Larry Summers, Robert Rubin: Will The Harvard Shadow Elite Bankrupt The University And The Country?

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By Harry R. Lewis:

Gordon McKay Professor of Computer Science at Harvard and former Dean of Harvard College

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Harvard University

Harvard’s Secret Seven

At the heart of the new system of power, says Janine Wedel, is “a decline in loyalty to institutions” and “the proliferation of players who swoop in and out of organizations with which they are affiliated.” There is no more vivid example of this phenomenon than Harvard University, which for centuries was held together by institutional loyalty. Today, that loyalty has eroded, and those at the top act much more flexibly. Yet they still enjoy almost unlimited power. Like all forms of mismanagement, Harvard’s woes call for transparency and accountability. The story resonates to Washington, where Harvard’s power elite is deeply entangled.

Harvard lost $11 billion from its endowment last year, plus another $2 billion by gambling with operating cash and $1 billion in bad bets on interest rate fluctuations. Harvard had been borrowing vast sums to leverage its assets and to expand its physical plant; its president, Lawrence Summers, had described as “extraordinary investments” what ordinary people would call crushing debt. The only way to balance the looming deficits was through huge investment returns. The speculating worked for a while, but when the bubble burst, Harvard was left almost insolvent.

A presidential resignation might have been expected, but Summers, the president most responsible for Harvard’s unsustainable growth plan, had resigned already–he is now a top economic adviser to Barack Obama. In any case, plenty of costly mistakes were made after he left. In this era of heightened corporate accountability, one might have expected instead a shake-up of Harvard’s board. But Harvard’s directors are invulnerable.

Legally, the Harvard Corporation consists of the president and six “Fellows,” who serve for life if they wish and cannot be unseated by anyone except themselves. In spite of the privileges it receives as a tax exempt charity, Harvard is not subject to the financial and risk disclosure rules that protect the shareholders of public corporations.

The Corporation is stunningly secretive. The members are listed on a Harvard web page–but with no contact information. Their meetings and agendas are unannounced, their decisions unreported. The Fellows, scattered across the country, are isolated from the institution they govern. Even the university’s statutes–the closest thing to a constitution limiting the Corporation’s discretionary power–are almost impossible to locate. The colonial-era board structure is failing the modern university.

Harvard’s board is intertwined with the shadow elite of Wedel’s Chapter 5: the team of experts who disastrously advised the Russian government on capitalism in the 1990s. Engaged by the U.S. to show the Russians how the West controls corruption, the advisers became models of what to avoid. Here is the Cambridge-Moscow-Washington story in a nutshell.

In 1991, Lawrence Summers became chief economist of the World Bank, moving to the Treasury Department in 1993. When Robert Rubin became Treasury Secretary in 1995, Summers became his Deputy Secretary, later succeeding him as Secretary.

In 1992, Andrei Shleifer, a Harvard professor and a close friend of Summers since Shleifer’s college days at Harvard, became head of a Harvard project that directed U.S. government money for the development of the Russian economy. Tens of millions of dollars in noncompetitive U.S. contracts flowed to Harvard for Shleifer’s Russian work, and his team directed the distribution of hundreds of millions more. Through the mid-1990s, complaints accumulated in Washington about self-dealing and improper investing by the Harvard team, and by mid-1997, the Harvard contracts had been canceled and the FBI had taken up the case. For two years it was before a federal grand jury.

In September, 2000, the government sued Harvard, Shleifer, and others, claiming that Shleifer was lining his own pockets and those of his wife, hedge fund manager Nancy Zimmerman–formerly a vice president at Goldman Sachs under Rubin.

Soon after, when Summers became a candidate for the Harvard presidency, Shleifer lobbied hard for him in Cambridge. Rubin assured the Fellows that the abrasiveness Summers had exhibited at Treasury was a thing of the past. They named him president–in spite of what was already known about his enabling role in the malodorous Russian affair, and the implausibility of a personality metamorphosis.

Summers did not recuse himself from the lawsuit until more than three months after his selection as president, and even then used his influence to protect Shleifer. The Fellows–including Rubin, whom Summers added to the Corporation–fought the case for years, spending upwards of $10M on lawyers. But in 2005 a federal judge found Shleifer to have conspired to defraud the government and held Harvard liable as well. To settle the civil claims, Shleifer paid the government $2M and Harvard paid $26.5M; Zimmerman’s company had already paid $1.5M. Shleifer denied all wrongdoing, and Harvard disclosed nothing about any response of its own–a departure from its handling of misconduct by faculty farther from the center of power.

Summers remained close to Shleifer, yet claimed in a February 2006 faculty meeting to know too little about the scandal to have formed an opinion about it. This prevarication brought a gasp from the assembled faculty and solidified faculty opposition to the Summers presidency.

Rubin is now gone from his leadership role and his board membership at Citigroup, hauling away $126M from a firm that was $65B poorer than when he joined it, with 75,000 fewer jobs. But he remains on the Harvard board, in spite of the financial meltdowns at both Citigroup and Harvard and his poor oversight of the problematic president he persuaded Harvard to hire.

The Rubin network remains alive and well in the White House, including not just Summers but several other Rubin protégés. Among the strangest of these power loops is that the well-connected Nancy Zimmerman has turned up as a member of Summers’s economic policy brain trust.

The modern power elites thrive by forgetting any regrettable past. This amnesia is easy at Harvard, where the legal fiduciaries operate in secret and need not answer for their acts. They are the antipodes of the selfless institutional servants who built Harvard and other great American enterprises, and they bear close watching.

Posted: January 12, 2010 07:30 AM
By Harry R. Lewis

Source: The Huffington Post


Harry R. Lewis

Brief Biography

Harry Lewis entered Harvard College in the fall of 1964. Having made no great progress despite his efforts in mathematics, physics, drama, and lacrosse, he stumbled upon computer programming through a part-time job, and fell in love with the emerging field. Lewis’s undergraduate thesis, written under the direction of computer graphics pioneer Ivan Sutherland, was on handwriting recognition, parsing handwritten mathematical notation, and their use in experimental mathematics. Lewis graduated from Harvard in 1968, summa cum laude in Applied Mathematics.

During the Vietnam War, Harry Lewis served for two years as a commissioned officer of the US Public Health Service. He served at the National Institutes of Health in Bethesda, Maryland, doing work on image processing and on systems and application programming. He spent the academic year 1970-71 in Europe as Frederick Sheldon Traveling Fellow of Harvard University. Lewis returned to Harvard to begin his graduate study in the fall of 1971 and was awarded the PhD in Applied Mathematics in 1974. His PhD thesis was written under the direction of philosophy professor Burton Dreben, on the subject of computational unsolvability in mathematical logic.

Lewis joined the Harvard faculty in the fall of 1974, and became Gordon McKay Professor of Computer Science in 1981. In 2003 he was honored with the title of Harvard College Professor in honor of his teaching excellence. He is a Fellow of the Berkman Center for Internet and Society at Harvard.

Lewis is the author of five books and numerous articles on various aspects of computer science. Over his more than thirty years of teaching he has helped launch thousands of Harvard undergraduates into careers in computer science. His book about higher education, Excellence Without a Soul: Does Liberal Education Have a Future? has appeared in a paperback edition (PublicAffairs, 2007). The hardcover edition was a Boston Globe best-seller and the subject of favorable reviews in both the Boston Globe and the Wall Street Journal. It has been translated into Chinese (in both Taiwanese and mainland editions) and Korean. A book, coauthored with Hal Abelson and Ken Ledeen, on the origins and public consequences of the explosion of digital information was published in June, 2008 (Blown to Bits: Your Life, Liberty, and Happiness After the Digital Explosion, Addison-Wesley).

From 1995-2003 Lewis served as Dean of Harvard College. In this capacity he oversaw the undergraduate experience, including residential life, career services, public service, academic and personal advising, athletic policy, and intercultural and race relations. He is a long time member of the College’s Admissions Committee.

Lewis has been married since 1968 to Marlyn McGrath. They live in Brookline, Massachusetts and Bigfork, Montana and have two daughters, Elizabeth and Anne. Lewis is a graduate and a Trustee of the Roxbury Latin School, the oldest school in continuous existence in North America (founded 1645). When he is not worrying about the state of American education or the unforeseen consequences of digital technology, he worries instead about the Red Sox.

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