In frozen Siberia, Russia tries to seed a start-up culture

Vladimir Kovalyov zips around on a self-balancing electric scooter, barely the size of a skateboard, that he thinks might be the next big thing in personal transportation. It’s his invention. But he says he never could have made a working model without generous help from a very unlikely business partner: the Kremlin.

Mr. Kovalyov is developing his idea in a “business incubator” on the outskirts of this leafy Siberian city. It is a state-funded haven for entrepreneurs who find it near impossible to get a good idea off the ground in Russia’s corrupt, monopolistic, and cronyist version of capitalism.

The idea is to hatch innovations away from the frosted-over economy, providing seed money, office space, and advice until inventors can find business partners. Though only about 10 percent of these ideas ever get sold, often to companies abroad, managers say they’re not in it for short-term profit.

Over the past two years the Kremlin has begun pumping cash into projects like this.

They’re all part of President Dmitry Medvedev’s grand vision of modernizing Russia by weaning it from reliance on raw-material exports and applying oil revenues to stimulate the growth of an entrepreneurial high-tech economy.

“We’re trying to change a culture,” says Anton Titkov, director of the incubator. “We have fertile minds in Russia ... but a very poor record of nurturing inventions.... We need to provide bridges for young people who come to us with ideas but have no business plan or investment prospects.”

The big question hanging over such facilities is: Can they transform Russia’s business culture?

Much of the economy is controlled by huge industrial monopolies with little incentive to innovate, while superwealthy oligarchs seem more interested in snapping up proven assets in the West than in backing start-ups in far-flung Russian communities that often lack basic infrastructure. Russia’s banking system remains averse to the risks entailed in bankrolling inventors.

“In the absence of dynamic private-sector interest, innovation has to be a state strategy,” says Yelena Taila­sheva, a business reporter with the Tomsky Novosti newspaper. “There’s a lot of interest at the top now, with both Medvedev and [Prime Minister Vladimir] Putin talking a lot about ways to get more changes happening that will transform the economy. But these impulses, coming from the top, don’t yet seem to be making much difference down below.”

The state-led approach to promoting innovation boils down to establishing a “ministry of inventions,” say critics, who claim it’s doomed to fail because it substitutes bureaucratic decisions for market signals.

The Tomsk incubator, for example, uses a jury of university professors and local businesspeople to judge which ideas to sponsor, but the government picks up the tab.

Great idea – but will it make money?

Mr. Titkov oversees several dozen mostly youthful inventors, who huddle behind glass-fronted offices tinkering with odd contraptions or peering at computer screens. The menagerie of creations on display is fascinating, even if it’s hard to see how some of them (a soccer-playing robot?) could ever make money.

But some are promising. Dmitry Klim­enko, a student at Tomsk University, says he has found a way to make high-quality 3-D computer graphics far more cheaply than existing methods, which could have big implications for online shopping and gaming.

Kovalyov estimates that his scooter weighs half as much and has twice the battery life as the US-made Segway PT. Alexander Bulavin has a cooking system powered by artificial intelligence that he insists will perfectly prepare almost any dish using recipes that can be downloaded from the Internet. It may still have a few bugs: An omelet he served to visitors recently was burned around the edges.

The Kremlin is paying $3 billion for its latest project, a futuristic high-tech park in Skolkovo, near Moscow, that will have its own laws and customs regulations, to create an interface between Russia’s best technical minds and the world economy. Mr. Medvedev last month defended the use of state resources to create such “islands” for innovators, saying it was necessary to plug Russia’s brain drain.

Change the tax code instead

But critics say the Kremlin’s resources, as well as Medvedev’s bully pulpit, might be better used to promote reform of Russia’s archaic tax code, fight corruption, and break up the industrial empires that many blame for stifling competition and inhibiting innovation.

“At the top they have these romantic ideas about modernization, but nothing is done to prepare the ground for real changes,” says Vladimir Belkin, director of the Institute of Economy of the Urals Region in the western Siberian city of Chelyabinsk.

“It’s still the same old reality in Russia, in that initiative is often punished. Managers don’t look for new ideas, and most people tend to regard innovators as upstarts. Until that changes, nothing else will.”