DEVELOPMENT

4The Economy
Estonian Human Development Report 2012/2013
Introduction
In the approach to the economy in this report, we try to
focus on the future and, if possible, to differentiate the
developmental level that has been achieved by the economy,
from the means and factors for increasing it in the
future, and to find the appropriate indicators for dealing
with this particular assignment. According to the concept
of competitiveness, a country’s economic well-being
(wealth, earning capacity) depends on the input (effectiveness)
of private companies and the government. If
the economy is primarily related to companies by the
ability to sell, i.e. the ability to compete, internationally,
in both domestic and foreign markets for goods and
services, then the primary role of the government is to
shape the framework, or the economic environment,
in which business takes place, so as to make the given
state attractive to economic agents. The first sub-chapter
is devoted to this latter topic. The components of an
economic environment are the institutions that form a
social stimulation system (North 1990) on the one hand,
and the infrastructure as the physical basis for economic
activity, on the other hand. Of course, in the first case,
along with the formal rules of the game established
by the state, the informal institutions (social norms,
values), which develop on an evolutionary basis, are also
extremely important. Both economic efficiency, as well as
the attractiveness of the state in the international rivalry
of competing systems, depends on them. In the second
sub-chapter, an examination is made of the possibilities
for measuring the role and potential of various development
factors with the help of the macroeconomic model
of the state’s wealth. In this process, it considered
that, in its broader meaning, wealth is a complicated
phenomenon comprised of several components, and its
development involves both natural and intangible factors
in addition to the produced and human capital involved.
The third sub-chapter focuses separately on one essential
component of the economic environment – the labour
market. The reason is both its direct connection to
human capital as the most important production factor,
as well as the contradictory nature of the assessment
given to the situation in Estonia’s labour market. The
second important basis for economic success, along with
the general economic environment, is the position of the
state’s enterprises in global value chains and networks,
the criterion of which is sophistication (in the sense of
complexity, and refinement) – thus, in this essay, we
speak about the sophistication of business. The organisational
structure of the economy can be viewed as one,
self-created component of the institutional framework of
economic agents, which is defined as an arrangement, in
order to differentiate it from the so-called external environment.
On the other hand, the main direct criteria for
the static and dynamic efficiency of enterprise are productivity
and innovation, and the last two sub-chapters
are devoted to them. Of course, a state’s attractiveness
and business capability is not something insular. These
are elements of one and the same socio-economic system,
which are closely related and can be developed only if we
take into consideration the specific historical, social and
cultural context involved.
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