Business Magazine

Whatever Happened to the Russia of Tomorrow?

Posted on the 15 April 2011 by Center For International Private Enterprise @CIPEglobal
Whatever happened to the Russia of tomorrow?

Did Russian innovation reach its peak 50 years ago? (Picture: Smithsonian Institute)

Fifty years ago, Yuri Gagarin became the first human being to leave the comfort of Earth’s atmosphere and enter outer space. While his voyage to the cosmos was a solo trip, it did not represent an individual effort. Hundreds of scientists and engineers from throughout the Soviet Union contributed to the mission’s success. Gagarin’s historic flight became a symbol of the Soviet Union’s new role as one of the world’s leading innovators. Soviet leaders claimed that they would soon surpass the capitalist Western nations, including the United States, and become the world’s most technologically developed country.

Five decades later, the Soviet Union is no more. But surely its successor, the Russian Federation, is still able to draw upon the intellectual might that was first to send a man to space, right?

According to data from the World Intellectual Property Organization, Russians submitted just fewer than 30,000 patent applications in 2010. Not too bad for a mid-sized European country like Switzerland or the Netherlands, but unimpressive in comparison with today’s leaders in innovation, countries such as South Korea (172,000 patents), the US (400,000), and current leader Japan (500,000). Nor can this year be considered an aberration: in terms of total number of patents in force, Russia has slipped to 11th place in the world, behind Hong Kong and Spain.

So what has happened in the last 50 years? It’s not that Russians don’t have good ideas – it’s that the ones who do are fleeing west and setting up shop in the UK, Germany, even Serbia. They’re leaving because the business environment in Russia is so smothering to potential entrepreneurs that it often makes more financial sense simply to pack up and leave the country than to deal with the endless parade of auditors, tax inspectors, and police making demands of business owners, often with vague – if any – grounding in actual law. This article by a CIPE consultant details how established elites often conspire with authorities to force business owners to sell their firms at prices far below market rates, or to steal it outright. What’s worse, the better, and thus more profitable, an idea is, the greater the chance that it will catch the attention of a well-connected rival.

Russia’s leaders have acknowledged that this “innovation gap” has created an over-reliance on exports of oil and primary goods, while creating too little wealth for its citizens. President Medvedev has called for the creation of an innovation center at Skolkovo near Moscow – Russia’s “silicon valley.” But the original Silicon Valley was not created by government fiat. Instead the area developed over time like a garden – the seeds of innovation were planted in the rich soil of academia and nurtured by free-flowing venture capital in the sunlight of supportive government policies. If Medvedev and his team take a similar approach, Russia may again one day be the first to cross new technological frontiers. Until then, they will have to settle for memories of better days.

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