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The Rape of Russia by Anne Williamson
Old news of course but it is very hard to find on the web now so I thought I should post it here to preserve it.
Quote:[size=12]The Rape of Russia
by Anne Williamson

The following is Anne Williamson's testimony before the Committee on Banking and Financial Services of the U.S. House of Representatives, presented Sept. 21, 1999.

It shows how the historic opportunity given the U.S. to help transform Russia into a free, peaceful, pro-Western country was squandered in the form of a bruising economic rape carried out by corrupt Russian politicians and businessmen, assisted by Bush and (especially) Clinton administrations engaged in political payoffs to Wall Street bankers and others, and by ineptitude and greed on the part of the U.S. Treasury and the Harvard Institute for International Development, assisted by fellow travelers and manipulators at Nordex, the IMF, the World Bank, and the Federal Reserve.

The losers were the Russian people and (mainly) U.S. tax-payers.

And the winners? Ms. Williamson names names, and that's why the elite media has shut out her book. She indicates their heroes are thieves, and they are afraid she may be right.


. . . I should like to add just a few words about myself by way of introduction. I am the author of Contagion: The Betrayal of Liberty, Russia, and the United States in the 1990s, which will be available to Committee Members and the American public in time for the nation’s Thanksgiving holiday. Prior to beginning my work on the book, I covered just about all things Russian for a broad range of publications which included inter alia The Wall Street Journal, The New York Times, Mother Jones, Art and Antiques, Premiere, Film Comment and SPY Magazine. From the late 1980s until 1997, I maintained homes in both Moscow and the United States. And therefore I can say for much of the last decade I had the privilege of being a witness to a dramatic history and the pleasure and excitement of sharing with the Russian people their remarkable land, language and culture. And it is with a profound gratitude to and a deep respect for that noble, heroic and too long-suffering people that I speak to you today.

In the matter before us – the question of the many billions in capital that fled Russia to Western shores via the Bank of New York and other Western banks – we have had a window thrown open on what the financial affairs of a country without property rights, without banks, without the certainty of contract, without an accountable government or a leadership decent enough to be concerned with the national interest or its own citizens’ well-being looks like. It’s not a pretty picture, is it? But let there be no mistake, in Russia the West has truly been the author of its own misery. And there is no mistake as to who the victims are, i.e. Western, principally U.S., taxpayers and Russian citizens whose national legacy was stolen only to be squandered and/or invested in Western real estate and equities markets.

The failure to understand where Communism ended and Russia began insured that the Clinton Administration’s policy towards Russia would be riddled with error and ultimately ineffective. Two mistakes are key to understanding what went wrong and why.

The first mistake was the West’s perception of the elected Russian president, Boris Yeltsin; where American triumphalists saw a great democrat determined to destroy the Communist system for freedom’s sake, Soviet history will record a usurper. A usurper’s first task is to transform a thin layer of the self-interested rabble into a constituency. Western assistance, IMF lending and the targeted division of national assets are what provided Boris Yeltsin the initial wherewithal to purchase his constituency of ex-Komsomol [Communist Youth League] bank chiefs, who were given the freedom and the mechanisms to plunder their own country in tandem with a resurgent and more economically competent criminal class. The new elite learned everything about the confiscation of wealth, but nothing about its creation. Worse yet, this new elite thrives in the conditions of chaos and eschews the very stability for which the United States so fervently hopes knowing full well, as they do, that stability will severely hamper their ability to obtain outrageous profits. Consequently, Yeltsin’s "reform" government was and is doomed to sustain this parasitic political base composed of the banking oligarchy.

Property Rights
The second mistake lay in a profound misunderstanding of Russian culture and in the Harvard Institute of International Development advisers’ disregard for the very basis for their own country’s success; property rights. It was a very grave error. Private property is not only the most effective instrument of economic organization, it is also the organizational mechanism of an independent civil society. The protection of property, both of individuals’ and that of a nation, has justified the existence of and a population’s acceptance of the modern state and its public levies.

Russian property rights are tricky; property has never been distributed, but only confiscated and awarded on a cyclical basis. For the big players property exists, as it always has, only where there is power. For the common man, the property right hasn’t advanced much beyond custom which prevents the taking of any man’s shelter, clothes or tools so long as continuous usage is demonstrable. An additional, purely Slavic feature of the Russians’ concept of property is the shared belief that each has a claim upon some part of the whole.

In ancient ‘Rus, property existed for the individual as a claim - or an entitlement if you will - to a shared asset, a votchina or "estate", held by all the members of a particular clan. This understanding of property still informs the culture; though Westerners bemoan Moscow mayor Yury Lyuzhkov’s retention of the system of the residential permit ("propiska") as an impediment to a flexible labor force, the policy is one of Lyuzhkov’s most popular. Muscovites are well-satisfied with a mayor who polices outsiders as they believe any proprietor of such a great estate as Moscow should.

The Russians’ failure to accept the Roman concept of private property has compelled them to suffer the coercive powers of the state so that at the very least a civil order, if not a civil society, might be established and sustained. The hackneyed idea that Russians have some special longing for tyranny is a pernicious myth. Rather, they share the common human need for predictable event undergirded by civil and state institutions and their difficult history is the result of their struggle to achieve both in the absence of private property.
Since only the Tsar or the Party had property, no individual Russian could be sure of long-term usage of anything upon which to create wealth. And it is the poor to whom the property right matters most of all because property is the poor man’s ticket into the game of wealth creation. The rich, after all, have their money and their friends to protect their holdings, while the poor must rely upon the law alone.

In the absence of property, it was access - the opportunity to seek opportunity - and favor in which the Russians began to traffic. The connections one achieved, in turn, became the most essential tools a human being could grasp, employ and, over time, in which he might trade. Where relationships, not laws, are used to define society’s boundaries, tribute must be paid. Bribery, extortion and subterfuge have been the inevitable result. What marks the Russian condition in particular is the scale of these activities, which is colossal. Russia, then, is a negotiated culture, the opposite of the openly competitive culture productive markets require.

Ironically, the nontransferability of the votchina system’s entitlement was the very flaw a shareholding culture and an equities market could have addressed successfully had Lenin’s revolutionary dictum of "Property to the people! Factories to the workers!" been realized. And such a program existed. It was designed by Larisa Piasheva, a free market Russian economist who was appointed by Moscow mayor Gavriil Popov to design and execute a program for the privatization of Moscow’s assets. Ms. Piasheva’s program was a fearless and rapid plunge into the market which would have distributed property widely into Russia’s many eager hands. Further, the program – inspired as it was by the policies of Ludwig Erhard and his adviser, the renowned Austrian economist Wilhelm Roepke - did not rely upon Western lending but instead tailored itself to maximize direct Western investment.

When the Administration says it had no choice but to rely upon the bad actors it did select for American largesse, Congress should recall Larisa Piasheva. How different today’s Russia might have been had only the Bush Administration and the many Western advisers from the IMF, the World Bank, the International Finance Corporation, the European Bank for Reconstruction and Development and the Harvard Institute of International Development then on the ground in Moscow chosen to champion Ms. Piasheva’s vision of a rapid disbursement of property to the people rather than to the "golden children" of the Soviet nomenklatura.

Instead, after robbing the Russian people of the only capital they had to participate in the new market – the nation’s household savings – by freeing prices in what was a monopolistic economy and which delivered a 2500 percent inflation in 1992, America’s "brave, young Russian reformers" ginned-up a development theory of "Big Capitalism" based on Karl Marx’s mistaken edict that capitalism requires the "primitive accumulation of capital". Big capitalists would appear instantly, they said, and a broadly-based market economy shortly thereafter if only the pockets of pre-selected members of their own ex-Komsomol circle were properly stuffed. Those who hankered for a public reputation were to secure the government perches from which they would pass state assets to their brethren in the nascent business community, happy in the knowledge that they too would be kicked back a significant cut of the swag. The US-led West accommodated the reformers’ cockeyed theory by designing a rapid and easily manipulated voucher privatization program that was really only a transfer of title and which was funded with $325 million US taxpayers’ dollars.

Vouchers and Vandals
Voucher privatization’s conceits were compounded by a grievous insult; unregulated voucher investment funds, which the privatizers encouraged the uncertain Russian citizenry to patronize. Hundreds and hundreds of investment funds simply walked with their clients’ vouchers, reselling them to domestic criminals, Red Directors, western investment banks and international money launderers. In other words, the lion’s share of Russian money laundering occurs when capital enters the country, and what we see today in the Bank of New York scandal is, in fact, properly understood as capital flight. When the 18 month-long thieves’ banquet that voucher privatization was concluded in July 1994, the program, whose very design left the controlling shareholding of any single enterprise in the hands of the state, had actually institutionalized the state as the determinant owner of all that had formerly belonged to "the people".

Co-temporaneously with voucher privatization, an early and precipitous Bush Administration initiative was coming to fruition. In early 1992, the "Bankers Forum" project was wheeled into place by a former New York Fed chief, Gerald Corrigan, who at George Bush’s direction sent in a group of experts from the Fed, commercial banks and the Volunteer Corps on an off-the-books mission to teach the Russians at the Central Bank the bond game. Moscow-based Dialog Bank’s Peter Derby, who explained the project’s background remarked, "Basically, when Corrigan asks, I guess no one turns him down, because people reacted instantaneously. It was done by private investors, who were asked by a person you can’t say no to" (my emphases).

The improbable yields (290 percent on 3-month paper at one point) on the Russian market’s GKO instruments were paid with US taxpayers’ money via IMF loans. Guess where all investment went? By yielding those kind of non-market returns, the bond market insured that all the country’s resources and all that it was capable of attracting went to the support of the state, just as Tsarism and Communism had done previously.

So lush were the bond market’s rewards that dubious market participants included the Russian Central Bank itself through an off-shore firm known as Fimaco. The involvement of the Harvard Institute of International Development’s [HIID] honchos in the same conflict-of-interest activities has already been admitted publicly and remains the object of a Boston Grand Jury’s scrutiny. The Harvard Management Corporation[HMC], which invests the university’s endowment, was also an avid purchaser of Russian bonds, a dubious and unsettling history since there is no legal separation of HMC and the university itself. According to the Russian Interior Ministry’s Department of Organized Crime, Western employees of Russian banks, Western bankers and consultants, Russian bankers and anecdotal evidence, other likely participants include certain employees of the U.S. Treasury, of the multilateral agencies (most especially the World Bank’s Moscow offices), of bilateral aid agencies, and policy and program consultants acting through accounts established in their wives’ maiden names with non-U.S. reporting brokerages in Moscow. Even the Ford Foundation’s Moscow office sponsored its own internal Russian bond shop for which the unthinking Russian managers once asked this reporter to drum up U.S. investors.

Clinton Buys Wall Street
One particularly striking aspect of Bill Clinton’s presidency is how aggressively his administration has worked to capture the political support of the financial sector, offering up heretofore unseen gobs of government favor. [A disproportionate number of firms receiving OPIC (Overseas Private Investment Corporation, a government entity) guarantees, Export-Import bank lending, and IFC (International Finance Corporation, the private lending arm of the World Bank) and Russian Enterprise Fund participation were generous contributors to both Clinton campaign coffers and the DNC.] The basic formula was simple, it’s not the rocket science Russia’s Harvard advisers intimated it was: The bread and butter of all equity markets are bonds. Wall Street wanted a debt market. You build it and we’ll come, they said.

The aid program delivered best it could what was in reality a flimsy contrivance, which - in turn - was really only an exotic venue through which to pass public funds to selected Russians of the Clintons’ and HIID’s choosing and to Wall Street investment banks the Clintons hoped to entice permanently into their orbit of supporters and contributors. In short, the Russian bond market was the Arkansas Development Finance Authority gone international.

Today the Clinton Administration’s chief defense for their hand in Russia’s ruin is that somebody had to keep the communists at bay. But there were no communists in Russia by late 1991, only nascent investment bankers looking to nail down a stake any which way. Communism had evaporated by late 1987, the year in which the Russian people were allowed to hold convertible foreign currencies. Overnight, the power of money displaced the power of ideology.

The Role of Nordex and FPI
Though some now say the loans-for-shares privatization program marked the reformers’ fall from grace, I beg to differ. On 14 September 1991, Vladimir Shcherbakov, the last First Deputy Prime Minister of the Soviet Union, formed with two other partners, one of which was the now notorious Austrian firm, Nordex GmbH, the International Foundation for Privatization and Private Investment [FPI]. FPI’s charter was legitimized by Gorbachev’s signature and approved by 13 heads of what were still constituent republics.

In an interview published in a 1993 issue of VIP, the vanity organ of the commercialized nomenklatura, Shcherbakov reported excellent relations with the new regime of "eager young reformers" – Gaidar, Chubais et al – and their leader, Boris Yeltsin. All hail-fellows-well-met. So too did FPI enjoy similarly sympathetic connections to the EBRD, the IMF and the UN Industrial Development Organization. Shcherbakov even boasted about FPI’s "new approach to the problem of the property of the Western Army Groups in Eastern Germany that comes down to its joint exploitation by Russian and German businesses", an eyepopping admission since a year after the interview was published, the Russian scandal was Bonn’s claim that Soviet weaponry sales to rogue regimes originating in the Western Army Group had amounted to a $4 billion criminal take.

A former employee of FPI, speaking through clenched teeth, reported, "It’s [FPI] not a well-known organization, but it’s one of the most wealthy and most powerful organizations in Russia," and their work was engineering commission-paying deals for money or privilege with the Kremlin, thereby organizing a pipeline of tribute typical of corrupt regimes. "I can’t say it publicly, I can’t prove my position with documents, but I know they were privatizing companies, the very best companies, before we had a privatization program."

The CIA has determined that through Nordex, FPI seized the export earnings from Russia’s natural resource companies – oil, gas, platinum, gold, diamonds – and from industrial firms exporting items such as steel and aluminum and then stashed the hefty profits in Western bank accounts. And only now, eight years almost to the day later, do US taxpayers learn that the "eager, young reformers" to whom their resources were sent for the purpose of building a new Russia were in league from day one with the exhausted Soviet nomenklatura in a scheme to loot Russia’s wealth and park it in the West.

Yegor Gaidar still insists, John Lloyd was good enough to remind us in his recent New York Times Sunday Magazine article, that "he had no choice but to let prices rise to increase supply and to scrap trade barriers so that foreign commodities could begin to fill store shelves."

Freeing Prices Without Privatization
Gaidar’s assertion is untenable. The Soviet Union was economically self-sufficient except for bananas, coffee and coconuts. Foreign commodities weren’t required to fill Soviet shops. And even though the ruble was not convertible, that characteristic had nothing to do with the sudden shortages in late autumn 1991, which were only slightly worse than those normally encountered in the last thin years of Gorbachev’s perestroika.

No one had stopped producing, but shops were suddenly nearly empty. Producers had begun hoarding, as had fearful consumers, but why? It wasn’t that Yeltsin announced in November 1991 that the government intended to free prices, it’s that he also announced the exact date on which prices would be freed. Predictably, producers withheld their product from market and rubbed their hands together like flies awaiting the coming feast which Yeltsin’s newly announced policy guaranteed. Within a week of the ill-considered speech, Muscovites’ needs were being rationed.

However, Gaidar really was under pressure, but the pressure was coming from the West to open Russia to unrestricted imports in return for multilateral lending. Gaidar soon delivered a trade policy that was 100 percent back-to-front, accommodating as it did the self-serving demands of both the West and Russia’s nascent banking oligarchy; Russian manufacturing was to take the brunt of unrestricted foreign competition, but domestic banking was to be protected from competition! Even Russian Central Bank Chairman Viktor Gerashchenko protested, but the Russian bankers were accommodated and the IMF continued lending. So much for the "leverage" foreign policy elites claim foreign assistance programs provide the U.S.

In 1991, there was no hope whatsoever that wheezebag Soviet industries could compete with Western products. For decades, prices were set by Gosplan (State Ministry of Central Planning), any enterprise profits were claimed as Soviet tax revenues, all customer bases were guaranteed and therefore no enterprise had a financial incentive to compete. Without competition, there was never any need to improve quality.

How could freeing prices alone change this equation? Free prices only work to the benefit of consumers when producers compete with one another in the marketplace to satisfy customers’ demands, leaving consumers postitioned to reap the most benefit at the lowest price. Clearly, an equitable and transparent privatization that would have delivered property widely to Russia’s many eager hands should have preceded the freeing of prices. And during privatization, native producers should have enjoyed some protectionism at least, as did developing American industry and manufacture in the 19th century.

Jeff Sachs Can't Read
Competent advisers would have known Russia never did develop an effective banking sector and system of credit in a 1000 years of her history. The story of Russian banking – ancient and modern – always has the same plot, only the names and the dates change. S.Y. Borovoi’s easily obtained history of 18th century banking outlines a typical episode involving a certain "Suterland, who received 2 million pounds for transfer to London, but instead lent the sums to Prince Potyomkin (800,000), Finance Minister Vyazemsky, Foreign Minister Bezborodko and even to the future emperor Pavel. The debt of these honorable people was, according to the custom, forgiven and paid by the state." (My emphasis)

Certainly eager Western banks should have been given admission to Russia. By working initially with more developed and well-capitalized Western banks and later by competing with them, Russian banks could have developed quickly and today be mediating capital responsibly and profitably. No good economic purpose was achieved by foisting subsidized billion dollar loans onto Russia for the purchase of Western consumer goods.

Once the crime of voucher privatization was fully realized, thereafter ensued a years-long highly-criminal and oftentimes murderous scramble for hands-on control of the enterprises. Directors stashed profits abroad, withheld employees’ wages and after cash famine set in, used those wages, confiscated profits and state subsidies to "buy" the workers’ shares from them. The really good stuff - oil companies, metals plants, telecoms - was distributed to essentially seven individuals, "the oligarchs", on insider auctions whose results were agreed beforehand. Once effective control was established, directors - uncertain themselves of the durability of their claim to the newly-acquired property - chose to asset strip with impunity instead of developing their new holdings.

Unsurprisingly, the entire jury-rigged effort has collapsed in flames. The bond market has gone bust, Russia is crushed by her IMF loan payments, and OPIC’s nearly $2 billion in U.S. taxpayer-provided guarantees are yet to be resolved. The West’s best course under whatever new government the Russian people elect is to take its own advice, stop meddling, cease all subsidies and allow what few market mechanisms that do exist in Russia to work. The sooner the banking industry’s pylesos ("vacuum cleaners") are allowed to fail, then the sooner the national property can return to market where more able and productive hands might yet grasp it.

Until Russians have resolved for themselves how property is to be held and secured their decision de jure, all the destructive economic arrangements and cultural behaviors crowding Russian history will continue. Wealth will not be created without private property; without transferable property secured legally to protect no Russian will pay taxes; without revenues no Russian government can endure without falling back upon what is every state’s final reserve; coercion.

The years-long sugarcoating of what the Clinton administration’s policies have wrought in Russia is just one more lie bequeathed Americans. More Western money will only work to insure the continued degradation of Russia, bequeathing her people a future that can be discerned in that most familiar object of Russian folk culture - the Matryoshka nesting doll - a perfect, visual metaphor of Russia’s Brechtian universe: Each figure is captive, one inside the other, and in the end the biggest doll consumes the lot.

Free Money from the Fed
Turning to the question of the IMF and the World Bank generally and their specific roles in international finance, much needs to be said. When libertarians say that government produces nothing, they make a serious error. Government produces one thing in abundance - our money. U.S. paper fiat dollars have no intrinsic value and circulate only by faith and by edict. Consequently, the dollar in a baby boomer’s pocket is worth but the penny that was in his grandfather’s purse less than a century ago. But granddad’s penny was one hundredth of a gold-backed dollar’s value, while today’s dollar is the product of a government-operated pyramid scheme. Once the state slipped the "golden handcuffs" of budgetary discipline through the establishment of the Federal Reserve System, it gained the ability to create unlimited debt, thereby claiming for itself what before had been the purview of tyrants - the ability to debase the currency. It is the slow leaching of value from the U.S. dollar, not the far lesser sums raised by direct taxation, which has enabled the political class to purchase votes for its re-election, creating massive dependencies upon government amongst the citizenry in the process. The end result is the degradation of American society and the citizenry, a situation much remarked upon.

Any pyramid scheme remains viable only so long as its base continues to expand and it is that fact which has driven US foreign policy for much of the past century. Since politicians and investment bankers both have an interest in promoting deficits and in forcing taxpayers to redeem government debt, they were quick to come to terms on the advantages of underwriting foreign debt along with new markets and natural resources from abroad. Taxpayer-subsidized globalism then is not a new phenomenon, but it has reached an apogee of sorts under the guiding hand of the opportunistic Clinton Administration.

Once the criminal financial flows from Russia and Asia were combined with the easy money common to presidential election cycles and began pumping into the economy in the spring of 1995, it wasn’t long before asset inflation hit U.S. corporate share valuations. Throughout 1995 and 1996, the money supply kept rising, and along with it mutual fund holders’ paper wealth. Attracted by the double-digit yields found in risky, unregulated environments abroad, the banks - given the election year liquidity the Fed wished to export - lent unwisely and to excess. The moral hazard the 1995 $40 billion bailout of Mexico unleashed (the debt was refinanced, not repaid, with additional IMF lending and proceeds from eurobond sales in 1996) led to a tripling of international capital flows. Investors took greater and greater risks in the belief that the "new paradigm" economy promised taxpayer-provided redemptions if necessary. The consequence of all those dollars frolicking in exotic locales is a $141 billion bailout for Asia, more than $20 billion for Russia in 1998 alone, and $30 billion for Brazil in 1999.

Liberty vs. Empire
Cures under discussion all share one quality; each has some aspect that degrades American citizens’ independence and prosperity while delivering yet more more to intrude to the political class. It is one more irony of the post-cold war environment that ambitious American policymakers, who were so busy "reforming" Russia in the most appallingly cavalier and self-serving fashion, failed to honor the lesson Russia has to teach, i.e. liberty and empire do not cohabit.

The 1930s were the last era in which the international political and financial elite sought advantage through control of the global economy. What economists call "hot money" raced from one nation to the next throughout that era, leaving a trail of competitive currency devaluations in its wake. Six decades ago, as nation after nation was humbled by and strangled with the manipulations of the financial world’s insiders, history saw fit to serve up Adolph Hitler.

A world war and a score of years later, the allies established the IMF as a prophylactic money bag to prevent destabilizing trade imbalances and therefore, they thought, a repetition of the preceding decade’s nightmare. Yet over half a century later, the IMF, the World Bank and their similarly US-controlled spawn - the IFC, the six regional development banks and the EBRD - have become 800-pound gorillas of economic distortion and, over time, of pillage which unchecked will guarantee extensive international conflict and a broadly-based anti-Americanism.

During the Cold War, the International Monetary Fund got itself repeatedly into all sorts of financial and ethical mishaps in the West’s effort to contain the Soviet empire. But the IMF’s excesses were of little concern so long as its financial firepower could be directed at whatever nation appeared on the verge of toppling into the Soviet camp.

A Little Gift from Clinton via Rubin and Summers
No longer serving in an arguably wasteful manner what was nonetheless an agreed national purpose, the IMF has come to function increasingly as the personal gift of the office of the U.S. Treasury courtesy of that office’s service to the US presidency. The US-dependent IMF has been well pleased; far easier to serve a single master than answer to a committee of Congressmen such as yourselves.

The ascendancy of Treasury in foreign policy at the State Department’s expense is the result of a neo-mercantilist foreign policy in which enterprise is to be subject to direction from the presidential administration it is to serve. By expanding the mandates and accelerating the use of a host of international agencies in which the US is dominant - the IMF, the World Bank, the EBRD, the regional development banks, the IFC - and combining their efforts with those of the Commerce Department, the Export-Import Bank, OPIC and USAID-financed Enterprise Funds, the Clintons succeeded in constructing an international patronage machine in which the American executive stands supreme.

Today the president’s men are seeking to institutionalize the socialization of private investors’ and global bankers’ risks in international markets via a freshly-capitalized IMF. The price of the US’s $3.5 billion contribution to the proposed IMF bailout fund on top of another requested $14.5 billion was said to be insignificant when weighed against the financial calamity of a worldwide recession that IMF ministrations and policing could avert. But how true is this?

Taking the IMF’s behavior in Russia as a guide, the answer is that we can expect a rapid escalation of taxpayers’ liabilities in the service of failed policies. After the chaos unleashed by the Fund’s initial advocacy of a single ruble zone for the Commonwealth of Independent States, which handed management of the ruble to 12 central banks, the Fund’s monetary sages settled down to their more usual business of lending large sums in return for secret, IMF-designed recovery programs always said to be strictly enforced. In Russia’s case, only the rhetoric of strict conditions was enforced.

For example, when the IMF touted a 1996 $10.2 billion loan on the basis of what an extraordinary job Russia had done in meeting the conditions of a 1995 $6.7 billion loan, one crucial detail went unmentioned. The $6.7 billion loan was extended without any conditions via the IMF’s Systematic Transformation Facility, a program designed to funnel money to Russia in return for "the promise to reform". Also left unsaid was that through the magic of money’s fungibility, the $6.7 billion loan financed - almost to the kopeck - Yeltsin’s bloody and disastrous assault on Chechnya.

Yeltsin and Tyson Chicken
Following the Russian Communists’ success in the December 1995 parliamentary elections, the Fund proceeded into even dodgier territory with the 1996 $10.2 billion loan, which came front-loaded with a billion dollars meant for Yeltsin’s re-election. Tape recordings of conversations between Mr. Clinton and Mr. Yeltsin made public demonstrate that in return longtime Clinton supporter and campaign donor Tyson Chicken’s exports to Russia – a $700 million annual business – were protected from a threatened 20 percent tariff increase.

Once the first tranche’s payout of a billion plus dollars arrived the following May, Yeltsin pulled out all the stops; back wages for state employees and pensions were paid, and after the IMF’s billion was consumed, the capricious Siberian ordered his initially mulish Central Bank to hand over a billion more. The IMF said nothing despite claiming the Fund’s main achievement during the previous 6 months was legislation establishing the Russian Central Bank as an independent institution. Therefore, the Fund’s current denial of any knowledge of the Russian Central Bank’s offshore operations through Fimaco is dubious at best.

But weren’t Americans told that Russia’s financial oligarchy paid for Yeltsin’s re-election? To the contrary, Russia’s bankers made serious money on Yeltsin’s electoral weakness by buying government bonds at distressed prices using cheap money handed over from government deposits. The lion’s share of the domestic bonds’ high yields have always been paid with IMF loans. Russia’s first representative to the World Bank, Leonid Grigoriev, explained, "Of course, the government was to return this money and that is why the yields on 3-month paper reached as much as 290 percent. The government’s paying such huge, impossible rates on treasury bills, well, it’s completely unbelievable. It had nothing to do with the market and therefore such yields can only be understood as a payback, just a different method."

Clearly, building an empire of finance capitalism is an expensive business. But who pays? U.S. taxpayers, who paid directly through contributions to both multilateral and bilateral assistance efforts, and Russian workers, who paid indirectly by having their wages go unpaid and their national estate continually degraded. Secondly, the Russian people paid by being denied a means of exchange since the banking and trade sectors of the economy were quick to socialize amongst themselves what few rubles the IMF’s tight money policies allowed the Russian Central Bank to print.

Academic Pigs at the Public Trough
"The new paradigm" economy concocted by the Harvard-connected Clinton Administration appointees in the U.S. Treasury, was designed to extend the federal government’s meddling hand worldwide through its control of the multilateral and bilateral public lenders, enabling government a free ride on the back of a re-structured U.S. economy grown vigorous and ever more innovative on account of the benefits the Reagan era’s low taxation, moderate inflation, reduced regulation and expanding world trade had delivered. The overall scheme works as follows:

Sell assistance programs on an alleged "free market" and "humanitarian" basis by awarding government grants to those academics who can be relied upon to supply the intellectual camouflage politicians and journalists then repeat ad nauseum to a distracted public, move the IMF and the World Bank to target, induce target to raise taxes, fine tune target’s central banking operations, encourage borrowing and debt creation through the target’s government and its national banks, allowing IMF lending to pay yields if necessary; induce target to privatize national property while building a flimsy, artificial "infrastructure" for an equities market good enough to attract high risk foreign investors. Once the target nation’s government flounders, step back and watch speculators assert discipline through a run on the target’s currency. The subsequent devaluation delivers, in turn, a flood of cheap imports to American manufacturers and producers.

The finishing touch on the swindle is to confiscate more money from G-7 citizens (the lion’s share from Americans) to pay for what is said to be an "essential" IMF bailout; thereby allowing Uncle Sam’s IMF minions to entrench themselves more deeply in the target’s government. Taxes are raised, the population struggles beneath indebtedness, government funding demands and the inevitable domestic inflation a devaluation delivers. Western neo-colonialists then bully the target over its rapidly compounding debt in order to extract yet more property. Once successful, the world’s insiders then turn around and deliver cheap shares from privatizations and initial public offerings into the maw of U.S. mutual funds and portfolio investors. US taxpayers get hit coming (foreign aid) and going (bailouts) and innocent foreigners’ property is finagled away either from, or on account of, inattentive and corrupt leaderships. The big winners are the world’s increasingly corrupt and cozy governing class, international bureaucracies and global banks.

What U.S. policy has wrought across much of the post-cold war landscape is a moral, political and financial abomination based on fraud, theft and deceit. In Russia the results of the Clinton Administration’s policies are the perpetuation of the longest depression of the 20th century in what is increasingly an unpoliced deadly weapons dump, the biggest swindle of national property since Vladimir Lenin muscled the country early in the century and the discrediting of the ideas of free markets and democracy.

The Chickens Come Home
But as the old saying has it, what goes around comes around. Unfortunately, all those dollars the Fed printed to get Bill Clinton re-elected in return for Alan Greenspan’s third appointment as central bank chief, are now returning to the United States in the form of manufactured goods and commodities with which U.S. producers can not compete on price.

When exchange rates fluctuate against one another as they do now, some countries will inflate more quickly than other countries. The G-7 are the only nations that try to co-ordinate their monetary policies and the effort usually ends up a failure over time. When one country inflates too quickly, the value of its currency will decline.

Some governments - especially those with an election on the horizon - actually want to devalue since national exporters, their goods now being cheaper, sell more goods. Global lenders like the IMF are also fond of devaluations because a rising national income from bargain exports leaves plenty in the national kitty for principal and interest payments to them. (Global direct investors who stick to the dollar, quasi-"good guys", fear devaluations, because their profits calculated in a devalued domestic currency buy fewer dollars for repatriation.)

But when exchange rates depreciate rapidly the specter of capital flowing out of a country appears. Foreigners and residents put their savings elsewhere. The currency goes into free fall, its value plummets, more investors flee and at the end of the cycle, interest rates skyrocket. This is exactly what happened in Asia in 1997, in Russia in 1998 and in Brazil in 1999.

One World, One Currency, One Tax Collector
Yet to curse the speculators is useless; since the 1973 collapse of Bretton Woods that broke the international link between the dollar and gold, the fear of the syndrome described above is the only remaining bit of discipline in the international system. How much better, the globalists reason, if there were to be one central bank and one fiat currency for everyone so that then national leaderships (and the financial oligarchies they sustain) could inflate and rob their own populations in unison.

In time, U.S. corporate profits will decline as a consequence of the IMF-induced deflation and share prices of all but premiere multinational corporations will follow suit. Alas, those Americans up to their necks in credit card debt may well be the next class of debtors to be rolled, and American farmers are already suffering serious losses from the collapse of farm commodities prices. In time, credit will dry up, government receipts will dwindle, the national debt will skyrocket and unemployment will increase. Eventually the government will inflate its way out of its accumulated debt.

Camdessus & Fischer: the Inmates Run the Asylum
Before concluding my remarks, I would like to recall one curious and mostly unremarked detail from 1994, that sticks out in this sad story like a boy’s unruly cowlick. In mid-July 1994 - at the very moment dollar-based Mexican tesobonos were being oversold to prosperous clients of Goldman Sachs and other U.S. investment banks, which, in turn, would lead to the 1995 Mexican bailout and the introduction of moral hazard into the world’s financial system - Michel Camdessus told a press conference that he intended to press for the creation of a new IMF facility to give members resources with which to defend themselves against speculative attacks in financial markets.

In other words, long before bailouts of entire countries became routine Camdessus wanted a new loan program to feed the last disciplinarians in the world’s financial system - currency speculators - so that national governments might become even more unaccountable to their citizens. At the time, The Economist slammed the proposal, saying it was "absurd and almost certainly unworkable," since Camdessus "bizarrely" was assuming the IMF would know more about economic fundamentals than the markets. And that assumption, The Economist noted, was the very assumption which had been the undoing of the USSR’s centrally planned empire. But Camdessus’ 1994 plan is the very one the Clinton Administration implemented and seeks to institutionalize.

So who wags the tail of the money dog? Citizens who labor to create wealth for themselves and their families or folks like IMF chief Michel Camdessus, a French socialist and lifetime bureaucrat, and his deputy, Stanley Fischer, who together are quite possibly the two most incompetent people on the planet? Sadly, it appears a once free people are slowly but surely being enserfed to globalism’s useless hors d’oeuvres eaters and incompetent lenders.

It doesn’t take a conspiracy theory to observe that the downward arc of citizens’ liberties, independence and civic competence and of American culture generally parallels the declining value of the U.S. dollar, which has lost 99 percent of its value since the founding of the Fed, and 75 percent of that debasement has occurred since the last link with gold established by Bretton Woods collapsed in 1971. From that perspective, it’s really not very surprising that at the end of the century, not quite a century after America instituted the Federal Reserve and thereby began the process that would deliver the power of creating unlimited debt to the political class, the White House is occupied by a couple who share not so much a marriage as they do a collection of felonies.

Throughout the 1990s, finance capitalism’s shills have been a "new paradigm" economy so glorious one might have thought Beatrice awaited us each and every one at the very lip of Heaven itself. Their brassy tune celebrated the defeat of the business cycle by globalization, productivity gains and computer technology. Inflation was tamed, the golden horns sounded, and we were to dwell eternally in lush fields of full employment, low interest rates and a booming stock market. And, insiders winked, foreign money once mugged by speculators would have nowhere else to go but directly into Wall Street’s money machine.

But what if - instead of Beatrice - what waits over our collective shoulder down Purgatory way is a repeat of the European currency instabilities of the 1930s, which culminated in the most vicious and widely-fought war in world history?

Mother Russia
From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others' scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity - not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people - their abilities, efforts and dreams - which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet - on the Russian people - and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tariffs on Russian goods.

Russia is a fabled land, home to a unique and provocative thousand year-old culture, and a country rich in the resources the world needs whose people had the courage and resilience to defeat this century’s greatest war machine, Hitler’s invading Wehrmacht. Yet, thanks to Boris Yeltsin’s thirst for power and megalomaniacal inadequacy, Russia has become the latest victim of American expediency and of a culturally hollow and economically predatory globalism. Consequently, Americans, who thought their money was helping a stricken land, have been dishonored; and the Russian people who trusted us are now in debt twice what they were in 1991 and rightly feel themselves betrayed.

The worst of it was that some pretty good ideas - private property, sound money, minimal government, the inviolability of contract and public accountability - that have delivered to the West’s citizenry the most prosperity and the most liberty in world history, and might have done the same for the Russians, were twisted into perverse constructions and only then exported via a Harvard-connected cabal of Clinton administration appointees who funded - without competition - their allies at Harvard University courtesy the public purse. Joining the US-directed effort were the usual legions of overpaid IMF/World Bank advisers whose lending terror continues to encircle the globe.

But where, in a land in which today more of the people die each year than are born, lies the gain? History’s yardstick will measure out the answer, and I suspect it will not suit us.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
A fabulously insightful article, I thought.

The impression I gained at the time of the Yeltsin, post communistic era was that the rape and plunder of Russia was part and parcel of a long term US/Western strategy to ensure the phoenix could never rise from the ashes again.
The shadow is a moral problem that challenges the whole ego-personality, for no one can become conscious of the shadow without considerable moral effort. To become conscious of it involves recognizing the dark aspects of the personality as present and real. This act is the essential condition for any kind of self-knowledge.
Carl Jung - Aion (1951). CW 9, Part II: P.14
David Guyatt Wrote:A fabulously insightful article, I thought.

The impression I gained at the time of the Yeltsin, post communistic era was that the rape and plunder of Russia was part and parcel of a long term US/Western strategy to ensure the phoenix could never rise from the ashes again.
Definitely! The strategy continues with the eastward push of NATO and the encirclement of Russia.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
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[TD="width: 66%"]I liked it when he said, "These cases are complicated and difficult to prosecute, but if you're serious about doing them, you can." Doesn't that describe the situation perfectly? It can be done if we set our minds to it. We need to get started and make that happen.[/TD]
[TD] [/TD]
[TD="width: 66%"]Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.
-- Napoleon Bonaparte
The modern power elites thrive by forgetting any regrettable past. This amnesia is easy at Harvard, where the legal fiduciaries operate in secret and need not answer for their acts. They are the antipodes of the selfless institutional servants who built Harvard and other great American enterprises, and they bear close watching.
A interesting rogues' gallery of international financial criminals with high academic degrees who got their education in Harvard (Harvard mafia in a broad sense) owes its existence to the dissolution of the USSR and subsequent financial crisis. The level of corruption and rent seeking behaviors of those individuals is really breathtaking. The term "mafia" is not rhetorical overshoot: they are mafia in a very precise meaning of this word: the mafia at its core is about one thing -- money (see also Russian board game Mafia). Like in a typical Mafioso family there is an ethnic core and a hierarchy, with higher-ranking members making decisions that trickle down to the other members of the family. And its policies are always about oppression, arrogance, greed, self-enrichment, power and hegemony above and against all others.
The story of Andrei Shleifer in Russia is a classic story of "academic extortion": betrayal of trust and academic principles by Harvard professor of economics (probably not without the influence of his wife, hedge fund manager Nancy Zimmerman, longtime friend of Summers). While the guy was just a pawn in a big game, the issues of criminality of economists (and some universities economics department ;-) and relevance of RICO statute against such offences is a much bigger issue.
Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes27 federal crimes and 8 state crimeswithin a 10-year period can be charged with racketeering. Those found guilty of racketeering can be fined up to $25,000 and/or sentenced to 20 years in prison per racketeering count. In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of "racketeering activity." RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.
... ... ...
On March 29, 1989, financier Michael Milken was indicted on 98 counts of racketeering and fraud relating to an investigation into insider trading and other offenses. Milken was accused of using a wide-ranging network of contacts to manipulate stock and bond prices. It was one of the first occasions that a RICO indictment was brought against an individual with no ties to organized crime. Milken pled guilty to six lesser offenses rather than face spending the rest of his life in prison.
There is deep analogy between Harvard University (which had been benevolently charged with just breach of contract by the US government) and Michel Milken activities. Separately Shleifer and an associate, Jonathan Hay, were charged with conspiracy to defraud the U.S. government. Later he was stripped of honorary title "Whipple V.N. Jones Professor of Economics" due to ethics violation, but he managed to preserve his position at the university due to Summers protection (Larry Summers A Suicidal Choice - Mark Ames).
How close were Larry Summers and Andrei Schleifer? According to former Boston Globe economics correspondent David Warsh, Summers and Schleifer "were among each other's best friends," and Summers taught Schleifer "as an undergraduate, sent him on to MIT for his PhD, took him along on an advisory mission to Lithuania in 1990, and in 1991, shepherded his return to Harvard as full professor, where he was regarded, after Martin Feldstein and Summers, as the leader of the next generation."
The furor about Andrei Shleifer shadow dealing in Russia contributed to the ouster of Summers from the Harvard presidency.
While related to economic rape of Russia, Shleifer's story has a wider meaning as an apt symbol of "post-modern" corruption at universities and especially in Harvard where students were actively indoctrinated in pseudoscientific theories which constitute a theoretical framework of casino capitalism.
The cynical view is that it may have been very the intent in best Mafiosi style ("disaster capitalism" style of thinking). Instead of helping post-Soviet nations develop self-reliant economies, writes Marshall Auerback,
"the West has viewed them as economic oysters to be broken up to indebt them in order to extract interest charges and capital gains, leaving them empty shells."
Corruption and local oligarchy were natural allies of this process which was in essence the process of Latin-Americanization of post Soviet space. They partially failed in Russia as some of most notorious deals of this periods (especially in mineral recourses and oil areas) were reversed in 2000-2008, but were quite successful in Ukraine, Georgia, Latvia and several other post Soviet republics. The external debt of those is just staggering. As Professor Michael Hudson noted:
It may be time to look once again at what Larry Summers and his Rubinomics gang did in Russia in the mid-1990s and to Third World countries during his tenure as World Bank economist to see what kind of future is being planned for the U.S. economy over the next few years.
Throughout the Soviet Union the neoliberal model established "equilibrium" in a way that involved demographic collapse: shortening life spans, lower birth rates, alcoholism and drug abuse, psychological depression, suicides, bad health, unemployment and homelessness for the elderly (the neoliberal mode of Social Security reform).
Here is one apt comment about the real nature of economic professors from Harvard and other nice places from the comments to post Economists Fall Back Into Neoclassical Stupor …( naked capitalism. January 18, 2011):
I echo lambert's and scraping by's sentiments. The economics profession is not about an analysis of our economy that can make reasonable predictions about it. Economics and economists are enablers of the con and validators of kleptocracy. They say the many must make do with less and do not say that the result of this policy will be the few will have more.
These are not innocent, unworldly types tied to outdated and obsolete ideas. They are abettors and apologists for the greatest economic crimes in human history. We should call and treat them for what they are: criminals. Kleptocracy is not a some time thing. It is not a label you apply occasionally. Kleptocracy is a system. The looters can't function without corrupt politicians, a complacent propagandizing media, or complicit enabling academics. With kleptocracy, there is no middle ground. You either stand with the looters or their victims. I think this is the critical choice we all must make.
Another pretty telling quote ( from brilliant satire Blacklisted Economics Professor Found Dead NC Publishes His Last Letter « naked capitalism):
Q: Is it really plausible that economists threaten top banks that in the absence of some kind of payoff, they will change the theories they teach in a direction that is less favorable to the banks?
A: There are certainly cases in history of the following sequence:
a. Economist E espouses views that are less favorable to certain special interest groups S. Doing so threatens the ability of S to extract rent from the public.
b. Later, E changes his view, thereby withdrawing the prior threat.
c. Still later, E is paid large amounts of money by representatives of S in exchange for services that do not appear particularly onerous.
For example, let E = Larry Summers and let S = the financial services industry. In 1989 E was (a) a supporter of the Tobin tax, which threatened to reduce the rent extracted by S. This threat was apparently later withdrawn (b), and in 2008 E was paid $5.2 million © in exchange for working at the hedge fund D. E. Shaw (an element of S) for one day a week.
However, it is naturally more difficult to witness the negotiations in which specific threats were appeased with specific future payouts. This is a problem that also bedevils Public Choice theory, in which it is likewise difficult to show exactly how a particular politician is remunerated in exchange for threatening businesses with anti-business legislation. The theory assures us that such negotiations occur, although they are difficult to observe directly. Perhaps further theoretical advances will help us to close this gap.
Q: Isn't it offensive to assume that economists, for motives of personal gain, shade their theoretical allegiances in the directions preferred by powerful interest groups?
A: How could it ever be offensive to assume that a person acts rationally in pursuit of maximizing his or her own utility? I'm afraid I don't understand this question.
Disappearance of a formidable opponent of unrestricted looting of developing countries that USSR formally represented on world scheme from the world scene essentially released all moral stops and considerations both inside the USA and outside. And former USSR republics were the first victims of new super-aggressive neoliberal "new normal". Our world is being reshaped, in sinister fashion, by wide open capital markets and an international banking network that exists to launder hundreds of billions of dollars in ill-gotten gains.
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  • In a broad sense the term Harvard mafia means corrupt (mostly neoclassical and supply side) academic economists which enjoy revolving door with government and get most of the income from the financial services industry. There are multiple documented examples when their activity was pretty close to activities regulated by RICO statute. Recent film of Charles Ferguson Inside Job is nice illustration of behavior of those predators in academic clothing
  • In a narrow sense Harvard mafia is the team of (mainly) neoclassical economists and "experts" who disastrously advised the Russian government on conversion of centrally managed "command economy" to more Western model in the 1990s. While Harvard mafia is probably the most notorious in its like to the economic rape of Russia, Chicago University economic school probably played a similar role for the USA. In this sense we can speak about Chicago economists mafia as well (what a surprise ;-)
Under pretext of showing the Russians how to convert command type economy to more market oriented one and how to controls corruption the gang-style rape of the country was inflicted on its unsuspecting citizens with poverty raising from 2% to 40% of the population. World have witnessed Russia losing half of its total output, plunging it into a depression deeper than the U.S. Great Depression. Please read Anne Williamson's testimony. Here is one quote:
From the perspective of the many millions of her children, Mother Russia in late 1991 was like an old woman, skirts yanked above her waist, who had been abandoned flat on her back at a muddy crossroads, the object of others' scorn, greed and unseemly curiosity. It is the Russian people who kept their wits about them, helped her to her feet, dusted her off, straightened her clothing, righted her head scarf and it is they who can restore her dignity not Boris Yeltsin, not Anatole Chubais, not Boris Berezovsky nor any of the other aspirants to power. And it is the Russian people their abilities, efforts and dreams which comprise the Russian economy, not those of Vladimir Potanin or Viktor Chernomyrdin or Mikhail Khodorkovsky or Vladimir Gusinsky. And that is where we should have placed our bet on the Russian people and our stake should have been the decency, the common sense and abilities of our own citizens realized not through multilateral lending but through the use of tax credits for direct investment in the Russian economy and the training of Russian workers on 6-month to one year stints at the U.S. offices of American firms in conjunction with the elimination of U.S. tariffs on Russian goods.
The collapse of the USSR was by-and-large caused by internal problems (although role of financed by West wave of nationalism and West imposed technological isolation should not be underestimated). BTW this myth that Reagan administration won the Cold War is still current.
After the dissolution of the USA, there was a vacuum of ideology in Russia and it was filled with Harvard promoted neoliberalism and associated neo-classical economics. The USA essentially forced Russians into so called shock therapy using Harvard academic mafia (plan was authored by Jeffrey Sachs who was lecturer at Harvard and implemented by Larry Summers protégé, Russian émigré Shleifer and several other Harvard academic brats with a couple of British poodles to make the gang international) and internal compradors in Yelstin government as fifth column. As a result poverty level jumped from 2% to 40%. Everything that can be stolen was stolen by implementation of rapid privatization policy. During the heydays of corrupt Yeltsin regime implementation of shock therapy GDP dropped 50%. Suicide rate doubled, life expectancy for males dropped below 60 years (12,8% death rate increase), etc.
Jeffrey Sachs was a prominent neoliberal who contributed to immense sufferings in Bolivia, Chili, Poland and, especially, Russia with his "shock therapy" criminal scheme. Now he repainted himself from a sharky macroeconomist into the Director of The Earth Institute, Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University. Here is an apr comment about this member of Harvard mafia ( NYT, 2009)
Arsen Azizyan
I grew up cold and hungry in the former Soviet republic of Armenia during the shock therapy years of the 90′s; my grandfather was one of the 3 million who died prematurely during those days (incorrect medication and power outages did him in). I would very much like to tie Mr. Jeffrey Sachs to a chair and slowly force-feed him every worthless page of every idiotic policy paper he's ever written. I believe that would justly mirror the diet that I had to subsist on for a number of years during my childhood and adolescence.
[FONT=Times New Roman]He still insists that Yeltsin, rather than his American advisors, was responsible for the fact that the privatization policy amounted in practice to the theft by a handful of favored apparatchiks of the industries previously ran in its own inimitably corrupt fashion by the state. As former World Bank economist David Ellerman noted it was the speed of the privatization which made such an outcome inevitable stating that [COLOR=#FF0000]"Only the mixture of American triumphalism and academic arrogance could have produced such a lethal dose of gall." Janine R. Wedel in
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
The Harvard Boys Do Russia

After seven years of economic "reform" financed by billions of dollars in U.S.

Janine R. Wedel
May 14, 1998 | This article appeared in the June 1, 1998 edition of The Nation.

After seven years of economic "reform" financed by billions of dollars in U.S. and other Western aid, subsidized loans and rescheduled debt, the majority of Russian people find themselves worse off economically. The privatization drive that was supposed to reap the fruits of the free market instead helped to create a system of tycoon capitalism run for the benefit of a corrupt political oligarchy that has appropriated hundreds of millions of dollars of Western aid and plundered Russia's wealth.
About the Author

Janine R. Wedel

Janine R. Wedel is an anthropologist and associate research professor and research fellow at the Institute for European...

The architect of privatization was former First Deputy Prime Minister Anatoly Chubais, a darling of the U.S. and Western financial establishments. Chubais's drastic and corrupt stewardship made him extremely unpopular. According toThe New York Times, he "may be the most despised man in Russia."
Essential to the implementation of Chubais's policies was the enthusiastic support of the Clinton Administration and its key representative for economic assistance in Moscow, the Harvard Institute for International Development. Using the prestige of Harvard's name and connections in the Administration, H.I.I.D. officials acquired virtual carte blanche over the U.S. economic aid program to Russia, with minimal oversight by the government agencies involved. With this access and their close alliance with Chubais and his circle, they allegedly profited on the side. Yet few Americans are aware of H.I.I.D.'s role in Russian privatization, and its suspected misuse of taxpayers' funds.
At the recent U.S.-Russian Investment Symposium at Harvard's John F. Kennedy School of Government, Yuri Luzhkov, the Mayor of Moscow, made what might have seemed to many an impolite reference to his hosts. After castigating Chubais and his monetarist policies, Luzhkov, according to a report of the event, "singled out Harvard for the harm inflicted on the Russian economy by its advisers, who encouraged Chubais's misguided approach to privatization and monetarism." Luzhkov was referring to H.I.I.D. Chubais, who was delegated vast powers over the economy by Boris Yeltsin, was ousted in Yeltsin's March purge, but in May he was given an immensely lucrative post as head of Unified Energy System, the country's electricity monopoly. Some of the main actors with Harvard's Russia project have yet to face a reckoning, but this may change if a current investigation by the U.S. government results in prosecutions.
The activities of H.I.I.D. in Russia provide some cautionary lessons on abuse of trust by supposedly disinterested foreign advisers, on U.S. arrogance and on the entire policy of support for a single Russian group of so-called reformers. The H.I.I.D. story is a familiar one in the ongoing saga of U.S. foreign policy disasters created by those said to be our "best and brightest."
Through the late summer and fall of 1991, as the Soviet state fell apart, Harvard Professor Jeffrey Sachs and other Western economists participated in meetings at a dacha outside Moscow where young, pro-Yeltsin reformers planned Russia's economic and political future. Sachs teamed up with Yegor Gaidar, Yeltsin's first architect of economic reform, to promote a plan of "shock therapy" to swiftly eliminate most of the price controls and subsidies that had underpinned life for Soviet citizens for decades. Shock therapy produced more shock--not least, hyperinflation that hit 2,500 percent--than therapy. One result was the evaporation of much potential investment capital: the substantial savings of Russians. By November 1992, Gaidar was under attack for his failed policies and was soon pushed aside. When Gaidar came under seige, Sachs wrote a memo to one of Gaidar's principal opponents, Ruslan Khasbulatov, Speaker of the Supreme Soviet, then the Russian parliament, offering advice and to help arrange Western aid and contacts in the U.S. Congress.
Enter Anatoly Chubais, a smooth, 42-year-old English-speaking would-be capitalist who became Yeltsin's economic czar. Chubais, committed to "radical reform," vowed to construct a market economy and sweep away the vestiges of Communism. The U.S. Agency for International Development (U.S.A.I.D.), without experience in the former Soviet Union, was readily persuaded to hand over the responsibility for reshaping the Russian economy to H.I.I.D., which was founded in 1974 to assist countries with social and economic reform.

H.I.I.D. had supporters high in the Administration. One was Lawrence Summers, himself a former Harvard economics professor, whom Clinton named Under Secretary of the Treasury for International Affairs in 1993. Summers, now Deputy Treasury Secretary, had longstanding ties to the principals of Harvard's project in Russia and its later project in Ukraine.

Summers hired a Harvard Ph.D., David Lipton (who had been vice president of Jeffrey D. Sachs and Associates, a consulting firm), to be Deputy Assistant Treasury Secretary for Eastern Europe and the Former Soviet Union. After Summers was promoted to Deputy Secretary, Lipton moved into Summers's old job, assuming "broad responsibility" for all aspects of international economic policy development. Lipton co-wrote numerous papers with Sachs and served with him on consulting missions in Poland and Russia. "Jeff and David always came [to Russia] together," said a Russian representative at the International Monetary Fund. "They were like an inseparable couple." Sachs, who was named director of H.I.I.D. in 1995, lobbied for and received U.S.A.I.D. grants for the institute to work in Ukraine in 1996 and 1997.
Andrei Shleifer, a Russian-born émigré and already a tenured professor of economics at Harvard in his early 30s, became director of H.I.I.D.'s Russia project. Shleifer was also a protégé of Summers, with whom he received at least one foundation grant. Summers wrote a promotional blurb for Privatizing Russia (a 1995 book co-written by Shleifer and subsidized by H.I.I.D.) declaring that "the authors did remarkable things in Russia, and now they have written a remarkable book."
Another Harvard player was a former World Bank consultant named Jonathan Hay, a Rhodes scholar who had attended Moscow's Pushkin Institute for Russian Language. In 1991, while still at Harvard Law School, he had become a senior legal adviser to the G.K.I., the Russian state's new privatization committee; the following year he was made H.I.I.D.'s general director in Moscow. The youthful Hay assumed vast powers over contractors, policies and program specifics; he not only controlled access to the Chubais circle but served as its mouthpiece.
H.I.I.D.'s first awards from U.S.A.I.D. for work in Russia came in 1992, during the Bush Administration. Over the next four years, with the endorsement of the Clinton Administration, the institute would be awarded $57.7 million--all but $17.4 million without competitive bidding. For example, in June 1994 Administration officials signed a waiver that enabled H.I.I.D. to receive $20 million for its Russian legal reform program. Approving such a large sum as a noncompetitive "amendment" to a much smaller award (the institute's original 1992 award was $2.1 million) was highly unusual, as was the citation of "foreign policy" considerations as the reason for the waiver. Nonetheless, the waiver was endorsed by five U.S. government agencies, including the Treasury Department and the National Security Council, two of the leading agencies formulating U.S. aid policy toward Russia. In addition to the millions it received directly, H.I.I.D. helped steer and coordinate some $300 million in U.S.A.I.D. grants to other contractors, such as the Big Six accounting firms and the giant Burson-Marsteller P.R. firm.
A s Yeltsin's Russian government took over Soviet assets in late 1991 and early 1992, several privatization schemes were floated. The one the Supreme Soviet passed in 1992 was structured to prevent corruption, but the program Chubais eventually carried out instead encouraged the accumulation of property in a few hands and opened the door to widespread corruption. It was so controversial that Chubais ultimately had to rely largely on Yeltsin's presidential decrees, not parliamentary approval, for implementation. Many U.S. officials embraced this dictatorial modus operandi, and Jonathan Hay and his associates drafted many of the decrees. As U.S.A.I.D.'s Walter Coles, an early supporter of Chubais's privatization program, put it, "If we needed a decree, Chubais didn't have to go through the bureaucracy."
With help from his H.I.I.D. advisers and other Westerners, Chubais and his cronies set up a network of aid-funded "private" organizations that enabled them to bypass legitimate government agencies and circumvent the new parliament of the Russian Federation, the Duma. Through this network, two of Chubais's associates, Maxim Boycko (who co-wrote Privatizing Russia with Shleifer) and Dmitry Vasiliev, oversaw almost a third of a billion dollars in aid money and millions more in loans from international financial institutions.
Much of this largesse flowed through the Moscow-based Russian Privatization Center (R.P.C.). Founded in 1992 under the direction of Chubais, who was chairman of its board even while head of the G.K.I., and Boycko, who was C.E.O. for most of its existence, the R.P.C. was legally a private, nonprofit, nongovernmental organization. In fact, it was established by another Yeltsin decree and helped carry out government policy on inflation and other macroeconomic issues and also negotiated loans with international financial institutions. H.I.I.D. was a founder of the R.P.C., and Andrei Shleifer served on the board of directors. Its other members were recruited by Chubais, according to Ira Lieberman, a senior manager in the private-sector development department of the World Bank who helped design the R.P.C. With H.I.I.D.'s help, the R.P.C. received some $45 million from U.S.A.I.D. and millions from the European Union, individual European governments, Japan and other countries, as well as loans from the World Bank ($59 million) and the European Bank for Reconstruction and Development ($43 million), which must be repaid by the Russian people. One result of this funding was the enrichment, political and financial, of Chubais and his allies.
H.I.I.D. helped create several more aid-funded institutions. One was the Federal Commission on Securities, a rough equivalent of the U.S. Securities and Exchange Commission (S.E.C.). It too was established by presidential decree, and it was run by Chubais protégé Dmitry Vasiliev. The commission had very limited enforcement powers and funding, but U.S.A.I.D. supplied the cash through two Harvard-created institutions run by Hay, Vasiliev and other members of the Harvard-Chubais coterie.

The device of setting up private organizations backed by the power of the Yeltsin government and maintaining close ties to H.I.I.D. was a way of insuring deniability. Shleifer, Hay and other Harvard principals, all U.S. citizens, were "Russian" when convenient. Hay, for example, served alternately and sometimes simultaneously as aid contractor, manager of other contractors and representative of the Russian government. If Western donors were attacked for funding controversial privatization practices of the state, the donors could claim they were funding "private" organizations, even if these organizations were controlled or strongly influenced by key state officials. If the Chubais circle came under fire for misuse of funds, they could claim that Americans made the decisions. Foreign donors could insist that the Russians acted on their own.One of these was the Institute for Law-Based Economy, funded by both the World Bank and U.S.A.I.D. This institute, set up to help develop a legal and regulatory framework for markets, evolved to encompass drafting decrees for the Russian government; it got nearly $20 million from U.S.A.I.D. Last August, the Russian directors of I.L.B.E. were caught removing $500,000 worth of U.S. office equipment from the organization's Moscow office; the equipment was returned only after weeks of U.S. pressure. When auditors from U.S.A.I.D.'s inspector general's office sought records and documents regarding I.L.B.E. operations, the organization refused to turn them over.

Against the backdrop of Russia's Klondike capitalism, which they were helping create and Chubais and his team were supposedly regulating, the H.I.I.D. advisers exploited their intimate ties with Chubais and the government and were allegedly able to conduct business activities for their own enrichment. According to sources close to the U.S. government's investigation, Hay used his influence, as well as U.S.A.I.D.-financed resources, to help his girlfriend, Elizabeth Hebert, set up a mutual fund, Pallada Asset Management, in Russia. Pallada became the first mutual fund to be licensed by Vasiliev's Federal Commission on Securities. Vasiliev approved Pallada ahead of Credit Suisse First Boston and Pioneer First Voucher, much larger and more established financial institutions.
After Pallada was set up, Hebert, Hay, Shleifer and Vasiliev looked for ways to continue their activities as aid funds dwindled. Using I.L.B.E. resources and funding, they established a private consulting firm with taxpayer money. One of the firm's first clients was Shleifer's wife, Nancy Zimmerman, who operated a Boston-based hedge fund that traded heavily in Russian bonds. According to Russian registration documents, Zimmerman's company set up a Russian firm with Sergei Shishkin, the I.L.B.E. chief, as general director. Corporate documents on file in Moscow showed that the address and phone number of the company and the I.L.B.E. were the same.
Then there is the First Russian Specialized Depository, which holds the records and assets of mutual fund investors. This institution, funded by a World Bank loan, also worked to the benefit of Hay, Vasiliev, Hebert and another associate, Julia Zagachin. According to sources close to the U.S. government's investigation, Zagachin, an American married to a Russian, was selected to run the depository even though she lacked the required capital. Ostensibly, there was to be total separation between the depository and any mutual fund using its services. But the selection of Zagachin defied this tenet of open markets: Pallada and the depository were run by people with ties to each other through H.I.I.D. Thus the very people who were supposed to be the trustees of the system not only undercut the aid program's stated goal of building independent institutions but replicated the Soviet practice of skimming assets to benefit the nomenklatura.
Anne Williamson, a journalist who specializes in Soviet and Russian affairs, details these and other conflicts of interest between H.I.I.D.'s advisers and their supposed clients--the Russian people--in her forthcoming book, How America Built the New Russian Oligarchy. For example, in 1995, in Chubais-organized insider auctions of prime national properties, known as loans-for-shares, the Harvard Management Company (H.M.C.), which invests the university's endowment, and billionaire speculator George Soros were the only foreign entities allowed to participate. H.M.C. and Soros became significant shareholders in Novolipetsk, Russia's second-largest steel mill, and Sidanko Oil, whose reserves exceed those of Mobil. H.M.C. and Soros also invested in Russia's high-yielding, I.M.F.-subsidized domestic bond market.
Even more dubious, according to Williamson, was Soros's July 1997 purchase of 24 percent of Sviazinvest, the telecommunications giant, in partnership with Uneximbank's Vladimir Potanin. It was later learned that shortly before this purchase Soros had tided over Yeltsin's government with a backdoor loan of hundreds of millions of dollars while the government was awaiting proceeds of a Eurobond issue; the loan now appears to have been used by Uneximbank to purchase Norilsk Nickel in August 1997. According to Williamson, the U.S. assistance program in Russia was rife with such conflicts of interest involving H.I.I.D. advisers and their U.S.A.I.D.-funded Chubais allies, H.M.C. managers, favored Russian bankers, Soros and insider expatriates working in Russia's nascent markets.

Despite exposure of this corruption in the Russian media (and, far more hesitantly, in the U.S. media), the H.I.I.D.-Chubais clique remained until recently the major instrument of U.S. economic aid policy to Russia. It even used the high-level Gore-Chernomyrdin Commission, which helped orchestrate the cooperation of U.S.-Russian oil deals and the Mir space station. The commission's now-defunct Capital Markets Forum was chaired on the Russian side by Chubais and Vasiliev, and on the U.S. side by S.E.C. chairman Arthur Levitt Jr. and Treasury Secretary Robert Rubin. Andrei Shleifer was named special coordinator to all four of the Capital Markets Forum's working subgroups. Hebert, Hay's girlfriend, served on two of the subgroups, as did the C.E.O.s of Salomon Brothers, Merrill Lynch and other powerful Wall Street investment houses. When The Nation contacted the S.E.C. for information about Capital Markets, we were told to call Shleifer for comment. Shleifer, who is under investigation by U.S.A.I.D.'s inspector general for misuse of funds, declined to be interviewed for this article. A U.S. Treasury spokesman said Shleifer and Hebert were appointed to Capital Markets by the Chubais group--specifically, according to other sources, by Dmitry Vasiliev.

§ In February 1996, Chubais's Foundation for the Protection of Private Property received a five-year, $2.9 million unsecured interest-free loan. According to the pro-Yeltsin, pro-reform Izvestia, Stolichny Bank, an institution that enjoys lines of credit from the European Bank for Reconstruction and Development and the World Bank, made the loan in return for a small percentage of the Sibneft oil company when it was sold at auction, and for later control of one of the state's largest banks. Chubais defended himself by saying such practices were common in the West, but failed to provide any reasonable explanation for some $300,000 in 1996 income not accounted for by his government salary.In fact, H.I.I.D. projects were never adequately monitored by U.S.A.I.D. In 1996, a General Accounting Office report described U.S.A.I.D.'s management and oversight of H.I.I.D. as "lax." In early 1997, U.S.A.I.D.'s inspector general received incriminating documents about H.I.I.D.'s activities in Russia and began investigating. In May Shleifer and Hay lost their projects when the agency canceled most of the $14 million still earmarked for H.I.I.D., citing evidence that the two managers were engaged in activities for "private gain." The men had allegedly used their positions to profit from investments in the Russian securities markets and other private enterprises. According to sources close to the U.S. investigation, while advising the Russian government on capital markets, for example, Hay and his father allegedly used inside information to invest in Russian government bonds. Hay and Shleifer may ultimately face criminal and/or civil prosecution. Shleifer remains a tenured professor at Harvard, and Hay continues to work with members of the Chubais clique in Russia. Sachs, who has stated he never invests in countries where he advises and who is not implicated in the current U.S. government investigation, remains head of H.I.I.D. After Yeltsin's Cabinet shakeup in March, Chubais was moved to a new position of prominence. His role in Russia's political-economic affairs had been tarnished by reports of personal enrichment. Two examples:

§ During Yeltsin's 1996 presidential campaign, security officials apprehended two close associates of Chubais as they were walking out of a main government building with a box containing more than $500,000 in cash for Yeltsin's campaign. According to tapes of a later meeting recorded by a member of one of Russia's security services, Chubais and his cronies strategized about burying evidence of any illegal transaction, while publicly claiming that any allegations of chicanery were the work of political enemies. A protracted, lackadaisical investigation began but was eventually dropped--more evidence of Chubais's remarkable resilience. He remained valuable to Yeltsin largely because of his perceived ability to deal with the West, where many still regard him as a symbol of Russian reform.
During the five years that the Chubais clique presided over Western economic aid and policy in Russia, they did enormous harm. By unconditionally backing Chubais and his associates, the Harvard operatives, their U.S. government patrons and Western donors may have reinforced the new post-Soviet oligarchical system. Shleifer acknowledged as much in Privatizing Russia, the book he wrote with Chubais crony Maxim Boycko, who with his patron would later be caught in another financial indiscretion involving taking a "veiled bribe" in the form of advances on a book on the history of Russian privatization. "Aid can change the political equilibrium," they said, "by explicitly helping free-market reformers to defeat their opponents."
Richard Morningstar, U.S. aid coordinator for the former Soviet Union, stands by this approach: "If we hadn't been there to provide funding to Chubais, could we have won the battle to carry out privatization? Probably not. When you're talking about a few hundred million dollars, you're not going to change the country, but you can provide targeted assistance to help Chubais." In early 1996, after he was temporarily removed from high office by Yeltsin because he represented unpopular economic policies, H.I.I.D. came to his rescue by placing him on its U.S.A.I.D.-funded payroll, a show of loyalty that former U.S.A.I.D. assistant administrator Thomas Dine says he supported. Western policy-makers like Morningstar and Dine have depicted Chubais as a selfless visionary battling reactionary forces. In the spring of 1997, Summers called him and his associates a "dream team." With few exceptions, the U.S. mainstream media have promulgated this view.
United States policy toward Russia requires a full-scale Congressional investigation. The General Accounting Office did investigate H.I.I.D.'s Russian and Ukrainian projects in 1996, but the findings were largely suppressed by the agency's timid management. The audit team concluded, for example, that the U.S. government exercised "favoritism" toward Harvard, but this conclusion and the supporting documentation were removed from the final report. Last fall Congress asked the G.A.O. to look into Eastern European aid programs and Shleifer's role in the Gore-Chernomyrdin Commission. Such questions need to be answered, but any serious inquiry must go beyond individual corruption and examine how U.S. policy, using tens of millions in taxpayer dollars, helped deform democracy and economic reform in Russia and helped create a fat-cat oligarchy run amok.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
Tainted Transactions: Harvard, the Chubais Clan and Russia's Ruin
By Janine R. Wedel

Only a few years ago, American policymakers were confidently predicting
that a regimen of privatization and market reform would in due course
transform Russia into a stable and prosperous democracy. America would
smooth this transition and U.S. aidunselfish and urgentwould serve as a
"bridge", enabling representatives from both sides to implement their
respective agendas. Pictures of "Bill" and "Boris" embracing and beaming at
the camera symbolized the promise of a new era in U.S.-Russia relations,
one that bore little resemblance to the preceding decades of Cold War

Today all that has passed away. Far from fulfilling their promise of a
better life, the U.S.-sponsored "reforms" of the 1990s have left many, if
not most, Russians worse off.1 For this state of affairs many Russians
today blame precisely the Western aid and advice they have received.2 Some,
indeed, believe that the United States set out deliberately to destroy
their economy.

How did the United States, by far the dominant partner in the relationship,
allow one of the most promising rapprochements of the last century to
founder? Rather than proceeding on the basis of common sense and
well-established modes of representation between states, it acted upon an
ideology implemented through a most dubious mode of conducting relations
between nations. The ideologythat of radical privatization and
marketization, applied in this instance in a cold-turkey manner to a
society with no recent experience of eitheris well known. The way in which
advice and aid were given is much less familiar, but it is a vital part of
the story.

It is necessary to give this distinctive way of conducting business a name,
and, drawing on my experience as an anthropologist, I shall call it
"transactorship."3 By "transactors", then, I shall mean players in a small,
informal group who work together for mutual gain, while formally
representing different parties. Even though transactors may genuinely share
the stated goals of the parties they represent, they have additional goals
and ways of operating of their own. These may, advertently or
inadvertently, subvert or subordinate the aims of those for whom they
ostensibly act. The behavior of members of such groups is marked by extreme
flexibility and a readiness to exchange roles, even to the extent of
representing parties other than the ones to which they are formally attached.

In what follows, I shall show that during the 1990s the cozy manner in
which American advisers and Russian representativesthat is, the
transactorsinteracted and the outcomes of their activities ran directly
counter to the stated aims of the U.S. aid program in Russia. Specifically,
those goals were to foster economic development and democratization and to
nurture friendly bilateral relations. As a new decade begins, key
transactors in this program are under investigation for money laundering,
corruption and other criminal activitiesthe consequences of their
undeclared goals.

Transactorship, as it applies in the U.S.-Russia relationship over the last
decade, involves individuals, institutions and groups whose official status
is difficult to establish. Indeed, nearly everything about transactors is
ambiguous. Their sphere of activity is neither fixedly public nor private,
neither firmly political nor economic; their activities are neither fully
open nor completely hidden and conspiratorial; and the transactors are not
exclusively committed to one side or the other. This malleability affords
them enormous flexibility, which in turn enhances their influence on all
sides. Alas, it is also what has sabotaged the once high hopes for a new
era in U.S.-Russia relations.

The Emergence of Transactorship

How in the case of Russia and the United States did the transactors come
together to be designated as the bridge builders from their respective
sides? As the vast Soviet state was collapsing in late 1991, Harvard
professors Jeffrey Sachs, Andrei Shleifer and others participated in
meetings at a dacha outside Moscow. There, young would-be Russian
"reformers" were in the process of devising a blueprint for economic and
political change. The key Russians present at the dacha were the economists
Yegor Gaidar and Anatoly Chubais. These meetings occurred at the time when
Boris Yeltsin, then president of what was still Soviet Russia, was putting
together his team of economic advisers. Gaidar would become the first
"architect" of economic "reform" in post- communist Russia. A long-standing
group of associates from St. Petersburg, centered around Chubais, was to
figure prominently in Yeltsin's team. Indeed, Chubais would go on to
replace Gaidar, and to become an indispensable aide to Yeltsin.

While at the dacha, Sachs, his associate Anders Ã…slund and several other
Westerners offered their services to the Russians, including that of
facilitating access to Western moneyan offer the Russians accepted. In the
ensuing months and years the members of the Harvard and Chubais teams saw
to it that they became the designated representatives for their respective
sidesand transactors in the sense I have described. On the American side,
representatives from the Harvard Institute for International Development
(HIID) would provide the theory and advice to reinvent the Russian economy.

Maintaining that Russian economic reform was so important, and the "window
of opportunity" to effect change so narrow, U.S. policymakers granted the
Harvard Institute special treatment. Between 1992 and 1997, the Institute
received $40.4 million from the U.S. Agency for International Development
(USAID) in non-competitive grants, anduntil USAID suspended its funding in
May 1997had been slated to receive another $17.4 million.
Harvard-connected officials in the Clinton administration, citing "foreign
policy" considerations, largely bypassed the normal public bidding process
required for foreign aid contracts. The waivers to competition were backed
by friends of the Harvard Institute group, especially in the U.S.
Treasury.4 Approving such a large sum of money mostly as non-competitive
amendments to a much smaller award (the Harvard Institute's original award
was $2.1 million) was highly unusual, according to U.S. government
procurement officers and U.S. General Accounting Office (GAO) officials,
including Louis H. Zanardi, who later spearheaded GAO's investigation of
HIID activities in Russia and Ukraine. Indeed, the U.S. government
delegated virtually its entire Russian economic aid portfoliomore than
$350 millionfor management by the Harvard Institute. The Institute was
also provided the legal authority to manage other contractors (some of whom
were its competitors), leaving it in the unique position of recommending
U.S. aid policies while being itself a chief recipient of that aid. In 1996
the GAO found that the Harvard Institute had "substantial control of the
U.S. assistance program."5 According to U.S. government procurement
officers and GAO officials, delegating so much aid to a private entity was

In Russia, the Harvard representatives worked exclusively with Anatoly
Chubais and the circle around him, which came to be known as the Chubais
Clan.6 The interests of the Harvard Institute group and those of the
Chubais Clan soon became one and the same. Their members became known for
their loyalty to each other and for the unified front they projected to the
outside world.7 By mid-1993, the Harvard-Chubais players had formed an
informal and extremely influential transactor group that was shaping the
direction and consequences of U.S. economic aid and much Western economic
policy toward Russia.

Providing pivotal support to the Harvard-Chubais transactors was Lawrence
Summers, earlier a member of the Harvard faculty and at this time chief
economist at the World Bank. Summers had strong ties to the Harvard team,
including Shleifer, the economist who served as project director of the
Harvard Institute's program in Russia.8 Soon, Summers would play a
principal role in designing U.S. and international economic policies at the
U.S. Treasury, where he would occupy the posts of undersecretary, then
deputy secretary and, finally, secretary.

The Chubais transactors advertised themselves, and were advertised by their
promoters, as the "Young Reformers." The Western media promoted their
mystique and overlooked other reform-minded groups in Russia.9 Western
donors tended to identify Russians as reformers not on the basis of their
commitment to the free market but because they possessed personal
attributes to which the Westerners responded favorably: proficiency in the
English language; a Western look; an ability to parrot the slogans of
"markets", "reform" and "democracy"; and name recognition by
well-credentialed fellow Westerners. Members of the Chubais team possessed
all of these qualities. By their sponsors in the West, they were depicted
as enlightened and uniquely qualified to represent Russia and usher it down
the road to capitalism and prosperity. Summers dubbed them a "dream
team",10 which, given his position and status, was a particularly valuable

In Russia, however, the Chubais transactors' primary source of clout was
neither ideology nor even reform strategy, but precisely their standing
with and their ability to get resources from the West. As the Russian
sociologist Olga Kryshtanovskaya explained it, "Chubais has what no other
elite group has, which is the support of the top political quarters in the
West, above all the USA, the World Bank and the IMF, and consequently,
control over the money flow from the West to Russia. In this way, a small
group of young educated reformers led by Anatoly Chubais transformed itself
into the most powerful elite clan of Russia in the past five years."11

U.S. support proved decisive in this transformation. The administration's
"dream team" seal of approval bolstered the Clan's standing as Russia's
chief brokers with the West and the international financial institutions,
and as the legitimate representative of Russia. It also enabled the
Harvard-Chubais transactors to exact hundreds of millions of dollars in
Western loans and American aid.

The Modus Operandi

It is time now to look in greater detail at the way in which this
extraordinarily effective operation workedeffective, that is, in acquiring
standing and funds. There were five basic operating principles.

· Democracy by Decree

The transactors' preferred way of proceeding in the Russian context was by
means of top-down presidential decree. U.S. officials explicitly encouraged
this practice as an efficient means of achieving market reform. As USAID's
Walter Coles, a key American official in the privatization aid program, put
it, "If we needed a decree, Chubais didn't have to go through the
bureaucracy."12 Rule by decree also allowed the transactors to bypass the
democratically elected Supreme Soviet and the Duma. The Harvard Institute's
Russia director, Jonathan Hay, and his associates went so far as to draft
some of the Kremlin decrees themselves. Needless to say, this did nothing
to advance Russia's evolution toward a democratic system, nor was it
consistent with the declared American aim of encouraging that evolution.

· Flex Organizations

A similar anti-democratic ethos pervaded the network of Harvard-Chubais
transactor-run organizations. The transactors established and oversaw a
network of aid- funded, aid-created "private" organizations whose
ostensible purpose was to conduct economic reform, but which were often
used to promote the transactors' parochial agendas. These organizations
supplanted or circumvented state institutions. They routinely performed
functions that, in modern states, are typically the province of
governmental bureaucracies. They served to allow the bypassing of the Duma
and other relevant actors, whose input was in the long term crucial to the
successful implementation of economic reforms in Russia. Further, the
aid-created organizations served as a critical resource for the
transactors, a vehicle by which to exploit financial and political
opportunities for their own ends. I call these bodies "flex organizations"
in recognition of their impressively adaptable, chameleon-like,
multipurpose character.

The donors' flagship organization was the Russian Privatization Center,
which had close ties to Harvard University. Its founding documents state
that Harvard University is both a "founder" and "Full Member of the
[Russian Privatization] Center."13 The center received funds from all major
and some minor Western donors and lenders: the United States, the IMF, the
World Bank, the European Bank for Reconstruction and Development, the
European Union, Germany and Japan.14 The center's chief executive officer,
a Russian from the Chubais Clan, has written that while head of the center
he managed some $4 billion in Western funds.15 The Chamber of Accounts,
Russia's rough equivalent of the U.S. General Accounting Office,
investigated how that money was spent. An auditor from the Chamber
concluded that the "money was not spent as designated. Donors paid . . .
for something you can't determine."16 When I interviewed aid-paid
consultants working at the center, I was told that the funds were routinely
used for political purposes.

The center was an archetypal flex organization, one that switched its
identity and status situationally. Formally and legally, it was nonprofit
and non-governmental. But it was established by Russian presidential decree
and received aid because it was run by the Chubais transactors, who also
played key roles in the Russian government. In practice, the center played
the role of government agency. It negotiated with and received loans from
international financial institutionswhich typically lend to governments,
not private entitiesand did so on behalf of the Russian state.

According to documents from Russia's Chamber of Accounts, the center
wielded more control over certain privatization documents and directives
than did the Russian government agency formally responsible for
privatization.17 Two center officials, its CEO from the Chubais Clan and
Harvard's Moscow representative, Hay, were in fact authorized to sign
privatization decisions on Russia's behalf. Thus did a Russian and an
American, both of them affiliated with a private entity, end up acting as
representatives of the Russian Federation.

· "Transidentity"

It was not only organizations that could change guises. The flex
organization had its individual equivalent in the phenomenon of
"transidentity", which refers to the ability of a transactor to change his
identity at will, regardless of which side originally designated him as its
representative.18 Key Harvard-Chubais transactors were quintessential
chameleons. To suit the transactors' purposes, the same individual could
represent the United States in one meeting and Russia in the nextand
perhaps himself at a thirdregardless of national origin.

Jonathan Hay, who alternatively acted as an American and a Russian,
provides a telling example of this phenomenon. In addition to being
Harvard's chief representative in Russia, with formal management authority
over many other U.S. contractors, Hay was appointed by members of the
Chubais Clan to be a Russian. As such, he was empowered to approve or veto
high-level privatization decisions of the Russian government. According to
a U.S. official investigating Harvard's activities, Hay "played more
Russian than American." The financial arena yields many such examples of
transidentity, in which Chubais transactors appointed Americans to act as

It was (and is) difficult to glean exactly who prominent consultants on the
international circuit represented, for whom they actually worked, who paid
them, and where their loyalties and ambitions lay at any given time.
Harvard economist Jeffrey Sachs, who served as director of the Harvard
Institute from 1995 to 1999, provides a case in point.20 According to
journalist John Helmer, Sachs and his associates (including David Lipton,
vice president of Sachs' consulting firm who later went to Treasury to work
for Summers21) played both the Russian and the IMF sides of the street.
During negotiations in 1992 between the IMF and the Russian government, for
example, Sachs and his associates appeared as advisers to the Russian side.
But they were at the same time "writing secret memoranda advising the IMF
negotiators as well."22

Compounding this ambiguity is the question of whether Sachs was an official
adviser to the Russian government. Although he maintains that he was,23 key
Russian economists as well as international officials cast doubts on his
claim.24 Jean Foglizzio, the IMF's first Moscow resident representative,
was also taken aback by Sachs' practice of introducing himself as an
adviser to the Russian government. As Foglizzio put it, "[When] the prime
minister [Viktor Chernomyrdin], who is the head of government, says 'I
never requested Mr. Sachs to advise me'it triggers an unpleasant feeling,
meaning, who is he?"25

Sachs also offered his services as an intermediary. According to Andrei
Vernikov, a Russian representative to the IMF, and other sources, Sachs
presented himself to leading Russians as a powerbroker who could deliver
Western aid. In 1992, when Yegor Gaidar (with whom Sachs had been working)
was under attack and his future looked precarious, Sachs offered his
services to Gaidar's parliamentary opposition. In November 1992 Sachs wrote
a memorandum to the chairman of the Supreme Soviet, Ruslan Khasbulatov
(whose reputation in the West was that of a retrograde communist), offering
advice, Western aid and contacts with the U.S. Congress. Khasbulatov
declined Sachs' help after circulating the memo.26 Sachs also proved adept
at lobbying American policymakers.27

The most effective and influential transactors are extremely adept at
working their multiple roles and identities. One such ubiquitous transactor
was Anders Ã…slund, a former Swedish envoy to Russia who worked with Sachs
and Gaidar. Ã…slund seemed at once to represent and speak on behalf of
American, Russian and Swedish governments and authorities. Accordingly, he
was understood by some Russian officials in Washington to be Chubais'
personal envoy. Though a "private" citizen of Sweden who played a leading
role in Swedish policy and aid toward Russia,28 he nonetheless participated
in high-level meetings at the U.S. Treasury and State Departments about
U.S. and IMF policies.29 Ã…slund was also involved in business activities in
Russia30 and Ukraine.31 According to the Russian Interior Ministry's
Department of Organized Crime, he had "significant" investments in the
Russian Federation.32 In addition to his work for governments, the
Harvard-Chubais transactors and the private sector, Ã…slund was engaged in
public relations activities. His assignment in Ukraine, where he was funded
by George Soros, explicitly included public relations on behalf of that
country, according to other Soros-funded consultants who worked with Ã…slund
there.33 His effectiveness in this role was no doubt enhanced by his
affiliation with Washington think tanks, his frequent contributions to
publications such as the Washington Post and the London Financial Times,
and the fact that he always presented himself on these occasions as an
objective analyst, despite his many promotional roles.

· Interchangeability

The maneuverability for individuals afforded by transidentity was also
present at the group level. The Harvard Institute group, though formally
representing the United States, also represented the Chubais group.34 Thus,
some U.S. officials and investigators requesting meetings with Russians
were instead directed to Americans. In lobbying for aid contracts, the
Harvard Institute group continually cited its access to Russian "reformers"
as its primary advantage; this was in fact a key component of its public
relations effort. In turn, Harvard acted as the Chubais Clan's entrée to
the eyes and ears of U.S. policymakers and to American funds. In the United
States, the Harvard transactors touted Chubais as the voice of Russia, and
he became the quintessential enlightened Russian in the eyes of many U.S.
officials and commentators.

Not surprisingly, then, in times of crisis for the Harvard-Chubais
nexussuch as the ruble crisis of August 1998 and the Bank of New York
money laundering scandalsthe transactors and their associates have sought
to bolster their colleagues' continued clout and standing in both Russia
and the United States. Thus, Summers has frequently rushed to the defense
of Chubais and other key transactors. In testimony before the U.S. House of
Representatives' Committee on International Relations, for example, Summers
stoutly defended Chubais and asked that Chubais' prepared statement ("I
Didn't Lie") be placed in the congressional record.35 Similarly, Ã…slund
serves as a staunch defender of and advocate for Chubais. Of late, he also
has been arguing Vladimir Putin's cause.36

· Unaccountability and Self-perpetuation

Transactors are largely above formal accountability. The group places its
members in various positions to serve its agendas, which may or may not
conflict with those of the government or public interest they supposedly
serve. The result is a game of musical chairs. For example, a key agency in
Russian "reform", the State Property Committee, was headed by a succession
of Chubais transactors, among them Chubais himself, Maxim Boycko and Alfred
Kokh. Kokh was named chairman of the Committee after Boycko was fired by
Yeltsin for accepting a thinly veiled $90,000 bribe from a company that had
received preferential treatment in the privatization process. Kokh himself
was later removed for accepting a $100,000 payment from the same company.
Chubais, Boycko and Kokh also held a variety of key positions in the
Harvard-Chubais transactor-run, aid-funded Russian Privatization Center.

The Chubais transactors are unlikely to disappear in Vladimir Putin's
Russia. In fact, Putin has long been intertwined with them. An operative in
the KGB and briefly head of its successor agency, Putin, like most members
of the Chubais Clan, hails from St. Petersburg and was intimately involved
in the "reforms" there. After moving to Moscow to work with Chubais, Putin
helped to suppress criminal investigations that implicated Yeltsin and
members of his familyas well as Chubais himself.37 Chubais, in addition to
running the country's electricity conglomerate, is helping to run Putin's
presidential campaign.38

Consequences of Transactorship

What, it might be asked, is wrong with the transactorship mode of
organizing relations between the United States and Russia in such
circumstances? Many U.S. officials have argued that it is the most
effective method by which to implement market reformthrough a committed
group with intimate access to both sides (and to many activities in both
countries). In fact, there are several things that are seriously wrong with
this argument.

Transactorship has served to undermine democratic processes and the
development of transparent, accountable institutions.

Operating by decree is clearly anti-democratic and contrary to the aid
community's stated goal of building democracy in Russia. It has weakened
the message to the Russians that the United States stands for democracy.
Further, the aid-created flex organizations have supplanted the state and
often carried out functions that ought to have been the province of
governmental bureaucracies.

As well, the flex organizations have likely facilitated the development of
what I have called elsewhere the "clan-state", a state captured by
unauthorized groups and characterized by pervasive corruption.39 In such a
state, individual clans, each of which controls property and resources, are
so closely identified with particular ministries or institutional segments
of government that the respective agendas of the state and the clan become
indistinguishable. Thus, while the Chubais transactors were closely
identified with segments of government concerned with privatization and the
economy, competing clans had equivalent ties with other government
organizations, such as the ministries of defense and internal affairs and
the security services. Generally, where judicial processes are politically
motivated, a clan's influence can be checked or constrained only by a rival
clan. By systematically bypassing the democratically elected parliament,
U.S. aid flouted a crucial feature of democratic governance: namely,

Transactorship has frustrated true market reform.

Without public support or understanding, decrees constitute a weak
foundation on which to build a market economy. Some reforms, such as
lifting price controls, may be achieved by decree. But many others depend
on changes in law, public administration or mindsets, and require
cooperation among a full spectrum of legislative and market participants,
not just a clan.40

A case in point was USAID's efforts to reform Russia's tax system, and to
establish clearing and settlement organizations (CSOs)an essential
ingredient in a sophisticated financial system. The efforts failed largely
because they were placed solely in the hands of one group, which then
declined to work with other market participants. In Moscow, for example,
despite millions of USAID dollars, many Russian brokers were excluded from
the process and consequently declined to use the CSO. Since 1994, when
consultants working under USAID contracts totaling $13.9 million set out to
design and implement CSOs in five Russian cities, very little evidence of
progress has emerged. After an investigation into the Harvard Institute's
activities in Russia, the U.S. General Accounting Office issued a report
calling the CSO effort "disappointing."41 Yet, absent support from parties
to the reform process, reforms were almost certain to be ignored or even
subverted during implementation.

To repeat, transactors, although they may share the overall goals of the
sides they represent, may advertently or inadvertently subvert those goals
in pursuit of their own private agendas. The Chubais-Harvard transactors
were known to block reform efforts on occasion. In particular, they were
inclined to obstruct reform initiatives when they originated outside their
own group or were perceived to conflict with their own agendas.42 When a
USAID-funded organization run by the Chubais-Harvard transactors failed to
receive the additional USAID funds it had expected, its leaders promptly
obstructed legal reform activities in the areas of title registration and
mortgagesprograms that were launched by agencies of the Russian
government.43 In such instances, the transactors' interference put them at
cross purposes with their own purported aim of fostering markets.

Lack of transparency, too, became apparent in the manner in which the
transactors implemented economic reforms. Secrecy shrouded the
privatization process, with numerous, unfortunate consequences for the
Russian people. Privatization, which was largely shaped by the
Harvard-Chubais transactors and significant parts of which were funded by
USAID, was intended to spread the fruits of the free market. Instead, it
helped to create a system of "tycoon capitalism" acting in the service of a
half dozen corrupt oligarchs. The "reforms" were more about wealth
confiscation than wealth creation; and the incentive system encouraged
looting, asset stripping and capital flight.44

Transactorship has encouraged the maximization of opportunities for
personal gain.

The prestige and access of the Harvard-Chubais transactors facilitated
their involvement in other areas, including allegedly the Russian
securities market, both in Russia and internationally, and may have helped
them enrich themselves. In such ways, the private agendas of the
Harvard-Chubais transactors helped to subvert the goals of the sides they
were supposed to be serving.

Providing a small group of powerbrokers with a blank check inevitably
encouraged corruption, precisely at a time when the international community
should have been demanding safeguards in Russia such as the development of
a legal and regulatory framework, property rights and the sanctity of
contracts. Over the years many substantiated reports of the Chubais
transactors using public monies for personal enrichment have been
published.45 Today these same persons are among those under investigation
for alleged involvement in laundering billions of dollars through the Bank
of New York and other banks.46

The Harvard Institute has also had its difficulties. In 1996 the GAO found
that USAID's management over Harvard was "lax."47 In 1997 the government
cancelled most of the last $14 million earmarked for the Institute, citing
evidence that the project's two managersHay and Shleiferhad used their
positions and inside knowledge to profit from investments in the Russian
securities markets and other private enterprises.48 The two remain under
criminal and/or civil investigation by the U.S. Department of Justice.49 In
January 2000 a Harvard task force issued a report alluding to that
financial scandal. It recommended that the Harvard Institute for
International Development be closed and that selected programs be
integrated into other university programs. The Institute was closed shortly
thereafter. An inspired Harvard University spokesperson, Joe Wrinn, spun
the story thus: "It's a vote of confidence for the study of international
development and its permanent integration into Harvard University."50

Because the transactors' success is grounded in mutual loyalty and trust,
and because of their shared record of activities, some of which have left
them vulnerable to allegations of corruption, the transactors have ample
incentive to stick together. Any desertions must be well considered, as
they could have serious consequences for all involved.

Transactorship has encouraged not only corruption but also the ability to
deny it.

Transactorship affords maximum flexibility and influence to the
transactors, and minimal accountability to the sides the transactors
presumably represent. If the Harvard Institute's manager in Russia were
asked by U.S. authorities to account for privatization decisions and
monies, he could respond by claiming that he made those decisions as a
Russian, not as an American. If USAID came under fire for funding the
Russian state, it could claim that it was funding private organizations.

Now that the issue of "Russian" corruption has captured headlines, Treasury
Secretary Summers has lately been insisting that the Russian government
make amends. "This has been a U.S. demand for years", he claims, as if he
had not himself addressed letters to "Dear Anatoly"51 and met with Chubais
as recently as the summer of 1999. This only months after Chubais admitted
that he had "conned" from the IMF a $4.8 billion installment in July
1998,52 the details of that deal having been worked out in Summers' home
over brunchat a meeting that the New York Times deemed crucial to
obtaining release of the funds.53

Transactorship has proved particularly harmful in a setting in which
communism until recently prevailed.

The transactorship mode of organizing relations is reminiscent of precisely
those features of communism that the international community should be
concerned not to reinforce. The informal, but influential, parallel
executive established by the Harvard- Chubais transactors recalls the
powerful patronage networks that virtually ran the Soviet Union. Political
aid disguised as economic aid is only too familiar to Russians raised under
a system of political control over economic decisions. As Shleifer
acknowledged in a 1995 book funded by Harvard, "Aid helps reform not
because it directly helps the economyit is simply too small for thatbut
because it helps the reformers in their political battles."54

And yet U.S. officials have defended this approach. In a 1997 interview,
Ambassador Richard L. Morningstar, U.S. aid coordinator to the former
Soviet Union, said, "When you're talking about a few hundred million
dollars, you're not going to change the country, but you can provide
targeted assistance to help Chubais"55an admission of direct interference
in Russia's political life. U.S. assistance to Chubais continued even after
he was dismissed by Yeltsin as first deputy prime minister in January 1996:
he was placed on the Harvard payroll, a demonstration of solidarity for
which senior U.S. officials openly declared their support.

* * *

The U.S.-Russian experience of transactorship is interesting and disturbing
not only in its own right, but because this mode of operating may well
become more frequent as a way of conducting trans-national affairs in the
twenty-first century. With the ongoing process of globalization, the
nationality of actors is becoming increasingly irrelevant. Already global
elites, with ever closer connections to one another and fewer to the
nation- state, see themselves not so much as American, Brazilian or
Italian, but as members of an exclusive and highly mobile multinational
club, whose rules and regulations have yet to be written. In many respects,
members of what Peter Berger has identified as the overlapping "Davos" and
"Faculty Club" cultures have much more in common in terms of lifestyle and
taste with each other than they have with their fellow nationals. And as
Berger observes, "it may be that commonalties in taste make it easier to
find common ground politically"and, of course, economically.56

While all this is true, global elites will continue to operate in a world
organized into nation-states. In such a world, assumptions about
representation, grounded in national and international law, are based on
the idea that an individual can formally represent either one state or
another, but not both. The transactor mode of behavior may seem to offer a
means of having it both ways, of squaring the circle. But it also raises
crucial public policy questions. What are the implications of a state of
affairs in which the "choice" of who represents one side is shaped to a
significant degree by self-selected representatives of the other? What are
the consequences when the same player represents multiple sides? Wherein
lies the accountability to electorates and parliaments in a world of
growing coziness and joint decision-making among governing elites? Where,
if at all, do representation and democracy enter the picture? The
U.S.-Russian case in the last decade provides a cautionary lesson in all
these respects. But it has been a very expensive lesson.


1 The Russian "population has suffered increasing hardship" since the ruble
devaluation of August 1998. An estimated 38 percent was living in poverty
at the close of the first quarter of 1999, as compared with 28 percent one
year earlier. Real incomes in June 1999 were 77 percent of their June 1998
level. (OECD Economic Outlook, December 1999, p. 132.) Further, Russian
citizens became poorer in 1999, even though wage arrears and absolute
numbers below the poverty line trended down. "The average level of
Russians' real cash incomeincomes adjusted to account for
inflationdecreased 15 percent", according to the Russian Statistics
Agency. (Yevgenia Borisova, "Poverty Still Widespread Despite Modest
Growth", Moscow Times, January 13, 2000, also in Johnson's Russia List,
January 13, 2000.) An estimated 70 percent of Russians now live below or
just above the poverty line.
2 See United States Information Agency, "Is Economic Reform in Russia
Dead?", Opinion Analysis (USIA: Office of Research and Media Reaction,
March 15, 1999), pp. 3-4. The ratio of Russians who had favorable attitudes
toward U.S.-Russia rapprochement versus those who did not declined steeply
from 1994 to 1999. In 1994 the ratio was 2.47, as compared with 1.67 in
1999. See Boris Dubin, "Vremia i Lyudi: O Massovom Vospriiatii Social'nykh
Peremen", Russian Public Opinion Monitor (May-June 1999), pp. 22-3.
3 In coining this usage of "transactor", I purposefully draw on the
original meaning of the term: someone who carries through or does business.
4 For further detail, see my "Rigging the U.S.-Russian Relationship:
Harvard, Chubais, and the Transidentity Game", Demokratizatsiya: The
Journal of Post-Soviet Democratization (Fall 1999), pp. 478-9.
5 U.S. GAO, Foreign Assistance: Harvard Institute for International
Development's Work in Russia and Ukraine (Washington, dc: GAO, November
1996), p. 3.
6 A "clan", as Russians use the term, is an informal group whose members
promote their mutual political, financial and strategic interests. See Olga
Kryshtanovskaya, "The Real Masters of Russia", Argumenty i Fakty (May
1997), also in Johnson's Russia List.
7 Although individuals are often thought of as the primary unit to take
advantage of economic opportunities, this unit with respect to transactors
is often the transactor group. Individual transactors must take the
interests of their fellow transactors into account when making choices.
8 The two received at least one foundation grant together (vita of Andrei
Shleifer supplied by HIID).
9 For the definitive history of Russian reform efforts, see Lynn D. Nelson
and Irina Y. Kuzes, Property to the People: The Struggle for Radical
Economic Reform in Russia (Armonk, NY: M.E. Sharpe, 1994); and Nelson and
Kuzes, Radical Reform in Yeltsin's Russia: Political, Economic and Social
Dimensions (Armonk, NY: M.E. Sharpe, 1995).
10 Russia Business Watch (Spring 1997), p. 19.
11 Kryshtanovskaya, "The Real Masters of Russia."
12 Author's interview with Coles, June 6, 1996.
13 U.S. GAO, Foreign Assistance, p. 60.
14 Russian Privatization Center 1994 Annual Report, pp. 5, 24.
15 Author's interview with and documents provided by Veniamin Sokolov
(auditor at the Chamber of Accounts of the Russian Federation), May 31, 1998.
16 Ibid; Sokolov, talk at American University, June 2, 1998. In 1994 both
the Duma and the head of the Russian State Property Committee requested a
detailed accounting from the Russian Privatization Center. They got
nothing. (Sergei Zavorotnyi, "The Traces of 'Privatization' Go Overseas",
Komsomolskaya Pravda, April 8, 1997.)
17 Author's interview with and documents provided by Sokolov, May 31, 1998.
See State Property Committee order no. 188 (which gave Jonathan Hay veto
power over the Committee's projects), October 5, 1992.
18 The concept of "transidentities" draws on Fredrik Barth's work. See his
Ethnic Groups and Boundaries: The Social Organization of Culture Difference
(Boston, ma: Little, Brown & Co., 1969).
19 See my "Rigging the U.S.-Russian Relationship", p. 485; and Anne
Williamson, Contagion. The Betrayal of Liberty: Russia and the United
States in the 1990s (forthcoming), chap. 15.
20 In time, Sachs and Shleifer emerged as rivals and ran largely separate
operations in Moscow. Still, they shared the transactorship mode of
operating and many contacts in the Chubais Clan.
21 Lipton and Sachs served together on consulting missions in Poland and
Russia. "Jeff and David . . . were like an inseparable couple", remarked
Andrei Vernikov, a Russian representative at the IMF. (Author's interview
with Vernikov, November 22, 1997.) Lipton was named deputy assistant
secretary of the treasury for Eastern Europe and the former Soviet Union.
After Summers was promoted to deputy treasury secretary in 1995, Lipton
moved into Summers' old job and assumed "broad responsibility" for
international economic policy development.
22 It was unclear who paid for Sachs and his team. (Helmer, "Russia and the
IMF: Who Pays the Piper Calls the Tune", Johnson's Russia List, February
17, 1999.)
23 While providing no documentation for his role, Sachs writes, "I was an
official advisor of the Russian Government from December 1991 to January
1994. Together with Anders Ã…slund I directed the Macroeconomics and Finance
Unit (MFU) of the Russian Ministry of Finance, housed within Government
offices." Sachs further writes that his work in Russia with Ã…slund "was
supported mainly by the Ford Foundation and the Swedish Government. I was
not paid by the Russian Government." (Letter to author, March 12, 1998.)
24 Gaidar Institute head Aleksander Bevz told journalist Anne Williamson
that, "Sachs was never an official adviser to the government, that's his
own illusion." Gaidar, too, described Sachs and Ã…slund as "insignificant
figures." Williamson reports that, "Even Gaidar's archrival, [Grigory]
Yavlinsky, insisted, 'What we did was not based on even 10 percent of their
[Sachs' and Ã…slund's] advice. Gaidar was using those people as loudspeakers
for the West, but, in fact, Gaidar did as he wished.'" (Williamson,
Contagion, chap. 7.)
25 Williamson's interview with Foglizzio, February 1, 1994.
26 Memorandum from Sachs to Khasbulatov of November 19, 1992; author's
interviews with Stanford University economist Michael Bernstam, August 21,
1997 and October 17, 1997.
27 See, for example, an Action Memorandum of February 4, 1993 from a State
Department official to the secretary of state, in which Sachs requests an
appointment with the secretary. The memorandum notes that Sachs also had
sought appointments with National Security Adviser Anthony Lake, Treasury
undersecretary-designate Larry Summers, and ambassador-designate Strobe
28 Sources include Dan Josefsson, "The Art of Ruining a Country With Some
Professional Help from Sweden", etc English Edition 1 (1999).
29 Author's interviews with U.S. officials in the Departments of Treasury
and State.
30 For example, Ã…slund has long been linked to Brunswick, which began as a
Moscow- based brokerage firm and evolved into an investment bank, the
Brunswick Group. (See Williamson, Contagion, chap. 13.) Two of Ã…slund's
Swedish associates worked for Chubais at the State Property Committee,
where they helped to design and implement voucher privatization.
(Williamson's interview with Martin Andersson, February 1995.) Later, "with
still good relations to Chubais", they started Brunswick Brokerage to
participate in voucher privatization and to help sell these and other
assets to Western investors. (Sven-Ivan Sundqvist, "Svenska Rad Biter Pa
Ryssen: Svenska Finansman i Ledningen for Brunswick Group, Foretaget Som
Ska Hjalpa Ryska Staten Att Privatisera Industrin", Dagens Nyheter, June
15, 1997.)
31 Sources for Ã…slund's business activities in Russia and Ukraine include
those specified in the previous endnotes, as well as a number of additional
reports and sources in Russia, Ukraine, Sweden and Washington.
32 See Williamson, Contagion, chap. 13.
33 Sources include author's conversations with Marek Dabrowski, May 9, 1995
and November 27, 1997. For details of Ã…slund's Ukraine activities, see my
Collision and Collusion: The Strange Case of Western Aid to Eastern Europe
1989-1998 (New York: St. Martin's Press, 1998), pp. 158-61.
34 Harvard transactors Hay and Shleifer often spoke for key Chubais
transactors, notably Maxim Boycko, CEO of the Russian Privatization Center,
and Dmitry Vasiliev, head of the Federal Commission, the Russian version of
the U.S. Securities and Exchange Commission.
35 "The United States and Russia, Part II: Russia in Crisis", September 17,
1998, Hearing transcript, pp. 29-30.
36 See, for example, Barry Wood, "Russia's Economy", Voice of America,
January 3, 2000; also in Johnson's Russia List, January 4, 2000; and "The
State of the (Former Soviet) Union" (Washington, dc: Carnegie Endowment for
International Peace, January 6, 2000), also in Johnson's Russia List,
January 12, 2000.
37 Putin worked under Pavel Borodin, the Kremlin's property manager, who
has been linked to the Mabetex scandal. Swiss prosecutors have alleged that
Mabetex Project Engineering, a Kremlin contractor, paid tens of thousands
of dollars in credit card bills for members of the Yeltsin family. In one
of his first acts, Putin signed a decree protecting Yeltsin from future
prosecution and providing him 1with amenities such as a residence and a
pension. See Sharon LaFraniere, Washington Post, January 7, 2000; and Paul
J. Saunders, Washington Times, January 6, 2000.
38 See, for example, Paul Starobin, "The Brain Trust Polishing Putin's
Image", Business Week, January 31, 2000.
39 See my "Informal Relations and Institutional Change: How Eastern
European Cliques and States Mutually Respond", presented at the World Bank,
Social Development Group (Washington, dc, April 20, 1998).
40 See my Collision and Collusion, pp. 134-7, 145.
41 U.S. GAO, Foreign Assistance, p. 8.
42 U.S. GAO sources confirm this observation. (Author's conversations with
Zanardi, October 28, 1997 and April 23, 1998.)
43 Author's interviews with USAID-paid contractors and U.S. government
sources. A member of the GAO audit team confirms this observation.
(Author's conversations with Zanardi, October 28, 1997 and April 23, 1998.)
44 For details, see "Whither Reform" speech by World Bank chief economist
Joseph Stiglitz ( knowledge/chiefecon/); Jonas Bernstein,
"Loans for the Sharks", Moscow Times, December 19, 1995; and Fritz W.
Ermarth, "Seeing Russia Plain: The Russian Crisis and American
Intelligence", The National Interest (Spring 1999).
45 See accounts in Johnson's Russia List; my Collision and Collusion, pp.
151-5; and Williamson, Contagion, especially chaps. 13, 15.
46 In August and September 1999, newspapers reported that billions of
dollars had been laundered through the Bank of New York. (See Raymond
Bonner with Timothy L. O'Brien, New York Times, August 19, 1999.) Anatoly
Chubais and other members of Yeltsin's government are alleged to have been
involved in money laundering. (See Jack Kelly, USA Today, August 26, 1999.)
47 U.S. GAO, Foreign Assistance, p. 43.
48 Letter from USAID to HIID director Jeffrey Sachs, May 20, 1997. See also
"USAID Suspends Two Harvard Agreements in Russia" (Washington, dc: USAID
Press Office, May 20, 1997).
49 Hay has been named in other investigations as well. He, together with
Dart Management, Inc., is the subject of a civil action in the U.S.
District Court of New Jersey brought by Avisma Titano-Magnesium Kombinat
over an alleged fraud and money laundering scheme.
50 Beth McMurtrie, "Report Advises Harvard to Dismantle its Institute for
International Development", The Chronicle of Higher Education, January 12,
51 In a letter of April 1997 (obtained and published by Nezavisimaya
Gazeta), Summers instructed Chubais on the conduct of Russian foreign and
domestic economic policy.
52 Kommersant Daily, September 8, 1998; Los Angeles Times, September 9, 1998.
53 Michael R. Gordon and David E. Sanger, New York Times, July 17, 1998.
54 Maxim Boycko, Andrei Shleifer and Robert Vishny, Privatizing Russia
(Cambridge, ma: MIT Press, 1995), p. 142.
55 Author's interview with Morningstar, February 11, 1997.
56 Peter L. Berger, "Four Faces of Global Culture", The National Interest
(Fall 1997), pp. 24-5.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.

Tainted Transactions: An Exchange

July 25, 2000
By Michael

From The National Interest No. 60
A letter exchange in response to Janine Wedel's "Tainted Transactions: Harvard, Russia and the Chubais Clan" (Spring 2000). Participants: Jeffrey Sachs, Anders Aslund, Marek Dabrowski, Peter Reddaway, Igor Aristov, Wayne Merry, Michael Hudson, David Ellerman, Steven Rosefielde and Janine Wedel.
Jeffrey D. Sachs, director of the Center for International Development, Harvard University:
Janine Wedel, for the umpteenth time, repeats her phony diatribes against me ("Tainted Transactions: Harvard, the Chubais Clan and Russia's Ruin", Spring 2000). Please permit me to correct the record.
Despite Dr. Wedel's weird insinuations that I had no advisory role with the Russian government, I was an official adviser to that government, but only for two years and two months, from December 1991 to January 1994. I worked closely with Anders Ã…slund during this period. President Yeltsin officially designated us as advisers during a meeting with us on December 13, 1991, and we received offices in the Council of Ministers during 1992 and in the Ministry of Finance during 1993. During the period until the end of 1992, Ã…slund and I mainly advised acting Prime Minister Yegor Gaidar, and in 1993 we led a unit within the Russian Finance Ministry advising Deputy Prime Minister Boris Fedorov. (The most bizarre and entertaining fiction is Dr. Wedel's additional suggestion that I somehow secretly worked with the IMF during 1992.)
During this entire period, there were notoriously heated divisions within the Russian government, and between the Russian government on one side and the Duma and Central Bank on the other. The reformers, led by Gaidar and Fedorov, did what they could to pursue needed reforms, but very often they were blocked. Unlike my experience in many other countries, such as Poland, little of what I recommended was actually enacted. It wasn't pleasant being blamed for high inflation and other ills that resulted from the very opposite of the advice that Ã…slund and I were giving (such as when the Central Bank ran a disastrous hyperinflationary monetary policy in 1992 and 1993), but it was still worth the effort of supporting the brave reformers fighting an uphill battle. Ã…slund and I publicly resigned in January 1994, days after Gaidar and Fedorov left the government. We were concerned about the takeover of the government by the "industrial lobby", with a foreshadowing of the mega-corruption that was to follow, especially in the disgraceful state giveaways of the lucrative natural resource enterprises, mainly during 199496. I was also particularly distressed by the lack of appropriate Western advice and assistance, a point that I made repeatedly in writings and speeches at that time and afterward.
Somehow in this maelstrom some people came to assume (or at least claimed to assume) that whatever happened was what I had recommended, even though I was publicly and privately critical of the lawlessness and lack of reform progress. For a few people this has continued despite the fact that I have not advised the Russian government for six years or even been to Russia for five years. Wedel writes in just this nonsensical vein. For many years I have publicly and repeatedly denounced the scandals of privatization such as the "shares for loans" deals, and published articles and books describing and criticizing the lawlessness and corruption in Russia (including The Rule of Law and Economic Reform in Russia, 1997).
Dr. Wedel deliberately and systematically mixes personal references to me, the Harvard Institute for International Development (HIID) and other Western advisers, so that she can rope me into her phony conspiracy theories. The HIID projects she refers to were directed by Professor Andrei Shleifer at Harvard, and I had no role in those projects. She seemingly can't understand that I had a completely separate project, and that I resigned from advising the Russian government as of January 1994. One and one half years later, I became director of HIID in July 1995, and Professor Shleifer's project was one of sixty or so ongoing HIID projects around the world. During the period in which I directed HIID (199599), I stayed completely away from any personal involvement in any Russian advisory work, consistent with my public resignation in 1994. Moreover, when dubious practices in Professor Shleifer's project came to the attention of the U.S. Agency for International Development (USAID) and myself in the spring of 1997, USAID and I worked together to close the project immediately.
Dr. Wedel writes darkly that "it is unclear who paid Sachs and his team." As I have explained repeatedly to her, and to anyone else that had the slightest interest, I received my academic salary for my work in Russia, with my leave time from Harvard University covered mainly by the United Nations University in Helsinki in early 1992, and thereafter by the advisory project supported by the Ford Foundation and the Swedish government during 199293. USAID supported a small amount of my summer academic salary, probably a total of a month or two. Of course, I never invested a penny in Russia, or in any other country in which I have served as an economic adviser. Nor did I engage in any consulting services for private businesses or investors involved with the Russian economy.
Dr. Wedel also accuses me of somehow improperly promoting myself to the Russians as a person "facilitating access to Western money." As any mildly interested observer of the Russian reforms would know from my writings and speeches, I strongly believed and publicly argued in 1992 that the West should provide large-scale assistance to Russia to support the early days of market reforms and stabilization, something the West manifestly declined to do. There was nothing sinister, surreptitious or secretive about any of this: I simply believed (and continue to believe) that timely Western help in 1992 and 1993 could have played an important role in helping real reforms and democratization to take hold, but of course it did not come. The Russian reformers and I knew that the chances for the needed large-scale support were not high, but we felt the effort was worth making anyway.
Wedel's twisting of facts and outright misrepresentations go on and on. What I find hard to understand is how The National Interest could publish this nonsense without even doing an iota of fact-checking.
Anders Ã…slund, senior associate, the Carnegie Endowment for International Peace:
A decade after the collapse of the communist system, history has demonstrated that those post-communist countries that aggressively pursued market economic and democratic reforms are rapidly improving the lives of their citizens. In her article in The National Interest, Janine Wedel ignores this reality and seems more intent on denigrating those who have advocated and actively promoted such radical reform. She appears to lack an analytical framework, and her assertion of facts is inaccurate.
The stars among the post-communist countries are Poland and Estonia, which are generally acknowledged as the most radical market reformers. According to the European Bank for Reconstruction and Development, they also have the least corruption. Russia attempted a radical reform, but unfortunately it stumbled. Even so, Russian citizens are better off than Ukrainians, who saw a much later reform and less privatization, not to mention the poor Belarusians, who suffer under a frightful dictatorship in a Soviet theme park. Market reform and democracy go together in the post-communist world. Russia's problem is not too radical reform, but too little reform.
For the past decade, Janine Wedel has been going after leading advocates of radical market economic reform and privatization in former communist countries. Since the shortcomings of her gossip journalism are so obvious, nobody seems to have bothered to answer her as yet, but when a respectable magazine, such as The National Interest, publishes an article of hers, this mixture of lies, half-lies, sly allusions and sheer misunderstandings needs to be exposed.
In 1990 she started pursuing Jeffrey Sachs and David Lipton for having destroyed the Polish economy through their "ideology . . . of radical privatization and marketization", which soon turned Poland into a stunning success. Poland's President Alexander Kwasniewski recently bestowed a high Polish order on Sachs and on Lipton in gratitude for their services to Poland.
What is her alternative? In her book, Collision and Collusion: The Strange Case of Western Aid to Eastern Europe 19891998 (1998), she revealed her ideological preferences by repeatedly citing the old-style Soviet communist Leonid Abalkin with sympathy in his criticism of liberal reformers. She seems to advocate U.S. assistance to such communists: "In short, donors, by equating Western-oriented Russians with reform agendas and traditionalist or communist Russians with anti-reform agendas, created stereotypes."
Wedel is patently contradictory. She criticizes Western consultants for their "[l]ack of the understanding of the Russian cultural context", but the particular persons she assails know Russia well. She attacks the major Western economic advisers in Russia for being both ineffective and too influential. You cannot have it both ways.
Similarly, she regrets large amounts of aid to consultants, but she has focused on one institution, namely, the Harvard Institute for International Development, which received less than 1 percent of total USAID assistance to Russia. She ignores the many other general contractors for USAID that received much more money.
The major problem, however, is Wedel's inability to evaluate the accuracy of her sources. She mainly relies on interviews, going around talking to admittedly many people, but she only records vicious and tendentious allegations often made by single individuals. She makes no attempt to check their truthfulness, ulterior motives or even whether her interviewees can know what they say. The Soviet Union was an empire of lies, and systematic lying remains common. Wedel seems unaware of this, revealing her limited understanding of the Russian cultural context.
Sometimes, though, Wedel seems aware of her absence of evidence, but instead of retracting she adds, for instance, ". . . as well as a number of additional reports and sources in Russia, Ukraine, Sweden and Washington."
In a review of Collision and Collusion in Comparative Economic Studies, Jozef van Brabant, an economist who has persistently opposed radical market reform, concluded: "The book is marred by all too many other inaccuracies some of which are attributable to the author's ignorance."
From a personal perspective, I can say that Wedel's portrayal of my work is simply wrong. She alleges: "Ã…slund seemed at once to represent and speak on behalf of American, Russian and Swedish governments and authorities." This statement is absurd. I left the Swedish foreign service in 1989. I served as economic adviser to the Russian government from November 1991 until January 1994. I have never been employed by the U.S. government. Although my employments have varied over time, they have never involved conflicts of interest, and I have always made clear what I am doing.
Wedel also complains that "he always presented himself [in op-ed articles] as an objective analyst, despite his many promotional roles." When working with the Russian government and later the Ukrainian government, I always mentioned that. Some may disagree with me, but I have hardly ever been accused of being unclear about what I stand for.
Wedel claims: "Ã…slund was also involved in business activities in Russia and Ukraine", and in her Demokratizatsiya article: "He had significant' business investments in Russia." The truth is that while advising any government, I have never been involved in business activities or invested in that country, though I have given lectures and briefings on the state of their economies.
She complains that two of my associates, who worked for Chubais, set up an investment bank after having finished their work for Chubais. So what? High U.S. Treasury officials often come from and go to investment banks.
In her Demokratizatsiya article, Wedel claimed: "Ã…slund helped to deliver Swedish government monies to the [Russian Privatization Center]." I would have been happy to do so, but I did not. Wedel writes that I attended a dacha in Arkhangelskoe when the Gaidar team prepared its government program there, but I have never visited that dacha. Nor is it true that my assignment in Ukraine "explicitly included public relations on behalf of that country."
In public appearances, Wedel has asserted that I have made a huge amount of money on USAID, but USAID has never financed any advisory work of mine. Nor have I worked for HIID, which she also has alleged. My work in Russia was financed by the Swedish government and the Ford Foundation through the Stockholm Institute of East European Economics.
This is a long list of allegations that I know to be wrong because they involve me personally. There is no reason to believe that she is more truthful about anything else, as Wedel's text abounds with inaccuracies. Aleksander Bevz has never headed the Gaidar Institute. Maxim Boycko replaced Alfred Kokh as chairman of the State Property Committee, not the other way around, as Wedel reports. Jeffrey Sachs and David Lipton were rarely in Moscow together, and so on.
Many of these facts can be easily checked. Most of Wedel's claims have been made three or four times in almost identical wording, as she is in the habit of republishing the same article many times, so it is not a matter of typographical errors.
In short, Wedel's main shortcoming is that she lacks the faculty to distinguish truth.
Marek Dabrowski, former first deputy minister of finance of Poland, currently vice chairman of the Center for Social and Economic Research, Warsaw:
I found Janine Wedel's article deeply wrong in its description and interpretation of East European and Russian transition processes, and of the role of foreign aid to this region.
My impression is that the author intentionally and consciously manipulates facts and sources of information in order to support her conspiracy theory and address far-fetched and certainly unfair personal insinuations against key Russian reformers such as Yegor Gaidar and Anatoly Chubais, and leading Western experts trying to help Eastern Europe and Russia such as Jeffrey Sachs, David Lipton and Anders Ã…slund. Her style of writing and methods of work remind me of the worst instances of Communist Party propaganda, which I had occasion to experience not so long ago as an East European national.
The best example of such practices is footnote 33 of her article where she quotes me as the source of the opinion that ". . . Ã…slund was engaged in public relations activities. His assignment in Ukraine, where he was funded by George Soros, explicitly included public relations on behalf of that country, according to other Soros-funded consultants who worked with Ã…slund there."
It is true that I worked with Anders Ã…slund in Ukraine (and in Russia), but I did not formulate such an opinion, and, what is more important, I never gave Wedel permission to use any fragment of our two conversations as the source of quotation in her publications.
Wedel met me once in 1995 with the purported reason to ask me about a paper I had presented on foreign assistance to transition countries. It seemed a normal academic conversation. Then, she called me on the phone several months later. When she started to put her questions, I quickly realized that she was in the grip of some conspiracy theory, and she tried to provoke me to speak against Jeffrey Sachs and David Lipton. She was not ready to listen to my answers because she knew better what the "truth" was, and she wanted me only to confirm her crazy interpretation of events. At the beginning I tried to convince her that she was wrong, but when I realized that this was a hopeless task, I stopped the conversation. I asked her never to call me again, and not to use any part of our conversation in her work, a request she has not respected.
Peter Reddaway, professor of political science, George Washington University:
Janine Wedel's powerful article focuses mainly on the negative effects of "transactorship" on Russian-Western relations. These contributed to other problems that, taken together, mean that the West has helped to create in Russia a much bigger long-term problem for our foreign policy than most observers have yet grasped.
In my view, the attempted imposition of shock therapy (or "the Washington consensus") on Russia by Boris Yeltsin and the West has been a textbook example of doctrinaire social engineering. It has been based on a mixture of ignorance and arrogance. As I have argued since before the process began in 1991, such an approach was boundgiven the legacy of Russian and Soviet historyto be, at the least, premature and dangerous. Russia is not Poland or Estonia. No matter what tricks Yeltsin and his foreign backers used, it was politically impossible to fully apply shock therapy in the Russia of the early 1990s. Any government that might have tried to do so would have provoked chaos and fierce oppositionand been thrown out. Governments do not deliberately commit suicide. The repeated complaints of people like Jeffrey Sachs and Anders Ã…slund that Yeltsin and Yegor Gaidar "lacked the political will to go the whole way" demonstrate, at best, political naivety. At worst, the complaints look like an attempt to divert attention from the incompetence of the advice given by these individuals to the Kremlin, the IMF and Western governments.
The second part of the tragedy is that when, by 1994, it was crystal clear that the "reforms" were not working, the imf, the G-7, Sachs, Ã…slund and others continuedfor four more long yearsto pressure Yeltsin into largely futile efforts to push ahead with them. This compounded failure. For most Russians, such doctrinaire obstinacy put an end to the hopes of better living conditions that had been aroused by the fall of communism.
The pattern was this: the West kept offering loans in return for Kremlin promises to reduce inflation and the budget deficit, privatize industry, appoint Anatoly Chubais to run the economy, circumvent the parliament through presidential decrees, and so on. However, as Dmitri Glinski and I will show in our forthcoming book, The Tragedy of Russia's Reforms: Market Bolshevism Against Democracy (2000), not only did these Western recipes fail to stabilize the ruble, halt the steep plunge in investment, and get workers paid on time; they also created a humiliating dependency on the West's aid and foreign policy, promoted crony capitalism, fostered massive crime, corruption and capital flight, eroded state capacity all around, and destroyed what basis remained for achieving a modicum of social justice.
The devastating effect of all this in terms of values is that the majority of Russians, who a decade ago saw democracy and free markets as beacons of hope, now see before their eyes ugly perversions of these institutions, and wonder if they just won't work in Russia. Opinion polls repeatedly show profound doubt and even despair about Russia's future. They also show that anti-Americanism has permeated the whole society and is probably now deeper than at any time in Russia's history. A substantial majority believe that the United States and the West have weakened Russia deliberately, in order to exploit and humiliate it.
Encouragingly, a few of Dr. Wedel's "transactors"for example, Pyotr Aven, Konstantin Kagalovsky and David Liptonhave in varying degrees rethought and recanted the neo-Bolshevik social engineering that is the main cause of this tragic outcome. Othersnotably Sachs and Ã…slundhave not. Ã…slund, indeed, tries to publicly ridicule people like the former chief economist of the World Bank, Joseph Stiglitz, who dare to criticize either him or the now exploded "Washington consensus." Also silent as regards rethinking and self-criticism are the main architects and implementers of U.S. policy toward Russia: Strobe Talbott, Lawrence Summers and Al Gore. Their successors will, tragically, be left with a major, nuclear, long-term "Russia problem."
Igor Aristov, head of the Department for Competition Protection of the Financial Markets, Ministry for Antimonopoly Policy and Entrepreneurship Support, Russia:
It was very useful to learn the details about the Chubais Clan and its illicit activities from Janine Wedel's article.
It is not possible to overestimate the significance of such an article. For me personally this information is also very important because Russian tycoons have used illegal financial inflows for private purposes and against the national interest of Russia. To foresee their future intentions we need to understand the structure of their informal relations. Recent scandals have revealed the importance of monitoring closely their transactions, property, money and debts to international organizations. Thank you very much for the article.
Wayne Merry, director of the Program on European Societies in Transition, the Atlantic Council of the United States:
Janine Wedel makes a major contribution to the "Who lost Russia?" debate by pulling back some of the protective covering on how the U.S. government sought to impose its economic ideology on post-Soviet Russia. During my years in the political section of the U.S. embassy in Moscow (199194), I also saw close up the basic flaws of our Russia policy. First came ignorance, as purveyors of "the Washington consensus" unleashed their dogma on a country they did not understand and, worse, did not wish to understand. Then came arrogance on many levels: the belief that "the Washington consensus" embodied ultimate economic truth (its manifest failures notwithstanding); responding to any doubts about the dogma with accusations of heresy and disloyalty; the view of Russia as an economic wasteland (how it had managed to build all those missiles conveniently ignored) and as a laboratory to refine economic theory (heedless of the banners carried on the streets of Moscow by some of the laboratory animals demanding "No More Experiments").
Next came authoritarianism, as Washington encouraged a willing group of Russian "reformers" to implement our policies by presidential decree rather than face the compromises of the legislative process, and to create extra-constitutional and clandestine structures of administration to avoid parliamentary oversight or media exposure.
Lastly came hypocrisy, as Washington officials claimed to be "shocked, shocked" when the government-sanctioned corruption and theft of public property in Russia could no longer be hidden. They then piously demanded that Russian governance be all the things the Treasury and IMF had insured it would not be: honest, accountable, transparent, law-based, public-spirited.
Thanks are due to Dr. Wedel for her efforts to document this failed policy process but, sadly, she has so far seen only the tip of the icebergwhat remains "classified" is much worse.
Michael Hudson, president of the Institute for the Study of Long-term Economic Trends:
I would like to give a perspective on Dr. Wedel's theory of transactors as an economist who has worked most of my life for U.S. international banks and money managers, addressed the Duma on numerous occasions, and consulted for U.S. government agencies on U.S.-Russia relations.
I have observed transactorship, and the insider dealings it entails, first-hand. "Average" U.S. investors were not in a good position to profit from the corruption that underlay Russia's stock market boom. One of the leading fund managers (for whom I worked in 198990 to help organize the first global sovereign-debt fund) refrained from the outset from riding this roller coaster. The firm's managers didn't trust the visibly corrupt investment climate and, not being insiders, they saw that "arms-length" speculation probably would end in disaster.
Institutional investors from firms that did enter the market explained to me that the safest money to be made was by those who had inside contacts. Money managers who didn't want to invest directly in the risky Russian stock market consigned funds to companies such as Brunswick, which put on promotional shows around the country, in which Anders Ã…slund and others tried to convince institutional investors that they had an inside track. It was no secret that Russia's market had no legal overseer like our sec, but that was the very point of investing in Russia!
Based on discussions I had with U.S. global investors during the 1990s, I think I am in a good position to point out why many of them preferred to see major Russian companies pass into just a few corrupt hands. If a few Russian insiders could buy out Russian oil fields and other firms at only 1 or 2 cents on the dollar, they probably would be willing to sell their takings to U.S. and other international investors for 2 to 4 cents. This would enable them to double their money, while providing foreigners with what they wanted: inexpensive ownership of Russia's potentially lucrative mineral wealth and public utilities, as well as its real estate (or, more specifically, its land).
Thus, one reason the U.S. government welcomed the Chubais-HIID mode of "reform" was because of pressure from large investors. If Wall Street investment bankers wanted to take an investment position in Russia, they could do so most easilyand at a much lower priceif only a few "oligarchs" gained ownership of Russia's prize assets. However, if the Russian government or other parties retained control over these assets, they would not be sold as rapidly, and probably would be sold at a higher price.
And so a symbiosis developed between the largest U.S. investors and Russian oligarchs. The largest U.S. investors realized that the kleptocrats for their part wanted to transfer their fortunes abroad. This is what all thieves want to do, for a simple reason: if they keep their money at home, it can be seized by true market reformers. Hence, Russian appropriators sought to move their money to Cyprus, Switzerland and other offshore banking centers, topped by the United States.
To do this, they needed security from Western prosecution. The traditional way to achieve this is to go into partnership with well-placed Westerners. Partnership agreements accordingly were sealed by selling part of their stock ownership to Western investors. Such sales in fact were the only way in which the privatizers were able to realize financial value for their control, for there was no purchasing power within Russia itself to buy their shares. To raise money off the shares they had obtained, Russians needed to sell abroad.
This was well recognized by international investors. It explains why they turned a blind eye to the abuses by Chubais and other insiders, for they knew that they themselves would be the beneficiaries.
Was the subsequent economic devastation directly intended, as a means of "hurting Russia" and thereby disabling it from posing a future threat to the United States and other countries? I believe not. Rather, it was the consequence of the game plan by Western investors (mainly in the United States) to get rich quickly off Russia. The shrinkage of the Russian economy in consequence was a form of "collateral damage", not the intention of the programs themselves. It is the same sort of damage caused by IMF austerity programs imposed on hapless Third World debtors.
My conclusion is that the U.S. government is guilty of gross negligence as to the consequences of the reformers' privatization plans it backed. It didn't mean to kill Russia. It just wanted to take its money and property. Russia's economy got killed in the process. I suppose you might call this second or third-degree murder, not first-degree murder. But that is all that Wedel's article claimed, in my reading.
What is ironic is that the "free-market" strategy that has been followed excludes from the market precisely the arms-length investors that U.S. policy has claimed to attempt to attract as the mainspring in allocating Western capital funds.
David Ellerman, economic adviser to the chief economist, the World Bank:
. . . My only "problem" with Professor Wedel's article is that it attempts to tell the story in such detail that it will allow those who intellectually sponsored what is, in my personal opinion, one of the biggest debacles of the last half of the twentieth century to continue to avoid analyzing the forest by bickering over the details of the bark on the trees.
Steven Rosefielde, professor of economics, University of North Carolina, Chapel Hill:
Janine Wedel's "Tainted Transactions" makes an important contribution to the "Who lost Russia?" saga by investigating the nexus between "radical" economic transition theory and Western foreign assistance. . . . A few facts and comments might prove illuminating.
First and foremost, it needs to be stated bluntly that there is no scientific theory of how to transform a command economy efficiently into a well-functioning competitive market system. Theorists cannot even demonstrate the necessity of general equilibrium with a production sector under perfect competition, so there certainly isn't a shred of justification for suggesting that Yegor Gaidar's and Anatoly Chubais' radical reforms should have produced good results. The policies they adopted, often called "shock therapy", were analogous to removing the control rods from a nuclear reactor, and insisting that the ensuing chain reaction would create a better power system.
The Soviet/Russian basis for this strategy dates to the late eighties when Stanislav Shatalin, Gregory Yavlinsky and others developed their infamous 500 Days program, which promised perekhodtransition to competitive free enterprise by the end of 1993. They weren't sincere. Shatalin disclosed his real agenda at Duke University in 1991 when he declared that, "It didn't matter if the transition took 500 days, or 500 hundred years, as long as it destroyed Communism!" The debate between the "shockers" and the "gradualists" was never really about economic "optimality"; it was a rhetorical struggle between a generation of young Turks egged on by Gorbachev, who saw radicalism as a highway to political power, and the old reformist economic guard like academicians Oleg Bogomolov and Yuri Yaremenko, wholike Western Nobel laureates Kenneth Arrow, Paul Samuelson and James Buchananunderstood the necessity of building legal and market structures before leaping into the abyss. The failed putsch in August 1991, and Gorbachev's refusal to allow the military to arrest and execute Yeltsin later that fall when Russia, Belarus and Ukraine seceded from the Soviet Union, enabled the radicals to triumph, as their predecessors had during War Communism and the Stalin era. Their Luddite politics not only instantaneously brought about an economic implosion that has caused 5.4 million premature adult deaths through 1997, but opened the Pandora's box of vicious criminality, just as anyone conversant with the history of Gulag and Soviet mafias would have predicted.
The Western transactors Wedel discusses in her articlethe IMF, World Bank, U.S. Treasury, USAID, European Bank for Reconstruction and Development, OECD, EU and the Western private sectorcould not have prevented this debacle, even if they hadn't misbehaved in the ways Joseph Stiglitz describes in the April 17 & 24, 2000 issue of the New Republic. Only Chubais, Maxim Boycko and Alfred Kokhsuccessive chairmen of the Russian State Property Committee and members of the "transactors circle"could have mitigated the plunder and disorder, had they not been so thoroughly corrupt. From this perspective, it makes little difference whether some Western economic theories were partially or wholly congruent with those of Russia's homegrown radicals. Had Jeffrey Sachs, widely considered an arch advocate of "shock therapy", been a closet conservative, as Joseph Stiglitz now suggests, Yeltsin's vendetta against the Communist Party still would have driven him to recklessly destroy the remnants of central planning and the ministerial system without first preparing the way for a smooth market transition.
The damage caused by Western proponents of "shock therapy" and others who misunderstood the conditions required for empowering Adam Smith's invisible hand was less than that caused by Yeltsin's rash decrees. It is the sum of the tens of billions of dollars that "transitionists" of all stripes coaxed Western leaders into diverting from America's, Europe's and Japan's deserving poor to Kremlin thieves, plus the negative global welfare costs of consolidating Yeltsin's system of anti-productive elite privilege. The new economic model that has emerged is similar to the regime contrived by Hjalmar Schacht for Hitler: a marketized variant of a command economy that allows leaders to utilize a broad array of regulatory instruments, including direct arms procurement contracting, to enrich a narrow clique and rearm, in whatever mix Putin desires. It is precisely in this sense that Russia has been lost, and that those found guilty by the verdict of history of abetting the process through economic myth-making, politicking and moral turpitude should feel profoundly ashamed.
Wedel replies:
Jeffrey Sachs' and Anders Ã…slund's letters contain a series of unsupported counter-assertions. Both deal in significant part with issues that are not addressed in, or material to, my National Interest article. The article presents the theory of transactorship, a mode of organizing relations among nations. Both Sachs and Ã…slund are stunningly silent on this central issue: neither attempt to refute either the theory or the critical body of facts supporting it. The principal point of the article is that a group of self-interested actors and advocates from both the United States and Russia, supported by Western aid and promoted by high U.S. officials to whom they were closely linked, managed to co-opt U.S.-Russian economic relations and helped to bring about the fiasco that followed. It is not at all "contradictory" to conclude that Western economic advisers in Russia were both "influential" and "ineffective." The Harvard-Chubais transactors, including Sachs and Ã…slund, were most influential precisely in recommending and implementing policies that turned out to be highly counterproductive. The outcomes of their activities ran directly counter to the stated aims of the U.S. aid program in Russia.
Sachs seems not to understand that the issue is the multiple and conflicting roles that the transactors assumed (with ambiguous loyalties, ambitions and income sources), not the specific official title they held at any given time. Sachs restates that he advised Yegor Gaidar, which I do not dispute, and does not deny his other roles: his transfer of loyalty from Gaidar to Gaidar's nemesis, Ruslan Khasbulatov, who was seen in the West as a retrograde communist; and his offer of access to Western aid to Khasbulatov, while urging, in his role as an American economist, that vast amounts of such aid be sent to Russia. Sachs seems to deny that he was in correspondence with the imf while at the same time advising Gaidar. However, one memorandum that I have in my possession was written by Sachs and David Lipton (who became a Treasury undersecretary), dated May 11, 1992, and directed to key Russian decisionmakers at the IMF. It shows that Sachs and Lipton were privy to internal discussion within the Fund and were proffering advice within that context without any mention of their role advising the Russian side.
Ã…slund and Sachs portray me as a conspiracy theorist "going after leading advocates of radical market reform." On the contrary, I have been trying, as an anthropologist, to understand the roles being played by key actors involved in the aid process and in guiding economic transition. If those studies have resulted in uncovering unseemly activities, that is a consequence of what the actors have done, not of any analytical bias. I have no personal antagonism toward any of the key figures involved, nor did I approach the analysis with any ideological agenda.
As a researcher, I have pieced together the story based on hundreds of documents, U.S. General Accounting Office (GAO) reports and interviews. I have been studying Eastern Europe as the centerpiece of my professional work for more than twenty years. As an anthropologist, I am especially aware that people I interview don't always tell the truthand not only Eastern Europeans. I always cross check critical information and confirm key points with multiple sources.
Ã…slund and Sachs make a number of specific allegations. The facts are as follows:
o Regardless of the percentage of U.S. assistance to Russia flowing directly to the Harvard Institute for International Development, the U.S. government delegated virtually its entire Russian economic aid portfoliomore than $350 millionfor management by HIID. Part of this was used to design, implement and promote the disastrous voucher privatization program. In a 1996 report, the GAO found that HIID had "substantial control of the U.S. assistance program." The advisers were also influential under other guises. Project documents submitted by Jeffrey D. Sachs and Associates, Inc. to the Finnish government state: "The [Sachs] team has had an extensive interaction with the [Russian] State Committee on Privatization and has helped in the design of the mass privatization program legislation recently enacted by Parliament."
o Ã…slund, as I state in the article, has been involved in business activities in countries while consulting with their governments. He says he was an adviser to the Russian government beginning in the early 1990s. He continued to advocate on behalf of that government throughout the decade, during which he was also linked to Brunswick. Brunswick began as a Moscow-based brokerage firm and evolved into an investment bank, the Brunswick Group. While Ã…slund claims that he only gives "lectures and briefings", he attended an April 1997 banking conference in New York sponsored by Brunswick Securities Ltd. as a representative of Brunswick. He promoted the Russian stock market to institutional investors and money managers, according to Michael Hudson, who also participated in the conference. Hudson adds that the minimum acceptable investment was between $400,000 and $500,000. As to the significance of Ã…slund's business ventures in Russia, it was the head of the Interior Ministry's Department of Organized Crime that characterized Ã…slund's investments in Russia as "significant."
o Ã…slund appears not to understand that the problem of conflict of interest is no less real where an expert works in serial for conflicting interests rather than at the same time. The American investment bankers he refers to could well end up in jail if they were to use their Treasury Department contacts in violation of conflict-of-interest and revolving door laws and rules that limit the free use of connections. Thus, Ã…slund sees no problem that the two close associates whom he introduced to privatization minister Chubais, and who helped to design and implement voucher privatization, then started Brunswick Brokerage to help sell vouchers and other assets to Western investors. But there is a problem.
o Nowhere in my article do I say that Sachs has investment activities in Russia.
o Sachs makes much of the distance between his project and that of his Harvard colleague, Andrei Shleifer, who continues to be under investigation by the U.S. Department of Justice. However, Sachs, Lipton and Shleifer are listed as the "three senior members" of the Russia advisory project conducted by Jeffrey D. Sachs and Associates, Inc. As I state in the article: "In time, Sachs and Shleifer emerged as rivals and ran largely separate operations in Moscow." However, "they shared the transactorship mode of operating and many contacts in the Chubais Clan", as well as many Western contacts.
o I have never written that Ã…slund worked for HIID directly. In my book, Collision and Collusion, I did point out that Ã…slund collaborated with Sachs on HIID's unsolicited proposal to advise Ukraine, the details of which are specified in the 1996 GAO report mentioned earlier. I have never said that he has made a huge amount of money on USAID. However, the grants that Sachs and Ã…slund received from several sources were substantial. Ã…slund's advisory project was awarded $642,857 in 199192 from the Swedish government. Sachs received $322,728 in salary and fees (not including expenses) for a wider Institute-sponsored project billed to Jeffrey D. Sachs and Associates, Inc. The project, the total cost of which was $2,036,122, was funded by the Finnish Ministry of Foreign Affairs and the Sasakawa Foundation.
o Not only do I not claim that Ã…slund was officially on the payroll of the U.S., Swedish and Russian governments simultaneously, but I wrote that he was a "private" citizen who nevertheless "participated in high-level meetings at the U.S. Treasury and State Departments about U.S. and IMF policies." In addition, he "played a leading role in Swedish policy and aid toward Russia" and "was understood by some Russian officials in Washington to be Chubais' personal envoy." (For example, Ã…slund was highly influential with Sweden's Prime Minister Carl Bildt, who promoted him in Washington and included him in a high-level official delegation to the White House.) I report that Ã…slund seemed to speak on behalf of these governments.
o Ã…slund suggests that there is nothing wrong with serving as an adviser to a country while presenting himself as a disinterested observer. He denies that his role in Ukraine included public relations. Ã…slund's team member, Marek Dabrowski, is not my only source on the matter. In my interview with Dabrowski of November 27, 1997, he stated that Ã…slund's "kind of advertising" and "campaigning" creates a "conflict of interest." Contrary to what Dabrowski now alleges, my conversations with him were friendly and, indeed, on the record. I have cited Dabrowski as a source before in print on this subject, and he has never previously disputed its accuracy. I do not know why he has responded now with such a personal attack, but it is a fact that Dabrowski's center has received substantial funding from USAID (and much USAID economic assistance passed through HIID). Both Sachs and Ã…slund are also listed as members of the advisory council of Dabrowski's center.
o Ã…slund claims that in writing articles he "always mentioned" his work for the Russian or Ukrainian government. That is simply not the case. For example, in his article "Russia's Success Story" in Foreign Affairs (September/October 1994), Ã…slund presents himself as a senior associate at the Carnegie Endowment and makes no mention of any relationship with the Russian government.
o Ã…slund characterizes my work as "repeatedly citing the old-style Soviet communist Leonid Abalkin." But I did not cite Abalkin at all in my article and he is cited but twice in my book, Collision and Collusion, among some 1,750 interviews.
o Finally, Ã…slund raises a series of irrelevant and diversionary points. He denies being somewhereArkhangelskoewhere I never said he had gone. If he is implying that he was not involved when the Gaidar team prepared its program, then that is contradicted by his own writing (see, for example, his book How Russia Became a Market Economy, p. 2). In a similar vein, the order in which Kokh and Boycko chaired the Russian Privatization Center is wholly irrelevant to the issue of their corruption. It was the deputy head of the Gaidar Institute, Dr. Alexei V. Ulyukaev, who said, in a taped interview with Anne Williamson, that "Sachs was never an official adviser to the government, that's his own illusion" [my emphasis]. Sachs and David Lipton had a close working relationship, as evidenced in numerous joint publications and in Lipton's position as vice president of Sachs' consulting firm. However, it was a Russian representative at the IMF who said that "Jeff and David always came [to Russia] together", a point that others have made as well.
As to Sachs/Ã…slund's more general comments, former World Bank Chief Economist Joseph Stiglitz is among a growing number of economists who believe that the policies that Sachs and Ã…slund advocated were misconceived and harmful to Russia and to most of the other post-communist countries. Russia didn't "stumble", as Ã…slund characterizes it; it was inundated with counterproductive advice from people like himself.
With regard to Poland, although its economy has grown, this success was achieved not by following a radical transition program, but, as Harvard Professor Marshall Goldman has shown, by rejecting key parts of it. Further, high-level corruption has become so institutionalized that the World Bank has urged Poland to begin fighting it. I have not accused Sachs, as Ã…slund writes, of "having destroyed the Polish economy." On the contrary, I have pointed out that Sachs' role in the Polish transition was largely promotional, a point confirmed by the Polish government in the Financial Times (June 1516, 1991).
Finally, Ã…slund manages to cite the only negative review (that I know of) to try to discredit my work. In fact, Collision and Collusion has been widely reviewed in places such as the Wall Street Journal, the Washington Post and Foreign Affairs, and the reviews have been overwhelmingly positive. Former National Security Adviser Zbigniew Brzezinski wrote of the book: "Very critical and troubling analysis of the shortcomings of Western aid policy, particularly to Russia. The implications of Wedel's critical assessment need to be seriously taken into account." The other letters printed above share that view, and I thank their authors for their support.
From The National Interest No. 60, Summer 2000.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.

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"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.
"The philosophers have only interpreted the world, in various ways. The point, however, is to change it." Karl Marx

"He would, wouldn't he?" Mandy Rice-Davies. When asked in court whether she knew that Lord Astor had denied having sex with her.

“I think it would be a good idea” Ghandi, when asked about Western Civilisation.

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