Books on Russia
Update No: 328 (28/04/08)
What to make of Medvedev
It is being taken for granted that the new President Dmitry Medvedev is a
figurehead and that Vladimir Putin is the real figure in power.
This is in one sense undoubtedly true. Putin commands the allegiance of the
security forces. He is one of them, a KGB man to his finger tips.
Medvedev is not; he is an economist, a clever, dutiful, meritocrat to his toe
But he now has his chance to strike out on his own. He should do so straight
away. He has just been elected president of Russia; he has the legitimacy of
Solomon by 75%. But he will not. That is why Putin chose him, subservience to
Putin the premier once again
On May 7 Putin becomes prime minister, his former post of vantage, and he will
not be supine in the performance of his tasks. One can expect a flurry of
activity. He will want to set a stamp on things, the more emphatic for being the
more urgent, to convey the message that he still remains in power.
He has plenty to do. Russia has a dynamic economy, but one over-reliant on
energy exports, although with world oil prices hovering near $120 per barrel
they are coming in handy all right. The boom since 1999 has been oil-driven.
The oil curse cometh
But the problem is that Russia is acquiring the oil curse, albeit measures have
been taken to counter it. Russia has some good economists aware of the
tribulations of excessive reliance on one industry, an ephemeral one at that in
an age that needs to wean itself away from fossil fuels altogether.
In the last two decades of the twentieth century both the UK and Norway
experienced the onset of the North Sea oil boom. The first completely mismanaged
it, allowing the exchange-rate to soar by 60% in 18 months, three million being
chucked out of work by 1982, more than in 1929-32, while multinationals migrated
abroad to saner shores, such as Ireland (the real beneficiary of Thatcherism).
Norway kept the Kroner stable by using its rising revenues to buy up huge assets
abroad in its National Pension Fund, now worth nearly $250,000 per capita and
still rising, a fall-back for when the oil runs out. Meanwhile it has become the
richest country on the planet -a democracy at that- without the mass misery,
unemployment and welfare-dependency, that plagued the UK in the 1980s and early
1990s, as a permanent under-class of the excluded emerged.
Russia's top technocrats took note. They set up a national investment fund,
already worth over $80bn, a cushion for the future, that is helping to prevent
an over-appreciation of the rouble. But Russia has a large under-class of social
outcasts too, and in a more desperate plight than in Britain, given the even
more meagre hand-outs.
There needs to be encouragement for non-energy industries and services. The
internet revolution holds out far more promise than the energy sector, vast as
it is. A new economic strategy is required.
The following is just that, the product of over 1,000 economists world-wide from
university departments and institutes of economics, under the aegis of Oxford
Innovation the key to Russian economic success
Innovation policies have emerged in Russia as a focus of efforts to diversify
the economy and sustain economic expansion, with the public sector providing
funding and playing a coordinating role. The main challenges are to increase the
efficiency of the resources used and involve the private sector in these
Both President Vladimir Putin and President-elect Dmitry Medvedev have stressed
the importance of innovation in developing Russia's economy. While there are
similarities between both leaders' statements in this area, Medvedev has struck
a more liberal tone, pointing out the need to create better incentives for
innovation rather than just increasing the role of the state.
Medvedev has underlined the strategic role of innovation by listing it as one of
the four priorities in economic policy, the others being infrastructure,
investment and institutions. Innovation and competitiveness. The emphasis on
innovation emerges from:
--awareness of the limits of resource-led expansion in terms of technological
dynamism, productivity growth and ability to support increasing incomes;
--the intention to transform the country's role in the world trading system, as
a producer of more technologically sophisticated products and services;
--a desire to make better use of the scientific base and human capital of the
--attempts to channel increased government expenditure, into uses that raise the
production potential of the economy and to replace the existing growth model,
which is largely based on increased capacity utilization, and favorable terms of
Need for change. This emphasis reflects a number of threats to Russia's existing
-- Eroding advantages. Resource and wage cost advantages are under threat from
rising energy and labour costs, which have outstripped productivity growth.
While strong domestic demand growth has driven recent rapid expansion, it has
increasingly been satisfied by imports rather than domestic production.
Exchange-rate appreciation is also an adverse influence.
-- Human resources. Unlike other large emerging-market competitors, Russia is
not a low-wage country. Russia is comparable to other countries at similar
income levels on overall education indicators, but survey data suggest a
deteriorating quality of education and indicate that skills shortages are
restricting company-level growth.
-- Technology ladder. Russia's specialization in raw materials and
medium-technology goods contrasts unfavorably with the growing technological
sophistication of China's exports. Accordingly, shifting toward
higher-added-value products appears to be a natural alternative in order to
compete in the global marketplace.
Innovation indicators. Existing government initiatives to foster innovation have
largely focused on the formation of an "innovation infrastructure,"
such as technoparks, technology transfer centers, special economic zones and
support to the development of the venture capital industry.
These interventions are characterized by:
--different forms of public-private partnerships;
--a coordinating role for the state; and
--federal support to specific sectors, including through the creation of state
Indicators of success. The success of this approach can be assessed by comparing
Russia's innovation performance with that of other countries, using data from
the Organization for Economic Co-operation and Development (OECD).
On this basis, Russia performs relatively well on some indicators, such as
input-based total research and development (R&D) spending, but much worse on
others, like output-based indicators relating to the commercialisation of new
1. R&D spending. R&D expenditure collapsed in the wake of the break-up
of the Soviet Union but recovered strongly in the period following the 1998
financial crisis. In recent years it has grown strongly in absolute terms, while
being outpaced by the rapid expansion of gross domestic product:
--The ratio of R&D expenditure to GDP stood at 1.08% in 2006, higher than in
most emerging markets, but well below the OECD average of 2.25% in 2005.
--China overtook Russia in 2004 on this measure and has increased its lead since
2. Private sector role. State financing accounted for 61% of total R&D
expenditure in 2006. This contrasts sharply with the situation in China and in
many OECD countries. While there have been some positive trends in overall
spending, the dominance of state financing has increased in recent years,
reflecting insufficient restructuring of the public research sector and lack of
demand for innovation by domestic companies:
--Most R&D is still being performed by academies of sciences and technology
institutes with public funding; the universities' role is limited.
--Links with the private sector are weak, and research remains minimally
responsive to the needs of business.
3. Foreign finance. One positive trend is the growing volume of foreign-financed
R&D, which accounted for 9.4% of the total in 2006. Survey data demonstrate
that Russia is ranked highly as a location for industrial R&D outsourcing,
by multinational companies.
4. Productivity indicators. Russia employs many researchers, accounting for 13.5
per 1,000 of total employment in 2006. However, conventional indicators such as
patent filings or citations in international scientific journals, show that
their productivity is low.
The number of annual "triadic" patents--those filed at patent offices
of the European Union, U.S. and Japan--has remained stagnant and represents
about half the level of Singapore. By contrast, China's filing of triadic
patents has more than doubled since 2001.
5. Export composition. Other output-based indicators, such as the share of
high-technology products in exports, also show a large gap with high-income OECD
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