Tech Report October 2011

The Next Russian Revolution

Outside Moscow, the Kremlin is laying plans to turn a forlorn patch of farmland into a new Silicon Valley, and Russia into a major technological power. Cisco, Nokia, and MIT are eager partners. Russia’s people, by and large, are less enthusiastic. A report on Russia’s peculiar version of capitalism today, as that country gathers itself for its next leap forward.
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Po Bronson, one of the most eloquent chroniclers of Silicon Valley’s great burst of creativity in the 1990s, titled his classic 1999 book The Nudist on the Late Shift. The naked programmer of his title was a guy who happened to prefer working without any clothes on, and his insistence on exercising that harmless personal choice—on the late shift, when few others were around—struck Bronson as characteristic of the Valley’s famously libertarian and individualistic ethos.

Some of Russia’s most engaged foreign observers find that Valley spirit rather hard to square with control by the Kremlin—an institution not normally associated with letting your freak flag fly. At an international conference last fall at which Russian representatives were pitching Skolkovo, Carl Bildt, Sweden’s foreign minister, asked: “Do you really think you can build Silicon Valley by ukaz,” or presidential decree?

Bildt’s question gets at the most compelling reason to doubt that Skolkovo will work. After all, one of the most important—and, if you happen to be a democrat, inspiring—lessons of the past two millennia of human history is that open societies are better at innovation than closed ones. That is why the spark of the industrial revolution didn’t catch in 15th-century China, despite the technical brilliance of its mandarins, while it did take off in poorer, more chaotic, but freer Europe 300 years later. And it is also why Stalin’s Soviet Union, after beating America into space, had to watch, over the next three decades, as the United States not only got to the moon, but invented most of the modern technologies that matter.

The anarchic culture and power of the Internet has given that argument fresh power. Tahrir Square is a pretty persuasive demonstration that new media and old dictators don’t mix. If you are unconvinced, ask the Chinese functionaries, whose fear of Tunisian contagion prompted them not merely to block online references to the Jasmine Revolution, but to ban the sale of the flower itself. Those repressive reflexes have prompted many of the technorati to question, at least in private, whether authoritarian regimes can ever permit the free-spirited, open-ended, often frankly rebellious style of thinking and working that breakthrough innovation requires. Authoritarian countries might be good at manufacturing iPads, but can they invent them?

A lot of Russians share this skepticism. Many believe Skolkovo is a pipe dream—this is, after all, the country that gave the world the term Potemkin Village—or yet another cynical scheme by state apparatchiks and their businessmen friends to funnel money into their own pockets.

I visited the Moscow headquarters of Ekho Moskvy, a liberal radio station and the freest media outlet in the country, to get a sense of the spirit with which the intelligentsia has greeted the Skolkovo plan. The station was airing a call-in program about the project, and the first hint about Russian attitudes toward it was provided by the title: “Skolkovo: Better Than Nothing?” It never got more cheerful than that. A co-host asked, “What happens [to Skolkovo] if one day Putin says the U.S. is our class enemy and you can’t bring their experts here?” A caller said private investment would be better than a government-sponsored project like Skolkovo: not only would private investors make better decisions, but “the government will only steal, anyway.”

The most biting criticism came in from Sergei Aleksashenko, a brilliant former deputy head of the central bank and deputy finance minister, who now works in Moscow at a liberal, Western-sponsored think tank. Skolkovo’s boosters hope it will offer a refuge from some of the country’s more onerous laws: restrictions on travel by foreign workers, difficulties importing outside technology, the hassle and kickbacks required to register new businesses. “Instead of having special rules for Skolkovo, let’s have the Skolkovo rules apply to the whole country,” argued Aleksashenko. “Those who want to live by the current, idiotic rules, they can go live in Skolkovo. We will build a wall, and they can live behind it.”

At the end of the hour-long show, listeners voted. Twenty-five percent agreed that Skolkovo is better than doing nothing; 75 percent said doing nothing is better than Skolkovo.

Ample reasons for pessimism aside, the Skolkovo project is not without theoretical basis. Even some independent outside reformers are starting to argue that it is easier to create an honest, transparent economic infrastructure on a green-field site than it is to change an entire country. That is the theory of Paul Romer, an economist profiled last year in these pages (“The Politically Incorrect Guide to Ending Poverty,” July/August 2010), who is hoping Honduras will try out such a scheme next year.

And while many efforts to create high-tech clusters, at a stroke, have failed (Malaysia’s attempt to create a Silicon Valley for biosciences is now sometimes referred to as the “Valley of the Bio-Ghosts”), some have succeeded. China’s science-and-technology park in Zhongguancun, in Beijing, for instance, is home to the computer manufacturer Lenovo, and to Baidu, the Chinese-language search engine.

The man in charge of proving Skolkovo’s doubters wrong is one of the biggest winners in the messy creation of Russian capitalism so far: Viktor Vekselberg, a 54-year-old Ukrainian-born billionaire, whose empire includes major holdings in Russia’s oil and aluminum industries. If you have heard of Vekselberg, it is probably because of his splashy 2004 purchase of the Forbes family’s Fabergé eggs, which he then ceremoniously exhibited at the Kremlin. He made a similar gesture in 2006, when he paid $1 million to return the bells from Harvard’s Lowell House to their native Danilov monastery in Moscow (Harvard received replicas).

Up close, though, Vekselberg doesn’t fit the testosterone-pumped stereotype of the Russian billionaire class. He has a fireplace in his Moscow office, and a statuesque receptionist on guard just outside it, but the wall behind his desk is lined with books: some typical examples are a scientific guide to metallurgy and Master of the Senate, the third volume of Robert Caro’s biography of Lyndon Baines Johnson. (The latter book is in its original English, a language Vekselberg speaks competently.)

Vekselberg is short and stocky, with a graying beard, blue eyes, and unusually long eyelashes. The four times I saw him over the past year, he was wearing a soft-colored suit, typically gray and sometimes without a tie. He speaks quietly, makes a point of courtesy, and smiles often. In a country of vivid tsars—where, as the old Russia hand and Peterson Institute scholar Anders Aslund puts it, the rule in politics is “Always escalate”—Vekselberg’s public persona is self-deprecating, patient, and mild. His life, he tells me, is “as boring as that of a gray mouse: meeting, meeting, meeting, meeting, official meeting, meeting, meeting, meeting, meeting. Sleep—just a little bit. Another meeting.”

Since March 23, 2010, when he was appointed by Medvedev to lead the Skolkovo project, Vekselberg has divided his time between establishing the legal underpinnings for the techno-park back home and traveling the world on his private jet to sell the project abroad. His itinerary has included the Shanghai Expo; a couple of trips to Silicon Valley; a visit to Washington, D.C., as part of Medvedev’s delegation; Davos; and Yalta, where a friend of his, the Ukrainian oligarch Victor Pinchuk, hosts an annual gathering of business and political leaders.

Like everyone I spoke with, Vekselberg thinks the Skolkovo project is a gamble with forbidding odds. “Having studied the international experience, we see that at least half of these projects … don’t work,” he said. “Strong countries that have tremendous financial resources built fabulous buildings, which are half empty, and streets which have no one on them.” Building is not the problem, Vekselberg told me. “Early, or a little late, more beautiful, or a little less beautiful, we will build a city.” The hard part is “what comes after that.”

Vekselberg is adamant that the heavy initial involvement of the government is not antithetical to the creation of a free-thinking, innovative local culture—but, rather, essential to it. “When it comes to innovation, Silicon Valley appeared thanks to the government,” Vekselberg insisted. “Let’s not have illusions about this. It appeared in the first instance thanks to serious contracts from the military-industrial complex. And to this day, Silicon Valley—don’t try to twist things around—still relies heavily on state contracts … Wherever you look, if we take other examples, the state always plays a dominant role. Singapore: the state plays a dominant role in an analogous project. India: huge involvement of the state.”

When it comes to Russia, Vekselberg argued, the role of the state is even more critical. “Especially in Russia, you can’t get by without the state—I don’t believe it,” he told me. “The role of the state is absolutely essential. For example, the laws about Skolkovo will be passed. Who does that? The state. Without the law, there will be nothing. Who gave the start-up capital? Well, the state gave it.”

To Vekselberg, the question on which Skolkovo’s success turns is whether the park can attract Russia’s best and brightest—and whether Russia’s best and brightest have what it takes to build a new, high-tech economy. “The key to success is people. We need people who want, and who believe and who will struggle, to think of something new and then make it a reality in the Russian economy. Do we have such people? That is a big question.”

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Chrystia Freeland is the managing director and editor of consumer news at Thomson Reuters.

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