Estonia, Georgia Leading in Economic Success
Advocates of planned economies never seem to listen to the lessons learned elsewhere, and will probably choose to ignore this one.
For them, “there is no reality, only perception”, something my daughter asked me about from school.
I found an excellent article by Whitney Stewart in CNS News while looking for something else. (A short attention span can be a great thing). I have edited it to fit it in but the crux is still there.
In this article we see the reference to an “economic miracle”, which seems to be a phenomenon which follows in the footsteps of freeing up the economy. Perhaps economists will find out what correlation lies there.
Here is the story: -
In the post-Soviet era, several former communist countries have enacted pro-capitalist, free market policies that are fueling tremendous economic growth and freedom.
This week, Estonia’s former prime minister explained the economic miracle that is his country – a country of 17,400 square miles and 1.4 million people with an economy that outshines many of its larger European neighbors.
Mart Laar became Estonia’s prime minister in 1992. His country was then in shambles, having been ruled by the Soviet Union for 51 years. Shops stood abandoned, housing and highways were crumbling, infrastructure was crippled. It was, in some ways, reminiscent of the Great Depression, Laar said at a talk sponsored by the conservative Heritage Foundation.
Fuel costs had risen 10,000 percent. Inflation exceeded 1,000 percent, and the country depended on Russia for 92 percent of its international trade. But with the help of young idealists, Laar and his cabinet developed a plan to stabilize the economy by instituting hefty reforms – and without taking loans.
“We were not crazy to have such high aims, and young people didn’t know what they couldn’t do,” he said. “We didn’t know what was not possible.”
Estonia today ranks 12th in the “Index of Economic Freedom,” surpassing Japan, Germany and France. The U.S. ranks 4th , behind Hong Kong, Singapore and Australia.
The “Index” is published jointly by The Wall Street Journal and the Heritage Foundation. One of the world’s fastest-growing economies, Estonia’s gross domestic product is $19.6 billion.
It experienced 7.2 percent growth in GDP last year and has experienced similar growth every year for more than a decade. A country that maintains 7 percent growth for a decade doubles its economy, and Estonia did that between 1995 and 2004, explained Marian L. Tupy, a policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity.”Very few companies are able to do that, and they’ve done it,” he said.
One key policy Estonia implemented was a flat tax. “The flat tax is owned by the Estonian people,” Laar said of the 22 percent income tax. A flat tax applies equally to all levels of income, so poor and wealthy pay the same 22 percent from their paychecks.
Laar’s government successfully entered Estonia into NATO and the European Union, and he now travels to countries transitioning out of communism to advise them on building free market economies. The most important thing he tells politicians is that they must be so focused on their mission that they don’t care about getting re-elected.
One of the other former Soviet countries following in Estonia’s economic footsteps is Georgia.
When Georgia imitated Estonia in instituting a flat tax, they indicated a serious attitude toward creating a pro-business economic environment, said Tupy. And with former Prime Minister Laar advising their economic policy, Georgia is taking its cues from lessons the Estonians learned.
Georgia ranks 35th in the “Index of Economic Freedom,” ahead of Israel, France and Italy. Last year, Georgia jumped from 112th to 37th in a World Bank ranking of business-friendly countries.
This year, average salaries increased 15 times, and Georgia’s GDP grew 9 percent in spite of losing its main trading partner, Russia, which accounted for 15 percent of Georgia’s trade, according to Georgian Senior Counselor Akaki Lomidze.
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It never ceases to amaze me that Australia is in the top three countries in the world for economic freedom. I hate to think what the others must be like. You can’t do anything here without getting the government’s gracious permission.
I met a guy the other day who can’t read or write. He has always worked in fruit-picking. But now he can’t even *enter the fields* without getting a certificate of permission from the government.
A lady I know has been a cook all her life. But now she needs not one but two certificates to work in a kitchen. You need the government’s permission to pull a beer in a pub, or shoot roos (multiple permits needed of course).
A guy I know has a property at Hill End (ie middle of nowhere). He has been trying to sell it for years, but he can’t because no bastard can build on it because of the veritable thorn-bush of every kind of fucken rule and regulation on using it. The permission to build on it runs out unless he can put down footings within four months, but he’s not allowed to do it, he’s got to employ a government-registered builder, but the builders won’t do it because of something to do with compulsory insurance.
A lady I know wants to work in the mines (private property in the middle of the desert) driving heavy machinery. But she needs one certificate of permission to even enter the site, and another one to drive the machinery.
And Australia’s supposed to be one of the freest countries in the world? All I can say is, reform is badly overdue.
By the way, 22 percent tax is better of course, but it’s still far too much. How can they possible justify taking 22 percent of the product of the nation? If they weren’t so intent on bribing the electorate into voting their party back so they can get their snouts in the trough, they wouldn’t need it.
Maybe the numbers you present are good, but both of those countries have large outflows of people, so something can’t be wonderful about them. They both also have low birth rates. I therefore find it hard to imagine that any miracle is going to last a very long time.
Aside from that, I think the main problem is thats its hard to see where causation is and the amount of gains you get from doing things. It seems to me going from an absolute disaster to almost anything better can give you a lot of gains (e.g., China). More interesting would be cases where you go from reasonably well run to even better, and the effect of that.
More interesting would be cases where you go from reasonably well run to even better, and the effect of that.
Conrad, we have seen that in Australia. The Hawke/Keating economic reforms were responsible for the strong growth Australia enjoyed for the past decade. Arguably the only thing the current government has got right is that it didn’t undo them.
The UK and USA also had experience of moving from “reasonably well” to “even better” in the form of reforms introduced by Thatcher and Reagan. Both economies boomed.
Having said all that, I agree with Justin. If Australia is in the top three for economic freedom, the others must be effing bad. I’d say they all must have lots of “upside potential”.
Agreed David; I think that cases where nations go from shocking to a hell of a lot better after initiating economic reforms are worthwhile as well.
Justin; I’d kill for a 22% tax rate, even JH wont give me that.
The current government did deliver waterfront refrom and they did formalise the central banks independence and inflation focus. If the IR reform is kept then that should be regarded as a worthy reform. GST could have been a good platform for more general tax reform but they don’t seem to have taken the logical step of winding back income tax. Keating always intended to privatise Telstra but the government can claim to have removed itself from ownership within that industry sector (although too much regulation now abounds).
However David is right that the current mob have otherwise mostly offered steady as she goes economic management and not so much in the way of reform. The Hawke government still stands out as amoungst one of the best. Of course the current opposition are not promising much in the way of useful reform either. Logically people should vote for the LDP.
David, you also forgot that the Libs fire-proofed us when the ‘Asian meltdown’ occured in 1997. They didn’t just leave things, but made some improvements.
However, what have they done for us, lately? Not much, and all this centralizing makes me very angry! Why, I might just vote informal! That’ll teach them!
Nicholas – I don’t really agree that the Libs “fire-proofed” us against the Asian meltdown. I know that Peter Costello likes to make this claim however that does not make it true.
I agree with Terje about the Asian meltdown — the reason Australia escaped was because (a) we didn’t have rampant speculation everywhere on everything; (b) we had a floating currency; (c) we have a decent banking system; and (d) our economy is completely different to those countries. What has that got to do with Peter Costello ?
More interesting is the comparison with now — obviouslly people didn’t enjoy conditions a,b,c, and d, enough, which is probably why many of the reserve banks of the world now are intervening in markets — presumably to encourage people to borrow even more and take even more risk. Its crazy.
I may not agree 100% on the detail. Here are the qualifications.
a) I don’t think this is specifically relevant or causal.
b) I agree. Although the main issue was exchange rates fixed to the US dollar whilst the US dollar was poorly managed. The US dollar was appreciating due to the strong dollar policy during the Clinton administration. This was deflationary in all those nations fixed to the US dollar. It was disruptive in asia but also in Argentina. The recovery was rapid once the asia economies realigned their exchange rates. Most of them still fix and the US is now pursuing a weak dollar agenda.
c) All banking systems will look bad in the midst of deflation. The same was true at the time in Japan which was living through a home grown deflation spiral.
d) Not causal or overly relevant except as noted below.
Costello could claim that central bank independence saved us. However whilst I think there is some merit in that I think the fact that the Australian dollar follows commodity prices more closely than other currencies is also a significant factor. Out of all the global currencies the aussie dollar is perhaps the closest to a claytons commodity standard.
p.s. When I say “some merit” I don’t mean a lot. Costello formalised inflation targeting but it was already the defacto standard.
Matt Laar, the Estonian prime minister from 1999-2002 won the 2006 Milton Friedman prize for advancing liberty (awarded by the CATO institute).
If anyone is interested: In 2004, Matt Laar wrote a paper called “What we have learned in Estonia about Freedom and Growth” where he compares his country to Finland (similar population size and culture) and others. http://www.cato.org/events/russianconf2004/papers/laar.pdf
Wouldn’t the outcome have been worse if Labor had stayed in power? I remember that when the Coalition first got in, they made some changes that were bad-mouthed by the press as being anti-Asian, until the crisis of 1997. Then the press talked about foresight, or dropped the subject.
As for Estonia, let’s hope that this country affects the European countries, and they all get flat-tax bugs. Unlikely, but we can hope!
Justin, I think that most of the things you stated are neccessary, Why do people need a license to drive a car? So that they have a generally guaranteed level of driving skill as to not cause an accident and kill people and/or themselves in the process. It is right for a cook to have to secure licenses in order to cook and prepare food for public consumption. It is right that child care workers secure certificates saying that they arent pedophiles or criminals etc. Although i agree with you that the building permits are a waste of time.
And it seems more to me that they are trying to live within their means by keeping the birth rate down, as opposed to viewing it as a short lived prosperity. I see it as securing the future for their children.
I’m hesitant to make too much of short term results in a country of just 1.4 million. In addition to GDP growth, Estonia has a birth rate below the replacement rate along with net migration out of the country. Something’s not quite right.
I’m interested as to why you don’t think (a) is not relevant. It seems to me a big factor in why big investors will make a run on assets. Thats not to say it can’t happen irrationally, but with huge amounts of speculation, it becomes the rational thing to do. This is interlinked with (c), because the money for (a) usually comes from (c), or at least it did to the Asian countries at hand. I agree with you (d).
Perry,
Parents don’t want to leave their kids with pedophiles and I don’t think they need the government second guessing their judgement. With or without licencing there will be abuse. However with licencing their will be less flexibility and higher costs (worn by workers and consumers). Licencing also means that regularily caring for the neighbours kids is now forced into the commercial arena and civil society takes another knock. Licencing does not prevent the abuse of children. If anything it promotes understaffing of child care fascilities as the required skill set is increased.
Restaurant hygene is one thing but licencing people who want to cook for a living is over the top. There are plenty of avenues by which unhealthy restaurants can be put out of business without burdening the entire industry with red tape.
Standards matter in society. However standards are best initiated and regulated via consumer choose in the open market. Just look at the computer business where regulations are few yet standards are abundant.
Regards,
Terje.
Terje
You set up a system whereby child care workers need not have background checks. I’ll set up a competing one where they do. I’ll bet one of us is out of business within the year.
Some regulation is necessary. And whilst it is silly for cooks to be licensed, driving licences just make perfect sense (provided they never contain DNA or biometric data for instance).
Yeah, but if the free market sets up a childcare system with background checks it is testing whether there is a market for this more expensive form of childcare or not. If the government mandates it, it is forced on everyone. The whole point of the free market is that both childcare centres will be established and we will see which one consumers want.
Parents are always willing to pay more for security, Why else would people shell out big bucks for Volvo’s when they are such a bad car.
The problem comes when the free market makes a decision such as allowing people to work in childcare without background checks and if an incident happens, Then the government will have massive amounts of pressure put on them by the parents of Australia to make sure that incidents like that dont happen again, It is highly likely that at some stage in Australias history there were no manditory background checks and we have since learnt the cost of them.
Pommy your childcare centre that advertised carer background checks would have better business. (without government regulations) In fact child carer quality would become more and more competitive and important in this free market system. This is less likely to happen when people are relying on the government to ensure child carer quality. Basically, both methods are not perfect. So given that both methods don’t guarentee your kids won’t be molested, then you should go for the system that encourages more outstanding child carers.
I think a system of vehicle identification is important. ie: number plates. I’d like to think this could be achieved privately.
In regards to driving licenses. The real qualities needed on the road are attentivness, patience and keeping your head if a dangerous situation arises. There’s no test that can ensure people are capable of these qualities or employ them when driving.
For those interested, an anarcho-capitalist article on driver licensing detailing the US history of licensing, revenue from licensing/registering and various legal challenges: http://www.voluntaryist.com/articles/119a.php
From the same website, another article about the experiences of some religious organisation who claim God is the only one with the authority to grant them licenses etc http://www.voluntaryist.com/articles/068a.php
So enforced government licensing in general is an imaginary security blanket. Non-licensing will increase people’s fears, and this is a great motivator for them to take more responsibility and evaluate their choices.
Jobs need training and certification but don’t need an enforced monopoly on this training. Competition will result in higher standards.
And private training/certification groups have something else, accountability. I’d like to see you sue the government for not having a good enough driving test.
re cars: microdots and e passes.
It might make it impossible to evade tolls but it is the price you pay for reduced theft and increased vehicle recovery.
What is wrong Trinifar?
The UK had very high rates of emigration, economic growth and international capital transfers.
From 1800 to 1900, British real wages increased 400%.
What is wrong with Estonia?
Pommy,
Actually I leave my kids with the neighbours quite frequently and I’ve never done background checks. That does not mean I don’t exercise judgement. Should I do background checks before they can have a sleep over at a friends house?
And in any case background checks as a prerequisit to employment is quite different to licencing.
Regards,
Terje.
p.s. I have no problem with drivers licences or shooters licences. However who are we trying to keep safe with the licencing of hairdressers?
Terje
I assume you would not leave your kids with a new neighbour. The same principle applies to child workers. We don’t know them personally so have to rely on them being vetted. It doesn’t eliminate abuse but it certainly reduces it.
One of the other smart reforms that Estonia did was in 1998 they adopted a fixed exchange rate. Their monetary authority trades the Estonian Kroon relative to the German mark (and now the EURO) at a fixed rate of conversion. This was smart because:-
1. it fosters trade with the EU by dispensing with exchange rate risk.
2. it gives them low inflation.
3. It gives them ready access to deep credit markets (ie lower interest rates).
Whilst other nations fiddle with a crawling interest rate peg the Estonians have adopted a fixed exchange rate that provides certainty to investors, workers and consumers.
Terje, the difference between a person who lives next to you 24/7 is very different to a person who you dont know, and probably wont get to talk to as you would be dealing with administration side of a business.
Of course you wouldnt leave your children with the meth addicts next door, even though there is no liscensing in action, you are in a position to make a judgement because you have interactions with them and / or in close area contact.
However when leaving your children with child care agencies, you have no idea about any of them, only the basis that they are a child care organisation and there are laws requiring those organisations to do background checks.
Pommy;
I just noticed that while I received email notification of your comment (10.03AM) It didn’t come up on the site, I’ll repeat it here: -
Comment:
Jim
Late to this post but have just read Wayne’s manifesto. Wonderful stuff! I could barely quibble with any of it.
I notice that he refrains from using the cynical, pessimistic language normally associated with libertarians.
He is also strong on defence, the Achilles heel of libertarians.
We should try and hook up with him. Anyone have his email address?
Libertarians are very good on defence issues. People who endorse massive government spending programs with half-arsed reasons are a threat to the world, and libertarians quite rightly criticise such absurd anti-rational pro-government thinking.
The email address is: – mart.laar@riigikogu.ee
I have sent one to him inviting him to comment. It reads as follows: -
I took the liberty of posting on you and your country on the above site, and some of us would be interested in any comment that you might feel is helpful. Our URL is: -
http://alsblog.wordpress.com/
I have also posted this on my own site: – http://jimunro.blogspot.com/
Feel free to join us, there are some questions that you could help us with.
Regards
Jim Fryar.
thanks Jim.
Pommy you say “it doesn’t eliminate abuse but it certainly reduces it” in regards to mandatory background checks for child carers. (not to be confused with the issue of mandatory licensing but presumably as a component of some licensing systems).
So how do you know it certainly reduces child abuse? Especially considering background checks would I’m sure be the norm in a non-mandatory system and also considering this crime is not common, (most child abuse is from close friends/relatives or parents themselves).
Do you think mandatory checks should include priests or sunday school teachers, school teachers (already in occurrence of course), club leaders like scouts etc.
I’m a part time music teacher of primary school aged children and have never been asked for a police clearance. (I’ve never taught at a school though).
I’d probably get one anyway if asked hoping it would last for some time and would add to my credentials in some small way. But I don’t see the need for government involvement.
Regarding #26.
Would you really leave your kids with an agency that you know nothing about simple because they have a piece of paper from the government? Obviously you don’t love your kids that much.
Tim
Common sense dictates that screening for a criminal record reduces will make it harder for childabusers to come into contact with children.
Put another way – how much of a premium would you be willing to pay to send your children to a childcare centre that had screened its teachers? 50%? 100%?
Mark (re: #22),
Like I said, I’m not sure it makes sense to conclude much from a short term experience with a tiny country, but if things are so great in Estonia, why are people leaving? I’d want to look at who is leaving and why.
From 1800 to 1900, British real wages increased 400%
With apologies in advance to the Ozians here, isn’t that when they sent all their “criminals” to Australia? I’m sure many people moved to from the UK to the US as well, land of opportunity and all that. That would drive wages up by shrinking the labor pool. This was also an important period of industrialization and the increase use of coal to drive manufacturing — technology driving wealth creation.
Yes. But the same could be said for Britain.
No. You are also talking about the relative return to a factor, not the marginal product of labour divided by a price index. The two however are obviously related.
At the same time, British colonies also saw rapidly increasing wage rates and populations. Very few convicts were actually sent in total.
A fall deep enough in population will see real wages fall as total output would fall too far, even though the relative return to labour would inititally be high.
All in all, 165,000 convicts were sent to Australia over 70 years or so. Prior to that around the same amount were sent to the American colonies over around 110 years or so. Not negligible by any means, but I think you’d be clutching at straws to suggest that this depleted the labour market to the point of driving up wages some multiple of times.
I think you might be on target with the whole ‘technology driving wealth creation’ thing.
Trinifar, ever think that people leave Estonia because they can? Being under the jack boot of Soviet oppression for 50 odd years might give a people a sense of wander lust. I also wonder at the ethnicity of those leaving, since the Soviets engaged in Russification of Estonia, leaving the country with a large Russian minority that may no longer feel as welcome in a country where they can’t rely on the state to favour them.
By any stretch of the imagination though, Estonia is still poor compared to Britain or America. People will always be attracted to richer nations for opportunity and experience.
Freedom produces some strange results, Estonia may at one time both attract a foreign workforce to her shores in search of opportunity, and at the same time leak a steady stream of people to other nations doing the same.
I agree Brendan, the Russians are free to go ‘home’, and the people moving to other countries in search of better opportunities may also be a positive, as those who return later will bring experience and new ideas with them.
Thing is, we don’t know. Is it wander lust, is it a desire for better economic opporunity? No data. 1.4 million people and a decade or so of time doesn’t show anything.
[wanders in] [looks around]
Ahh, transplanted redneck nutters.
[tiptoes out again]
7%+ growth for more than a decade after freeing up the economy tends to tell me something, that freeing up the economy is beneficial.
Trinifar, it really doesn’t matter what it is. The people are free to pursue their own agendas. That is all that matters. As long as those that leave are doing so voluntarily in order to improve their lot in life, it doesn’t matter whether they are improving their economic, social or personal wellbeing.
No data?
1.4 million populace.
Decadal growth double that of industrialised trading partners.
Break it into quarters and we have some significant results if we were to model it.
all I can say is unless you are acually her
in the middle o winter in Parnu in estonia,
you have not really lived
in the raw foods restaurant with a 30something Aussie
with his hot credit card and a dirty heid cold
get over ther and leave them all behind
and get your ma in transpersonal psychology
Gee Parkos, when did they start providing Internet access to the inmates at Arkham Asylum?
Parkos;
I don’t know whether you were on or off something when you wrote that, but if you want it answered rewrite it when you get back to the real world.
http://www.timesonline.co.uk/tol/news/uk/health/article2296368.ece
A recent Lancet Oncology journal study finds that Britain’s “universal” health care system has among the lowest cancer survival rates in the West – drastically lower than the United States (world’s highest survival rates) and lower than other European nations,
Researchers attribute Britain’s dismal numbers primarily to late diagnoses and lengthy waiting lists for treatment
Like I’m going to believe an unbiased report like that!
Let’s see- they’ve thrown money at medicine and hospitals for years, and the problems are now bad, so the obvious solution will be to throw More money into the failed system!
I thought I was joking about MacDonalds being banned, but the Tory leader is talking about how Britains have to take better care of themselves. Sounds like Big Sister will take over soon! You Heard It Here First! (YHIHF)