Freedom is the best solution
By Mart Laar
Published Postimees 18 July 2009

A response to the article “Laar's dilemma”

This week Abdul Turay asked how to get Estonia out of the crisis, if the basis of our success is in Milton Friedman and Austrian economy school principles. There is doubt about the two ideas and the two theories are caught up in conflict. Furthermore conservative policies have been replaced by left-wing ones.

Actually this has been talked about a lot. There has been a reversal of fortune. Now Friedman, the free market and low taxes get abused as people continually point to this as the reason as to why the crisis emerged. The world did the opposite in the 1930s and paid dearly for this. Now the great powers generally avoid protectionism and taxes have fallen more than they have risen. But it is government intervention in the economy that has grown, not doubt in the free market.

I didn't go ahead with my economic reforms in Estonia for five years on the basis of some sort of elaborate theories, but on the basis of common sense. Until a short while ago it was clear that the country was managing well and benefiting by holding a balance. It had become clear that people can organise their own lives better than the government can.

The government's task is to permit good conditions for free enterprise. But without firm watchful guidance of the government the invisible hand of the market can't operate effectively. It was because we forgot this principle that Estonia was left out of the Eurozone, which has been our biggest economic and political failure since independence.

But beating about the bush doesn't help matters. Therefore I have no choice but to answer Turay's question, how to restore belief in Estonia again? Economic success in Estonia as elsewhere relies on investment. But there in no chance confidence will be restored without belief in Estonian recovery and in her economy.

For this to happen we must keep the country fiscally stable. If we can't do this when the money runs out at the end of the year Estonia will be in the same situation as Latvia.

It is inevitably a necessary decision to cutback on the budget. We must in addition cutback on administrative expenses. Also social security expenditure, which was optimistically raised, must be cutback by at least 10 per cent as well.

Budget cutback aren't goals in themselves. If we can't put life into the economy by taking steps to keep away the explosive growth in unemployment then we'll have one budget deficit after another and Estonia won't get out of the crisis.

The tax burden has now risen to the highest level of all times in Estonia. Further tax increases are unthinkable. Budgetary consideration shouldn't reduce free enterprise – for farmers to get investment and support, enterprise needs to to stay alive. Money from the EU will also help out. An enterprise support package is passing through government, the last part of these proceeding must be a parliamentary priority.

We must activate concrete programs to fight unemployment. We need especially to take care in curbing the growing unemployment of youngsters, here the solution would be an additional support plan to help them to acquire higher education or vocational skills.

It will be impossible to keep or create new jobs in the workplace if money and investment doesn't start to move. At this very moment we need honest work out of the Government. Many thanks are due to Estonia's neighbours who have raised the ghost of devaluation causing uncertainty and postponing investment.

It is through privatisation that international investors will rediscover their interest and will come to our Estonian economy. This means selling unnecessary national enterprises and long term operational activities in rented form. In concrete terms this mean that the government's minority share in Eesti Energia must be opened for sale to the public. Tallinn Airport's operational activities must be sold in the long term. The government's majority shares in Eesti Post must be sold to strategic investors and Eesti Loto's operational activities should be sold.This should not be happening to fill treasury coffers but to revitalise investor interest.

And finally we need to tell the world, if we had a time of Mister NATO and Mister EU now has come the time for Mister Investment to get to work. Investors expect the government to have a concrete plan to get out of the crisis. Estonia has managed to cut its own budget but this in itself is not enough. Whether these steps answer Friedman or Austrian School theories I honestly don't care to say. What is important now is not theory, but getting Estonia out of the crisis.

Mart Laar is the Leader of Union of Pro Patria and Res Publica (Isamaa ja Res Publica Liit.) He was the Prime Minister of Estonia from 1992 to 1994 and again from 1999 to 2002