Only a small proportion of the government budget for research institutions is allocated competitively, unlike the more advanced economies. Though there is a government desire to allocate more government R&D funds competitively, the government budget apportioned only 14.6 percent of all civil science funding competitively. Half of that was channeled through the Russian Foundation for Fundamental Research and the Russian Humanities Science Fund (MoES 2009). More developed economies have higher shares of competitively allocated funding. Most public financial support for R&D in the United States is awarded by mission-oriented agencies and other research bodies (such as the National Academy of Sciences) in response to individual demands. In Israel, around 30 percent of government-funded R&D is allocated competitively through universities or the Ministry of Industry, Trade and Labor (ERAWATCH 2010).

Most of the budget for research institutions, including universities, is apportioned based on personnel headcount. The government allocates budgets to public research organizations and higher education institutions in amounts it deems sufficient to cover anticipated costs. The financing system takes into account the number of employees. Thus, if research institutes’ directors were to have fewer employees, they would receive less from the state budget.

As a result, there are incentives to inflate payrolls and many “researchers” have other jobs, affecting the quality of research. Even though still formally associated with research institutes, the number of specialists working in more than one job grew steadily in the 2000s. At least at the start of the decade, about 40 percent of researchers had R&D as a part-time job (Yegorov 2009). The headcount financing system creates incentives to inflate costs and fails to establish a link between resources and outputs.

Russia’s investment in research, both basic and applied, has risen over the years. However, development expenditures have fallen. This may diminish the capabilities to commercialize research results by bringing innovations to the marketplace. The development side of R&D fell to 59 percent in 2009 from 70 percent in 2000, while basic and applied research grew by 8 and 4 percentage points, respectively (Figure 7). Russia’s structure of R&D differs from that in more advanced economies, where R&D expenditures are concentrated in the development side, with Israel devoting as much as 82 percent in development. Russia’s R&D structure also differs from that of Eastern European countries, which devote higher proportions of R&D to basic research and less to development. For example, the proportions of basic research in Poland and the Czech Republic are 38 percent and 30 percent, respectively, while development amounts to 39 percent and 46 percent (OECD 2011).

**Figure 7: Russian R&D by character of work, 2000–09**

<!-- Start of picture text --> 100%<br>90%<br>80%<br>70% 62% 59%<br>70% 70% 69% 69% 69% 70% 69% 67%<br>60%<br>50%<br>40%<br>30% 19% 20%<br>15%<br>20% 16% 16% 16% 16% 16% 16% 15%<br>10% 13% 14% 15% 15% 14% 14% 15% 18% 19% 21%<br>0%<br>2000 2001 2002 2003 2004 2005 2006 2007 2008 2009<br>Basic research Applied research Experimental development<br><!-- End of picture text --> Source: OECD 2011.

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