Jaak Aaviksoo: Solutions in economy as opposed to accounting
Fine-tuning, indecision and responsibility becoming a hot potato in the public sector have culminated in a cast of mind in Estonia that the economy is something that happens somewhere far away and is beyond state control, writes Jaak Aaviksoo.
The past three years of recession have been characterized by sporadic remarks such as, "the weak state of the economy was to be expected," "foreign demand setbacks exceeded forecasts in the second half of last year and recovery did not yet manifest" or "various signs suggest the economy might start growing again in the second half-year."
One cannot help but detect a certain resemblance with the weather report. The weather is rainy and windy everywhere, the low pressure system from the east is slow to recede and we'll have to wait a little longer for sunshine to return. The weather promises to be nicer toward the year's end.
Unfortunately, this similarity of messages goes beyond incidental, and the use of such language betrays a cast of mind according to which the economy is something that happens somewhere far away and is beyond our control. Whereas this is not the position of ordinary people on current affairs shows' vox populi segments but rather those elected and appointed to govern and develop life in Estonia. Apparently, the state is unable to bring back growth, it's up to someone else, with the government merely keeping score. The government does need to keep score, but it is also true that while wheat and milk come from fields and cows, the latter are bountiful in well-run farms and less so where things have been allowed to run away.
This mentality would have been unthinkable just 30 years ago when both employers and employees made an effort, while the government and Riigikogu considered it their obligation to help economic development as best they could. One side tried to find new ways for growing incomes and productivity, the other did its best to remove any obstacles on that path. But what's most important is that no one wasted time looking for external reasons and culprits when plans failed to manifest in full. The result was that the volume of the Estonian economy grew twenty times in thirty years for an average of 10 percent a year.
These days, we settle for concluding: "The economy did not return to growth mainly due to weak demand on main export markets." Instead of being honest and saying: "They're no longer buying our cucumbers, we must have missed something."
It is true that rapid growth following the restoration of independence drew from price convergence and in no small part foreign support, while the decisive factor was still people's drive to leave behind the pitiful Soviet reality and be masters in their own land. Just as the melting snows in spring or the first rain of the year, it washed away all obstacles, including indecisive leaders and complacent officials.
Unfortunately, after a few decades, it gave way to fine-tuning, indecision and efforts to shirk responsibility on the one hand and mediocre complacency or disappointment on the other. The steam ran out and the economy was increasingly left to its own devices.
Then came the coronavirus crisis and full-scale war in Ukraine, the combined effect of which has allowed decision-makers to find an excuse for every single omission.
In the wake of leadership now alienated from the economy, all manner of rights activists became louder, seeing the economy as little more than entrepreneurs' thirst for profit, while still demanding both the private and public sectors up their funding.
The latter exist in symbiosis with environmental activists who set the economy in contrast to nature, as well as creative associations who place human creativity above any and all economic considerations.
This picture is of course a caricature, while the pervasive attitude is tangible: the economy is low and out. This position solidified in the bloated 2023 state budget as one of the main sources of woes currently plaguing public finances. Its introductory part, which bears a minister's signature, makes no mention whatsoever of the economy, next to a plethora of generous promises.
Unless this attitude changes, there is no hope of progress returning to Estonia. The economy is not merely an object of regulation and taxes or a hobby pursued by businesspeople. It is a core function of human society that allows mankind to achieve more than an individual could alone. We can say without exaggerating that outside the economy, it is impossible to achieve a single task we face, from the preamble of the constitution and climate challenges to what we have for dinner every night.
Therefore, there is no way for the government to distance itself from economic issues. They could start by listening to what the problems are and being involved in coming up with solutions.
Allow me to provide just a few inputs. Modern economy rests on energy, information, capital and labor. What is the situation of each of these aspects? Why are our energy, internet and capital costs well above the European average, and even though our labor costs are still below that average, its qualification also does not correspond to modern needs.
Our productivity has fallen from 84 percent of the EU average to 78 percent over the last two years. How to move forward from here and set our sights on 110 percent? With specifics, please. It should be clear that we need structural changes both in the public and private sectors, and that many recent business models are not able to deliver us from the middle income trap. What is the plan?
The need for increased productivity concerns us all. Put simply, we'll all have to do more with less. How to achieve that? We probably need to stop doing a number of things so that the things we do well and in which there is solvent interest could develop and flourish.
Simply getting by isn't enough. We need to be good at things, better than others, which requires experience and constant efforts. Unfortunately, current gaps in the preconditions for this are visible from a mile away.
Finally, once we have the answers to these questions or at the very least a clear desire to find them, the ever-present budgeting issue will also resolve itself, while there is no hope of the opposite.
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Editor: Marcus Turovski