Solutions for Estonia’s economic problems

Posted: August 4th, 2009 | Author: | Filed under: education, Estonia, european union, thoughts | 4 Comments »

This post is partly inspired by Edward Hugh’s post on Latvia’s economic problems, where he offers three solutions (after devaluation happens, which he thinks is inevitable):

I think this deterioration needs to be addressed as soon as possible, and I see three large issue.

i) Productive capacity needs to be increased substantially. This means increasing the labour force, and this means (as outlined in the World Bank Report, From Red To Grey) facilitating large scale inward migration. Given the serious political implications of encouraging ethnic Russian migration into your country, I see only two viable source regions, the Central Asian Republics in the CIS, and Sub. Saharan Africa. Possibly this solution will not be widely popular with Latvian voters. Well, they do have the right to choose. Your country can take the measures needed to become sustainable, or you can watch it die, as the economy shrinks, and the young people leave. That, I think, is your choice.

The other two measures you need to take are contingent on the first being implemented, since without the first measure you will simply not dispose of the economic resources for the other two.

ii) A serious policy to support those Latvian women who do wish to have children. But with major financial advantages, not half measures, and propaganda stunts. You need policies that can work, and I know plenty of demographers with ideas.But this needs money. Important quantities of money. And gender empowerment, right across the economy, at every level. We have formal legal equality in the labour market, but evident biological and reproductive inequality, in that only one of the parties gets to bear the children. The institutional resources of the state need to redress this imbalance.

iii) Major reforms in the health system to address the underlying male life expectancy problem. You can only seriously hope to raise the labour force participation rates at 65 and over if people arrive at these ages in a fundamentally healthy condition. In economic terms, simple investment theory shows why this is the case. A given society spends a given quantity of resources on producing a given number of children, those who have citizens who live and work longer evidently get a better return on their investment. If you want to raise Latvian living standards, you have to raise the life expectancy. And this apart from the evident human issues.

I think all of this applies to Estonia as well. The last two are already somewhat handled in Estonia, there are programs which support young families and although male life expectancy is still rather low, more effort is being put in sport promotion programmes for general public, healthy lifestyles are promoted etc. The nordic nature of Estonians (and the Finnish role-model) might also contribute to helping Estonians live longer, although at the moment it looks rather bleak.

I tend to agree with Edward Hugh that many of the problems of Estonia’s economic crises have been caused by lack of people. This was true during the boom times (the labour force shortage helped to push the salaries up quickly) and is even worse now that many truly skilled people move abroad where they are offered better salaries and ways of self-improvement, leaving in Estonia a mass of former construction workers and factory workers who have been laid off and who are probably unable neither to leave Estonia nor re-qualify for another job. Meanwhile, it is still difficult to find well-educated people in many areas, regardless of the growing unemployment rate.

A part of the solution is to train those people at our universities. Fortunately, Estonian public policy of pushing people to go to professional education and not to universities has failed and people are still going to universities en-masse (this year’s admissions has been the highest in recent years). It seems, however, that the funds used for the ill-fated push for professional education could have been used better at supporting universities. It is questionable if the big public universities themselves, still bureaucratic behemots with Soviet-era legacies, can provide the skills, knowledge and values required to educate them. The universities could do more with continuing education as well, offering a range of specialised courses for those seeking to update or refresh their skills and knowledge, but not willing to spend time (and money) on full Master or Doctoral programs.

The second part of the solution is increased immigration of unskilled workers from other non-EU countries. This means a change of paradigm in mainstream politics and suppression of strong nationalistic moods prevalent in the society. None of the major political parties in Estonia recognises or debates is the need to increase immigration. Walking around even in Tallinn’s streets it would be very difficult to spot any people who are non-ethnic Estonians or Russians and are not tourists. This is probably due to the effecient work of the Citizenship and Migration Board, which seems to pride itself on keeping the foreigners (at least those not from EU or US) out. One only needs to look at the low numbers of accepted refugees and asylum seekers for this.

Where should the new immigrants come from? The most obvious (and easiest to stomach politically) might be immigrants from Ukraine, Georgia, Moldova and other countries which many Estonians have compassion to. I am not so sure that a large scale inward migration from Africa will be as welcomed, although sooner or later there will also be more ethnically diverse mix of people in Estonia as well.

In order to have a long-term and sustainable solution instead of the race to the Euro at all costs, immigration policies must be reviewed and inward immigration increased gradually.

4 Comments on “Solutions for Estonia’s economic problems”

  1. 1 Jüri Saar said at 14:42 on August 4th, 2009:

    Agreed, immigration and tolerance of immigrants are probably the best hope for an economically sustainable (funding pensions, welfare payments, health care, public services) future in Estonia. However, the bickering between Estonians themselves leaves little room for optimists and even less for serious discussion.

  2. 2 Paul Vahur said at 19:57 on August 4th, 2009:

    Immigration is a short-term solution and potentially a long term problem.

    We do not need to raise productive capacity but rather efficiency. The total number of people in a country is not that important. By such logic we Estonians should be in the biggest trouble of all Baltic states as we have little over half the Latvian population and roughly third of Lithuanian population.

    There are easy (but not easy politically) solutions – to reduce unemployment – ease the firing of people even further. That makes it easier to hire people. Also abolish the minimum wage to allow more people (especially minorities) to take part of workforce.

  3. 3 Kari said at 23:35 on August 4th, 2009:

    The problem is the demographic situation, and this cannot be solved simply by raising efficiency. There is a long way to go to achieve the same standards as Western Europe or Nordic countries, but to do that while there will be more old people and fewer workers would require an enormous jump, which may not be possible (partly due to the problems in education). Therefore I think that the problem cannot be solved solely by increased efficiency and more flexible labour market regulation.

  4. 4 Tobi said at 14:32 on August 5th, 2009:

    I have recently done some research on the economic problems of the Baltic region. It turns out that at first glance the regional problems seem to be the same as in some western European countries after the war – lack of skilled workforce and brain-drain. Although your problems result out of different circumstances they are of similar nature.

    The recent state of economic emergency may not be the right counsellor for reasonable decisions in politics and society. While Edward Hugh thus proclaims that without immigration the countries were supposed to “…die, as the economy shrinks, and the young people leave” the solution to certain death seems evident – get more skilled people from outside to work in the troubled country – problem solved!

    Well, my work and life experience from Germany, France and the UK (countries which suffered all of these problems at once in the 1950s and 1960s) tells me that the issue is far more complex and what seemed to be good for a short-term quick solution then in the long-term turns out to cause a variety of problems now. There are similar cases in many other states like Spain, Switzerland, Netherlands or Belgium.

    It thus showed that immigration is a sword with two edges only partly capable to solve short-term economic and demographic problems of a host-country. Becoming an “immigration country” (used to be a buzz-word in Germany in the 1990s) not only means having foreign people coming to work it also means foreign people coming to live. In parts of Western Europe that concept has not been fully understood in former times. Everybody thought that immigrants would return to their home countries after the work had been done or would easily integrate into society. Everybody thought that only highly skilled experts would immigrate. Therefore local societies did not bother much to integrate or qualify their “guest workers”. So some immigrant groups also including asylum seekers and refugees have never really arrived in society or in the labour market.

    No doubt, if applied correctly immigration is a powerful tool to boost an economy. Successful examples like Canada can work as a role model here. Still, if only applied for economic reasons and without a convinced society I do believe that immigration thus is subject to certain failure and is not sustainable.

    I believe there is no reason to despair neither for Estonia, nor Latvia or Lithuania.

    You should keep in mind the extraordinarily beneficial situation in which the Baltic countries are. The region constitutes a unique, diverse and one of its kind link between the European, Scandinavian and Russian cultures – making it an important hub for regional development and interconnection.

    Thus, what the Baltic States should do is to use their abilities to connect and interlink between these diverse cultures, working like a facilitator for regional economies while at the same time strengthening their own local profiles.

    Your diversity and smaller scale is not your weakness it is your strength.

Leave a Reply