Solutions for Estonia’s economic problems

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.