DEVELOPMENT

vide a valuable connection for making assessments of the
state’s institutional quality as a developmental factor. At
the same time, the endogenous nature, or dependence on
economic development, of the institutional development
cannot be denied. This makes the identification and
exploration of causal connections extremely complicated.
4.1.1
Competitiveness
In the case of competitiveness, the two levels of competition,
or “competitive classes”, must be differentiated.
At the micro level, entrepreneurs compete, primarily, as
providers in the sales markets. At the macro level, on the
other hand, governments, at both the national and local
levels, compete for mobile production factors. In the latter
rivalry, the role of the instruments is primarily filled
by public (formal) institutions and the infrastructure. If
the focus is on institutions, the term institutional system-competition
among jurisdictions (or a part therefore)
is preferred; however, if the focus is on infrastructure,
(geographical) locational competition is referred to. 6
Unfortunately, infrastructure is the factor that is strongly
endogenous, being directly dependent on economic development
and the financing opportunities based thereon.
Essentially, this duality of competitive subjects is
also reflected in the leading empirical studies of competitiveness.
For instance, the World Competitiveness
Yearbook (WCY), which has been regularly published by
the International Institute for Management Development
since 1989, divides competitiveness into four fields of
activity, each of which has five basic components:
• economic results: domestic economy, foreign economy,
foreign investments, employment, prices;
• effectiveness of governance: state finance, fiscal policy,
public institutions, business law, social network;
• business efficiency: productivity, labour market,
finance, management practices, attitudes and values;
• infrastructure: physical, technological and scientific
infrastructure, healthcare, education.
The latter are made measurable with the help of various
individual indicators (a total of 329) for 59 states and
the composite evaluation is given on a scale of 100. The
maximum 100 points were achieved in 2012 by Hong
Kong, which narrowly outpaced the U.S. Of the European
states, Switzerland (3) and Sweden (5) achieved the best
positions. Although, at the individual indicator level there
could be some scepticism, in principle, that the economic
results characterise the ability to earn, the effectiveness of
governance and infrastructure, the government’s ability to
compete at the macro level (the attractiveness of the state)
and business efficiency, the situation at the micro level in
company competition (ability to sell).
Before the crisis, Estonia’s competitiveness was
rated, by the IMD, to be in 22nd place in the world (IMD
Figure 4.1.1
Components of Estonia’s governance effectiveness and
business efficiency 2012 (ranking: the larger it is, the
worse it is)
Management
practices
Financing
Source: IMD
Attitudes and
values
Labour
market
State finance
2007). By 2009, Estonia had fallen to 35th place, but in
the last few years has climbed four places, and, in 2012,
achieved 66.9% of the maximum level (IMD 2012). This is
a better position than was achieved in the Human Development
Index. An even larger difference exists in the
position for the income level. Of the institutional factors,
the ones on the plus side are effectiveness of governance,
especially public finance and business law (Figure 4.1.1),
which has positioned Estonia, during the last few years,
between 20th and 24th place. On the other hand, the
economic results, during the crisis, have sporadically even
dropped us into the 60s.
The second well-known measure of competitiveness
originates from the World Economic Forum (WEF),
which publishes the annual Global Competitiveness
Report (GCR). Starting in 2006, the Global Competitiveness
Index (GCI), compiled by Xavier Sala-i-Martin,
has been included in the report, which differentiates the
development factors based on three levels of development:
the resource-, efficiency- and innovation-based stages.
At each stage of development, separate development
factors are differentiated: four at the first stage; six at the
second; and two at the third. In the general indicator,
greater weight is given to those factors, for each state, that
correspond to the developmental stage of the given state.
Of course, the developmental stage itself is determined
in quite a primitive way – based on the achieved income
level. Based thereon, Estonia is positioned between the
second and third stages of development. All 144 states
are studied. The leading states are shown in the Annex.
Based on the Global Competitiveness Index (GCI),
Estonia has the greatest potential of the transition states.
Before the crisis, Estonia’s position held steady at 25 to
27; after the crises, we have had to reconcile ourselves to
positions 33 to 34.
60
40
20
Productivity and
efficiency
Fiscal policy
Social
network
Institutional
network
Business
law
6 Specifically in the Estonian context, see Wrobel (2000).
Estonian Human Development Report 2012/2013
151