How to Turn Soviet-Era Worldview into Cluster-Type Economy

Republished from Innovation House

Innovative process is the search for or the creation of mechanisms able to resolve specific problem. It emerges when we realize exactly what problem we wish to resolve, but do not know for sure how to do this.

Probably, everyone will agree that Ukraine shall switch to innovation driven economy. This is the priority need. So where to begin?

As for me, we shall start with the amendments in the field of education, since I believe that we have severe education problem. First and foremost, modern education is the understanding of basic trends, relationships and processes. Its main objective is to teach the best systems and methodologies for the development of any given field, to teach how to apply world’s best practices and make it clear that information flexibility is the integral part of continuous learning process.

I am referring to in-depth knowledge, rather than to shallow knowledge based on reading of one or two books. Do you know that there are a whole lot of people who believe they have a good understanding of economics having read such books as “Lee Kuan Yew: The Grand Master’s Insights on China, the United States, and the World” or Blue Ocean Strategy?

If we keep on neglecting key practices, then in the next 20 years we will lock ourselves into a worse situation.

Therefore, it is premature to talk about adaptation mechanisms, when we even do not understand what is going on around here. Adaptation is an action, but, so far, failure to act has the dominant position here. Indeed, business is doing something, but we still have no critical mass of initiatives required for economy transformation process. As soon as this happens, business will reach out to political elite, since it would be unwise to ignore vast amount of the advanced economic and social factors. Only after this the political elite will have first-priority problem “What to do?”

Anyway, this is a normal process for developing countries. Existence of internal and external factors is the correct incentive for the state development. However, they require additional painstaking consideration.

Thus, constantly growing social grievance has become Ukraine’s internal factor. And for good reason. In 2017, Neil Walker, Representative of United Nations Development Programme to Ukraine, reported that considerable number of Ukrainian population (60%!) is living below the poverty line. Ukraine is ranked 138th among 156 countries in World Happiness Report 2018 and took its place between Turkmenistan and Yemen.

An external factor – is the threat posed by neighbor in the east of the country. Military conflict with Russia has triggered our development, but this factor has not become determining. The potential we had in 2014 for strengthening of the national consciousness was lost.

Further development will be based on external threat posed by Russia or social crisis, i.e. internal factor. Or rather, Ukrainian business will be the initiator and driving engine of progress. Humankind has not yet developed other alternatives.

Cluster-type model is the key methodology for the systemic innovations development, which refers to the implementation of the territories’ potential, rather than industries. This is the opportunity to see and to think more globally, having left the Soviet-era standards behind.

Currently, we are inclined to think by using terms “industry” or “sector of the economy”, however, modern environment limits are blurred, there are no sectors there. In the era of globalization one shall have strategic vision and competitive advantages based on core competencies, it is important to think using value chain logic. Sector shall be treated as a relic of the past.

Ukraine already has some examples of such an approach. Though, they can be counted on the fingers of one hand. Some attempts may be seen in Kyiv, Lviv, Kharkiv, Chernivtsi, Zhytomyr, etc. Chernivtsi has an apple growing cluster, Zhytomyr has woodworking cluster, Kyiv has CLUST UA Ukrainian Cluster Development Agency. Project on support to the development of clusters in Ukraine is already created in Kyiv-Mohyla Business-School. There are some initiatives, but 95% of them fail to survive due to the lack of critical mass of like-minded people. Unfortunately, our environment is still not conducive to incubation of similar initiatives. The state or business may serve as a driving force. We have no one else to do this.

With regard to innovative ecosystem development, it is being developed rather poorly. As a living example we may name UNIT.City,UA.RPA, Innovations Development Platform, and certain incubators, like Reactor.ua and1991. The point is it is much easier to develop ecosystem than cluster-type economy, but it is also being developed slowly in our environment.

We shall not dwell under illusions as to the assistance to Ukraine. We shall not wait for the support of the European Union or from anyone else. The state of Ukrainian economy is the consequence of our irresponsibility and failure to act. For this very reason, we are the one, who should remedy this situation.

Since 2014, many initiative groups, agencies and offices have been created. All of them are working and offering viable ideas. But, so far, we have no Main Project Office dealing with innovative projects coordination able to harmonize the work performed by them.

I strongly believe that we shall first create the Project Office and the first stage of its operation shall include one issue only – development of the best international practices and their adaptation to legislative and regulatory fields of Ukraine associated with innovations development. What is more, this Project Office shall be granted the relevant status at the level of the Cabinet of Ministers of Ukraine or the Verkhovna Rada of Ukraine.

Business is able to cope with the rest.