Dear Ladies and Gentlemen!

I New Economy

Capital, as we know it, is dead. In recent years, people are talking more and more about the magic new time and new economy that will change our current convictions and knowledge about human and economic relationships. The term of new economy arose from the need to explain to economic scientists and practicians the hitherto unknown complex of circumstances, where the existing criteria for evaluation of investment risks have - at least temporarily - been forgotten. The combination of abundance of capital and lack of ideas in the whole world has created an extraordinarily large bubble of stock exchange and people have been expecting it to burst for two years without anything happening so far. Companies buy back their shares even if they have to use loans therefor, because they have no better ideas about how to invest their money. My first question is: are the changes that take place in economy related only to our surroundings or are people changing themselves, are people able to adapt to this?

When we compare the articles written in Estonia about economy today and those written five or ten years ago, we can see that the dimensions of time, the specific gravity of time have changed. Ten years ago, business plans were made for a few months, nowadays there are more and more business managers who think about future 3-5 years ahead. At first glance, it may seem that we have reached the ordinary economic space where the dimensions of time should be bigger than those we are used to. At the same time it seems that the dimension of time in the world is changing towards shortening. In the 18th and 19th centuries, people created factories and companies and they were inherited in their families by generation after generation. Let us bring an example from Estonia: Puhk and Sons, and had times progressed normally: Puhk and Sons and Grandsons. Today, however, we hear more and more about companies whose owners plan to operate for six months or a year and then sell the company - hopefully with a profit - to some larger corporation. Why does the present generation of entrepreneurs not want to be owners for a long time?

When we consider the development of Estonia in the last few years, we can say with satisfaction that direct investments in the amount of 38 billion Kroons have been made in Estonia. This is the best result per resident in the entire Central Europe. And when we consider that over 80 per cent of investments have come to Estonia from Finland, Sweden and other developed European states, we may conclude to some extent that in terms of the structure of owners, we have integrated in the European Union already. But has this brought along new jobs, have new factories been opened, has the gross domestic product increased? The answer may be yes, but does the quality of this ''yes'' satisfy us? I do not think so. Instead of the creation of new jobs, too many of the direct investments have gone to the former owners of enterprises who, unfortunately, have not always used it for creation of new values. I have to repeat an earlier thought here: Estonian businessmen gave gone on holiday too early. Which, as we know, is very hard ''work'' Only five years ago, people talked about how much someone had managed to increase their turnover or what new equipment they had acquired. Now people tend to talk about how exotic their holidays were and how expensive were the socks they bought to complete their golf equipment.

Let us think about why the leading Estonian companies are unable, regardless of the extremely unfavourable tax laws, to find any other use for their income but to distribute it as dividends. The answer is rather disturbing: because there is more capital in Estonia than ideas. Ideas no longer have to chase capital, but capital has to chase ideas. This should evoke some concerned thoughts in the heads of those who live in the belief that Estonia has been completed. When you look from aboard a luxurious yacht, Estonia may really look almost like a welfare state. Those, who have the liberty to multiply their own salaries regardless of their performance may get the impression that other Estonians also live in prosperity. And many of those who managed to write some of the people's property to their names during the turbid times enjoy their rentier status and wish no changes. It is easier to make oneself believe that the interest earned on a million or more or a comfortable state office that has something to distribute are going to feed them forever. Wake up, dear friends! According to evaluations, capital productivity in Estonia is well below one per cent. Those who are not smart enough or do not want to put their money to work, are not fit to be owners. The laws of economy and nature are going to take care of it. The paths of a lazy man and his money will part and never cross again. Even those who are rather diligent may run into bad luck if they fail to understand new economy, whether we say it in quotation marks our without them.

Too often, we hear complaints about how it is impossible to do much in Estonia, because the purchase power of people is small, the market limited and companies from other countries have unjustified competitive advantages. At the same time, I think, they have not bothered to look for the possibilities that the changed world is offering today.

II Associations of Tourism

I give a simple example.

Do you know who Astha Arora is? This girl was born in India exactly one week ago and she is considered the billionth inhabitant of India. Last year when I went to India on my state visit together with the Estonian business delegation, i.e. with you, businessmen in Bombay asked me whether we had thought about establishing a direct airline between Bombay and Tallinn with a stopover in some Central Asian capital, like Alma-Ata; there would be enough passengers in Bombay. Has anyone taken this idea seriously? It seems to me that the answer is no. Why else the planes of different airlines are standing idle at Tallinn Airport, their leasing payments being paid, but that are earning no money? This idea seems too bold - if such a flight would be profitable, big airlines would already be flying there. I do not think so. About one-fifth of Estonians went abroad at least once last year. If our service would be of interest to at least one-tenth of the twenty or so million people of Bombay, it would decrease the number of passengers passing though Tallinn Airport at least 5 per cent. Or let us take the newly blossomed capital of Germany, Berlin, a city that is still undiscovered. First direct flights to Canada were opened there in the beginning of May. In the situation where Frankfurt Airport is exhausting its potential, it is only a question of time when airlines flying to Asia or North and South America start using the services of Berlin. Should we not be ready for this, to apply the possibilities of our rejuvenated airport also in such a manner that we would have direct connection with this capital located in the heart of Europe? Does it really seem too risky? When the small Irish Ryanair made its first flights between London and Dublin in 1986, many people thought that this company will remain a small player with two little planes. But they decided to compete actively with partially state-owned major companies and their price agreements. They chose a new approach by flying through smaller airports located in the surroundings of large cities. They expanded their activities outside the British Isles in 1997. And by today, the result is 6 million passengers a year, 35 different destinations and noticeably decreased ticket prices on all airlines.

Let us consider the example of tourism. The lion's share here falls on cheap Sunday travellers from Finland whom we attract only with our price differences and Kadaka market. The tourists that Estonia needs do not come here to spend the night in the euroroom of a eurohotel. The visitor who is so important and valuable for us expects something unique and extraordinary. Most Europeans have never seen marshes, cranberries, pine forests, white nights or the oldest churches in North Europe that clutter in Saaremaa.

I would like to emphasise to all of you the necessity to create the conditions for the creators of any new ideas and spiritual values. The state, just like a company, should not reduce itself to pure balance sheet numbers. Neither of them has a future without a vision, mission and strategy, not to mention a future that would shine. The time when our vision bordered solely on the inclusion of financial capital at any cost has passed. The tax system that favours replacement of labour as a production factor with capital is taking its last breaths. From the viewpoint of future, I do not think that the situation, where increase of freely available capital is free of taxes but the salary of a creative employee suffers under a heavy tax burden, is particularly favourable. We have put a tax on creativity.

As a result of this, we have not pushed only the lazy and the stupid out from the job market, but also the young people who just enter the job market, mothers who return from maternity leave and experienced workers. In case of foreign capital, the earned income finally travels back abroad, but when we value creativity, it remains where the people live. Appreciation of capital at the wrong time is one of the reasons why the productivity of our labour is so small.

III Information Technology

These were examples. What do I want to say with these examples? First and foremost, when we talk about new time and new thinking, no one should focus only on the widening possibilities of information technology. There are many possibilities for expansion and diversification also in economic branches with long traditions.

One recent study came to the conclusion that regardless of how fast the development of the possibilities of information technology is, only 15 per cent of total labour will be engaged in so-called distant work after ten years have passed, and this applies also to the most progressive states. Most people will always be tied to work done in a certain place. 15 per cent is a large number and for many people it means that they have to change their habits in using their working time as well as in communication with their colleagues who may be in any part of the world. Actually, this also means more integration in the job market, which so far is lagging behind the integration occurring in capital and money markets. Information technology has already managed to change the trade union movement. The most distinct examples here were the extensive protest actions in Seattle, Washington and Davos. Some professor from the Massachusetts University of Technology called Rudiger Dornbusch has even claimed that the internet is turning into a force that unites workers' movement, which gives a new, hitherto unseen face to democracy and tolls the bell for traditional political parties.

Let us leave this claim on the conscience of Professor Dornbusch, but information technology and science in a wider sense have already changed the everyday life of people. Some years ago, most Estonians did not even have a bank account and most transactions were done in cash. By today, the use of tele- and internet banking and the use of bank cards has become so active that the number of payment orders on paper has decreased to 15 per cent of all transactions. The development in banking indicates most clearly how much the development of a state can depend on its readiness to go along with new, contemporary solutions. Even now, checks have an important role as means of payment in the United States. This is yesterday. Estonia skipped this stage and moved straight to internet banking. Right now, the number of internet bank clients in Scandinavia is more than one million, while the two larger German banks Deutsche Bank and Dresdner Bank have only 300,000 internet bank clients between them. This characterises also Estonia, but we should not forget that a large part of our people have never had any contact with either computers or internet. Every innovation needs learning and the changes that concern us all as a nation have to consider the needs of all social groups.

I have certainly followed the news that tell about the increased possibilities to obtain the information, goods and services required in everyday life with the help of internet, with delight. I am especially pleased that Estonia is also offering more and more of such possibilities to its citizens. Tax returns can be filled out on the internet, you can see how much social tax has been paid for you, the possibility to obtain information from the Commercial Register will be available soon. At the same time we all should still think about the fact that as possibilities multiply, so do the dangers. Crime has also become fast, flexible and global. We have managed to avoid the threat of biological war in security politics, but the electronic world has developed viruses which can ravage and destroy businesses, people and maybe also states.

In other words - more power brings about more responsibility. This truth that has become rooted in the European legal room a long time ago, stands in front of us today, helpless and in need of assistance: is the legal environment able to keep up with the changes the new, so-called virtual economy brings with it? Many of you have certainly heard about the ongoing court cases against Microsoft. The legal basis of the state in these cases rests on antitrust laws passed more than 100 years ago! This process is expected to last for 5-6 years. I do not wish to dwell on who is right in this case, but I would like to refer to a problem: neither the legislator nor the administrator of justice have adapted to the changing circumstances with sufficient flexibility. The tables of Moses were also written after Abel was killed. Estonia was among the first in Europe to pass a law on digital signature, but do businessmen have to give up using it only because the government has not been able to determine the rules? Is the Estonian legal system able to keep up with the possibilities of new economy? These are questions.

The author of the book of this year's spring conference Rolf Jensen points out that the information society is coming to its end - before it could even spread its wings to fly, I would add. Is this right? Maybe we were waiting for a miracle, for becoming blessed like people in Gutenberg's time?

Increase of the power of hardware is still a major concern, because it has to support the growing software. Offices are still producing more papers than ever before. The ability of people to receive information is limited. Senior managers read only the summaries prepared by their subordinates. Ministers make decisions on the basis of only a few per cent of the possible quantity of information. The information produced by increasingly more powerful machines is consumed by the machines themselves. The quantity is new, the quality old.

It is not the quantity of information that is important for making the right decisions, but its quality. Mental potential is taking the place of capital as the new and deciding factor.

IV Creative Potential of Estonia

In some way, this is in conflict with what we understand under Estonian mentality. We like to think of ourselves as a country at the periphery of Europe. We like to doze in our seven hundred years - now already eight hundred years old proud night of slavery. This masochist concoction is what forces educated young people to leave Estonia. In the last few years, hundreds of Estonians have obtained a good education, exemplary education in may famous foreign universities. Only some of them have returned. Often the reason that is referred to is the circumstance that the advantages of good education are not sufficiently appreciated in Estonia. It is hard for me to say whether this attitude is caused by the fear of business leaders that a new generation is coming, or whether it is the attitude that prefers work experience to education.

Usually economic leaders are promoted simply when the old ones retire. In Estonia, the reigns are in the hands of 40-50 year old owners-executives who do not intend to relinquish their positions. One solution here could be the situation where our experienced business leaders move on to the senior management of larger, international companies. Unfortunately our people are mostly self-trained and this experience may prove to be illusory outside Estonia.

At the end of his recent visit to Estonia, Prime Minister of Finland Paavo Lipponen said he was most impressed by two things: the visit to the battlefields in Pupastvere, where Estonian soldiers fought for Finland, and the gene heredity program of Richard Villems. The latter is almost completed, and owes this to educated Estonians who develop domestic science. The Prime Minister of Finland promised to participate in the development of this project. Now it is already for you to decide, whether these achievements will be realised in Estonia or outside Estonia. This calls for readiness to do things that others have not done yet. I greet your will to do something. Unfortunately, goodwill alone is not enough. You have to know how to make the right decisions.

An educated outlook is not a thing in itself, but nowadays the most important means for succeeding in competition. Stimulation of creativity, and through this the making of right decisions, will remain the most important task of higher education.

V In Conclusion

As you know, a new stage of time for Estonia began in June 1997, when we were invited to participate in the negotiations about joining the European Union. Too often, the European Union has been perceived in Estonia as some kind of club that has a certain amount of rules that we have to start following whether we like it or not. Actually, the European Union means certain democratic convictions. Including written and unwritten business practices. People tend to forget that often the directives of the European Union are the things that have forced us to find money for several environmental projects, motivated many companies to adapt their products to the requirements of the Western market instead of the Russian one, and train their people to work with more modern equipment. When we look at the development of Estonia in the last ten years, we can be pleased that we have managed to reorganise our economy without major shocks. The share of the European Union in export has increased to 70-80 per cent, the share of the private sector in the gross domestic product has increased, we are the largest investors by our southern neighbours besides Germany and the US. All this suggests that Estonian economy is competitive, Estonian business elite has managed to adapt to new circumstances and rules to a certain limit. Movement towards the European Union clearly indicates that the responsibility of people is increasing. We have to take responsibility for our decisions ourselves, we can not expect others to be responsible for what we have left undone. The ability to take responsibility, my ladies and gentlemen, must become the rule of our future, new time and this applies to the levels of the individual, companies, government and state. We have to change together with our surroundings and we have to change faster than the environment and the world that surrounds us. If we want to catch the tram, we have to run faster than the tram.

My short conclusions. So: the internet is not a goal, but a tool and like the first book of Gutenberg, it does not make anyone blessed in itself.

Secondly: I wish you more ambition. The world does not end with Estonia. Against the background of Europe, our economy is insignificant. Use dollars and euros, when you prepare your balance sheets.

Thirdly: less satisfaction, less admiration, less dealing with one's own holiday trips.

Fourthly: no one can penetrate a market and design its trademark alone, but a niche will open to unified Estonian capital. And if we are talented and smart, we can expand this niche into world market.

Thank you.

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