Janno Reiljan

Key Issues in Defining and Analysing the Competitiveness of a Country

In outline, the present working paper aims at presenting, analysing and systematising key issues of the complex analysis on a country’s competitiveness. Competitiveness is a multidimensional feature of an economic entity operating in a market economy. Therefore different aspects of competitiveness are explored. The meaning of competitiveness for different economic entities is determined and a thorough discussion is given on national competitiveness. The major stages of development of competitiveness concepts are presented. The manageability and features of factors forming national competitiveness are analysed. Finally, the problem of choosing national competitive strategy is addressed.

The Development and Competitiveness of Estonian Agriculture Prior to Joining the European Union

The present working paper aims to evaluate the current state, development and competitiveness of Estonian agriculture, based on the theoretical concept of the competitiveness of an industry. By means of analysis it is possible to predict what potential changes may occur in the agricultural sector after Estonia’s EU accession. In outline, the present paper will discuss the concept of the competitiveness of an industry and the complex of factors influencing competitiveness, evaluate the impact of the implementation of Common Agricultural Policy (CAP) on the economies of candidate countries, analyse the factors determining the environment in which the Estonian agricultural production has to compete in the period prior to joining the European Union and assess the impact of foreign trade on the development of Estonian agriculture. Since 1991 the agricultural production has been steadily declining in Estonia. Due to the tendency to ignore the need for an agricultural policy that would consider the realities of global economy, in Estonia this sector has been left without protection. A substantial competitive disadvantage, caused by the Government’s economic policy, has brought about a situation in which the local producers lack capital for developing the industry, while foreign capital is not attracted. The agricultural producers, who have to dispense with government support, are unable to simultaneously handle three difficult problems: Transition from large-scale farming to small-scale farming that requires the introduction of modern technology and equipment; Loss of traditional foreign markets (Russia); Unfair competition with governmentally subsidised EU products, not only in foreign markets, but also in the internal market. Only equalisation of the conditions of competition in the European Union and in Estonia’s agricultural sector would make it possible to use the great natural potential of Estonia for the benefit of its economic development. Resolving this problem will be the most difficult task facing Estonia’s (foreign) economic policy during the negotiations for admission to the EU. A continuing agricultural decline would mean the loss of an opportunity to exploit those natural resources even after joining the EU, because the pre-accession level of production will determine the production quotas.

Strategies in the Fiscal Reform of Estonian General Education

In order to develop the necessary Estonian measures and policies the prevailing distribution of expenditures for these purposes are presented. Although the share of GDP used for financing education in Estonia is somewhat above the EU average the nominal amount of per capita education funds is comparatively low due to a low level of economic development. Moreover, because of thin population per square km many small schools exist in Estonia without a sufficient number of pupils, which makes the education system more costly. We consider two different basic strategies to improve the situation. The first strategy is an extension of a reform approach that was performed since January 2008 that refers mainly to the prevailing educational and spatial organization. We discuss the consequences and regional impacts of that policy. Criteria for a SWOT-analysis such as expenditure distribution, preserving regionally clear investment criteria, source of investment, etc. are used. The first strategy refers to improvements into the current system of financing schools that shows a state investment program for schools that considers the number of pupils per school and special educational needs. However, the performance of this policy is not based on a fair equal treatment of cases. Therefore a second strategy of improvement is discussed. It is based on the idea of Functional Overlapping Competitive Jurisdictions (FOCJ). The municipalities form FOCJ that are operating schools. In this way municipalities may form a school jurisdiction that can negotiate with central government institutions for the loan and the school equipment etc. A municipality can act individually or the FOCJ negotiates for the municipal members in total. Theories of FOCJ-establishment, FOCJ-contribution determination and FOCJ-negotiations with central government are demonstrated. The FOCJ can supplement positively the first strategy of reform.

Policy Suggestions for Integrated Public Innovation Policies in a Small Country

In recent decades, economists have been increasingly concerned with the role of the public sector in improving public policy for innovation processes; the link between transition of a small country and other factors have not yet been considered in detail. Therefore, we discuss (a) public innovation conditions prevailing in and policy measures available to a small country such as Estonia and (b) which might be effective there. The instruments to promote innovation of private Estonian firms, such as good conditions for entrepreneurs, taxation conditions, financial aid, and so on, are assigned to strategy (1); additional instruments, such as public demand, public procurement, and so on, are related to strategy (2), whereas sales of public property and participation in ownership to assist innovative firms are due to strategy (3). Private and public innovations concern the innovative activities of public enterprises according to strategy (4) and that of strategy (5), dealing with public research and the supply of infrastructure services. Public sector-oriented innovation refer to strategies (6) concerning education and (7) infrastructure, and strategy (8) referring to legislation and public management. The reform policies in strategy (9) are completely oriented to public sector innovation pointing to functional and territorial reforms, intergovernmental fiscal relations and similar policy measures.

Shaping a Holistic National Innovation System

For the sustainable economic development of a state the functioning national innovation system (NIS) is needed. NIS covers different government policies (for instance, education policy, R&D policy innovation support to business sector, intellectual property protection, public procurement policy, etc.). All these policies have to be integrated in a holistic system through innovation policy enabling the functioning different policies in mutual relationships smoothly and effectively for sustainable economic development. The goal of this article is to highlight the role of innovation policy in shaping a holistic NIS. The first part of the article deals with the need for public sector intervention in innovation processes and problems resulting from it. In the second part a holistic NIS model that reflects the role of innovation policy is developed and presented. The third part deals with the structure of innovation policy based on a holistic NIS model.

Public Sector Inputs to the Innovativeness of the Country

The globalization of competition has produced new issues for the public sector in the field of supporting a country’s innovativeness. This chapter’s objective is to analyze the structure and role of public sector inputs to the country’s innovativeness. In order to achieve the objective, the following research tasks have been set: analyze the literature on the structure and role of public sector inputs to innovativeness; provide methodology for empirical modeling of structure and impact of socio-economic factors on development processes; empirical analysis of the structure of public sector inputs to innovativeness and their impact on business sector innovation processes in EU member states, Croatia, Turkey, Iceland, and Norway. The data source used for the empirical analysis is the Eurostat database, and also some data originating from the European Innovation Scoreboard database. In the empirical part of the article a component analysis is conducted to find the structure of public sector inputs to innovativeness. Thereafter, in order to analyze the formation of business innovation development indicators, the influence of factors is assessed by multiple regression models explaining the public sector role in the formation of business sector innovation processes.

FOCJ as Model for Financing the Estonian General Education

The share of GDP used for financing education in Estonia is somewhat lower in comparison to the EU average, the nominal amount of per capita education funds is much more lower due to a low level of economic development. Moreover, because of thin population per square km many small schools exist in Estonia without a sufficient number of pupils, which makes the education system more costly. We consider two different basic strategies to improve the situation.The current strategy of financing Estonian general education refers mainly to the prevailing educational and spatial organization. This strategy is not based on a fair equal treatment of cases. Therefore a new strategy of improvement of education financing system is discussed. It is based on the idea of Functional Overlapping Competitive Jurisdictions (FOCJ). The municipalities voluntarily form FOCJ that are operating schools. In this way municipalities may form a school jurisdiction that can negotiate with central government institutions for the loan and the school equipment etc. A municipality can act individually or the FOCJ negotiates for the municipal members in total. Theories of FOCJ-establishment, FOCJ-contribution determination and FOCJ-negotiations with central government are demonstrated. The FOCJ can supplement positively the first strategy of reform.

The Necessity of an Administrative-Territorial Reform In a Country: The Case of Estonia

The goal of this paper is to analyze the theoretical, political and organizational bases of the territorial division of the country into municipalities and offer a research direction for identifying conceptual solutions to the development problems in Estonian municipalities. The paper focuses on the territorial organization of administrative issues, looking at the remaining administrative aspects only insofar as they relate to the territorial organization of public administration and services. In order to accomplish the goal we tackle the following research tasks: systematize theories concerning the territorial division of the country into municipalities and analyze the possibilities and limitations for their application; discuss administrative-territorial reforms in Nordic countries, their causes and consequences; describe the development, nature and indicators of the administrative-territorial division of Estonia; empirically analyze the relationship between municipal size and capability and development indicators. The analysis of the theoretical approaches to municipal size pointed out that they are fragmented and incompatible. Some authors support small municipalities, and others large. The theoretical reasoning of both those directions is often strongly simplified and biased and a unified meta-theoretical approach has not been established. The empirical analysis revealed that there is no empirical evidence to confirm either the presence of significant size related advantages among municipalities or the existence of an optimal municipal size considering current municipal functions and financing. The lack of theoretical and empirical evidence on the necessity for administrative-territorial reform means that merging municipalities alone cannot significantly improve the public service delivery capacities and economic and democratic development of Estonian municipalities. This means that future studies should focus on analyzing public services from the perspective of their economic efficiency, quality and accessibility, and in doing so, determine the optimal size of regions for providing the various public services.

Estonian foreign trade on the threshold of joining the EU

Estonia, together with Poland and Hungary, heads the list of eastern European candidate countries in its progress towards meeting the criteria for EU membership, according to the assessment by the European Commission published in November 2000. Estonian foreign trade still shows a deficit, however. The following article analyses the reasons for this, evaluates the effects to be expected from EU membership and discusses the policy implications.

The Unfunded Mandates in Local Governments Financing: Crises Experiences from Estonia

In many countries occur problems from unfunded mandates related to a shift of a function by an upper tier of government to lower rank governments without providing the lower one with financial means to perform these functions. The authors define the unfunded mandates and clarify how they relate to functions, uncovered costs and financial means of municipalities. Then they discuss the connexity principle in order to avoid unfunded mandates and respective functions variations in crises to avoid unfunded mandates. They point to conflicts which stem from allocation, stabilization and distribution activities. In Estonia the development of revenues and expenditures of central and local governments reflect tendencies to cause unfunded mandates especially in the period of crisis from 2009 to 2011. To fight unfunded mandates the connexity principle should be applied for municipal performance of central state functions and compulsory municipal functions. The central and local government finances should vary according to the principle of parallelism. If the total tax revenues vary the changes of block grants have to be parallel to the disposable incomes of the tiers of government.