Tainted Transactions: An Exchange

National Interest, The, Summer, 2000 by Jeffrey D. Sachs, Anders Aslund, Marek Dabrowski, Peter Reddaway, Igor Aristov, Wayne Merry, Michael Hudson, David Ellerman, Steven Rosefielde

The Western transactors Wedel discusses in her article--the IMF, World Bank, U.S. Treasury, USAID, European Bank for Reconstruction and Development, OECD, EU and the Western private sector--could not have prevented this debacle, even if they hadn't misbehaved in the ways Joseph Stiglitz describes in the April 17 & 24, 2000 issue of the New Republic. Only Chubais, Maxim Boycko and Alfred Kokh--successive chairmen of the Russian State Property Committee and members of the "transactors circle"--could have mitigated the plunder and disorder, had they not been so thoroughly corrupt. From this perspective, it makes little difference whether some Western economic theories were partially or wholly congruent with those of Russia's homegrown radicals. Had Jeffrey Sachs, widely considered an arch advocate of "shock therapy", been a closet conservative, as Joseph Stiglitz now suggests, Yeltsin's vendetta against the Communist Party still would have driven him to recklessly destroy the remnants of central planning and th e ministerial system without first preparing the way for a smooth market transition.

The damage caused by Western proponents of "shock therapy" and others who misunderstood the conditions required for empowering Adam Smith's invisible hand was less than that caused by Yeltsin's rash decrees. It is the sum of the tens of billions of dollars that "transitionists" of all stripes coaxed Western leaders into diverting from America's, Europe's and Japan's deserving poor to Kremlin thieves, plus the negative global welfare costs of consolidating Yeltsin's system of anti-productive elite privilege. The new economic model that has emerged is similar to the regime contrived by Hjalmar Schacht for Hitler: a marketized variant of a command economy that allows leaders to utilize a broad array of regulatory instruments, including direct arms procurement contacting, to enrich a narrow clique and rearm, in whatever mix Putin desires. It is precisely in this sense that Russia has been lost, and that those found guilty by the verdict of history of abetting the process through economic myth-making, politicking and moral turpitude should feel profoundly ashamed.

Wedel replies:

JEFFREY SACHS' and Anders Aslund's letters contain a series of unsupported counter-assertions. Both deal in significant part with issues that are not addressed in, or material to, my National Interest article. The article presents the theory of transactorship, a mode of organizing relations among nations. Both Sachs and Aslund are stunningly silent on this central issue: neither attempt to refute either the theory or the critical body of facts supporting it. The principal point of the article is that a group of self-interested actors and advocates from both the United States and Russia, supported by Western aid and promoted by high U.S. officials to whom they were closely linked, managed to co-opt U.S.-Russian economic relations and helped to bring about the fiasco that followed. It is not at all "contradictory" to conclude that Western economic advisers in Russia were both "influential" and "ineffective." The Harvard-Chubais transactors, including Sachs and [ddot{A}]kslund, were most influential precisely i n recommending and implementing policies that turned out to be highly counterproductive. The outcomes of their activities ran directly counter to the stated aims of the U.S. aid program in Russia.