What does Estonia produce?


Dear President of the Hansapank,
Ladies and Gentlemen!

I wish to talk to you about what Estonia produces. Looking at the structure of our gross domestic product, it seems we are dealing with a fully matured economy: agriculture gives 5 per cent of the GDP, industry gives 26 per cent, the sphere of services more than 20 per cent and logistics and telecommunications almost 12 per cent. Unfortunately, this first impression is misguiding. The great proportion of modern branches of economy in the GDP first and foremost reflects the weakness of industry. The domestic production in Estonia is in a deplorable state. This fact has been and will for some time be disguised by our successful attraction of foreign investments. Without foreign investments, we would be looking at a very different picture. One third of the new job opportunities and more than half of the export is have come from the foreign investors. Our own first wave of proprietors on their part have humbly and furtively left the arena.

We have made the first full circle in building up Estonia. The first round of our businessmen lack a definite idea of what the next round should look like. Transit, contracting and assembling work is nothing to be ashamed of at the time when the economy is still in the process of self-discovery, just like a country that first tries to establish its position in this world. But this time is nearly over now. I remind you of ''Alice in Wonderland'': to run is the very least we can do in order to stay where we are, in order to remain a state. The brighter businessmen and social figures have already understood this and started the quest for the arcanum that would solve all our problems at once. In many corners of Estonia, grand schemes are ripening and support from the state is expected in millions. You have put me in an amusing and indeed embarrassing situation - in a situation where the Head of State has to remind businessmen of the almost biblical truth: that it is your task to create products that satisfy the people's needs, and also to sell them.

Let us have a closer look, on the basis of some simple examples.

Our domestic market is too small to feed the critical mass of domestic enterprises. Inevitably, Estonia will have to turn to export. Our direct objective is to win ourselves a firm place in the hearts of eighty million consumers surrounding the Baltic Sea, the most dynamic region of Europe. In a longer perspective, our export markets will probably be the mature markets of Europe, the United States. It was not by chance that I mentioned winning the hearts of consumers: in deciding in favour of one product or another, emotional, even irrational needs play a certain role. To a certain extent, the consumer prefers domestic products in order to satisfy his patriotic instincts. But only to a certain extent, and in case of equal quality of course. Do not underestimate the mysterious human psychology. You know it worse than the writers do. Just think of those hundreds of thousands chained to the TV by some championship or the Eurovision singing contest. It is not curiosity that keeps them there. It is something else, something I am not going to explain at length. In our recent meeting with Madeleine Albright, the Lithuanian foreign minister mostly spoke of the victory of Zhalgiris. This may seem ridiculous, but this is human, and such is also the market that prevails in the man himself and controls his actions. And the market is not ridiculous. The domestic trademark and a well-known product satisfy the consumer's need for safety. They inspire joy of recognition. On a broader scale, the product itself will satisfy the consumer's needs in a more or less pleasant way. And finally, an attractive package will satisfy his aesthetic needs. On mature markets - and I speak of Europe and America here - favourable price is the factor considered last.

It could of course be argued that in the foreseeable future, Estonia would not be able to satisfy the patriotic instincts of the Europeans or the Americans. Here, I would like to insert a huge question mark. What is Europe? Europe is not a small peninsula on the globe. Europe is the Magna Charta of the Englishmen, the Frenchmen's declaration of human rights that bore its brightest fruit in the hands of Jefferson and Washington in the independent United States and later in the independent Canada, the independent Australia, and the independent New Zealand. The next century and the next millennium will overlook the geographical contingencies and give much more weight to principles. All these parts of the world are - at least until a better name is found - Europe. And recognising the changing trends of their economic interests, let us once again observe their unity of principles, values and way of life. Thus, the European patriotism is not Friday's fear of the unknown wide world on the other side of the narrow borders and horizons from the times of Robinson Crusoe, but a quiet understanding that Europe is enlarging. And on the background of this quietly enlarging Europe, Estonia will just as quietly have to realize that the only way to our goal is a favourably priced product in an appetising package, or in other words, quality. The high repute of the state and the high value of its trademarks support each other. Made in Germany, made in Sweden, made in Finland are trademarks we should take as an example. From the time before World War II I remember - not from Tallinn, but from the streets of Paris and Berlin - that made in Estonia was not unknown. The membership of European Union and implementation of high-quality production will help us to surpass all patriotic barriers.

With great persistence, I have kept asking what is the Estonian Nokia. Finally, after many months, this question has also reached the pages of our popular media. It has become part of the Estonian folklore. As a writer, I am of course overjoyed to see that my work is alive and creating the silverwhite frame of mind. The conclusion of many Estonians - including several prominent figures - that the President is looking for a single product just as Pippi Longstocking once looked for Spunk - is still somewhat unexpected. The Estonian President is not supposed to seek the Estonian Nokia. I am seeking it for you. For your lazy minds. Every Estonian proprietor must seek it for himself, must seek at least six Nokias every year.

It would be nice to say that the Estonian products are the last word in technology. But I am not here to tell you fairy-tales. In the beginning, it would obviously be easier to concentrate on things we would be able to do without spending billions on racing the industrial giants of the world. The Nokia telephones are not the first global sales article of the Finns. The Alvar Aalto designs have been highly valued for more than sixty years. The Fiskars scissors were the best-known Finnish product twenty years ago, and I remember: Finland waged war on Hongkong when they started to fake Fiskars there. The entire world, including us, uses the Finnish sauna, although the Finnish sauna is also the Estonian sauna and the Komi sauna, and the Yakut sauna. The Finns managed to adopt it to the needs of the consumer, to package it suitably and sell it wisely. This is an integral part of the made in Finland trademark. The secret of their success lies in placing the human being in the centre of product development, in their orientation towards the consumer. These are exactly the qualities that the Estonian products often lack. The Estonian leaders often consider dealings with their contractors and consumers to be just another unpleasant by-product in their business. Modern management, in fact, is centred around man.

Man is the key to innovation. I have used the example of Nokia to draw attention to what Estonia does not produce - which is the world-class labour force. In Finland, nobody arranged a campaign to create the Nokia mobile phone. Nokia was born because the post-war Finland, a poor and hungry country devastated by the war, with unlit streets and unheated apartments, pulled itself together and started with fertilising its fields. As soon as the military reparations to the former Soviet Union had been paid, Finland sent the first group of young people to study in the United States of America. At that time, it was unheard-of, at that time people still travelled to America by boat. America was a far and unknown planet, but instead of limiting itself to mere project management, Finland concentrated on developing strategic resources. The American loan was used for financing the so-called ASLA scholarships. The efficiency factor of the scheme can not be expressed in numbers today - it is obviously too big for that. The loan issued for getting proper education is a safe investment in any case, for the borrowers as a rule will reach a position where the paying back of the loan is not going to pose a problem. Finland's success is a result of purposeful investments into human capital as such. The ASLA boys and girls are today's ministers, bank managers and high officials in Brussels whose amazing competence has brought some more efficiency even to the ingrown structures of Brussels and surprised Europe to the admission that there is something to learn from small Finland.

To draw a line between unimaginative project management and strategic development work, I once more return to Nokia. Ericsson, Motorola, Siemens, Philips and several Asian companies also produce mobile phones - why are our northern neighbours the most successful? It could be that the Nokia product is technologically a step ahead, but the list of examples of a technologically stronger product losing the battle is also endless. Betamax was technically stronger than the VHS system, and the Microsoft software was inadequate when compared to Apple. And still, Betamax is only used in the TV studios, and Apple has its fans whereas Microsoft has customers. Nokia's success is not based on a technological or temporal advantages. Jorma Ollila and his team have had the sense to acknowledge what people really need. They do not just want an apparatus that would forward their speech. They want an apparatus that would be simple, practical, and nice to look at. Jorma Ollila and his team are brilliant businessmen. Bill Gates, too, is first and foremost a brilliant businessman, and perhaps I too am first and foremost a brilliant businessman, and only secondly a bad programmer, and I suppose you understand that this means both Bill Gates and myself.

With no intention to nip in the bud the faint enthusiasm of our technophiles, I absolutely have to refer to a recent tendency: it is the service, and not the means for using it, that is the heart of a business idea. Mobile phones and computers are more and more handed out free of charge, in the hope that the services sold with them would bring profit. The companies who manage to load more information into the existing channels are the most successful. The content of the latest successful business ideas is the satisfaction of the basic unchanging human needs. Behind the business failures there is more often than not the inability to focus on the human factor - both in the process of development and in the relations with the consumer. In simple words, the lack of able businessmen and leadership.

Most of the work in the present, second round of building up the Estonian economy will have to be done by you, the businessmen, the people present in this room. The state, too, will have to contribute to its best ability. We must optimise the governmental apparatus, restrict the state's interference with the economic activities of the citizen and the foreign investor. A change must be achieved in the attitude of the state officials. The official's existence must be justified by what he can do for the taxpayer. The formalities must be left on the background, giving way to actual work.

At the same time, we must continuously reduce state participation in the business sector. Ethically, the role of the legislator is not compatible with that of a market operator. In practice, compatibility between them would mean creating more favourable conditions to the state at the expense of the competitors - which inevitably leads to rising prices and declining quality. As we know, the state is not a good businessman. Private companies send you a bill, state enterprises force you to spend working time or rare spare moments to pay for gas or electricity. We are doing the right thing by selling to private ownership everything that is not strictly necessary for administering the state. And yet it is only this year that we finally have more people working in private sector than in state enterprises.

The role of the Estonian State gains importance if we start thinking of the end of the second round of our economy already now. In the situation where Estonia already has Western business culture and proper marketing, the third round must, in order to survive, be able to create surplus value first and foremost in the field of intellectual property. Estonian enterprises must be able to come out with innovative scientific products. For this, it is necessary for the three components of success - scientific ability, enterprise, and money - to converge. Unfortunately, in Estonia we are short of all three.

We are in the situation where the Estonian scientists are forced, in order to keep their research going, constantly to prove the practical value of their research, obtain patents, and look for funding. Today, the products of an Estonian scientist include one grant application per two weeks. Furthermore, the dominating university-oriented trend means that scientists will also have to succeed as pedagogues. Considering their low income, it becomes obvious why young people abandon science for business and nowadays also for administration. This results in meagre research results and scanty new generation of scientists. This is not a situation that would inspire enterprising people or potential funding. Estonia has not been able to take advantage of any of the latest trends in technology. A small niche, the production of unique systems sustaining on the cheapness of our scentists' handicraft is all we have left. How could we possibly avoid the same kind of failure in the field of biotechnology or genetic technology?

Even though some might consider this too radical a solution, it is in fact old as the hills. It is called the distribution of work. Last summer, I invited for a visit Mr. d'Arbelov, the President of Massachusetts Institute of Technology (MIT). I took him to the Institute of Cybernetics, similar to dozens he had seen before, and to Saaremaa - different from anything he had ever seen or will ever see in his life. He became an Estonia fan. On his departure, he said: ''You know everything except this: the creation of new technology usually takes from six months to a year; and it takes three to five years to create a new market. You must learn to create a market. You should have people turning to look when you walk in the street or across a conference hall. You must study the market, and study yourselves.'' These were the words of d'Arbelov, the President of MIT.

He is right.

In Silicon Valley, California, all the scientist does is research. The lab owner, who also owns the intellectual property, looks for the opportunities to apply the product, and arranges the funding. Often, a separate company is created for every application, risk capital funds are created to determine the viability of the project and fund it. I repeat: the scientist researches, the businessmen apply the research to practice, the banks provide the funding. There is no direct state support involved in Silicon Valley or the Silicon Fen. As the enterprisers are risking their own money, also the high quality of project evaluation is guaranteed. Only 10 per cent of all projects yield profit, but this is more than enough to cover the financiers' losses on other projects. With a similar success coefficient, half a dozen highly profitable enterprises would emerge yearly only on the basis of the projects financed from the Estonian Innovation Fund.

Estonia differs from California and Cambridge, because the results of our researchers do not inspire the businessmen, and the businessmen in their turn do not seem reliable to the banks. In changing this situation, and in this only, the state could have a considerable role. Here, the state can act in three directions: to encourage the enterprises, to develop science and act as a catalyst in the initial stage. For encouraging the enterprises, I see an unused opportunity in reducing the personal income tax. The Swedish experience shows us that even comparatively low corporate tax can not compensate the negative effect of high personal income tax that has an inhibiting effect on enterprising and leads to brain drain. Let us return to the main point of my presentation - people are our most important strategic resource, and this resource has to be developed.

The state must invest the collected taxes in the taxpayer. The proportion of education and science expenses should increase threefold in the state budget. And we should not proceed from the pseudocriteria of applicability. For instance, if a mobile telephone had been shown to some research bureaucrat in 1975, saying that by the year 2000 every adult European would have such a gadget, he would not have paid a single penny for it. At the same time, the ''Multimedia Super Corridor'', created as a technology park by the Malaysian officials, is becoming a 25-billion-dollar investment wreck. The products that have become the cornerstones of modern technology have mostly been created without any immediate practical purpose. The Internet - the most dynamic, perhaps even the greatest, business of the modern world, is a by-product of scientific research, a reject product if you wish. It had its beginning in the absolutely not profit-oriented ARPANET, which was used by the U.S. students and also professors for exchange of information.

The relation of science and its practical application is well characterised by the Nobel Prize in economy: consistently, the prize is awarded for researches that are at least 20 years old. Which means that the studies that are going to influence the science twenty years from now get no recognition whatsoever today. Science that is - mostly without reason - considered so practical, is unable to recognise an opportunity for practical application. This shows us clearly that just as d'Arbelov said, science and practice are two different worlds, which need to be inhabited by different people with different talent, character, and approach. Science parks are fit to be the crossing points of these two worlds. I do not know how effective the science parks are, I know they exist in Estonia, but their work is ineffective because the services they offer are not on the necessary level. And this is so because they have ignored the basic human nature.

Let us ask ourselves: why does the productivity of a research worker increase ten times when we transport him 80 kilometres northward, from Tallinn to Helsinki? Why is the already mature economy of the Untied States capable of growing four per cent annually? This is so because over there, they do not want to bring up new men, but efficiently take advantage of the human nature as it is. Above all, the human being values safety, freedom, and certainty about future. The feeling of safety and freedom of action are best supported by financial security and safe environment. The most universal measure of recognition has always been the salary or the profit - in one word, money.

So why don't we too finally cast the ethical code of the Communism builder overboard and admit that Gordon Gekko's well-known words from the ''Wall Street'' tell us more about human nature than the complete works of Karl Marx. Gordon Gekko said: ''In this world, greed is good''. If we dare not or will not pay proper salaries to our top level specialists - lawyers, patent experts, marketing experts, our science parks are destined to slow death. A science park without world-class infrastructure can not compete with the scientific centres of the world.

Experience has proved that the state's ability to create adequate material stimulation mechanisms is limited. The state may create the basis for a technology centre, but in the medium and longer perspective the centre will have to start functioning on private basis. Once more, I emphasise that the Estonian State will have to create the environment where a person can and will be paid properly for his work, where it is nice and safe to live. But the state can not be enterprising for its people. The Estonian State supports science, supports education, but does not engage in business. The next move is yours, ladies and gentlemen, and I hope you will be able to make that move for Estonia.

Ladies and gentlemen,

it was a great pleasure for me to hear that those present here have supported the Cultural Foundation of the President of the Republic. I will tell you a story.

When I graduated from the university, I was told that it would be impossible for me to work as a historian in the Soviet Estonia, so I started to work as a dramatist at the Vanemuine Theatre. The dramatist's tasks included the printing arrangements of the theatre programmes, in the ''Noor-Eesti'' printing house in Kastani Street. At the time of my story, the printing house was no longer called ''Noor-Eesti'', but ''Pioneer''. Still, there was a nice printing man working there, from the times before the war, who once gave me the three volumes of ''The History of Estonia'' as a present. ''The History of Estonia'' had been published by the Estonian Writers' Co-operative, and many of the books issued by that publishing house had been printed by the ''Noor-Eesti''. This also goes for ''The History of Estonia''. But ''The History of Estonia'' remained incomplete. In 1940, when only a couple of small brochures of the third volume had been published, the publication was interrupted and the book prohibited.

The old printer who had given me ''The Histroy of Estonia'', had set, printed and bound the book himself. All three volumes he gave me were of equally thick. I wondered how this was possible. The man laughed and told me to open the book. Half of it consisted of blank pages. The old man said that where the blank pages started, the Russians had invaded and that had been the end of history. He said he would not have time left - but if I could, I was to fill these pages.

This spring, I have held this book in hand several times. I have talked to Professor Sulev Vahtre who was one year ahead of me in the university, about the need to complete the Estonian history. I should very much like to hope that in the year 2000, which is the year of the jubilee of the Estonian book, we will be able to complete the history book that was once left unfinished. Professor Vahtre was inspired. He and his students have started the composition of the missing volumes. I do indeed hope that on the year 2000, which is the jubilee year of the Estonian book, we will be able to complete another volume of the history book that was severed in 1940.

Thank you for supporting the Cultural Foundation and thus also creating a firm foundation to supporting the Estonian historians, to the continued writing of the Estonian history. I hope you will hold in your hands Volume VI of the History of Estonia next year, and that it will be followed by Volumes V and VI.

My dear ladies and gentlemen and all my Presidents, I thank you with all my heart.

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