Date: Fri, 10 Mar 2006
From: "W. George Krasnow, Ph.D." <firstname.lastname@example.org>
Organization: Russia & America Goodwill Associates
Subject: Would Harvard Ever Help Russia?
Harvard Ever Help Russia?
By W. George Krasnow
President, RAGA ( Russia & America Goodwill Associates)
On February 21, 2006, Dr. Lawrence Summers resigned as President of Harvard University. Facing a certain no confidence faculty vote, he was forced to. The initial reports indicated that his high-handedness in dealing with the Afro-American and women communities sealed his fate.
Now it has transpired that a cozy relationship between Summers and economics professor and Russian expert Andrei Shleifer was definitely a contributing factor. Head of the Russian Reform project of Harvard Institute of International Development (HIID) in 1992-1997, Shleifer and his associates were accused of using federal money for personal gain. In 2000, the U.S. government sued both the university and Shleifer team for fraud, breach of contracts and making false claims. Defrauded of at least $40 million, the government asked treble damages.
After a long litigation, a settlement was reached on August 3, 2005. U.S. District judge Douglas Woodlock ruled that, while being paid by USAID, Shleifer and Jonathan Hay, a graduate of Harvard Law School, whom Shleifer hired to manage Moscow office, engaged in prohibited investments and businesses in Russia. Although the defendants disputed charges, they agreed to repay the U.S. government: Shleifer $2 million; his wife, Nancy Zimmerman, $1.5 million, and Hay up to $2 million. Clearing Harvard of the charge of “knowingly defrauding the government,” which would have required repayment of $120 million, the judge found the university liable only for breach of contract and ordered it to repay $26.5 million.
Never before was the venerable university so disgraced. Still, damaging as it was for the reputation and the purse of Harvard, the settlement caused no disciplinary action against Shleifer. Just as remarkably, it attracted little attention in the mass media. Was it not a sign of cover-up in high places?
David Warsh, Boston Globe financial writer, seems to think so. In his website article (See www.economicprincipals.com), Warsh notes that Summers is “Shleifer’s mentor and old friend, who taught him as an undergraduate; sent him to the Massachusetts Institute of technology to train; took him to Lithuania to practice country-doctoring; brought him back from the University of Chicago to teach at Harvard; helped put him in the Russia job; oversaw, as an increasingly senior Treasury Department official, Shleifer’s efforts in Moscow; and, once he returned to Harvard as president, defended his protégé.” Clearly, such description shows why Summers would have preferred a silence.
McClintick’s Report, Or Silence Breaks Down
However, early in the year the matter became national news. In the January 2006 issue, Institutional Investor magazine published a detailed investigative report, “How Harvard Lost Russia,” by David McClintick. The author painstakingly traces shady activities of Shleifer and his team in Moscow. He also describes Shleifer’s close personal relationship with Summers since early1990s when Summers was chief economist at the World Bank and later when he became Deputy to the Treasury Secretary Robert Rubin under Bill Clinton. As Summers was the chief architect of U.S. efforts to “help” Russia, he stayed in close contact with Shleifer.
But who is Andrei Shleifer? Andrei emigrated from the USSR in 1976 when he was 15. He was among more than half a million former Soviet citizens who since 1971 were allowed to immigrate to Israel but instead chose the United States. Enrolling in Harvard College, he became a student of Summers who was then economics professor. Impressed with Shleifer’s academic talents, Summers took him under his wing. Soon Shleifer became professor himself. According to McClintick, after Summers went to the World Bank in 1991, the two were already close friends and remained so thereafter.
In October 1992 President George H.W. Bush signed the Freedom to Russia Open-Market Support Act, authorizing up to $350 million in aid to Russia. Fluent in Russian, Shleifer was put in charge of the Russian Project when the USAID gave its contract to HIID. He was also made Board member of HIID-funded Russian Privatization Center (RPC). Not only did he direct the spending of $40 million of the Russian Project but also controlled an additional $350 million over which HIID had influence. With the help of Jeffrey Sachs, another Harvard economics professor and the author of “shock therapy,” Shleifer was introduced around the Russian government. “It was decided,” says McClintick, “that Shleifer would work with Chubais and [Dmitry] Vasiliev on privatization while Sachs advised Gaidar on macroeconomic issues.”
Since Shleifer wanted to retain his professorship, he hired Jonahan Hay, a graduate of Harvard Law School who was also fluent in Russian, to manage the day-to-day operations in Moscow. However, Shleifer continued to supervise the project from Harvard and during his visits to Russia. Shleifer also hired his wife Nancy Zimmerman, who had her own hedge fund company in Cambridge, and Hay’s then girlfriend, Elizabeth Hebert, from the investment firm Robert Fleming & Co., who later became Hay’s wife. Hebert aspired to start her own investment company specializing in Russian securities. To help Hebert, Hay hired Julia Zagachin, a Russian-born, U.S.-educated clearing specialist who allegedly helped register Shleifer’s illegal purchase of 30,000 shares of Russian oil company Purneftegaz for $165,000 in August 1994.
There is no need to go into details of Shleifer and his team’s shady dealings that McClintick describes. More interesting is the period since 2001, when Summers became a candidate for Harvard’s presidency. It was Shleifer, even while being sued, says McClintick, who eagerly campaigned for Summers to get the post. As copies of McClintick’s report were made available to some faculty members, Summers’ protective attitude toward his friend Shleifer antagonized a number of them. McClintick quotes Harry Lewis, former Harvard College dean: “The relativism with which Harvard has dealt with the Shleifer case undermines Harvard’s moral authority over its students.”
National Glasnost via The New York Times
Summers tried to keep the Shleifer affair under tight wraps. First he recused himself and downplayed the degree of closeness to Shleifer. McClintick’s report broke that wall of intramural silence and opened the Shleifer-Summers connection a scrutiny via national glasnost. On February 27, The New York Times, with readership much larger than that of Institutional Investor, ran Sara Ivry’s article, in which she attempted to measure the impact of McClintick’s expose on Harvard faculty. The article was titled, “Did [McClintick’s] Expose Help Sink Harvard’s President?” Ivry posed that question to a number of Harvard watchers.
Richard Bradley, the author of Harvard Rules: Lawrence Summers and the Battle for World’s Most Powerful University, opined: “Suddenly, you couldn’t just say this was an arcane legal dispute [but] a really unattractive and deliberate pattern of behavior and cover-up that quite dramatically pointed an arrow at Larry Summers.” (See his blog richardbradley.net)
Summers’ recusal drew strong rebuke from Robert D. Putnam, a former dean of the John Kennedy School of Government at Harvard. “When the president responded in a manifestly untruthful way to questions about the Shleifer case,” said Putnam, “it had a devastating effect on the views of people who were to that point uncommitted, people who, like me, were strong supporters of his agenda.”
Dean Harry Lewis told Ivry that many prominent faculty members had not even heard of the Shleifer case until they read McClintick’s report. Calling Lewis because he had been quoted in the report, several wondered: ‘Wow, I never knew this story.’ Soon, McClintick informs us, they will know a lot more in Lewis’ forthcoming book, Excellence Without a Soul: How a Great University Forgot Education.
Michael Carroll, the editor of Institutional Investor, said that McClintick’s expose, warranted close attention. “Russia was going to go the way of the West, so in come the best and brightest of Harvard [and] do things the old Russia way.” Carroll probably meant “the old Soviet way,” but either way is commonly understood as utterly corrupt.
Finally, Ivry interviewed McClintick himself. A Harvard graduate and the author of award-winning Indecent Exposure, McClintick explained his involvement in the Shleifer case: “I was drawn to it [because] you had this very small group of exceptionally brilliant people, very young people, basically trying to save Russia and then an even smaller group corrupting the enterprise.” The latter reference was to Shleifer and his gang. Bright as they may have been, “intelligence does not equal wisdom,” McClintick added.
Ivry’s article left no doubt that McClintick’s expose did indeed help sink Harvard’s president.
Janine Wedel the Whislte Blower
Surprising as they were to some Harvard people, McClintick’s revelations were not new. In a1998 book, Collision and Collusion: The Strange Case of Western Aid to Eastern Europe, 1989-1998, Janine Wedel took a hard, behind-the-scene look at aid efforts not only in Central Europe, but also in Russia and Ukraine. Long before McClintick, Wedel exposed “how Harvard’s best and brightest, entrusted with millions of aid dollars, colluded with a Russian clan to create a system of tycoon capitalism that will plague the Russian people for decades.”[i]
How McClintick’s could have missed Wedel’s well-documented book while doing investigation is a mystery to me. After all, the book covers much of the same ground. In fact, Wedel devotes a whole chapter to “The Chubais Clan, Harvard, and ‘Economic’ Aid,” in which the Shleifer affair occupies the center stage. Moreover, she examines Shleifer’s activities as part of a collusion between the “young Russian reformers” (Anatoly Chubais, Yegor Gaidar, et al.), on the one hand, and the Harvard’s “best and the brightest,” that is not only Shleifer and Hay, but also Jeffrey Sachs, David Lipton, and Larry Summers. In spite of internal divisions (Sachs and Shleifer were no friends), the Harvard “clique” was united by their excusive reliance on the Chubais clan as the conduit for delivering Sachs’ “shock therapy” reform prescription to Russia.
Wedel lets the Russian sociologist Olga Krystanovskaya assess the situation: “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).” [ii] Concludes Wedel: “By largely putting their eggs in one basket and allowing much aid to be used as the tool of one group, aid planners and politicians alienated non-Western-oriented reformers and opened themselves to suspicion and cynicism about aid program, capitalism, and the West.”[iii]
There is no need to dwell on Wedel’s book, especially since it is now available in a new edition.[iv] But Wedel should be credited with blowing a whistle not just on the Shleifer case, but also on the entire U.S. post-Cold war policy. Suffice it to say that she describes the entire U.S. approach to reforming Russia as exhibiting strong anti-democratic, anti-free-market, and elitist features. To give an example, HIID’s Russian reform project got most of its $57.7 million without competitive bidding. Why? Perhaps, no other American university could match the “brightness” of “shock-therapy” prescription to Russia? In any case, it was not for a lack of bright and honest people elsewhere. According to Wedel, “foreign policy” considerations--that is, the national security of the United States, were cited as the reason for the waiver of competitive bidding in favor of Harvard. [v]
I do not know what those consideration might have been, but they certainly make many an inquisitive Russian suspect U.S. motives in promoting Russian reforms: Was it just to advance a free-market in Russia, or to gain advantage for U.S. companies? To promote democracy, or to create chaos in which oligarchs can thrive? To assist in privatizing state enterprises into the hands of most qualified through open tenderor to the hands of would-be oligarchs through insider trading and fire sale? To create a viable free-market economy with strong anti-monopoly provisions, similar to those in the U.S., or a dictatorship of a dozen oligarchs controlling both the president and the media?
I have no doubt that the majority of Americans involved in the effort to assist Russia’s transition to a free-market economy were honest and well-intentioned people. However, even granting that U.S. policy was guided by the best of goals, the way it was executed in Russiaalmost exclusively through the collusion of Harvard’s “best and brightest” with the Chubais clanguaranteed a disastrous outcome for the people of Russia. It also put U.S.-Russia relations on a collision course. The results of U.S. meddlingthat’s what our assistance in reality amounted to--were certainly extremely painful to Russia.
With all the voting precincts the oligarchs’ money could buy, the Chubais clan managed to secure Yeltsin’s re-election in 1996 as Russian president. They clearly counted on maintaining monopoly on his ear. Meanwhile, Russia lay in shambles. Its treasury indebted to foreign powers and native oligarchs, its “reformed” economy bleeding from incessant capital flight and brain drain to overseas, the country was barely functioning. The overwhelming majority were impoverished, workers unemployed, underemployed, underpaid or not paid at all. There was democracy, countless elections, and freedom of the media. But the Russians now hated the very words, “democracy,” “free-market,” and “reforms”. Alas, they also now hated America, the country they had so admired just few years ago. Sapped of its vital resources, torn by regional interests, and threatened by inter-ethnic strife, the country was on the brink of disaster.
The Blessing of August 1998 Default
The disaster came in the form of August 1998 default. The situation turned from bad to worse. Says the U.S. News and World Report, "Death is one business that flourishes in the catastrophe that has overtaken Russia. Elderly pensioners dying of starvation no longer make news…the question for the country now is whether it can survive at all as a coherent state, still less as a civilized society. The statistics are staggering. At least 70 percent of Russians live near or below the subsistence level...The decline of Russia in the 1990s is deeper than even the Great Depression in the United States. From 1929 to 1935, American national incomes and gross domestic product fell by a third; in Russia, real per capita incomes are down by as much as 80 percent."
Only then did Yeltsin turn away from the Chubais clan. Only then did he begin to listen to those who argued that Russia needed law and order more urgently than it needed reforms. Only then did he realize that no reform could be beneficial for the country when undertaken in the condition of a weak state, breakdown of social order, and dependence on advice and money from overseas. He removed Chubais from power, and, after experimenting with a couple of other “young reformers,” chose Yevgeny Primakov as Prime Minister. Thus, by pushing Russia away from Harvard-inspired reforms, the August default became a blessing in disguise.
An old Soviet bureaucrat and former FSB chief, Primakov was not averse to reforms. However, unlike his young predecessors, he was pragmatic and patriotic enough to understand that to implement reforms, one needed to mobilize domestic resources and talents. In doing so, he began the process of consolidating central state powers, a process that President Vladimir Putin later put in higher gear.
It’s quite understandable that the Clinton Administration’s reaction to Primakov was rather hostile. There were even threats, coming from both U.S. government and the avatars of so called “Washington consensus” for “shock therapy,” to cancel all Russian assistance programs and otherwise make Primakov’s life miserable. Those threats amounted to high-handed attempts to meddle in Russian affairs.
The Open Letter to Bill Clinton
As president of Russia & America Goodwill Association (RAGA), an organization of Americans for friendship with the new Russia, I wrote then an “Open Letter” to President Bill Clinton demanding that U.S. meddling in Russian affairs be stopped and its policy toward Russian reform thoroughly revised. The Letter reads:
“Unfortunately, the U. S. government has shown no willingness to acknowledge the obvious failure of its Russia policy. Secretary of State Madeleine Albright continues to nudge Russian Prime Minister Yevgeny Primakov to the same course of ‘reforms’ that, under his predecessors, brought Russia to the brink of disaster. Treasury Secretary Robert Rubin continues to cajole the Russians to accept the dictates of the IMF--or else. Both the IMF and the U.S. government have remained deaf to any other proposals for economic reforms in Russia, including those advocated by prominent Nobel Prize winning American economists.” [vi]
Arguing that “The financial crash of August 17, 1998, was a collapse… of the peculiar course of reforms that the ‘young reformers’ imposed on Russia, with America's advice and encouragement,” the Letter called on U.S. government to stop supporting the failed course and “let Russians, not our State and Treasury Departments, decide what constitutes reform in Russia." I also argued that the weakening of the Russian via ill-conceived reforms reached a level that not only endangers Russia’s existence, but also is contrary to U.S. national interests as it destabilizes the entire North Eurasian rim from the Baltic to the Sea of Japan.
More than one hundred American scholars, businessmen, and Russia specialists signed the Open Letter. On March 23, I mailed to Clinton and other high officials. As the Kosovo conflict was heating up, in an accompanying note I reiterated, “In spite of the cancellation of Russian Prime Minister Yevgeny Primakov's visit to Washington, a constructive dialogue must go on.”
President Clinton responded with a brief, but warm letter to “Dear George.” Thanking me for writing the Letter, he asked me to “remain involved” and promised: “I will certainly keep your thoughts in mind as my Administration continues working to address the challenges our nation faces as we approach the 21st century.”
Madeleine Albright thanked me for “sharing your thoughts and concerns” and assured that “President Clinton and I are committed to making the world a better place for all Americans and all people.”
Carlos Pascual, Special Assistant to the President and Senior Director for Russian, Ukrainian and Eurasian Affairs, responding on behalf of National Security Adviser “Sandy” Burger, wrote “we are committed to provide support where it is in both the Russian and U.S. national interest.”
I am not in the position to assess whether the Letter had any real impact on Clinton’s Russian policy. However, since the presidential candidate George W. Bush promised a more hands-off policy toward Russia, it must have put some pressure on Clinton. If the Letter helped even a little to adjust U.S. Russia policy so that “it is in both the Russian and U.S. national interest,” as Pascual promised, I feel that my effort was not in vain. Soon, the growth of global terrorism put Russia on a back burner in Washington. Meanwhile, with passing of Russian premiership to Vladimir Putin, the war in Chechnia, Yeltsyn’s resignation and Putin’s election as President, Russia was definitely on the mend. That was good for Russia. And that was good for America. Had Putin not strengthened the state against the encroachment of oligarchs, put order in the process of reform, and overcome centrifugal tendencies in the regions, it is very doubtful that Bush would have found a reliable friend and strong partner when America needed it most, in the aftermath of the 9-11 shock.
A New Wave of Russophobia?
Ironically, today when Russia’s economic growth has been one of the highest in the world for the past five years, when the living standards of its people have greatly improved, and Putin’s popularity rating is near 70 per cent (while Bush’s is down to 34), there are some U.S. pundits who feel unhappy about it. They accuse Putin of “backsliding” on democracy, opposing U.S. foreign policy, and otherwise misbehaving. One of those pundits is history professor emeritus Richard Pipes of Harvard, as it happens.
Writing in the March 1, 2006 issue of Wall Street Journal, in the article titled, “Why Bear Growls,” Pipes asks rhetorically: “Why do the Russians still give us trouble even though the Cold War has long ended? Why do they invite the terrorist Hamas leaders to Moscow? Why do they cut off natural gas to Ukraine and thereby reduce its flow to Western Europe? Why do they harass foreign non-governmental organizations, accusing them of espionage and incitement to revolution? Why do they carry out joint military exercises with the Chinese, clearly aimed at Taiwan?”
His own answer is two-fold: “One is Russia's inability to find for itself a proper place in the international community,” inability he ascribes to the fact that Russia’s Orthodox Christianity isolated it from the Catholic and Protestant West. The second factor that reinforces Russia’s alleged hostility to the outside world is its “antidemocratic, authoritarian tradition,” so that even Soviet regime had more in common with the autocracy of a Nicholas I and Alexander III than with Marxism-Leninism. Concludes Pipes: “These factors portend lasting trouble in Russia's relations with the outside world. Neither the Russian government nor the population at large is able to establish a modus vivendi with the international community.”
Pipes clearly pushes the reader to the conclusion that as long as Russia retains its national identity and remains Russia, it is bound to misbehave and deserves to be treated as a rogue state.
I leave it to the Russians to respond in detail. My own answer need not be long. Before giving it, I want the readers to know that way back, in 1979, when I was professor and director of Russian Studies at the Monterey Institute of International Studies, I challenged Pipes, then aspiring to become National Security Adviser, to a debate on the issue that does not seem to go away.
In my article, “Richard Pipes’s Foreign Strategy: Anti-Soviet or Anti-Russian?,” published in The Russian Review (Stanford University), I pointed out that in his voluminous books Pipes had consistently ignored Marxist-Leninist ideology as the main source of the oppressiveness of Soviet regime at home and expansionism abroad. Instead, he attributed the evils of Soviet regime to the perfidy of Russian national character. Since many Soviet leaders “descended from peasantry,” argued Pipes, they possess such repulsive features of Russian mentality as “slyness, self-interest, reliance on force, skill in exploiting others, and contempt for those unable to fend for themselves.” If you want to understand Soviet leaders, Pipes advised U.S. policy-makers, study Russian proverbs, not Marxism-Leninism.
Pipes’s only defense was the lame excuse that “these remarks were meant as a kind of crash course in applied Russian history for policy-makers, at a time (1974) when many of them perceived Russia as a political tabula rasa.” (See Encounter magazine, 1980)
And yet in his newest article Pipes again repeats russophobic stereotypes as he denies the right of ordinary Russians and their leaders to choose their destiny. He does not even consider whether Putin’s policy is good for Russia or not. He just denies Russia a right to get out of the morass where Harvard-inspired reforms had pushed it.
As to the questions Pipes posed in the beginning, the short answer is: IT’S RUSSIA’S BUSINESS. And the main reasons why Russia under Putin insists so adamantly on minding her own business is that she has learned the all too bitter lesson what happens when she lets Harvard-trained advisers mind HER business.
So, “Why the Bear Growls?” Because it’s in his unique nature to growl when he finds intruders in his layer and senses that their overBEARring attitude is no longer BEARable. The time when the Russian Bear was made to dance to a Harvard tune is over.
Or, Back to Cultural Disconnect and Flexing the Muscle of Triumphalism?
As to the question, “Would Harvard Ever Help Russia?,” the answer is yes, but only if Russia asks for it through her duly elected leaders. Harvard could then try to help, but only after it puts its own house in order. For starters, the Harvard and U.S. policy-makers, ought to read carefully the writings of such whistle blowers, as Janine Wedel. A pioneering anthropologist, she realized that both the Shleifer affair and the Chubais-Sachs “shock-therapy” collusion are but symptoms of a more general disease that prevented U.S. donors from making their aid more useful to receiving countries. The disease is dangerous in that it creates the environment for an unwanted “collision.” She calls it “cultural disconnect.”
To begin with, “there was a gigantic disconnect between East and Westa disconnect forged by the Cold War and exacerbated by the barriers of language, culture, distance, information, and semiclosed borders.” [vii] Of course, this was especially true right after the fall of the Berlin Wall when the stream of Western “do-gooders” rushed East in the euphoria of “triumphalism.” But even years after, she says, the disconnect continued to plague country-to-country relations, most notably in Russia, where “there has been little successful adjustment, only scandal and ever increasing tension.”[viii]
The disconnect also shaped the environment in which such elitist “clans” as those of Harvard and Chubais, with their unlimited access to power, could thrive. After all, only a handful of people who interacted with those clans, knew both English and Russian. This gave a tremendous advantage to the double-dealing few to have their way.
In her more recent articles, “Blurring the State-Private Divide: Flex Organizations and the Decline of Accountability,”[ix] and "Flex Power: A Capital Way to Gain Clout, Inside and Out,”[x] Wedel demonstrates how tiny un-elected groups of well-connected officials, be it the Harvard clique in respect to Russia or the neoconservatives in respect to Iraq, can wield an enormous clout, influence the government policy in a decisive way, and yet escape accountability. Without taking a stand on U.S. invasion of Iraq or whether the neoconservative thinking was right or wrong, she clearly points out that even in the bastion of freedom the democratic process can be and has been woefully subverted.
We have no moral right to preach democracy to others, much less export it through intimidation, manipulation, and force; unless not only Harvard, but also the United States put their house in order, eliminate the influence of flex groups, and restore due process in formulating and executing foreign policy initiatives.
W. George Krasnow, Ph.D., former Soviet defector and director of Russian Studies at Monterey Institute of International Studies, now president of Russia & America Goodwill Associates e-mail: email@example.com www.raga.org
[i] Janine Wedel’s book, Collision and Collusion: The Strange Case of Western Aid to Eastern Europe, 1989-1998. (St. Martin’s Press, New York, 1998)
[ii] p. 126
[iii] p. 157
[iv] Janine Wedel, COLLISION AND COLLUSION: The Strange Case of Western Aid to Eastern Europe, 2nd edition, New York, N.Y.: Palgrave, 2001.)
[v] Wedel, Collision, p. 127
[vii] Wedel, Collision, p. 2-3
[viii] Same, p. 7
[ix] "Blurring the State-Private Divide: Flex Organisations and the Decline of Accountability.@ Globalisation, Poverty and Conflict: A Critical Development Reader, Max Spoor, ed. Dordrecht (Netherlands) and Boston: Kluwer Academic Publishers, 2004, pp. 217-235.
[x] "Flex Power: A Capital Way to Gain Clout, Inside and Out.@ The Washington Post, Sunday, December 12, 2004; p. B04. (Also on web site: washingtonpost.com, titled Flex Power: An Influential Band of Policy Brothers@).