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26 May, 2013  ▪  Kalle Muuli

One Reason for Estonia’s Success Lies Across the Gulf

Since the fall of the Soviet Union, Estonia has fared much better than other former Soviet republics. The Estonian economy has developed rapidly, and society as a whole is very free and democratic. The reason? Not only timely and judicious political decisions, but also the strong influence of Estonia’s northern neighbour Finland.

Estonians and Finns have lived next to each other for thousands of years, and their language is so similar that only a little studying is necessary for mutual intelligibility. Their history up to 1939 was also similar. Both countries were under Russian rule but gained independence and statehood for the first time in 1918. But when Stalin began issuing ultimatums to Estonia and Finland after signing a secret pact to divide Europe into spheres of influence, Estonia capitulated while Finland chose to put up a fight. The result was a war in which Finland lost one-fifth of its territory but was one of the few countries in Europe to preserve its independence and democracy during World War II. Estonia on the other hand was forcibly annexed by the Soviet Union and had to endure a half-century-long Russian occupation.

 While Finland and Estonia were once more or less identical in terms of population and economic strength, Finland is now home to four times as many people as Estonia and Finland is one of the world’s most advanced countries (11th in the UN human development index). The wise and wealthy bigger brother had a positive influence on Estonia already in the Soviet days and has an even greater one now, in the EU, where the borders are open and both countries have the same currency.

READ ALSO: Estonia: the Importance of Being Re-Independent

At the urging of Finnish president Urho Kekkonen, Moscow opened a shipping link between Tallinn and Helsinki, across the 90-kilometer Gulf of Finland. As the first Finnish tourists arrived, the first embryonic business ties sprang up between Estonians and Finns, although they were still officially prohibited. In more or less the same period, northern Estonia’s inhabitants could start watching Finnish TV, in spite of KGB jammers. Thanks to the similarity of the languages, they were easy to understand. Every night, colour images of life inn an affluent and free Finland were beamed into the living rooms of tens of thousands of Estonians, effectively neutralizing the brainwashing effect of Soviet propaganda, changing the way Estonians saw the world, creating interest and a yearning. 

Already in the final years of the Soviet era, when travel abroad became freer due to perestroika, the relations between Estonians and Finns became much more substantial. Finland opened a consulate in Tallinn for issuing visas, and more or less a permanent queue formed. After Estonia regained independence, the same kind of visa queue developed at the Estonian embassy in Helsinki – Finns took a lively interest in Estonia, which had been behind the Iron Curtain for 50 years.

Perestroika gave Finns an opportunity to engage in enterprise in Estonia already before the collapse of the Soviet Union. At first, only Estonian-Finish joint enterprises were allowed, of which the Estonian half belonged to the state. But even this economic cooperation, very limited as it was, brought investments, a Western work ethic and convertible currency to Estonia. The currency was especially important at the end of the Soviet era, when the rouble inflation soared to 1,000 per cent a year. The Finnish markka became a semi-official legal tender, used to buy “deficit” items. In the early 1990s, Finland accounted for a 40 per cent share of Estonian foreign trade and Finland continues to be Estonia’s most important trading partner.

Estonian-Finnish relations reached a new level in 2004 when Estonia became a EU member. Finland had belonged to the EU since 1995.  The four freedoms of the European common market – one of which was freedom of movement of the workforce – now applied to Estonia.  

READ ALSO: Ovations for Estonia’s Tax Legislation

Since wages in Western Europe and the Nordic countries are three or four times higher than in Estonia in many spheres, a major wave of emigration was feared when Estonia joined the EU. But strangely enough, the proximity of Finland has been a boon this regard. While the population has dropped 5 per cent in the last ten years, this is low compared to the other Baltics. Latvia has experienced a 13 per cent decrease (and in Lithuania 14 per cent) during the same time.

Tens of thousands of Estonians – mostly living in rural areas – work in Finland but do not settle there permanently. Finland is close enough that Estonians travel across the gulf at the start of the week and come home to their families at the weekend. In this manner, they earn more but live in Estonia where prices ar6e lower. Only 30,000 Estonians are permanent residents in Finland, while about 10,000 Finnish retirees have moved to Estonia.

Latvia and Lithuania do not have such a wealthy neighbour in which to work. Anyone seeking employment and a better life abroad has to pack up and move to Western Europe with their families – if not for ever, at least for the long term.

Just like Estonia’s proximity has helped Estonians stay at home, the northern neighbour has served as a major hedge for unemployment. Even during the recent global downturn, when unemployment was high in Finland as well, Estonians found work that they could not at home, as they were willing to settle for lower pay than the Finns.

READ ALSO: Estonia's The New Constitution: A Normal Life Begins

Traffic between Estonia and Finland became truly free in 2007, when Estonia joined the Schengen visa area and a passport no longer had to be presented upon arrival in the Helsinki port. To date, Finnish business people have placed over 3 billion euros in direct investments in Estonia and about 7 million people travel on the Helsinki-Tallinn ferries each year (the countries have a combined population of some 6 million). Thus the single EU market has become a profitable reality for both nations – much more than in some older, more established corners of the community – in just nine years.


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