Finland and Estonia

I've been racking my brains trying to think of something interesting to say about the Finnish economy for our ongoing Finnlter^ series, and have finally realised: Finland is interesting, not necessarily for what it is, but also for what it is not. Curiously, the relative moribund nature of Finland is a powerful reminder of the effect of comparative economic systems. According to Mart Laar*:

In 1939, it was hard to find two more similar countries as Finland and Estonia. We were very similar in language, culture, and living standards. Our economies were more or less the same. Then in 1940, Estonia was occupied by the Soviet Union and Finland successfully protected its independence. Look at what happened in this context during these fifty years and then you can understand how terrible the communist system really is. And it’s not only in the economy. This is in all fields of life—the social structure, cultural standards, education, healthcare, or whatever. When you compare those two countries, which were exactly the same in 1939[,] in 1989, then you will find what communism really means, and how bad it is. Our economy, our nature, and our environment was [sic] destroyed

The use of Finland and Estonia as a natural experiment has also been made by Robert Higgs, in his series of "Experiments in Political Economy" for the Independent Review. His conclusion**:

The conclusion:

their economic and social differences grew so large that no informed person could honestly dispute the pernicious effect that communist rule had on occupied Estonia.

* Laar, Mart. 2006. Exporting Hope: An Interview with Mart Laar. Religion and Liberty: A Journal of
** Higgs,Robert "Results of Still Another Experiment in Political Economy" The Independent Review Volume 12 Number 1 Summer 2007) Religion, Economics, and Culture 16 (fall):3,12–13. p.12

Comments

[Jim]

Thank goodness for social democracy, eh?

[aje]

yes - thank goodness for the lesser of two evils... (!)

[Tomi]

The Estonian economy per capita was obviously not one third ($5 480) in 1993. In 2005, after a decade of strong growth, it still was just something like 40% of Finland's GDP per capita.

And true enough, according to
http://www.balticsww.com/economic_stats.htm
in 1993 Estonia's GDP per capita was not $5000 but $1000.

[aje]

thanks for the fact checking

[dearieme]

Personally, I believe that the Estonians suffered from Cole Porter envy. Consider:-

"In Spain, the best upper sets do it,
Lithuanians and Letts do it,
Let's do it, let's fall in love.
The Dutch in old Amsterdam do it,
Not to mention the Finns,
Folks in Siam do it,
Think of Siamese twins......"

I rest my case.

[Jim]

"yes - thank goodness for the lesser of two evils... (!)"

I think the point is that Finland suggests there is little or nothing evil about social democracy and a large welfare state since it doesn't seem to have stopped Finland becoming a rich, open and overall pretty well-adjusted place. By all means argue against social democracy on principle but I'm struggling to see a negative impact on growth and human welfare - in fact, the example of Finland and the rest of Scandinavia suggest that the problem with social democracy elsewhere was that there wasn't enough of it.

[aje]

possibly - although i've never been to Scandinavia and know very little about the empirics. my concern would be that (i) open trade free rides on innovation (ii) generous welfare rests on migration restrictions, but if it's voluntary, fair dos.