Riigikogu Toimetised Socio-political journal

Estonian economy in the environment of a new development cycle

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  Raivo Vare

  Observer

In the multicrisis of recent years, Estonia has done relatively well, but the country and society that have gotten used to the success story they have enjoyed so far are not satisfied. What is different in this crisis?

The world is undergoing a change in the existing political and economic order. The current West-centred model is being replaced by a new one. A new superpower, China, has entered the arena, using Moscow and its aggressiveness as an ice-breaker. This global confrontation cannot pass us by, because the EU, as the third centre of economic power in the world, will not be able to maintain the current line of being in a business relationship founded on mutual benefit only with both superpowers.

Capitalism is also changing, and we do not believe any longer that the development of market economy will almost automatically bring along the domination of democracy. Very different forms of government can flourish on the market economy base, and the confrontation between liberal democracy and autocracy is only growing.

The share of democracies, or free and partially free countries, in world economy is decreasing. When at the end of the Cold War it was 80%, then according to forecasts, it will be only 40% by 2050. The so-called non-free countries will take their place.

This time, our still ongoing economic crisis is also taking place in the context of an unfortunate combination of circumstances. Estonia continues to be in a convergence stage, the classic problem of which in the big picture is connected with the fact that prices and costs tend to rise first and revenues catch up a little later. Cheap energy has now become more expensive than average and cheap money has also run out. Besides that, relatively cheap and skilled labour force is also running out, which is a factor that hinders economic development in any case.  The image of a so-called war zone has also made its negative contribution, which first of all has had an impact on foreign investments.

It is also clear that the logic of the economic cycle will sooner or later lead to a fundamental exit from it. How quickly and with what results will, besides objective and global circumstances, also depend very much on the policies that need to ensure the wisely coordinated directing of economy.