Looming Riigikogu elections have clearly energized public political debate about Estonia's future. And for good reason: after three years of economic decline, the growth — barely above the margin of error — that has followed is not enough to restore our living standard anytime soon, let alone bring Estonia closer to the European Union average.

All of this has gradually increased general dissatisfaction, made worse by the government's apologetic references to the coronavirus pandemic, the energy crisis, the blockade of the Strait of Hormuz, shrinking export markets and other "objective" circumstances — as though nothing depended on us ourselves.

Nor is it acceptable to reduce every aspect of life to a security threat by invoking the war in Ukraine, while branding anyone who challenges such an attitude as a Kremlin proxy. Hovering above it all is the additional ideological dogma that the government cannot and must not involve itself in economic development.

We neither have to nor want to accept such a situation. Especially knowing that our counterparts in Latvia, Lithuania and Poland have been considerably more successful than we have. We need a change in mindset and I believe the overwhelming majority of society expects one as well. The mentality of "fine-tuning" has irreversibly discredited itself; what people want is a clear vision and the decisiveness to carry it out — something that would restore the once-prevailing faith in Estonia's future and motivate everyone to work toward it.

Let me offer a few thoughts below on how to meet this challenge.

Economic development

President Toomas Hendrik Ilves pointed out already in 2014 that the growth factors that had driven Estonia's development had been exhausted — what brought us here would not take us further. Two years later, the doctrine of "fine-tuning" was formulated, while the economy continued growing on inertia alone for another five years until reaching its peak in 2021. By now, nearly five years of impotent stagnation have passed and structural problems are visible in almost every sphere of public life.

Central to understanding this stagnation is the fact that Estonia's economic development is constrained above all by low productivity, rather than by employment levels, a shortage of educated labor or the low level of research and development activity — both in the real economy and in the public sector.

Paradoxically, the ambitious goal set in 2021 of raising Estonia's productivity to 110 percent of the EU average by 2035 has instead gone into decline.

Low productivity, in turn, is largely the result of business models built on cheap inputs, characterized by low concentrations of human capital, production assets and industrial property, including intellectual property. In other words: small companies, low levels of mechanization, automation and digitalization and operations confined to the lower tiers of the value chain without production clusters capable of increasing competitiveness.

These structural problems will not be solved by importing cheap labor and increasing employment, nor by more generously funding basic research and promoting doctoral studies. The former merely reproduce outdated business models, while the latter lack fertile ground in which to take root.

The solution must be sought in a purposeful state-led industrial policy, developed in cooperation with the business and academic sectors and aligned with education and other sectoral policies, including through targeted value propositions for foreign investors.

All of this requires political choices centered on concentrating resources to amplify our strengths and abandoning uncompetitive lines of activity. At the same time, the overwhelming majority of EU structural funds should be directed specifically toward increasing productivity — in other words, reducing the number of jobs rather than creating them, not to mention spending money on bicycle paths, playground swings and axe-throwing competitions.

Public finances

The second political challenge unavoidably in need of solving is putting the country's finances back on a sustainable path. We are living beyond our means: our expenditures, including current expenditures, exceed (tax) revenues by 4.5 percent of GDP and this will remain the case throughout the entire four-year state budget strategy period. Explaining this situation solely through increased defense spending is misleading and irresponsible.

While some of the problems are tied to irresponsibly expanded subsidies, it should be understood that the financial problems are also structural and stem from our longstanding simplified approach to tax and budget policy. More than that, parts of our simple yet rigid tax model prevent us from implementing the kind of reasonable economic policies practiced in many developed countries.

There are strong grounds for the view that restoring order to public finances is impossible without a substantive revision of tax policy, including reconsidering the balance between property and labor taxes, the restoration of corporate income tax and the advantages and disadvantages of a progressive income tax. And this despite the understandable longing for stability after the recent "tax festival."

Before raising taxes, however, opportunities should be found to reduce spending in two directions. First, subsidies should be based on actual need, and second, the administrative costs of the government sector should be reduced — in other words, productivity should be increased.

One would hope that the political parties preparing for the elections will be able to offer concrete and credible solutions to the looming financial crisis. As a substitute for this, we should not accept vague promises or misleading assurances in the style of "read my lips." We need specific solutions backed by credible calculations accurate to at least within €100 million.

State reform

A third — and perhaps the most acute — challenge should be seen in the need for reform of the system of state governance.

Eight years ago, a foundation established at the initiative of attorney Jüri Raidla set itself the goal of preparing and helping implement state reform, culminating in a joint memorandum signed by all political parties. Yet the relevant draft legislation ultimately faded away in the Riigikogu due to a lack of political interest. The need to modernize the system of governance, however, has only deepened.

Looking at the organization of Estonia's state governance, it must be acknowledged that our Constitution and the governing framework derived from it have generally served us well. We have avoided both constitutional crises and government crises.

At the same time, there is a noticeable complacency in governance overall, accompanied by growing bureaucratization and a loss of agility, which is increasingly hindering faster societal development and necessary reforms. The economic and public finance problems described above are also largely connected to shortcomings in the organization of governance, including in terms of reducing costs. We need a "State Reform 2.0," which could in large part build on the earlier proposals of the State Reform Foundation and find an updated expression in the future government's work plan.

I would see state reform as a three-tiered process.

First, steps aimed at improving the efficiency and agility of governance, which the government could implement through regulations and at the state budget level within a single year. The key concepts would be reducing governance costs by 20 percent through higher productivity, shortening administrative processing times by half through the adoption of new technological solutions and increasing budget transparency by making the entire public sector's budget information public.

Second, changes concerning the structure of government that would require amendments to constitutional laws, such as the procedure for appointing ministers, increasing the accountability and rotation of senior civil servants and empowering the government to reduce siloing among ministries and agencies. Consideration should also be given to strengthening the Riigikogu's oversight and legislative capacity. This could realistically be achieved within a two- to four-year timeframe.

The third level of state reform could also encompass constitutional questions, such as the institution of the president — including the method of election and length of the term — the status of ministers, whether as executive heads of ministries or members of government responsible for political leadership, as well as modern security challenges related to governance arrangements in both peacetime and wartime.

In summary

Estonian life and the way it is organized are ours to preserve and take responsibility for; we cannot simply throw up our hands and leave ourselves at the mercy of external forces and military conflicts.

We have every opportunity to shape our own future by demanding the necessary decisions and action from our representatives in parliament and local councils and by electing the best people to carry them out. It would be wise to do so before external circumstances or growing dissatisfaction turning into defiance force us to act.

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