"Be innovative!", orders the Kremlin

The Russian attempt to build Silicon Valley in Skolkovo is a case of throwing good money after bad, argues Andrei Kolesnikov. Russia badly needs systemic reform, not grand projects: without it there is no chance of achieving real, organic and high-tech innovation.
Andrei Kolesnikov
16 July 2010

Skolkovo is a district on the Western outskirts of Moscow. Since Soviet times, it has been famed for its collective farm growing prize cucumbers and mushrooms, and for being the location of the Summer dacha of Leonid Brezhnev. Now it has also become a symbol of cutting-edge Russian development, boasting a so-called "innovation city", alongside an elite, expensive business school, patronized by no less than President Dmitry Medvedev. Labelled Russia's "sun city", and likened by its creators to America's Silicon Valley, Skolkovo has become a somewhat of a window display for Medvedevian modernization efforts.

But the project is destined to remain exactly that: a window display; an exhibit in the absence of an exhibition. The problem that is difficult to overlook is that there is absolutely nothing to show for Russian innovation. The country has yet to develop the proper investment climate for innovation; and there is still no demand for Russian high-tech.

Measuring Backwardness

Statistics tell us that currently just over 9% of Russian enterprises invest in innovative technology. A comparison: in Germany, the number is eight times that. Fundamentally new Russian products account for just over 70 billion roubles (£1.5 billion). This was 0.4% of the total volume of industrial production in 2007 (in Finland, the figure was 16%). The percentage of innovative production in the total volume of sales in Russian industry is around 5%. Put another way, Russia is backward. 98.5% of patentable innovations are created by 15% of the world’s population, and Russians do not number among them (we are talking in the main about OECD countries). Russia is, of course, one of the 50% of countries able to apply such technology, especially on the level of private use: our countrymen are always eager to try out the any new-fangled gadget, especially for entertainment. But the statistics on computer and internet use aren't particularly dazzling, lagging as they do behind both developed countries and countries of the former Eastern Block. And this technological gap can only get worse, since the speed of progress is increasing with each year: if in earlier times, moving from one technological generation to another was a matter of 10 or 15 years, now we see that, in aviation at least, this is happening every five years (my source of data are the four 2009 editions of Moscow's Higher School of Economics Foresight magazine).

Inside Russia, there is an understandable resistance to "innovative" development. It's exactly the same problem that researchers have to grapple with when they prepare roadmaps and foresights for developing countries. Technological progress kills old markets and renders the defining competencies of the old economic order useless (often with unfortunate effects: today we see the old engineering culture dying out, vital though it for servicing whole sectors untouched by innovation, yet suffering from clapped-out equipment).

Innovation leaves many people behind, denying them their jobs and making them feel like losers. You can't overestimate the psychological factor: people who lived and prospered under the old order are naturally emotionally attached to it, whether that be the defence industry in the USSR, or sugar production in Jamaica (on this modest island, you will see the same battles being fought for the flagships of "national sugar production" as you will in post-Soviet Russia for outdated industrial giants). Technological development fits into the Schumpeterian matrix of creative destruction: increasing the level of competition by means of innovation has the effect of removing workers from their customary social "pockets". Such workers are, as a rule, unprepared for change, let alone ready to undergo a personal "upgrade".

Perhaps this is why Dmitry Medvedev felt obliged to develop Russian innovation in a kind of ghetto.

Modernization has been focused on technology — no discussion about values,  cultural or political modernization. As the Russian geographer and politician Dmitry Oreshkin once said, "innovations do not multiply in captivity".


The logic of catch-up development

Russia currently finds itself in an age-old matrix of catch-up development. It has done so since the times of Peter the Great, who imported science, technology and the bearers of such know-how from the West. Joseph Stalin constructed his politics of conservative modernisation using the same logic: regardless of the undoubted autarchy of such development, industrial progress depended on Western technological culture. The belief of Nikita Khrushchev in the magical power of corn also came from the same place. He expressed the very essence of catch-up development in his slogan: "Catch up and overtake America in the per-capita production of meat, milk and butter!". In Brezhnev's time, you had a very clear example of borrowed modernization when, in 1966, the country's showcase Volga car factory was built using Fiat technology. When, in 1970, the first VAS-2101 car came off the production line, it was almost a carbon copy of the Fiat 213. The Soviet car's first drivers were reportedly very impressed by their unusally high quality...

And now, of course, we have another fit of modernization, this time Medvedevian, and designed as exclusively technological. You will find no accompanying discussion as to a modernization of values, and no idea of cultural or political modernization, all of which are critical to developing an investment climate conducive to innovation. As the Russian geographer and politician Dmitry Oreshkin once said, "innovations do not multiply in captivity".

It is perhaps of little surpise that Medvedev and the project's main ideologue, Vladislav Surkov (a Kremlin bureaucrat responsible for domestic policy and infamous as the author of numerous government anti-democratic initiatives), are both borrowing from the Soviet experience without really knowing it. That is, they are borrowing from the practice of creating closed enclaves of modernization, sealed off from the rest of the country, developing them in such a way that can hardly be described as modernization. What we are seeing is yet another technocratic utopia, based – first - on the logic of Stalinist sharashkas (prisoners who were assigned to solving important technological problems for the state, and given relatively comfortable conditions in exchange) and – second – on Brezhnev's "science cities" (an example of which is Dubna, near Moscow, a major nuclear physics research centre that in Soviet times provided its workers with unusually comfortable conditions). 

"You can't build Island Utopia on a sea of inefficiency"


Hayek's "Fatal Conceit"            

The Skolkovo innovation town is an example of what Friedrich von Hayek described as the "fatal conceit" of a state that believes it can preserve the old economic structure while at the same time building small enclaves of the new (while being fully aware of which industries it actually needs to develop). Perhaps we should also air the obvious point: in the post-industrial world, predicting where technological breakthroughs will occur is an impossible task.

Leonid Gokhberg, director of the Institute of statistical research and the knowledge economy at the Higher School of Economics, has mentioned another aspect of the problem. The Skolkovo innovation city is a sort of island: it is not part of a reasoned, consolidated plan, nor an innovation policy shared by the majority. "Systemic reforms in the areas of science and innovation are what are required", he says. "You need systemic reforms first and then an understanding of the place of projects such as Skolkovo in the common system. We are yet to see this road map". Perhaps he could also have added that innovations themselves are not born the result of "commands from above" — you need a corresponding environment for them. That environment is not only – not at all – the result of arbitrary decisions made by big bosses, but is a matter of culture, of freedom, and of democracy. 

Many forget that Skolkovo is not the fist attempt to build an "innovation island" in Russia. One of Putin's final decrees as President was to award the Kurchatovsky Institute (formerly Institute of Nuclear Energy attached to the USSR Academcy of Sciences) the status of "national research centre", which conferred a wave of additional funding. No small role was played here by the old friendship between the Institute's director Mikhai Kovalchuk and Vladimir Putin. All these favours-for-friends machinations forgot the underlying necessity of building completely new scientific institutes, and a different institutional structure. Without this, spending budget money is a case of throwing good money after bad. As Gokhberg notes, "additional funding does not give results, such is the inefficiency inherent in the current institutional structure of scientific research".

Political barriers

The law on the Skolkovo innovation centre confers considerable tax privileges on enterprises locating there. For example, it includes provisions for zero tax rate on profit, property, and land duties. These privileges will last for some ten years. Several keen eyes have noticed the striking similarity between the Skolkovo tax regime and the tax regime of so-called Special Economic Zones. So far, these Zones have proven themselves incapable of assisting innovative development: they are, at best, capable of solving advanced technical tasks. The reason for this is, once again, the fact that the general economic climate acts as a barrier to innovation. There is no way you can create Island Utopia to plan when you build it on a sea of inefficiency.

And then there is another aspect to the problem. At the very time that the law on Skolkovo was being given its second reading in parliament – to great fanfare one might add – the co-chairman of Skolkovo's Advisory Council and Nobel laureate David Kornberg, invited by fellow Nobel laureate Zhores Alfyorov, was denied an entry visa into Russia. The incident sent an ominous signal: however hard you try to develop innovation, however much you invite corporations the level of Cisco Systems to take part, the greatest schemes on earth can shatter to pieces against the hard- granite walls of the current political regime. This is, perhaps, the main obstacle standing in the way of any Presidential project.

Andrey Kolesnikov is a columnist for Novaya Gazeta 


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