economy has increased during Putin’s days in office (Djankov, 2015).
10 Nivorozhkin and Castagneto-Gissey (2016) focus on how relationships between the Russian stock market and international markets have changed significantly after the Ukrainian crisis. This is consistent with the finding here that there are more excessive volatility and negative return days in 2014/2015 than in earlier periods.
11 Peresetsky (2011) instead uses the Japanese Nikkei index since this is closer in terms of time, but since the S&P is closer to a global stock market index and this analysis is not about market efficiency, the fact that we have to use a lag of S&P to get a good specification is not an issue.
12 See, for example, Knack and Keefer (1995) and Knack (1996) for property rights institutions, Mauro (1995) for corruption and growth and Acemoglu et al. (2014) for the importance of democratic institutions for growth.
Chapter 3
State-Led Innovation and Uneven Adaptation in Russia
Satoshi Mizobata
Russia lost its innovation base inherited from the Soviet period during the 1990s.1 The Putin regime tried to recover lost ground after 2000 by focusing on a long-term growth strategy. Innovation has become a cornerstone of its economic policy seeking to reduce Russia’s heavy dependence on natural resource (oil and gas) exports, diversify, enhance international competitiveness and raise labour productivity in an adverse environment hampered by a decreasing population and an ageing society.
Adverse external conditions exacerbate these problems. On the one hand, Western economic sanctions imposed after 2014 compelled Russia to import substitutes. On the other hand, international competition for technological/scientific hegemony intensified. Innovation became essential because productivity deteriorated in all the developed countries (Knyaginin, 2017, p. 20). The German revolution-dubbed “Industry 4.0” (the Fourth Industrial Revolution) designed to meet this challenge threatens to increase Russia’s relative technological backwardness.2 Japan emulated Germany with its own “Society 5.0” strategy, and China announced its “Made in China 2025” initiative. All these initiatives seek to accelerate long-term growth. The US–China trade war is also partly a political conflict over innovation policy. Even though the “socio-economic situation in Russia has remained difficult” (Mau, 2019, p. 10), Russia adapted itself to these global trends. It is energetically pursuing its own long-term growth and innovation strategies.
This chapter uses three criteria to evaluate the results of Russia’s long-term growth and innovation strategies. It looks at institutional aspects of state-led innovation, the timeliness of Russia’s innovations and technological diffusion against the background of global trends.
Evolution of Innovation Policy: Emergence of Long-term Strategy
The Kremlin’s Soviet legacy handicaps its innovation policy. Privatisation, property right reforms and market building after 1992 in the wake of a “brain drain” failed to eradicate all the deficiencies of the Soviet command economy (Fonotov, 2013, p. 35). Legal instability weakened the effects of market-oriented measures (Fonotov, 2013, pp. 36–39). A collapse of “innovation industries” made it difficult to implement innovation policy. As a result, fixed assets sharply diminished and equipment obsolesced during the 1990s. Innovation capacity declined due to poor state leadership, inadequate commercialisation, defective implementation and bias towards the defence sector.
Russia’s innovation strategy depended on the state sector from the outset of the post-Soviet period because of its backward Soviet era production base, traditional Soviet education/industry–university cooperation and poor linkages with the international division of labour. Russia’s over-dependence on natural resource exports (Figure 1) and technology imports (including foreign intellectual property) further impaired innovation.
Figure 1:Change of export structure.
Note: Oil price indicated in the right axis, and both shares are indicated in the left axis.
Source: Rosstat, http://www.gks.ru, accessed on 1 May 2019.
Russia tried to overcome these debilities in the 2000s with three long-term strategies:
•The first was “The Russian Federation Socio-Economic Development till 2010” drafted under the Ministry of Economic Development and Trade in 2000, when Vladimir Putin became President. Even though this strategy stressed modernisation, unrealistic assumptions impaired implementation (Dmitriev and Yurtaev, 2010, p. 109).
•The second strategy was “The Russian Federation Long-term Socioeconomic Development till 2020” drafted by the National Research University Higher School of Economics and the Russian Presidential Academy of National Economy and Public Administration (Mau and Kuziminov, 2013). It had 6 parts and 25 chapters. The new economic growth model and social policy were at its centre. The government chose not to officially adopt the 2020 strategy and informal implementation was perfunctory for a host of reasons including political machinations, administrative shortcomings, conflicting specialist views, lobbying and stakeholder opposition (Belanovsky et al., 2016; Polterovich et al., 2017).
•Thereafter, “modernisation” became the dominant theme. Despite the rapid economic growth (recovery) in the first half of the 2000s, Russia failed to reduce its heavy dependence on natural resources. The “resource curse” is difficult to break. “Putin warned of the danger of Russia turning into a third-world country” (Tsygankov, 2014, p. 117) and tried to avert the danger with neoliberal macroeconomic stabilisation and economic recovery, but did not succeed.
In May 2009, the Council for Economic Modernisation was established to promote and oversee breakthroughs in energy efficiency, atomic power, space, telecommunications, medical technologies and strategic information technologies. The Science City, Skolkovo, and “national champions” phenomenon exemplify this initiative.3 Strategy 2020 announced in March 2012 emphasises the need for innovation-driven growth and human capital development. The government adopted a new policy for “Innovative Development Strategy to 2020” (approved on December 8, 2011, No.2227-r, hereafter the “Development Strategy 2020”) and the “State Program for Science and Technology Development” (December 20, 2012). The latter programme codifies the tactics for fulfilling “Development Strategy 2020”. It stipulates that 3% of the GDP must be dedicated to R&D until 2020 to sustain fundamental sciences and finance priority fields. The approach mimics the mixed model of the Asian development driven by technology transfer from leading countries. The policy includes unrealistic targets like massive high-tech job creation.
Russia wants to move towards a growth strategy compatible with state capitalism. It has become more autarkic, prodded by Western economic and Kremlin counter-import sanctions. The economic sanctions from the West and Russia’s own counter-sanctions built barriers against imports and international financing. Shrinking external economic relations brought about cancellations of military technology collaborations, military/civil technology purchases and joint R&D efforts (Afontsev, 2015, p. 22). The government regarded “the forced import substitution” policy as an anticrisis measure and drafted numerous counter-initiatives such as state projects, preferential taxes, subsidies, preferential credit, loan guarantees and state orders.
