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foreign countries are also included as part of this capital. This figure is also influenced by that fact that Singapore is a city-state, which lacks natural resources. The breakdown of capital in Estonia was relatively similar to the other states, and intangible capital predominated, reaching 75.9%. The capital structure in Estonia was similar to the wealthy states, but the volume of capital was lower. 10 Various capital forms the basis for future income. To a considerable degree, the capital structure, as a whole, is shaped by the structure of the economy, although, at the same time, the use of various types of assets is affected by the demand for the products that are produced with the help of these assets. For instance, a precondition for the existence of forest resources is the production of timber products, but the sales volumes of timber products is influenced by the demand for them, which in turn, is dependent on people’s incomes, as well as the existence and cost of replacement goods made of other materials used for the same purpose. Therefore, in this approach, the presumed volume of timber products impacts the value of the forest resources. 4.2.2 Growth potential The concept of genuine savings is very important for assessing the possible impact of the changes, which have taken place in the production potential of the various states during some time period, on future GDP production and the standard of living. By using this concept, an attempt is made to combine the changes that have occurred in capital with the changes in other types of assets. Some are positive, for example, the education level increases as a result of the expenditures made in education. Others are primarily negative, such as the depletion of sub-soil assets. However, finding and exploiting new sub-soil assets increases natural capital. The various components of genuine savings are computed as follows: • total savings is the available national income, minus public and private consumption, plus international transfers (transfers to foreign countries increase total savings, and transfers from foreign countries reduce total savings); • net savings is total savings minus depreciation; • net savings plus current education expenditures, mi - nus investments into structures and equipment, equals net savings plus investments in human capital; • net saving plus investments in human capital, minus the depletion of natural capital, minus damage to the environment from pollution, equals genuine savings. In the case of natural capital, if the size of the capital remains the same, its depletion results in negative savings. The assessment of the value of natural capital is based on the volume of sub-soil assets that are extracted, the Table 4.2.3 Total and net savings as a percentage of national income in 2008 (%) State Gross national savings Consumption of fixed capital Net national savings Education expenditures Savings related to produced capital and human capital Austria 27.2 14.3 12.9 5.3 18.2 Estonia 20.1 13.5 6.6 4.6 11.2 Netherlands 10.3 13.9 -3.6 4.8 1.2 Ireland 19.7 17.1 2.5 5.2 7.7 Israel 19.8 13.5 6.3 5.9 12.2 Canada 23.4 14.0 9.4 4.8 14.2 South Korea 30.5 12.6 17.9 3.9 21.8 Lithuania 15.2 12.7 2.5 4.6 7.1 Latvia 22.3 12.6 9.6 5.6 15.2 Singapore 47.0 14.1 32.9 2.7 35.6 Slovenia 27.0 13.6 13.4 5.3 18.7 Finland 24.8 14.1 10.7 5.6 16.3 Denmark 23.6 14.2 9.4 7.4 16.8 Czech Republic 24.2 13.8 10.4 4.4 14.8 Chile 24.2 12.9 11.4 3.6 15.0 Hungary 15.9 15.1 0.8 5.3 6.1 Uruguay 18.2 11.9 6.3 2.6 8.9 Source: The Changing Wealth of Nations. Measuring Sustainable Development in the New Millennium 2011, 186–195 global market price and resource rent rate. The theory recommends that the marginal cost be used to calculate the resource rent, but since data on the former is not generally available, the average cost indicator is used. The same approach is used for primary energy sources like petroleum, coal and natural gas. In the case of forests, the net saving is positive, if the natural growth exceeds the harvest, and in the opposite case, if the harvest is greater than the natural growth, the net saving is negative. In the latter case, the negative net saving is equal to the difference between the harvest and natural growth, multiplied by the price of roundwood and the resource rent product. Carbon emissions are treated as negative savings. The determination of their extent is based on carbon dioxide emissions, the percentage of carbon in the carbon dioxide, and a price of $20 per ton of carbon. The problem with assessing the damage caused by carbon emissions is that the cost of the permanent social damage that is caused may be significantly higher than the market or estimated price of carbon. In the case of hazardous substances, the theory recommends that the assessment be based on the willingness to pay for the prevention of death and serious health damage. The practical calculations are based on the number of estimated years of life that are lost, and the value of the years, based on average wages. 10 In the World Bank report, complete data on the various types of capital in Estonia existed for 2000. In 2005, several important indicators were missing, and to ensure comparability with other states in the study, many of the indicators for Estonia were derived from price and volume indices. 162 Estonian Human Development Report 2012/2013
Basing the total and net savings related to produced capital on the gross national income, means that only the domestic savings have been taken into account, and the foreign savings have been left out. In Estonia, for example, during the period of rapid economic growth from 2001 to 2008, the total capital investment in fixed assets was about 30% of GDP, two-thirds of which was covered by domestic savings and one-third by foreign savings. The latter was utilised through foreign investments. Only the investments that were based on domestic savings were taken into account as increasing the state’s capital reserve. This approach promotes the following train of thought -- the capital of the population in the given state is only increased by the investments that are made from local savings (i.e. the proprietary income goes to the citizens of the state to whom the investments money belongs). The foreign investments based on foreign savings earn proprietary income for the foreigners. Only the portion of the capital reserve based on domestic savings, which exceeded depreciation, was increased by the investments. In addition to the savings that were realised as produced capital, education expenditures also increased genuine savings. The net savings related to natural capital are based on the depletion of natural capital and the emissions of various dangerous substances, and are negative in all the states under observation. Based on the relationship stipulated in the introduction, according to which, the value of capital is equal to the income flow that it creates in the future, and present net savings are equal to the future changes in well-being, it can be concluded that, in order preserve well-being at the same level at least, the negative net savings related to pollution and the depletion of sub-soil resources should be covered by the positive net savings from produced and human capital. When assessing the 2008 indicators for the genuine saving of various states, the basic reference points should be taken into consideration. Generally, the net investments (capital gains) in rich countries are smaller, since most of their production is capital-intensive, and a large portion of the investments are used to replace existing capital (Table 4.2.3). In the set of reference states, a state like this is the Netherlands, where the savings related to produced and human capital are only 1.2% of the operating net national income, and adding the negative savings related to natural capital also results in negative genuine savings (Figure 4.2.2). Ireland, Hungary, Uruguay and Lithuania also have relatively low savings rates (less than 10%) related to produced and human capital. The corresponding indicator in Estonia was 11.2%, and this puts Estonia sixth from the bottom, in this group of states. Singapore and South Korea, which represent the Asian market economy model in the set of states, stood out for their high savings rates. In regard to natural capital, the states where the mining of minerals was important, primarily Chile and Canada, stood out for their large negative savings rate (Table 4.2.4). In this group of states, Estonia was ranked fifth, based on the size of the negative savings related to natural capital, and was the state where the largest contribution to this indicator was made by carbon emissions. Table 4.2.4 Percentage of national income related to natural capital in 2008 (%) State Energy depletion Mineral depletion Source: The Changing Wealth of Nations. Measuring Sustainable Development in the New Millennium 2011. 186–195. Singapore and South Korea are differentiated by their high genuine savings rate (over 20%). Another group is comprised of the states in which the corresponding indicator is between 10% and 20%, and this includes seven out of the 17 states in the set. Estonia is among the next six states, which have indicators that are under 10%, but are still positive. Negative genuine savings rates can be found in the Netherlands (primarily due to the great need for replacement capital) and Chile (due to the great impact of the mining of mineral resources on the economy). Examining some of the savings indicators based on partially available data (Figure 4.2.3), we see that that the basic proportions continue in 2010. Singapore, South Korea, and, here, also Switzerland, are the states with the highest net savings, while the only state with negative savings is Israel. Estonia’s net savings have risen above 10%, and along with the calculation of education expenditures, Estonia’s growth potential has even increased to fourth place among the reference states. However, this last indicator does not take into account the use (depletion) of natural capital, and measures growth potential based only on produced and human capital. Although the points of reference for the states differ, some generalisations can be made. The capital-intensive production, in the states with high standards of living, Net forest depletion CO 2 damage Hazardous Total savings related to natural capital Austria -0.2 … … -0.1 -0.1 -0.4 Estonia -1.5 0 0 -0.7 0 -2.2 Netherlands -2.0 0 0 -0.2 -0.2 -2.4 Ireland … … 0 -0.1 0 -0.1 Israel -0.2 -0.3 0 -0.3 -0.1 -0.9 Canada -5.5 -0.6 0 -0.3 -0.1 -6.1 South Korea … … 0 -0.4 -0.3 -0.7 Lithuania -0.1 0 -0.1 -0.3 -0.1 -0.6 Latvia 0 0 -0.2 -0.2 … -0.4 Singapore 0 0 0 -0.3 -0.6 -0.9 Slovenia -0.1 0 -0.2 -0.2 -0.1 -0.6 Finland 0 -0.1 0 -0.2 … -0.3 Denmark -3.0 0 … -0.1 … -3.3 Czech Republic -0.7 0 … -0.5 … -1.2 Chile -0.3 -14.3 0 -0.3 -0.4 -15.3 Hungary -0.8 … 0 -0.3 -1.1 Uruguay 0 0 -0.4 -0.2 -1.1 -1.7 Estonian Human Development Report 2012/2013 163
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ESTONIAN HUMAN DEVELOPMENT REPORT 2
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Table of Contents 1 Human Capital /
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Dear Reader Since the moment when E
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1Human Capital Estonian Human Devel
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the HDI’s content has also been h
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Figure 1.1.1 The human development
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Figure 1.1.7 The income sub-index:
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The results of the Princeton Projec
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the hypothetical generation. The to
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Figure 1.2.3 Life expectancy. Eston
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Table 1.2.2 also presents the most
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The new trends that are appearing i
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Figure 1.2.8 Components of populati
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New features were introduced into E
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Initiation of Voluntary Birth Contr
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Table 1.3.1 Best-known educational
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(OECD 2012b). Therefore a certain r
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The reciprocal dependence of the pr
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Figure 1.3.8 Percentage of students
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Table 1.3.4 The quality of educatio
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1.4 Health Raul-Allan Kiivet Change
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Table 1.4.1 Usage of prescription m
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allude to the fact that approximate
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promote healthy lifestyles among th
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Figure 1.5.1 The World Values Surve
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Table 1.5.2 Estonia’s participati
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Figure 1.5.3 The percentage of the
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Figure 1.5.5 Percentage of the Esto
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The fact that Estonia’s position
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Summary Mati Heidmets The global vi
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2People and Society Estonian Human
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Table 2.1.1 Structure of the Bertel
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tioning market economies (15 states
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2.2 Freedom and democracy Martin M
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Table 2.2.1 Democracy indicators Po
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Figure 2.2.2 The distribution of th
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would be something that none of the
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political participation are general
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strongest, while a very small perce
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is concerned, Estonia is one of the
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Figure 2.4.2 Average circulation of
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2.5 Corruption Jüri Saar In accord
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Lithuania, 61%; and in Russia, 69%.
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2.6.2 Intentional homicides in Esto
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crime. And thirdly, there was a wis
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References 1. Ahven, A. & Tabur, L.
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states included in the EU Kids Onli
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2.8 Public assessments of the state
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Figure 2.8.4 Changes releated to tr
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of the state’s development are en
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Table 2.9.1 The positions of Estoni
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3. IEP (2011). Structures of Peace.
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3Welfare and the Quality of Life Es
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choices made, not what people say t
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Figure 3.1.5 Public social spending
Page 113 and 114: tion agreed upon the social contrac
Page 115 and 116: References 1. Aidukaite, J. (2006).
Page 117 and 118: hand, to the “inequality of acces
Page 119 and 120: and explanations of the extent of i
Page 121 and 122: 5- much more than I deserve. Some d
Page 123 and 124: people in Estonia consider the inco
Page 125 and 126: Table 3.3.1 Experienced Well-Being
Page 127 and 128: at about 70%. In Latvia and Lithuan
Page 129 and 130: sign. It seems that the usual view
Page 131 and 132: 3.4 Quality of life Anu Toots 3.4.1
Page 133 and 134: a uniform composite indicator has n
Page 135 and 136: 3.4.6 The components of life qualit
Page 137 and 138: Figure 3.4.4c Perceived quality of
Page 139 and 140: Figure 3.4.5 Changes in the depriva
Page 141 and 142: 3.5 Environment dimension of well-b
Page 143 and 144: Figure 3.5.1.b Estonia’s position
Page 145 and 146: 3.5.4 Energy intensity The energy i
Page 147 and 148: productivity, which is defined as t
Page 149 and 150: perceive themselves as worse off th
Page 151 and 152: 4The Economy Estonian Human Develop
Page 153 and 154: vide a valuable connection for maki
Page 155 and 156: Figure 4.1.3 Components of economic
Page 157 and 158: ule of law, the sub-indicators for
Page 159 and 160: References 1. Acemoglu, D.; Robinso
Page 161 and 162: Development Report employs generali
Page 163: and pasture land, and this was capi
Page 167 and 168: 4.3 Labour market Reelika Leetmaa,
Page 169 and 170: The problems include the very limit
Page 171 and 172: • Expenditures for active labour
Page 173 and 174: who lose their jobs. These ensure i
Page 175 and 176: 4.4 Productivity and the economic s
Page 177 and 178: labour costs at the company level r
Page 179 and 180: Table 4.4.4 Comparison of the produ
Page 181 and 182: Figure 4.4.1 Annual average increas
Page 183 and 184: 4.5 Innovation Erik Terk, Katrin M
Page 185 and 186: Table 4.5.2 Comparison of innovatio
Page 187 and 188: Table 4.5.4 Comparison of the indic
Page 189 and 190: in order to make the R&D potential
Page 191 and 192: It is characteristic of the South K
Page 193 and 194: mechanisms for increasing their sta
Page 195 and 196: Globalisation and Policy Patterns 5
Page 197 and 198: When Estonia regained its independe
Page 199 and 200: 5.2 The impacts of globalisation an
Page 201 and 202: Table 5.2.2 Support of the differen
Page 203 and 204: 5.3 Development policies Erik Terk,
Page 205 and 206: • C -the “Estonia-centred” su
Page 207 and 208: Figure 5.4.1 Support for the possib
Page 209: Summary Erik Terk Estonia is part o
Page 212 and 213: ehavioural patterns. Therefore, it
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EDR 2012/2013 authors Clemens Buche
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EDR 2012/2013 authors Alari Purju i
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Editor-in-Chief: Mati Heidmets Prod
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