Can Russia Achieve an Innovation Breakthrough?

Russia can produce anything it wants. Global competition allows new players who can offer something better to establish themselves on the market. But Russia does not have the political will and is not making the administrative efforts necessary to achieve an innovation breakthrough. interview with Vladislav Inozemtsev, Federal Political Council Member of the Right Cause party, Director, Centre for Post-Industrial Studies, Publisher and Editor of the Svobodnaya Mysl monthly.

What innovative products is Russia producing or is capable of producing? How strong is competition in this market?

Russian space and nuclear engineering technology in its current form is not innovative, because we are still using rockets and building reactors created in the Soviet era. There has been some change, of course, but not much, and besides, the space industry and nuclear engineering products are not exactly consumer goods. Essentially, they can be described as innovative products, but the key point is that they are mostly manufactured under interstate agreements and cannot help strengthen our foothold in foreign markets. This is why Russia, even if it develops these industries, cannot become competitive globally in the sphere of high technology.

Russia can produce anything it wants. Global competition allows new players who can offer something better to establish themselves on the market. Countries like Brazil, Vietnam and East Asian nations, which were blank spots on the world’s economic map in the mid 1990s, have become large, successful producers of consumer technologies in the last 10-15 years. Naturally they don’t supply the latest-generation goods but rather products that were top of the line three to five years ago. This is understandable, and it is never too late to try to emerge in a market in this way. Moreover, the experience of “flying geese countries” shows that it is possible to catch up with more successful rivals in many spheres.

I believe that Russia has not yet come to see the necessity of doing this. When it does, it will have enough time to catch up with the global leaders, because in today’s world technologies grow obsolete faster than any other commodity and therefore become affordable. The situation has changed dramatically since the beginning of the 20th century. To be able to use a new technology now, you don’t have to build a plant with 10,000 employees. Modern technologies are easy to use, import and steal.

Russia does not have the political will and is not making the administrative efforts necessary to achieve an innovation breakthrough. We are talking too much and doing too little. There are broad opportunities which we are not using. Russia does not produce any innovative products worth mentioning today.

Which market niches are still vacant? Which of them are promising for Russia?

All niches are vacant. In the 1980s Japan produced 80% of the world’s motorcycles, over a half of the world’s TV sets and some 60% of electronic devices, and therefore was a global leader without par. In the late 1990s the Republic of Korea produced 51% of the world’s merchant vessels. A small country built half of the world’s new vessels. But what is the situation 15 years later? China is now producing some 60% of computer equipment and approximately 40% of the world’s merchant vessels in terms of deadweight. The countries that had only a tourism industry ten years ago have since become global leaders in microelectronics and other high technologies. Take Thailand: the flood in Bangkok stopped some of the world’s largest mega-processor plants, which slowed down the computer industries of Taiwan, Japan and other countries.

The share of once unrivalled leaders in global production has plunged. Japan is now developing the service economy; the Republic of Korea can no longer dominate in heavy industry, etc. This shows that the seemingly weakest countries can easily push aside undisputed leaders. That Russia has not done so means that we have not yet focused on finding a solution, or mobilized all forces and capabilities for attaining this goal.

The question is which niches can be perspective. In actual fact, we are deliberately undermining our competitive advantages; this is what the government has been doing in the last ten years. In my view, speaking about the “window of opportunity”– an “in” phrase now – for a breakthrough in the innovation economy, that window was opened by Yevgeny Primakov. We had super-low prices of resources, a dramatic fall in wages due to the devaluation of the ruble and a relatively competitive political system, which facilitated the country’s continued existence, one way or another.

Russia has lost all of its advantages in the last few years: the system of governance has worsened, the number of bureaucrats has swelled, the state strengthened its control over the economy and, consequently, competition has decreased. More importantly, wages have grown tenfold or even more. A skilled worker in Russia now costs as much as in Eastern Europe. Unfortunately, the prices of resources have grown, too. Electricity prices in Vietnam are now 83% lower than in Russia. Consequently, new production in Vietnam is usually very labor and energy intensive.

In 1998 Russia had huge competitive advantages in organizing labor and energy intensive production. But now cement costs more in Russia than in Europe and rolled ferrous metal products are two times more expensive than in Turkey. So why set up production in Russia when it is cheaper and more easily done somewhere else? In this sense, Russia has undermined its internal capabilities.

What should the private and public sectors do to help emerging economies’ innovative products reach the market?

The Russian private sector in its current form will not become a leader in innovative development. We can develop and implement Internet projects, but they will be constrained by high costs. It would be much more profitable to create new technologies, introduce them in production and market finished goods, rather than sell patents. This truth has been proved by the Western economic development.

So the key question is who controls the bulk of industrial production. In Russia it is controlled by state companies and companies with a large government stake. There is no competition here now and none in sight. The policy of the last decade has been aimed at neutralizing competition, and therefore these companies will be able to develop only in conditions of tougher state regulation through a system of standards, technological solutions and regulations.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.