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Estonia 1987–1990
TECHNOLOGICAL
FORECASTING
AND SOCIAL CHANGE
41, 27 1-28 1 ( 1992)
Estonia 1987-1990 From a Theory of Economic Sovereignty Beginnings of an Independent Republic
to the
SULEV M;iELTSEMEES
ABSTRACT
When a proposal aiming at economic sovereignty was submitted in the Estonian SSR three years ago, it signified not only a turning point in the political life of that country, but also triggered claims to be raised by other small and even large nations within the boundaries of the Soviet Union. In I988 the situation was in great flux-it seemed that what had been a utopian dream for years could become reality within a few months. Progress toward political and economic freedom suddenly seemed possible. A year later the situation was different. A big mountain gave birth to small mice only. Pioneering Estonia, now joined by its neighboring Baltic Republics, is designing reforms for a future with greater sovereignty and, ultimately, independence. In this article brief accounts of the reforms currently planned and partially implemented are followed by outlines for further policies and measures to be adopted as Estonia attempts to achieve its ultimate goals.
Motives Behind the Endeavor Toward Economic Independence for Estonia The Tartu-based daily newspaper EDASI published an article on 26 September 1987 entitled “Shift to Economic Independence Proposed for the Estonian SSR” [ 11. It contained a program, IME, worked out by four men. ’ The program proposal meant a turning point in the political life of the Estonian Soviet Republic. It triggered reverberations throughout the Soviet Union and abroad. The historical, ethnic, and national background of the proposal will be explained in brief. Estonia, within its present borders, although occupied by czarist Russia before World War I and, as a result of the infamous Hitler-Stalin treaty of 1939, again since 1940 (like the neighboring republics of Latvia and Lithuania), used to be a largely ethnically homogeneous country. The Estonians are closely related to the Finns and, together with them, belong to the Finnish-Ugric ethnic group. One hundred years ago, then like now under Russian rule, the ratio of Russians living in Estonia varied between 3.5% and 4.0%. Immediately after World War II the Russian share increased to 8.2%. The preWorld War II style of living, culture, and religion was Western oriented; living standards
SULEV MAELTSEMEES is Science Director at the Institute of Economics, Estonian ences,and Deputy Chairman of the Tallinn City Council. Address reprint requests to Dr. Sulev Mletsemees, Eesti Teaduste Akadeemia Majanduse Tallinn, Estonia pst. 7. ‘The acronym IME-Ise Majandav Eesti-means “Economic Independence for Estonia.” the word “ime” stands for marvel, wonder, thus a play on words. One of the authors, Edgar the Prime Minister of Estonia. 0 1992 by Elsevier Science Publishing
Co., Inc.
Academy
of Sci-
Instituut, 200101 At the same time Savisaar, is now
OO40- 1625/92/$5 .OO
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S. MAELTSEMEES
Overall Population of Estonia/Numbers
TABLE 1 and Ratios of Ethnic Estonians,
Year
Pooulation
No. of Estonians
1922 1934 1941 1959 1970 1979 1989
1,044,155 1,061,312 1,017,811 1,196,791 1,356,079 1,464,476 1,565,662
969,967 992,520 907,979 892,653 925,257 947,812 963,269
1922-1989 Census Data
% of Estonians 87.7 88.2 89.2 74.6 68.2 64.7 61.5
were well above Russian, and later Soviet, levels. The small German ethnic minority of l S%-2.0% had left the country mostly under the Hitler-Stalin treaty. Of the neighboring non-Russian Soviet Republics, Latvia lost slightly more of its own ethnic population, compared with Estonia. Estonia, however, also suffered losses because traditional Estonian provinces were transferred to neighboring Russian Federative Soviet Republic territory. The share of Russians increased for three reasons: the exodus of Estonians to the West to escape the invading Red Army, the abduction as well as resettlement of Estonians into the Soviet Union, and an accelerating migration of Russians into the Estonian Soviet Republic. Between 1940 and 1989 the population grew from slightly above 1 million to close to 1.6 million (see Table 1). By 1989 the percentage of Estonians had shrunk to -61%. The rather drastic influx of Russians reflects the military occupation and the accompanying Soviet civil service personnel. Large-scale and purposeful physical investment in Estonia, a nation having a superior infrastructure, also attracted Soviet people in considerable numbers, as did the substantially higher standards of living in the region. For years, on the average, - 13,000 immigrants moved in annually. If this trend were to be maintained, the Estonians would themselves become a minority in their own country by the turn of the century or by 2005 at the latest. (Remigrating Estonians accounted for - 18% p.a. on the average.) The drastically changed demographic circumstances triggered ethnic, social, and political tensions. This has become well known outside of the Soviet Union. At the end of the 193Os, while Estonia was an independent country, the infrastructure and living standards of Estonia were very similar to those of Finland. But by 1985 this situation had changed dramatically. Measured by other objective social indicators, Estonia also falls behind neighboring countries not subjected to the conditions of a Soviet-type planned economy. (see Table 2). The picture becomes particularly depressing when we compare GNP per person (14,370 US$ for Finland in 1987), although we lack data for a direct comparison between Estonia and other countries, such as Finland. In the Soviet Union the GNP was calculated for the first time in 1987, amounting to 2,914 rubles per capita. According to estimates by an Estonian economist, K. Kukk, Estonia’s GNP per capita in the same year was 3700 (? 100) rubles, that is, 23% higher than the average of the USSR. The total GNP was 32% higher than the average of the USSR [4, p. 401. To make Soviet figures compatible with the rest of the world, one would need to have access to a reliable rate of exchange between the US dollar and the Soviet ruble. Do the aforementioned 36003800 rubles correspond to 60006300 US$ (according to the so-called official rate of
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TABLE 2 Some Social Indicators for Estonia, Finland, and Sweden
Average life span of males Average life span of females Death rates of children under 12 months per 1000 babies Percentage of students among 20 to 24-year-olds Source; Data from reference
Estonia
Finland
Sweden
65.5 (1985-86) 74.9 (1985-86) 16.1 (1987) 18 (1986)
70.1 (1985) 78.5 (1985) 6.3 (1985) 32 (1983)
73.8 (1985) 79.7 (1985) 5.9 (1986) 38 (1983)
3 (p. 17).
exchange of 1987) or to 600-630 US$ according to the rate of exchange of 1 November 1989 or to . . .? Statistically, the indices of Estonian economic development in the postwar period looked quite good, for example, industrial output increased 59.5 times between 1941 and 1987. Estonia ranks fifth in the world in per capita electricity production (11,450 kWH in 19X7), annual meat production is 118 kg and meat consumption 87 kg per capita, and so forth. Estimates of other indices render conflicting views. For example, since 1961 Estonian power generation has been connected to the northwestern energy system of the Russian SFSR. Since then less than half of the energy produced in Estonia has been consumed there. Per capita energy production in Estonia (11.5 MWh in 1987) is about twice as high as it is in the Soviet Union as a whole, whereas energy consumption in Estonia was 4.5 MWh, lower than the All-Union average per capita consumption. Because of the low cost per unit of oil-shale used to fuel power stations (today 4.1 rubles/ton), and also because of complete neglect of the environmental degradation resulting from outdated technology, energy produced at oil-shale-fueled power stations is misleadingly cheap. According to the statistics of 1987, the average production cost per 1 kWh was 1.28 kopecks for the Soviet Union. The transfer prices set by the All-Union Ministry of Energy differ for different producer districts, for example, for energy delivered to the Pskov district, 0.98 kopecks/kWh, to the Latvian district, 1.1 kopecks/kWh, both being lower than the actual cost. In Estonia the user tariff is 2.28 kopecks/kWh. Due to the difference between “selling” and “buying” tariffs, at present capacity of production and consumption, Estonia loses 106-l 12 million rubles every year for exported electrical energy. At the same time the Leningrad district exports a good share of the energy that it bought from Estonia to Finland. If Estonia itself had been exporting this share to Finland, it would have earned 15 million rubles (or possibly Finnish marks) more than it did by selling to the Leningrad district (in 1987 alone). According to Estonian economists, between 1962 and 1988 Estonia lost 2.67 billion rubles because it was selling energy below cost to neighboring republics. The harmful effects to the Estonian environment from power generation are not at all taken into account. The term “the USSR integral economic complex” has been used for many years. Since the discussions about the principles of regional sovereignty started only a few years ago, it has become evident that no such entity really exists. Instead, the different AllUnion ministries, motivated by selfish interests (when making up their figures as to how well they have been meeting and overfulfilling the plans established by GOSPLAN), apply
274
S. MAELTSEMEES TABLE 3 The Structure of Estonian Industrial Output (%) by Subjugation Semicentral. and State Ministries
Year
Enterprises administered by central All-Union ministries
1960 1965 1970 1975 I980 1988
Enterprises administered by Union republic ministries
Enterprises administered by regional republic ministries
57.5 65.8 57.x 59.5 56.5
98.8 13.9 10.6 11.7 12.9 14.5
1.2 28.6 23.5 30.5 27.6 29.0
Source: Data from reference
to Central,
5 (p. 8).
transfer pricing principles which serve strictly departmental interests. Further, the interests of different All-Union ministries often are in conflict with each other. Because size means power, the All-Union ministries continually “reorganize” the organization of their industries in their favor. This explains and is one of the main reasons for the relative decline of the Estonian economy within the past few decades and for the centralization of management and its move away from Estonia (Table 3). As mentioned above, the per capita income of Estonia is higher than the USSR average. The same applies to labor productivity. It was therefore all the more surprising to be told by Mikhail Gorbachev, who visited Estonia in February 1987, that every year Estonia received more goods, worth 0.5 billion rubles p.a., from other republics than Estonia was delivering to other union republics. In other words, Estonia was importing 3.0 and exporting 2.5 billion rubles p.a. This statement induced the four Estonian economists to work out the IME statement, published six months after Gorbachev’s visit to Estonia. The centrally applied methods and data for calculating transfer prices and the export and import figures were scrutinized thoroughly and found incomprehensible. An astonishing result was the discovery that almost all republics, even the Russian SFRS, are “net debtors” to one another, a logical absurdity (Table 4). For example. the Moscow TABLE 4 Surplus of imports
( -) and Exports ( +) Between Union Republics in 1987 (Home Market Prices) Reoublic Russian SFSR Ukrainian SSR Byelorussian SSR Uzbek SSR Kazakh SSR Georgian SSR Azerbaijanian SSR Lithuanian SSR Moldavian SSR Latvian SSR Kirghiz SSR Tadjik SSR Armenian SSR Turkmenian SSR Estonian SSR
Source: Data from reference
6 (p. 7)
Rubles (millions) -28,760
-6181 + 1157 - 4000 -7541 ~ 325 + 1209 - 1098 - 288 -900 - 1166 - 1187 - 134 - 478 - 689
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THE BEGINNINGS
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REPUBLIC
accountants concluded that Lithuania’s debt accrued during the postwar period to the USSR amounted to 40 billion rubles, while the debt of the USSR to Lithuania was 528.5 billion rubles in total [7, p. 31. The entire accounting exercise is simply a farce.
The Program for Estonia’s Economic Sovereignty At the beginning of 1989 the economic sovereignty project was worked out on the basis of the 1987 proposals. The project was approved by the Supreme Soviet of the Estonian SSR on 18 May 1989, which at the same time adopted a principal law on “The Fundamentals for Economic Sovereignty for the Estonian SSR.” The document is based upon the assumption that Estonia will be a part of a federative Soviet Union, It is proclaimed that economic sovereignty for Estonia means a way of organizing its economic life on fundamentals of an integral Estonian economy, one relatively detached from the economic complex of the USSR. The conception is derived from the understanding of the USSR as a union of sovereign states. As such it subscribes to the principles of a federal, law-governed state. The Estonian SSR will participate in both the economic life of the USSR and that of the world, taking into consideration its natural, demographic, and cultural potentials and constraints and assuming that the exchange of commodities and services is mutually profitable to all participants in the exchange. The economic relations of an economically sovereign Estonia with its surroundings are to be based on the following principles: The strictly hierarchical administrative relations inside the Soviet Union are to be replaced by partnership relations, granting opportunities to the republics of the federation to organize and manage their economies each as a whole at the level of the republics. l A radical transition to conditions of a market economy, applying its rules to intraSoviet Union as well as to foreign economic relations. 0 Finding and developing suitable roles for Estonia with regard to Soviet as well as other foreign economies, according to Estonia’s conditions, potentials, and constraints. l The opening up of the Estonian economy to the best available engineering and technologies; thorough restructuring of the economy in the interest of the best possible future development. 0 The introduction and support of a variety of organizational and professional reforms. l Adopting a consequent rule of decentralization within the republic, for example, locating disposition potential, power and competence to the lowest possible levels, in the meaning of self-government. l
The ultimate purposes of economic sovereignty for Estonia are derived from two levels of social subjectivity: individual and national. At the individual level a sovereign Estonia embraces the whole population of Estonia as a complex of individuals, irrespective of their nationalities. To every citizen of Estonia the realization of economic sovereignty ought to mean: 0 A rise in the quality of life, for example, satisfy one’s individual needs.
by providing
better opportunities
to
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S. MiiELTSEMEES
Shaping and establishing a humane environment An economy friendly to the consumer. 0 Stimulating individual creative self-realization. l Increasing the individual freedom to choose and opening up opportunities 0 Rewarding work well done as well as entrepreneurship. l
l
to act.
At the national level, the project further develops the concept of economic sovereignty for Estonia. It should guarantee the members of a small nation their right both to live in their historical land and to control the political, cultural, and social economic development of their historically inherited territory. Mention is made of a variety of modes of ownership to be initially permitted in Estonia: public property of the Estonian SSR, property of cooperatives, organizations, and movements, as well as individual property. The main means of production+apitalwill be in communal ownership. Private property on a small scale is to be permitted within the framework set by legislation. At the time of implementation of the economic sovereignty concept, all state enterprises, organizations, and establishments located on the territory of the ESSR are to be proclaimed the sovereign property of this republic. The territory of the ESSR is to be made up of its land, mineral resources, air space, territorial waters, and the continental shelf, within its recognized context, according to international legal standards. Later on, All-Union government offices, the citizens of foreign countries, as well as associations formed by domestic and/or alien persons will be granted the right to invest capital, to set up/start enterprises, and to gain profits from economic activities, according to laws and regulations of the ESSR. Of principal importance to the realization of Estonian sovereignty is the development and adoption of an independent state budget. Under the present rule, the Estonian budget is only a part of the integral budget of the USSR. Within the territory of Estonia, all the taxes levied are to appear as revenues in the budgets at levels of the republic districts, as well as of the municipalities in the ESSR. The following taxes may be levied: Individual progressive income taxes, taking into consideration the number of dependent children as well as family status; property tax, land tax, gift and legacy taxes (death duties), customs taxes, and excise taxes. 0 Enterprise taxes, excise taxes (sales, value-added or compensation taxes), taxes on profits and resources (land, natural resources, labor, capital), restoration and compensation taxes, and migration taxes. l
In addition to taxes being regular revenue positions of the budget, taxes may also be used for special funds of the budget, for example, social insurance funds, natural funds, family funds, immigration funds, and road network funds. The establishment of a variety of such funds may be, or may become, necessary. Types of taxes as well as tax rates to be applied are subject to democratic decisions made by councils at the levels of the republic, the district, and the city/municipality. Republic taxes apply to the entire territory of the republic, whereas district and municipal/city taxes only apply to the territory of the corresponding community. In different communities, different local taxes as well as tax rates may be decided upon. As a part of the process of establishing economic sovereignty, the republic is given the authority to issue fiscal, financial, currency, and banking laws and regulations. The republic will be entitled to issue its own currency, establishing a monetary and financial
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order, preferably of the market type. The Estonian currency will be the only currency in circulation within sovereign Estonia. The republic will be entitled to extend her financial as well as monetary relations with other sovereign states within or outside of the USSR. One of the aims of Estonian economic and fiscal policy is to achieve free convertibility for Estonian currency against other currencies. The civil service within the republic will be completely rearranged. Between 1920 and 1940 an advanced system of local administration existed in the Republic of Estonia. During the period of socialism that followed, the system was destroyed and replaced by centralized state or union rule. The concept of sovereign Estonia reintroduces municipalities and townships as well as districts as units of local administration. Full transition to a self-governing administrative system will be achieved within a five-year period after introducing sovereignty. The existing centralized “top-down” system has to be replaced by a self-administering democratic “bottom-up” management system. The administrative system will operate at three levels, namely, municipality, district, and republic. The primary community is the main unit of territorial government. To its sphere of authority belong administrative, social, and cultural questions of local importance (education, health, culture, service, and commodity networks, and so on). The functions of the primary administration of the territory are contained in the rules of conduct of local administrative units. A municipality/town or city, within its borders, constitutes an independent structural unit of society. It is governed by a community or municipal council. Self-administration is exercised under the responsibility and supervision of an alderman appointed by, and responsible to, the democratically elected council. All officials and public servants have to work and act in the interest of the inhabitants of the community, within the framework of ESSR legislations. Decisions made at lower levels can be appealed to the Constitutional Court of the Republic. Elected bodies at different levels of the republic will decide on regional policy issues. The aim of regional policy will be a balanced and differentiated development of the regions of the republic, according to their specific possibilities, resources, and constraints. A certain minimal standardization of the levels of development is to be achieved in an attempt to guarantee certain basic levels of satisfaction of peoples’ needs and in creating equal or similar opportunities in all regions of Estonia. Regional policy will also compensate for emerging disproportions possibly caused by an acceleration of the economic development under the new rule. Within the framework of regional policy, industry will be established and developed, as will regional technological development centers, with due consideration given to the specific conditions in borderland areas. Small manufacturing and service enterprises will be assisted in their development. In principle, the now distorted “center-periphery” relations regarding settlement, administration, economic, social, and cultural activities will attract the specific attention of political as well as administrative bodies. The city of Tartu should be developed as a second metropolitan center of similar importance to that of the capital city, Tallinn. The political and administrative bodies of the republic will be equipped with the means, methods, and resources to implement regional policy decisions, under the supervision of political bodies. The republic will cooperate with the banking system in order to make available the necessary financial means. The price policies of sovereign Estonia will be based on the principle of every producer providing products or services. Subsidies for products and services as well as administratively fixed prices will be abandoned as soon as possible. (Administered prices may be applied in crisis situations or for a period to be determined in advance during transition periods.)
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Estonian Reforms and Perestroika At the 27 July 1989 session of the Supreme Soviet of the USSR, it was decided in the law on economic autonomy to permit the three Baltic Soviet Republics to apply the concept of economic sovereignty as of 1 January 1990. All-Union legislation would become invalid if, in part or as a whole, it is in contradiction with the principles of economic sovereignty. It seemed as if two years of strenuous deliberations toward economic sovereignty would reach a breakthrough at the central union level. The two neighboring Soviet Republics of Latvia and Lithuanian had by then joined Estonia in its, at first, lonely struggle for economic sovereignty from the central union government. Further developments, however, seemed to stifle the idea and project of economic sovereignty, because of the changing circumstances in the Soviet Union at large. It became evident that economic and political independence are inseparable from each other, at least in the Soviet Union. The Supreme Soviet of the USSR, however, would not release even small republics from their bonds (the first line of the All-Union anthem reads “This steadfast union of free republics .“). The change in attitude of the central All-Union Supreme Soviet was demonstrated when the law on economic autonomy was passed for the three Baltic Republics. The representatives of the Baltic Republics in this body recognized the 27 July decisions of the Supreme Soviet to be too insignificant to be of any practical influence, in particular as All-Union ministries are concerned. The law says, in principle, that individual Soviet Republics, within their competence to decide, may adopt rules concerning sovereignty of the respective republics’ financial and banking systems, foreign trade, and so forth. All those issues, however, have to be in line with All-Union laws and regulations. The laws’s vagueness was soon evident in the so-called “war of the banks,” with the Central All-Union Bank on one side and the banks of the republics on the other. Another example was furnished in connection with the administration of the transport tax. Until 1989 the transport tax was paid into the local budget. In 1989 it was prescribed that the tax should be paid into the All-Union budget, with the aim of improving the road system within the Russian SFSR. The Estonian Supreme Soviet in turn passed a decision waiving the decree from Moscow, implying that the transfer of transport tax revenue to the All-Union budget should be stopped. The tax should continue to remain a revenue to the budget of the republic. Almost by return mail, Moscow informed Tallinn that 20 million rubles, equivalent to the transport tax levied and held back in Estonia, had been withdrawn from the Estonian account of the Central All-Union budget. On their way to reestablishing independent states, on 12 April 1990 the Prime Ministers of Latvia, Lithuania, and Estonia signed an agreement of economic cooperation, implying the organization of a Baltic common market. The same day another agreement was signed implying that Estonian currency was to be implemented in Estonia. Banknotes for Estonian crowns were to be printed in a Western country. (The reader will remember that the IME project foresaw the introduction of a domestic Estonian currency.) Now, two years later, a rather major change in the IME concept was decided upon. Even as late as at the adoption of the economic sovereignty law by the ESSR Supreme Soviet in May of 1989, low priority was assigned to private property. It was then mentioned last and only in the form of so-called “small private property.” Under the then prevailing economic-political context in the USSR, Estonia could not ask for more. Only six months later politicians and technical experts were working intensely on the privatization issues. A draft law for the ESSR, “On Fundamentals of the Law of Ownership,” was published in January 1990 and passed in June 1990. The private property issue had now reached
ESTONIA:THEBEGINNlNGS OFANINDEPENDENTREPUBLIC
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the top of the list. Also, the governmental declaration and the program forwarded by the Prime Minister Edgar Savisaar, in May 1990, paid special attention to the privatization issue. The program points to public ownership being one of the roots of inefficiency. It lifts denationalization and privatization issues to the top ranks of economic development concerns in Estonia [9, p. 171. A master plan for privatization designs several ways for its implementation. At first it will be implemented in those branches of the economy that don’t need large-scale investment (for example, services, trade, and catering). In the last stage the state will own only power stations, oil-shale mines, railways, and other communication systems. When putting privatization into practice, some rather complicated problems will have to be solved, for example, the right to land for farmers. Fifty years have passed since confiscation, and land use has changed in the meantime. In the countryside land has been ameliorated, forests may be growing on former farmland, and vice versa. In towns new buildings have been erected and streets laid out. Because the legal successors of former owners in most cases are third-generation descendants, the division of property is further complicated. Estonians living abroad may want to get their physical property restored or to be compensated in hard currency. The first step toward the introduction of land reform should be to declare null and void the confiscation declaration by the first Soviet government of Estonia issued on 23 July 1940, as of the date of its introduction. The sequence and conditions for possibly returning land to former owners or their heirs must be worked out carefully. According to the values assigned to agricultural fixed capital within the borders of the Estonian Soviet Republic in the accounting and budget system of the Soviet Union, it is 3.2 billion rubles, of which 1.3 billion are for buildings. Irrigation and other amelioration objects account for 0.5 billion rubles, machinery and equipment also total 0.5 rubles, and farm animals total 0.3 billion rubles. A good share (-60%-80%) could be transferred to nonsocialist farming as well. Returning nationalized industrial enterprises to their former owners, many of whom no longer live in Estonia, is, in my view, also out of question. Partial compensation may be feasible within certain limits. The Estonian Republic is not likely to have enough foreign exchange, and that at its disposal will be very much needed for reconstruction and improvement of many kinds. There are many other difficulties as well concerning new ownership. New owners should be found for industrial enterprises worth about 20 billion rubles; the total sum of individual savings in bank accounts in Estonia is only about 2 billion rubles. Thus Estonia is dependent on fresh money being brought into the country. If this cannot be done, three rather suboptimal options are possible: l To sell enterprises below real value. 0 To sell a considerable part of Estonian enterprises to foreigners. 0 To enable people to buy enterprises on installment plans or to stretch privatization over a longer period of time.
From the point of view of fiscal policy and circulation of money on a sound basis, it is important that not all revenues from selling enterprises are put in the disposal of the budgets of the republic or of regional/local bodies. Otherwise, if the volume of money in circulation is too large, peoples’ expectations may rise beyond possibilities of satisfaction. The Bank of Estonia thus proposed to channel -2O%-25% of liquid money brought to the market by means of privatization to different budgets, with the remainder to be neutralized for a certain period of time in earmarked funds of the Bank of Estonia.
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One should not forget that despite claims to the contrary, inflation has been a reality in socialist countries. Holdings in bank accounts between 1970 and 1989 grew 5.6-fold, the GNP only 2.25 times, and the national income twofold. Disregarding the problems of how to establish and calculate a national income and a GNP in a nonmarket economy, the inflation during the 20-year period 1970-1989 may be estimated to be 250%-280% [ 10, p. 51. To prevent letting a mean fairy put such an evil gift into the Estonian crown’s cradle at the occasion of its birth, excessive sums of money have to be removed from circulation. One method to do so is privatization, that is, selling off state property. The Independence Issue Compared to the IME proposal of three years ago, there has been a major shift of emphasis upon which priorities are to be set for the Estonian national agenda. Reestablishment of national independence is now the foremost goal. It is seen as the only viable way to stop the danger that the Estonian nation could perish. Putting the Estonian economy as well as the society on sounder bases are other top priorities, but they are essentially of instrumental character to the achievement of the topmost objective. On 12 May 1990, the Chairmen of the Supreme Soviets of the Baltic Republics, Lithuania, Latvia, and Estonia-Vytautas Landsbergis, Anatolijs Gorbunovs, and Arnold Riiiitel-met in Tallinn. They renewed an old agreement signed in September 1934 in Geneva, which aimed at unanimity and cooperation between the three republics. At the same May meeting the Baltic Council was born. It is the joint opinion of the leaders of the Baltic Republics that it would be of greater advantage to the Soviet Union to have three “Finlandized” republics as neighbors than trying to keep three demanding and even obstinate provinces within the borders of the Soviet Union. Claims from the Soviet side appear absurd when they say that these small countries could not exist as independent states because they are too dependent on the raw materials supplied by other union republics and other such reasons. It must be obvious to leaders in Moscow as well that raw material supplies have not been efficiently administered on the basis of plans made by GOSPLAN, when they could easily be negotiated between independent countries. Moscow’s disingenuous argumentation rests on a weak base: the Hitler-Stalin treaty of August 1939. Hitler generously left Finland and eastern Poland as well as the three free Baltic Republics within the sphere of Soviet interests. As a first consequence the Soviet Union requested access to military bases in those countries. But military bases today are no longer an argument for keeping those countries under Soviet rule. The Baltic Republics have goods to offer that are in great demand and little supply in the Soviet Union. They might well have more to offer if they do not have to operate under command economy conditions (Table 5). In 1987, of all meat supplied to the All-Union stock, the three Baltic Republics together delivered 14.1% (Lithuania 7.7%, Latvia 3.5%, and Estonia 2.9%). For comparison we note that the three Baltic Republics make up only 2.8% of the USSR population (correspondingly, 1.3%, 0.9%, and 0.6%) and 0.8% of its territory (correspondingly, 0.3%, 0.3% and 0.2%). An independent republic of Estonia should become a bridge between East and West in principle and also for historical reasons. There is nothing new in this idea. In the Middle Ages, when the Hanseatic League was at its peak, the Baltic countries played a significant role as bridges in the economic relationship between East and West. The most important trading road from Novgorod to Li_ibeck and further to Western Europe went through Tallinn. But as soon as the Baltic countries became a passageway and even a stronghold for the military forces of different countries, economic decline followed.
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TABLE 5 by Single Republics to All-Union Stock (Kilograms
Per Capita)
Republic
1960
1970
1980
1987
Lithuanian SSR Estonian SSR Latvian SSR Byelorussian SSR Moldavian SSR Kazakh SSR Ukrainian SSR Russian SFSR Kirghiz SSR
15.2 8.9 6.5 9.7 12.5 16.4 7.2 4.0 11.1
38.4 20.6 10.2 21.1 10.2 18.1 8.9 5.7 6.2
35.5 39.6 27.2 26.3 16.5 16.6 8.4 5.5 7.1
51.3 45.0 32.5 31.1 19.1 18.2 11.0 5.7 3.6
Source: Data from reference
11 (p. 231).
Our aim is a sensible and mutually gainful cooperation with all our neighbors, in the East and the West. We can neither change our history nor our neighbors.
both
References 1. Kallas, S., Made, T., Savisaar, E., and Titma, M., Ettepanek: kogu Eesti NSV taielikule isemajandamisele, Ed%, 26 September 1987. 2. dhtuleht, 6 June 1990. 3. Eesti NSV isemajandamise kontseptsioon, ENSV TA Majanduse Instituut, Tallinn, 1988. 4. Kukk, K. Selbstbewirtschaftendes Estland: die Entwicklungsgeschichte und Grundziige einer Konzeption. Einige Aspekte der Regionalpolitik (Vortriige des gemeinsamen Seminars tlber Regionalpolitik), Tallinn, 1989. 1988, aastal, Statistika aastaraamat, Tallinn, Olion, 1989. 5. Eesti NSV rahvamajandus 6. Pravitelstvennlii vestnik, Nr. 5, 1989. 7. Noorte Haal, 2 December 1989. 8. Eesti NSV loominguliste liitude juhatuste iihispleenum l-2, April 1988. Tallinn, Eesti Raamat, 1988. 9. Peaminister E. Savisaare Valitsuse programm, Tallinn, 1990. 10. Maaleht, 7 June 1990. 11. Narodnoje bozjaistvo SSSR v 1987 godu, Moskva, 1988. Received 25 March 1990; revised 9 May 1991
FORECASTING
AND SOCIAL CHANGE
41, 27 1-28 1 ( 1992)
Estonia 1987-1990 From a Theory of Economic Sovereignty Beginnings of an Independent Republic
to the
SULEV M;iELTSEMEES
ABSTRACT
When a proposal aiming at economic sovereignty was submitted in the Estonian SSR three years ago, it signified not only a turning point in the political life of that country, but also triggered claims to be raised by other small and even large nations within the boundaries of the Soviet Union. In I988 the situation was in great flux-it seemed that what had been a utopian dream for years could become reality within a few months. Progress toward political and economic freedom suddenly seemed possible. A year later the situation was different. A big mountain gave birth to small mice only. Pioneering Estonia, now joined by its neighboring Baltic Republics, is designing reforms for a future with greater sovereignty and, ultimately, independence. In this article brief accounts of the reforms currently planned and partially implemented are followed by outlines for further policies and measures to be adopted as Estonia attempts to achieve its ultimate goals.
Motives Behind the Endeavor Toward Economic Independence for Estonia The Tartu-based daily newspaper EDASI published an article on 26 September 1987 entitled “Shift to Economic Independence Proposed for the Estonian SSR” [ 11. It contained a program, IME, worked out by four men. ’ The program proposal meant a turning point in the political life of the Estonian Soviet Republic. It triggered reverberations throughout the Soviet Union and abroad. The historical, ethnic, and national background of the proposal will be explained in brief. Estonia, within its present borders, although occupied by czarist Russia before World War I and, as a result of the infamous Hitler-Stalin treaty of 1939, again since 1940 (like the neighboring republics of Latvia and Lithuania), used to be a largely ethnically homogeneous country. The Estonians are closely related to the Finns and, together with them, belong to the Finnish-Ugric ethnic group. One hundred years ago, then like now under Russian rule, the ratio of Russians living in Estonia varied between 3.5% and 4.0%. Immediately after World War II the Russian share increased to 8.2%. The preWorld War II style of living, culture, and religion was Western oriented; living standards
SULEV MAELTSEMEES is Science Director at the Institute of Economics, Estonian ences,and Deputy Chairman of the Tallinn City Council. Address reprint requests to Dr. Sulev Mletsemees, Eesti Teaduste Akadeemia Majanduse Tallinn, Estonia pst. 7. ‘The acronym IME-Ise Majandav Eesti-means “Economic Independence for Estonia.” the word “ime” stands for marvel, wonder, thus a play on words. One of the authors, Edgar the Prime Minister of Estonia. 0 1992 by Elsevier Science Publishing
Co., Inc.
Academy
of Sci-
Instituut, 200101 At the same time Savisaar, is now
OO40- 1625/92/$5 .OO
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Overall Population of Estonia/Numbers
TABLE 1 and Ratios of Ethnic Estonians,
Year
Pooulation
No. of Estonians
1922 1934 1941 1959 1970 1979 1989
1,044,155 1,061,312 1,017,811 1,196,791 1,356,079 1,464,476 1,565,662
969,967 992,520 907,979 892,653 925,257 947,812 963,269
1922-1989 Census Data
% of Estonians 87.7 88.2 89.2 74.6 68.2 64.7 61.5
were well above Russian, and later Soviet, levels. The small German ethnic minority of l S%-2.0% had left the country mostly under the Hitler-Stalin treaty. Of the neighboring non-Russian Soviet Republics, Latvia lost slightly more of its own ethnic population, compared with Estonia. Estonia, however, also suffered losses because traditional Estonian provinces were transferred to neighboring Russian Federative Soviet Republic territory. The share of Russians increased for three reasons: the exodus of Estonians to the West to escape the invading Red Army, the abduction as well as resettlement of Estonians into the Soviet Union, and an accelerating migration of Russians into the Estonian Soviet Republic. Between 1940 and 1989 the population grew from slightly above 1 million to close to 1.6 million (see Table 1). By 1989 the percentage of Estonians had shrunk to -61%. The rather drastic influx of Russians reflects the military occupation and the accompanying Soviet civil service personnel. Large-scale and purposeful physical investment in Estonia, a nation having a superior infrastructure, also attracted Soviet people in considerable numbers, as did the substantially higher standards of living in the region. For years, on the average, - 13,000 immigrants moved in annually. If this trend were to be maintained, the Estonians would themselves become a minority in their own country by the turn of the century or by 2005 at the latest. (Remigrating Estonians accounted for - 18% p.a. on the average.) The drastically changed demographic circumstances triggered ethnic, social, and political tensions. This has become well known outside of the Soviet Union. At the end of the 193Os, while Estonia was an independent country, the infrastructure and living standards of Estonia were very similar to those of Finland. But by 1985 this situation had changed dramatically. Measured by other objective social indicators, Estonia also falls behind neighboring countries not subjected to the conditions of a Soviet-type planned economy. (see Table 2). The picture becomes particularly depressing when we compare GNP per person (14,370 US$ for Finland in 1987), although we lack data for a direct comparison between Estonia and other countries, such as Finland. In the Soviet Union the GNP was calculated for the first time in 1987, amounting to 2,914 rubles per capita. According to estimates by an Estonian economist, K. Kukk, Estonia’s GNP per capita in the same year was 3700 (? 100) rubles, that is, 23% higher than the average of the USSR. The total GNP was 32% higher than the average of the USSR [4, p. 401. To make Soviet figures compatible with the rest of the world, one would need to have access to a reliable rate of exchange between the US dollar and the Soviet ruble. Do the aforementioned 36003800 rubles correspond to 60006300 US$ (according to the so-called official rate of
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TABLE 2 Some Social Indicators for Estonia, Finland, and Sweden
Average life span of males Average life span of females Death rates of children under 12 months per 1000 babies Percentage of students among 20 to 24-year-olds Source; Data from reference
Estonia
Finland
Sweden
65.5 (1985-86) 74.9 (1985-86) 16.1 (1987) 18 (1986)
70.1 (1985) 78.5 (1985) 6.3 (1985) 32 (1983)
73.8 (1985) 79.7 (1985) 5.9 (1986) 38 (1983)
3 (p. 17).
exchange of 1987) or to 600-630 US$ according to the rate of exchange of 1 November 1989 or to . . .? Statistically, the indices of Estonian economic development in the postwar period looked quite good, for example, industrial output increased 59.5 times between 1941 and 1987. Estonia ranks fifth in the world in per capita electricity production (11,450 kWH in 19X7), annual meat production is 118 kg and meat consumption 87 kg per capita, and so forth. Estimates of other indices render conflicting views. For example, since 1961 Estonian power generation has been connected to the northwestern energy system of the Russian SFSR. Since then less than half of the energy produced in Estonia has been consumed there. Per capita energy production in Estonia (11.5 MWh in 1987) is about twice as high as it is in the Soviet Union as a whole, whereas energy consumption in Estonia was 4.5 MWh, lower than the All-Union average per capita consumption. Because of the low cost per unit of oil-shale used to fuel power stations (today 4.1 rubles/ton), and also because of complete neglect of the environmental degradation resulting from outdated technology, energy produced at oil-shale-fueled power stations is misleadingly cheap. According to the statistics of 1987, the average production cost per 1 kWh was 1.28 kopecks for the Soviet Union. The transfer prices set by the All-Union Ministry of Energy differ for different producer districts, for example, for energy delivered to the Pskov district, 0.98 kopecks/kWh, to the Latvian district, 1.1 kopecks/kWh, both being lower than the actual cost. In Estonia the user tariff is 2.28 kopecks/kWh. Due to the difference between “selling” and “buying” tariffs, at present capacity of production and consumption, Estonia loses 106-l 12 million rubles every year for exported electrical energy. At the same time the Leningrad district exports a good share of the energy that it bought from Estonia to Finland. If Estonia itself had been exporting this share to Finland, it would have earned 15 million rubles (or possibly Finnish marks) more than it did by selling to the Leningrad district (in 1987 alone). According to Estonian economists, between 1962 and 1988 Estonia lost 2.67 billion rubles because it was selling energy below cost to neighboring republics. The harmful effects to the Estonian environment from power generation are not at all taken into account. The term “the USSR integral economic complex” has been used for many years. Since the discussions about the principles of regional sovereignty started only a few years ago, it has become evident that no such entity really exists. Instead, the different AllUnion ministries, motivated by selfish interests (when making up their figures as to how well they have been meeting and overfulfilling the plans established by GOSPLAN), apply
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S. MAELTSEMEES TABLE 3 The Structure of Estonian Industrial Output (%) by Subjugation Semicentral. and State Ministries
Year
Enterprises administered by central All-Union ministries
1960 1965 1970 1975 I980 1988
Enterprises administered by Union republic ministries
Enterprises administered by regional republic ministries
57.5 65.8 57.x 59.5 56.5
98.8 13.9 10.6 11.7 12.9 14.5
1.2 28.6 23.5 30.5 27.6 29.0
Source: Data from reference
to Central,
5 (p. 8).
transfer pricing principles which serve strictly departmental interests. Further, the interests of different All-Union ministries often are in conflict with each other. Because size means power, the All-Union ministries continually “reorganize” the organization of their industries in their favor. This explains and is one of the main reasons for the relative decline of the Estonian economy within the past few decades and for the centralization of management and its move away from Estonia (Table 3). As mentioned above, the per capita income of Estonia is higher than the USSR average. The same applies to labor productivity. It was therefore all the more surprising to be told by Mikhail Gorbachev, who visited Estonia in February 1987, that every year Estonia received more goods, worth 0.5 billion rubles p.a., from other republics than Estonia was delivering to other union republics. In other words, Estonia was importing 3.0 and exporting 2.5 billion rubles p.a. This statement induced the four Estonian economists to work out the IME statement, published six months after Gorbachev’s visit to Estonia. The centrally applied methods and data for calculating transfer prices and the export and import figures were scrutinized thoroughly and found incomprehensible. An astonishing result was the discovery that almost all republics, even the Russian SFRS, are “net debtors” to one another, a logical absurdity (Table 4). For example. the Moscow TABLE 4 Surplus of imports
( -) and Exports ( +) Between Union Republics in 1987 (Home Market Prices) Reoublic Russian SFSR Ukrainian SSR Byelorussian SSR Uzbek SSR Kazakh SSR Georgian SSR Azerbaijanian SSR Lithuanian SSR Moldavian SSR Latvian SSR Kirghiz SSR Tadjik SSR Armenian SSR Turkmenian SSR Estonian SSR
Source: Data from reference
6 (p. 7)
Rubles (millions) -28,760
-6181 + 1157 - 4000 -7541 ~ 325 + 1209 - 1098 - 288 -900 - 1166 - 1187 - 134 - 478 - 689
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accountants concluded that Lithuania’s debt accrued during the postwar period to the USSR amounted to 40 billion rubles, while the debt of the USSR to Lithuania was 528.5 billion rubles in total [7, p. 31. The entire accounting exercise is simply a farce.
The Program for Estonia’s Economic Sovereignty At the beginning of 1989 the economic sovereignty project was worked out on the basis of the 1987 proposals. The project was approved by the Supreme Soviet of the Estonian SSR on 18 May 1989, which at the same time adopted a principal law on “The Fundamentals for Economic Sovereignty for the Estonian SSR.” The document is based upon the assumption that Estonia will be a part of a federative Soviet Union, It is proclaimed that economic sovereignty for Estonia means a way of organizing its economic life on fundamentals of an integral Estonian economy, one relatively detached from the economic complex of the USSR. The conception is derived from the understanding of the USSR as a union of sovereign states. As such it subscribes to the principles of a federal, law-governed state. The Estonian SSR will participate in both the economic life of the USSR and that of the world, taking into consideration its natural, demographic, and cultural potentials and constraints and assuming that the exchange of commodities and services is mutually profitable to all participants in the exchange. The economic relations of an economically sovereign Estonia with its surroundings are to be based on the following principles: The strictly hierarchical administrative relations inside the Soviet Union are to be replaced by partnership relations, granting opportunities to the republics of the federation to organize and manage their economies each as a whole at the level of the republics. l A radical transition to conditions of a market economy, applying its rules to intraSoviet Union as well as to foreign economic relations. 0 Finding and developing suitable roles for Estonia with regard to Soviet as well as other foreign economies, according to Estonia’s conditions, potentials, and constraints. l The opening up of the Estonian economy to the best available engineering and technologies; thorough restructuring of the economy in the interest of the best possible future development. 0 The introduction and support of a variety of organizational and professional reforms. l Adopting a consequent rule of decentralization within the republic, for example, locating disposition potential, power and competence to the lowest possible levels, in the meaning of self-government. l
The ultimate purposes of economic sovereignty for Estonia are derived from two levels of social subjectivity: individual and national. At the individual level a sovereign Estonia embraces the whole population of Estonia as a complex of individuals, irrespective of their nationalities. To every citizen of Estonia the realization of economic sovereignty ought to mean: 0 A rise in the quality of life, for example, satisfy one’s individual needs.
by providing
better opportunities
to
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Shaping and establishing a humane environment An economy friendly to the consumer. 0 Stimulating individual creative self-realization. l Increasing the individual freedom to choose and opening up opportunities 0 Rewarding work well done as well as entrepreneurship. l
l
to act.
At the national level, the project further develops the concept of economic sovereignty for Estonia. It should guarantee the members of a small nation their right both to live in their historical land and to control the political, cultural, and social economic development of their historically inherited territory. Mention is made of a variety of modes of ownership to be initially permitted in Estonia: public property of the Estonian SSR, property of cooperatives, organizations, and movements, as well as individual property. The main means of production+apitalwill be in communal ownership. Private property on a small scale is to be permitted within the framework set by legislation. At the time of implementation of the economic sovereignty concept, all state enterprises, organizations, and establishments located on the territory of the ESSR are to be proclaimed the sovereign property of this republic. The territory of the ESSR is to be made up of its land, mineral resources, air space, territorial waters, and the continental shelf, within its recognized context, according to international legal standards. Later on, All-Union government offices, the citizens of foreign countries, as well as associations formed by domestic and/or alien persons will be granted the right to invest capital, to set up/start enterprises, and to gain profits from economic activities, according to laws and regulations of the ESSR. Of principal importance to the realization of Estonian sovereignty is the development and adoption of an independent state budget. Under the present rule, the Estonian budget is only a part of the integral budget of the USSR. Within the territory of Estonia, all the taxes levied are to appear as revenues in the budgets at levels of the republic districts, as well as of the municipalities in the ESSR. The following taxes may be levied: Individual progressive income taxes, taking into consideration the number of dependent children as well as family status; property tax, land tax, gift and legacy taxes (death duties), customs taxes, and excise taxes. 0 Enterprise taxes, excise taxes (sales, value-added or compensation taxes), taxes on profits and resources (land, natural resources, labor, capital), restoration and compensation taxes, and migration taxes. l
In addition to taxes being regular revenue positions of the budget, taxes may also be used for special funds of the budget, for example, social insurance funds, natural funds, family funds, immigration funds, and road network funds. The establishment of a variety of such funds may be, or may become, necessary. Types of taxes as well as tax rates to be applied are subject to democratic decisions made by councils at the levels of the republic, the district, and the city/municipality. Republic taxes apply to the entire territory of the republic, whereas district and municipal/city taxes only apply to the territory of the corresponding community. In different communities, different local taxes as well as tax rates may be decided upon. As a part of the process of establishing economic sovereignty, the republic is given the authority to issue fiscal, financial, currency, and banking laws and regulations. The republic will be entitled to issue its own currency, establishing a monetary and financial
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order, preferably of the market type. The Estonian currency will be the only currency in circulation within sovereign Estonia. The republic will be entitled to extend her financial as well as monetary relations with other sovereign states within or outside of the USSR. One of the aims of Estonian economic and fiscal policy is to achieve free convertibility for Estonian currency against other currencies. The civil service within the republic will be completely rearranged. Between 1920 and 1940 an advanced system of local administration existed in the Republic of Estonia. During the period of socialism that followed, the system was destroyed and replaced by centralized state or union rule. The concept of sovereign Estonia reintroduces municipalities and townships as well as districts as units of local administration. Full transition to a self-governing administrative system will be achieved within a five-year period after introducing sovereignty. The existing centralized “top-down” system has to be replaced by a self-administering democratic “bottom-up” management system. The administrative system will operate at three levels, namely, municipality, district, and republic. The primary community is the main unit of territorial government. To its sphere of authority belong administrative, social, and cultural questions of local importance (education, health, culture, service, and commodity networks, and so on). The functions of the primary administration of the territory are contained in the rules of conduct of local administrative units. A municipality/town or city, within its borders, constitutes an independent structural unit of society. It is governed by a community or municipal council. Self-administration is exercised under the responsibility and supervision of an alderman appointed by, and responsible to, the democratically elected council. All officials and public servants have to work and act in the interest of the inhabitants of the community, within the framework of ESSR legislations. Decisions made at lower levels can be appealed to the Constitutional Court of the Republic. Elected bodies at different levels of the republic will decide on regional policy issues. The aim of regional policy will be a balanced and differentiated development of the regions of the republic, according to their specific possibilities, resources, and constraints. A certain minimal standardization of the levels of development is to be achieved in an attempt to guarantee certain basic levels of satisfaction of peoples’ needs and in creating equal or similar opportunities in all regions of Estonia. Regional policy will also compensate for emerging disproportions possibly caused by an acceleration of the economic development under the new rule. Within the framework of regional policy, industry will be established and developed, as will regional technological development centers, with due consideration given to the specific conditions in borderland areas. Small manufacturing and service enterprises will be assisted in their development. In principle, the now distorted “center-periphery” relations regarding settlement, administration, economic, social, and cultural activities will attract the specific attention of political as well as administrative bodies. The city of Tartu should be developed as a second metropolitan center of similar importance to that of the capital city, Tallinn. The political and administrative bodies of the republic will be equipped with the means, methods, and resources to implement regional policy decisions, under the supervision of political bodies. The republic will cooperate with the banking system in order to make available the necessary financial means. The price policies of sovereign Estonia will be based on the principle of every producer providing products or services. Subsidies for products and services as well as administratively fixed prices will be abandoned as soon as possible. (Administered prices may be applied in crisis situations or for a period to be determined in advance during transition periods.)
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Estonian Reforms and Perestroika At the 27 July 1989 session of the Supreme Soviet of the USSR, it was decided in the law on economic autonomy to permit the three Baltic Soviet Republics to apply the concept of economic sovereignty as of 1 January 1990. All-Union legislation would become invalid if, in part or as a whole, it is in contradiction with the principles of economic sovereignty. It seemed as if two years of strenuous deliberations toward economic sovereignty would reach a breakthrough at the central union level. The two neighboring Soviet Republics of Latvia and Lithuanian had by then joined Estonia in its, at first, lonely struggle for economic sovereignty from the central union government. Further developments, however, seemed to stifle the idea and project of economic sovereignty, because of the changing circumstances in the Soviet Union at large. It became evident that economic and political independence are inseparable from each other, at least in the Soviet Union. The Supreme Soviet of the USSR, however, would not release even small republics from their bonds (the first line of the All-Union anthem reads “This steadfast union of free republics .“). The change in attitude of the central All-Union Supreme Soviet was demonstrated when the law on economic autonomy was passed for the three Baltic Republics. The representatives of the Baltic Republics in this body recognized the 27 July decisions of the Supreme Soviet to be too insignificant to be of any practical influence, in particular as All-Union ministries are concerned. The law says, in principle, that individual Soviet Republics, within their competence to decide, may adopt rules concerning sovereignty of the respective republics’ financial and banking systems, foreign trade, and so forth. All those issues, however, have to be in line with All-Union laws and regulations. The laws’s vagueness was soon evident in the so-called “war of the banks,” with the Central All-Union Bank on one side and the banks of the republics on the other. Another example was furnished in connection with the administration of the transport tax. Until 1989 the transport tax was paid into the local budget. In 1989 it was prescribed that the tax should be paid into the All-Union budget, with the aim of improving the road system within the Russian SFSR. The Estonian Supreme Soviet in turn passed a decision waiving the decree from Moscow, implying that the transfer of transport tax revenue to the All-Union budget should be stopped. The tax should continue to remain a revenue to the budget of the republic. Almost by return mail, Moscow informed Tallinn that 20 million rubles, equivalent to the transport tax levied and held back in Estonia, had been withdrawn from the Estonian account of the Central All-Union budget. On their way to reestablishing independent states, on 12 April 1990 the Prime Ministers of Latvia, Lithuania, and Estonia signed an agreement of economic cooperation, implying the organization of a Baltic common market. The same day another agreement was signed implying that Estonian currency was to be implemented in Estonia. Banknotes for Estonian crowns were to be printed in a Western country. (The reader will remember that the IME project foresaw the introduction of a domestic Estonian currency.) Now, two years later, a rather major change in the IME concept was decided upon. Even as late as at the adoption of the economic sovereignty law by the ESSR Supreme Soviet in May of 1989, low priority was assigned to private property. It was then mentioned last and only in the form of so-called “small private property.” Under the then prevailing economic-political context in the USSR, Estonia could not ask for more. Only six months later politicians and technical experts were working intensely on the privatization issues. A draft law for the ESSR, “On Fundamentals of the Law of Ownership,” was published in January 1990 and passed in June 1990. The private property issue had now reached
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the top of the list. Also, the governmental declaration and the program forwarded by the Prime Minister Edgar Savisaar, in May 1990, paid special attention to the privatization issue. The program points to public ownership being one of the roots of inefficiency. It lifts denationalization and privatization issues to the top ranks of economic development concerns in Estonia [9, p. 171. A master plan for privatization designs several ways for its implementation. At first it will be implemented in those branches of the economy that don’t need large-scale investment (for example, services, trade, and catering). In the last stage the state will own only power stations, oil-shale mines, railways, and other communication systems. When putting privatization into practice, some rather complicated problems will have to be solved, for example, the right to land for farmers. Fifty years have passed since confiscation, and land use has changed in the meantime. In the countryside land has been ameliorated, forests may be growing on former farmland, and vice versa. In towns new buildings have been erected and streets laid out. Because the legal successors of former owners in most cases are third-generation descendants, the division of property is further complicated. Estonians living abroad may want to get their physical property restored or to be compensated in hard currency. The first step toward the introduction of land reform should be to declare null and void the confiscation declaration by the first Soviet government of Estonia issued on 23 July 1940, as of the date of its introduction. The sequence and conditions for possibly returning land to former owners or their heirs must be worked out carefully. According to the values assigned to agricultural fixed capital within the borders of the Estonian Soviet Republic in the accounting and budget system of the Soviet Union, it is 3.2 billion rubles, of which 1.3 billion are for buildings. Irrigation and other amelioration objects account for 0.5 billion rubles, machinery and equipment also total 0.5 rubles, and farm animals total 0.3 billion rubles. A good share (-60%-80%) could be transferred to nonsocialist farming as well. Returning nationalized industrial enterprises to their former owners, many of whom no longer live in Estonia, is, in my view, also out of question. Partial compensation may be feasible within certain limits. The Estonian Republic is not likely to have enough foreign exchange, and that at its disposal will be very much needed for reconstruction and improvement of many kinds. There are many other difficulties as well concerning new ownership. New owners should be found for industrial enterprises worth about 20 billion rubles; the total sum of individual savings in bank accounts in Estonia is only about 2 billion rubles. Thus Estonia is dependent on fresh money being brought into the country. If this cannot be done, three rather suboptimal options are possible: l To sell enterprises below real value. 0 To sell a considerable part of Estonian enterprises to foreigners. 0 To enable people to buy enterprises on installment plans or to stretch privatization over a longer period of time.
From the point of view of fiscal policy and circulation of money on a sound basis, it is important that not all revenues from selling enterprises are put in the disposal of the budgets of the republic or of regional/local bodies. Otherwise, if the volume of money in circulation is too large, peoples’ expectations may rise beyond possibilities of satisfaction. The Bank of Estonia thus proposed to channel -2O%-25% of liquid money brought to the market by means of privatization to different budgets, with the remainder to be neutralized for a certain period of time in earmarked funds of the Bank of Estonia.
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One should not forget that despite claims to the contrary, inflation has been a reality in socialist countries. Holdings in bank accounts between 1970 and 1989 grew 5.6-fold, the GNP only 2.25 times, and the national income twofold. Disregarding the problems of how to establish and calculate a national income and a GNP in a nonmarket economy, the inflation during the 20-year period 1970-1989 may be estimated to be 250%-280% [ 10, p. 51. To prevent letting a mean fairy put such an evil gift into the Estonian crown’s cradle at the occasion of its birth, excessive sums of money have to be removed from circulation. One method to do so is privatization, that is, selling off state property. The Independence Issue Compared to the IME proposal of three years ago, there has been a major shift of emphasis upon which priorities are to be set for the Estonian national agenda. Reestablishment of national independence is now the foremost goal. It is seen as the only viable way to stop the danger that the Estonian nation could perish. Putting the Estonian economy as well as the society on sounder bases are other top priorities, but they are essentially of instrumental character to the achievement of the topmost objective. On 12 May 1990, the Chairmen of the Supreme Soviets of the Baltic Republics, Lithuania, Latvia, and Estonia-Vytautas Landsbergis, Anatolijs Gorbunovs, and Arnold Riiiitel-met in Tallinn. They renewed an old agreement signed in September 1934 in Geneva, which aimed at unanimity and cooperation between the three republics. At the same May meeting the Baltic Council was born. It is the joint opinion of the leaders of the Baltic Republics that it would be of greater advantage to the Soviet Union to have three “Finlandized” republics as neighbors than trying to keep three demanding and even obstinate provinces within the borders of the Soviet Union. Claims from the Soviet side appear absurd when they say that these small countries could not exist as independent states because they are too dependent on the raw materials supplied by other union republics and other such reasons. It must be obvious to leaders in Moscow as well that raw material supplies have not been efficiently administered on the basis of plans made by GOSPLAN, when they could easily be negotiated between independent countries. Moscow’s disingenuous argumentation rests on a weak base: the Hitler-Stalin treaty of August 1939. Hitler generously left Finland and eastern Poland as well as the three free Baltic Republics within the sphere of Soviet interests. As a first consequence the Soviet Union requested access to military bases in those countries. But military bases today are no longer an argument for keeping those countries under Soviet rule. The Baltic Republics have goods to offer that are in great demand and little supply in the Soviet Union. They might well have more to offer if they do not have to operate under command economy conditions (Table 5). In 1987, of all meat supplied to the All-Union stock, the three Baltic Republics together delivered 14.1% (Lithuania 7.7%, Latvia 3.5%, and Estonia 2.9%). For comparison we note that the three Baltic Republics make up only 2.8% of the USSR population (correspondingly, 1.3%, 0.9%, and 0.6%) and 0.8% of its territory (correspondingly, 0.3%, 0.3% and 0.2%). An independent republic of Estonia should become a bridge between East and West in principle and also for historical reasons. There is nothing new in this idea. In the Middle Ages, when the Hanseatic League was at its peak, the Baltic countries played a significant role as bridges in the economic relationship between East and West. The most important trading road from Novgorod to Li_ibeck and further to Western Europe went through Tallinn. But as soon as the Baltic countries became a passageway and even a stronghold for the military forces of different countries, economic decline followed.
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TABLE 5 by Single Republics to All-Union Stock (Kilograms
Per Capita)
Republic
1960
1970
1980
1987
Lithuanian SSR Estonian SSR Latvian SSR Byelorussian SSR Moldavian SSR Kazakh SSR Ukrainian SSR Russian SFSR Kirghiz SSR
15.2 8.9 6.5 9.7 12.5 16.4 7.2 4.0 11.1
38.4 20.6 10.2 21.1 10.2 18.1 8.9 5.7 6.2
35.5 39.6 27.2 26.3 16.5 16.6 8.4 5.5 7.1
51.3 45.0 32.5 31.1 19.1 18.2 11.0 5.7 3.6
Source: Data from reference
11 (p. 231).
Our aim is a sensible and mutually gainful cooperation with all our neighbors, in the East and the West. We can neither change our history nor our neighbors.
both
References 1. Kallas, S., Made, T., Savisaar, E., and Titma, M., Ettepanek: kogu Eesti NSV taielikule isemajandamisele, Ed%, 26 September 1987. 2. dhtuleht, 6 June 1990. 3. Eesti NSV isemajandamise kontseptsioon, ENSV TA Majanduse Instituut, Tallinn, 1988. 4. Kukk, K. Selbstbewirtschaftendes Estland: die Entwicklungsgeschichte und Grundziige einer Konzeption. Einige Aspekte der Regionalpolitik (Vortriige des gemeinsamen Seminars tlber Regionalpolitik), Tallinn, 1989. 1988, aastal, Statistika aastaraamat, Tallinn, Olion, 1989. 5. Eesti NSV rahvamajandus 6. Pravitelstvennlii vestnik, Nr. 5, 1989. 7. Noorte Haal, 2 December 1989. 8. Eesti NSV loominguliste liitude juhatuste iihispleenum l-2, April 1988. Tallinn, Eesti Raamat, 1988. 9. Peaminister E. Savisaare Valitsuse programm, Tallinn, 1990. 10. Maaleht, 7 June 1990. 11. Narodnoje bozjaistvo SSSR v 1987 godu, Moskva, 1988. Received 25 March 1990; revised 9 May 1991