own staff. this would require strong public secondary education, diploma studies, and postgraduate studies, and not necessarily public vocational education. ( there are examples of such an approach primarily in the it and telecommunications areas. ) • the second possibility is state - commissioned education. since investments into human capital promote innovation and bring about other positive effects, state investments into the area are justified as the private sector invests less than is socially optimal. estonia is quite progressive in that field - we spend 6 - 7 % of the gdp on education, which is more than in other transition countries and similar to the respective levels in finland and sweden. • even though state - controlled development of human capital requires increased spendings from the national budget, it is relevant that some of the expenditure will be later recovered through additional receipts since rising productivity and employment boost tax revenues. • the third option is to secure as efficient as possible operation of the education market in the private sector where people themselves pay for their education. one possibility to contribute to this is, for example, through carefully planned implementation of the system of education capital units that has already been under discussion, in the similar way to the pension insurance system that has been successfully launced. when we know which areas will boost estonia's competitiveness, we should make sure that those who pay for their education themselves would choose the right specialities ( they should be motivated by the fact that their anticipated pay is going to be higher - hence they would be willing to bear higher costs ). currently the problem in estonia is that people choose law and business specialities where the external impact is small, and fewer engineering professions, mathematics, etc. where the external impact is presumably high. • probably the main problem here is lack of information. in order to secure improved circulation of information, future students should be systematically informed of the differences in pay and the opportunities of finding employment in different areas - however, pay differences today do not always reflect what is to become in the future. for example, the excessive supply in business specialities compared to other areas should lower entry - level salaries. another area about which students should be systematically informed is the level of schools. if the aim of the upper secondary school is to send students on to higher educational establishments, the percentages of those admitted to universities should be publicised on a permanent basis. this requires the state to take action. • developing an integral framework for supporting innovative activities - including measures related to labour quality and promoting innovation as well as venture capital

least three factors : firstly, educated and competent people ; secondly, a well - functioning financial system covering the whole chain of innovation ; and thirdly, a culture favouring innovation and entrepreneurship. • is estonian labour really competitive? do we want to be price or quality leaders? if the goal is to be price leaders, our salaries should be as low as possible. if we want to be quality leaders, the situation is vice versa. in order to generate innovation, innovative people have to be raised in estonia, brought to estonia - and kept in estonia, hence the aim should be to create more high - productivity jobs. • i maintain that being a part of europe, we should become quality leaders since we have already lost the price leader position to asia. this is undoubtedly easier to say than to do. here we face the threat of outpacing the so - called natural development, which calls for step - by - step industrial development towards manufacturing products with increased added value - such a development is in fact currently under way in estonia. on the other hand, the payback period of such investments is very long and the experience of several countries ( including finland and ireland ) has shown that success often arrives only decades later. consequently - if it is our goal to become a quality leader, development activities in this direction should be launched as soon as possible. • here we come to the question, where to start? the answer requires a good prediction or even a vision : which areas have enough potential in estonia that are worth to be given systematic development priority. it is possible that due to its small size estonia lacks any potential for developing high - technology industry since this would require the emergence of clusters. even if we manage to develop our own high - technology industry, sufficiently high - level know - how will most likely emerge only in few fields. however, this does not mean that we should develop just a few areas. according to the principle of risk - spreading, it would still be better to support research and development activities on quite a broad basis. • the economic analyses by the central bank consistently emphasise that in order to obtain financial capital required for development, estonia must remain attractive in the eyes of foreign investors also in the future. however, in order to boost the country's competitiveness it would be a good idea to adopt a more carefully planned system of investments into human capital and set up a framework for financing innovation. • there are many possibilities to do that. firstly, large companies could train their