Too tightknit to be accountable

The outsourcing of crucial government functions to private individuals and companies is an alarming trend.

Published August 12, 2004 9:22PM (EDT)

A June 28 ruling by a federal court in Boston underscores the pitfalls in outsourcing the traditional functions of government to small, well-connected groups that are not fully accountable in serving the public interest. In a suit filed by the U.S. Justice Department nearly four years ago against Harvard and two men working for the university, Andrei Shleifer, a noted economics professor, and Jonathan Hay, a legal advisor, the Boston court ruled that they conspired during the 1990s to defraud the U.S. government while helping to run a nearly $400 million, U.S.-funded flagship project to reform Russia's economy. Hay and Shleifer were supposed to be providing impartial advice to the Russians, but while doing so they were also making personal investments with the benefit of insider knowledge. (A hearing on damages in the case is set for early September.)

This case exemplifies an alarming trend in governing that is sure to grow and that we ignore at our peril. The practices that led to the Boston ruling are not an aberration. In fact, a group that operates today in ways similar to the Harvard partners in Russia is receiving much attention. This is the small, tightknit group of neoconservatives whose strategizing and lobbying helped thrust the United States into the war in Iraq.

Both the Harvard and the neoconservative groups arose in the context of a globalizing world and an increase in the delegation of authority by states and international organizations to private actors and companies. They have flourished amid new governmental systems that provide great incentives to people who can juggle a multitude of official and unofficial roles. Both groups co-opted a government portfolio in a key foreign policy agenda. In fact, it is difficult to imagine that either America's economic reform policy toward Russia or the war in Iraq would have been carried out the way they were, or perhaps at all, had these two groups not been in the driver's seat. Yet, focusing only on individuals and their presumed misdeeds -- as has been the tendency with the Harvard story -- renders us more likely to repeat the pattern.

In the case of the neoconservatives, a durable core group of 10 or so people (drawn from the larger neoconservative ranks) that had long pressed for the overthrow of Saddam Hussein through government, think tank and advocacy organizations, got themselves appointed to key positions in and around the Bush administration. Members of that same group are now poised to benefit from the foreign policy and homeland security strategies they advocated. The like-size group of Harvard players who teamed up with Russians dubbed the "young reformers" by the West similarly profited in Russia. In the 1990s, during the heated years of Russian reform, the now-defunct Harvard Institute for International Development became a chief manager and major beneficiary of U.S. economic reform aid to Russia. On alleged grounds of "foreign policy" considerations, the Harvard Institute was granted exemptions to competitive bidding and given authority over other contractors, some of whom were its competitors. Thus, at the same time the Harvard principals were major recipients of U.S. economic aid, they were also the managers and implementers of that aid.

The effectiveness of such groups stems from a systematic mode of operating. A look at how such groups manage to penetrate key state and private entities in the service of their own goals reveals much about the potential of such groups to reshape American democracy. It signals how they can quietly change the rules of accountability as they find an organizational place in the overall system of governing and society. The modus operandi of each group is strikingly similar. Both have been marked by exclusivity and intraconnectedness and have been adept at circumventing standard governmental and democratic processes. The neoconservative core in particular has a history of bypassing standard government procedures, regulations and bodies (going back to the affair that became known as Iran-Contra); distrusting American intelligence agency findings; bending, if not breaking, regulations set by those agencies; and holding fuzzy national loyalties. The Harvard group for the most part operated in a dramatically different environment from that of the neoconservatives. In Russia, powerful informal groups worked in and around the crumbling command system of the formerly Communist state to acquire what was there for the taking, according to rules that the groups themselves often created.

Drawing on my experience as a social anthropologist who has studied informal systems and networks over several decades, I call the members of such groups "flex players." "Flex groups" describe the informal units in which flex players gain influence by quietly boosting one another, promoting one another for influential positions and coordinating their efforts inside and outside government to achieve mutual goals -- which are always in their own interest but not necessarily the public's. Flex groups have several other distinguishing characteristics.

First, the togetherness of flex groups and the players' propensity to work concertedly to achieve their goals -- even to the point of skirting regulations that might keep them from doing so -- while still appearing to uphold the letter of the law lie at the heart of their effectiveness. The neoconservative group provides a running example that spans several decades. Consider the relationships among three members of the neoconservative core: Richard Perle, Paul Wolfowitz and Douglas Feith. In 1978, while working as an aide to Sen. Henry "Scoop" Jackson on the Senate Armed Services Committee, Richard Perle was caught in a breach of national security by then CIA Director Stansfield Turner, who urged that Jackson fire him. Perle received a reprimand but was kept on staff, according to a report in the Washington Post by Sidney Blumenthal (Nov. 23, 1987). In another instance, according to investigative reporter Seymour Hersh, Perle was questioned by the FBI after a wiretap picked him up discussing classified information (which he said he obtained from a National Security Council staff member) with an Israeli Embassy official.

In 1973, Perle helped his friend Wolfowitz find employment in the Arms Control and Disarmament Agency. In 1982, Perle, as assistant secretary for international security policy in President Reagan's Defense Department, hired and later promoted Feith after he had been fired from his post as a Middle East analyst at the NSC.

A couple of years after leaving the Pentagon, Perle became a highly paid consultant for the lobbying firm International Advisers Inc., which was established by Feith in 1989. The firm served as a way for Perle -- who had just finished a seven-year stint at the Pentagon, during which he supervised U.S. military assistance to Turkey -- to get around federal regulations prohibiting officials from serving foreign interests right after leaving government office.

The mutual assistance of these three central figures continues to this day. In 2001, Perle and Wolfowitz (as deputy secretary of defense) saw to it that Feith was appointed undersecretary for policy in the Defense Department. Feith, in turn, selected Perle for appointment as chairman of the Defense Policy Board. (Perle resigned as chairman in March 2003 amid allegations of conflict of interest and from the board altogether a year later.)

Second, pivotal flex players often adopt overlapping roles -- shifting, blurred and sometimes conflicting -- that avoid the constraints and accountability that normally govern both government and business institutions. In the Harvard case, the virtual blank check given to the consultants enabled them to wear all manner of government, political, business and university hats to best serve their own objectives, but not necessarily those of their country. Their overlapping roles went beyond their investments in Russian securities, equities, oil and aluminum companies, real estate and mutual funds named in the government lawsuit to encompass representational juggling. Although he was ostensibly a representative of American aid, Hay was able to approve some privatization decisions of the Russian state on authority given to him by the Russian members of the Harvard-Russia coterie, many of whom also doubled as officials in the Russian government. These officials consisted of Anatoly Chubais, a ubiquitous aide to President Boris Yeltsin and his group of "reformers."

Among the neoconservative group, Perle provides the best illustration of operating in multiple roles. He chose not to take a full-fledged position in the Bush administration to chair the Defense Policy Board. A Pentagon advisory body with a mixed state-private character, the board gives its members access to classified information. Until he relinquished his position on the board, Perle's standing as a not quite, but sort of, government official yielded him simultaneously the credibility of an administration insider and the leeway of a private person. He could use his position as a platform from which to counter the neoconservative-skeptical State Department and as a source of access to defense and intelligence information that would appeal to business clients. Or, if his purposes were better served, he could frame his activities under the guise of his other identities, such as a resident fellow at the American Enterprise Institute -- which, to an uninformed audience, gave him the appearance of a disinterested public intellectual.

The key point here is this: The ambiguity that swirls around flex players is not just a byproduct of their activities; their influence is greatly enhanced by it. Of course Perle declined an actual job in the administration -- the Defense Policy Board position afforded him much more flexibility and hence potential influence than he would have had as a mere government official.

Third, flex groups create not-quite-state, not-quite-private organizations (with often quite vague publicly stated goals) and duplicative divisions and bodies of government to bypass or override the input of otherwise relevant officials and parties. The Harvard-Chubais players set up and ran a series of such organizations, ostensibly to carry out economic reform. For example, the Russian Privatization Center, the donors' flagship organization, was a nongovernmental organization established by Yeltsin's presidential decree and Harvard University. As a nongovernmental organization, it received tens of millions of dollars from Western foundations, which like to support NGOs. As a government organization, it received hundreds of millions of dollars from international financial institutions, including the International Monetary Fund and the World Bank, which typically lend to states. The center negotiated with and received loans on behalf of the Russian government, making the Russian public responsible for paying back the loans. The center's equivocal status equipped it to circumvent the state privatization agency and exert more influence over many privatization decisions than that body did. The center's "private" standing as an NGO enabled it to distance itself from government decisions that proved unpopular. It had the best of all possible worlds.

The neoconservative group operates in similar fashion. It set up alternative hubs of decision making, including its own intelligence offices in the Pentagon, to influence policy decisions. The distrust of existing governmental bodies led the group to establish its own duplicative structures of government. Two special units in the Pentagon, the Counter Terrorism Evaluation Group and the Office of Special Plans, were created under Feith. These units sometimes served to bypass or override the input of otherwise relevant entities and processes. According to the Senate Select Committee on Intelligence's July 7 "Report on the U.S. Intelligence Community's Prewar Intelligence Assessments on Iraq" (in a section containing the "additional views" of Sens. John Rockefeller, Carl Levin and Richard Durbin), "when the analytical judgments of the intelligence community did not conform to the more conclusive and dire administration views of Iraqi links to al-Qaeda ... policymakers within the Pentagon denigrated the intelligence community's analysis and sought to trump it by circumventing the CIA and briefing their own analysis directly to the White House." The Senate report also notes that in a communication sent to Wolfowitz and Secretary of State Donald Rumsfeld regarding a CIA report that failed to establish a convincing connection between Iraq and al-Qaida, Feith's people recommended that the "CIA's interpretation ought to be ignored." Rockefeller, vice chairman of the intelligence committee, said in a news conference that Feith's "private intelligence" operation was "not lawful."

Flex players' closed networks, multiple roles and penetration of key institutions (which they structure to exclude other potential players) provide opportunities to advance their own goals and agendas -- be they ideological, political, financial or some mixture of all three. There is at least circumstantial evidence that the neoconservative cooperators have not only flouted the rules of government but in some instances actually altered them in ways that later facilitated their inside agendas. Much has been reported about the U.S. government's contracting out work to Halliburton and its subsidiaries. But what is not widely known is that, under Dick Cheney's watch as secretary of defense in the first Bush administration, a Halliburton subsidiary was paid $3.9 million to produce a classified report specifying how private companies -- like itself -- could help supply logistics for American forces in potential war zones, according to the Center for Public Integrity. After Bush I, of course, Cheney became CEO of Halliburton. A decade later, with Cheney no longer running Halliburton, that same subsidiary is now a premier recipient of contracts for precisely such work in Iraq.

What we know about the Harvard and neoconservative groups highlights the dangers of contracting out vital state functions to a small number of private actors without the benefit of independent information and proper oversight. Because the overarching goal of contractors is to make good money, not good policy, their private agendas can conflict with the public interest. The contractors involved in these cases are not subject to the same accountability and ethics regulations as government employees would be. Shleifer, for example, acknowledged making personal investments in Russia, denying in court a conflict of interest.

The problem will only get worse. A decade after the Harvard group was at its height, the outsourcing of government functions has accelerated, driven by the Bush administration's ideological preference for markets and, paradoxically, by the increase in demand for U.S. government services, namely, military, foreign aid and nation-building activities. Harvard's contracting coup was highly unusual at the time, to hear foreign-aid procurement officers tell it. But it pales in comparison with some of the noncompetitive awards, justified on national security grounds, that have been granted for work in Iraq, this time with billions, not millions, of dollars at play. Defense companies linked to members of the administration's inner circles, some of whom led the drumbeat to overthrow Saddam, have been the beneficiaries of some of these noncompetitive contracts.

With private contractors, it is not always easy, or even possible, to determine who speaks on behalf of the state or is responsible to it, as in the Harvard case. Officials at the Government Accountability Office (which among other tasks is charged with auditing how taxpayers' monies are being spent on homeland security and to "fight terrorism") tell me they are sometimes directed to contractors rather than government officials to obtain important information. The contractors not only implement policy but on occasion have also made crucial decisions that are overseen only by bureaucrats who are somehow connected to them. As has become all too clear with regard to the interrogator-contractors involved in the Iraqi prisoner abuse scandal, when roles are ambiguous and the chain of command diffuse accountability is elusive.

The presence of greed and conflict of interest in all of this is common enough. What is extraordinary is the ongoing, systematic encouragement of a culture in which individuals, wearing different hats, can engage in self-serving representational juggling with impunity.

Likewise, the ability of an old-boy network to exploit foreign economies is not news. But in the case of both Russia and Iraq, the old boys and their anointed partners, be they Russians or Iraqis, joined together to disastrous effect, damaging reform and nation-building efforts, and adding to the growing suspicion of America's motives among allies and foes alike. No amount of fines paid by Harvard or its principals can undo the damage they have caused to post-Cold War rapprochement. The activities of the Harvard group and their Russian partners contributed to the corruption of true reform and stunted the development of democratic institutions, while neglecting the creation of a legal and regulatory backbone for Russia's market economy. And whether Bush is reelected or not, we will not easily overcome the damage his administration has done through these practices to America's moral standing, always a key source of our influence around the world. It is crucial that the U.S. government and businesses take a hard look at the damage that is being done to the nation's interests by their growing reliance on private contractors to perform critical functions.

By Janine R. Wedel

Janine R. Wedel, University Professor in the School of Policy, Government, and International Affairs at George Mason University, is the author of "Unaccountable: How Elite Power Brokers Corrupt Our Finances, Freedom, and Security."

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Dick Cheney Iraq Middle East Neoconservatism Russia