Cafe Hayek: Tierney on Estonia, the Baltic Tiger

« An alternative hypothesis | Main | Interview with Milton Friedman» Russell Roberts

September 05, 2006

Tierney on Estonia, the Baltic Tiger

Don Boudreaux

John Tierney explains how Estonia's Mart Laar -- winner of this year's Milton Friedman Prize -- helped free Estonians to create prosperity:

[Estonia] transformed itself from an isolated, impoverished part of the Soviet Union thanks to a former prime minister, Mart Laar, a history teacher who took office not long after Estonia was liberated. He was 32 years old and had read just one book on economics: “Free to Choose,” by Milton Friedman, which he liked especially because he knew Friedman was despised by the Soviets.

Laar was politically naïve enough to put the theories into practice. Instead of worrying about winning trade wars, he unilaterally disarmed by abolishing almost all tariffs. He welcomed foreign investors and privatized most government functions (with the help of a privatization czar who had formerly been the manager of the Swedish pop group Abba). He drastically cut taxes on businesses and individuals, instituting a simple flat income tax of 26 percent.

These reforms were barely approved by the legislature amid warnings of disaster: huge budget deficits, legions of factory workers and farmers who would lose out to foreign competition. But today the chief concerns are what to do with the budget surplus and how to deal with a labor shortage.

Wages have soared thanks to jobs created by foreign companies like Elcoteq of Finland, which bought a failing electronics factory and now employs more than 3,000 people making phones for Nokia and Ericsson. Foreign investors worked with local software engineers to create Skype, the Internet telephone service, and the country has become so Web-savvy that it’s known as E-stonia.

“The spirit is so different here,” Benoit du Rey says. “If you come to the government here and want to start a company, they’ll tell you, ‘Good, do it right now.’ Then you can work free without being bothered by stupid things. Here I talk to my accountant once a month. In France, for every seven or eight workers, you need one full-time worker just to fill out the forms for taxes and other rules.”

Posted by Don Boudreaux in Current Affairs, Property Rights, Trade | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d834518ccc69e200d83431298353ef

Listed below are links to weblogs that reference Tierney on Estonia, the Baltic Tiger:

» Es Estonia, no Francia from El Liberal Venezolano
El país que debemos ver como modelo. La socialdemocracia francesa está en proceso de descomposición. La pequeña Estonia, liberal y conservadora, se ha recuperado dramáticamente de los destrozos del comunismo ruso. ¿Cómo lo lograron? Para hacer la histo... [Read More]

Tracked on Sep 5, 2006 10:02:16 AM

» Эстония: История успеха from Ruconomics
После распада СССР Эстония оказалась одним из беднейших из появившихся на карте государств. И при этом одним из самых маленьких. Единстве... [Read More]

Tracked on Sep 5, 2006 9:05:57 PM

» The Real Free State from The Agitator
John Tierney had an excellent column yesterday on Estonia, likely the freest country on earth right now. Cafe Hayek has... [Read More]

Tracked on Sep 6, 2006 11:17:55 PM

» Why America Should Take A Lesson From Estonia from Say Anything
Columnist John Tierney has what seems like a great column in today's New York Times. Unfortunately it's only available to subscribers to the Times' online content, but Don Boudreaux over at Cafe Hayek has an illuminating excerpt: [Estonia] transformed ... [Read More]

Tracked on Sep 7, 2006 10:07:21 AM

» Everybody must get Estonia'd: Example for Transition? from 'Aqoul
Estonia, the Model? (Title apologies to Bob Dylan). In this excerpt of a behind-the-firewall op-ed by John Tierney in the New York Times, we see a transtion from a totalitarian societyto a free market one in Estonia. Assuming -- and... [Read More]

Tracked on Sep 10, 2006 10:37:28 AM

» Everybody must get Estonia'd: Example for Transition? from 'Aqoul
Estonia, the Model? (Title apologies to Bob Dylan). In this excerpt of a behind-the-firewall op-ed by John Tierney in the New York Times, we learn of the transtion from an economically totalitarian society to a free market one in the... [Read More]

Tracked on Sep 10, 2006 10:39:00 AM

» Everybody must get Estonia'd: Example for Transition? from 'Aqoul
Estonia, the Model? (Title apologies to Bob Dylan). In this excerpt of a behind-the-firewall op-ed by John Tierney in the New York Times, we learn of the transtion from an economically totalitarian society to a free market one in the... [Read More]

Tracked on Sep 10, 2006 10:42:59 AM