Guest Post by David Ellerman
Bits and Pieces 2013-08-20
Summary:
[David Ellerman has worked in economics, mathematics, and philosophy, spent twenty years in academia, and was an economic advisor to the World Bank from 1992-2001. He is now retired from his full time roles and is a Visiting Scholar at UC Riverside. I had never heard of him that I recall until I received this fascinating email from him unbidden. I am reprinting it here with his permission.] I thought you might want to learn some of the backstory to the the Summers-Shleifer affair that you have so wonderfully written about in HuffPost (a link I got from David Warsh who is also a player in the story). The general theme is the role played by the Harvard wunderkinder, Sachs, Summers, and Shleifer, in the imposition of shock therapy in many of the post-socialist countries, principally the Former Soviet Union and particularly Russia. I was part of the opposing side promoting forms of employee ownership (like the American Employee Stock Ownership Plan or ESOP) so that the people in those countries would “meet the market” as something that empowered them since the employee ownership would legalize in a sustainable private form the de facto rights that employees had acquired in one form or another in the socialist enterprises. The shock therapy side wanted to eradicate any such de facto rights as “remnants of communism” and to throw the ownership of all enterprises of any size onto the easily manipulated stock markets through some form of voucher privatization (each citizen would get a voucher to buy shares in companies or mutual funds on the stock market in exchange for their accumulated de facto rights in their own enterprise). With all the marbles set loose on the table top, anyone with any power could tilt the table in their direction so, in country after country, we saw the rise of the oligarchs (not just in Russia) and the disenfranchising of the population and their disillusionment with the market, private property, and western democracy. No group of westerners played a larger role than the Harvard wunderkinder in this sorry period of recent history in establishing the Big Bang that eventually became the big bust for everyone but the new elites in those countries. Jeff Sachs was first out of the blocks in the promotion of shock therapy and voucher privatization in the late 80’s (leaving his great Harvard rival in the Econ Dept green with envy). I had left academia (teaching economics, math, and computer science) to set up a consulting company in Ljubljana Slovenia (then part of Yugoslavia where the workers’ de facto rights were the greatest). As the ESOP law I helped draft with local professors (with PhDs from Penn and Cornell) was sailing through Parliament, Jeff Sachs was brought in by a group of ex-Yugoslav right-wingers to apply Harvard’s and his prestige against the bill, which they succeeded in stopping. David Warsh tells the story well in the attached Boston Globe column from 1991. But the workers, managers, and many other local groups (even Rotary Club!) rallied to defeat the Sachs voucher privatization law, so Slovenia had no privatization law for several years. Since I could not then do the consulting work I planned to do, I accepted an offer to join the World Bank (to help fight the shock therapy from the inside as it were). That is where Larry Summers enters the picture. I first met Larry in late 89 when Larry, Lester Thurow, and I were invited to come down from Boston to NYC to have a lunch with Yeltsin in the latter’s first trip to the US. Larry was anxious to get a piece of the action that was then captured by his great rival as an economicswunderkinder, Jeff. Since Larry was not the P.T.Barnum of self-promotion like Jeff, he decided to take the institutional route and accepted the Chief Economist’s job in the World Bank. From there Larry moved on to Treasury in the Clinton Administration where he was able to engineer the Russian contracts his protégé Shleifer, and you know the rest of that story. Through it all, he promoted the themes and the people in Russia who were behind voucher privatization and the stock-marketization of the economy, e.g., Chubias and Vasielev (who was head of the stock market dept in the govt. designing the regulations etc.). In this manner, Larry eventually eclipsed his internal Harvard rival who could not bring similar resources to the table, so Sachs turned his attention to “saving Africa.” But the Sachs-Summers story had at least one more chapter. Larry’s contract for Shleifer at the HIID was set up under Dwight Perkins, so when Jeff took over HIID, it was a substantial part of the HIID business. This was not to the liking of Jeff’s ego. Since I was doing most of my work for the World Bank in Russia, rumors about the dubious activities of the “Center for Law-Based Economy” (Shleifer and Hays’
Link:
http://harry-lewis.blogspot.com/2013/08/guest-post-by-david-ellerman.htmlUpdated:
08/20/2013, 12:45From feeds:
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