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November 15, 2009
David Warsh, Proprietor


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Sound Familiar?

A prominent American working as adviser to a foreign government successfully bargains for the details of a new constitution – while quietly arranging a lucrative deal for himself with a foreign company operating in his client state under the new laws. He is exposed and suffers profound embarrassment.

Sound familiar? Yes, it’s a little like what happened in 1996, when a little start-up firm backed by Andrei Shleifer’s wife was cleared to offer mutual funds in Russia ahead of established firms like Credit Suisse First Boston and Pioneer, at a time when the Harvard University economist was advising the Russian government on behalf of the US State Department. The entire Harvard project collapsed when the deal became public.

Only this time the get-rich strategy apparently is succeeding. Peter Galbraith, 58, former US ambassador to Croatia, son of John Kenneth Galbraith, stands to make more than $100 million from his interest in a recently-discovered oilfield in Kurdistan, according to reporters James Glanz and Walter Gibbs, writing in The New York Times last week. (The number is under dispute.)

What’s the difference? Unlike Shleifer, Galbraith held no US government position or political assignment at the time.

True, as a longtime staffer for the Senate Foreign Relations committee, Galbraith is a man of considerable influence in Washington. Vice President Joe Biden and Sen. John Kerry (D-Mass.) are among those who have been influenced by his views. And as a frequent contributor to Public Broadcasting news shows, The New York Review of Books and op-ed pages, including that of the Times, he routinely permitted himself to be described in ways that provide no clue to his business interests, as “a former ambassador,” or “an unpaid adviser to the Kurdish government.”  To be considered, too, is the effect of the disclosures on Iraq’s various Sunni and Shi’a factions. Glanz and Gibbs wrote, “As the scope of Mr. Galbraith’s financial interests in Kurdistan become clear, they have to potential to inflame some of Iraqis’ deepest fears, including conspiracy theories that the true reason for the American invasion of their country was to take its oil.”

The Times story therefore has landed him in a world of woe. In a prominent Editor’s Note on Friday, the newspaper stated that, like others, Galbraith had signed a contract that required him to disclose his financial interest in the subject of his articles, and that the articles would not have been published had the editors known.

Here’s what happened: Galbraith is a longtime friend of the Kurds. For example, it was he who, working for the Senate Foreign Relations Committee, documented Saddam Hussein’s use of poison gas in a rebellious town in northern Iraq in 1988. He remained tangentially connected during the years he served as ambassador to Croatia, 1993-98. And even before the 2003 US-led invasion of Iraq, he advocated for that nation’s breakup along ethnic lines, a position anathema to the central government in Baghdad. An independent Kurdistan would have no need to share its oil revenues.

So throughout the summer of 2005, Galbraith served as adviser to the Kurdish regional government as it hammered out with other factions the constitution by which Iraq would be governed after the American withdrawal – a constitution finally adopted in October of that year. Among its key provisions was a stipulation giving the regional government nearly complete control over any newly-discovered oil; old oil belonged mainly to the central government.

It turns out that two years before, Galbraith had agreed to represent a Norwegian oil company, DNO, hoping to begin explorations in Kurdistan once the war wound down. When DNO got a contract with the government in 2004, Galbraith and a partner received rights to some portion of any oil it found – ten percent according to Galbraith’s Norwegian partner in the Times account. And when, just two months after the new constitution took effect, the discovery of an enormous new field known as Tawke was announced in December 2005, Galbraith was suddenly a rich man, according to the Times – at least potentially.

At that point the details become obscure. Galbraith at first issued a series of qualified denials, the Times reported. [As recently as last Friday, he told the Burlington (Vt.) Free Press “I do not have any business or financial interest in DNO. I also do not have any interest in any Kurdish oil field.” (Galbraith is a resident of Townshend, Vt.)] What he does have, according to the Times, through a company he owns named Porcupine, is a half interest in a claim against DNO, reported on the legal news site Law.com to be for $525 million, now under arbitration in London – seemingly an outgrowth of maneuvers in which someone, either DNO or the Kurdish authorities, sought to squeeze out “certain third-party interests” to the deal. A decision in the matter is expected early next year, the Times reported.

Galbraith appears to have lost a powerful protector along the way. In September, he was fired from his job as second-in-command of the United Nations mission in Afghanistan, after he accused his boss, a Norwegian, of covering up allegations of election fraud. Richard Holbrooke, special representative for Afghanistan and Pakistan for the Obama administration, was Galbraith’s boss in the early 1990s when Holbrooke served as Assistant Secretary of State for Europe. Presumably, he could have smoothed matters over in September. But by then the story about Galbraith’s oil interests had begun to break in the Norwegian Press.

In contrast, Deputy Treasury Secretary Lawrence Summers provided some measure of cover for his old friend Shleifer when the Harvard scandal broke in 1997. After becoming president of Harvard University, in 2001, he again shielded Shleifer from the consequences of an ultimately successful Justice Department law suit. And as chief economic strategist for the Obama administration, he enlisted Nancy Zimmerman, Shleifer’s wife and a successful hedge fund operator, in a “kitchen cabinet” of informal advisers, according to a Times dispatch earlier this year. The story of Harvard’s Russia scandal is barely known outside a limited circle of specialists in foreign aid. The mainstream press has ignored it for the most part, despite a lengthy article in Institutional Investor in 2006 that laid it out in considerable detail. Only this month, Vanity Fair published a profile of Summers without mentioning the episode – or its role in costing Summers the Harvard presidency.

If it weren’t for the invasion of Iraq, there would be something almost lighthearted about the Peter Galbraith story. It seems straight out of the world of the Anthony Trollope novels that John Kenneth Galbraith loved so well – satirical chronicles of great fortunes made and lost in nineteenth-century London, The Way We Live Now, in particular. A man doing well while helping a previously impoverished region get on its economic and political feet – what’s wrong with that? It is, of course, the same rationale that British textile manufacturers offered for their support of the Confederacy during the American Civil War – the sort of irony seldom lost on Trollope.

Galbraith’s enthusiasm for Kurdish independence always undermined Bash administration war aims in Iraq – there’s nothing new about that. But the the disclosure of his financial involvement in Kurdish affairs muddies the issue because it impairs American credibility in Iraq. Faisal Amin al-Istrabadi, one of the architects of the law that governed Iraq after the US ceded control in 2004, told the Times reporters, “The idea that an oil company was participating in the drafting of the Iraqi Constitution leaves me speechless.” Never mind Claude Rains as Captain Renault; Baghdad is not Casablanca: or maybe it is, but Washington isn’t – or isn’t supposed to be. The Harvard Russia scandal was much worse in this respect, since the indiscretion was committed by a team acting on behalf of US government, in a country even more suspicious of US aims, and the episode forgiven at every turn by the man then, as now, overseeing US economic policy abroad.

In the Galbraith case, at least, the Times has done the right thing and shined a bright light on the dual role. It was the Financial Times that broached it last month in the English- language press, after Dagens Naeringsliv, a Norwegian newspaper, began to break the story earlier this year. Neither the The Wall Street Journal nor The Washington Post has yet weighed in. For the Times, Harvard’s failure in Moscow, ancient history now,  is useful mainly as a benchmark.  The editors should ask themselves, why did one story wind up on the front page while the other got a free pass?

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