(iii) Structure of R&D Institutions. Between 1990 and 1999, the number of R&D institutions declined by 12%, from 4646 in 1990 to 4089 in 1999. However, the number of research institutes (primarily those belonging to the Russian Academy of Sciences and those formerly controlled by branch ministries) increased by 50% during this period while the number of institutions in the higher education and enterprise sector declined by nearly 30%. Consequently, in 1999 research (2603) and design organizations (360) still outnumber higher education (387) and industrial enterprise R&D institutes (289).25 The main R&D institutions in developed market economies tend to be associated with the higher education and enterprise sector -- the two R&D sectors with the closest links to industry. In Russia, by comparison, the overwhelming portion of R&D is still carried out in those R&D institutions that are farthest removed from the needs and demands of the enterprise sector. As one observer noted, "Two factors - the weak innovation capabilities of Russian industrial enterprises [which will be discussed below] and the relative isolation of the branch research institutes from industrial enterprises - have a negative impact on competitiveness and the design, manufacture and marketing of products in Russia. Indeed, these two factors could therefore be said to be the most significant obstacles to the transformation of the Russian R&D system into the desired Russian system of innovation."<sup>2 6</sup> (iv) Demand for S&T. At the onset of the transition process, the expectation was that private enterprises would finance the bulk of the S&T spending, much as they do in market economies elsewhere. As private enterprises increased their demand and funding for innovation by contracting with institutes and conducting their own in-house research, they would establish priorities and set the research agenda. The government would recede into the background and play a less dominant role - certainly in comparison to its role during Soviet times.

This proved to be a premature expectation, at best. Government funding decreased substantially, but private demand for R&D has not picked up the slack. As a result, the government is still the dominant source of funding for R&D, albeit at a much lower absolute level than before. The choice, as one observer noted, "was government funding Paper declares, "To ensure the technological safety of the country, it is necessary to set up a system of state accounting and control of technology transfer for civil applications, the development of which involved federal budget funds. The main attention here should be devoted to issues of protection (including legal action) of intellectual property from leaking or being illegally used abroad. To ensure technological security it is necessary to exercise strict state control over foreign support for Russian scientists and organizations which used to work in the area of defense in Russia in their transition to the development and manufacture of science intensive products for civil applications.

- 25 Data are from L. Gokhberg, N. Kovaleva, and I. Kouznetsova, Innovation Management in Russia: A Review of Training Needs and Qpportunities for Growth, The British Council, 2001, p. 6.

- 26 _Ibid.,_ p. 7. The authors go on to state, "A major factor discouraging economic growth through innovation are the barriers that exist between those conducting research and development and those in industry. The institutional and organizational principles of the ex-Soviet R&D system created such barriers, emphasizing research but giving less attention to other aspects of innovation."

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