Topher Morrison
PurpleSerf.com
This prediction may be more than premature, but this Baltic Tiger has much to teach Europe and the United States about how to grow an economy. Virtually entirely self sustaining and enjoying robust growth, almost zero debt, and plunging unemployment rates this tiny country is a state apart from a European Union in fiscal tumult and a languishing US.
Estonia has had anything, but an easy history. For roughly 700 years a once independent Estonia served successive conquerors as agrarian serfs until the 1920s when the Estonian government paid off their German landlords and restored home rule. Estonia decentralized and modernized its economy only to breathe one fresh breath of freedom until the Soviet Union and their former Nazi overlords returned with ghoulish force.
After allied victory in World War II the USSR illegally annexed and plundered Estonia, deported tens of thousands, centralized its economy, and sequestered civilians under iron hard tyranny. A ravaged country, Estonia was finally able to achieve independence in 1991 after the Singing Revolution, which initially featured spontaneous mass choirs singing illegal songs of patriotism and culminated years later in over 2 million people linked hand-in-hand over Estonia, Latvia, and Lithuania.
During the 1990s Estonia embarked on the path of privatization handing over state owned industries to the Estonian people. In 1995, one year after the last Russian troops left Estonia, the revitalized economy began to grow at 4.6% and skyrocketed in 2007 to 10.4%. After sustaining a brief contraction of 0.7% in 1999, Estonia from 2000 to 2007 averaged supercharged growth upwards of 8.3%!
If you were to dissect this engine of true capitalism (to be contrasted with crony capitalism found in China and the US) you would find that very little of any one part of the economy is favored. Estonia features a constitutionally mandated balanced budget, the highest levels of internet freedom, one of the world's first flat tax systems (the government has just approved to cut income tax from 21% to 20% by 2015), an open banking system allowing for generous foreign investment, and unlike the United States (sitting on unparalleled and untouched oil reserves) Estonia is self sustaining supplying 90% of their energy from local oil shale. Aside from the obvious structural and political advantages Estonia benefits from frugal politicians more interested in seeing their country grow than growing their government.
The most important characteristic of this economy, however, is its resilience. Because it is no longer burdened by a centralized economy and slowed down by immense bureaucracy Estonia has shown an uncanny ability to bounce back. In 2009 the economy plummeted by an abysmal 14%, due to easy lending and over speculation, but as of the first quarter of 2011 the Estonian economy exhibited traditionally strong growth at 8.5% (highest in the EU) and sent its unemployment rate from 18.8% to 13.8%. While the unemployment remains high, national debt is at a remarkable 6.6% of GDP (lowest in the EU) recently earning Fitch's, a rating agency, A+ rating.
Today, the United States Congress just increased its ability to take on more debt by the largest margin in US history. The fact that US leadership isn't at least taking clues from the mess in Spain, Greece, and Italy who's debts are 60%, 120%, and 142% respectively and are clamoring for bailouts to stave off open revolt is astonishing. Take a peak at someone else's playbook for once - its not cheating in the real world, its smart.
PurpleSerf.com
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| Estonia might not be large, but it serves as a big lesson to its neighbors and to the world. Image Source: Prescottenews.com |
Estonia has had anything, but an easy history. For roughly 700 years a once independent Estonia served successive conquerors as agrarian serfs until the 1920s when the Estonian government paid off their German landlords and restored home rule. Estonia decentralized and modernized its economy only to breathe one fresh breath of freedom until the Soviet Union and their former Nazi overlords returned with ghoulish force.
After allied victory in World War II the USSR illegally annexed and plundered Estonia, deported tens of thousands, centralized its economy, and sequestered civilians under iron hard tyranny. A ravaged country, Estonia was finally able to achieve independence in 1991 after the Singing Revolution, which initially featured spontaneous mass choirs singing illegal songs of patriotism and culminated years later in over 2 million people linked hand-in-hand over Estonia, Latvia, and Lithuania.
During the 1990s Estonia embarked on the path of privatization handing over state owned industries to the Estonian people. In 1995, one year after the last Russian troops left Estonia, the revitalized economy began to grow at 4.6% and skyrocketed in 2007 to 10.4%. After sustaining a brief contraction of 0.7% in 1999, Estonia from 2000 to 2007 averaged supercharged growth upwards of 8.3%!
If you were to dissect this engine of true capitalism (to be contrasted with crony capitalism found in China and the US) you would find that very little of any one part of the economy is favored. Estonia features a constitutionally mandated balanced budget, the highest levels of internet freedom, one of the world's first flat tax systems (the government has just approved to cut income tax from 21% to 20% by 2015), an open banking system allowing for generous foreign investment, and unlike the United States (sitting on unparalleled and untouched oil reserves) Estonia is self sustaining supplying 90% of their energy from local oil shale. Aside from the obvious structural and political advantages Estonia benefits from frugal politicians more interested in seeing their country grow than growing their government.
The most important characteristic of this economy, however, is its resilience. Because it is no longer burdened by a centralized economy and slowed down by immense bureaucracy Estonia has shown an uncanny ability to bounce back. In 2009 the economy plummeted by an abysmal 14%, due to easy lending and over speculation, but as of the first quarter of 2011 the Estonian economy exhibited traditionally strong growth at 8.5% (highest in the EU) and sent its unemployment rate from 18.8% to 13.8%. While the unemployment remains high, national debt is at a remarkable 6.6% of GDP (lowest in the EU) recently earning Fitch's, a rating agency, A+ rating.
Today, the United States Congress just increased its ability to take on more debt by the largest margin in US history. The fact that US leadership isn't at least taking clues from the mess in Spain, Greece, and Italy who's debts are 60%, 120%, and 142% respectively and are clamoring for bailouts to stave off open revolt is astonishing. Take a peak at someone else's playbook for once - its not cheating in the real world, its smart.
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