[eDebate] more talking points: US democracy promotion failure in russia

Jake Stromboli infracaninophile
Sun Jun 18 16:21:27 CDT 2006

another pillar of neoconservative ideology linked with their critique of the 
french revolution is their taking credit for the demise of the soviet union. 
   atheist french revolution  produced atheist soviet communism.   both 
failed for the same reason of uprooting tradition and installing violence.   
many critics focus on the neoconservative need to replace the "red spread" 
threat with the "raghead spread" threat but few if any commentators make a 
comprehensive critique of neoconservative democracy promotion efforts that 
indicts the sincerity of their efforts.   the neoconservatives take credit 
for the fall  of the soviet union but fail to accept fault for the rise of 
authoritarianism in its aftermath.   the same thing will happen in iraq when 
the US forces leave and an authoritarian religious shi'a government rules 



"As editorialists from across the United States and Western Europe have 
reiterated lately, Russian democracy is under assault. During a joint press 
conference following the recent summit meeting in Slovakia, President Bush 
outlined for President Putin the importance of ?a rule of law and protection 
of minorities, a free press, and a viable political opposition.? Bush?s 
comments represented the culmination of months of growing U.S. 
dissatisfaction with the backsliding of democracy in Russia, a 
dissatisfaction ostensibly based on three recent developments in Russia: the 
campaign against former oil tycoon Mikhail Khodorkovsky, the progressive 
limitations on independent media, especially television, and the decision to 
abolish direct elections for Russia?s regional governorships.

On its own terms, much of the criticism is merited. What is striking about 
it, however, is its failure to acknowledge that these authoritarian 
tendencies were part of the very genetic code of Putin?s Russia from his 
presidency?s inception. In fact, the seeds of Putinism were all sown during 
what some consider the ?golden age of Russian democracy,? the Yeltsin era. 
Furthermore, those seeds were sown with strong U.S. support. This article 
examines some of these earlier anti-pluralist developments in Russia and 
suggests that uncovering the roots of current Russian authoritarian 
tendencies sheds light on the highly selective nature of Washington?s 
democracy promotion efforts. The article also questions the motives behind 
America?s professed goal of promoting freedom and explores whether that 
ostensible goal is consistent with pressing policy concerns."endquote

we need to systematically destroy the neoconservatie positions and not allow 
kneejerk straussian conspiracy attacks to dominate.    we need these talking 
points to get in the hands of the democrats running for election, howard 
dean and more left leaning democratic leaders.   their policy analysis weak 
b/c it lets obvious neocon lapses in policy analysis ride.   we need exploit 
their weaknesses more.

iraq and afghanistan are not the first blatant neoconservative failures to 
overturn an existing government and replace it with democracy and the road 
traces back to the collapse of the soviet union and the ensuing failures.    
they used to call them "coups" back in the good ole days of conservatism.  
uniqueness arguments for the multiple century development of a middle class 
as the precondition for capitalist democracy are obvious but not made as a 
source of the violence.   as the previous post explains irving kristol is 
the best source for the key argument behind the current failures of 
democracy promotion efforts.   russia is a prime example for some reason 
generally delinked by war opponents despite the neoconservative 
self-proclaimed role in the demise of the soviet union.   we need relink the 
nazicons to the old conservatives who supported pinochet and el salvadoran 
death squads dictators around the world to promote a climate conducive to 
capitalism.  dick cheney can't simply read some books. put on a new mask and 
become a democracy promoter just because the soviet union collapsed.

further reading includes.  the US facilitated the sale of nationalized 
industry to russian organized crime and israeli organized crime as well:


The Harvard Boys Do Russia

Janine R. Wedel

After seven years of economic "reform" financed by billions of dollars in 
U.S. and other Western aid, subsidized loans and rescheduled debt, the 
majority of Russian people find themselves worse off economically. The 
privatization drive that was supposed to reap the fruits of the free market 
instead helped to create a system of tycoon capitalism run for the benefit 
of a corrupt political oligarchy that has appropriated hundreds of millions 
of dollars of Western aid and plundered Russia's wealth.

The architect of privatization was former First Deputy Prime Minister 
Anatoly Chubais, a darling of the U.S. and Western financial establishments. 
Chubais's drastic and corrupt stewardship made him extremely unpopular. 
According to The New York Times, he "may be the most despised man in 

Essential to the implementation of Chubais's policies was the enthusiastic 
support of the Clinton Administration and its key representative for 
economic assistance in Moscow, the Harvard Institute for International 
Development. Using the prestige of Harvard's name and connections in the 
Administration, H.I.I.D. officials acquired virtual carte blanche over the 
U.S. economic aid program to Russia, with minimal oversight by the 
government agencies involved. With this access and their close alliance with 
Chubais and his circle, they allegedly profited on the side. Yet few 
Americans are aware of H.I.I.D.'s role in Russian privatization, and its 
suspected misuse of taxpayers' funds.

At the recent U.S.-Russian Investment Symposium at Harvard's John F. Kennedy 
School of Government, Yuri Luzhkov, the Mayor of Moscow, made what might 
have seemed to many an impolite reference to his hosts. After castigating 
Chubais and his monetarist policies, Luzhkov, according to a report of the 
event, "singled out Harvard for the harm inflicted on the Russian economy by 
its advisers, who encouraged Chubais's misguided approach to privatization 
and monetarism." Luzhkov was referring to H.I.I.D. Chubais, who was 
delegated vast powers over the economy by Boris Yeltsin, was ousted in 
Yeltsin's March purge, but in May he was given an immensely lucrative post 
as head of Unified Energy System, the country's electricity monopoly. Some 
of the main actors with Harvard's Russia project have yet to face a 
reckoning, but this may change if a current investigation by the U.S. 
government results in prosecutions.

The activities of H.I.I.D. in Russia provide some cautionary lessons on 
abuse of trust by supposedly disinterested foreign advisers, on U.S. 
arrogance and on the entire policy of support for a single Russian group of 
so-called reformers. The H.I.I.D. story is a familiar one in the ongoing 
saga of U.S. foreign policy disasters created by those said to be our "best 
and brightest."

Through the late summer and fall of 1991, as the Soviet state fell apart, 
Harvard Professor Jeffrey Sachs and other Western economists participated in 
meetings at a dacha outside Moscow where young, pro-Yeltsin reformers 
planned Russia's economic and political future. Sachs teamed up with Yegor 
Gaidar, Yeltsin's first architect of economic reform, to promote a plan of 
"shock therapy" to swiftly eliminate most of the price controls and 
subsidies that had underpinned life for Soviet citizens for decades. Shock 
therapy produced more shock--not least, hyperinflation that hit 2,500 
percent--than therapy. One result was the evaporation of much potential 
investment capital: the substantial savings of Russians. By November 1992, 
Gaidar was under attack for his failed policies and was soon pushed aside. 
When Gaidar came under seige, Sachs wrote a memo to one of Gaidar's 
principal opponents, Ruslan Khasbulatov, Speaker of the Supreme Soviet, then 
the Russian parliament, offering advice and to help arrange Western aid and 
contacts in the U.S. Congress.

Enter Anatoly Chubais, a smooth, 42-year-old English-speaking would-be 
capitalist who became Yeltsin's economic czar. Chubais, committed to 
"radical reform," vowed to construct a market economy and sweep away the 
vestiges of Communism. The U.S. Agency for International Development 
(U.S.A.I.D.), without experience in the former Soviet Union, was readily 
persuaded to hand over the responsibility for reshaping the Russian economy 
to H.I.I.D., which was founded in 1974 to assist countries with social and 
economic reform.

H.I.I.D. had supporters high in the Administration. One was Lawrence 
Summers, himself a former Harvard economics professor, whom Clinton named 
Under Secretary of the Treasury for International Affairs in 1993. Summers, 
now Deputy Treasury Secretary, had longstanding ties to the principals of 
Harvard's project in Russia and its later project in Ukraine.

Summers hired a Harvard Ph.D., David Lipton (who had been vice president of 
Jeffrey D. Sachs and Associates, a consulting firm), to be Deputy Assistant 
Treasury Secretary for Eastern Europe and the Former Soviet Union. After 
Summers was promoted to Deputy Secretary, Lipton moved into Summers's old 
job, assuming "broad responsibility" for all aspects of international 
economic policy development. Lipton co-wrote numerous papers with Sachs and 
served with him on consulting missions in Poland and Russia. "Jeff and David 
always came [to Russia] together," said a Russian representative at the 
International Monetary Fund. "They were like an inseparable couple." Sachs, 
who was named director of H.I.I.D. in 1995, lobbied for and received 
U.S.A.I.D. grants for the institute to work in Ukraine in 1996 and 1997.

Andrei Shleifer, a Russian-born ?migr? and already a tenured professor of 
economics at Harvard in his early 30s, became director of H.I.I.D.'s Russia 
project. Shleifer was also a prot?g? of Summers, with whom he received at 
least one foundation grant. Summers wrote a promotional blurb for 
Privatizing Russia (a 1995 book co-written by Shleifer and subsidized by 
H.I.I.D.) declaring that "the authors did remarkable things in Russia, and 
now they have written a remarkable book."

Another Harvard player was a former World Bank consultant named Jonathan 
Hay, a Rhodes scholar who had attended Moscow's Pushkin Institute for 
Russian Language. In 1991, while still at Harvard Law School, he had become 
a senior legal adviser to the G.K.I., the Russian state's new privatization 
committee; the following year he was made H.I.I.D.'s general director in 
Moscow. The youthful Hay assumed vast powers over contractors, policies and 
program specifics; he not only controlled access to the Chubais circle but 
served as its mouthpiece.

H.I.I.D.'s first awards from U.S.A.I.D. for work in Russia came in 1992, 
during the Bush Administration. Over the next four years, with the 
endorsement of the Clinton Administration, the institute would be awarded 
$57.7 million--all but $17.4 million without competitive bidding. For 
example, in June 1994 Administration officials signed a waiver that enabled 
H.I.I.D. to receive $20 million for its Russian legal reform program. 
Approving such a large sum as a noncompetitive "amendment" to a much smaller 
award (the institute's original 1992 award was $2.1 million) was highly 
unusual, as was the citation of "foreign policy" considerations as the 
reason for the waiver. Nonetheless, the waiver was endorsed by five U.S. 
government agencies, including the Treasury Department and the National 
Security Council, two of the leading agencies formulating U.S. aid policy 
toward Russia. In addition to the millions it received directly, H.I.I.D. 
helped steer and coordinate some $300 million in U.S.A.I.D. grants to other 
contractors, such as the Big Six accounting firms and the giant 
Burson-Marsteller P.R. firm.

A s Yeltsin's Russian government took over Soviet assets in late 1991 and 
early 1992, several privatization schemes were floated. The one the Supreme 
Soviet passed in 1992 was structured to prevent corruption, but the program 
Chubais eventually carried out instead encouraged the accumulation of 
property in a few hands and opened the door to widespread corruption. It was 
so controversial that Chubais ultimately had to rely largely on Yeltsin's 
presidential decrees, not parliamentary approval, for implementation. Many 
U.S. officials embraced this dictatorial modus operandi, and Jonathan Hay 
and his associates drafted many of the decrees. As U.S.A.I.D.'s Walter 
Coles, an early supporter of Chubais's privatization program, put it, "If we 
needed a decree, Chubais didn't have to go through the bureaucracy."

With help from his H.I.I.D. advisers and other Westerners, Chubais and his 
cronies set up a network of aid-funded "private" organizations that enabled 
them to bypass legitimate government agencies and circumvent the new 
parliament of the Russian Federation, the Duma. Through this network, two of 
Chubais's associates, Maxim Boycko (who co-wrote Privatizing Russia with 
Shleifer) and Dmitry Vasiliev, oversaw almost a third of a billion dollars 
in aid money and millions more in loans from international financial 

Much of this largesse flowed through the Moscow-based Russian Privatization 
Center (R.P.C.). Founded in 1992 under the direction of Chubais, who was 
chairman of its board even while head of the G.K.I., and Boycko, who was 
C.E.O. for most of its existence, the R.P.C. was legally a private, 
nonprofit, nongovernmental organization. In fact, it was established by 
another Yeltsin decree and helped carry out government policy on inflation 
and other macroeconomic issues and also negotiated loans with international 
financial institutions. H.I.I.D. was a founder of the R.P.C., and Andrei 
Shleifer served on the board of directors. Its other members were recruited 
by Chubais, according to Ira Lieberman, a senior manager in the 
private-sector development department of the World Bank who helped design 
the R.P.C. With H.I.I.D.'s help, the R.P.C. received some $45 million from 
U.S.A.I.D. and millions from the European Union, individual European 
governments, Japan and other countries, as well as loans from the World Bank 
($59 million) and the European Bank for Reconstruction and Development ($43 
million), which must be repaid by the Russian people. One result of this 
funding was the enrichment, political and financial, of Chubais and his 

H.I.I.D. helped create several more aid-funded institutions. One was the 
Federal Commission on Securities, a rough equivalent of the U.S. Securities 
and Exchange Commission (S.E.C.). It too was established by presidential 
decree, and it was run by Chubais prot?g? Dmitry Vasiliev. The commission 
had very limited enforcement powers and funding, but U.S.A.I.D. supplied the 
cash through two Harvard-created institutions run by Hay, Vasiliev and other 
members of the Harvard-Chubais coterie.

One of these was the Institute for Law-Based Economy, funded by both the 
World Bank and U.S.A.I.D. This institute, set up to help develop a legal and 
regulatory framework for markets, evolved to encompass drafting decrees for 
the Russian government; it got nearly $20 million from U.S.A.I.D. Last 
August, the Russian directors of I.L.B.E. were caught removing $500,000 
worth of U.S. office equipment from the organization's Moscow office; the 
equipment was returned only after weeks of U.S. pressure. When auditors from 
U.S.A.I.D.'s inspector general's office sought records and documents 
regarding I.L.B.E. operations, the organization refused to turn them over.

The device of setting up private organizations backed by the power of the 
Yeltsin government and maintaining close ties to H.I.I.D. was a way of 
insuring deniability. Shleifer, Hay and other Harvard principals, all U.S. 
citizens, were "Russian" when convenient. Hay, for example, served 
alternately and sometimes simultaneously as aid contractor, manager of other 
contractors and representative of the Russian government. If Western donors 
were attacked for funding controversial privatization practices of the 
state, the donors could claim they were funding "private" organizations, 
even if these organizations were controlled or strongly influenced by key 
state officials. If the Chubais circle came under fire for misuse of funds, 
they could claim that Americans made the decisions. Foreign donors could 
insist that the Russians acted on their own.

Against the backdrop of Russia's Klondike capitalism, which they were 
helping create and Chubais and his team were supposedly regulating, the 
H.I.I.D. advisers exploited their intimate ties with Chubais and the 
government and were allegedly able to conduct business activities for their 
own enrichment. According to sources close to the U.S. government's 
investigation, Hay used his influence, as well as U.S.A.I.D.-financed 
resources, to help his girlfriend, Elizabeth Hebert, set up a mutual fund, 
Pallada Asset Management, in Russia. Pallada became the first mutual fund to 
be licensed by Vasiliev's Federal Commission on Securities. Vasiliev 
approved Pallada ahead of Credit Suisse First Boston and Pioneer First 
Voucher, much larger and more established financial institutions.

After Pallada was set up, Hebert, Hay, Shleifer and Vasiliev looked for ways 
to continue their activities as aid funds dwindled. Using I.L.B.E. resources 
and funding, they established a private consulting firm with taxpayer money. 
One of the firm's first clients was Shleifer's wife, Nancy Zimmerman, who 
operated a Boston-based hedge fund that traded heavily in Russian bonds. 
According to Russian registration documents, Zimmerman's company set up a 
Russian firm with Sergei Shishkin, the I.L.B.E. chief, as general director. 
Corporate documents on file in Moscow showed that the address and phone 
number of the company and the I.L.B.E. were the same.

Then there is the First Russian Specialized Depository, which holds the 
records and assets of mutual fund investors. This institution, funded by a 
World Bank loan, also worked to the benefit of Hay, Vasiliev, Hebert and 
another associate, Julia Zagachin. According to sources close to the U.S. 
government's investigation, Zagachin, an American married to a Russian, was 
selected to run the depository even though she lacked the required capital. 
Ostensibly, there was to be total separation between the depository and any 
mutual fund using its services. But the selection of Zagachin defied this 
tenet of open markets: Pallada and the depository were run by people with 
ties to each other through H.I.I.D. Thus the very people who were supposed 
to be the trustees of the system not only undercut the aid program's stated 
goal of building independent institutions but replicated the Soviet practice 
of skimming assets to benefit the nomenklatura.

Anne Williamson, a journalist who specializes in Soviet and Russian affairs, 
details these and other conflicts of interest between H.I.I.D.'s advisers 
and their supposed clients--the Russian people--in her forthcoming book, How 
America Built the New Russian Oligarchy. For example, in 1995, in 
Chubais-organized insider auctions of prime national properties, known as 
loans-for-shares, the Harvard Management Company (H.M.C.), which invests the 
university's endowment, and billionaire speculator George Soros were the 
only foreign entities allowed to participate. H.M.C. and Soros became 
significant shareholders in Novolipetsk, Russia's second-largest steel mill, 
and Sidanko Oil, whose reserves exceed those of Mobil. H.M.C. and Soros also 
invested in Russia's high-yielding, I.M.F.-subsidized domestic bond market.

Even more dubious, according to Williamson, was Soros's July 1997 purchase 
of 24 percent of Sviazinvest, the telecommunications giant, in partnership 
with Uneximbank's Vladimir Potanin. It was later learned that shortly before 
this purchase Soros had tided over Yeltsin's government with a backdoor loan 
of hundreds of millions of dollars while the government was awaiting 
proceeds of a Eurobond issue; the loan now appears to have been used by 
Uneximbank to purchase Norilsk Nickel in August 1997. According to 
Williamson, the U.S. assistance program in Russia was rife with such 
conflicts of interest involving H.I.I.D. advisers and their 
U.S.A.I.D.-funded Chubais allies, H.M.C. managers, favored Russian bankers, 
Soros and insider expatriates working in Russia's nascent markets.

Despite exposure of this corruption in the Russian media (and, far more 
hesitantly, in the U.S. media), the H.I.I.D.-Chubais clique remained until 
recently the major instrument of U.S. economic aid policy to Russia. It even 
used the high-level Gore-Chernomyrdin Commission, which helped orchestrate 
the cooperation of U.S.-Russian oil deals and the Mir space station. The 
commission's now-defunct Capital Markets Forum was chaired on the Russian 
side by Chubais and Vasiliev, and on the U.S. side by S.E.C. chairman Arthur 
Levitt Jr. and Treasury Secretary Robert Rubin. Andrei Shleifer was named 
special coordinator to all four of the Capital Markets Forum's working 
subgroups. Hebert, Hay's girlfriend, served on two of the subgroups, as did 
the C.E.O.s of Salomon Brothers, Merrill Lynch and other powerful Wall 
Street investment houses. When The Nation contacted the S.E.C. for 
information about Capital Markets, we were told to call Shleifer for 
comment. Shleifer, who is under investigation by U.S.A.I.D.'s inspector 
general for misuse of funds, declined to be interviewed for this article. A 
U.S. Treasury spokesman said Shleifer and Hebert were appointed to Capital 
Markets by the Chubais group--specifically, according to other sources, by 
Dmitry Vasiliev.

In fact, H.I.I.D. projects were never adequately monitored by U.S.A.I.D. In 
1996, a General Accounting Office report described U.S.A.I.D.'s management 
and oversight of H.I.I.D. as "lax." In early 1997, U.S.A.I.D.'s inspector 
general received incriminating documents about H.I.I.D.'s activities in 
Russia and began investigating. In May Shleifer and Hay lost their projects 
when the agency canceled most of the $14 million still earmarked for 
H.I.I.D., citing evidence that the two managers were engaged in activities 
for "private gain." The men had allegedly used their positions to profit 
from investments in the Russian securities markets and other private 
enterprises. According to sources close to the U.S. investigation, while 
advising the Russian government on capital markets, for example, Hay and his 
father allegedly used inside information to invest in Russian government 
bonds. Hay and Shleifer may ultimately face criminal and/or civil 
prosecution. Shleifer remains a tenured professor at Harvard, and Hay 
continues to work with members of the Chubais clique in Russia. Sachs, who 
has stated he never invests in countries where he advises and who is not 
implicated in the current U.S. government investigation, remains head of 
H.I.I.D. After Yeltsin's Cabinet shakeup in March, Chubais was moved to a 
new position of prominence. His role in Russia's political-economic affairs 
had been tarnished by reports of personal enrichment. Two examples:

? In February 1996, Chubais's Foundation for the Protection of Private 
Property received a five-year, $2.9 million unsecured interest-free loan. 
According to the pro-Yeltsin, pro-reform Izvestia, Stolichny Bank, an 
institution that enjoys lines of credit from the European Bank for 
Reconstruction and Development and the World Bank, made the loan in return 
for a small percentage of the Sibneft oil company when it was sold at 
auction, and for later control of one of the state's largest banks. Chubais 
defended himself by saying such practices were common in the West, but 
failed to provide any reasonable explanation for some $300,000 in 1996 
income not accounted for by his government salary.

? During Yeltsin's 1996 presidential campaign, security officials 
apprehended two close associates of Chubais as they were walking out of a 
main government building with a box containing more than $500,000 in cash 
for Yeltsin's campaign. According to tapes of a later meeting recorded by a 
member of one of Russia's security services, Chubais and his cronies 
strategized about burying evidence of any illegal transaction, while 
publicly claiming that any allegations of chicanery were the work of 
political enemies. A protracted, lackadaisical investigation began but was 
eventually dropped--more evidence of Chubais's remarkable resilience. He 
remained valuable to Yeltsin largely because of his perceived ability to 
deal with the West, where many still regard him as a symbol of Russian 

During the five years that the Chubais clique presided over Western economic 
aid and policy in Russia, they did enormous harm. By unconditionally backing 
Chubais and his associates, the Harvard operatives, their U.S. government 
patrons and Western donors may have reinforced the new post-Soviet 
oligarchical system. Shleifer acknowledged as much in Privatizing Russia, 
the book he wrote with Chubais crony Maxim Boycko, who with his patron would 
later be caught in another financial indiscretion involving taking a "veiled 
bribe" in the form of advances on a book on the history of Russian 
privatization. "Aid can change the political equilibrium," they said, "by 
explicitly helping free-market reformers to defeat their opponents."

Richard Morningstar, U.S. aid coordinator for the former Soviet Union, 
stands by this approach: "If we hadn't been there to provide funding to 
Chubais, could we have won the battle to carry out privatization? Probably 
not. When you're talking about a few hundred million dollars, you're not 
going to change the country, but you can provide targeted assistance to help 
Chubais." In early 1996, after he was temporarily removed from high office 
by Yeltsin because he represented unpopular economic policies, H.I.I.D. came 
to his rescue by placing him on its U.S.A.I.D.-funded payroll, a show of 
loyalty that former U.S.A.I.D. assistant administrator Thomas Dine says he 
supported. Western policy-makers like Morningstar and Dine have depicted 
Chubais as a selfless visionary battling reactionary forces. In the spring 
of 1997, Summers called him and his associates a "dream team." With few 
exceptions, the U.S. mainstream media have promulgated this view.

United States policy toward Russia requires a full-scale Congressional 
investigation. The General Accounting Office did investigate H.I.I.D.'s 
Russian and Ukrainian projects in 1996, but the findings were largely 
suppressed by the agency's timid management. The audit team concluded, for 
example, that the U.S. government exercised "favoritism" toward Harvard, but 
this conclusion and the supporting documentation were removed from the final 
report. Last fall Congress asked the G.A.O. to look into Eastern European 
aid programs and Shleifer's role in the Gore-Chernomyrdin Commission. Such 
questions need to be answered, but any serious inquiry must go beyond 
individual corruption and examine how U.S. policy, using tens of millions in 
taxpayer dollars, helped deform democracy and economic reform in Russia and 
helped create a fat-cat oligarchy run amok.

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