State Corporations: What Are They For?

            We all keep hearing more and more about hi-tech, about the state support of new technical developments and “Russia’s innovative model of development”. Looks like it’s the favorite topic of federal civil servants, the local ones have less time for such talk. But whenever you run into the practical implementation of these slogans, you feel absolutely cheated.

            Let’s examine the situation more closely. The state has declared that the innovations, that is, high technologies, are our key trump card in our game for the world markets and the increase of the GDP. Several state corporations have been created. To be more specific in our discussion, we’ll take only three of them: GK “Nanotechnologies”, GK “Russian Venture Company” and GK “Rostechnologies”. Let’s have a look at what they are engaged in.

            1. GK “Nanotechnologies” is called to ensure commercial efficiency of promising projects in nanotechnologies. No doubt, it’s a necessity of the day. But, if we think logically, we’ll remember that the budget of this institution is billions. And how much of has been invested? Just the salaries of the GKN employees and PR campaign across all thinkable media. Out of more than 300 various projects, the primary selection according to different data was overcome by 12 to 24 of them. Why? For one reason: Russia has not that many nanotechnology projects and concepts. Just pseudo-projects: nanotechnology socks, engine additives, cement etc. Nanotechnology tales. Moreover, among the leaders of the selection is a project on light diodes. What has nanotechnology to do with that?

            I am not against nanotechnology, even if it’s pseudo, because among them some very good products can be found. That’s not the question. The question is: why exactly “nano”?

            Let’s understand each other about the priority of nanotechnology, because even its founding fathers do not believe in all the applications of it. We shall not repeat all the pros and cons. Specialist have spoken enough of them. We shall only repeat the main things according to their importance. Where do our bureaucrats get their forecasts about the monetary value of the market share of nanotechnology products by such and such year?

            International authorities quote some other and less ambitious figures. Maybe our officials are the cleverest in the world? They are like Mendeleyev: went to sleep and had a vision. Has anyone consulted the Academy of Sciences? Made conferences on priorities in financing? No! It’s just today’s vogue, or, as is today’s saying, “glamour” technology. There were times when aluminum was “glamour”, when it cost more than gold (sic!).

            In fact, the most dynamic technologies in the world for the last decades have been radiation technologies (RT), that is, technologies on the basis of accelerators of electrons and gamma-apparatus; according to IAEA classification: nuclear technologies. The annual increment if this market is 25%. The areas of application: from agriculture and medicine (sterilization of food and water) to construction industry, arms production, space (construction materials and sealers). Just one figure for example: within the last 5 years India started 10 export-targeted radiation productions of parquet alone. So what about us?

            Unfortunately, after the demise of the USSR, the entire post-Soviet area, unlike the technologically developed countries, saw a complete shutdown of fundamental and applied research in that field. Russia, in the course of economic reform and the ensuing economic crisis lost more than 50% of its radiation facilities (other CIS countries lost nearly all of them). In the span of the last three decades Russia has not created a single plant using radiation technologies. The extant Russian producers of ion ray treatment sources (radio nuclides, electron accelerators) completely targeted at foreign market. If in Soviet era, the inauguration of each radiation production complex was a national-scale event (State Prize was awarded for research in strategic priority fields), at this moment, after a closure of a great number of research institutes, due to the deficit of professionals, absence of a clear state development strategy for RT, this Russian industry can be characterized as being in a critical state, for the government has not enough facilities even for the implementation of the state orders. Now we can only read in press on the foreign achievements in this field. We used to be leaders; now we are… you know what.

            Apart from radiation technologies there are a lot of quite promising directions. For example, biotechnologies are qualified by experts as a future priority. Why then nanotechnology was picked up by our government as priority? Why don’t we have a look at our neighbors, the Belorussian, which chose precisely radiation technologies and not nanotechnologies as priority? And who will be responsible for this mismanagement, or rather, embezzlement of billions of rubles of the taxpayers, as well as for the ordinary felony?

            2. GK “Russian Venture Company” extends a wider angle of support to high technologies. At a very first glance, it looks ideal. But from one extreme (bureaucracy and corruption) the scheme was thrown into another (the entire structure was handed over to private “professional” structures). But the private entrepreneurs have their own commercial interests and their own strategy. I will not remind the row over “Fintrust”, when the officials showed their real attitude to “Russian’s innovative course” and the ways of pursuing it. Any private venture company will select the project for financing, according to its own sectoral interest. The priority will be given to the projects with minimal amount of capital investment and a short term of starting up the facilities. This is an undeniable fact. If it were possible (under an absent public control) all these trustee managers, should invest the money of the “Russian Venture Company” in Chinese cement, rather than in the promising national research projects.

            Another facet of “Russian Venture Company” and its functioning is a limitation of project financing. The established limit of 40m rubles makes it impossible to build up a hi-tech production. For example, the project cost of an electron accelerator is $1m, the period of its manufacture and assemble is around one year. But we shouldn’t forget the cost of marketing and promotion of new materials in the market: statistically it’s 30% to 80% of the venture project cost. Let’s remember about the risk of a raiders attack. Let’s add 10m to 15m rubles for the acquisition of a proper production premise (if it’s a rented premise, one can run into a prohibitive price during the period of mounting up the business, while drastic transportation of hi-tech equipment to another place is problematic). Besides, there are authorization periods, public hearings, project development stage etc. It means millions of rubles and long months of vacancy. So, what will be financed by “Russian Venture Company”? Hi-tech projects? Sorry, there’ll be no money for that.

            The next issue is related to the strategic interests of the state. Lamentably, we have to let them alone, because the project are not selected by state officials, but by specialists of commercial companies.  Once upon a time Czar Peter the Great took up a decision to mine metals in the Urals rather than import them from abroad. It cost Russia 5 to 7 times more, for the importation was cheap. But such were the strategic interests of the state. The result turned out really positive and is still felt. Who will think of the state’s interests in the above projects? For example, the priorities of regional development: North Caucasus and the Far East? No one!

            3. GK “Rostechnologies”, which is arguably the most favorite creation of the former administration, declares objectives, which in theory completely answer the task of ensuring innovative development: to extend support to the existing hi-tech potential of the country. In theory it’s so, but in practice the whole train went the wrong way. The main practical purpose of “Rostechnologies” has not been the “development and creation of new productions” (as is declared in the statute of the state company), but rather a hectic buyout of productions which have no relation to hi-tech, for example, in coal mining. The creation of monopoly organizations under the management of “Rostechnologies” is not a bad business (effect of scale). But we are not living in the times of Morgan and Rockefeller, which are, perhaps, the models for “Rostechnologies” CEO Mr. Chemizov. Global competition puts the monopolies on their knees and what is needed now are more flexible organizational structures.

            In my opinion, it would be more economically consequent to build new plants from scratch, rather than buying out old companies, when their former owner are only happy to get rid of them at the price which are offered by the state corporation.

            Another enigmatic trait of “Rostechnologies” is its penchant to arms production complex. Or is it nostalgia? Are not the resources of State Defense Ordering Committee and GK “Rosvooruzhenie” enough? We are not living in the times of arms race, and the potential of this export is not so great. GK “Rosvooruzhenie” is quite capable of doing this business by itself. But where is the state company’s cooperation with the originators of new projects? There has not been and will not be such a thing! You may visit the website of GK “Rostechnologies”: it was being developed for over a year. It was a hard and purposeful work; arguably it’s the best website in Russia. Can you see any contact information there, except for the press center? GK “Rostechnologies” rather prefers working with bio-diesel, than with hi-tech and Russian inventors of Kulibin scale. At least that doesn’t take much exertion.

            As a whole, the picture is clear. I don’t know what were all these state corporations made for, but at least not for the development of hi-tech innovative sectors of economy. Probably, the reason of their establishment should be looked for in another place. As in the movie “The Truth Must Be Somewhere At Hand”. The sole thing that is satisfactory is that several hundred new bureaucrats have got employment (some of them simultaneously in two or more institutions), were not left at the mercy of the employment market. I will not put labels. It’s up to you to make conclusions.

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