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Russia: Economy, Lawlessness Prevent Progress In Technology Industry

Russia's workforce is one of the best-educated in the world -- especially in mathematics and science. This would seem to make Russia a leader in the new economy of technology. But a recent report on which countries can join this new economy gives Russia a low ranking. RFE/RL correspondent Andrew F. Tully explores some of the reasons.

Washington, 28 August 2000 (RFE/RL) -- A new report on the world technology industry says Russia has little potential for contributing to the global economic revolution.

The report was issued August 22 by McConnell International (MI), a consulting firm that last year helped governments worldwide prepare their computer systems for the coming of the year 2000. MI says Eastern and Southeastern European nations are among those best prepared for electronic commerce. The document cites their governmental leadership, business climates and the training of their work forces. Estonia, along with Taiwan in Asia, is rated highest.

But two of the world's most powerful countries -- Russia and China -- rank low in the report's rankings. China is cited in particular for its inability to prevent piracy of intellectual property.

The MI report says Russia's primary problem is that its technology work force tends to seek employment outside the country. Clifford Gaddy, a fellow at the Brookings Institution, a Washington think-tank, agrees.

Gaddy told RFE/RL that Russia is so big that it cannot quickly adapt to the modern global economy after 70 years of communist rule. But he notes that Russia does have an extremely high level of education, particularly in mathematics and science. Therefore, Gaddy says, Russia would seem to be an ideal country in which to start a business dealing in 21st-century information technology.

Indeed, Gaddy says, there are some examples of success in this industry in Russia, but for the most part, its economy is not mature enough to make the country a center for information technology. And the money to be made in this industry does not come from Russia.

"One has to be skeptical when you look at a number of factors. And one of them is exactly this idea that in a global economy, of all the other things that become globalized, the labor market becomes globalized."

Specifically, Gaddy says, Russia is not yet ready to be a leader in electronic commerce -- using the World Wide Web to sell products globally. This is because the country does not yet have the manufacturing, shipping, and financial infrastructure necessary to satisfy customers.

Gerald O'Driscoll is a specialist in international economics at the Heritage Foundation, a Washington think-tank. He agrees only up to a point with Gaddy. O'Driscoll told RFE/RL that Russia's biggest hurdle to developing a thriving electronic-commerce industry is simply lawlessness.

"Who would trust a transaction with a Russian firm on the Internet?"

He says Russia will have a difficult time overcoming its reputation as a corrupt society. On the other hand, he says, former Soviet satellites in Eastern Europe -- particularly Estonia and Poland -- have demonstrated that they have stable governments, mature laws governing international business transactions and intellectual-property rights. O'Driscoll says Russia simply cannot compete with its neighbors on the Internet.

"Most of East and Central European countries -- especially the Baltic countries, Czechoslovakia [the Czech Republic], Hungary, Poland -- they've all opened their economies up, they've liberalized, they've improved their rule of law, they have a good judicial system, they are generally fair and honest, corruption is not [a] major problem, it's safe to do business, people aren't kidnapped, people aren't murdered on the street. These are economies that are going to grow. All of the things I just said -- they're absent in Russia."

Gaddy says Russia, with its highly educated work force, could be a center for software development. But he stresses that even this area of information technology requires large amounts of money for marketing. Therefore, Gaddy says, Russian software developers would have to work for foreign companies, even if they worked in their native country.

Overall, Gaddy has little hope that Russia can improve its economy fast enough to take advantage of the information-technology industry while it is still young. And he does concede that Russia's troubled legal system is at least in part to blame for the country's economic troubles.

"I think it's just a matter of record that the Russian economy is in other respects terribly non-competitive, and, you know, not least in these very areas that seem to be critical for the Internet economy -- financial infrastructure, legal institutional infrastructure, protection of intellectual property rights, and other things."

O'Driscoll says one thing and only one thing will serve to improve Russia's economy, whether in the traditional manufacturing sector, or in technology. And that is the rule of law.

"Are property rights secure? Can you exchange them? Are they exchanged voluntarily, or by theft? I mean, the very basic things that make for a free society are very present in many of the Central and European -- Central and Eastern European countries, and they are largely absent in Russia."

Until Russia establishes a reliable and fair system of laws and courts, O'Driscoll says, Russia will be left behind while the rest of the world enjoys the benefits of the technology economy.