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

The Harvard players’ easy entrée to Summers and other top Harvard-connected officials in the Clinton administration eased open the aid spigot for themselves and their Russian associates. Step by step, with the support of Summers, the Harvard players acquired control of a crucial U.S. policy portfolio—economic reform aid to Russia—which was almost completely outsourced to a private entity, with that entity handed management authority over virtually the entire portfolio. This scenario was tailor-made to provide opportunities for coincidences of interest for the players who presided over it.

To bypass all the established practices and procedures, the Harvard players employed their flexian skills of personalizing bureaucracy and relaxing rules. With the help of Summers et al., the Harvard Institute sidestepped competitive bidding and was granted special permission that enabled it to legally engage in “the conduct of foreign relations and the determination of foreign policy,” an “inherently governmental” function (as discussed in Chapter 4). The Institute largely circumvented the usual bidding process for aid contracts through waivers to competition supported by Summers and other benefactors in the administration, according to veteran U.S. government procurement officers and officials from the GAO. This was unusual, and so, also, was the justification given for the waivers: “foreign policy considerations.” That is, the national security of the United States. 10

In another departure from established practice at the time, management and oversight functions over the economic reform aid portfolio were substantially relinquished to the Harvard Institute, providing (legal) opportunities for its various roles to influence each other. One coincidence is that Harvard recommended U.S. policies while being itself a chief recipient of aid. From 1992 to 1997, the Harvard Institute helped steer and coordinate USAID’s $300 million reform portfolio in grants to the Big Six accounting firms and other companies such as the public relations firm Burson-Marsteller, in addition to the $40 million the institute received directly. In another coincidence, the Harvard Institute “served in an oversight role for a substantial portion of the Russian assistance program,” according to the GAO, helping supervise other contractors that were its competitors. And this oversight had teeth because governmental oversight didn’t: In its customary management-speak, the GAO concluded that USAID’s management and oversight over Harvard was “lax.” 11

While the United States had long contracted out foreign aid projects to consulting firms, NGOs, and universities, putting a project like Russian economic reform—one of the most important foreign policy initiatives of the era—in the hands of a private entity was a departure from accepted practice at the time. To hear U.S. government investigators tell it, both the contracting process and the wide influence and authority Harvard was afforded were highly irregular, if not unprecedented, in the annals of aid contracting. The Government Accountability Office (then called the General Accounting Office) was asked by Congress to investigate in 1996 after complaints to congressional offices had begun piling up. It found that the Harvard Institute had “substantial control of the U.S. assistance program.” 12

Treasury official Summers served as indispensable backer, indeed guarantor, of not only Shleifer and the Harvard team but also of Chubais and his clan, which he dubbed the “Dream Team.” 13Economic reform aid was personalized and used to boost Chubais’s political position. Both the Chubais and Harvard players themselves and their U.S. sponsors made this explicit. In a book published by Shleifer, Boycko, and a coauthor at the height of the reform fervor, the authors baldly stated: “Aid can change the political equilibrium by explicitly helping free-market reformers to defeat their opponents. . . . Aid helps reform . . . because it helps the reformers in their political battles.” They defined the goal of U.S. assistance to “alter the balance of power between reformers and their opponents” and confirmed that “United States assistance to the Russian privatization has shown how to do this effectively.” Top USAID officials, too, made this clear. When I asked USAID Assistant Administrator Thomas Dine whether USAID helped propel Chubais into top positions in government, he admitted that it did. Richard Morningstar, the Department of State’s top aid official, supported this politicization overtly. “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,” he told me. 14

With such all-important boosts, the Chubais Clan acquired broad powers, ostensibly to carry out the complex tasks of economic reform, and controlled the ministries responsible for privatization and the economy. Its reach also extended to a host of other arenas: Chubais served as Yeltsin’s chief of staff and headed his reelection campaign, even as he performed other political activities. At the same time he held sway in such domains as “relations with regions (including the organization of the gubernatorial elections) and what was called ‘the propaganda work’ in Soviet times,” as Kryshtanovskaya observed. The Chubais team’s comparative advantage in Russia was neither ideology nor even reform strategy but precisely its standing with and ability to attract resources from the West. As Kryshtanovskaya explained in 1997, “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 turned [itself] into the most powerful elite clan of Russia in the past five years.” Indeed, Chubais’s cozy relations with Western power and resource brokers bolstered his clan’s standing as Russia’s chief representative to Western aid and financial institutions. Hay meanwhile served as a key link between the clan and the aid bureaucracy, while also assuming power over contractors, policies, and program specifics. He told me that his role included helping Chubais and others to prepare requests to the leadership of USAID that communicated what the Russian government wanted to do. 15Project director Shleifer traveled frequently to Moscow.

Blessed by Summers and anointed in the quarters that mattered, the Chubais-Harvard partners presided not only over hundreds of millions of dollars from Western governments, but over Russian economic reform and crucial aspects of U.S.-Russia relations. Nonetheless, Shleifer and Hay showed up on the organizational charts as mere consultants for a private entity, with no one above them in the chain of command.

Guardians of the Gates

Far more loyal to each other than to any governmental, corporate, sponsoring, national, or international entity, the Chubais-Harvard players formed an intricate spine— the first defining feature of flex nets—and personalized bureaucracy to achieve their goals—the corresponding defining feature of flexians. The Chubais Clan’s loyalty to the Harvard set and vice versa was of strategic value. Allegiance to the other amplified each set’s potential influence and reach, helped solidify its image, and garnered for each set and the transnational team as a whole evermore legitimacy and advantages in Western policy and aid circles.

Transnational loyalty as a strategy entailed two essential components. First, the Chubais associates and the Harvard consultants each shared their own unique access to information, resources, and contacts with their counterparts. For instance, members of the intertwined Chubais-Harvard network appointed each other to visible binational posts in economic, energy, and high-tech areas. They arranged for each other to be well represented on the high-level Gore-Chernomyrdin Commission (the binational body created in 1993 and chaired by vice presidents in the Clinton and Yeltsin administrations), which helped to facilitate cooperation on U.S.-Russian oil deals and the Mir Space Station, among other issues. The Commission’s Capital Markets Forum, established to “play a key advisory role to the Russian government,” according to the SEC, was chaired by Chubais and Vasiliev on the Russian side and, on the American side, by the SEC’s Arthur Levitt Jr. and Treasury Secretary Robert Rubin. Summers, then deputy treasury secretary, exalted the Forum’s mission, “assisting Russia in the development of its capital markets,” as “a top priority” of the department. Shleifer was named special coordinator of the forum’s four working groups and the only representative to all of them. Vasiliev appointed Elizabeth Hebert, Hay’s girlfriend (now wife) and head of her own financial company, to serve on at least one of these groups. Others represented on the groups were CEOs from Salomon Brothers, Merrill Lynch, and other powerful American-based investment houses. 16