Russia aims to diversify its economy and reduce its dependence on natural resources. Despite laudable aims, this column argues that progress has been sluggish. Longstanding obstacles of corruption, low business-entry rates and weak competition afflict other countries that, like Russia, are in transition. Yet Russia comes pretty much bottom of the class. Crucially, the fact that economic diversification requires improvements to education and skills acquisition has been somewhat overlooked by the state. What attempts the state has made, such as supporting technology innovation, appear to have been ineffectual and, at times, counterproductive. Going forward, Russia would do well to focus on improving incentives for market-relevant research and development, complemented by private sector-led sources of finance for early-stage firms.