Stanislav Shalunov is founder and CEO of the tech company Clostra and chief investment officer at FORA Capital. In an interview with ReForum, he talks about the risks of isolation and what Russia needs to do in order to develop its high-tech sector.
Reforum: What aspects of our lives is technology changing most rapidly and most noticeably?
Shalunov: Making long-term tech predictions doesn’t really bear great results, and I’ll explain why that is. There will always be some kind of industry that becomes the locus of innovation, that is, a focal point of fast-paced innovative growth in applied sciences and technology. In theory, there can be many focal points, but oftentimes just one becomes dominant. Of course, today these focal points are changing ever more quickly. In the Age of Discovery, the focus was on navigation. For generations, people could make a life-long career as a navigator. However, what we see now is that loci of innovation appear more than once every ten years. Right now, the focus is on artificial intelligence and machine learning. Before, mobile and web apps played a huge role, and to a lesser extent, the internet.
You can’t separate the various aspects of our lives that artificial intelligence is influencing. The application of this technology is too broad. For instance, could you, in one sentence, explain how the appearance of electricity changed the lives of ordinary people?
Up until recently, innovation was essentially “locked” inside of computers and only sometimes “jumped out” of them. In other words, you could make it so that ordering groceries or calling a taxi was possible with the help of a mobile application. Whereas artificial intelligence will be used everywhere. It won’t just be used just on computer platforms, but also for automation and optimization processes. Therefore, its influence will be universally felt.
Reforum: And what might change in our work lives?
Shalunov: Artificial intelligence makes any process more effective, so white-collar work will never be the same. For journalists, it might be that there will be better quality voice-recognition programs which are capable of translating spoken language into text with a high degree of accuracy. For translators, a higher level of automated translations will be made available. There are a lot of examples that you can name. Attempts at this kind of automation already exist, of course, but without the help of artificial intelligence, these programs aren’t really effective.
Reforum: It seems to me sometimes that Russia’s high-tech sector is developing in a negative and destructive way due to significant involvement from law enforcement and criminal structures. Russia’s best specialists are hackers and the kind of people who break into bank accounts. Would you say that that’s a fair observation?
Shalunov: It’s not just you who thinks that. A lot of people abroad think that same thing. In the United States, for example, this view of Russia gained popularity in light of attempts to interfere in the U.S. presidential elections. Political spin has exaggerated these issues, but exaggerated or not, these kinds of these don’t appear out of thin air.
Reforum: How would you rate the effectiveness of Russian tech companies and the work that they do?
Shalunov: Right now, most of them are focused on the domestic market. Attempts to enter foreign markets are met with failure, and so people then complain that being a Russian company isn’t prestigious.
In reality, these companies simply aren’t competitive enough.
There are, however, individual cases of Russian companies which have managed to achieve success in foreign markets despite all that’s been going on.
Reforum: Is it possible to break that trend?
Shalunov: Yes, today Russia has the historic opportunity to compete for becoming a locus of innovation. If the country chooses to go this route, as a way to show the rest of the world what it’s capable of, then it could improve the lives of all humans. Russia has plenty of tech savvy and talented individuals for it to be competitive. While other necessary components are still lacking, it’s sufficient to say that Russia has very good programmers and a historically strong educational system. The level of education offered at the Higher School of Economics and Moscow State University, for example, remains quite high. True, it’s worth mentioning that the quality of programming education is quite bad all over the world. No one has yet to come up with a way of how to get talented kids interested in programming, and how to teach them in primary and secondary schools, which is extremely important. Among my colleagues, the best specialists are those who got interested in programming while they were still in high school. Thankfully, most people have access to a computer and resources for self-education.
In order to solve problems with primary and secondary schooling, you need a fair number of qualified programmers to be interested in teaching at schools, as well as an interest on the part of schools to adopt new educational formats, such as distant learning.
Reforum: You mentioned that Russia has enough specialists, but that there’s a lack of other components in order for the country to become a strong player in the global high-tech market. What are those other components?
Shalunov: The Silicon Valley model is based on five components: strong programmers, business people, business angels, institutional investors, and acquirers, that is, companies which purchase startups. As far as I know, having all five of these components is unique to Silicon Valley, that’s what makes it the global center of innovation. After Silicon Valley, you have New York City and Los Angeles, and in general, about eight to nine of the world’s ten largest startup centers are located in the United States. Tel Aviv and London might also make the top-ten list, but it depends on what measures you’re using. At any rate, beyond Silicon Valley, you have a situation where not all of the five components I mentioned before are present. In New York City, for example, there’s almost no culture of angel investing. Whereas in Silicon Valley, those who’ve made a name for themselves with their own businesses start to invest in other startups, knowing exactly which companies they should invest in. These investors support prospective companies until larger investors decide to invest in them as well.
Of the five components we see in Silicon Valley, Russia has only one – programmers.
There are very few businesspeople and institutional investors in Russia. The few that do exist often focus only on the domestic market. They run these strange kinds of Russia-oriented businesses instead of satisfying the general needs of consumers.
In Russia, there are absolutely no business angels, as well as the kind of culture needed to create them. It’s impossible to develop a culture of venture investing in a country where selling a company is practically impossible due to the fact that very few people are even interested in a such a thing. There are practically no tech companies that would buy startups. Of course, you have Mail.ru and Yandex, but they don’t really do much investing. Startups aren’t really valued.
It’s important to understand that in order for an ecosystem of investment to exist, it needs to be focused on the global market. Russia makes up about 2% of the global economy. Why not use in other countries technological solutions that work in Russia?
Reforum: Well, why not? What’s the problem?
Shalunov: Generally speaking, self-isolating governments – such Russia, China, and to a lesser extent, Iran – attempt to create copies of what works abroad, and then they use non-market methods to keep these copies in a competitive state.
Reforum: What methods exactly?
Shalunov: Blocking the internet, subsidies, attempts to play on the patriotic sentiments of citizens. Have you ever asked yourself why VKontakte is more popular than Facebook in Russia? I myself know a lot of people who are genuinely convinced that, for Russian-language searches, Yandex is a better search engine than Google. The popularity of clone companies is based on these biases. However, you can also encounter instances of cloning in countries which are much less closed-off, like Germany, for example. You can even see companies copy products already in demand on the global market, but which haven’t yet appeared in Germany. These companies don’t count on long-term success, but hope to make a little bit of money on sales while the real thing still hasn’t made any serious strides in the domestic market. In China and Russia, on the other hand, clones stick around for a long time, or sometimes, stay forever.
Reforum: Is it possible for the Russian government to control the internet, and in particular, messaging apps?
Shalunov: There are two sides to that struggle. On the one side, you have the desire of authoritarian governments to control the internet. On the other, you have the natural architecture of the internet which hits back against any kind of breach in its work and can he itself of such breaches. None of these sides can beat the other, and so everything depends on the details.
The internet is a system designed for the free exchange of information. From a technical viewpoint, it’s very difficult to restrict the internet. But if people are fine with internet censorship, then it’s no longer a technical question.
Reforum: You said that limited internet access in China works largely because people themselves aren’t trying to step outside of the existing boundaries. Is that kind of attitude characteristic of authoritarian regimes in general?
Shalunov: It’s difficult to say why people aren’t motivated to break the rules. It’s possible that they’re afraid to do so at first, but then they begin to think that they actually like living this way. We remember how easy it was in the Soviet Union to get a hold of shortwave radios in order to listen to Voice of America. Though, most people didn’t do that. In China today, it’s also not very difficult to get around the technical part of the government’s internet restrictions, but such a small number of people do that, just as we saw in the Soviet Union.
The Russian government is once again attempting to “tighten the screws,” reducing the number of people who have access to points of view which are not officially sanctioned. Its goal is to make these kinds of people such as small and insignificant minority that they ultimately turn into dissidents. One of the long-term consequences for Russia will be a protracted loss of its competitiveness in all fields, and technology won’t be an exception. In order to be successfully competitive, you need more integration, not less. You need to understand who the people around you are, as well as what needs they have. Yet in Russia there are very few people who understand the needs of the global market. And if the government continues to “tighten the screws,” then the country will face economic stagnation and regime change, where the only way to assert yourself is through war. That’s counterproductive for both Russia and the rest of the world.
Reforum: You created FireChat, a messenger that can work without internet access. The application had a lot of potentials, but recently FireChat was shut down. Why?
Shalunov: The company was sold, and the new owner decided to shut down the chat. But me and my team continue to work together in this field. Right now, we’re working on an updated version of NewNode, which I hope to become an improved version of the previous messenger.
Reforum: What do you think about the potential for these kinds of messengers to be used for organizing protests?
Shalunov: Media already plays an incredibly important role in our lives. Protest is part of human existence. And communication is one of our basic needs, which for some reason, isn’t found in Maslow’s hierarchy. Humans are social beings. When we need to satisfy our thirst and hunger, we don’t go to the store with a gun, but with a mobile phone.
The internet was invented to make communication easy, convenient, and affordable. Any attempt to limit access to it contradicts the very essence of why this technology exists, as well as human nature. The pandemic has shown us that the majority of our interactions today are produced in electronic form.
Reforum: Do you think there needs to be changes to legislation as a way to help high-tech develop?
Shalunov: Yes, but these changes will necessarily be different in different countries.
For example, the European Union passed its General Data Protection Regulation amidst a wave of anti-Americanism and anti-protectionism. Similar laws constrain the development of new technologies in the countries where they’re in force. As bureaucrats in the EU believe, these new laws protect the personal data of European consumers, but in fact, it’s just a failed attempt to counteract global leaders dominating the European market.
In Russia or China, isolationism and protectionism is stronger than in Europe. And it’s not just a legislative issue, but also an issue of government policy, and to some extent, cultural traditions.
Reforum: Which countries’ experience with high-tech would be worth looking to for Russia?
Shalunov: Israel would be an interesting example, as well as Sweden.
Reforum: Why these countries?
Shalunov: They became centers of innovation since they understand how foreign markets are structured. Israel undertakes a constant effort to develop its high-tech industry. The government spends a huge amount of resources on promoting startups. The country has some decent programmers, but it’s even better in terms of business. There’s a lot of people there who are ready to work in this field. Startups within the country are completely focused on foreign markets. The Israeli market is puny, which makes it impossible to live off of it just alone. Israel has the most advanced culture of angel investing. You see a similar situation in Sweden.
Reforum: How could Russia start moving towards the Israeli model?
Shalunov: Becoming a leader in tech is very difficult. However, that doesn’t mean that being competitive in this field is impossible, or that in Russia it’s impossible to create regional centers that could compete with Silicon Valley. It is possible, especially if Russia manages to devote enough energy and resources to a specific tech trend.
Reforum: What can the Russian government do to make that happen?
Shalunov: Russia’s economic and political climate today is so deleterious to technological development that we shouldn’t be asking “what needs to be done?” Instead, we should ask: “what does the government need to immediately stop doing?”
The answer? The government needs to stop pursuing a policy of self-isolation and move instead towards integrating itself into the global economy.
Instead of wasting energy on trying to belittle other countries, use that same energy to build a competitive tech industry. That’s what Japan did when it first entered a competitive automotive industry. Technological and economic competition with the United States not only helped Japan strengthen its sense of national dignity but also improved the quality of cars throughout the world. In the end, everyone went home a winner.