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255

Eurasian Geography and Economics, 2006, 47, No. 3, pp. 255-284.

Copyright 2006 by Bellwether Publishing, Ltd. All rights reserved.

Of BRICs and Brains: Comparing Russia with China,India, and Other Populous Emerging Economies

Julian Cooper1

Abstract: A noted British economic analyst and observer of current developments in Russia

compares that countrys emerging economy with those of China, India, eight other populous

emerging states, and the United States. The focus of the comparison is on the extent to which

these countries exhibit potential for functioning as knowledge-based economies. The four

pillars of such economies are identified as: (1) an educated and skilled population; (2) a net-

work of R&D institutions; (3) a dynamic information infrastructure; and (4) a regime promot-

ing the development of knowledge.Journal of Economic Literature, Classification Numbers:

L86, O30, O57. 1 figure, 19 tables, 91 references. Key words: Russia, China, India, BRIC,R&D institutions, information infrastructure, Internet, Brazil, Egypt, Indonesia, Iran, Mexico,

Philippines, Turkey, Vietnam.

efore the collapse of communism, efforts to compare the USSR with the United States

were generally considered unproblematic. In present-day Russia, this comparison is

still frequently made, even though the economic levels of the two countries are of a different

order. Unlike the United States, without question one of the worlds most developed, highincome, countries, Russia is classified by the World Bank as a middle-income country,

with a 2004 per capita Gross National Income (GNI) between $826 and $10,065 per annum.2

In this set, those countries with GNI above $3,255 are termed upper-middle-income, while

those below are lower-middle income. Russia made the transition between the two levels

in 2004. It is one of a number of populous countries in this category, defined here as a coun-

try with a current population in excess of 100 million, or one forecast to attain this level by

the year 2050. Of the various population forecasts available, the revised 2004 medium

forecast of the United Nations Population Division has been taken as providing the most

appropriate overall assessment. Table 1 shows middle-income countries in this category asof 2004. For reasons outlined below, the low-income countries of India and Vietnam are

also included, as is the United States to provide a comparison with a populous high-income

country. Of the 11 countries in Table 1 (excluding the U.S.), Russia had the highest per capita

GNI (PPP) in 2004, but its place in the ranking of countries by size of population is expected

to fall from fifth to ninth by 2050.3

1Deputy Director, Centre for Russian and East European Studies (CREES), University of Birmingham,

Edgbaston, Birmingham B14 2TT, United Kingdom. Email: [email protected]. In preparing this article, the

author was assisted by Michael Rassell and Minoru Yasuda of CREES, whose participation is gratefully acknowl-

edged. The author is entirely responsible for the content and conclusions presented here.2Unless otherwise specified, all figures denominated in dollars are in $US.3If high- and low-income populous countries are also included, Russias ranking falls from seventh in 2005 to

sixteenth in 2005; the additional countries forecast to have larger populations are the United States, Pakistan,

Nigeria, Bangladesh, Democratic Republic of Congo, Ethiopia, Uganda, and Japan.

B


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256 EURASIAN GEOGRAPHY AND ECONOMICS

In 2003, economists of the Goldman Sachs Research Institute caused a sensation when

they introduced the idea of the BRIC economiesBrazil, Russia, India, and Chinaa set

of large-population countries with relatively dynamic economies that could, if appropriate

polices were pursued, occupy an increasingly important place in the global economy during

the years to 2050 (Wilson and Purushothaman, 2003).4 According to their estimates, the

combined GDP of the four BRIC countries could overtake that of the G6 countries (USA,

Japan, France, Germany, Italy, and UK) by 2040. Of the BRIC economies, Russia would

have the smallest GDP by 2050, but from 2028 onward Russia was projected to have a GDP

larger than any of the four European G6 countries. In a new look at the BRICs in December

2005, the Goldman Sachs analysts reviewed an additional set of developing countries,

termed the N-11 (Next Eleven), which includes the non-BRIC countries included in Table 1,

plus Bangladesh, Korea, Nigeria, and Pakistan. Of the N-11, Mexico alone was identified as

having the capacity to join the BRICs, with Korea as a possible outside contender (ONeill

et al., 2005).5 These papers drew attention to the fact that some of todays relatively low-

income countries have the potential to become major actors on the world stage because they

Table 1. Population and Per Capita Income of Middle-Income and Other Countries with

Current or Future Populations Exceeding 100 Million, 20042005, 2025, and 2050

Country

Population (thous.)GNIper.capita,

2004a

(US$)

GNI per capita

PPP, 2004($)b2005 2025 2050

Rank N Rank N Rank N

China

India

Indonesia

Brazil

Russia

MexicoVietnam

Philippines

Egypt

Turkey

Iran

U.S.

1 1,315,844

2 1,103,371

3 222,781

4 186,505

5 143,202

6 107,0297 84,328

8 83,054

9 74,033

10 73,193

11 69,515

298,213

1 1,441,426

2 1,395,496

3 263,746

4 227,930

5 129,230

6 129,3818 104,343

7 109,084

9 101,092

10 90,565

11 89,042

325,723

2 1,392,307

1 1,592,704

3 284,640

4 253,105

9 111,752

5 139,0158 116,654

6 127,068

7 125,916

11 101,208

10 101,944

394,976

1,290

620

1,140

3,090

3,410

6,770550

1,170

1,310

3,750

2,300

41,400

5,530

3,100

3,460

8,020

9,620

9,5902,700

4,870

4,120

7,680

7,550

39,710

aGross National Income per capita by World Bank Atlas methodology.

bGNI per capita by World Bank Purchasing Power Parity estimate (international dollars).Sources: Compiled by author from United Nations, 2005; World Bank, n.d.

4The acronym was first used in a 2001 Goldman Sachs economic paper (Goldman Sachs, 2001).5In this new paper, Russias growth prospects were moderated: overtaking all four European G6 countries was

postponed until after 2035 (ONeill et al., 2005, p. 20). In March 2006, the accounting firm PricewaterhouseCoopers

introduced yet another groupingan E7 bloc of emerging economies: the BRICs, plus Indonesia, Mexico, and

Turkey (Hawksworth, 2006). It was forecast that by 2050 the E7 will have surpassed the aggregate GDP of the G7

by at least 75 percent. Russian GDP was forecast to grow in U.S.dollar terms at an average annual rate rate of

4.6 percent over the period 20052050, yielding a total GDP equivalent to that of France by 2050. I am grateful to

John Hawksworth for providing access to this report.


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JULIAN COOPER 257

possess two decisive characteristicsvery large populations and unusually favorable pros-

pects for economic growth. For this reason, India and Vietnam have been included in the set

of countries discussed in this article.6 The 2003 Goldman Sachs report (Wilson and

Purushothaman, 2003) received considerable attention in Russia itself, not the least becauseit provided external validation to Great Power aspirations widely prevalent in Russian elite

circles. However, other voices raised doubts: perhaps Goldman Sachs had overstated

Russias growth potential?7

Within the BRIC group, for a number of reasons, Russia stands out. First, unlike Brazil,

India, and China, it has an economy currently heavily dependent on the exploitation of min-

eral wealth, above all hydrocarbons; second, it is forecast to have a sharply declining popula-

tion, whereas the other countries face only a declining rate of population growth; third,

Brazil, China, and India can be regarded without ambiguity as developing countries, but

Russia is unusual as in some respects it can be regarded as a de-developing countryits

capability in research and development, high technology, and military power has diminished

over the past 15 years; and finally, compared with the other countries Russia has an excep-

tionally low population density, set to decline in the years to come.8 But the question arises,

why should we compare Russia with these three countries only when there are more middle-

income countries in the world with large populations? It may be instructive to assess Russias

current standing and prospects in relation to a somewhat larger group of comparators. There

is no claim here to originality in undertaking such an exercise; a broader set of countries was

taken by Schleifer and Treisman (2004), for example, in their attempt to depict Russia as anormal country.9

There are many possible dimensions to a comparison of Russia with other large-

population countries of a similar income group. Here we focus on one factor that could prove

decisive for future rates of economic development: the extent to which these countries are

showing potential as knowledge-based economies. Various terms have been employed

(e.g. knowledge economy, new economy, information economy), but certain common

features emerge, perhaps best summarized in a World Bank study (Dahlman and Aubert,

2001). In the contemporary world, rapidly developing economies tend to be those in whicheconomic growth depends increasingly on the creation, acquisition, distribution, and use of

knowledge. Four pillars of a knowledge-based economy have been identified: (1) an edu-

cated and skilled population able to advance and productively employ knowledge; (2) an

effective innovation system, forming a network of research and development, R&D institu-

tions, higher educational establishments, and firms and other organizations able to harness,

adapt, and assimilate the existing stock of knowledge and create new knowledge and

technologies; (3) a dynamic information infrastructure that can facilitate the effective

6The potential of Vietnam also emerges from the 2005 Goldman Sachs Report (ONeill et al., 2005). One other

low- income country, Pakistan, was examined in detail, but it was decided that its current developmental potential

as a knowledge-based economy did not merit inclusion.7Thus one well-known economist, Kseniya Yudayeva, observed that this was rare positive news regarding

Russias future, but noted that the Goldmann Sachs report took no account of government policy; in her view, grow-

ing state intervention made the achievement of the forecast growth problematic (Vedomosti, June 29, 2005). This

view was echoed by another commentator, Marina Pustilnik (2005), who thought that it would remain a beautiful

dream that Russia could overtake the standard of living on Germany or France by 2050 unless the government

stopped interfering in business.8In 2003, Russias population density was 8 people per km2, compared with 21 for Brazil, 138 for China, and

358 for India (World Bank, 2005c).9However, their comparison considered per capita income levels only, not population.


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communication, dissemination, and processing of information; and (4) an economic and

institutional regime providing appropriate incentives to promote the efficient use and devel-

opment of knowledge.10

There are examples of economies exhibiting high rates of growth in countries where theknowledge component is not predominant. This is indeed the case with Russia. But in the

evolving globalized order it is becoming increasingly difficult to envisage a major economy

developing at a rapid pace without a substantial knowledge-economy commitment. This

appears to be recognized in Russia as well. In February 2006, speaking in Nizhniy Novogord

at a State Council meeting devoted to information and communication technologies, Russias

President Vladimir Putin declared that, The most important task of the economy is diversifi-

cation, a switch to completely new high-technology modes of development, and a gradual

withdrawal from the extraordinary dependence on natural resources, oil and gas.11 In fol-

lowing sections of this paper, Russias standing and progress in relation to the four pillars are

explored, using the other large-population countries that exhibit similar or lower develop-

mental levels (set out in Table 1) as comparators.

HUMAN CAPITAL AND EDUCATION

A vital prerequisite for knowledge-based economic development is human capital, in

particular a population with a reasonably high overall level of education and a certain mini-

mum proportion with higher education in science, technology, and other economically rele-

vant disciplines. At first glance, this represents a significant relative strength of Russia. The

Soviet Union possessed a well-developed educational system with considerable strength in

higher education, biased toward natural sciences and technology. However, since the col-

lapse of the Soviet empire, negative trends have emerged, especially in relation to health and

life expectancy. Russia is almost unique in having experienced a decline in its rating based

on the United Nations Human Development Index, as shown in Table 2, based on UNDP

(2005). In relation to the chosen comparator countries, Russias overall position remains

strong, although Mexico has pulled ahead and is the only country in the high human devel-opment category (the rest being medium). However, some other countries have been

catching up at a rapid pace, particularly China, Brazil, the Philippines, and Turkey. If present

trends continue, Russias ranking among the 11 countries could fall to a quite significant

degree within the next five years. However, Russia still maintains a healthy lead in one of the

components of the overall index, namely in education, where its rating remains very high,

almost on a par with the United States. But, again, other countries are rapidly closing the gap,

although it is noteworthy that India lags to a considerable degree.

Looking to the future, the significance of overall demographic trends cannot be under-

stated. Countries with relatively youthful populations, which now devote considerable atten-

tion to raising educational standards, can be expected to be strongly placed for future

development of the knowledge economy. In this respect, Russias position is not favorable,

as is evident from Table 3. Of the 11 countries, Russia has the smallest proportion of people

under 15 years of age, and according to the most recent UN forecast, the situation will not

change in the years leading to 2015, when Russia will also have by far the largest share of

people older than 65. As a percentage of GDP, Russias spending on education lags behind

10Adapted from Dahlman and Aubert (2001, p. 4).11For more on the meeting, see the February 16, 2006 edition ofstrana.ru [http://www.strana.ru/273621.html].
http://www.strana.ru/273621.htmlhttp://www.strana.ru/273621.html


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JULIAN COOPER 259

Table 2. UN Human Development Index, 19902003, including the 2003

Education Index

Country 1990 1995 2003

2003

Ranking,

n = 159

Education

index

Brazil

China

Egypt

India

Indonesia

Iran

Mexico

Philippines

Russia

Turkey

Vietnam

U.S.

0.719

0.627

0.579

0.513

0.625

0.650

0.764

0.720

0.817

0.678

0.617

0.916

0.747

0.683

0.611

0.546

0.663

0.694

0.782

0.736

0.770

0.709

0.660

0.929

0.792

0.755

0.659

0.602

0.697

0.736

0.814

0.758

0.795

0.750

0.704

0.944

63

85

119

127

110

99

53

84

62

94

108

10

0.89

0.84

0.62

0.61

0.81

0.74

0.85

0.89

0.96

0.82

0.82

0.97

Source: UNDP, 2005.

Table 3. Education Spending and Demographic Trends, 20002015

Country

Public expenditure

on education as a

percentage of GDP,

20002002

Public expenditure on

tertiary education as a

percentage of total

education expenditure

20002002

Expected

years of

education

in 2002a

Population under

15 as percent of

total

Population

over 65 as

percent of

total

2015Fa2003 2015Fa

Brazil

China

Egypt

India

Indonesia

Iran

Mexico

Philippines

Russia

Turkey

Vietnam

U.S.

4.2

2.1c

n.d.

4.1

1.2

4.9

5.3

3.1

3.83.7

n.d.

5.7

21.6

21.0c

n.d.

20.3

23.6

17.1

19.6

14.0

16.2d

21.7

n.d.

25.2

16.1

11.9

12.0

9.8

11.9

n.d.

13.2

11.8

14.9

12.0

n.d.

16.8

28.4

22.7

34.3

32.9

29.0

31.1

32.1

36.1

16.2

29.7

31.1

21.1

25.4

18.5

31.4

28.0

25.2

25.6

25.5

30.0

16.4

25.8

25.0

19.7

7.8

9.6

5.5

6.2

6.4

4.9

7.1

4.9

13.3

6.2

5.6

14.1

aFrom primary to tertiary education, excluding those under five years of age.bF = forecast.cFor 1999.dFor 2002.

Sources: Compiled by author from UNDP, 2005, except for China, 1999; Russia, tertiary education; and expected

years of education under current conditions, calculated from UNESCO, various dates.


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that of a number of other middle-income, large-population countries, notably Mexico, Iran,

and Brazil. In relation to the United States, which has a more comparable age distribution,

the spending gap is significant. However, apart from Brazil, Russia has the longest period

during which education is pursued, and by this indicator India falls quite far behind.

Since 1991, Russias higher educational system has been undergoing a painful process of

adaptation to much lower levels of funding, and there has been mounting concern at an offi-cial level that standards have been falling. In the words of Russias first science minister,

Boris Saltykov, A reform of education is indeed a necessary but clearly not sufficient condi-

tion for a turn to an innovational economy. It is needed because the level of training of spe-

cialists in all fields in Russia lags catastrophically behind modern demands (Saltykov,

2005). Under these circumstances, it is not surprising that many students have sought training

abroad, especially at the postgraduate level. Over the same period, there have been significant

advances in the provision of higher education in comparator countries, notably in China and

India. The results of a recent authoritative ranking of the worlds top universities in terms ofteaching and research are shown in Figure 1. Had a similar ranking been compiled in 1990,

there is little doubt that Russias standing would have been much more favorable.

In the authors view, there is a widespread tendency to overstate the level of human cap-

ital in Russia, with insufficient appreciation of the extent to which the legacy of Soviet times

has depreciated, and of the depth of problems afflicting the educational system, plagued by

inadequate funding for almost 15 years. In Russia, complacency at the official level does not

seem to be present: in March 2005, for example, German Gref, the economy minister, identi-

fied the inadequate development of human capital as one of the five principal problemsfacing the economy.12 Notwithstanding the problems, it should be acknowledged that, all

Fig. 1. Universities in the BRIC countries, Mexico, and Turkey among the worlds top 200 and

500 universities. Top 200: ranking by peer review, survey of employers, citations, staffing levels, and

percentage of international staff and students (World University, 2005). Top 500: annual ranking by

Shanghai Jiao Tong University (2005).


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JULIAN COOPER 261

countries considered, Russia possesses a very well educated population and many extremely

talented young people.

RESEARCH AND DEVELOPMENT AND NATIONALINNOVATION SYSTEMS

The USSR maintained a very strong commitment to research, with a system of R&D of

considerable scale in terms of personnel and spending. However, this research effort was ori-

ented strongly toward military needs, and the planned economy was notoriously counter-

innovative, with highly inappropriate incentives and institutions. Since the collapse of com-

munism, this R&D effort has shrunk in Russia, not so much as a result of deliberate state pol-

icy but as a spontaneous outcome of severe budget constraints, depressed rates of pay, and aneconomy that until now has generated modest demand for product and process innovations.

Furthermore, the military orientation of the R&D system remains high. In 1990, Russia had

993,000 researchers, and domestic spending on R&D was just over 2 per cent of GDP

(Tsentr, 1998, p. 42). In 2005 the equivalent numbers were 400,000 and 1.21 per cent. More-

over, the number of researchers continues to decline (Ministerstvo obrazovaniye, 2006,

p. 168). In 2005, the average age of researchers was 48 years, including candidates of science

53 and doctors of science 61 (ibid., p. 169). Whereas in 1994, 35 percent of researchers were

over the age of 50, by 2002 that share had risen to 49 percent. While there was a slight

increase in the proportion under 30 years of age, many young scientists work only for briefperiods in research before moving to more remunerative employment (Dezhina and Yegerev,

2005, p. 7).13 While some Russian scientists have gone abroad, science policy specialist Irina

Dezhina is certainly correct in her assessment that the extent of the brain drain is probably

exaggerated. Much more significant has been the internal brain drainresearchers leav-

ing R&D to work in other sectors of the economy (Dezhina, 2005, p. 9).14 Of the total

Russian expenditures on R&D, the share of the business sector is only one-fifth, and almost

three-quarters of R&D organizations remain in state ownership (Ministerstvo ekonom-

icheskogo, 2006b, p. 169). For some comparator countries up-to-date data are unavailable, toa large extent reflecting a lack of priority for R&D in the countries concerned. Table 4

summarizes the available evidence.

It can be seen that, notwithstanding the contraction since the early 1990s, Russia occu-

pies a strong position in terms of research spending and personnel. However, China now has

a much larger research base in absolute terms, while India, and to a lesser extent Brazil, are

catching up. Measurement of research output is not an easy undertaking, but using scientific

publication as a proxy, one finds that China and India have become significant competitors.

The Russian governments medium-term program of socioeconomic development envisages

a substantial increase in R&D spending, forecast to rise to 1.8 percent of GDP by 2008 and

2.0 percent in 2010 (Programma , 2006, p. 126).15 Without far-reaching reforms and

12The ministers comments were summarized on http://www.economy.gov.ru , March 29, 2005.13It has been estimated that the average period of time young scientists work in the field of research is 79

years (Dezhina and Yegorev, 2005, p. 8).14According to the Ministry of Science and Education (Ministerstvo obrazovaniya, 2006, p. 10), between 1989

and 2002 some 20,000 scientists left Russia to work abroad on a permanent basis, and a further 35,000 to work to

temporary contracts. However, it is acknowledged that those who left tended to be the most talented.15According to the strategy for science and innovation, 2.5 percent GDP is the target for 2015 (Ministerstvo

obrazovaniya, 2006, p. 4).
http://www.economy.gov.ru/http://www.economy.gov.ru/


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much-improved incentives for talented young people to take up a career in science, it is diffi-

cult to see how these targets will be realized. Meanwhile, China has already reached Russias

GDP share, achieving 1.23 percent in 2004, and has the same target, 2.0 percent, by 2010,

rising to 2.5 percent by 2020 (China Internet Information Center, 2006a, 2006c).16

Detailed citation analysis provides some insights into the relative strength of Russia and

other countries in various scientific disciplines. The Thomson ScientificISI Web of Knowl-edge provides relevant indicators over 10-year periods. For the period 19952005, the United

States led with 12.92 citations per published scientific paper, Brazil had 4.73, India 3.53,

Russia, 3.39, and China 3.32. For Mexico, equivalent data cover the period 19922002,

when citations per paper reached 4.15. In terms of the number of published papers over the

period 20002004, Chinas world share was 4.6 percent, but in materials science 11.56, phys-

ics 9.15, chemistry 6.89, engineering 6.89, geoscience 5.76, and computer science 5.48.

Russias overall share was 3.24 percent, with larger shares in physics (8.47 percent), geo-

sciences (7.77), space science (7.47), chemistry (6.10), mathematics (4.79), and materialsscience (3.41); in computer science, Russias share was only 1.0 percent, below Indias share

of 1.46. India, with an overall share of 2.39 percent, also had above-average shares in

materials science, chemistry, physics, engineering, and space science, but also considerable

strength in agricultural sciences (5.4 percent), plant-animal sciences, and pharmacology

(Sci-bytes, 2006). Language of publication is clearly a factor, but Chinas success in many

fields of science suggests that its importance should not be overstated.

Table 4. Scale of R&D Effort

Country Year

Researchers

employed

in R&D

(FTE)

Researchers

in R&D per

million

inhabitants

R&D spending

as percent ofGDP

Scientific-technical

journal articles

per million

inhabitants, 2001

Brazil

China

Egypt

India

Indonesia

Iran

MexicoPhilippines

Russia

Turkey

Vietnam

U.S.

2000

2002

2000

1998

1988

2001

20021992

2004

1997

1997

2002

59,838a

810,525

117,528

31,2561

27,626

401,425

23,995

352

633

120

182

484

274157

2,784

345

4,526

1.0

1.2

0.2

0.8

0.2

0.40.2

1.2

0.7

0.2

2.7

7,705

20,978

1,548

11,076

207

995

3,209158

15,846

4,098

158

200,870

aHead count, not FTE (full-time equivalent).

Source: Compiled by author from UNESCO, various dates, except Russia (researchers and percent of R&D

spending of GDP; from Goskomstat Rossii, 2005, pp. 586, 594); Vietnam (R&D spending as percent of GDP;from Sinh, 2004); and scientific-technical journal articles per million inhabitants (from World Bank, 2005c).

16Readers should note that the 2004 GDP share is somewhat overstated, as it takes no account of the GDP

series revision of late 2005 (accounting for the revision, the share would be ca. 1.1 percent). Turkey also has a 2 per-

cent of GDP target in 2010 for R&D spending as a share of GDP (European Trend, 2005, p. ii).


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JULIAN COOPER 263

While Russia possesses a relatively large R&D capability in terms of organizations and

personnel, there is much evidence that the country does not have an effective innovation

system. Substantial barriers remain between the business sector and the research activities of

the Academy of Sciences and the higher educational system, demand for new technologiesremains weak, and the business sector itself has been slow to develop its own R&D capabili-

ties. It is debatable whether one can speak of a developed Russian National Innovation

System (NIS) in the sense of a coherent set of institutions working effectively together to

secure innovation on a routine basis. Dezhina and Saltykov (2005) are surely correct in see-

ing the current system as transitional between the administrative-command innovation sys-

tem characteristic of the USSR and a modern, market-type NIS, the creation of which

remains a key policy objective. However, underdeveloped NISs are also a feature of other

emerging economies. It is not clear that the situation in Russia is worse than in the compara-

tor countries, although with the exceptions of China and Vietnam, they are not faced with thetask of restructuring innovation systems originally developed to serve the needs of a non-

market economic system. In China, however, realization that the Soviet-type innovation

system required major reform appears to have influenced policy over a longer period, with

structural changes dating back to the mid-1980s (Motohashi and Yun, 2005, pp. 2-9).

In other countries, the problems identified are familiar. Thus a World Bank study of

Brazil found that the innovation system contains serious gaps, with few researchers in the

business sector (World Bank, 2002, pp. 126-129). Iran has a relatively strong science and

technology infrastructure, but innovation activities are not demand driven, with a large rolebeing played by state-owned institutions (UNCTAD, 2005, pp. 2-7). According to a World

Bank study of competitiveness in Mexico, that country has one of the least effective and inef-

ficient innovation systems in Latin America (World Bank, 2005b, p. 2). In the Philippines, it

is reported that R&D is weakly linked to production and dominated by the public sector

(UNCTAD, 2003, pp. 59-62), but some promise is identified in Turkey, with strengths in

entrepreneurship and the university sector (World Bank, 2004, pp. 24-27). While India can-

not be said to have a developed NIS, it has some dynamic local innovation hubs, notably that

of Bangalore, of a kind that Russia has yet to emulate (World Bank, 2005a, pp. 71-77). Over-

all, the state of Russias innovation system is not at present adequate to the task of develop-ing a knowledge-based economy, and its weaknesses are giving rise to high-level concern. In

the opinion of Arkadiy Dvorkovich (2006), head of President Putins Experts Directorate,

unless innovative activity increases sharply, within five years it will not be possible to count

on stable rates of growth.

INFORMATION AND COMMUNICATIONS TECHNOLOGIES (ICT)

During the past 15 years, telecommunications have undergone radical change, and therehave been dramatic transformations in the use and ubiquity of information technologies.

These developments have far-reaching implications for the evolution of knowledge-based

economies. We explore here the comparative performance of Russia, a country that in com-

munist times was notoriously backward in ICTs. Is it now keeping pace with comparator

countries having similar levels of development?

With the rapid diffusion of mobile phones, the level of development of terrestrial, fixed-

line, telephone communications is becoming less important, although it remains important

for the development of the Internet. In 1990, Russia had a substantial lead over comparator

countries in the diffusion of terrestrial telephony, and has made further progress in recentyears. However, as shown in Table 5, the lead has narrowed appreciably and if present trends


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are maintained Russia will soon be overtaken by China and Brazil. Indeed, according to

Chinas information industry ministry, there will be 380 million fixed telephone users by the

end of 2006, or approximately 390 per 1,000 inhabitants (China Internet Information Center,

2006b). According to the medium-term program of socioeconomic development to 2008,

adopted by the Russian government in January 2006, terrestrial telephone density is forecast

to rise to 380 in 2008 and 468 in 2012the latter corresponding to the 2004 level of Italy

(Programma, 2006, p. 103). The table also shows that India, Indonesia, and the Philippineslag far behind, but Vietnam is now advancing rapidly.

For countries with underdeveloped terrestrial telephone systems, the emergence of cellu-

lar mobile phones has made possible a very rapid spread of modern communications with

greatly reduced investment in infrastructure. As Table 6 shows, Russia was initially rather

slow adopting the new technology. In the year 2000, the country lagged behind all but India,

Vietnam, Egypt, and Indonesia. Since 2002, the diffusion of mobile phones in Russia has

been extremely rapid, putting it in the lead in this set of comparator countries, with a level of

use per 1,000 people comparable with some Central European countries and higher than inthe United States. However, Russia has made only limited progress in the diffusion of 3G

mobile phone technology, and government action is now required to issue licenses to opera-

tors (3G, 2006).

The level of development of communications technology is an important factor in the

diffusion of the Internet, but an additional prerequisite is widespread access to computers. In

this respect, Russias performance in recent years has been relatively strong, as can be seen

from Table 7, based on International Telecommunication Union (ITU, 2005b). By this indi-

cator, India, Indonesia, and Vietnam lag far behind comparator countries. According to theRussian governments medium-term program, the number of computers per 1,000 population

Table 5. Main Telephone Lines per 1,000 Inhabitants, 19902004

Country 1990 1995 2000 2004

Percentage

increase,

19952004

Brazil

China

Egypt

India

Indonesia

Iran

Mexico

Philippines

65

6

30

6

6

40

65

10

85

33

49

13

17

86

94

21

182

115

86

32

32

149

126

40

237

241

138

43

46

219

176

41

179

630

182

231

171

155

87

95Russia 140 169 220 261a 54

Turkey

Vietnam

U.S.

122

2

545

213

11

600

273

32

663

265

70

606

24

536

1

aFor 2005, the ratio was 295 phone lines per 1,000 inhabitants (Russias IT, 2006).

Sources: Compiled by author from ITU, 2005b; 2000 and 2004 figures are adjusted

to account for more up-to-date data in World Bank, 2006, country tables.


11/30

JULIAN COOPER 265

is forecast to rise to 320 in 2008, the latter equivalent to the 2004 level of Italy, while the IT

and communications ministry has a goal of 430 by 2010.17

Table 6. Mobile Phone Subscribers per 1,000 Inhabitants, 19922005

Country 1992 1995 2000 2001 2002 2003 2004 2005

BrazilChinaEgyptIndiaIndonesiaIranMexicoPhilippines

0.20.10.10.23.50.9

8.32.90.10.11.10.27.37.2

1376621

41815

14238

16711043

65532

219155

20116067125534

258194

26320984258751

295278

363255109

44135

62366399

468291180

68171106437470

Russia 0.6 22 53 120 249 516 836a

TurkeyVietnam 1.0 7.00.3 24712 28615 33523 39434 48060 53587

U.S. 43 127 389 450 489 546 610b 680

aMoscow = 1,280 and St Petersburg = 1,100, from Ministerstvo ekonomicheskogo, 2006b, p. 167.bMobile phone use is relatively underdeveloped in the United States; in 2004, there were 10 countries with

1,000 or more users per 1000 inhabitants, Luxembourg being the leader with 1,194.

Sources: Compiled by author from ITU, 2005b, except for: Brazil, end 2005, calculated from GSM, 2006;

China, November 2005 from [http://english.sina.com/business/1/2005/1226/59479.htm] and forecast of

340 for end 2006 from China Internet Information Center, 2006b; Egypt, end 2005, Cell Phones, n.d.; India,

calculated from Malik and de Silva, 2006; Indonesia, Mexico, Turkey, and the United States, calculated

from China Tops, 2005;

Iran, for October 2005, from [http://irantelecom.ir/dl/emp45.pdf], January 2006; Philippines, for June 2005,

EIU, 2006; Russia, for end 2005, Ministerstvo ekonomicheskogo, 2006b, p. 167; Vietnam, forecast,

November 2005, Tegic Communications, 2005.

Table 7. Personal Computers per 1,000 Inhabitants, 19952004

Country 1995 2000 2001 2002 2003 2004


RussiaTurkeyVietnam

U.S.

17.32.34.31.35.0

25.325.6

9.6

17.614.9

1.4

324.1

50.115.912.6

4.510.262.857.619.3

63.340.1

7.5

585.2

62.919.015.5

5.811.069.769.621.7

75.039.4

8.6

624.4

74.827.716.6

7.211.975.083.027.7

88.743.1

9.8

659.8

88.739.129.1

8.812.890.597.937.3

104.947.211.2

687.7

107.140.932.912.113.6

105.3106.844.6

131.851.212.7

740.6

17See Soobshcheniye (2006, p. 103) and http://www.prec.ru/news, March 20, 2006.
http://english.sina.com/business/1/2005/1226/59479.htmhttp://irantelecom.ir/dl/emp45.pdfhttp://www.prec.ru/newshttp://www.prec.ru/newshttp://irantelecom.ir/dl/emp45.pdfhttp://english.sina.com/business/1/2005/1226/59479.htm


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Of the 11 countries under consideration, Russia was one of the first to adopt the Internet.

The .su domain name was registered in September 1990, followed in April 1994 by the .ru

domain. In the early years, the Internet developed mainly through the efforts of individual

enthusiasts, with very little state involvement. However, by 2000 a number of comparator

countries had moved ahead in the level of diffusion of Internet use, in particular Mexico,

Turkey, Brazil, and the Philippines, with China rapidly narrowing the gap. As shown in

Table 8, over the last five years Russia has maintained a fairly rapid pace of Internet develop-ment;18 the table also shows the extent to which India now lags behind the other countries.

With little state involvement and control, Russian Internet developers have faced few

obstacles in developing an impressive range of Internet hosts, and while lagging behind

Brazil, Mexico, and Turkey, Russia is now far ahead of other countries where state oversight

and regulation has been much more active (Table 9, based on ITU, 2005b). In this respect,

the more liberally oriented nations have had a substantial advantage over countries such as

China, Iran, Egypt, and Vietnam. Indias lag can be explained by general ICT backwardness

rather than by actions of a heavy-handed state.In other respects, Russias Internet performance has been less impressive, especially in

developing the infrastructural and institutional conditions essential for the rapid development

of e-commerce and the use of the Internet in education, government, and other spheres of

life. One index of this development is the stock of secure Internet servers. Compared with

some other comparator countries, notably Brazil, Turkey, and Mexico, Russias rate of

progress has been modest and, while behind in per capita terms, India is quickly catching up,

as shown in Table 10, compiled from World Bank (2006a).

Table 8. Internet Users per 1,000 Inhabitants, 19952005

Country 1995 2000 2001 2002 2003 2004 2005a

BrazilChina

Egypt

India

Indonesia

Iran

Mexico

Philippines

Russia

TurkeyVietnam

U.S.

1.10.5

0.3

0.3

0.3

0.4

1.0

0.3

1.5

0.8

93.9

29.417.4

7.1

5.4

9.2

9.8

51.2

20.1

19.7

38.32.5

440.6

46.625.7

9.3

6.8

20.1

15.6

74.7

25.6

29.3

51.112.4

501.0

82.246.0

28.2

15.9

21.2

48.5

99.7

44.0

40.9

61.818.5

552.1

102.061.5

43.7

17.5

37.6

72.4

120.0

49.4

68.3

84.943.0

555.8

121.871.6

55.7

32.4

65.2

78.8

133.8

53.2

111.0

141.371.2

622.8

141.085.0

59.0

45.0

81.0

108.0

162.0

91.0

153.6

681.0

aProvisional.

Sources: Compiled by author from ITU, 2005b, except: Brazil, India, Indonesia, Mexico, and

U.S., calculated from Worldwide, 2006; China, 2005 from http://www.cnnic.net/en/iondex/00/

index/htm, January 19, 2006; Egypt (June 2005), Iran (end 2005), and Philippines (February

2005) from http://www. internetworldstats.com/asia/htm; and Russia, 2005 from Ministerstvo

informatsionnykh, 2006.

18For background, see Perfiliev (2001)Ed.
http://www.cnnic.net/en/iondex/00/index/htmhttp://www.cnnic.net/en/iondex/00/index/htmhttp://www.internetworldstats.com/asia/htmhttp://www.internetworldstats.com/asia/htmhttp://www.cnnic.net/en/iondex/00/index/htmhttp://www.cnnic.net/en/iondex/00/index/htm


13/30

JULIAN COOPER 267

Another development now beginning to have a significant impact on the use of the Inter-

net in business, education, government, and culture is the transition to broadband. There are a

number of different modes of broadband access, with high speed modem and DSL as the

most widely used. Here China is forging ahead at an impressive rate, while Russia also lags

behind Brazil and Turkey, as shown in Table 11 (based on World Bank, 2006a). However,

there is evidence that the adoption of broadband in Russia accelerated sharply in 2005

(Shirokopolosnyy, 2006).

In an attempt to measure the overall level of development of the Internet, a number of

organizations have devised summary indicators. One of the best known is the Network

Readiness Index of the World Economic Forum. This ranks the more developed countries of

the world according to the ICT environment; the readiness of individuals, business, and gov-ernment to use ICT; and the actual levels of usage. In the most recent 2005 ranking, Russias

Table 9. Internet Hosts per 10,000 Inhabitants, 19952004

Country 1995 2000 2001 2002 2003 2004

BrazilChina

Egypt

India

Indonesia

Iran

Mexico

Philippines

Russia

TurkeyVietnam

U.S.

1.3

0.1

0.1

0.1

1.5

0.3

1.5

0.9

22.7

51.60.6

0.4

0.4

1.3

0.3

56.5

2.5

22.2

10.7

286.3

95.70.7

0.4

0.8

2.2

0.4

92.6

3.9

24.1

15.5

372.5

128.71.2

0.4

0.8

2.9

0.5

110.1

4.8

27.9

22.2

400.4

179.31.3

0.5

0.8

2.9

0.8

130.6

5.9

42.2

50.8

557.8

193.01.2

0.5

1.3

5.0

1.0

145.2

7.9

59.2

65.60.1

656.9

Table 10. Secure Internet Servers, 2000 and

2004 (per million people)

Country 2000 2004

Brazil

China

Egypt

India

Indonesia

Iran

Mexico

Philippines

RussiaTurkey

Vietnam

U.S.

6.0

0.1

0.2

0.1

0.3

0.0

2.6

0.9

2.03.2

0.1

273.8

11.2

0.2

0.4

0.4

0.4

0.2

6.1

1.9

2.112.3

0.1

674.9


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position is weak. A similar ranking is produced annually by the Economist Intelligence Unit

in association with the IBM Institute for Business Value, but for a smaller set of countries.

The 2005 e-readiness ranking was modified to take greater account of such new develop-

ments as broadband. In this ranking, Russias position is stronger, ahead of China, but behindIndia, as can be seen from Table 12.

Table 11. Availability of Broadbanda and International Internet

Bandwidth, 20002004

Country

Broadband subscribers(per thous. people)

International internet

bandwidth

(bits per person)

2000 2004 2000 2004

Brazil

China

Egypt

India

Indonesia

Iran

Mexico

Philippines

Russia

Turkey

Vietnam

U.S.

0.6

0.0

0.0

0.0

0.0

0.2

0.0

0.0

0.0

0.0

25.1

12.8

16.5

0.4

0.6

0.3

0.2

3.1

0.3

0.9

0.8

0.6

129.1

5

2

0

1

1

1

9

2

21

9

0

394

154

57

23

4

18

15

108

12

101

40

27

3,308

aDSL and cable modems.

Table 12. ICT Network Readiness Rankings in 2005

Country

WEF network

readiness index,

N= 115

EIU e-readiness

ranking,

N= 65

Brazil

ChinaEgypt

India

Indonesia

Iran

Mexico

Philippines

Russia

Turkey

Vietnam

U.S.

52

5063

40

68

55

70

72

48

75

1

38

5453

49

60

59

36

51

52

43

61

2

Sources: Compiled by author from EIU, 2005; WEF, 2006.


15/30

JULIAN COOPER 269

The International Telecommunication Union has also been developing measures of digi-

tal capabilities. Its first attempt, the Digital Access Index, was not entirely satisfactory as it

placed much emphasis on a countrys educational standards. More recently, however, a new

measure, the Digital Opportunity Index (DOI), has been devised, which covers opportunity(mobile phone access, Internet and mobile fees), infrastructure (fixed line telephones,

mobile phones, and Internet), and utilization (proportion of individuals using Internet, pro-

portion of broadband subscribers). This new index is still under development, and only 40

countries thus far are included in the ranking. By that measure, Russias position is stronger,

largely because opportunity is rated highly. By the DOI, Russia is ahead of China, Brazil

and Brazil, but behind Mexico and roughly on a par with Turkey, as can be seen in Table 13

(from ITU, 2005a, p. 16). In the authors opinion, the DOI more accurately reflects Russias

position than the index used by the WEF.In one respect, Russia has been relatively slow in taking advantage of the Internet. E-

commerce is still underdeveloped, whether business-to-consumer (B2C) or business-to-

business (B2B). Hindrances have included the lack of appropriate legislation for the use of

electronic signatures, limited use of credit cards making payments difficult, and consumer

distrust of digital transactions. However, the volume of trading is steadily increasing, assisted

by rapid growth in credit card use in the last year or two, and wider access to the Internet. In

B2B development, the lead has been taken by some large public companies, in particular

RAO UES the electricity company, which now makes many purchases by electronic means.

Statistical data on e-commerce are still sporadic, but according to the National Association of

Participants in Electronic Trade (NAUET), the volume of B2C was up to between $1.0 and

$2.6 billion in 2005. The volume of B2B increased to $1.3 bn, and of state purchasing via the

Internet to $2.1 billion, but 80 percent of this total was accounted for by the Russian Agency

for Atomic Energy; total e-sales thus rose to roughly $6 billion (Vedomosti, March 31, 2006).

According to the China Internet Development Research Centre, total e-commerce sales in

China in 2005 reached $68.7 billion, including B2C $1.68 billion, triple the level of 2004

(Zhe, 2006).19 By volume of sales, Russia also lags far behind India, with its total 20032004

Table 13. ITU Digital Opportunity Index (DOI)a

Country Ranking Opportunity Infrastructure Utilization DOI

BrazilChina

Egypt

India

Indonesia

Mexico

Philippines

Russia

Turkey

U.S.

3432

31

40

38

27

37

30

28

13

0.490.64

0.83

0.35

0.47

0.78

0.51

0.78

0.68

0.97

0.210.20

0.14

0.03

0.05

0.20

0.12

0.18

0.32

0.54

0.120.09

0.01

0.02

0.03

0.08

0.03

0.04

0.03

0.30

0.270.31

0.33

0.14

0.18

0.35

0.22

0.34

0.34

0.60

aN= 40. No rankings for Iran and Vietnam. Opportunity, infrastructure, and utilization are each

given a one-third share in calculating the value of the overall DOI.

19For comparison, retail e-commerce in 2005 in the United States amounted to $86 billion (Quarterly, 2006).


16/30


e-commerce sales of $58 billion (IMAI, 2006) and Brazil, where total e-commerce sales in

2004 are estimated to have been between $35 and $59 billion (eBrazil, n.d.). In China, as in

Russia and other comparator countries, e-commerce, especially retail, is constrained by

payment problems, lack of trust, and concerns about the inadequate quality of some goodspurchased on line. In some countries, such as Egypt, Indonesia, and Vietnam, an additional

problem is that many websites are in English rather than in local languages (e.g., United

Nations, 2003, p. 28; Purbo, 2003; UNESCO, n.d). In this respect Russia is much better

placed, as almost from the outset Russian was the basic language of what is popularly known

as Runet.

In Russia and most of the comparator countries, government initiatives have been

undertaken to promote the development of information societies, often with a focus on

e-government and the use of ICT in education and culture. Thus Russia adopted an ambitious

Electronic Russia (20022010) program in 2002 (e.g., see Ministerstvo ekonomicheskogo,

2006a), and China a similar program in the same year (Xinhuanet, 2002). In the case of

Egypt, an Egypt Information Society initiative was launched by President Mubarak in

September 1999 (Egypt Information, n.d.) and a new Ministry of Communications and IT

was established the following month. In 2001 Indonesia adopted a five-year action plan for

ICT development (Five-Year, 2001), while in India the Planning Commission issued a report

onIndia as Knowledge Superpower: Strategy for Transformation in 2001, followed byIndia

Vision 2020 in 2002 (e.g., see World Bank, 2005a). To varying degrees, the governments of

this set of large emergent economies have commitments to harness ICTs to economic andsocial advancement.

CLUSTERS, PARKS, AND ZONES

In July 2005, President Putin signed a decree on the creation of special economic zones.

By end of the year a decision had been taken to create six such zones, of which four are to be

focused on high technology and innovation: Zelenograd (just outside Moscow), microelec-

tronics; Dubna (Moscow region), nuclear and technologies based on physical sciences;St. Petersburg, IT; and Tomsk, new materials. In addition, two industrial production zones

are to be created, one in the Lipetsk region, for the manufacture of household electronics and

perhaps furniture, and the second in Yelabuga, Tatarstan, for vehicle components and hi-tech

petrochemical products. The zones will benefit from some tax and customs concessions.20

This initiative followed Putins December 2004 visit to India, where he visited the dynamic

IT and software innovation hub of Bangalore. This clearly made a large impression, for soon

after his return to Russia, Putin called for the creation of similar zones to promote the devel-

opment of IT and other high-technologies. Responsibility for leading the development of

special zones was vested with the Ministry of Economic Development and Trade (MERT),which established a new agency to lead the process. Regions and cities were invited to sub-

mit proposals for their creation and the government approved the six projects eventually

selected, the establishment of which is to be aided by investment from the federal budget.

From the outset, it was clear that the approach to creating innovation zones did not com-

mand universal support. In particular, the Ministry of Information Technology and Commu-

nications has been vigorously promoting its own alternative in the form of IT parks,

specifically designed to foster the development of ICTs and software. The Ministry intends to

20For additional information, see http://www.outsourcing-russia.com/docs/doc=1062, December 24, 2005.
http://www.outsourcing-russia.com/docs/doc=1062http://www.outsourcing-russia.com/docs/doc=1062


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JULIAN COOPER 271

create five such parks, located in St. Petersburg, Novosibirsk, Nizhniy Novgorod, and Dubna

and Chernogolovka in the Moscow region (Yankevich, 2005). Critics charge, not without

reason, that the approach of MERT is too centralized and inflexible, with such a large role for

the state that they are unlikely to be very attractive to private investors. In April 2006, Putinhimself expressed reservations, observing that it was curious that countless bureaucratic pro-

cedures had developed even though the initiative was intended to reduce administrative

obstacles and delays.21

In developing IT parks, innovation zones, and similar special arrangements for the pro-

motion of new technologies, Russia is following the practice not only of India, but of almost

all the comparator countries, but often with considerable delay. In China, high-technology

development zones have played a major role in the countrys economic rise in recent years.

In Egypt, the first smart village is under development near Cairo, backed by private inves-

tors and the Egyptian government, with potential accommodation for 30,000 people(UNIDO, 2006a). Iran has developed the Guilan Science and Technology Park, with a partic-

ular focus on ICT, the Khorasan Science and Technology Park, and under development now

is the new Pardis Technology Park also focused on ICT (UNIDO, 2006b). Mexico also is

actively developing technology parks, designed to attract multinational companies and pro-

mote the development of IT outsourcing services (Horowitz, 2003).

OUTSOURCING: A NEW POSSIBILITY FOR RUSSIA?

An aspiration of Russias IT and communications ministry and the software develop-ment community is to transform the country into a leading supplier of software to foreign

customers, following the path of India in becoming a world center for the outsourcing of IT

and business processes. However, the scale of Russias involvement in outsourcing lags far

behind that of India and China, and it is difficult to see how Russia will be able to narrow the

gap quickly. It is estimated that in 2004 Russias total software and services exports reached

$750 million, rising to $994 mn in 2005, the main markets being the United States, Canada,

Germany, and the Nordic countries (RUSSOFT/Outsourcing, 2006). This compares with

2004 offshored IT and business services amounting to $17.4 billion in India, and 2003 totalsof $3.4 billion for China and $1.7 billion for the Philippines.22

One significant advantage enjoyed by both India and Philippines in business process and

software outsourcing is a large, well-trained labor force with knowledge of English. There is

no doubt that Russia possesses many talented software specialists, but they face problems.

India now produces some 120,000 IT graduates a year and skills are being rapidly upgraded,

but in Russia the total stock of programmers is some 200,000 and the labor force is growing

considerably more slowly than in India (World Bank, 2005a;IKS-online, 2005). The salaries

of Russian programmers are higher than in India, China, and other emerging economies that

have become centers for outsourcing and it is not clear that this competitive disadvantage isoffset by superior productivity. There is now mounting concern in Russia that rising salaries

of programmers could lead to lost opportunities, and this concern has prompted demand for

government action to subsidize the infrastructure costs of the software industry. In the

21April 4, 2006. At the same time, revealing a contradictory stance, Putin criticized the fact that about 80 per-

cent of expressions of interest in working within the special zones had come from foreign companies, not Russian

firms [http://ia.vpk.ru/cgi-bin/cis.cgi/News/View/167846], April 4, 2006.22The Indian total is derived from a Russian government briefing on the Indian economy [http://www.

economy.gov.ru], February 8, 2006. The China and Philippines totals are derived from Mckinsey (2005, p. 13); the

latter source gives $300 million as Russias equivalent 2003 total.
http://ia.vpk.ru/cgi-bin/cis.cgi/News/View/167846http://www.economy.gov.ru/http://www.economy.gov.ru/http://www.economy.gov.ru/http://www.economy.gov.ru/http://ia.vpk.ru/cgi-bin/cis.cgi/News/View/167846


18/30


software industry, labor costs can be 7080 percent of the total, but in Russia firms are disad-

vantaged by having to a pay the single social tax at a rate of 26 percent. The IT and commu-

nications ministry has been lobbying for a preferential 14 percent for IT companies.23 Indias

software industry probably has superior managerial and entrepreneurial skills, partly becausemany managers have experience of working in the United States and other developed econo-

mies (Arora and Athere, 2000, p. 260). In Russia, the management model prevailing in the

software business has been characterized by one informed observer as still Soviet in style

(Shalmanov, 2004). Russian software firms also encounter obstacles that are typical of the

Russian business environment. Whereas Indian firms developing software for new technol-

ogy (for example, medical equipment) can import the hardware with a minimum of delay, it

can take weeks in Russia to secure the necessary clearance through customs. New software

developed in Russia has to be granted security clearance before it can be exported (Izvestiya,

July 29, 2004).24 In short, Russian outsourcing lacks the flexibility and adaptability enjoyed

by its competitors in India, China, and other countries.

SECURITY POLICY AS AN OBSTACLE TO DEVELOPMENT OF

THE KNOWLEDGE ECONOMY

Further liberalization of telecommunications has been held back by the long delay in

privatizing the sectors principal holding company, Svyazinvest, which controls seven

regional telecom companies and the national long-distance operator Rostelecom. A major

reason was the difficulty in meeting the demands of the military and security services, which

insisted on guaranteed access to the companys networks after privatization; agreement was

finally reached in February 2006 (Kremlin, 2005;RBC Daily, February 17, 2006). The devel-

opment of digital broadcasting, in particular television, and Wi-Fi mobile technologies is

hindered by the fact that in Russia only 9 percent of all available radio frequencies are allo-

cated to civilian needs, the remaining 91 percent being reserved for the use of the military,

security services, and government. According to Minister for IT and Communications,

Leonid Reyman, about 70 percent of frequencies in Europe are for civilian purposes. In his

view, digitalization in Russia will be delayed unless the Ministry of Defense frees frequen-cies for other uses. The Defense Minister, Sergey Ivanov, has shown willingness to cooper-

ate, but it appears that no progress will be made before 2008 at the earliest, giving time for

the military to modernize its equipment (Reiman, 2005, p. 1; Naumov, 2006). In addition, as

noted above, security controls hinder the export of software. These security-related concerns

are in part a legacy of Soviet times, but they put Russia at a disadvantage in attempting to

move in the direction of a knowledge-based economy.

PERFORMANCE IN EXPORTS AND HIGH TECHNOLOGY

Confidence in Russias ability to make a transition to a knowledge-based growth strat-

egy would be greater if the country now possessed a stronger capability in high-technology

fields. Data on the share of high-technology goods in exports is not encouraging, as shown

by Table 14. Further investigation reveals that most of Russias high-technology exports take

the form of armaments, rather than civilian goods.

23For additional information, see [http://www.outsourcing-russia.com/docs/doc-1036], November 2005 and

[http://www,outsourcing-russia.com/docs/?doc=1059], December 2005.24In the words of new-economy specialists of the Higher School of Economics, the procedure for obtaining

permission to export software has been complicated to the point of absurdity (Kuzminov et al., 2003, p. 9).
http://www.outsourcing-russia.com/docs/doc-1036http://www%2Coutsourcing-russia.com/docs/?doc=1059http://www%2Coutsourcing-russia.com/docs/?doc=1059http://www.outsourcing-russia.com/docs/doc-1036


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JULIAN COOPER 273

The comparative position of Russia can be illuminated further by examining the Balassa

index of revealed comparative advantage (RCA) for selected high- and medium-technology

goods. While this measure has well-known limitations for cross-country comparisons, it can

nevertheless provide an instructive snapshot of a countys relative standing at a particular

point in time. A good has RCA if the index is greater than 1, and revealed comparative disad-

vantage if less than 1. Results for 2004 are shown in Table 15.

As can be seen, Russias performance in most sectors is not impressive, and compares

unfavorably with Brazil, China, Mexico, and Turkey. For certain goods Indias RCA indicesare superior. Some of the impressive achievements of comparator countries, notably of

China, depend to a large extent on the activities of foreign companies and involve substantial

imports of components. However, this raises the question of why Russia has not followed the

same path.

Examination of Russias export performance in greater detail reveals that there are some

70 product groups at the 4-digit SITC-3 level for which there is RCA. However, almost all

products comprise hydrocarbons, metals, minerals, chemicals, and timber, often at a low

level of processing. Only four machine-building product groups appear and these mainlyrelate to Soviet legacies such as fuel elements for Soviet-built nuclear power stations, rail

freight cars (imported by CIS and Baltic countries having Soviet wide-gauge tracks), and

equipment for nuclear power stations being built by Russia in such countries as China, India,

and Iran. There are no explicit data for arms exports, but there is a substantial group of

unclassified goods for which there is RCA, which may include combat aircraft and some

other systems in which Russia probably has an advantage.25

Table 14. Exports of High-Technology Goods, 2003

Country

Value of

high-technologyexports (mill. $)

Hi-tech exports

as percentage of

total exports of

manufactures

Hi-tech exports

as percentageof total exports

Brazil

China

Egypt

India

Indonesia

Iran

MexicoPhilippines

Russia

Turkey

4,505

107,543

9

2,292

4,580

51

28,63423,942

5,327

815

12

27

5

14

2

2174

19

2

6.2

24.6

3.9

7.3

0.2

17.066.6

4.0

1.7

Vietnam 145 2 0.7

U.S. 160,212 31 24.8

Source: Compiled by the author from UNDP, 2005 and World Bank, 2005c.

25Russias competitive strengths and weaknesses as revealed by RCA are considered in more detail in a forth-

coming paper by the author inEurasian Geography and Economics (Cooper, 2006).


20/30


Table

15.RevealedComparativeAdvantageIndex,2004a

SIT

C

cod

e

Productgroup

BRA

C

HN

EGY

IND

ID

N

IRNb

MEX

PHL

RUS

TUR

VNMb

USA

776

752

764

874

872

716

731

720

792

781

713

541

Electroniccomponents

Computerequipment

Telecomsequipment

Measuring-controlapparatus

Medicalinstruments

Rotatingelectricplant

Metal-cuttingmacc

hinetools

Tractors

Civilaircraft,space

craft

Passengercars

Internalcombustionengines

Pharmaceuticals

0.06

0.32

0.38

0.15

0.20

0.94

0.31

3.41

2.64

0.66

1.79

0.23

0.69

2.38

2.16

0.33

0.37

1.32

0.27

0.14

0.07

0.01

0.19

0.67

0.04

0.04

0.09

0.06

0.01

0.03

0.07

0.07

0.06

0.06

0.15

0.23

0.40

0.16

0.93

0.06

0.17

0.43

0.81

0

.30

0

.81

0

.69

0

.03

0

.08

1

.46

0

.06

0

.02

0

.05

0

.04

0

.52

0

.07

0.01

0.01

0.01

0.01

0.02

.0.01

0.03

0.01

0.34

1.99

2.19

1.03

3.44

3.48

0.37

0.06

1.17

2.87

0.24

4.32

3.44

1.28

0.09

0.12

0.09

0.02

0.03

0.07

0.01

0.0

2

0.0

5

0.0

6

0.2

2

0.0

4

0.2

1

0.1

2

0.1

4

0.3

2

0.0

6

0.1

0

0.0

4

0.08

0.93

0.05

0.10

0.11

0.53

0.16

1.56

0.57

1.16

0.98

0.12

0.12 0.26

0.21

0.06

0.19

0.90

0.01

0.03

0.01

0.01

0.02

0.02

1.13

0.71

0.85

2.15

2.07

0.98

1.25

1.27

3.67

0.48

1.32

1.77

aForselectedmedium-andhigh-technologyfields.TheSITC,Rev.3tradeclassificationwasemployed

,hereatthethree-digitlevel.

bFor2

003.

Sources:Calculatedbytheauthorfrom

dataoftheCommodityTradeStatisticsDatabase(UNComtrade,n.d.).


21/30

JULIAN COOPER 275

Some comparator countries have been able to develop competitive, relatively high tech-

nology, sectors enjoying considerable export success. The Brazilian aircraft industry pro-

vides a good example: Embraer is a leading supplier of regional/commuter jets and this

represents a successful niche activity in a high-technology sphere, providing an interestingcase study of created comparative advantage. This success owes much to the creation of a

local system of innovation in the So Jos dos Campos region, the development of an inter-

national production chain, and the fostering of conditions conducive to a build-up of local

R&D, technological, and manufacturing capabilities. In this sector of the aviation industry,

Brazil now occupies a position that no Russian firm is likely to challenge in the foreseeable

future, notwithstanding Russias substantial, long-standing, involvement in the building of

aircraft.26

As Rodrik (2006) has shown, China, strikingly, but also India, Mexico, and Turkey, havebeen able to develop export profiles skewed toward high-productivity goods to an extent

greater than normally would be expected given their income levels. Russias performance is

not discussed by Rodrik, but the evidence considered above suggests that it has failed to

develop an export profile similar to that of the most dynamic emerging economies (ibid.). In

Rodriks view, a major factor in Chinas success has been the openness to foreign investment

in forms that have promoted the development of domestic capabilities: The large size of the

economy has allowed policy experimentation. It also has allowed the government to use the

carrot of the internal market to force foreign investors into joint ventures with domestic pro-

ducers (Rodrick, 2006, p. 22). Perhaps because the domestic market is smaller, Russia has

not had the same success. However, in the authors view the explanation probably lies more

in attitudes: Russia simply has not seen the necessity of learning from foreign experience in

the same way that China and other emerging economies have.

As shown in Table 16 (based on UNCTAD, n.d.), the stock of Russias foreign direct

investment (FDI) in per capita terms is quite respectable, but the FDI inflow in 2004 was

more modest than that in China, Brazil, and Mexico, and biased toward the energy sector,

with relatively modest investment in the manufacturing sector. However, there are now signs

that in some sectors Russia is beginning to adopt a policy resembling that pursued by China.In the automobile, tractor, and agricultural machine-building industries, foreign companies

are being encouraged to establish assembly plants in Russia, and are expected to sign agree-

ments to increase domestic content over a number of years. It is not without irony that some

of the early interest in these new possibilities has come from Chinese and Indian vehicle-

building companies, and there has also been discussion of building one of the Brazilian

Embraer family of regional jets in Russia.27

COMPETITIVENESS

In assessing Russias performance in moving toward a knowledge economy, the eco-

nomic environment cannot be ignored. The evidence suggests that in one important respect

Russia has a disadvantage. When compared with comparator countries, the economy turns

26For an insightful analysis, see Cassioloato et al. (2002).27Thus the Chinese Great Wall company is interested in assembling its Hover jeeps in Tatarstan and Chery

Automobile is considering assembly in Novosibirsk. The Indian company Mahindra intends to assemble its Scorpio

off-road vehicle in Russia (for details, see http://www.wto.ru/press.asp?msg_id=15746, March 17, 2006;Kommer-

sant Daily, April 7, 2006, p. 14).
http://www.wto.ru/press.asp?msg_id=15746http://www.wto.ru/press.asp?msg_id=15746


22/30


out to be not very competitive. This is shown by a number of international rankings. Table 17

presents the assessment of the World Economic Forum (WEF, 2005).28

According to this assessment, Russia is one of the least competitive economies of the

group. Whereas India has moved steadily up the ranking in recent years and Chinas position

has slightly deteriorated, Russia has dropped five places since 2003. The ranking suggests

that problems are most severe at the micro-level.

ASSESSING KNOWLEDGE-ECONOMY READINESS

A useful benchmarking tool for assessing the readiness of countries for the knowledge

economy is the Knowledge Assessment Methodology (KAM) developed by the World Bank

Institute (World Bank, 2006b). The KAM basic scorecard summarizes sets of variables char-

acterizing performance in terms of four pillars of the knowledge economy: (1) the education

and skills of the labor force; (2) the effectiveness of the innovation system; (3) the adequacy

of the ICT infrastructure; and (4) the extent to which the economic and institutional regime is

conducive to the creation and use of knowledge. A total of 80 variables are employed. The

variables are normalized from 0 (weakest) to 10 (strongest), and the 128 countries coveredby the KAM are ranked on an ordinal scale. The overall performance of countries is summa-

rized by a more narrowly based Knowledge Economy Index (KEI), which can be used to

show trends over time (e.g., see Chen and Dahlman, 2005). Recognizing that performance in

innovation may depend on a country possessing a critical mass of researchers giving rise to

economies of scale in knowledge production, the main innovation variables are presented as

either unweighted or weighted, the former taking absolute values and the latter weighted by a

Table 16. Inward Foreign Direct Investment in 2004

(in mill. dollars)

Country FDI stock FDI inflowFDI stock per

capita


Russiaa

TurkeyVietnam

U.S.

150,965245,467

20,90238,67611,3524,065

182,53612,68598,444

25,18829,115

1,473,860

18,16660,6301,2535,3331,023

50016,602

469 11,672

2,7331,610

95,859

836189299

45158

1,740153

683348353

5,022

aIn 2004, FDI outward stock was $81,874 million and outflow $9,601

million. For other countries (excluding the United States and Brazil),

FDI outflows are modest in comparison with inflows.

28Russias position is assessed somewhat more favourably in the annual ranking of the International Institute

of Management Development, Lausanne, but this World Competitiveness Scoreboard covers only 60 countries. In

2005 Russia was ranked 54, compared with rankings of 32 for China, 39 for India, and 51 for Brazil (IMD, 2005).


23/30

JULIAN COOPER 277

countrys population. This is important when considering populous countries such as China

and India, for example, as they have a critical mass of innovative capacity that is not

reflected when scaled by population. For this reason only unweighted variables are usedhere. The most recent, 20032004, KEI are shown in Table 18.

Table 17. World Economic Forum Global Competitiveness

and Business Competitiveness Indices, 20052006a

CountryGC

BCIOverall Inc. tech.b

Brazil

China

Egypt

India

Indonesia

Mexico

Philippines

Russia

Turkey

Vietnam

U.S.

65

49

53

50

74

55

77

75

66

81

2

50

64

58

55

66

57

54

73

53

92

1

49

57

71

31

58

60

69

74

51

80

1

aN= 117. Iran not included in the index. GCI = quality of macroeconomic

environment, state of countrys public institutions, and level of techno-

logical readiness; BCI = underlying microeconomic factors, includes

company operations and strategy and quality of national business envi-

ronment.bTechnology index.

Table 18. World Bank Knowledge Economy Index (KEI), 20032004a

Country Rank KEI EIR Innovation Education Info. inf.

Brazil

China

Egypt

India

Indonesia

Iran

Mexico

Philippines

Russia

Turkey

Vietnam

U.S.

40

56

70

79

77

82

45

59

37

52

90

5

5.83

5.01

4.19

3.81

3.90

3.60

5.58

4.82

6.39

5.26

3.08

8.62

5.08

2.95

3.13

2.47

3.65

2.71

4.89

4.59

3.01

4.50

2.03

7.61

8.08

9.18

5.77

8.66

5.75

4.71

7.49

5.35

8.81

7.00

3.40

9.91

5.59

3.60

4.51

2.16

3.34

3.71

4.37

5.34

7.85

4.19

3.99

8.22

5.64

4.30

3.35

1.96

2.58

3.26

5.58

3.98

5.88

5.35

2.88

8.74

aN = 128; KEI = knowledge economy index; EIR = economic incentive regime; Info. inf. =

information infrastructure (ICT).


24/30


Russias position is relatively strong, but to a large extent this is because of the variables

used to assess educational attainmentadult literacy and enrollment at the secondary and

tertiary levels. However, Brazil and Mexico are not far behind, and Turkey and China are

also quite strongly placed. In terms of the KEI, Iran and Vietnam have considerable ground

to make up, and Indias performance is weakened by relatively weak educational attainment

and ICT diffusion.

Using the KAM, it is instructive to examine changes occurring over time, comparing

performance in 1995 with the latest data (20032004). Table 19 shows performance summa-

rized by the KEI and by two of its componentsinnovation and information infrastructure.Over the period, Russias ranking fell slightly, and the decline would have been greater if

there had not been an improvement in the economic incentive regime, the score for which

rose from 2.33 to 3.01. Countries rising rapidly up the ranking are China, Brazil, and

Vietnam, with the Philippines also showing better performance. Less impressive are India,

Indonesia, Mexico, and Turkey. If present trends are maintained, Russia is in danger of being

overtaken by countries with more rapidly improving knowledge-economy characteristics.

CONCLUSION

The Russian economy has been growing for five years at a relatively high rate of almost

7 percent, but examination of future prospects in comparative terms suggests that the pros-

pects are not so good. China is rapidly narrowing the gap, and there are other emergent coun-

tries of comparable or lower levels of per capita income that now appear to have the potential

to rival Russias economic strength during the next 1015 years. In particular, one can single

out Mexico, Brazil, and Turkey, and, taking a longer view, it is probably a mistake to

discount completely the possibilities of Indonesia and Vietnam. The evidence reviewed

above suggests that Egypt and Iran will not represent serious competition, the latter sharingsome characteristics with Russia, in particular an economy dominated by the minerals sector

Table 19. Knowledge Economy Index, 1995 and Most Recent, 20032004 (unweighted)a

CountryKEI rank KEI Innovation Info. infrastr.b

1995 Latest 1995 Latest 1995 Latest 1995 Latest

Brazil

China

Egypt

India

Indonesia

Iran

Mexico

Philippines

Russia

Turkey

Vietnam

U.S.

54

72

71

71

75

82

43

64

3547

102

1

40

56

70

79

77

82

45

59

3752

90

5

5.30

4.07

4.23

4.03

3.80

3.44

5.72

4.68

6.29

5.60

2.01

9.21

5.83

5.01

4.19

3.81

3.90

3.60

5.58

4.82

6.395.26

3.08

8.62

7.87

8.81

6.43

8.48

5.45

5.41

7.28

5.37

9.09

6.38

2.01

9.90

8.08

9.18

5.77

8.66

5.75

4.71

7.49

5.35

8.81

7.00

3.40

9.91

5.30

1.68

3.45

2.40

3.16

3.54

5.52

3.69

5.95

5.68

1.10

9.74

5.64

4.30

3.35

1.96

2.85

3.26

5.58

3.98

5.88

5.35

2.88

8.74

aN= 128.bInfo. Inf. = information infrastructure.


25/30

JULIAN COOPER 279

with substantial state involvement in economic life. In the authors view the economists of

Goldman Sachs are excessively optimistic in relation to Russias growth prospects, under-

stating the impact of unfavorable demographic trends and structural factors that are likely to

complicate diversification and transition to a more knowledge-based path of development.That the policy dimension may have been understated has been hinted by Jim ONeill, head

of the Global Economic Research division of Goldman Sachs, responsible for the BRICs

acronym. Speaking at the Davos World Economic Forum in January 2006, he acknowledged

that of the four countries it was Russia that worried him most. In ONeills words, The

motives for the decisions coming out of the Kremlin are difficult for us to understand,

although they are not always sinister (quoted in Berry, 2006).

As noted at the outset, Russia is unique in the group of countries discussed in this paper,

in having undergone a difficult process of partial de-development during the last 15 years.

The Russian people and the political elite are having to adapt to a reduced role in the world

for their country: not long ago a superpower, often compared with the United States, but now

a relatively weak emerging economy with much reduced global influence. From the outset, it

has been clear that for President Putin restoration of the great power status of Russia has been

a central strategic goal. But the Soviet legacy remains strong and casts a shadow over the

present, not least in its influence on attitudes and practices. Most of the other populous

emerging economies could be characterized as aspiring nations, focused on securing better

economic futures and, as such, open to new ideas and to learning from the more developed

world. In contrast, Russia, having been strong and self-reliant, gives the impression of beingmuch less disposed to learn from others, and resentment rather than aspiration appears to be

the dominant mood. Russias development as a more knowledge-based economy is also ham-

pered by its security orientation and practices inherited from Soviet times, and given new

impetus by the political elites perception that the country is insecure and that its sovereignty

is under threat.29 In this respect, the prospects for Russia are at present not so favorable.

In some fields, however, Russia has been relatively successful. The development of the

Internet has proceeded at a respectable pace and mobile phones have rapidly diffused. In both

cases, the state has played little role and the momentum has derived from individual initia-tive. It does appear that, in the case of Russia, the more the state is involved in knowledge-

economy activities, the less impressive are the results. This is shown clearly in the sphere of

R&D, which is still dominated by state-owned facilities, including those of the Russian

Academy of Sciences, and threatens to be shown yet again in the case of the state-initiated

creation of special economic zones.

Russias dilemma has been summarized by Boris Saltykov: Its time to stop comparing

ourselves all the time with the USA, high time! Let us find our own place in this world!

There is an excellent summary model of the global innovation system, he continues, in

America they invent, in China they produce, in India they program, in Europe they consume,

Africa rests. And where in this is the place for Russia?, Saltykov ponders. We need to find

it, because in Russia there is a little bit of that, a little bit of the other. Noting the fact that

Russians are a creative people, who love complex and unique tasks, he believes that the

solution lies in integration with the worlds leading high-technology companies. In the pro-

cess, Russia will find niches to occupy, but in Saltykovs view a basic precondition for this

outcome is radical reform of the economys state sector (Saltykov, 2005).

29This view has been voiced in explicit terms by Vladislav Surkov, deputy head of Putins administration (see

Suverinitet, 2006).


26/30


A distinctive feature of the Russian economy, distinguishing it from almost all compara-

tor emerging economies, is its rich endowment with hydrocarbons, minerals, and other pri-

mary products. This resource wealth, coupled with sound macroeconomic management, has

secured its impressive growth over the past few years. Perhaps an answer to the question ofRussias place in the world can be found in a policy of concerted application of knowledge to

the goal of achieving the best possible economic outcomes from the fundamental compara-

tive advantage the country enjoys.30 This could still represent a knowledge-based economy,

but one adapted to Russias specific

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