The elite financial press
continues to promote their Baltic austerity model. Last month Michael
Hudson and Jeff Sommers showed how Anders Aslund, from the bank-funded
Petersen Institute, kicked the snowball down the hill to roll and grow
regarding the latest incarnation of the Baltic Tiger myth. Soon,
Robert Samuelson and The Washington Post followed Andersen’s lead by
peddling poor Latvia as their poster child for austerity’s “triumph.’
Now that Latvia’s “achievements” have been debunked, they have moved on
to promote Estonia. This was most recently been done by The Wall Street
Journal, where they have rhapsodized over plucky Estonia’s economic
brawn, while comments on their blog sites toss “take that, Paul
Krugman!” swipes at Keynesians.
Many economists and financial press
writers mimic children on amusement park rides. They think their
austerity policies are “steering” their vehicle rather than being guided
by underlying structural forces. This is only half true in the case of
Estonia. I was a featured speaker for a debate with an Eesti Pank (Estonia’s
Central Bank) member in debate this past June for a recorded event at
Tallinn Technology University. Neoliberals attending gushed like
pre-teens at a Justin Bieber concert exalting “how did you do it?” The
Bank official refreshingly responded with Baltic modesty, “we were born
lucky.” What did he mean? This certainly was not the answer economists
wanted! The Bank official cited Estonia’s geography as their
fortuitous comparative advantage.
In short, the Estonian “model,”
essentially, is to have its capitol, Tallinn, connected to Helsinki by
almost 40 ferries a day and be only 18 minutes by helicopter for
executives traveling between them. In fact, locals have come to
reference Tallinn and Helsinki as simply, “Talsinki.” Thus, for this
tiny country of 1.6 million people whose population would only rank as a
mid-size metropolitan area in the US, its chief advantage has been to
be plugged into one of the world’s most successful social democracies.
Finnish and Swedish companies seeking labor on the cheap can simply hop
and skip over to Tallinn. Is it because Estonians are more productive
that they go there? No. Then why? Lower labor costs, of course.
Indeed, Estonians cleverly entice Scandinavian businessmen to come and
escape “socialism.” It’s kind of like the excitement of leaving the
reliable wife behind for a new tryst. This sometimes has its
downsides. Estonians are not always known for their speed. Try calling
SAS (Scandinavian Airlines) customer service and you can see this on
display as an Estonian call center rep will bureaucratically take you on
a tortoise-speed “run” through their system–that said, however, done
with the greatest professionalism. If it’s professionalism or
high-quality design you want, you can find both in Estonia, but don’t
expect speed.
What is the reality of Estonia’s
economic model? One, it has US GINI coefficient levels. If you like
massive inequality, then you found the right place with Estonia and the
Baltics generally. Secondly, they have effervescing unemployment and
social pathologies only somewhat mitigated by Estonian labor (and
business) exiting to and from the neighboring labor and business markets
of Finland.
Indeed, the so-called Estonian
“success” has delivered purchasing power rates only a third below
Greece’s, even though Estonia sits next to, and is really integrated
into, one of the world’s richest purchasing power countries.
Linguistically, Estonian and Finnish are mutually understandable. This
make for easy penetration of each other’s business and labor markets.
Data released by Statistics Estonia on 2009 reveal huge poverty
for a European Union country. About 16 per cent of the Estonian
population or about 211,000 people lived in relative poverty in 2009.
The situation has not got any better in the two subsequent years – and
the austerity measures are not likely to make things better. About the
only thing good that can be said, is that Estonia’s model has worked
better than Latvia, where their austerity and flat taxes have produced
an exit of Biblical proportions that threatens to destroy that country.
Paradoxically – but perhaps not
surprisingly – Estonia, is the country least resorting to the internal
devaluation policy of the Baltics (judged a posteriori). Yet,
it is outperforming the other Baltic countries in recovering from the
crisis. By this logic, then, if anything, it should be argued that the
weaker one implements austerity and internal devaluation the better an
economy performs! True, the point of departure has been different in
Estonia than in Latvia and Lithuania: Estonia was the economically best
off of the Baltics before the crisis. It did not need to rescue failed
banks–as Estonia’s financial institutions are all foreign-owned, and
thus they have no domestic banks to bailout.
The downside of near total foreign
ownership, however, is they have to make all their debt-service payments
to foreign nationals in a kind of new debt serfdom reflective of the
days of Swedish, German, and Russian feudalism in Estonia, as Michael
Hudson has noted.
How much has neighboring social
democratic Finland helped Estonians in coping with their problems? The
Finns offer lots of short-term jobs in construction, services and other
industries. Elaborating further, it is estimated that since the new
millennium between 92,000 to 133,000 Estonians worked abroad. This
corresponds to 14-19 per cent of the total workforce. Indeed, almost,
3 per cent of the Estonian workforce went to work abroad in 2009 alone.
This means that a considerable proportion of the workers have opted for
a temporary job abroad – in most cases Finland. There is a clear upward
trend with regard to the intentions to emigrate.
In 2006, 26 per cent of
working-age Estonians considered emigration, whereas in 2010, no less
than 38 per cent contemplated it. But, have migration intentions
changed from short-term to longer-term? No less than 13 per cent of the
potential emigrants have expressed their desire to leave Estonia
permanently. The youngest cohort (the 15-24 years old) in a study by
Brit Veidemann showed the most enthusiasm about leaving. One need not
elaborate on what this means for a nation already in demographic
collapse. It is to be noted that this cohort was least interested in
this option in 2006, before austerity was introduced. Yet, a survey
conducted in 2009 among Estonian emigrants evidenced that while a
quarter of the respondents wanted to return to Estonia, 45 per cent of
them intended to stay in the countries to which they escaped.
There is a good deal of grousing on
internet chat forums about rotten work conditions and miserly salaries
in Estonia. This argument is supported by a survey conducted among
Estonians in 2010 concluding that 40 per cent of working-age people
were afraid of dismissals, and 49 per cent of them were dissatisfied
with promotion and developmental prospects in their work.
In sum, we strongly encourage The Washington Post, The Wall Street Journal and
other outlets to stop promoting Estonia and Latvia’s austerity policies
as solutions to economic crisis in the US or other European nations.
Doing so only reveals why protests have emerged in over 80 countries and
in nearly 2000 cities over the increasing dysfunctionality of
neoliberal economic policy. To take liberty with Tacitus, “they keep
making crises and call it prosperity,” Wall Street and their ideologists
are massively out of touch with reality. Their tragic-comedy can no
longer be sustained.
It is disingenuous at worst and
lazy at best to advocate the United States follow the model of these
tiny Baltic states each with less than 2 million people. Do we really
want to create even more poverty and unemployment? Where would the 50
million Americans under a Baltic scale austerity regime escape to?
Canada? Mexico? The Virgin Islands? Baltic workers have been pushed to
flee in massive numbers. We need to get real and recognize both the
outright failures of the Baltic austerity solution and the highly
specialized environments that their circumscribed successes have
produced. Suggesting they are replicable in the US or larger European
nations is the height of irresponsibility.
Jeffrey Sommers
is an Associate Professor of Political Economy in Africology at the
University of Wisconsin-Milwaukee and Visiting Faculty at the Stockholm
School of Economics in Riga. He can be reached at: Jeffrey.sommers@fulbrightmail.org
Markku Sippola
is postdoctoral researcher at the Karelian Institute, University of
Eastern Finland. He has studied labour market regimes, industrial
relations and Nordic firms’ investment strategies in Russia and CEE
countries. He can be reached at: markku.sippola@uef.fi
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