Russian Economic Reform

Past Articles on the work of each of the 21 Expert Groups can be accessed here:

National Technology Initiative – “Waiting for High-Tech Tooth-Fairy” !
5

Overview (of full paper)

This paper argues that Russia’s National Technology Initiative (NTI), which aims to boost the country’s future high-tech production and exports, is likely to achieve little and should be severely modified or even abolished. The NTI concept of focusing on selected “new markets” that are expected to exist in 2035 is misguided. Its execution process, particularly the use of the Rapid Foresight methodology, results in recommendations that are banal or vague.

If Russia wants to make serious advances in future high-tech “production”, it needs a technology policy that puts more emphasis on promoting Russian “usage” of presently available technologies. Much technological progress actually flows from the initiatives of “users” of present technologies and the feed-back they give to “producers”.

The threats to Russia from increased multi-country economic/trading blocs/alliances and inaccessible “global value added chains”, used to provide justification for the NTI, are overstated.

Apart from education – which is the only redeeming feature of the NTI – one of the best ways for the Russian government to improve Russia as a high-tech “producer” is to push structural economic reform because increasing competitive pressures encourage organizations to become better “users” of high-tech.

If Russia does not become a better “user” of high-tech, there is a risk that other countries will get greater benefits than Russia from any Russian developed high-tech products. If such Russian high-tech products were actually to be developed using government budgetary funds under the NTI (or any other government program), this would also mean that Russian tax-payers were subsidizing high-tech “users” in other countries.

Irrespective of government policy actions (including the NTI), the rapid pace of technology change and falling technology prices (relative to other prices) means that, at the country level, “users” can easily receive greater economic benefits than “producers” because of improvements in their “terms of trade”.

Reasons for this paper

This paper had its genesis during the author’s participation in the 2016 “Foresight Fleet” (four boats) journey down the Volga River in May. Jointly organized by the “Agency for Strategic Initiatives” (ASI) and the “Russian Venture Company” (RVC), it aimed to consider various aspects of the “National Technology Initiative” (NTI) which is billed as “a program for creation of fundamentally new markets and the creation of conditions for global technological leadership of Russia by 2035”. I found it to be (at least on my boat, the “Global Markets / World”) an intellectually stifling event. The discussion groups on pre-designated topics supposedly produced considered group recommendations. But, they in fact, operated to produce forced recommendations as the generation of output quantity was prioritized over output quality. Talking to the few other foreigners (and quite a few Russians) on my boat, I found considerable agreement with my views. On 21 July, I attended a NTI forum at VDNH.

Conclusion (of full paper)

While the NTI might at first seem an attractive idea, it quickly losses its luster when it is considered in detail. The suggested measures to allow Russia to escape the “resources curse” and diversify its output of goods and services basically come down to using a dubious forecasting methodology to identify future “new technology order” or high-tech “national champions” despite the lack of evidence of advantages, and despite the risks of failure in an era of rapid technological change.

Import-substitution (even if limited to “part of key technologies”) may boost some industries for a time, but the great risk is that lack of ongoing competitive pressure will impede broader “digitization” in the economy and the use of high-tech.

The Rapid Foresight methodology being used to identify trends and new markets is a very simplified version of more “classical” foresight methods – based on the Delphi approach — which themselves are of dubious utility in that they tend toward exposing the obvious. Even if a form of foresight methodology is to be used, the Foresight Fleet would seem to be an unnecessary expense that produces banality, repetitiveness and vagueness.

The “national security” justification for the NTI cannot and should not be easily dismissed. In the view of this author, there is little doubt that proposed groupings such as the Trans-Pacific Partnership (TPP) and the Transatlantic Investment Partnership (TIIP) are motivated by a combination of economic and political aims.US Secretary of State, John Kerry, makes no secret of this: “I have worked from day one to emphasize that foreign policy is economic policy and economic policy is foreign policy. Without a doubt, these trade agreements are at the center of defending our strategic interests, deepening our diplomatic relationships, strengthening our national security, and reinforcing our leadership across the globe. And the importance, my friends, cannot be overstated.” “Even as we seek to complete TTIP and strengthen our bonds across one ocean, we know that our future prosperity and security will also rest on America’s role as a Pacific power. Central to that effort is the adoption of TPP.” (Kerry even related the TPP to events in the South China Sea.) While the TIIP and the TPP may not proceed given the election of Donald Trump as the next US president, the basic motivations described by Kerry will not go away.

However, the election of Trump and the recent Brexit vote in the UK occurred against the great majority of domestic and international corporate opinion, and suggest that some of the NTI arguments about economic/political blocs/alliances with closed “global chains creating additional value” are significantly overstated. Moreover, there is little evidence that China has a particular wish to form or participate in such closed blocs/alliances. China’s “One Belt One Road” (OBOR) initiative is virtually the anti-thesis of this.

The one redeeming feature of the NTI is the newfound emphasis on education. This should assist Russia to become a better “user” of existing and future technologies. This would also help achieve some of the NTI “new technology order” aims by allowing Russian producers to more readily take advantage of the feedback that “users” give to “producers. Better “usage” would also allow greater advantage to be taken of existing possible network effects.

Apart from education, one of the best ways for the Russian government to improve Russia as a high-tech “producer” is to push structural economic reform – because rising competitive pressures encourage organizations to become better “users” of existing technology. The “resources curse” is not always such a bad thing, as Australia has demonstrated by becoming a good high-tech “user” rather than a “producer”.

The rapid pace of technology change and falling technology prices means that “users” can easily receive greater economic benefits than “producers” because of improvements in their “terms of trade”. This is a particular possibility when the “producers” are a very small part of the economy in one country, but the “users” are a very large segment of an economy in another country.

If Russian high-tech products were actually to be developed using government budgetary funds under the NTI (or any other government program), this would also mean that Russian tax-payers were subsidizing high-tech “users” in other countries.

Russia should radically change the NTI or abandon it. At the very least, it should not proceed with any future Foresight Fleets and abandon Rapid Foresight as a policy tool.


English language pdf version of full document can be accessed here: http://russianeconomicreform.ru/wp-content/uploads/2017/01/NTI-ENGLISH-VERSION.pdf

Russian language pdf version of full document can be accessed here: http://russianeconomicreform.ru/wp-content/uploads/2017/01/NTI-RUSSIAN-VERSION.pdf

Published on June 30 2016

“Free Trade Zones” and Medvedev stuff!
5

The Strategy2020 team of Expert Groups is completing its final report for delivery in December. Initially commissioned by Prime Minister Vladimir Putin, it now appears that Dimitri Medvedev – as future prime minister – will be taking the running on this issue even before he steps down from the presidency. The Expert Groups have been quite critical of a number of the policies pursued by Putin, both as president and prime minister, and many of their ideas seem closer to those of Medvedev. But Medvedev is now in a much weaker political and psychological position than before announcing his decision. Putin now has the uncontested upper hand, even before legally assuming the presidency, so I am not sure that it makes much difference which one of them is the “curator” of the Strategy2020 project. 

Moreover, policy making is not on hold while this document is being finalized. The two most notable related issues reported last week were about “Free Economic Zones” and the possibility of the return of sales tax. 

Read more »

Published on November 20 2011

“Modernization” and “Innovation” become cliches. “Efficiency” and “Principles” are better words.
5

The 21 Working Groups have presented an Interim Report (apparently about 400 pages) to that part of the government headed by Putin. It has not been published on the official Strategy2020 internet site, but media reports of its content suggest that it contains few surprises to anyone who has been following the work of the individual groups. A Final Report is due to be completed by December. I expect that further work by the 21 Working Groups published on the Strategy2020 website will essentially be refinements of that which has already been published. Thus, commentary on this site (ie the one you are now reading) will move more to what is actually happening now in the economic reform process in the areas being worked on by most of these groups. I will aim to post a new commentary every Monday.

Last week saw many reports and much commentary in the Russian media related to the necessity of promoting “modernization” and “innovation”.

Read more »

Published on September 11 2011

The Search for Russian Innovation
5

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 ….

Read more »

Published on June 11 2011