I'm a little obsessed with the Baltic States (Estonia in particular), but I'd like to share interesting article that has been published in The Moscow Times. Brief comparative analysis of economic development of the Republic of Estonia and the Russian Federation. Both countries, once part of the USSR show significant difference in terms of development, and small Nordic republic outperforms "Big Neighbour" in almost every important aspect of state development. Though, it is not a surprise, since Estonia is doing well enough even within the EU Member States. Hence, while contemplating the future of this country, goal of Andrus Ansip (Prime Minister of Estonia) to make Estonia within the five richest EU states by 2022, doesn't leave a room for irony.
Here is the piece of article published in The Moscow Times, for the full version of it please follow the link.
Of all the post-Communist countries, none has been more successful in its reforms than Estonia. Today, it is difficult to imagine that only 20 years ago, Estonia and Russia were republics in the same state. A comparison between the two shows what really matters for social and economic development.
The least remarkable difference lies in gross domestic product. Estonia’s GDP per capita is about 20 percent higher than Russia’s at current exchange rates. This difference was about the same when both states belonged to the Soviet Union. In these terms, both have been successful. Estonia’s strong growth performance shows how limited Russia’s advantage is from its vast oil revenues, even when the oil price is close to an all-time high. The predicted growth rates for the next few years are similar at about 4 percent a year, though Estonia is more likely to outperform than Russia.
The contrast between Estonia and Russia becomes all the more striking when we turn to qualitative indicators. In the recent survey of math skills of school pupils by the Organization for Economic Cooperation and Development, Estonia ended up in 17th place, far higher than the Western average, while Russia fell significantly below the average in 38th place. More obscure comparisons of health care point in the same direction. The Estonian public sector functions very well by the standards of the European Union, while Russia’s social sector is neither effective nor efficient.
The largest difference is corruption. Out of the 178 countries on the Corruption Perception Index of Transparency International, Estonia ranks 26, while Russia is No. 154. Estonia was perceived as somewhat more honest in Soviet days, but not much. This discrepancy has largely arisen after the end of the Soviet Union. Estonia has grown more honest, and Russia far more corrupt.
The direct cause of this huge chasm is the business environment. On the World Bank index for the ease of doing business, Estonia ranks steadily 17 out of 183 countries, while Russia is 123rd and falling. Estonia is simply a much more livable society. Estonia is a leader in e-government, while Russia’s red tape remains oppressive.
These few observations show two different things. On the one hand, the level of economic development as measured in GDP is usually rather inert and economic convergence with the West requires decades. In terms of purchasing-power parity, Estonia has reached about half of the GDP per capita of the original 15 members of the European Union.
At the same time, however, in most qualitative regards, Estonia ranks higher than the original EU members, showing that the functioning of the state and the public sector can change much faster than people usually think.
Corruption is often blamed on ingrained traditions and institutions of the Soviet Union or the Russian Empire, but both Estonia and Russia were part of those states. Arguments of religion and culture have proved wrong so often that we may ignore them.
The rising gap between Estonia and Russia shows how important government policy is and how fast corruption and the state can actually change. No government can get away with blaming history or tradition for its failure to control corruption.
Nor is it sufficient to be a market economy or maintain good fiscal policy. Before the global financial crisis, Russia and Estonia had similarly limited public expenditures as a share of GDP, and both enjoyed persistent fiscal surpluses and had virtually no public debts. Both countries have flat income taxes and generally low or moderate tax rates.
