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Author of Collision and Collusion: The Strange Case of Western Aid to Eastern Europe.
When the Soviet Union abruptly ceased to exist, you described it as a watershed event. Why?

I think that people felt that if the Berlin Wall could fall and the regimes of Eastern Europe could collapse, all of a sudden, rather unexpectedly, that somehow everything else would not be too problematic, that other issues could be quite easily solved. And there was a seeming coming together of East and West.

...

There was this euphoria, this triumphalism, this expectation that great things could happen, and there were brokers on the Eastern side and on the Western side that were coming together and having these meetings. There was a great level of excitement and anticipation about what could happen.

When I went into Russia in the early 1990's after having studied the aid situation in Central Europe, I expected to find similar things. I expected lots of consultants coming in staying in the five star hotels and enjoying themselves and then travelling on, and so on.

And, of course, there was a lot of that. Naturally, there would be after so much isolation between societies. But what I found instead was that the United States and the West had made a pretty strategic, conscious, clear cut decision to support a particular group on the Russian side, which came to be known as the Chubais clan, after Anatoly Chubais, who was their leader.

And we, in the West, particularly the United States, as the leader, had made a clear choice to support this one group of power brokers, which was active in politics and economics and the financial sphere. Chubais was a key aid to Boris Yeltsin in various capacities throughout the decade of the 1990s.

And, so, we in the West, particularly the United States, had decided to throw our weight and our money by way of hundred of millions of dollars, particularly in economic aid. And support from the international financial institutions -- billions of dollars in loans-- decisions were made about them by this very particular small group of power brokers known as the Chubais clan.

So, it really was a different aid story that I had observed in Central Europe and had written about in my book, "Collision and Collusion."

You're referring to them now as the Chubais clan, but once didn't we refer to them as the young reformers?

Absolutely, this group was identified as the young reformers. They were seen as enlightened. Many times they were identified as such both by key officials and pundits and policy makers in the West and also by much of the Western media.

They were seen as the group that could carry Russia down the bright road to prosperity and capitalism. And many times they were identified as reformers, because they spoke English, they wore the right suits. ... They had the right presence and mannerisms. Most importantly, they knew how to talk to the West. They parroted the slogans of markets, of democracy, of capitalism, of civil society. They knew all the right buzz words.

...

What happened was that US policy --Western policy, but with the United States taking the lead -- chose this group of power brokers and basically gave them a blank check in the form of hundreds of millions of dollars of US and Western aid, and we helped to create them. Because the main comparative advantage that the Chubais clan, the so-called young reformers, had in the Russian context was their access to hundreds of millions of dollars of Western aid and key Western pundits, policy makers, decision makers, power brokers.

Some of the ignorance was understandable.  What was not understandable was the sheer arrogance and the hubris with which many of these advisors said 'we have the answers.' And, what we did, the US and the West, was ignore many of the key players on the Russia scene, and instead threw our weight and our money behind this one group.

That's had some a very dramatic and depressing consequences. First of all, the whole ideology of what we were was to presumably to support the development of a market economy. And a key part of that program was privatization. You have to keep in mind that the assets in the Soviet Union, the resources, were in the hands of the state. It was a communist country. Virtually everything was owned by the state. And, so, a key plank for the donors for the West was to divest the state of the resources and to privatize resources.

But the way in which the Chubais group and the Chubais conducted economic reform, particularly privatization, backed up by hundreds of millions of dollars in US aid ... the way in which privatization was conducted was more about wealth confiscation than wealth creation. It was more about giving advantages to a very small group of power brokers in Russia.

And the chief beneficiaries of privatization, which has been touted by US and Western officials as this panacea for economic reform and progress, have been a very small group of Russian players, often times referred to in the West as oligarchs.

What has happened is that very few people have profited and built their homes on the French Riviera and their dachas, and so on. Very few people have profited while many Russians, if not most, are worse off than they were before the economic reforms.

So, the economic reforms... were not about economic progress for the most part. ...Further, the reforms and the aid policies were really anti-democratic. We encouraged the Russians to operate through decree. The Chubais clan in their economic reform agenda worked in many cases through decree rather than working with the parliament.

Harvard University for international development was intimately involved in the economic reforms and worked closely, very closely with the Chubais clan... In many cases the Harvard representatives actually wrote decrees to be signed by Yeltsin. The Harvard University representatives -- funded by the USAID, aid from international lending institutions, and other Western organizations -- operated as key advisers and key decision makers in the privatization ministry and in the whole economic reform agenda. So, Harvard University is also involved in this.

So, what was wrong with this? Well, first of all, it didn't really help to create a market economy. A market economy is supposed to be about -- as I understood it --helping to create competition. Instead, in many cases, monopolies were created and oligarchs were created and people with lots of money who could then send the money offshore and feather their own nests, line their own pockets.

It also is anti-democratic. We worked around key market and participants, not to mention the parliament. Things were done through decree. We didn't involve the people who should have been involved in many of the market reforms.

Some things might be able to be done by decree, like lifting price controls and that sort of thing. But when you get into privatization and economic restructuring, one of the things that I learned in the many case studies that I did was that you involve the people who were going to implement the changes. This whole strategy of working around key market individuals absolutely failed.

There were also cases that I learned of and that I observed in which these Chubais-Harvard players actually obstructed market reform, because it hadn't originated with them and they wanted to control the process.

So, the so-called reforms were really not much about economic reform. They certainly were not about building democracy. And you have to keep in mind that democracy, if you go back and look at the statements of the aid officials, was also a key part of what we said we were doing, market reform democracy.

The most important thing that the West could have done in post-Soviet Russia, is to try to encourage the development of a legal and a regulatory framework. That would provide the basis for everything: property rights, the sanctity of contracts, third party dispute settlement, legal and regulatory framework. This was key. But by giving one group, the Chubais clan, a blank check, we encouraged precisely the opposite of the development of a legal and regulatory framework.

Voucher privatization -- what was our role in that privatization?

Well, the United States funded and helped to develop the concept of voucher privatization. This was a key plank in the US economic aid strategy to Russia. Economic reform at the very beginning was largely about privatization. And voucher privatization was the first privatization that was undertaken beginning in 1993 for a few years onward.

The forerunner of the Duma, the Supreme Soviet, the communist body, had actually mandated privatization in 1991. So, it isn't true what was often presented in the West by the so-called young reformers and their supporters here -- that the parliament, the Supreme Soviet, and later the Duma, didn't want privatization. They did want privatization and that's very clear in the decisions that were made.

However, the program that Chubais and company devised and implemented -- with the help of the Harvard Institute for International Development and the funding of USAID, US Agency for International Development--provided for a lot of corruption. And the Duma, the elected Russian parliament, saw that that would be the case. They foresaw that these reforms would lead to a lot of corruption. Therefore, they opposed the particular plan that Chubais implemented; however, they were not generally speaking opposed to privatization.

And what happened? What happened was precisely what they had feared, which was that voucher privatization led to massive amounts of corruption. People sold their vouchers, they quickly got into the hands of very few people and it was a massive corrupt undertaking. And this is precisely what the Duma wanted to avoid.

And we were funding the selling of privatization to a fairly skeptical public?

That's right. Not only were we involved in funding the design and the implementation of privatization, we also got involved in what was called 'public education campaigns' which essentially meant attempting to sell it to a population that was somewhat, if not, largely skeptical about what would be those results.

The US economic aid hired public relations firms to do this work. And I remember talking with the consultants who had been involved in these so-called public education campaigns and I remember one of them telling me that they would go into factories and try to get privatization success stories. Because they would film these stories and then they would put these stories on television. But they had a hard time getting privatization success stories. And she said in some of the factories that the people that she was interviewing didn't even know that the factory had been privatized.

So, US money and US consultants were running the PR campaign for the Chubais clan, the young reformers?

That's right. Now, I'm sure that they had their own efforts under way as well. But, yes, US taxpayer monies were funding the public relations efforts to sell the voucher privatization. There's no question about that.

And one of my main criticisms of this whole policy of giving essentially a blank check to one group is not only that it has encouraged corruption in myriad ways, but also that it was political aid under the guise of economic aid.

Not only did this strategy not help Russia, did not encourage the development of a market economy, did not encourage the development of a democratic system; it also encouraged a backlash effect against the United States.

Many Russians now are worse off than they were ten years ago. Worse off than before these so-called economic reforms. What image do you think they have then of economic reform when markets and reform are equated with massive corruption? And a very few people making off like bandits and most everyone else falling by the wayside.

Many Russians now believe that the United States deliberately set out to destroy their economy. And I've heard this from lots of, shall I say, enlightened, very educated, intellectual Russians that somehow this whole destruction of Russia was a US strategy from the very beginning...

Which is another huge change over the last decade?

Absolutely. You know, ten years ago, eight years ago, even five years ago the United States enjoyed so much public support. People were so enamored of America and the United States -- and some of that, of course, was bound to change.

But this tremendous animosity towards America as such and even towards individual Americans is really striking and I think very disturbing. And very different from a case like Poland where I've spent many years. The economic reforms there have not been entirely successful, but there isn't this perception that the United States came and really screwed us up.

Russia is a striking example of, I'm afraid, very bad policy. Which is clearly going to haunt us for many years to come. This is not going to go away.



So, a last question on the US funded public relations campaign for privatization. You have evidence that it very clearly crossed a line from selling privatization into political campaigns in Russia

Well, during the 1993 Presidential campaign, first of all, the so-called public education effort funded by US taxpayer dollars was putting key so-called economic reformers on TV among other things. So, you had Chubais, you had the economic players who were intimately involved in politics, of course, as well. So that's one part of it.

So, the public education campaign was involved in promoting the so-called economic reformers and putting them on TV and airing them on television and putting out information tracts about their activities, and so on. It was involved in promoting these people who were intimately involved in politics, specifically the 1993 parliamentary election.

The point is that the United States was intimately involved in this public education effort and in funding the public education effort. And many of the players who were involved in the so-called economic reforms were also involved in politics. So, in promoting this group of young reformers, so-called, we also were promoting their particular political activities.

In the parliamentary election of 1993, there was a slogan that was put out by the PR firm that was funded by US taxpayer dollars, "your voucher, your choice". And that was changed to, "your choice, Russia's choice". Russia's choice, of course, was the name of a political party.

So, here, again, is an explicit example of the United States promoting a political agenda, even a political party in this instance. So, here, again, we have political aid under the guise of economic aid. Which is familiar to Russians who were raised under communism, because in many respects the essence of communism was that you had economic decisions made in the political realm. You had politicians, communist officials, making economic decisions.

So, not necessary looking a whole lot like democracy?

No, I'm afraid not. I'm afraid that this sent the message to Russians that the United States doesn't really care about democracy. Instead it cares about certain policies promoting certain policies.

One of the other people that I've talked to who was in the US government at the time said that in December 1993, the so-called reformers, that party, Russia's Choice, was defeated. They won much less than had been hoped for; that that was areferendum on economic reforms as much as anything else. Following that defeat, US advisors sat down with Yeltsin's team and essentially said let's set up a parallel power structure, begin to rule by decree. If it's not going to be democratic, just rule by decree. Does that thesis fit your research?

Absolutely. I found a very similar thing in the economic sphere that what happened was that there was a perception that the parliament was retrograde. There are communists there. We're not going to deal with them. We're going to bypass the parliament, we're going to bypass democratic processes. We're going to even bypass key institutions of the state and of the bureaucracy.

And this is another thing that I found in my research: that US economic aid, and many other Western donors and the international financial institutions, set up a whole series of organizations that were meant to supplant the state institutions and really to override them.

They had more authority in some cases than the state institutions. And, yet, they were formally private. So, what happened was there was a kind of parallel executive structure made up of the Harvard/Chubais people that made decisions on behalf of the Russian state and on behalf of US policy that really circumvented and bypassed other key players and clearly democratic processes. This was anti-democratic. And this parallel executive was involved in negotiating loans on behalf of Russia with the international financial institutions. It was involved in signing off on loans and accepting billions of dollars in aid. It was involved in making decisions that had a key impact on the lives of millions of Russians. It was involved in making US policy at the highest levels. And, yet, it was bypassing the main players and the main institutions of the state.

How do you explain this--we just thought we knew better than anyone else?

Well, I think clearly that there was a lot of ignorance involved in what reform was really about and what reforming a system that had come from 70 years of communism would take, and that you had to involve institutions. That reforms were by definition were political. That it wasn't just a technical, neutral endeavor, that you had to really involve the whole spectrum of players of people of market, participants of legislatures, etc.

There wasn't that realization. And in some respects one shouldn't have expected there to be that realization, because these were new phenomena -- how to reform a post-communist system.

On the other hand, some of the ignorance was understandable. However, what was, I think, not understandable and not excusable was the sheer arrogance and the hubris with which many of these advisors entered the scene and said we have the answers. We know what to do. And they came with their cliches and tried to sell people on both sides of the Atlantic on these cliches and on the idea that they had the answers.

So the ignorance was understandable, but I think when you're ignorant and then you combine that with unbelievable self-confidence, which has no basis in experience or reality, then one really is entering into the arena of charlatanism, of being charlatans. And I'm afraid that's what some of people were doing.

Do you agree with the allegations that many people have made that we, in the United States, played a role in creating the oligarchy?

Well, clearly the United States played an intimate role in helping to design and implement and sell privatization policies, particular voucher privatization, but not only.

Privatization was a key instrument in shaping the Russian economic landscape, who got what. And under the privatization scheme, known as loans for shares, this is when a handful of oligarchs, acquired many of Russia's gem industries at fire sale prices.

It was the voucher privatization early on, again designed, implemented and sold by the United States, which set the scene for the later privatization which was even more corrupt.

I think that, unfortunately, if you look at the record of privatization and US involvement in it, I'm not sure how we can absolve ourselves of responsibility. We were intimately involved, and the US-paid Harvard advisors were sitting in the Ministry of Privatization and the Russia privatization center designing, creating, implementing these policies.

And the main Harvard advisor was one of a very few people who was allowed to sign off on high-level privatization decisions on behalf of the Russian state -- here you have an American official representing the United States who's signing on behalf of the Russian state.

After the August 1998 crash, President Clinton went to Russia for a summit in September 1998. Among other things, he continued to lecture the Russians that they had to stick to the path of reform. What do you imagine would have been the reaction of Russians hearing this lecture?

Well, here is a people whose standard of living has already gone way down under the so-called economic reforms, whose life spans, particularly men, have gone down during the same period, where infant mortality is a real and growing problem, where there are huge health crises, where the budget is in crisis, where education is becoming problematic, education which was always a strength of Russia, of the Soviet Union.

And here they're being told to stick to this disastrous course. I can't imagine how that would feel. It's like being run over by a truck and you're told just to stay on the road. It seems to me to have been a disastrous public relations strategy.

What is wrong with what we were told in the '93 elections and the '96 elections--that it was either the reformers or the communists--that was the choice?

It's very interesting the way in which the media and the policy makers portrayed this. It was portrayed as a struggle between the enlightened, bright, nice-looking, educated reformers and everybody else who was communist, retrograde, old school.

And that's unfortunately not at all the case. In this so-called group of young reformers, you have communists. In fact, there were many different groups who were involved in reform and who were forward-looking and who wanted to institute reasonable economic reforms.

As I said, even the Supreme Soviet was in favor of privatization and they're really on the communist side of things. So, this was a dichotomy that was really for American and Western consumption, that was bought and sold by the West, but really bore very little resemblance to the realities of the complex political Russian landscape.

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