Eastern Europeans aren’t known for being innovative, but in some ways the stereotype is unfair. Hungarians, for example, invented the ballpoint pen and holography. A Hungarian, John George Kemeny, co-invented the BASIC programming language with American Thomas Kurtz. Hungarians also invented artificial blood and the Rubik’s Cube. Four Estonians designed Skype. Nikola Tesla, a Serb, patented the rotating magnetic field, which led to the use of alternating current (AC). Russians were the first in space, made the biggest nuclear bomb, designed Tetris, and created the iPhone of assault rifles (the AK-47).
Considering you need respect for intellectual property and minimal corruption for innovations to proliferate, it’s remarkable that Eastern Europeans have been able to innovate. After all, the region has had a long history of heavy-handed governments and a weak rule of law — a history that persists to this day. Eastern Europe still struggles with widespread corruption.
According to Gallup’s Corruption Index and Transparency International’s Corruption Perception Index, Eastern Europe is significantly more corrupt than Western Europe (although Italy is more corrupt than several Eastern European countries). The indexes conclude that Russia, Ukraine, and Belarus are especially corrupt.
With a weak rule of law to protect patents, inventors take their creativity elsewhere. According to the Levada Center May 2011 poll, 22 percent of Russians said they would like to live abroad. Most of those are young, educated Russians—exactly the people Russia needs to keep. Another Levada Center poll indicated that most Russians didn’t know how to operate a computer four years ago — a higher percentage knew how to sew or how to fix a leaking faucet.
The brain drain and poor intellectual property protection creates a vicious cycle in which companies are unwilling to spend much on R&D. According to the Organization for Economic Cooperation and Development (OECD), in 2008, the percentage of GDP spent on R&D was as follows: Japan 3.39 percent, the United States 2.62 percent, China 1.43 percent, and Russia 1.08 percent.
To change that, Russia is investing billions in the Skolkovo Innovation Center Project, nicknamed Inograd (Innovation City). The groundbreaking is scheduled for May 2012. Entrepreneurs will focus on physics, medicine, energy, and IT. Microsoft, Ericsson, Google, Cisco, Intel, Dow Chemical, and MIT are investing in what many expect to become Russia’s Silicon Valley.
Nevertheless, innovation is only half the battle. Eastern Europe’s biggest challenge is getting innovations adopted and diffused throughout their region and beyond. In the short term, Eastern Europe’s most important innovations won’t necessarily be nanotechnology products, sexy gadgets, or social media platform rivals. Instead, they may be more mundane innovations, like cutting out waste through clever management practices. That will ignite productivity, thereby accelerating Eastern Europe’s creative power.
Throughout history, the strongest nations usually had the best technology. Eastern European minds have built some of America’s best technology. Intel’s co-founder was Hungarian and its first investor was a Russian immigrant’s son. Google’s co-founder, Sergey Brin, was born in Russia. A Bulgarian invented the digital wristwatch. Several Nobel Laureates in the sciences are of Eastern European descent.
Now Eastern Europeans who stay in their home countries are reaping rewards. In 2011, the financial markets rewarded two Russian Internet giants: Mail.ru Group and Yandex. Both had IPOs that raised over $1 billion. Russian-led Parallels, a virtualization and automation software company, is preparing for its own IPO.
Japan had a reputation of taking American innovation and improving on it. Now, Integral, an American company, is taking Eastern European innovation and building on it. Co-founder Viral Tolat leverages Ukrainian-built software as part of Integral’s foreign exchange trading platform.
"Ukrainians are very smart, creative, and they have strong software programming skills,” he told me over the phone. He estimated that India is now 20-50 percent more expensive than Ukraine.
Tolat admits that Ukrainians “are still very distrustful of the West.” For example, they wouldn’t accept several standard legal clauses. He believes it’s a “legacy of being behind the Iron Curtain. They don’t trust authorities.” Nevertheless, Integral, along with other investors, are profiting from Eastern European innovations.
Every time I visited Estonia, I saw the future. Estonians, for example, have had the option to vote for political candidates over the Internet for years. My Estonian friends would pay me by sending money between our mobile phones. They often pay for parking with a text message. Estonia, from a technological perspective, would feel like Tomorrowland for most Americans. The flow of innovation is no longer a one-way street — it’s now more bidirectional than ever.
I wrote this article for The Washington Post. Its title was "Eastern Europe: Innovation's hidden hub."