Can Europe Make It?

The Estonian economy needs social imagination

Instead of following the uber-capitalism of Latvia and Lithuania, Estonia should look to Finland, which from next year will experiment with giving some of its citizens a guaranteed basic income.

Martin Aidnik
20 March 2016

Tallinn. Wikimedia. CC.The Estonian economy faces difficult questions. Although the country has been a model pupil of Brussels for many years now, it is currently mired in stagnation. The recently expressed belief by prime minister Taavi Rõivas that everything should remain as it is does not sound convincing.

When thinking about alternatives, it is their hitherto underestimated social dimension that should be seen as important. The economy is not a thing in itself, and ameliorating it needs social imagination. Citizen´s income (otherwise known as ´guaranteed basic income´) which is currently gaining a lot of ground in Finland should be given more thought in Estonia as well.

An Estonian businessman, Andrei Korobeinik, has recently argued in the Estonian daily newspaper Eesti Päevaleht that the Estonian economy needs painful reforms in order to grow. According to him, we have not kept up with Latvia and Lithuania in undertaking difficult, future oriented reforms. Hence, the two countries set an example for Estonia.

It is, however, anything but clear if this is actually the case. More than eighty thousand people migrated from Lithuania between 2012 and 2013; in the case of Latvia, approximately fifty thousand people left in the same period.

The income levels have largely remained the same both in Latvia and Lithuania in the post 2008 economic crisis era. This suggests that the economic recovery of these states is based on cheap labour power.

Hence, if anything, Latvia and Lithuania exemplify the effects that excessively market oriented reforms have on the population. Insecurity, austerity and lack of prospects leave migration as the only viable option there is.

The orientation of Latvian economy to Swedish banks and the IMF has long been known as the Stockholm syndrome. Latvia has agreed to significantly lower levels of income in segments of society in order to restore the confidence of banks and foreign investors.

Instead of an often hailed success story, the Chicago School agenda has eliminated even modest levels of state investment, consecrating low wages and absent social benefits. Following Latvia and Lithuania would only reinforce the primacy of business interests in the economy and politics at the cost of social disintegration.

DNB Bank analyst Priit Roosimägi has opined at the start of this year in the same Estonian newspaper  Eesti Päevaleht that reducing regulations and creating an attractive investing environment should be the key to Estonia´s success. In addition, for Roosimägi, education should be responsive to the needs of business and society. These are the things that have been said repeatedly over the course of the years.

Indeed, if a free market would be the solution then it should have already delivered a long time ago. Estonia has been credited in the Anglo-American economic journals for its economic freedom, our tax system shoud be one of the most competitive in the industrialized world etc.  Despite the lack of obstacles, the results of laissez-faire have been mixed. A recent OECD survey shows that Estonia is one of the most unequally developed countries in the world.

It is especially in education where the much vaunted turn to practicality can be witnessed. The imperative of applicability looms large both in schools and higher education institutions. Those for whom education means conforming can certainly be satisfied. On the other hand, if education is seen as a source for the new and better, then the trend is much less encouraging. As the saying goes, to hit the mark, you need to aim higher.

These days, it is Finland that is showing the way for Estonia with its economic open-mindedness. The country that has not escaped the troubles of the eurozone is expected to preliminarily experiment with citizen´s income starting from the next year. 8000 people will receive citizen´s income - up to 700-800 euros a month - instead of social benefits.

The idea of citizen´s income is significant because it largely removes the poverty trap of the existing system and provides a new basis for the relationship between citizens and the state. There is considerable support for citizen´s income in Finland, including among people with high incomes (according to one survey, 69% are in favor). Finland´s willingness to give citizen´s income a chance shows that the country is ready to go beyond the usual limited stagnation alleviation measures prescribed by the ECB and Brussels.

Arguments for citizen´s income can be found both in liberal economic theory and the UN Declaration of Human Rights. Milton Friedman, the free market champion whose influence in the Baltic countries remains significant, proposed in the 1960s a ´negative income tax´, with which the state would support people who have lost their income. The UN Declaration (article 25) proclaims an adequate level of income to be among human rights.

The excessively technical approach to the economy has resulted in the rise of inequality and stagnation. Living standards in Estonia and other Baltic countries are remarkably polarized. Inequality was one of the decisive topics at the Davos economic forum. Half of the world´s wealth is currently owned by 1% of the population. Even pro-market institutions like the OECD and IMF have declared that growth and sustainability are hampered by inequality.

John Maynard Keynes´s belief that economics is largely a moral science needs to be taken up anew. Giving citizen´s income a fair hearing would certainly be a step in the right direction for Estonia.

Get weekly updates on Europe A thoughtful weekly email of economic, political, social and cultural developments from the storm-tossed continent. Join the conversation: get our weekly email


We encourage anyone to comment, please consult the oD commenting guidelines if you have any questions.
Audio available Bookmark Check Language Close Comments Download Facebook Link Email Newsletter Newsletter Play Print Share Twitter Youtube Search Instagram WhatsApp yourData