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Former OECD ambassador: Estonia's public sector not unreasonably expensive

Marten Kokk.
Marten Kokk. Source: UNESCO/ERK

Reduce the number of public servants by half, cut public sector spending and optimise: such is the recipe of a new platform for reform presented by 28 Estonian entrepreneurs and businessmen earlier this week. Former Estonian ambassador to the OECD, Marten Kokk disagrees, and pits their ideas against the success of the Nordic countries, all of whom spend more on their public sectors than Estonia does.

28 Estonian entrepreneurs and businessmen announced their Foundation for State Reform earlier this week, titled "The subject and tools of state reform". The platform as published by the foundation is doubtlessly a commendable effort towards an exchange of thoughts, and there are plenty of very valuable ideas.

At the same time, there are a few fundamental questions regarding the reasons for state reform and its preferences left open. For some reason there is the belief in Estonia that the public sector's spending is disproportionally big. That is not true.

The businessmen assume that according to the Organisation for Economic Co-operation and Development (OECD) Estonia's public sector spending in 2015 amounted to 40.2 percent of GDP, and that this is on the critical limit of what Estonia can tolerate ("A large and unwieldy public sector requires work and spending to maintain itself and its operations"). They conclude that "almost the only option left to us to develop the state and increase prosperity is to cut and optimise public spending, and reduce bureaucracy."

I'm of course familiar with the study they are referring to, and the 40.2 percent is the correct number, but the context is that this spending is smaller than that of just ten other countries, and greater than that of more than 20. Among them, the 20 most developed industrial nations redistribute more money through their public sector than Estonia does. In fact, only three European countries spent less in 2015: Ireland, Switzerland, and Lithuania.

The same study points out that Finland's public sector spending amounts to 57.1 percent of GDP, that of Denmark to 54.8 percent, Sweden 49.6 percent, and Norway 48.8 percent.

The per capita spending of Estonia's public sector is even smaller and counts among the lowest of the OECD's European member states. Only Latvia, Lithuania and Poland spent less.

The question on what exactly our dear compatriots base their idea that Estonia's public sector spending is too high and that it needs to be reduced at any and all cost remains unanswered. Especially considering the kind of state our Nordic neighbours have managed to build up. They have been extraordinarily successful.

The Nordic countries with their spending have managed to arrange their societies in such a way that they have lead almost every ranking there is, from public health and subjective happiness to Internet connectivity and other things of the like. They are clearly among the most successful states in the world.

What exactly are the Nordic countries doing wrong, and what do we know better than them that we want to go exactly the other way? I'm not trying to say that one way is right and the other wrong, but I don't see how we are ever supposed to keep up with them in the long term without properly funding health care, higher education, science and infrastructure.

In the health care sector, we are among the states spending the least in terms of GDP in absolute numbers. And the last time a scientist of the University of Tartu won a Nobel Prize was back in the days of the Russian Empire.

The idea that anything of the like can be achieved by sacking a few hundred officials isn't sensible.

So what have the Nordic countries been doing that turned them into such successful states? What are the values on which these societies are built?

Naturally, business has played an exceptionally important role. We can all name several global brands, no matter the country, from Volvo to IKEA and Lego. But that isn't the only reason why the Nordic countries have been successful.

An important factor has been the balance between business and government, and mutual trust. Nobody there would ever have the idea to lay off half of the state's officials over four years (like our reformers are suggesting it with their platform) simply to be able to pay the remaining ones a higher salary. That would be seen as a thorough failure to understand the situation as well as an expression of extremism.

The way the policies of the Nordic countries were shaped has been very open and reformist, at least in the global context. Though not in the way we would understand it; but they are in the habit of thoroughly discussing an issue, as there is little value in getting something done quickly, only to find that it was done the wrong way.

In addition, the Nordic societies are very egalitarian. Politicians go to work by bike, and a businessman needn't be ashamed to drive an older-model Volvo. Inequality, typically a reason for discontent, is small.

Part of that model is the government's capability and will to invest in human capital, including health care and education, and to gear its system towards the capability to compensate for an economic downturn. In Denmark's case, the term "flexicurity" has been used for this approach.

Economists have been in disagreement over the economic success of the Nordic countries, their large public sector spending being one of the reasons. Nevertheless, this hasn't hampered their success in the least. And though there certainly isn't a silver bullet that would fix it all at once, I would rather look to the Nordic countries than back to 1990s Estonia.


Marten Kokk (*1973) is an Estonian jurist and diplomat and a former Estonian ambassador to the OECD.

Editor: Dario Cavegn

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