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Opening remarks at meeting of the Commission for Modernisation and Technological Development of Russia’s Economy

November 29, 2010, Gorki, Moscow Region

President of Russia Dmitry Medvedev: Good afternoon, colleagues,

I propose that we devote today’s meeting of the Commission for Economic Modernisation and Technological Development to legal issues, or more specifically, the legal regulation of innovative activity. Ultimately, all of the work that we do at these meetings is eventually embodied in the form of various laws and regulations. But today we will look specifically at the oversights and problems in the existing laws that are directly affecting economic processes and the economic modernisation that we are working to achieve. 

The laws create many barriers making it difficult for businesses, whether small enterprises or big holdings, to introduce and develop new technology rapidly and effectively. We find these barriers in ministerial regulations and instructions, bylaws and government regulations and resolutions (and so we therefore need to make a thorough examination of all of our various laws and regulations). Ultimately, this is all having a negative effect on the investment climate, and business, Russian and foreign, is not showing the interest in innovation that we had hoped for.

To give you just one example, we passed a law not so long ago allowing research institutes and universities to establish small businesses for the purpose of commercialising their new developments. This is all well and good, but it turns out that universities and research institutes are only allowed to rent out premises and equipment if they first hold a tender or auction. In other words, they have to organise tenders or auctions just to be able to make premises and equipment available to the very small businesses that they themselves have established. As far as I understand the situation, the general rule that was set applies to them too.

What is the result? Obviously, first of all, this entails organising quite complicated procedures, and second, if some outside company turns up and makes a bid, the small business set up by the university could very well end up losing the tender organised to make it possible for the university to legally rent it equipment and premises. This all looks very strange. 

What’s more, these kinds of small businesses do not come under the simplified taxation procedures at the moment. A special law that has already been sent for signature will extend these provisions to them. These are clear examples of how shortcomings in the laws can get in the way of resolving sometimes very serious issues. 

We are not the first to have to confront these kinds of legal issues. Many countries have already run into the need to give their laws and regulations a thorough overhaul, sometimes in specific areas that previously seemed self-evident. One often cited example is that of the United States, where up until the early 1980s, patents for the results of university research funded by the state were automatically ceded to the state authorities, who had no specific mechanism for then commercialising these new developments. They later amended these laws.

I want to say a few words separately about another of our laws, the law on state procurement, and about our legislation in general. Over the five years that the law on state procurement has been in force 19 packages of amendments have already been made to it, but problems remain and the law still gets criticism from virtually all quarters.

The positive effect gained as far as state procurement of basic standard goods goes is largely offset by the losses that arise through purchases of innovative, technologically complex and non-standard goods. Experts estimate that around a third of businesses cited the practice of kickbacks before the state procurement system underwent reform, but four years later, around half of all businesses cite the existence of kickbacks. This law requires serious adjustment. I will address this issue tomorrow, but right now I just want to emphasise two points that have a direct effect on purchases of innovative equipment and technology.

First of all, we have goods intended for long-term use and for which the operating and maintenance costs are comparable or even higher than the purchase cost. A reduced purchase cost suggests a poor quality good that we are only going to end up buying over and over again, practically every year, but whoever places the orders in these cases can always maintain that they are doing nothing unlawful. I think that purchases of goods intended for long-term use should be made taking into account their operating and maintenance costs too.

Second, there are complex projects for which it is extremely difficult to clearly establish all of the state procurement needs and fit into the current legal procedures during the initial project phase. Such cases require the introduction of special state procurement procedures that take into account the specific nature of innovative goods. This is essential because we are talking here about non-standard goods that do not fit into the general framework. 

We also need to clarify our currency regulation and control laws in order to reduce excessive demands on innovation businesses and duplication of the information they are required to provide. We need to simplify our customs control procedures too, and customs formalities for supplies, including deliveries of experimental and laboratory samples.

We have already discussed amendments to the laws on technical regulations that will simplify demands for new goods and recognise certificates issued in Europe. Unfortunately, we have yet to actually see these amendments made. 

Our migration laws are also far from ideal at the moment. We have made some improvements, but there are still a lot of problems. In particular, foreign specialists already working here are allowed by law to spend no more than 10 days a year on business trips within our territory. To be honest, I did not know about this rule before. I noticed it while looking through the documents for this meeting. This is quite simply some kind of Soviet-era rule, as if in every foreigner we suspect someone who has come to Russia for the sole purpose of gathering information. And so, the less these foreigners move about, the better it is for the country. It would be better still to have them just sit in one place. That way, there would be less work for the law enforcement agencies and secret services. We need to change this situation.

I also ask you to pay attention to the question of providing guarantees for carrying out state procurement contracts for research and development work. The law sets a rule requiring guarantees for up to 30 percent of the total amount of contracts worth more than 50 million rubles, but it turns out that small and medium-sized businesses have practically no access to such loans, and are therefore essentially cut out from bidding for these contracts. The current rule requires businesses to put aside a large sum of money for the whole duration of the contract, and small businesses here can scarcely afford the luxury of putting up a guarantee of around 30 percent of a contract’s total value. Another option would be for banks to act as guarantors of course, but this is also not so straightforward, and businesses would have to run around first proving to the bank that they meet the criteria for receiving this kind of guarantee and would be able to pay it back rapidly.

I think that we will need to come back to this and find a carefully considered solution. 

One other issue that of the ‘business angels’ who help out legal entities. The law already regulates their activities, but these regulations do not apply to those helping out individuals who invest into developing small and medium-sized businesses. I think we could look at introducing exemptions from tax on income received from the sale of shares in innovation companies in such cases.

Colleagues, we all realise that the organisational and technical state of the sectors in need of modernisation still falls far short of today’s demands. There are isolated examples of equipment being upgraded, but this is not enough to have any real effect on the overall situation. Our task is to achieve fundamental institutional transformation, and this can be done only by creating the right incentives, above all legal incentives.

I am sure that we can improve our laws. This is essentially a constantly ongoing process. After all, we cannot create laws that will meet in full every future demand and change in circumstances. This is a task that requires constant tireless effort.

I want to say one more thing. Improving our laws is very important of course, but we must not delude ourselves that amending the laws alone will bring about rapid economic modernisation. This is a goal that can be achieved only through combined effort and making use of our capabilities in all areas. The legislative and regulatory framework is just one element, an important part, yes, but not the only element. 


November 29, 2010, Gorki, Moscow Region