University Times, University of Pittsburgh
v. 33, No. 8, December 7, 2000.

ONE ON ONE with Janine Wedel:
GSPIA scholar reveals how misguided U.S. economic aid hurt post-communist Russia

"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," Janine R. Wedel wrote in the spring issue of The National Interest.

As "Bill and Boris" hugged and mugged for the cameras, a cozy new era in U.S.-Russia relations seemed to be dawning, Wedel recalled. American economic aid, expertise and good will would see to that.

Instead, Russians today face poverty, crime, corruption and rickety democratic institutions -- the legacy of ill-planned, poorly executed and misdirected U.S. foreign aid, according to Wedel, an anthropologist and associate professor in Pitt's Graduate School of Public and International Affairs (GSPIA).

Wedel analyzed what she calls the "gigantic disconnect" between East and West -- "forged by the Cold War and exacerbated by the barriers of language, culture, distance, information, and semi-closed borders" -- in her book, "Collision and Collusion: The Strange Case of Western Aid to Eastern Europe 1989-1998" (St. Martin's Press).

The book also is a cautionary tale about the dangers posed by newly emerging "power elites" and "econolobbyists" whose interests transcend national borders, and it recently earned Wedel the 2001 University of Louisville Grawemeyer Award for Ideas Improving World Order. The award carries with it a $200,000 cash prize.

"Collision and Collusion" was chosen from among 51 nominations submitted by individuals and organizations throughout the world. "This is a book that is bound to have a long-term impact on the practice and politics of foreign aid from the West to non-western economies," said the Grawemeyer selection committee.

Wedel, who also is director of research development at GSPIA's Ridgway Center for Security Studies, has studied the evolving economic and social order in eastern Europe for 20 years, including eight years of field research there. A three-time Fulbright fellow, she has received awards from the National Science Foundation, the MacArthur Foundation, the Woodrow Wilson International Center for Scholars, the United States Institute of Peace, and the National Council for Eurasian and East European Research.

As a policy analyst/anthropologist, Wedel has testified before congressional committees and frequently participates in National Research Council and National Academy of Sciences workshops. She is a member of the U.S.-Ukranian Working Group on Organized Crime.

She has served as associate producer of three PBS documentaries on eastern Europe and has contributed articles and opinion pieces to more than a dozen major publications, including The New York Times and the Los Angeles Times. In addition to her Grawemeyer Award-winning book, Wedel wrote "The Unplanned Society: Poland During and After Communism" (Columbia University Press, 1992) and "The Private Poland: An Anthropologist Looks at Everyday Life" (Facts on File, 1986).

Wedel earned a Ph.D. in anthropology from the University of California-Berkeley, a master's degree in anthropology from Indiana University, and a bachelor's degree in history and the social sciences and German from Bethel College.

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University Times Assistant Editor Bruce Steele interviewed Wedel this week.

University Times: In your book, you argue that "the West's misguided aid efforts opened the door to misunderstandings and ill will on a massive scale." What went wrong?

Wedel: To begin with, it was naive to think that you could suddenly destroy well-entrenched institutions and start from scratch, as some Western economists recommended. My first two books were about informal social networks and how they shaped society and its institutions, even under communism. To have the intended effects, you had to recognize and take into account those patterns and cultural practices, and Western donors failed to do that.

I don't think that the West was equipped or prepared to intervene in the societies of central and eastern Europe and the former Soviet Union. These were not Third World populations; these were highly literate peoples whose educational systems were better in many cases, at least at the secondary school level, than those in the United States. On the one hand, Western donors employed the standard Third World aid machine, and on the other hand they set up new bureaucracies and institutions to work in the region. Neither translated very well to former Soviet bloc countries.

Beginning in 1989, after the Berlin Wall fell and the communist regimes in central Europe collapsed, hundreds of Western "fly-in, fly-out" consultants and advisers appeared on doorsteps of Eastern elites. This was a period of triumphalism. There was this euphoric sense that if the Berlin Wall came down, everything else would magically fall into place. But what Western advisers and experts encountered in these former communist countries were local elites who were very well-educated and highly literate, but who didn't necessarily know what to do. No one had the answers about how to convert communist economies into capitalist systems, not even the Western "experts."

What the eastern Europeans encountered, first, was this horde of Western advisers who, in many cases, didn't know much about the societies in which they were attempting to intervene. This led to what I call the second phase of the aid relationship: disillusionment. Both sides were frustrated, and eastern European officials began to say things like, "The major contribution Western consultants make to our economies is that they spend money here on hotels and restaurants and service people, and on hiring local translators and secretaries."

When the Soviet Union came apart in 1991, many of the Western consultants who had been working in central and eastern Europe went east to work in Russia and, later, in Ukraine. The dynamics just transferred from one society to the next: First, this great euphoria. And then, disillusionment.

Western aid programs were really rather fragmented. A lot of consultants from different countries got involved. Money was not very well targeted and certainly not coordinated. One exception was U.S. economic aid to Russia. That was effective -- unfortunately.

Responsibility for distributing $350 million in U.S. economic aid to Russia was essentially delegated to consultants associated with the Harvard Institute for International Development. These Harvard Institute consultants, in turn, worked almost exclusively in Russia with a group centered around Anatoly Chubais, who became an indispensable aide to Boris Yeltsin through much of the 1990s. This group became known as the Chubais Clan. The group got access to so much Western aid, thanks largely to the Harvard people, and wielded tremendous influence.

The Harvard-Chubais group was responsible for privatizing the Russian economy. And privatization, we now know, was heavily corrupt. It was supposed to be about wealth creation, creating a market economy. It was more about wealth confiscation. Sufficient attention was not paid to establishing the rule of law or to third-party dispute settlement. Informal groups such as oligarchies, clans, financial-industrial groups and so on were often able to get, and do, what they wanted.

You might have read that Harvard University, along with the two people in charge of the Harvard-Russia project and their wives, recently were sued by the U.S. government for $120 million. [NOTE: The U.S. Department of Justice alleges that the defendants used their positions and inside knowledge to profit from investments in the Russian securities markets and other private enterprises. In 1997, the federal government canceled most of the remaining aid it had earmarked for the Harvard Institute for International Development. Harvard closed the institute this year.]

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It's one thing to criticize America's foreign aid policy. But to accuse Harvard of illegally profiting from foreign aid contracts, with help from Harvard-connected officials in the Clinton admini-stration....I'm curious how your book and journal articles have been received in academic circles.

I wrote an article called "Tainted Transactions: Harvard, the Chubais Clan, and Russia's Ruin," that was published in last spring's issue of The National Interest. It attracted a lot of attention. Some of the people whose activities and relationships I discussed in the article, notably some of the players associated with Harvard, responded quite virulently and emotionally. But support for my argument came out of the woodwork from many people who had witnessed aspects of the Russian aid story: Economists who had warned about the policies being implemented and the players being rewarded; American diplomats who had been posted to Moscow and had been concerned about the anti-democratic nature of U.S. policies -- how we had given a blank check to one group of Russians at the expense of others who supported the United States during the Cold War, and how we had alienated so many potential supporters.

I think the reason my book has attracted so much attention is because it hit a nerve. So many people have had some experience with the Russian aid story. When I came along and described the on-the-ground processes and responses to aid, many people welcomed that. Of course, there were those who didn't.

Harvard was able to gain control over so much USAID [U.S. Agency for International Development] funding, largely on a non-competitive basis, only because of the support and promotion it received from Harvard-connected officials at the top levels of the federal government, notably in the U.S. Treasury. When I began to put that together -- and I'm sure that what I know, and what the Justice Department knows, is only the tip of the iceberg -- some saw my work as being subversive. One person at the CIA told me that he and his colleagues were carrying around my article in brown paper bags.

How much U.S. economic aid was wasted or misdirected?

Public policy debates tend to focus on "how much" and "for what." But what's interesting to me is the processes of aid. In the case of U.S. economic aid to Russia: Who got the contracts? Who were the designated representatives on both sides? How did those representatives relate to each other and to local recipient communities?

The U.S. economic aid portfolio largely controlled by Harvard and the Chubais Clan was "only" about $350 million, but that aid was targeted. It paid for the design, implementation and promotion of privatization in Russia, among other things.

To put this in perspective on a small scale, imagine if someone from outside the University of Pittsburgh were to say: "I want to give Pitt a $3 million grant. I'm very impressed by the University Times, so I'm going to give all of the $3 million to the University Times and charge its staff with distributing that money around the University." I imagine that you would immediately become an important person, politically, at Pitt -- not necessarily because you had clout or influence or prestige to begin with, but because you now have access to this money.

That's roughly what happened with U.S. economic aid to Russia. We said, "Here are the reformers, the people we think are enlightened. We're going to let them manage the aid and implement their vision." That had an effect on Russian politics. This small group of so-called reformers, with access to hundreds of millions of dollars in Western aid, became the people to deal with. This shows how aid can play an important role in rearranging political-social relationships. The process can be completely anti-democratic.

How have the Russian people fared since the fall of communism?

The standard of living for many Russians, by whatever measure you want to use -- income, purchasing power, life expectancy, infant mortality -- is worse than it was 10 years ago, before the so-called reforms. Of course, Western aid cannot be blamed for all of this. But, unfortunately, certain aid policies did contribute.

Some Western pundits say it's unfair to blame ourselves for crime, corruption and the failure of democracy in Russia. After centuries of tsarism and communism, weren't Russia's recent hardships bound to happen?

If there was no hope of reform, why did we intervene in the first place? The fact is, some of the policies promoted by the West, particularly quick privatization, have been detrimental to Russian society. Western aid policies have damaged U.S.-Russian relations and Russia's relations with the West in general.

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Many sophisticated Russians think that the United States set out deliberately to destroy their economy. One can understand how they came to that conclusion. Hundreds of foreign advisers and billions of aid dollars later, many things are worse. So, when officials at the U.S. Treasury and Harvard say, "Well, there was nothing that could be done, Russians have always been corrupt" -- that's a refusal to accept responsibility.

The major news media only began discussing Russian corruption in the last few years. Through the 1990s, Western press coverage consisted mainly of promoting U.S. policies and the so-called reformers in Russia. But now, I think, we're seeing a lot more about Russian corruption and will continue to do so. It's now convenient to blame Russia for what went wrong. Of course, there are precedents for corruption in Russian society and culture. That's precisely why the task of the Western aid community was to establish the rule of law and discourage corruption, rather than encouraging it -- which is precisely what U.S. economic policies did.

Frankly, Russians under communism weren't practiced in laundering money or siphoning billions of dollars into Swiss bank accounts. I've interviewed Western lawyers who made lots of money during the 1990s, working for Russians to help them set up precisely those kinds of arrangements. All of this did not happen in a vacuum. Western bankers had an interest in having Russians deposit monies in their banks.

In addition, the big Western consulting firms got huge contracts for work in the former Soviet bloc countries during the 1990s. That helped them move into the region and scout out business opportunities. Advisers from Harvard allegedly got involved in all sorts of business activities and that's why they're being sued. They were in a position to have intimate knowledge -- in fact, in some cases they were making decisions about economic policies -- and allegedly they used that insider information to wheel and deal.

You've noted the emergence of "global elites" -- power-brokers who, as you wrote, "see themselves not so much as American, Brazilian or Italian, but as members of an exclusive and highly mobile multinational club, whose rules and regulations have yet to be written."

The case of U.S. economic aid to Russia is a cautionary tale. In pursuing their own group and personal agendas, the Harvard people and the Chubais undermined the interests of the countries they were supposedly representing.

I think we're going to see more of this under globalization. We have an ever-growing number of global elites who have more in common with each other than they do with particular nations.

At the same time, the role of the nation-state is changing. Some functions of nation-states are now being performed by international organizations, non-governmental organizations and private groups. But legal structures have not kept up with this trend.

It was never clear in Russia who some of the high-profile Western economists -- I call them "econolobbyists" -- were representing. One of the Harvard professors sometimes presented himself as an adviser to the Russians. Other times, he acted as an adviser to the International Monetary Fund. Still other times, he functioned as an adviser on U.S.-Russian relations to the American government.

The manager of the Harvard program in Russia was authorized by the Russians to sign off on some high-level privatization decisions. When U.S. federal investigators went to Moscow, this American consultant said, in effect: I didn't make this decision as an American, I made it as a Russian. Can you imagine a representative of, say, Zambia being given authority to sign off on key policies of the U.S. Energy Department?

What are you working on now?

I'm developing my theory of transactorship, which grew out of the U.S.-Russia aid case. Transactorship is a motive organizing relations between parties that have been culturally and societally separate. In transac-torship, the separated parties have representatives I call transactors, whose job it is to build bridges between the two parties. Ultimately, transactors become more loyal to each other than to the parties they supposedly represent. The representational fraud that results is one of the features of transactorship. This may, intentionally or inadvertently, undermine or subordinate the aims of the parties for whom the transactors came together in the first place and on whose behalf they ostensibly act.

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© , Janine Wedel