Services in Russia: past, present, and future

In spite of ambitious modernization plans of the government, structural change in Russia is not proceeding in the direction of highly developed economies. Part of the lag in the tertiarization process can be explained by the fact that, as during the Soviet period, the role of services in the economy is still ignored, particularly regarding innovation. This paper aims to contribute to the analysis of the evolution of services in Russia since the mid-1990s and its future prospects by compiling data from the World Bank, the International Labor Organization, Rosstat, and the World Input-Output Database. Two complementary and novel perspectives are adopted: a production system perspective and a spatial perspective. Regarding services in the Russian production system, comparison of interindustry linkages reveals that, in addition to traditional relevant activities like wholesale/retail trade and transport and communications, business services are acquiring great importance as production process inputs. Concerning the spatial perspective, we observe a greater presence of non-market services in less densely populated federal districts, while strategic service activities are highly concentrated in the most dynamic ones. Analysis of major Russian cities confirmed the trend of business services concentrating in densely populated and highly innovative cities. In brief, services, and in particular business services, can be a means to boost innovation and growth in Russia, but more attention from political leaders is necessary for these activities. The modernization process should abandon its current "high-technology industry myopia" and take into consideration the innovative, and especially, the knowledge-diffuser role, that services can exert.