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A magic wand for the budget. Will the Russian government adopt the experience of the USA, Israel and Japan?

By Anatoly Klepov

A few weeks ago the Russian President Vladimir Putin held a meeting on budget planning for 2016. According to the official report published in the media, “key issues of forming the federal budget and extra-budgetary funds” were discussed at the meeting. In other words, the heads of state and captains of economy decided what amount of money was necessary for national development and well-being, defense, culture, education, social projects and where the funds would be taken from. All those present at meeting were given the primary objective “to ensure the balance and sustainability of national finances, significantly reducing the dependence of the federal budget on oil prices.” Besides, the President instructed the government to ensure stable budgetary system and “take the efficiency of budget spending under special control”. Besides, he ordered “to pay attention at strengthening the export potential of Russia and examine the option of recapitalizing export support institutions.”

Of course, if the ministers fulfill their tasks, it will be possible to earn tens and even hundreds of billions in foreign currency for the national budget without a backward glance at the raw materials market, using competitive trends of the domestic industry and production in the international market, which haven’t been given appropriate attention until now.

Is it possible to accomplish the set task? How and where can new markets for Russian products be found to substitute commodity companies which give less revenue to the national budget? Of course, experts may utter indistinctly that it all depends on the situation in the market areas where we intend to earn big profits. They may also refer to diamond and metal markets, products of military industrial complex and agriculture. Stretching a point, aerospace and aircraft products will also be included in the list. Mechanic engineering, car and electronic industry will have even less chances to bring more currency for the budget. Russia has never been an international leader in these economic sectors and doesn’t have an appropriate scientific, technical and industrial base to conquer the international market. It takes years and years - and billions of governmental grants and capital infusions - to establish stable sales of millions of cars and computers in the international market, thus a prompt result can’t be expected soon. How will the government fulfill the President’s order and find new international markets for Russian products? Is there any chance for the economy to start the production and a lot of money for the budget, taking into account that it is lodged by the Western sanctions, WTO limitations and current production possibilities?

Strange as it may seem, there’s a “magic wand” for the Russian budget. It has been existing for several decades, but due to some reason it has been safely hidden from the eyes and attention of the government all the time. Who has hidden it and why? That’s a separate issue. After the collapse of the Soviet Union cryptography, one of the most competitive areas of Russian science and industry in the world market, and, accordingly, encryption hardware and software products that ensured information security, were almost forgotten in this country. I am stating the fact with full responsibility because I was one of those people who headed a project in 1990 aimed to strengthen information security of the country and win the leadership in the arising international market of encryption products.

A company was founded for that purpose and it received a state order to quickly develop and launch mass production (several hundred thousand units) of a small compact and –above all– cheap encryption device that would be suitable to reequip the army, the Ministry of Interior and the Ministry of Foreign Affairs of the Russian Federation, as well as the defense industry and replace hand-coding documents. The encryption devices were designed to secure information flows of national importance, and their import version could be promoted in the international information security market. In fact, we were assigned a task to make a revolution in domestic and international cryptography and start the production of new generation super reliable encoders as soon as possible.

Well, to make a long story short, we coped with the task with honor and designed perfect samples of cryptographic equipment that were far ahead of time. Years later they received unique international certificates confirming their advantage to the relevant foreign analogues but only Russian cryptographic products received the acknowledgement of the kind. Our unique encryption algorithms were tested abroad for a long time, at the Royal Institute of Technology of Sweden, in particular (it conducts scientific and technical examination of the achievements of scientists nominated for the Nobel Prize).

For several years an expert group headed by one of the leading cryptographers Dr. Husted made a complex and costly analysis using supercomputers (which cost Sweden tens of millions of dollars). It acknowledged that it saw “no possible way to break the system using a feasible time of computation, say less than the age of the Universe, on a modern high-speed computer”!

Public organizations of South Africa conducted an examination of the same complexity and confirmed the highest resistance level of Russian algorithms.

The unique achievements in cryptography were the “key” to open international markets and promote our products at the highest level in 64 countries. We had the will power to revive and breathe new life into the developments in Soviet rocket, aircraft and tank construction buried together with Soviet cryptography, but the project of conquering the international information security market planned was not destined to rise during the decay of the Soviet Union. It is all the more strange that despite the prolonged pause Russia is so far a world leader in cryptography. This is not only my point of view. David Kahn, one of the leading American cryptographers, the US Congress consultant on cryptography issues, admits that Russians raised their country's achievements in cryptology to the cruising altitude of their satellites.

But, as things stand, such a situation won’t last long. China, Israel and Japan are Russia’s new rivals in the international information security market along with the United States, Switzerland, Germany and England. And India, Pakistan, Brazil, and even Malaysia, Qatar and Singapore are hard on their heels...

Speaking about the “international information security market” I don’t mean secret projects for government organizations. They exist in all countries and their commercial value is not worth speaking about. They have other goals, first of all, security of information and state secrets. Of course, no state will sell secret cryptographic developments in the international market but private companies’ products may be sold if they are not manufactured according to state orders. For example, Gartner, a leading research agency in the field of IT-technologies, says mobile security market alone will reach 93 billion dollars in the next 2-3 years. It is due to the fact that 80% Internet connections will be conducted via mobile phones in 2016. The number of smart phones around the world will reach 20 billion by 2020. Today 99 percent of these devices are protected with security software and experts in the field of information security, including the president of Google, think it can be easily hacked.

Only the USA, Russia’s sole competitor, can provide effective hardware security for mobile phones. But Snowden’s revelations shattered Americans’ confidence in it and, according to Gartner; the United States lost a huge market worth billions of dollars. It’s unlikely they’ll manage to recover their losses in the next few years. There’s a unique situation in the world now and Russia can be a leader in the international mobile communication cyber security market.

Besides there are computers, networks, regular telephone communication and e-commerce market available over mobile phones and mobile banks and we still don’t have any competitors in these areas.

Russia can enter this huge market providing hardware security for mobile phones, or rather return to it while it hasn’t yet been occupied by foreign competitors. If someone doesn’t trust my estimations of the information security market prospects or the estimates of Gartner, one of the most prestigious marketing companies in the world these people should consider the opinion of the leaders of technologically advanced states. The US President Barack Obama has repeatedly stated during his presidency that information security was his country's number one issue in the XXI century.

Here’s another example. On June 15, 2015 the Israeli Prime Minister Benjamin Netanyahu met with the Japanese Deputy Minister of Foreign Affairs Yasuhide Nakayama in Jerusalem. They discussed the programs of mutually beneficial cooperation between the two countries and the Prime Minister of Israel said that there were many amazing opportunities for bilateral cooperation in many fields, but if he had to choose only one it would be cyber security. The Israeli Prime Minister suggested cooperation in ​​cyber security area to the country with GDP worth 4.8 trillion US dollars in 2014 because all developed countries lacking high-energy natural resources realize that only high technology trade can bring revenues to their budgets similar to oil or gas export. For example, Israel, a small country located on a territory equal to half the territory of the Moscow region is planning to increase its annual export to Japan by 1.1 billion dollars (export growth will be increased by 50 per cent as compared with the current figures) by 2020 through cooperation in the field of information security on the level of small and medium-sized enterprises. By the way, ambitious national programs targeting superiority in the international information security market were adopted in Japan and Israel a few years ago. For this purpose considerable amounts have been appropriated into the budgets of these countries for several years covering new product development cost of small and medium-sized businesses working in this field. This doesn’t include funding the programs aimed at ensuring information security of state structures.

What about Russia?

We’ve always been the first power in cryptography and participation of non-state companies in the largest international exhibitions of communication technologies and information security (2012-2015) - CeBIT (Hannover), GITEX (Dubai), DSA – (Malaysia), Sicurezza 2014 (Milan) and IFSEC (India) demonstrates the competitive advantages of our developments. However, this industry sector has been deprived of financial support from the government for many years and may soon leave its leading position and remain the last in the line of foreign companies receiving state aid and intending to conquer the expanding international cyber security market. Here’s an interesting fact concerning the profitability and investment attractiveness of the cryptography market. The use of super know-how in high quality intelligence products gives super profits, for example, the production of crypto smartphones brings in nearly 2,000 percent of profit!

Look at the list of the most expensive companies around the world and you will see that IT-technology giants - Apple, Google, Microsoft and Facebook – but not oil and gas companies - have firmly occupied the first places. But other figures seem to be even more surprising against this background. In fact, encryption technology export from Russia today is on the zero level!

Our officials talk a lot about the economy but can’t find the right direction for the development of Russian industry. It’s logical that we’ve been losing our traditional advantages over the years. But those who are curious about the investment attractiveness of the cryptography market should consider the trends of the international information security market.

Financial and other personal information worth hundreds of billions of dollars is stolen from mobile phones of ordinary users. No doubt, the situation can’ remain unchanged since numerous e-crimes threaten not only mobile subscribers around the world, but also the national security of entire countries!

New standards will ensure information security and global redistribution is in store for the existing mobile communication market in the near future. It’s way possible that Russia will be unwelcome in this market and will fail to earn tens of billions of dollars. Unfortunately, it can repeat the situation when our government was forced to import modern drones worth hundreds of millions of dollars. Engineers and designers from the former Soviet Union were most actively involved in the drone development abroad but no one needed their knowledge and skills at home because the state was engaged in political showdowns and ceased funding domestic programs of the kind.

 

P.S.

Cryptography has always been considered to be the most sensitive subjects in Russia and in the USSR. Information about it was published very rarely. Even marshals and generals who recollected the results of the wars in their memories have never mentioned that secret communication systems had influenced the outcome of battles.

The situation in the West is different and the importance of cryptography has always been emphasized there. British Prime Minister Winston Churchill believed that “Ultra” - a project to decrypt the German cipher machine “Enigma” - was the most important and most secret source of information and declared: “It was thanks to Ultra that we won the war.”

The Supreme Commander of Allied forces in Europe, General Dwight D. Eisenhower shared the opinion and called the “Ultra” operation “the decisive factor of allies’ victory”. Mao Zedong emphasized the importance of cryptography and believed that the Chinese People's Liberation Army could defeat Kuomintang forces only with the help of cryptography.

Have we ever read anything like this in the memoirs of our generals? Of course, not. Artillery, tanks, aircraft and missiles are our gods of war. Obviously the same strategic position remains today. Our high-ranking officials and even ministers say it’s important to develop domestic technology, but apparently none of them knows a forbidden word “cryptography”. Information security subject is still not reflected in their speeches.

Barack Obama recognizes cyber security to be problem number one for his state. Netanyahu considers cyber security to be the prime task. Japan and the leading technological powers are of the same opinion. It seems only writers in this country are aware of the importance of the problem. A book on cryptography and signals intelligence has recently received a prestigious literary award “Golden Pen of Russia”.

© 2011 All rights reserved. Klepov A.V.
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