Estonia needs to focus on developing smart businesses

07.01.2013, 12:10

Peeter Kross, rector of Estonian Business School, writes in Äripäev that Estonia that knowledge-based economy and entrepreneurship that generates high added value must become a priority in developing the Estonian economy.

The ITC sector, for instance, employs 17,000 people that makes up only 2.5% of total employees, but generates as much as 10% of Estonian GDP.

If you compare if with traditional economy, the productivity of ITC sector is four to five times higher and the salaries of the ITC sector are two to three times higher.
In the Estonian economy, one working hour creates only 11 euros of value, while in Finland it is 40 euros and in even in Greece it is 20 euros.

This means that increasing the importance of knowledge-based economy is the best way to increase productivity.

Today many companies are not struggling only with the lack of capital, but chronic lack of skilled specialists. There has been a lot of talk about the need to increase teaching natural sciences and engineering sciences in our universities, but there has been no breakthrough.

In the next 10 years, about 100,000 university graduates will be entering the labour market. If one in every four of them finds employment in domestic smart business and 4-5% of them become successful entrepreneurs, we will have secured the continuation of our national capitalism and competitiveness.

Capitalists are defined as entrepreneurs who have become rich through enterprise. Äripäev has been measuring the wealth of our capitalists in its annual Richlist rankings which most recently required that the person had at least EUR 5m in assets.

If we take EUR 5m as this asset limit that separates a capitalist from a regular businessman, our layer of capitalists is extremely thin: 500 rich families make up 0.1% of all our households.

There is a simple explanation: current Estonian capitalists have built up their assets in just one generation. Capitalism and the capitalist culture in Estonia are only evolving. It must be considered when expressing opinions and putting up expectations.

A typical Estonian capitalist is a man in his 50s who has built up his wealth through business. In comparison with the Forbes richlist, members of the Estonian richlist are in average 13 years younger. This also explains why the majority of Estonian capitalists are themselves still actively involved in running their companies. Also, the majority of our capitalists have received a good education.

Wealth accumulates
What is positive is that the Äripäev Richlist is dominated by Estonians and their wealth is growing and consolidating. For capitalism to develop, certain concentration of wealth (capital) is inevitable. It has been so in all countries. 100 Estonia’s richest capitalists are controlling EUR 5.4 billion in capital. If you compare this figure with Estonia’s GDP or national budget volume, one must say that this is a significant capital in Estonia that, when used properly, could generate at least half a billion euros a year.

What is interesting is that the richlist is dominated by representatives of traditional economic sectors such as real estate, trade, industry, construction, transport and finances. Many of them have made their starting capital during the privatization in 1990s.

What to do to make our national capitalism stronger and broader? General recipe is simple – the more you have national enterprise the more you have wealth and the stronger and broader is our national capitalism. Real growth of national capitalism can only bring from our own entrepreneurship.