Perhaps, now that Harvard’s
For example, when Anders Aslund, of Washington’s Peterson institute for International Economics, was in Cambridge, Mass. last winter, to celebrate the publication of How Capitalism Was Built: The Transformation of Central and Eastern Europe, Russia, and Central Asia and Russia’s Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed, Shleifer, the author of A Normal Country: Russia After Communism, threw a party for him at his spacious home on unpaved
But if Shleifer has slowed down, he hasn’t shown it yet. He just returned from giving three seminars in three days in
EP readers know Shleifer mainly through this weekly’s extensive coverage of the tumult that broke around him in the spring of 1997, when the US Agency for International Development, after a brief investigation, fired the Harvard University for International Development from its contract to advise the government of Boris Yeltsin, having discovered that its team leader, Shleifer, and his wife, were running a private investment office out of Harvard’s Moscow office. Thus they don’t have much of a picture of the man – the sort of thing a proper profile would provide. It’s no longer my job to provide that profile. But I can sketch the outlines of what fuller picture of Shleifer might look like in the aftermath of the scandal, with a view to turning the page.
First, a reminder of the outlines of the story. A kid, newly emigrated with his family from
In 1997, he is discovered to be investing in
In 2005, the government finally wins its case, including the return of $25.2 million from Harvard. Shleifer capitulates, paying $2 million in fines. Harvard deprives him of his endowed chair. The
So what’s changed?
First of all, Shleifer’s defenders, at least those who followed the case, now acknowledge he shouldn’t have been investing in
Meanwhile, healing forces have gone to work within Harvard. The university’s endowment, nearly 2 percent of which was invested in special situations in
Then, too, Shleifer is giving up the editorship of the Journal of Economic Perspectives, after serving two three-year terms. (Term limits were adopted after founding editor Joseph Stiglitz served three.) As one of three flagship journals of the American Economic Association, the JEP is intended “to fill a gap between the general interest press and most other academic economics journals,” according to its marching orders. Its editor thus has great power to reward friends and punish enemies, and the appointment of such an embattled figure in 2003 was viewed with alarm by some senior figures in the profession (though none was willing to do so publicly). David Autor, of the Massachusetts Institute of Technology, takes over in December.
You would have thought that ten years of backroom battles with Harvard lawyers and the government attorneys would have cost Shleifer dearly in terms of scholarship. But there is little evidence of the disturbance in his CV. Between 1997 and 2005, he published more than fifty papers dealing with finance, behavioral and organizational economics, including “The Limits of Arbitrage,” a famous paper in 1997 considered to have anticipated the circumstances in which Long Term Capital Management foundered the next year. There is, of course, no telling how much greater would have been his influence in such diverse fields had he been able to concentrate single-mindedly on his research, test it more extensively against the evidence, and build bridges to the work of those outside his various networks. But there is no doubt that he has produced a substantial body of work. “Certain people have the inner strength necessary to produce remarkable work in adversity,” says his friend and fellow Harvard professor Claudia Goldin.
One arena in which Shleifer works is what is routinely described as the new comparative economics. Traditionally, comparative economics strived to bring capitalist and socialist economies into close comparison, searching out the mechanisms through which markets and central planning achieved their results, gauging the efficiency of each in gaining its ends. Shleifer and several authors (Simeon Djankov, of the World Bank; Glaeser, of Harvard; Rafael LaPorta, of
Hardly, the authors say. The entrants to the new field has simply shifted their interests, they explain, to the various public and private institutions that make capitalist economies work in widely differing ways: selecting leaders, securing property rights, redistributing wealth, resolving disputes, governing firms, allocating credit an so on. Central to the field is an analytic organizing device the authors call the Institutional Possibility Frontier, similar in many ways to the familiar production possibility frontier of present-day macroeconomics. One axis describes the social losses arising from forces of disorder, culminating in a Hobbesian war of each against each; the other, the losses arising from dictatorship. Along the long frontier between them lie the various policies that can reduce disorder without increasing the absolute power of the state: an independent judiciary, regulatory authorities, a competitive press, and so on. How the “new” comparative economics eventually will map into other fields in which somewhat similar work is unfolding, including the “new” political economy and organizational economics, remains to be seen.
Shleifer’s friendship with his mentor remains intact. Summers attended the party for Aslund, but in general has gone in the opposite direction from Shleifer, speaking out on higher education, gingerly scrutinizing his own failures and, rather than returning to intensive academic research (from which he had been absent for more than fifteen years), serving as a co-editor of Brookings Papers on Economic Activity, an influential policy journal, writing a column for the Financial Times, and otherwise seeking to re-fashion his role as that of a hard-headed conscience of global capitalism. Summers remains a Harvard economics professor; he joined the D.E. Shaw Group, a global money management firm, as a part-time managing director, as well.
Finally, more attention is being paid to Shleifer as an exponent – and an exemplar – of behavioral finance. It was in 1994 that, along with Josef Lakonishok, of the University of Illinois; and Robert Vishny, of the University of Chicago, he co-founded LSV Asset Management, a Chicago firm equity investments for large institutional investors, including universities. LSV’s proprietary models exploit, among other things, discoveries of judgmental biases (notably the “value-glamour anomaly”) that Shleifer and frequent collaborator Vishny had made (and published!) in the course of studying patterns of investor behavior. Earlier this year, the firm was managing $66 billion in equity portfolios; Shleifer sold his share in the firm for a large but undisclosed sum several years ago.
(Nor is Shleifer by any means alone among economists who are both smart and rich. Richard Thaler, of the
So big house, big furniture, big paintings; a brilliant intellect, a formidable academic politician; a hard bargainer: here EP seeks to turn the page on the man himself. So close the book on Andrei’s Shleifer’s role at the center of Harvard’s