Privatizing Foreign Policy: How Transactors Hijacked US Relations
BY JANINE R. WEDEL
In the study of foreign policy, aid and nationbuilding, little empirical attention has been paid to the agency of the actors who serve as brokers among parties. Much more attention generally has focused on policies and end results. Yet, the reorganizing, more networked world of the late 20th and early 21st centuries has opened up new opportunities for nonstate actors to fulfill functions once reserved for the state. The greater leeway afforded to these actors comes with increased freedom for nongovernmental figures to develop their own agendas. When a state entrusts authority to nonstate actors it increases the likelihood of unsanctioned policies and activities that furthers self-interests rather than those of the public at large. Two momentous cases of US foreign policy in the post-Cold War era—US economic aid to Russia via Harvard advisers during the 1990s and the run-up to the US war in Iraq a decade later—illustrate this alarming trend. In each instance, a small group of trans-state actors with their own agendas significantly shaped relations between nations.
The movement toward privatizing government has aided and abetted these actors. In the United States, not only many services, but also functions that were once the responsibility of bureaucrats, are now essentially in private hands. In fact, the US’ current involvement in Iraq is the most privatized war in our history. By the time the United States launched its campaign, twothirds of people doing work for the federal government were not on its payroll but instead received their paychecks from consulting firms, companies, NGOs and think tanks. The outsourcing of government functions today combines with a proliferation of entities involved in governing, diminution of monitoring and movement of policymaking legitimacy to the private sector. As government authority and information becomes increasingly fragmented through the contracting out of its functions, institutions such as the Foreign Service and other well-established modes of representation are weakening while the use of special envoys and quasi-official consultative bodies is proliferating. These developments have created more opportunities for coordinated groups of individuals to take over public policy agendas in pursuit of their own interests
Primed to take advantage of such a fragmented system are “transactors,” representatives of parties on opposite sides who collude with one another for mutual gain. Their resilient network can build bridges between parties, cut through bureaucracy and streamline decision making—all of which can be attractive to long-distant parties now attempting rapprochement.
Transactors—representatives of the parties (subnational groups, nations and/or international organizations) that have been separated, culturally, societally and perhaps geographically—arise to build bridges between parties. Although formally representing different parties, transactors join forces, working together for mutual gain in a small, informal group. Transactors may genuinely share the stated goals of the parties they represent (at minimum they uphold the appearance of doing so in public) but they tend to develop additional goals and operating modes for their own benefit. These additional modes and goals, advertently or inadvertently, can undermine the key aims of the parties on whose behalf the transactors ostensibly act.
By definition, transactors put their own agendas above those of their parties. They serve the interests of their informal group at the expense of their parties. The ambiguity inherent in their multiple/ meshing roles enables them to deflect clarity—and accountability.
The US-Russia relationship that developed during the 1990s in the service of US economic policy and aid to Russia is an example of how relationships among nations can be undermined by transactors. The policy prescriptions proffered by the United States and the international financial institutions to rebuild the Russian economy— in which radical privatization and marketization were applied in a cold-turkey manner to a society with no recent experience of either—are well-documented. But the formal and informal intermediaries and structures through which advice and aid were given that I uncovered while researching aid to the region are much less familiar. The transnational players I followed over a ten-year period vitally shaped the course of Russian economic reform and US-Russia affairs.
In US economic aid to Russia, two circles came together: the Harvard team representing the United States and the Chubais clan representing Russia. The Harvard team refers to a circle of people affiliated with Harvard University and some of their associates. These Chubais-Harvard transactors seized a moment of social, political, and economic flux to become the designated representatives of their respective parties. They presided over hundreds of millions of dollars in loans from the international financial institutions and aid from Western governments. The Chubais clan sought the fruits of the Western, moneyed world; and the Harvard partners offered access to it. In turn and in time, the Russians offered connections that enabled access to the spoils of an unraveling resource-rich state.
The interests of the Harvard team and those of the Chubais clan became as one. The Harvard and Chubais groups shared an almost zealous devotion to radical and rapid economic reform, as well as considerable energy, ambition and youth. Key Chubais- Harvard transactors also pursued joint semi-cloaked financial and business goals. Using inside information and access, they invested in securities, equities, oil and aluminum companies, real estate and mutual funds. Those investments were in many of the same areas in which the Harvard advisers were being paid to provide “impartial” advice to help develop the Russian economy and a legal and regulatory framework for it. (In 2004 a federal judge in Boston ruled that Harvard University, to which taxpayers’ funds were awarded, breached its contract with the US government and that Harvard’s two principal players conspired to defraud the government. In 2005 the case was settled out of court, with Harvard University and the two principals all paying damages.)
As the Chubais-Harvard transactors secured influence on their respective sides, they created their own informal structure that both used and supplanted the organizations and processes of government. They realized many of their goals through top-down decisions in the executive branch. In the United States, Harvard largely bypassed the usual public bidding process for foreign aid contracts through waivers to competition endorsed by Harvard associates in the Clinton administration. In Russia, the transactors organized the issuance of many presidential decrees—their chief strategy for legal reform. They also empowered an array of ambiguous entities that supplanted state bodies and made end runs around the democratically elected legislature.
In time, the modus operandi of the Chubais-Harvard transactors served to undermine the stated aims of US foreign policy and assistance: building democracy, a market economy and a constructive relationship between the two nations. After more than a decade of “reform,” Russia was far from the stable and prosperous American ally that US policymakers had envisioned. There forms of the 1990s left many Russians worse off than they had been under decades of communist rule and many Russians blamed this state of affairs on Western aid and advice.
One need not look too far to find more recent evidence of many features of transactorship. They are apparent in US policymaking in the run-up to the invasion of Iraq and in relations with players claiming to embody the potential for a transformed Iraqi state. On the US side (filling the Harvard role) is an influential group of a dozen or so neoconservatives (the “neocon core” ) who have been active in formulating and implementing US policy toward Iraq and the Middle East. Members of this long-standing tightknit group are connected through government, business, lobbying, think-tank and media organizations and activities. (The most visible members in recent years have been Paul Wolfowitz, deputy secretary of defense in the first term of George W. Bush; John Bolton, undersecretary of state for arms control and former US representative to the United Nations; Richard Perle, Defense Policy Board chairman and member during George W. Bush’s first term; and Douglas Feith, undersecretary of defense for policy until August 2005.)
For decades, the neocon core has pursued its own foreign policy ideas—first to bring down the Soviet Union and later to transform the Middle East. The group’s members have exerted pivotal influence in the George W. Bush administration, both from within and outside government.
Following the terrorist attacks of 9/11 and with George W. Bush in the White House, the political climate within the administration warmed to the neocon core project of bringing down Saddam Hussein. Employing the modus operandi of transactors, the core set out to meld relevant government units and processes to its purposes and also exerted influence through quasi-government entities and might-be-official, might-not-be-official dealings. While marginalizing officials who were not part of their group, core members operated through cross-agency cliques that enabled them to limit information and activities to their associates across agencies. They exerted influence, at least in part, by bypassing or altering standard government structures and workings, such as intelligence- gathering and decision processes, and substituting their own. For example, two secretive units, the Office of Special Plans and the Counterterrorism Evaluation Group, were created in the Pentagon under neocon core member and undersecretary of defense Douglas Feith to handle policy and intelligence after 9/11. The units were staffed in part by people whom Richard Perle helped to recruit from neocon-associated organizations, namely the American Enterprise Institute (AEI).
To accomplish its aims for Iraq, the neocon core enlisted the help of a long-time friend: Iraqi-born businessman Ahmed Chalabi. In 1992 with American help, Chalabi founded an exile organization known as the Iraqi National Congress (INC). Chalabi was indicted by a Jordanian court that same year for fraud, embezzlement, theft, and misuse of depositor funds, among other charges, and has long been distrusted by the CIA and the State Department.
Chalabi, a self-styled representative of the proposed refashioned Iraq, played a pivotal role in influencing American public opinion. Between March 2000 and May 2003, the US government granted the INC some $33 million. Part of the funds went to collect, analyze and disseminate information from Iraqi defectors. This “intelligence,” which claimed that Iraq possessed weapons of mass destruction, was supplied to the news media and became a major source of the administration’s prewar justification for military action.
Despite deep reservations in parts of the US government about Chalabi, he served as a pivotal player in the US relationship with the proposed new Iraq, both before the invasion and in its immediate aftermath. Although he did not become president of a liberated Iraq, Chalabi sat on the Iraqi Governing Council, directing its economics and finance committee, until the council was disbanded in June 2004. The Bush administration gave Chalabi a monthly stipend of $342,000 until some voices who had questioned his activities and loyalties (among them, US chief administrator in Iraq Paul Bremer) prevailed.
In May 2004 amid allegations that his group had been involved in theft, fraud, kidnapping and other transgressions, US forces raided Chalabi’s Baghdad home. In the summer of 2004, it also became known that the FBI was investigating Chalabi for potential espionage conducted on behalf of Iran. The agency was apparently trying to determine who in the Pentagon gave Chalabi classified military information. Some respected intelligence sources concluded that he was an Iranian double agent.
Even after he ostensibly fell from Bush administration grace, key members of the neocon core, such as Perle, continued to publicly support him. In a November 2005 visit to Washington, where Chalabi was received as a respected statesman at AEI, he also was given audiences with the vice president, the secretary of state, the secretary of defense and other top officials.
Given the state of affairs in Iraq today, it seems clear that the neocon core and its anointed Iraqi partners joined up to disastrous effect, particularly with regard to their coordinated influence on the decision to go to war. To Americans, the occupation has meant a huge loss to the US’ moral standing, the deaths of several thousand soldiers and many more wounded, and upwards of $400 billion spent on the effort. To Iraqis, the cost is incalculable–hundreds of thousands of civilians have been killed and millions displaced. A raging civil war promises to destabilize the country and otherwise reverberate in the region for a long time.
The US-Russia and US-Iraq cases illustrate the potential implications for nations when vital state functions are acceded to players who not only operate on both sides of the state-private divide but also develop their own group agendas in collusion with players from the opposite side.
The first and most obvious consequence is that the transactors’ agendas can supersede foreign policy that is truly in the national interest with long-term ramifications for citizens on all sides. Further, because transactors engage in representational juggling and can vary their allegiances to achieve their own objectives, mechanisms to ensure accountability are diluted or even defanged. With transactors operating across borders, the relevant authorities, if they exist at all, may lack the ability to track the transactors’ activities. In transactorship situations, the only control, check, or even information that a nation has on its counterpart is through its own representatives who themselves are operating in a different cultural, social, political and institutional context. Without independent information, which transactors make difficult for their parties to obtain, it is very hard for parties to monitor transactors’ activities.
The difficulty of tracking and holding specific players to account in the short term is only the beginning of challenges to accountability. The transactors’ modus operandi equips them to make new rules in pursuit of their own interests.
Finally, transactorship undermines the goal that precipitates its rise—that of establishing a positive relationship among parties who have long been separated. The ultimate result is that the transactors, who are attractive to their parties because they hold the promise of easily bridging the cultural-social-political gulf among parties, instead end up widening the gulf.
Janine R. Wedel (jwedel@gmu.edu) is an anthropologist and professor in the School of Public Policy (http://policy.gmu.edu). She is the author of Collision and Collusion: The Strange Case of Western Aid to Eastern Europe (Palgrave 2001) and Shadow Elite: The Privatization of Power (forthcoming, Basic Books). This article was first published in print and citations have been removed due to space limitations, but are available from the author.
