NES expresses its sincere gratitude to alumni and staff members for the photos provided.Our special gratitude to Mr. Ivan ...
I dedicate the book to Dalia, my wife,who persevered with me and supported me with utmost patience for fifteen long years....
About the author                                                        About the bookGur Ofer is a Professor (emeritus) a...
Table of ContentsThe Miracle Worker on Miracles ................................ 9                                   Chapt...
The “Applied Track” ................................................................74          Appendixes ..................
Sergei GurievThe Miracle Workeron MiraclesUnlike many of my friends and most of the faculty of the NewEconomic School, I h...
The Miracle Worker on Miracles     School”). Barry Ickes, one of the School’s founders, has always   and bringing back tho...
Prefaceherself and other people. I have met many people who wereexcessively confident of their own talents; but the people...
Preface     executive finance program. Most of these alumni are working               responsibilities to Sergei Guriev, N...
Chapter Itroves – mostly Web sites – had incomplete collectionsof the main documents; I had a few collections, alsonot com...
Prelude     September 18, 1991. I had already met him while having              1991, titled, by sublime coincidence, “CEM...
PreludeValery Makarov and Mark Levin, 1992             15
Prelude                                                                    was raised in full cooperation among many on bo...
Chapter II                                                                        a graduate-level program was motivated b...
Foundations and Preparations     One critical issue regarding the mission of “bringing modern                 the same goa...
Foundations and PreparationsThe meeting of International Advisory Board. From left to right: Michael Bruno, Zvi Griliches,...
Foundations and Preparations     University’s role in the project.6 By now, the school had                      of economi...
Foundations and Preparations   per year, remains in effect at NES to this day, even             of the IAB. This structure...
Foundations and Preparations     CEMI could offer. The opportunities to invite professors          to concentrate on the i...
Foundations and Preparationsdissertations on theoretical and highly technical topics.          Statistics and econometrics...
Foundations and Preparations     theoretical econometrician, who however over time expanded        This simple pay rule sa...
Foundations and PreparationsAt this time, as noted above, we were continually revising our     traveled with greenbacks or...
Foundations and Preparations                                                                      takes place in July, aft...
Foundations and Preparationswas already involved in projects in Russia and continued inthose capacities after two years of...
Foundations and Preparations     more than a dozen countries taught at least one module               no longer afford the...
Foundations and Preparationscareer, put a substantial effort in training in her new calling, informal courses and through ...
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
The Miracle of NES: The Foundations of Modern Economics in Russia
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A book about NES history written by Gur Ofer, one of NES founders, on the occasion of NES 20th Anniversary

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  1. 1. NES expresses its sincere gratitude to alumni and staff members for the photos provided.Our special gratitude to Mr. Ivan Ivanyuk.In the book were also used photos by Anatoly Morkovkin, Stanislav Tikhomirov, Anton Tokarev.UDC 378Gur OferThe Miracle of NES: The Foundations of Modern Economic in Russia. – M., 2012. – 180 p.ISBN 978-5-98856-157-6Copyright 2012 by Gur Ofer.This is an internal, limited edition of the book, to be distributed among members and friends of the New EconomicSchool (NES) free of charge, as a present on the occasion of the celebration of its 20th anniversary, and not for sale.
  2. 2. I dedicate the book to Dalia, my wife,who persevered with me and supported me with utmost patience for fifteen long years. She is the invisible hero of NES, its utmost miracle
  3. 3. About the author About the bookGur Ofer is a Professor (emeritus) at the Departments of Economics This book tells the story of the creation and the development of NESand of Russian Studies, The Hebrew University of Jerusalem, Israel. during its early years, 1991-2004 under the dual control of its “founding(www.economics.huji.ac.il). He received his BA (1962) and MA fathers”, Russians and foreigners. It is a story of “transfer of technology”,(1964) degrees in economics at the Hebrew University, and his PhD at that success or failure depends in many cases on the quality of theHarvard (1969). In addition to extensive work and publications on the domestic partner and on the “chemistry” between the two groups. TheSoviet Economy, he worked and published in the areas of Immigration, choice of CEMI (The Central Economic and Mathematic Institute)the Welfare State and of Health Economics in Israel. Gur Ofer was as the domestic partner was probably the crucial one. Despite someamong the founders of the New Economic School (NES) in Moscow, disagreements and tensions on the way it was clear from the start thatand served as the chair of its international advisory board (IAB) the Russian partners fully understood and supported the main features(1991-2004) (www.nes.ru). Since 2004 he is a member of its IAB. of NES. The same may be said of the group of Western professors that agreed to join in as members of the International Advisory BoardGur Ofer served as the head of the economics department at (IAB). While the deliberations on internal academic issues were morethe HU (1985-86), and as the president of the Israeli Economic interesting, the efforts to obtain the support of the outside, in RussiaAssociation (1998-99). During 1995 -2007 he served as the and abroad, mostly financial aid, were more difficult, sometimeshead of The Israel National Institute for Health Policy and frustrating. Yet NES enjoyed the support of a number of majorHealth Services Research (www.israelhpr.org.il ). Over the years foundations, first and foremost those belonging to George Soros, thatGur Ofer was a visiting scholar, among others, in Harvard, on top of a steady support, played also a role of supporter of last resort.Columbia, UCLA, Yale, The Rand Corporation, the WilsonCenter, the Brooking Institution, the World Bank and NES. The book tells the story of the growth of NES in terms of students and faculty, the replacement of visiting professors with young facultyGur was born (1934) in Jerusalem, is married to Dalia, members coming back from Western countries with PhD degrees,professor (emeritus) of Jewish History at the Hebrew the introduction of modern teaching methods, engaged in researchUniversity and they have four daughters and seven and combined teaching with research, and creating of a tenure trackgrandchildren. Email Address: msgur@mscc.huji.ac.il appointment and promotion system; of how NES promoted a close network and cooperation in research and scientific publications with the global community of economists, including that with graduates of NES who stayed abroad; and of how it raised the funds needed to run the school, including the introduction of tuition supported by a student loan fund; all these with the help of a dedicated group of staff members who had to learn their tasks almost from scratch. Finally the book recounts the radical change in its governance regime, the creation of a board of directors and the transfer of power from the founding fathers and dominance of the IAB to the young generation of economists; And, finally to learn on how NES became one of the top economic departments among the former communist bloc.
  4. 4. Table of ContentsThe Miracle Worker on Miracles ................................ 9 Chapter V 1994/95–1996/97: Barry Ickes, .Preface ...................................................................... 11 Stabilization, the Research Center, and the Partner Hunt ................................................ 47Chapter I. Prelude ..................................................... 13 Research and Master Theses ..................................................48Chapter II. Foundations and Preparations................ 17 The Research Center, GET, and the Ford Foundation Grant .........................................................................................49 How much mathematics? .......................................................21 GET at work .............................................................................52 Statistics and econometrics ....................................................23 The Birth of EERC...................................................................53 Finances, the Budget, and the Budget Process ....................25 Widening the Scope and Merging after All?........................56 Countdown: six months left...................................................25 MSSES .......................................................................................56 Recruiting the First Visiting Professors................................26 HSE ...........................................................................................57 Textbooks, Journals, Library, and Computers .....................28 Strengthening NES’ Underpinnings .....................................59 Offices and Administration....................................................29 My Only Lengthy Stay at NES ...............................................60 Fundraising and Public Relations .........................................61Chapter III. The First Year, 1992/93 – Plunginginto Stormy and Chilly Waters.................................. 31 Chapter VI. 1997/98–2002/03 – The Second The Visiting Professors ...........................................................35 Piatiletka, Building a New Faculty Students ....................................................................................36 and Reaching Out..................................................... 62 Tuition, Stipends and Fellowships ........................................37 New Strategic and Business Plans and Their The “Public Seminar”..............................................................37 Implementation .......................................................................62 Fundraising ..............................................................................39 Preparing for and Recruiting New Faculty ..........................63Chapter IV 1993/94 – the Class of 1994 . The Academic Appointment Committee (AAC) ................65 Going into the Job Market .....................................................68and the First Commencement.................................. 41 RECEP/CEFIR .........................................................................69 The Second Year of Studies ....................................................42 Growing to a Class of 100 ......................................................71 Master Theses and a Semester Abroad .................................43 Stewarding our Students through Graduation ....................72 PhD Studies Abroad................................................................44 The Attendance Problem ........................................................73 The First Commencement .....................................................45 Developing the Curriculum and a Course on Institutions..........................................................................73 7
  5. 5. The “Applied Track” ................................................................74 Appendixes .............................................................114 Reaching out ............................................................................75 Whither NES Graduates? .......................................................77 Picture Gallery .........................................................129 In Russia ................................................................................77 …And abroad .......................................................................78 Becoming Alumni and Forming an Alumni Association ...............................................................................79 Governance Issues Yet Again .................................................80 Chapter VII. 1997–2002 –Fundraising for the 2nd Piatiletka................................................. 82 Turning to Russia ....................................................................82 The Russian Advisory Board (RAB) .....................................84 But still dependent on the West ............................................85 And between West and East ..................................................88 Depending on Ourselves: “Cost Recovery” .........................88 Tuition and the Student Loan Fund......................................89 Budgets, Deficits and Arrears ................................................92 Zvi Griliches – in Memoriam ................................................92 A Concluding Note .................................................................92 Chapter VIII. 2002 – The T enth Anniversary............ 94 Chapter IX. The Last T Years under the Ancien wo Regime ...................................................................... 99 ´ Chapter X. The “Russian House of Economics” (RHE) or the “Dom Ekonomiki” ............................101 Chapter XI. Changing of the Guard and Beyond ..103 Chapter XII. Epilogue –Four Concluding Summaries ..............................................................105 Stephen Kotkin’s Qualitative Evaluation ............................105 The Budapest Conference ....................................................107 NES in Figures: 1992 – 2004 – Today .................................1088 A Personal Perspective .........................................................109
  6. 6. Sergei GurievThe Miracle Workeron MiraclesUnlike many of my friends and most of the faculty of the NewEconomic School, I have never studied at NES. Moreover,I have not even heard of NES during its first years – until Istarted to come to its seminars and conference in 1996 andbegan working at NES as a teaching assistant in 1997. I knowthe vast majority of the Gur Ofer’s book characters, but eventhough I have heard about the main events in the book manytimes, I have not lived through these NES’s first years myself.I joined the School in its later years (I became its first full-time faculty member in 1999 and its second Rector in 2004),and this is why I can now read and talk about those first yearsof NES as an “outside observer”. On the other hand, givenmy closest involvement with NES in the last eight years, Ican also appreciate how the first years’ plans and actionsplanted the seeds for what happened in the later period.It is fascinating to see how much of what happened atNES in 2000s was predetermined by the initial plans andvision. Some of those plans were naïve. But even thosethat have not been implemented have still guided the laterstrategies and efforts for many years to come. Moreover, Icannot find any single significant event or achievement oftoday’s NES that would not be traced back to the founders’plans and decisions made in the School’s first years.I have always been asked – at least one thousand times!– why NES has different names in English and Russian Sergei Guriev(the Russian name is RESch, literally “Russian Economic Rector, Professor of Economics, 2012 9
  7. 7. The Miracle Worker on Miracles School”). Barry Ickes, one of the School’s founders, has always and bringing back those who left Russia for PhD programs. joked that the School was so unique that we had to name Starting in 1999, NES started to hire in the international it twice. The rational explanation is that in 1992, outside market and now has a permanent faculty of about 30 of Russia “Russian Economic School” would be associated internationally hired tenure-track and tenured faculty. with Soviet rather than with modern economics. Naming the School the “New Economic School” sent a completely The fourth miracle was to make sure that these returnees clear signal that NES would be new, modern, different from would remain an active part of the international the past. And within Russia, “Russian Economic School” academic profession upon their coming back to made perfect sense – as NES’s mission was (and still is) to Russia. The academic success of the NES faculty made built a Russian economics profession and to be the leading sure that NES has quickly risen in the international Russian economics institution. But I am sure that part of research rankings taking over its counterparts in the explanation (and the title of Gur’s book) is related to other non-OECD and post-communist countries. the fact that “nes” is Hebrew for miracle. Gur uses the word “miracle” in the title of the book exactly because for him – The other miracles included creating a modern governance and for many people associated with the School as well as structure, building not only faculty but also professional for outside observers – NES was and still is a true miracle. and committed staff, assuring diversified sources of funding and many other achievements. There are certainly many For me, however, NES is not just one miracle, but a more miracles to come. NES is still to grow in terms of succession of miracles building on one another. The first quality of its faculty, size, reputation of its newly created miracle was to gather support from the leading Western undergraduate program, it is still to build a PhD program. and Russian academics and to mobilize financial support from George Soros and then from the other Western What I have learned during all these years at NES is that foundations. The founders managed to bring outstanding the past and future miracles can only be made by a team economists from the US, Europe and Israel as NES’s first sharing the vision and committed to the mission of the visiting faculty. The second miracle – which of course School. However small NES is, its success is a product would be impossible without the first one and yet was a of many people. This is why I would not like attributing miracle even if the first miracle were taken for granted – the School’s success to any single individual. But Gur was to bring in the top Russian students. Even before it Ofer’s contribution to the success of the School certainly had permanent faculty, NES managed to build a reputation stands out. As it is clear from the book – and the book to have one of the best schools outside the US in terms is certainly accurate, albeit too modest in this sense – it of quality of students, and their track record in joining was Gur’s vision, conviction, idealism, and effort that and succeeding in the world’s best PhD programs. made NES creation and development possible. The third miracle – once again, impossible without the The main lesson from Gur – and from his book – is that in second one – was one that the founders of the School order to work miracles, it is not enough to have a clear action strongly believed in. But nobody in Russia thought it would plan. One also has to be idealistic; moreover, probably, one10 be possible. I am talking about reversing the brain drain even has to be over-optimistic – with regard to both himself/
  8. 8. Prefaceherself and other people. I have met many people who wereexcessively confident of their own talents; but the peoplewho are over-confident in capabilities of others are muchless common. But these are precisely the latter who buildsuccessful teams and organizations. For example, to this day It was autumn 1991, between the failed August coup d’étatI am puzzled why Gur and other founders hired me in 1999 and the fall and disintegration of the Soviet Union. A radicalas an Assistant Professor; given our today’s hiring standards “shock therapy” economic reform, including almost completeI would probably not stand a chance. On the other hand, it price liberalization in the then-independent Federal Republicwas completely consistent with the School’s DNA – believe in of Russia, was on the way. This period of near-anarchy inpeople who share the mission and the passion, give them an almost all spheres of life also saw the conception, if not yetopportunity and work hard to support their own hard work. I the birth, of the idea of introducing the study and practicethink this is the message that comes out very clearly from the of modern (Western) economics in Russia. The right peopleMiracle book by the professional Miracle Worker Gur Ofer. happened to have similar ideas and also to meet each other in Moscow; one of them was George Soros, who provided a small grant (around $200,000) as seed money for the project. Asking for the money were two economists, Gur Ofer of the Hebrew University of Jerusalem and Valery Makarov the Head of the Central Economics and Mathematics Institute (CEMI) in Moscow. Two meetings in the span of one week or so, Ofer with Soros and then Ofer with Makarov, holding a piece of paper, a page and a half long, that brought about the birth of the New Economic School (NES). The doors of NES opened for business a year later, in October 1992, with about forty students. At this writing, NES is celebrating its twentieth anniversary. More than 1000 students have entered its graduate school, a new undergraduate program, in cooperation with the High School of Economics (HSE) already completed its first year, and a flourishing executive program in finance is entering its fifth year. Its tenure-track faculty of nearly thirty strong, most holding PhD degrees from leading Western Universities is fully integrated into the global academic community, publishing in peer-reviewed international economic journals, attending conferences, and all the rest. Celebrating its twentieth birthday, NES had trained more than 1,000 professional economists in its graduate program and about 100 in its 11
  9. 9. Preface executive finance program. Most of these alumni are working responsibilities to Sergei Guriev, NES rector since 2004, and in the now-vibrant market environment of Moscow and to many others. Barry Ickes and Eric Berglof stayed on the across Russia. About 175 graduates of NES have completed New Board of NES, Barry as the president of AFNES, the PhD. studies in the West and, although many of them did American Friends of NES, a non profit organization that not return to Russia, a large majority among them joined a raises money and goodwill for NES, and as co-head of the network built around NES and participated actively in what Academic Appointment Committee of NES, and Berglof the literature dubs “brain circulation” with NES and Russia. as the chair of NES’s International Advisory Committee. In recent years NES and CEFIR, the Center of Economic The original plan for this volume was to include in it also and Financial Research, the research and policy arm of a number of academic papers that I wrote during my NES, are ranked relatively high by two indexes of research: service with NES and beyond, on various issues related to REPEC and SSRN.1 According to REPEC NES is ranked 147 the role of higher education in economic growth, reforms and CEFIR, (Center of Economic and Financial Research) in higher education, and matters of brain drain and brain NES’s think tank is ranked 20th in the ranking of think circulation. One paper is devoted to the development of tanks http://ideas.repec.org/top/top.ttanks.html . NES’ modern economics in Israel, a source of inspiration to ranking according to SSRN is 69 by citations. According to me and others on how to approach the case of Russia; REPEC NES is top among the post-communist and non- the differences and similarities between the countries; OECD countries, and according to SSRN NES is positioned lessons that Russia can learn from Israel. We hope to be second place only below Tsinghua University in China. able to implement this plan in future, as well as to produce a Russian version of the book including the papers. This essay tells the story of the creation of NES and its development during the formative years, 1991 – 2004. At the A word should be said about the conflict that arises here end of this period, the school’s management was transferred as I, in the role of author, recount and discuss a story in from its founding fathers to the young generation and its which I was deeply involved, violating the fundamental governance shifted from a dual model composed of Western principle of “Don’t toot your own horn.” The account that and domestic scholars, with dominance in the hands of follows has two concurrent goals: to maximize objectivity the former, to an independent board in which indigenous but also to tell the story from my own point of view. In players are dominant and the Western group was relegated essence, it aims to combine the biography of NES with a to a secondary role. Many additional changes occurred piece of the relevant autobiography of my life during this at this time, including my retirement as chair of the NES period. I leave it to the readers, including members of the International Advisory Board (IAB) and the transfer of many NES community, to judge how well I succeeded. Drafts of this essay were distributed to a number of members of the 1 leadership of NES, and I am grateful to Barry Ickes, Sergei The REPEC (Research Papers in Economics) ranking of economic Guriev and Zarema Kasabieva for many helpful comments. institutions is misleading as it includes both schools and research institutes within the schools. So LSE appears in the ranking ten times. So in REPEC we only need to look at the ranking of economic Finally, a word about referencing: during the period covered12 departments http://ideas.repec.org/top/top.econdept.html. here NES had no systematic archive. Instead, several
  10. 10. Chapter Itroves – mostly Web sites – had incomplete collectionsof the main documents; I had a few collections, alsonot complete; and Barry Ickes provided me with others. PreludeThe virtual archive contains routine documents such asannual reports, my annual commencement speeches,main documents on specific projects, financial andfundraising records, NES statistical series, and thousands On August 19, 1991, forces hostile to Mikhail Gorbachevof electronic-mail messages. Given the interest in and his reforms in the Soviet Union mounted a coup thatpublishing the essay as quickly as possible, it was decided carried on for two or three days before ending in completeto allow the essay to flow more fluently with almost no failure. Boris Yeltsin, then-president of the Russianreferences – ”almost” because a small number of documents, Federation and head of the anti-coup forces, emerged asDiagrams and Tables are included in the Appendix. the new national hero. The coup served as sufficient excuse to call off the five-day conference of the InternationalThanks: Work on this narrative started back in 2007 when Association of Public Finance that had been scheduled toI was invited by the World Bank to serve as a visiting open in Leningrad (yes, still Leningrad) on August 25. Theresearch fellow at ECAVP under the primary management coup also postponed by a few days my prearranged month-of Mr. Pradeep Mitra its chief economist, in cooperation long visit to the Soviet Union as a guest of the Institute ofwith Mr. Boris Pleskovic, the research manager of DECPO. Economic Forecasting and its head, the academician YuryI thank both Pradeep and Boris for the invitation and for Yaremenko. As an Israeli national, I had long been barredguidance and advice during my stay at the bank. Drafts from the Soviet Union; in fact, I had never set foot thereof this essay were distributed to a number of members of until January 1989. My August 1991 visit, my first longerthe leadership of NES, and I am grateful to Barry Ickes, stay in the country, came with an itinerary including theSergei Guriev, Zarema Kasabieva, and Konstantin Sonin capitals of the Western Soviet republics and their respectivefor many helpful comments. Naftali Greenwood edited an institutes of economics. For more than two weeks, we – I,early draft of this manuscript. Luda Solntseva took care my wife Dalia, and Zhenya Tankilevich, then a graduateof bringing the manuscript to the publisher, Olga Fadina student at the Forecasting Institute – visited Riga, Vilnius,who helped to prepare the final version, and to Svetlana Minsk, Kiev, and then Leningrad, which had been “re-Nabieva for support with data on students and alumni. renamed” to St. Petersburg on the night of our arrival there.Yet I take full responsibility of any mistake that was leftin the manuscript, hoping that there are only a few. We returned to Moscow full of impressions – first of the very dramatic changes under way but then of the vast areas of life that remained very much what they had been during the Soviet decades. One of these “no change” areas was the initial setting of the story that follows. In Moscow, where I spent the rest of my visit, I had a meeting with George Soros on the morning of Yom Kippur, 13
  11. 11. Prelude September 18, 1991. I had already met him while having 1991, titled, by sublime coincidence, “CEMI Econometric participated in a series of missions to the Soviet Union that School.” The document, prepared by a group of leading he had organized in 1989 – 1990 to sell his ideas on how to economists at CEMI, envisioned a new program of graduate implement the transition to democracy and a market system.1 studies in three directions – ”modern economic theory,” At the meeting, I relayed to Mr. Soros my impressions of “econometrics,” and “management” – the establishment of a the tour that I had taken. One of these impressions was research center (working mostly on macroeconomic models), this: six years into the Gorbachev reforms, there had been and “some kind of commercial activity, such as consultancy almost no move or change in the content of the teaching of for the government and private business.” CES (as the original economics and the training of economists that could tackle document already called it) was to be a “private shareholding the requirements of the transition to a market system. I say company” with diverse stakeholders: CEMI; Moscow State “almost” because in St. Petersburg we did visit a group called University; Dialog, a private investment group; an organization the Ekonomicheskaya Shkola (ESH) which had begun to representing the Russian Government (!) that would “give publish new introductory economics textbooks in Russian the graduate students an official status”; “a Western university by rewriting and translating Western texts.2 It was probably […] from which CES can receive money and invite Western one of several ventures across the Soviet Union at that professors”; and, finally, “individuals […] who make major time. I am not sure what Soros thought about all this, but investments in CES.” As for the governance of CES, let us before we parted he did tell me that if and when I came up mention only that the entity was “to operate like a nonprofit with an idea in the relevant direction – the introduction institution.” As we revisit several additional elements in this of modern economics to Russia – I should let him know. document below, we can only be amazed that much of what happened later, and what NES is at present, was already Even today, most acts of conception need two partners. Thus captured in the missive’s 400 words. (See attachment 1). (according to my recollection but in conflict with that of If I may return to the conception metaphor, here was an others), it happened that at a dinner party several days later in anxious sperm that carried most of the right genes. the home of Evsey Gurvich, an official at the Soviet Ministry of Finance, where I recounted my meeting with Soros, Mark The actual conception occurred a short time later, although Levin (then an economist at the Moscow Institute of Steel not before some additional flirting took place. I promised and Alloys, today a microeconomics department head at to check whether the Hebrew University of Jerusalem (HU) HSE, mentioned that academician Valery Makarov, head of might be willing to serve as the Western academic partner the acclaimed Central Economics and Mathematics Institute and whether George Soros might assume the role of the (CEMI), a leading economics institute of the Russian Academy aforementioned “individuals.” At this very time, however, my of Sciences, was thinking along similar lines. A meeting meeting with Makarov was interrupted by Richard Portes, was arranged at CEMI and indeed, Makarov handed me a then-head of the Center for Economic and Policy Research document a page and a quarter long, dated September 19, (CEPR) in London. Glancing at the same document, he also promised to “look into it favorably.” Portes never got 1 Soros, George, Opening the Soviet System, London, back on this to Makarov but the HU (and I) did, with full Weidenfeld and Nicolson 1990, pp. 28–30. support from the University’s president and rector, the14 2 ESH still exist, possibly affiliated with HSE. late Yoram Ben-Porath and Hanoch Gutfreund. The HU
  12. 12. PreludeValery Makarov and Mark Levin, 1992 15
  13. 13. Prelude was raised in full cooperation among many on both sides of the divide until it matured and became ready, able, and willing to take off upon its “Bar Mitzva,” thirteen years later in autumn 2004. Since then, as happens in many families, the parents have stayed at arm’s length but are still watching and lend a hand from time to time. The Russian name assigned to NES was RESH, the “Russian Economic School,” rather than NES, the acronym that the natural translation would yield. The argument was that only by incorporating the word “Russian” into its name could the institute qualify for financial support from the new government of the Russian Federation. On the other side, using “Russian” as part of the title of an institution required government approval. As it happened, this magic word never fulfilled its assumed promise. It did, however, symbolize the partnership between two groups, one that almost always led in the same direction. All this, however, draws us too far into the future. At NES godfathers this point of the narrative, the story has just begun. affirmative inclination, not to mention my own, was at least partly explained by a similar experience at the University that had led to the introduction of modern economics in Israel more than forty years earlier. It happened when a young PhD from Chicago, Don Patinkin, joined the University faculty and revolutionized the curriculum and the teaching of economics – a revolution that eventually made Israel an important academic center in this discipline. Ben-Porath and I had been part and parcel of this process; indeed, we had been among its guinea pigs. Those early deliberations with Makarov and at the Hebrew University instigated a partnership that gave birth to the New Economic School (as it was already named in the preparatory documents in autumn 1991) within a year, a bit longer than the nine months of human gestation. A group16 of leading Western economic professors joined in and NES
  14. 14. Chapter II a graduate-level program was motivated by the intention toFoundations leverage the effort by “training trainers” – future professors of economics for NES and, later, for other universities, butand Preparations also professional economists who would provide the needed cadres for the country’s transition to the market system. Even so, the yawning gap between the small size and, in turn, the requirements of Russia (and the CIS) and those of NES, even under the most optimistic scenario imaginable, precludedPreparatory work leading to the opening of classes proceeded the feasibility that NES would fill the void. NES, we thought,in earnest in several directions: the mission of the school might be viewed as a foot in the door, signaling to othershad to be agreed upon and a curriculum developed in that they should join the efforts to open the door, or as aaccordance. The target characteristics and populations of demonstration project to be emulated by others. At the outset,teachers and students had to be defined and located, the most teaching in Russia would have to be done by visitinginstitutional structure and logistics determined, a budget professors from the West, the first generation of “trainers,”drawn up, and a business plan and budget sent – to Soros at whose students would have to augment their training bythat stage – for approval and funding. Although we worked completing their studies in Western universities at some stage.intensively and enthusiastically with the general sense oftaking part in an historical event, akin to the atmosphere As the description thus far makes clear, the NES – CEMIthat pervaded the USSR and (later) Russia, we thought partnership was more something that “happened” thanthe chances of Soros’ approving our project very slim.1 the product of a careful search process. Yet CEMI was probably among the very few institutions in the entire SovietThe NES mission was first presented, in rough terms, in the Union that could have been qualified to take part in suchoriginal document mentioned above – ”CEMI Econometric a project. Mathematical economics was the only field inSchool” – and later in the first public document, the NES Soviet economics that engaged in academic work resemblingbrochure.2 The general goal was to bring “modern” economics, a that in the West. It was the only one in which Russianeuphemism for Western economics, to Russia by establishing in economists maintained rather close relations with their globalRussia “a graduate center offering a high level of teaching, study, community, publishing in Western journals, participatingand research in economics as practiced in the West and training in conferences, and even leading in several areas. Thus, itteachers of economics as well as professional economists and may not have been by accident that the aforementionedresearchers in economics for Russia (and other constituents founding document originated in CEMI. As for theof the Commonwealth of Independent States).” The choice of NES project, it was evident from the start that Makarov, Polterovich, and other members of the group involved with1 NES had a clear view of the NES mission, one that closely In our correspondence with Soros during these early weeks, we resembled the ideas of the group of Western economists. discussed additional potential projects; from the start, however, I emphasized that the proposed school was the most significant. Debates on how to proceed on various issues abounded at2 Taken from the pre-IAB document (May 1992) the preparatory stage as well as in later years, but they were and the first NES brochure (August 1992). always secondary to the clear strategic vision of the venture. 17
  15. 15. Foundations and Preparations One critical issue regarding the mission of “bringing modern the same goal as ours, the teaching of modern economics. Yet economics to Russia”3 came up right away: Could the new the rector of MSU, academician Victor Sadovnichiy, agreed school be establish at Moscow State University (MSU), as to join as one of the founders of NES and a cooperation part of its economics faculty, or, as a second option, at MSU agreement between MSU and NES was signed later, MSU as an independent college? I recall having proposed the first provided two critical inputs to our project: subsidized option to Makarov at our very first meeting. If possible, it dormitory space for NES students and, most importantly, would have been done in conjunction with CEMI because arranging the students’ deferment from military service (a several leading CEMI members taught at MSU and even held service that NES was unable to provide). As the years passed, chairs there. By developing the project under the umbrella MSU steadily raised the rent for its dormitory space and of the leading and highly prestigious university, we would created difficulties in making enough rooms available. It also presumably lend it immediate legitimacy and visibility and became harder and harder to obtain Sadovnichiy’s signature on amplify its impact by triggering a systemic imitation effect. various legal documents such as amendments to the charter. When at a later date we added to the agreement an invitation Makarov’s vehement and categorical nyet excluded this option to members of the MSU faculty of economics to attend any right away. The conservative culture and approach of the rector course at NES free of charge, almost no one responded.5 of the university, the dean and faculty of economics, and the entire institution, he argued, could not possibly be surmounted. Over the next few months (October 1991 – February 1992), It was difficult for me to argue with this, but any doubts I may Makarov and I exchanged drafts of a proposal and a budget. I have entertained disappeared over the coming months and visited Washington, D.C. to seek advice and, upon my return, years as I had the opportunity to get better acquainted with Makarov visited Jerusalem, bringing a major snowstorm with the MSU economics faculty.4 At approximately the same time him. The proposed curricular program was far from final at this a group of young economics professors at MSU, reaching the time; for one thing, it still included a program in management same conclusion, left MSU to establish the Higher Economics and business. The budget was increased several times for the School (HSE), a new state university that offered mostly sake of greater realism. The Hebrew University approved my undergraduate programs but also a graduate program that had participation and drafts of an agreement in this matter were exchanged. In late December, a final proposal and budget were 3 The events described here and until the end of 1991 still took sent to George Soros and, a first (unsuccessful) fundraising place in the Soviet Union. References to Russia, the Russian effort took place, to Amnon Golan of the World Bank. At the Republic, or the CIS anticipate subsequent events. 4 same time, we started to assemble what would soon become As time passed, more and more young economists, including vice rectors, chose to leave for the same reasons. Yet, despite the above, the NES International Advisory Board. The first to join it were while working on the Project of NES, we also created a student Sergiu Hart and Michael Bruno of the Hebrew University summer exchange program with the economic department of MSU, and Zvi Griliches and Andreu Mascollel (both from Harvard) under which a group of the second class students traveled to Israel for a month course in economics and some travel in Israel, while a 5 group of Israeli students of the faculty of social sciences visit Russia On developments in the teaching of modern economics at and take lectures on the transition process and also do some travelling MSU, see Ofer, Gur and Victor Polterovich, 2000, “Modern around. This exchange program was partially financed by Soros and Economics Education in TEs: Technology Transfer to Russia”,18 it lasted three or four years until Soros discontinued his support. Comparative Economic Studies 42(2): 5-36; and references ad loc.
  16. 16. Foundations and PreparationsThe meeting of International Advisory Board. From left to right: Michael Bruno, Zvi Griliches,Roman Frydman, Gur Ofer, Valery Makarov, Barry Ickes, 1993from the U.S.; others came aboard a short time later. Although that Soros had approved the project and that we couldall were enthusiastic and helpful, it was Zvi who invested the go ahead. The caller, it turned out, was Roman Frydman,most time, truly a great amount of time, in NES affairs – ideas, a professor of finance economics at NYU and a closerecruitment of teachers, modes of operation, practical help, you associate of Soros’, whom Soros had sent to vet the proposalname it – from the beginning to his premature death in 1999. in Moscow. As I discovered later, Soros himself met withOn the Russian side, in addition to Makarov, the preparatory Makarov. During Makarov’s visit to Jerusalem at the endteam included Victor Polterovich, Alexander Friedman, Mark of that month, we revised the proposal to include even aLevin, Vladimir Zhitkov, Sergei Aivazian, and Revold Entov. larger budget request and sent the revision to Soros. I also used Makarov’s visit to arrange meetings between him andOne day in mid-February, while in Washington, I received the leaders of the Hebrew University and members of thea telephone call from a total stranger, who informed me Department of Economics and for discussions about the 19
  17. 17. Foundations and Preparations University’s role in the project.6 By now, the school had of economics and to focus on and emphasize an intuitive become a real prospect, although nothing yet existed. approach to these concepts, a matter of supreme importance in a country that lacked any experience in The next step was to convene the group of Russian the ordinary operation of markets but had a student body and Western professors in Moscow to make concrete proficient in mathematics. While the rest of the curriculum plans. This session, held on April 9 – 11, 1992, may be matched the norm among graduate schools, i.e., it was part considered NES’ inaugural meeting. It yielded an eight- of a PhD program, no full PhD program would be offered. page document (dated May 8) that summarized the The writing of dissertations was put off to a distant future main academic, logistic, and administrative matters, when senior professors would comprise at least part of a offered a plan of action, and presented yet another budget resident faculty. All students would take the same curriculum proposal. With a few exceptions, this meeting defined and meet the same requirements but could take elective the main parameters of NES operations from then on: courses in specific fields, including advanced theory, in their second year of studies. The curriculum would include courses • NES would concentrate solely on economics and abandon on Soviet/Russian economics and on the transition that was its ambition to serve as a business or management under way, but the full development of these courses would school as well. Only a master’s (graduate) degree take some time. An additional course would be called in economics would be offered; the introduction “Current Issues”; in due course it turned into “Public of a full PhD program would have to wait.7 Seminar a weekly seminar presided over mainly by guest academics and public figures from Russia and abroad. • The curriculum would resemble that of leading Western graduate departments of economics but with one major • The program of studies was initially set at four or five difference: three intermediate (undergraduate) courses semesters in Moscow plus up to a year at a Western in micro/macroeconomics and in statistics/econometrics university, mainly for work on master’s theses under would be taught in the first semester.8 The main motives proper supervision. As it turned out, this pattern lasted behind this decision were the need to close a curricular only for the first entering class, that of 1994, indeed gap among most incoming students in the basic concepts not fully even for them as students who couldn’t go abroad could graduate in Moscow. In later years, the 6 master’s thesis was incorporated into the compulsory The severe snowstorm that I mentioned forced the program in Moscow (see below). Eventually, the cancellation of planned lectures by Makarov but not of tours to the Judean Desert and Masada. program converged into five semesters during two 7 Confusion between economics and management persisted among years, each semester divided into two modules of 7 – 8 applicants to NES for much time; each year, some students left NES weeks’ duration. This modular system was introduced after a period of study when they realized the difference. Much later, mainly in order to accommodate the readiness of NES did add some elements of finance and management education to visiting teachers to come to Moscow. Even then there the curriculum. At the present writing, NES still does not offer a full PhD. program including dissertations. We discuss this issue below. was heavy pressure on their part to leave as early as 8 The first teaching and course schedule was presented and possible, resulting in the “packing” of most exams into20 discussed at the of the “pre-IAB” meeting on April 9-11, 1992. the seventh week. This modular system, at five modules
  18. 18. Foundations and Preparations per year, remains in effect at NES to this day, even of the IAB. This structure of governance created a dual though the number of visiting professors is very small.9 management of sorts, an essential mechanism under the circumstances, with clear advantages and virtue• Entrance examinations in mathematics and English over other systems on the one side but one that also and preparatory summer courses in both subjects carried the potential of tension – of which, fortunately, would be offered. The mathematics exam had a written materialized only on rear occasions over the years. and an oral part; the written part was patterned after the American SAT and the English exam closely • A draft budget was presented and approved (see followed the American TOEFL (Test of English as a below) and Evgenia Telegina, a vice-director at Foreign Language). Requirements in mathematics and CEMI, was elected as chief financial officer. English were determined and preparatory summer and regular courses where included in the curriculum. • Finally, a timetable was set for the admission process, the preparatory courses, and the opening of the first year on• Terms of hiring for visiting professors, including length of October 12, 1992. The Russian partners pushed for an stay, levels of remuneration, lodging, etc., were determined. early start, motivated in part by the wish to preempt the establishment of the HSE; the Western participants were• The participants elected Makarov as rector of NES more cautious and opted for more careful preparations. and made several additional appointments. They also established several committees; one of them, the International Advisory Board (IAB), comprised leading How much mathematics? Russian professors and some of the Western members and was expected to add a few more Western members. Much of the discussion at the April meeting focused on the Indeed, within several months the IAB was joined by scope of the economics to be taught and the approach to use Roman Frydman (New York University, also representing in teaching it. Our associates from CEMI were able to offer Soros), Anthony Atkinson, (LSE) and Elhanan Helpman courses in the two closely related directions of mathematical (Tel Aviv University). The last two served for only a very economics and theory because CEMI was a center for both. short time. The Russian side was represented by those Indeed, Makarov’s original document reflected an emphasis mentioned above. I was elected “coordinator” (later chair) on mathematical economics and theory but included in his draft econometrics and computer sciences and courses9 The module system was introduced after heated debate and strong in business administration. From the start, however, all resistance. Many years later, when it became redundant because non-Russian attendees at the gathering, myself included, most teaching was done by resident faculty, similar resistance insisted on a more general scope for the curriculum, in in the opposite direction prevailed. The module system was also particular the inclusion of all fields of economics in the adopted later by the Higher School of Economics, where very program of studies, and a broader methodological approach few visiting professors taught. The HSE colleagues told us that the practice of having frequent exams helped provide stronger with special emphasis on intuition alongside a formal incentives to students than the Soviet system where exams where mathematical slant. The approach originally taken by the held once a semesters and mid-term exams were uncommon. members from CEMI was based in part on what they thought 21
  19. 19. Foundations and Preparations CEMI could offer. The opportunities to invite professors to concentrate on the intuitive approach to economics and from the West removed this constraint. The Western asked them to use mathematical tools as a second resort. members of the IAB underscored the importance of a wide This, however, proved to be an uphill and not fully successful range of fields and, on the methodological front, placed effort. We even tried to use text books that emphasized this emphasis on the intuitive approach to economics and the approach such as Alchian and Allen, 196211, but with limited use of descriptive and qualitative tools. The importance of success. Many visiting professors discovered after a couple mathematical tools for economics was accepted due to the of lectures that the use of mathematical tools gave them a new School’s partnership with CEMI. A related question handy common language with the students, especially since in the discussions was the level of mathematics that all many students were not very proficient in English (a matter students in the program were to attain. We will come back most pronounced in the early semesters). Many teachers to this matter below. In all these discussions, the role of the were excited to face a group of students with very strong mathematical economists and theoreticians among the IAB math skills so they could teach at a very high technical members, Sergiu Hart and Andreu Mascollel, as well as level, – which probably have been different from what the Zvi Griliches, proved crucial. They had more of a common IAB wanted. As described above, this issue evolved during language with the Russian partners than the others did and the first years into a specific argument between some of us thus could advise them more clearly and credibly of the and Amos Witztum (from London School of Economics and importance of the broader horizons that they envisioned. then Guildhall College), who taught at NES during its first three years. Witztum was of the view that the students’ good As it turned out, the curriculum at NES did eventually training in mathematics should be treated as an advantage, include a wide range of field courses that expanded even more a useful tool with which to internalize main economic over time. Still, economic theory, mathematical economics ideas, concepts, and way of thinking. Our view at the time, and game theory remained a strong and leading specialization as mentioned above, was the opposite: the immediate use throughout the years. In addition to the CEMI tradition, this of mathematics, we feared, might allow students to ignore was also a result of the background, education and training the intrinsic meaning of the economic content of things. that many of the students brought to NES. Throughout, the entrance exams showed a consistent bias in favor of Despite all the efforts, visiting teachers at NES and, later, mathematics-trained applicants. Although it was not fully advisors to PhD students from NES who were studying intentional, it was abetted by the general trend in Western in the West often remarked that NES students were teaching and research in economics toward more abstract extremely well trained and capable technically but less theory and the use of mathematical modeling and tools.10 versed in the deep meaning and context of economics. The students’ comparative advantage in mathematics The group of Western professors involved in the program served them well during their term abroad, making them repeatedly emphasized to all visiting professors the need much in demand as assistants and even as co-authors with their professors. It also motivated many to write their 10 Krueger, Anne O. et. al. 1991. “Report of the Commission 11 on Graduate Education in Economics”. Journal of Alchian, Armen and Wiliam Allen Exchange and Production,22 Economic Literature, 29 (September): 1035-1053. Wadsworth Publishing Company, Belmont , CA, 1962
  20. 20. Foundations and Preparationsdissertations on theoretical and highly technical topics. Statistics and econometricsWhen time came to hire them back as faculty membersat NES, the best candidates were theoreticians and good Related discussions took place about the nature of the studycandidates in other fields were harder to find. Consequently, of econometrics. Here the main divide was among thethe tilt toward mathematical economics and theory members of the Western group. While Jan Magnus tended tospread to the NES faculty, where it persists to this day. emphasize the teaching of classical econometrics, including the theoretical underpinnings of the empirical applications,Despite the remarks above, the expansion of the scope of Zvi Griliches suggested that the program start with athe curriculum, the emphasis on empirical work in many basic course on “measurement in economics”12 that wouldmasters theses, and the subsequent development of the Center concern itself with the description, definition, meaning,for Economic and Financial Research (CEFIR) – a research measurement, handling, management, and manipulationcenter, think tank, and center for economic policy work, of main economic variables. Zvi considered this essential inassociated with NES – created offsetting and complementing general as a tool for doing empirical work everywhere; buttendencies and helped to pull the center of gravity in especially important for NES due to the almost completeteaching and research back toward a more balanced range absence of proper empirical research in the Soviet Union,of fields including empirical and more applied research. the prevailing practice of manipulating data to fit political requirements, and the need to create a proper conceptualAlong with this issue, there was a continuous debate over and scientific infrastructure for the subsequent introductionthe level of mathematics to be taught to all students at of empirical research at the school. The first draft of theNES, something that would dictate the requirements on curriculum, discussed at the April 1992 meeting, includedthe entrance exams. Although it was agreed by all that the “measurement in economics” course and anothermathematical tools are essential for work in modern course on statistics and research methods. Only later, in theeconomics, the discussion of where to draw the line second semester of the first year, would the first course inbetween what all students needed and what should be econometrics be taught. Over the years, the “measurement”required of students specializing in theory was a fixture on course underwent a sequence of changes and eventuallythe agenda of the academic and admission committees, as adopted various configurations of research workshops. Thewell as the IAB. The required level of mathematics at the establishment of such workshops took place several yearsentrance exams also influenced the makeup of the entering later; the intention was to prepare the students for workclasses and “we”, most of the Western members of the IAB on their Masters theses by dealing directly with issues inpushed consistently for a more pluralistic class in terms the meaning and handling of data. However, econometricof candidates’ previous areas of studies. Admissions were theory remained dominant. The first NES graduate to beadministered mostly by the Russian partners. Admission named to the faculty, several years later, Stas Anatolyev, was ais done in Russia mostly in the second half of July, whenthere are no classes at NES and, thus, no visiting professors; 12 The original document discussed at the IAB meeting in April 1992this also might have influenced the outcome of these spoke of “Measurement in economics an introductory course ondebates. Finally, the emphasis on mathematics reduced main economic variables in use, their definition, meaning, andthe proportion of women students (see more below). measurement, e.g., national accounts, prices, and price indexes.” 23
  21. 21. Foundations and Preparations theoretical econometrician, who however over time expanded This simple pay rule saved us many hours of negotiations. his interest toward empirical work to a significant extent. Domestic teachers, who were normally fully employed by CEMI or some other academic institution, were paid per The “pre-IAB” April 1992 meeting also dealt with teaching lecture hours at a much lower (calculated) rate. Due to issues: the format of teaching, designating work on the rapid inflation that beset Russia at this time, the rates weekly problem sets as a main teaching tool in all courses, were usually denominated in U.S. dollars. The differences introducing written (mostly blind) examinations, confronting in pay between people with seemingly similar academic the problem of cheating, and initial discussion of attendance ranks, with an emphasis on “seemingly”, could reach a policy, compulsory or not. We return to all of these below. ratio of ten to one on a per hour basis or, when adjusted to take account of part-time positions, five to one. Finances, the Budget, and the Budget Process This arrangement of dual pay scales persisted at NES throughout the years, with various modifications. One was The April meeting approved the basic financial arrangements the significant redrawing of the lines of demarcation between that had been agreed upon and relayed to Soros. NES would the groups. Also, when Western-type tenure-track faculty have two separate, parallel budgets: one in rubles, covering arrangements were introduced in 1998, returning Russian domestic operating costs and salaries for domestic teachers and PhDs – NES graduates or not – were included in the higher- administrators, rent at the CEMI building. and costs related paid group. Tenure was also offered to three Russian professors, to the then-expected move to permanent premises; and a U.S. Valery Makarov, Victor Polterovich and Vladimir Popov, who dollar budget to cover salaries, travel expenses, and room qualified for it but had been working at NES less than full time. and board for visiting professors and foreign administrative The salaries of several veteran teachers at NES who were unable staff, IAB expenses (expenses only, with no compensation for to receive tenure were raised by means of research grants and time devoted to NES), and the purchase of books, periodicals, compensation for extra teaching in the outreach program computers, communication devices, and copying machines. (see below) and for assuming administrative responsibilities. The two budgets were to be administered separately, one by the All these measures helped to narrow the salary gaps. NES Russian partners and the other by the IAB. A finance committee still hires outside teachers on the basis of a lower rate of pay would coordinate the process at the general policy level. but does so in the manner of many Western universities. This budget bifurcation also established the principle and During the budget discussions for the second year of facilitated the introduction of different pay schedules for teaching (1993/94), it had already become clear that the domestic vs. foreign staff and teachers. Obviously a sensitive available ruble resources would not suffice to cover the issue, it was rationalized in terms of the principle of the needs of the domestic budget. Therefore, it was agreed two groups’ different opportunity costs (and, of course, that the Soros Foundations would cover 50 percent resource constraints). Visiting professors were compensated of the ruble budget by increasing its grant to NES. on the basis of their salaries at home – one quarter of their This was the first step on the way to the merger of the nine-month home salary for each eight-week module in two budgets – a matter consummated in 1999 under24 Moscow, teaching two module courses (eight hours) a week. one financial officer and one finance committee.
  22. 22. Foundations and PreparationsAt this time, as noted above, we were continually revising our traveled with greenbacks or travelers checks in our wallets.budget proposals upward. In fact, neither Makarov nor I had A 4 percent charge applied to the cashing of travelersa clue at the beginning about how much money we might checks. Even later when a bank account for NES could beneed and how much to request. The early budget proposals opened, transfers took much time to complete and oftenthat we sent to Soros were judged by Roman Frydman as came late. During the financial crisis of September 1998,too small; Soros himself took exception to the expanded NES emerged with comparatively small losses, aboutrequests that we prepared later on. In hindsight, it is clear $ 25,000, due to the bankruptcy of Dialogue Bankthat we were too modest; thus, we set our initial benchmarkmuch too low, making the subsequent financial struggle Reporting on the budget situation to the Soros Foundationmore difficult than it should have been. Visiting professors’ people was haphazard; I spent hours with the financial officersremuneration was determined on the basis of that paid to in New York checking figures. Even if I state that NES mayvisiting professors at the Central European University (CEU) have overspent its budgets significantly during that early periodin Budapest, another institution also supported by Soros. We and probably up to the end of the 1995/96 academic year, itfound, however, that it was more difficult to attract professors reflected mostly my personal impression. Not until autumnto Moscow than to Budapest. Soros insisted that salaries be 1994, when we hired Oxana Budjko away from the Israeliset at a level that would not make them the main attraction. Embassy, did NES begin to manage its finances independently.Also as instructed by Soros, all travel, with few exceptions, After starting out with administrative responsibilities, Oxanawould be economy-class. We also under – budgeted the also gradually took over all budget and financial matters untillibrary, computer labs, and equipment. The total dollar budget she became NES’s legendary CFO, a position she holds to thisthat we requested at the end for the preparatory period day. Her appointment turned out to be one lucky long-termand for the first two years of operation was $720,000. As it move among others at NES that contributed to the School’sturned out, we spent significantly more during this period. success. Apart from the massive learning that she had to do – and did – she quickly showed that NES’ finances hadIn the early years, the dollar budget was managed directly been placed in the hands of a conscientious and absolutelyfrom the offices of the Soros Foundations (SF) (which honest person who was dedicated to the institution andassumed different names over the years) in New York. provided a solid base for sound financial Management.Although the SF had an office in Moscow (the “CulturalInitiative”) with which we had some relations, NES belongedall along to a division of the SF that supported institutions Countdown: six months leftof higher education (eventually evolving into the HigherEducation Support Program, HESP). Running the budget The chronology reverts to the April 1992 meeting. When itfrom New York meant that I would have to defend every adjourned, there remained only six months before classespayment by sending the office in New York a fax (or, were to start. Much had to be accomplished, most notably, thelater, an email message) with support documentation. recruitment of officers, students, and teachers. The RussianMost payments from the dollar budget could be made partners took the admission process upon themselves but Zvioutside of Russia with no problem, but payments in Russia took part in setting the admission threshold. Zarema Kasabieva,were a completely different matter. Some of us, visitors, then a doctoral student at CEMI, was appointed dean of students 25
  23. 23. Foundations and Preparations takes place in July, after the high-school exams. Applicants came in response to notes posted on the bulletin boards of the relevant faculties of leading universities in Moscow, by word of mouth in academic circles, and through a summer school run by the London School of Economics and Amos Witztum, whom we had also hired for the first two modules of teaching. Uncertainties were high, but on September 1 fifty-two students who were admitted after the entrance exams showed up for an intensive three-week English course. This made it necessary to hire a group of English teachers and write a program of studies. We contacted the American Council of Teachers of Russian (ACTR)13 in Washington, D.C., which also specialized in teaching English as a second language. ACTR president Dr. Dan E. Davidson and his staff provided NES with programs, furnished lists of materials and books, and put us in contact with the one office in Moscow that administered TOEFL exams. Our first and second classes took the TOEFL exams in that office. In later years, our English teachers composed TOEFL-like exams from older tests for admission purposes and interested students took the real TOEFL individually as they prepared for study in the West. Recruiting the First Visiting Professors was mostly the responsibility of the IAB members. It so happened that the first two visiting teachers at NES were Israeli: Zarema Kasabieva, 1994 Amos Witztum, a graduate of the Hebrew University then situated in London, and Don Patinkin, the founder of modern economics in Israel and the Department of Economics at the and managed the process with help from others. Zarema is still Hebrew University, already emeritus in 1992. Amos, who with NES, now as vice dean for academic and student affairs, had considered becoming a stage actor before turning to an one of a handful of dedicated leaders who made the NES project academic career, was an exemplary teacher, as was Don. Amos possible and successful. There were many other unknowns: how to advertise? Where? Would students apply? How many? 13 Today it goes by the name of American Councils for26 “When” was a simpler matter; in Russia, university admission International Education, ACTR & ACCEIS.
  24. 24. Foundations and Preparationswas already involved in projects in Russia and continued inthose capacities after two years of teaching at NES.14 Patinkin’senlistment was symbolic given the similar role he had playedin establishing modern economics in Israel in 1948, a coupleof generations before. It was also useful as a persuasion toolto convince teachers to come to Moscow, “if it is O.K. forPatinkin…” Thus, the significance of NES’ inaugurationtranscended the availability of two excellent teachers; it also gaveextra weight to the role of the Hebrew University as a partner.Indeed, many teachers from the Hebrew University and otheruniversities in Israel came to teach at NSE in subsequent years.At the time, we also imagined that the Hebrew University wouldadmit NES graduates to PhD studies. This has not come to passthus far, mostly because of the language barrier.15 The Universitydid, however, enroll five or six teachers and second-year studentsat NES in its annual summer workshop on economic theoryat its School of Advanced Studies (chaired for many years byKenneth Arrow). The first group, including members of CEMIand future teachers at NES, attended the workshop in June1992, before NES opened.16 These visits, centered in Jerusalem,also gave me an additional opportunity to meet and talk withNES (near-) graduates, boast about NES’ achievements, andincrease its international visibility among leading professorsand select graduate students from around the world.In recruiting the many teachers at NES who came fromIsrael, as well as the others, much of the work was done by14 Amos came twice for an entire semester, once with his wife and Zvi Griliches, 1994 two small children. In later years, he became one of the founders and then a major player in the establishment of the International College of Economics and Finance (ICEF), an English-speaking Zvi Griliches and, later, by Barry Ickes (see below) and other college of economics that belongs to HSE and is sponsored by LSE. members of the IAB. Many teachers who came to NES once15 One graduate of NES came to Jerusalem to work on a PhD. were willing to come again – many did come, some more but had to return to Russia before actually enrolling.16 The program was discontinued in 2004 for budgetary reasons than twice – and all of us received inquiries and expressions (the total cost was around $5,000 per year) – something I of interest about coming aboard. During this first phase of regretted but understood – but was renewed in 2009. activity (up to 2004), more than 100 visiting professors from 27
  25. 25. Foundations and Preparations more than a dozen countries taught at least one module no longer afford their services. Ultimately we managed, but at NES, a quarter among them from universities in Israel. not without incidents and tension between the NES staff and (See a list of visiting professors in the appendix below). the visiting professors.17 All along, NES maintained a supply Many were motivated to enlist by the excitement of the of three or four rented apartments; over time, their quality transition that Russia was undergoing, the high quality of improved, the doorkeepers reappeared, and some leases the students, and the atmosphere that NES had established. became long-term. As the general conditions in Moscow improved, we also gave up the drivers (except for travel to As exhilarated as they were about participating in Russia’s and from the airport) and the shopping and cooking services. transformation, the visiting professors needed a place to At NES, the visiting professors received offices equipped stay and a way to survive in an environment of shortages, with computers, Internet connections (from the second or very few adequate stores, almost no restaurants, and bad third year), and telephone lines allowing international calls. public transportation (with the exception of the very efficient but English-unfriendly Metro), crowned by their lack of proficiency in Russian (with a few exceptions). The few good Textbooks, Journals, Library, and Computers hotels being extremely expensive, the only reasonable way to deal with the matter was by renting apartments; hiring The selection of textbooks to be used in the main courses housekeepers to take care of shopping, cooking, laundry, and was made in consultation with the incoming teachers. It was cleaning; and making special transportation arrangements. decided to distribute copies of each textbook to every student (on loan). Teachers also brought with them copies of required We were lucky to be able to rent the two first apartments in a journal articles, which we photocopied and distributed to well kept and guarded building that belonged to the Russian every student. Lists of books and journals to be ordered as a Academy of Sciences, not far from CEMI, and even had a base for the NES library were compiled. Orders were placed restaurant downstairs. Unfortunately, we had to surrender the with distributors abroad, Moscow having no distributors at flats at the end of the first semester as the relationship between the time and few even later. Receiving shipments in Moscow NES and the academy soured. With private real-estate services was fraught with problems including lengthy waits at customs just being established and not very reliable, we had to look offices and sometimes high duties. Thus, many of the books for apartments mostly through personal contacts or even by were imported in the suitcases of IAB members and visiting posting notes in entrances of apartment buildings. Modern, professors. At first there was no room for a library – all we Western-style apartments used by diplomats and executives had was a bit of storage space at the rector’s office – and no of international organizations were far too expensive for us. librarian. In July 1993, when we obtained the use of a small While many lower-quality apartments were acceptable inside, room, we hired a librarian, Karina Ter- Akopian, an urban the public areas surrounding them (staircases, elevators, archeologist and an expert on Moscow, who changed her corridors) were utterly neglected in most cases – one glaring example of the attitude toward public property under 17 In one case, we found an apartment with a doorkeeper at the last Soviet Socialism. An additional problem was security: most minute as one professor threatened to cancel his participation. I dejournayas – doorkeepers from the Soviet era – had been tried to establish the custom of laying in a bouquet of flowers and28 released by the tenants, who either did not appreciate or could basic supplies ahead of every new arrival but it didn’t always work.
  26. 26. Foundations and Preparationscareer, put a substantial effort in training in her new calling, informal courses and through self studies. Her commitment tothe library compensated for much of the formal training gaps.Karina worked hard for many years to develop the library, toput it on an electronic basis by building an electronic catalog,assembling a collection of electronic data, expanding its spaceand equip it with computers and search tools. Eventually thelibrary became the best economics library in Moscow withbooks and, especially, economic journals (some forty titles). In2002 Karina resigned and a new team of librarians took over.After her retirement Karina was ready from time to time totake visiting teachers and other guest of NES for walking toursaround Moscow, and we are deeply thankful to her for this.The story of the library has a sad follow up. After two years ofteaching at NES (one module per year), Don Patinkin fell illwith recurrent cancer and died a few months later, in March1995. His widow, Devora, donated part of his large library inJerusalem to NES. The NES library was named subsequentlythe Don Patinkin Library in his memory. Several additionalprivate collections, especially of back issues of main journals,further enriched the library over the years; one came fromthe library of Zvi Griliches after his death in April 1999. Don Patinkin, 1993.Modern communication in Moscow hardly existed in 1992.Electronic mail was very weak and unreliable, Internet serviceshardly existed, and telephone lines were bad. Our first fax and printers for the administration and a dozen computers formachine (“the main nerve center,” Barry Ickes called it) was students’ use. We then set up a computer department and acarried in as luggage from Israel but sending a fax was another lab equipped with search computers and in-house software.matter. Kate and Kim the two first office managers at NES, bothAmericans struggled to keep telephone and fax working and thevisiting professors stood by these machines praying that they Offices and Administrationwould work. A first photocopier was leased locally. With nolibrary in the first year, students depended on the copier for their Most governance and administrative positions at the fledglingreading materials, making the machine into a major bottleneck. NES were assigned to CEMI people: Alexander Friedman asIt took several years to overcome these technical constraints. Vice Rector, Evgenia Telegina as Vice Rector for Finance andWe used the hard-currency budget to buy a few computers Development, and Zarema Kasabieva as Dean of Students. 29

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