The Decline of Russia’s Knowledge Economy

Since the Ukraine crisis and the Russia-West confrontation we (and I myself) have often turned our attention to wider geopolitical processes which affect Russia’s borderland regions and how this impacts Moscow’s ability to project its power across Eurasia. While this is important, there are spheres where greater attention should be given. One of them is a marked decline in Russia’s knowledge economy.

Today’s Russia-West crisis is indeed fundamental in many ways. At times, we have little information on how this geopolitical confrontation is leaving its mark on Russia’s internal processes. It also complicates our forecasts for the country’s foreseeable future.

Numerous foreign and Russia-produced reports document a significant decline in what Russia is able to produce scientifically and how this is used. This was even reported on by the Russians themselves at times when oil prices were high, leading many to believe that Russia was resurgent across the Eurasian landmass. In 2008, the Russian Academy of Science reported on Russia’s Scientific-Technical Development until 2030, noting that the country was losing its technology base as it increasingly becomes dependent on revenues from the sale of natural resources such as gas and oil. Another fundamental problem was inefficiency and high levels of corruption.

However, those problems at the time were not visible to many ordinary Russians, largely due to the focus on the Ukraine crisis, flare-ups in the confrontation with the West, oil prices dropping and more. The point here is that corruption and even low scientific output would still not be enough to result in troubles as long as there are viable incomes to the budget. Once this stops, all wounds open and what you get is the need for more pressure for greater accountability from Russian officialdom.

Ironically, what happens in Russia nowadays is almost identical to what happened in the last years of the Soviet Union. By the late 1980s, the Soviets were fundamentally lagging behind the West in technologies and other important sectors of the state. Oil prices were low and there was high demand for a viable reform, despite there being a distinct lack of resources to transform the country. The result, predictably, was the dissolution of the Soviet Union.

Taking this comparison, one might suggest, and quite correctly, that the Russian government had a very good opportunity to initiate large scale reforms by 2012 or even earlier, as the situation in the country was much better economically. Instead, in the 2000s the decision was made to initiate a quick military resurgence.

This “military overload” (voennaia nagruzka), according to the same Russian Academy of Science report was the “main source of structural deformation” and that “all bureaucratic measures to speed up scientific-technical progress, as a rule, turn out to be unproductive.” This was the last stage of a struggle between hardliners and economic liberals. Unsurprisingly, the then-Finance Minister Aleksei Kudrin was dismissed in 2011 when he openly criticized the level of military spending.

The report also pinpointed several other spheres of Russia’s declining knowledge economy. There are long-term trends that production technologies are moving to developing countries that would have major advantages over Russia in terms of both quality and price.

More crucially, there are even signs that though Russia spends large resources on military development, the country might already be falling behind not only the developed nations but also “second tier” powers like China. The reason for this is that China and many other emerging states are rapidly improving the quality of their military equipment (perhaps the best example of Chinese competitiveness is the US willingness to leave the INF agreement).

Beyond the numbers and pure statistics, there is also a simple problem of little knowledge of what should be done to resolve the situation. Russian citizens may ask how bad things are, yet few (and Kudrin is a good exception) wonder what is causing the degrading trends.

By Emil Avdaliani

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14 January 2019 17:16