Russian President Dmitry Medvedev has called for profound reform of the economy in his annual state of the nation address.
The Soviet model no longer worked, he said, and Russia's survival depended on rapid modernisation based on democratic institutions.
An oil and gas-based economy had to be reworked with hi-tech investments.
Inefficient state giants should be overhauled and issues of accountability and transparency addressed, he said.
"Instead of a primitive economy based on raw materials, we shall create a smart economy, producing unique knowledge, new goods and technologies, goods and technologies useful for people," Mr Medvedev said.
"Instead of an archaic society, in which leaders think and decide for everybody, we shall become a society of intelligent, free and responsible people."
Russia's industrial and technological base declined rapidly with the collapse of the USSR in 1991 and the relative recovery it has seen this century owes much to its oil and natural gas exports
A year ago, in his first such address, Mr Medvedev made a surprise announcement about deploying missiles close to Poland.
This time the focus was on transforming Russia into a more modern and open country, by introducing sweeping reforms.
More than one million Russians were at risk of losing their jobs, he said, and pressing social issues needed to be addressed.
"We can't wait any longer," Mr Medvedev said.
"We need to launch modernisation of the entire industrial base. Our nation's survival in the modern world will depend on that."
Government had to become more transparent, he said, and corruption should be punished. The giant state companies created by his predecessor, Vladimir Putin, had "no future", he said.
"Inefficient enterprises must go through bankruptcy proceedings or leave the market," he said. "We won't be protecting them forever."
Mr Medvedev promised to strengthen democratic institutions but warned that any attempts to disrupt national stability with "democratic slogans" would be stopped.
"Freedom means responsibility and I hope everyone understands that," he said.
And he promised a pragmatic foreign policy that would focus on improving Russians' living standards.
In other comments, Mr Medvedev
• Called for a "joint reliable platform" to strengthen Europe's security, saying such a body would have prevented the war with Georgia
• Described the situation in the North Caucasus as Russia's most serious internal problem and pledged to fight "terrorist crimes" there
• Suggested that the number of time zones in Russia - currently 11 - should be reduced
The Russian president gave a bleak assessment of the current situation and there was much in the speech that implied deep criticism of Mr Putin.