I watched Finance Minister Ivari Padar last night on ETV and I was surprised by how bad he looked. Maybe it's the hellish job of being a social democrat in a center-right government, or just the fact that rumors are circulating that Prime Minister Andrus Ansip would like to dismiss him.

Padar's sin was making the argument that, rather than cut anymore at Estonia's already bare public sector, perhaps Estonians themselves could sustain a tax increase to pay for some of the services they enjoy.

This of course was not music to SDE's coalition partners' ears. Taxes, from the standpoint of liberals, always go down. They never go up. Given the choice between paying your teachers and nurses and sanitation workers a decent wage and lowering taxes, the choice is obvious: you lower taxes.

This is the philosophy of those who see the state as inefficient and intrinsically evil, though they don't mind running it themselves when given the opportunity. And if you really need money, the Swedes are always there to bail you out.

Except why is Sweden so sturdy and its satellite Estonia in such shit shape? Both nations should share the blame. The Swedes offered free money to the Estonians, and the Estonians took it, even though they couldn't pay it back. Now the relationship between the two countries has become even closer. Russia may own Estonia's past, but Sweden owns its future.

Estonian reliance on Sweden and Finland has created a narrowly structured economy heavily reliant on investments in financial intermediation, real estate, and the domestic consumption fed by both. Now that the money has dried up, Estonia has few places to turn. It keeps waiting for its shiny Nokia to appear, but it doesn't spend the same amount on R&D that Finland or Sweden do to produce those Nokias and Volvos and Ikeas.

Besides, investing the same amount of money in R&D to get to that point would necessitate capital, and perhaps even some tax increases. But such a scenario should never come to pass, because tax increases are not what Estonia is about. Here taxes are only supposed to go down, they never go up. If you need money, go ask the socialists in Brussels for it.

The problem with this philosophy is that, up until last September, the private sector was considered to be far more sophisticated than the public sector. Liberals could make their arguments based on the assumption that the financial managers knew best. Maybe they still do. Maybe Padar is wrong and Ansip is right. But how would we ever know. We are all tied to the theory of how things are supposed to work. But just a few years ago, these same characters were forecasting eternal growth and lighter tax burdens. Now, that appears to have been a fantasy.

So, on these days, I am happy I am not the social democrat Padar. But I am really glad that I'm not the liberal Ansip either.

( Itching for Eestimaa blog)

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