SPIEGEL: Mr. Chubais, 15 years ago you launched the privatization of the Russian economy on behalf of the government in power at the time. From today's perspective, what would you do differently?
Chubais: We made many serious mistakes, both legal and technical. But the most important thing was that privatization happened in the first place. You must not forget where we started. During the Soviet era, private ownership was a crime punishable with up to five years in prison. Germans are more familiar with these problems than others. Forty years of socialism in East Germany did not come without consequences. In our case, the communists were in power for 75 years. But today 60 percent of our economy is private, and that is the basis of our economic growth.
SPIEGEL: What mistakes do you mean, specifically?
Chubais: There were 400 privately licensed funds that had collected 40 million privatization checks, so-called vouchers. From those, we distributed a total of 144 million to the public. We thought that the funds were helping people to invest their vouchers wisely. The ordinary man on the street couldn't know, after all, whether gas, oil or machine production offered the best prospects. All 400 funds went bankrupt, and the vouchers of 40 million citizens became worthless. That's why 40 million Russians are convinced that I am a scoundrel, a thief, a criminal or a CIA agent, who deserves to be shot, hanged or drawn and quartered.
SPIEGEL: And it was Jeffrey Sachs, the American economist, who pushed the idea of all this shock therapy down the throats of Russians?
Chubais: Jeffrey Sachs's role in privatization was close to zero. We had already formed a group of young economists in St. Petersburg in the 1980s. We studied the history of reforms -- Lenin's New Economic Policy, and the reforms in Yugoslavia, Poland and Hungary. We also read the works of Western economists, which were banned at the time. If state security had known what we were doing, we would have paid a heavy price.
SPIEGEL: Who belonged to the group?
Chubais: Alexei Kudrin, the current finance minister, Sergei Ignatyev, now head of the central bank, and liberal economist Vitaly Naishul. The concept of the privatization vouchers was his. I was actually against it at the time.
SPIEGEL: Why did you change your mind when you became part of the government after the fall of the Soviet Union?
Chubais: Because in early 1992 there were only two possible scenarios. One was already in place: The director of a state-owned enterprise and a relative sign a lease for a plant with an option to purchase it. He pays rent for three months and then he buys the plant for a pittance. That was legal at the time. I saw hundreds of those kinds of contracts. There was only one way to stop this gradual privatization: distribute vouchers to all citizens.
SPIEGEL: You make it sound like a choice between the plague and cholera.
Chubais: Yes. To be more precise, between the plague you mention and a serious but curable disease.
SPIEGEL: The economic reforms of the 1990s -- your form of privatization -- plunged millions of people into poverty. Real incomes declined by half. Did you ever have trouble sleeping?
Chubais: And how I tortured myself! But history doesn't recognize the subjunctive. What we did was anything but ideal. However, we did prevent a far greater catastrophe. There was no civil war, which has happened so often in Russian history. Hundreds of thousands would have lost their lives. This is the true value of our reforms, not the fact that oligarchs are worth billions today. I couldn't care less about that.
SPIEGEL: Did then-President Boris Yeltsin understand what he was doing?
Chubais: Probably not the economic intricacies, but certainly the political and social big picture. He wanted to destroy communism by creating private ownership. In doing so, he laid the foundation for today's growth.
SPIEGEL: At any price, for him and your team?
Chubais: Have you ever watched a birth? It's a painful and bloody process. But it results in something wonderful: new life!
SPIEGEL: The Uralmash machine-building factory, with more than 50,000 workers, was sold for just a few million. Why did you practically give away these sorts of companies?
Chubais: Because the law of supply and demand applies in a market economy. No one was able to pay more back then. In the early 1990s, foreign capital eschewed Russia and there was no money in the country. When I left the government in 1996, I had only $3,000 in my account.
SPIEGEL: President Vladimir Putin complained that the government and the economy "dashed the hopes of millions" at the time. Did you feel that his comments were directed at you?
Chubais: I don't have to speculate over whom he meant. I myself am familiar with the things that went badly and unfairly.
SPIEGEL: For example, the oligarchs made billions out of nothing. That certainly gave the market economy a bad name among the Russian people.
Chubais: Financier George Soros referred derisively to our oligarchs as robber barons. He had apparently forgotten that the expression is American. Just look at the history of capitalism. I don't have to remind you of how (German steelmakers and arms manufacturers) Thyssen and Krupp made their money during World War II. America had the Rockefellers, the Kennedys and the Stanfords, who, at the expense of ordinary Americans, didn't always resort to the most savory of business practices. Current Secretary of State Condoleezza Rice taught at the respectable university that bears Stanford's name. The Americans have gone through 150 years of ups and downs, to pull themselves up out of the mud. After only 15 years, Russia is already in the process of liberating itself from the same thing.
SPIEGEL: Are we wrong in believing that the Russian government is seeking to play a stronger role in the economy once again?
Chubais: I don't like such tendencies. The state is generally a poor owner, but sometimes government involvement makes sense.
Chubais: I think the establishment of a government holding company in the aviation industry is a good thing. Gazprom is a national champion. The state cannot pull out of such an energy corporation, even if reforms are necessary. However, it doesn't make economic sense for the state to spend billions of dollars to buy Sibneft, a private oil company, or to increase its stake in car manufacturer AvtoVAZ.
SPIEGEL: Are you saying that more should be privatized?
Chubais: Our government has been unable to reach the goals it set for itself during privatization for years anyway. It is only injecting half of the money that was originally planned into the government's budget. The state manages many businesses very poorly.
SPIEGEL: You are steering UES, the giant electric utility you head today, in precisely the opposite direction. You are privatizing the business and seeking to attract foreign investors.
Chubais: Yes, and that would have been impossible without the support of the government and President Putin.
SPIEGEL: The government and the president are doing precisely the opposite elsewhere.
Chubais: That's true. And perhaps it's the right thing to do. In any event, I don't think that Russia should take the same approach with Gazprom as with the electricity business.
SPIEGEL: Nevertheless, we have trouble understanding why Gazprom owns newspapers and television stations.
Chubais: I agree with you on that.
SPIEGEL: Are you a masochist who is imposing unpopular reforms: privatization, the overhaul of the financial system and now of the electricity sector?
Chubais: We were young when we joined the government, and we were derided as young lads who had read Milton Friedman's textbooks and nothing else. We sat opposite experienced directors. They considered us to be complete idiots and said: If one of you is kicked out of the government and is forced to run only one company, he'll immediately run the business into the ground. This was the same sort of greeting I received from some veterans of our electricity sector: No reforms. Don't privatize the electricity industry. It will destroy everything. Now it's become clear that it does work and that the reforms have, in fact, enabled us to attract billions.
Modernizing the Power Grid
SPIEGEL: Your power grid is ailing, due to a lack of investment during the years of crisis. How much money do you need?
Chubais: About $120 billion by 2010. That's the amount needed for modernization. The money must either come from the national budget or private investors. We opted for the latter, and this has proven to be the right approach. We had $2 billion in investments in 2005, followed by $7 billion in 2006. This year we expect more than $20 billion.
SPIEGEL: German electric utility E.On AG is investing about $5 billion. You just sold 70 percent of the OGK-4 company, which operates power plants in many Russian growth regions, to E.ON. What do you expect from the deal?
Chubais: Our goal is to gain strategic investors for the electricity industry. They already include leading private Russian companies like Norilsk Nickel and SUEK (the Siberian Coal and Energy Company). Victor Vexelberg and his company are also interested. Our investors also include some well-known foreign corporations, like the Italian company Enel SpA, Finland's Fortum Oyjand now E.ON. They contribute a modern business culture.
SPIEGEL: Can you imagine Russia selling electricity to Europe someday?
Chubais: Russia offered the European Union a huge project: tying together the power grids in Eastern and Western Europe. It would have created a single market from Siberia to the Atlantic. We did this for more than just commercial reasons. By taking advantage of the different time zones, it would have been more efficient. We would have also improved energy security. President Putin and the then-President of the European Commission, Romano Prodi, approved our proposal. But then everything became bogged down, because the EU took advantage of the opportunity to disconnect the Ukrainian energy network from Russia and tie it in with the European grid.
SPIEGEL: Do you mean to say that Ukraine is a point of contention between Russia and the EU, the great geopolitical prize in the struggle over Europe?
Chubais: One could put it that way. It was a purely political decision on the part of the EU and, for that reason, a completely pointless one from the standpoint of energy. Now an expensive and unnecessary power transport line is being built from Lithuania to Poland. Its sole purpose is to integrate the Baltic states, Lithuania, Latvia and Estonia, into the Western power grid. The issue here is confrontation. And yet everyone would stand to gain more from cooperation. Instead of unifying, they propose a new separation.
SPIEGEL: The Eastern European countries and the Baltics just happen to be afraid of the Russian giant. The political climate between Russia and the EU has also deteriorated.
Chubais: Shortly before stepping down, (former British Prime Minister) Tony Blair called upon British businesses to stop investing in Russia. I don't understand how a man with so much political experience could say such a thing. Incidentally, the British business community didn't listen to him -- it wouldn't have been a good idea.
SPIEGEL: Russia isn't squeamish when it comes to applying pressure to neighbors like Georgia, preferably using energy as a tool.
Chubais: No, in the case of Georgia we did not use the energy supply to apply political pressure. But I do agree with you that our government and our businesspeople sometimes make serious mistakes when dealing with neighbors.
SPIEGEL: The Russians are coming. Is it really happening, and are they coming with full force?
Chubais: Yes, Russia is strong again, especially economically. This means that both sides have to learn. Russia must learn to implement its growing importance in a civilized way. I'm warning the West against making catastrophic geopolitical mistakes. The plan to install a missile defense system in Eastern Europe is pure lunacy. This will take the world back to the days of the Cold War. The risks today are no less serious than they were then.
SPIEGEL: You shouldn't hold all of Europe accountable for the policies of the American president.
Chubais: If the Europeans didn't tacitly accept this American decision, the missile shield would not be viable. The things that could spark a new arms race are not purely based on the business of Mr. Bush. In fact, the Europeans also play an important role. Don't be surprised then, if Russian missiles target Europe once again.
SPIEGEL: Will Russia remain stable in the upcoming months of the parliamentary and presidential election campaign?
Chubais: Yes, and irrespective of what the new president's name will be.
SPIEGEL: Does the appointment of Viktor Zubkov to the post of prime minister mean that the man will also become president next March?
Chubais: It's possible.
SPIEGEL: Mr. Chubais, we thank you for this interview.
Interview conducted by Joachm Preuss and Matthias Schepp.