Monday, April 23, 2012

Press Matters

Spring has come to Estonia, and it is like the lights have been switched on after the long (overlong) winter. As always, your heart leaps as the huge chains of migrating geese take to the skies, and here and there a newly arrived solitary stork wanders along the field gullies looking for frogs. The grass visibly greens from day to day, and the floors of the budding forest are bright with snow drops and the primrose-like blue flowers, known rather prosaically in Estonian as "blue flowers". Soon the swallows too will be here and the white nights of June will echo to the Estonians enjoying the brief pleasures of the glorious northern summer.


Yet work must continue, and I head to Parnu, the summer capital of Estonia, amidst April showers, to take part in a conference to discuss the future options in Estonian finance. For me, Estonian finance, as so much of Estonian society, stands at something of a cross roads. In many ways the last twenty years have been a series of exams for the Estonian state- and by complying with the rules and entering NATO, the European Union, OECD and so on, the country has at last graduated. The questions now are less external and more subtle. Having successfully rebuilt the Estonia ravaged by the brutality of Soviet occupation, while there is still much work to do, it seems appropriate to consider the wider horizons. 


The keynote session of the conference is a debate between Estonian President Tomas Hendrik Ilves and the former world chess champion and leading spokesman for innovation (and therefore dissent) in Russia, Garry Kasparov. As the two figures interact, I find myself more and more engaged in the implications of what the two leaders were saying. A half Azerbaijani Russian Jew speaking with a Swedish born, American educated, Estonian in English carries its own message, but the questions that are being asked carry profound implications for the most fundamental bases of western society: our capitalist economic arrangement and our democratic political arrangement. The crisis we face is testing the very roots of the Liberal state.


Yet Estonia is so much better prepared than most other states. The impact of the first decades of radical reform has allowed the country to be more open and more flexible than most other members of the EU, and as a result the country has come through the crisis more quickly. Yet the pressure on the Estonian model from some other states in the EU risks putting all that has been achieved at risk. Estonia is being asked to make sacrifices and contributions to countries that are still a lot richer than it is in the name of some nebulous "European solidarity"- but increasingly Estonia is not benefiting from the bargain. I have no answers, but in my own address to the conference the next day - partly inspired by the debate between President and Grand Master- I decide to ask the questions.


I ask why we are still wedded to the demonstrably false dogmas of modern finance- the determination to predict the future in the face of overwhelming evidence that it is not possibly to do it in the way that the finance system believes it can. I ask why European banks are being consolidated when they need to be broken up: "too big to fail", means "too big", as I have argued here before. I ask what the long term price of the Euro is, and whether this is not too high.


Bringing the theme to Estonia itself, I challenge some of the lazy assumptions that are made about the country: Estonian taxes are not particularly low, even though they are efficiently designed and efficiently collected (which is a gigantic plus compared to the more or less catastrophic inefficiency of the UK tax system). This in itself comes as a slight surprise to the audience, although it is demonstrably true, especially when considering social taxes and income taxes combined. The concern I have is that some Estonian politicians on the left believe that making the tax system more complicated will make it fairer: that is probably untrue. If one wants a more progressive taxation system, the best way is to tax the poor less -  which is to say to increase the tax thresholds. In general, by taking the lower earners out tax altogether you are, by definition, making the tax system more progressive. A super tax rate, by contrast increases the costs of collection while not relieving the poorest one jot.


Yet the future for economic growth in Estonia rests on access to capital, which has been a perennial problem for such a small country. The stock exchange lacks both activity and enough attractive and interesting stocks- so it has not been able to provide more capital to the Estonian entrepreneurs. I suggest at least the partial listing of such state corporations as Eesti Energia and the Port of Tallinn might help. Rather than compelling Estonian pension funds to invest in Estonian Equities though, which is frankly rather risky in such a small market, I suggest that they might invest in infrastructure bonds, in order to kick start new roads, the proposed Rail Baltica and the increasingly needed upgrade of the IT backbone of the country. This gets a few nods.


In my peroration I ask several questions of the audience: what is this new Estonia for? It is not merely a reservation for the Estonian language, laudable as that aim may be: it is surely to improve the national welfare and indeed wealth as far as possible. This country which inspired and continues to inspire with its dignity and sense of hard work also has a moral right to speak up for those causes it identifies with. This, I suggest, is not just on a European stage, but a global one too. There are economic and political opportunities and Estonia, a country where salt water often seems to be in the veins of the people should rediscover its global identity, not merely its European one: to misquote Noor Eesti, "More culture, more global culture, let us become Estonian and at the same time become global citizens". Internet technology has already helped Estonia into a leading position in this- I conclude by saying that there is still a greater opportunity to seize.


The reaction has been mostly positive, the speech was widely reported in the press and, as always, it is in the comments in the e-pages of Postimees, Paevaleht, Delfi, Aripaev and so on that one can see the strength of the democratic debate in Estonia. Some miss the point of course, or try to make anti-government comments. These are, however not relevant to what I said: I continue to be  politically very much a Liberal, and although there are liberals in all of Estonia's political parties, it is clear where my support lies, even if I reserve the right to disagree with some aspects of policy. Mostly though, the comments are positive and, I think, helpful in framing a wider debate.


It occurs to me that rather than being a one off, the positive reaction means that I should probably try to engage more with the national debate, I will think about how I can help that process over the next few days, but would appreciate comments from Estonians about what I should do or how I might be able to contribute. 

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