RESEARCH and DEVELOPMENT MANAGEMENT in the TRANSITION to a MARKET ECONOMY Serguei Glaziev and Christoph M

RESEARCH AND DEVELOPMENT MANAGEMENT IN THE TRANSITION TO A MARKET ECONOMY Serguei Glaziev and Christoph M. Schneider Editors CP-93-001 April 1993 Collaborative Papers report work which has not been performed solely at the International Institute for Applied Systems Analysis and which has received only limited review. Views or opinions expressed herein do not necessarily represent those of the Institute, its National Member Organizations, or other organizations supporting the work. International Institute for Applied Systems Analysis o A-2361 Laxenburg Austria HllASA Telephone: +43 2236 715210 Telex: 079 137 iiasa a o Telefax: +43 2236 71313 Foreword Today, there is no more denying the significance attributed to research and development (R&D) as a component of modern economic growth. Though a neglected topic of economic study in the first half of this century, the increas- ing rapidity of technological change swayed the attention of both academics and policy-makers towards the role of R&D in enhancing social and economic welfare. In a market system, the externalities characteristic of R&D make its support more difficult than most goods in which the contrasting of private benefits with private costs approximates the well-being of society at large. Thus, the organization of R&D becomes a key issue in a transition to a market system, particularly for the Russian Federation, which has inherited the majority of the scientific and technological resources after the demise of the Soviet Union. Members of the International Institute for Applied Systems Analysis (IIASA) and, more specifically, the Economic Transition and Integration (ETI) Project recognized the importance of this matter and welcomed the proposal of then USSR Deputy Prime Minister Laverov to initiate collaborative work with the USSR State Committee for Science and Technology and the USSR Academy of Sciences on the topic of Research and Devel- opment Management in the Transition to a Market Economy. Due to its relevance, this activity has persevered and endured all the political changes since its inception in late 1990. In fact, our ties have become more direct to top-level decision-makers and scholars as numerous conference and project participants and colleagues now hold high offices in the Russian Ministry for Science, Higher Education, and Technical Policy, the Ministry for Foreign Economic Relations, the Committee for the Management of State Property, the Russian Academy of Sciences, and influential academic institutes. Sev- eral of them are represented in this volume with valuable contributions. iii This collaborative paper (CP) is a collection of some of the most revealing, interesting, instructive, and insightful contributions of authors who participated in the three conferences of this ETI Activity held between November 1990 and March 1992. In the words of then co-leader of this IIASA activity, Prof. Richard Levin from Yale University (USA), this volume contains papers by Russians that present the boldest and most virtuous statements regarding reform of post-Soviet R&D management yet to be pub- licized in the West (not to mention the dispersion of these ideas among Rus- sian colleagues). In addition, the CP contains studies revealing previously unpublished non-official data (i.e., not provided by Goskomstat), results of Russian research documenting a general willingness of R&D managers to accept a more market oriented style of operation, the most accurate accounts of the first stages of changes in Russian science administration policy reported anywhere, accounts of renown Western science policy experts of market economic experiences with R&D management and possible lessons for the evolving systems in the post-Soviet region, and much more. Considerable careful effort has gone into the selection and revision of the papers in order to produce a volume rich in quantity and quality of information regarding the R&D sector in transition from a planned to a market economic system. In fact, much of the material as well as the style and open- ness with which it is discussed will be new to readers, particularly those in the West. Thus, this CP acquires great significance as useful background information for future study concerning this field of activity at IIASA and elsewhere. These papers draw our attention to several principles basic to the development and preservation of R&D in the transition to a market economy in Russia. 1. Basic scientific research will need continued support by the State, both in the transition period and beyond. 2. Most applied research and development should eventually be financed by the private sector, with the exception of specific programs that cor- respond to national purposes. 3. The lack of adequate demand for all forms of research is a major problem of the transition. During this period, there are serious risks with respect to the potential destruction of the R&D sector while enterprises still search for its true value. Consequently, there may well be a need for transitional subsidies. With respect to basic research, the source of financing is not a transitional issue. While organizational changes in the structure of Russian research are needed, a major change in the source of funding (i.e., the government) is not. In the case of applied R&D, care must be taken that transitional subsidies do not distort the choice of organizational form. 4. International experience has shown that a diversity of organizational forms is desirable. The market will provide adequate guidance concerning the organizational forms that make the most sense. Experience in market economies reveal that a variety of such forms can ceexist (i.e., State laboratories, free-standing contract private research laborate ries, in-house proprietary laboratories). The predominant organizational form, the one most important to hamper, is the in-house, proprietary form done within large corporations. Nevertheless, this is no reason to maintain the enormous R&D groups and laboratories of the former So- viet science community. The spin-off of scientists to private industry should be encouraged, not discouraged. 5. Finally, there is a fundamental dependence of science and technology reform on the success of the overall legal and economic reform. As for the overall economic transition, one can only reemphasize the crucial importance of free, equilibrium prices for evaluating the profitability and usefulness of various alternative research and development projects and technologies. This means, of course, that demonopolization is required in order to have competition drive R&D investment (though mobility of factor inputs such as labor, capital, and material resources is a prereq- uisite). This will result in an increase of absolute R&D spending and will stimulate the market selection process to work more smoothly and efficiently. The Russian Federation faces a long road ahead in the attempt to achieve the optimal organization of R&D management in the transition to a market economy and beyond. Despite the wealth of resources or possibly because of them, the conversion of the system inherited from the Soviet Union will not be easy or inexpensive. Nevertheless, it should be remembered that R&D systems in Western market economies were not born overnight and that, in fact, they are subject to continual modifications depending on the corresponding economic situation. In this sense, Western economies and their science policies are also in transition. The ETI R&D Activity is dedicated to working closely with its international collaborators in search for sensible alternatives that can be of use to relevant policy-makers and simultaneously make a contribution to academic research. This collaborative paper is evidence of the possibility of such a constructive partnership. V.A. Mikhailov Introduction The adjustment of R&D management to the new economic situation has become one of the key problems for the former centrally planned countries in their attempt at a successful transition to a market economy. Scientific and technical development is an instrumental key source of modern economic growth. The destruction of the accumulated R&D resources during the transition process can undermine secure economic growth and recovery in these countries. This fact is especially significant for Russia with its enormous scientific and technical potential which was indispensable in order to maintain the military strategic parity during the cold war and which still maintains a leading role in some high technological fields of the world economy. Now, during the transition to the market economy, the R&D sector in Russia undergoes a radical transformation. This transformation is mostly spontaneous and creates not only the growth of market forms of R&D activity, but also the spontaneous deterioration of viable research structures and scientific schools. In order to set up a proper scenario of R&D reorganization in Russia, to create market institutions of innovation activity, and to construct a long- range orientation, state support of fundamental and applied research can not be carried out based only on a simple imitation of Western experience. A successful solution to this urgent practical problem demands a complex of interdisciplinary and international research to be conducted by specialists from different countries. The necessity of such a research program is urged on by the difficulties of R&D transformation, as well as by the unintelligibility of many theoretical questions. The organization

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