Modernizing Russia’s economy… and politics

U.S. policymakers for years have lamented their lack of leverage in pushing for democratic reform and respect for human rights in Russia. Well, now we may have an opportunity, but the question is whether we will make use of it. If Russian President Dmitry Medvedev is serious in wanting our help with his economic modernization agenda, we should insist that he needs to make measurable progress in political liberalization first. 

Medvedev has made "modernization" and "innovation" the buzzwords in Russia these days, and he brought that buzz with him to the United States this week. Before arriving in Washington today, Medvedev visited Silicon Valley to study that high technology center in hopes of replicating it in Russia. He has designated an area just outside of Moscow, Skolkovo, and a Russian oligarch, Viktor Vekselberg, to spearhead this effort. During a speech at the St. Petersburg Economic Forum last week, he also promised various economic reforms designed to spur foreign investment in the high-tech field as part of his efforts to diversify Russia’s economy away from dependence on exports of natural resources. 

The West is eager to get in on the act. The European Union earlier this month launched a "Partnership for Modernization" with Russia. Medvedev met with top representatives from Cisco Systems, Apple, Microsoft, and others to encourage their investment. And the Obama administration, in a June 11 statement announcing Medvedev’s trip to the United States, noted that President Obama looked forward to exploring greater cooperation with Russia in "trade, investment and innovation." According to the statement, Obama is "pleased" that Medvedev will visit Silicon Valley and "have the opportunity to review the unique set of factors that has fostered this important center of technological advancement and entrepreneurship." 

What’s wrong with this picture? Let’s begin in Russia. Medvedev’s high-tech project so far appears to be driven by a top-down approach. The Russian state plans to pump lots of rubles into Skolkovo, but this contradicts Medvedev’s previous pledge to reduce the role of the state in the economy. Throwing lots of money at the problem is more likely to feed corruption than spur innovation. As Vladislav Inozemtsov, director of the Moscow-based Center for Post-Industrial Studies, recently argued, the Russian government is simply "throwing money at ventures…but little is being done to develop innovation from the bottom up."  In an interview the other day with RFE/RL, Vladimir Babkin, an expert at the State Duma’s committee for science and technology, noted, "Silicon Valley in California was created on the basis of universities. It was a bottom-up growth. In Russia, it’s top down, and the goals are unclear."

Moreover, Russia doesn’t have a competitive advantage to focus on development of a high technology economy. It spends little of its GDP, comparatively speaking, on research and development. According to the number of patents issued by the United States Patents Office to residents of foreign countries, Russia registered 904 over the past five years; Belgium with one-fourteenth the population of Russia, registered four times as many. Many Russian scientists and engineers have emigrated to more promising prospects overseas (including, fortunately, many smart ones to the United States), leaving Russia suffering still from a brain-drain. Russia’s economic advantage, for better or worse, is in natural resources, and most Russian businessmen know that. 

When the price of oil plummeted in 2008-09 and Russia’s GDP dropped by nearly eight percent last year, Medvedev sought to energize his modernization drive by emphasizing the need for development of a high technology sector. The price of oil has bounced back, albeit not to the highs of two years ago, and pressure to diversify has decreased correspondingly. But Medvedev has not given up and has made Skolkovo the centerpiece of his agenda.

It is one thing for the Googles and Microsofts of the world to invest in Skolkovo; after all, they are accountable to shareholders and will be driven by whether they see the possibility of making a profit in Russia. The bigger question is why the U.S. government should get involved. What policy reason do we have to help Russia develop into a high technology economy, assuming this is even possible? 

After all, despite Medvedev’s rhetoric about dealing with corruption and rooting out legal nihilism, Russia continues to move in an anti-democratic direction, with no real rule of law or accountability but lots of impunity for murders of human rights activists, critics, and journalists.  Pending legislation would expand the powers of the FSB (the KGB’s successor organization), and the farcical Khodorkovsky trial continues apace. Russia ranks 146th out of 180 countries on Transparency International’s Corruption Index and 63^rd out of 137 in the latest Global Competitiveness Report. The "values gap" between our two countries is growing and contributes to diverging interests on key issues. The argument that a Russia with a more vibrant economy over time will become more democratic is belied by the trend of the last decade — Russia’s economy soared (thanks to the rise in the price of oil) but its political situation deteriorated badly. 

So, why would the U.S. government want to help Russia become more economically efficient and diverse — i.e., stronger — when Russia is becoming more authoritarian? The Obama administration explicitly rejects linkage in its relationship with Russia — it pursues each issue on a separate track — and thus won’t insist on political modernization in Russia as a precondition for helping Medvedev’s high technology pursuits. Such an approach forfeits any leverage we may have to push for liberalization in that country. That is a shame, for a Russia that is reforming economically and politically would indeed be a Russia worth investing in.