An Unassailable Fortress? Neo-Liberalism in Estonia

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Though its economy is tiny, Estonia has occupied a central role in the European debate about the merits of neo-liberalism. Ever since its transition to a market economy the country has pursued consistently neo-liberal strategies. Advocates of neo-liberalism argue that the country has fared very well in doing so and should serve as a model for other countries, especially those in crisis ridden Southern Europe. Critics instead argue that overall economic success has been modest while the chosen strategy has incurred substantial social costs. Moreover, much of its success should be attributed to factors other than it neo-liberal policies. The current paper tries to assess the merits of neoliberal policies in Estonia and the reasons for their resilience. It first traces the main economic policy strategies since independence to clarify to what extent its neoliberal reputation is justified. The next section looks at the economic and social outcomes of such policies. Though overall economic performance has lagged behind expectations and poverty and income inequality are relatively high, no serious challenge to neo-liberal policies has even been mounted. Though in part this is due linguistic cleavages which have divided the potential opposition, and the presence of a safety valve in the form of labour migration to the more prosperous Nordic economies, the main reason for the resilience of neoliberal- ism in Estonia is the absence of any credible alternative for a small and highly open economy in combination with the increase in prosperity significant sections of the population have experienced.