UK: Setting Ideas To Work

Last Updated: 8 November 2016
Article by Ian Stewart

Advances in science and technology are widely seen as holding the secret to the economic success of nations. Breakthroughs in natural sciences and inventions such as the steam engine, electricity and the internet have transformed human welfare. From Archimedes to Berners-Lee, society celebrates great inventors and scientists. 

But this is only part of the story. Russia provides a case study in how brilliance in science does not always translate into economic success.

Professor Loren Graham, a historian of science at the Massachusetts Institute of Technology (MIT), is an authority on the development of science in Russia and recently published a book, "Lonely Ideas", on the topic. He is intrigued by the fact that, despite producing brilliant scientists and fundamental technological innovations, Russia has often been unsuccessful in commercialising them.

Russians are responsible for some of the most important scientific and technological advances. Russia created Mir, the world's first modular space station, invented lasers, made, and continues to make, fundamental contributions to computing, and came up with the basic theory behind fracking.

But Graham explains that these ideas were developed and commercialised in the West. Lasers, an indispensable modern technology, used in cameras, printers and a range of medical equipment, provide a case study.  Two Russians, Alexander Prokhorov and Nikolai Basov, won the Nobel prize for developing lasers in the 50s. However, Charles Townes, an American physicist, independently and concurrently developed laser technology, and won a Nobel prize, but also took out a patent on lasers and laid the foundations of a new and highly productive industry.

Prokhorov, on the other hand, never thought of starting a company. And even if he had, it would have been next to impossible for him to do so, as there was no patent system or investors in the then Soviet Union.

It is a similar story with the radio. Alexander Popov was a Russian pioneer of radio whose work influenced Marconi. But it was Marconi who won the Nobel Prize for radio and patented and commercialised his work.

Despite seminal breakthroughs in computing by Russians, we don't find ourselves queuing outside stores to buy the latest Russian-made phones or tablets. And despite having developed the theory behind fracking in the fifties, Russians are now learning how to frack reservoirs from American and British oil companies. 

The environment required to make a commercial success of technology in Russia was lacking. The first characteristic of such an environment is the presence of strong institutions and a credible legal system. Another is supporting and celebrating entrepreneurs. Steve Jobs, Bill Gates and Thomas Edison are, for instance, icons in the US.  Governments in the West tend to be supportive of entrepreneurs and rarely see them as a threat.

Russia tends to celebrate scientists for their academic excellence, not as contributors to the nation's economic success.

Unsurprisingly, some Russian scientists who have had the greatest impact have achieved it abroad. Alexander Ponyatov, the inventor of the videotape machine, Igor Sikorsky, the pioneer of the helicopter, and Vladimir Zvorykin, a leading figure in the development of colour television, all achieved their greatest successes in the US.

The World Economic Forum's (WEF) latest Global Competitiveness Report highlights the divide in Russia between the environment for business and for science.

The Report ranks Russia 88th out of 138 nations on the strength of institutions, 117th on intellectual property protection and 108th on financial market development. But it ranks 32nd on higher education and training and 18th in tertiary education enrollment. In its latest Executive Opinion Survey, the WEF has identified corruption, access to financing, and tax regulations as the biggest impediments to doing business in Russia.

MIT's Graham argues that the level of risk and corruption in business means that Russian scientists see it as somewhat disreputable and unworthy of an intellectual's efforts.

This difficulty in turning ideas into businesses means that Russia is heavily dependent on resources. Various estimates peg its hydrocarbon production to between 25 and 30% of GDP. The Carnegie Moscow Center, a think tank, estimates that more than half of Russia's budget revenues derive from taxes on oil and gas extraction and that commodities contribute to around two-thirds of Russian exports.

The slump in the oil price, driven partly by US output from fracking as well as Saudi increased production, has knocked Russian growth prospects. Russian growth, which averaged 7.0% a year between 2000 and 2008, is forecast by the IMF to average just 1.0% a year between 2016 and 2021.

Russia has certainly had successes in commercialising technology, some of them  software companies, such as the global software security group Kaspersky Lab, and the successful Russian social network, VKontakte. Unlike physical objects, intellectual products such as software or music can be created and sold without requiring a physical factory or storefront. The software business is perhaps less influenced by the social and legal environment than the production of physical goods.

The importance of making an economic success of its scientific brilliance is not lost on Russia's leaders. Vladimir Putin has said in several speeches that Russia must diversify its economy, and plans are afoot to make important changes to the patent system and to the rights of investors in Russia.

The Russian government is also funding the development of technological and business hubs such as in Skolkovo, in an attempt to create a Russian Silicon Valley. But creating a favourable environment for business is a vast endeavor and a product, not just of government policy, but of culture, politics and society.

There are lessons for Western policymakers in all of this. Capitalising on the so-called third industrial revolution, of artificial intelligence, automation and new materials, requires excellence in science and research. But Russia's experience demonstrates that the wider environment matters at least as much.

PS – Much of the media discussion of the US Presidential election campaign has focussed on an anti-establishment backlash against globalisation, low growth and economic decline. The reality seems a bit more nuanced. Americans actually seem pretty upbeat about the current state of the economy. More Americans than at any time in Barack Obama's presidency say things in the US are going well. Consumer sentiment is running at levels last seen before the financial crisis, back in 2007. Despite the often charged election rhetoric about migration and race, survey data shows that American's are on the whole more supportive of racial diversity than Europeans – with polling from Pew Research Centre showing 58% think diversity makes the US a better place to live. Globalisation is hardly a popular political cause in the US, but Gallup shows that a greater proportion of Americans (58%) believe foreign trade represents an opportunity not a threat than any time since 1992.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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