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HEI 12(21): On 21 May, the Parliament of Estonia discussed innovation as a matter of significant national importance. The discussion had primarily been prepared by the Economic Affairs Committee, and therefore innovation was primarily discussed in the context of economic development.

The keynote speakers at the session were Urmas Klaas, chairman of the Economic Affairs Committee; Linnar Viik, a member of the Estonian Research and Development Council; and Juhan Parts, Minister of Economic Affairs and Communications.

Klaas summarised the eight parliamentary hearings which the Economic Affairs Committee had held in preparation for the discussion. Two of these had been held in cooperation with the Cultural Affairs Committee of the Parliament. There was probably not much new information for people who have attended conferences on innovation, even if they went to just one. The problem is a lack of cooperation between companies themselves, between companies and universities, and between different universities. There is a great deal of duplication in different universities, while at the same time, the level of qualification obtained often varies a great deal. We need more people with doctoral degrees. Another problem is that the sciences are an unpopular subject in schools. We should develop an enterprise culture in children from a very early age. Nevertheless, it must be noted that the current economic environment supports innovation, forcing companies to search for and implement innovation.

According to Klaas, it is the state's responsibility, "to create and maintain the necessary environment through legislation, a favourable tax policy, an advanced infrastructure and the development of social values". The state should boost core values such as education, enterprise, trust, freedom and involvement.

Linnar Viik focused on the social and cultural aspects of the innovation system. He emphasised that the increasing discussion in Europe about the free movement of knowledge is important for a small country like Estonia. "In terms of the balance of trade, a successful country is the one where exports exceed imports; whereas from the perspective of a knowledge-based economy, a country is successful if it is able to import and implement the knowledge created throughout the world with the maximum degree of success, and if it is able to apply the knowledge in the internal processes of the institutions and organisations in the specific country as well as use the knowledge to create products and services of advanced quality for the next level, for the export markets," said Viik.

Viik provided an example in the form of businessmen from Tartu who set off for Tallinn in the small hours of each Monday morning in order to catch a plane to Stockholm, because that is where they will get high-level knowledge they require, as opposed to getting it from the university in their home town, Tartu. We cannot ask the university of a small country to possess a world class level of knowledge in all fields of activity that nearby businesses might deem necessary. Viik also quoted the scholar Mart Saarma who has said that scientists in a small country must be like shamans and explain the meaning of the top level of global science in a local context, in the local language, and spread this knowledge from generation to generation while also making sure that it is applicable.

"This choice between a so-called shaman society - which covers all fields but does not have the most brilliant science and technology - and a truly brilliant world of technology is one of the toughest choices facing us," said MP Marek Strandberg. "It would be easier for us to make this choice if we had some level of resources. At the moment we are hoping that the resources will emerge some day after we have made the decision." And there are hardly any followers of politics who would be surprised by Strandberg's personal conviction that these resources could primarily be provided by restructuring the energy sector.

Several speakers pointed out that innovation should not be led by just one ministry, but should instead penetrate all the structures in the public sector. Viik thinks that, in addition to an expenditure estimate which has been prepared by the Ministry of Finance, each bill should also be accompanied by an "assessment of innovation, of the impact of the bill; if and how the specific bill will change socio-cultural phenomena or will it influence innovation around us".

Hannes Astok MP highlighted the importance of administrative innovation. "Could you imagine that each regional office of Swedbank in Estonia had its own version of the Internet bank, with a design and set-up completely different from the others?" was his question and he answered it himself: "Most probably, you can't possibly imagine such a situation. But Estonia, a country with a population about as big as Swedbank's clientele in the Baltic countries, has a separate service portal for each ministry and state agency, whereas the design, basic function and language used are as different as night and day."

In his speech, Juhan Parts provided an overview of the current status and future outlook of the innovation system. In 2008, expenditure on research and development (R&D) constituted 1.14% of gross domestic product. "However, a conservative assessment tells us that we are very far from the target of 3% which should be reached by 2014," admitted Parts. At the same time, input by the private sector has grown considerably. In 1998, the private sector's contribution to total R&D expenditure was 19.7%, but it had risen to 47.2% in 2007. The best practice in Europe is to have the private sector contributing two-thirds with the final third coming from the taxpayers' pocket.

Based on international evaluations, Estonia is the country that is moving the fastest towards the top-ranking countries in Central and Eastern Europe. "We stand out among other countries for our highly educated workforce and the sharp increase in investment," said Parts. "The PISA test confirms that Estonian children are among the most talented in the world, meaning that we have a great foundation on which to build long-term development."

In terms of a weakness, Parts mentioned the small number of companies seeking the protection of intellectual property rights, which indicates that the business models used are simple, that there are not many original products, and that we are implementers rather than creators of production technology. In turn, this results in a low level of high-tech export and limited income from selling new products. "We will see new economic drivers emerge in Estonia only if we as a society value searching for and testing new possibilities, even if these fail, and we continue to foster the consistent implementation of brave ideas," said Parts.

Parts also emphasised the need to reassess the strategy for the distribution of funds from European structural funds, considering the economic conditions, which have completely changed in recent months: "We have proposed an increase in investment in innovation by a further 1.5 billion Estonian kroons." The extra funds would be distributed between four key areas. For Parts, the priority is to restructure all current business grants and to find competitive advantages in these changed circumstances. To this end, it has been proposed to increase technological investment by 400 million Estonian kroons.

The second direction is to support the product development capacity of businesses. For this purpose, the Ministry of Economic Affairs and Communications wishes to increase the volume of the R&D projects programme by 400 million EEK.

The third priority, according to Parts, is our ability to improve the applicability of new strategic directions of development (such as energy), by setting up new strategic competence centres in which universities and companies can work together. Even though nearly one billion kroons will be invested in competence centres in the coming years, Parts thinks we should find at least an extra 200 million for this programme in the near future.

The fourth important area is future growth, which mostly requires the implementation of new and ambitious ideas. To aid in that, a support scheme for young innovative companies has been developed which takes into account the life cycle of great ideas, from conception to the launch of world-changing products. The Ministry has requested 500 million EEK for this programme. It is estimated that in the next ten years this amount should help to create thousands of jobs, which in turn could offer great added value, and hundreds of knowledge-intensive companies that are exclusively export-orientated.

Parts also emphasised the need to make Estonia more attractive for foreign investors, in order to ensure knowledge-based investments that are able to create greater amounts of added value.

Linnar Viik: I'm amazed by the levels of innovation on small islands

We have been amazed by the levels of innovation demonstrated by small Estonian islands as we look back into Estonian history. The first refrigerators in Estonia were introduced in western Estonia. They were then called ice cellars, but they served their function very well. The spread of ice cellars from the westernmost areas of Estonia to mainland Estonia took nearly a hundred years.

The first shoes for women were worn on the islands. Coffee, the mantle-chimney, the washing machine (in the old sense of the word) -all things which people from the Muhu, Hiiumaa and Saaremaa islands were not, of course, the first to think of, but which they saw, remembered and implemented back home. Since the island people travelled, had an open mind and had access to the sea as their channel for the free movement of ideas, they returned home with these novel concepts and ideas and implemented them in their everyday lives.

Even though they did not invent the mantle chimney themselves, it does not mean that they did not manage to improve their lives on Hiiumaa with the help of the chimney. Quite the opposite, they managed to ensure that they had a competitive advantage over the farms and communities in many other regions, and one that lasted for a long time. Innovation really is a verb. It refers to action and initiative, not a static state of being.