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growth starting in the later 1990s, it turns out that, as far as the growth of GDP is concerned only South Korea had a faster pace of growth than Estonia. Singapore was already quite a wealthy country in the mid-1990s when economic growth in the CEE countries was just gaining momentum. This group of countries has also moved up in the human development indices, and place higher than Estonia. However, the differences with Estonia are smaller than if only strictly economic indicators are considered. The innovation indices of this group of countries are also significantly better than the corresponding index for Estonia. In this regard, all four of these countries belong to the highest class – the world’s premier dozen. It is clear that playing in the “premier league” of innovation is not possible without strong research institutions and universities. At the same time, a closer analysis of the innovation picture shows that the Asian countries’ strongest components are not only high-level universities, and the collaboration between universities and companies, as it is in many of the countries in the first group of reference states. It is very specifically – and this in all four states – patents. It is true, that in the case of Israel, the quality of their research institutions is also rated very highly, while Singapore’s is distinguished by the great importance of government procurement of advanced technology. The rating given to the sufficiency of scientists and engineers is not low in any of the Asian countries, but compared to the other, very strong components in the innovation picture, it tends to be weaker. It seems that there tends to be a shortage of this resource in high-level and rapidly developing economies. In the innovation capability ranking, Israel, Taiwan and South Korea place higher than they do in the general competitiveness index. (In Singapore’s case, the position in the competitiveness index is slightly better than in the innovation ranking.) As a whole, one can state that by developing their innovation potential, the Asian states under observation have created good preconditions for their future economic growth. Table 4.5.3 Comparison of the innovation capacity and competitiveness indices Innovation capability High Middle Taiwan Israel South Korea Ireland Czech Republic Slovenia Hungary Costa Rica Innovation capacity better than competitiveness Competitiveness better than innovation capacity Singapore Estonia Chile Austria Both almost equal Switzerland Finland Denmark Canada Low Uruguay Slovakia 4.5.3 The position of companies in international business networks Recently, more attention has started to be paid to the dependency of innovation-related activities on the positioning by the country’s companies in international business networks (value chains) and the strategic functions (for example, product development, marketing or financial management) they have been able to occupy for themselves in these networks. In the WEF’s competitiveness methodology, the indicators measuring this phenomenon have been assembled under the concept of business sophistication, and compiled into a business sophistication index (BSI) This is a relatively heterogeneous composite indicator comprised of nine components, of which the majority reflect various aspects of inter-company relations, while some deal with in-house production and management. The index reflects such issues as the control exercised by domestic companies over marketing channels, the existence of local suppliers (their quantity and quality), the existence of mature business clusters, the value chain breadth (i.e. how wide a section of the value chain the exporting companies of the country are capable of occupying), as well as the nature of their competitive advantage (whether only users of new technologies or also developers) control over distribution channels, and the sophistication of the production processes. In the case of the group of states with developed economies as a whole, the indicators for business sophistication are usually conspicuously high. For Ireland, New Zealand and also Canada, they are still lower than for the other developed countries under observation. The existence of mature business clusters is typical of Finland, Switzerland, and also Canada and Denmark. Austria’s BSI indicators are surprisingly high. Of the group of CEE states, the Czech Republic, with high-quality local suppliers and wide value chain breadth, stands out most for its business sophistication. Slovenia also has rather good indicators (production complexity, control of the distribution network, etc.). Its weakness is an insufficient number of local suppliers. Unfortunately, when we compare Estonia to the other CEE state in the aggregate, based on its BSI and its components, we do not stand out for anything positive. Estonia’s position, based on the BSI, is significantly weaker than in the ranking for innovation capability, and our dynamic in the BSI is also negative. We are quite capable when it comes to the quality of the local suppliers (only the Czech Republic places higher in our group) and the willingness to delegate authority (this is also a BSI component). The quantity of local suppliers is small, which may partially be due to the small size of the country. The role of clusters is weak, and most businesses are based on functions that produce limited value. Sophisticated marketing techniques are not used, and no control is exercised over international marketing channels. In the South and Central American group, Costa Rica and Chile are in relatively good positions in the BSI, while the same cannot be said for Uruguay. The compa- 184 Estonian Human Development Report 2012/2013
Table 4.5.4 Comparison of the indices of innovation capacity and business sophistication Innovation capacity High Middle Innovation capacity better than business sophistication Finland Taiwan Israel Singapore South Korea Canada New Zealand Estonia Hungary Costa Rica Business sophistication better than innovation capacity Netherlands Austria Chile Low Uruguay Slovakia Both almost equal Switzerland Denmark Ireland Czech Republic Slovenia nies in Costa Rica are able to make use of their international competitive advantage, which is apparently their relatively inexpensive production location, which is close to the U.S. markets; the utilisation of top tech nology is also rated as being quite good. Chile stands out primarily for its good marketing skills and the existence of clusters. In all the Asian states in the sample, their positions are better in the innovation index than in the BSI, but as a rule, their business sophistication indicators are high. Singapore lags behind the others as far as the quantity of local suppliers (caused by the small size of the state) and the strong role of foreign participation in the state’s economy. South Korea has very good indicators related to the position of its companies in the value chain and control of distribution channels. However, the WEF methodology does not want to accept South Korea’s closed cooperative system of monopoly conglomerates (chaebols), and punishes it with low marks for the state’s decentralisation capability, which reduces South Korea’s general BSI rating. As a whole, the business enterprises in the selected Asian countries, except for the companies in Taiwan, have relatively strong control over the entire value chain, and they all use the world’s top technology. In this group of states, the development of clusters is especially essential in Taiwan and Singapore. It would be beneficial for Estonia to investigate this concrete business development. In Table 4.5.4, we see that the majority of the states in our sample get a better assessment in the innovation index, than in the BSI. It can be assumed that the reason for this is the singularity of our sample – the sample is dominated by small states. In large states, like the U.S., Japan and Germany, there are definitely better opportunities for controlling the value chain and for using local suppliers. One can also assume that developing business networks takes more time than the development of innovation potential, and that government policies have less of an impact on them. In Table 4.5.4, we can see that the business sophistication index is positively impacted by a country’s geographical/logistical position. The geographical location of the Netherlands, Austria or the Czech Republic is definitely more favourable for appropriating key positions in the value chain, than are the locations of Estonia or New Zealand. But this cannot be changed. Insofar that it is clear that poor positioning in business networks limits the possibilities for making one’s economy more innovative, Estonia must look for answers for how to compensate for this shortcoming. The first possibility is to have Estonia’s companies appropriate positions in servicing and processing the goods and raw materials flows that, for rational logistical reasons, tend to cross the territory of our state – for instance the transport and processing of goods and raw materials related to Finland and Russia. However, this presupposes the establishment of appropriate transport channels (for example, Rail Baltic) and the development of a business-friendly climate in foreign policy. The second possibility would be a more purposeful national policy for cluster creation. And the third possibility, a policy for attracting foreign high tech firms to the country, which would encompass the development of collaboration networks that involve domestic companies, right from the start. 4.5.4 Foreign versus domestic capital The reference states can be generally divided into two groups: the ones whose economic development has occurred based primarily on domestic capital, and those that have developed with the help of foreign investments. The most conspicuous examples of countries in the first group are Austria and Switzerland; the most significant representatives of the second group are Slovakia, the Czech Republic and Hungary. Most of the countries with highly developed economies belong to the first group. The exception is Ireland, where the strong development is based on foreign investments. Canada and New Zealand comprise an interim group, since the control of their distribution channels tends to be in the hands of foreigners, to a fairly large extent. Of the CEE countries, only Slovenia belongs to the first group, all the other countries in the sample belong to the second group, some even in an extreme manner. Of the comparative group of Latin American countries, Chile belongs to the first group, while Costa Rica and Uruguay are, rather, in the second group. However, none of these classifications are of an extreme nature. Of the Asian countries in the comparative group, Singapore, quite clearly, belongs to the second group. The other Asian countries in the sample belong to first group. A weakness of the development that is based on foreign investments is the risk that foreign-owned companies tend to bring less sophisticated and cheaper functions to the destination state, while the functions at the top of the value chain, as well as the more complex and expensive production, tends to remain in the country of origin. Based on our sample, we will examine whether this risk is actually realised, by using the indicators for value chain breadth and the complexity of the production processes to find the answer. Since the correlation between these indicators is quite high, we arrive at the following three classifications: Estonian Human Development Report 2012/2013 185
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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
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tion agreed upon the social contrac
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References 1. Aidukaite, J. (2006).
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hand, to the “inequality of acces
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and explanations of the extent of i
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5- much more than I deserve. Some d
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people in Estonia consider the inco
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Table 3.3.1 Experienced Well-Being
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at about 70%. In Latvia and Lithuan
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sign. It seems that the usual view
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3.4 Quality of life Anu Toots 3.4.1
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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 164: and pasture land, and this was capi
Page 165 and 166: Basing the total and net savings re
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: Table 4.5.2 Comparison of innovatio
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
Page 214 and 215: EDR 2012/2013 authors Clemens Buche
Page 216 and 217: EDR 2012/2013 authors Alari Purju i
Page 218: Editor-in-Chief: Mati Heidmets Prod
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