The World Economic Forum recently published “The Russia Competitiveness Report 2011: Laying the Foundation for Sustainable Prosperity.” The 237-page report analyzes the state of Russia’s competitiveness and focuses on innovation in Russia, or, rather, what it sees as the lack of innovation in Russia. The authors are optimistic about the potential of the country, but ask the question: why, despite having so many strengths and so much potential, is Russia not growing at the same pace as other emerging markets? It assesses 139 countries on the World Economic Forum’s Global Competitiveness Index (GCI) and finds that Russia comes out in 63^rd place. Its labor productivity is less than half of that in OECD member countries.

The report identifies a “three-plus-five” formula for Russia to realize its full potential. The “three” are the strengths Russia possesses and the “five” are the obstacles it must overcome. The first strength is an abundance of natural resources, notably oil, gas, coal, and precious metals. The second strength is the large domestic market and growth rate. The third strength is a highly educated population, which the report put at 25 out of 139 in terms of quantity of people educated nationwide.

The first target for reform is an inefficient and corrupt institutional framework. The second challenge is the quality of education, in particular in math and science, and brain drain. The third challenge is overcoming low levels of competition, brought on by a lack of foreign participation and high levels of government involvement. The fourth is stabilizing financial markets and facilitating access to finance for business and the final challenge is making business practices more sophisticated (e.g. by introducing more clusters).

The second section of the report deals with innovation, in particular the role of education in such a quest. Though Russia has benefited from the Soviet-era development of an accessible education system, particularly strong in the sciences, the quality of this education has deteriorated in recent years. It concludes that Russia should further open itself up to the world, citing accession to the World Trade Organization as a helpful step, and making institutional reform a priority.

The problems discussed in the report have been reflected in recent news stories. R&D is not an area where Russia excels, especially in relation to its peers. The recent bailout of the Bank of Moscow, the largest in recent Russian history, underscores unstable financial institutions and uncertainty surrounding banks. And the recent scandal regarding the statewide standardized high school exam and Vkontakte.ru, the social networking site students used to help others cheat on the test, highlights problems with the education system itself, as well as what the Moscow Times calls Russia’s standard approach of “doggedly focus[ing] on symptoms rather than underlying, systemic causes as they muddle their way through each successive scandal and policy failure.”

However, not everything is looking bleak. Medvedev is making good on his promise at the St. Petersburg Economic Forum to make it easier for foreign companies to invest in Russia by lifting restrictions on domestic companies wanting to list securities abroad and ordering the creation of a central securities depository. Foreign technology companies seem to see promise in the Russian market. And the State Duma will consider a bill to create a new agency specifically to investigate and prosecute misconduct among governmental high-ups.

Possibly related posts:

1. The Future of Business Education in Russia
2. Policy Matters: Russia & Post-Crisis Financial Reform
3. PM Putin: Foreign Investment Environment in Russia a Positive One
4. U.S.-Russia Chicken War Near Truce
5. FDI: Relatively Resilient

corruption · education · foreign investment · innovation

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