Russian economic policy is becoming a cluster

22.04.2011 — Analysis

Metallurgical Sverdlovsk region wishes to diversify its economy. The municipal government intends to create electrotechnical, chemical, airspace, forest and other clusters. Experts are doubtful about the feasibility of those plans: enterprises that are intended to be the basis of the clusters do not produce any competitive products, and technical parks do not generate any new ideas. As "RusBusinessNews" observer found out, only that type of business has perspective that is in the interests of particular officials.

The authorities of the Sverdlovsk region announced that industrial output in the region will improve by two, and industrial investment by three times by 2015. Officials placed their bet to high-technology products. The region development strategy provides for creation of clusters, exhibition centers of international scale and major training, scientific and research facilities. Those plans of Ural officials are in line with the federal trend of creation of an innovation infrastructure in the country which is required to modernize the economy. Technological parks have been operating in Russia for a few years already. In 2010, came up seed funds, cluster centers and technological platforms. All those institutions aim to support entrepreneurs united in clusters, to attract private investments, and to place orders for scientific and research works with the government on the part of business entities.

Discussions about disunity of Russian science and industry have become a common place. Things offered by scientists are of no interest for business since they cannot be implemented, and things ordered by entrepreneurs seem to be minor to researchers. Eventually, we have a bum innovation system in Russia: based on official statistics, 70% of investments in new technologies are made by the government and only 30% by private business. Konstantin Kiselev, Executive Director of Open Economy Center says that in reality, that ratio is even more dramatic.

And the government, according to Sergey Kadochnikov, Director of Higher School of Economics and Management under Ural Federal University, pours money down the drain quite often. That is why a bet was placed on those institutions where investment decisions are primarily made by entrepreneurs. Officials promise they will invest money in projects that already proved their effectiveness. According to Alexander Petrov, Minister of Industry and Science of the Sverdlovsk region, 400 million rubles will be earmarked from the regional budget for advanced long-run developments during the next five years.

Head of the Ural Center of Technology Transfer Iliyas Paderin thinks the authorities are trying to reconstruct what they had successfully ruined in the nineties of the 20th century. Integrating efforts of research, design and production entities in the Soviet Union was performed via the Ministries which were innovation products customers. Conventional clusters that came into existence back then mainly worked for military industrial complex, space-air and nuclear industries. And they worked not that bad, according to I. Paderin. Among disadvantages of the former system were only excessive centralization and detachment from peacetime industries.

It will not be easy to create a new system that would produce innovations since industry research centers are either dead or absorbed by large corporations and work in very limited fields while industrial enterprises are partly bankrupt and partly sold and try to find their niche on the market. By the way, they are not very successful in it: Russian industry has not been modernized for more than 20 years, engineering level is down, and there is lack of qualified workers.

It is obvious for experts that first of all, it is necessary to generate innovation demand on the part of big business so that competitive products are created within the framework of the new clusters. On the West where Russia adopted technical parks from, consumers of innovation products are large corporations that place orders for scientific, research and design work with small businesses. In Russia, major leading companies only venture to invest in production of a low value-added level in the value chain, and are restricted to proven technologies. According to Anatoly Filippenkov, President of the Union of Small & Medium Enterprise of the Sverdlovsk region, he cannot finish off technology of metal smelting using internal energy, due to lack of funds. That technology was of no interest for anybody in the metallurgical Sverdlovsk region, and the entrepreneur went to German investors.

There is a reason why Russian business is cautious. Municipal and regional officials are very jealous of independent businesses functioning on their territory and being out of their control. The red tape and extortions from investors that everybody is sick and tired of are usually explained by their unwillingness to start up this or that production on their land.

The sources of such attitude should be looked for in a close relationship between officials and local entrepreneurs. The same situation can be observed on the federal level, too. Prime Minister of the Russian Federation Vladimir Putin has recently ordered to his Cabinet to have a close look in creation of clusters in coal production by developing coal strip mines, transport infrastructure, raw material processing facilities and facilities manufacturing state-of-the-art mining equipment. Experts think the executive order of the Head of the Government is imposed by the lobbyist efforts of a well-known oil trader which has recently bought coal strip mines and a sea port.

Behind fine words about modernization, the business can clearly see commonplace love of gain of some particular officials. That is why, by supporting the governing party policy in words but not in practice, any economic undertaking of the authorities is turned into nonsense. Technical parks that were intended to help in development of high technologies are already discredited. Everywhere in the world this institution is used to improve logistics and to create environment where ideas pass to realization, but in Russia business builds technoparks, turns them into common office centers and cashes on renting them out.

Officials obviously do not want to develop high technologies in practice and not in words. That is confirmed by a jump in contributions to social funds in 2011 which had the most impact on innovative enterprises. The fruit of such policy are clearly witnessed in the Sverdlovsk region. At the recent Euro-Asian Mechanical Engineering Forum, ten people came to the round table to discuss industry modernization while culinary salon generated lots of buzz and was marked by conclusion of 80 business agreements.

Having voted with its feet, business actually gave up innovations for lost: according to Alexander Shokhin, President of the Russian Union of Industrialists and Entrepreneurs, ambitious plans announced by Sverdlovsk authorities may only be realized if there are clear adjusted business plans and support on the part of the real sector of economy.

Vladimir Terletsky