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Larry Summers's Ghosts | The Nation

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Katrina vanden Heuvel

Katrina vanden Heuvel

Politics, current affairs and riffs and reflections on the news.

Larry Summers's Ghosts

Maybe it's not surprising that media coverage of Larry Summers's resignation as Harvard University's President has focused on his personal style. After all, Summers--by most accounts--alienated many with a manner widely seen as bullying, arrogant, divisive. But, as my former colleague, longtime Russia watcher and ex-Nation blogger Matt Bivens reminds us, where's the media reporting on Summer's infamous World Bank memo and, of special interest to me, his role in Russian corruption during the Yeltsin years. After all, as Bivens describes below, these incidents illuminate Summers' character as much as his bully boy tactics as Harvard's soon-to-be-ex-President.


The infamous Summers Memorandum

At a time when he was the chief economist of the World Bank – a powerful post at what bills itself as the premier organization for assisting poor countries – Summers sent an internal memo to colleagues at the Bank arguing for shipping pollution to the Third World.

In Summers' analysis, the cost of a person's premature death was measured by the loss of potential earned income. So if living next to a dioxin-emitting plant takes five years off the average life expectancy of a relatively well-paid American, that is far more significant an event than if a similar plant causes the same damage to, for example, the average African. "Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs [less developed countries]?" Summers wrote. "The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to it."

When the memo was outed by environmentalists, it provoked headlines around the world -- including the memorable "Save Planet Earth from Economists" in the Financial Times – and responses from many disgusted world leaders, including the Brazilian Cabinet minister who observed that Summers' argument was "perfectly logical but totally insane."

Summers responded that it had been an ironic exercise, a game to encourage more rigorous thinking at the bank. As Summers' political star rose – from the World Bank he became a Deputy Treasury Secretary under Clinton, then Treasury Secretary, and then President of Harvard – the "Summers memo" dogged his footsteps. When asked about it, Summers usually concedes a general error -- "when I make a mistake, it's a whopper" – and then refuses to discuss it further, or, worse, mumbles something oddly qualified – i.e., the memo's "sentiment" is "all wrong" even though there are "real issues about trade-offs between growth and the environment."

As the mThe New Yorker reported that a young economist working at the time for Summers was the *real* author; to hear Summers and his young protégé tell it, this was a heart-warming story about how Summers was a stand-up guy who was careless about what he signed. A few years later still, the story of the memo was that it had been "doctored" from a long half-joking critique of current economics into "a deliberate fraud and forgery to discredit Larry and the World Bank."

I'll leave it to you to decide whether Larry Summers is the kind of guy who would take the flak for 15 long years over a **doctored forgery. **


Summers & Russian Corruption

After the World Bank job and before the Harvard presidency, Summers was a Clinton man. At the Treasury Department, he was America's architect of economic policy toward Russia, at a time when that nation was struggling to emerge from its Soviet past, and looking to us for guidance.

Summers used his position to sing the praises of the so-called "energetic young reformers" – a phrase Boris Yeltsin helped coin that these days is rarely spoken in Russian circles except as a sarcastic insult.

Ten years ago, on the eve of Yeltsin's 1996 re-election, the Russian president disappeared from view and his most famous "young reformer," Anatoly Chubais, took the stage. Chubais had a few months earlier been publicly fired by Yeltsin – Yeltsin at that time had accused him, in so many words, of being on the take, of selling off Russia's oil fields and precious metal mines for kopecks in return for bribes. Now here was Chubais on TV again, apparently in charge of things – this came as a shock to many Russians. And as Yeltsin was heading in for risky heart by-pass surgery, he was promising, in not-so-veiled language, a Chubais-led junta if the surgery failed. (Did I mention that Chubais talked of ruling via a committee named "The Cheka"?)

This topped a year in which Chubais had been absolutely indifferent in public to the then-new-and-horrible war in Chechnya (and a few years later, Chubais would cry "treason" when responsible national figures dared question Vladimir Putin's reprise of Yeltsin's war). A year in which Russia's natural resources had been parceled out among friends, via openly-rigged "auctions." A year of political campaigning in which Chubais had met in the Kremlin with leading Russian newspaper editors and, according to Nezavisimaya Gazeta editor Vitaly Tretyakov, ordered them to do as they were told, because "if you don't, bones will crack."

None of this – not the flirtation with a Chubais-led Cheka, not the hijacking of the nation's wealth – worried Summers. When Yeltsin survived surgery and promoted Chubais back to a top government post, Summers enthused that Russia had just received her"economic dream team." (Perhaps Summers was thinking of shipping US toxic waste to Russia?)


While Clinton Administration official Summers praised the dream team, some of his good friends were working with it.

Andrei Shleifer – a young economist protégé of Summers' – ran a US-government-funded project to help Russia map its economic future. Under the auspices of the Harvard Institute for International Development, Shleifer and his American team advised Chubais and his Russian team on how to sell off the natural resource fields, how to set up capital and financial markets, etc.

Five years after its launch, Shleifer's project collapsed amid corruption allegations. It quicklybecame public -- thanks to whistleblowers in Russia -- that even as they were providing "disinterested advice" to Russia, Shleifer, his lieutenant Jonathan Hay, and both men's wives had been making direct investments to the tune of several hundred thousand dollars in these same projects. Perhaps most damningly, to quote a US government press release on the matter, "Shleifer and Hay participated in the launching and/or financing of Russia's first licensed mutual fund, which was started by Elizabeth Hebert, Hay's then girlfriend, now wife, and (b) Russia's first licensed mutual fund depository, the First Russian Specialized Depository ('FRSD'), which was started by Hebert's business partner and provided support services to the mutual fund."

In 2004, Shleifer & Co. lost a case brought by the US Justice Department against them and against their employer, Harvard University: the Justice Department accused them of violating conflict-of-interest provisions in their contracts. The original 98-page complaint asserted that Shleifer and his lieutenant arranged for the US government to pay hefty salaries to people who worked on their personal side business projects, and who rarely showed up for their ostensible government jobs "other than to collect their pay or for the free lunches."

It was an ironic coincidence that Summers technically joined old pal Shleifer in the docket: In the interim he had become President of Harvard and so was listed among the accused. (For an excellent account of the beating Harvard took in this trial at the hands of baffled and indignant ordinary American jurors, click here.)

In July 2005, Harvard and Shleifer finally settled the case. Harvard agreed to pay $26.5 million, Shleifer $2 million. Shleifer defiantly insisted to the end that he had done nothing wrong. Or, rather, that it had not been wrong of him to invest up, down, left and right in the same games he was being handsomely paid with US government funds to referee. Summers, and Harvard stood by throughout. And now Summers and Shleifer will, apparently, be teaching econ together next year at Harvard.

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