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March 23, 2011

Estonia Re-Elects "Government that Continued to Embrace Laissez-Faire Capitalism"



(p. A5) MOSCOW -- Early results in Estonia's parliamentary election on Sunday showed the ruling coalition headed for a victory, in a remarkable show of support for a government that has imposed harsh austerity measures to lift the country out of recession.


. . .


The vote reflects approval for a government that continued to embrace laissez-faire capitalism during the painful months after the global downturn. After Estonia's economy shrank nearly 15 percent, the state reduced its budget by the equivalent of 9 percent of gross domestic product. Demand fell steeply, and unemployment crept up, early in 2010, to 19.8 percent.

But in contrast to their neighbors in Latvia, where economic troubles led to riots and the government's collapse, Estonians stoically absorbed the suffering. These sacrifices allowed Estonia to join the euro zone in January, a move its leaders hailed as a sign that the country was on its way to achieving Western European standards of living. Meanwhile, the economy has been projected to grow by 4 percent this year, and unemployment has dropped to around 10 percent, according to the Estonian Unemployment Insurance Fund.



For the full story, see:

ELLEN BARRY. "After Cuts, Voters Back Ruling Bloc in Estonia." The New York Times (Mon., March 7, 2011): A5.

(Note: ellipsis added.)

(Note: the online version of the article is dated March 6, 2011.)





March 28, 2009

"Government Interventions Only Prolonged the Crisis"


The comments of Maart Laar, former prime minister of Estonia, are worth considering:

(p.A13) It is said that the only thing that people learn from history is that people learn nothing from history. Looking at how the world is handling the current economic crisis, this aphorism appears sadly true.

World leaders have forgotten how the collapse of Wall Street in 1929 developed into a world-wide depression. It happened not thanks to market failures but as a result of mistakes made by governments which tried to protect their national economies and markets. The market was not allowed to make its corrections. Government interventions only prolonged the crisis.

We may hope that, even as we see several bad signs of neo-interventionist attitude, all the mistakes of the 1930s will not be repeated. But it is clear that the tide has turned again. Capitalism has been declared dead, Marx is honored, and the invisible hand of the market is blamed for all failures. This is not fair. Actually it is not markets that have failed but governments, which did not fulfill their role of the "visible hand" -- creating and guaranteeing market rules. Weak regulation of the banking sector and extensive lending, encouraged by governments, are examples of this failure.



For the full commentary, see:

MART LAAR. "Economic Freedom Is Still the Best Policy." Wall Street Journal (Fri., FEBRUARY 13, 2009): A13.





February 7, 2009

Economic Freedom Correlated with "Every Indicator of Well-Being"


FreedomIndex2009.gif Source of table: online version of the WSJ article quoted and cited below.

(p. A17) For 15 years, The Wall Street Journal and The Heritage Foundation have been measuring countries' commitment to free-market capitalism in the "Index of Economic Freedom." The 2009 Index, published this week, provides strong evidence that the countries that maintain the freest economies do the best job of promoting prosperity for all citizens.

The positive correlation between economic freedom and national income is confirmed yet again by this year's data. The freest countries enjoy per capita incomes over 10 times higher than those in countries ranked as "repressed." This year, for the first time, the Index also correlates economic freedom with important societal values like poverty reduction, human development, political freedom and environmental protection. The linkages are robust, with economically freer countries performing significantly better on every indicator of well-being.

. . .

In a special chapter in this year's Index, the Journal's Stephen Moore chronicles the critical role that tax cuts, particularly cuts in corporate taxes, have played in economic growth in Eastern European countries and others like Ireland. The citizens of those countries lived for decades with state-directed economic planning and regulation, which many now advocate for the U.S. and other advanced economies. They remember the clumsiness of socialism and the government missteps that fostered economic disaster. To switch dance partners now that they have adapted to the quick step of capitalism and are enjoying its many benefits would be a tragic mistake.

It would be ironic indeed if the world's advanced economies, in seeking to address current woes, abandoned the system that has brought them and others around the world the amazing levels of prosperity experienced over the last half century. The "Index of Economic Freedom" provides a record of that progress. It charts the path to economic advancement and proves that the best way forward is to hang onto our partner and step to the music of the market.



For the full commentary, see:

TERRY MILLER. "Freedom Is Still the Winning Formula." The Wall Street Journal (Tues., January 13, 2009): A17.

(Note: ellipsis added.)




January 7, 2009

In Geology, Economic Growth Caused Scientific Progress


(p. 130) . . . , the major problem inhibiting England's industrial development was the state of the roads. So the introduction of waterborne transportation on the new canals triggered massive economic expansion because these waterways transported coal (and other raw materials) much faster and cheaper than by packhorse or wagon. In 1793 a surveyor called William Smith was taking the first measurements in preparation for a canal that was to be built in the English county of Somerset, when he noticed something odd. (p. 131) Certain types of rock seemed to lie in levels that reappeared, from time to time, as the rock layer dipped below the surface and then re-emerged across a stretch of countryside. During a journey to the north of England (to collect more information about canal-construction techniques), Smith saw this phenomenon happening everywhere. There were obviously regular layers of rock beneath the surface which were revealed as strata where a cliff face of a valley cut into them. In 1796 Smith discovered that the same strata always had the same fossils embedded in them. In 1815, after ten years of work, he compiled all that he had learned about stratification in the first proper colored geological map, showing twenty-one sedimentary layers. Smith's map galvanized the world of fossil-hunting.


Source:

Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible - and Other Journeys. Boston: Back Bay Books, 1997.

(Note: ellipsis added.)




November 3, 2008

"We Will Stay a Laissez-Faire Economy"


AnsipAndrusEstonianPrimeMinister.jpg








"Andrus Ansip, leader of Estonia, an ex-Soviet Republic." Source of caption and photo: online version of the NYT article quoted and cited below.

An earlier entry suggested that Estonian Prime Minister Andrus Ansip's support for Steve Forbes' flat tax, had helped Estonia achieve a high rate of growth.

Apparently there is some sentiment in Estonia to stay the course:

(p. B6) TALLINN, Estonia -- For nearly two decades, Estonia embraced capitalism with such gusto that it seemed to be channeling the laissez-faire philosophy of Milton Friedman. From its policies meant to attract foreign investors to its flat tax and freewheeling business culture, it stood out as the former Soviet republic most adept at turning post-Communist chaos into a thriving market economy.

Now Estonians, and some of their Baltic neighbors, are slogging through their first serious economic downturn since liberation from the Soviet grip in the early 1990s.

. . .

Whatever happens, government officials say there will be no betrayal of Friedman's philosophy. "We will stay a laissez-faire economy," said Juhan Parts, Estonia's minister of the economy.

. . .

"I'm an optimist," said Marje Josing, director of the Estonian Institute for Economic Research. "Fifteen years ago things looked bad, but they managed. A little real-life pressure won't hurt."

Indeed, so far the downturn has done little to discourage Estonia's ambitious entrepreneurs. If anything, it has made them look more avidly elsewhere for growth.

"Estonia may be a small country," Tarmo Prikk, chief executive of Thulema, an office furniture maker, said with a laugh. "But my ego is bigger."



For the full story, see:

CARTER DOUGHERTY. "Estonia's Let-It-Be Economy Is Rattled by Worldwide Distress." The New York Times (Fri., October 10, 2008): B6.

(Note: ellipses added.)




September 22, 2006

"Free to Choose" Turns Estonia into "Boomtown"


  Source of book image:  http://search.barnesandnoble.com/booksearch/imageviewer.asp?ean=9780156334600

 

If, like Mr. Laar, you are only going to read one book in economics, Milton Friedman's Free to Choose, is not too bad a choice:

(p. A23) Philippe Benoit du Rey is not one of those gloomy Frenchmen who frets about the threat to Gallic civilization from McDonald's and Microsoft.  He thinks international competition is good for his countrymen.  He's confident France will flourish in a global economy -- eventually.

But for now, he has left the Loire Valley for Tallinn, the capital of Estonia and the economic model for New Europe.  It's a boomtown with a beautifully preserved medieval quarter along with new skyscrapers, gleaming malls and sprawling housing developments:  Prague meets Houston, except that Houston's economy is cool by comparison.

Economists call Estonia the Baltic tiger, the sequel to the Celtic tiger as Europe's success story, and its policies are more radical than Ireland's.  On this year's State of World Liberty Index, a ranking of countries by their economic and political freedom, Estonia is in first place, just ahead of Ireland and seven places ahead of the U.S. (North Korea comes in last at 159th.)

It 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.

 

For the full commentary, see:

JOHN TIERNEY.  "New Europe's Boomtown."  The New York Times  (Tues., September 5, 2006):  A23.

 




December 25, 2005

With Flat Tax, Estonia Has 11% Growth




"Prime Minister Andrus Ansip of Estonia in the cabinet room, which is equipped with a computer for each minister." Source of caption and photo: online version of NYT article quoted and cited below.

(p. A4) TALLINN, Estonia - Estonia, one realizes after a few days in the abiding twilight of a Baltic winter, is not like other European countries.

The first tip-off is the government's cabinet room, outfitted less like a ceremonial chamber than a control center. Each minister has a flat-screen computer to transmit votes during debates. Then there is Estonia's idea of an intellectual hero: Steve Forbes, the American publishing scion, two-time candidate for the Republican presidential nomination and tireless evangelist for the flat tax.

Fired with a free-market fervor and hurtling into the high-tech future, Estonia feels more like a Baltic outpost of Silicon Valley than of Europe. Nineteen months after it achieved its cherished goal of joining the European Union, one might even characterize Estonia as the un-Europe.

"I must say Steve Forbes was a genius," Prime Minister Andrus Ansip declared during an interview in his hilltop office. "I'm sure he still is," he added hastily.

The subject was the flat tax, which Mr. Forbes never succeeded in selling in the United States. Here in the polar reaches of Europe it is an article of faith. Estonia became the first country to adopt it in 1994, as part of a broader strategy to transform itself from an obscure Soviet republic into a plugged-in member of the global information economy.

By all accounts, the plan is working. Estonia's economic growth was nearly 11 percent in the last quarter - the second fastest in Europe, after Latvia, and an increase more reminiscent of China or India than Germany or France.

People call this place E-stonia, and the cyber-intoxication is palpable in Tallinn's cafes and bars, which are universally equipped with wireless connections, and in local success stories like Skype, designed by Estonian developers and now offering free calls over the Internet to millions.

. . .

Germans showed how allergic they were to the idea when Angela Merkel chose a flat tax advocate as her economic adviser. Antipathy toward him was so intense that political analysts say it probably cost Chancellor Merkel's party a clear majority in the German Parliament.

Yet the concept has caught on in this part of Europe. Latvia, Lithuania and Slovakia all have a flat tax, while the Czech Republic and Slovenia have considered one. Tax policy, not support for the American-led war in Iraq, is the bright line that separates the so-called old Europe from the new.



For the full article, see:

MARK LANDLER. "Letter From Estonia: A Land of Northern Lights, Cybercafes and the Flat Tax." The New York Times (Weds., December 21, 2005): A4.

(Note: ellipsis added.)





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