No. 5




Economic Development, Innovation and the Technological-economic Paradigm – a Challenge to Central and Eastern European States

14 June 2002


RiTo No. 5, 2002

  • Tarmo Kalvet

    Senior Researcher of the Institute of Public Administration, Tallinn University of Technology

  • Rainer Kattel

    Director, Institute of Public Administration, Tallinn University of Technology

Central and Eastern European states have gone through dramatic times over the last decade. The reform of the economic environment from a centralised command economy to a free market-centred one has produced winners as well as losers.

Most of these states are in the process of trying to reduce the number of losers or at least alleviate social problems. Still, a more difficult challenge may lie ahead, one which has received almost no attention. This is a phenomenon that Joseph A. Schumpeter has termed creative destruction. It is a process of change that is characteristic of capitalist countries: progress, economic innovation and changes in the technological-economic paradigm are always accompanied by the disappearance of old economic sectors and their social frameworks, and their replacement by new ones – the economic sectors central to the new paradigm. This process most affects the economic life, and especially the future, of Central and Eastern European states.

Besides more theoretical discussion, the article examines Estonia’s development in the context of the current technological-economic paradigm, with an emphasis on innovation in Estonia’s IT sector. Estonia’s rapid economic growth is examined through the convergence model, proceeding from the notion that lack of an active industry policy will result in action that has little additional value for industrial sectors. In looking at Estonia’s IT sector, it is noted that Scandinavian contractor firms play a big role in shaping the sector. The dearth of workers, low level of R&D activity of workforce and the lack of cooperation between academic circles and the private sector all put a limit on innovative products.

Full article in Estonian