COLLISION AND COLLUSION - Reviews
November 16, 1998
Collision and Collusion: The Strange Case of Western Aid to Eastern Europe, 1989-1996.
By Janine R. Wedel, Winner, 2001 Grawemeyer Award for Ideas Improving World Order.
Wedel's (The Private Poland) experience in the Soviet bloc gives her the sociological basis from which to understand the post-Soviet "aid" period. While painting a sympathetic portrait of well-meaning foreign donors, such as USAID and the European Union's PHARE (Poland and Hungary Aid in Restructuring the Economy) programs, she presents the myriad elements that contributed to their failure in Poland, Hungary and the Czech Re-public, but most spectacularly in Russia and other nations of the former Soviet Union.
Prominent among the culprits were the media darlings of the "Marriott Brigade," consultants who jet-setted about the region, offering homilies and heady capitalist exhortations, then departed safely to the next country before developing concrete solutions. While donors lulled themselves with the idea that these consultants were effective, Easterners were quick to adopt "foreign friends" to get access to funding.
Wedel sharply exposes the mutual promotion of the Harvard Institute for International Development's consultants and economic guru Anatoly Chubais's cronies. She charges that, gaining nearly sacrosanct status, they maneuvered enormous profits via insider deals: e.g., Harvard Management Fund was one of only two foreign participants in the fabulously lucrative loans-for-shares deals, while one Chubais cohort obtained Norilski Nickel for a fraction of its value.
Wedel's research reveals how little Western "aid" really got to where it was supposed to go and why even much that did failed to help. Wedel's bold, invaluable report is frightening for its revelations and political implications, both in the U.S. and the ex-Eastern bloc. (Dec.) There are certain similarities between the problems encountered in development programmes in the Third World and some of the experiences in the transition countries, but these often concern flaws in the way assistance was given.
The assumption that markets would appear spontaneously as soon as the remains of state socialism were out of the way was not correct. Moreover, it showed Western arrogance and insensitivity with regard to the specific problems of transition countries, especially the social consequences. In some cases, notably in Russia, the coincidence of a specific approach to managing aid programmes and donor countries' desire to engage in some political engineering in the recipient country gave rise to unprecedented forms of monopolisation of aid relations by a very small group of officials from both sides. This created the opportunity to divert and abuse aid funds for personal political and material gain, and paradoxically reinforced exactly the type of structures that were inherent in the previous system.
Wedel's book is an important contribution to a process of critical reflection and analysis that is long overdue. It also adds an extra dimension to a debate that has been dominated by popular legends in which either all Poles, Russians, etc. were depicted as incurably corrupt, or all Western advisers were supposedly only interested in filling their own pockets as fast as possible. The intricate relations between aid recipients and visiting experts, as well as the great material and political interests of the actors involved, deserved a more fundamental approach; this book certainly contributes to that. The description of the phases of Triumphalism and Disillusionment is very compelling.
The answers suggested in the book to the question why some projects were more successful than others could prove useful for future initiatives. The tone of the book becomes very sharp where the author deals with the so-called 'econolobbyists', as exemplified by the following description: 'Although there were some steadfast and persistent advisers who made contributions in the region, the jet-setting "econolobbyists" were more about public relations and their own publicity than they were about serious policy advice' (pp. 46-47).
The descriptions of the early stardom of Jeffrey Sachs, portrayed rather mercilessly by the author, the episode of fly-in fly-out economic advisers, the so-called Marriot Brigade and the way they actually handled privatisation and restructuring provide a much-needed complement to the theoretical justifications for the course of action that was taken.
At the same time this is probably where interested economists will feel the urge to put down the book, because they might feel unfairly attacked as a group. This feeling may become even stronger when they read the chapter about Russian privatisation where the connection between the Harvard Institute for International Development and the so-called Chubais clan is explained in great detail. This chapter reads like an indictment and only leaves room for one of two possible answers: either the reader concludes that this book is a political pamphlet and cannot be considered serious academic work, or he feels that the reputation of the economist's profession is jeopardised by the lack of moral and professional standards of some of them.
Still, whether he agrees with the author or not, I hope that especially those who are involved in economic policy making go on reading, because their understanding of the mixed results of reform packages can only benefit from the confrontation with unpleasant facts. In fact, everyone who is studying the transition process in Central and Eastern Europe should read this book. For economists it might provide an additional stimulus to include institutional factors in their models. This does not necessarily mean that these processes all have to be modelled rigidly and explicitly, although a topic like 'advice as a source of human capital growth in an environment where both parties have other (hidden) interests and incentives' sounds like a tasty one for game theorists.
What it does mean is that the-basically technocratic-method of imposing one single optimal path that should be taken by all transition economies (because it looks nice in the model) can easily disturb the process of institutional change. This danger is most evident when this dogmatic approach is combined with 'political engineering' in favour of certain groups that are considered pro-Western. This could lead to deformations in institutional structures that create barriers to the development of a healthy market economy in a democratic environment.
All of this clearly underlines how necessary it is that those involved in aid programmes should be held accountable for their actions to a far greater extent than has been the case so far. Whether it concerns taxpayers' money from donor countries or (future) taxpayers' money from recipient countries (when aid is given in the form of credits), in all cases the use of these funds should be subject to strict monitoring on behalf of the legislature of the countries involved. Wedel's book contributes to a growing awareness about pervasive weaknesses in the design of aid programmes and undesirable side effects that they may have. It is highly recommended to everyone who is interested in transition problems.