No. 3




Estonian Economy in a Globalising World

18 June 2001


RiTo No. 3, 2001

  • Mihkel Pärnoja

    Minister of Economic Affairs of the Republic of Estonia, Mõõdukad

Globalisation, as a worldwide integration of money, trade and labour markets, influences the open economy of small Estonia more than many other countries. This process is associated with several dangers, but also with interesting challenges and opportunities. Despite the dangers, it is not necessary – and generally not possible either – to fight it, although the state must monitor the processes involved and interfere by means of economic policy when necessary, in order to prevent negative consequences and make use of positive opportunities.

For us, a strong economy is not a goal in itself but an instrument for realising our social and cultural aspirations – a prerequisite for general welfare. An ultra-liberal market approach may guarantee a certain degree of economic growth, but if the country’s long-term objective is to join the ranks of more developed countries and ensure a firm position in an ever-changing world economy, we must seek a suitable place for ourselves in the worldwide division of labour during globalisation even today.

Presently, this place is occupied by an economy based on cheap labour, producing low surplus value and being imprudent with regard to natural and human resources. Estonian export is likewise primarily made up of goods at a low level of processing. Low surplus value and low work efficiency are inevitably linked with people’s low incomes.

In comparison with other similar countries, though, Estonia is still in a very good position. By virtue of a high capability for learning and persistent work, Estonia has become one of the most successful countries in Central and Eastern Europe. The present stage of economic development is only natural, but the important thing is to make efficient use of our achievements for ensuring continuous and sustained economic growth. We possess resources that can be invested in key areas of the society’s development, but unfortunately there is no consensus on what these areas should be.1

In order to achieve sustained growth, the competitive edge of economy should be shifted from cost advantage towards quality advantage, and unique knowledge and skills. We must reach a state where the efficiency of work allows for the payment of much higher salaries than today, thereby ensuring increased satisfaction and the achievement of our principal goal – increased welfare.

In a globalising world, it is not practical for a small country with an open economy to direct its economy by employing traditional means, such as an expansive budget policy or interference with free movement of goods and services. But it is necessary, and possible, to create favourable conditions for development and to encourage investment in areas which would ensure the fastest achievement of the envisaged goals. Such areas are primarily R&D activities, innovation and general support systems for entrepreneurship. Increasing the relevant expenditure, both by the public and private sectors, will give Estonia an opportunity to have her share of the benefits from globalisation and to avoid the associated dangers. By basing our flexible and open economy on knowledge and co-operation, we can achieve faster economic growth and create new, well-paid jobs, thus increasing the people’s welfare.

1In addition to Parliament factions, active participants in debates on economic policy also include organisations representing enterpreneurs, trade unions, and consumer and environment protection groups. An example of this is the “Estonian Economy 2000-2006”, sent to the Government by the Estonian Chamber of Commerce and Industry (, the Estonian Business Association ( and the Estonian Association of Small- and Medium-Sized Enterprises. The document generally supports the Government’s liberal economic policy.

Full article in Estonian