The Modus Operandi

It is time now to look in greater detail at the way in which this
extraordinarily effective operation worked--effective, that is, in
acquiring standing and funds. There were five basic operating
principles.

* Democracy by Decree

The transactors' preferred way of proceeding in the Russian context
was by means of top-down presidential decree. U.S. officials
explicitly encouraged this practice as an efficient means of
achieving market reform. As USAID's Walter Coles, a key American
official in the privatization aid program, put it, "If we needed a
decree, Chubais didn't have to go through the bureaucracy." Rule by
decree also allowed the transactors to bypass the democratically
elected Supreme Soviet and the Duma. The Harvard Institute's Russia
director, Jonathan Hay, and his associates went so far as to draft
some of the Kremlin decrees themselves. Needless to say, this did
nothing to advance Russia's evolution toward a democratic system, nor
was it consistent with the declared American aim of encouraging that
evolution.

* Flex Organizations

A similar anti-democratic ethos pervaded the network of
Harvard-Chubais transactor-run organizations. The transactors
established and oversaw a network of aid-funded, aid-created
"private" organizations whose ostensible purpose was to conduct
economic reform, but which were often used to promote the
transactors' parochial agendas. These organizations supplanted or
circumvented state institutions. They routinely performed functions
that, in modern states, are typically the province of governmental
bureaucracies. They served to allow the bypassing of the Duma and
other relevant actors, whose input was in the long term crucial to
the successful implementation of economic reforms in Russia. Further,
the aid-created organizations served as a critical resource for the
transactors, a vehicle by which to exploit financial and political
opportunities for their own ends. I call these bodies "flex
organizations" in recognition of their impressively adaptable,
chameleon-like, multipurpose character.

The donors' flagship organization was the Russian Privatization
Center, which had close ties to Harvard University. Its founding
documents state that Harvard University is both a "founder" and "Full
Member of the [Russian Privatization] Center." The center received
funds from all major and some minor Western donors and lenders: the
United States, the IMF, the World Bank, the European Bank for
Reconstruction and Development, the European Union, Germany and
Japan. The center's chief executive officer, a Russian from the
Chubais Clan, has written that while head of the center he managed
some $4 billion in Western funds. The Chamber of Accounts, Russia's
rough equivalent of the U.S. General Accounting Office, investigated
how that money was spent. An auditor from the Chamber concluded that
the "money was not spent as designated. Donors paid . . . for
something you can't determine." When I interviewed aid-paid
consultants working at the center, I was told that the funds were
routinely used for political purposes.

The center was an archetypal flex organization, one that switched its
identity and status situationally. Formally and legally, it was
nonprofit and non-governmental. But it was established by Russian
presidential decree and received aid because it was run by the
Chubais transactors, who also played key roles in the Russian
government. In practice, the center played the role of government
agency. It negotiated with and received loans from international
financial institutions--which typically lend to governments, not
private entities--and did so on behalf of the Russian state.

According to documents from Russia's Chamber of Accounts, the center
wielded more control over certain privatization documents and
directives than did the Russian government agency formally
responsible for privatization. Two center officials, its ceo from the
Chubais Clan and Harvard's Moscow representative, Hay, were in fact
authorized to sign privatization decisions on Russia's behalf. Thus
did a Russian and an American, both of them affiliated with a private
entity, end up acting as representatives of the Russian Federation.

* "Transidentity"

It was not only organizations that could change guises. The flex
organization had its individual equivalent in the phenomenon of
"transidentity", which refers to the ability of a transactor to
change his identity at will, regardless of which side originally
designated him as its representative. Key Harvard-Chubais transactors
were quintessential chameleons. To suit the transactors' purposes,
the same individual could represent the United States in one meeting
and Russia in the next--and perhaps himself at a third--regardless of
national origin.

Jonathan Hay, who alternatively acted as an American and a Russian,
provides a telling example of this phenomenon. In addition to being
Harvard's chief representative in Russia, with formal management
authority over many other U.S. contractors, Hay was appointed by
members of the Chubais Clan to be a Russian. As such, he was
empowered to approve or veto high-level privatization decisions of
the Russian government. According to a U.S. official investigating
Harvard's activities, Hay "played more Russian than American." The
financial arena yields many such examples of transidentity, in which
Chubais transactors appointed Americans to act as Russians.

It was (and is) difficult to glean exactly who prominent consultants
on the international circuit represented, for whom they actually
worked, who paid them, and where their loyalties and ambitions lay at
any given time. Harvard economist Jeffrey Sachs, who served as
director of the Harvard Institute from 1995 to 1999, provides a case
in point. According to journalist John Helmer, Sachs and his
associates (including David Lipton, vice president of Sachs'
consulting firm who later went to Treasury to work for Summers)
played both the Russian and the IMF sides of the street. During
negotiations in 1992 between the IMF and the Russian government, for
example, Sachs and his associates appeared as advisers to the Russian
side. But they were at the same time "writing secret memoranda
advising the IMF negotiators as well."

Compounding this ambiguity is the question of whether Sachs was an
official adviser to the Russian government. Although he maintains
that he was, key Russian economists as well as international
officials cast doubts on his claim. Jean Foglizzio, the IMF's first
Moscow resident representative, was also taken aback by Sachs'
practice of introducing himself as an adviser to the Russian
government. As Foglizzio put it, "[When] the prime minister [Viktor
Chernomyrdin], who is the head of government, says 'I never requested
Mr. Sachs to advise me'--it triggers an unpleasant feeling, meaning,
who is he?"

Sachs also offered his services as an intermediary. According to
Andrei Vernikov, a Russian representative to the IMF, and other
sources, Sachs presented himself to leading Russians as a powerbroker
who could deliver Western aid. In 1992, when Yegor Gaidar (with whom
Sachs had been working) was under attack and his future looked
precarious, Sachs offered his services to Gaidar's parliamentary
opposition. In November 1992 Sachs wrote a memorandum to the chairman
of the Supreme Soviet, Ruslan Khasbulatov (whose reputation in the
West was that of a retrograde communist), offering advice, Western
aid and contacts with the U.S. Congress. Khasbulatov declined Sachs'
help after circulating the memo. Sachs also proved adept at lobbying
American policymakers.

The most effective and influential transactors are extremely adept at
working their multiple roles and identities. One such ubiquitous
transactor was Anders Åslund, a former Swedish envoy to Russia who
worked with Sachs and Gaidar. Åslund seemed at once to represent and
speak on behalf of American, Russian and Swedish governments and
authorities. Accordingly, he was understood by some Russian officials
in Washington to be Chubais' personal envoy. Though a "private"
citizen of Sweden who played a leading role in Swedish policy and aid
toward Russia, he nonetheless participated in high-level meetings at
the U.S. Treasury and State Departments about U.S. and IMF policies.
Åslund was also involved in business activities in Russia and
Ukraine. According to the Russian Interior Ministry's Department of
Organized Crime, he had "significant" investments in the Russian
Federation. In addition to his work for governments, the
Harvard-Chubais transactors and the private sector, Åslund was
engaged in public relations activities. His assignment in Ukraine,
where he was funded by George Soros, explicitly included public
relations on behalf of that country, according to other Soros-funded
consultants who worked with Ã…slund there. His effectiveness in this
role was no doubt enhanced by his affiliation with Washington think
tanks, his frequent contributions to publications such as the
Washington Post and the London Financial Times, and the fact that he
always presented himself on these occasions as an objective analyst,
despite his many promotional roles.

* Interchangeability

The maneuverability for individuals afforded by transidentity was
also present at the group level. The Harvard Institute group, though
formally representing the United States, also represented the Chubais
group. Thus, some U.S. officials and investigators requesting
meetings with Russians were instead directed to Americans. In
lobbying for aid contracts, the Harvard Institute group continually
cited its access to Russian "reformers" as its primary advantage;
this was in fact a key component of its public relations effort. In
turn, Harvard acted as the Chubais Clan's entrée to the eyes and ears
of U.S. policymakers and to American funds. In the United States, the
Harvard transactors touted Chubais as the voice of Russia, and he
became the quintessential enlightened Russian in the eyes of many
U.S. officials and commentators.

Essay Types: Essay