Enhancing Technological Modernization Of Russian Economy: Economic And Legal Aspect

Starting position

The meeting of the Commission on Modernization and Technological Development of the Russian Economy in 2009 formulated the priority areas for modernization of the Russian economy:

• Energy efficiency and energy saving, including the development of new types of fuel.

• Nuclear technology.

• Space technologies related to telecommunications, including GLONASS and the ground infrastructure development program.

• Medical technology, primarily diagnostic equipment, as well as medicines.

• Strategic information technology, including the creation of supercomputers and software development.

All selected areas of modernization relate to high-tech and knowledge-intensive sectors of the economy. However, if we analyze such an indicator of technological development of the Russian economy as the share of high-tech and knowledge-intensive industries in the gross domestic product, we can see that according to the Federal State Statistics Service (The official portal of the Federal State Statistics Service, 2019) in 2011 this indicator amounted to 19.7% of the total, and by 2018 it reached 21.3%, i.e. there is an increase of 1.6 percentage points for almost 10 years of the modernization process which we do not consider as successful result.

Successful global examples of modernization processes are Korea, Malaysia, Japan, China. They have chosen the way from simple to complex as the main direction, which resulted in new skills gradually adopted in the initial units of technological processes: workers and engineers, thereby entrepreneurs get the possibility to introduce into new markets. In Russia, they went the other way adopting complex industries as their main areas of technological breakthrough which, in turn, have little dependence on the free market (energy, nuclear, space, medical, and information technologies) and initially complicated the achievement of large-scale economic growth.

Since the modernization process is a complex phenomenon, it is influenced by several factors, which, in turn, form the starting position of the Russian economy in this process.

Historical position. Russia was already a powerful industrial power. Modernization, especially accelerated modernization, is a repeating process associated with some social constraints and ultimately often leads to political instability. The unsuccessful experience of previous attempts at modernization during periods of a planned economy subconsciously suggests the possible failure of new undertakings.

Economic position. The wave of privatization that swept through the Russian economy in the 1990s provided a deliberately insurmountable head start to owners who received their assets on very favourable terms and made it economically impractical to invest in the development of new industries. The absence at the initial stage of a strategic program for modernizing the Russian economy led to the fact that the modernization processes were based on not relatively cheap skilled workers and natural resources but the redistribution of income from the extraction and export of raw materials.

Foreign policy position. One of the keys to the successful process of modernization of the country's economy is the state partner, which, on the one hand, will act as a market for industrial products, and, on the other, a supplier of new technologies and foreign investments necessary for the further development of modernization processes. China, the main partner of Russia and the largest industrial power, is not interested in the strong competitive Russian Federation.

The financial crises that have been shaking the world economy since 2008, as well as the policy of sanction containment of Russia that has been formed since 2014, negatively affect the influx of foreign investment and certainly complicate the modernization processes in the country's economy.

Domestic political position. The close connection of state power with the raw material elite, mostly working on the basic assets of the USSR, makes modernization not the main direction of economic development but only a tool for the power promotion. A high level of corruption allows only highly monopolized industries to keep the power which directly contradicts the ideas of technological modernization of the economy. Successful technological modernization strengthens the position of highly organized masses of society and reduces the possibility of manipulation by political power.

Social position. The reluctance of political elites to realize the need to depart from their glorious past and the lack of understanding of the need to limit current needs for future successes in the modernization process reinforced the unpreparedness of Russian society.

New condition

In modern conditions of economic development of the Russian Federation, the established areas of technological modernization do not bring success, and the traditional procedure for its implementation does not work in practice.

In 2014, in his annual message to the Federation Council, President of Russia V.V. Putin outlined the need to overcome dependence on a high level of imports of finished products and the development of import-substituting industries. However, such a policy only leads to the fact that the Russian economy is becoming even more closed, and modernization is seen only as a means of reducing exports and meeting the needs of the domestic market. This situation suppresses competition, but the modernization of the economy involves increasing its competitiveness and integration into the global economy as noted by the American economist Bhagwati (2005).

Decree of the Government of the Russian Federation of 10.09.2018 N 1078 formed the Government Commission on the modernization of the economy and innovative development of Russia which acts as a coordinating body to ensure the coherence of the actions of federal, regional and municipal authorities to develop state policy in the field of economic modernization. The main tasks of the Commission include identification of key areas and mechanisms of modernization of the economy and determination of forms and methods of state regulation to modernize the economy.

October 22, 2018, at a meeting of the Commission, Chairman of the Government of the Russian Federation D.A. Medvedev identified the following priorities in the field of economic modernization:

• Scaling up support for effective high-tech business models and support for venture financing.

• Designing mechanisms to reduce risks through the development of engineering companies’ network.

• Modernizing the system of technical regulation and removal of administrative barriers for innovative companies.

• Stimulating the demand for innovation from large companies with state participation.

At present, the domestic market of the Russian Federation does not allow achieving sufficient savings on the scale of industrial production to ensure its competitiveness due to low cost. Exporting products under well-known foreign brands produced in the territory of the Russian Federation could be one of the solutions to this problem. However, the current foreign policy situation does not allow the Russian economy to attract successful foreign manufacturers of high-tech products.

In 2017 the President of the Russian Federation initiated a plan to implement the national project Digital Economy of the Russian Federation (Order of July 28, 2017, No. 1632-r, On approval of the program “Digital Economy of the Russian Federation”, 2017), adopted in 2018, as one of the most effective tools for modernizing the country's economy until 2024. This document identifies the structural elements of the project, the timing of implementation and other indicators. The directions of digital development of the country's economy are as follows (Table 1 ):

To evaluate the starting position for the process of technological modernization of the economy, we considered several statistical indicators that directly or indirectly characterize the process (Table 2 ).

According to the “Monitoring of the Development of the Information Society in the Russian Federation” (as of 10/03/2018) of the Federal State Statistics Service of the Russian Federation (Monitoring the development of the information society in the Russian Federation, 2018).

Priority directions of the Russian economy technological modernization

There are no ready-made models for modernizing the economy in the world. Any innovation processes require an analysis of the country's historical development, local characteristics, the specifics of the political system and the available financial instruments. It is also obvious that the large-scale development of the entire economy of the Russian Federation in a revolutionary breakthrough way is not possible, it is necessary to direct efforts to the growth points. By growth points, we mean not only popular nanotechnologies and bioengineering but also traditional sectors of the economy and infrastructure which at all times have been the basis for the country's development (Dzhikiya et al., 2018). We believe that the first task of the state on the path of modernization is to determine the directions of modernization i.e. growth points of the economy.

As points of economic growth, we propose to highlight the following areas: competitiveness, infrastructure, smart economy.

• Competitiveness implies supporting the production and export of domestic products that are already valued and in demand on world markets: oil and gas, metallurgy, nuclear energy, weapons. The purpose of this kind of support is to eliminate possible imbalances in supporting exclusively innovative sectors of the economy, to maintain its position in the world market, as well as in filling the federal budget.

• Infrastructure implies the intensification of the development of the transport system of the largest country in the world. The development of global trade markets and globalization requires the active development of land, sea and air transport routes. The purpose of investments in infrastructure is to become one of the leading transit countries and receive significant external investments as resources for modernization development.

• Creation and development of the smart economy sectors: maintaining production in the field of nanoindustry, artificial intelligence, bioengineering by creating mechanisms to stimulate private capital in high-tech areas and remove administrative and legal barriers to modernization (Frolov & Lavrentyeva, 2019).

The technological development program, in turn, most comprehensively covers all stages of the indicated process of technological re-equipment, and increasing the efficiency of the practical use of existing financial sources with the involvement of both federal and private financing will make it possible to fully utilize the new opportunities of society in the transition to a digital scenario economic development.

An important area of technological modernization of the Russian economy is the creation of legal mechanisms for solving the problems of modernization of all social spheres. Improving regulatory mechanisms for economic modernization involves working in the following areas:

• elimination of legal restrictions for economic modernization;

• study of the possibility of creating new legal sectors and institutions;

• the formation of regulatory procedures to create a digital environment;

• operational analysis of the effectiveness of law enforcement.

The indicated directions for improving legal regulation should create conditions for controlled changes in the field of integration regulation of Legal Tech, development of electronic civil circulation, financial technologies, antitrust regulation, intellectual property, standardization and labour legislation (Ergunova et al., 2017; Suzdalova et al., 2017).

Using a system of experimental legal regimes through the creation of regulatory sandboxes should allow authorities to assess the risks that modernization processes carry for the rights and legitimate interests of a person and citizen in the Russian Federation, as well as their proportionality to the usefulness of introducing certain innovations. In our opinion, the institution of legal modelling in the future will allow us to choose the best option for the balance of public and private interests in the process of technological modernization of the economy.