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Archive for the ‘FDI’ Category

Democracy and Innovation: Mevedev’s Skolkovo Illusion.

Posted by democratist on March 10, 2011

 

10th March 2011,

In our last article, Democratist looked at Niall Ferguson’s insightful analysis of the impact of autocratic government and the command economy on the Soviet Union, and the effect this had on the USSR’s ability to compete with the United States, and its eventual collapse.

But the Soviet Union has been history for almost twenty years. The more skeptical among our readers will doubtless be thinking, “The Command economy may be finished, but surely the Chinese example shows that authoritarian capitalism can come up with the goods just as well as democracy, if not better. Why shouldn’t Russia follow an authoritarian capitalist model?”

One obvious answer to this question is that the Russian elite has been following their own interpretation of just such a model since 2000, and that the results in terms of Russian economic diversity, industry and technological capability have been poor at best. 

While economic growth was indeed strong for much of the last decade (and is returning) this has been largely a result of Russia’s vast natural resource endowments, which account for around 70% of exports, and which played an important role in attracting the financial flows that boosted other sectors such as construction and the retail trade: Given easy access to money from hydrocarbons after 2002, and an ingrained fear of the social dislocation that would arise from the introduction of a genuine market economy, with a couple of notable exceptions at the start of Putin’s first term in office, the nomenklatura came to largely ignore the need for economic reform between 2000 and 2008.

One of the results of this has been that the Russian industrial and technological base has stagnated; while Soviet science and technology were inefficient and generally lacking in innovation, they at least had the advantage of being seen as strategically important and prestigious: Under the current system a mixture of cynicism and deep corruption, misjudged industrial policy and protectionism have set in, and while recently the government has again come to see science and technology as strategically critical, they face the problem that (following the nomenklatura’s own example) many of their brightest young people seem more interested in milking the state than serving the nation as scientists. Subsequently, the old Soviet engineering culture is slowly starting to die out.

But, as Andrey Kolesnikov, a columnist for Novaya Gazeta wrote in an excellent article for Open Democracy last July, even since 2008 President Medvedev has felt obliged to restrict his plans for Russian innovation within the confines of the “ghetto” of the Skolkovo project, and in a manner heavily reliant on foreign investment, as opposed to domestic innovation.

According to Kolesnilov, Medvedev is attempting, just like Peter the Great, Stalin, Khrushchev and Brezhnev before him, to import technological know-how into Russia from the West, lest the reforms necessary for the development of an innovative culture at home threaten Russia’s social order, and the existing power structure.

But as we saw in our piece about the roots of innovation, genuine innovation (as opposed to re-engineering the ideas of others) can only come from the kind of flexible, creative and inventive culture that emerges from a competitive market economy, backed up by democracy and the rule of law.

Kolesnikov states that the results of this are that;

 “…currently just over 9% of Russian enterprises invest in innovative technology. A comparison: in Germany, the number is eight times that. Fundamentally new Russian products account for just over 70 billion roubles (£1.5 billion). This was 0.4% of the total volume of industrial production in 2007 (in Finland, the figure was 16%). The percentage of innovative production in the total volume of sales in Russian industry is around 5%. Put another way, Russia is backward. 98.5% of patentable innovations are created by 15% of the world’s population, and Russians do not number among them (we are talking in the main about OECD countries)…And this technological gap can only get worse, since the speed of progress is increasing with each year: if in earlier times, moving from one technological generation to another was a matter of 10 or 15 years, now we see that, in aviation at least, this is happening every five years (my source of data are the four 2009 editions of Moscow’s Higher School of Economics Foresight magazine).”

In the first article we posted to Democratist in May last year, we quoted Dimitry Trenin as saying, “The Kremlin …[has been]… forced to come to terms with the fact that Russia cannot modernize on its own and that it needs Western investment and strong business partnerships with the West.”

But upon reflection, even if that partnership were to bear fruit in Skolkovo this still would not really resolve the broader problem of the stagnation of Russian science and technology: That kind of change implies a deeper political and cultural shift.

 

Posted in Autocracy and Innovation, FDI, International Political Economy, Liberalism, Russia - US Relations, Russian Corruption, Russian Economy, US - Russia | 3 Comments »

Russia: FDI and the forthcoming elections.

Posted by democratist on February 18, 2011

18th February 2011,

Democratist was fascinated by Russian Finance Minister Alexei Kudrin’s speech in Krasnoyarsk yesterday.

According to Kudrin FDI into Russia fell to  $12-14 billion last year, the third successive year of decline since 2008.

“Direct foreign investment was one and a half times lower,” Kudrin said, “This is not much. In the best years it reached $27 billion.”

And he also stated that this has had a negative impact on President Medvedev’s “modernization” effort, and is holding back economic growth. “We will see in the coming years a stable growth of around 4% and above. However for Russia this – the level of a mid-ranking economy – is insufficient,” he said. “We need a significantly higher growth rate of 6-7%.”

For Democratist’s perspective, what is most interesting about these figures is that they cover the period before last December’s release of embarrassing Wikileaks cables which described Russia as “a virtual mafia state.”

Given the near-continuous (and frankly mostly warranted) bad press 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 soon.

So, what are the most likely effects of  continually declining FDI on Russian politics? Will Russia, as Kudrin (rather unexpectedly) suggested, decide to hold free and fair elections later this year, and in 2012 as part of a strategy for future liberalization?

Alas, this is unlikely. The nomenklatura has an intrenched fear of “instability.” Giving power away in any meaningful sense is largely anathema for Putin and his former KGB pals, regardless of the lessons that recent developments in Tunisia and Egypt may imply. Their main medium-term hope remains a (continued) rise in raw materials prices.

So while there may be some measured liberalization in the parliamentary polls set to take place in December, Democratist continues to maintain that the regime will probably try to leverage the Presidential elections due in 2012 as method for winning increased international legitimacy by enhancing the (not so far especially successful) illusion of Russia’s “democratic development” through a poll that apparently offers more political competition than was the case in recent years, but in reality whose parameters have been carefully determined in advance.

While the exact form this contest will take may be beyond even our predictive powers, Democratist continues to feel that the obvious choice will be a superficial competition between an emphasis on ”stability” or “modernization”; between Putin or Medvedev.

Posted in Democratization, Elections, FDI, Hydrocarbons, Jasmine Revolution, Russia 2012 Elections, Russian Economy, Russian Politics | 3 Comments »

 
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