Monopoly power was a great hindrance to scientific and technological pro- gress in the former USSR. This type of monopoly was largely of artificial, administrative origin.
Apart from the afore-mentioned factors (absence of any interest in sci- entific and technological progress, preservation of the old branch structure, expenditure orientation, sole rights to inventions, etc.), a direct consequence of the departmental monopoly was the creation of rigid vertical economic barriers. However, modern technology, knowledge, and information were of an inter-branch character. Under these conditions, the existing ministerial branch management was not merely an anachronism but a direct hindrance t o scientific and technological progress.
In fact, this structural development was contrary t o the global trend of that time. World experience in the organization of economic management showed a common trend in favor of the expansion of horizontal economic ties. This including the establishment and further development of multi- branch corporations (the largest of them in capitalist countries having en- terprises in dozens of industries), joint ventures, associations or large-scale inter-company partnerships (often international), which, as a rule, were cre- ated t o provide joint ownership of advanced technology and have a strategic character.
The consequences of a producer monopoly, or monopsony as in the USSR, were degradation of product quality, lack of competition as the basic stimulus t o scientific and technological progress, and infringement on con- sumers' rights to choice.
Experience of inter-company ties abroad, revealed that about 80% of such ties were established within the framework of supply agreements and contracts. In most Western industries, particularly in such science-intensive ones a s electronic engineering, machine-tool industry and the like, consumer influence was crucial in the development of ideas from the very start of a research-and-production cycle, which naturally yielded better development results and oriented the supplier t o the consumer. This was an example of a demand driven system. In some science-intensive industries in the USA of the 1980s 60% to 80% of innovations were introduced in response t o cus-
A.I. Ageev and D. V . Kouzin 47 tomers' direct participation.12 Under Soviet conditions, however, producer monopoly and the absence of consumer choice inevitably led to the preserva- tion of old products or to only slight modifications, subsequently imposing poor-quality components on the manufacture of final products, naturally impairing quality as well. Essentially, this let the producer free of any real incentives.
Competition in the world arena acquired new features in the 1980s.
It became world-wide and more fierce, particularly in fields with a prime emphasis on the scientific and technological sphere. Large leading firms were competing in all directions on a vast number of items. Some estimates revealed that over 70% of U.S. industrial output met with competition in other countries. Thus, the following conclusions could be drawn:
(a) market relations were of a dynamic character;
(b) large firms resorting to different strategies of vertical and horizontal integration and diversification sought an optimal "branch bag" which, as a rule, included base technologies mastered by a given firm;
(c) "global branches" possessed an oligopolistic structure (i.e., one with few leading producers of similar goods).
An illustration for the aforesaid has been the level of concentration of industrial RDT&E programs. Five leading RDT&E companies in the USA accounted for 23% of all industrial RDT&E programs; the corresponding figure in Japan was 18%. This level was fairly high in certain industries; for example, 78% in the steel industry and 69% in the automobile industry in Japan, 96% in the automobile industry and 70% in the chemical industry in the USA. However, the most science-intensive industries were not simultane- ously the most monopolized ones. For example, the five leading companies in pharmaceutical, electronic and instrument-making industries in Japan car- ried out less than 60% of all RDT&E programs in these industries. In the USA the corresponding figure was less than 65%.
The monopolization of Soviet science by ministries and departments, its orientation to serving departmental interests, and unequal relations resulted in a situation when over 70% of science expenditure and two-thirds of the nation's scientists were concentrated in corresponding industries, while over 80% of all innovations were used at only one or two enterprises, as some surveys showed.13 Such a situation virtually deprived science of its essential
12uControl of innovation process in capitalist form," Moscow, IMEMO under the USSR Academy of Sciences, 1985, p. 109 (in Russian).
"Innovation Process Structure, Moscow, VNIISI, 1981, p. 16 (in Russian).
48 Responsiveness of Soviet Economy rights, blocked channels of technology exchange, limited the mass spread of novelties, and generally hindered scientific and technological progress. The realization of scientific and technological achievements was further hindered by the fact that enterprises had very loose links with branch science. Dis- parities in sources of financing, planning and interests of branch science and industry gave rise t o the notorious problems of implementing results of RDT&E.
Major firms in capitalist countries were undisputed leaders of scientific and technological progress. The organization of RDT&E in these firms was, however, fundamentally different both in form and content from that of en- terprises in the Soviet Union. The former had access t o a multi-link RDT&E organization serving both their long-term objectives, diversification strategy, and mastery of new products in numerous branches. Provided for this pur- pose were: RDT&E head laboratories and centers engaged in functional research; centers rendering services in key directions of the activity of cor- porations; and, laboratories engaged in applied research and development in branches oriented t o manufacture particular kinds of products. Thus, every- day activity of large firms was separated from their long-term operation.
As regards the introduction of innovations, an additional distinguishing feature of large capitalist firms in their multi-branch character, permitted:
(a) making full use of the advantages of the scientific, technological and production experience gained in the main sphere of activity with a cor- responding transfer t o cooperating spheres;
(b) making a complex "branch bag" of products with an inter-firm transfer of capital, labor, specialists, technology, and knowledge and financing of new directions of activity due to mature, developed production yielding steady profits;
(c) breaking into highly profitable science-intensive industries and the ser- vice sector t o modernize obsolete basic production capacities.
Large companies have undoubtedly been the prime movers of scientific and technological progress. At the same time, the role of small firms in innovation considerably increased, especially in the 1980s. In the mid-1980s in the USA, over 15,000 firms were engaged in various kinds of research and technical activity; moreover, their number was constantly growing. In spite of substantially smaller proportions of RDT&E funds in small firms (in the early 1980s capital outlays per scientist or engineer were on the average about 60,000 dollars in firms having less than 1,000 employees and 117,000 dollars in larger companies), the efficiency of their research and technical
A. I. Ageeu and D. V. Kouzin 49 activity was often higher than in large corporations. Small firms produced twice as many innovations per employee as large firms. Over the whole post- war period, small businesses produced about half of all American industrial novelties and a predominant part of radical inventions. In many instances, small firms had certain advantages due to their mobility, special management culture, creative psychological climate, and a flexible RDT&E expenditure structure.
The role of small businesses in the realization of scientific and techno- logical achievements should not, however, be overestimated. It is important that, in close cooperation with big business, small business enabled rational distribution of resources, scientific and technical potential, creation of an optimal economic structure for RDT&E conditions, and took a substantial share of the risk inherent in any innovation activity. It is also meaningful that only a reasonable combination of small cooperating firms such as en- gineering and consulting, broker (intermediary), leasing, venture, and other firms may yield a stable economic effect. For example, in the U.S. manufac- turing industry, large enterprises constituted 7% and small enterprises 92%
of the total number.14
Global experience in the organization of branch science and its produc- tion links has also revealed the presence of different mechanisms and organi- zational forms. First, a substantial portion of applied science has been con- centrated in large companies, as stated above. Second, about 15% of state RDT&E expenditure (for example, in the USA) were distributed through research centers, institutions and laboratories of ministries and departments engaged, as a rule, in fundamental research and subsequently transferring their development results t o firms for commercialization. Third, institutions under large industrial associations of producers focus on certain research operations. Fourth, universities (for example, drawing two-thirds of their fi- nancial resources from the state in the USA) played a major role in industrial research. Universities performed over 50% of fundamental science investiga- tions directly affecting innovations in American companies.15 As a matter of fact, universities often became "incubatorsn of new high-technology firms, centers of inter-company partnerships and research parks (in 1987 there were 39 of them in the USA and 36 in Great Britain) uniting the efforts of many firms. In Western Europe alone, the number of these centers and parts in-
"Scientific and Technological Progress: Problems and Solutions, No. 3, 1988, pp. 4 5 (in Russian).
15America's Competitive Crisis. Confronting the New Reality., Washington, 1987, p. 38.
50 Responsiveness of Soviet Economy creased five-fold in the 1980s.16 Relations between business and universities were also characterized by the fact that industrial research is financed not from the state budget but by interested firms in numerous nations. Ac- cess t o university science became a matter causing fairly strong competition between firms.
These points illustrated the very dynamic and flexible economic struc- ture of the leading companies in the capitalist world, and also the great variety of organizational forms and economic mechanisms facilitating a suf- ficiently effective exchange of ideas, knowledge, experience and technologies.
It was in sharp contrast t o the structure in the former Soviet Union.
The absence of market conditions in the Soviet economy together with the obsolete branch and industrial structure unresponsive t o innovations, led t o another principal drawback: more specifically, immobility of production and resource factors. International experience showed that this particular issue became one of the key conditions inhibiting new innovations and sci- entific and technological achievements.
Let us consider three key factors-capital, labor (primarily highly skilled scientists and specialists), and information.
In the Soviet Union, the problems associated with the absence of a func- tioning capital market, including venture capital, was only timidly put for- ward by a number of reform economists. In the West, however, the venture capital market was rapidly expanding in the 1980s (increasing dozens of times t o exceed 25 billion dollars in the USA alone). It became a key instrument for innovation-type growth. For the past 10 years, about 10 million venture dollars were on the average allocated for each small innovating firm in the USA. In addition, a great variety of sources of funds was especially typical of the American system of financing new science-intensive firms. These sources were combined a t specific stages of the operating cycle of a new science- intensive firm. They included personal savings of businessmen, different funds and informal investors, private investment and insurance companies, and assets of innovation banks. It was of fundamental importance that all these sources were readily accessible. At the same time, competition was taking place in the financing sphere as well. If one financier was unwilling t o render aid, the innovator could apply for support from another financier.
For example, active investors in the USA included 100,000 people annually in the 1980s; participating in venture financing as informal investors were about 150,000 well-to-do American families and about 550 leading venture
I6S. woods, Western Europe: Technology and h t u r e , London, 1987, p. 51.
A.I. Ageev and D. V . Kouzin 5 1 capital firms. In other capitalist countries these figures are not so great due t o specific conditions and traditions of forming a venture capital market.
Nevertheless, there was a constant increase in the 1980s elsewhere as well.
T h e importance of venture capital for expediting scientific and technological progress and increasing competitiveness was more understandable consider- ing the desire of Western Europe t o set up a common capital market and t o establish large international venture funds. Specifically high mobility of cap- ital and a sound credit and financial system guaranteed rapid and effective combination of innovators with new ideas and sponsors with money.
A capitalist economy demonstrated higher mobility of labor, particularly skilled scientists and specialists, as compared with the Soviet planned econ- omy. For example, in t h e USA, research centers and many high-technology firms annually rotated 15-20% of their personnel and some 2% or 3% of specialists moved from universities t o industry and back.
A significant aspect of the process of internationalization of modern sci- ence and engineering was increasingly wide international cooperation in the field of research and exchange of scientists. With a view t o promoting such cooperation, t h e Japanese government, for example, adopted a special law back in 1986 "on governmental exchange of researchers" which substantially increased t h e inflow of foreign scientists t o Japan.
Personnel policy in Soviet RDT&E, based on the principles of hierarchy, secrecy and autocracy, not only gave rise t o many problems connected with the stimulation of creative work, scientific growth and democratization of the scientific sector, but also created conditions in which many skilled persons were.not attracted by t h e sphere of scientific and technological progress. Of course, the very fact that many creative persons left science for new types of organizations was even considered a positive development if taken separately.
Such a situation fully conformed t o world-wide tendencies. Another factor important here, namely, the fact that the existing Soviet organizations in this sphere failed t o provide sufficient incentives for creative persons hindered t h e realization of their ideas and did not allow talents t o be revealed t o a full measure. However, these particular organizations continued as "fashion- setters" and chief performers of research and technical work in the last years of the USSR.
A paramount feature of the Soviet command system was mass secrecy under which great limitations were imposed on the mobility of skilled per- sonnel and transfer of information and technology, particularly from the military t o the civil sphere. Conversely, wide discussions on the problems of secrecy in the USA led t o a conclusion that unjustified adoption of tougher
52 Responsiveness of Soviet Economy measures would slow continuous modernization of the American economy and inflict more harm than even a few spies.
Indeed, under modern conditions not merely the transfer of information, technology, or know-how mattered, but also regular discussions of novelties, value of business involvement, elaboration of a common concept of utilization of new technology, and manufacture of new products or their improvement.
This was essentially a mutual training process. Secrecy and bans under- mined this vital aspect of cooperation. Countries which stood t o gain most were those where in determining key technological directions and subsequent development and realization of solutions a minimum number of secrecy reg- ulations allowed extensive dialogue and an exchange of opinions between industrial and trading firms, research institutions and state analysts, both nationally and internationally.
Referring specifically t o computer-aided d a t a transmission, the creation of nation-wide and local networks would expedite research-and-production processes, make accessible reliable information for decision-making, and help those interested in their rivals' deeds follow advanced scientific and technical ideas. According t o Soviet estimates, there were over 3,000 public d a t a and knowledge bases in the USA available in the 1980s." In the USSR, there were only departmental and special-purpose d a t a and knowledge bases.
T h e functioning of a developed information market necessitated a wide network of information services for the public, including everyday, educa- tional and special information. T h e library of Harvard University was known t o receive 106,000 periodicals. T h e premier Soviet library concerned with natural sciences and serving 250 institutes under the USSR Academy of Sci- ences received merely 4,000 scientific periodicals in an equivalent period.18 A mandatory condition for supplying information t o the public was computer- aided transmission of scientific and educational information and develop- ment of openness, including the sphere in which vital state decisions are made. Computerization was naturally essential for dissemination of infor- mation. Unfortunately, these were neglected topics under central planning, and subject t o the influence of only an elite few.
''ME & M O No. 3, 1989, p. 48 (in Russian).
"Scientific and Technological Progress: Problems and Solutions, No. 24, 1988, p. 4 (in Russian).
A.I. Ageev and D. V. Kouzin 53