The President of Estonia said that because of Mrs. Cummings’ 8th grade math class in Leonia, New Jersey, he rejected Finland’s offer to give his country a free analog phone system. Vintage 1970s, the system was far superior to the 1930s technology in Estonia but the President, Toomas Hendrik Ilves, and other officials, said no. Having started programming in his 8th grade math class and then continuing through his undergraduate years at Columbia, Ilves understood that Estonia had to leapfrog old technology and head straight for digital.
Where are we going with this? To Estonia and their parallels with the U.S.
Estonia’s Silicon Valley
During the past 2 centuries, Estonia has had somewhat of a boomerang relationship with Russia. After 200 years of Tsarist Russian rule, as WW I ended they declared independence but reentered the Soviet orbit after WW II. When 1991’s dissolution of the Soviet Union again untethered them, they were mired in 1930s technology.
I guess the good part, though, was they could piggyback a state-of-the-art infrastructure on top of the 50 years of progress they missed. Rejecting Finland’s outdated technology, they built free nationwide WIFI, established online based finances for the government including tax collection (of a flat tax–really easy compared to Ilves’s experience with the IRS) and instituted a computer-based curriculum in the schools. Such a human capital foundation has meant the emergence of a Silicon Valley culture and the development of Skype by a Swede, a Dane and Estonian engineers. Now owned by Microsoft, Skype still has a main office in Estonia.
Estonia’s Market Economy
Meanwhile, Estonia’s market statistics have been pristine to some and controversial to others. With eurozone membership central to their agenda, on January 1, 2011, they needed new wallets because the switch from the kroon to the Euro meant the size of their currency had changed. #11 in the Index of Economic Freedom–the U.S. is #12–and #22 out of 189 countries in the World Bank’s Ease of Doing Business Index, Estonia has embraced the market.
She also has been a “poster child” for austerity advocates because of her response to a 2009 recession. Rather than borrow more, Estonia froze pensions, lowered government salaries and upped a value-added tax. Growing by 2.3% in 2010, she reversed a 14% GDP dive that soon climbed further.
Commenting, Paul Krugman said austerity had not worked because GDP growth was insufficient. Ilves, whose undergraduate degree is from Columbia, fired off a series snarky retorts aimed at the Princeton professor, including this gem:
Guess a Nobel in trade means you can pontificate on fiscal matters & declare my country a “wasteland”. Must be a Princeton vs Columbia thing
— toomas hendrik ilves (@IlvesToomas) June 6, 2012
Our Bottom Line
Because of President Obama’s recent visit and guarantee of U.S. support, I wanted to share the economic philosophy that we share with Estonia.Read More