Putin, Skolkovo and the Fate of Russia’s Space Program

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I recent found a couple of interesting analytical pieces about the state of Russia’s struggling high tech sector and space program. Together, they paint a rather dismal picture of the prospects that Russia will be able to revive its once-proud space effort and break free of its economic reliance upon oil, gas, minerals and heavy metals.

In “The Short Life and Speedy Death of Russia’s Silicon Valley,” James Appell looks at the declining fortunes of Skolkovo, the Russian government’s $4 billion incubator outside Moscow that was designed to be the nation’s answer to America’s famous tech center. Then-President Dmitry Medvedev launched the ambitious effort in 2009 after visiting California as a way to diversify the Russian economy.

Skolkovo has five clusters: information technology, space, energy, biomedical and nuclear. Appell reports the incubator enjoyed some early successes, fostering the development of a number of successful companies. One of them is Dauria Aerospace, a developer of low-cost satellites.

However, both Skolkovo and its prime backer, Medvedev, have faded in recent years. This has been especially true since Putin was re-elected to his third term as president in March 2012, and Medvedev slid back into Putin’s former job as prime minister.

Today, precious little of that buzz remains. The political will and, more importantly, the financial capacity to encourage technological innovation are gone. Gone too is Medvedev himself, these days practically invisible outside Russia and eclipsed inside it, with President Vladimir Putin firmly back in the driver’s seat. Skolkovo was raided by anti-corruption agents in April 2013, after which several figureheads on the project were accused of misappropriation of funds. Although officials deny that the investigations were politically motivated, Skolkovo has tumbled down the government’s priority list: This year, the incubator was ordered to cut costs by 20 to 40 percent.

The decline of Skolkovo and Medvedev’s broader agenda has a number of causes. A key one involves vision. Medvedev understood Silicon Valley-style technology innovation requires fundamentals such as the rule of law, patent enforcement, the open exchange of idea, and basic democratic freedoms. His view of Russia’s future is decidedly western in outlook.

The approach is antithetical to Putin, who since taking back the presidency has cracked down on political and Internet freedoms. Putin’s instincts run toward the centralization of political and economic power in the Kremlin, with the elites dependent upon him and the political opposition weak and divided. That’s the vision that dominates in Moscow today.

Appell believes Medvedev’s effort on Skolkovo was genuine, but that his implementation of it played in Putin’s hands.

Looking back, Witlin argues, Medvedev’s approach to creating a liberal, tech-oriented society was “conventional” by Russian standards — a government-led megaproject without any particular grassroots initiative. That left both Medvedev and the Skolkovo plan straitjacketed, reliant on support from the very system of government that he was ultimately attempting to reform. “Medvedev has proved unable to escape gravity, the structure in which he has governed,” Witlin said.

Putin’s annexation of Crimea and support for rebels in eastern Ukraine brought on Western sanctions that hit the Russian economy hard. The fall in oil and gas prices has deepened the economic recession, proving the wisdom of Medvedev’s effort to diversify the economy while leaving the government with very little money to invest in the effort.

Meanwhile, investment from outside the country has begun to dry up while Russian high-tech companies are fleeing abroad in droves.

The first eight months of 2014 saw more Russians leaving their country of birth than in any other year since 1999, the year before Putin first entered the Kremlin. The official figure, 203,659, is an increase of 80,000 over the previous year. The number of Russians successfully applying for the U.S. green card lottery nearly doubled from 2013 to 2014. All over social media, groups have cropped up with names like “Time to Go?” that offer advice to Russians looking to relocate. Statistics specific to the tech industry are hard to come by. But Tatiana Lysenko, a spokesperson for the Palo Alto-based American Business Association of Russian-speaking Professionals said, anecdotally, that “many Russian start-up founders are seeking to move their companies to Silicon Valley,” and cases of companies leaving for new pastures are plenty.

All of this brings us to the struggling Russian space program, which has experienced a long list of launch failures in last six years. The crisis in the program was long in coming, beginning with a collapse in spending that began in the post-Soviet era and discouraged a generation of youth to avoid working in the field. Today, everything about the Russian space program seems worn out: the people,  facilities, technology and strategic thinking all seem to hail for an earlier era. Waste, fraud and abuse is endemic in the bloated, inefficient sector.

Since the crisis began in late 2010, the Russian space agency Roscomos has been led by a series of general directors, none of whom were able to right the listing ship. Launch failures have continued unabated; Russia suffered two more just in the last three weeks.

Putin appointed Deputy Prime Minister Dmitry Rogozin to oversee the space program and the larger military-industrial complex of which it is a key part. It’s not clear whether the colorful, bombastic politician — who has made headlines by threatening to tear off the heads of people obstructing his efforts — has actually improved anything or simply kept the situation from getting worse. Given the continued launch failures, it would not be surprising if Putin’s patience with his space czar is wearing thin.

With everything else having failed, the Russian government has decided to consolidate the entire space industry under the state-run Roscosmos. Re-nationalization wasn’t the only option available, but it was probably the only one that was palatable to Putin and his brain trust given their need for control and rejection of Medvedev’s economic and political vision.

Alexander Golts, deputy editor of the online newspaper Yezhednevny Zhurnal, doesn’t think this effort will do anything to solve the space industry’s many underlying problems.

The problem is that the Russian authorities have only one response to these challenges — bureaucratic maneuvering. According to that logic, if the industry is facing a systemic crisis, a new director is required. That is why the Kremlin has replaced one space industry head after another, drawing on officials from the military-space forces responsible for missile launches.

They brought in space industry outsider Igor Komarov, former director of the AvtoVAZ automobile plant. However, that did not produce any discernible improvements. Finally, the authorities pulled the most powerful card from their well-worn deck of bureaucratic solutions and launched a large-scale reorganization.

The result will merge the United Rocket and Space Corporation — that includes space industry manufacturers — with Roscosmos. That will unite the state contractor with the agency placing the orders, essentially ruling out any possibility of external control.

The customer will always claim that the manufacturer produced exactly what was required, and both will blame all breakdowns, accidents and disasters on insufficient government funding.

At the same time, state officials should rein in their appetites and concentrate on a few priority projects rather than attempt to produce a full range of weapons. Of course, that remains only a remote possibility as long as Deputy Prime Minister Dmitry Rogozin and Defense Ministry brass continue to insist that the military-industrial complex serve as the main engine of growth for the Russian economy.

So, the overall picture doesn’t look very good. Efforts to diversify the Russian economy into high technology are floundering. Putin’s policies and the crashing economy are driving entrepreneurs and their companies abroad. Rogozin’s efforts to reform the military-industrial complex don’t appear to be effective. And the space industry is being consolidated into one big, inefficient government bureaucracy.

The situation does not seem to bode well for the future of Russia and its space program. While Russia consolidates and centralizes, the American space program is in the midst of a commercial renaissance marked by innovation and creativity. The center of gravity in the United States has shifted away from government and its traditional contractors to new companies and locations.

It’s not clear how Roscosmos will be able to compete in the future. The Russian space program could continue to decline, no matter how many rubles the government spends or how many heads Rogozin threatens to rip off peoples’ bodies.