One of Estonia's greatest strengths as a small nation is its strategic adaptability. By using our experience, we may accomplish the same things even better than many other countries. But this demands strategic efficiency – creating a unique and enduring competitive edge.

There is no unanimity on the country's overall development direction in economic policy, thus the country doesn't know where it's heading or what it wants. Information technology dominates our narrative, which is however outdated and based on a simple service economy for which we have limited capacity.

On the one hand, it is unlikely that the IT sector can provide the solution to unemployment. On the other hand, the disproportionate growth of one sector raises problems of economic equilibrium.

Need to discuss what Estonia's strategic choices are

Estonia can change its strategic position but not its location, but through strategies and policies, we can influence how our location will work under different global business models.

For a country's strategic development, we need to look at global trends and where the center of gravity of the world economy is moving.

As environmental issues, including the fight against climate change, become more topical, the importance of economic restructuring also grows. For example, the smart use of bio-resources and green energy could become much more prominent in Estonia's narrative.

The whole direction of the green economy and the use of Estonia's natural resources needs a strategic approach and there is room for improvement. Industry associations have stressed that the green turn in Estonia has not been treated as an economic issue, while there is no alternative to a growth strategy if Estonia wants to increase the national budget and green investments.

Also at the EU level, the Green Deal is a strategy for growth that is carbon neutral and does not put undue pressure on the environment. The green turn expert group deviated from this understanding and recommended the use of the term "balance of payments" or "sustainable shrinkage". But the slogan "Greening as a strategy for growth" is meaningless if we link it to sustainable shrinkage.

Failures are not sufficiently analyzed

Estonian governance needs the habit of analyzing and evaluating the implementation of set plans and learning from failures. However, the practice is to adopt development plans and then fail to adequately analyze and evaluate the results when the deadline approaches. This is especially the case when the plan is not implemented or is only partially implemented. There is no analysis of why the goal was not achieved.

For example, the Estonian R&D and Innovation Strategy 2014-2020 "Knowledge-based Estonia" set the goal of increasing R&D spending to 3 percent of GDP by 2020, with one-third coming from the state budget and two-thirds from the private sector.

Sadly, this target was largely missed. The actual figure for 2020 was 1.75 percent, with the private sector contributing 0.96 percent. But new targets have already been announced, at the same level as the previous target, only for the next period.

The strategy for research, development, innovation and entrepreneurship up to 2035 again sets a target of 3 percent of GDP for R&D spending, with the private sector contributing 2 percent. In other words, we simply copy an unmet target without assessing why it was missed. That's how goals become slogans. They don't even have to be achieved.

Estonia's ambition to reach 110 percent of the European Union average in productivity is likely to become a similar goal that will go through several phases. Clear and effective ministry coordination is needed to achieve this goal. Productivity growth depends on several elements, which companies and the state must address through economic policy.

Economic policy implementation requires strong analytical skills

The 2016 Erkki Raasukes report pointed out that coordinated action across several ministries is needed to improve Estonia's economic competitiveness, but state budget funds are managed and allocated ministry-by-ministry. Today, Estonia's silo mentality persists and an adequate inter-ministerial management solution is missing.

Establishing a task force of senior officials from each ministry to coordinate efforts through a steering committee is one possible remedy. It could be supported by the State Chancellery and include undersecretaries from across ministries.

The union meetings also brought to light the issue that the existing economic governance in the state is marked by a lack of emphasis on the industrial sector. Concerns about industrial development are not adequately reflected in energy development strategies.

Estonia has not fully addressed trade policy, while one of its key objectives and strategic choices is to promote market processes. Positive structural change in the economy accelerates economic growth, but it should be borne in mind that less productive sectors may contract faster.

Because of structural changes, this process could result in negative effects and substantial adjustment costs. Minimizing adjustment costs is a major challenge.

The EU's flagship initiative's low-carbon economy transition is a case in point. Industry policy should support sectors that are not yet internationally competitive but are expected to succeed, risky sectors that are developing innovative technologies, the valorization of domestic raw materials, the development of new energy sources, and the creation of environmentally and energy-saving technologies.

EU funds are crucial for sectoral policies. However, it's necessary to analyze measures' implementation and prevent repeating mistakes like over-regulating particular activities, over-fragmenting our resources, or not using them. These observations have been underscored on numerous occasions in evaluation reports on the use of structural funding.

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