Provost's Decision Dissolves HIID

Three years after a scandal in Russia made it infamous and nearly three weeks after a faculty task force recommended its demise, Provost Harvey V. Fineberg '67 announced Friday that the Harvard Institute for International Development will be dissolved.

The institute, which for 25 years has advised foreign governments on everything from economics to education, will have some of its programs absorbed by Harvard graduate schools.

Others likely will be disbanded permanently. Officials have not specified a timetable for the transition.

Fineberg's decision--announced in letters to HIID staff--is not unexpected. The faculty task force evaluated HIID for six months before issuing its Jan. 4 recommendation to dissolve the institute.

However, the provost's announcement is symbolic of Harvard's close analysis of its own approach to globalization. Just when Harvard appeared to be looking outward, this decision seems to be motivated by a re-focusing on education.

"The main purpose is to integrate these valuable international development activities more closely with teaching and research at Harvard," Fineberg wrote.

The provost said for the remainder of this academic year, all current HIID projects will continue to operate under their existing management structure.

Fineberg added that transitional discussions with graduate school officials and with the leadership and staff of HIID will begin immediately.

A news release did not specify which graduate schools would be involved in the project. However, University spokesperson Joe Wrinn indicated last week that the Kennedy School of Government (KSG) and the School of Public Health (SPH) are likely candidates.

The institute's annual budget is over $34 million. Private foundations, various aid agencies, regional development banks, United Nations organizations and host governments support HIID work, the institute Web site says.

The University has guaranteed HIID staff no loss of income through June 30. HIID has 159 employees overseas and at the University. Twenty-five additional personnel hold joint appointments within Harvard.

According to at least one HIID fellow, institute employees have been hearing rumors about their employer's demise for months and were not surprised by Friday's announcement.

Still, according to Fellow Joseph J. Stern, the general mood around the institute was one of disappointment.

At a meeting Friday, HIID's human resources department encouraged members of the staff to stick around as long as possible to finish current projects.

Some staff members will also continue to work on HIID functions within the parameters of the graduate schools once the integration is complete. Still, this admonition to finish up quickly may be a sign that large cuts are on the way.

"When the task force was appointed in July it was made very clear that this was a comprehensive review," interim director Richard B. Pagett said in an earlier interview. "I think everyone understood that that meant all possibilities were on the table from the very beginning."

HIID History

Harvard has included international development consulting under a variety of names since the mid-1950s. From 1962 until HIID's birth, Harvard's Development Advisory Service did the bulk of this type of work.

HIID began in 1974 with an annual budget of $3 million. Over the years, its staff has included regular Harvard faculty and full-time HIID specialists.

Since those humble beginnings, the institute's size has ballooned--and at points it has been so big that its budget was larger than that of Harvard's Design, Divinity, Dental or Education schools.

By 1996, the annual budget topped $40 million. This fall, the institute had 20 overseas offices and 25 more international programs headquartered in Cambridge.

According to some former employees, this large size led to management problems that lowered morale in some programs.

The task force's report and officials took care to deny that any management problems had been found. Instead, they blamed the institute's far-flung structure for a lack of communication between HIID staff and faculty and students in Cambridge.

"Many of those who replied to the Task Force observed that HIID had not effectively linked its activities with other parts of Harvard," the report notes.

Fineberg's task force, chaired by Associate Provost Dennis F. Thompson, also included former HIID director Dwight H. Perkins, Whitehead Center for International Affairs director Jorge I. Dominguez, and Program on Technology and Economic Policy director Dale W. Jorgenson.

Many members of HIID's staff discussed the report with Thompson, Perkins and interim HIID director Richard B. Pagett in meetings held during the first week of January.

At one meeting, Thompson said the task force found the institute's activities "disproportionate and insufficiently integrated into the University's core functions of teaching and research."

While the task force focused on the gradual breakdown between HIID and teaching and research in Cambridge, HIID has had far more public problems in recent years.

The Scandal in Russia

During the late 1990s, media attention has focused on a Justice Department investigation into acclaimed Professor of Economics Andrei Schleifer '82 and his former colleague on HIID's Russian project, Jonathan Hay.

These two HIID staff members were accused of using their knowledge of and connections to the Russian economy to aid private investors.

The conflict started when these members of HIID's Russian team helped develop and fund an organization called the Institute for a Law-Based Economy (ILBE), which was created to write economic legislation and provide advising in Russia.

With Hay's support, the U.S. Agency for International Development (AID) provided some backing for ILBE.

But in the late 1990s, Schleifer's wife and Hay's girlfriend, both experienced professional investors, used the services of ILBE to inform their own companies' investments.

At the time, Donald Pressley, an AID official, told the Wall Street Journal that AID may have "opened a gray area" when it allowed both non-profit and for-profit investors--like Schleifer's wife and Hay's girlfriend--to use ILBE.

"But when we agreed to the establishment of ILBE-Consulting, we did not expect nor would we have approved of it providing services to the close associates or family members of AID-financed advisers," Pressley told the Wall Street Journal.

According to Harvard's rules about conflict of interest at HIID, any staff members at the Institute, as well as members of their families, are not allowed to make investments in the countries where they work.

In light of the scandal, AID rescinded the remaining $14 million of their $57 million fund for the project. HIID terminated both Hay and Schleifer. However, Schleifer remains a tenured professor of economics at the University.

A Justice Department investigation into the events in Russia is ongoing. The University denies the Russia scandal has anything to do with HIID's dissolution.

But the report did admit that the project "highlighted" some general conflicts of interest that could come up if HIID remained in its current capacity. Even with proper management, the report said, there are "unforeseeable risks inherent in a worldwide enterprise such as HIID."

In 1998, Sachs became head of the KSG's new, more research-oriented Center for International Development. Last summer he resigned the directorship of HIID, saying he wanted to spend more time on his new position.

Officials have emphasized that his resignation--and not the investigation--was one of the main factors prompting Fineberg to appoint the task force and request the review.