Cablegate: Scenesetter for Innovation Dialogue Delegation's

DE RUEHMO #0320/01 0431615
R 121615Z FEB 10




E.O. 12958: N/A


1. (U) Your visit to Russia can help advance several of the
goals Presidents Obama and Medvedev set out in their
Bilateral Presidential Commission (BPC) to foster greater
connectivity in key areas, including education, culture,
business, and government, between the U.S. and Russia. The
public-private composition of your delegation will be
especially useful in promoting innovative use of internet
technology and social media to achieve BPC objectives. The
senior executives of connection technology companies will
have the opportunity to communicate a vision for a
modernization/innovation dialogue and discuss possible joint
initiatives with Russian interlocutors from a wide array of
public an private sector, and non-governmental organizations
in Moscow and Novosibirsk.

2. (U) For USG officials on the delegation, the visit will
continue the dialogue that several of you began during the
visit by senior Russian officials to Boston in January. For
the entire delegation, your meetings in Moscow and
Novosibirsk will provide a people-to-people dimension to the
"reset" in the bilateral political, economic and cultural
relationship. It will also emphasize our support for the
modernization agenda that President Medvedev advocates for
Russia, with the understanding that greater interaction
between our countries' business, civil society and
educational institutions will help strengthen market and
social reforms.

The Political Dimension

3. (U) After almost two years of tandem leadership, President
Medvedev and Prime Minister Putin appear to be working
closely together to coordinate government policy. Medvedev
has been a steady advocate of modernization in the economy,
in use of technology, and in the political sphere. These
themes have generated considerable public debate about the
connection between political openness and economic
prosperity. Constitutionally, President Medvedev has the
lead on foreign policy and PM Putin handles the economic
portfolio. Putin is the leader of the United Russia
political party, which dominates national and regional
politics. Putin continues to be slightly more popular (with
approval ratings about 75 percent) than Medvedev (whose
ratings are slightly under 70 percent).

4. (U) Civil society remains very active in Russia even under
strict government regulation. The introduction of federal
NGO registration in January 2006 caused a number of smaller
NGOs to close and several high-profile organizations to
experience intense scrutiny. In July 2009, President
Medvedev signed amendments to the laws governing NGOs that
simplified reporting requirements for small organizations and
reduced the number of times NGOs can be inspected.
Nonetheless, Russian NGOs continue to face challenges,
including a frequently changing legal environment and uneven
enforcement of regulations. The Russian government formally
recognized NGOs in their role as social service providers but
in practice is skeptical of NGOs as valued partners.
Municipal and local governments tend to be more responsive to
interacting with civil society than those at the federal
level. The recent financial crisis decreased significantly
government funding for civil society activities and
initiatives. Support for NGO activity in the media sector
remains challenging and NGOs are often unable to promote
effectively their activities broadly through public

The Economic Dimension

5. (U) In an effort to revive Russia's economy, President
Medvedev has called for modernizing the country, including
diversifying the economy from its dependence on extraction of
natural resources, developing an innovation economy based on
strong intellectual resources and commercialization of
scientific research, integrating Russia into the global
economy and its institutions such as the WTO, OECD, and G20,
and fighting corruption.

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6. (U) Russia remains an attractive market for U.S.
businesses, but Russia's foreign investment regulations and
notification requirements can be confusing and contradictory.
Corruption and legal incongruity are rampant, which
adversely affects foreign investment. Scientific an
technology cooperation is bedeviled by visa problems, Russian
taxation of cooperative science projects, cumbersome customs
duties, and lengthy and opaque bureaucratic processes for
receiving permission to undertake certain types of joint
work. GOR rhetoric of integration into the global economy
often gets ahead of follow-on actions. While senior GOR
officials have reiterated their commitment to accede to the
WTO and OECD, the accession process has been slow and fitful.
The U.S. trade relationship with Russia recently has
experienced setbacks due to Russian non-tariff restrictions
on meat, including a virtual prohibition on all poultry
imports from the United States. The Russian Customs Union
with Kazhakstan and Belarus, launched on January 1, further
complicates Russia's accession to the WTO. The U.S. and the
EU, however, continue to support Russian efforts to accede to
the WTO.

7. (U) The Russian government has yet to realize a long-term
growth strategy for modernizing and diversifying the economy,
still dependent largely on oil and gas exports. Complicating
matters is the fact that Russia is just now recovering from
its severest economic downturn in a decade (GNP declined by
7.9 percent last year). While the country's currency and
stock markets have stabilized, borrowing for non-state
companies (particularly SME's and start-up companies in the
high tech sector) remains expensive and largely unavailable.

Modernization - Medvedev's Leitmotif

8. (U) Modernization of the Russian economy has become a
central theme of Medvedev's presidency. In his article
"Forward Russia!" (September 2009), President Medvedev
identified "endemic corruption, negative demographic trends,
and the inveterate habit of relying on the state, foreign
countries of some all-powerful doctrine to solve our
problems" as key obstacles to Russia's progress. Some
estimates place Russia 30 to 40 years behind developed
economies in the technology sector and it will lag further
without increased innovation. A recent Thomson Reuters
report concluded that the political turmoil of the nineties,
brain drain, and S&T budget reductions have transformed
Russia from a leading science research nation into an
increasingly minor player in the work of science. The core
of Russia's problem, according to many observers, is the lack
of a qualified high-tech labor force and the absence of a
productive and dynamic environment for domestic business
development and FDI. Scientific prowess is hamstrung by
insufficient funding (with the budgets of some of Russia's
best research institutes only 3-5% of comparably sized U.S.
institutes) and a rapidly aging cadre of scientists, in
marked contrast to the trend in growing, research-based

9. (U) The Russian government is clearly searching for ways
to promote modernization. In May 2009, President Medvedev
established the Presidential Commission on Modernization and
Technological Development. To achieve a high technology
breakthrough, the Commission recommended that Russia should
spend 10 billion rubles ($333 million) in 2010 for five
areas: energy efficiency, medical science, telecom, nuclear
and information technologies.

Information Technology and Telecom

10. (U) The Russian government recognizes that the
information technology and telecoms sectors are essential to
their modernization goals. Russia already has a solid cell
phone network, with multiple providers. Introduction of new
technology has been hampered, however, by restrictive
notification and licensing requirement for importation of 3G
and 4G equipment. Internet penetration in Russia is
increasing rapidly, from 8% of the population with access in
2002 to 36% in 2009, although much is still dial-up. The
Russian government is looking to move to broadband, with
Telecom Minister Igor Shchegolev announcing that by 2015, 62

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of the country's 83 regions will have broadband internet
access available, supported by 4G WiMax technology, for which
the Ministry of Defense will provide frequencies.

11. (U) The government is counting on private companies to
provide the infrastructure. Some companies have lobbied to
have broadband access added to the list of "universal
services' that receive subsidies from the government,
although the government has not agreed to this approach.
Recently, the Russian government approved a program to
provide "IT companies" a tax break. The target beneficiaries
appear to be software firms, and so far no company that has
applied for this tax break has been turned down.

Health Care

12. (U) Russia's health situation remains poor despite
economic gains. The country's antiquated health care
infrastructure continues to deteriorate, and access to
adequate and affordable health care is limited, particularly
in the vast rural sections of the country. The Deputy
Minister of Health and Social Development has raised with USG
officials Russia's interest in developing a system of
telemedicine. In particular, the health ministry seeks a
system that would allow medical specialists to provide
diagnosis and recommend treatment over long distances,
thereby helping to expand access to health care in Russia's
vast rural areas. The United States included high-technology
applications in health care among the proposals for
cooperation under the Health Working Group of the Bilateral
Presidential Commission, plus USAID has initiated several
activities and small scale model telemedicine programs.
Further work in this area may be explored under the Health
Working Group.

13. (U) Alcoholism and smoking are primary contributors to
poor health and a rising tide of chronic diseases, including
cardiovascular disease (the nation's number-one killer),
diabetes, and cancer. Non-infectious diseases account for
well over half of Russia's deaths every year. As a result of
these factors, Russia's overall life expectancy was 67.8
years in 2008 - well below that of other developed countries.
Recognizing that excessive smoking and alcohol consumption
are driving Russia's high mortality and low life expectancy,
the government has made the promotion of healthy lifestyles a
central plank in its national health plan. Innovative
approaches, including the potential to use new technologies
to address some of these endemic problems, offer interesting


14. (U) Russia has a long history of excellence in the
sciences and technological innovation, but the Russian
educational and research sectors currently face several
challenges, including 'brain drain' to the West and lack of
financial incentives to lure young people into these fields.
As part of the National Education Project, inaugurated in
2005, the government has taken steps to reverse this trend,
including consolidating smaller regional educational
institutions into seven 'Federal' universities to concentrate
resources, improve the quality of research and, ultimately,
enable Russia to compete on the international stage. As a
further step in this direction, this month Prime Minister
Putin created a new Department of Science, High Technology
and Education within the Cabinet.

15. (U) To strengthen links between scientific research -
particularly scientific research with commercial applications
- and education, the Russian government conferred 'national
research university' status on 14 universities through a
competitive process. These institutions will receive federal
funding for 5-10 years (approximately $6 million in 2009), on
the condition that they also raise an additional $22 million,
either from their own funds or from the local business
community, and commit 50-60% of the funding to developing
advanced laboratory facilities. The government expects these
national research universities to create home-grown
technological advancements, grow Russia's economy outside the
sphere of natural resources, and rank among the world's top
200 institutions within 5-10 years.

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The Media

16. (U) Russian media is a study in contradictions. Freedom
of the press is formally guaranteed by the Russian
constitution, and yet -- even with no formal censorship
organs is place -- few voices opposed to the Kremlin can be
found in any of the national broadcast media. Most of the
major television broadcasters are either owned directly by
the State or controlled by corporations, such as Gazprom,
which have close ties to the Russian government. This helps
create a system of self-censorship where journalists and
networks refrain from showing reports which may displease the
authorities out of concern over economic retribution and
other consequences that may follow. According to the
International Press Institute, Russia is the most dangerous
European country for journalists. Numerous opposition
reporters have been attacked or killed in Russia over the
past decade, including the well-publicized murder of Anna
Politkovskaya. A few independent voices still exist,
however, and more balanced journalism can be found on the REN
TV network and the radio station Ekho Moskvy. There are more
opposition voices in the print media, but none of the
newspapers or journals has the reach of the national

17. (U) Traditional media have been reluctant to make the
jump into new electronic forms of communication, and most
strategies remain focused on broadcast and print outlets.
That said, some organizations are adapting to the change and
this has not gone unnoticed by the forces that wish to stifle
dissonant voices. Novaya Gazeta, one of the main opposition
newspapers also has a popular website. Recently, however,
their servers have come under a denial of service attack that
has led the newspaper's leadership to consider moving the
site's hosting out of Russia. The Embassy is an active user
of social media and online news services. The Ambassador has
a regular Russian-language blog; we use Twitter to get out
news of upcoming events and Skype and CO.NX (the State
Department's version of Adobe's Connect Pro) to communicate
with remote audiences.

Note on Novosibirsk

18. (U) By all accounts Novosibirsk, the largest city in
Siberia and Russia's third most populous, has largely escaped
the worst of the economic crisis due to its multifaceted,
technology-based economy, large student population and
stimulus policies implemented by the local leadership for the
hard-hit constructQn industry. The region's lack of natural
resources turned out to be a blessing, keeping it from
becoming a one industry town. Relations between the city of
Novosibirsk and the oblast of the same name remain close due
to the fact that current government Viktor Tolokonskiy and
his predecessor were both previously deputy mayors and then
mayors of Novosibirsk. In September 2009 the city hosted the
first Interra Investment Forum which attracted potential
investors in Novosibirsk's fledging free trade zone near the
airport as well as its planned TechnoPark within the historic
Akademgorodok (Academic City). While in Novosibirsk, the
delegation will meet with Governor Tolokonskiy as well as
visit Akademgorodok to engage students, faculty,
entrepreneurs and local technology start-up companies.


19. (U) The government of Russia has committed to increasing
resources to support science, technology and innovation. At
the same time, the government has focused on large, top-down
approaches for stimulating innovation, with goals that sound
similar to the old 'State Planning Agency' approaches during
the Soviet era, and reliance on large, politically
influential state corporations. President Medvedev has taken
up the 'innovation and commercialization' mantra, but many in
the Russian government appear not to understand the risky,
decentralized, independent and long-term nature of developing
an innovation economy. As part of its mission, the
innovation dialogue delegation can help encourage key
government and private sector leaders to energize their

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efforts to create the business and intellectual environment
necessary to foster innovation in Russia.

© Scoop Media

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