An Example: Transformation of R&D in the Metallurgy Sector

In this section we illustrate the changes that have occurred in the metallurgy sector.

Ferrous and nonferrous industries enjoyed a high priority in the USSR. Industrial

enterprises were established particularly during the interwar “industrialization”

period and after World War II. The metallurgy sector, especially ferrous metallurgy, developed extremely rapidly. By the beginning of the 1930s, a number of R&D institutes dealing with metals were established.

During World War II, new R&D institutes were created to work on the de-velopment of metals for military use. In 1944, the Central Research Institute for Ferrous Metallurgy, the main R&D institute for the industry, was created. The R&D institutes in nonferrous metallurgy were mainly devoted to the development of individual metals: the Central Research Institute for Tin; the Urals Research Institute for Aluminum; the Urals Research Institute for Copper; and the State Research and Project Institute for Nickel.

In the postwar years (1945–1955) many metallurgical research institutes were established in Moscow, Leningrad, and elsewhere. New R&D units, as well as all other sectoral R&D institutes, design bureaus, and experimental plants, were administratively directed by the science and technology departments of the Ministry for Ferrous Metallurgy and the Ministry for Nonferrous Metallurgy.

By 1991, there were 104 institutions performing applied R&D in Russia under the control of the two metallurgical ministries. Applied R&D related to metallurgy was also performed by higher education institutes as well as in institutes of the Academy of Sciences.

The structural transformation of the economy since 1991 has led to major changes in the metallurgy sectors. The disintegration of the USSR resulted in Rus-sia’s loss of some sources of manganese, chromium, titanium, silver, rare metals, and uranium since the large ore deposits are located in other republics. Sharp de-clines in industrial production in the major industries that were the main customers for metals have led to an abrupt decrease in the demand for metals. Production capacity of lead, copper, aluminum, and zinc is underutilized. Production of metals has fallen for manufacturing of forges and presses, metal-cutting machine tools, and excavators by 50 percent and for tractors and bulldozers by more than a factor of three. Meanwhile, the exports of metals have sharply increased. According to the Russian State Committee for Metallurgy most aluminum output and almost half of refined copper output were exported in 1994.

Because of these conditions, the R&D institutions must face some complicated problems. The number of sectoral R&D institutions declined from 104 in 1991 to 66 in 1994 (Table 3.4). The decline in the number of industrial enterprises performing R&D shown in Table 3.4 is due to the fact that the managers of privatized enterprises have chosen to forgo R&D.

With the lack of funding and the decline in demand for their services, R&D institutes have been looking for ways to survive. Many small enterprises, estab-lished by personnel from R&D institutes, have implemented the R&D results from

Table 3.4. Number of R&D institutions of the State Committee for Metallurgy.

1991 1992 1993 1994

Research institutes 43 43 43 43

Design organizations 10 9 7 4

Construction and exploration

organizations 16 13 8 5

Experimental enterprises 1 1 1 1

Industrial enterprises 29 15 14 13

Others 5 1 0 0

Total 104 82 73 66

Source: Authors’ estimate.

previous years. Research institutes have begun producing consumer goods, using their experimental equipment, and selling these goods through small enterprises.

Many institutes have leased their premises to commercial enterprises. The lack of financing for R&D has led some institutions to keep their employees on the payroll for only part of the year.

According to a sample survey by the MSTP, two-thirds of R&D institutions in the metallurgy sector were privatized by July 1995. As with privatization generally, it is difficult to estimate the impact of this privatization on R&D activity, but some negative effects are apparent. For example, several large research institutes were purchased by commercial enterprises interested only in their premises, not in their research capabilities.

R&D institutes have also sought government financing, particularly as state research centers described in Section 3.2.2. Three such centers are under the um-brella of the Committee of Metallurgy (Table 3.5): the State Research Institute of Nonferrous Metals (GNIITsvetMet), the State Research Institute of Rare Metals (GIRedMet), and the Central Research Institute of Ferrous Metallurgy (TsNIICher-Met). All are located in Moscow.

The new centers represent reorganization rather than simply a change in status.

The GNIITsvetMet is a good example. It has 420 employees specializing in the study of heavy nonferrous metals and the purification of metallurgic gases. The institute owns FOLGA, a research and production enterprise, which is developing technologies to produce copper electrolytic foil, mainly for the radio electronics industry. The TsNIICherMet unites 11 organizations among which there are 7 research, testing, certification, and computer centers. The state research centers are financed primarily by the government R&D budget, so they are in a better financial position than other R&D institutes.

Table 3.5. State research centers (SRC) belonging to the State Committee for Metallurgy in 1994.

No. of Applied R&D

organizations R&D in volume of

in SRC personnel budget financing

GNIITsvetMet 2 469 79%

GIRedMet 1 1,080 95%

TsNIICherMet 11 1,118 82%

Source: Authors’ estimate.

After the dramatic output decline in metals between 1991 and 1993, some revival of demand occurred in 1994. In 1995, the decline in the demand for most metals ceased, and in a few cases even grew, mainly because of increased exports.

Nevertheless, investment activity of the relevant enterprises is limited because of financial difficulties; therefore, government support of R&D remains crucial.

The revival of demand, the improvements in overall economic conditions, and the prospect of increased governmental support give some hope that Russia’s metallurgical R&D will be able to overcome its current crisis and provide an impetus for progress in developing new products and processes.