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Subjects of discussion included development of the composite materials industry so as to make civilian economic sectors more competitive, and putting in place legal mechanisms for commercialising the fruits of intellectual activity.

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President of Russia Vladimir Putin: Good afternoon, colleagues.

We are holding the first meeting of the Council for Economic Modernisation and Innovative Development today. We had several government and presidential commissions and decided to unite them under this one umbrella. This is our first meeting.

There is no need to argue the importance of modernisation for Russia’s successful development. It is the refrain running through all of our documents and meetings and is indeed the general line for developing our economy, strengthening its place in the global economy, and creating the conditions for our people’s self-realisation.

The pace of innovative development around the world is growing all the time and spreading to an ever larger number of countries. The old principle that saw developing countries actively using outdated technology no longer holds true. We see this for ourselves. All of the fast-growing countries are putting the emphasis on developing sectors at the cutting edge of technology, future-focused sectors. 

Russia can use this approach to diversify its exports, preserve and consolidate positions on its domestic market, and strengthen Russian companies’ place in the market. 

It is clear that only economic modernisation and development of innovative sectors will enable us to realise our full potential in education and science and use their fruits to develop productive sectors that create significant added value and quality jobs.

Many specialists take the view that new technology will play a major part in overcoming stagnation and instability throughout the global economy. History shows that overcoming a deep and lengthy crisis such as the one we are experiencing usually goes hand-in-hand with change of technologies, technology paradigms, and the emergence of new sectors and leaders in advanced technology and existing industries. New countries also emerge to take their place among the leaders, with the advantage going to those who have succeeded in riding the new technology wave.

Our Council’s work should focus on these objectives. To reach these goals we will have to work in several different areas at once.

First, we will continue to improve our institutions and develop a comprehensive environment for modernisation, innovative development, and commercialising the products of innovation.

“There is no need to argue the importance of modernisation for Russia’s successful development. It is the general line for developing our economy, strengthening its place in the global economy, and creating the conditions for our people’s self-realisation.”

Second, we will draw up action plans for specific economic sectors, with a particular focus on bio- and nanotechnology, modern materials, future medicine, energy saving, information, space, and nuclear technology, and effective technology for extracting and processing hydrocarbons and other raw materials.

We have already made steps in these areas.

First, we set up a system of development institutions: the Russian Venture Company, RUSNANO, the Russian Foundation for Technological Development, Skolkovo, Background information Vnesheconombank Vnesheconombank, and the Fund for Facilitating Small Business Development in Science and Technology.

This system aims to create an innovation lift that will cover the entire investment cycle and raise capital for innovative projects at every level, from start-ups to portfolio and strategic investment.

Second, we have introduced new innovation development policy instruments. While perhaps not so new really, these measures are novelties in our country. I am referring to instruments such as tax breaks for innovative companies and the possibility of setting up small innovative businesses based at universities and research institutes. Incidentally, we already have close to 2,000 such small enterprises working now – 1,715 new innovative companies.

The 14-percent preferential rate for employers’ compulsory insurance payments is also much lower than for other types of business.

There are technology platforms in operation now to coordinate the activities of business, education and research institutions, and state agencies.

Thirty such technology platforms have been approved. I hope that this area will develop and that we will see its results. The most active of the platforms so far is the one working in the health sector, on future medicine. We will have to expand the others’ activities too.

Third, our big state-owned companies have put together innovative development programmes that commit them to investing more in science and increasing their cooperation with universities. We are to make sure these programmes are implemented now.

Fourth, we have attracted a large number of scientists and businesspeople to invention and development activity. We have set up 115 technology transfer centres and 177 business incubators, and have selected 25 innovative clusters around the country that will receive state support for carrying out development programmes. Universities, institutes, and the Russian Academy of Sciences are establishing their own innovation centres, including with participation from foreign corporations.

Along with improving the institutional environment, the authorities have also supported specific innovation projects within the framework of the five technological development priority areas. There are a total of 37 such projects, with financing from the federal budget coming to around 100 billion rubles [$3 billion] over 2010–2012.

Of course, one cannot expect immediate returns in the innovative sector, and no one has such expectations, but it is important to maintain the pace and keep on track, continue our efforts.

“Of course, one cannot expect immediate returns in the innovative sector, and no one has such expectations, but it is important to maintain the pace and keep on track, continue our efforts.”

Today, we will analyse the situation in a sector that in other countries has become a powerful catalyst for the technology revolution, namely, the composite materials industry. There is demand for these materials in practically every sector, from construction, including housing construction, to the defence industry.

If we do not succeed in developing this sector we will risk seeing many other sectors lose their competitiveness. This is a sector that gives us the chance to make big advances.

But the Russian composite materials industry is still in the process of formation and we will have to solve quite a few problems here. The sector is in the process of development, but this is coming after the collapse of the Soviet composite materials sector. Although the sector was in its early days then, we were nonetheless among the world leaders, following the USA and Japan. Russia’s share of the market is now only 0.3–0.5 percent. It is hard to believe just how fast the sector was stripped of everything and fell apart. We do not have enough Russian-made equipment for producing composite materials, and enough modern testing centres. A lot of work should be done on updating the regulations and standards for these materials.

Furthermore, we are to establish inter-sectoral engineering centres and train specialists to work in this sector. I think the state authorities can take measures to stimulate demand for these materials.

More so, without incentives, private companies will not enter the sector but will remain in oil, gas, and metals, go wherever there is a decent profit to be made. They will not enter this sector without encouragement from the state. As for state financing, it will never be enough on its own, and should take various forms, including wide use of lifecycle contracts. I propose that we discuss the measures we can take to develop this sector in the immediate and longer-term future.

The second issue on our agenda is commercialising the results of research and development activities.

As you know, most orders for research and development work come from the state, and the resulting intellectual property rights belong to the Russian Federation, which would seem to be a fair enough system overall.

But in most cases the results of this work grow dusty on the shelves and do not enter economic circulation. Research and development results could be used to create new products, technology, and jobs, and broaden the tax base. Instead, we have a situation in which the state spends considerable amounts of money and ends up with only direct losses and formal reports on the work done. The companies have no incentive to be inventive and rationalise their work, the quality of patents and licensing activity falls, and a number of companies have completely closed down their activities in this area.

The current legal framework does not contain a unified approach to registration and exercise of intellectual property rights resulting from research and development work, and the research organisations and companies have little interest in including them in their accounting and reporting. The state customers practically never carry out inventories and cost estimates of research and development results, including when liquidating, reorganising, and privatising state-owned enterprises.

“We also are to put in place the laws making it possible for the state to transfer rights to the results of research and development work to interested development organisations, investors, and economic actors.”

The authors of new research and development work have no incentive to bring the results of their work into the public sphere and more often undertake registration for formal reasons such as submitting reports to the order-giver, or obtaining patents for thesis defences.

In one technical university that is a leader in terms of the number of patents, for example, there are only 7 cases of licensed sales for 1,500 patents issued. The vast majority of research and development intellectual property rights are not fixed in any way at the moment, neither openly through patents, nor in closed fashion as know-how kept under commercial secret.

All of this negatively affects companies’ investment attractiveness, holds back innovative development in industry, and contributes to the illegal outflow of science and technology products to other countries.

I think the list of cases in which property rights over the fruit of research and development work go to the state could be reduced. What’s more, in order to encourage wider use of the results of this work, we should not limit ourselves to state contracts alone but should make more active use of other financing mechanisms too.

Grants are the most widely-used financing mechanism around the world, but we are not making broad enough use of them here yet. I discussed this matter just yesterday with the Finance Minister [Anton Siluanov]. I hope we will make progress in this area and take practical steps forward.

We should take the legislative and organisational decisions that will encourage greater use of grants. We also are to put in place the laws making it possible for the state to transfer rights to the results of research and development work to interested development organisations, investors, and economic actors. This of course applies to research and development work not connected to Russia’s defence and security. We must not take the approach of ‘if I can’t have it, no one will’. We do not even really have any results to speak of for now, or only modest ones.

In short, we need to fill in the legislative gaps concerning registration and exercise of rights to research and development results. We must ultimately establish a system that will protect intellectual property and be attractive for investors.

“We must ultimately establish a system that will protect intellectual property and be attractive for investors.”

I want to note one more point in conclusion. We have to change the investment and business climate in order to transform our economic structure and encourage rapid development of the non-raw materials, high-tech sectors. We have spoken a lot about this lately. I have said in my speeches, and the government has said too, that we must take our place among the top twenty countries with best environments for doing business.

The World Bank published its latest rating on conditions for doing business yesterday, and Russia has moved up eight places, from 120 to 112. We still have a long way to go, but at least the trend is positive, and we should continue in this direction.

Our progress in areas such as ‘convenience of tax administration’ and ‘conditions for starting business’ is particularly good to see. As far as convenience of tax administration goes, I think we even came out ahead of countries such as the United States. I note too, that the new rating has not yet taken into account the results of work on the roadmaps for improving the investment climate.

The progress we have achieved in particular areas shows that we are entirely capable of achieving quality improvements in our business climate. The main thing is to take comprehensive and consistent action.

We used to have an honorary title – Honoured Inventor of the Russian Federation. I will sign an executive order today returning this title. I hope it will serve as an added moral incentive for work in the area we are discussing today.

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