The former Soviet state has rooted out corruption and bet big on economic liberty, free market and technology.
PHOTO: INTS KALNINS/REUTERS, Tallinn, Estonia
“You can’t bribe a computer,” Estonian Prime Minister Kaja Kallas said. Puerto Rico, during this time of rebuilding, should heed these words. Estonia—a member of the European Union and the North Atlantic Treaty Organization—is No. 1 in providing government services digitally, according to the United Nations; first in democratic development among 29 post-communist countries, according to Freedom House; first in international tax competitiveness, according to the Tax Foundation (the U.S. is 22nd); and sixth in the 2023 Index of Economic Freedom, according to the Heritage Foundation (the U.S. is 25th). It has the most startups per capita in Europe, and its 15-year-olds top the Continent in reading, science and mathematics.
Last week Andy Kessler sat down with Ms. Kallas, 46, in the cabinet room of Stenbock House, seat of Estonia’s government, and couldn’t help asking, “How did you accomplish all this since regaining independence?” He had been politely warned not to say, “since Soviet occupation.”
“To attract investments, investors must trust your economy,” Ms. Kallas said. “Under the Soviets, we normalized corruption. When we restored our independence and freedom, suddenly it required a whole new mind-set from all people—it was not OK to steal from the state.”
“We have become this tech-savvy country”—Skype was created in Estonia — “because we had to do everything from scratch, so we sort of leapfrogged and went directly into e-governance.”
“Ninety-nine percent of our government services are digital, and we are more and more using AI.” Plus, “98% of people file taxes online because it’s all pre-filled. We are probably the only country in the world where people actually compete over how fast they file taxes because it’s so simple.”
Ms. Kallas noted her government uses these digital tools “to decrease, diminish bureaucracy.” That’s how to create small government. “It’s cheaper and our debt is much lower as well.” Though it’s rising, Estonia still has the lowest ratio of government debt to gross domestic product in the EU.
Taxes? “We are a very open economy. Our competitive advantage is that we don’t have corporate income tax. When you reinvest into your company, your equipment, your people, you’re not paying income tax, you’re only paying income tax if you take it out as dividends, if it’s distributed.”
With low corporate taxes, “a lot of EU residents from the U.K. are establishing companies here.” A Brexit win. And “the personal income tax is 20%. But we had to raise it now to 22% because of the costs. We have to spend on defense, right?”
Andy Kessler said, “Small government, free trade, low taxes—that’s the Reagan playbook.” She smiled.
“We don’t have a lot of people or natural resources”—some oil shale, plus limestone and lake mud. “What do we have? We have our minds and brains. So we actually have to focus on that, that means an education system.” It “focuses on the STEM subjects. All first-graders are taught coding—I guess actually, it’s even in kindergartens.” Estonian kindergartners use robots from a program called ProgeTiger. “We are a small country, only 1.3 million people, which means that you have to learn all the other languages. And coding is one of the languages you learn.”
“We also teach entrepreneurship in schools.” In high school they do role-playing, with bankers and loans and investment and government. “Oh, you pay taxes, where does that go?” Ms. Kallas says she is proud that Estonia “is very high on the list of youth entrepreneurship.”
Ms. Kallas notes the country has the most unicorns per capita—startups worth over $1 billion. “We have 11 of such companies in different fields. It’s really manufacturing, and it’s IT services. We help a lot of, for example, African countries to build up their governance, and we have helped Ukraine.”
At a recent international conference, Ms. Kallas was in a “green room where all the leaders are. And I had a queue of people wanting to greet me. And you know why? Because Estonia has helped those countries and I didn’t even know all of them. And they came to thank me for what we have done. We are such a small country, but we have helped a lot of countries in the world, e-governance, setting up their services.” A great export.
Estonia does have issues: “When the war started, our imports from Russia decreased 95%. The export is more complicated, because we have the land border, and there are the exports that are oriented from Estonia and the exports that actually come from other European countries.” Add to that high energy prices driving inflation and a modest recession. A small scandal swirls over an investment in Russia by Ms. Kallas’s husband. Still, the Reagan playbook is working.
The Biden administration focuses on squishy notions like equity while Estonia is working to increase everyone’s equity value. Purchasing power is up 400% since Soviet occupation—sorry, since Estonia regained independence. Free trade, low taxes, small government, e-services, educated workers, low debt and negligible corruption. Puerto Rico—and the U.S.—can learn a lot from Estonia.