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

Wayne Merry, director of the Program on European Societies in Transition, the Atlantic Council of the United States:

Janine Wedel makes a major contribution to the "Who lost Russia?" debate by pulling back some of the protective covering on how the U.S. government sought to impose its economic ideology on post-Soviet Russia. During my years in the political section of the U.S. embassy in Moscow (1991-94), I also saw close up the basic flaws of our Russia policy. First came ignorance, as purveyors of "the Washington consensus" unleashed their dogma on a country they did not understand and, worse, did not wish to understand. Then came arrogance on many levels: the belief that "the Washington consensus" embodied ultimate economic truth (its manifest failures notwithstanding); responding to any doubts about the dogma with accusations of heresy and disloyalty; the view of Russia as an economic wasteland (how it had managed to build all those missiles conveniently ignored) and as a laboratory to refine economic theory (heedless of the banners carried on the streets of Moscow by some of the laboratory animals demanding "No More E xperiments").

Next came authoritarianism, as Washington encouraged a willing group of Russian "reformers" to implement our policies by presidential decree rather than face the compromises of the legislative process, and to create extra-constitutional and clandestine structures of administration to avoid parliamentary oversight or media exposure.

Lastly came hypocrisy, as Washington officials claimed to be "shocked, shocked" when the government-sanctioned corruption and theft of public property in Russia could no longer be hidden. They then piously demanded that Russian governance be all the things the Treasury and IMF had insured it would not be: honest, accountable, transparent, law-based, public-spirited.

Thanks are due to Dr. Wedel for her efforts to document this failed policy process but, sadly, she has so far seen only the tip of the iceberg--what remains "classified" is much worse.

Michael Hudson, president of the Institute for the Study of Long-term Economic Trends:

I would like to give a perspective on Dr. Wedel's theory of transactors as an economist who has worked most of my life for U.S. international banks and money managers, addressed the Duma on numerous occasions, and consulted for U.S. government agencies on U.S.-Russia relations.

I have observed transactorship, and the insider dealings it entails, first-hand. "Average" U.S. investors were not in a good position to profit from the corruption that underlay Russia's stock market boom. One of the leading fund managers (for whom I worked in 1989-90 to help organize the first global sovereign-debt fund) refrained from the outset from riding this roller coaster. The firm's managers didn't trust the visibly corrupt investment climate and, not being insiders, they saw that "arms-length" speculation probably would end in disaster.

Institutional investors from firms that did enter the market explained to me that the safest money to be made was by those who had inside contacts. Money managers who didn't want to invest directly in the risky Russian stock market consigned funds to companies such as Brunswick, which put on promotional shows around the country; in which Anders [dot{A}]slund and others tried to convince institutional investors that they had an inside tack. It was no secret that Russia's market had no legal overseer like our SEC, but that was the very point of investing in Russia!