It is very encouraging that Minister of Economic Affairs and Information Technology Tiit Riisalo (Eesti 200) is seeking feedback to the economic policy plan "Estonia 2035." However, the plan has some obvious shortcomings: the goals should be more ambitious, the focus clearer and irrelevant side directions should be abandoned.

The following proposals are based on research findings that the most significant driver of economic growth in a small country is the increase in profitable exports, which is in turn boosted by successful evidence-based innovations (i.e., research and development). These innovations are carried out by top-tier scientists and entrepreneurs working in excellent collaboration, and both science and innovation require government support for funding.

The wealthiest and most innovative countries, which can serve as benchmarks and models for smaller nations like Estonia, include Singapore and Denmark.

Annual GDP growth should be 10 percent

Estonia's GDP per capita ranks 36th in the world, while Singapore and Denmark rank 5th and 9th respectively, indicating a significant wealth gap. Thus, the planned 6 percent annual GDP growth in economic policy is too slow, as it will not allow us to catch up to wealthier countries. For instance, Singapore, after gaining independence, saw its GDP grow by an average of 16.2 percent annually over the first 30 years (1965–1994) and then 6.4 percent annually (1995–2022).

Between 1995 and 2022, Estonia's GDP grew by an average of 8.3 percent per year, demonstrating that we are capable of much more. If the government were to properly support universities and businesses in accelerating economic growth, Estonia's GDP growth could be much faster, potentially around 10 percent per year.

Setting a goal for slow GDP growth clearly signals that Estonia will remain in the second tier and our citizens' incomes will never reach the levels seen in top innovation countries. Therefore, the main objective of economic policy needs a fundamental discussion and broad agreement, as everything that follows depends on this.

Foundation laid by knowledge-based innovation

Since the growth of profitable exports depends on evidence-based innovation, which in turn relies on the quality of research at universities, government intervention and support should be based on enhancing the scientific level of universities.

In the WIPO index, Estonia ranks 56th in university research quality, 41st in the number of patents and 44th in university-business collaboration in evidence-based innovation. In comparison, Singapore and Denmark rank 12th, 24th and 8th, and 16th, 9th and 13th respectively. Many studies have shown that effective collaboration between universities and businesses significantly increases the number of patents, and the correlation between patents, innovation, and economic growth is stronger and more critical in developed countries compared to developing ones.

This indicates that to accelerate economic growth, the state must aim to elevate the scientific level of Estonian universities and improve university-business collaboration in evidence-based innovations. Unfortunately, these objectives are not specifically set or measured in the current economic policy.

Export growth must be much faster

According to World Bank data, Estonia ranks 23rd in export revenue per capita, while Singapore and Denmark rank 2nd and 12th, respectively. Although Estonia's exports have grown by 64 percent over the past ten years (2013–2022), this growth is too slow, as exports from Singapore and Denmark have also increased during the same period by 50 and 56 percent, respectively.

Therefore, the planned increase in exports from €29.5 billion to €67 billion – a 2.3-fold growth by 2035 – should be reconsidered and set as a much more ambitious goal in economic policy. The exact target should depend on the GDP goals and the allocation of financial resources.

The state's primary role in supporting exports lies in fostering the collaboration between high-potential profitable exporters and universities for investments in evidence-based innovations. Additionally, the state should engage in international marketing efforts that enhance the credibility and recognition of exporters in foreign markets.

Evidence-based thinking could deliver a breakthrough

We are justifiably proud of the ambition of Estonia's startups, but in the broader scope of innovation, we are regressing. This is confirmed by the 2020 R&D policy monitoring study by University of Tartu researchers and the Statistics Estonia survey on business innovation. Both revealed a consistent decline in business innovation.

To accelerate economic growth, including increasing business innovation, a breakthrough can be achieved through an evidence-based approach in economic policy formulation and implementation. This means, first, acknowledging that we are very weak in accelerating economic growth, including innovation, due to diffuse goals, activities and funding – essentially, a lot of wasted effort.

Secondly, an evidence-based approach means future policies should be based on the best scientific knowledge available. Thirdly, it means considering Estonia's unique characteristics and needs arising from our location and size.

Current best scientific knowledge clearly states that the three most crucial success factors for accelerating economic growth in a small country are high-level university research, excellent university-business collaboration in evidence-based innovations and growth in profitable exports. Thus, economic policy should focus on these three success factors, measure and set goals for them, and effectively support universities and businesses in these areas.

All other significant activities and support measures (e.g., funding higher education, recruiting foreign talent, attracting foreign investment, international marketing, etc.) should serve these three objectives. Importantly, each goal in economic policy should have an associated budget to ensure that achieving the goal is both measurable and credible. Currently, such a clear and comprehensive logic is lacking.

State must put an end to distorting competition and wastefulness

To accelerate economic growth, all secondary concerns must be set aside in economic policy because the state's sole role in economic growth is to address market failures – by mitigating significant innovation risks and international marketing – without distorting fair competition by duplicating or taking on tasks that businesses can handle well on their own.

Thus, economic policy should exclude supporting companies in digitalization, as there is no significant risk or market failure in this area. However, the state must support research and innovations involving AI that enhance the differentiation of digital products and services in the market, as such scientific innovations carry high risks.

The state does not need to support companies in green technologies, e-invoicing, marketing, training and consulting as these also do not involve significant risks. Eliminating such peripheral activities would free up hundreds of millions of euros, which could be used to support evidence-based innovation and exports.

If a particular sector requires regulation (e.g., the use of green technologies, securing electric energy supplies, etc.), the state should draft relevant laws or regulations instead of spending public funds on these areas.

Economic policy plan requires new debate

In summary, the main shortcomings of the economic policy plan are its lack of ambition and focus, and numerous peripheral activities resulting from insufficient evidence-based approaches.

Hopefully, the minister of economic affairs and will reconvene a working group to thoroughly review the economic policy plan based on the aforementioned proposals. The group should prioritize the four most important goals for accelerating economic growth: much faster growth in Estonia's GDP, the quality of university research, university-business collaborations in evidence-based innovations and profitable exports.

Secondly, the working group should exclude all peripheral activities from the economic policy – those that are not market failures – where state intervention would only distort fair competition and waste public funds.

With good will, nothing prevents us from agreeing on an evidence-based, sufficiently ambitious and clearly focused economic policy. Such a policy would inspire many scientists and entrepreneurs to invest even more in research, innovation and exports, so that all of Estonia and every individual can become much wealthier, much faster.

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