Lonely Ideas

By Loren Graham

Russian technology has had a historically uneven trajectory. In recent times Russia has fallen back on natural resources for economic strength, but the Russian government intends to convert Russia to a country primarily dependent on a knowledge economy. Below, Loren Graham argues that the obstacles are not scientific or technological, but societal, and suggests that to become a high-technology superpower Russia must establish true democracy.

The curve of development of technology in many Western nations is a gradually ascending one with some flattening out, relative to other rising nations in Asia and elsewhere, in recent decades; that of China is like a giant “U” describing excellence centuries ago followed by a period of retardation during the era of Western imperialism, which was succeeded more recently by a sharp rise again. Russia’s trajectory, on the other hand, for the past three hundred years has displayed an incredibly jagged line of peaks and valleys as excellence was followed by obsolescence, again and again. I refer to this spasmodic trajectory as Russian technology’s pattern of “fits and starts.” Russian technology currently is experiencing a hiatus in its fitful course and has fallen back on natural resources for economic strength.


Can Russia Overcome Its Problem Today? Russia’s Unique Opportunity
Russia today has the greatest chance in its history to break out of its centuries-old pattern of technical brilliance followed by commercial failure. Already the ideas of its scientists and engineers are “less lonely” because of multiplying connections between Russian researchers and Western companies seeking technological innovations. But who will be the primary beneficiaries of these new links, Russia or Western companies and investors? Although in a globalized world the concept of “national” companies is much less clear than it once was, Russia has a long way to go to win its place either among the giant international companies that now bestride the globe or as a birthplace of exciting startups. Meanwhile, the Russian government has set an almost impossible goal: converting Russia in a short period of time from a country primarily dependent on natural resources for economic prosperity to one relying on a knowledge economy.

RUSNANO (Nanotechnology) and Skolkovo (a New Technology City)

Russians still cannot grasp the idea of making money simply by inventing something. The mission of Skolkovo is to show people that they should not be afraid of starting their own business. Risk shouldn’t be confounded with danger. There’s always a risk; danger is very often just perceived.

—Pekka Viljakainen, adviser to Viktor Vekselberg, head of the new technology city of Skolkovo, speaking in 2012

In recent years the Russian government has launched several programs aimed specifically at high technology, the largest and best known of which are RUSNANO, an effort to capture the promise of nanotechnology, and Skolkovo, an effort to create a newly constructed technology city, a Russian version of Silicon Valley.

In recent years there has been a great deal of publicity about nanotechnology. Some people say that nanotechnology will usher in another Industrial Revolution, improving old products and developing entirely new ones. Whatever the truth, most knowledgeable observers agree that nanotechnology is a development of enormous significance for all industrialized nations. In the United States, the National Nanotechnology Initiative (NNI) was created in 2001 to coordinate federal nanotechnology research and development. Between 2003 and 2010 the NNI invested $12 billion in nanotechnology projects, an enormous amount of money. The NNI has been described as “the single largest federally-funded multiagency scientific research initiative since the space program in the 1960s.” So we are talking about BIG science and technology research when we talk about nanotechnology.

Dmitry Medvedev, president of Russia during the peak of interest in nanotechnology, placed great hopes on Russia’s use of nanotechnology to modernize the Russian economy and decrease its dependence on oil. In 2009 at a conference on the subject in Moscow attended by over 11,000 people from thirty-eight countries he said,

Nanotechnology will rival oil as a global powerhouse industry, so Russia’s economy needs to embrace it now. . . . The global nanotechnology market is worth about $250 billion today and may reach $2 trillion by 2015, making it comparable to the market of natural resources. . . . We here [in Russia] have the knowledge, the financial resources and the administrative capacity to become leaders in a technological process that will change the world.

To promote nanotechnology in Russia, the Russian government created in 2007 a special organization called RUSNANO, which is somewhat similar in its goals to the NNI in the United States, created in 2001. While the two organizations have a similar goal—namely, to make their respective countries leaders in nanotechnology—the two countries pursue that goal in rather different ways.

The Russian government has launched several programs aimed at high technology, the best known of which are RUSNANO, an effort to capture the promise of nanotechnology, and Skolkovo, an effort to create a newly constructed technology city, a Russian version of Silicon Valley.

The first thing that one should notice about RUSNANO is that it has been given a great deal of money, illustrating how important the Russian government considers the initiative to be. That sum as of 2012 was about U.S. $18 billion, which would make governmental investments in nanotechnology in Russia more than that of Japan or China, which also have big nanotechnology programs, and near that of the United States and Europe.

The way the RUSNANO program works is as follows. RUSNANO calls itself a “corporation,” but it is not an operating company but instead acts as a foundation funding nanotechnology ventures. RUSNANO can invest up to 50 percent minus one share in a start-up’s capital. Its goal is not to maximize profit but instead to set up other companies, and then to exit from them as soon as they can stand alone. RUSNANO makes money available not only to Russian citizens and institutions but also to citizens and institutions in other countries, including the United States (it has, for example, agreements with Alcoa and the Dow Chemical Company). It has funded twelve overseas investments, for a total of $2.7 billion, and it has funded five venture funds in the United States for $1.8 billion. Despite this overseas activity, the main emphasis of RUSNANO remains developing high-technology production facilities in Russia.

RUSNANO as of March 2012 had received almost 2,000 applications, including 372 from 37 countries, with 135 coming from the United States. Of these, 140 projects were approved, most Russian, with a total investment of $18 billion.


Skolkovo: The New Technology City
Skolkovo is often described as “Russia’s Silicon Valley.” It is a large area of several thousand acres in the suburbs of Moscow until very recently devoted to agriculture. The Russian government is investing several billion dollars here to build an “innovation city” (innograd) at the center of which will be a new university.

The goal of Skolkovo is to be not only a leading research center but also a place where scientific advances are quickly commercialized and introduced onto the market. With that goal in mind, the Russian government has promised foreign companies that if they set up branches in Skolkovo, they will be freed from the normal taxes and given a variety of additional incentives. Responding to these invitations, many foreign companies have accepted, including Boeing, Intel, Siemens, Nokia, Samsung, and Cisco. Cisco has promised to invest $1 billion in its facilities in Skolkovo.

Without a dramatic improvement in Russia’s business environment, efforts such as Skolkovo are going to help foreign partners more than Russia itself.

Are RUSNANO and Skolkovo Solutions or the Latest Spasms?
Many countries have attempted to jump-start entrepreneurial technology by creating high-tech programs and centers, and most have failed. A large literature analyzing these efforts exists; one recent author, Josh Lerner of the Harvard Business School, has called them the “Boulevard of Broken Dreams” and has described how countries like Malaysia, France, Dubai, and Norway have squandered hundreds of millions of dollars on unsuccessful efforts to duplicate California’s Silicon Valley or Boston’s Route 128 high-tech corridor. Still, a few, such as Singapore, Israel, India, and China, seem to be having some success. Where will Russia’s efforts fall on that spectrum?

The World Bank in 2012 ranked Russia at 120th place (out of 183 countries) on its “Ease of Doing Business Index” (Russia ranked 178th and 183rd, respectively, on “Dealing with Construction Permits” and “Getting Electricity”). Without a dramatic improvement in Russia’s business environment, efforts such as Skolkovo are going to help foreign partners more than Russia itself. A prominent Russian economist recently observed that Russia lacks “end users who benefit from hi-tech production.” He called for the state to institute “business-friendly policies.”

RUSNANO and Skolkovo are better qualified to identify outstanding technical talent than they are to judge market conditions. Fitting new technologies to the market is more the key to success in commercial technologies than is technical inventiveness. At Skolkovo, the foreign firms and universities are promising to teach the Russians about management and market analysis, but when a promising innovation appears, who is likely to find the best market niche for it, the Russians or the foreigners? And who will benefit the most?

How Russia Could Break Out of Its Three-Centuries-Old Trap

You want the milk without the cow!

—Leading MIT administrator in Russia in 2010, objecting to Russian desires to have high technology without social reform

Can Russia, after several centuries of trying to modernize itself in a sustainable way, finally solve its problem? In principle, of course it can. Other countries have done it. Japan modernized a traditional society in less than a century. More recently, South Korea turned the trick in about forty years. Both Japan and South Korea are major players today in international high technology in a way that Russia is not.

The problem is not a scientific or technological one, it is a societal one.

How does one change the mentality of Russians about “business,” shifting to a view that a businessperson making money from an innovation may be an admirable citizen, one of the major contributors to a country’s prosperity? How does one create a political order in which successful entrepreneurs are not feared by government leaders as rivals for power and influence but promoted?

Thus, the problem that Russia faces is truly monumental. However, improving the situation is not only possible, it is happening. Patent and intellectual property laws have been adopted and are being tested in practice. Schools of management have proliferated throughout the country, to the extent that “menedzhment” is almost a fad. The Russian government preaches the necessity of technological innovation and provides large sums of money for technology parks and technology start-up foundations. Russian business publications endlessly discuss the need for “modernization” and hash over different approaches, such as “catch-up modernization,” “liberal modernization,” and “forced modernization.” Furthermore, Russia already has hundreds of thousands of “entrepreneurs” working in retail stores, small businesses, banks, and trading outlets, both legal and illegal. So far not many of them have turned their interests toward commercializing high technology, but the potential for such a turn is present.

So Russia wants to become a high-technology superpower. Here is what it needs to do: it should become a normal Western nation. That means establishing true democracy, protecting human rights, creating a legal system that protects both intellectual property and entrepreneurs, reforming its higher education system so that it combines research and teaching and allows nongovernmental technology research centers, cracking down on corruption, and, finally, respecting and honoring businesspeople who make honest livings by promoting new technologies.

The most promising development in Russian high technology today is not Skolkovo or RUSNANO, the government modernization projects. No, the potentially most invigorating stimulus to Russian technology today is, counterintuitively, the demonstrations that have recently occurred on the streets of Moscow and other cities. These people are, at least in important part, professionals, the rising middle class, who represent something totally new in Russian history. Only this new middle class has the power to transform Russia from a country of subjects to one of citizens; only it might create a country in which creativity and excellence are not swamped by corruption and repression.

The potentially most invigorating stimulus to Russian technology today is the demonstrations that have recently occurred on the streets of Moscow and other cities.

In the absence of such a basic change in Russian politics, another path, one that could be called “gradual improvement,” is feasible. It means trying to reform each of the individual elements named above in a way that gradually makes Russia more hospitable to technological innovation. The protection of intellectual property can improve, educational reforms can occur, the dominance of the central government can soften, changes in attitude toward businesspeople can commence, restrictions on mobility can continue to erode, closer links between Western companies and universities and Russian ones can be forged.

In this incrementalist scenario Russia can emerge not as a world leader in high technology but as a striving participant in it, leading perhaps in a few areas, following in many others, but following closely in all. For the foreseeable future, Russia is likely to remain in its trap because of its refusal to become a normal democratic country, but its isolation can lessen and the fits and starts can be less abrupt.

Reprinted by permission of The MIT Press. Excerpted from Lonely Ideas: Can Russia Compete? by Loren Graham. Copyright 2013. All rights reserved. For full references please refer to the orginal book.

About the Author
Loren Graham, often described as the leading scholar on Russian science and technology outside that country, is the author of The Ghost of the Executed Engineer and other books. He is Professor Emeritus of the History of Science at MIT and Research Scholar at the Davis Center for Russia and Eurasian Studies at Harvard.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.