Janine Wedel - Shadow Elite - How the World's New Power Brokers Undermine Democracy, Government, and the Free Market

By comparison, Hay was a kid with little experience. Though outwardly unrefined and boyishly energetic, Hay was clearly comfortable with his own authority. During the meeting, the elder consultants readily deferred to him. He had also been more difficult to reach than senior consultants and harder to pin down for an interview. In Poland I had watched visionary, inexperienced young men morph from lives of dissidence to power virtually overnight, as an unprepared Solidarity took over the government in 1989. But Hay wasn’t a local leader. He was an American in Russia, merely working on a U.S.-sponsored project like many others. Why did he command so much attention and authority, I wondered?

Hay’s authority was but one clue as I set out to understand the workings of economic reform aid to Russia. Another lay in Hay’s obvious closeness to the Russian I sat across from at the meeting: Dmitry Vasiliev, an understated official in his late twenties. Vasiliev was one of a dynamic group of young men led by the redheaded Anatoly Chubais, himself only in his midthirties. Boris Yeltsin, president of the new Russia, had brought Chubais to Moscow from his hometown of St. Petersburg. The New York Times called them the “Young Reformers.” Hay and Vasiliev seemed like fellow missionaries, with Hay appearing to be more than a mere adviser. The more interviewing I did, the more the senior consultants’ deference to Hay began to make sense. Hay’s role as Vasiliev’s cohort became clearer, as did the fact that my interviewees kept mentioning their names in conjunction with a variety of activities, no matter the stated purpose of the reform project at hand.

While I have told the story of these Russian and American players before as it pertains to foreign aid, I have since come to see them and what they pulled off as an example of the new system of power and influence in the making. As early forgers of new institutional forms of fused official and private power, these transnational players were able to shape the course of one of the most crucial projects of the twentieth century—remaking Russia—as well as break new ground in outsourcing U.S. government functions. With these new forms all but impervious to old means of accountability, up to a dozen players show us how a small flex net can make a big impact, far from the input of publics or the reach of monitors. The Young Reformers and their American counterparts constituted pieces of an intricate puzzle. It took me years to assemble but its picture is now coming clear, even as some pieces are still missing. 1

Transnational Togetherness

In 1994, Moscow was the place for any bigshot international consultant to make his mark. Fact-finding missions, and scores of consultants from the International Monetary Fund, the World Bank, and governments ranging from the United Kingdom to Germany to Japan, not to mention would-be investors, jacked up hotel and restaurant prices to make Moscow the second most expensive city in the world (after Tokyo). Jeffrey Sachs, the Harvard wunderkind credited with turning around entire national economies, was already on the scene. Touted by The Economist as one of the world’s most important economists, the peripatetic Sachs had come to symbolize shock therapy—radical economic change in which the state releases price and currency controls, removes subsidies, and often privatizes its assets—and even reform itself, as he offered his services throughout the former Eastern Bloc.

The aid story in Russia, I thought, would resemble the scene I had witnessed in central Europe in the late 1980s and early 1990s, where I had earlier set out to examine the effects of the aid effort on the ground. I had interviewed many players in Poland, Hungary, and Czechoslovakia—which the West had deemed most willing of the former Eastern Bloc countries to enact economic reforms and thus most worthy of assistance. As consultants and “experts” rushed to the region, they were greeted by legions of local brokers who rose up to assist and use the often naïve outsiders. Poles dubbed them the “Marriott Brigade” because they encamped at the Marriott, Warsaw’s only five-star hotel at the time. Some were paid by foreign aid monies—either through their companies or personally—to advise local people, which is a form of aid known as “technical assistance.” Because technical assistance was the largest chunk of aid supplied by Western governments, West-East people-to-people encounters significantly shaped the aid process.

As in central Europe, the goals of economic reform aid in Russia were to construct a market economy through privatization, and to establish institutions such as capital markets and stock exchanges. These were supposed to be accomplished largely through Western-supplied technical assistance. And while Moscow did see its version of the Marriott Brigade with the hottest consultants parachuting in and out, a new dynamic also revealed itself. Over and over I heard the names of the same individuals. I cast a wide net and sought out a range of people—donor representatives, embassy functionaries, local officials, consultants, participants in or targets of foreign aid projects—engaging them over drinks and dinners, in formal and informal meetings, and at social and professional events. Yet my net did not yield the wide catch of participants it had in central Europe. I wondered why. Sachs had brought along some of his Harvard associates, and their names kept coming up in my interviews. One was Hay, who had worked as a World Bank consultant and played a minor part in a Jeffrey D. Sachs and Associates project funded by the Finnish government. Another was Andrei Shleifer, a thirty-something tenured Harvard economist, who had emigrated from Russia in his teens, and had played a central role in Sachs’s project. These were the names I kept hearing in connection with economic reform organizations underwritten by Western sponsors. These organizations, some of them bodies of the Russian state, others nongovernmental organizations, if only formally—at least one was jointly created by the board of directors of Harvard University and Russian governmental decree—had names like the State Property Committee, the Russian Privatization Center, the Federal Securities Commission, the Institute for Law-Based Economy, and the Resource Secretariat. They were supposed to help build the new economy and society by doing things like carrying out privitization and legal reform efforts and developing capital markets. My interviewees, often English-speaking Russians, gave me glossy brochures describing the organizations’ missions that had obviously been designed specially for foreign consumption. 2

Yet when people talked offhandedly about each organization—Who runs it? Who initiated it? Who is on the board of directors? Whose word counts?—they repeatedly named the same individuals. For example, while Chubais chaired the State Property Committee, Vasiliev was its deputy chairman, Hay was its senior legal adviser, Shleifer was an adviser, and another Chubais Clan member, Maxim Boycko, was an economic adviser (later chief economic adviser). While Chubais chaired the Russian Privatization Center’s board of directors, Vasiliev was its deputy chairman, with Hay and Shleifer board members, and Boycko its CEO. While Chubais chaired the board of the Federal Securities Commission, Vasiliev served as its executive director and deputy chairman of the board, and Shleifer as a USAID-paid adviser to it. Hay had an office in the Commission and headed the U.S.-supported Institute for Law-Based Economy, which funded the Commission. 3

CHUBAIS-HARVARD PLAYERS

Interconnections of Key Actors through Organizations

(Early 1990s)