Harvard's 'Fitting Choice'
On July 1 Larry Summers--the Wunderkind economist who ran the Treasury Department under President Clinton--takes over as president of Harvard University. "A fitting choice," editorialized the New York Times. But fitting in what way? So far, Summers has maintained an eloquent silence on the activists who seized his future office for three weeks to demand a living wage for Harvard service personnel. Harvard may have an endowment of billions at its disposal, but Summers, who failed to respond to my requests for an interview, is unlikely to embrace the living-wage drive.
After all, if everyone were paid a living wage, where would we store hazardous waste? A decade ago, while chief economist of the World Bank, Summers put forward arguments for a "world-welfare enhancing trade in air pollution and waste" in an internal bank memo that expressed the value of a human life as the sum of its future earnings. "The costs of health-impairing pollution depend on the foregone earnings from increased morbidity and mortality," Summers wrote. So if pollution takes five years off the life of the average, well-paid American, that is more significant than the same pollution prematurely killing off the average someone in Mexico or some other lower-wage country. Wrote Summers, "The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to it."
Yes, it's a ten-year-old memo, and Summers has apologized for his suggestions, saying they were ironic and intended to push colleagues to think outside the box. But don't feel bad about asking him whether "impeccable logic" dictates that the death of a Harvard janitor paid $6 an hour matters less on some level than if the janitor is making $10.25. That's just one of the harsh questions Harvard's braver souls ought to be asking.
Here's another: Why did Summers, while he was a top official at Treasury, so ardently embrace the corrupt sell-offs of Soviet industries? Russia's privatization czar, Anatoly Chubais, oversaw "auctions" of the oil companies, nickel mines and other crown jewels of Soviet industry that were openly rigged. How openly? The privatizers invited some of Russia's newly minted tycoons to organize the auctions--and then let those tycoons reject high bids and crown themselves the winners.
Long after those rigged auctions were over, Summers was praising their organizers as an "economic dream team" and was on a friendly first-name basis with them in official letters. That was consistent with the Clinton Administration's see-no-evil approach to Boris Yeltsin's boys--one that Summers helped design.
Summers's critics may find new ammunition in a Justice Department lawsuit brought against Harvard over its work on Russian privatizations. In United States of America v. the President and Fellows of Harvard College, Andrei Shleifer, Jonathan Hay, Nancy Zimmerman and Elizabeth Hebert, the Justice Department accuses a team from Harvard of having "defrauded the United States out of $40 million"--the amount paid to Harvard's Institute for International Development to work on Russian economic policy in tandem with reformers like Chubais. The Justice Department says that Shleifer and Hay, who ran Harvard's Russia project, secretly bought large personal stakes in Russian oil companies and in "GKOs"--wildly high-interest Russian treasury bills. Harvard University's endowment, by the way, was also heavy in GKOs. In other words, Harvard and its representatives were investing in areas they were being paid to help design and regulate.
Justice's ninety-eight-page civil complaint also says the Harvard team arranged for USAID to pay hefty salaries to people who worked on Hay's or Shleifer's private business projects (or those of their wives, Zimmerman and Hebert); some of those people rarely showed up for work "other than to collect their pay or for the free lunches." And the complaint says that "numerous" Harvard officials knew of these and other abuses, but those who complained were either ignored or, if they worked under Shleifer and Hay, bullied into silence.
Summers does not figure in the Justice Department's complaint, but he has for decades been a mentor to Shleifer. As an MIT professor, he hired Shleifer, then a Harvard undergraduate, as a research assistant, beginning what the Journal of Economic Perspectives described as "a long period of close friendship and mutual education." Even after Shleifer's work in Russia had come under investigation, Summers continued to embrace it--for example, writing in a blurb for a book Shleifer co-wrote on privatization that the authors had done "remarkable things in Russia." Now, as Harvard president, Summers will have to deal with the fallout from the legal case involving Shleifer--who still holds tenure at Harvard--and whatever further embarrassing details it may reveal.
Even then, the lawsuit involves only a portion of the Harvard-Russia relationship. Of equal interest is how the Harvard project and the Russian reformers cooperated to win control of the US government's aid money. And this is a story Summers should know intimately--the ins and outs of Russian economic policy-making were a major part of his brief at Treasury, while the Harvard-reformer nexus involving his friends Shleifer and Chubais has been chewed over by Congressional and General Accounting Office investigators.
Government money is usually handed out through a bidding process, but according to a GAO investigation, aid money to Russia broke that model. The GAO--the budgetary watchdog of Congress--says Harvard not only received tens of millions without any bidding, it also won "substantial control over the U.S. assistance program [for Russian economic policy-making]." Here's how it worked: The Harvard team befriended "reformers" like Chubais. (Friendship in action: When Yeltsin briefly fired Chubais over the rigged oil company auctions, the Harvard team used USAID money to hire Chubais, paying him $10,000 a month to be a "consultant.") USAID approvingly noted the "deep relationship of trust" between Harvard and the reformers and cited it as a reason to give Harvard more aid money while sidelining projects run by other institutions. On rare occasions when USAID did dare to award money to a non-Harvard-approved organization, the reformers would nix it: For example, when a team from Stanford won a USAID competition to work with Russia's Federal Commission on Securities--a commission designed by Shleifer and Hay--the "reformer" heading that commission balked. Stanford lost that contract, and later Harvard was given money to do much the same work.
Rigging the game so that only Harvard could win sounds like the sort of crony capitalism associated with... well, with Russian privatization. But the Justice Department is going after only the personal behavior of Shleifer, Hay & Co., not the larger issue of how their superiors winked so long at cronyism in Moscow and Washington. Why were the Russian reformers allowed to play Harvard, and Harvard to play Washington, like a yo-yo? That's another question no one should feel bad about asking Summers--who, in one of those quirky ironies of fate, will also technically be on trial if United States v. the President and Fellows of Harvard goes forward.