Neither heaven nor hell, but Rakvere
The consequences of "a unique policy" can be seen in everyday life in
this Estonian city
By Heikki Aittokoski in Rakvere, Estonia
If envy could really turn you green, Oleg Gross could gain the Green Party many new voters.
It is easy to start feeling jealous when visiting the home of Estonian businessman Gross. In his front yard you see a 4.7-litre SUV and an Audi A8, just like the one outgoing German Chancellor Gerhard Schröder has.
But that is not all. Look at the swimming pool.
In Gross's 1,200 square metre home there is a big room with tall windows, a swimming pool of around 60 square metres, and a small jacuzzi. Through the windows, you can look out on the two artificial lakes built by Gross, and the first snow of the winter.
One of Estonia's richest men?
"One of the province's richest", Gross replies.
The name of the city is Rakvere, and it has 17,600 residents. Rakvere is known for its sausages and Oleg Gross.
Oleg Gross is married for the second time. His wife Margit Gross serves us coffee.
Of the Gross children, 22-year-old Georg is studying business in Tallinn, as well as seeking to become a helicopter pilot. 17-year-old Gea is away in Arizona as an exchange student. The youngest, Gert, is only two years old. There is a toy floating in the jacuzzi.
Georg is to continue in his father's footsteps.
"He does not have a choice", 53-year-old Oleg Gross observes in his calm manner. Gross used to wrestle when he was younger, now water sports are closer to his heart.
Gross started out as a businessman with a pork and chicken farm in the 1980s, in the age of perestroika, when Estonia was still a Soviet republic. He opened his first grocery store in Rakvere in 1991, the same year that Estonia regained her independence.
Now there are nearly thirty OG Elektra stores. In addition, Gross has a farm with 25,000 chickens and 3,500 pigs. The slaughterhouse is being expanded. According to Gross, the EU will finance half of the investment, worth a total of over three million euros.
Gross employs 1,400 people all over Estonia. His role as a large Estonian private sector employer is rare in the country. He is one of the prime success stories in the whirlwind tale of Estonia over the past fifteen years.
"In the beginning, the people were very liberal. There was no bureaucracy. State-owned companies were privatised in Rakvere faster than in other parts of Estonia."
Gross was in the right place at the right time, making use of his roubles, and after the 1992 currency reform, his crowns. The end result is a luxurious home surrounded by a thick wall.
Rakvere is a good place to inspect today's Estonia. The city is neither small nor large by Estonian standards, not rich nor poor, not far from Tallinn (around 100 km to the west), but not so close that the capital city would lead the way, either.
The city's motto is "Full of power."
Rakvere's profile is dominated by the massive castle hill. The city has had numerous names throughout its history, which reflects the historical differences between the Baltic States and Finland.
The Danish, Germans, Russians, and Swedes have ruled and fought wars in Estonia. Finland has avoided most of the pillaging that has been more of a rule than an exception on the southern side of the Gulf of Finland.
Rakvere Mayor Andres Jaadla assures me that Rakvere is doing extremely well these days.
Jaadla gives us a breathless PowerPoint show in his downtown office, presenting all the achievements: a new central plaza, a new sports arena (Rakvere will host the junior world championships in sumo wrestling in 2006), school renovations, playgrounds for the children...
The annual municipal budget of Rakvere totals 161 million crowns, or just over 10 million euros. That is a small figure compared with Finland. The revenues and expenses of Uusikaupunki, which is more or less equal in size, are over six times higher.
The numbers cannot be directly compared. The price level in Estonia is clearly lower than in Finland. Nevertheless, the budget figures speak of distinct differences - and not only in the standard of living, but in the basic principles of the system.
When Estonia regained independence in the fall of 1991, the people wanted to do everything in a radically different manner to what was done in the Soviet Union.
The pendulum swung far to the right. Estonia soon morphed itself into a laboratory of economic liberalism. Young men took advantage of "the one-off moment of a unique policy", as the period that immediately followed the collapse of Communism has been called. The heads of state and government in Tallinn went into action.
When historian Mart Laar became Prime Minister at the age of 32 in 1992, he had read one single book on economics in his life. That book was Milton Friedman's Free to Choose.
Friedman is the father of the flat tax, which was adopted by Estonia as the first European country to do so in 1994. Many others have since followed suit. The current income tax rate in Estonia is 24 percent across the board.
The economic liberalist system has led to the fact that 20-year-old Virge Teuli sits in a local electronics plant and assembles cables for eight hours a day.
Her employer, called Dicro, has Finnish owners, as do many other firms in Rakvere. Estonia is a so-called subsidiary economy.
"My friend recommended this place, and I saw their notice in the newspaper over the summer", Teuli reports. She is just about to finish her four-month probationary period, after which her wages will improve.
Teuli is currently paid under 200 euros per month. Around half of the sum is free of income tax, and Teuli pays 24 percent in taxes from the rest.
Teuli is pleased with her income, especially compared with her previous job with security firm Falck. It is hard to make ends meet though, since Teuli is the single parent of four-year-old son Karl.
Child benefits amount to some 20 euros each month, but one third of the sum is spent on day-care fees.
Teuli spends her free time primarily with Karl. Sometimes she watches soap operas on television.
Virge Teuli is a tiny player in the phenomenon of globalisation. Dicro CEO Juha Seppälä reports that the company is about to send product shipments to Argentina, Dubai, and Holland.
Dicro opened up shop in Rakvere in 2001. The average monthly wage of the employees is around 320 euros nowadays.
According to Seppälä, the production process is so materials-intensive that the savings the company achieves in wages amount to only around ten percent of the total costs.
One obvious attraction in the corporate sector is the Estonian corporate tax policy.
"Profits are not taxed unless they are paid out", Seppälä explains. Dicro has not yet paid any corporate taxes.
"We have re-invested our profits all the time. Work on a new production hall was just completed."
If France's Nicolas Sarkozy, Germany's Gerhard Schröder, or Sweden's Göran Persson were to visit Rakvere, they would be terribly annoyed. They are among the most well-known European politicians who have criticised the aggressive tax competition practiced by Estonia and other new EU member states.
Sarkozy and friends would be met with a cool welcome. There are always two sides to everything.
If the business environment was not attractive, foreign capital would never have found its way to Rakvere.
Finnish food industry company HK Ruokatalo would not be the city's largest employer. Danish door manufacturer Vest-Wood and the dairy plant run by the British would not be in town.
And Rakvere would most likely not enjoy nearly full employment, which facilitates annual salary hikes of ten percent.
"The majority of the locals have a positive attitude towards foreign companies", Juha Seppälä says. "Of course there are those who talk about exploiters. But the fact is that we have brought plenty here with us."
There is a museum on the Rakvere castle hill that boasts a replica of a medieval torture chamber. An artist's interpretation of hell is also on display. You can walk through it.
The exhibit is somewhat cheesey, but it brings to mind the old joke about whether it is better to wind up in a Communist or Capitalist hell.
The answer is that a Communist hell is better, because sometimes there is coal for the fires, sometimes there is not.
Estonian politicians no longer speak of a transition period. That was left behind after EU and NATO membership in the spring of 2004.
Estonia has cleared the Communist hell quickly, but it has become heaven mainly for the largest capitalists.
It is obvious that Estonia's model, in all its mercilessness, must be taken seriously. "It is your future as well", as one Estonian journalist put it.
Helsingin Sanomat / First published in print 5.11.2005
HEIKKI AITTOKOSKI / Helsingin Sanomat
heikki.aittokoski@hs.fi
