Murphy's Law: Russia And The Death Of Innovation

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July 24, 2013: Although Russia has imported a huge amount of Western technology since the end of the Cold War in 1991, it has been unable to develop the culture of innovation that long prevented Russian defense industries from catching up and overtaking their Western rivals. This failure has mystified Russian leaders, who have urged Russian management and business experts (who only became legal after 1991 and have become quite numerous in the last decade) to come up with solutions. Answers have been emerging and the Russian government is taking action. The absent innovation has been traced to corruption and that is something most Russians agree is the cause of so many things that are still wrong in Russia.

For innovators and entrepreneurs the corruption is poison because the established businesses can easily crush new (and more innovative and competitive) companies by simply enforcing many of the Soviet era laws that made it a crime to be an entrepreneur and innovator. That sort of thing threatened the economic and political dominance of the Communist Party and was explicitly outlawed during the Soviet period. When the communists lost control of Russia in 1991, new laws were passed to make a free market economy (and political system) possible. But it’s only recently that the legislature has gotten around to repealing the communist era laws that have enabled corrupt judges and police to go after (for a price) less well-connected competitors who threaten the big businesses and monopolies that arose after the communist era economy collapsed in the early 1990s. In theory, the courts should have recognized that the new economic laws cancelled the old communist era ones forbidding free markets and such. But corrupt courts got away with enforcing the old communist laws on a selective basis. The businesses that bought the courts were created in the 1990s, as part of a process that got the economy going again but did so by creating companies that depended on political connections more than anything else to survive and grow. Companies like this could, and did, stifle and crush innovators who might threaten them in the market place. It was difficult accepting all those alien economic ideas from the West and this sort of crony capitalism was accepted in Russia.

What also got the government to pay attention to the corruption and lack of innovators and entrepreneurs was the growing reluctance of Western businesses to invest, or operate, inside Russia. As these companies tried, failed (because of the corruption and selective enforcement of the old communist “anti-capitalist” laws still on the books), and left Russia they told everyone in the West that Russia was not a good place to do business. The Russian government began to pay attention when they found that needed (for technology, capital, and expertise) foreign firms were no longer willing to deal with or come to Russia. The foreign firms were eager to tell Russian officials why, and in the last few years the Russian leadership has come to accept that economic growth would only be possible with the foreign tech and expertise and that could only be obtained if Russia was made more receptive to Western businesses and that meant less corruption.

Just repealing a lot of communist era laws won’t do it alone. The corrupt judges, politicians, and police are still there and have been illegal for some time now. Corrupt laws are easier to get rid of than corrupt people and an ancient culture of corruption.

 

 


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