Cover Profile: Estonia Tiny Estonia Shines as Post-Soviet Economic, Democratic Powerhouse by Larry Luxner When Estonians go to the polls on March 4 to vote in parliamentary elections, they’ll have some serious issues to contend with, such as how to reverse the country’s alarming decline in population and whether to revise Estonia’s flat-tax system without endangering its flourishing economy. But one thing voters won’t be questioning is the democratic process itself. By all accounts, Estonia—smallest and most prosperous of the 15 former Soviet republics—is also one of the freest countries on Earth. Washington-based Freedom House gives the Baltic nation a one out of seven—the highest possible score—in both political rights and civil liberties, noting in its Freedom in the World 2005 report that “Estonia’s civil liberties score improved from two to one due to the effective implementation of judicial reforms and greater economic freedom.” Separately, the Heritage Foundation ranks Estonia seventh out of 155 countries in its 2006 Index of Economic Freedom—even higher than the United States. “Hallmarks of Estonia’s free, market-based economy,” according to the report, “include a balanced budget, a flat-rate income tax system—the first in the world—a fully convertible currency pegged to the euro, a competitive commercial banking sector, and a hospitable environment for foreign investment, including no tax on reinvested corporate profits.” Jüri Luik, Estonia’s 40-year-old ambassador to the United States, is unabashedly proud of his little country’s achievements in the nearly 16 years since Estonia regained its independence as a sovereign republic. “Estonia is one of the most successful of all former communist countries. Since 2004, we are a member of both the European Union and NATO, and we’re doing very well economically,” says Luik. At present, Estonia has a gross domestic product of $13.3 billion, translating into per-capita income of $9,936, or purchasing power parity of $17,802, the highest of any of the former Soviet republics. Unemployment stands at only 4.5 percent—even lower than that of the United States. “When Estonia regained its independence in 1991, we decided it was important to build a sound legal system and a very sound economic policy to give people the chance to develop the country,” Luik told The Washington Diplomat. “The state itself was very poor, and the only way to reform the country was to release the peoples’ creative energy.” That energy is especially evident in the information-technology sector. Among other things, Estonia is the birthplace of Skype, a technology that allows computer users to make free international phone calls via the Internet. Skype, which was recently acquired by eBay, claims around 100 million users, with 9 million people using the technology at any given time. “Since we are a small country and cannot afford heavy industry, we try to encourage modern ways of producing revenue, and IT is one of the best ways to do that. We have, for instance, created a number of IT colleges,” Luik explains. “In Tallinn, you can park your car with a mobile phone. You punch a special code in, and you pay the parking company. We are now trying to sell that system to various cities in the United States.” Yet Estonia has a population of only 1.34 million and a growth rate of 0.64 percent—meaning that for every 10 births, there are 13 deaths. That translates into a fertility rate of barely 1.4 children per woman, far too low to sustain the population. “Estonia is unfortunately diminishing in population. In most of the former Soviet Union, it’s more because of health reasons—people are simply dying. But in the case of Estonia, people are becoming wealthy,” says Luik. “It’s a big issue, and that’s why one of the election issues is how we can support young families and help them to raise their children.” Luik has served his country twice as minister of defense and once as minister of foreign affairs. His first diplomatic posting was as head of the Estonian team negotiating the withdrawal of 25,000 Russian troops, the last of whom departed in 1994. Interestingly, his wife Ruth served as Estonia’s ambassador to France at the same time he was ambassador in Brussels. Luik, who’s been in Washington since September 2003, spoke to The Diplomat at the Estonian Embassy fronting Massachusetts Avenue. The mansion, incidentally, was purchased in 1993 by then-ambassador Toomas Ilves, who is now the country’s president. Unlike the other former Soviet republics, Estonia and its two Baltic neighbors—Latvia and Lithuania—were sovereign, independent nations before being occupied by Soviet troops during World War II. “The three Baltic states were occupied by the Soviet Union, but the U.S. never recognized the Soviet occupation. Our diplomats were recognized as Estonian diplomats,” Luik says. “Even though Estonia was de facto occupied, legally it was not destroyed in the eyes of the United States. When we regained our independence in 1991, one of Estonia’s advantages was that since we never disappeared legally, there was a legal basis which formed the fundamentals of our independence.” He notes that most of the other republics won back their independence simply because the USSR had collapsed. “It was very difficult for them to choose a clear path toward democracy, but in our case, we knew we were part of Europe and we simply had to regain our place in Europe. So basically it was easy for us,” Luik says. “We quickly became a normal Western society with a strong market economy, a democratic system and freedom of the press. We didn’t have to think about what kind of country we’d become.” Today, Estonia is a multiethnic country with more than 40 groups, although ethnic Estonians comprise about 70 percent of the population. Roughly one-third of the country’s inhabitants reside in Tallinn, the picturesque medieval capital, but one of the government’s main objectives is to bring more prosperity to the smaller cities. “Since a lot of our industry is computerized, there’s really no difference whether you’re in Tallinn or at the university in Tartu,” the ambassador says. He adds: “With a population of only 1.34 million, it is evident that Estonia has to orient itself toward IT industries rather than heavy industry. IT industries require an educated work force, so if we want Estonia to maintain its competitiveness in the global market for years to come, we must develop the educational system.” Luik says EU membership has been “extremely positive” for the Estonian economy. The country’s GDP grew by 11.8 percent last year and is expected to grow by another 8.3 percent in 2007 and 7.6 percent in 2008. The largest investors are Sweden and Finland, together comprising 74 percent of total foreign investment. Other key investors are the Netherlands, Great Britain, Norway, United States, Germany, Denmark and Russia. “We are now part of the larger European market. Secondly, there are a lot of legal opportunities to invest in EU countries or receive investments from them,” he says. “Studies today show an overwhelming percentage of Estonians are content. When people voted against the EU, there was a lot of suspicion. Nowadays, it’s clear that this has not hampered our sovereignty at all.” Next Page

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