Are the proposed measures adequate for the transition of the economy to innovation development Do they take into account the reasons of innovation insensibility of the economy and the currently emerged specific features of innovation development of this country A more comprehensive analysis shows that no single approach should applied to the economic development in the case of Russia, and the degree of innovation sensitivity will vary depending on the parameters assessed. On the one hand, the Russian economy is sensitive to the parameter concerning procurement of new, high-tech equipment, which is evident from growing volumes of imports of technological equipment. Indeed, procurement of new foreign-made equipment provides more advantageous for enterprises not only in terms of its relative price, quality and offered after-sale services, but also in terms of payment vehicles. Foreign equipment can be paid by installments, while domestic one is subject to a 90% prepayment. Taking into account the importance of such procurement, focusing on promotion of procurement of foreign equipment ( for instance, through abolition of customs duties ) may keep this country behind others in terms of technological development, because such approach retains the simulation nature of innovation development.
On the other hand, Russia has been falling behind some developing countries, let alone the developed ones, in terms of the in-house R&D costs parameter which indicates the ability of the economy to absorb and turn new knowledge into new goods, services and know-how.
The foregoing can be supported by the data on the BRIC countries ( Brazil, Russia, India, China ), which is collected the World Bank on a regular basis: in 2004, R&D costs as percentage of sales accounted for 2.5% in China, 0.9% in Brazil, 0.46% in India, and barely 0.3% in Russia. Analysis of R&D works at Russian enterprises shows that most of them cover insignificant improvements so that the enterprise could stay alive rather than develop. It is the amount of level R&D costs that matters, not the costs themselves. The picture is even less optimistic in this respect: companies R&D costs account for less than 8% of total costs on technological innovations, to compare with an average of 20% in the European countries. Costs on patents and licenses are much less, less than 2%13.
In our opinion, there are several reasons for low innovation activity in the economy that are worth mentioning in this respect. The first one is monopoly held by many Russian firms. According to the recent surveys, monopolists, i.e. those companies whose core business products have occupied more than 50% of the national market, account for about 20% of all Russian companies. Furthermore, such domination extends as far as very small, specific markets, what is more, niche markets14. There is no way innovation activity can be compatible with monopoly. Indeed, the level of innovation activity at a monopolized industry is expected to be very low die to lack external competitors. Therefore, inactivity in the filed of innovations has much to do with weak external and internal incentives, and, above all, Kuznetsov B., Kuzyk M., Simachiov Yu.., Chulok A., Tsukhlo S. Specific Features of the Demand for Technological Innovations and Assessment of Potential Response of Russian Enterprises to Possible Innovation Activity Promotion Mechanisms // VII International Scientific Conference ‘Economy Modernization and the State’.
М.: State University Higher School of Economics, April 5, 2006.
Kuznetsov B., The Effect of Competition and Market Structure on the Development and Behavior of Industrial Enterprises: Empirical Analysis // VII International Scientific Conference ‘Economy Modernization and the State’. М.: State University Higher School of Economics, April 5, 2006.
lack of competition. According to the same surveys, innovation activity is more intensive among the enterprises having to compete with import products, and those operating in foreign markets ( i.e. exporting their products ). This is why demonopolisation should be the main instrument to overcome lack in technology.
The second reason is structural issues of the Russian economy dominated by primary production industries. Industries producing frequently changed ( upgraded and modernized) products have the highest demand for innovations. Primary production industries are not that much apt to innovation processes, in spite of that advanced oil and gas and other types of primary production companies have been promoting both their own R&D and outsourcing. High oil prices remain a serious disincentive factor.
The third reason is that indirect regulation is not aimed at promoting innovations. The tax system is neutral, while the recently proposed measures are aimed mainly at stimulating imitation of innovation rather than innovation as such. Instead, it would be a good idea to promote innovation developments at enterprises ( for example, by introducing a marginal tax allowance for profits, provided that there is an increase in R&D costs ). The question at issue is that this requires a serious enhancement of tax administration.
Fourth, innovation activity requires knowledge obtained from both domestic and international practices. The worldwide knowledge can be obtained through the channels several channels: international cooperation in the R&D field, international trade and foreign investments, as well as by establishing cooperation with previously emigrated researchers. To date, Russia has achieved no success in this respect: international cooperation has been hampered by various obstacles of economic and political nature, the issues on cooperation with former emigrants has not be dealt with at all, though it could be linked with broader issues of migration policy. Investments in patents and know-how have been minimal ( they accounted for 5.4% in imports of technologies in 200415 ).
To sum up, keeping in mind the importance of the above reviewed venture financing and research and technology parks, they are not the key instruments in promoting the development of small innovation entrepreneurship, and have no effect on innovation activity at medium-size and small companies.
It is the introduction of investment and depreciation allowances that matters most for the latter. Such allowances, however, are most likely to promote a ‘catch-up’ model of development in absence of incentives for absorption of new knowledge and specific innovation allowances. It is therefore important to provide a serious support to R&D at medium-size and large enterprises, because it is the large business-sector companies that determine the level of innovation in the economy.
I.Dezhina G-8 Summit’s Resolution on Education for Innovative Societies in the 21st Century and Russian Education System Reform This paper provides a review of the provisions of the resolution on education adopted at the G-Summit in St. Petersburg in June 2006, which can be found relevant for the Russian education system reform.
The agenda of the summit of the eight most powerful world nations that was held in St. Petersburg in July 2006, included a discussion on the issues such as the place and the role of education in the modern world and its effect on globalization processes. Hence ‘Education for Innovative Societies in the 21st Century’ adopted by the heads of state and government of G-8 member countries in St. Petersburg, July 16, 2006 was one of the most market events of the Summit. This document, was prepared by the Russian party and adopted without amendments. In our opinion, the document may be very important in terms of injecting a new feature into the processes of modernization of the Russian education system, provided that Russian reformers can take this document as assumed liabilities rather than a general declaration “for your information”.
Let’s consider the basic provisions, priorities and strategic tasks set out in this document. It includes the following sections:
Russian Science in Figures – 2005. Statistical Reports. М. : The Centre for Science Research and Statistics under the Ministry of Education and Science of Russia, 2005, p. 111.
I. Developing a Global Innovation Society II. Building Skills For Life and Work Through Quality Education III. Education for All and Development IV. Advancing Social Cohesion and Immigrant It is stated in Section 1 of the document that “We will promote the global innovation society by developing and integrating all three elements of the “knowledge triangle” ( education, research and innovation ), by investing fully in people, skills and research, and by supporting modernization of education systems to become more relevant to the needs of a global knowledge-based economy”. In practice, one can see that time and again the Russian Government has been pursuing the strategy contradicting the above tasks, because a series of duly established provisions regarding, for example, financing of higher educational institutions prohibit explicitly the use of the budget funds, allocated under ‘education’ item, for fundamental research. To date, those fragile relations between the leading higher education institutions and the Academy of Sciences of Russia, which were established in the 80-90’, have been broken completely. It is planned to prohibit state higher education institutions from utilizing at their option the funds generated from innovation activity, because the latter must be credited to the federal budget ( and there are no guarantees that even a small share of these funds will return to the higher education institutions for R&D ). Therefore, the implementation of this truly stated provision in Russia requires a serious revision of the entire system of financing of education and research. However, no visible measures whatsoever have been taken in this respect by the Russian Government in pursuing its current policy.
It is stated in Section 5 that the G-8 member-countries will “cooperate with the private sector to expand research networks to generate knowledge, encourage innovation, and move new technologies quickly from the laboratory to the marketplace”. The fact that concurrently to the above stated the G-member-countries will continue to allocate budget funds to finance fundamental research has been deliberately omitted in this Section. While such provision is not significant for other 7 G-8 membercountries, because they already allocate substantial budget funds to meet R&D costs of their higher education institutions, it is not the case for Russia, for which not stressing such a role of the federal government in financing of fundamental research at state universities may have catastrophic effects, since the Russian business society is not prepared at all to finance the fundamental science.
Paragraph 7, Section 1 reads, among other things, : “we will encourage closer cooperation between universities and industry”. In practice, however, as noted above, cooperation between state higher education institutions with industry has ceased to be a source for the development of fundamental research, because they are not allowed to use their revenues at their option.
Paragraph 9 of the same Section reads: “Education is vital to the public interest”. To be more precise in terms of scientific terminology, education is vital to the social interest rather than the public one, i.e. the private interest having significant external effects deriving from its production and consumption. To distinguish between the public and private interests is not just a fine writing, but a fact leading to significant strategic effects related to the production and consumption of education services.
Confusing the said features may lead to ineffective development strategies of this country.
Paragraph 24, Section 2 contains a sentence which is absolutely correct and vital for the Russian education system: “The teacher lies at the heart of education. Fundamental to improving student learning and achievement is the presence of highly qualified teachers in every classroom. Teachers must have good knowledge of content and instructional methods to be effective educators and mentors.
Effective teachers instruct their students in critical content knowledge, and help develop the desire and ability to excel and to pursue life-long learning”. Unfortunately, these provisions set out the concept which is currently to hard for Russia to catch up with. Regardless of special funds provided for by the national project for wage increase in the field of education, the real labor remuneration is still far from being sufficient to be able to attract gifted young researches to this sector. Furthermore, the recently abolished determent of call up for teachers at country schools will make this occupation less attractive for male young teachers, which in its turn will inevitably result in feminization of this sector in the rural labor market.
There is an idea that threads through the entire document concerning the need to establish a sustainable system of cooperation between education and business on the basis of social partnership intended to increase quality of education and its compliance with the labor market’s modern demands. This task is especially vital for Russia. It should be well understood, however, that such partnership can’t be mutually beneficial unless its parties observe its internal, peculiar functions: the government shall finance basic education and fundamental research, including higher education institutions; higher education institutions shall create new knowledge to be communicated to students, as well as apply this knowledge to the application tasks set by business; business shall be encouraged to participate in innovations and finance the applied research conduced at its request by higher education institutions.
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