Can EU help Russia modernise?

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The EU and Russia are planning to launch a “partnership for modernisation” at their next summit in Rostov on 31 May 2010. The initiative is meant to breathe new life into a relationship that has become stale and tense. It is unlikely to succeed, writes Katinka Barysch, deputy director of the Centre for European Reform.

What most people in the EU mean by modernisation is very different from the notion held by the Russian leadership. Russia’s concept of modernisation is state-led and project-focused: a state-financed nanotechnology institute, state-owned banks lending to selected sectors, a brand-new “innovation city” outside Moscow set up by government fiat — these are the building blocks of Medvedev’s innovation economy.

This approach cannot work. In today’s global economy, picking winners is not something that governments can do. An innovative economy needs open markets, venture capital, free-thinking entrepreneurs, fast bankruptcy courts, and solid protection of intellectual property. Russia’s business environment is characterised by wide-spread monopolies, ubiquitous corruption, stifling state-interferences, weak and contradictory laws.

The whole idea that Russia can shift from an economy that relies on oil, gas and heavy industry to a cutting-edge, high-tech one is spurious. Russia should first try to move existing industrial sectors up the value chain by using imported technology and know-how. Large-scale indigenous innovation may come later.

In short, Russian modernisation does not need vertical state intervention but a horizontal improvement of the business environment. It is doubtful whether the Russian leadership has the political will to clamp down on corruption, improve competition, reform the education and science sectors, and strengthen the rule of law.

The EU should ask itself, whether it should accept and support Russia’s flawed concept of modernisation, or whether it should make support conditional on Russia implementing at least some of the reforms needed to strengthen the rule of law and improve the economy. In the past, EU attempts to cajole or persuade Russia to implement reforms have had limited or no impact. The modernisation partnership is unlikely to be very different.

http://centreforeuropeanreform.blogspot.com/2010/05/can-eu-help-russia-modernise.html

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