July 18, 2022

1. The driver of progress

2. How should it work?

3. Very convincing

4. Softer but prolonged

5. Another reason to jail

6. The only European

The driver of progress

Vladimir Putin held a meeting of the Strategic Development Council with members of the government, regions, and state-owned companies and banks. In his speech, he focused on two problems: The income of the population and the development of modern technology.

The President’s attention to the first topic indicates that the drop in real incomes in the year’s first half was much more significant than expected by the Kremlin. Rosstat has not yet released this data, but the 10% year-on-year drop in retail sales in April and May is a good hint. However, in his speech, Putin did not announce any new proposals, only recalling the decisions that have already been made and the achievements that were recorded in 2018-2021.

Putin’s decision to discuss the problems of modern technology is also well understood, and he said so directly.

...against our country are deliberately, deliberately used today, not just restrictions, but the almost complete closure of access to foreign high-tech products—something that has already become global in nature and is the basis of the progressive development of any state in the modern world. This is exactly where they are trying to put obstacles in our way to hinder Russia’s development.

Like most other problems faced by the Russian economy, this problem, according to the Russian leader, can be solved only by the efforts of the state and state-owned companies. Three years ago, in May 2019, Putin held a similar meeting, at which 16 so-called “end-to-end technologies” were approved. After that, Putin ordered nine state companies and state corporations to take responsibility for their development, and today he announced that this work is not very successful.

One of the most critical tasks is the further development of end-to-end technologies... the key participants in such projects are large domestic corporations. The work of the government and companies here in the active phase was started in 2020. Of course, there are positive results. I would especially like to mention the progress made by Sberbank in the field of artificial intelligence, Russian Railways in the area of quantum communications, and Rosatom in the field of composite materials.

However, as a whole, this work also cannot be recognized as especially successful: Five of 13 directions are not realized; in other directions, 20% or more of the target indicators are not reached, and, certainly, these indicators will not be reached in 2022.

Modest results have been demonstrated in the areas for which Rostec is responsible—including projects to create fifth-generation networks, develop the production of equipment for the widespread implementation of the Internet of Things, and the project to create the microelectronics industry had to be completely reset last year.

What prescriptions did Putin offer? Those fit well with his understanding of how the government should manage the economy.

First, each technology should get another supervisor, this time a Deputy Prime Minister of the government.

Second, whereas previously, First Deputy Prime Minister Andrei Belousov was responsible for all work on technology development in the government, now Prime Minister Mikhail Mishustin will be in charge of this work.

How should it work?

At the meeting, Belousov gave a big speech in which he explained how the work on technology development is organized in Putin’s system. Here are his main theses: 

Technological policy [is aimed at] maintaining technological parity with the world’s leading countries, possessing key technologies that determine the possibility of solving strategic, socio-economic, and defense tasks. This is what we call technological sovereignty... How will it be achieved? With the help of what mechanisms?

First, we use what I would call the state technological request... the state, with the participation of the business community and experts, determines the list of critical technologies. Then, the state ensures its development through a whole set of tools. Such state order tools include essential innovation projects of state importance, specialized programs of industry ministries and state corporations, programs to support scientific and scientific-educational centers, and others. There are more than 150 such instruments...

Second, these are the agreements that, following the President’s decision, were concluded between the government and the so-called leading companies... the subject of these agreements is the development of end-to-end technologies that form the framework of the new technological paradigm. These are artificial intelligence, microelectronics, quantum communications and quantum computing, new materials, genetic technology, hydrogen energy, wireless communications, distributed intelligent energy systems and energy storage, and several other technologies. There are 16 in all. The agreements include nine leading companies: Sberbank, Rostelecom, Rostech, Rosseti, Russian Railways, Rosatom, RDIF, Gazprom, and Rosneft.

Third, these beacon projects are examples of new markets that operate based on products created based on breakthrough technologies, including cross-cutting ones. The task of beacon projects is to work out clear conditions for business, including regulations, financial models, and initial demand for new high-tech products, and then to ensure their scaling...

...government initiative, which we call “Takeoff from Startup to IPO,” or “Lift for Tech Companies.” It is aimed at creating an environment for growing startups until they reach high market maturity, and for the specific technical objectives of the country and the demands of large companies... A startup that enters the sight of development institutions must be picked up and moved up to attract strategic investments.

Very convincing

As I expected, the sole purpose of convening an emergency session of the State Duma was the appointment of Denis Manturov to the position of Deputy Prime Minister of the Russian Government. (By the way, Duma voted 393-1-0). I would like to repeat that this decision was an impromptu move by Vladimir Putin a few hours after the Duma had finished its session. This impromptu decision was the Russian President’s unannounced criticism of Yury Borisov, whom Putin had dismissed from his post as Deputy Prime Minister in the defense industry. According to Prime Minister Mishustin, all of Yuri Borisov’s authority within the government was passed on to Denis Manturov.

In your new position, you will be in charge of the state policy in the field of industry, as well as the implementation of development programs in the nuclear, rocket and space, shipbuilding, aviation, radio electronics, and defense industries.

It has not yet been announced who will replace Borisov as deputy head of the Military-Industrial Commission.

In the course of his speech and his answers to the questions, Denis Manturov demonstrated that he has very well mastered the technology of correct answers to any questions, which consists of the following sequence: 1) The problem is severe, and we see it, 2) We have already found solutions that are implemented, 3) We allocated money for it and started getting results.

The most striking statement by the new Deputy Prime Minister was the following:

[We] came to a consensus in the government that today we need to turn from a completely market-based industrial policy to a policy of technological sovereignty.

Many experts commented on this phrase as the government’s intention to switch to a quasi-Soviet semi-planned economy, but I am more reserved about it. This phrase was uttered when Manturov spoke about using budget funds to support industrial projects. And, in my understanding, it means that the government will not consider economic efficiency criteria when deciding on the allocation of money if the project is aimed at “achieving technological sovereignty.”

During his speech, Manturov outlined the concept of budgetary support for technological projects, which includes: 1) subsidizing up to 80% of the costs of research and development work, 2) providing budget loans, and subsidizing interest rates on loans that companies will receive by government decision in state banks, 3) providing subsidies to consumers for the purchase of technological products created by Russian companies to compensate for the low level of products on the price/quality ratio.

I listened to Denis Manturov’s speech—his ideas and proposals sound very convincing and should please Vladimir Putin. And most importantly, because “achieving technological sovereignty” is a process with no end point, Manturov’s technology can work for a long time.

Softer but prolonged

The second half of the year has begun, and experts have received a large number of statistics, which allows them to make more reasonable assessments of the state of the Russian economy. The central leitmotif of the latest publications: The contraction of the Russian economy is slower, and it will last longer than forecast in spring.

The main reason for the softening of the downward trajectory is that Western countries have failed to significantly restrict the exports of Russian oil and oil products. Initial pressure on Russian exports from trading companies quickly came to naught after the EU countries got bogged down in negotiations over the sixth package of sanctions (which included a ban on imports of Russian oil and oil products) and, as a result, postponed its introduction until December (oil, including insurance and transportation) and February (oil products).

The ban on Russian coal imports to EU countries will come into effect on August 5, and at the end of six months, its production decreased by 4%. The 30% decline of Russian gas exports to Europe by the end of the half-year was compensated by a more robust growth in gas prices. Substantial decreases in production and exports of fertilizers and wood products, as well as an almost complete halt in passenger car production, hit some companies and cities hard but had no multiplier effects.

The mid-term consensus forecast of the Bank of Russia, updated in July, suggests that the economic decline will not exceed 6% this year (minus 8% in April) and will last into 2023 (minus 1.3% vs. 0% in April). Experts from CMACP (members of the Bank of Russia polling pool), who have access to more information than other pollsters, assume that the recession will continue in 2024, which will be caused by shortages of imported critical intermediate goods for the manufacturing sector.

Another reason to jail

“For every man, there's a law to convict him under”, Andrei Vyshinsky, USSR Prosecutor General at the time of Stalin’s Big Purge said once. Seems, that this phrase became a motto of Putin’s Prosecutor’s Office. On July 15, a court in Krasnodar sentenced former Open Russia leader Andrei Pivovarov to four years in a minimum-security penal colony.

Open Russia was founded in 2001 at the initiative of Mikhail Khodorkovsky, who also became chairman of the organization’s board. In April 2017, he resigned. A few days later, the Russian General Prosecutor’s Office recognized the British organizations Open Russia Civic Movement and Otkrytaya Rossiya as undesirable. At the same time, the Prosecutor’s Office declared Open Russia an “undesirable organization” whose activities were run by these two British companies. At the same time, the first of the two companies was invented—it never existed in British registries. The second was in no way connected with the Russian organization, which Russian citizens founded on Russian territory.

Andrei Pivovarov during the court trial

However, this did not prevent Russian authorities from starting to draw up administrative protocols on charges of operating an undesirable organization against Open Russia activists.

In January 2019, the first criminal case for participation in the activities of an undesirable organization was opened against Rostov activist Anastasia Shevchenko. In February 2021, Shevchenko was given a four-year suspended sentence.

Andrei Pivovarov was one of the most active representatives of the opposition movement in St. Petersburg. In 2018, he became the director of Open Russia, and in May 2021, he announced its liquidation. All of the organization’s employees were fired, and all of its members were expelled—at that time, the law on “undesirable” organizations was tightened in Russia, which could have led to criminal prosecution of all its participants. Two days after the dissolution of Open Russia, Andrei Pivovarov was arrested and imprisoned, where he spent a year and a half while the investigation and trial were under way. During the trial, Pivovarov was accused of directing the activities of an “undesirable organization.” However, the court did not consider that the law establishing criminal punishment came into force after Pivovarov’s arrest, and no evidence of a connection between Open Russia and the British Otkrytaya Rossiya was found by the investigation.

In addition to his prison term, Pivovarov will be banned from political activity for eight years after his release.

The only European

Former President and former Prime Minister Dmitry Medvedev continues to increase his hawkish rhetoric. This time he announced that a refusal by Ukraine or NATO countries to recognize Crimea as Russian could be grounds for a preventive military strike by Russia.

Crimea has returned to the Russian Federation. If any other state, be it Ukraine or NATO countries, believes that Crimea is not Russian, it is a systemic threat to us. If such a state is part of a bloc that is hostile to us... then for us this threat is permanent.

...Every country has the right to defend itself. A state also has the right to preventive self-defense. You have to keep that in mind. It is not only a response to someone’s hostile actions. It is also preventive action to eliminate a military threat.

Today Medvedev is voicing the most radical theses in public space, and I am convinced that this is being done with the approval (or by order) of Vladimir Putin. I see two reasons for this. First, Vladimir Putin remembers well how President Obama strongly advised him not to return to the presidency in 2011 in favor of the more liberal Dmitry Medvedev. Consequently, Medvedev’s bellicose rhetoric aims to give his image in the West new shades.

Second, Vladimir Putin wants to demonstrate he is, to use a quote from Alexander Pushkin, “still the only European in Russia.”¹ And only in his person will the West be able to find the most adequate partner for negotiations on ending the war and the future world order, which both Putin and the West dream of.

1. “… le gouvernement est encore le seul Européen de la Russie…” (Alexander Pushkin, draft of the letter to Petr Chaadaev, October 19, 1836)/