The National Interest
Spring 2000 (No. 59)

Tainted Transactions: Harvard, the Chubais Clan and Russia’s Ruin (Extracts)

By Janine 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. aid--unselfish and urgent--would 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 acrimony.

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. For this state of affairs many Russians today blame precisely the Western aid and advice they have received. 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 ideology--that of radical privatization and marketization, applied in this instance in a cold-turkey manner to a society with no recent experience of either--is 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." 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 representatives--that is, the transactors--interacted 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 activities--the 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 Aslund and several other Westerners offered their services to the Russians, including that of facilitating access to Western money--an 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 sides--and 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, and--until USAID suspended its funding in May 1997--had 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. 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 portfolio--more than $350 million--for 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." According to U.S. government procurement officers and GAO officials, delegating so much aid to a private entity was unprecedented.

In Russia, the Harvard representatives worked exclusively with Anatoly Chubais and the circle around him, which came to be known as the Chubais Clan. 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. 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. 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. 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", which, given his position and status, was a particularly valuable endorsement.

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."

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. . . .