Estonia and Finland, Updated

By Newmark, Craig M. | Independent Review, Spring 2009 | Go to article overview

Estonia and Finland, Updated


Newmark, Craig M., Independent Review


In a recent article in this journal, Robert Higgs (2007) presents the results of "still another fifty-year experiment in political economy." In 1939, Estonia and Finland were, according to Mart Laar, a former prime minister of Estonia, similar in culture and living standards, and their economies were "more or less the same." After fifty years of Communist rule in Estonia, however, key demographic and economic indicators in that country clearly lagged those in Finland. As of 1993-94, life expectancy was lower, and the infant mortality rate was almost four times higher in Estonia; and the Estonian economy as measured by gross domestic product (GDP) was only about one-ninth as large as Finland's (Estonian GDP per capita was about one-third of Finland's). In Estonia, telephones per capita, a rough indicator of the spread of modern technology, numbered less than one-half those in Finland.

An even more recent article describes some of the changes in the governance of Estonia since its independence from the Soviet Union. Prime Minister Laar, described as "an acolyte of the late economist Milton Friedman," led major reforms, such as privatizing state assets, eliminating import tariffs, and establishing a flat tax (Kaster 2008).

It seems natural to ask, therefore, how Estonia and Finland compare now, after about seventeen years free of Communism and after the economic reforms in Estonia. Specifically, what does the table presented by Higgs look like when it is updated? Table 1 provides the answer.

Although life expectancy remains lower in Estonia than in Finland, the increases from 1994 to 2008 were roughly equal. Infant mortality improved substantially in Estonia. Economic growth, in both GDP and GDP per capita, though rapid in Finland, was even more rapid in Estonia. With regard to the rough indicator of technology, telephones per capita, Estonia now surpasses Finland. (Thorvaldur Gylfason and Eduard Hochreiter [2008] note that both personal computers per capita and Internet users per capita around 2004-2005 were about the same in Estonia and Finland.)

These numbers are consistent with Higgs's finding: if communism hurt Estonia, the removal of communism should have helped. In light of these data, it apparently did. (1)

References

Higgs, Robert. 2007. Results of Still Another Fifty-Year Experiment in Political Economy. The Independent Review 12, no. 1 (summer): 151-52.

Gylfason, Thorvaldur, and Eduard Hochreiter. 2008. Governance and Growth: Why Does Georgia Lag Behind Estonia? Vox (August 2). Available at: http://voxeu.org/index.php?q=node/1499. Accessed August 2, 2008.

Kaster, Nicholas J. 2008. Will Estonia Liberate the United States? American Thinker (June 21). Available at: http://www.americanthinker.com/printpage/?url=http:// www.americanthinker.com/2008/06/will_estonia_liberate_the_unit.html. Accessed July 24, 2008.

U.S. Central Intelligence Agency. 1994. The Project Gutenberg Edition of the 1994 CIA World Factbook. Available at: http://www.gutenberg.org/etext/180. Accessed July 26, 2008.

--. 2008. The World Factbook. Available at: https://www.cia.gov/ library/publications/the-world-factbook/index.html. Accessed August 8, 2008.

(1.) A caveat should be noted. Although political and legal reform seems to have preceded Estonia's improved economic performance (see the graph in Gylfason and Hochreiter 2008), that timing by itself does not establish that this reform caused the improved economic performance. Factors not considered here might have caused both political change and improved economic performance. Causality might even have run partly in the opposite direction: improved economic performance might have contributed to political liberalization. …

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