Government Support of Innovation Activity

7.3.1 Budget financing of industrial innovation

Innovation activity was recognized as the weakest part of the Soviet S&T system.

In the reform era innovation was to be directed and financed by enterprises, but in the difficult times of transition many proposals were made for government support.

In 1994, Russia’s MSTP, together with 11 other ministries and departments, agreed on a draft entitled the Complex Program of the Development and Governmental Support of Innovative Entrepreneurship in the Russian Federation for the Period 1994–1996. The measures in this program were aimed at creating legal, organi-zational, and economic conditions for developing enterprise innovations; forming a market infrastructure for innovation activity (including establishment and devel-opment of technopark structures); and involving researchers in innovation. The program was financed by participating ministries and local authorities and by funds from private investors.

The most critical issue was financing availability. Where the resources were sufficient, good results were achieved. For example, with funds allocated by the MSTP and the Lomonosov Moscow State University, an exemplary scientific park was established with up-to-date equipment. It is operating successfully. Unfortu-nately, other projects were not as adequately supported.

The outcome is not surprising. To make a program of innovation support effective, it is necessary, first, to make the measures proposed consistent with the available resources and, second, to make the government’s support to innovation-related investments a major element of the program. This was not the case with the innovation program, so improvements are clearly necessary.

7.3.2 Infrastructure support

Infrastructure was and still is a weak point in Russia’s economy. Since successful results in R&D will be increasingly determined by cooperation, the development of links between research institutes and businesses are essential. Furthermore, the country’s innovation potential cannot be realized without capable personnel. The government must provide appropriate support for training personnel for R&D and innovation with the active involvement of entrepreneurs interested in the develop-ment of human resources.

In today’s world, effective R&D and innovation activity is impossible without extensive use of information technologies. Recently, some important improvements have been made. In 1996, 28 telecommunications networks were operating in Rus-sia; electronic mail is becoming increasingly available. The MSTP has contributed

to the establishment of the InfoScience experimental telecommunications system, which is popular among Russian researchers. Despite these improvements, Russia lags behind world standards. Researchers still do not have access to unrestricted exchange of scientific information with colleagues or to various databases both within the country and abroad. The information revolution is well under way in other industrialized nations; in Russia it has barely begun. Russia must radically improve the availability of information to scientists and engineers using advanced technologies to collect, transfer, process, and analyze the information. Investment of government funds in the field may be one of the most important elements of the state’s innovation policy.

Some steps have been taken. In 1995, the interdepartmental program of the National Network of Computer Communications for Science and Higher Educa-tion was established. This network will provide leading research and educaEduca-tion centers with access to domestic and international S&T information resources. Ap-proximately 1 percent of the federal R&D budget was channeled to this program in 1996.

7.3.3 Applying R&D results to innovations

In August 1995, the government of Russia established the Federal Foundation for Industrial Innovations (FFII). The financing of this foundation is planned to be 1.5 percent of the government’s centralized capital investments. In practice, the foundation is to be a tool to pursue the government’s S&T and industrial policy. It is to early to determine whether the FFII will function efficiently. However, based on the experience of previous foundations (the RFTD and FPSE) it can be stated that, to be effective, the foundation must accumulate considerable resources in its budget account, adhere to the S&T priorities it establishes, observe the principle of repayable financing of innovation projects during at least the first several years of its operation, and obtain legal support from the state.

Another way of moving R&D into production is the establishment of invest-ment groups. About 20 elite scientific institutions in the field of chemistry and material science, including 10 SRCs, have started an investment group whose ob-jective is to sell completed R&D. The government, through the MSTP, is assisting in the creation and operation of this investment group.

To fulfill its tasks, an investment group must obtain private investments and complete the technology cycle from the R&D project to the final use in mass production. These groups may advertise their research results to create a demand for their services, and help the commercial use of innovations with the issuance of company securities and broker operations.

Table 7.4. Distribution of the most important R&D projects supported by the MSTP, by field of S&T.

Average Investment duration

Number of required of projects

Field projects (in million $) (in years)

Machinery 25 363.8 2.0

Metallurgy 15 372.2 2.7

Construction 29 67.6 1.3

Power generation 30 78.7 2.0

Development of fuel and

energy resources 7 18.2 2.0

Chemistry and new materials 26 93.0 1.7

Forestry-industrial complex 4 99.0 1.8

Informatics and

instrument-making 83 235.1 2.2

Agriculture and

agro-industrial complex 29 651.6 2.5

Medicine and health

services 15 101.8 3.6

Light industry 17 69.1 1.7

Total 280 2,150.1 2.1

Source: MSTP, 1995b.

Still another activity to promote innovation was initiated by the MSTP in 1995.

The MSTP has selected a number of the most important finalized R&D projects for use in industrial production. A total of 280 projects were chosen from more than 500 applications (see Table 7.4). A majority of the projects had business strategies that were close to implementation. The Ministry offered to act as a broker between research institutes that had failed to find customers for their R&D results and industrial enterprises that might commercialize the results. In spite of favorable economic evaluations of this effort, entrepreneurs were in no hurry to invest their money in the commercialization of R&D results. Part of the problem was that R&D institutions did not have sufficient experience in promoting technologies in the market. More important, the basic factors favoring innovations have yet to be established – a macroeconomic equilibrium, a legal base for intellectual property, marketing institutions, and so forth. As a result, most of the projects selected by MSTP have yet to be implemented.