No. 12




Perspectives for the economic success of Estonia

14 December 2005


RiTo No. 12, 2005

The article discusses Estonia’s economic success and future prospects. In order to assess today’s results, recollections, assessments and hopes are presented dating from the early 1990s, when Estonia regained its independence. It all began with economic crisis, modest skills and knowledge about market economy, and a considerably poorer situation than in the Central European countries.

There are different opinions regarding the current economic situation. Estonia is mostly considered successful. A lot has been written about the factors contributing to its early economic success. In the 1990s, we were somewhat ahead of Latvia and Lithuania with our reforms. They have now followed our lead; however, several solutions in the sphere of economy vary in the Baltic states. The European Union is a powerful factor, and many of the vaunted factors of success have fallen into the background. Despite its rapid economic development, Estonia is a relatively poor country. It is also a very small country. The convergence operating in a joint market situation should be influential and significant factor of economic success, at least for the next few years.

It is difficult to make long-term forecasts. It is not possible to reliably predict whether the Estonian economy will ever reach the level of Finland, for example. We do not know how the Estonia’s development rate will change in the future. The economy continues to develop cyclically, which means that at least within a longer period, declines and maybe even crises are bound to happen. We have miles to go before the status of the European welfare state is achieved. The writer believes that Estonia’s road to “happiness” will last at least as long as the Soviet occupation, i.e. 50 years. So far, one-third of the road has been travelled.

To ensure economic success, the Estonian economy needs structural changes. No doubt – both industry and services will be necessary in the future as well. Labour and material-intensive production will be replaced by more knowledge-intensive production, of products with greater added value. The government can promote structural changes indirectly, through developing of infrastructure, and ensuring that the required specialists are trained.

In the past few years, medium-term planning has become entrenched in Estonian business and governmental practice. Our activities are planned more and more from other centres. Planning has become more detailed. At times there is a feeling that the command economy is returning. Today’s tens, even hundreds of development plans are mostly wish lists, being very similar, but not linked to each other, containing little creativity or new ideas. Planning is the key; however, strategic thinking, action, and bringing the plans to life are even more important.

There are many factors contributing to future success and they change over time. Great hopes are placed on the knowledge-based economy. The surest way of getting there is raising the level of education, especially ensuring a better specialized education for specialists. Specialists launch knowledge-based innovations. More material resources are also necessary, alongside more valuable human capital. Conservation is important. We should assign a higher value to productivity in the way we govern the state, and discuss administrative economics, legal economics, domestic and foreign policy economics. Family as an economic unit, supporter of the careers of its members, and bearer and developer of the morals and ethics that are important for success, should be appreciated.

In a certain sense, Estonia is in the same situation as in the days of regained independence, nearly 15 years ago. There are prerequisites for future success, but there are also problems. Today we need more creative discussion in the name of tomorrow’s success, including economic success.

Full article in Estonian