An innovative economy requires cooperation and tough choices

As over 500 delegates converge on Tallinn today for the annual forum of the EU Strategy for the Baltic Sea Region, they may congratulate themselves on some very promising statistics. According to data assembled by the European Investment Bank (EIB), of the 21 most innovative regions in the European Union, measured by regional R&D intensity, as many as seven are in Sweden and Finland. Also, Denmark is significantly above the EU average and Estonia is higher than the average for the 10 new EU member states. We can take pride in these prominent rankings, and note progress being made in Poland, Lithuania and Latvia. On the Western shores of the Baltic Sea, strong physics clusters around Hamburg’s renowned HERA accelerator and the Max IV and European Spallation Source facilities to be built in Lund, Sweden, underpin Europe’s global leadership in this research area.

But this does not mean we should only celebrate in Tallinn.

There are a number of clear challenges ahead. The global financial crisis hit hard. Estonia, Latvia and Lithuania get well-deserved praise in a new review by the International Monetary Fund for adjustment policies in 2008 and 2009. However, structural reforms are needed to return to higher growth. This is also the case elsewhere in the region, as most countries suffer from small markets for goods and services, which mean higher prices and an investment climate that may not be optimal. Limited job and career opportunities mean people move to where conditions are better. And now that autumn is here, we are reminded of the long winters and that we are far from the main markets and population centers of Europe. Also, there is a definite divide between the four Nordic countries, which all have more than 40 percent of their employment in knowledge-intensive services, and other parts of the region.

Many of these challenges are structural and will not disappear when the global economy improves. What can we do about them? Many things no doubt, as outlined in the EU Baltic Sea Strategy. But if there is one overriding principle, it is that we should work towards making the Baltic Sea Region a very good place to live and do business in and to induce investors to come. In such an environment, with well-educated work forces, science and innovation will rise and problems of demographics and distances will become less acute. This requires investing in research and development, transport, energy, education, health care and other areas. At the EIB, we are doing our part by financing electricity grids, a waste-driven power plant in Finland, and a world-class research hospital in Sweden, just to name a few examples.

But improving the quality of life in the long run is also about making tough decisions. It means deregulating industries, tearing down barriers to competition and pooling resources across borders. In many cases, investing in education, research or infrastructure is a first step to creating clusters with economies of scale to ensure growth. These are not easy calls for politicians and other decision-makers. But doing what is good for the region and for the future, rather than preserving the status quo, should be the obvious choice. Because what the region has shown – over several decades and in particular in the Baltic States during the past crisis – is that there is a readiness to implement structural change and make difficult decisions. And that is a good start for today’s important conference.

Ms. Srejber is Vice-President of the European Investment Bank with special responsibility for financing operations in Finland, Sweden, Estonia, Latvia, Lithuania, EFTA countries, the the EU’s Eastern neighbors and Central Asia.