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The Skolkovo Institute of Science and Technology, shown here in an artist's rendering, was formed by the Massachusetts Institute of Technology and the Russian government and is currently under construction outside Moscow. Courtesy: Herzog & De Meuron/Bloomberg Markets

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The Skolkovo Institute of Science and Technology, shown here in an artist's rendering, was formed by the Massachusetts Institute of Technology and the Russian government and is currently under construction outside Moscow. Courtesy: Herzog & De Meuron/Bloomberg Markets Close

The Skolkovo Institute of Science and Technology, shown here in an artist's rendering, was formed by the... Read More

Photographer: Anastasia Tsayder/Bloomberg Markets

MIT rocket scientist Edward Crawley is the first president of Skoltech, as the school is called. Close

MIT rocket scientist Edward Crawley is the first president of Skoltech, as the school is called.

Photographer: Anastasia Tsayder/Bloomberg Markets

Russia's fourth-richest man, Viktor Vekselberg, is president of the Skolkovo Foundation, which is developing Skoltech with MIT. "Russia has beautiful ideas but very poor commercialization," he says. Close

Russia's fourth-richest man, Viktor Vekselberg, is president of the Skolkovo Foundation, which is developing Skoltech... Read More

During the Cold War, scientists working at the laboratories of the Massachusetts Institute of Technology produced ideas and inventions, such as distant early-warning radar and satellite-tracking systems, designed to help the U.S. prevail over the Soviet Union.

Today, MIT is working with the Russians rather than against them.

Just 20 kilometers (12 miles) from the Kremlin, rising from a field once used for agricultural experiments, the Skolkovo Institute of Science and Technology will have a curriculum designed by MIT and financial backing from the Russian government, Bloomberg Markets will report in its June issue.

More from the June 2013 issue of Bloomberg Markets

The school--nicknamed Skoltech--which will offer graduate degrees only and teach in English, will serve as the centerpiece of an 85 billion ruble ($2.7 billion) innovation hub funded by the Russian Ministry of Finance. Russian officials say they’re aiming to create tech startups and lure corporate research laboratories with tax breaks and relaxed visas and customs regulations. International Business Machines Corp., Microsoft Corp. (MSFT) and Siemens AG have already agreed to locate there.

‘Beautiful Ideas’

“Russia has beautiful ideas but very poor commercialization,” says Viktor Vekselberg, the billionaire who’s president of the Skolkovo Foundation, which is developing Skoltech. Vekselberg, 56, earned a Ph.D. in mathematics from the USSR Academy of Sciences before amassing a fortune in the oil and energy sectors that the Bloomberg Billionaires Index valued at $14.6 billion on April 15. “We are very concerned that Russia today is not able to create a serious pipeline of innovative projects,” he says.

The foundation says it has recruited 52 venture capital firms to the Skolkovo Innovation Centre, which was founded in 2010.

MIT, which already has programs in Abu Dhabi, China, Portugal and Singapore, sees advantages as well. Skolkovo will give it access to the most-promising scientists in a country where it has had little contact, says Leo Rafael Reif, MIT’s president.

“There is a tremendous amount of talent there,” Reif, 62, says. “It is really an incubator.”

Expanding Abroad

MIT is one of scores of U.S. schools expanding around the globe. There were 83 international branch campuses of U.S. universities as of March, not including partnerships such as MIT and Skolkovo’s, according to GlobalHigherEd.org, a website run by researchers at the State University of New York at Albany. That number has climbed from 10 in 1990, says Jason Lane, a SUNY Albany professor.

The result may be a higher education bubble--with too few qualified or interested students--in regions such as the Middle East and China, says Philip G. Altbach, director of the Center for International Higher Education at Boston College. He cited Michigan State University, which closed its undergraduate campus in Dubai in 2010 after failing to attract enough students. (It reopened with graduate programs in 2011.)

“The U.S. universities involved have come out with significant egg on their face,” he says.

There can also be pitfalls to expanding into countries that have different concepts of political and academic freedom from those in the U.S., some elite schools have learned. Yale University’s joint venture with the National University of Singapore, where classes are scheduled to start in August, led angry Yale faculty to pass a resolution urging the school to respect civil liberties.

Silencing Criticism

Singapore’s government censors the media and uses the courts to silence criticism of the regime, according to New York-based Human Rights Watch. Yale-NUS has adopted policies of non-discrimination consistent with Yale’s and will protect freedom of expression, the college said in an e-mailed statement.

At Johns Hopkins University’s 27-year-old venture with Nanjing University, police monitor Internet usage, according to Jan Kiely, a former co-director of the campus. Chinese law permits the government to monitor all Internet activity, and the campus isn’t exempt, says Dennis O’Shea, a university spokesman.

Under President Vladimir Putin, Russia’s government has cracked down on critics ranging from newspaper owner Alexander Lebedev to punk rock group Pussy Riot.

Scientists Arrested

Professors are also in jeopardy. Since 1998, more than a dozen Russian scientists have been arrested, most of them engaged in collaborations with foreign academics, according to Igor Sutyagin, a London-based defense analyst and former researcher at Moscow’s Institute for the U.S.A. and Canada Studies who himself was jailed for 11 years. That should give MIT pause, he says.

“They should know they risk their own people and they put in danger the Russians who work with them,” says Sutyagin, who says he was arrested for passing material about the Russian military that was in the public domain to a U.K. firm that was accused of being a cover for U.S. intelligence services.

He eventually signed a confession in order to be included in an exchange of spies with the U.S. and was released in 2010.

Vladimir Kara-Murza, a member of the Coordinating Council of the Russian Opposition and a Putin critic, says Skoltech merely serves as propaganda.

‘Lending Legitimacy’

“MIT is lending legitimacy and a cloud of respectability to an undemocratic regime,” Kara-Murza, 31, says. “They should fully understand what they are supporting and what they are doing.”

While Reif, a Venezuela native who holds a Ph.D. in electrical engineering from Stanford University, says he is troubled by some of what he reads about Russia, he adds, “I don’t get involved in the political issues.”

Politics and science have historically been intertwined when it comes to Americans and Russians. The Soviets’ 1957 launch of Sputnik, the world’s first man-made satellite, triggered U.S. anxiety about falling behind the rival superpower. Congress passed the National Defense Education Act in 1958, increasing funding for scholarships, research grants and the teaching of high school math, science and languages.

Since then, Soviet leaders have neglected their educational system, says Harley Balzer, a Georgetown University professor who writes about higher education in Russia.

“The Soviet system was inefficient and was riddled with corruption,” he says. “In the 20 years since the end of the Soviet Union, it’s just gotten worse.”

Reputation Poor

While Russia still produces skilled graduates in math and science, its reputation for world-class research is poor. Until recently, faculty were rewarded for publishing in journals sponsored by their universities instead of international peer-reviewed publications, Balzer says.

In 1997, Russian scholars published roughly 32,000 journal articles--comparable to their Chinese peers, according to Scopus, a citation database owned by Reed Elsevier Plc. By 2012, China had increased its research output to 386,152 articles, making it second in the world behind the U.S., with 527,549, while Russia published only 38,102.

Russian international patent applications follow a similar pattern. After being roughly level with China in 2000, when it had 23,377 patent applications, Russia had just 26,879 in 2011, compared with China’s 415,829, according to the Geneva-based World Intellectual Property Organization.

Modernizing Economy

After the global economic crash in 2008 showed Russia’s vulnerability to commodities price swings, then-President Dmitry Medvedev announced a plan to modernize the economy.

“Twenty years of tumultuous change has not spared our country from its humiliating dependence on raw materials,” Medvedev wrote in an article published on the president’s website in 2009. “Our current economy still reflects the major flaw of the Soviet system: It largely ignores individual needs.”

Medvedev recruited Vekselberg, Russia’s fourth-richest man, to head the Skolkovo Foundation. Russian officials approached a dozen or so top research institutions about setting up a university, including the California Institute of Technology, ETH Zurich, Imperial College London and Stanford, says Alexei Sitnikov, Skoltech’s Stanford-educated vice president for institutional and resource development.

The association with MIT will tempt Russian students--many of whom head abroad for their graduate studies--to stay home, says Vekselberg, who used some of his fortune to buy and repatriate a collection of Czarist-era Faberge eggs from the estate of Malcolm Forbes.

Name ‘Useful’

“The name MIT is very useful,” Vekselberg says in accented English, wearing a pink button-down shirt with a “V.V.” monogram embroidered near the waist. “If MIT is here, people feel comfortable.” The degrees will be conferred by Skoltech, not MIT.

MIT’s involvement helped convince Yuri Shprits, a Russian-born geophysics researcher, to leave the University of California, Los Angeles for a job teaching and doing research at Skoltech.

“The fact that MIT was behind this, that I found MIT faculty actively involved, is what gave me confidence,” says Shprits, a naturalized U.S. citizen who studies the effects of the earth’s radiation belts on satellites. “It’s clear that it will be a top-ranked graduate school in Russia and we will be able to select the best graduates from Russian universities.”

Nobel Prizes

Since its founding in 1861, MIT claims its faculty, staff and alumni have won 78 Nobel Prizes. It’s also one of the world’s richest universities, with an endowment worth more than $10 billion as of June 30, 2012.

While MIT began forming international alliances decades ago, the process accelerated under Reif, who was the school’s provost for seven years before becoming president last year. In 2007, MIT helped found the Masdar Institute of Science and Technology in Abu Dhabi, part of a $19 billion hub of research in renewable energy.

In Russia, the Skolkovo Foundation is paying MIT $300 million for its participation in the university, Vekselberg says. That involvement includes designing the university curriculum and research programs and providing visiting faculty. Skoltech’s first president, rocket scientist Edward Crawley, 58, is an MIT professor on long-term leave.

Crawley, who signed a five-year contract, says Skoltech aims to have hired 30 to 35 professors by the end of this year and plans on adding about 30 more annually until the faculty reaches 200 at the end of the decade.

Setting Culture

“The first five or 10 or 15 people get to set the culture,” says Crawley, who studied in Leningrad as an MIT undergraduate in 1975 and speaks Russian. “It’s the thing that long endures.”

When fully staffed, the school will teach more than 1,200 graduate students, he says. A dozen of Skoltech’s first 20 students are spending a year at MIT in Cambridge, Massachusetts, while they wait for the Moscow campus to be completed.

Nikita Rodichenko, who is scheduled to graduate from Skolkovo in 2015 with a master’s degree in information technology and computer science, says he’s been impressed by the hands-on experience and industry focus in his courses at MIT. In a class teaching students to evaluate concepts in biomedicine, he did due diligence on real proposals being considered by venture capitalists, he says.

“I am exploring the possibility of doing entrepreneurship in Russia,” Rodichenko, 24, says. “I have ideas of what I want to do, and I need ideas about how to do it. That’s what I want from Skolkovo.”

Stem Cells

Skoltech and MIT are creating up to 15 research centers where scientists from Skoltech and international and Russian universities will collaborate. The centers will each receive as much as $60 million--out of a total research budget of $675 million--over five years.

In the first such hub, announced in April, Skoltech scientists will team up with researchers at the N.I. Vavilov Institute of General Genetics in Moscow and the University of Groningen in the Netherlands to study stem cells. Other centers will investigate infectious diseases and electrochemical energy storage.

Crawley says the focus on commercial research will protect faculty from running afoul of Russian regulations regarding espionage. Because the university won’t be engaging in classified military research, its professors won’t be in jeopardy, Crawley says.

‘Open Publication’

“We’re only going to do things that have open publication,” he says. “It’s not our intent to deliberately go into militarily sensitive or strategically sensitive fields.”

Skolkovo’s focus on research with commercial applications has drawn corporations such as Microsoft (MSFT), which will have 140 software engineers in Russia when it relocates to the Skolkovo research center in 2015.

Microsoft had been looking for ways to help spur enterprise in Russia, says Alexey Palladin, a Russian-American who relocated from the software company’s headquarters in Redmond, Washington, to head its efforts at Skolkovo.

“What’s missing in Russia is the angel community,” Palladin says. “When kids come up with a concept and need $10,000, $30,000, they don’t know where to come up with the money.”

Microsoft has given out more than $1 million in seed funding to 25 companies in Russia, he says.

As Crawley sees it, Skoltech, too, is just another fledgling enterprise.

“This is a startup like any other startup, and the most important thing is time to market,” he says. “We can only sustain it if we’re successful, and the real question is how quickly we can be viewed as successful.”

Demonstrating Value

Skoltech is working on projects with immediate impact, such as improving undergraduate science education in Russia, in order to demonstrate its value to the government, he says.

Skolkovo’s image may be tarnished by a probe into corruption by the State Investigative Committee. Two former foundation officials are accused of stealing 23.8 million rubles, and the foundation’s offices were raided by police on April 18. The foundation is cooperating with the investigation, according to spokesman Roman Shcherbakov. Crawley says Skoltech’s work won’t be affected by the probe.

International prestige is one of Russia’s goals for Skoltech, much like its hosting of the 2014 Winter Olympics, says Vladimir Gel’man, a political science professor at the European University at St. Petersburg. Unlike the Olympics, he says, the university will need support from politicians for decades before it can become a world-class educational institution.

Otherwise, Gel’man says, “we will build some large buildings, but I doubt they will be very useful.”

Although Medvedev is no longer president, Vekselberg says Putin remains behind the project, despite his December veto of a bill that would have expanded the special freedoms from regulation that Skolkovo enjoys. Vekselberg says he wants the hub to be self-sustaining within five to seven years through endowment funding, corporate research grants and venture capital.

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“I would like it to evolve without government money,” he says. “When it works, we won’t be needed anymore.”

-- With assistance from Henry Meyer in Moscow and Michael Novatkoski in Princeton. Editors: Laura Colby, Rick Levinson

To contact the reporter on this story: Oliver Staley in London at ostaley@bloomberg.net

To contact the editor responsible for this story: Laura Colby in New York at lcolby@bloomberg.net or Lisa Wolfson in Boston at lwolfson@bloomberg.net.

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