Blazej Reiss: to accelerate the development of innovative industries Russia must withdraw from the WTO.
During the round table discussion "The new economy of St. Petersburg: Business and the City in the context of technological change" organized by RBC as part of the summer session ща VIII annual forum "Future St. Petersburg", CEO of TPV CIS Blazej Reiss made aт interesting statement. According to him, development of high technologies in St. Petersburg is inhibited by the absence of industrial base in many promising areas, needed for an engineering study of new technologies (link to Reiss filler in the Almanac). In his interview to RBC Petersburg Blazej Reiss develops on his idea and talks about what should be done to overcome this obstacle.
- Country that are technologically more advanced than Russia, a such as the United States, at some point transferred industries to developing countries, most of all - to China. Were they wrong?
- Firstly, these countries did not transfer the entire industry. The same United States preserved Silicon Valley with its pilot industrial production, which worked out new technologies. Secondly, they certainly underestimated the importance of the industrial base. That's why Donald Trump now wants to return everything back. Because today the production has gone from America and it is severely lacking base for developing innovations. How can R&D be done, if there is no industrial base? They have to test all the new developments in China. As a result, most of the added value remains in China. And the technology does virtually the same - because it’s machines, equipment, software and personnel.
- Why so? After all, the innovation is invented in the US, so the technology stays there ...
-- No. To invent a product is much easier than to put it into production. In Russia, it is very well understood from experience. For an innovation to become a real commercial product, it is necessary to master a technology, to choose a material, to perform engineering. All this is what Russia lacks.
A development engineer in Russia says to an innovator that his idea can be realized. But he says so, because it has no manufacturing experience. And when he comes to the production, they say - we will do it, but it will look completely different. The innovator sees that the result will be something quite different from what he was planning. Or final cost of the product does not fit into the market. And the innovation that may be good is sent to trash.
If there is no production, who will implement innovation? It is very risky to build a plant just for its sake. It is easier to implement at a running manufacture. Production runs all the time and if innovation comes, the company searches how to reasonably implement and allocate some funds for development, due to which an innovation is first tuned, and then implemented. It works in the world this way.
Trump now even wants to return the mass production to the United States, because he understands that the gap between industrialization and mass production is too large. Today, to maintain scientific, innovative base is very difficult without production, which generates a major profit. Because it’s high cost. And the money remain in China. As a result, the deficit of US bilateral trade with China reached $ 500 billion.
- In your opinion intelligent design, manufactured in the United States, brings less profit than their engineering development and production in China, does it?
- There exists the cost of production, which is the sum of the cost of developing the ideas, the components of the product, logistics, etc. Profit from the sale of a product is largely determined by the cost of the components. And these costs are large. Because components are no commodity. Of course, they are made of metal, plastic, but it's a penny. The main cost is the development of components for this product. But such a development is also done in China.
Every country wants to occupy as much space as possible in the chain of formation of added value. Now 90% is occupied by China. That's the whole story. And now many start to realize this fact.
- But WTO is expected to ensure protection from this imbalance, isn’t it?
- What advantage does Russia have from staying in the WTO? Actually, what do we export in addition to a number of state monopolies production? It’s minimum. We import most of the products.
WTO is now working on China. America has understood it today. China lowers import duties at the time when it increases its own production and floods the world market with its products. For those products that are not profitable to be produced anywhere except China there’s a zero duty. You can import duty free. But you do not sell, because Chinese prices would be certainly lower due to the scale of production and speculation with the yuan exchange rate. And for those products that are still competing with Chinese ones, the duty is high. For some codes, up to 50%.
China built its policy very correctly. At first, they only assembled products developed in other countries, and then realized that it is necessary to develop at home. They gave all sorts of preferences to technological investors.
- Can Russia use this method?
- It can, of course, but still does nothing for it and is waiting for something. Therefore, I believe that Russia does not need the WTO. It does not benefit anything from the WTO, when it comes to high-tech electronics industry in Russia. If it leaves the WTO, it will be able to regulate its duties and economic processes, not only in this market. And now the WTO interferes with this.
To create a product, large scale of production is needed. We must understand that China has a huge advantage in this. Any production in Russia will not reach the necessary price due to different production volumes. The Chinese have done it exactly with the help of duties.
- Do we have necessary condition?
- Russia has everything to develop high technology and successfully commercialize them. Russia has a lot of educated people. There are innovative ideas. Russia has a huge domestic market, which is extremely important. Even Poland with the market several times smaller could develop well. If there is no production, the intellectual elite degrades. Because in the absence of adequate production, it can not realize its ideas. So people go to Silicon Valley. Money is one thing. But there is also a matter of self-realization.
St. Petersburg has to use its own advantages. If national conditions are established due to leaving the WTO and the right custom policy is build, then St. Petersburg has everything to create large-scale innovative production - personnel, logistics, knowledge. Logistics and staff are the basis. And the understanding officials. My experience shows that such understanding is quite possible to be achieved.