Financial Times, August 11, 2004, p. 11.

Danger of Private Agendas in Foreign Policy

A US federal court found in a recent ruling that Andrei Shleifer, a noted economics professor at Harvard University, and Jonathan Hay, a legal adviser also working for Harvard at the time, conspired in the 1990s to defraud the US government while helping to run a nearly $400m US-funded project to reform Russia's economy. The $120m suit, brought by the US justice department in 2000, named Harvard University as well as Mr Shleifer and his wife, and Mr Hay and his then-girlfriend now wife; the two women were subsequently dropped from the suit.

The ruling, however, underscored the pitfalls in contracting out traditional functions and responsibilities of governments in foreign policy and assistance to a small, well-connected group. Mr Hay and Mr Shleifer were supposedly providing impartial advice while making personal investments with the benefit of insider knowledge. This was before the Bush administration began outsourcing military and nation-building activities in Iraq. Now, in a similar way, administration insiders who led the rush to war in Iraq are benefiting from foreign policy and homeland security strategies they advocated.

In the 1990s, during the heated years of Russian reform, the now-defunct Harvard Institute for International Development became a manager of US economic reform aid to Russia, with the help of influential Harvard-connected associates in the Clinton administration.

On alleged grounds of “foreign policy” considerations the Harvard Institute was granted some exemptions to competitive bidding and given authority over other contractors, some of whom were their competitors. The Harvard principals were therefore the chief recipients and the managers and implementors of that aid. The virtual carte blanche given the Harvard group enabled them to wear all manner of hats, from government to business and university. Their conflicting roles went beyond investments in Russian securities, equities, oil and aluminium companies, property and mutual funds named in the law suit. Although ostensibly a representative of American aid, Mr Hay was able to approve some privatisation decisions of the Russian state on authority given him by the Russian members of the Harvard-Russia group, some of whom also served as officials in the Russian government.

The Harvard case highlights the dangers of contracting out vital state functions to private actors without relying on independent information and without proper oversight. Because the overarching goal of contractors is to make good money, not good policy, their private agendas can conflict with the public interest. Contractors are usually not subject to the same accountability as government employees. Mr Shleifer, for example, readily acknowledged making personal investments in Russia, but denied in court this was a conflict of interest.

Yet, a decade later, the outsourcing of government functions has accelerated, driven by the Bush administration's ideological preference for markets and, paradoxically, by the increasing demand for US government services - namely military, foreign aid and nation-building activities. Harvard's contracting coup was unusual at the time, to hear procurement officers tell it. But it pales in comparison with some of the huge, non-competitive awards, justified on national security grounds, granted for work in Iraq. Defence companies linked to senior members of the administration's inner circles have been the beneficiaries of some of these awards. To make matters worse, “private” contractors not only implement policy but, occasionally, make crucial government decisions seconded or checked only by bureaucrats with connections to the contractors. And, much as in the Harvard case, this makes it difficult to pin down roles and responsibilities. It is sometimes impossible to determine who speaks on behalf of the state, or is even responsible to it.

Officials with the Government Accountability Office, the congressional body charged with auditing public expenditure including on homeland security and anti-terrorism measures, recently told me they had been directed on occasion to contractors rather than government officials. As became all too clear with the interrogator-contractors involved in the Iraqi prisoner abuse scandal, when roles are ambiguous accountability is elusive. As long as the US continues to contract out critical government functions to small coteries, America's interests, along with its moral standing, will be repeatedly undercut by private considerations.

© , Janine Wedel