New Industrial Revolution in Russia: to Be or Not to Be?
The society’s expectations are centred on the technology factor
Concerning key opportunities to boost economic growth in Russia (which is currently extremely low), Vladimir Kniaginin believes the society’s main expectations are centred on the technology factor. “The next generation of consumers is now entering the market, with different values and investment strategies than 20 or 30 years ago. The administration system is noticeably changing, gradually shifting from e-government to the so-called digital government”, noted Mr Kniaginin. “In recent years key companies were focusing their development programmes not just on advanced production technologies but also on digital platform solutions”.
At the same time, noted the speaker, major global players have decided about their strategies as early as in 2010, placing their bets not on gradual technological changes and optimising existing technology platforms and systems, but on radical shifts.
“Today we also realise that given the current economic growth rate, the amount of resources we can mine is very much limited, and when we try to develop new sites and deposits we increasingly often face severe environmental limitations. So without changing the technological and production basis we will not be able to survive on the available resources. Obviously in this situation Russia will have to make a set of interconnected decisions about its further technological development”, stressed Vladimir Kniaginin.
Industrial Revolution by 2035
According to the speaker, the Russian economy must achieve productivity comparable with that of leading countries, and properly balance the public and private sectors (today, conversely, the public sector’s share in Russia is growing). We need to move on from analogue economy to digital one, from risk- and experiment-averse economy to one which would embrace both, and from a management and administration system designed for a stable environment to one which could cope with constantly changing factors affecting decision-making. “So in that sense we’ll have to reconfigure the whole administration system”, noted Mr Kniaginin. “And the window of opportunity would be there for about five, maximum ten years. In the long term Russia will have to complete the new industrial revolution by 2035, and by 2024 significantly upgrade the existing sectors of the economy and create new ones”.
The next generation of consumers is now entering the market, with different values and investment strategies than 20 or 30 years ago. The administration system is noticeably changing, gradually shifting from e-government to the so-called digital government
Speaking about practical steps required to achieve these ambitious objectives, Mr Kniaginin mentioned focusing public administration on a profound, digital platform-based upgrading of traditional sectors of the economy. Public support here should be provided specifically to develop next-generation technologies and products, as opposed to optimising the currently available varieties. He also noted the need for government support to upgrade all capital assets, ultimately putting in place a cutting-edge technology regulation system.
According to the speaker, other necessary steps include “moving on to the digital”. In the address to the Federal Assembly Vladimir Putin proposed re-orienting the economy towards implementing the so-called digital model. A plan for switching to the digital economy must be presented to the President by 1 July 2017. “Accordingly, on the one hand we’ll have to replace analogue systems with digital ones, while on the ensure that all population have access to the internet and the whole data storage and transfer system, i.e. put in place a new digital infrastructure. And the key aspect here is “digitising” the financial market, moving on to the financial internet – which would allow to monetise the effect from implementing digital solutions”, stressed Vladimir Kniaginin.
Potential risks associated with the shift
According to Andrei Fursenko, Aide to the RF President, the problem with revolutionary changes, given the speed and complexity of relevant processes, is that “we don’t have time not only to adapt, but even to comprehend these changes”. “A quantitative description of the future was presented to us today, based on the premise that no qualitative changes will happen. But it’s not at all clear if this is really going to be the case. Therefore experts in various fields should assess all potential risks, in their interconnection with each other”, noted Mr Fursenko.
Vasily Osmakov, Deputy RF Minister of Industry and Trade, believed the discussion of technology development factors at HSE was “a major mental and political shift” towards approaching to long-term development with a view to technological modernisation, and securing global competitiveness in various segments. Along with entering new markets, applying advanced technologies, and switching to “the digital” the country should maintain its traditional competitive advantages, and develop traditional industries on the basis of new principles. Russia's size makes it simply necessary to pay attention to logistics, find new transport solutions, invest in development of the Arctic, and advance the agricultural sector, noted the Deputy Minister. If adequately developed, agriculture (whose technological potential remains underestimated) could very much replace the “oil needle” with a “wheat” one.
The bulk of investments in long-term development should come from private sources, believed Mr Osmakov, but to encourage entrepreneurs to do so the regulator should create “long-term and very stable conditions for doing business in niches particularly important to the state”.
In his turn Leonid Gokhberg, HSE First Vice Rector, having agreed with Andrei Fursenko about the need for integrated analysis noted that if Russia doesn’t improve its competitive environment, investment climate, and the overall entrepreneurial culture, we shouldn’t expect any technological progress and breakthroughs at all. Nominally Russia already has an almost full line of institutions typical to all developed countries, which serve as evidence of their leadership in the technology and innovation sphere, reminded First Vice Rector. But why don’t these institutions work? “Let’s remember that industrial revolutions were not so much about technologies as about production modes. Obviously the role people play in the economy changes, along with the organisation of production, business models, value chains, market structure, institutions, and the whole system of economic relations. That’s what should be reflected in the Strategy as the starting point for shaping relevant policies”, stressed the speaker.
Leonid Gokhberg believes it wouldn’t be right to speak about technology development outside a wider context, i.e. innovation activities which bring technology closer to market realities. Therefore we must take into account business interests, especially those of private companies which are expected to act as the main driver of demand for innovations. We also mustn’t forget about the population’s role in technology development, and not just as consumers but also as co-producers of innovations. According to our research, noted Mr Gokhberg, more than 10% of Russian households are involved in creation of user innovations — twice the relevant figures for the US and the EU countries.
Thus according to Mr Gokhberg the main issue with designing the Russian Socio-Economic Development Strategy is whether the state would be able to pursue a consistent long-term policy, and come up with a balanced set of relevant tools – which of course shouldn’t “be limited to just national programmes, measures forcing companies with public participation to innovate, or even special investment contracts”. Another important question is whether the state would be able to flexibly differentiate its policy tools to match different business models employed by companies. And if the state is the main (or, according to the report, almost the only) player who sets technology development priorities, will these priorities be accepted by the market, and will the state have sufficient resources to pay for it all?
Yaroslav Kuzminov, HSE Rector, noted the high risks associated with expensive technology development activities. “We now have much fewer opportunities (both objectively, and in terms of our psychological perception), so we should not so much deliberate on a new technology revolution and Russia’s participation in it, as apply it to the actual economic policy and the role of the state”, noted the Rector. “And the first thing the state should do is promote activity of private economic agents who make decisions on technology development and technological modernisation. Among other things this requires upgrading the S&T information system, which in effect has been lost during the Soviet period and never rebuilt since then. And here a large public investment can greatly facilitate providing such data to economic agents, especially at early stages”.
According to the Rector, another important aspect is availability of personnel capable of finding, selecting, and implementing new technologies. First of all it could be achieved by providing support to research universities, with an objective of their inclusion in ten years’ time in every relevant global ranking. According to HSE estimates, currently Russia is present only in 3% of the global research fronts. In Mr Kuzminov’s opinion the national education policy needs radical restructuring, to support technology development and keep in line with global trends.
The first thing the state should do is promote activity of private economic agents who make decisions on technology development and technological modernisation. Among other things this requires upgrading the S&T information system.
“And the worst thing the state can do now would be trying to force economic agents to upgrade by implementing specific technologies chosen by the government. That would be the worst possible course of action, but we tend to slide into it again and again”, noted Mr Kuzminov.
In the Rector’s opinion, the state should bear the ultimate responsibility as an economic agent in such traditional areas as defence, healthcare (predominantly), and education, while encouraging other economic agents to upgrade and modernise their technologies using tax-based and moral incentives. Mr Kuzminov also noted the importance of not just technological, but also economic, social, and organisational innovations, which are “much cheaper than the former”. A mechanism for capitalising consumer innovations is in order. After all Russia is known to be the leader in the user innovations field. And, according to Mr Kuzminov, the main objective here is putting in place a system for supporting private businesses emerging on the basis of user innovations, so consumer demand wouldn’t go to other countries, e.g. China.
Russia traditionally supports the so-called “true innovations”, with capitalisation of in-house R&D results seen as a top priority. However, according to Mr Kuzminov this paradigm should be abandoned in favour of identifying and implementing all innovations which find their way on the market, as opposed to only technological and in-house developed ones. This would require a set of special tools for minimising public expenditures, and increasing efficiency.