Russian President Dmitry Medvedev delivers his annual state-of-the-nation address in the Kremlin on Thursday. (Associated Press/RIA-Novosti, Mikhail Klimentyev, Presidential Press Service)Russian President Dmitry Medvedev said Thursday his country needs to modernize its economy and move away from the Soviet legacies of state-run businesses and dependence on the export of raw materials.

Medvedev outlined his vision for a new high-tech economy in his annual state of the union address, a wide-ranging speech in which he touched on corruption, military spending, European security and even a plan to reduce the number of time zones across the expansive country.

In calling for a reduction of the role of the state in the economy, Medvedev distanced himself from his predecessor, Vladimir Putin, who had consolidated many industries under state control during his eight years as president.

"The nation's prestige and welfare can't depend forever on the achievements of the past," said Medvedev.

As much as 40 per cent of the Russian economy consists of state-run businesses, and Putin's cabinet has given more than $1 billion in emergency loans to AvtoVAZ, the producer of Lada cars, which has been unprofitable for years and a target of criticism for its outdated technology and management.

"I believe this form has no future in the long term," Medvedev said.

Soviet-era industries aging

Medvedev said Russia's oil, gas and production facilities and nuclear arsenals are rapidly aging remnants of the Soviet era and can't be relied on in the future.

"We can't wait any longer," he said. "We need to launch modernization and renovation of the entire industrial base. Our nation's survival in the modern world will depend on that."

Medvedev stressed the importance of focusing on innovation, particularly in areas where Russia has already done work, such as in research with nuclear reactors and space technologies.

Russia's economy has been hard hit by the global economic downturn that began last year, and the government has spent $36.5 billion Cdn to bail out a dozen industrial companies.

Medvedev said the overall effort to renew the economy would be "our first experience in modernization based on values and institutions of democracy."

Medvedev says his country's economy must move away from the state-controlled business model, which he says has 'no future.' (Ivan Sekretarev/Associated Press)

Medvedev warns against destabilizing state

But he warned that embracing democracy does not mean tearing down the state altogether.

"Any attempts to rock the situation with democratic slogans, to destabilize the state and split society will be stopped,"

Medvedev said "the law is for one and for all — for ruling parties and opposition ones.… Freedom means responsibility and I hope everyone understands that."

Medvedev said he would battle international terrorism in the North Caucasus region, where long-simmering tensions between Russia and neighbouring Georgia led to a brief war last year.

But he admitted corruption remained a problem in the region, which includes Chechnya, North Ossetia and Dagestan, where he said state funds were being almost openly stolen.

Plan to reduce time zones

Medvedev also proposed cutting the number of Russia's time zones from the current 11 — the most of any country in the world — in an effort to improve efficiency across the country.

Medvedev said any move to reduce the number of time zones would have to be assessed before enacting a change. Vladivostok Economics University rector Gennady Lazarev told the RIA Novosti news agency it would likely mean reducing Russia to just four time zones: One for each of the regions encompassing Kaliningrad, Moscow and the Ural Mountains, respectively and a fourth for the vast reaches of Siberia and the Far East.

Lazarev suggested a time switch could be implemented gradually by jumping forward to daylight savings time in some areas every year, then not setting the clocks back in the fall.

Critics fear the plan will be unpopular in regions far from Moscow, however.

"I can't fathom it," said Lilia Shevtsova, a political analyst at the Carnegie Moscow Center. "It is potentially life-changing for some people, for the sake of convenience in Moscow."

With files from The Associated Press