Hundreds of Russian students are studying in Ph.D. programs in economics abroad, but as far as we know, only three Russians who received Ph.D.s from recognized institutions abroad have returned home. The situation is not very different in the Baltic states, and in Southeastern Europe, not to mention the rest of the CIS. Poland has had greater success than other transition economies in repatriating students who studied abroad, but very few, if any, returning students are pursuing academic careers. Only a few institutions in the Czech Republic and Hungary have been able to repatriate substantial numbers of talented young people.

The lack of domestic capacity in social sciences, education, and research generally, and in economics in particular, is very serious in the transition economies. The shortage is particularly noticeable in public policy, but it also exists in business and in academia, where future leaders are trained.

Policymakers need the capacity to think independently and critically, analyze the consequences of reform programs, and understand the strengths and limitations of foreign advice and the theories underpinning it. The need to build environments that can generate such understanding is even more critical in the later stages of transition when political institutions have to be fine-tuned, the rule of law established and defended, and complex social reforms designed and implemented. Countries in the region need better universities, better research institutions, and better think tanks that can support the policy process.

In this article I want to share some experiences we have encountered trying to reverse the brain drain and build the economics profession in the Russian Federation. The most important lesson I learned from several years of policy advice in Russia is that only Russians can reform Russia. True reform requires local bearers of the reform message—not simply megaphones, but individuals with access to their own research capacity and experience. It is encouraging that for the first time such people are at the core of the Russian reform process.

Efforts to build capacity in economics in the former Eastern Bloc have met with mixed results. On the whole, the return on investment has been low. Vast sums have been wasted on programs attempting to reform existing institutions, with very little to show in terms of results. But there are also some success stories. The World Bank recently nominated six "centers of excellence" in education and research in economics. Three are in Moscow, one is in the Czech Republic, one is in Hungary, and one is in Ukraine.

The three Russian centers are the New Economic School (NES), a masters program in economics; the Russian-European Centre for Economic Policy (RECEP), the only academic think tank among the six centers of excellence singled out by the Bank; and the Economics Education and Research Consortium (EERC), a hands-on research grant program. The three Russian centers are highly complementary; taken together they provide most of the essential elements of a successful program in capacity building.

None of the improvements in capacity building in the Russian Federation would have been possible without the establishment of the groundbreaking New Economic School and its high-quality graduate program (box 1). Russia’s premier graduate program in economics—recognized by President Clinton in his recent address to the Russian Duma—was started in 1994 with startup money from George Soros and a number of large primarily U.S. foundations. It is managed by Gur Ofer, of the Hebrew University, and Barry Ices, of Pennsylvania State University. NES now recruits about 60 students every year and graduates about 40 from its two-year program.

In the first few years of operation, most of the teaching at NES was done by Western academics, but in recent years Russians have taken over most of the teaching load. Every year NES sends about 15 of its top students to Ph.D. programs in the West, many of them to top 10 programs in the United States. NES is probably the only program in the world with such a record.

To combat the perception that NES is removed from policymaking, it engages its students in policy-relevant research projects and runs a large number of outreach programs to remote parts of the Russian Federation. Numerous NES graduates work in the government and the financial sector. One of them, Arcade Dvorkovich, is a major author of Russia’s new long-term economic program.

NES has been vital to the success of the Russian-European Centre for Economic Policy, an EU-financed program managed by an international consortium led by the Stockholm Institute of Transition Economics (SITE) (box 2). During the past three years, RECEP has been transformed from a set of short-term policy advice projects run by Western economists to an independent think tank based on academic research undertaken primarily by Russians.

Shortly after it’s inauguration in 1995, RECEP attracted the first three Russians with Ph.D.s from abroad. The recruitment of Russians from abroad was a very important signal to young, aspiring students in Russian academia. RECEP has since consistently hired top students from NES. The center now employs some 25 Russian researchers, 4 resident Europeans, 10 staff, and 15 short-term Western experts.

The achievements of RECEP’s Russian researchers have been the major source of the center’s success. In less than three years these young economists have built the best research environment in economics in Russia. They publish more in leading international journals and have been awarded more research grants (from Russia and through international competitions) than economists from any other Russian institution. Last year RECEP’s Academic Director, Ekatherina Zhuravskaya, a Harvard graduate, won the Young Economists Competition, organized in connection with the Fifth Nobel Symposium in economics, dedicated to transition. The first two Excellence Awards awarded by EERC were won by RECEP staff.

In addition to their research activities, RECEP’s young researchers seek deep involvement in Russia’s reform process, participating in the drafting of policy memoranda for highly placed government officials, for example. The staff is young and fairly inexperienced in terms of policymaking, however, and the Russian bureaucracy lacks experience in how to put RECEP’s skills to work. In the difficult political and economic circumstances of the past three years, there has been very little demand for policy advice. This period has given RECEP’s researchers time to build their institution, but the policy impact of RECEP has been limited until recently. The new government and its attempt to formulate a long-term economic program have opened up new opportunities for the center. Its research is suddenly in high demand, and it plays a role in channeling international research into the program process.

While NES has been vital to RECEP’s success, RECEP also contributes to the sustainability of NES, becoming the single largest employer of NES graduates. Almost all top students that do not leave Russia continue their training at RECEP, conducting policy-related research and offering policy advice. By bringing these young graduates into the policy process and providing them with supervision and high-quality data sets, RECEP also contributes to the legitimacy of NES. Through its policy-related activities, RECEP helps NES in its mission to break in modern economics as an academic discipline and tool for policymaking.

The symbiosis between NES and RECEP is complemented by the Economics Education and Research Consortium (EERC) (box 3). Funded by a Eurasia Foundation–led consortium, with the Swedish government as the major contributor, EERC is a nationwide network supporting research and the training of researchers. The consortium organizes competitions for research grants twice a year and has built a core of some 60–70 researchers from all over the Russian Federation.

EERC provides an important quality standard that serves as a benchmark for research at RECEP and NES. It involves many Western economists and reaches far beyond Moscow. Still, without NES and RECEP, EERC efforts would be much more difficult.

Several lessons emerge from the Russian experience: