The following OECD assessment and recommendations summarise Chapter 4 of the Economic survey of the Russian Federation 2006, published on 27 November 2006.
Improving framework conditions for business should help Russia realise its innovation potential
The quality of public administration will impinge directly on the success of recent initiatives aimed at fostering innovation. Russia’s innovation potential is probably greater than that of most countries at comparable levels of per capita GDP, given its large science base and human capital endowments. There is also considerable scope for innovation, in view of the need to modernise Russian industry and to make it cleaner and more energy-efficient. Yet there is a striking imbalance between the substantial public resources devoted to knowledge creation and the rather disappointing outputs in terms of innovation. Closing this gap is the first major challenge for Russian innovation policy. The second is to stimulate greater private-sector involvement in R&D.
There is a striking imbalance between public investment in R&D and observed outcomes in terms of innovation
1. 2003 for France, Greece, OECD and Portugal.
Source: OECD, Main Science and Technology Indicators database and STAN Bilateral Trade Database 2006/I.
A healthy, open business environment may be considered an essential precondition for any successful innovation policy. In addition to macroeconomic stability and a generally sound contracting environment, policy-makers wishing to stimulate innovation should pay particular attention to reducing barriers to market entry, facilitating the diffusion of new technologies and know-how, and stimulating competition. In Russia, it is not primarily barriers to foreign competition that matter: rather, it is the administrative barriers to new firms that must be lowered, as well as barriers between regional markets, which are often highly segmented and not very competitive. Reforms to strengthen the financial system should also help foster innovation: enterprise surveys consistently highlight the shortage of own funds and the cost of borrowing as major barriers to investment and innovation. The dearth of venture capital in Russia – a reflection of the overall under-development of financial markets – is part of the problem here.
Markets tend to be highly segmented at regional level
Herfinadahl-Hirschmann concentration indexes, 2004
Source: Bessonova (2006).
The public science sector and the domestic IPR regime should be more responsive to business needs
The government’s emerging innovation strategy lays considerable stress on two key priorities: reforming the state science sector and strengthening the intellectual property rights (IPR) regime. These are the right priorities. The public science sector is large, fragmented and largely cut off from the enterprise sector. Its potential as an engine of knowledge creation is enormous, but realising that potential will require major reform. Of cardinal importance will be steps to rationalise the organisational structure of the sector, reduce the number of direct recipients of budgetary R&D funds and shift to greater reliance on project-based rather than institutional financing of state-funded research. At the same time, it will be necessary to enhance both the independence and responsibility of managers of public R&D organisations and to broaden the opportunities and incentives for universities and institutes to pursue the commercialisation of the results of their research via the creation of technology transfer offices and/or spin-off companies.
With respect to IPR, there is a need to improve not only IPR protection but also the specification and allocation of IPR. The recent liberalisation of the regime for assigning IPR to the results of publicly funded research is thus an important step forward. It would also be desirable to increase the penalties for IPR violations and reduce the scope for relying on “copycat” patents. Increased judicial understanding of IPR issues will be important, especially in the regions.
A more favourable tax regime for private-sector R&D could also help
Private-sector R&D is too low, and stimulating it must be regarded as a major priority. However, the effectiveness of fiscal incentives to promote R&D appears to be highly sensitive both to the institutional environment and to the specific design of the instruments themselves. They should therefore be approached with caution. That said, it would be desirable in the Russian case to begin by reducing the fiscal disincentives to R&D, in particular by allowing accelerated amortisation of R&D expenditures for all firms, not only those in special economic zones. Beyond that, it will be important to ensure that fiscal incentives for private-sector R&D are relatively simple, universal, and neutral between sectors. Except in the cases of start-ups and small firms, such incentives should generally rely on tax breaks rather than subsidies, as empirical work suggests that the former are likely to be more efficient.
More direct interventions should be carefully targeted and rigorously assessed
There may also be scope for targeted initiatives like the creation of special economic zones, technoparks and schemes to support innovative start-ups. However, the government should proceed with caution in expanding such programmes, especially before the results of early ventures are known. The empirical evidence on the effectiveness of such measures is mixed, and there may be considerable value in the (positive and negative) learning yielded by pilot projects. Regular, rigorous, monitoring and evaluation of these programmes are therefore critical, as are mechanisms for winding up programmes whose benefits do not justify the costs involved. Interventions should be targeted at specific innovation bottlenecks arising from market failures; they should maintain ex ante neutrality between sectors; and they should preserve risk-sharing with private investors and profit incentives for entrepreneurs. They should also be limited in both scope and duration, aiming to spur new activities, not to sustain old ones.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assesment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of the Russian Federation 2006 is available from:
For further information please contact the Russia Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by William Tompson and Christian Gianella under the supervision of Andreas Wörgötter.