Father to the Oligarchs

Few people in Russia attract as much public hatred and as much private admiration as Anatoly Chubais - the red-haired and charismatic father of Russian capitalism.

In 1992 Chubais, deputy prime minister in charge of privatisation in the first government of Boris Yeltsin, launched the biggest and fastest sale of state assets in history. It put 80 per cent of the economy into private hands, made a few Russians very rich, while most remained poor. Naturally, many of the latter blame the former for their continuing poverty. And they blame Chubais for making it so.

His name became associated with everything that went wrong with Russian capitalism. As Yeltsin famously said before firing him from the government in 1995: "It is all Chubais's fault." (This did not stop Yeltsin from appointing Chubais his chief of staff a few month later and keeping his friendship to this day.)

The man who privatised Russia and created a new class of billionaires - the "oligarchs" - does not appear in public much now. I meet him in a private dining room in the exclusive Restaurant Count Orlov, after his bodyguard has checked it for any security threats. He has good reasons to be careful.

One of his "creations" - Mikhail Khodorkovsky - is in prison awaiting trial for fraud and tax evasion. Khodorkovsky's company Yukos, once the showcase of Russian capitalism, is being stripped of its assets - not by greedy oligarchs, this time, but by the Russian state. Two other oligarchs, Boris Berezovsky and Vladimir Gusinsky, are in self-imposed exile, and the rest - including Roman Abramovich, the owner of Chelsea Football Club - are keeping their heads down in fear of reprisals.

Chubais still has real power. He is the head of Unified Energy System, the Russian electricity monopoly. Unlike any ordinary manager who would try to preserve his company and with it his own status, Chubais is dismantling it - as one of the last pillars of central planning.

The father of billionaires, he is only a millionaire himself. He is not among Russia's 100 wealthiest men, although he is well off compared with most Russians - last year he declared an income of $1m. Even the most venomous-tongued admit that Chubais did not privatise Russia for personal gain. "Chubais is a Bolshevik and people like that work for an idea, not for bribes," one oligarch told me.

Chubais does not do small talk. We have a brief discussion about current politics in Russia - hardly an uplifting subject - and for all his power, Chubais is not on the ascendant team. He did not support the nomination of Vladimir Putin as president in 2000; he was the only business leader who spoke out in defence of Khodorkovsky after his arrest; and his record as the creator of the class now regarded with extreme disfavour by the president and his circle deprives Chubais of the support that has always been more important than formal legal or constitutional guarantees. Chubais shrugs it off. It is not that he is unaware of the risks, but he has a higher tolerance of risk and danger than most.

"I know of at least three contracts that were taken out on me. I know all the details and the names of those who were to carry them out. The last contract was taken out 18 months ago. It was on purely political grounds - hatred that I sold out Russia. When you go home every night and think that there may be an assassin around the corner with an anti-tank launcher, your perception of political risk changes. Yes, the risks today are perhaps a few percentage points higher than they were in 2000. But between 1992 and 1999 these risks were several times higher."

To lift the mood, he orders a bottle of wine. He knows the dinner is on the FT, but, not having privatised it, he makes no assumptions about the paper's wealth. He asks politely: "Would it be all right to order Chateau Potensac 1995 - at $120 a bottle?" It is one of the cheaper bottles on the wine list and I appreciate Chubais's tact and manner. The restaurant is out of oysters, so we settle for vegetable salad, followed by osso bucco for Chubais and rack of lamb for me.

Chubais sees his achievement not merely in creating a class of private owners in Russia after 70 years of communism. More important is his destruction of the financial foundation of the communist regime itself. "We were perfectly aware that we were creating a new class of owners. The privatisation was not a question of ideology or some abstract values; it was a question of a real, political daily struggle.

"The red directors had enormous power - political, administrative, financial. They were invariably linked to the Communist Party. We had to displace them and we knew we did not have much time. The count was on days, not months.

"We did not have a choice between an 'honest' privatisation and a 'dishonest' one, because an honest privatisation means clear rules imposed by a strong state that can enforce its laws. In the early 1990s, we had no state and no law enforcement. The country's security service and police were on the other side of the barricades. They were taught the Soviet criminal code, which implied three to five years in prison for private business activity. Our choice was between bandit communism or bandit capitalism."

Chubais makes no excuses and feels no remorse over the most controversial privatisation of all - the "loans-for-shares" deal, in which he handed control of Russia's largest and most valuable assets to the group of tycoons in return for loans and support in the 1996 election for the then ailing Yeltsin. Truth be told, the oligarchs would have supported Yeltsin anyway. But Chubais argues that, by giving them control over enterprises with hundreds of thousands of workers, he was giving them real administrative resources to influence the outcome of the elections while destroying the main support base of the communists.

"We had no choice. If we did not have the loans-for-shares privatisation, the communists would have won the 1996 elections and this would have been the last election Russia ever had, because these guys do not give up power easily."

A communist victory would also have cost Chubais his life. "I was one of the top targets for the communists, after Yeltsin." Ironically, soon after Yeltsin's election, Chubais also became a top target of the oligarchs, who had him fired for refusing to play by their rules.

I suggest that loans-for-shares was a Faustian bargain that haunts Russia to this day.

"At the time I did not entirely understand the price we would have to pay," says Chubais. "I underestimated the sense of deeply rooted injustice it would leave in people.

"We finished the privatisation in 1997-1998. Five years on people still reject any rational arguments that the oligarchs did not just steal these enterprises but made them work better, that they started to invest and pay salaries on time, that taxes they pay to the budget help to pay pensions. But most people don't want to hear this because the feeling of injustice of the privatisation works on the subconscious level."

Chubais says this is one reason why the Union of Right Forces, a liberal conservative party he helped to set up, lost in parliamentary elections last year. It is also a reason why democrats in Russia are associated with impoverishment of the country, and why the imprisonment of Khodorkovsky and the assault on Yukos has been welcomed by millions of ordinary Russians who saw it as a well-deserved punishment.

"The institution of private property is not just a set of laws, or a class of owners who have real power - it is 146 million people who must agree that private property is sacred. I doubt this can happen in one generation."

As the waiter brings tea with honey, I ask Chubais if he believes that capitalism is not suitable for Russia, with its popular disdain for the rich and belief in the moral superiority of the poor. "You know, I've re-read all of Dostoevsky over the past three months. And I feel nothing but almost physical hatred for the man. He is certainly a genius, but his idea of Russians as special, holy people, his cult of suffering and the false choices he presents make me want to tear him to pieces.

"At the start of our reforms, some of my opponents argued that Russia's century-old traditions make it less suitable for capitalism than Europe. Perhaps. But what are the choices in the economy? Central planning, socialism - thank you, we had enough of it. Capitalism may be harder to establish here, but I am convinced it is the only way. The market values have taken root here and the growth of the economy is the proof of that.

"My opponents tell me that the privatisation was wrong, that it was against the interest of the people. But I did not do it for the people of my generation. I did it for our children. I am convinced that in a generation or two, people will look at us differently, and the sense of injustice will pass in those who will come after us."

He leaves in his black, bullet-proof BMW with a flashing blue light and a one-car escort. I think of the final lines of Three Sisters by Chekhov - someone else who disagreed with Dostoevsky: "Time will pass, and we shall depart forever. We shall be forgotten. But our sufferings will turn to joy for those who live after us. Peace and happiness will dwell on earth, and people living now will be blessed and spoken well of."

It may be a long wait.

Arkady Ostrovsky is an FT correspondent in Moscow.

Restaurant Count Orlov, Moscow

2 x salad Bulvar

1 x osso bucco

1 x rack of lamb

1 x Chateau Potensac 1995

1 x mineral water

2 x tea

Total: $230