In 1992, a group of Harvard-affiliated experts arrived in Moscow and attempted to transform the Russian economy into that of a Western capitalist country.

Instead, the economic development project crumbled in scandal.

In 2006, the US government charged Harvard, project-lead Andrei Shleifer ’82, and others involved with the project with conspiracy to defraud the U.S. government, eventually forcing them to pay a $31 million settlement.

The Moscow-based project was run under the Harvard Institute for International Development (HIID), a Harvard organization for economic and political advising abroad. The mismanagement in Russia ended with the dissolution of the project and, soon after, the demise of HIID itself.

To many within the organization, HIID offered a fresh approach to development. It worked in over a dozen countries, offering services from policy writing to training local leadership. Over the years, HIID built a record of successes that established it as a major player in international development and allowed the organization to grow exponentially. By the 1990s, HIID’s budget was bigger than many of Harvard’s graduate schools.

To its critics, however, its growth came in large part from the connections, prestige, and name brand of Harvard. HIID also periodically came under fire for working with corrupt regimes, though this never resulted in significant institutional oversight.

Moreover, some within the organization weren’t questioning the philosophy of development itself.

When the Russia scandal broke, it exposed a set of questions about how these Harvard affiliates became so integral to Russia and who benefited from their access.

To some, the very premise of the organization — using Harvard-affiliated experts to reshape the economies of hundreds of millions of people — was troublesome. Its wide reach was building an aristocracy of Harvard affiliates across the world.

In Russia, privatization efforts like those facilitated by HIID fostered the growth of the Russian oligarchy, which still shapes Russian society today.

The story of the HIID and its equivalent today, the Center for International Development, highlights the bounds of Harvard’s influence. With Harvard’s involvement in real-world events facing increasing scrutiny and many pushing for a policy of institutional neutrality, HIID reveals the risk of Harvard’s global power.

HIID Rises

“Is there a Harvard mafia running our country?” wrote the Philippine Star, a newspaper based in Manila, the country’s capital.

The “mafia” was the significant set of Harvard affiliates sculpting Filipino policy: four Harvard-educated cabinet members, a Supreme Court justice, the director of the Central Bank, plus a slew of HIID researchers sculpting Filipino policy.

The institution’s path to the helm of the Filipino government — and so many others across the world — started in 1974, when Harvard’s Development Advisory Service was rebranded as HIID following intense protest.

For years, DAS had conducted economic projects in Pakistan, Iran, and Southeast Asia but came under fire for its support of Indonesian President Suharto’s military regime and alleged misuse of funds in Pakistan. Student activists claimed that the DAS focused on raising their client countries’ GDP and supporting anti-Communist efforts over more pressing social and political needs. Ira D. Helfand ’73, who questioned the organization’s philosophies during a 1971 debate between Students for a Democratic Society and the director of DAS, says SDS wanted to educate campus about CFIA’s activities abroad and ideally, shut the institution down.

“This was a quiet little center sitting off in a building,” he says. “But when you went into their library there and began reading through some of the studies that they were doing and some of the work that they were doing, it was really quite disturbing.”

At one point, a radical left-wing military group set off a bomb in the building that housed DAS, protesting Harvard’s involvement in Vietnam.

With the renaming of DAS to HIID came a slew of institutional changes. Rather than a purely economic approach, HIID adopted a more interdisciplinary model, with experts from a range of academic and professional backgrounds working on a much larger variety of projects. Many projects involved direct contracts with host governments and included advisors that lived and worked abroad.

Despite the rebrand, HIID didn’t escape campus criticism. Student and faculty opposition upended HIID’s director selection process, ousting first-choice pick Arnold C. Harberger for his involvement in Agosto Pinochet’s dictatorship in Chile, leaving economist Dwight Perkins to get the job.

Under Perkins’ leadership, the HIID blossomed into a major player in international development. By 1999, HIID had 20 overseas offices and 25 additional international programs, and had grown from a $3 million budget in the 1970s to a more than $30 million one — larger than the budgets of Harvard’s Design, Divinity, Dental, and Education schools. A number of senior HIID members even gained “industrial tenure,” which grants protections within the institute, but not at the University.

Commonly, the HIID provided advising services, but they also provided technical trainings to local populations, many of whom would go on to become influential government officials.

Beginning in 1988, HIID trained over 700 Indonesian officials abroad under a $10 million contract. “If you go down through the cabinets over the last 30 years, they’re going to be dominated by that group,” says Glenn P. Jenkins, an HIID fellow. “Every cabinet, no matter which government.”

Sometimes HIID’s advisors had more direct roles in governing client counties, too.

Malcolm McPherson, now a research associate for the Kennedy School’s Ash Center for Democratic Governance and Innovation, worked intimately with Gambian ministers as a resident advisor for HIID. “The ministers relied on us a lot in some ways,” McPherson says. “For example, the Minister of Finance, I used to write his budget.” McPherson was then asked to write one speech for this Minister of Finance and “one thing led to another so I ended up writing speeches,” he says.

Former HIID officials say the organization depended on endorsements from the governments they contracted with, even when their values were misaligned.

While working on a study of rural education in Honduras, Harvard Graduate School of Education professor Fernando M. Reimers was removed from the project after refusing to change his findings that children often experienced violence in schools.

“I was never invited back,” Reimers says.

Reimers mentions similar problems across other projects. “I’m sure we had to work within the boundaries of what the government allowed us to work in. We’re not there to subvert or even expose corruption,” Reimers says.

Though they were worried about complicity in corrupt governments, they did not question their right to be there. While Reimers was aware of his status as an outsider, he was more concerned with getting the work done than “navel-gazing.”

“I didn’t spend a lot of time questioning myself and maybe that was a bad thing. Maybe it was really a white savior complex,” he says. Now, “I can imagine a lot of protracted discussions on whether we should even be doing this thing at Harvard.”

Despite that, Reimers stands by the work they did, and other HIID officials defended their work as better than other development organizations.

Fernando M. Reimers By Courtesy of Elio Pajares Ruiz

David O. Dapice, a professor affiliated with the Ash Center who worked with both HIID and the World Bank, felt that “the pressure in the World Bank was to generate projects” that would pay for bank activities. Such a model may have influenced how the World Bank counseled countries.

“Whereas I never felt working for Harvard that I gave bad advice,” Dapice says.

Reimers also says other major development organizations had massive bureaucracies, which “can make it very easy for people to lose sight of what you’re doing. And that was not the case at HIID.”

Lacking bureaucracy, HIID instead opted for informal, “moral infrastructure” to navigate contracts — ethical guidelines rather than official ones.

Because the projects were being run in countries thousands of miles away, Perkins says, “you have to trust the leaders.”

For example, Harvard refused to require their employees to obtain security clearance before working with governments’ confidential information.

“There was a trust that we would not be inappropriate in the way we use the information that we had,” Perkins says.

According to Dennis F. Thompson, who served as the chair of the task force to review HIID, as the organization grew in size, its already loose structure became increasingly looser, as did its ties to Harvard.

When Sydney B. Rosen ’87 started working for HIID in 1996, she found “HIID kind of operated independently of the University.”

“It was never a great idea not to have a tighter tie with Harvard, and more student involvement and more faculty involvement,” she says.

To her, the disconnect between HIID and Harvard proved challenging.

“That’s just not a great model for having support when something goes wrong. And things did go wrong,” Rosen says.

‘Harvard’s Blank Check from Uncle Sam’

In 1991, the USSR collapsed, and the new president of the Russian Federation, Boris Yeltsin, announced that Russia would continue its rapid transition to a market economy. Foreigners — from businessmen to bright-eyed economists — flooded into the newly-opened country.

“It was a very exciting time,” says Jana G. Fankhauser, an early associate for HIID’s Russia Project. “You could see foreign produce in stores, you could see the changes happening throughout the city, throughout Moscow.”

The Clinton government also wanted to play a role in Russia’s transformation — a desire that, from 1992 to 1995, would lead USAID to award HIID a $40 million contract for economic reform aid. While selecting a contractor is usually a competitive two-year process, the government granted the deal to Harvard without properly considering alternatives.

As a Government Accountability Office investigation would later reveal, this unusual contract also granted HIID a great deal of power over the distribution of USAID’s $300 million portfolio for Russian development, meaning it effectively supervised its own competitors. According to Janine R. Wedel, a professor of anthropology at George Mason University, the contract functioned as “Harvard’s blank check from Uncle Sam.”

To a certain extent, the contract reflected Harvard’s existing influence in Russia.

Two of the University’s young but celebrated economists — Shleifer and Jeffrey D. Sachs ’76 — were already well-positioned with the Russian government.

Shleifer, a Russian native and newly-tenured Harvard professor, previously worked in Russia with the World Bank. Sachs commanded prestige as the face of “shock therapy” economics: the theory that sudden, dramatic changes can turn a state-controlled economy into a free-market one. He championed shock therapy in Poland and in Russia, where he worked as an economic advisor to President Yeltsin until 1994.

Jeffrey D. Sachs ’76 took over as the director of HIID in 1995. By Courtesy of Jeffrey Sachs

The contract arrived at HIID with Shleifer already at the helm, and in 1995, Sachs took over from Perkins as the director of HIID.

In the eyes of Perkins, USAID did not want to offer a contract directly to the Russian government, who they did not trust, nor to an individual advisor. Indeed, the waivers for the expedited bidding process cited “foreign policy considerations.”

Though Shleifer was favored by the Russian ministers at the time, “USAID was not going to give Andrei the money,” he says. “It had to be turned over to an organization that knew how to handle it.”

HIID arrived in Russia with a team of about twenty resident advisors, then added a Legal Reform Project, led by lawyer Jonathan R. Hay, in 1994.

The government, with the assistance of Harvard advisors, rolled out privatization in two waves, through the 1992 voucher program and the 1995 loan-for-shares program. HIID also helped create the Russian Stock Exchange, and the Russian Trading System Index.

Similar to other HIID projects, the Russia team worked intimately with the host government. According to Wedel, Shleifer and Hay in particular enjoyed a close relationship with the government’s “Young Reformers,” including minister Anatoly Chubais.

Shleifer did not comment on his relationship with members of the Russian government.

Yet in Russia, the boundary between the government and the economists was a lot less clear.

Wedel stumbled upon the story of HIID while researching aid in Eastern Europe. She became fascinated with the “actors and networks” at play in Russia at the time, which she calls the “Harvard-Chubais players” in her book “Shadow Elite: How the World’s New Power Brokers Undermine Democracy, Government, and the Free Market.”

“There was a very, very fine line between what was private and what was state,” Wedel says. “And you see that 29-year-old Jonathan Hay, who’s not even a Russian citizen, and Maxim Boycko, who is a Russian citizen, but not involved in any government post, have formal signature authority over privatization decisions of the Russian state. That raises questions. What’s that about?”

Hay did not respond to a request for comment.

Among some HIID associates, however, the relationship between the project’s top associates and Russia’s top officials seemed to cross the line into special treatment. Both Shleifer’s wife, Nancy Zimmerman, and Hay’s then-girlfriend, Elizabeth Hebert, worked in finance, and appeared to benefit from their partners’ positions — most notably, when Hebert’s newly-established company Pallada became the first approved mutual fund program in Russia, over larger and older competitors. Pallada operated out of HIID’s offices, and Zimmerman’s hedge fund, Farallon Fixed Income Associates, invested in Russian companies.

Hebert did not respond to a request for comment. Zimmerman could not be reached for comment.

Far from HIID’s Cambridge headquarters, and working under the expansive umbrella of the USAID contract, many of these issues failed to immediately raise alarm.

“Reality is,” says Perkins, “no one knew what was going on.”

‘Internationalism Has Blown Up in Harvard’s Face’

In 1996, the Russia project began to unravel.

Concerned with the lack of complete and timely reports from HIID, the House International Relations Committee directed GAO to audit the program. Although GAO concluded that USAID oversight of HIID was “lax,” the 124-page report did not force any changes. The original report was much harsher, according to Wedel, but “the Harvard lawyers basically gutted it.”

Tensions, though, continued in Russia. A whistleblower led the newly-arrived USAID director in Moscow to inform the agency’s inspector general of potential favoritism towards Hebert and Pallada. A quiet investigation of the Russia project began.

Over the course of the investigation, new details would emerge about the group’s shady dealings. A $200,000 indirect investment in Russian companies by Shleifer and Zimmerman in 1994. Stock purchased in Russian oil companies by Shleifer, under the name of Zimmerman’s father. $20,000 invested by Hay into the Flemings Russian Securities Fund, an investment company managed by Hebert. Investment in Russian debt instruments, or GKOs, even though HIID worked on national financial policies.

In May 1997, USAID temporarily suspended the project, and in a letter to HIID, claimed that Shleifer and Hay “abused the trust of the United States government by using personal relationships, on occasion, for private gain.” HIID soon removed Hay and Shleifer from the project.

Shleifer did not comment on USAID’s claims.

When Russia terminated the project in June, USAID revoked a $14 million grant to HIID. The project’s abrupt end made headlines across the country, drawing attention to Harvard’s presence in Russia — and HIID’s years of dealings abroad.

“Internationalism has blown up in Harvard’s face,” wrote The Boston Globe in 1998. “Critics say Harvard faculty members have become too cozy with oppressive regimes such as China and Burma, and too easily corrupted in graft-filled societies like Russia.”

Many at HIID, however, emphasize that the Russia project was a radical departure from their typical initiatives.

For one thing, the project came with Shleifer already at the head, rather than someone with experience working at the Institute.

Reimers also points to Sachs, who took over the directorship of HIID during the Russia years without much prior involvement in the institute. According to him, “Sachs was very young at the time, and very arrogant, if I can say that.” His focus on macroeconomics research excluded a few of HIID’s other initiatives, leaving some people feeling alienated.

Many saw HIID personnel bring up a long-standing rivalry between Sachs and Shleifer, which they claim may have exacerbated the effects of the scandal.

In an email, Sachs defends his leadership at HIID, denying that he was underqualified, arrogant, or had a rivalry with Shleifer. Shleifer did not comment on claims of a rivalry.

“I’m not clear that if it had been handled differently it would have led to a different result,” Perkins says. “But it became a legal process much faster than it needed to be.”

In 1998, Harvard created the Center for International Development, a more research-oriented organization. Sachs assumed the directorship of CID, and $10 million from HIID’s endowment went to finance CID.

A year into the transition, however, Sachs resigned as HIID’s director, and in 2002, he left Harvard to join Columbia University.

According to Rosen, “we just were in a spiral that was on its way down” after Perkins retired and Sachs joined the institute. “And one bad thing happened after another until there was nothing really left to save.”

Following Sachs’ resignation, the University announced a task force to review HIID and evaluate its future.

Thompson, the task force chair, still holds today that the Russia scandal was not the main reason for the review. They didn’t think the Russia dispute was “typical,” Thompson says. “In fact, we thought it was an aberration.”

He cites other reasons for the review — a need for a new director, HIID’s size, and the increasing interest in integrating international development efforts into other graduate schools.

For those working at HIID, however, the Russian scandal loomed large over the process. University administrators were worried about the legal liability associated with HIID, says Perkins, who sat on the task force. “Technically it was not connected to the Russian thing, but in reality it was.”

Without a way to remove the risks, Perkins believes, there was no way to move forward with the Institute. The task force toyed with the idea of removing the H from HIID’s name, and having “IID” operate similar to a teaching hospital, with a loose relationship to Harvard. But for Perkins this model was “totally unworkable.”

The task force recommended that HIID dissolve, citing structural issues, a deficit in 1998 and 1999, and the Institute’s insufficient integration into the University’s research and educational goals. In 2000, HIID officially dissolved.

Its staff of over 180 people spent the following months trying to relocate their projects and careers. While Harvard graduate schools absorbed some projects, others relocated. The public finance group largely transferred to Duke. The Vietnam Project became part of the Kennedy School. The public health team moved to Boston University.

“A few people had been offered positions at Harvard School of Public Health, the senior people,” says Rosen, a public health associate at the time. “But for people like me, there was really no future at Harvard. And they were mad. I mean, there was also just a sense of betrayal.”

“It was a really heavy price that the Institute paid,” says Richard B. Pagett, who served as the associate director of HIID in 1997. “And I have never understood the rationale in Harvard’s mind, why it was done that way.”

To McPherson, the decision to dissolve the Institute was “Harvard at its worst.”

“You know, they never fire a Harvard prince,” says McPherson, who relocated to the Belfer Center and now works at the Ash Center. “It’s the story. Doesn’t matter what they do.”

Shleifer retained his position as a tenured member of the Economics department — even when the Justice Department officially accused Shleifer and Hay of making personal investments in Russia in late 2000. The trial went on for the next five years, during which Summers assumed Harvard’s presidency.

During the trial, multiple Harvard faculty members raised concern about the lack of disciplinary action against Shleifer. Summers legally recused himself from the case, though he also at one point expressed an intent to keep Shleifer from accepting a job at another university. Shleifer also asked Harvard to cover his legal fees.

In his defense, Shleifer claimed he acted as a consultant to HIID rather than an employee — and therefore did not breach the contract’s conflict of interest rules. He also described the investigation as “zealous” and “outrageous” in a letter to the provost.

In 2005, a settlement was reached: Harvard would pay the US Government $26.5 million for their involvement in the Russian development scandal, while Shleifer and Hay would pay over $1 million each.

Andrei Shleifer is the John L. Loeb Professor of Economics. By Courtesy of Wikimedia Commons

Still, Shleifer remained at Harvard, and suffered from no disciplinary action (Shleifer did not comment on the case). The saga added another controversy to Summers’ presidency. In early 2006, someone anonymously sent copies of “How Harvard Lost Russia,” a meticulous account of the Russia scandal by David W. McClintick ’62, to senior faculty. Summers resigned from the presidency soon after, with some faculty members citing the affair as a blow to Summers’ reputation.

Summers did not comment on the case, his relationship with Shleifer, or claims that it hurt his reputation.

“I always thought it was wrong,” Pagett says. “That HIID wound up being dissolved and its component parts being put under the various faculties when the scandal which led to all the problems was done by a tenured member of the economics department faculty who suffered not one iota from it.”

‘Privatization, Privatization, Privatization’

The attention-grabbing details of the Russia scandal can sometimes obscure the lived impact of the project’s privatization efforts. The signature reforms of the Yeltsin government — voucher privatization and loan-for-shares programs — are now largely regarded as the origins of Russia’s oligarchy.

“I got the voucher,” recalls Irina Busygina, a visiting scholar at the Davis Center. “For me it did nothing, absolutely nothing. You know, because to have one voucher check on the individual level is absolutely nothing.”

“It was like a sheet of paper,” she adds.

Future oligarchs bought up hundreds of thousands of vouchers from ordinary Russians and used them to buy stocks in recently privatized enterprises. In a short time, a small number of individuals gained a shocking amount of wealth — and, by extension, political power.

The loan-for-shares program was a more explicit sell-out to the oligarchic class. In rigged auctions, the Russian government sold shares of valuable state enterprises to oligarchs in exchange for billions of dollars. When the government eventually defaulted on those loans, the oligarchs retained control of the country’s most important and profitable corporations. Though the scheme provoked outrage among the Russian people, particularly against Chubais, it ensured the oligarchy’s support for Yeltsin’s 1996 election campaign — without whom, Busygina says, Yeltsin “could not survive.” Sputnik, an investment firm partially owned by Harvard Management Company, participated in some of these auctions and purchased shares in Russian oil and steel companies.

Though HIID was involved with the voucher program and other privatization reforms, Perkins maintains that HIID was not responsible for the Russian government’s “deals made with those oligarchs.”

“There was never anything actually wrong with the project itself,” he says. “The issue was the private investment activities.”

Like Perkins, Fankhauser, the HIID associate on the Russia project, believes in the project’s goals, but does not see HIID and other Western advisors as entirely blameless.

“We were excited about markets being established,” she says. “We were less than thrilled about watching advantage being taken of Russian citizens.”

Looking back on it now, she thinks “we were somewhat naive about how long it would take to create change that would be long term. And probably also somewhat naive about corruption.”

But some don’t think they were just being naive. The reforms reflected the ideas of shock therapy, championed by economists like Sachs.

The young reformers of the Russian government, Busygina says, “opted for the most radical solution.” When choosing such drastic measures, “their main argument was, ‘we don’t want to restore communism… if we do something moderate, something more time consuming, step by step by small step, we will get lost.’”

The US government and aid agencies also pushed for privatization. Economic reform in Russia, according to Wedel, was “seen as the most important issue by the West.” She remembers asking someone working on Russian development about priorities. “She said, our priorities are privatization, privatization, privatization,” Wedel says. “That was the ideology of the day.”

As the country plunged into a financial crisis in 1998, Yeltsin’s government became increasingly unpopular, and he resigned a year later. Vladimir Putin, his favored successor, spent his first years as president campaigning against the oligarchy and building a populist base.

“The privatization, and the severe feeling of unfairness of the privatization, gave Putin the argumentation to build his own system,” says Busygina.

‘The Tip of the Iceberg’

Like McPherson, many past HIID associates reject the idea that HIID’s 25 years of work should be “defined by this Russian business.”

Even though HIID personnel argue for a more comprehensive view of its legacy — one that takes the years before the Russia Project into account — the scandal provoked greater scrutiny of the Institute, and of Harvard itself. “Recently, Harvard, with all of us who live, work and study here, has been tainted,” wrote Emma S. Mackinnon ’05 in a 2002 op-ed in The Crimson. “And these cases may well just be the tip of the iceberg — visible only when the company connected to Harvard attracts public attention.”

“Before running aground of another corporate scandal, the University needs to be rapidly redirected away from the peril of corporate and personal interests and towards the interests of the Harvard community and the public — here or in Russia — that the school should be serving,” she wrote.

Today, Harvard’s international influence is perhaps less consolidated in one institute (though it’s no less contentious).

While CID is not technically HIID’s offshoot, its continuation of the Institute’s legacy prompted a 2000 op-ed in The Crimson to question if CID is just HIID, renamed to avoid scrutiny.

According to Harvard spokesperson Jason A. Newton, CID was set up as a distinct entity, rather than as an extension of HIID. “CID does not currently have any ties to, nor any ongoing projects formed under, HIID,” Newton writes in an email.

Past associates don’t deny the connection between CID and HIID, but they see CID as less of a continuation and more as a shadow of the former institute.

Perkins believes that much of CID’s reputation comes from HIID’s past projects. CID also conducts work in countries where HIID built long-standing relationships, such as Indonesia.

Some even seem to wish that Harvard still had a division as powerful as HIID. “I think about the challenges of the present, that Harvard and other elite universities face, where so many people ask, what do you do for society? Are you just a bunch of self-serving individuals, bloated bureaucracies, that have zero value?” Reimers says. “We could give different answers to those critics if we actually had a place like HIID. We could say, this is what we do for the world.”

Yet at the same time, Reimers recognizes that the landscape for university involvement in international development has changed.

USAID, he says, is now more focused on offering aid to local institutions. From an administrator’s point of view, he explains, “they would rather spend the money they were giving to HIID to an institution in El Salvador.” This shift may be a result of today’s widespread skepticism of foreign-led international development efforts.

While HIID emphasized its interdisciplinary approach, Reimers also believes that academic disciplines today are “certain that their perspective in the world is the perspective.” Competition in the international development world, he adds, is now more fierce.

Jenkins, the HIID fellow, agrees. “The international consulting firms in the United States have gotten a lot better,” he says. At the time of HIID’s existence, “Harvard sort of had a niche.”

“You know, let’s say that Dwight had stayed on forever as director. I think that there might have come a time when HIID’s functions were no longer necessary,” Rosen says. “Funding structures have changed, universities have changed, the world’s changed.”

Despite researching and writing extensively on HIID and its Russia fiasco, Wedel is sure that she has only begun to connect the dots. “What I think we know is the tip of the iceberg. There are just too many puzzles, specifically on the financial front, that never worked,” she says. “It’s a very complicated story — and that’s one of the ways they got away with it.”

By the time the U.S. suit reached Shleifer in 2000, his allies were starting to assume top positions at Harvard. Zimmerman, Shleifer’s wife, worked for Bob Rubin, who would become a member of the Harvard Corporation less than two years later. Summers, meanwhile, spent time with Shleifer during vacations to Cape Cod. At one point while Summers was interviewing for the Harvard presidency in 2000, he stayed at Shleifer’s home.

“They had it all sewn up,” Wedel says.

— Magazine writer Maeve T. Brennan can be reached at maeve.brennan@thecrimson.com.

— Staff writer Charlotte P. Ritz-Jack can be reached at charlotte.ritz-jack@thecrimson.com. Follow her on X @charrittzjack.