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Innovation economy for Russia

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MOSCOW. (Dr. Dmitry Orlov, member of the RIA Novosti Expert Council) -Some experts describe the Russian economy as "an extended raw materials model", while others claim Russia is "an energy superpower".

In my opinion, both definitions are true, but one describes the current economic structure, in which energy revenues are mostly accumulated and used, and only partly invested in long-term development. The other is an aspiration.

Contrary to the fears of Russia's eastern neighbors, the aim of turning Russia into an energy superpower does not imply Russia's non-commercial domination of the oil and gas export sectors, although its influence there will definitely grow considerably. An energy superpower differs from a raw materials supplier in that it turns oil and gas into innovation.

Russian President Vladimir Putin enthusiastically speaks about an innovation economy. In particular, he spoke about it in his spring 2006 state of the nation address. The issue is addressed even more frequently by the economic authorities, notably Economic Development and Trade Minister German Gref and IT and Communications Minister Leonid Reiman.

The priority national projects, which Putin initiated a year ago and entrusted to First Deputy Prime Minister Dmitry Medvedev, should pave the way to an innovation breakthrough. However, they are so far limited to roughly balanced state programs aimed at increasing allocations to social projects. The time has come to turn national projects into the main tool of the state's industrial and infrastructure policy, or at least to add several innovation aspects to them.

Firstly, we should create a network of manufacturing centers located close to mining or delivery areas. The petrochemical industries should be developed in the port of Primorsk on the Baltic Sea, with which the Baltic Pipeline System and several other infrastructure networks are connected. Siberia's Tyumen Region can become the center of manufacturing polymers from natural gas.

Most importantly, these and other centers should develop as independent, effective business projects, rather than be allowed to become expensive Soviet-type "territorial production complexes".

The Russian economy must become energy efficient, as many regional networks are operating at the limit of their capacity and cannot satisfy growing demand, which has increased 120-200% since 1976-1980. We need road-building programs and the money to implement them, and ideas for developing airports and technology parks in Siberia and the Far East.

Russia must establish business incubator and innovation zones, and technology parks. The Russian Investment Fund for Technologies and Innovations, which is supported by the IT and Communications Ministry, and the special Venture Fund, which the Economic Development and Trade Ministry is advocating, should be used to consolidate state investment resources for such projects.

Telecommunications is one of the country's most innovative sectors. Since the beginning of the 21st century, its share in Russia's GDP has grown from 2% to 5%. There were few cell phones in 1992. In early 2006, Russian cell phone operators had a combined total of more than 132 million subscribers (the population of the country is only 140 million).

Telecoms, and in particular cell phones, is a relatively new and highly competitive sector. Russia's biggest players - MTS, VimpelCom and MegaFon - are fighting tooth and nail for market share, offering cheaper rates and new services and systems. This is a race not unlike that described by Karl Marx, the father of socialism, in which the profit margin approaches zero. Money, technologies and top specialists are being pumped into the sector, which as a result is coming up with many innovative solutions.

But the sector faces the problem of the "digital divide" between big cities and rural areas. There are only 29 cell phones per 100 Russians, and only 8 out of 100 Russians have access to the Internet.

Putin set the task of developing universal telephone service across Russia in his 2001 state of the nation address. This means that pay phones should be installed in every community, and public Internet access stations in all towns with a population of more than 500. The goal has been formalized in the law on communications, and the deadline is the year 2008. At present, 40,000 communities still have no pay phones. The essence of the infrastructure project is to make telephones and the Internet accessible to thousands of communities and millions of people.

An innovation revolution remains at the core of the economic agenda. The lack of simple communications and underdeveloped business incubator zones are restraining economic progress in cities and rural areas alike.

When everyone has access to these communications and business zones, it will mean that we have achieved what Alvin Toffler described as a fast-paced economy, where any strategy must be agile and flexible. Mobility will become a fact of life, though young people will no longer want to move from rural areas to big cities.

Just like the spread of electricity and roads in the 20th century, technology parks and the Internet can change the Russian landscape in the 21st century.

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