Russia needs to develop new types of industrial activity

Read more on:  Modernization, economy

The world economy seems to be recovering in a way that is encouraging. A few weeks ago things looked very bad. Everybody seemed to be nervous and worried. I should say I’m a director of a bank here in Boston, so we look at the economy very carefully to see what to expect and a few months ago we were very discourage, very cautious about the way the economy seemed to be heading. And now, we are much more relaxed, people seem to be going back to investing, building new factories, building new facilities. And while it may be early, it may still be reversed, but this renewed spirit is very good, particularly for the United States and for the Europeans as well.

For Russia I think it’s going to be a little more difficult, because the Russian economy is very heavily dependant on energy, particularly petroleum and natural gas. And it’s unclear what the future there is particularly because Russia now is worried about running out of some of its oil deposits. Some are being depleted. So for Russia the biggest challenge I think, not just for today but the years to come, is to diversify and to develop new types of industrial activity. This is going to take some institutional change that Russia is capable of. But so far there is very little evidence that it’s moved in that direction.

What does it take to develop a high technology economy? It takes engineers, inventors, innovators, people who are willing to take risks. Russia has lot of those, though a lot of them have immigrated. So Russia has the engineering and scientific capability. But the second side is it takes investors, lenders, venture capitalists who are willing to lend money for this purpose. And there I think Russia is lacking. It has oligarchs, but that’s not the same thing. It takes people who are willing to lend money for new business ventures. There has to be a way for the lenders or the venture capitalist to meet with the innovators. And Russia so far has not been able to work out those institutional arrangements. If I were Putin, that’s what I’d focus on, to try to bring those two groups together, to create a marriage between venture capitalist who can finance these activities and the inventors who have projects and ideas that, if they see fruition, can lead to new development.

Russia is very rich in raw materials and so it’s concentrated on heavy industry, but I think the future lies in the field of high technology, and the transformation of that technology into products that consumers can use. And there, it’s got to take some new institutional arrangements before that can happen. That’s what I think a Russian leader has to focus on. It’s a great challenge, and Russia is capable of doing it, but at the present time, I don’t think the right institutions are in place and the right spirit is there. I think it’s going to take a leader that can bring those things to bear. If Putin wants to go down in history as the man who really brought Russia to a renaissance, to its full capabilities, he’s going to have to do that. At this point, I‘m not sure he’s aware of the challenges. I think if he becomes aware that that’s what he’s got to do, that might move Russia in the right direction. But it’s a big challenge.

But I’m optimistic because I think Putin is open to new ideas. The whole Valdai Club thing, that’s pretty radical for a country like Russia. If you had told me ten years ago that there would be such a thing, I’d think you were crazy. But I think Putin has encouraged it.

Russia is very different now than it was 10-20 years ago. Before, new ideas were almost rejected out of hand in terms of business, unless it was for the military-industrial complex, and that’s not the way to go. You have got to have other avenues to pursue and I think they are trying at least, and you have to give them credit.

Marshall Goldman is Associate Director of the Davis Center for Russian and Eurasian Studies, Harvard University; member of the Council on Foreign Relations and the American Economic Association; director of the Century Bank and Trust Company.