Don't Let Russian Science Suffocate

Only tiny amounts of money are required to keep alive one of Russia's true national assets

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THE battle of Leningrad is being fought again. This time Russian scientists are under siege, and the enemy is not Germany but Moscow. The ignorance, indifference, and political distractions of the Yeltsin government literally are starving even the best of its scientific community to death. The average scientist makes 40,000 rubles a month - the price of a meal for one person at a good Moscow restaurant. But the crime is not that. Many people are suffering in Russia today; but for scientists, once the darlings of communism, the fall from grace has been a long one.

The crime is different. Russian government tax policies are killing the few geese capable of laying golden eggs for the future. The truly world-class research and development institutes and technical universities are gradually finding contracts with Western companies in a Darwinian struggle for survival. Such research and development ``centers of excellence'' are capable of surviving because they are very good. They produce something the Western market wants - outstanding new technology, original ideas. And the West provides something scientists aren't getting from the central government - cash. Not charity, but cash for value received.

The world is appreciating this talent more as contacts increase with Russia's ``best and brightest.'' Other countries are appreciating the originality and analytical strength of ``socialist'' science. A child of scarcity and an inferior material base, Russian science has bred a powerful culture of ingenuity mixed with a deep physical-mathematical understanding of processes that often exceeds Western approaches.

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Companies large and small are signing research and development contracts and option agreements - United Technologies, Thompson, Siemans, Lockheed, General Atomics, General Electric, Monsanto, General Motors, Ford, Rockwell, Daewoo, and many others. Russia's top-flight science is one of its true national assets, and only tiny amounts of money are needed to keep it alive. The sums are too small to deserve the attention of large Western funding organizations that know how to spend only millions. In today's Russia, a $100,000 contract represents a huge amount of money for science that could employ 20 scientists for a year.

Moscow's advisers are so concerned with big issues of ``market reform'' - figuring out abstract ``restructuring'' schemes or worrying about their political backsides - that they can't appreciate the small but vitally important markets that are being created and then strangled by destructive Moscow tax policies. This is exacerbated by many of Moscow's innocent Western advisers whose ideologies favor a brand of capitalism no one in the West even practices. They act like people who see a drowning man and throw him a book to read on how to swim, tell him he should build better boats, and then interview him on what it feels like to swallow five gallons of water. Throwing him a simple cheap life preserver is too obvious and untheoretical, even though there is hardly any industry in the West without its own life preserver.

A generous estimate would put the current annual value of all Russian research and development contracts, special equipment purchases, and option agreements for technology rights at $50 million. This would represent 1,000 contracts with Western firms averaging $50,000. The start-up costs Western companies will pay are typically $10,000 to $100,000 - to see what Russian scientists can really deliver.

Once they show results that match their claims, the scientists' bargaining power goes up in a very disproportional fashion. But to do this, a skeptical ``show me'' attitude typical of any buyer of new technology must be overcome. This is the purpose of small test and evaluation agreements that can help keep the good laboratories going. But to levy a 32 percent profit tax on a $10,000 contract, plus 39 percent payroll tax, plus organizational overheads leaves virtually nothing for the scientific team that does the real work.

PRESIDENT Boris Yeltsin's policies are also turning some of the most dedicated people into tax-dodging criminals because they are committed to pulling themselves off the mat for the survival of their organizations. Many of the country's best scientists who stay on and struggle for $75 a month could be working in the United States for $5,000 and $10,000 a month. But they stay to fight for their country's scientific future. They are among Russia's true heroes.

The Yeltsin government should grant a tax holiday for three years on all scientific technical contracts won with foreign contractors. These include sample preparation for testing and evaluating technical claims on products or processes, task research, joint research and development, unique equipment, and option fees on property rights. Success can lead to longer-term commercial arrangements in which the Russian partner gets ongoing royalties or stock ownership in ventures in return for its intellectual property.

Once products or ongoing royalty streams are created from the successful commercialization of proprietary technology, the government should take its share. Again, it should be proportional to the cash flow: 10 percent on the first million, 25 percent on amounts over $1 million. For example, Licensintorg, the former Soviet licensing agency, earned $6 million from royalties for the use of Russian patents for novel surgical suturing devices, commercialized by US Surgical Corporation of Stanford, Conn., in the 1970s.

This should apply not only to the Institutes of the Russian Academy of Science, but to all the technical schools and universities, as well as to industrial research and development organizations and private research and development companies. Market principles can be used to identify and help ``champions'' in a specialized area of business with high early costs and risks but big potential for success in the market.

What is the tax loss to the Russian treasury? Maybe $15 million a year maximum, or roughly $50 million over the next three years. This will not make an iota of difference to Russia's short-term budgetary problems, but it can make a big difference to its economy and national security in the future. Russian central and local governments grant tax holidays to Western companies in the interest of long-term investments and development.

Why does Moscow not support its own creative people who have important seed corn for the country's revival? Russia certainly has an oversupply of scientists and engineers, but the good will disappear with the bad if policies are not adopted to let them succeed on their own merits.

Is the West getting Russian science and technology for a song? Yes, at the start, but the cost of doing business is very high and the ultimate rewards are uncertain. But if the business arrangements are negotiated properly, the owners will benefit from success in the marketplace through stock appreciation, royalties, and other forms of payments for services to the venture.

THE nature of all business is to buy as cheap as possible and sell high. Americans, Europeans, Chinese, Koreans, and Russians all do the same. Yes, Russian science is in a weak position partly because of the government's own policies of starvation. A starving person does not have a lot of choices. If such a person knows he will eat for a year, he can be a little tougher at the negotiating table. As Russian scientists show value in trial evaluations, the investors' bargaining position will strengthen too.

Many of these deals are small at the start. But they act as small life preservers, new business that neither Russia's government or international aid organizations have to pay for. Moreover, these deals actually take place, unlike many projects that are only talked about and cause frustration and anger - creating a climate that leads to sympathy for politicians like Vladimir Zhirinovsky.

There are still some people in the US who would like to end all Russian science, assuming it only serves the military. At the minimum, they want the scientists on Western welfare. It seems as if Moscow's policies are aimed to help such people in the West. In capitalist countries, research suffers too in hard times and is often the first to be cut when companies are in financial difficulty. Cutting back on funding of research is understandable even if it is not good policy. But hurting those who help themselves is hard to fathom in this area where the marginal benefit to science is so high and the marginal loss to the Russian tax base is so low.

The question Moscow must answer is simple. Is it in Russia's interest to let its world-class applied science die or live on charity from financier George Soros (who has donated millions to countries throughout the former Soviet bloc), or to let it become self-sustaining through trading on its strengths as proven in the marketplace - a marketplace that can only be effectively accessed in combination with Western manufacturing firms that value Russia's research and development capabilities and have the financial means to commercialize it?

If Mr. Yeltsin believes in self-sustainable investments and Russia's future, the answer is obvious. The Opinion/Essay Page welcomes manuscripts. Authors of articles will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts by mail to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.

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