As recently as 2000, approximately 70% of government financing was defined as institutional funding of R&D institutions; in other words, subsidies frequently provided on a per capital employment basis designed to maintain staff, facilities and equipment. Only 22% of government financing was allocated to support what the government itself defined as its priority objectives and a paltry 8% was distributed on the basis of competitive selection procedures.20 Not only was this spending inefficient in the sense that most of it was an untargeted subsidy (which the government could ill afford), but it actually hampered restructuring. It gave institute managers an incentive to stay in business and maintain excess employment in the hope of obtaining a larger subsidy. And it diverted government resources from more productive uses within the S&T sector.

(ii) S&T Labor Force. The evolution of the S&T labor force is another clear example of change without substantial reform. As the OECD recommended, the sector has downsized but, contrary to OECD recommendations, in ways that did not leave it smaller, stronger and economically more viable. For example, the number of R&D specialists in Russia declined from 1.9 million in 1990 to 872,000 in 1999, a decline of 54%. Of this total, nearly 75% still work in federally owned institutions and only 5% work for privately-owned enterprises or institutions.-' However, despite the decline, the average age of R&D workers has increased dramatically, due primarily to the failure to recruit younger workers. Today fewer than 8 percent of higher school graduates are choosing scientific careers. At the same time, the share of researchers aged 50 and over exceeds 35% and the share of scientists in the most productive age group (30 to 40 years of age) has plummeted. Consequently, the sector is in danger of disappearing, rather than transiting to a smaller, more sustainable basis.

The low pay received by R&D workers is a key factor behind these unfavorable labor force trends. The average pay for researchers in the S&T sector was only $65 per month in 1999, in large part reflecting the sharp decline in government spending for R&D coupled with a failure to find alternative, commercial sources of support. This led one government report to declare, "despite the low level of earnings in science, Russia has

> is a "statistical illusion" and that the real business share is actually much lower and the real government share correspondingly higher.

> **20** Spending data are from Russian Science and Technology at a Glance, Figure 4.6. In his April 3, 2001 address to the nation, President Putin recognized the need to change the government's approach to science funding, declaring, "today it is necessary to define clearly the priorities of the state financing of scientific activity and at the same time change the mechanism of its financing, in the way - amongst others - that our domestic scientific foundations have doing for several years now. Their approach is to finance on competitive grounds specific research projects rather than research organizations."

- **21** Russian Science and Technology at a Glance, 2000, Figure 3.7. This data would appear to contradict statistics in Figure 3.6 of the same publication which indicate that just over 60% of R&D personnel are employed in the business enterprise sector. The apparent contradiction is caused by the fact that many research personnel are emnployed in 100% government-owned, corporatized research institutions.

- 12-