A tale of two Estonias

It's the best of times; it's the worst of times. The Estonian economy is growing. Membership in the European Union is closer - and more popular - than ever. Yet many Estonians are expressing deep reservations about the health of their nation.

They ask: "Is this the Estonia we wanted?" A catalyst for this navel-gazing was an open letter last year signed by 26 leading intellectuals. They warned that Estonia is confronted with a political, social and ethical crisis. Their fear is that society is fracturing into two distinct groups: a wealthy clique who are the winners of the transition to a free market, and the rest who are the economic losers.

The intellectuals believe the marginalization of the latter group - a second Estonia - is threatening the legitimacy of the political order.

The "two Estonias" concept is a strange idea. I suspect the intended translation is actually "the other Estonia," adapting a phrase coined by American author Joel Millman. In his acclaimed book, "The Other Americans," Millman describes how new immigrant communities revitalize American society.

The other Estonia, however, is a group more likely to opt out of society altogether. This notion has met with ridicule. Critics say that the concept shortchanges Estonia's political and economic successes. They claim that Estonians are better off than an ever before, and "the other Estonians" are just methanol-swilling malcontents winging about their own failures.

The critics are way off. There's a growing economic underclass. It's hard to say how big it is, but according to a World Bank measure of income inequality known as the GINI coefficient, inequality grew substantially during the 1990s. What is interesting is that while inequality in the Visegrad countries of Poland, Hungary, the Czech Republic and Slovakia has stabilized at Scandinavian levels, inequality in the Baltic states is now on par with the United States.

Some inequality is not a bad thing. It's the inevitable product of the move to the free market. Comparative advantages that were suppressed by the planned market are released. Some people have more valuable skills. Some sectors are more profitable.

But inequality in a market system is tolerable only so long as it's not self-reinforcing. Poorer groups shouldn't feel stuck in their situation.

There is reason to worry that Estonia cannot "unstick" these people. While governments have succeeded in creating a stable market system, the redistributive role of the state has been neglected. Social assistance, employment insurance and retraining schemes that help alleviate inequality are in poor shape.

Estonia totally lacks the means to transfer tax revenue from the wealthier regions to the poorer regions. These shortcomings are solidifying the gap between winners and losers.

Nor is there hope that the situation will improve. Wealthy Tallinners build their homes in gated suburbs, and send their children to expensive private schools. All the while, public housing and education are starved for funds.

The elite seems to be abandoning social responsibility. It's hard not to see why the other Estonians think their prospects are worse now than a decade ago.

You might think all this may lead naturally to the conclusion that a growing "other Estonia" will mean a swing to the left in parliamentary elections next year. Social democrats may think so, but I'm not so sure.

The case for redistribution is strong for right and left. Redistribution improves economic efficiency and political stability. I believe the two Estonias debate highlights a change in political culture. Conventional bread-and-butter issues are replacing existential questions like independence and citizenship. In short, the other Estonia is the first chapter of the post-transition era.

Toomas Aarand Orav is an economic adviser to the Japanese Embassy in Toronto. Earlier, he was a speech writer for the Estonian Foreign Ministry. He can be reached at [email protected].