Estonian economy is as a pyramid scheme

Kattel writes in Eesti Paevaleht that it is now clear that the liberal economy and economic policy to attract foreign direct investments that has characterized the Estonian economy for the last 15 years was a short-term success.

"In the next five to ten years we will understand that this success has been a pyramid scheme," Kattel wrote adding that "the worst today when the Estonian economy is shrinking, unemployment has doubled in a year, and public sector continues to spend, is that Estonia's leaders are incapable of analyzing the situation, learn from past mistakes and plan realistic changes."

The main problem contemplated by Estonian ruling politicians is whether to accept the blame for the current crisis or keep blaming the worldwide financial crisis?

"Politically, the right answer, of course, is to blame the world crisis. The problem is that the neo-liberalism, that has dominated the Estonian economy for the last fifteen years, has also been feeding the world financial community that believes in the self-regulating power of markets and wants to keep the government role at a minimum," the professor said

According to Kattel, the Estonian economy was booming when there were plenty of foreign investors and lenders. When they turned their back on Estonia, the country's economy plummeted, reducing the value of investments and fuelling further fall. Investments in productivity, human resources and technology were insufficient; therefore, the country's economy cannot return to growth promptly for the reason that it would require new investors and lenders, who "are not coming".

"Estonians need to understand two simple things: first, the current economic policy model has collapsed and, secondly, the fuel for earlier economic growth has run out and will not be filled any time soon," the expert pointed out.

Kattel stated that three key groups are debating about macroeconomic activities to be performed currently, in times of the crisis. Some people tend to blame external factors telling everybody that as soon as the world financial crisis is over, things will be back to normal, and Estonian state does not have to change the current economic model. At the some time, opinion leaders claim that Estonia needs new objectives and fresh leaders. They say that after joining the EU and NATO and being forced to postpone euro entry, the government has lost its vision to take the nation forward. The third group is represented by the Reform Party that wants to make the current neo-liberal economic policy even more radical as shown in new strategic economic plan put forward by the party recently. For instance, they suggest to make the labour market more flexible although it is already extremely flexible as shown by the rapid growth in unemployment and wage growth slowdown. Labour market must not become more flexible, rather more active in terms of retraining and in-job training.

Unfortunately, neither of the three scenarios would help Estonia overcome the current crisis. Moreover, all three see eurozone as the saviour, although the euro is a means that will simply replace the currency risk such as devaluation with credit risk.

"I believe that economic policy debate in Estonia is impossible since we are incompetent, arrogant or intolerant. Think about how we reacted six months ago on warnings, made by foreign analysts, that Estonian economy is facing a crisis. The only way out of this mess is to say goodbye to neoliberalism and find realistic ways to put the Estonian economy back on track for growth," Kattel concluded.

Source http://baltic-course.com/eng/analytics/

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