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President of Russia Dmitry Medvedev: Good afternoon,

Today’s commission meeting, as we planned earlier, is devoted to innovative development in the defence industry. Innovation is a natural subject for the defence industry, and it also a very topical subject, because this is a sector not quite like any other, and where the situation has its own specificities. After all, the extent of innovation in the defence industry is vital not just for shaping the future look of our armed forces, but has an impact on economic development in general. We are all familiar with the defence industry’s past accomplishments, and we know what a big part it played during the Soviet period in developing the material foundations of the country’s economy. 

”The extent of innovation in the defence industry is vital not just for shaping the future look of our armed forces, but has an impact on economic development in general.“

But before we start discussing this subject, I want to say a couple of words about today’s events. I want to thank our Federal Assembly, and also everyone who took part (the Government members and experts) in drafting the special law on the innovation centre in Skolkovo and other supporting legislation. The Federation Council passed this law today and it will soon be sent to me for signing. Practically everyone showed a rare unanimity during the discussions on this law and its content, and this was all the more pleasing given the importance of getting it passed. 

Let’s return now to our main subject. Our defence industry spending has risen constantly over these last years. Last year alone companies in the sector received 175 billion rubles [around $5.6 billion] for anti-crisis measures. As a result the defence industry is one of the few sectors to show a positive dynamic last year with growth of around 9 percent. But at the same time the sector has a clear weak spot in that it was also the sector on which we spent the most. This is nothing so surprising. A number of recent decisions taken under my direct participation and supervision considerably expand possibilities for financing and developing our defence industry.

I hope that the money we invest, the money we invested during the crisis year, and the funds we will continue to invest will be used in as actively as possible to encourage innovation in the defence industry, because ultimately this, as in the past, will produce a cumulative effect.

”The defence industry must be a generator of innovation.“

Of course, the defence industry must be not just an active consumer of various new developments but also a generator of innovation such as what we have seen here today, and what we have seen in other places too. But unfortunately, not all enterprises have been as active in this area as we would like. We do have some good projects underway, however. Only if we keep developing in this direction can we ensure that we stay competitive in military and technology areas, at the same time modernising our economy and thereby raising our national security to the required level.

All of the innovative areas that our commission is working on are priorities for the defence industry too. I am sure that defence industry developments in cutting edge medical, IT, space and nuclear technology, for all the specific nature of defence sector research, will ultimately find applications beyond the defence sector and must fit logically into our country’s overall development context.

We need to ensure ongoing dialogue between military and civilian organisations and technology transfers between the military and civilian sectors. This is happening now too, of course, but we do not always sense it. Of course security requirements impose certain restrictions, but at the same time, we must maintain links between research and sectors, for we know that use of dual-use technology has become universal. I therefore hope to hear some proposals today on how to organise this process. 

”We need to ensure ongoing dialogue between military and civilian organisations and technology transfers between the military and civilian sectors.“

But for now, the situation is rather problematic and serious. As I already said, our defence industry enterprises have shown themselves unable to respond to increased orders or financing by increasing the output of high-technology products.

I will not cite examples now, for a number of reasons. You know them. But unfortunately, most high-technology production in the defence industry is in small lots only. We are lagging behind the industrially developed countries in terms of labour productivity, which is not surprising, but sadly, we are also lagging in terms of quality control, which creates problems for our military technical cooperation, forcing us to find excuses and make adjustments. 

Of course, we are also lagging in our ability to react quickly to market challenges. We know that in many cases, not everywhere of course, our research and design bureaus are optimising Soviet-era technology, and this is no doubt something we should be doing, but we also need new solutions too.

I remind you that the big integrated defence industry companies are for the most part state-owned enterprises. Last December, the Commission [for Modernisation and Technological Development] instructed them to draw up innovative development programmes for their companies. This work has not been very active so far, and I am waiting for a detailed report on this matter from practically all of the companies. I want the [Presidential] Control Directorate to summarise these reports.

Key documents for the defence industry’s innovative development will soon be approved and adopted: the State Arms Procurement Programme and the Federal Targeted Programme for the Defence Industry’s Development in 2011–2020. As I said at the start, I hope that these considerable amounts of money allocated through these programmes will be used for promising work, including for establishing high-technology production, developing innovative infrastructure, and carrying out deep and systemic modernisation of our defence industry, for without this the sector simply will not survive.

”I think our country also needs an effective organisation to work on placing orders for breakthrough research and development in the interests of our defence and security. We need to look at setting up an organisation of this sort.“

I think our country also needs an effective organisation to work on placing orders for breakthrough research and development in the interests of our defence and security, including promising new research that in some cases can be very risky ventures. We need to look at setting up an organisation of this sort. We know that this system has worked well in the United States. They have the well-known DARPA agency, and other countries have similar organisations. As we all know very well, many developments, from the internet to GPS, made their way from the defence industry to the open market.

We need therefore to discuss the idea of setting up a similar organisation here. We would need to decide what kind of body this would be, what organisational principles it would be based on, and what results it could bring. But the idea itself is interesting. And the fact remains today that we do not have an organisation of this sort, despite the abundance of various agencies, bodies, state companies and so on.

Finally, we need to establish close links between scientific research and the defence industry. Our scientists need to be part of the process, be informed on our defence industry and security needs and prospective demands, and shape their research accordingly.

So, let’s start work.