Not surprisingly, then, in times of crisis for the Harvard-Chubais
nexus--such as the ruble crisis of August 1998 and the Bank of New
York money laundering scandals--the transactors and their associates
have sought to bolster their colleagues' continued clout and standing
in both Russia and the United States. Thus, Summers has frequently
rushed to the defense of Chubais and other key transactors. In
testimony before the U.S. House of Representatives' Committee on
International Relations, for example, Summers stoutly defended
Chubais and asked that Chubais' prepared statement ("I Didn't Lie")
be placed in the congressional record. Similarly, Åslund serves as a
staunch defender of and advocate for Chubais. Of late, he also has
been arguing Vladimir Putin's cause.

* Unaccountability and Self-perpetuation

Transactors are largely above formal accountability. The group places
its members in various positions to serve its agendas, which may or
may not conflict with those of the government or public interest they
supposedly serve. The result is a game of musical chairs. For
example, a key agency in Russian "reform", the State Property
Committee, was headed by a succession of Chubais transactors, among
them Chubais himself, Maxim Boycko and Alfred Kokh. Kokh was named
chairman of the Committee after Boycko was fired by Yeltsin for
accepting a thinly veiled $90,000 bribe from a company that had
received preferential treatment in the privatization process. Kokh
himself was later removed for accepting a $100,000 payment from the
same company. Chubais, Boycko and Kokh also held a variety of key
positions in the Harvard-Chubais transactor-run, aid-funded Russian
Privatization Center.

The Chubais transactors are unlikely to disappear in Vladimir Putin's
Russia. In fact, Putin has long been intertwined with them. An
operative in the KGB and briefly head of its successor agency, Putin,
like most members of the Chubais Clan, hails from St. Petersburg and
was intimately involved in the "reforms" there. After moving to
Moscow to work with Chubais, Putin helped to suppress criminal
investigations that implicated Yeltsin and members of his family--as
well as Chubais himself. Chubais, in addition to running the
country's electricity conglomerate, is helping to run Putin's
presidential campaign.

Consequences of Transactorship

What, it might be asked, is wrong with the transactorship mode of
organizing relations between the United States and Russia in such
circumstances? Many U.S. officials have argued that it is the most
effective method by which to implement market reform--through a
committed group with intimate access to both sides (and to many
activities in both countries). In fact, there are several things that
are seriously wrong with this argument.

Transactorship has served to undermine democratic processes and the
development of transparent, accountable institutions.

Operating by decree is clearly anti-democratic and contrary to the
aid community's stated goal of building democracy in Russia. It has
weakened the message to the Russians that the United States stands
for democracy. Further, the aid-created flex organizations have
supplanted the state and often carried out functions that ought to
have been the province of governmental bureaucracies.

As well, the flex organizations have likely facilitated the
development of what I have called elsewhere the "clan-state", a state
captured by unauthorized groups and characterized by pervasive
corruption. In such a state, individual clans, each of which controls
property and resources, are so closely identified with particular
ministries or institutional segments of government that the
respective agendas of the state and the clan become
indistinguishable. Thus, while the Chubais transactors were closely
identified with segments of government concerned with privatization
and the economy, competing clans had equivalent ties with other
government organizations, such as the ministries of defense and
internal affairs and the security services. Generally, where judicial
processes are politically motivated, a clan's influence can be
checked or constrained only by a rival clan. By systematically
bypassing the democratically elected parliament, U.S. aid flouted a
crucial feature of democratic governance: namely, parliamentarianism.

Transactorship has frustrated true market reform.

Without public support or understanding, decrees constitute a weak
foundation on which to build a market economy. Some reforms, such as
lifting price controls, may be achieved by decree. But many others
depend on changes in law, public administration or mindsets, and
require cooperation among a full spectrum of legislative and market
participants, not just a clan.

A case in point was USAID's efforts to reform Russia's tax system,
and to establish clearing and settlement organizations (CSOs)--an
essential ingredient in a sophisticated financial system. The efforts
failed largely because they were placed solely in the hands of one
group, which then declined to work with other market participants. In
Moscow, for example, despite millions of USAID dollars, many Russian
brokers were excluded from the process and consequently declined to
use the CSO. Since 1994, when consultants working under USAID
contracts totaling $13.9 million set out to design and implement CSOs
in five Russian cities, very little evidence of progress has emerged.
After an investigation into the Harvard Institute's activities in
Russia, the U.S. General Accounting Office issued a report calling
the CSO effort "disappointing." Yet, absent support from parties to
the reform process, reforms were almost certain to be ignored or even
subverted during implementation.

To repeat, transactors, although they may share the overall goals of
the sides they represent, may advertently or inadvertently subvert
those goals in pursuit of their own private agendas. The
Chubais-Harvard transactors were known to block reform efforts on
occasion. In particular, they were inclined to obstruct reform
initiatives when they originated outside their own group or were
perceived to conflict with their own agendas. When a USAID-funded
organization run by the Chubais-Harvard transactors failed to receive
the additional USAID funds it had expected, its leaders promptly
obstructed legal reform activities in the areas of title registration
and mortgages--programs that were launched by agencies of the Russian
government. In such instances, the transactors' interference put them
at cross purposes with their own purported aim of fostering markets.

Lack of transparency, too, became apparent in the manner in which the
transactors implemented economic reforms. Secrecy shrouded the
privatization process, with numerous, unfortunate consequences for
the Russian people. Privatization, which was largely shaped by the
Harvard-Chubais transactors and significant parts of which were
funded by USAID, was intended to spread the fruits of the free
market. Instead, it helped to create a system of "tycoon capitalism"
acting in the service of a half dozen corrupt oligarchs. The
"reforms" were more about wealth confiscation than wealth creation;
and the incentive system encouraged looting, asset stripping and
capital flight.

Transactorship has encouraged the maximization of opportunities for
personal gain.

The prestige and access of the Harvard-Chubais transactors
facilitated their involvement in other areas, including allegedly the
Russian securities market, both in Russia and internationally, and
may have helped them enrich themselves. In such ways, the private
agendas of the Harvard-Chubais transactors helped to subvert the
goals of the sides they were supposed to be serving.

Providing a small group of powerbrokers with a blank check inevitably
encouraged corruption, precisely at a time when the international
community should have been demanding safeguards in Russia such as the
development of a legal and regulatory framework, property rights and
the sanctity of contracts. Over the years many substantiated reports
of the Chubais transactors using public monies for personal
enrichment have been published. Today these same persons are among
those under investigation for alleged involvement in laundering
billions of dollars through the Bank of New York and other banks.

The Harvard Institute has also had its difficulties. In 1996 the GAO
found that USAID's management over Harvard was "lax." In 1997 the
government cancelled most of the last $14 million earmarked for the
Institute, citing evidence that the project's two managers--Hay and
Shleifer--had used their positions and inside knowledge to profit
from investments in the Russian securities markets and other private
enterprises. The two remain under criminal and/or civil investigation
by the U.S. Department of Justice. In January 2000 a Harvard task
force issued a report alluding to that financial scandal. It
recommended that the Harvard Institute for International Development
be closed and that selected programs be integrated into other
university programs. The Institute was closed shortly thereafter. An
inspired Harvard University spokesperson, Joe Wrinn, spun the story
thus: "It's a vote of confidence for the study of international
development and its permanent integration into Harvard University."

Because the transactors' success is grounded in mutual loyalty and
trust, and because of their shared record of activities, some of
which have left them vulnerable to allegations of corruption, the
transactors have ample incentive to stick together. Any desertions
must be well considered, as they could have serious consequences for
all involved.

Transactorship has encouraged not only corruption but also the
ability to deny it.

Transactorship affords maximum flexibility and influence to the
transactors, and minimal accountability to the sides the transactors
presumably represent. If the Harvard Institute's manager in Russia
were asked by U.S. authorities to account for privatization decisions
and monies, he could respond by claiming that he made those decisions
as a Russian, not as an American. If USAID came under fire for
funding the Russian state, it could claim that it was funding private
organizations.

Essay Types: Essay