University Diaries
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Monday, April 24, 2006

A News Article,
And Then…
Act I,
The Importance of Being Andrei

Andrei Shleifer ’82, the economist embroiled in a fraud scandal that cost Harvard $26.5 million to settle, will return to teaching here this fall.

Shleifer, who was on leave this year, confirmed in an e-mail Thursday that he will be back to teaching Economics 1030, “Psychology and Economics,” his popular course co-taught with Professor of Economics David I. Laibson, as well as a junior economics seminar and a graduate course on law and economics at Harvard Law School.

But Shleifer will likely return with the controversy around him still swirling.

An 18,000-word article in January’s Institutional Investor magazine detailed Shleifer’s alleged efforts to use his inside knowledge of and sway over the Russian economy in order to make lucrative personal investments, all while leading a Harvard group advising the Russian government that was under contract with the U.S.

Neither Harvard nor Shleifer have admitted guilt in the matter. But a federal court ruled in 2004 that Harvard had breached its contract with the U.S., and that Shleifer and an associate were liable for conspiracy to defraud the government.

Last August, Harvard paid $26.5 million to settle the lawsuit, in addition to $2 million that Shleifer paid himself.

The controversy reignited on campus in February, as professors cast the details described in the Institutional Investor article as instances of favoritism and misconduct by Lawrence H. Summers.

The outgoing University president is a close friend of Shleifer, and the article suggests that Summers shielded his fellow economist from disciplinary action by the University.

Indeed, there has been no known action taken against Shleifer yet. But the Financial Times reported in March that Shleifer was under investigation by the Faculty’s Committee on Professional Conduct, and some professors have called on Harvard to issue a public accounting of Shleifer’s dealings in Russia.

The controversy has exposed a sharp split inside the Faculty of Arts and Sciences. While some professors outside the economics department have lambasted the University for not taking any action against Shleifer, many economists here have publicly defended their John Bates Medal-winning colleague as a vital intellectual asset.

“We think about him not as the guy who was involved in the AID lawsuit­—we think about him as the exciting, intellectually active colleague that we’ve always known,” Laibson said on Friday, referring to the U.S. Agency for International Develoment, which directed Shleifer’s group.

Meanwhile, Andrew D. Gordon ’74, the chair of the history department, last week called the defense of Shleifer on the strength of his academic achievements an “astounding” argument.

“If somebody has acted unethically or illegally, the fact that he or she is a Pulitzer Prize winner or a Nobel Prize candidate is totally irrelevant,” Gordon said. “I’m very puzzled to hear that from economists who are usually very logical thinkers.”

While Gordon said “it would be logical” for the Faculty to issue a public report if, in fact, he is under an internal investigation, Laibson said he wasn’t sure.

“I have no idea if such a report would clear the air or further inflame an already tense situation,” Laibson said.

Georgios N. Theophanous ’06, an economics concentrator who had Shleifer as a thesis adviser, called the professor a “very accurate” speaker and “remarkably energetic” thinker. He also rejected the relevance of Shleifer’s legal troubles to his standing as a Faculty member.

“He is an excellent professor and does remarkable research and those to me are the two main criteria that you should be using in deciding whether or not he’s going to be a valued professor,” Theophanous said. “The other stuff, that is for other people to worry about.”

The Importance Of Being Andrei.
Act I

A. Did you hear about my work in Russia, Lane?

Lane. I didn’t think it polite to listen, sir.

A. I’m sorry for that, for your sake. I don’t work ethically - anyone can work ethically - but I work with wonderful profit yield.

Lane. Yes, sir.

A. And, speaking of wonders, have you got my list of courses for next semester?

Lane. Yes, sir. [Hands it on a salver.]

A. [Inspects it, and sits down on the sofa.] Oh!... by the way, Lane, I see from the Crimson that a number of my colleagues are complaining about my returning to the classroom under an ethical cloud.

Lane. Yes, sir; quite a number of them.

A. Why is it that a genius clearly in line for a Nobel Prize attracts such jealous scrutiny? I ask merely for information.

Lane. I attribute it to the low motives of less impressive persons, sir. Also anti-Semitism.


A. Hallo! Why all these cups? Why cucumber sandwiches? Why such reckless extravagance in one so young? Who is coming to tea?

Jack. Oh! merely Aunt Augusta and Gwendolen.

A. How perfectly delightful!

Jack: Yes, that is all very well; but I am afraid Aunt Augusta won’t quite approve of your having defrauded the Russian people and cost Harvard University tens of millions of dollars in fines.

A. May I ask why?

Jack: My dear fellow, the way you brazen out what you’ve done is perfectly disgraceful.

A. I have no doubt about that, dear Jack. The federal courts were specially invented for people like me. Luckily, I’ve got off scot-free -- or almost -- what's a million dollars or so in penalties to me, really? -- and Harvard doesn’t care. Another cucumber sandwich?

Jack: For heaven’s sake, don’t try to be cynical. It’s perfectly easy to be cynical. Especially for economists.

A. My dear fellow, it isn’t easy to be anything nowadays. There’s such a lot of beastly competition about. [The sound of an electric bell is heard.] Ah! that must be the Committee on Professional Conduct. Only relatives, or committees on professional conduct, ever ring in that Wagnerian manner.


A. Pray don’t talk to me about the weather, my dear colleague. Whenever people talk to me about the weather, I always feel quite certain that they mean something else. And that makes me so nervous.

C: I do mean something else.

A. I thought so. In fact, I am never wrong.

C: And I would like to be allowed to take advantage of the news media’s temporary absence...

A. I would certainly advise you to do so. The media has a way of coming back suddenly into a room that I have often had to speak to it about.

C: [Nervously.] Mr Shleifer, ever since we hired you we have admired you more than any economist…we... have ever hired since... we hired you.

A. You really love me?

C:. Passionately!

A. Darling! You don’t know how happy you’ve made me.

C: Our own Andrei!

A. But you don’t really mean to say that you couldn’t love me if I’d, say, defrauded an entire country and destroyed Harvard’s relationship with the federal government?

C: But you haven‘t done that. You’ve admitted no guilt.

A. Yes, I know. But supposing I had done it? Do you mean to say you couldn’t love me then?

C: [Glibly.] Ah! that is clearly a metaphysical speculation, and like most metaphysical speculations has very little reference at all to the actual facts of real life, as we know them. be continued...