In 1991, Estonia re-declared independence after the fall of the Soviet Union. Since then, its GDP per capita has progressed from under $2,000 to over $18,000 and now is home to one of the world’s most open and entrepreneurial economies, with exports comprising 78% of GDP.
Each year, the London-based think tank the Legatum Institute publishes the Legatum Prosperity Index, which ranks the different countries of the world based on nine specific pillars: Economic Quality, Business Environment, Governance, Education, Health, Safety & Security, Personal Freedom, Social Capital, and Natural Environment.
This year, Estonia ranks 26th overall on the Legatum Prosperity Index while performing best on Natural Environment and Education and worst on the Social Capital pillar. Estonia was able to accomplish this incredible success by ascertaining strong and effective governance, as well as by maintaining a focus on creating a forward-thinking business environment.
To learn more from the Legatum Institute’s findings, read on and discover why Estonia is one of Eastern Europe’s greatest success stories.
In the 1990s, Estonia went through a significant political reform during which property rights, the principle of separation of powers, and a stable rule of law and were introduced. The inspiration came from the Nordic form of governance structure, and so a constitution was formed. In 1992, a government comprised of state and local level representation was elected. Together, these elements created the ideal foundations for a democratic future.
When it comes to the Legatum Prosperity Index, due to these transformative decisions, Estonia has risen five places for the perception of corruption and now has the best score in Eastern Europe. Additionally, over the past decade, Estonia has climbed eight places from 26th to 18th in the area of judicial independence. These scores show that reforms continue to make a difference in the lives of its citizens.
2. Business Environment
Upon gaining independence, one of the biggest challenges Estonia faced was creating enough international and domestic confidence in its business environment to ensure that investors, companies, and consumers were willing to take part in its market. Again, its record of reforms shows how this can be done.
First and foremost, in the mid-1990s, the country introduced a strong investor protection policy which is observed to continue flourishing today. Next, by implementing more tailored and enforceable decisions to business conflicts outside the courts, the pressure on the court system was decreased. Together, this decreased the average time taken for dispute resolution to 145 days has significantly helped Estonia rise from 34th to 26th in the investor protections sub-pillar.
Additionally, business infrastructure (such as the digitization of border crossings and the introduction of high-speed internet connections) has improved so drastically that now Estonia is ranked number one in the world for cyber security, as well as the 12th in the world when it comes to wireless broadband connections per capita. Recently, Estonia has been focused on creating policies designed to support entrepreneurialism.
3. Social Well-Being
Despite all these internal changes and the significant conflict in nearby Ukraine and other parts of Eastern Europe, Estonia has managed to sustain its Safety and Security throughout. Now, the country is a member of NATO, which boosts its ability to protect its national security. Furthermore, within the country, the number of homicide cases have fallen, and people report feeling safer while walking at night.
Furthermore, according to the Legatum Prosperity Index 2018, Estonia is 11th globally for Education, and health outcomes have risen unwaveringly. Today, life expectancy in Estonia is 77 years – eight years more than is observed throughout the Soviet administration.
As you can see, Estonia illustrates how fearless policy reform can result in a positive influence on economic and social development. Thanks to Estonia’s sound political institutions, the country was able to create the right environment for economic development, thus creating a diverse and open economy. Over time, the economy was maintained and further diversified and is now able to produce widespread prosperity to the population.
What do you think of Estonia’s success story? What do you see are the pros and cons of the policies that they pursued? What would you like to see replicated in your home country? Let us know your thoughts in the comments below.