Why America Should Take A Lesson From Estonia

• September 7, 2006

Columnist John Tierney has what seems like a great column in today’s New York Times. Unfortunately it’s only available to subscribers to the Times’ online content, but Don Boudreaux over at Cafe Hayek has an illuminating excerpt:

[Estonia] transformed itself from an isolated, impoverished part of the Soviet Union thanks to a former prime minister, Mart Laar, a history teacher who took office not long after Estonia was liberated. He was 32 years old and had read just one book on economics: “Free to Choose,” by Milton Friedman, which he liked especially because he knew Friedman was despised by the Soviets.
Laar was politically naïve enough to put the theories into practice. Instead of worrying about winning trade wars, he unilaterally disarmed by abolishing almost all tariffs. He welcomed foreign investors and privatized most government functions (with the help of a privatization czar who had formerly been the manager of the Swedish pop group Abba). He drastically cut taxes on businesses and individuals, instituting a simple flat income tax of 26 percent.
These reforms were barely approved by the legislature amid warnings of disaster: huge budget deficits, legions of factory workers and farmers who would lose out to foreign competition. But today the chief concerns are what to do with the budget surplus and how to deal with a labor shortage.
Wages have soared thanks to jobs created by foreign companies like Elcoteq of Finland, which bought a failing electronics factory and now employs more than 3,000 people making phones for Nokia and Ericsson. Foreign investors worked with local software engineers to create Skype, the Internet telephone service, and the country has become so Web-savvy that it’s known as E-stonia.
“The spirit is so different here,” Benoit du Rey says. “If you come to the government here and want to start a company, they’ll tell you, ‘Good, do it right now.’ Then you can work free without being bothered by stupid things. Here I talk to my accountant once a month. In France, for every seven or eight workers, you need one full-time worker just to fill out the forms for taxes and other rules.”

Amazing, isn’t it? All Laar did was end his country’s silly protectionism, shrunk the size of government, drastically cut taxes and kept as many services for citizens in the private sector as possible. And what happens? Budget surpluses and low unemployment.
Now ask yourself why we’re not doing that here in America? Why must we endlessly increase the size of government with new entitlements (I’m looking at you, President Bush and Republicans, with your silly prescription drugs program)? Why can’t we cut taxes and make the process for paying taxes simpler?
We could do those things, but our politicians won’t. Liberals here in America don’t want a free and independent society. They want big, controlling government that is involved in every facet of our lives. And conservatives, who are ostensibly in favor of limited government and low taxes, seem to shy away from cutting taxes and entitlements knowing that any time they try they’re going to be susceptible to cries of “tax cuts for the rich” and “no help for the poor” from the left.
It’s a sad situation.
By the way, anyone interested in Milton Friedman’s work should check out my Freedom To Choose Sunday series. I’ve been posting episodes from Friedman’s television show on Sunday mornings. We’ve had four installments already, with more to come. You can see what I’ve posted already here, and keep an eye out Sunday mornings for more.

Tags: Hal Neff, Politics

Ivor Frazier

Milton Friedman is my hero. I'm thinkin that economics should be a required subject taught in every high school in America.
robert108

Ivor: I'm in complete agreement with you, except that we could start with simple economics in grade school, IMO. It's never too early to understand the Law of Supply and Demand.
http://mlkashinsky.com/ Marc

Yeah, but they have a socialized health care system, so do we really want to take a lesson from them?

In Estonia public healt insurance is a social insurance and relies on the principle of solidarity. The purposes of health insurance are to: cover the costs of health services provided to insured people, prevent and cure diseases, finance the purchase of medicinal products and medicinal technical aids and provide benefits for temporary incapacity for work and other benefits. The health insurance is organised by the Health Insurance Fund (EHIF), which covers the costs of health services required by people in the event of illness, regardless of the amount of social tax paid in respect of the person concerned. The Fund uses the social tax paid for the working population also to cover the cost of health services provided to peole who have no income from work activities. Employers are required to pay social tax for all people employed, at a rate of 33% of the taxable amount, of which 20% is allocated for pension insurance and 13% for health insurance.

Or do we just select from the lessons that will benefit you Rob?
robert108

Marc: Free enterprise, unlike Marxism, doesn't require either perfection or lockstep collectivism to work. The more freedom in the system, the better it works. The tax burden for Estonia's socialized healthcare system is being paid by the prosperity created in the rest of the system. Eventually, those taxes will eat up all the prosperity of the free part of the system. Social programs don't pay for themselves in the improvement of society, otherwise they would require less and less money as they go along. Instead, it's the opposite. If you want efficient and proper allocation of goods and services and increasing prosperity, you have to go with the free enterprise system, not socialism.
http://sayanythingblog.com robport

Marc, you either don't know what you're talking about or you do know and you're blatantly mischaracterizing the truth.

Estonia is a former communist regime. It is transitioning away from socialized medicine, not toward it.

Next time check your facts.
http://mlkashinsky.com/ Marc

I guess I didn't check my facts Rob, I just read the report that I quoted from (http://www.epsu.org/a/2242).

So what you're telling me is,

1) the Estonian government is moving to remove the taxing of businesses and individuals to pay for health care?

2) that healthcare in Estonia will no longer be publically funded, but rather will be funded privately as it is in the US, with the exception of Medicare and Medicaid? and

3) health care in Estonia will no longer be a right, but will only be afforded to those that can pay for it? (with the exception of programs like Medicare and Medicaid)

Obviously I didn't read that? Can you please point me to the exact references that indicate that is what is happening? Sometimes I need a little help finding those references. I am getting pretty old you know!
robert108

Marc: Even if they aren't doing it now, they will have to do so in the future. No system can absorb the out of control expenses and the inefficient allocation of resources imposed by socialism. Social programs always cost a lot more than they claim to cost, and eventually eat up the bones of the economy with their consumption of capital that is then not available for reinvestment, resulting in stagnation. It's inevitable.
http://mlkashinsky.com/ Marc

Thank God the US is so much smarter than the rest of the world!
http://sayanythingblog.com robport

You clearly didn't look very hard Marc, which isn't surprising as you're only interested in seeing what you want to see.

Read this summary of how Estonia's health care system is transitioning. They in 1991 with a completely socialized health care system. They now have a private health care system that is rivaling the government health care system.

Clearly, that indicates that they are moving away from socialized health care not toward it.

Not that I expect you to be honest and admit that.
http://mlkashinsky.com/ Marc

There's nothing there about Estonia eliminating the health care safety net to everyone in Estonia. Everyone is entitled to health care in Estonia, and everyone still contributes to their care through taxes. I didn't see anything about eliminating that system.

Health insurance is a mandate in Estonia, and as defined by you and Robert108 that is socialized medicine.

The fact that they are also adopting a private health insurance system, just brings their system in line with the rest of Europe, with the exception of the UK.

Are you telling me that is not the case, that they are moving totally away from publically funded healthcare to a privately funded healthcare system as in the US, where people can be denied health insurance simply because they are sick and don't have a job?

And are you also telling me the system in Estonia will be totally voluntary, and if you don't want to purchase health insurance you won't have to, nor pay taxes to cover care should you need it and can't afford it?

That's not what I got out of that article!
robert108

Hey Marc, ever hear of fee for services? No govt interference, no taxes confiscated. When you are sick, you go to the doctor and pay an affordable market price. It's the only one that works in the long run. Prices are affordable, because there is no govt money to inflate the system.
http://mlkashinsky.com/ Marc

Yes Robert I know what you are talking about, but the post was titled "Why America Should Take a Lesson From Estonia".

We're just not going to take a lesson from their health care system, which by your definition is socialized, and since everyone is FORCED to participate in it, it is also fascist.

I wasn't trying to debate healthcare here, but as you can see even in "model countries" health care is not treated as privilege only bestowed on those who can afford it, as it is in the US.

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