WASHINGTON -- When Marc Ginsberg finished serving as the U.S. ambassador to Morocco in 1996, he decided against returning to his former job as a trade lawyer.
Instead, seeing growth potential in the Middle East at a time when many people are discouraged by the region's deep-rooted hatreds and violence, Ginsberg put his experience in the region and knowledge of Arabic and Hebrew to work in a new investment banking firm.
"I spent 15 years drafting the deals," Ginsberg says of his time as a lawyer. "Now I want to be making the deals."
As trade barriers drop and global investment grows, U.S. diplomats are devoting more attention to promoting commerce while in government. And once their tenures are up, many are finding lucrative second careers in international investment.
At the same time, the United States is putting greater emphasis on the use of private groups to foster cooperation between warring nations. Often, because of their pragmatism and entrepreneurial spirit, private business people are the preferred conduits.
Sometimes, this blurring of the line between business and diplomacy can invite uncomfortable scrutiny. One who is feeling such heat is Richard Holbrooke, architect of the Dayton peace accords that ended the Bosnian war.
Anonymous charges that Holbrooke may have used public office for private gain have triggered a months-long investigation by the State Department inspector general and the Justice Department.
Holbrooke denies the accusations. But the allegations are blocking his appointment as ambassador to the United Nations, and with it, perhaps a chance to become secretary of state in a future Al Gore administration.
As assistant secretary of state for European affairs in 1995, Holbrooke pressed the Hungarian government to open up financing for the nation's telephone system to allow more banking companies to compete. Credit Suisse First Boston posted the winning bid, and within a year, Holbrooke joined the firm as a vice chairman.
The investigation has meant that the United States is without Holbrooke's compelling personality at the United Nations at a time when he could be fencing with French and Russian diplomats over Iraq.
Even when there is no whiff of impropriety, the overlap between high diplomacy and high finance has raised complaints that the investment community exerts too great an influence on U.S. foreign policy.
"U.S. policy and the people who make it are a very ingrown group," argues Jerome Levinson, professor of international law at American University. Foreign policy that is promoted by the financial community, Levinson suggested, often "promotes the free movement of capital above all else."
Wall Street has "exceptional clout with Washington," Jagdish Baghwati, a Columbia University economist, wrote in the May-June Foreign Affairs magazine, citing "a definite networking like-minded luminaries among the powerful institutions -- Wall Street, the Treasury Department, the State Department, the IMF and the World Bank most prominent among them."
He continued: "This powerful network is unable to look much beyond the interest of Wall Street, which it equates with the good of the world."
Treasury Secretary Robert E. Rubin, a former co-chairman of Goldman Sachs, is the latest in a long line of top Treasury officials whose close ties to Wall Street raise eyebrows among Baghwati and other critics of the Wall Street-Washington nexus. Rubin's many supporters argue, however, that his experience has been invaluable in extending the U.S. economy's long period of inflation-free growth.
Wall Street has contributed prominent members of the foreign policy establishment to the State and Defense departments as well.
"It's a rich and honorable and dishonorable tradition," says Kai Bird, a historian of 20th-century U.S. policy-makers. Many of these well-heeled bankers and lawyers enter public service out of a sense of noblesse oblige, he notes, but their Wall Street background does influence their policies.
The list of past luminaries at home in both worlds included Undersecretary of State Robert Lovett, Ambassador Averell Harriman and, more recently, Deputy Secretary of State John C. Whitehead. Lawyers who served in both camps included former Secretaries of State Henry L. Stimson and Dean Acheson.
"It's very critical to investment bankers to be able to have access to those who are making government policy," Bird says. Some of these men influenced post-World War II economic policy for the better by setting up institutions to guard against world financial crises such as the Great Depression of the 1930s.
But in his biography of John J. McCloy, a Wall Street lawyer who held national security posts in the Roosevelt and Truman administrations, Bird describes how McCloy's law firm used its government contacts to protect the interests of its client Chase Manhattan during the 1979-1980 Iranian hostage crisis.
"In McCloy's mind, there was no conflict of interest; the interests of Chase Bank and the interests of the country were pretty much the same," Bird wrote.
In McCloy's day, the common practice was for statesmen to cap successful business careers with public service. Felix Rohatyn, the former Lazard Freres partner who is now U.S. ambassador to France, continues this tradition.
Increasingly, it's the other way around, with officials and diplomats entering international finance after leaving government.
The magazine Institutional Investor tracked the "eye-popping" Washington-Wall Street traffic in 1996. It reported then that the number of former high-level officials ensconced in financial houses had more than doubled since 1974.
In the past decade, U.S. envoys to major European countries have been particularly attractive hires for investment firms. Besides Holbrooke, they include a former ambassador to Germany, Robert Kimmitt, and a former ambassador to London, Raymond Seitz, both of whom joined Lehman Brothers, and Reginald Bartholomew, who joined Merrill Lynch after serving as envoy to Italy.
"Former diplomats or people who were in government positions with global responsibility are attractive to any company with a global franchise," such as investment banks, says Kimmitt, who defends the practice. "The American system has benefited tremendously from having people go back and forth between government and the private sector."
One of the most durable ex-government officials on Wall Street is Robert D. Hormats, the Baltimore-born diplomat and Treasury official who is now vice chairman of Goldman Sachs International.
"The fact that you've been in government gives you an extra dimension of credibility when it comes to interpreting developments in Washington," Hormats said.
Besides retaining influence in the capital, "you can explain the impact of [events in] Washington to the markets."
More noteworthy still is the growing number of banking firms inside the Washington Beltway instead of on Wall Street. The most famously successful is the Carlyle Group, whose managing directors include former Secretary of State James A. Baker III and Frank Carlucci, a former defense secretary and ambassador. This is a merchant bank, meaning that it raises and invests its own capital.
From buying defense firms and reselling them at a hefty profit, the firm has expanded into real estate and overseas investments, opening six offices abroad.
xTC Some former officials concentrate on particular regions, helping investors find profit amid political and economic turbulence.
Bernard Aronson, a former assistant secretary of state for
Inter-American Affairs, advised Goldman Sachs on investments in Latin America, including Colombia, before starting Acon Investments, which raises money from private investors and invests in companies in Latin America.
"Some of the judgments you make in diplomacy are about political and economic risks," Aronson said. "What someone hires you for is your judgment, understanding of a region and ability to interpret events and trends."
Adding to the mix of business and foreign policy is the administration's growing use of "special envoys" from the private sector.
Holbrooke personifies both. While working at Credit Suisse, he has been deeply engaged in trying to end a quarter-century of hostile division on Cyprus. He also led a conference in Istanbul aimed at fostering cooperation among business leaders from the island's Turkish and Greek communities.
Holbrooke, who is also a special U.S. envoy in the Balkans, says he stays clear of any of his firm's business activities in the former Yugoslavia, Greece, Turkey or Cyprus.
Pub Date: 12/27/98