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RIA Novosti
February 14, 2005
Moscow, (RIA Novosti economic commentator Nina Kulikova).

The final stage of privatization to be held in Russia within the next few years raises many questions, especially with regard to the privatization of the Russian Academy of Sciences (RAN).

Academician Alexander Nekipelov, RAN vice-president, tells RIA Novosti about the main problems in this sphere.

Question: Russia is set for the final stage of privatization. Officially, Russia should privatize every enterprise that does not directly fulfill state management functions by 2007. What is the purpose of this stage of the privatization drive and how will it affect the economy in general?

Answer: The government set this out in its draft medium-term development program. It says that the state should leave at its disposal only those assets that help it to directly fulfill the state's public functions. This would seem to be correct. Why should the government have enterprises that do not exercise the functions for which the government exists? Regrettably, we proclaim many slogans that are not viewed critically enough. I am deeply convinced that the very presentation of this issue is very primitive and erroneous. If, for instance, you have an absolutely free market economy and create a state sector from scratch, with the state deciding which enterprises it needs and which it does not, then the approach is justified since we cannot say for sure that the state can use enterprises more effectively than the private sector.

Question: However, the state still has huge assets...

Answer: We exist in a situation when we have inherited a large portion of the state economy from the past. In this case, we may take the road the government is about to take. What is the drawback of this position? The problem is that in launching a massive sale of state-owned assets, the government rejects the possibility of a choice. Let the government organize fair tenders, supervise them, and totally rule out corruption on the way, which is difficult to imagine. However, the fact that the owner, in this case the state, has just one option, i.e., that of the asset's sale, automatically increases the supply of assets and pulls down their market price. When taking a decision, any sensible owner weighs up two possibilities - income from the use of property and from its sale. If the discounted cash flow from the use of the asset exceeds the sum the owner can earn by selling it, no reasonable owner will sell its assets. In conditions when you have assumed the obligation to sell your asset, you take an irrational economic decision, as you have deprived yourself of the second possibility. In my opinion, it is important not to "fight" against state-owned property, but to look at this issue objectively and without any ideological hues. It would be much more effective to create a normal system for managing state assets operating in the market system, with these assets to be circulated within it.

Question: How could this be done today?

Answer: We could create a system of state holdings that are not directly subordinate to the executive authorities. Their task would be a purely market one: to ensure the maximum profits from the available assets using the means at the disposal of market players. In some cases, they would ensure the maximum yield by retaining these assets, in others - by selling them and acquiring new assets, etc.

Question: What is the current status of the Russian Academy of Sciences?

Answer: The Academy is an organization with state status. On the one hand, this means that all the Academy's property is federally owned. The Academy of Sciences has been given the right to exercise the owner's functions on behalf of the state. However, the Academy is not a purely state organization because, as distinct from what is associated with state organizations under the Civil Code, it operates on the basis of the principles of self-government. All the posts at the Academy, from junior researcher to the Academy president, are elected. We make our own decisions, in keeping with the law, as to which institutions and organizations we should set up and which to close, etc. We determine our research areas. This system formed over a long period of time.

Question: Is it possible to keep it intact?

Answer: In our opinion, it is reasonable because it reflects specific features of scientific activities. Science means the highest degree of uncertainty over results. The Academy of Sciences cannot be viewed as a typical institution. We cannot plan a result: if we knew it, we would not need the scientific process. Due to the high uncertainty of its results, this sphere of activity requires decision-making on key issues by the expert community. We are glad that this is understood.

Question: How will privatization affect the Academy of Sciences?

Answer: The Academy is not a sacred cow that does not need to adapt to the changing situation. We realize that modern Russia cannot afford to keep the Academy at the size the Soviet Union had, so we work hard to operate more efficiently. We understand that certain measures are needed to reduce the network of scientific institutions and cut the number of research institutes. The Academy believes that this can be done, but only if measures are simultaneously taken to ensure the reproduction of the scientific potential, albeit in smaller volumes than before. We believe that the Academy is Russia's unique inheritance and we are proud that we managed to keep it intact in the 1990s. However, if certain measures are not taken, including by the Academy itself, it may die.

Question: What measures are needed?

Answer: Among other things, measures to create an "innovation belt" and a commercial sector that would help unite fundamental science with applied research. Such opportunities arise at the Academy all the time. So far, the Russian Academy of Sciences has been a world's strongest scientific organization, but demographic factors have been most unfavorable for us. This is why we work actively in this sphere.

Question: Which Academy institutions can be privatized?

Answer: We are against "wholesale" privatization programs. However, we acknowledge that some Academy institutions engaged in activities that result in a commodity and are in demand on the market could be privatized. For instance, they could be transformed into joint-stock companies, with a share packet to be held by the state but placed under the Academy's management. These companies could issue shares to attract private capital and operate on the basis of market principles. Under Russian law, the transformation of an institution into a joint-stock company, with 100% of its shares held by the state, is regarded as privatization. We believe that this is completely possible, but we are against a thoughtless approach to this process. The Academy wants to be assigned the right to manage state-owned share packets of the respective privatized institutions.

Question: What lies in store for those Academy institutions whose activities do not produce a marketable commodity?

Answer: A larger portion of our institutions deal with fundamental science. They must preserve their present state status and be financed from the budget. Nowhere in the world is fundamental science a commodity to sell or purchase. If Russia is ambitious enough to seek a worthy place in the world in the high-tech and other spheres, it needs one policy. However, if it is going to live only by exploiting its natural resources, then it does not need, for example, nuclear physics research which is, incidentally, very expensive. Society and the government, which must represent society's interests, should make a long-term choice and decide what sort of a country and, naturally, what kind of science, we want to have.

Question: You have said that demographic factors are not favorable for the Academy. Do many young people pursue careers in science?

Answer: Regrettably, we cannot make decisions on many issues if they are not agreed upon with the authorities. For instance, it is necessary to ensure normal remuneration to encourage young people to pursue sciences. We hope that the situation concerning remuneration in science will soon change for the better. Besides, we recently set up the Moscow School of Economics. It operates as a faculty of Moscow State University, but on commercial terms. This school is an example of integration between economic science and education. All teachers there are leading Academy specialists with the highest qualifications. The school's objective is to give fundamental economic education to its graduates and to teach them research practices. The school provides sound knowledge of economic theory and mathematics. Students conduct research at the Academy's economic institutes, they have an opportunity to see the diverse research carried out there and the people conducting it. We hope that some of our graduates will find their place in science.