Entrepreneurial Catch Up and New Industrial Competence Bloc Formation in the Baltic Sea Region

1990 saw the break up of the Soviet political system. The liberated, but poor formerly planned economies were left on their own to restore their institutions to that of an open market organization. Even though roughly on par with the Nordic countries before being annexed, 50 years of Soviet isolation had left the formerly planned Baltic Sea Region (BSR) economies in an industrially backward state. Critical market institutions did not exist, and corruption made normal business life impossible. Catch up with Western industrial economies therefore became a policy priority. During the 1970s also the industrialized BSR economies had introduced elements of centralized planning that restricted free entrepreneurial activities. By the Soviet collapse stagnation had therefore also brought the need for entrepreneurship onto the policy agenda of Western BSR nations. Institutional obstacles to economic progress were gradually being dismantled. Historic developments in the BSR have therefore accidentally staged a unique economic policy experiment. Using a competence bloc based method of identifying the role of the entrepreneur in observed macroeconomic catch-up, we can distinguish between the relative roles in economic progress among the BSR economies of improvements in local entrepreneurial environments, and of individual entrepreneurial action. We found that successful catch-up among the formerly planned BSR economies still has a long way to go, and that policy focus should be set on improving the local entrepreneurial environments to support both new firm formation for long run development, and to encourage immediate FDI for short term effects. Significant obstacles to trade and ownership transactions, however, remain across the BSR. Hence, success in catch-up should be expected to differ significantly among the BSR countries. We propose a policy competition among the transition countries in improving their entrepreneurial environments to beat each other in long run catch-up performance, that will benefit both catch-up of individual economies, and growth of the entire BSR economy.