Tainted Transactions: An Exchange.

• Author: Sachs, Jeffrey D.
• Position: Response to Janine Wedel, The National Interest, Spring 2000; includes reply

Jeffrey D. Sachs, director of the Center for International Development, Harvard University:

JANINE Wedel, for the umpteenth time, repeats her phony diatribes against me ("Tainted Transactions: Harvard, the Chubais Clan and Russia's Ruin", Spring 2000). Please permit me to correct the record.

Despite Dr. Wedel's weird insinuations that I had no advisory role with the Russian government, I was an official adviser to that government, but only for two years and two months, from December 1991 to January 1994. I worked closely with Anders [dot{A}]slund during this period. President Yeltsin officially designated us as advisers during a meeting with us on December 13, 1991, and we received offices in the Council of Ministers during 1992 and in the Ministry of Finance during 1993. During the period until the end of 1992, [dot{A}]slund and I mainly advised acting Prime Minister Yegor Gaidar, and in 1993 we led a unit within the Russian Finance Ministry advising Deputy Prime Minister Boris Fedorov. (The most bizarre and entertaining fiction is Dr. Wedel's additional suggestion that I somehow secretly worked with the IMF during 1992.)

During this entire period, there were notoriously heated divisions within the Russian government, and between the Russian government on one side and the Duma and Central Bank on the other. The reformers, led by Gaidar and Fedorov, did what they could to pursue needed reforms, but very often they were blocked. Unlike my experience in many other countries, such as Poland, little of what I recommended was actually enacted. It wasn't pleasant being blamed for high inflation and other ills that resulted from the very opposite of the advice that [dot{A}]slund and I were giving (such as when the Central Bank ran a disastrous hyperinflationary monetary policy in 1992 and 1993), but it was still worth the effort of supporting the brave reformers fighting an uphill battle. [dot{A}]slund and I publicly resigned in January 1994, days after Gaidar and Fedorov left the government. We were concerned about the takeover of the government by the "industrial lobby", with a foreshadowing of the mega-corruption that was to follo w, especially in the disgraceful state giveaways of the lucrative natural resource enterprises, mainly during 1994-96. I was also particularly distressed by the lack of appropriate Western advice and assistance, a point that I made repeatedly in writings and speeches at that time and afterward.

Somehow in this maelstrom some people came to assume (or at least claimed to assume) that whatever happened was what I had recommended, even though I was publicly and privately critical of the lawlessness and lack of reform progress. For a few people this has continued despite the fact that I have not advised the Russian government for six years or even been to Russia for five years. Wedel writes in just this nonsensical vein. For many years I have publicly and repeatedly denounced the scandals of privatization such as the "shares for loans" deals, and published articles and books describing and criticizing the lawlessness and corruption in Russia (including The Rule of Law and Economic Reform in Russia, 1997).

Dr. Wedel deliberately and systematically mixes personal references to me, the Harvard Institute for International Development (HIID) and other Western advisers, so that she can rope me into her phony conspiracy theories. The HIID projects she refers to were directed by Professor Andrei Shleifer at Harvard, and I had no role in those projects. She seemingly can't understand that I had a completely separate project, and that I resigned from advising the Russian government as of January 1994. One and one half years later, I became director of HIID in July 1995, and Professor Shleifer's project was one of sixty or so ongoing HIID projects around the world. During the period in which I directed HIID (1995-99), I stayed completely away from any personal involvement in any Russian advisory work, consistent with my public resignation in 1994. Moreover, when dubious practices in Professor Shleifer's project came to the attention of the U.S. Agency for International Development (USAID) and myself in the spring of 199 7, USAID and I worked together to close the project immediately.

Dr. Wedel writes darkly that "it is unclear who paid Sachs and his team." As I have explained repeatedly to her, and to anyone else that had the slightest interest, I received my academic salary for my work in Russia, with my leave time from Harvard University covered mainly by the United Nations University in Helsinki in early 1992, and thereafter by the advisory project supported by the Ford Foundation and the Swedish government during 1992-93. USAID supported a small amount of my summer academic salary, probably a total of a month or two. Of course, I never invested a penny in Russia, or in any other country in which I have served as an economic adviser. Nor did I engage in any consulting services for private businesses or investors involved with the Russian economy.

Dr. Wedel also accuses me of somehow improperly promoting myself to the Russians as a person "facilitating access to Western money." As any mildly interested observer of the Russian reforms would know from my writings and speeches, I strongly believed and publicly argued in 1992 that the West should provide large-scale assistance to Russia to support the early days of market reforms and stabilization, something the West manifestly declined to do. There was nothing sinister, surreptitious or secretive about any of this: I simply believed (and continue to believe) that timely Western help in 1992 and 1993 could have played an important role in helping real reforms and democratization to take hold, but of course it did not come. The Russian reformers and I knew that the chances for the needed large-scale support were not high, but we felt the effort was worth making anyway.

Wedel's twisting of facts and outright misrepresentations go on and on. What I find hard to understand is how The National Interest could publish this nonsense without even doing an iota of fact-checking.

Anders [dot{A}]slund, senior associate, the Carnegie Endowment for International Peace:

A decade after the collapse of the communist system, history has demonstrated that those post-communist countries that aggressively pursued market economic and democratic reforms are rapidly improving the lives of their citizens. In her article in The National Interest, Janine Wedel ignores this reality and seems more intent on denigrating those who have advocated and actively promoted such radical reform. She appears to lack an analytical framework, and her assertion of facts is inaccurate.

The stars among the post-communist countries are Poland and Estonia, which are generally acknowledged as the most radical market reformers. According to the European Bank for Reconstruction and Development, they also have the least corruption. Russia attempted a radical reform, but unfortunately it stumbled. Even so, Russian citizens are better off than Ukrainians, who saw a much later reform and less privatization, not to mention the poor Belarusians, who suffer under a frightful dictatorship in a Soviet theme park. Market reform and democracy go together in the post-communist world. Russia's problem is not too radical reform, but too little reform.

For the past decade, Janine Wedel has been going after leading advocates of radical market economic reform and privatization in former communist countries. Since the shortcomings of her gossip journalism are so obvious, nobody seems to have bothered to answer her as yet, but when a respectable magazine, such as The National Interest, publishes an article of hers, this mixture of lies, half-lies, sly allusions and sheer misunderstandings needs to be exposed.

In 1990 she started pursuing Jeffrey Sachs and David Lipton for having destroyed the Polish economy through their "ideology ... of radical privatization and marketization", which soon turned Poland into a stunning success. Poland's President Alexander Kwasniewski recently bestowed a high Polish order on Sachs and on Lipton in gratitude for their services to Poland.

What is her alternative? In her book, Collision and Collusion: The Strange Case of Western Aid to Eastern Europe 1989 -- 1998 (1998), she revealed her ideological preferences by repeatedly citing the old-style Soviet communist Leonid Abalkin with sympathy in his criticism of liberal reformers. She seems to advocate U.S. assistance to such communists: "In short, donors, by equating Western-oriented Russians with reform agendas and traditionalist or communist Russians with anti-reform agendas, created stereotypes."

Wedel is patently contradictory. She criticizes Western consultants for their "[l]ack of the understanding of the Russian cultural context", but the particular persons she assails know Russia well. She attacks the major Western economic advisers in Russia for being both ineffective and too influential. You cannot have it both ways.

Similarly, she regrets large amounts of aid to consultants, but she has focused on one institution, namely, the Harvard Institute for International Development, which received less than 1 percent of total USAID assistance to Russia. She ignores the many other general contractors for USAID that received much more money.

The major problem, however, is Wedel's inability to evaluate the accuracy of her sources. She mainly relies on interviews, going around talking to admittedly many people, but she only records vicious and tendentious allegations often...