Can Europe Make It?

Estonian elections: hope for change or just more of the same?

With Estonian political parties seemingly wedded to the free-market, neoliberal policies that have defined the country since independence, is there any chance of an alternative?

Martin Aidnik
21 February 2015
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Estonian parliament building. Flickr/Seventh heaven. All rights reserved.The year 2015 looks to be a turning point in Europe´s existing economic and political certainties. The attitudes of people and new political forces towards the austerity supported by the EU and troika are hardening.

Similar developments to Syriza´s victory in Greece can follow in Southern Europe and Ireland. Estonia too faces a choice with the upcoming elections in March. The country has been a bastion of free market policies ever since it regained its independence in the early 90s. Much of its politics has been undertaken in order to achieve distance from the collectivism of the Soviet era. What can Estonia expect from the elections this time? Will its neoliberalism remain unchallenged or can the country expect credible alternatives to the status quo?

European and Estonian context

The project of the EU is being undermined by the contradiction between the Northern and Southern Europe. Achieving integration through single market has proved more than one sided, many eurozone countries are struggling with debt and unemployment. The politics of cuts and austerity, instead of restoring growth, has undermined social cohesion and the process of democratic politics.

The German-led bailouts have seen the sovereignty of indebted states being replaced with the rule of technocratic elites. The short term result of this has been beneficial for Germany in a double sense. The countries lost their ability to keep up and Germany gained a market share in the “near abroad”. And yet the current crises has put Germany in a difficult situation as well.

The result of the Greek elections and the effect it can have on Italy, France and Spain has increased the pressure on Germany to revise its austerity politics or face the prospect of a different Europe. The only thing that is clear, is that things can´t go on in the same way.

Estonia´s approach to the 2008 economic crises along with Latvia and Lithuania has been often praised. The way the three Baltic countries conducted themselves to come to terms with the economic downturn was seen as a success by the international community.

In a recently published book called “The contradictions of austerity: the socio-economic costs of the neoliberal Baltic model”, American economist Jeffrey Sommers and Scottish sociologist Paul Woolfson reject this narrative. 

First, they claim that because of their small size and high level of integration, the Baltic states represented a new – excessively individualistic – model for Europe. It is for this reason that their success mattered to the rest of the world. Woolfson and Sommers, however, argue that the political choices that were made by the Baltic states, were polarizing for their societies.

It was especially the “internal devaluation” in order to icrease economic competitiveness that hurt the societies the most. Internal devaluation presupposes a low level of social mobiliziation and in turn further atomizes the society. It gave rise to increasing inequality and poverty in all the Baltic states.

None of this seemed to impact the previous elections in Estonia in 2011. The Reform Party that devised the socially damaging recovery strategy won comfortably.

The outlook of the major parties

What do the main political parties promise this time? The Reform Party wants Estonia to become a “New Nordic Country”. Estonia should become a country as affluent and secure as Scandinavia but more dynamic and flexible. Equal opportunities together with economic and personal freedom are their other top priorities.

IRL, the other right wing party, says that it will strengthen the national security and fight poverty and inequality. They claim to offer real solutions to improve the quality of life and stop people from migrating. If the state is intentive to people´s needs, then people will be more considerate towards the state.

The centrist Central Party on the other hand says that Estonia needs significant changes that would create security for the people. They promise to breathe new life into the Estonian economy. They represent a world view that beliefs in the existence of middle class and in the need to reduce inequality.

The left-centrist Social Democratic Party claims that Estonia is too unequal and unjust. They stand for greater support for families and investing in people. Estonia needs to become “People´s Estonia”.

Let´s also have a look at what sort of economic steps the parties would take in order to achieve their goals. The Reform Party would works towards greater integration of the Estonian economy with the world markets. Estonia´s tax system needs to be as competitive as possible. State intervention is justified only when markets fail to function properly.

The economic politics of the IRL is not very different from the Reform Party. Competitiveness is a key issue, the party is willing to consider tax exceptions to make Estonia more attractive for investors. Like the Reform Party, the IRL proposes that low incomes should be exempt from tax so that people would be left with higher incomes.

The Social Democrats support active state intervention measures and life-long learning. Business would benefit from their plan to support improving the quality of management. The Central Party too postulates a greater need for state intervention in order to increase labour productivity. Unlike the other parties, the Central Party once again supports the proportionate tax system.

Discussion

The fact that the right wing parties would continue with a version of capitalism that Ronald Reagan and Margaret Thatcher championed isn´t surprising. They still expect the wealth created by the economy to somehow “trickle down”. Yet during the last 30 years of laissez faire economics, inequality has increased considerably.

It has reached the point in OECD countries where the richest 10% own 9.5 times more than the poorest 10. In addition, Estonia alongside Greece, Spain and Ireland has seen the most unequal recovery from the 2008 crises. Low and middle income earners were hit the hardest in these countries. 

Greater state intervention is therefore indeed needed from a politics that wants to turn a new page and remedy the existing ills. More laissez faire economics and austerity would only reinforce Estonia the way we were described by the German Die Zeit – as small, austere and unhappy with the highest levels of discontentment in Europe among its citizens.

The Central Party and the Social Democratic Party have promised that, under their government, the state would become more active in socio-economic affairs. But the changes they propose are very modest. The Social Democrats would offer greater in service training and retraining for people.

The Central Party would invest in infrastrucutre and improve the quality of labour force. At the moment, Estonia needs greater state redistribution. Despite globalization, the capacity of the state is not limited to being a bystander in economic affairs. Estonia stands out for its disproportionate tax system.

Our consumption and labour taxes are the average in Europe, but we have some of the lowest business taxes, and capital taxes. Estonia has the lowest capital tax revenues in Europe. In addition, the Estonian banks, benefiting from our remarkably generous tax system, are the most profitable in Europe. 

Politics that envisions Estonia as a New Nordic Country and not as an Eastern European Hong Kong should start with a proportionate tax system. It would have to be a politics that would dare to resist the widespread opinion according to which higher taxes would be detrimental for work incentive and foreign investments.

The Social Democrats´ plan to raise the minimum salary to 800 euros is certainly laudable. Low salaries have been explained in different ways in Estonia. Labour productivity and insufficient education are among the most common answers. Something important, however, needs to be added here, namely the labour and capital relation. The most wide ranging income improvements were part and parcel of the post WW II welfare state capitalism.

Sociologists like Zygmunt Bauman and Wolfgang Streeck have called this era of greater economic justice and socialization of wealth “the three glorious decades”. Some of the measures used then are still important for social democratic politics. Higher salaries require a more symmetrical relation between work and capital.

The Reform Party´s slogan “no one left behind” in the sense of “economic justice for everyone” would convey that well. Competitiveness has until now in Estonian economy marginalized concerns for working conditions and workers' rights.

In particular, the politics of economic justice would have to regulate the private sector where the length of work day is often all too similar to 19th century Dickensian capitalism. The achievements of 20th century social movements like the 8 hour work day should be reality in the 21th century Estonia.

Conclusion

The centre left Social Democratic Party and Central Party differ less from the right wing Reform Party and IRL than one would expect in order to end the austerity regime in Estonia. This, however, would be the threshold of meaningful politics. Theories about competitiveness und freedom of business without social coordination have lost their credibility by now.

Austerity reproduces austerity, competition breeds insecurity. The Social Democratic Party´s and Central Party´s promises of higher income and greater social cohesion would demand more radical measures. Only the much maligned proportionate tax system resembles that.

Politics that favours workers to capital and public interests to private interests can´t shy away from radicalism. Estonian political parties propose endless practical changes but only to conceal the bigger picture – that our social practices need change. The lack of daring political imagination is all the more regrettable considering that it is high time to contest the system that has reached a dead end.

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