bush after 9-11. Yes, I do remember that. And it was noticing by coincidence just 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, but nevertheless. It is important to remember what 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. Yeah, I remember that. Okay, that seems like a crazy dream now. No, no, no, no, no, it was very interesting and it was not a joke. He was talking about this both on the private meetings in the negotiations with the foreign leaders and the public statements. And he was pretty serious as with economic freedom, so just kind of, 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 clearly. He wanted to be in the Western Alliance. It's a special Western relationship. Actually, to some extent, he still wants to be part of the West. So he wants meetings with Mr. Trump as we know today, not with Robert Mugabe too much, by the way. So just in kind of, he was not dreaming about to be invited into Harare or to Pyongyang. So he was once in Pyongyang, in yet to Southern, by the way, with me. I was also in that kind of, it's unforgivable. Oh, you went to Pyongyang? Yes, it was unforgettable experience and just we were three days there and I was some kind of sitting on this negotiation with the father of this Kim, who is sitting on this. And that's a very, very special stuff. What Kim Jong-il? Kim Jong-il, yes, yes, very, very special stuff. When everybody there are some kind of carrying guns in the official negotiations, it's kind of, it's not kind of customer, customer to kind of, in today's Russia, I'm not talking about some other countries, kind of to carry guns and some kind of like that. And they were pretty open that, okay, finally, because it was the first visit, it was a July 2000 and Putin was flying from Moscow to Beijing in China. We had the negotiations with Chinese, after that we flew to Pyongyang. We had three days of negotiations in Korea and after that we flew to Okinawa in Japan where we had G8 summit. So that is why it was the first, one of the very first visits of Putin abroad. And that time Koreans, Kim Jong-il, looks like thought, okay, finally, we have our guy in Moscow who will help us to some kind of, to militarize, to continue preparation for the war. And they were openly saying, okay, finally, since now we have a right guy in Moscow where we can launch a war against South Korea. And to destroy it, openly, absolutely. Okay, and then it's kind of like, okay, we need so many thousand tanks, artillery units, planes and so on, not just in the concert in the evening. That was unbelievable because they were singing songs, certainly Korean songs and Russian songs and Russian military songs. And there was a kind of, and with translation, without translations, and it was kind of the main slogan where, okay, finally now with Russia, we will destroy South Korean capitalism and American imperialism. And I kind of, we're right there, even just, okay, even Putin, I saw in 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. So that is why it was quite a shocking for them. And after July, year 2000, he never, ever traveled to Pyongyang anymore. So that is why, coming to your question about, okay, so he is not some kind of not sleeping through the night dreaming about be invited into Harara or Pyongyang, no. So he was dreaming about, invited into G8, into Washington. Into NATO. Into Bonn, into Berlin, into London, into Paris and so on and so forth. He wanted to be a part of the Western world. It's absolutely clear. But he thinks, and he's absolute, some kind of firm belief that the world, the real world, is organized not in a such way as it has been described in textbooks or in declaration of the United Nations, but it is organized in a way how big guys reached agreements among themselves. And if they reached agreements about the division of the world, so that the real world. So that is why he wanted actually with Obama to have a meeting and to have clear, okay, you have your sphere of influence and I have my sphere of influence. And I promise, I do respect your sphere of influence. I'm not going to intervene there. Just don't worry. But please respect my sphere of influence and you would not interfere there. And 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. And Syria, by the way, is also my sphere of influence because Syria is my old client, the former Soviet client. So that is why using kind of, you violated some kind of unwritten rules of international order because you intervened in my garden. Well, so his garden is all the former Soviet states and- That's unclear. That's part of the question, yeah. That's unclear. That is one of the reasons why he wanted to this meeting with Obama. Now he's insisting on meeting with Trump and that, okay, let's clarify borders of our spheres of interest. It seems like bargaining over the world. Because it was exactly what has been achieved in the Ribbentrop Molotov Pact in 1939 when Ribbentrop arrived in Moscow and in presence of Stalin, he agreed with Molotov about the division of Europe between Nazi Germany and the communist Soviet Union. To some extent, something similar has happened six years later in Yalta and in Potsdam. Okay, one part would be the same Stalin, but on the other side would be Mr. Roosevelt. It would be Mr. Churchill. And the kind of the idea was kind of to divide the world. Okay, this is your sphere of influence and this is our sphere of influence. And this will be Aaron Curtin as Mr. Churchill would call it later. So, and probably Mr. Roosevelt and Mr. Churchill did not realize in Yalta and Potsdam when they, because the texts were the same, but the content, the understanding of these words were different for Roosevelt and Churchill and for Stalin because they said, okay, this is kind of free choose of their governments. Okay, and this would be free election. And for Mr. Stalin, the free choose of power means they just, I freely choose the government for those countries. So the interpretation of these words would be different. So that is why. Which is also what Putin is thinking it seems like. Looks like he has because that's exactly he, but he wanted from earlier from Obama, now he wants from a Trump some kind of legitimation or legalization of his pretences, of his desires in these spheres. And that is why if he would get orally or reasonably some kind of formation, okay, we understand that you have a special, whatever, cultural, historic, political interest in Ukraine. Many American experts in many areas, or 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 the committing crime. But even I hope that some of them even do not understand that by saying so, they're giving Ukraine politically to Putin. Because some kind of acceptance from their point that Ukraine or Belarus, a Baltic country, so Georgia is gonna play some particular role in the Russian side care in the circumstances of today means that they're giving those countries, so their nations to master the Kremlin. So what about something like, so we shouldn't concede these points you're saying, but why, I mean, Montenegro, the Balkans, I mean, you mentioned before that, I mean, would Putin want Finland? No, that's just Montenegro would be exactly the same point because if you look into the law about the compatriots that have been adopted under Putin, that's very interesting because there is a kind of, at least four categories 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 were citizens of the Soviet Union. Or Eastern Bloc states. Or Russian Empire. And Finland would be part of the Russian Empire. What about you, and former Yugoslavia would be part of the Russian Empire? And former Yugoslavia would be Slavic Brotherhood. Is that the fourth? Slavic Brotherhood? Is that the third one? Yes, okay, so there's different levels. So that is why, okay, you have a- So what's the fourth one? The Orthodox religion. Wow, that's, that's like half the world pretty much. No, it's not half the world. No, no, no, but because it kind of, if you look into the concept of the Russian world, this is a concept that kind of, it's a, on one hand, it looks like it's a pretty cultural concept. And okay, it's just okay. Brits have this British Commonwealth where they develop many cultural projects, linguistic projects, and many nations are happy because it's kind of access to British culture, to literature, to whatever knowledge is great. French du Francophonie, also some people are happy about that. Okay, Germans, because after this painful experience, they produce this institute of Goethe, Goethe Institute, which is also very good because German culture is very rich and so on. Spaniards have Cervantes Institute. Sure, it's a kind of regular stuff to do the culture. So that's why to create whatever Russian world or somewhere of Pushkin Institute, it kind of 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 there. And that is why Montenegro is considered to be some kind of outpost of the Slavic Orthodox world in the Balkans. And that is why Mr. Putin, at least he thinks about himself, has particular rights there that nobody else has. Well, so we're almost out of time, but we got to get to Matthew, sorry. We could talk for hours about this. But 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 and if so, how involved they were and why they would have picked a particular side. And I'd be very interested here if you had any theories about. You mean about the American election? Yes, yeah. You took the question out of my mouth because we got to know you're right. No, we have to talk about it. We got to get to that, even though we're over time, we got to get to it. All right, that's actually a new chapter in the some kind of Soviet, former Soviet and new Russian approach to the United States. Actually, interestingly, now that in the Soviet times, Soviet KGB were not allowed to participate in active measurements of active, it's called active measures on the territory of the United States. I don't know what was the reason, but it was a kind of, at least according to what we know, it was KGB was allowed actually some kind of recommended to participate in active measures in Europe and they actively participating. But for the territory of the United States only gives rank of information, collecting information, not any active measures. A rival of Mr. Putin has changed this dramatically because for the first time for this last century, since 1917 exactly, will be one century from the October socialist coup in Russia. So they have changed this approach. FSB and GIU, it's a military intelligence, not only allowed, but they've been kind of invited to participate in active measures on the territory of the United States. And they studied it not today, not yesterday. We can recall it from at least year 2006 because the first election, presidential elections in the United States, election of year 2008, when the Soviet and the Russian intelligences, Freud speaks about this, okay. So Russian intelligence did participate actively in the elections of year 2008, actively working against election of Mr. McCain. That time was McCain. Also Hillary was participating and there was Obama. And they have calculated, I mean, the kind of intelligence that 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. So and he has demonstrated his position towards totalitarianism very, very clearly. So that is why out of all possible candidates, they found that Mr. McCain would be the worst possible candidate. And that is why they have organized 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 accurately, but I saw it, just I was able to see how they did do it. Strangely enough, Americans didn't bother, didn't care about this. Okay, now in the election of 2016, they also calculated and from their calculations, it turned out that Hillary Clinton would be worst candidate for him. Seems to me they may have committed mistake, but it's up to them, okay. Even such great people like them can make mistakes. Okay, but anyway. Let's pro-Trump more anti-Hillary. Yeah, so that is why as we all know, it was a very active participation in number of actions. Some of them we have some understanding. Some we even don't know yet much, but I hope it will be revealed soon through these investigations. So that is why, because Mr. Trump had, looks like special business interested in Russia, looks like that some Russian business people in oligarchs did supply him with loans. Looks like they have saved Mr. Trump from bankruptcy, not once with the Russian money. Looks like that 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 and looks like Mr. Putin has a very particular attitudes towards his participation, they even mentioned several times in his comments. So that is why they thought that Mr. Trump would be better candidate for them, better person whom they even work with them or produce pressure or to use some different instruments. So they were absolutely clear that Trump would be much better person. And even today, that looks like Mr. Trump turned out not completely as they have expected, never thought we still don't have any campaign, propaganda campaign against Mr. Trump in Russia. It's incomparable what we have seen just few months ago against Obama or against overall United States. Even Mr. Trump, okay, sent his Tomahawk to Syria or some kind of Winston to the shores of North Korea. Nevertheless, it is interesting to see how reserved Moscow propaganda towards Mr. Trump until today. So 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. So as we know, they're going to meet relatively soon. In July, in Germany, maybe even before, maybe in June somewhere in Europe. So it cannot be excluded that some particular agreement, at least some particular mutual understanding can be reached. So that is why we still don't know yet, but it cannot be excluded. 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.libertarianism.org.