No. 37




Stimuli Have to Be Changed to Change Estonia’s Development Model

04 June 2018


RiTo No. 37, 2018

  • Kadri Ukrainski

    Kadri Ukrainski

    Professor in Research and Innovation Policy, University of Tartu

  • Indrek Tammeaid

    CEO at Finsight Ltd., Entrepreneur, business angel and innovation expert

  • Kadi Timpmann

    Kadi Timpmann

    Assistant of Public Sector Economics, University of Tartu

  • Hanna Kanep

    Hanna Kanep

    Executive Secretary, Universities Estonia

  • Urmas Varblane

    Urmas Varblane

    Member of the Academy of Sciences, Professor in International Entrepreneurship, Academician, University of Tartu

The article asks what the possibilities and stimuli for moving towards knowledge economy are in Estonia today, and how to create such stimuli. Estonia can choose between market-based and coordinated market economy models, and in the case of the latter, it has to be decided whether the coordinator is the state, the social partners or large corporations. International comparison shows that coordinated systems develop more rapidly, and it seems that as a result of the market-based model, education, research and production systems all develop in their own way in Estonia.

The market-based system supports radical innovation in new sectors as individual actors experiment and respond to external changes, but in the sectors where coordinated input is needed (education, innovation policy measures, etc.), such response is hindered. The so-called traditional industries, which also form a large part of our export, require coordinated approach. Existing stimuli do not favour self-coordination of the research system towards the needs of the society at any level (e.g., researcher, university, state).

The research and development (R&D) stimuli of companies are external and mainly based on the demand of the leading partners in the global value chain, and also the changes in the external environment, labour market situation, etc. There are few internal R&D stimuli, and they are individual-centred and casual. The international mobility of labour (incl. managers) is low, and the number of enterprises dealing with R&D is also small and concentrated. Government support does not involve the condition to increase the R&D capacity. At local level, too, the current financing system of local governments does not create them stimuli to develop the business environment.

The Estonian society has not accepted the inevitability of the increasing shared prosperity model of thought and activity, the discussion of the possibilities of coordinated and liberal models of economy has not been completed. The authors are of the opinion that it is necessary to strengthen the elements of the coordinated model in the Estonian innovation system. This is necessary especially for coordinating the R&D interests of the business sector, and also for better harmonisation of the national measures. In the article, several regulating instruments (sticks), financing instruments (carrots) and instruments relating to information and communications (sermons) are proposed for changing the stimuli. The aim of such measures is to influence the actors of the research, development and innovation system (researchers, companies, universities, public sector agencies, etc.) to move towards greater knowledge intensity (as well as internationalisation).