Russia – a technology superpower or a shithole country?

Spoiler. Once a year or so, Putin addresses the Russian people. During these shows, he likes to boost about Russia’s super weapons. He also boosts about the technological capacity, or even superiority of Russia. But the explosion at the White Sea casts some doubt about Putin’s claims. The development of these nuclear driven missiles is a technology that the US for good reasons decided not to pursue decades ago.

The above-mentioned failure reflects the disastrous economic policy that has turned Russia into a low-productive economy with weak innovation capacity. But Putin does not care about ordinary Russians welfare. What he does care about is keeping the grip on power and protecting his oligarchs’ wealth. 

And the Russian-made Syrian missile defence system proved useless when France, US and UK decided to launch a number of missiles against Syria in order to convince mass murderer Assad that chemical bombings against civilians and hospitals is a bad idea. And the Russian navy suffered an embarrassing defeat when attacked by a walrus. Nevertheless, the Russian military have proved its capability in Syria and eastern Ukraine where it not only prevents Ukraine from regaining control of its territory but also showed its capability of murdering more than 300 people in MH17.

 

A defence sector with problems…

 

So how credible is Putin’s boosting about Russian technological capacity? We already know that he’s a liar. For instance, he first denied having sent troops to illegally annex Crimea but admitted it later. So, let’s try some other sources for an assessment.

Vladislav Inozemtsev, the Director of the Centre for Post-Industrial Studies in Мoscow, has written an interesting article for the Swedish Institute of International Affairs. In UI brief 3/2019 , Inozemtsev analyses the Russian defence sector. He provides a mixed picture of its capabilities. On the one hand, Russia is able to produce modern and technically advanced weapons like Iskander-M but on the other hand many of the weapons and weapons systems suffer are of poor quality. Not only the Bulava missile which is mentioned above but also the Armata tank, the Kurganets infantry fighting vehicle and the SU-57 fighter aircraft have raised serious concerns about quality.

According to Inozemtsev, the Russian defence sector’s problems are so severe that:

Even though Russia’s military spending somewhat exceeds the U.S. one as a share of gross domestic product, the economic effect is strikingly different: in Russia the military expenses seem to be a burden on the national economy while in the U.S. they rather contribute to the country’s development.

He therefore concludes that the Russian defence industry not only has quality problems but also is much less productive than the US or Chinese defence sectors.

In contrast to the United States where a new aircraft carrier joins the navy every 4-5 years and around 100 military aircraft enter service each year, the amount of fighter aircrafts and cargo planes delivered to the Russian Air Force is still significantly lagging behind the planned numbers. A similar situation may be seen in almost every sector of the DIC.”[1]


Inozemtsev argues that Russia in general and the Russian defence sector in particular faces at least three key challenges. Fírstly, the lack of innovation in the defence sector and the poor quality of engineering education. Secondly, Russia’s lagging in knowledge-intensive production such as micro-electronics, new materials and computer technologies. Thirdly, the defence sector consists of state-owned monopolies without any competition but suffering from financial mismanagement and corruption.

Although Inozemtsev’s analysis of the low technology-intensity in Russian industry is confirmed by Malmlöf (2018). The Russian machine tool industry is in deep crisis. That industry is of vital importance for the production of advanced arms systems.

 

…due to a low-technology industry…

 

Malmlöf’s and Inozemtsev’s analyses are corroborated by comparisons of Russia’s capability to produce technologically advanced goods and innovate. Russia lags behind most developed countries in both respects and ranks as 49th country in the ECI and 46th country in the GII, c.f. Figure 1.

 

Figure 1. Economic Complexity Index 2017 (left) and Global Innovation Index 2018 (right).

Source: EconomicComplexity Index: http://atlas.cid.harvard.edu/data-downloadsGlobal Innovation Index:https://www.globalinnovationindex.org/analysis-indicator Note: Countries with a great diversity of productive know-how, particularly complex specialized know-how, are able to produce a great diversity of advanced products. The complexity of a country’s exports is found to highly predict current income levels and ECI therefore provides a useful measure of economic development. The ECI ranks 133 countries. The GlI measures the multidimensional facets of innovation-driven growth with 80 detailed metrics. Russia ranked as 49 in the last (2017) edition of the index. The GII ranks 129 countries. Russia ranked as 46 in the last (2019) edition of the index.

 

…with weak innovation performance…

 

The GII consists of several sub-indices which make it possible to follow countries’ developments and strengths and weaknesses over time. While Russia has improved or increased efforts in human capital and R&D or other inputs to the innovation process, its achievements in terms of knowledge and technology outputs and creative outputs decreased significantly between 2013 and 2019, c.f. Table 1.

 

Table 1. Global innovation indices and sub-indices for Russia 2013 and 2019.

Source: https://www.globalinnovationindex.org/analysis-indicator

 

…which has become even weaker since Putin rose to power…

 

Not shown in the table above but an interesting fact is that Ukraine, with poor resources, manages to perform very well in terms of output yielding the country the third most efficient. The poor state of the Russian innovation system also shows up in the fact that Russia’s capability of producing complex products have decreased since 2000, the year Putin came to power, c.f. Figure 2.

 

Figure 2. Economic Complexity Index for Russia 2000-2017.

Source: http://atlas.cid.harvard.edu/data-downloads

 

The poor performance of the Russian innovation system is acknowledged among Russian scientists and has finally also come to the Kremlin’s attention. After decades of neglect and decline, more public money has been allocated to research. But pouring more money in to a poor functioning innovation system will not make Russia as successful as other countries as shown above. And, as also mentioned above and confirmed here, the problem is systemic. And that’s why Russian scientists still worry about the future of the innovation system:

 

There are substantial barriers to doing competitive science in a politically isolated country. I don’t see how that should change as long as Putin holds the reins.”

 

…and didn’t bother to reform the economy…

 

The poor innovation performance of the Russian economy was emphasised by OECD (2015) where it was found that less than 6% of Russian SMES undertook innovation activites compared to around 50% in the OECD countries. Also, the Russian government’s 2011 SME census found that only1.6% of Russian SMEs reported any expenditures devoted for R&D. The low innovation rate in Russia was also confirmed by the GEM 2012 survey that reported were few firms supplied new products on the markets and most of the firms used old technology in their production.

Another key characteristic of the Russian economy that was underlined in the report was that the Russian state has a strong direct role in the economy compared with OECD economies. There are many of state-owned enterprises, which account for more than 80% of the sales, assets and market values of the top ten firms and occupy the dominant position in sectors such as banking, transport and energy. There is also significant use of price controls and subsidies in key sectors. This strong state involvement hinders private firms to enter the market.

According to Aleksashenko (2018), this is a direct consequence of Putin who wants to keep a firm grip on the economy. Putin believes that any government decision, restriction, or regulation, is always beneficial and that that government planning can solve the economic problem Russia is facing. He therefore does not care much about privatisation or lack of competition on the Russian markets. On the contrary, he favours state corporations taking over private enterprises from competitive sectors.

The main barrier is of course Putin’s lack of willingness to reform the Russian economy. Apart from in the beginning of his first presidency, Putin has not undertaken any reforms that would change the rent-dependent economy (Gaddy & Ickes (2005,2010)). The rents are the profits earned from the extraction and exporting of oil and gas. These rents are redistributed by the regime which means that rents are distributed to where they are needed to balance the power elites. The beneficiaries of the rents are very often loss-making companies which are dependent on subsidies for their survival and represent important political support for the regime. This system creates a distorted allocation of resources, inefficiency and excessive costs of production that are borne by all actors.

 

…which is why Russia is a technologically retarded shithole country…

 

So, Putin’s rule has not only lead to the low innovation rate, but also to an economy which is characterised by a severely inefficient misallocation of resources, lack of competition, dominant state-owned firms, corruption and lack of rule of law. Therefore, Russia has become a low-productive economy since the end of the commodity boom as illustrated by World Bank (2015, 2016) and Oxenstierna (2014) and many more studies….

Therefore, there will be few Russian innovative products on the markets also in the future which is hardly surprising in a country where more than a fifth its citizens still lack indoor plumbing. So, it seems that Russia is a shithole country after all .

 

 

Read more

Aleksashenko, S. (2018). Putin’s counter revolution. Brookings Institution Press. Washington DC.

Aleksashenko, S. (2018). ”Limitations of Putin’s economic model.” Chapter 10 in Becker & Oxenstierna.

Becker, T. & Oxenstierna, S., eds., (2018). The Russian Economy under Putin. Routledge. London & New York.

Dawisha, K. (2014). Putin’s kleptocracy. Who owns Russia? Simon & Schuster Paperbacks. New York.

Gaddy, C. & Ickes, B., (2005). ”Resource rents and the Russian economy”. Eurasian Geography and Economics, 46. No. 8 pp 559-583.

Gaddy, C. & Ickes, B., (2010). ”Russia after the global financial crisis”. Eurasian Geography and Economics, 51. No. 3 pp 559-583.

Inozemtsev, V (2019). Putin doesn’t care about economic growth. https://www.project-syndicate.org/commentary/russia-economic-stagnation-prospects-by-vladislav-inozemtsev-2019-06?barrier=accesspaylog

Kjellén, J. (2018). Russian electronic warfare. The role of electronic warfare in the Russian armed forces. FOI. Stockholm.

Malmlöf, T. (2019). The Russian machine tool industry. Prospects for a turnaround? FOI. Stockholm.

OECD (2015). Review of SME and Entrepreneurship Issues and Policies in the Russian Federation. Paris. https://www.oecd-ilibrary.org/industry-and-services/russian-federation-key-issues-and-policies/smes-and-entrepreneurship-in-the-russian-federation_9789264232907-6-en

Oxenstierna, S. (2014). The Russian economy: can growth be restored within the system? FOI. Stockholm. https://www.researchgate.net/publication/281619765_The_Russian_Economy_Can_Growth_be_Restored_within_the_Economic_System

World Bank (2015). Russia Economic report. The dawn of a new economic era? https://www.worldbank.org/en/news/infographic/2015/04/01/russia-the-dawn-of-a-new-economic-era

World Bank (2016). Pathways to inclusive growth. The Russian Federations. Systemic country diagnostic. http://documents.worldbank.org/curated/en/743721497531927295/Pathways-to-inclusive-growth

Åslund, A. (2018). ”Russia’s crony capitalism”. Chapter 11 in Becker & Oxenstierna.

Åslund, A. (2019. Russia’s crony capitalism. The path from market economy to kleptocracy. Yale University Press. New Haven.

 

 

 


[1] DIC = Defence Industrial Complex

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