How Tiny Estonia Became an Outsized Partner for Economic Freedom

COMMENTARY International Economies

How Tiny Estonia Became an Outsized Partner for Economic Freedom

May 8th, 2020 2 min read
COMMENTARY BY
Anthony B. Kim

Research Manager and Editor of the Index of Economic Freedom

Anthony B. Kim researches international economic issues at The Heritage Foundation, with a focus on economic freedom and free trade.
In 1994, Estonia became the first country in modern times to enact a flat tax, setting a positive example for its neighbors, who soon enacted reforms on their own. Pawel Toczynski/Getty Images

Key Takeaways

Estonia is a shining example of why freedom matters. 

Estonia has aligned itself with the West—particularly the United States–and since has dramatically demonstrated the power of liberty and democratic values. 

Grasping and practically capitalizing on all opportunities to further deepen the transatlantic relationship is in the mutual interests of America and Estonia. 

Estonia is a shining example of why freedom matters. 

Since the fall of the Soviet Union, this tiny northern Baltic country that shares a border with Russia has made huge progress in implementing democracy and economic freedom and in developing a strong national defense. 

Estonia has aligned itself with the West—particularly the United States–and since has dramatically demonstrated the power of liberty and democratic values. 

Estonians have fought often for freedom throughout their history. They won the battle against communism and decisively rejected socialism. Since they regained their sovereignty in 1992, they have taken swift and decisive policy reforms that have enhanced economic freedom.

Others delayed necessary policy decisions and reform actions, which caused problems that might have been avoided if those changes had occurred at the right time. But Estonia got this right, stayed true to its commitment to freedom, and has the results to show for it.  

In 1994, Estonia became the first country in modern times to enact a flat tax, setting a positive example for its neighbors, who soon enacted reforms on their own.

Regulatory modernization followed, which allowed Estonia to set aside its socialist past and emerge as one of the freest and most resilient economies in the world, with a transparent government and free markets under the rule of law.

According to the Heritage Foundation’s 2020 Index of Economic Freedom, Estonia’s economic freedom score is 77.7, making its economy the 10th-freest this year, with an overall score well above the regional and world averages. The Estonian economy has been ranked in the upper reaches of the mostly free category for nearly two decades, with solid gross domestic growth and increases in both private consumption and investment.

In addition to tax and regulatory reform, Estonia opened its markets. It reduced tariffs and non-tariff barriers to trade, and abolished all export restrictions, which enabled it to transition rapidly to a functioning and efficient market economy. 

Estonia’s famous e-government feature has provided a sparkling example of its commitment to open governance, and its innovative use of the internet in general has enhanced the country’s regulatory efficiency and created unique opportunities for a number of globally known high-tech enterprises, including Skype. 

Its political stability and growing economic prosperity has enabled Estonia to become a competitive and willing ally of the United States on many key fronts.

Although small in size and population—about three-fourths the size of West Virginia, with a population roughly equal to Dallas—the county firmly represents something much bigger geopolitically as a staunch defender of economic freedom and democracy, alongside the United States.

It’s working with the United States on the Three Seas Initiative, which facilitates interconnectivity through digitalization, energy, and infrastructure projects in Central and Eastern Europe. 

The U.S. has strongly supported Three Seas since it began in 2015. President Donald Trump attended a meeting of the group in 2017, and Secretary of State Mike Pompeo announced an American commitment of $1 billion to the Three Seas Investment Fund at the recent Munich Security Conference.

Estonia’s Three Seas Initiative Summit, originally planned for June, has been postponed till October because of the COVID-19 pandemic. The summit now will offer an excellent opportunity for the U.S. and Estonia and other European partners to work together to reboot and revitalize our economies in the post-COVID-19 era. 

If the U.S. government commits to sending a senior-level delegation to the summit, other countries will follow suit.

Grasping and practically capitalizing on all opportunities to further deepen the transatlantic relationship is in the mutual interests of America and Estonia. 

The two countries share fundamental values, and Estonia, though small in size, has established itself as big in terms of leadership in promoting democracy and economic freedom.

This piece originally appeared in The Daily Signal