Russian Economic Reform

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The Search for Russian Innovation

Published on June 11 2011
Posted by: jeff

The leaders of Group 5 gave a Power-Point presentation to a joint-meeting of the leaders of all groups on 26 May. The presentation was basically divided as follows: challenges and constraints; imperatives, aims and tasks of innovation policy; scope of innovation policy (including formation of favorable institutional environment); “cross-roads” (including possible ways forward for Russia, model innovation policies, sectoral priorities and models, and functional priorities); package of measures for adjustment to a more innovative Russia (including increasing demand for and “supply of” innovation, science reform, developing innovation infrastructure, intellectual property, overcoming shortage of personnel, involving society in innovation).

Jeff says that ….

(There are some quite interesting tables in this presentation of alternative ways forward – indeed, possibly quite “innovative” tables. Apart from this table approach, I have heard most of these arguments about how to promote innovation many times before – and some of them sound like the usual special pleading. On the other hand, parts of Russian education, management and thinking still seem to be stuck in the Dark Ages, so many of the suggestion are probably worthwhile. I have recently read several articles on China’s search for a good “innovation formula”, and it seems all is not going as well as hoped. A couple of companies — “Huawei Technologies” and “ZTE” got a mention as being “improvers” rather than the sort of dazzling “innovators” that China wants and Group 5 also wants for Russia. It would be good if some people with much more “innovation” knowledge than me could make some comments!) 

A.   Introduction and Backgound 

According to Group 5, the main challenge is to make Russia more than just a supplier of natural resources and a market place for global companies. At present, the share of high value added products in Russia’s export is insignificant and continues to fall. Russia is an advanced country with educated population and a reasonably high standard of living and GDP per capita. But the risk is a fall in the standard of living when prices for natural resources fall. This risk can reduced by a closed economy of the Soviet type or by opening-up the economy to the international chain of value-added at all levels. The first (Soviet type) is not an option, so the challenge is to find ways of doing the latter.

It is imperative to cross-over to being an innovation economy in conditions of globalization, and to develop an integrated innovation policy.  But this is not compatible with elements of existing policies. For example, there is no innovation orientation in the administration of tax concessions, customs rules, or government purchasing. An innovation policy should aim to change the “quality of economic growth”.

Issues covered include: Formation of favorable institutional environment; Framework of conditions for supporting market competition and innovation; Providing macro-economic stability; Reduction of administrative barriers to entry to markets and development of “start-ups”; Liberalization of the market for intellectual capital; Reducing uncertainty attached to innovative projects (insurance risk, concessional credits); Taxation policy favorable for innovative activity and longer-term growth; Development of mechanisms of private-public partnerships (PPPs); Forcing government companies to innovate; Access to external resources for “early stages of innovation cycle” (“venture capital, business-angels, seed-capital, financing start-ups”)

B.  Russia is at a “Cross-roads” !!

According to the Group 5, Russia is at a “cross-roads” and needs to decide whether it takes the “Progressive” path or sticks to one of “Inertia”. The following tables summarize their views about these paths. 

 Cross-road  “Progressive” variant  “Inertia” variant “Protest” groups (against “progressive variant”)
 Education Radical change in education program, systems engineering and science degrees, focus on “elite” technical education Mild education reform Depressed part of profession-teaching, scientific-technical intelligentsia
Institutions  Create conditions for development of innovation Hands-on management of the economy and innovation State bureaucracy at various levels
Science Open program fundamental research, orientated to supporting  best Mild reform of science, parallel growth of alternative scientific structures Uninterested part of scientific community
Innovation policy Focus on new markets, support “breakthroughs” Focus on traditional industrial markets, support innovation that “improves”  Industrial lobby
Legislation Radical reform of corporate legislation, truly independent courts, restrictions on the rights of power agencies, introduction of precedent law Mild reform of corporate legislation within the framework of traditional law “Siloviki” (ie existing and former security agency officials and their like)


Possible paths from the “cross-roads”:  

“Inertia” Model “Progressive” Model
Supporting individual technologies and innovation projects within a framework of established priority areas;Detailed decisions at high level;Tough hierarchical and organizational politics; Universal implementation Stimulation of mass innovation in all sectors of the economy;Creation favorable environment for innovative companies, unfavorable for non-innovative; Redistribution of power in favor of the Regions, development institutions, business associations;Develop networks of co-operation at all levels;Different implementation according to sector and type of innovation
Markets Markets
Continue priority support of high-technology sectors of the preceding “technological wave” (ie aircraft construction, atomic energy etc) Priority support for “new technology wave” sectors and entry into growing markets (ie “new” high-tech, service sectors, “green growth”);Assistance developing innovation in low-tech sectors; Support non-technical innovation
Priority/criteria Priority/criteria
Stress on political arguments when taking decisions on innovation;Priority themes Technological and non-technological innovation for increasing economic efficiency extraction of additional value;Social priorities – “innovation in the interests of society”, inclusive innovation;Functional priorities (engineering, design, transfer of technology, networking, training)
Science Science
Detailed decisions on future of major  institutes Integrated reform in association with evaluating the results and activities of organizations
Training people Training people
“Situational” adjustment program preparing professionals in accordance with the needs of the economy Substantial changes to education programs; intensive development of professional skills


Model innovation policies from the possible paths from the “cross-roads”:  

“Inertia” Model “Progressive” Model
Support separate technological and innovative projects within the framework of established priority areas; Detailed decisions at high level Stimulate mass innovation in all economic sectors; Creating favorable environment for innovative companies, unfavorable for non-innovative 
“Protest” groups “Protest” groups
SMEs, basis sector of mass innovation Parts of bureaucracy dependent on maintaining status-quo;Beneficiaries of targeted support
Implications Implications
Positives:    Support and development of separate sectors; Growth in scale and level development of institutional science                                             Negatives:    Conserving a low level of innovation activity; Impossibility of reducing the leading edge lag from developed countries; Outflow from country of new technology and qualified personnel; Growth in economic imbalances Positives:      Favorable environment for innovative developments; Removal of barriers to development of organizations and individuals (consumers, producers, investors); Implementation of a innovation policy with uniform (and balanced) principles for all participants; Appearance in Russia of representatives of all types of innovators (small innovative firms, big companies – technological leaders etc); Improved national innovations system, construction of a modern type of economy; Securing a stable economy.                                  Negatives:  Delayed results        


Models of sectoral differentiation innovation policy:  

Model Emphasis Sector
Increased competitiveness and export potential of high-tech sector Development and introduction of leading technology, support for IP, high-tech exports  Aircraft construction, space and defense-industry complex, atomic energy
Formation of new markets for high-tech products and services, development of new industries, production technology for modernization in a widening circle Development of a many “breakthrough” technologies, interdisciplinary research, new regulatory standards, stimulation of demand   Nano-industries, bio-industries and medical technologies, IT sector
Dynamic modernization of sectors with flat organization structures Adaptation and dissemination of individual modern technologies, improved sector regulation, engineering services, import of technologies and technical capacities Agriculture, construction and manufacture of production materials, light industry
Technological modernization of social sector and infrastructure, sectors, widening spectrum of social services  Development of own technologies, adoption of latest foreign advances, procurement for State needs.  Electronic government, medical services, road construction, transport services
Increased productivity, ecology friendly, lower energy intensiveness, widening distribution in natural resources sector Introduction of more accessable technologies , technical regulation, ecology friendly standards Oil-gas sector, coal mining, metals, forestry


Functional priorities 

Group 5 says that various facilities and capabilities are needed to overcome the gaps in the innovation cycle: 

Centers for prototyping, design, engineering, including with leading educational institutions Assistance for training management in design and engineering
Support for training of young researchers, teachers, engineers, managers in large foreign and Russian companies, universities, science centers Network of centers of science-technical information and predictions by leading educational and scientific institutionsNetwork of centers for the transfer of technology (technology brokers)
Centers of technical assistance for small business education and scientific institutions Assistance by way of developing business associations


 National infrastructure standards, certification and measurement are also needed.

C.   Packet of Measures for Adjustment

(a) Increasing demand for innovation

Strengthening innovation activities of business and receptivity to innovation:

(1) Government purchasing: move to actively and systematically stimulate innovation in priority areas

(2) Direct support for market demand: targeted encouragement of leaders through subsidized purchase of leading technologies and taxation incentives

(3) Indirect support demand: created mechanism for the spread of “best practice”, including system of informing business about the possibilities of applying “innovation”

(4) Regulation: stimulate modernization of production using energy efficient and ecology friendly equipment, increasing quality and safety standards.

(5) Systemic implementation: create “innovation lifts” via innovation in large infrastructure projects, public-private partnerships, and support growth in “territory innovation development”

(b)  Supply of innovation

Increasing the supply of “competitive” innovation by:

–Improving what innovation and invention it has on the basis of production experience;

–Importing ready technology (eg equipment);

–“Localised” innovation in production (eg import components for assembly)

–Developing its own “full innovation cycles”.

If Russia is to have “full innovation cycles”, it has a choice between:

(1)   Individual and detailed decisions on institutional framework, which includes:

-Separate centers of excellence (R&D, national research universities etc)

-New “alternative” education, of the Skolkova type

-Boost support for educational institution science

-Compel state companies to increase expenditure on innovation

-Development co-operation (between educational institutions and business; technology platforms)


(2) More comprehensive reform of the science sphere coupled to evaluation of the results of the activities of organization, which includes:

 -Evaluate the results (according to international best practice) and support the best

-Programs to increase the competitiveness of scientific teams in achieving “breakthroughs”

-Restructuring science in the state sector

-Increase support for science in education institutions (temporary moratorium on widening the circle of leading universities)

-New model of science (elimination of lobbying for “narrow interests”; open national program of fundamental research; strengthen competitive financing; growth in the share of science financing) 

-Use “stick and carrot” approach to company spending on innovation (design, investigation, technical regulations, standards, tax concessions and government spending)

-Support networking

(c)  Developing innovation infrastructure

Choices are between:

(1)   Detailed state involvement, including:

Renew “innovation cycle” inside and around large companies under close cooperation with scientific centers.

This will be most effective when supporting innovation activities of big companies (such as in the in fuel and energy sector, atomic energy, space sector, and military-industrial complex).


(2)   Systematic reorientation of priorities.

Creation of an innovative entrepreneurship, including:

-Create conditions for mass business innovation

-Construction of an “open” system of transferring technology

-Providing wide SME access to scientific laboratories and experimental areas, etc

-Better IP defense and access needed 

This approach will be most effective in such sectors as nano-technology, medicine and pharmacology, bio-technology, information technology, agriculture.

(d) Overcoming the deficit of personnel

Once again, according to the Group, Russia is presented with a “choice”.

In this case, it is between and education system that involves “situational adjustment of program preparing professional personnel in accordance with needs arising in the economy, and, one that involves “significant change in educational program; intensified development of professional knowledge and skills”.

The first choice has the advantage of being less expensive and socially disruptive. Its disadvantages are its concentration on skills needed by “state policy” rather than those needed in an innovative economy. It is also an inefficient use of state funds, and likely to result in a continued outflow of innovative young people from Russia.

The second is likely to have “social costs”, but it will overcome the shortage of qualified personnel and will help develop an “innovation culture” orientated to the world.

(e) Including society in innovation activity

Socio-cultural aspects of developing the innovation environment

Inclusive innovation

Measures to increase access to the internet etc of business and the public, including in the Russian regions

Developing social perception of innovation

Promoting certain scholars, teachers, businesspeople as  “heroes of our time” in order to get a “positive ideological influence”, as well as programs to push stories of the “history of success” in “all categories of innovation”.

Promoting innovation as a social responsibility