Lining up three Baltic neighbors: Estonia has been smarter and better for too long? (5)

President Toomas Hendrik Ilves and his Baltic counterparts accept the "European of the Year" award for the Baltic nations' transformation to independent and successful nations
Linas Jegelevičius, Vilnius
9/23/2015 1:05 PM
Category: Features

Estonia may still be the Baltics’ “pin-up girl”, but Lithuania is sporty and muscling up, with the grid interconnectors to Poland and Sweden to be kicked-off soon, Klaipėda LNG terminal adding geopolitical weight, and GDP eclipsing that in Estonia. Latvia, the region’s laggard, is chuffing behind two neighbors, but having come gracefully from the economic slump, is awaiting its chance. How are the three neighbors measuring up nowadays in the eyes of pan-Baltic experts? Is only the history to blame for the falls and praised for gains?

Slowpoke but quick when necessary?

“Over the dozen years following the restoration of the three countries’ independence, the gap between them has been narrowing. I don’t think that the differences between Estonia, Latvia and Lithuania are that remarkable anymore. However, Estonia remains a front-runner. Latvia, notably, has managed to come out from the dire straits where it was a few years ago,” believes Kalev Stoicescu, a research fellow at the International Center for Defense Studies in Tallinn.

He joined Estonia’s foreign service just two weeks before the abortive coup d’état in August 1991, so he had the chance to witness and participate in the whole process of state building in Estonia.

So where has Estonia been better?

“I’d say Estonia was more radical than Latvia and Lithuania in its approach to economic reforms. The monetary reform – introduction of the Estonian kroon – was as a clear success and it was accompanied by privatization, not by vouchers being given to moneyless employees of various industrial enterprises, which was happening in Lithuania, for example, but according to the German Treuhand privatization model – enterprises were sold by the state to investors,” the analyst reminds.

The proximity and interest of Finland and Sweden has also played – and it still playing – a great role in Estonia’s economic development.

Lithuania and Latvia need to find their niche

Unlike Lithuania and Latvia, the Estonian government has privatized virtually all previously state owned enterprises, including banks, keeping only the strategically important harbor of Tallinn, the electric power plants in Narva, the railway system, but not the operator companies, and a share in the national airline, Estonian Air.

“The principle was then, as it is now, that the state is not a better manager than a private owner,” Stoicescu emphasized to ERR News.

The analyst believes that Lithuania and Latvia have to promote more visibly and effectively their own image, and try to find a certain niche – domain – which would remind almost everyone of the respective country.

“Estonia has put very much emphasis on the IT-sector and innovation, cyber defense, etc. For small countries like the Baltic states, it is not easy or even possible to become successful in many areas. The only way is to find domains – like Estonian did with IT – where the size of the country actually does not matter, but the quality of ideas, products does,” Stoicescu told.

“Estonia values educators, unlike Lithuania”

For Aušra Maldeikienė, а prominent Lithuanian economist and associate professor of economy at Vilnius University, the Estonian success has been about the country’s mentality – the take on the state following the breakdown of the Soviet Union.

“The people who stood at the helm of the restoration of Estonian statehood were more rational, smarter and more critical in exposing statesmen’s thinking than in the other two neighbor countries, where the public servants were very much preoccupied with restitution – restoring ownership rights to confiscated property. It has affected the economy and public life for years to come. Not in Estonia, where restitution was less sizeable and, therefore, smoother,” says the Lithuanian economist.

Second, she says, Estonia has always understood the importance of education.

“No wonder that the average salary of an ordinary professor or lecturer at an Estonian University is two and half times bigger than in a Lithuanian University. And generally talking, wherever high competence is required, Estonian rewards the workers way better than Lithuania and Latvia,” the economist says.

Maldeikienė says she does not see Lithuania catching up with Estonia for a single reason: the situation in Lithuania’s public sector, which is otherwise quite competitive, is likely to deteriorate.

“Lithuania cannot expect to oust Estonia from the regional leader’s seat any time soon. Estonia is not letting up the thrust it has had since the dawn of statehood. It is continuing at a good pace,” she says, referring to digitalization of voting and medicine prescription.

“Most importantly, Estonians value their educators, whatever level they are. Unlike in Lithuania, where the professors would be living from hand to mouth were it not for the projects they participate in and which earn them extra money. The quality of teaching suffers then at the end of the day, however,” the VU associate professor told ERR News.

Estonians work for themselves, not for God

Liutauras Gudžinskas, head of Northern European Studies Centre at the International Relations and Political Sciences at Vilnius University, however, notes that according to the latest Eurostat stats, Lithuania has edged out Estonia on GDP per capita.

“Also the average purchasing power has been bigger in Lithuania since 2014, so the Estonians are not always necessarily better than the Lithuanians,” Gudžinskas says.

But he acknowledges that on many other key socio-economic indicators, including the average life span, salary, pension and minimum wage, Estonia claims the top spot.

“I’d say that, with their dynamics, Estonia has been the most successful country from the entire former post-Communist bloc,” the analyst tells ERR News. “For me, it’s not so much about the failure of Lithuania as the success of Estonia,” he says.

Not delving into the history, the Vilnius University lecturer discerns several factors defining the country’s upward trajectory.
“Now it’s about the quality of state governance and transparency, certainly,” he told. “These are two huge ambits where Lithuania and, especially, Latvia are well behind. They cannot be downplayed as they have a big impact on the economy, public sector and life. Estonians do trust their Government a lot more, as a result.”

And where does the trust come from, one might ask?

“Again, not a single thesis has been done on the subject, but, the researchers agree, its roots lie in the building of Estonian statehood back in the 1990s. With the communist political elite again scrambling to top power structures in Lithuania and Latvia in post-1990 governments, Estonia entrusted young leaders, who were looking forward, not to the past,” Gudžinskas emphasizes.

The mentality stemming from the religion, Protestantism, has also played its part over the centuries, believes the Lithuanian analyst.

“But the Baltics, especially Estonia, is a secular region and the importance of religion is dwindling to new-lows,” he notices.
For Mindaugas Sabutis, the archbishop of Lithuania’s Evangelical Lutheran Church, Estonia’s success is all about being a Lutheran country.

“Protestantism stipulates two core differences in thinking: first, relating to freedom, each individual rather than the state of Church is responsible for his or her wellbeing, and, second, unlike Catholicism, our mundane works do not pave the way to the Heavens, but are just a mere fulfillment of our human nature and gratitude for the mercy of God,” Sabutis told ERR News. He calls Estonia, as the rest of Scandinavia, “very secular”, but the imprints in the mentality ages ago have been passed on from one generation to another.

And that is not all.

Loyalty to closest neighbors paid off

Unlike Lithuania, which has tried several geopolitical axes over the years – from the regional leadership and direct positioning with the US during the presidency of President Valdas Adamkus, who was of US descent himself, to focusing on Western Europe via Poland thereafter – Estonia’s choice has not quivered from the start; the Nordic direction.

“Estonia has managed to transpose the very high quality of Nordic governance, known for its transparency and effectiveness, into the management of its own the country – from the beginning,” Gudžinskas points out.

Despite the differences the three Baltic states have, the world tends to perceive them as a single entity, he believes.

“To wrap it up, I think that having started off with pretty similar conditions, Estonia has been better off, but the gap between Estonia and Lithuania is not widening, but often narrowing or closing. In the energy sector, Lithuania is leading, for example,” he said.

Meanwhile, Latvia is worse off as the political polarization in the country is more capable of destabilizing the political environment and, subsequently, economy than in neighboring Lithuania,” the analyst underlined. “ It (political polarization) is not an issue in Estonia,” he adds.

Andžej Pukšto, the dean of the department of Political Sciences at Kaunas Magnus University, notes that despite being referred to as “slowpokes”, Estonians are quick with reforms.

“The transformation has been rapider in Estonia and it is still upfront now, for example, with the digitalization of many of its services, like e-voting, e-prescription and so on. This is a consequence of having a more robust economy,” he told ERR news. “Their guiding star was the Nord; Lithuania has been juggling with its guides – from Scandinavia, to the US and Poland.”

Differently from Gudžiūnas, he believes the Baltics is not seen as a single region any more.

“The differences are too stark. The region is unbundled the same way as the Benelux countries. Perhaps we want to cherish the myth (of being a single unit) ourselves,” the analyst told.

Latvian analyst: stop bragging, Estonia

But Karlis Bukovskis, the deputy director of the Latvian Institute of International Affairs (LIIA), and a researcher, finds questions on Estonia being a stride ahead of the others a “weird one.”

“If we were look at GDP per capita of EU28 average, Lithuania is doing better than Estonia, at 74 points in Lithuania against 73 in Estonia,” the analyst points out.

But Maldeikienė, the Lithuanian economist, shoots back: “Don’t get misled by the numbers. The GDP calculation is based on the actual number of residents, which has shrunk in Lithuania dramatically. Not in Estonia, where many folks tend, nearly weekly, go back and forth to Finland for work. Thence the different GDP.”

“Well, technically, one can make such an assumption, but Estonia is losing its population, too,” argues Bukovskis.
Although the average salary, pension and minimum wage is statistically higher in Estonia, the Latvian analyst adds the indicators are “not a lot higher” as the three countries constantly vie among themselves.

“The differences are about greater initial foreign direct investments to Estonia, first of all. Nevertheless, I’d not say that Estonia is doing in that regard significantly better than the other two nowadays,” Bukovskis told ERR News.

He also attributes what he calls “a relative Estonian advancement” to its ties with the Scandinavian countries.

“In pursuit of Nordic investments, Estonia facilitated its tax system from the start and the transition to new economic relations – market economy – has been swifter in Estonia. Many investments from Finland do benefit from the difference in two countries’ taxes,” he suggested.

Besides, the banking system in Estonia has been more robust, with around 75 percent of the financial markets being controlled by Swedbank and SEB for “a long time now, notes the LIIA deputy director.

Latvia scores best at least on one point

Last but not least is the size.

“As a small country, Estonia passes decisions faster and the population is more adjusting than in Lithuania and Latvia,” the analyst said. “Bigger societies are more complex societies.”

And, oh, one forgot Latvia.

“Latvia is the Baltics’ laggard, falling behind on many socio-economic numbers,” Bukovskis says.

Still, it is not a hopeless situation, to tell the truth.

“The situation with the Government debt is better in Lithuania than Latvia, for example. However, export diversification in Latvia is better than in Lithuania and even Estonia,” the researcher believes.

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