Public support of innovation in Russian firms: Looking for new quality

The purpose of the paper is to evaluate main instruments of innovation policy in Russia and their impact on companies.

The following issues are considered:

—Do innovations drive productivity growth of Russian companies?

—What contribution does public support make to companies’ performance?

—Who are the beneficiaries of the public support for innovation?

—Tax incentives and public financing: how do they impact on companies’ innovation?

—What are main problems of implementation of Russian innovation policy instruments?

The empirical data is provided by 2 surveys of more than 600 Russian industrial companies carried out in 2011-2012, as well as in-depth interviews with both senior executives and officials.

Some findings and implications from the study:

The feature of Russia's current innovation policy is intensive elaboration of new instruments. However, à large number of experiments in the policy has not been followed by adequate analysis of results achieved. The Russian practice of innovation policy evaluation is limited; it does not include behavioral changes assessment.

Public support for innovation generally contributes to improving companies’ performance. Nevertheless, the most common effect of the support is crowding out, which is typical of both tax incentives and public funding mechanisms. In addition, public support does not influence significantly labor productivity growth. We see two main explanatory factors: general - time lag between obtaining support and its effects; specific for Russia - informal constraints on Russian companies (especially the largest ones) to reduce the excessive staff.

Beneficiaries of public support are more likely to be successful companies, as well as relatively new firms. There is no significant bias towards big companies in Russian innovation policy, State participation in companies’ share capital also does not increase their chances of getting support.

Significant, if not major, obstacles to innovation development in Russia are caused by distortions in business environment, which considerably reduce the demonstration effect of successful innovative companies, as well as the attractive­ness of the relevant business behavior models.

Counterbalancing problems in the business environment by boosting the stimuli for innovation is not a quite productive approach. Mechanisms of support should not create excessively beneficial conditions for the recipients. Rather, it is necessary to develop an innovation-friendly regulation, and the government should truly share innovation risks with businesses and has to be ready to lose some of resources allocated for the support of innovations.

JEL Classification: L20, L25, O12, O31, O32