Tuesday night's guest on ETV interview programme Esimene stuudio was Jeffrey Sachs, an American economist and University Professor at Columbia University, who in one night 26 years ago drew up the foundations for Estonia's currency reform. Speaking with host Johannes Tralla, Sachs discussed the challenges that lay ahead, both for Estonia and the world.
Welcome to the programme, Jeffrey Sachs.
Thank you so much.
The last time you were in Tallinn, it was 1992. You spent three days here, and during one long night wrote down the key principles of the currency reform. What do you remember from those days?
Well I remember everything very vividly, including being in a hotel with no heat — freezing temperatures, sitting in my winter jacket, shivering over breakfast because the oil from Russia had stopped. It was a drama those days, of course. And I was here at the invitation of the government and because of my good friend and student — and now your wonderful governor of the central bank — Ardo Hansson, and it was to discuss what to do in the middle of this crisis.
What kind of advice did you actually give to those people? Siim Kallas and Tiit Vähi, they were criticised by some international experts in rushing into the currency reform.
Estonia, from the beginning, wanted to do things fast. Wanted to get on its way. And so we sat down for dinner, and Mr Kallas said to me, "We want our own currency. What do you suggest?" We had a fascinating discussion that evening, and talked about the idea of a currency board. At the end of the evening, we stood outside, the three of us, Mr Kallas and Ardo Hansson and myself, and said that a currency board seems like the right idea.
Was that your idea?
It was an idea that I supported, definitely. As I thought, for the circumstances, it fit. And Siim Kallas asked me for a memo — and I stayed up all night and wrote a memo.
In 1993, you said if Poland can do it, so can Russia. You advised Boris Yeltsin in reforming Russia's economy. How do you see Russia today?
Well, very problematic, obviously. Russia was very problematic then. That is one complicated country, there's no doubt about it. But the point that I made for Russia, as I had made for Poland, was — when the financial crisis is so extreme, not only do you need strong reforms internally, with consensus, like Estonia had, like Poland had, you also need outside help. And unfortunately, in the Russian context, there was neither internal consensus, nor was the US very forthcoming to say we'll help you through this. I think the US mentality was, "Well they're still the antagonist, why should we help?" I felt rather frustrated that this could lead to a downward spiral and a crisis.
Things didn't get totally explosively out of control, thank God, but it was very tough. I resigned soon afterwards because the US wasn't helping, Russia was not really following a path of reform. And I think I look back on that period, a quarter century later, and feel that while the complexity was unbelievable — the most complex revolutionary change I've ever seen, one of the biggest in the 20th century — still, much more could have been done, had there been the goodwill at the top levels of government in both countries to get it done properly.
Let's look at the present day. You hdadn't been in Estonia for 26 years. What do you see today?
Well, dazzling! It's so good to be back, and it's so wonderful to see the splendid success of this country. Estonia is renowned around the world as not only a great transition success, but just a great place, and a dynamic leader of the IT revolution. And so this is a much storied country. For a small population, it looms very large in the global imagination.
So for me you can imagine what a pleasure it is to come back and see Siim Kallas, to see my former student the esteemed governor of the central bank, to see Mart Laar, who did an exceptional job, really an exceptional, historic job, to say, "We need to move forward! We're not waiting for this international organisation or that one, we're moving!" And history proved these dynamic leaders absolutely correct.
When we talk about the present day in Estonia, there's still notable discontent that we're not really reaching the standard of living of Scandinavia as fast as we would like to. Do you see somewhere where we should put it into the next gear to really get this progress moving faster?
I don't wanna be glib about it, or dismissive about it, but what Estonia has achieved and is achieving is astounding if you look from outside. Of course, if your reference group is the most successful countries in the entire world — because you're comparing to Sweden, to Norway, to Denmark, to Finland. Oh my God! Those rank at the top of the world! And Estonia is narrowing the gap quickly with them. From my point of view, pretty darn good! Of course, from the point of view of an Estonian, "Why aren't we there already?"
If you were the prime minister, what would you bet on? If you were putting together the next budget, where would you invest to really add tempo?
Well I think the politicians and the public have figured that out. Estonia is in the lead on using information technology across the economy — in healthcare, of course famously in e-governance, in the financial sector, in many areas. This is what the world needs.
And yet we invest less than 1% in [research and development].
I think it's amazing, of course, what's been accomplished. There is more that could be done. One of my recommendations is that the government should invest more in R&D, and build the universities here, which are strong, to be even stronger global leaders in this, because the top-ranked university sector — and you have strong universities, but they could be superstar universities — would also help for the long-term development in this country.
But I also think Estonia has a huge positive role to play in the world, partly as an adviser — "Look what we've been able to do, this works!" — and also commercially. Which is, "These are good systems, we're building them." And I think that that's a lot of market in the world in the years ahead.
Traditional parties all over the West are struggling with the so-called populist movement, partly due to divergences in living standards. How do you fix that?
I think what's happening is our societies really are coming apart. In the US, if you have a [university] degree — boy, life is good! Technology is better, life is good, incomes are rising. If you have a high school or less, "Where are my jobs? They're disappearing! Automation!" And so forth. And the US has been pretty uncaring in that divide, so it's opened very widely.
You look around Europe, it's a very similar divide. It's also geographical. The cities, booming; the rural areas, lagging behind. I believe that one needs a kind of philosophy and a standard in practice of social democracy in the sense that we're all one society, let's make sure that everybody can be part of it. I can tell you, in the US, which is the harsh market approach — boy, people fall off the deep end. And then you end up with a lot of political instability, and you end up with a Donald Trump, which, in my point of view, is a kind of symptom of a divided society. Who is dividing our society even more.
So more social support for the ones left behind?
And better educational opportunities. That combination, I think, is very, very important.
These days it's very popular in Europe to criticise Brussels — well actually, to blame everything on Brussels. We are seeing Brexit, which is, well, becoming an increasingly sad spectacle. What do you think, will Brexit be the last one?
I think the irony now is, we're clearly moving to a world where strong regional coherence is crucial. No solutions can be done country by country, whether it's on the new energy system, sustainable development, ecosystems, or security.
And so Europe better hold together, because what is Europe facing right now? Europe is facing a world of a strong China, Russia with its intentions, India, which is 1.3 billion people and growing, the African Union with all the challenges coming from Africa. If Europe's divided, think of the vulnerability for that. And with the US, in my opinion — and I'm sad to say it — not the protector and the stable guarantor of the international system. No way, we can barely mange our own actions right now!
So Europe really needs a foreign policy. Europe really needs to hold together so it can address all of these challenges and opportunities coming from other parts of the world. And yet, because of the internal frustrations, Europe could be pulling apart.
But, by the way, not just for the internal frustrations, but because of the darker machinations, how Russia's playing in our political systems all over the place. In the US, the evidence just keeps growing, growing, growing of all the meddling that's been done. How Mr [Steve] Bannon, Trump's deputy, runs around Europe to say "Attack Brussels!" This is extraordinarily dangerous for Europe. Europe needs to be especially strong and clear right now — and united.
You do see a role from Russia there?
We see, in the United States — Russia, whoosh! all over the place playing games. Mischief or worse, but definitely they were all over the political process, and we don't know the end of it yet with Trump himself, because we have a special prosecutor who is finding all sorts of things that could be quite shocking by the time we hear the full story.
The demographics in Africa are exploding. I think people in the EU have now understood this, but they're still having a hard time blocking illegal migration. What's your solution?
If you think about what's happening, Africa had 179 million people according to the UN in 1950. Today, one billion — more than five times from 1950 'til now. And if you look at a kind of projection of the current trend, four billion people by 2100. I don't recommend it to Africa, because how could Africans develop with so many people, so much pressure on water, so much pressure on land? With food supplies under stress, with climate change under stress? With having to build just to keep trying to keep up with the population growth?
Now what's happening is that the fertility rate — the number of children on average per woman — is still almost 5. This is incredible — too much! From the point of view of economic development, sustainable development, and the best for those children.
So what should the EU do to not be overrun by Africa?
Well, it's first what should Africa do — but it's also in Europe's interests. And that is very, very simple — enable the girls to get a full education! At least through upper secondary education. And then, all of history shows everywhere, the fertility rate comes way down. The population wouldn't reach four billion, maybe it would peak at two billion. The pressures would go way down — the migration, the desperation would go way down.
I say to European leaders all over Europe, "Say to the African leadership, 'We will partner with you to ensure that every child in Africa gets at least a secondary education.'" This is so much common sense. Not very expensive, but boy could it do a lot of good in the future — for Africa and for Europe.
Let's come back to Estonia. Estonia, as you well know, is dependent on oil shale. And I think we're still looking for ways to invest in it, to add value. What is your thinking on that? Do you see a future for shale oil?
I don't see a future for fossil fuel. But I'm not alone. If you read the scientific reports, the recent IPCC report — the Intergovernmental Panel on Climate Change — it says we have to stop fossils fuel by mid-century. And the way to do that, overwhelmingly, is wind, solar, hydro, and grids to connect those renewable energies to where those populations are.
The Baltic Sea, massive offshore wind power — enough to power Estonia and all of the region. And now you have technology all over the place — in this country, in Equinor, which is the new name for Statoil in Norway, investors in Denmark. I think that that the Baltic Sea and Scandinavian countries should make a grid based on wind power and storage up in the fjords, in the mountains — this is how Denmark and Norway are doing it. You'd make a perfectly clean grid, clean air, safety for the planet, and go out and sell those systems all over the world because that's the future for the planet — not oil shale, which, like coal, like natural gas, like petroleum, needs to go away if we're gonna have planetary safety.
One other sensitive issue is the balanced budget. It has been like a religion, in Estonia. And the only way to really assemble a budget — it needs to be balanced. Is that something we should hold onto? Even if we see financing needs in sectors all over the board?
Broadly speaking, it has served this country well. This country doesn't have debt; it has its independence in the future; it can make choices. You could think of exceptions, but broadly speaking, this is the right approach.
Here's a tough point, though — your neighbours, Finland, especially Sweden, Norway, and Denmark, they tax more than this country as a share of national income. And then they're able to do a bit more in distribution, a bit more investment in R&D, a bit more investment int he green economy. I think that that's the right way. Oh everyone hates that idea! Everyone wants tax cuts, rather than tax increases. But it turns out to have the kind of social democracy that really produces the equality and the green economy — probably 45% of GDP, or even 50% of GDP, well spent gets you there. But Estonia's a little bit lower than that. And I don't think budget deficits are the answer primarily, but really being able to raise the amounts that are needed for public spending. For example, it would be wise for this country to invest more in R&D by the government. Build the university networks, build the science foundations, even more strongly.
But I wouldn't do it basically on borrowing. I would do it on government revenues that are able to pay the bills for the foreseeable future.
I'm 33 years old. Can I rely on a state pension once I'm 65, 70, or should I work 'til I die?
Well I would advise you save. I don't think I would —
Rather difficult in Estonia.
I would think hard about that, because I think for anybody on the planet, I'd put away some of your own income and savings for the future because —
No pensions for the future?
I think there will be pensions, but I don't think that any of us can rely only on our government systems. So we have to rely on ourselves and our own ability to delay gratification for long enough to be secure and to help make sure that our children are secure too.
Where do you see the next economic crisis hitting the world?
We will have more crises. Each time we've had it, it's been a bit of a surprise. In 1997, it was the Thai baht, of all things. I wasn't following that up until that day.
Do you see the first signs of the next crisis? Right now?
There are always signs of crisis. The world economy is not per se stable. It has to be properly managed. When you have the likes of Donald Trump, who is creating tensions, frictions, and uncertainties, nobody could give a guarantee right now.
The US stock market has been [up and down] in recent days, after it had gone up a lot in recent years, but investors are saying, "What are we doing? Trade war with China? What's going on? Impeachment? Who knows!" So there's a lot of uncertainty.
And things should be handled cautiously, certainly by Estonia. Things should be handled responsibly — prudentially, is the formal term [used] by fiscal and monetary authorities. But nobody should believe that we're past the last crisis, because we do have a crisis-prone international system.
We have less than two minutes of the programme, which is deeply unfortunate. I have to ask this — do you see robots taking most jobs? Is that actually a good thing or a bad thing?
Robots will take a lot of jobs. I suspect that they will be teaching my courses in the future, and doing a lot of the research, because they can read 50,000 journals where I struggle to get through two or three —
I hope you have your savings.
Well, what will happen is, the robots will make the economy rich. But the question is, will the economy be rich for the likes of Jeff Bezos, who's worth $140 billion today, or will it be rich for broader society? That depends on how we share the productivity increase. If it's every person for themselves, this robot economy that we're heading towards means more and more inequality.
If we hold together as a society, it means more well-being, higher incomes, more leisure time — more time for charitable and volunteer work and hobbies and other pleasant things. It could be better, but we have to learn to share.
You were the [doctoral] thesis advisor of Ardo Hansson, as you mentioned at the beginning of this programme. Would he make a good president for the European Central Bank? His name has been on several lists in several articles.
He would make an outstanding president for the ECB — without question! I could not be more proud of Ardo Hansson, and it's just wonderful to see what he's doing in his leadership.
Thank you very much for your time, Mr Sachs!
Great to be with you.
Editor: Aili Vahtla