United Nations Development Programme

Russian Federation

General Overview


The eight publication in an annual series, the 2004 Human Development Report for the Russian Federation examines perspectives, opportunities and challenges, along Russias path Towards a Knowledge-based Society.

The Introduction outlines the theoretical foundations of a knowledge-based society, finding that a knowledge-based economy constitutes a fundamental necessary condition for the former. In such an economy, knowledge is created, disseminated and applied in a dynamic, decentralized fashion that fuels growth, competitiveness and conveys positive social externalities. The accumulation and consumption of information resources plays a chief distinguishing role from that of traditional emphasis on capital and labour.

Elaborating on this thesis, the Introduction explores the knowledge-based economy, including various methodologies for measurement using a range of proxy indicators. International comparisons across countries are made, including Russia. A broad analysis of relevant available data demonstrates that Russias economy features several qualities fundamental to knowledge-based development. These include a high level of educational attainment, significant innovation potential and the relatively developed material and technical base of Russias National Innovation System. There are, however, a host of significant challenges to the formation of an enabling institutional environment for the knowledge-based economy, including a low efficiency of state governance and regulation of the economy, insufficient incentives for entrepreneurship, and high administrative barriers to market creation.

Chapter 1, National Innovation System: the Basis of Russias Knowledge Economy, considers key issues drawing from the experience of developed countries, including international comparisons of priorities and results in scientific development, levels and trends in innovation, and state research programmes and innovation policy. A National Innovation Systems (NIS) is one of the fundamental drivers of a knowledge society. In Russia, the NIS continues to endure a painful process of transformation resulting from the switch to a market economy from a centrally-planned, state-owned model. The drastic change of institutional conditions both within and exogenous to the NIS has produced crisis phenomenon. The effect of a rapid, sharp reduction in budget funding (mainly in government defense spending) has been exacerbated by the inability of the business community to initiate major innovation projects. This stems largely from the often contradictory and incomplete privatization of the economy.

While retaining a strong position in some fields of research and continuing to make contributions to international science, Russia lags behind developed countries in several ways, including the application of results, broad levels of technology, and the effectiveness of state policy in research and innovation. A market-based NIS is gradually taking shape in the country. New innovation structures are evolving, from more small-businesses to revitalized research and academic institutes, which are capable of launching commercially attractive innovation projects. Russias chief objectives for innovation are to support the production and export of goods with high value-added while promoting a culture of entrepreneurship. The success of this strategy depends on such incentives as a differentiated tax policy for high-tech industries, the promotion of investment and the modernization of infrastructure, and measures to stimulate domestic demand.

Chapter 2, Towards a Knowledge-Based Economy, analyzes prospects for the development of new economic drivers in Russia. Among the principal obstacles to development of a knowledge economy considered for Russia include: the prioritization of natural-resource sector development over diversified manufacturing (particularly technology-based manufacturing); a predominant focus on relatively short-term planning goals; insufficient valuation of human capital protection and development; a lack of continuity in science and technology; and significant contraction of the military-industrial complex, in which much of Russias high-tech is concentrated.

Despite these serious challenges, there are clear grounds for optimism. The countrys scientific and technological potential is still impressive, as demonstrated by the volume of output of high-tech products. Industrial production grew rapidly in 2003, including the relatively research-intensive branches of machine-building, such as electrical engineering, instrument making and some parts of the defense industry. Another indication of positive trends in the economy is an increase in foreign direct investment (FDI). These improvements, however, cannot be viewed as decisive. The enabling environment in Russia for knowledge generation and application falls short of that in Europe and elsewhere. This chapter reviews measures that need to be taken to stimulate development of a knowledge-based economy in Russia. It is essential that large enterprises extend vertical supply-chain linkages to help stimulate the creation and sustainability of small and medium enterprises, while the state promotes an enabling legislative, organizational and economic environment.

Chapter 3, Economic Growth, Incomes and Social Differentiation, analyses challenges for Russias advancement towards a knowledge-based society associated with the painful transition to a market economy, most notably a dramatic rise in social and income inequality. In addition to measures of income and consumption, socio-economic vitality is determined by material resources, immaterial (intangible) resources and subjective elements (e.g. individuals self-assessment). In 2003, the first year of a return to growth in real household income, there was a significant reduction in the share of households with income below the subsistence level. At the same time, however, income inequality indicators approached their previous maximum levels of 1997-1999 a period defined by significant national economic stress.

The income growth of recent years is analysed and compared across social strata. Growth in incomes of societys more disadvantaged groups (pensioners, the unemployed, large families, the disabled, etc.), with incomes below the minimum subsistence level, has been dependent on direct state regulation effected through indexation of minimum pensions, wages and various benefits. Much attention is devoted in this chapter to Russias middle class, which typically constitutes a key driver for progress towards a knowledge-based society. It is demonstrated, however, that the bulk of Russians belong to a group somewhere between the middle class and the very poor. Perhaps surprisingly, the research suggests that incomes of people in this majority group are relatively little affected by economic growth.

Chapter 4, Can Knowledge Replace People?, finds cause for concern in the demographic factor of Russias human capital calculus. Russia has the largest population in Europe, yet its numbers have been in steady decline since reaching a peak in 1992. According to numerous forecasts, Russia can expect 30-35% fewer people by the middle of the century, with a significant rise in the average age of the population. These unfavorable quantitative changes can be offset in part by raising the quality of human potential through health improvements, increased life expectancy, and enhancement of the educational system. But these qualitative changes depend on overcoming the current negative trends in health and education. Over the last four decades, Russia has fallen increasingly behind the industrial developed countries in terms of life expectancy, a central indicator of national health and a key component of the Human Development Index (HDI). While this prolonged mortality crisis must be stopped, international evidence over the past several decades suggests that mortality reduction through the application of contemporary medical advances has its limits. Rather, significant changes in social behavior are required to impact mortality, fomenting a culture in which people take responsibility for their own health and society addresses complex challenges like the spread of HIV/AIDS with evidence-based public health approaches.

Such qualitative steps, however, are insufficient alone to overcome the demographic challenge facing Russia. Quantitative measures are also necessary to stabilize the size of Russias population, or at least slow its depletion. While this can be achieved to a certain extent by raising the birth-rate and reducing mortality, immigration constitutes the most effective resource, essentially limitless, for rapid response to a declining population. The task is to develop a workable immigration strategy, allowing the efficient reception and integration of immigrants into Russian society. This in turn depends on an effective and accessible educational system, the hallmark of a knowledge-based society, as the best instrument for the social integration of immigrant populations.

Chapter 5, Education and the Labor Market, is devoted to tertiary education, a critical underpinning for the competitive knowledge economy. In line with global trends, demand for tertiary education in Russia has been growing rapidly since 1992. Considered a world leader by some formal measures, the education level of Russians reached record heights at the start of the third millennium. Impressive quantitative indicators of tertiary educational achievement, however, have yet to produce corresponding levels of economic development and material living standards. The chapter analyses possible explanations for the low efficiency of tertiary education and the overall relationship between the educational services and labor markets.

The educational system in Russia responded promptly to vigorous growth in demand for tertiary education and, furthermore, the structural adjustment of that demand: paid enrolment in state education institutions rose rapidly, and non-state education institutions entered the market. The number of specialists graduating with various types of tertiary education has been on the rise since the mid-1990s, and formal indicators suggest that the Russian workforce is already relatively highly educated. Broad standards of training at educational institutions, however, are increasingly at variance with expectations, sending distorted signals to the market and forcing the development of protective mechanisms. As well as changing the specialization structure of demand for employees with tertiary (particularly higher) education, the market is also adjusting itself to increased supply of skilled labor by reducing the education premium in wages.

Chapter 6, Human Development and Intellectual Potential of Russian Regions, highlights the fact that, as a large federal state, sustainable development in Russia depends on economically strong regions and effective regional policy. One of the more pressing challenges considered is the reduction of socio-economic inequality across regions. This is critical both for economic growth and social coherence in a diverse society. As the implementation of social policy rests mainly within the mandate of regional administrations, programs to stimulate human development constitute an important part of regional policy. The Human Development Index (HDI) its calculation, analysis, dynamics and regional differentiation, forms a framework for analysis in this chapter. The past 25 years in Russia can be generally separated into three human development periods: from 1979-1989 differentiation across regional HDIs diminished; it then increased from 1989-1994; and began to diminish again from the end of the 1990s for a majority Russian regions (with the exception of relative outliers on either end of the scale). Changes in HDI inequality between regions has resulted largely from asymmetric initial positions in terms of natural resources and differential adaptation to nascent market conditions.

The chapter divides 79 indexed regions of Russia into eight groups according to similarity of need and priorities in regional programming. An intellectual development index is developed to assess the impact of knowledge on material well-being, by region. The leading positions in this index are occupied by regions with the most extensive networks of higher education and research institutions (the cities of Moscow and St. Petersburg, and the Novosibirsk and Tomsk regions) and/or a greater share of so-called science cities (including Moscow, Nizhny Novgorod and Kaluga regions).

Chapter 7, Intellectual Capital, discusses the fundamental role of intellectual capital as a measure of wealth in contemporary societies, and its importance as a productive asset in determining the competitiveness of national economies. Intellectual capital comprises three subgroups that interact dynamically: human, organizational and customer capital. Given their mutual dependency and synergistic relationship, imbalanced investment across the three components produces sub-optimal results. This chapter considers possible approaches to measuring intellectual capital, including financial indicators such as the Tobin index. Non-financial estimates of intellectual capital are also proposed to assess the competitiveness of organizations, including constituent factors of that competitiveness. Intellectual capital can be estimated within the framework of a single organization, a selected region or the national economy as a whole. Such estimates help to clarify prospects for economic growth and socio-economic development in an increasingly global competitive environment.

A number of leading Russian companies have already accumulated significant intellectual capital. This, however, is far from the market standard. With a relatively deep supply of human capital, Russia has considerable potential for vigorous growth in intellectual capital. The other factors in this equation organizational and consumer capital remain relatively under-developed. Successful stimulation of these elements could produce considerable synergy, enabling rapid growth of intellectual capital in the private sector, macro-economy and society as a whole.

Chapter 8, Attitudes in Society to Knowledge, offers a sociological analysis of the challenge of cultivating a knowledge-based society. Of particular note, institutional transformations in the production, reproduction, and practical application of knowledge can elevate intellectual standards in Russian society only to the degree that ordinary Russians feel they have a stake in the knowledge process, are positively disposed towards it, and are prepared to translate attitudes into action. In general terms, the attitude of Russian society towards knowledge is best described as dualistic. On the one hand, society places a high value on having an education, since people see this as crucial to their status and career prospects; on the other hand, the status of knowledge per se, and of those who produce and reproduce it, is relatively low. Surveys demonstrate that this dual position is typical of Russians across all levels of education from secondary school to higher education.

Despite placing a high value on higher education, most Russians today take an essentially utilitarian attitude towards it: a good education is valued, above all, as an instrument for improving social status, material well-being, and career promotion. The acquisition of knowledge and skills becomes secondary, almost incidental. And education itself is not an attractive profession due to the low status and wages assigned to it. Effective means of addressing this problem require more efficient use of existing resources and a simultaneous elevation of education and science as priorities for state investment. This is critically important if Russia is to avoid an irreversible loss of knowledge resources as the system fails to replace current education and research personnel. A more enabling environment for private sector support of science and education, through both private-public partnerships (PPP) and charitable, or corporate social responsibility (CSR) channels also constitutes an import means of invigorating the fields of education and science.