Atelier 18, article 7

© American Frankenstein : How America's "Best"
Helped Create the New Russia

By Steve Farrell and Diane Alden
9 October, 1999

For the last ten years, United States policy towards Russia has helped to shape a cumbersome creature which seems to be lumbering towards a return to the old centralized command and control economy, to chaos, or perhaps to a bizarre combination of both.

Rather than moving in the direction of a free market, with even a bare resemblance to a democratic system, Russia now has the worst aspects of capitalism and Marxism. Part oligarchy, part communist and part reform, it has a semblance of life without the substance.

It is a coupling of an absolutely profound misunderstanding of how a free market works, Russian corruption, the bad advice of some highly paid Harvard experts, plus the "third way" policy thinking of Strobe Talbott, Madeliene Albright, Sandy Berger and Lawrence Summers.

The current $7 billion Bank of New York money-laundering scandal is the bastard child of so called U.S. expertise and a Russia not set up to deal with a free market economy. Add to that the idiocy of IMF machinations and what you get is a badly put together "thing" heading towards economic and political disaster.

Events have shown that the experts neither understood Russia, nor had a clue what the country needed. Now the creature seems to be begging for more funds from the West on one hand and returning to the bad old foreign policy days of yesteryear on the other. For this the Russians are not totally to blame; U.S. know-it-all arrogance can take its fair share.

Recent Russian belligerence in the Balkans and elsewhere is but the creation taking a shot at its erstwhile creator. For instance: The Russian military moving into the Pristina airport before NATO gave the okay; Russian bombers flying over NATO territory; And Russian dealings with the rogue states of Iran and Iraq by selling them ballistic missile and nuclear technology.

There is also the fact that the Duma rejected Strategic Arms Reduction Treaty II, plus the continued influence of hardliner and former Russian Prime Minister Primakov on Russian foreign policy. Additionally, not long ago, Russia conducted its first massive nuclear war games since the end of the Cold War.

Then there is also the possibility that Prime Minister Putin, a onetime member of the KGB, may be maneuvering towards an eventual take over of Russia. It is possible that elections will not be held for Yeltsin's job next year.

Moreover, the development of closer ties with China and India may signal the beginning of an anti-U.S. axis, which will make it difficult for the U.S. to get its international way. Lately, the Russians are responding to what they perceive as U.S. hegemony by thumbing their collective nose at the United States.

In the middle of the war in the Balkans, Russia had to roll over as NATO, i.e. the United States, inflicted humiliation on them. The former Soviet states of Hungary and the Ukraine forbade Russian aircraft from crossing their territory. The Russians viewed this as NATO revealing how surrounded and helpless Russia really is.

America's Young Frankensteins

So how did America play Frankenstein to Russia's creature? What part did our brightest and "best" play in the present Russian muddle?

Return to the world of 1992 for a moment. Naiveté based on false assumptions may have been the formula for disaster. The assumption by both the Americans and Russians was that if Russia just adopted democracy and a market economy, all would be well.

Never calculated into the equation were the social costs of the transformation of Russia, nor the absence of basic components that make a free market possible. Furthermore, one of the first big mistakes of the Clinton Administration was embracing the privatization czar, First Deputy Prime Minister Anatoly Chubais. According to the New York Times "today (Chubais) may be the most hated man in Russia."

Compounding one bad decision with another, the Clinton Administration assigned the Harvard Institute for International Development as its representative in Moscow. George Washington University expert on the Soviet Economy, Dr. Janine Wedel, has stated that: "Harvard Professor Jeffrey Sachs and other Western economists participated in promote a plan of "shock therapy," eliminate price controls, subsidies...(producing) instead hyperinflation that hit 2500 percent."

One of the results was that investment capital evaporated, as did the savings of the Russian people. As a result Professor Sachs suggested that Western aid in the form of money allocated by Congress should be offered in order to stabilize the Russian economy.

It was with the alliance of Chubais and the Harvard group H.I.I.D, including Jeffery Sachs, Andrei Schliefer, David Lipton and Jonathan Hay, that the current Russian monstrosity began to take shape. With the unequivocal support offered by former Harvard professor and current Secretary of the Treasury Lawrence Summers, the monster had the form of capitalism without the basics necessary for democracy and a free market.

Jonathan Hay's influence on the development of the Russian economy began during the Bush Administration. He received a grant from U.S.A.I.D. to help form a new free market Russian economy. In this effort the Harvard institute raked in $57.7 million to aid in establishing a "new" Russian economy. But what developed instead was a creature without direction or any hope of success.

The Harvard coterie encouraged Chubais' deceit and pilfering of massive amounts of western aid. They did this by circumventing various Russian agencies including the Duma. They stood by while Chubais used a form of executive order, or presidential decree, to get around Russian governing bodies.

To the delight of the American experts involved in economic policy decisions, Russian economic policy setters took a page from the Clinton administration. The "stroke of a pen, law of the land", a fatal and corrupt blend of American policy generated by "experts", did nothing to establish even the barest form of free market capitalism in Russia.

Loans were granted with, shall we say, less than sensible oversight, as billions of U.S. and foreign dollars went to what Dr. Wedel calls "tycoon capitalism."

Since 1991 approximately $3.65 billion has been given to Russia in the effort to develop a free market economy. In 1996, the IMF loaned another $10.2 billion. In July of 1998 Russia received $11.2 billion with more to follow.

According to Dr. Wedel, Veniamin Sokolov, head of the U.S. equivalent of the U.S. General Accounting Office, has stated: "All loans made to Russia go to speculative financial markets and have no effect whatsoever on the national economy. And it is the Russian people who are responsible for repaying these loans."

Again, as in the case of economic interference by the IMF, large U.S. financial institutions, U.S. government experts, and really short-sighted economic policy, the average Russian is very little better off than before.

Dr. Frankenstein, as embodied by the Harvard experts, has merely allowed the enrichment of the experts and a unctuous slide towards economic and political chaos in greater Russia.

The only bright spots in Russian-American economic cooperation have come from the private sector.

Dr. Tucker Hart Adams, President and CEO of the Adams Group in Denver and head of the American-Russian Collaborative Enterprise, has a long history of economic relations with the Russians. However, her experience is not with the Chubais crowd or the Harvard experts, it is with the new class of entrepreneurs in Russia who are involved in the "economy off the books." She maintains that a significant middle class is growing in Russia.

While oligarchs grow rich and a number of Russians are impoverished, a multi-part economy has developed. The old state sector still exists with several layers side by side with the new, mostly off the books, economy.

With respect to American expert help she states, "Most of our foreign aid went to American accounting firms and consulting groups, not to Russian businesses. Russia desperately needs foreign capital." She insists that Russians are investing in Russia, but because of the onerous tax structure, businessmen route profits to offshore entities which then return monies to Russia as foreign investment. Some Russians are merely investing through an offshore back door.

In an exclusive interview, Dr. Adams stated that, "We assumed that things like basic honesty in business transactions with strangers, respect for law, seeing other's success as validation that you too can succeed, are human nature. They aren't. I've learned over the past ten years, ‘Give me liberty or give me death,’ are part of our American culture. The average Russian just scratches his head if you talk about that."

Nonetheless, Dr. Adams is hopeful. She maintains, "It is important to recognize how much progress Russia has made, rather than just focusing on what went wrong."

Citing the new entrepreneurs and a better economy in Western Russia, she believes the situation has improved for a small but growing middle class. But this is with no thanks to the Chubais crowd or the Harvard experts.

Dr. Adams feels Russia's biggest problem is the lack of structure grounded in moral or ethical standards. Up until recently, she believes religion in Russia was nearly non-existent and today it is kind of a trendy thing to do, to get baptized and wear a cross and light candles. But the underpinnings of morality based in religious beliefs have not yet evolved as they have in Poland or Czechoslovakia. This makes progress, economic or otherwise, more problematic.

Recently, Madeleine Albright said, "Russia was not ours to lose." She is correct. But our bumbling, arrogant experts made the Russian transition period worse than it might otherwise have been (a Republican administration probably would not have done any better. After all the whole mess started under George Bush).

Republican or Democrat, policy makers gravitate to theorists who, for the most part, think similar thoughts and swim in the same think-tanks. Perhaps that is part of the problem. The United States, Russia and the rest of the world might be better served if we found policy makers fighting the good fight in the real world of business and foreign affairs.

For all the money and effort expended in Russia by the U.S., we should have been well on the way to creating a strong ally and friend - ala Germany and Japan.

While Russia is in a transition period we must hope that the "help" offered by the U.S. over the last 8 years has not aided in creating a monster which will eventually wreak havoc on the United States and the rest of the world.

Liberty Caucus and Newsmax writers Diane Alden of Holly Springs, Mississippi, and Steve Farrell of Henderson, Nevada, are widely published research writers. Joint projects include their upcoming book "Democrats In Drag: A Second Look at the Republican Party. Please email any comments to Steve and Diane at