Medvedev says Russia must modernize to survive

Russia needs to shed its dependence on exports of raw materials and to build a new high-tech economy to survive, President Dmitry Medvedev said in his annual state-of-the-nation address Thursday.

In a challenge to his predecessor and mentor, Vladimir Putin, Mr. Medvedev also called for reducing state involvement in the economy and promised to offer support to civil society.

Mr. Medvedev said the country has continued to rely on an aging Soviet industrial base and to draw most of its revenues from exports of energy resources.

"The nation's prestige and welfare can't depend forever on the achievements of the past," he said.

Mr. Medvedev said in the Kremlin speech that Russia's oil, gas and other production facilities as well as its nuclear arsenals were built during Soviet times. "All that has kept the country afloat, but it is rapidly aging," he added.

Mr. Medvedev said that years of burgeoning energy prices have stymied efforts to modernize the economy and created an illusion that structural reforms could wait.

"We can't wait any longer," he said. "We need to launch modernization and renovation of the entire industrial base. Our nation's survival in the modern world will depend on that."

He said that Russia needs to focus on innovative know-how, including research on new nuclear reactors and space technologies, and even think about preparing for space flights to other planets.

Mr. Medvedev said that the economic downturn hit Russia more severely than other countries but refused to shift the blame onto the U.S. as Mr. Putin, now Russia's powerful prime minister, did.

"We shouldn't be looking for the guilty party abroad," Mr. Medvedev said. "We haven't done enough."

Russia has spent more than 1 trillion rubles ($34.8-billion U.s.) to help out a dozen industrial companies since the economic crisis broke out last year.

Mr. Medvedev stressed that the government should be helping out only those companies that are ready to provide plans for increasing their efficiency.

"Inefficient enterprises must go through the bankruptcy proceedings or leave the market," he said. "We won't be protecting them forever."

Mr. Putin's cabinet has poured 33 billion rubles in emergency loans into AvtoVAZ, the producer of the iconic Lada cars, which has been unprofitable for years and highly criticized for its outdated technology and management.

Unlike Mr. Putin, who methodically increased the state role in the economy during his eight-year presidency, Mr. Medvedev said Thursday that Russia needs to reduce the share of the state, which now controls up to 40 per cent of the economy.

He specifically lashed out at a key part of Mr. Putin's legacy - giant state corporations that have been granted broad privileges and widely criticized for inefficiency. "I believe this form has no future in the long term," Mr. Medvedev said.

He said that some of the state corporations should be given deadlines to complete their tasks and cease operations, while others should be turned into stock companies and eventually be sold into private hands.

Mr. Medvedev also urged an independent audit of state corporations and said pay for senior management should be pegged to their companies' efficiency.

He also called for "open competition" of ideas and promised support for non-government organizations, but avoided criticism of the controlled political system forged by Mr. Putin.