Matt Bivens, a former editor of the Moscow Times who
now lives in Maryland, reported from Russia for nine years for publications
ranging from the Los Angeles Times to Harper's.
On July 1 Larry Summers-the Wunderkind economist who ran the Treasury
Department under President Clinton-takes over as president of Harvard University.
"A fitting choice," editorialized the New York Times. But fitting in what
way?
So far, Summers has maintained an eloquent silence on the activists
who seized his future office for three weeks to demand a living wage for
Harvard service personnel. Harvard may have an endowment of billions at
its disposal, but Summers, who failed to respond to my requests for an
interview, is unlikely to embrace the living-wage drive.
After all, if everyone were paid a living wage,
where would we store hazardous waste? A decade ago, while chief economist
of the World Bank, Summers put forward arguments for a "world-welfare enhancing
trade in air pollution and waste" in an internal bank memo that expressed
the value of a human life as the sum of its future earnings. "The costs
of health-impairing pollution depend on the foregone earnings from increased
morbidity and mortality," Summers wrote. So if pollution takes five years
off the life of the average, well-paid American, that is more significant
than the same pollution prematurely killing off the average someone in
Mexico or some other lower-wage country. Wrote Summers, "The economic logic
behind dumping a load of toxic waste in the lowest wage country is impeccable,
and we should face up to it."
Yes, it's a ten-year-old memo, and Summers has apologized for his suggestions,
saying they were ironic and intended to push colleagues to think outside
the box. But don't feel bad about asking him whether "impeccable logic"
dictates that the death of a Harvard janitor paid $6 an hour matters less
on some level than if the janitor is making $10.25. That's just one of
the harsh questions Harvard's braver souls ought to be asking.
Here's another: Why did Summers, while he was a top official at Treasury,
so ardently embrace the corrupt sell-off of Soviet industries? Russia's
privatization czar, Anatoly Chubais, oversaw "auctions" of the oil companies,
nickel mines and other crown jewels of Soviet industry that were openly
rigged. How openly? The privatizers invited some of Russia's newly minted
tycoons to organize the auctions-and then let those tycoons reject high
bids and crown themselves the winners.
Long after those rigged auctions were over, Summers was praising their
organizers as an "economic dream team" and was on a friendly first-name
basis with them in official letters. That was consistent with the Clinton
Administration's see-no-evil approach to Boris Yeltsin's boys-one that
Summers helped design.
Summers's critics may find new ammunition in a Justice Department lawsuit
brought against Harvard over its work on Russian privatizations. In United
States of America v. the President and Fellows of Harvard College, Andrei
Shleifer, Jonathan Hay, Nancy Zimmerman and Elizabeth Hebert, the Justice
Department accuses a team from Harvard of having "defrauded the United
States out of $40 million"-the amount paid to Harvard's Institute for International
Development to work on Russian economic policy in tandem with
reformers like Chubais. The Justice Department says that Shleifer and
Hay, who ran Harvard's Russia project, secretly bought large personal stakes
in Russian oil companies and in "GKOs"-wildly high-interest Russian treasury
bills. Harvard University's endowment, by the way, was also heavy in GKOs.
In other words, Harvard and its representatives were investing in areas
they were being paid to help design and regulate.
Justice's ninety-eight-page civil complaint also says the Harvard team
arranged for USAID to pay hefty salaries to people who worked on Hay's
or Shleifer's private business projects (or those of their wives, Zimmerman
and Hebert); some of those people rarely showed up for work "other than
to collect their pay or for the free lunches." And the complaint says that
"numerous" Harvard officials knew of these and other abuses, but those
who complained were either ignored or, if they worked under Shleifer and
Hay, bullied into silence.
Summers does not figure in the Justice Department's complaint, but he
has for decades been a mentor to Shleifer. As an MIT professor, he hired
Shleifer, then a Harvard undergraduate, as a research assistant, beginning
what the Journal of Economic Perspectives described as "a long period of
close friendship and mutual education." Even after Shleifer's work in Russia
had come under investigation, Summers continued to embrace it-for example,
writing in a blurb for a book Shleifer co-wrote on privatization that the
authors had done "remarkable things in Russia." Now, as Harvard president,
Summers will have to deal with the fallout from the legal case involving
Shleifer-who still holds tenure at Harvard-and whatever further embarrassing
details it may reveal.
Even then, the lawsuit involves only a portion of the Harvard-Russia
relationship. Of equal interest is how the Harvard project and the Russian
reformers cooperated to win control of the US government's aid money. And
this is a story Summers should know intimately-the ins and outs of Russian
economic policy-making were a major part of his brief at Treasury, while
the Harvard-reformer nexus involving his friends Shleifer and Chubais has
been chewed over by Congressional and General Accounting Office investigators.
Government money is usually handed out through a bidding process, but
according to a GAO investigation, aid money to Russia broke that model.
The GAO-the budgetary watchdog of Congress-says Harvard not only received
tens of millions without any bidding, it also won "substantial control
over the U.S. assistance program [for Russian economic policy-making]."
Here's how it worked: The Harvard team befriended "reformers" like Chubais.
(Friendship in action: When Yeltsin briefly fired Chubais over the rigged
oil company auctions, the Harvard team used USAID money to hire Chubais,
paying him $10,000 a month to be a "consultant.") USAID approvingly noted
the "deep relationship of trust" between Harvard and the reformers, and
cited it as a reason to give Harvard more aid money while sidelining projects
run by other institutions. On rare occasions when USAID did dare to award
money to a non-Harvard-approved organization, the reformers would nix it:
For example, when a team from Stanford won a USAID competition to work
with Russia's Federal Commission on Securities-a commission designed by
Shleifer and Hay-the "reformer" heading that commission balked. Stanford
lost that contract, and later Harvard was given money to do much the same
work.
Rigging the game so that only Harvard could win sounds like the sort
of crony capitalism associated withS well, with Russian privatization.
But the Justice Department is going after only the personal behavior of
Shleifer, Hay & Co., not the larger issue of how their superiors winked
so long at cronyism in Moscow and Washington. Why were the Russian reformers
allowed to play Harvard, and Harvard to play Washington, like a yo-yo?
That's another question no one should feel bad about asking Summers-who,
in one of those quirky ironies of fate, will also technically be on trial
if United States v. the President and Fellows of Harvard goes forward.
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