Review of Kennedy School Meeting [An email comment on conditions in the Russian provinces from a Peace Corps Volunteer] Moscow Times January 23, 1999 Snowed In: Virtual video technocrats, empty platitudes and a vision of the someday-to-be-built Berez By Matt Bivens Staff Writer CAMBRIDGE, Massachusetts -- Few sights can be more disquieting than the towering head of Lawrence Summers, the U.S. deputy treasury secretary, projected onto a giant screen and holding forth from a mouth that looks the size of a metro tunnel about how the world should order its economies. Vicious snow and ice storm had swept the American East Coast, shutting down airports from Washington to New York to Boston. Summers was slated to open Harvard University's annual symposium on Russian investment with a speech to about 500 people. But when the weather trapped him in Washington, Harvard improvised a two-way satellite video link. Soon a virtual Summers was with us for dinner in a hotel ballroom in Cambridge - talking of how he was "very deeply concerned by the pattern of tax collection," doing little to hide his disappointment in the way billions have been whisked out of Russia to "beachfront property and Swiss bank accounts," chiding the Russians over their inability to put together a belt-tightening national budget. Few people outside the world of finance know who Summers is. But for years he has numbered among the most powerful people on the planet - first as the chief economist of the World Bank, then as one of the Clinton administration's leading international economic policy-makers, particularly for Russia. Summers, a Harvard-trained economist who advised Michael Dukakis in the 1988 U.S. presidential campaign, was introduced to the symposium audience as "the most influential academic since ... Henry Kissinger." So what does this wunderkind economist stand for? Summers provided a diamond-clear answer several years ago. In a December 1991 memorandum to colleagues at the World Bank, Summers laid out economic arguments for encouraging the export of pollution to Third World countries - something he characterized as a "world-welfare enhancing trade in air pollution and waste." In Summers' analysis, the cost of a person's premature death was measured by the loss of potential earned income. So if living next to a dioxin-emitting plant takes five years off of the life of the average, relatively well-paid American, that is economically far more significant an event than if the same plant causes the same health damage to, for example, the average Russian."Just between you and me, shouldn't the World Bank be encouraging more migration of the dirty industries to the LDCs [less developed countries]?" Summers wrote. "The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to it." When the memo was outed by environmentalists, it provoked headlines around the world - including the memorable "Save Planet Earth from Economists" in the usually staid Financial Times. Summers hastily claimed it had been an ironic exercise, a game to encourage more rigorous economic thinking at the bank. In reality, however, the advocacy of a "world-welfare enhancing trade in air pollution and waste" is entirely consistent with the sort of dogmatic free market ideology prevalent in Western lending institutions. That's why Summers could be promoted to the U.S. Treasury department. As a Brazilian environmental minister noted at the time, Summers' argument was "perfectly logical but totally insane." In Russia, a similarly absurd dogma has until recently let the West tacitly accept corrupt behavior - as long as it is performed in the name of building the private sector or, even better, "stopping the communists." Not so long ago, Summers was singing the praises of "young reformers" like Anatoly Chubais, the architect of Russia's privatization program. When President Boris Yeltsin was re-elected in 1996 and tapped Chubais as a deputy prime minister, Summers spoke enthusiastically about Russia's new "economic dream team," while a colleague at the World Bank group described Chubais as "a demigod." All this praise was coming a full year after the infamous loans-for-shares privatization auctions of 1995, when Chubais oversaw the parceling out of export-dollar-earning oil and metals enterprises to Russia's leading crony capitalists. Before hardly anyone realized what was happening, the nation's industrial crown jewels had been sold for kopeks, in openly rigged auctions. These insider deals undercut "the rule of law," to use the favorite phrase of Western policy-makers. They consolidated the power of the so-called oligarchy. And they discouraged direct investment in industry, because it was easier to profit by stripping assets. Anyone handed a creaky oil or metals company with hundreds of millions of dollars in annual export income can either take those millions and run - squeezing the company dry, but racking up fabulous instant wealth - or reinvest them in search of long-term, incremental gains. Morality aside, which is the more economically rational behavior? Since then, there have been compelling corruption allegations against the "dream team" of privatizers, no real economic growth, no real investment in key industries and a financial meltdown. So some might have expected a Harvard-hosted meeting of the world's leading Russia policy-makers to include a rigorous evaluation of past mistakes. Not so. Neither Summers nor any other major Western official at Harvard's three-day symposium even mentioned Chubais (who is admittedly again out of the government, but whose Western-backed policies will be plaguing Russia for decades). In 1995, the International Monetary Fund had made its loans to Russia conditional on Chubais personally being in a top Cabinet post; in Cambridge last week, Stanley Fischer, No. 2 at the IMF, spoke instead of "a lack of genuine privatization" in Russia that reflected "the power of vested interests." No one challenged either of these men on their past mistakes. But the virtual Summers did find himself being berated by an elderly, passionate gentleman - a small portly figure before the enormous screen - who accused him of not displaying enough compassion for Russia's human suffering. "In a way I'm glad you're not here, because I've been using the opportunity [of seeing a magnified Summers] to study your face," the questioner said. Summers was not emoting enough, he said. "I believe that one has to think in human terms, not only in dry economic terms." Summers, of course, agreed wholeheartedly: "It should not be the way it is," he said. "Every one of us who has traveled to Russia in recent years ... feels the tragedy of what has happened." But what about the investors? The backroom deals? At last year's conference, financier-oligarch Boris Berezovsky sparred with currency speculator George Soros over the ethical and political issues of the day. And Berezovsky and Menatep's Mikhail Khodorkovsky cobbled together Yuksi, the ambitious Yukos-Sibneft oil merger proposal, in a hotel room. This year's big financial success was credited to Deputy Moscow Mayor Vladimir Resin. He used his time in Cambridge to cajole a group of Western investors into tentatively agreeing to unfreeze a $500 million loan to Mayor Yury Luzhkov's municipal mortgage program, money they had pledged before the August meltdown. If the deal holds together, it will be a rare bit of post-August good news. But Resin's success swam against a more cautious tide. More representative of the glum consensus on Russia was a working group to discuss investing in the banking and financial sector here. Expert after expert spoke, many with the assistance of overhead projector slides, but all the talk boiled down to three basic points: 1. Russia is big. 2. Russia could use a real banking sector. 3. If Russia ever decides to set about creating one, it might well be worth investing in it. In retrospect, the snowstorm was the best thing that could have happened to the conference. Coping with the logistics created an artificial sense of drama and accomplishment: Would First Deputy Prime Minister Yury Maslyukov's plane again be snowed in? Would World Bank President James Wolfenson be able to drive through the weather in time to deliver the closing speech? Would the video link technology overcome all technical gremlins? The video links in particular gave speaker after speaker something positive to comment on: yes, Russia is something of a mess - but look at this information superhighway technology, and don't we live in exciting and hope-filled times! Not every businessman was somber. Timothy Smith, a senior director for R.J. Reynolds International's business in the former Soviet Union, gave a cheery presentation on how cigarettes sell briskly even amid economic collapse. Smith was standing in for a superior, an R.J. Reynolds International vice president named Kent Brown who was among the many trapped somewhere in a snowed-in airport. There was no video link for Mr. Brown - but not to be outdone, Smith noted that "the miracles of modern technology permitted [Brown] to send me his presentation," presumably by e-mail or fax. Standing under an enormous overhead projection of the three flagship RJR brands - the classic red-and-white Winston, the equally classic green-and-white Salem, and the more whimsical favorite of the young and young-at-heart, Camel - Smith read his boss's speech: "R.J. Reynolds saw a need in Russia, and a business development opportunity for itself. ... we recognized that a growing number of Russian smokers preferred the milder and more flavorful American blends of cigarettes over traditional or regional blends," Smith said. "In June 1992, history was made. ... We became the first multinational tobacco manufacturer to begin producing cigarettes in Russia," buying into the AS Petro tobacco factory in St. Petersburg. I was in St. Petersburg then and attended the news conference where RJR announced its stake in the tobacco factory. Company flacks handed out cartons of cigarettes to grateful Russian journalists, who lined up to ask for more. The governor of the Leningrad region, Alexander Belyakov, then opined that RJR's arrival was a great moment in the worldwide fight against cancer. His reasoning was that Camels were probably less carcinogenic than Soviet Belomors (and certainly milder and more flavorful), and that taxes from RJR investments could fund cancer research. Belyakov's statements were echoed unquestioningly by most St. Petersburg newspapers the next day. Over the years, RJR has invested a total of $500 million in Russia, Smith said. August's ruble, treasury bill and banking system blows knocked the wind out of the company's Russia business, but today it is back on its feet. "The sales of our product in the premium categories have tended to decline in recent weeks," Smith said. "But our extensive portfolio positioned us favorably to take advantage of the trend in consumer down-trading." In other words, no matter how poor you may be, there is always a brand for you. Smith saluted Prime Minister Yevgeny Primakov's determination to attract foreign investment, pledged his company's faith in Russia's future and prepared to accept questions. The first was a doozy: "I was wondering if you have made some provision for a multibillion-dollar settlement in Russia for cancer-related lawsuits," asked a European businessman, to appreciative groans and applause. "The Ministry of Health in Russia will have to pay billions of dollars for millions of Russian citizens who will develop cancer and other diseases because of your cigarettes. Have you put this provision in your balance sheets, and have you put a deposit in Sberbank - $1 billion, or $2 billion would be better - to serve as a guarantee?" "Thank you for the question - and I only more dearly regret that Ken couldn't make it this morning," Smith replied, to indulgent laughter. "Our chief executive officer ... has said on many occasions that, uh, smoking does have, uh, health-related impact. And therefore we -" here Smith found himself competing with tittering and scattered applause for the construction "health-related impact" - "we, we, we view it, we view it as a product which adult consumers have the right to choose whether or not they want to. I mean, it is a risk-associated type of activity, just as driving quickly, bungee-jumping, and a variety of other activities." As I've found so much to harrumph about at the conference, in the interests of disclosure I should also report that I had plenty to sulk about. I had flown in to Cambridge from Moscow, but Air France had left my bags in Paris. The ice and snow storms had paralyzed traffic, and I was unfamiliar with the town and short on time, so my shopping options were limited. I ended up wearing jeans with a hastily purchased shirt and tie, making me practically the only one of the 500 participants not in a suit. Furthering my isolation, I was saving money for the crisis-dogged Moscow Times by staying at a Howard Johnson's instead of the Hyatt Regency with the rest of the conference. Then there was the name-tag, checked vigilantly by beefy Cambridge police officers at the door to every conference room. With my name-tag I was handed a packet of schedules and information, including a warning that replacing a lost name-tag would cost ... $1,125. Needless to say, I promptly managed to lose my name-tag. I spent a harried half-hour running around arguing with symposium support staff - all of whom said I had to pay $1,125 for a new badge because that was the rule, all of whom agreed with me that this was preposterous but none of whom were high enough up the Harvard food chain to help. Eventually a badge for me turned up in the hands of the friendly press office. But lost luggage, bad weather, bureaucracy and a room at the Howard Johnson's were not the problem. After eight years in Russia, I was simply having a hard time swallowing what so many conference participants were either serving or eating up. When World Bank and IMF people complained about the corruption in Russia, I remembered their silent tolerance of it when it was called privatization. When they talked of the legal reform projects they were now planning to emphasize, so as to help fight corruption, I remembered handling the paperwork for one World Bank legal reform lending proposal a few years back. This proposal called for $300 per diems for already well-paid Americans consultants. I was told that it sailed through both Russian and World Bank approval. (This $300 in daily pocket change comes out of loans that Russian taxpayers must eventually pay back with interest.) When they talked of building democracy in Russia, I remembered the contempt for democracy their institutions have displayed all these years. The World Bank, for example, withholds documents on the planning of its projects from the public and the parliaments in both donor countries like America and borrowing countries like Russia. (Usually it adds insult to injury by doing so in the name of the national sovereignty of these countries.) The IMF is even more notoriously tight-lipped. With such secretive and authoritarian behavior, these institutions actually represent a challenge to democracy. Not only do they undermine parliaments and public debate. They advocate - in deed if not in word - "technocracy" as a scientific improvement on democracy. In the World Bank's ideal, experts projected onto enormous videoscreens would loom over the world, making all of society's important decisions, while the rest of us cowered below. Even when Russians and Americans crowed together about the innovative Moscow mortgage program, I could only work up limited enthusiasm. I remembered a report inThe Moscow Times that the first 30 affordable Moscow city mortgages had been distributed "at random," to people who could not be identified because they "did not want publicity." And I found myself dwelling upon all of the apartment scams, scandals and swindles Russian officialdom has indulged in over the years. I recalled how the former mayor of St. Petersburg, Anatoly Sobchak, handed out cheap apartments to pop stars, City Hall chauffeurs, newspaper editors and the mother of his deputy mayor. I remembered former Privatization Minister Alfred Kokh's apartments (and so does the prosecutor general). One of the most colorful accounts of how the Russian political elite deals with the kvartirny vopros, or "apartment question," can be found in former Kremlin security chief Alexander Korzhakov's memoirs. He describes how President Boris Yeltsin doled out flats in his "presidential" building to former prime ministers Yegor Gaidar and Viktor Chernomyrdin, to tennis partner Shamil Tarpishchev, to the ghostwriter of Yeltsin's memoirs Valentin Yumashev, to Moscow city officials Luzhkov and Resin, and many others: "Boris Nikolayevich then organized a collective housewarming party," Korzhakov wrote. "It was jolly. Everyone arrived with their families. We dined wonderfully. The Presidential Orchestra played and we danced. We congratulated each other on our cost-free acquisitions. Yegor Gaidar, who so passionately preached the idea of the market, was also ecstatic about the free distribution of apartments." One of the few high points for me at the conference was collecting celebrity trivia. For example, World Bank President James Wolfenson has been a guest at Nemtsov's grandmother's in Nizhny Novgorod, he has bushy central-banker eyebrows, he is called "Wolfie" by the Washington press corps, and on his 50th birthday he played cello with the New York Philharmonia. Others told me that Luzhkov has a demonstratively affectionate relationship with his wife, and that at last year's conference he insisted he wanted Greek for lunch and ended up at my unfairly maligned Howard Johnson's - which boasted the nearest Greek restaurant. Best of all, I got to watch Samara region Governor Konstantin Titov, who for some reason had his own personal photographer in tow to take pictures of him in the scenic spots of the Hyatt lobby. ("This is me next to the glass-wall elevator ... this is me next to the couch ... this is me next to the house plant.") Boris Berezovsky had made it through the 1994 car-bombing that decapitated his driver and also, to hear him tell it, aborted plans within the Russian security services to have him assassinated. He had weathered a controversial report in Forbes magazine accusing him of being "the Godfather" of the Kremlin and of complicity in the murder of ORT journalist Vladislav Listyev. He had held top government posts - indeed still does, as executive secretary of the Commonwealth of Independent States - and along the way picked up oil companies, media holdings, car dealerships and a chunk of the national airline. Now he was speaking at Harvard. More specifically, to a symposium dinner at the John F. Kennedy Library and Museum in Boston. Built in the 1970s with private donations from 36 million people around the world, the library is one of America's most beautiful modern buildings. The face of the building is decorated by a roughly 10-story wall of tinted windows and draped by a softly lit American flag. Given what we now know about the Kennedys, thanks to investigative reporters like Seymour Hersch, it turns out that the Kennedy Library was actually the perfect venue for Berezovsky: John F. Kennedy's father, Joseph Kennedy, made his fortune on his illegal bootleg liquor trade. He then wangled a job as U.S. ambassador to Britain - roughly equivalent in status to CIS executive secretary in Russia - where he was allegedly sympathetic to both fascism and anti-Semitism. Once back in America, he decided his son would be a senator and spent millions on a vote-buyingcampaign. Next stop: the White House, where John Kennedy would get high on pharmaceuticals supplied by a quack doctor, share one of his many mistresses with a mob boss, send Americans to Vietnam and invade Cuba. If this is the way the world works, the future surely holds a Berezovsky Foundation, Berezovsky Scholarships for Academic Excellence, governors Berezovsky, ministers Berezovsky and even a Berezovsky Memorial Library for Democratic Russian Statehood. Berezovsky's long speech was an over-the-top grab-bag of pseudo-philosophy: "The [American founding fathers] were wise people who were very attentive readers of the Bible. The Lord created us all differently, and the reason was so that people could make mistakes and learn from these mistakes. Freedom is a system of internal constraints; dictatorship is a system of external limitations." And so on. Some of the Harvard professors organizing the conference ate this up, and the next day would talk of "the interesting philosophical notes Boris Berezovsky struck." For my part, I was hungry - a problem that confronted many of the journalists at the conference because the press was initially not allowed to eat during any of the sessions. On the evening of Berezovsky's speech, the organizers relaxed the rule. As Berezovsky spoke and I took notes at one of the tables, I eyed the appetizer before me - shrimp with pepper vodka sauce topped with a horseradish chip. I happened to be a few feet from Boris Nemtsov, something I realized when laughter erupted because someone was pointing to Berezovsky and telling Nemtsov, "Look, it's your friend!" I grinned with everyone else, and wrote down the joke in my notebook. Satisfied that things were going well, I plucked a horseradish chip off of one of the shrimps and then, half-choking on it and desperate for water, found myself being ordered out of my seat by a Harvard conference organizer. She had seen me write down the joke and, I later learned, had decided I was spying on Nemtsov. As I was marched across the hall to a new table, I couldn't help wondering: Where was all this eagle-eyed vigilance when Harvard was in Russia? The morning of the first full day of the conference, The Boston Globe reported in a front-page article that Harvard professors Jonathan Hay and Andrei Shleifer of the Harvard Institute for International Development are now under criminal investigation. These HIID officials were paid by the U.S. Agency for International Development to give the Russian government economic advice. But Hay's girlfriend and Shleifer's wife were soon actively playing the Russian stock market that Hay and Shleifer were helping to set up. An investigation by USAID eventually concluded that Hay and Shleifer had "gained influence" over Russian capital markets and had "abused the trust of the United States government by using personal relationships ... for private gain." According to The Globe, the U.S. Justice Department is now looking into the matter. (Needless to say, Hay and Shleifer - two men with more front-line experience in Russia than any other Western professor or official in attendance - were nowhere to be seen at the conference.) When Wolfenson showed up on the final day, I asked for his comment on the argument that corruption, a bloated bureaucracy and a war in Chechnya were all fiscal luxuries Russia could never have afforded without IMF and World Bank subsidies. Weren't these massive multibillion-dollar loans really just freeing up money for the Russian government's most economically and politically marginal behavior? Here, in what amounts to a shameless plug for myself, I'll offer an account of this moment as written up in Tuesday's Kommersant: "From a seat [in the hall] came an American question that was very much to the point," Kommersant intoned. "'Listen, they're fostering corruption and fighting with Chechnya on our money. Maybe we shouldn't give them money if that's the way they are?'" (I remember it being more tactfully put, but I can't answer for the simultaneous translation.) Kommersant continued: "Now how do you look such a thoughtful American in the eye? Among ours, by the way, no one jumped up, no one was indignant, [or saying] 'How dare you get uppity, we're honest! Keep out of our business!' They ate that [question] in silence, and rightly so. It was an admirable and appropriate modesty." Kommersant then quotes Wolfenson as saying he can account for how his loans are spent (he can't, and that wasn't the question anyway) and asking why everyone talks about corruption in Russia when there's corruption all around the world. "The entire hall listened to this, holding its breath," Kommersant concludes. "Either out of respect for the status of the speaker, or out of shame. "Why are we always whining, why are we never satisfied, how come we don't know how to value things better? It's all so stupid somehow." Now that's a philosophical observation fit for the Berezovsky library. ***** An email comment on conditions in the Russian provinces from a Peace Corps volunteer: Date: Tue, 26 Jan 1999 From: "Joseph M. Pickett" <joe@pi.ccl.ru> Subject: Re: 3028-Bivens/Report from Harvard Symposium Re: #3028, 1/23/99 Moscow Times story on Russian investment symposium Dear David, Greetings from Perm, Russia. I'm certainly no expert on Russia, but I've been here long enough to give a few observations. Given the decay of Russia that I've born witness to the last 2 1/2 years, I wasn't too surprised by the description of the proceedings in Cambridge. I do wonder though if people like Lawrence Summers really can "feel the tragedy of what has happened" in Russia. If they really did, more effective actions would have been taken to really build Russian industry and prevent corruption. I've been in Moscow and St. Petersburg, and as anyone who has been around Russia knows, it bears no resemblence to life in the provinces. I've spent a lot more time in the outlying regions surrounding Perm, and that's where I have seen the real devastation of the last 7 years. There's a town 5 hours north of Perm called Keezel. It's nothing special in Russia. It's decaying and dying. It should take 3 hours to get to Keezel by bus but the roads are neglected due to lack of money. The only other option is the old electric train that runs to Keezel. It is unheated and freezing inside in subzero weather, which is most days November through March. Most Russians must take the electric train. It's much cheaper than buses and sometimes you can fool the conductor and not pay at all. Most people don't like being dishonest but that's what you have to do when you have no money. There is no work at all in Keezel. The coal mine closed years ago. In Keezel, I can tell you for a fact that some people are eating dogs, others are giving their last kopecks to buy a loaf of bread, 15 people died of alcohol poisoning last month, some roads are buried under 6 feet snow drifts and old ladies have to struggle through them by foot to get to the market. Bus service is so poor that often people must walk miles on foot in -30 degree weather. There is no phone service in parts of the town because thieves stole the phone cables and steal them whenever they're replaced. There is no police force to stop them. Apartments have broken toilets, no gas, running water only in the kitchen, certainly no hot water ever. Only the elderly with their pensions receive money. And in fact, these people are actually BETTER off than people in Siberia. Out there some of them don't even have heat or food at all. If people like Summers want to see the tragedy and feel Russians' pain, they should hop on a train to Perm. But tell them to come platzcart, third class, like most Russians have to do. It's tough to go first or second class when you aren't paid for 3-6 months. It's not a bad ride, only 22 hours. The toilets are locked half the time, but one gets accustomed to that. Also, tell them to load up on rubles before they venture out of Moscow. Food prices are 200%-300% higher out here than before the ruble crash. They can even stay here with me in my apartment. Then I'll take them on a tour of places like Keezel and then they'll have something really valuable to talk about at the next meeting in Cambridge. Joe Pickett Peace Corps Volunteerm Perm, Russia
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