Lessons from Estonia

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Lessons from Estonia

Which Eastern European country has been most successful in systemic change and economic growth? Most would point to the Czech Republic, Poland or Hungary. But Estonia’s per-capita GDP is growing faster than other countries’, from $3,000 in 1995 to $18,000 in 2016. As one of the former republics of the Soviet Union, Estonia overcame poor initial conditions and attained economic development. What are the secrets to Estonia’s success?

The first secret is an open culture. Estonia has been ruled by Germany, Denmark, Sweden, Poland and Russia. It was an independent state briefly in the early 20th century before being annexed by the Soviets. Ethnically, its people are Estonians, Slavs and Germans. But Estonia treated its subjugated past and ethnic diversity not as a liability but as an asset. It built an open culture not afraid of change.

Estonia is considered a country with a most open system. With e-residency, foreigners who don’t reside in Estonia can start a business in Estonia online. There are few restrictions in using banks. It takes minutes to start a business online, and they are tax-exempt as long as dividends are not paid. As a result, the largest number of start-up companies per capita are concentrated in Estonia. Skype, which has users around the world for its internet phone service, was founded in Estonia.

The second secret is the practicality of its policies. In the early 1990s, socialist states went through controversies over privatization in the course of their transitions to capitalism. Russia promoted privatization with a political purpose rather than prizing economic efficiency. Companies were sold to their managers and workers at giveaway prices, and yet the gap between the rich and the poor was aggravated. The Czech Republic was so obsessed with the principle of equity that all citizens were given vouchers to exchange for stocks. Germany privatized East German companies on the condition of maintaining employment, but ended up with a large debt load.

In contrast, Estonia sold more than half of the shares of companies to outsiders, while distributing the remaining shares to citizens through vouchers. Thanks to an effort to keep a balance between efficiency and fairness, Estonia was able to find an optimal combination of efficiency and equity without using economic policy for politics or being swayed by ideology.

Third, Estonia adhered to a clear principle on national identity. It dealt with Russia with pride even though Russia’s population was 110 times Estonia’s and its economy was 55 times bigger. Russians residing in Estonia had to take a language test because command of Estonian was required to become an Estonian citizen. Russia called it discrimination, but Estonia did not surrender. Other countries began respecting the small country in the Baltic region with 1.4 million people.

Korea has many ways of commanding the respect of the world. It is adjacent to China, but was not absorbed. Korea did not succumb to Japan’s oppression but fought for independence. Korea is the country that went from an underdeveloped to developed in the shortest time. Unlike China, a communist state, and Japan, which had democracy thrust on it by the United States, Korea overthrew dictatorship to become a democracy and cherished the achievement.

It deserves to be called a miracle. But Korea’s current state is challenging. The fundamental reason is that the Korea society — and its politics in particular — haven’t transcended an outdated ideological split between liberals and the conservatives. Meanwhile, we may have lost some openness, practicality and principles.

Koreans have adventure in their genes. Countless invasions from the continent and the seas allowed them to not fear changes while protecting some traditions and incorporating others. Today, Koreans need to use that spirit to make a tolerant and open culture.

The candlelight vigils that led to an impeachment and removal of a president called for unified leadership. Is the Moon Jae-in administration faithful to that spirit? Is it open-minded and practical in policy? Has it been working to defend the identity of the community? If so, incomes will go up. The force to overcome the North Korean nuclear crisis would also be found. In 2018, Korea’s society must start anew.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Jan. 24, Page 31

*The author is a professor of economics at Seoul National University.

Kim Byung-yeon
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