E.U.’s Baltic Tiger, Small is Beautiful
After a quick survey of the world’s economies it is easy to become pessimistic. The BRICS (Brazil, Russia, India, and China) are all slowing in growth, they account for much of the world’s raw production and nearly 1/3 of its economy. The first world or OECD hasn’t changed much since the 2008 crisis slugging along at a 2-3% growth depending where you look, anywhere from 8-15% unemployment and together their debt is even more abhorrent, a cumulative 106% of GDP.
The Baltic Tiger Amidst the Bleating Sheep
Macroeconomics aside, there are a few diamonds in the rough, which is to say, low debt, high growth and low or lowering unemployment diamonds. Estonia, for example, sixteen months after joining the languishing EU bloc enjoys a budget surplus, national debt is at 6% and its economy grew at a neck breaking 7.6% last year, five times the euro-zone average.
We have discussed this Baltic Tiger and its disheartening and tumultuous history before, apparently it was those hard years, which forged a resilient nation. So resilient in fact that it bounced back from a nearly 18% contraction, an economic hay maker straight to the chin, as a result of 2008 world financial crisis. How did they do it? “I can answer in one word: austerity. Austerity, austerity, austerity,” says Peeter Koppel, investment strategist at the SEB Bank.
PurpleSerf.com also examined the structural cause last year:
“Estonia features a constitutionally mandated balanced budget, the highest levels of internet freedom, one of the world’s first flat tax systems (the government has just approved to cut income tax from 21% to 20% by 2015), an open banking system allowing for generous foreign investment, and unlike the United States (sitting on unparalleled and untouched oil reserves) Estonia is self sustaining supplying 90% of their energy from local oil shale…
Bam! Tell me where you can find that anywhere in the EU.
As far as their ethos is concerned, however, it may be that nearly 700 years from agrarian serfs to Soviet comrades has thickened their skin. While the rest of the EU: France, Greece, Ireland, etc. bemoan trimming government largesse and entitlements, in many cases literally setting their cities aflame in protest, Estonians have stoically borne the harshest of austerity measures. When it was time to tighten their belt in 2008 many in Estonian society may have already had bored the extra holes. From Global Post:
“For older Estonians, memories of the grim days of Soviet occupation make it easier to accept sacrifices today. Among the young, there is a widespread awareness that in a nation of just 1.3 million people, the freedom and opportunities their generation enjoy depends on unity in times of crisis.
‘Western Europe has not really experienced a decrease in living standards since the Second World War,’ says Koppel. ‘Historically, austerity is inevitable, but it’s not part of the culture of Western Europe right now. This is what really differentiates us, that we were able to understand that.’
Small is Beautiful: More Governments, Less Governance
Perhaps, it isn’t just historical frugality, which produces this type of serenity in the face of the vicissitudes of life. Perhaps it’s the “1.3 million,” the size of the polity, we should be taking a look at.
As we mentioned before there are diamonds in the rough and as such they are small amidst the economic weeds of this world. Nonetheless the are brilliant and just as valuable to our overall health, hence “Govern Locally, Not Globally.” These are just some of the world’s smaller more successful states. You can tell partly because they’re rarely in the news.
|Country||Size (sq mi) / Population||Emp. / Debt (GDP) / Growth|
|Hong Kong||426 / 7 mil||3.4% / NA / 7.2%|
|Andorra||180 / 84,000||2.9% / NA / -1.9%|
|Estonia||17,413 / 1.3 mil||11.3% / 6% / 7.8%|
|Azerbaijan||33,436 / 9.1 mil||1% / 4.7% / 0.2%|
|Lithuania||25,174 / 3.1 mil||15.6% / 37.7% / 5.8%|
|Latvia||24,938 / 2.2 mil||13% / 44.8% / 4%|
|Singapore||274 / 5.1 (3.2 citizens) mil||2% / 118% / 4.9%|
|Iceland||39,770 / 320,060||6% / 130% / 2.4%|
|Costa Rica||19,653 / 4.3 mil||6.5% / 44.5% / 4%|
|Switzerland||15,940 / 7.9 mil||3.1% / 52.4% / 2.1%|
|Qatar||4,416 / 1.8 mil||0.4% / 8.9% / 18.7%|
|Seychelles||174 / 84,000||2% / 46.2% / 5%|
|United Arab Emirates||32,278 / 8.2 mil||2.4% / 43.9% / 3.3%|
|San Marino||24 / 31,887||5.5% / NA / 1%|
It is clear when you contrast these numbers with the major economies above, albeit some outliers exist, small and beautiful is also more manageable and agile. While not even small countries are perfect the trajectory is what is most important. In every one of the aforementioned countries there are bright spots to point to, if not, the countries are lean and prosperous.
Aside from the numbers let us ask ourselves “What Small Countries Can Teach the World.” The study by Jeffery A. Frankel of Harvard University’s Kennedy School of Government and its conclusions is heretical to macrostate hegemony, a world that consists merely of 189 some odd countries. The small advanced countries of this planet have so much to teach us if we would just listen: New Zealand’s Inflation Targeting, Estonia’s flat tax, Switzerland’s debt brake, Ireland’s FDI policy, Canada’s banking structure, Sweden’s Nordic model, and the Netherlands’ labor market reforms offer so much to our large and lumbering economies.
So many conservatives and libertarians browbeat economic competition when they would just as easily win over their communist, socialist, green, etc. enemies by merely championing “Let a 1000 Nations Bloom!” After all it’s the “Most Progressive Movement on the Planet,” but unlike big government solutions and the few experiments they leave us to compare their policies against, this new ethos values competitive governance. Stop fighting our government and have them fight over us for once. If we can’t create new governments on land there are even ideas of making them available at sea.
Once upon a time in America we had 47 of what Justice Brandeis once called the “laboratories of democracy”, each one imbued with all the powers necessary for effective governance. The people of America had 47 different options of where to live and under what system to thrive. Since we dismantled the Senate, instituted a private financial dictatorship and forced all wage earners to pay the government before they paid themselves in 1913 those hedges against government intervention and corporate escapade were lost in the fog of reform and progress.
“In 1943 Kohr secured a professorship at Rutgers, where he taught for 12 years, during which time he finished his central work, “The Breakdown of Nations.” Published first in Britain, in 1957, the book develops his theory of the optimal size of polities: “There seems to be only one cause behind all forms of social misery: bigness.” Size was the root of all evil: “Whenever something is wrong, it is too big.”
Unsurprisingly, Kohr’s guiding principle was anarchism, “the noblest of philosophies.” But its inherent nobility, he recognized, also made it utopian: a truly anarchist society could do away with governments and states only if all individuals were ethical enough to respect one another’s boundaries. Kohr cleverly turned this utopianism upside down, from weakness to strength: any party, any leader, any ideology promising utopia is automatically wrong, or lying. Acceptance of utopia’s unattainability, in other words, is the best insurance against totalitarianism.
But if the ideal state cannot be attained, at least it can be approached, Kohr thought, by reducing the scale of government. Which sounds a lot like the famous quote from Thoreau’s “Civil Disobedience”: “That government is best which governs least.” But in Kohr’s vision, smaller government should mean, first and foremost, a smaller area to govern. In such smallness, greatness resides. Counterintuitive as that may sound, didn’t Greece and Italy have their Golden Ages when they were divided into countless city-states? Not a coincidence, according to Kohr: smaller states produce more culture, wealth and happiness.”
Instead of 17 hulking EU states, which are quickly coalescing into one Euro Super State (a possible 4th Reich, according to George Soros) or heading for a cataclysmic breakup, imagine a setting similar to what the U.S. enjoyed for the first part of its life.
Needless to say this inaugural part of American history, prior to 1913 and the firs World War, made possible the realization of what has been referred to as the “5000 year leap.”
Update 6/9/12: The Washington Post reports that Estonia’s real estate market also increased 13.9% during a 12-month period ending March 2012 while the world average saw a one of the worst years in real estate since 2009.