Dateline: Tallinn, Estonia – en route to Helsinki
I’m on board the two and a half hour ferry ride from the least eastern European-feeling Baltic state to Finland. As such, I’m keeping this article brief as the waves are a bit choppy in today’s cool temperatures.
You can thank Finnish tourism for raising the prices and wages in Estonia, but similarly for causing a brain drain from Estonia to Finland. While people throughout the Baltic states are complaining of a brain drain – with one publication in Lithuania going so far as to say it has resulted in “nothing but psychopaths waiting tables” – Estonia has a particularly interesting situation.
All the smartest, most talented Estonian kids have to do is hop on this very ferry and set sail for Helsinki, where wages increase almost exponentially. I guess that’s the benefit of EU membership.
However, while I find Tallinn rather boring as a place to live, you can’t deny that Estonia is becoming a pretty free economy by global standards.
Each of the Baltics has its unique advantages: Latvia is a great place to live (along with a straightforward residency program) and has a fast-growing offshore banking sector that some are worried is attracting a little too much Russian cash. Lithuania is potentially on the verge of a real estate boom.
Estonia, on the other hand, is catering to business and investors. The other day, I shared how Estonian corporations allow businesses to pay zero tax on undistributed earnings, allowing start-ups to plow all of their capital back into the company until they actually want to pay out a dividend.
That’s just one of the ways Estonia is excelling these days.
I often quote the Heritage Foundation’s Index of Economic Freedom. I’ve been studying this survey ever since the 1990’s when I was in middle and high school (yes, I was the life of the party).
And it’s been interesting to see how economic freedom in the United States has deteriorated over the years. In fact, this year, The Land of the Free once again dipped out of the top ten and into a record twelfth place.
Twelfth place behind, you guessed it, Estonia.
Unlike the USSA, Estonia is moving in the right direction, with a small improvement from last year’s survey. Over the last two decades, Estonia has made very impressive gains in freedom, moving from “moderately free” – along with most western European countries such as France – to “mostly free”. Today, economic freedom in Estonia is alive and well.
Property rights, monetary freedom, and financial freedom have all increased, and the openness of free markets here in Estonia has “been enhanced significantly” according to the survey.
Starting a business in Estonia is relatively straightforward, with areas such as cross-border trade and freedom from government corruption getting high marks. Contracts are easily enforced and property rights are highly secure here.
If you do start a business here, it only takes about one week to get up and running. Income taxes here are a flat 21% which, while not at tax haven levels, are reasonable for Europe.
And, unlike most western Europe countries and the USSA, Estonia is moving in the right direction.
The laws regarding firing employees are being dramatically loosened to lower labor costs. The government, which once subsidized green energy companies by tracking a subsidy onto consumers’ bills, is cutting off the crony capitalist spigot.
For trade throughout Europe, tariffs are very low in Estonia. The government has also excluded itself from much of the banking sector. While I don’t see a bank on every corner the way you do in some European capitals, the market for banks seems competitive.
And Estonian banks are healthier than their American counterparts by the accounts I see.
The one area where Estonia is criticized is for government spending, although I hardly consider their public debt levels to be out of line considering how the western financial media loves to smooth over $17 trillion of red ink – with $110 trillion more off the books – in the most bankrupt country on earth.
Bobby Casey, who spoke at my Passport to Freedom conference, lives in Latvia, but started off in Tallinn. He is an example of why a growing number of expat entrepreneurs are relocating to this part of eastern Europe for greater opportunities.