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In Russia, a climate of fear is stifling innovation

The government is building a Russian version of Silicon Valley. But the Kremlin's Big Brother approach, along with lawlessness and corruption, leaves entrepreneurs wary of taking risks.

June 23, 2010|Leon Aron

Having survived — barely — an 8% contraction in its gross domestic product (the worst among the G-20 countries), Russia's prospects for the next few years are iffy at best. Unless oil shoots back up to more than $100 a barrel, the country's economy may grow only slightly — or stagnate for the next few years.

In response to its economic woes, the Kremlin has decided that what Russia needs is the equivalent of a Silicon Valley. And so the government is building "Innovation City" in Skolkovo, just outside Moscow. The project is envisioned as a kind of free entrepreneurial zone, aimed at attracting the best and the brightest from Russia and abroad. The Kremlin has appropriated $3.5 billion to build the "technopolis" — a gated community surrounded by guards

This is hardly a new strategy. Importing ideas and technology from the West has been a key element in Russia's "modernizations" since at least Peter the Great in the early 18th century. For two centuries, Russian leaders followed in the czar's footsteps, including when Stalin implemented his five-year plans. But Russia has tightly controlled what it imported. Machines and engineers, yes. A spirit of free inquiry, a commitment to innovation free from bureaucratic "guidance" and, most importantly, encouragement of brave, even brash, entrepreneurs who can be confident they will own the results of their work — most certainly no.

Peter and his successors sought to produce fruit without cultivating the roots. During the 17th and 18th centuries, this approach could be seen in the Nemetskaya sloboda (German district), where foreign craftsmen lived but Russians were not allowed lest they be tainted by foreign influences.

When national economies were defined by the amount of pig iron, steel and coal they produced, a serf or a worker with no rights would do. They could cast Peter's cannons and pour concrete for the plants of Stalin's industrialization. But only a man or woman free from fear and overseers can build a Silicon Valley.

And such men and women are harder and harder to come by in Russia today. Disgusted and scared by the lawlessness and rampant corruption, they tend to shy away from ambitious plans and avoid taking risks.

To be fair, President Dmitry Medvedev, who will visit California's Silicon Valley this week, is aware of the problems and says all the right things about the need for liberty, private property and a spirit of unfettered innovation. He speaks of the importance of the rule of law. But after two years in power, he is losing credibility, and his words are wearing thin. "How are things, really?" I recently asked a top Russian entrepreneur, having made sure that no one could hear us. "Poka ne trogayut," he answered. "They are not after me yet." Hardly an environment for an innovation-driven business model.

Paralyzed with fear and uncertainty, Russian entrepreneurs are investing very little in their country beyond their immediate production needs. Up to 80% of investment in Russia today comes from the government. Capital flight is rampant. Worse yet, according to recent research, some of the most successful Russian entrepreneurs, not satisfied with merely sending their children to live and study in the West, increasingly think of selling their businesses and leaving themselves. At the very least, almost all are building their lives and business around the "two-home" model: one in Russia, one in the West.

Today's atmosphere is a far cry from the end of the 1990s and first few years of this century. Then, with the worst of the rough-and-tumble, raw and crude capitalism behind it, Russia seemed as if it would soon be capable of forging its silicon valleys. State power seemed to be finally detaching itself from property, and top Russian entrepreneurs, newly confident of their property rights, began to invest billions of dollars to create companies every bit as modern, efficient and open as the leading Western conglomerates. With their profits, they donated millions to charity, promoted computer literacy and Internet availability and invested in a "knowledge-based" economy.

One company and its entrepreneurial leader stood as symbols of the new business environment: the oil company Yukos and its chief executive and principal owner Mikhail Khodorkovsky. Today, the company is no more. It was taken over by the state for alleged nonpayment of taxes, broken up and sold at rigged actions to the state-owned Rosneft. Convicted by a kangaroo court on charges of fraud and sentenced to eight years in prison after his 2005 trial, Khodorkovsky today is in the middle of another farce of a trial, accused of stealing 350 million tons of oil from Yukos' subsidiaries.

The road to a Russian Silicon Valley starts not in California, Mr. President. It begins with unlocking the door to Mikhail Khodorkovsky's jail cell.

Leon Aron is director of Russian studies at the American Enterprise Institute.

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