- The Washington Times - Tuesday, October 3, 2000

Just weeks after Congress released a scathing evaluation of the Clinton administration's Russia policy, the country's problematic relationship with foreign aid is back in the spotlight. This time, the involvement of experts from Harvard University promises to make this crony-capitalist scheme all the more interesting.

Last Thursday, the Justice Department sued Harvard University and two of its experts for $120 million in damages. The suit alleges that the Harvard experts used the U.S. Agency for International Development (AID) program as a front of influence to enrich themselves. Harvard University, the suit said, didn't do enough to supervise its experts who ran the program.

The Justice Department contends that economics Professor Andrei Shleifer and legal expert Jonathan Hay leveraged insider information and the cachet associated with the AID program to make investments in Russia. Also, the suit said Mr. Shleifer's wife used AID-staff and office resources to purchase thousands of dollars in Russian bonds.

Even worse, though, Mr. Shleifer and Mr. Hay appear to be guilty of giving the Russian government bad advice. Rather than promoting transparent business practices in Russia, Mr. Shleifer and Mr. Hay ensconced themselves in the Kremlin's crony-capitalist traditions. Mr. Shleifer and Mr. Hay oversaw Moscow's infamous privatization program, which allowed some Russian officials to make millions of dollars in kickbacks for doling out some 35,000 state-owned businesses to government allies at fire-sale prices. The program has since been highly criticized, but at the time, the two experts' work was so respected that the Russian Privatization Center, which they founded, also received loans from the World Bank and the European Bank for Reconstruction and Development.

In a statement earlier last week, Harvard's vice president and general counsel, Anne Taylor, said "There is no suggestion that Harvard institutionally knew about, participated in, or profited from the alleged private conduct of these individuals." But Mrs. Taylor failed to deal with the Justice Department's charge that Harvard failed to supervise its experts adequately, and she also said that Harvard would be open to settling with the government to drop the suit.

If parties can be sued for lack of appropriate supervision, then perhaps AID itself should be held responsible. In 1996, a General Accounting Office audit criticized AID's oversight of the Harvard-led program as lax, an allegation bitterly disputed by AID officials. AID appears to have banked blindly on Harvard's reputation, without ensuring the individuals in charge of the program were making responsible decisions with U.S. taxpayer dollars. Interestingly, some of Mr. Shleifer's and Mr. Hay's misguided policies regarding Russia were emulated by the administration's point man on Russia, Al Gore, who also seemed to believe that privatization should be achieved by any means possible. But the chaotic and Byzantine environment in Russia would have conspired against any aid program, no matter how much American money was thrown at the country's problems.

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