The need to restructure the Russian economy has led to a variety of public policy initiatives. Whatever the official vocabulary, “innovation” is a key aspect of these policies. Therefore, a comparison with a country such as France that has implemented a very pro-active innovation policy may provide some tools of analysis.
In both countries but for different reasons, there exists a gap between the high scientific potential and the development of innovative industries in competitive markets. As such, both the French and the Russian governments decided to implement large-scale programs to drastically improve the innovative component in the national economy.
The French case: Clusters as a new approach in the mid 2000s
The 2005 implementation of “pôles de compétitivité” (the English term “clusters” does not fully reflect the specificity of these) marked a major change in France’s innovation policies. Originally these “pôles” were mainly intended to streamline state financing into cooperative projects involving SMBs, large corporations and public research laboratories.
There are now 71 of these “poles” all over the country in most industries, including finance. The original principle of the “pôles” was to bring together companies and public research centers working on related subjects in a given geographical area.
In the past seven years, these “pôles” developed in complex and somewhat unexpected ways. Noteworthy aspects of these developments include:
- The significant growth in the number of participating companies. They are now nearly 10,000, including 1,500 startups that have been created through the R&D projects financed via the “pôles;”
- The growing share of SMBs;
- The strong involvement of regional governments, especially in financing the clusters’ support structures;
- The development of intra-cluster and inter-cluster synergies, especially through cooperation between SMBs and large companies;
- The integration of society’s needs.
Another very important tool has been the implementation of an extremely favorable system of tax credits for R&D, the “Crédit d’Impôt Recherche” (CIR). Created in 1983, the CIR’s rates and conditions of eligibility have changed several times, but it remains probably one of the most favorable tax credit systems for research and innovation in the world.
Overall, this policy gave birth to a favorable decentralized ecosystem that has become much more than the pure financing tool that it was originally intended to be. The “poles” encouraged impressive results in areas where France previously tended to lag behind. The most striking example is in ICT, where French companies have regained a strong position in consumer-oriented software, Internet and telecom middleware and applications and professional complex systems among other areas.
The Russian Case: A new policy as a result of the 2008 crisis
The 2008 economic crisis hit Russia in a very specific way. Its effects were short-lived at a macro-economic level, but it showed the weaknesses of Russia’s productive system.
In the field of innovation, the most striking phenomenon was the discrepancy between the country’s high science and technology potential and the fairly low level of innovative output, for instance as measured by the number of international patents.
The government quickly recognized these inadequacies and, in 2009, launched a “modernization” program that aimed to define a new economic policy. The major change was a shift from precautionary saving to spending, with a sharp increase in funds made available to the real economy, among others for the implementation of a new innovation policy.
Developing a new national innovation system:
The creation of the National Park for Science and Technology in Skolkovo was touted as the flagship program of the new innovation policy. Skolkovo’s major characteristic is was it ambition to create a complete ecosystem for innovation that includes:
- The creation of research centers and universities;
- Incentives meant to attract companies with in some cases subsidies covering up to 75% of the investment (at the moment. Skolkovo has 1,000 resident companies, 200 of which have received subsidies);
- Complete support program for companies, including technopark infrastructure and the tax and legal benefits of “virtual Skolkovo.”
- A specific governance system with an international component.
Skolkovo is the best known component of the new innovation policy, but it is far from being the only one. Technoparks, technopolis and incubators have blossomed in the past few years, strongly supported by regional governments. These organizations bring together innovative companies in dedicated areas, with support and services provided with the help of the regions. In 2013, there are nearly 100 of these official innovation centers all over Russia, and the number should continue to grow. The most visible centers are located in Tatarstan (Innopolis), Siberia (Novosibirsk, Tomsk, Krasnoyarsk), Kaluga, Moscow City and Moscow Region…
Many other aspects of innovation strategy are also dealt with.
State-owned high-tech holdings have been created to coordinate government policies in such areas as nanotechnology, the aircraft industry and the space industry: Rusnano, Rostechnologii, and OAK are some examples.
New instruments have been developed to improve the financing of technological companies including:
- The broadening of public development bank Vnesheconombank’s (VEB) missions.
- The creation of RVC (formerly Russian Venture Company), a fund of funds in charge of investing in strategic projects in partnerships with private VC networks.
- Specific funding, for the State corporation Rusnano to develop a wide-range of nanotechnology projects.
At the same time, private initiative is becoming more and more important, bearing on the financing and the development of incubators and accelerators.
Challenges
It is too early to fully evaluate the results of these programs, but it is already possible to define issues that will determine the outcome of the current innovation policy.
1. What are the links between innovation centers and the rest of the economic environment, and what are the positive spillover effects at the local or regional level? The French case shows that interrelation between the pôles and the regional ecosystem is one of their most positive aspects. The lack of ties to the local ecosystem is one of the criticisms aimed at centralized schemes such as Skolkovo. This issue has been highlighted in a recent EBRD report and is probably less acute with regional schemes.
2. Is there an adequate balance between efforts to promote technology and efforts aimed at improving the business environment? For instance, in Skolkovo, the key criteria for admission is the development of advanced technologies, even if the assessment of market opportunities has recently been taken more into account. This technology-oriented approach to innovation is understandable and comparable to the process implemented in France in 2005. If the comparison continues to hold, there is a good chance that this approach will change with increased efforts to promote the “immaterial” component of innovation (support, network building etc.).
3. How to adapt to the lack of balanced working experience between Russian state institutions and private companies? In Western European countries, the process of defining a policy involving support to private companies and the administration’s implementation of this policy according to precise and fair rules is common. This is, however, a new experience for Russia since the administration is used to following purely bureaucratic and somewhat arbitrary rules, a legacy of the Soviet era.
In Skolkovo, the original intent was to organize a fully transparent process for choosing residents and attributing grants. In practice, the procedure turned out to be bureaucratic and lengthy. Many foreign companies felt the process to be too long, and several of them have decided not to take up residence at Skolkovo even after having being initially accepted. One of the principal reasons for this refusal is the complexity of bureaucratic procedures that have substantially delayed the availability of financial resources. The result is that barely more than a dozen of foreign companies have benefited from Skolkovo grants.
Moreover, this complex selection process has not prevented many criticisms concerning inappropriate use of funds. The governance system is also constantly undergoing restructuration, which hampers day-to-day and strategic operations.
This issue of appropriate institutional environment is considered very seriously at a federal level as well at the local/regional level in Russia. Many regions, as well as Moscow City, have recently implemented permanent structures for economic development and innovation that are are inspired by their counterparts in Western Europe.
4. How to compensate the traditional lack of financing for SMBs? The amount of public money available for innovative companies in Russia is comparable to that available in other countries, but this funding mostly takes the form of grants, which are not optimal in providing leverage effects. Mechanisms like tax credits, which have proven much more efficient in the respect, were only recently introduced. It is difficult to expand these credits, as they require a specific control mechanism to prevent poorly justified tax credit refunds. Contrary to countries like France that have a long tradition of control of public subsidies, Russia is just beginning to develop such mechanisms.
The emergence of private VC funds is a positive factor to foster innovation policy. However, VC funds tend to invest in technologies that duplicate existing business models such as those already found in Western Europe or in the US rather than those that create breakthrough technologies. The creation of public VC funds aimed at co-financing grants in high tech projects may alleviate the problem.
5. How to improve entrepreneurial culture? This is a difficult challenge because it involves many components of a society. In some areas – IT, telecoms, e-commerce – there are innovative Russian companies that have been able to grow to a very respectable size and are now major actors of the market economy. However, they are still a minority and are concentrated only in very specific areas. Here again, a policy that focuses on building a coherent ecosystem for innovation will much encourage the emergence of this culture. This is what happened in France where publicly financed programs and incubators helped entrepreneurs to develop their ideas into products and companies.
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A qualitative change in public innovation policy has been undertaken in France and, more drastically, in Russia in the past years. The difficulty in assessing such changes is that although input indicators (number of researchers, R&D expenses) can be measured quickly, the real impact of the policy has to be measured by output indicators (number of innovative companies, share of innovative products in GDP, number of patents etc.). And since building a national innovative system is a long and complex process, it will take many years before the real impact of these policies can be determined.
This article is a shortened and adapted version of a paper published in “Rossiyskaya Economicheskaya Model, Dinamika i Konteksty” Kuban University, Krasnodar, 2013
Jean-Louis Truel is managing director of IBD, a company specialized in business development for small and medium size high-tech companies and in increased international technological cooperation. He is also a consultant on innovation policy issues and technology transfers between France and Russia.
