Over the past 30 years, Estonia's economy has made a leap rarely seen in small countries. We've gone from low value-added manufacturing to a digitally advanced smart economy. Yet we are now seeing that progress has stalled. Estonian labor productivity remains below 80 percent of the European Union average and private sector investment in research and development falls short of the level needed to take the next step forward. Figuratively speaking, we've reached a plateau — a middle-income trap — from which moving forward will require different kinds of solutions.

International comparisons show that economies able to escape the middle-income trap do so in two ways: by improving people's skills and by systematically relying on research and development.

In Estonia, our everyday discussions tend to focus on whether we have too much academic higher education, whether we should offer more applied higher education and how much one or the other costs. But the real issue isn't about form or price — it's about substance: what kinds of skills are needed in Estonia to move toward a higher value-added economy.

Only research and development can deliver the necessary leap

Our long-term goals are ambitious. By 2035, Estonia's labor productivity should reach 110 percent of the European Union average — at present, we are nearly 20 percent below that. The number of private sector researchers and engineers per thousand people is around 2.5, while the target is 4.5. Private sector spending on research and development amounts to 1 percent of GDP, whereas in the Nordic countries, it exceeds 2 percent.

These gaps are not cosmetic. They reflect differences at the level of economic models. Higher value-added industry does not arise simply from increased efficiency, but from growing knowledge intensity. This means we need more scientists and engineers, more companies developing new materials, energy solutions, software systems, production robotics and biotechnology.

This cannot be achieved through applied higher education, which focuses on the use of existing technologies. What's needed is academic higher education that generates new knowledge and technologies. And more than that: master's and doctoral studies that bring this knowledge into the business sector.

Master's and doctoral studies as an invisible engine

In Estonia, we talk far too rarely about how important master's and doctoral studies are to economic development. Last year, the average salary of recent master's graduates from Tallinn University of Technology was 1.8 times the national average, and for graduates in IT and engineering, it was even two to three times higher.

The impact isn't just in salary levels — it reflects the value of these jobs to businesses. Master's graduates contribute more to R&D, lead development projects, create new products and increase companies' innovation capacity.

Estonia needs significantly more experts with master's and especially doctoral degrees. Currently, only 1 percent of people aged 25 to 64 hold a PhD. Our goal is to reach 1.5 percent, but the level in the Nordic countries is considerably higher. If we want similar economic success, we must expand the scope of doctoral education.

Fortunately, the state has begun creating additional doctoral study positions. After all, a doctorate isn't an academic luxury — it's an economic necessity.

But not at the expense of academic higher education

Applied higher education is extremely important for Estonia. We need skilled practitioners, technicians and specialists who can launch and maintain complex systems. However, expanding applied higher education at the expense of academic higher education would be a strategic mistake.

The industries Estonia aims to grow — clean technologies, robotics, energy systems, biotechnology, digital solutions and materials science — require both skilled workers and highly competent knowledge creators.

On one hand, we need applied higher education to train excellent technical engineers. On the other hand, we need experts with master's and doctoral degrees who can develop new technologies and manage complex systems.

So what does Estonia need to do right now?

· Invest significantly more in master's and doctoral studies. This is the fastest way to build a knowledge-based economy.

· Strengthen the private sector's R&D capacity.

· Shift from project-based cooperation between the state and businesses to long-term partnerships.

· Build stronger ecosystems between universities and businesses. Science parks, testing labs and joint development efforts are key to boosting competitiveness.

· Ensure that young people are motivated to choose fields such as engineering, technology, IT and the natural sciences. Salary data shows these choices offer the greatest return — both for individuals and for the country.

· Raise Estonia's level of ambition, not lower it. A simpler economy needs less higher education; a more complex one needs more.

Decisions made today relevant for 30 years

So, if we want Estonia's economy to move to the next level, we cannot rely solely on existing technologies. We need people who create new ones. That means stronger academic higher education, more master's and doctoral students and companies willing to invest in research and development.

Estonia's success over the next 30 years depends on the decision we make today: will we settle for the middle-income trap or choose the knowledge-based path that can take us to the level of the Nordic countries?

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