Liina Kulu

The Development and Competitiveness of Estonian Agriculture Prior to Joining the European Union

The present working paper aims to evaluate the current state, development and competitiveness of Estonian agriculture, based on the theoretical concept of the competitiveness of an industry. By means of analysis it is possible to predict what potential changes may occur in the agricultural sector after Estonia’s EU accession. In outline, the present paper will discuss the concept of the competitiveness of an industry and the complex of factors influencing competitiveness, evaluate the impact of the implementation of Common Agricultural Policy (CAP) on the economies of candidate countries, analyse the factors determining the environment in which the Estonian agricultural production has to compete in the period prior to joining the European Union and assess the impact of foreign trade on the development of Estonian agriculture. Since 1991 the agricultural production has been steadily declining in Estonia. Due to the tendency to ignore the need for an agricultural policy that would consider the realities of global economy, in Estonia this sector has been left without protection. A substantial competitive disadvantage, caused by the Government’s economic policy, has brought about a situation in which the local producers lack capital for developing the industry, while foreign capital is not attracted. The agricultural producers, who have to dispense with government support, are unable to simultaneously handle three difficult problems: Transition from large-scale farming to small-scale farming that requires the introduction of modern technology and equipment; Loss of traditional foreign markets (Russia); Unfair competition with governmentally subsidised EU products, not only in foreign markets, but also in the internal market. Only equalisation of the conditions of competition in the European Union and in Estonia’s agricultural sector would make it possible to use the great natural potential of Estonia for the benefit of its economic development. Resolving this problem will be the most difficult task facing Estonia’s (foreign) economic policy during the negotiations for admission to the EU. A continuing agricultural decline would mean the loss of an opportunity to exploit those natural resources even after joining the EU, because the pre-accession level of production will determine the production quotas.

Against the political expectations and theoretical models: how to implement austerity and not to lose political power

During the global financial crisis in 2008–10 Estonia symbolized a pathway of fiscal consolidation and austerity. Moreover, despite opting for austerity and all the social and political consequences of achieving fiscal consolidation, the governing coalition in Estonia succeeded also in avoiding a negative political reaction from the voters and remained in power. The current article analyses the variables that made the austerity reforms in Estonia in 2008–11 electorally successful. The economic success of Estonia has otherwise been attributed to a combination of political, institutional, and economic factors: timing; a fiscal policy that was not pro-cyclical; the availability of reserves in Estonia; and the ownership structure of the banks. The present study asks more specifically about the variables that saw the economic success in the implementation of the austerity measures accompanied by a positive electoral outcome. As it will be argued, these factors include the communication strategy chosen intentionally or otherwise by the government, the design of the austerity measures, the peculiarity of the electoral cycle, lack of political alternatives, and the performance of neighbouring countries in implementing austerity measures.

Shortcomings of the EU state aid model from peripheral perspective: the case of Estonian Air

The problems with national airlines in small peripheral member states indicate that the effects of strict competition policy and state aid rules of the European Union (EU) may not be equally useful for all member states and their citizens. Measures that are considered efficient from the perspective of one EU member state may not necessarily improve the welfare at the EU level and vice versa. While common competition policy rules are often justified by referring to the core values of European integration and the Single Market, the values themselves prioritize different aspects of the ideals of free market, European solidarity, and institutional stability. Curiously, as a result, the EU practical regulations are often imposing significant costs on a local peripheral consumer while even unable of meeting the proclaimed European values. By using the case study of the Estonian national flag carrier Estonian Air the current study focuses on the question whether the EU state aid regulation is simultaneously rational and sufficiently flexible to take into account the joint values of the European single market and specific needs of peripheral member states.

OLD-AGE PENSION REFORM IN ESTONIA ON THE BASIS OF THE WORLD BANK’S MULTI-PILLAR APPROACH

The current literature about old-age pensions can be characterised by the numerous analyses of pension system reforms in developed countries as well as in developing ones. Although the radical change in economic and social values during the process of transition from command economy to market economy offers many special cases for economists as well as social scientists, only some of them have analysed the developments of pension systems in Central and Eastern European countries. Therefore, the purpose of the present paper is to analyse the adjustments in publicly managed pillar as well the implementation of the funded component of pensions in Estonia, described by previous analyses in general as successful reforms in comparison with the other transition countries. Firstly, in the working paper the aims and the design of the pension system as well as main factors determining pension reform are studied on a theoretical basis. Next, the general overview of the reforms and more specific assessment of the changes in publicly managed scheme and the implementation of the funded scheme in Estonia are given. Finally, the challenges of the multi-pillar pension scheme in Estonia are described and in order to cope successfully with these challenges, some suggestions are made. The study explains that the undervaluation of the social dimension in comparison with the economic one has taken place during the transition period. The pension reform has to some extent ensured the financial sustainability of the pension system, but not fulfilled the two other objectives defined in 2001 by the European Council in Goteborg as a basis of sustainability of the pension system – to guarantee safe and adequate pensions and to respond to the changing needs of society and individuals. The present old-age pensioners (as well as the pensioners in the future) are directly placed at the risk of poverty and the opportunities of elderly people to participate in the societal life are very limited in comparison to the active population. The changes in publicly managed scheme as well as the implementation of the mandatory funded system (II pillar) and supplementary funded system (III pillar) during the period 1997–2002 have not been successful in avoiding potential demographic and macroeconomic risks in the near future.