Skolkovo: Russian for Silicon Valley?

In 2009, the Russian economy performed significantly worse than other BRIC nations, with an estimated -7.9% growth rate. Russia has several significant economic problems that contribute to this statistic, such as “monocities,” unproductive cities that rely on one or a few Soviet-era businesses, an overreliance on oil exports and a productivity gap in the manufacturing sector. However, the Russian Federation knows that escaping the doldrums requires one thing: innovation.

One good indicator of innovation is the number of scientific and technical journal articles produced. By comparison to the other BRIC countries, Russia performs poorly.

(Data from World Bank: World Development Indicators)

In the early 90’s Russian research output was higher than the other BRIC nations; however it was quickly overtaken by China. As the other countries trend upward, the Russian output is actually decreasing.

In an effort to close the innovation gap, Russian leaders seek to create a Silicon Valley-like region. Plans have been under discussion for years, however President Medvedev formally announced the location in mid-March: Skolkovo, outlining 5 priorities: energy, IT, telecommunications, biotechnology and nuclear technology.

Skolkovo is a village just outside of Moscow, and includes the (still under-construction) Skolkovo business school. Potential investors pointed out that research universities are more likely to create the breakthroughs necessary for startups to thrive. Given that Silicon Valley, Cambridge Mass., Cambridge, UK and Beijing’s Zhongguancun all have close links with nearby research universities, this concern seems well placed.

Russian leaders hope the high-tech area will encourage innovation and draw the best minds from around the world. There are plenty of detractors, however.

Some fear the Russian government will be overly hands-on, and suggest the role of government should be limited to infrastructure development and tax incentives. Others point out that much of the infrastructure needed is already in place from older Soviet era technology efforts, like those previously used for weapons and space research. Others question whether Russia can artificially create the open culture in Silicon Valley just outside of Moscow.

Corruption and bribery could damage Skolkovo’s competitiveness, as Russia fares poorly on the Corruption Perceptions Index produced by Transparency International. Corruption also raises questions of how companies would be selected to benefit from these incentives. Foreign investors have expressed concern that Russia lacks strong and transparent legal protection for businesses and investors. Acquiring things as simple as lab equipment from abroad can be difficult to get through border controls in a timely manner without bribes. Moreover, research shows tasks such as getting a phone connection takes weeks. Comparisons of different parts of Russia also show Moscow to be an exceptionally difficult place to do business. These issues are all impediments to attracting the best talent and investment.

It will be years before we can determine if Skolkovo is a success or a failure. In either case, closing the innovation gap throughout Russia will require more than a single city: strong legal protections, high human capital and reliable infrastructure will all be needed to maintain and improve Russian growth.

Philip Kimmey
Intern, CSIS Technology and Public Policy Program

An excellent New York Times article about Skolkovo:

http://www.nytimes.com/2010/04/11/business/global/11russia.html