Russia’s innovation gap

Directorate for Science, Technology and Industry
Page 10 

It may seem puzzling to talk of an innovation gap in Russia, for so long a bastion of scientific knowledge. Yet that is precisely what has been developing since the collapse of the Soviet Union. Investment in research and development (R&D) has declined dramatically in the past decade, from just over 2% of GDP in 1990 to little more than 1% in 1999, compared with an OECD average of 2.2%.

Before the 1990s, Russia was widely regarded as a science and technology powerhouse, able to hold its own in fields such as theoretical physics and nuclear technology and a world leader in space technologies. The collapse of the Soviet economy, particularly the industrial/military complex, to which most Russian R&D investment was directed, brought down a system that was based largely on technological prestige and bureaucratic planning.

Financial crises, decaying equipment, unemployment and higher wages in other sectors drove large numbers of researchers – and some technicians too – away from science and technology, or indeed out of the country altogether. In the early 1990s permanent emigration of Russian scientists and technologists to Germany, Israel, the United States and Canada increased sharply. The “brain drain” has since abated and Russia still ranks alongside the top OECD countries in the number of researchers in the active population. Nevertheless, the number of personnel working in science and technology is barely half what it was in 1990, at a time when demand for skills in most OECD countries remains high.

The transition to a market-based economy appears to have bypassed the R&D sector, with institutional inertia setting in, rather than personal initiative, and dwindling resources compounded by distorted patterns of financing inherited from the former Soviet Union. The government still finances the lion’s share of R&D expenditure in Russia, with only a third coming from industry, significantly lower than in advanced OECD countries where business is the main source of increased spending on R&D. The only type of R&D funding that has grown substantially in the past decade is foreign funding, which more than doubled to 10.3% of the total in 1999 (up from 4.6% in 1995), thanks to grants and foreign investment. But the danger of such foreign funding is that it is volatile and subject to changing business perceptions, as well as competition from other countries.

Institutional rigidities remain a major constraint on R&D, and there are few opportunities for the private sector to use R&D investment to increase economic performance. As a result, the bulk of R&D continues to be performed by the academies of sciences (public laboratories subordinated to various ministries and technological institutes).

Official figures show a relatively high share of R&D being performed by the business sector, but this is largely because Russia’s 2 500 research and technological institutes are included in the numbers. In fact, the weak supply-demand link from these institutes to business is a major flaw in Russia’s nascent innovation system. Matters are made worse by the fact that the share of government-performed R&D devoted to longer-term basic science has increased relative to applied research programmes, which are more likely to meet immediate economic and social needs. University research, so important for innovation elsewhere, makes only a minimal contribution to R&D in Russian science and technology. Yet, without research universities, a link is missing in the diffusion of knowledge and technology, as well as in the building of public/private partnerships for innovation of the type that have benefited OECD economies.

In fact, despite the magnitude of its assets and its world-class achievements in several scientific disciplines, the output of the Russian science and technology sector is rather modest. Russia ranks seventh in the world for the number of scientific publications it produces, around 3.5% of the total. And the volume of its resident patent applications has continually decreased over the 1990s (one per 10 000 population in 1997 compared with 4.5 in the United States, 2.5 in the EU and 3.8 in the Nordic countries).

The market may well drive innovation, but public action is necessary to reduce risks and provide incentives to transform knowledge into new products and processes. The OECD has often argued that governments have to play an active, if targeted, role in fostering innovation.

Framework conditions, such as well-functioning tax, competition, and product and labour market policies, must be put in place to incite firms to upgrade and invest in R&D and innovation. Fostering interaction between public research and industry is a matter for governments too. There is a marked lack of incentives for public research institutions to engage in closer relationships with industry in Russia. Regulatory reforms are clearly needed, including measures to facilitate the mobility of researchers and public/private partnerships. In fact, research funding could be used to encourage such partnerships.

Another missing link in Russia’s emerging innovation system is venture capital. Whatever little there is comes from foreign funds and is oriented towards loans, with very little finance directed towards equity positions in new technology-based companies. Greater involvement from Russia’s institutional banking sector – still weak following the financial collapse of 1998 – is needed to create a critical mass. Business advisory and information services for scientists and young entrepreneurs are also needed to build the management skills for creating new firms. The emergence of a new cadre of Russian universities, linking scientific curricula with business and entrepreneurial skill development, is a step in this direction.

In short, narrowing Russia’s “innovation gap” will demand reforms to link the emerging innovation infrastructure to the science system. It will also require intensive and permanent interaction between industry and public research. The traditional manufacturing and resource-based industries, which account for two-thirds of industrial investment in R&D, have little incentive to invest in innovation and generate little domestic demand for innovative firms in Russia. As a result, innovation must rely on export markets.

A strong intellectual property rights (IPR) set-up will also be needed. Progress has been made in setting rules and enforcing intellectual property rights in line with international obligations, but greater effort is needed. The commercialisation of new ideas in research institutions is held back by the lack of consistent and clear rules on the ownership, management and protection of intellectual property. Without clear rules and protection, the incentive to innovate will be diminished. One step should be to improve the diffusion of legal information on IPR-related court decisions as a way of ensuring transparency and encouraging investment.

This is quite a list of challenges and political leadership is now needed to drive through reforms and remove Russia’s institutional rigidities. There are signs of this happening, with government-supported incubators for high-tech start-ups and innovation technology centres that link research and production capabilities, for instance.

But these initiatives are too piecemeal. More effort is needed to make financing more widely available, and to create a more transparent, fluid knowledge market. That means making sure that translating ideas into practice brings rewards.

It also means investing in people and laboratories and encouraging Russian business, including smaller firms, to invest in R&D. This will help create employment opportunities for Russian scientists and researchers and encourage talent to migrate back. Such changes would help Russia regain its place among the big hitters in global science and technology. And they would give its economy the boost it badly needs too.

©OECD Observer No 229, November 2001 

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