- Posted September 27, 2013 by
Los Altos, California
This iReport is part of an assignment:
Student voices in journalism
Curious High School Student Interviews Estonians and Latvians
“You should contact the President of Estonia!”
Is the Honorary Consul of Estonia serious?
After reading a Twitter feud between Nobel Laureate Paul Krugman and the President of Estonia, I was intrigued. Professor Krugman criticized the success of Estonia’s austerity measures after the 2008 global crisis. President Ilves shot back several fiery Tweets. A brief search on the web led me to a huge debate on whether Estonia and Latvia’s economic policies can be considered a success.
When the 2008 crisis swept through the world, Latvia’s economy shrank by nearly one fifth and unemployment tripled, one of the worst downturns in world history. The government’s response was to slash public wages by 25% and cut funding for hospitals and schools to reduce budget deficit. Estonia followed a similar strategy. Rather than pump money in, the two Baltic countries chose the hard way out, to cut.
In theory, austerity makes recessions worse because people start to risk and spend less. It also sparks resentment from the people who get their wages cut as shown by protests in Greece and Spain. However, Latvians and Estonians accepted it. I wondered why Latvians and Estonians accepted austerity measures and if those measures could work elsewhere.
Reading articles wasn’t enough. Under the mentorship of Dr. Charles Hanson, economics teacher at Menlo School, I started to contact people. I had no idea if anyone would respond.
The first person I e-mailed was Professor Morten Hansen, Head of the Economics Department at Stockholm School of Economics. He responded—he was even willing to meet me! His response gave me the confidence to e-mail 52 Estonians and Latvians—experts at central banks, Parliament members, international rotary club presidents, and the President of Estonia. I searched through “contact” sections of websites and sent an e-mail whenever I came across a promising address. The most marvelous thing was that people replied and were willing to give me hours of their time. I even received a reply from the President’s office, but alas, he was too busy.
In June of 2013, I traveled to Tallinn, Estonia and Riga, Latvia.
“It wasn’t that hard for [Estonians] to understand that we had to cut wages,” said Rannar Vassiljev, Deputy Chairman of Estonia’s Finance Committee. “One of the first things I had to do as town mayor was cut 15% of people’s wages and the people voluntarily agreed….There were two options,” he continued. “We could either cut people or lose part of our wages. They said it’s better for everyone to give a little bit than to fire somebody.”
When asked why Latvians don’t strike or protest against wage cuts, a local Latvian hostel worker responded, “How is that going to help?”
An expert of Estonia’s Ministry of Economic Affairs quoted an amusing brochure in the Tourist Information office, “Estonians are known for their low collective emotionality.”
Some argue that the people did not protest because no group was singled out. Rather, everyone in both public and private sectors took the bitter medicine. Further, that medicine was not as bitter as it seemed. The cuts sound “Very brutal, but if you only have ½ the number of children, you really just need ½ the number of schools and hospitals,” explained Professor Hansen. With Latvia’s decreasing birthrate and emigration, fewer facilities are needed to support a smaller population.
On the topic of Nobel Laureate Paul Krugman who argues against austerity, Professor Hansen commented, “[Krugman] didn’t understand how determined or crazy we are here. I knew [Latvians] would do whatever it takes to let the currency stand.”
Latvians shy away from external devaluation, an alternative to austerity measures which lowers the value of the currency. In the 1990’s, they saw Belarusians and Russians lose their savings as their respective rubles lost more than half of their value and inflation soared.
“Nor does [Krugman] understand how much people want to be in the Eurozone because it means being away from Russia,” said Professor Hansen. Estonians seized the crisis as an opportunity to reduce budget deficit, so that they could meet the Maastricht criteria and adopt the euro. This was a significant step westward, away from its history of 50 years of Soviet rule.
Estonians’ and Latvians’ ability to take deep cuts and to survive from deep economic crashes is admirable. The question we must ask is can Estonia or Latvia be a model for other countries? Yes, prudent fiscal policies and efficiency make sense anywhere. But perhaps other populations do not have the history and mentality to undergo the same hardships.
As Elina Silina, Chairman of Latvia’s Audit Committee said, “[Estonians and Latvians] are a different kind of people.”
Returning from this trip, I am even more intrigued. I am currently taking my first economics course and am just starting to really understand the economic theories behind this fascinating debate. I hope I will be able to learn enough to form my own conclusions and add my opinions to the discussion.