The Fall of Harvard’s Global Development Powerhouse

In the winter of 1987, the Philippine Star, a newspaper based out of the country’s capital in Manila, ran an article with a line that might have turned heads across the world in Cambridge: “Do we have a Harvard mafia running our country?”

The Star was referencing the Harvard Institute for International Development, a Harvard organization that for nearly three decades advised foreign governments on some of their most pressing economic and political issues. The group of Harvard professors and students wielded considerable influence — steering policymaking everywhere from Asia to Latin America and boasting a budget larger than several Harvard schools’.

But 26 years into its remarkable rise, HIID came crashing down in scandal.

As the class of 2000 returned to campus after winter recess, Harvard announced that it had decided to shutter the organization. The move was made after a task force recommended the Institute’s dissolution over concerns about structural issues, budget deficits, and insufficient integration with the rest of the University. The Institute’s downfall, however, was largely precipitated by the mismanagement of an HIID project to reform Russia’s economy.

In 1992, experts affiliated with the institute arrived in Moscow to remake the country’s economy in the image of a Western capitalist system. Their arrival marked the beginning of an initiative that would result, just over a decade later, with the U.S. charging Harvard and several individuals involved with the project with conspiracy to defraud the government — forcing them to pay $31 million in settlement fees.

The scandal tarnished HIID’s reputation and ultimately ended its existence. In a staff editorial published in The Crimson just after the Institute was dissolved, students praised the move as “wise” and labeled the controversy over HIID’s activities in Russia an embarrassment for the University.

“These actions have embarrassed Harvard and demonstrate that these programs should be under the more direct control of educational sectors of the University,” the editors wrote.

Still, some say that the Russia incident was a one-off misstep on an otherwise pristine record of providing innovative, informed solutions to governments by some of the world’s leading experts — and giving students the unique opportunity of applying their learnings from the classroom to the real world.

“In hindsight, I’m not sure it was a good decision, to be very honest,” Harvard Graduate School of Education professor of the practice Fernando M. Reimers, once an HIID researcher, said of the institute’s dissolution. “The good that HIID did in those 30 years for the world, for the advancement of knowledge, for the education of students, far outweighs all the harm that could have [been] caused by that professor who — by violating a norm — basically endangered Harvard’s reputation.”

A Major Player

The Star’s warnings about a “Harvard mafia” in the Philippines were not unfounded. The upper echelons of the country’s government were chock full of Harvard-educated leaders: four cabinet members, a Supreme Court justice, the director of the Central Bank, and multiple HIID researchers shaping Filipino public policy.

And it was not just the Philippines.

For years, an HIID researcher wrote the budget for the Gambian minister of finance. Another advised the Pakistani government on constructing more than 500 elementary schools. Indonesian government officials trained by HIID in the 1980s have dominated the country’s cabinet for more than three decades.

“HIID not only provided advisory services, but it also — through that work — was able to develop some really important research that affected development around the world,” said Georgetown University professor Steven C. Radelet, first a graduate student and later a professor who worked with HIID for almost 15 years.

The Institute was effectively founded in 1974, after Harvard’s Development Advisory Service was renamed HIID following protests over its involvement in Pakistan and Indonesia.

By 1999, the Institute had become a major player in international development. It advised governments from Nepal to Egypt with more than 20 overseas offices and 25 subsidiary international programs. A budget that started at $3 million in the 1970s ballooned to more than $30 million, surpassing the Harvard Design, Divinity, Dental, and Education schools.

At times, its advisory services came under scrutiny by critics and even some of its own members, who said that the Institute was forced to distort its findings based on the beliefs of their clients. Reimers, the HGSE professor, said in a 2024 interview with The Crimson that he was removed from a project on rural education in Honduras after he refused to change his finding that violence was widespread in schools.

“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 said at the time.

While the primary focus of HIID was advising governments or training their officials, another key to the program was the opportunity to take classroom learnings to the real problems facing real governments. This educational value, several said, was unique — and invaluable.

“I could not have had the career that I had without HIID,” Radelet said.

Russian Reform

In 1991, HIID started a new $40 million project converting Russia’s economy into a capitalist system. Coming on the heels of the USSR’s collapse, the engagement seemed poised to make the Institute’s name even bigger than it already was.

The project did ultimately leave a mark on HIID — but not the one its leaders might have expected from the high-profile case.

After an expedited selection process for contractors, USAID granted HIID the $40 million contract and effective control over the distribution of the agency’s $300 million portfolio for Russian development.

Andrei Shleifer ’82, a newly tenured Harvard professor and Russian native who had worked with the World Bank in the country, spearheaded the HIID initiative. Jeffrey D. Sachs ’76 took over the Institute in 1995, while the project was underway, after working as an economic advisor to President Boris Yeltsin of Russia.

In 1994, the team arrived in the country, tacking on a legal reform project headed by Jonathan R. Hay, a young lawyer who had graduated from Harvard Law School two years prior.

Working intimately with Harvard advisors, the government launched privatization through a 1992 voucher program and a 1995 loan-for-shares program. The Institute also advised on the creation of the Russian Stock exchange and the Russian Trading System Index.

But the close personal relationships between Russian officials and the HIID affiliates — especially Shleifer and Hay — at times gave way to questionable business dealings that seemed to grade into special treatment.

Shleifer’s wife, Nancy Zimmerman, and Hay’s then-girlfriend, Elizabeth Hebert, appeared to benefit professionally in their finance jobs from their partners’ influence in Russia. Herbert’s newly established mutual fund, Pallada Asset Management, was the first such program approved in Russia — receiving the green light over larger and older competitors. The organization also worked out of HIID’s offices, and Zimmerman’s hedge fund invested in Russian companies.

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

The road to uncovering the questionable dealings in Russia started in 1996, when a House committee directed the Government Accountability Office to audit HIID over incomplete and late reports to the U.S. government.

But what began as an audit over lacking reports became a full-blown investigation into HIID — and the business activities of Herbert and Zimmerman.

The investigation found several shady investments by the two in Russia: $200,000 in indirect investments in Russian firms by Shleifer and Zimmerman in 1994. $20,000 invested by Hay into a Russian investment firm managed by Herbert. Russian oil company stocks purchased by Shleifer, under the name of Zimmerman’s father.

By May 1997, USAID temporarily suspended the Russia project and wrote in a letter that Shleifer and Hay “abused the trust of the United States government by using personal relationships, on occasion, for private gain.”

Soon after, HIID removed Hay and Shleifer from the project. By June of that year, Russia terminated the project completely and USAID revoked a $14 million grant to HIID.

Three years later, HIID would be dissolved entirely.

A ‘Dirty-Fingernail’ Education

While HIID might be most remembered for the Russian scandal, its proponents said that project was a one-off incident — and that an overwhelming majority of the institute’s work was highly beneficial for the governments it advised and the world at large.

Radelet, the longtime HIID contributor, said the institute was responsible for “path-breaking research” in international development, from pioneering microfinance in Indonesia to conducting “superb research” on food security work globally.

The Institute also influenced the personal development of those who were involved with its projects.

Tufts University professor emeritus David O. Dapice, who worked with HIID advising the Vietnamese and Indonesian governments, said his experience with the Institute “made a difference” to his teaching.

“It certainly made a difference for the people that were teaching,” Dapice said, “that had had the dirty-fingernail experience that one gets when one has to actually work with people in developing countries that are colleagues, not employees.”

Radelet said HIID was an incredible training ground for his career, which included serving at a senior position in the U.S. Treasury Department and later as a senior advisor to Hillary Clinton when she was Secretary of State, then as chief economist at USAID.

“I wouldn’t have been able to do any of those things had I not had the foundation that HIID provided of both the practical hands-on work and the academic and scholarly work,” he said.

HIID’s closure was announced in January 2000, just months before the Class of 2000 was set to graduate. Radelet said the dissolution of the institute resulted in a strong response on campus, with students and faculty in HIID feeling “bewildered” and “angered.”

The Crimson’s Editorial Board, however, was more optimistic about the change. The editors wrote that it was the right move to disband the Institute and that its projects “do not serve Harvard’s best interest.”

Dwight H. Perkins II, who served as the director of HIID from 1980 to 1995, said there were talks of turning the organization into an independent consulting firm with no ties to the University towards the end of its time.

“It would have been like a teaching hospital, basically independent of the University,” Perkins said.

But those plans never came to fruition. And as the University moved toward closing down the Institution, Perkins said he helped employees find new positions. Many went to the Harvard Kennedy School or Education School. Others left for other institutions — Boston University, Duke University, the University of California, San Diego.

In 1998, Harvard siphoned off $10 million from HIID’s endowment to found the Center for International Development, a more research-focused institution that serves as the closest equivalent to HIID today. Sachs, the director of HIID when it began its project in Russia, took the reins at CID.

Several former members of the Institute said they regretted the decision to end it.

“From my point of view, this was a loss to the University and to the world that we decided to close that institute,” Reimers said.

“There’s no question in my mind that this was a net loss to the educational opportunities of students — that they lost the training ground that HIID was in terms of preparing them to work in development,” he added.

—Staff writer Chantel A. De Jesus can be reached at chantel.dejesus@thecrimson.com. Follow her on X @c_a_dejesus.

​​—Staff writer William C. Mao can be reached at william.mao@thecrimson.com. Follow him on X @williamcmao.