BL: Putin Aerospace Push Inspires Soviet Union-Style Bureaucracy
By Lyubov Pronina
Nov. 30 (Bloomberg) -- He walks with a cane and is a bit hard of hearing. Yet 95-year-old Boris Chertok, a former deputy chief designer in the Soviet bureau that put the first Sputnik satellite into orbit 50 years ago, still has strong opinions on the evolution of Russia's space program.
Chertok says the free-market changes instituted by President Boris Yeltsin after the Soviet Union fell apart were disastrous for Russian science. ``We need to restore what we have lost over 15 years of destructive reforms,'' says Chertok, whose very name was once a state secret. ``The market economy is incapable of fulfilling such large national programs as flight to the moon.''
President Vladimir Putin is listening. He's launched a new program to make Russia a scientific and technological power -- in space and missile rocketry, where it excelled in Soviet times, and in a half dozen other areas.
The effort is being managed by First Deputy Prime Minister Sergei Ivanov, who, like his boss, is a former operative with the KGB intelligence service. Ivanov wants to spend at least $60 billion of the country's windfall oil and gas earnings over the next 10 years to make Russia a global tech titan.
``We are consolidating assets and focusing government attention on high-tech industries: nuclear energy, space, nanotechnology, aircraft and shipbuilding,'' Ivanov told reporters on Oct. 15 after attending a meeting on nuclear energy.
The government has earmarked 674 billion rubles ($27.4 billion) for nuclear energy, 246 billion rubles for aerospace, 149.4 billion rubles for electronics and 130 billion rubles for nanotechnology, the manipulation of particles smaller than a billionth of a meter.
Bridging the Gap
The Economy Ministry says its goal is to capture 10 percent of the global market for information technology and office equipment by 2020, which it estimated at $750 billion in 2007.
A sharp decline in state funding for science and education since 1991 has made catching up with the West harder. ``If we don't bridge the gap by 2015, then in the near future, our foreign competitors may not only push us out of the global high- tech market but also the domestic market,'' Sergei Chemezov, newly named head of the state-controlled Russian Technologies Corp., and a close ally of Putin's, said at an industry meeting on Sept. 28.
Another obstacle is a lack of interest in technical careers among young people, says former cosmonaut Alexander Volkov, who was circling the Earth in the Mir space station on Dec. 26, 1991, when the Soviet Union was dissolved.
``We have squandered our best minds,'' says Volkov, 59, now retired. ``When they were asked before about their future profession, young people said they wanted to be a scientist, a geologist, a cosmonaut. Now they want to be businessmen. It's money, money, money.''
Space Station
For Putin and Ivanov, space remains a high priority. Anatoly Perminov, head of the Federal Space Agency, told the RIA Novosti news agency it spent 24.4 billion rubles ($1 billion) in 2007 on the International Space Station and other projects. The U.S. National Aeronautics and Space Administration spent $16.2 billion.
The Russian government is implementing a program to invest 305 billion rubles in its space program from 2006 to '15, according to the agency Web site. It plans to put a man on the moon by 2025 -- that would be 56 years after the U.S. did so -- and on Mars after 2035.
On a more practical level, Russia is spending 9.9 billion rubles in 2007 to turn its Global Navigation Satellite System, Glonass, into a rival of the U.S. Global Positioning System, or GPS. Russia plans to have full global coverage with 24 satellites in orbit by 2010.
By 2015, says Yuriy Urlichich, head of the Russian Research Institute of Space Instrument Building, Glonass will be selling tens of billions of dollars of services annually to operators of mobile communications devices around the world.
SuperJet Debut
The government has an equally ambitious strategy for aerospace. On Sept. 26, state-run OAO Sukhoi Aviation Holding Co., until now known as a maker of fighter planes, rolled out its first SuperJet, part of a family of airliners seating 75 or 95 passengers that is the centerpiece of the Russian government's plan to become the No. 3 maker of commercial airplanes, after Boeing Co. and European Aeronautic, Defence & Space Co., which owns Airbus SAS. That effort is being assisted by Boeing, which has a major design center in Moscow.
In the Soviet era, Russia was the world's No. 1 producer of combat aircraft and No. 2 in civilian airliners, after the U.S., according to Richard Aboulafia, vice president of the Teal Group, a Fairfax, Virginia-based aerospace consulting firm. The number of combat planes being produced today is classified. Since the early 1990s, according to a March report by the Russian Transportation Ministry, Russia has produced just 36 commercial jets.
Mega-Companies
Sukhoi is one of several airplane design and manufacturing companies that have been rolled into a single government- controlled conglomerate called OAO United Aircraft Corp. And that's the Soviet-style model the Russian government has adopted to speed along its technology industries.
Russia's OAO Atomic Energy Power Corp., which was created in July, is bringing together all companies involved in producing nuclear energy, from uranium miners to turbine makers, to energy producers, into one big company. In July, the Kremlin also created Nanotechnology Corp. The most recent government creation is the Russian Technologies Corp.
Roland Nash, the English-born chief strategist at Renaissance Capital, a Moscow-based investment bank, is skeptical of the Kremlin's approach. The history of high-tech innovation, he says, is one of small companies.
Building Scale
``Large state-run firms may have a role to play in building out economies of scale but not to spark invention,'' he says. ``To kick-start technology, state funds would be better spent on promoting the top-level education and research for which Russia is justifiably famed.''
Even one of Putin's own aides challenges the notion that the megacompanies, which aren't publicly traded, are the vehicle through which Russia will become a technology power. ``The government should participate in some business projects, including those aimed at improving infrastructure,'' Putin economic adviser Arkady Dvorkovich said in an address at an October conference in New York sponsored by Renaissance. ``It would be a big mistake to rely on state corporations'' for more than that, he said.
Russian Technologies' Chemezov counters that without massive state investment Russia will never catch up with the West. ``Technology is stalled at the level of the 1970s,'' he says. ``The bitter experience of the 1990s demonstrated that our industry, without state control and mainly managed by private business, does not provide potential for development.''
New Conglomerate
Until his recent promotion, Chemezov was head of government-controlled weapons exporter Rosoboronexport, which he transformed into a conglomerate that includes OAO AvtoVAZ, the country's biggest automaker, and OAO VSMPO-Avisma, the world's biggest titanium alloy producer.
Other obstacles stand in the way of Russia's drive to become a leader in technology. One is the government's failure to invest enough in research and development and in support for young scientists, says Sergey Kolesnikov, deputy chairman of the Education and Science Committee in the State Duma, or lower house of parliament.
``We spend about 200,000 rubles per scientist a year, while developed countries spend the same -- but in dollars,'' Kolesnikov says, referring to salary, equipment and materials. ``If you don't want to feed your own science, you will be feeding someone else's.''
Science Emigrants
Since the early 1990s, Russia has fed Europe and the U.S. at least 30,000 emigrants who have math, engineering and science degrees, says Alexander Khlunov, head of the scientific, technical and innovation policy department at the Science and Education Ministry. Science graduates who continue their education at Russian state institutions earn just 1,000 rubles a month, according to Vasily Popov, a professor at Voronezh State Institute.
Putin and Ivanov are trying to accelerate change by building information technology industrial parks -- an idea Putin brought back from a tour of Bangalore, India, in 2004. Construction of seven to 10 parks in Russian cities will begin in 2008, Information Technology and Communications Minister Leonid Reiman says.
Domestic and foreign companies that locate in the parks will get tax breaks. More than 200 have expressed interest, including Cisco Systems Inc., Hewlett-Packard Co., Intel Corp. and International Business Machines Corp., the ministry says.
For now, Russia is an information technology laggard. It was 48th, behind India and the Philippines, in a July Economist Intelligence Unit ranking of countries' ability to support a competitive IT environment.
Lagging India
Though it churns out more than 200,000 science and technology graduates a year, Russia still lacks the telecom and Internet connections, financing and protection for intellectual property needed to become truly competitive, the study found.
In the year ended on March 31, India exported $30 billion of software services, according to India's National Association of Software and Service Companies. Russia exported services worth $2 billion in 2006, the Communications Ministry says.
More than 30 foreign firms have taken advantage of Russia's oversupply of low-paid engineers, computer scientists and mathematicians to set up operations there, according to the Russian Software Developers Association. Google Inc. employs about 100 engineers and marketing personnel at its Moscow and St. Petersburg labs. (Google co-founder Sergey Brin emigrated to the U.S. from Russia with his parents in 1979, when he was 6.)
Motorola Inc. and Sun Microsystems Inc. also operate Russian research labs, while Intel, the world's largest chipmaker, employs 1,200 Russians in research and development centers in five Russian cities: Moscow, Nizhny Novgorod, Novosibirsk, Sarov and St. Petersburg.
Scientists as Programmers
Steve Chase, president of Intel Russia, says his workers have special qualities hard to find elsewhere. ``A typical software programmer in Russia is not a programmer by education,'' Chase says. ``He is more of a scientist -- he is a chemist, or a physicist or a mathematician. They approach problems differently, and we love that, because they are creative.''
Russia's failure to provide good jobs for scientists in its own companies has everything to do with the petroleum boom, Chase says. ``It's the curse of oil,'' he says. ``There is a general feeling of confidence that Russia has all the money that it needs and so it does not really have to think.''
Anatoly Karachinsky, head of IBS Group, Russia's largest IT consultant and outsourcing firm, says he's hiring programmers at a rate of about 300 a month to meet growing demand from customers, including Alcatel-Lucent, Deutsche Bank AG, Boeing and Dell.
``When there is a more-complicated task that needs to be done, Western giants prefer to go to Russian programmers,'' he says.
Finding a Niche
Reiman says the future of Russian IT is to exploit its ability to create more sophisticated products. ``Our task is to realize the potential that we have,'' he says. ``We are trying to find our own niche.''
So far, that search hasn't produced a new Russian technology revolution. ``They are starting to talk more, but they are not yet walking that talk,'' Intel's Chase says of the Russian government.
Until they do, the time when Chertok and the other engineers behind Sputnik could boast of Russia's scientific prowess will remain a distant memory.
To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net .
Last Updated: November 29, 2007 18:16 EST
