did you forward this to Brad deLong? On 2/12/06, michael perelman <[EMAIL PROTECTED]> wrote: > The author is a middle of the road type, but still this is valuable in > that it links the sort of authority relationships that let this crime > pass relatively undisturbed with the relationships in authoritarian > regimes. The price list of judges, politicians .... is also interesting. > > > When the Watchdog Doesn't Bark > > http://www.economicprincipals.com/issues/06.01.29.html > > A persistent riddle of the Andrei Shleifer case has been the failure of > three of the four major English language papers to report in any detail > the story of Harvard's failed Russia Project. The Wall Street Journal > was quick to grasp its significance in 1997. Carla Anne Robbins' > aggressive reporting on page 1 when the investigation was new probably > kept it from disappearing beneath the rug. Robbins, who is now a WSJ > editor, wrote another incisive leader last autumn, after US District > Court Judge Douglas Woodlock delivered his verdict of fraud and breach > of contract. > > But The New York Times, The Washington Post and the Financial Times took > a pass, even after Shleifer's close friendship with Harvard University > President Lawrence Summers became an issue. Indeed, the Times had to run > an embarrassing Editor's Note after a business page columnist quoted > Shleifer as an authority on corporate corruption without noting that, > only a few days earlier, a federal judge had found the Harvard professor > had committed massive fraud himself. > > An authoritative account of what actually happened in the seamy affair > exists only because an off-shore magazine paid an independent reporter > to study the court record and then published his 25,000-word report. > "How Harvard Lost Russia: The inside story of what happened the enormous > power and resources of the United States government were put in the > wrong hand," by David McClintick, appears in the January international > edition of Institutional Investor. > > What's a satisfying explanation for the lack of other interest? Simple > inattention won't suffice. There were those WSJ stories, after all. A > more plausible answer in this case can be found in the continual trading > of information, appraisal, mentions, column inches, access and other > favors that is at the heart of the business of newsgathering everywhere. > > What does it take to keep a watchdog quiet? Why did Harvard fail at > what would seem to have been the easier task, short-circuiting the > government investigation? Some indication of the relative strength of > forces at work here can be found in an ingenious study of the checks and > balances that underpin democracy by John McMillan and Pablo Zoido, both > of Stanford University. It appeared a couple of years ago in the Journal > of Economic Perspectives. Most political analysts study the institutions > of democracy one at a time, they noted, isolating a particular mechanism > in order to study it -- elections, political parties, the judiciary, the > media, and so on. > > But the many elements of a democratic system form a system of > incentives, they stated. Checks and balances work insofar as they > interact and reinforce each other. Opposition parties can flourish only > where the press is free. The media can't function without judicial > independence, which in turn depends on political competition. Which of > these mechanisms is the most robust? Which is the most easily suborned? > McMillan and Zoido turned to the experience of Peru in the 1990s to make > their point. It was tantamount to a laboratory experiment. > > Like every other nation in South America, Peru had been jostled by the > events of the turbulent 1970s -- the oil shocks in particular. A > military dictatorship gave way to civilian rule in 1980s, and by 1990 > all the apparatus of democracy was in place -- regular elections, > opposition parties, presidential term limits, judicial independence > (with appropriate safeguards), and a free and competitive press. On the > other hand, the economy was a shambles, mired in recession with annual > inflation of 7000 percent, Shining Path guerillas were gaining strength > in the hills. > > What happened next was the basis for an opera. University administrator > Alberto Fujimori defeated the novelist Mario Varga Llosa for president > in 1990. A political neophyte, Fujimori hired as his "security adviser" > and intelligence chief Vladimiro Montesinos Torres, an army officer who > in the '70s had been cashiered for selling secret documents to the US, > who in the '80s made a living as a lawyer for drug dealers. Montesinos > was ideally prepared to play on human weakness on all sides. Together, > he and Fujimori -- El Chino (the Chinaman) to his countrymen -- > proceeded to take over the state. > > There were some striking early successes. Shining Path founder Abimael > Guzman was captured in 1992 and his terrorist army collapsed. Meanwhile, > "Fujishock" -- a series of macroeconomic reforms and privatizations -- > reduced the inflation rate to around 10 percent by 1995 and stimulated > steady economic growth. The CIA liberally financed the regime, despite > warnings from the Peruvian military that Montesinos had taken over the > government. (Eventually Transparency International would declare > Fujimori the world's the sixth most successful head-of-state embezzler, > after Indonesia's Suharto, the Philippines' Marcos, Zaire's Mobuto, > Nigeria's Abacha and Serbia's Milosovic.) > > And so through a combination of showmanship, bullying and, mostly, > bribery, Fujimori and his secret police chief (or, perhaps more > accurately, Montesinos and his puppet president) took over the country. > They bribed politicians, judges, bureaucrats, journalists, business > executives -- more than 1,600 of them were kept on a regular payroll. > They killed people, too, but mostly students and peasants. "Remember why > Pinochet had his problems," Montesinos told a subordinate in a session > that was taped. "We will not be so clumsy." > > Instead, they closed Congress, suspended the constitution, reopened the > "democracy" long enough to run for re-election in 1995, then persuaded > Congress to abolish presidential term limits and won a third term in > 2000. Three months later, after an opposition television station > broadcast a tape of Montesinos paying a $15,000 bribe to a key > congressman to switch sides, the government fell, Fujimori fled to Japan > (where he was granted extradition-proof citizenship), and Montesinos > sought asylum in Venezuela. (He has since been returned to Peru, and is > awaiting trial in a maximum security prison that he had ordered built.) > Then last November, Fujimori surprised everybody by rolling the dice one > more time. He flew into Chile and announced plans to run again for > president of Peru. He did not make his point. Peru filed extradition > papers, and Chile is slowly going through the legal procedures > > McMillan and Zoido's account of Montesinos' activities as a corrupter > makes gripping reading. In the videos, he counsels those he is bribing > on cooperation: "How to friends help friends?... They do not say, Hey, I > give you this so you do this." He gives lessons in the string-pulling > arts. He routinely presents himself as a patriot. He is driven, he > declares, "to bring peace back to the country" by ending terrorism and > the drug trade. "Here we work of the national interest," he tells a > television executive on one tape. On another: "I get nothing out of > this; on the contrary, only hate, passions, intrigues and resentment. I > do it because of my vocation of service to the nation." After > Montesinos' arrest, Peruvian police discovered $200 million in his > foreign bank accounts. "His patriotism, evidently, did not preclude > enrichment," write the authors. > > Montesinos' great gift to economic science, however, was that he kept > meticulous records. He required recipients of his bribes to sign > receipts. He routinely videotaped himself doling out cash and > explaining exactly what he expected of those whom he paid (the tapes > were quickly dubbed "Vladivideos" when they began to be shown on > national television). Stanford's McMillan and Zoida pored over the > records, compiling what they described as price list for bribery, an > instrument that could be used to measure the strength of countervailing > forces that Montesinos was systematically disabling. They wrote, "The > size of the bribes measured what he was willing to pay to buy off those > who could check his power." > > What they discovered was a well-demarcated hierarchy. A politician was > worth slightly more than a judge. But the owner of a television station > commanded about a hundred times more than a politician -- five times > more than the total of all opposition politicians' bribes. "Each > channel takes $2 million monthly, but it is the only way," he told a > subordinate. "That is why we have won, because we have sacrificed in > this way." Newspaper bribes, while higher than those of judges and > politicians, were much less than television. The difference had to do > with scale. Montesinos explained on tape: "What do I care about El > Comercio? They have an 80,000 print run. 80,000 newspapers is shit. What > worries me is Channel 4... It reaches 2 million people." > > Thus, McMillan and Zoido concluded, the news media constitute "the chief > watchdog" in a democracy. News organs can provide oversight even where > political competition and an independent judiciary have broken down. (It > was a small independent television station, one that Montesinos had > never bribed, that aired the tape that finally brought the Fujimori > regime crashing down.) "Safeguards for the media -- ensuring they are > protected from political influence and are credible to the public -- may > be crucial policies for shoring up democracy." > > Now the United States is not Peru, and Larry Summers and Andrei Shleifer > are not El Chino and Vladi, though aspects of their relationship in the > '90s do bear a certain resemblance to the Peruvians' symbiosis -- the > powerful academician in high office and his worldly agent in the field; > the delicate issues of trust and betrayal between them. > > And certainly the techniques that Fujimori and Montesinos exploited to > subvert the normal functioning of the institutions of democracy are > constantly in use with varying degrees of subtlety in nations all around > the world. For instance, I thought immediately of Montesinos in > connection with the news earlier this month that Richard Scrushy had > paid a free-lance writer (through a public relations firm) to write > several friendly stories about him for a black-owned weekly newspaper, > the Birmingham Times. He reviewed at least two of the articles before > publication, according to the Associated Press, which broke the story. > > Scrushy, of course, is the former chief executive officer of HealthSouth > who last year was acquitted on 36 counts of fraud, despite the testimony > of many of his subordinates that he had been the architect of an > accounting scam that caused the insurer's collapse. Audrey Lewis, the > author of the articles, told reporters for The New York Times, "I sat in > that courtroom for six months, and I did everything possible to advocate > for his cause." She explained that Scrushy had paid her $10,000, plus > $1,000 to buy a computer. He paid another $25,000 to the pastor of a > church who was among a group of African-American supporters who > frequently attended the trial, according to The Wall Street Journal. > Scrushy is white. Eleven of eighteen jurors were black. > > So now to the really interesting question. How did the defendants in > the Russia project --Harvard, Shleifer, Hay and, though he was not > charged with wrong-doing in the matter, Summers -- convince the Times, > the Post and the FT that the collapse of its Russia Project was not a > worthy story? What did they say, and how did they say it? To whom, and > how often? Let me stress that there is absolutely no question of actual > money ever changing hands -- of bribery. At the pinnacles of capitalism, > the influence exchange is so deep and liquid that cash is almost never > required, except, perhaps, within organizations, in the form of golden > handshakes and the like. > > Instead, the informal economy of capitalism is one of deference and > respect, of favors today and the implicit promise of favors later, of > jobs and dinner invitations and admissions to exclusive kindergartens. > Its texture is extremely uneven: dense around, say, academic medical > centers and aerospace contractors; sparse where incentives are weak; > and, at least in democracies, full of relatively empty seams in the > appropriate places, between countervailing sectors. Anyone who doubts > that this informal economy extends to newspapers knows nothing about how > newspapers work. > > It is here that temptation comes in. Many of the judgments concerning > the newsworthiness of the US government's complaints about Harvard's > Russia project were made initially by editors in consultation with > correspondents on the ground during the 1990s. All four major papers had > series of superb reporters in Moscow in those years. Most of them were > partial to the Russians' efforts to bring communism to an abrupt end, > and mindful of the allowances that Western experts had to make in order > be useful advisers to their counterparts. John Lloyd of the Financial > Times, for example, in a lengthy article in The New York Times Magazine, > spoke for many of those correspondents when he concluded, "Russia > suffered from our mistakes and preconceptions, but -- barring > catastrophe -- ultimately will make its own accommodation. It was never > ours to lose. Russia lost, not itself but the trust that makes > societies civil and functioning." > > Matters were seen quite differently In the United States, however, first > by investigators for the U.S. Agency for International Development, > which paid Harvard to advise the Russian government, then by lawyers in > the US Attorney's office in Boston to whom they referred their findings. > In Boston and Washington, most of the advice that was given to Russian > economists who were seeking to create institutions of market economy was > completely beside the point. It was the on-the-sly personal enrichment > of the Harvard team-leaders that was viewed as being wrong. Nor was the > case ever seen as mainly a criminal matter, according to government > sources, the usual possibilities of criminal charges of perjury having > been wisely dismissed in the interests of focusing on the underlying > case, a matter of breach of contract and fraud. > > Harvard's courtroom defense turned on technicalities: though he was > projector director, Shleifer somehow wasn't covered by the contract. Its > public relations campaign deployed a number of straw men. The prosecutor > hated Harvard. Without criminal charges, the government case was of > little consequence. The judge had declined to try the charges against > the advisors' wives. Janine Wedel, the author of a distinctly left-wing > critique of shock therapy in general and the Harvard project in > particular, "Collision and Collusion: The Strange Case of Western Aid to > Eastern Europe," was from "another planet." > > All that's been put to rest now by the McClintick account. It is a > straightforward explanation of the case that the government finally > proved against Shleifer, Hay and Harvard before a practical and > sophisticated judge. It's in the nature of the news business that > editors don't ordinarily second-guess themselves and their reporters. > They haven't time. But this is one story where the editors of the Times, > the Post and the FT may want to "walk back the cat" in order to discover > how they got left so far behind on such an interesting story. > > For at its heart, the Shleifer matter has always had less to do with the > failure to export American values to Russia than with the inadvertent > importation of Moscow rules to institutions in the United States. That's > why Harvard's cockeyed defense is so alarming, why Shleifer's elevation > to positions of ever-greater authority in the economics profession is > worrisome. No one doubts that he is an original and productive economic > thinker. The good news is that it was Shleifer who, as editor of the > Journal of Economic Perspectives, published McMillan and Zoido's article > on Montesinos. That's the bad news, too, since the editorship confers > vast and global favor-trading power. > > The worst thing of all is that, starting with his long-time mentor Larry > Summers, Sheifer's friends don't seem to understand that they failed the > young Russian �migr� in the first instance, that they in turn have been > betrayed and embarrassed. It is true, as Edward L. Glaeser and Claudia > Goldin write in their introduction to the forthcoming "Corruption and > Reform: Lessons from America's Economic History" that the United States > "changed from a place where political bribery was a routine event > infecting politics at all levels to a nation that now ranks among the > least corrupt in the world." But it is also true that American > aid-giving abroad in the 20th century (Herbert Hoover, George C. > Marshall, Creighton Abrams) has been remarkably free of high level > corruption -- until now. > > -- > > > Michael Perelman > Economics Department > California State University > michael at ecst.csuchico.edu > Chico, CA 95929 > 530-898-5321 > fax 530-898-5901 >
-- Jim Devine Bust Big Brother Bush!
