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. Last Updated: 07/27/2016

High-Tech Economy Needs a ‘Normal’ Country

Jon Hellevig
Managing Partner of Hellevig
Klein and Usov and Avenir Accounting

A normal country is the first stop on the road to an innovative economy.

Lately we have heard a lot about Russia’s need to introduce an innovative high-tech economy. This is a good aim; the only problem is that there is no such thing as an introduced innovative high-tech economy. There are, of course, modern high-tech countries with vigorous innovative companies. But these were not created nor planned by politicians, but rather they emerged as products of free societies where people are not restricted in their attempts to find smart solutions for their needs — that is, they emerged as products of normal countries. (Normal here means democratic market economy, after Andrei Schleifer, “A Normal Country: Russia after Communism,” Harvard University Press, 2005).

So far in the history of mankind, nobody has ever made an innovation that is not based on a previous application. The first condition for an innovation is therefore that there is an underlying need waiting to be satisfied. The second condition is that there is a profit to be made from innovatively satisfying the need. And the third condition is that there is freedom to do just that.

Thus on its road to becoming an innovative economy, Russia first needs to have a normal economy: an economy where companies produce goods and services to satisfy the consumer’s everyday needs. Innovation follows from the competitive race to offer better quality and make a bigger profit. Therefore it seems to me that the apparently successful efforts to raise agricultural production and cut the dependency on imports are means that are putting the country on the right track. This is something that can actually be done, not only wished for.

To be fair, we cannot say that nothing has been done in Russia to diversify the economy that is so dependent on revenues from export of oil and raw materials. Look around: Only some 20 years ago, none of the products that we can buy in Moscow today were produced in Russia and none of the retail outlets of today existed. There was no banking system, and hardly anything resembling a real currency. There was no real state budget or even a government in control of the country. There were some of these things 10 years ago, but not half of what we have today.

The fact is that Russia has leaped forward in the last decade. The Soviet economy has been replaced with a market economy. But Russia is still not a modern country, and it cannot become one without liberating its people from the last remnants of the communist system, the yoke of the Soviet bureaucracy. Nothing much has been done to reform the administrative system inherited from the Soviet Union. All the old bad habits persist and are taken as given: For example, all laws are still modeled on the manner in which the administrative-command economy was run. Today, all good initiatives still end up constricted in the Soviet mould of thinking. No matter how appealing a reform idea that we hear from the mouth of a president or a minister, by the time the apparatus gets its hands on it, they bring out their Soviet rule-kit. It seems that they cannot make a single law without conceiving of dozens of completely insane and useless mandatory procedures to comply with. This is all because those in power have been raised believing that this is the only way to do things. Nobody ever asks the questions: Do we need this? Do the country and the people benefit from this rule?

Am I then implying that Russia is not a normal country? I am sorry to admit that yes, I am. This country of highly talented, creative and charming individuals has unfortunately not been able to rid itself of the Soviet model of organization. I am not talking about the formal political system, which is gradually taking shape, but about the way that state administration interacts with the public, the public with the administration, and members of the public with each other. Before dreaming of converting Russia into an innovative economy, we first need to hope that conditions are created for a normal economy.

The innovative business enterprises of the world have succeeded because they first adjusted their organization models to encourage innovation, flexibility, low-barrier communication and efficient execution of decisions by cutting bureaucracy and red tape. A corresponding change has happened in the countries where these companies are based, and countries with less bureaucracy and administrative barriers are those countries where more innovative business takes root. Dismantling the bureaucracy both creates and attracts the innovative business of tomorrow. There is no external force that prevents Russia from attempting this.

Unfortunately there is not even the smallest hint that the Russian leadership has understood that this is the country’s most fundamental problem. And what with the new laws affecting businesses that have been passed so far this year, things seem to be going from bad to worse.