The authors also note that "many of the failures in economic development in recent years involve countries getting stuck at critical junctures of economic transition: between Factor Driven and Investment Driven or Between Investment Driven and Innovation Driven stages....The shift from one phase of development to the next often requires new ways of organizing governments, markets and enterprises so it is not altogether surprising therefore that many countries fail at making appropriate transitions or even fail to recognize that such a transition is needed....Ironically, old strategies become new weaknesses." A second study describing how firms innovate and use knowledge evaluates enterprises on the basis of nine key dimensions of technological capability.<sup>56</sup> These variables encompass such factors as a firm's ability to develop a coherent technology strategy to support the business, acquire and absorb technologies, form and exploit linkages with networks of suppliers and collaborators, plus several other core competencies. Firms are then placed in one of four categories depending on their level of technological capability. At the lowest level are firms that have absolutely no capacity for technological change. At the highest level are fimns such as Intel, Boeing, or Microsoft which have the capacity to absorb technologies from around the world, innovate, and produce leading edge high tech products. None of the leading Korean firms are in the top tier. Firms such as Hyundai, LG, and Samsung are only in the third category. They can produce and assemble high tech products using technology imported from abroad, but they cannot innovate or generate their own leading edge technologies.

As both studies imply, making a ten year leap from a resource extraction economy to a global innovator may be overly ambitious. Russia's factor markets are just getting organized, Russia has very few enterprises that can compete with a Samsung or Hyundai in the production of globally competitive mass produced consumer or capital goods, most Russian enterprises do not have the high levels of technological capability required to compete with other globally competitive innovative firms, and the Russia innovation system, if no longer on the verge of collapse, is far from being in robust good health. Remedying these problems will require major policy, institutional and organizational changes that go far beyond the issue of redistributing financial resources from one sector to another - although given the lack of an efficient banking system and domestic capital market, even this limited objective may be beyond reach. Russia's mission statement should take these organizational complexities and difficulties into account. There is nothing wrong with ambitious goals, provided realistic measures are envisioned to achieve those objectives.

**Recommendation #2. Audit a large, representative sample of Russian enterprises to assess their technological absorption and development capacity. Based on international lessons of experience, develop specific policies to help Russian enterprises at each stage in the development process to improve their technological capabilities and attain higher levels of sophistication.** As the preceding discussion

- 56 World Bank, Korea: How Firms Use Knowledge. Part A: Firm Level Innovations in the Korean Economy. 2002.

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