Democratist

Democracy. Russia. CIS.

Planning for the “inertia scenario.”

Posted by democratist on September 8, 2010

September 8th 2010,

Introduction

As stated in previous posts, Democratist sees Russia’s pronounced and increasing national inability in the sphere of technological innovation as one of the key motivating factors behind the apparent current “modernization” drive.

As Dimitry Trenin has noted, Russia continues to fall behind in terms of its industrial, technological and scientific capabilities, and this is already starting to have serious implications for her continued status as an international political, economic and (especially) military player.

As an example, these technological limitations have already manifested themselves in Russia’s inability to produce and deploy an effective reconnaissance Unmanned Ariel Vehicle (UAV) during the 2008 war with Georgia: Related areas of concern (mentioned in a speech given by Medvedev to Russian diplomats earlier this summer) include genetics, space, IT, energy, telecommunications and nuclear power.

While superficially novel, this contemporary desire for modernization among a section of the elite reflects and echos an enduring and often overriding historical preoccupation with the importance of military competition against comparatively advanced western nations, that runs throughout modern Russian and Soviet history at least as far back as Peter the Great, and which has provided the impetus for various spurts of Russian and Soviet technological modernization.

Twentieth-century examples include Stalin’s preoccupations about the impact of economic and technological backwardness on the USSR’s military capacities as a central motivation for Soviet industrialization in the 1930′s, as well as for the development of the Soviet nuclear arsenal in the 1940′s. Military competition with the west was also a central early motivation behind the economic reforms of perestroika (“restructuring”) in the 1980′s.

Three Scenarios

With regard to the contemporary case, in The Russia Balance Sheet (2009) Anders Aslund and Andrew Kuchins note that, far from being the brainchild of Dimitry Medvedev, the Kremlin had already formulated all the main goals and strategies currently being considered in relation to medium-term Russian economic growth and modernization during the final months of the Putin Presidency.

This programme, called “Russia 2020, was outlined in a speech given by Putin in February 2008, with the Ministry of Economic Development and Trade presenting a more detailed version a month later.

Russia 2020 outlines three alternative scenarios, in terms of the potential trajectories of economic development;

  • The first is the “innovation” scenario. This presupposes the development of a national innovation system, competitive human capital, and regional development centers, and requires a comprehensive reform and investment programme.  It foresees a subsequent average annual GDP growth of 6.5%.
  • The second is the “energy and raw materials” scenario, which is based on faster development and modernization of the extractive sector, and projects a subsequent average annual growth of 5.3%.
  • The third is the “inertia” scenario,” which assumes no significant improvement, and therefore forecasts an average growth rate of 3.9% per year.

In Democratist’s opinion, while over the last two years Medvedev has genuinely attempted to put some flesh on the bones of the proposed “innovation” scenario (introducing tax breaks, promoting technology parks, abolishing import duties on high technology equipment and encouraging foreign investment), over the past few months the “innovation” strategy has started to show signs that it is encountering increasing resistance from within the elite.

The reason for this emerging impasse is that many in the nomenklatura, grown rich under Putin on the proceeds of  corruption, are implacably opposed both to reform itself (which threatens their privileged position) and even more so to the implied political reforms which would be the backbone of an innovative economy, and which Medvedev tentatively began to promulgate over the summer.

In this regard, we consider Putin’s hints at the Valdai club meeting in Sochi on September 6th that he intends to make a return to the Presidency in 2012 as indicative of a broader reassertion of power by these interests, and an indication that the nomenklatura remains eager to avoid the potentially “destabilizing” effects of the political reform required to both attract increased western investment, and achieve the “innovation” scenario.

Instead, the elite appears to be hoping that a recovery in hydrocarbon prices over the next few years will allow them to return to a greater emphasis on the second, “energy and raw materials” development path, with its promise of a (still robust) 5.3% average annual growth.

This does not necessarily imply that the “innovation” scenario or its rhetoric is to be abandoned wholesale, or that Russia will instantly return to an openly confrontational and anti-Western foreign policy stance, but rather it seems more plausible that, over the next few years, where the needs of meaningful innovation come into conflict with intrenched elite interests (including in relation to  encouraging foreign investment), innovation will have to give way.

However, Democratist suspects, in contrast to the nomenklatura’s apparently rosy expectations, that Russia’s extraordinary and increasing corruption (which stems from the top, has become an integral part of how the country has been ruled especially since 2000, and which has been almost completely unaffected by supposed recent clean-up campaigns) will, in addition to putting firm limits on the “innovation” scenario, also put a considerable brake on  the development of the extractive sector.

Indeed, it does not seem implausible to suggest that, in the absence of serious political reform, within a few years Russia may be looking at growth rates closer to those of the “inertia” scenario than of the other two, as the system slowly begins to seize up.

Additionally, a second (and more certain) effect of this reassertion of power by the nomenklatura over the next few years is that, in the absence of innovation from within the domestic Russian public or private sectors, or from foreign investors (and with a continuing “brain-drain,” as many of Russia’s most talented people leave to pursue careers abroad) the corporatist Russian State will seek the innovation it has historically seen as essential in order for it to remain militarily competitive, and additionally for many other industrial sectors (including hydrocarbons and arms), through a greatly enhanced reliance on a tried and tested method employed extensively during the Soviet period, namely espionage.

Conclusion - Planning for the “inertia scenario.”

Whereas the conviction and subsequent swap of 10 Russia Foreign Intelligence Service (SVR) officers on July 9th in Vienna will doubtless have caused acute embarrassment to many in the nomenklatura, given the likely continued lack of domestic sources of innovation, and of foreign investment, while Russian foreign policy in general may remain less confrontational than that witnessed over the last few years for some time to come, Russian intelligence operations in the west are very likely to become considerably more extensive and aggressive over the next few years, with a greatly increased focus from both SVR and GRU on industrial and military espionage.

With this in mind, it is imperative that those same western companies that Medvedev and his backers have been trying to entice into committing to invest in Russia, as well as many others in the areas mentioned above, understand this increasingly virulent threat to their commercial interests, and therefore redouble their efforts with regard to both personnel and IT security.

Additionally, those western agencies tasked with dealing with this problem, might well wish to reconsider whether counter-espionage is not deserving of more than, say 3% of their budgets (as is apparently currently the case for the British Security Service – MI5).   

Indeed, in as far as the effects of a return to relative economic stagnation, coupled with an increasingly obviously technologically inferior military over the next few years are likely to strengthen eventual calls for a return to the “innovation” path, and for political reform, both from within concerned sections of the nomenklatura and the Russian public, western governments might start to consider counter-espionage activities, in relation to Russia at least, as an important aspect of their foreign, as much as security policies, and therefore provide them with a commensurate increase in funding.

16 Responses to “Planning for the “inertia scenario.””

  1. [...] This contemporary revanchism also reflects and magnifies an enduring and often overriding historical preoccupation with the importance of military competition against comparatively advanced western [...]

  2. [...] This does not necessarily imply that the “innovation” scenario or its rhetoric is to be abandoned wholesale, or that Russia will instantly return to an openly confrontational and anti-Western foreign policy stance, but rather it seems more plausible … Indeed, it does not seem implausible to suggest that, in the absence of serious political reform, within a few years Russia may be looking at growth rates closer to those of the “inertia” scenario than of the other two, … … See original here: Planning for the “inertia scenario.” « Democratist [...]

  3. [...] see that a great deal of this cash has been earmarked for military R&D, as we have already written at length about the implications of  Russia’s pronounced and increasing national inability in the sphere [...]

  4. [...] his strongman image, these cables are likely to have a very negative impact with regards to the much hoped-for western investment into Russia, and by extention Medvedev’s liberalization [...]

  5. [...] However, as Democratist has underlined, while political and strategic material apparently made up much of Zatuliveter’s reporting, the Russian’s main focus in the UK and elsewhere is likely to remain on military-technological developments, as they attempt to modernize their armed forces in the face of industrial backwardness exacerbated by corruption. [...]

  6. [...] And not just in parliament. As Democratist has underlined, while political and strategic material apparently made up much of Zatuliveter’s reporting, the Russian’s main focus in the UK and elsewhere is likely to remain on military-technological developments, as they attempt to modernize their armed forces in the face of growing industrial backwardness exacerbated by corruption. [...]

  7. [...] back in September Democratist suggested the strong likelihood that Russia would need to place an increasing emphasis on military and industrial espionage over the coming years in order to compensate for a lack of domestic [...]

  8. [...] innovation, and our belief that autocratic rule in Russia (and its attendant corruption) have had a devastating (and continuing) impact on Russian science and technology (S&T), despite President Medvedev’s so-called [...]

  9. [...] the Russians have been suffering over the past several months, it seems very unlikely that the much hoped-for Western FDI flows into Russia will recover any time [...]

  10. [...] illustrate our oft-repeated point that autocratic rule and corruption in Russia have had a devastating (and continuing) impact on national research and development, especially over the last 10 years, and that [...]

  11. [...] September, Democratist wrote that we believed Russian President Medvedev’s attempts to introduce an“innovation [...]

  12. [...] have often suggested that autocratic rule in Russia (and its attendant corruption) is having a devastating (and continuing) impact on Russian industry and [...]

  13. [...] in terms of the policies that either candidate is likely to follow; both take their cue from the Russia 2020 policy document, first announced by Putin in February 2008 (i.e. just before Medvedev was elected). And both seek [...]

  14. [...] drive. While superficially novel, this desire for modernization reflects a historical preoccupation with the importance of military competition against comparatively advanced western nations, that [...]

  15. [...] an ongoing lack of FDI and reluctance to the introduction of the political and economic reforms required for a more diversified and efficient economy, the elite will continue to hope that [...]

  16. [...] an ongoing lack of FDI and reluctance to the introduction of the political and economic reforms required for a more diversified and efficient economy, the elite will continue to hope that [...]

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