Everybody who either lives in Tartu or spends any significant time here has an opinion on Tigutorn, the big new residential tower next to the bus terminal. These opinions are overwhelmingly negative: people find it ugly, pointless and contrived.
I, however, rather like the Snail Tower. I like it because it's distinctive; and in this day and age, that is the best we can expect from modern architecture. I've been thinking about this, and I honestly cannot name a single late 20th/early 21st century building that would be intrinsically beautiful. The Gherkin in London, the Burj al Arab in Dubai, the Taipei 101 - they are all, at best, impressive. I've seen a fair share of modern highrises, and the closest that have come to beauty have been the skyscrapers of San Diego; the last great architect to create properly beautiful buildings was Gaudi. Today's architecture, liberated by high-tensile steel and pre-stressed concrete and allowed to separate structure from form, creates airy and minimalist works of flowing glass and basic shapes. That's interesting, but it's not beautiful.
Look at the new business district of Tallinn: the SEB and Swissotel towers, the City Plaza, even the Radisson - they are merely reflective boxes. They're inoffensive, but they are not special; they could just as easily fit into La Defense or Ramat Gan. The distinctive feature of the Tallinn cityscape is still the Oleviste and Niguliste spires, and maybe the Long Hermann. Every city with an identity worth a damn needs to have an architectural symbol, but most of them have quite a dull skyline. I've seen London from the top of the LDA brick and the South Bank in the sunset; it's distinguished by St. Paul's, which is a generic gray dome that could exist anywhere, and the Gherkin. I've seen Paris from the Sacre Coeur vantage point, and all it has is a single black obelisk in the middle.
The Snail Tower fulfills the fundamental criterion of a successful distinctive building: a five-year-old can draw it, and it will be unmistakable. It is not beautiful; but then neither is the square of the Grand Arche. It is a white cylinder devoid of deep meaning, but that's what makes it a perfect symbol for Tartu: we get to build up the meaning ourselves. The Eiffel Tower has no more intrinsic semantic value than the Snail Tower; it represents the spirit of Paris because it is distinctive and memorable, and associated with the values that people love about the city. In the same way, we can make the Tigutorn a distinctive representation of the City of Good Thoughts. You can't do that with Pläsku.
Had to spend two and a half hours in a doctor's office for my semi-annual labour law checkup. (A backdoor way of getting Estonians in to see the doc at least occasionally, I suppose.) Came across the Center Party leaflet inside the morning's Postimees, and gave it a pass. Apparently though today is a slow news day, so the Postimees website is bitching about it. (They have no qualms about taking Savisaar's money for distribution; and in fact, I imagine they used the deal to prepare indignant commentary once the paper edition makes the rounds.)
The latter is a page directly out of Vladimir Putin's book, so blatant it's startling. Without the sort of control that the Russian government has over its businesses, and without the pile of oil cash that the Russian government is sitting upon - and even then - artificially restricting food prices will only lead to a shortage in official channels and an overpriced black market - because the producers will not sell at below cost. Besides which, this is an authoritarian move far beyond anything even Ansip has ever concocted. In a free state with a free market, it is inexcusable. For a country that prides itself on successfully disentangling itself from the monster of Soviet plan economy and undertakes to teach others, it is a suggestion whose mere utterance is shameful.
On the other hand, the paper edition did include a curious little op-ed from Keit Pentus of the Reform party (I keep wondering if she's related to Sten Pentus, the racing driver - I'm sure one of the readers knows?). She proposes to cap the income subject to social tax.
If you don't know how the Estonian tax system works, here's the point. The salary number you get in your employment contract is subject to income tax; the cash you get in hand is that number minus 21% (and dropping), and a couple of other minor deductions like the mandatory, regulated, but private pension fund. Additionally, the employer pays 33% of the contract amount in social tax. So the cost to the employer is actually a third higher than the negotiated salary. The employee gets about 57% of what the employer spends. In the spirit of E-stonian E-fficiency, here is a handy online calculator for employment costs.
For income tax, there is a deductible minimum: the first 2250 EEK you earn each month is not subject to income tax. (If your spouse does not work and you file a joint tax return as a household, his untaxable minimum can also be counted against your income.) What Miss Pentus proposes for social tax is the obverse: a deductible maximum. The employer would only pay social tax up to a maximum; let's say a contract number of 30,000 EEK. In that case the cost to the employer is 40,000 EEK, and the employee receives 23,000 EEK after all deductions. The employer pays 9900 EEK in social tax and 5600 EEK in income tax. (This is Estonia, you don't have to do your own taxes unless you're doing something uncommon.)
But if the employee then gets a raise to, say, 40,000 EEK a month, the employer keeps paying social tax up to the maximum. Only the 9900 EEK top band gets tacked onto the contract amount. The cost to the employer is 50,000 EEK. The employee gets 31,000 EEK after all deductions. The employer pays 9900 EEK in social tax and 7700 EEK in income tax. No matter how much the employee's salary is; the employer will never pay more than 33% of 30,000 EEK in social tax.
I'm not absolutely convinced that this scheme will work, but it sounds like it could. It limits the employer's costs in creating highly skilled, highly paid jobs in Estonia, which is what we want to do. It works on the same principle that has served Estonia extremely well in the past: limit the amount of money you're making from each source, and use that to get more sources. This is why McDonalds is worth more than De Beers.
Similar tax cap schemes exist in neighbouring countries. As much as it pains me to admit that the Latvians have done something right, maybe we should give this idea a try?
Bonus story: Bank of Estonia says the worst is behind us, and we can now start our long slog up to prosperity.
A friend found with some surprise that he had some money coming to him: a microloan that he made to someone in Equador had been repaid.
I shrugged, had a look at the website, and ended up making a loan to a blacksmith from Peru. I've read some things about the Grameen Bank and similar projects, and they've always made a lot of sense to me. I've been wrangling with Paypal today anyway to buy a case for the Mininote from eBay, so the website was a convenient way to contribute.
It's $25; the sort of money I might spent in a mediocre night out. For that sum, I get to feel good about myself: I'm making a difference, doing something unequivocally Good, and doing it in the most practical way possible.
This isn't charity, which I vaguely dislike (although I did send money to tsunami victims - because it was conveniently arranged by the Internet banking website). It's providing a loan for entrepreneurs, money they will use to buy materials and tools to improve their ability to do business and provide for themselves - and they'll pay it back after a fixed period. This is not feeding a Third World addiction - it is the bleedingly obvious upside of globalization.
This country has gone from a postsoviet wreck to a Nordic tiger in two decades, ultimately thanks to foreign capital that allowed us to earn good money for hard work. It is the moral obligation of everyone in Estonia, and everyone who has ever received help from others, to support projects like microloans.
Go to kiva.org, give someone a loan of twenty-five bucks, then come back here and sound off in the comments, so I can tell you how much you rule.
Estonia's ruling coalition has been creaking along for a while now. Andrus Ansip has been PM for a very long time, but it is starting to look increasingly likely that he, like others, will fall victim to the tradition of Estonian governments never surviving from one election to the next.
Ansip's cult of personality has backfired: as the forceful, single-minded PM he now gets blamed for the country's problems, and both his coalition partners and the opposition are happy to let him burn. An economic crisis ought to be the time to shine for what is known as the party of bankers, but it seems the Reform camp is out of ideas - at least brilliant ones. Ansip's big hope was the new labour legislation, which would do away with many of the protections afforded to workers, and - by design - make Estonia more attractive for foreign investment. That bill went down in flames, because of public outrage, but I don't think it would have been much help anyway: highly skilled labour is in enough demand to largely ignore the legal provisions (I've never, in my life, drawn unemployment benefits, which were one of the main stumbling blocks in the bill), and blue-collar production would be prohibitively expensive in any case, as it would have to compete with Asia.
The opposition is even less helpful. When asked what he would do to relieve the economic crisis, the leader of the Centrist party said he would spend money - use the government's reserve, borrow cash, incur a budget deficit - but doesn't really say anything useful in terms of what he would spend the money on. Reform may not be doing as well as people expect it to, but at least they're scrambling to preserve the balanced budget.
Now the squabbling among the coalition parties is getting more intense. The coalition agreement involved a minor point about winding down the shale mining; it's a useful natural resource for Estonia, but massively bad for the environment. Instead, Reform went and pushed a bill through parliament that allowed one particular company extra mining rights.
The remarkable thing isn't that Reform went back on its campaign promises - because let's face it, politicians - but that it went against its coalition partners. Previously, any bill that the government sent off to the parliament had to be approved unanimously by the entire cabinet. Now Reform went it alone, and specifically against heavy criticism from IRL and the Social Democrats.
The latter did not waste time responding: their intention is to punish Reform by passing a bill that would outlaw sales of alcohol across Estonia from 10 pm to 10 am. This has long been an IRL project, opposed vigorously by the Reform ministers. Now IRL and SDE say they will enlist the help of the Centrists to get the votes they need.
A sign of a possible coalition breakdown and a new IRL-SDE-Centrist bloc? Maybe - except Reform doesn't have the majority in parliament. The mining bill was passed with 54 votes (out of a total of 101 MPs). And thanks to the wonders of E-stonia, we know who did. We have 5 non-voters (two Reform - front-benchers Igor Gräzin and Jürgen Ligi, one Centrist, one IRL and one independent) and one abstained (Centrist).
The breakdown of the yeas: 26 Reform 22 Centrist 6 People's Union (all of them)
And the neas: 15 IRL (all but four, three were not at the hearing, one was there but didn't vote) 8 SDE (all but two, who were not at the hearing) 5 Greens (all but one, who was not at the hearing)
So Reform's coalition mates were against the bill, joined by the unaffiliated Greens (who are not quite so incompetent as to support a mining bill). Reform's support in pushing the bill through? The same Centrists and their lapdog People's Union who are now giddily helping IRL get back at the PM with the alcohol bill.
Everyone knows Estonia is in the middle of an economic crisis. Prices are really high, labour efficiency is really low, the government isn't getting enough taxes, the economy isn't growing, there's inflation, and generally everything is really, really bad.
But what does it actually mean?
I'm not an economist, so you'll have to bear with me; I am simply going on the premise that if there is an answer to give, it must be an answer that can be reached through common sense. I am also trying to use hard numbers from the hypnotic stat.ee database. Lies, damn lies, and search engines. Correct me if I'm wrong, and read the comments to see if someone already has.
First, the inflation. As we know already, the Estonian kroon is pegged to the Euro, and that rate is holding - so the actual value of the kroon in worldwide terms is not changing significantly. The Euro's inflation is at an all-time high as well, pushing 4%. The kroon's is at 10% or more, year-on-year. The latest figures available are for April 2008, and put the overall price index at 168.36. The same index for April 2007 was 151.12, showing an increase of 11.35%. This is supposedly the average increase in an average Estonian household's spending, I guess.
At the same time, the average salary before taxes has grown year-on-year; a rise of 19.5% when the first quarter of 2008 is compared to the first quarter of 2007. Now look: the salaries and benefits of parliament members are outrageous, but there's only 101 of them, and this county isn't that small.
(All comparative salary numbers are not taking into account the changes in income tax. Brute salary numbers are before income tax, which has been falling steadily from 26%; it's 21% in 2008 and will drop to 18% eventually. At the same time, the untaxable minimum - the basic income amount that is free of tax - is growing. So, everyone in Estonia gets slightly more cash in January than they did in December.)
If I'm looking at the numbers right, then despite the crisis and stalling economy (which had been stalling for most of last year, especially in the wake of Russian transit being pulled after April), the people of Estonia can now buy, on average, 8.15% more stuff.
The big numbers are percentages against a baseline of 1997. So 168.36 means that we're now spending 68% more real kroons on the same amount of stuff as we would have 11 years ago. I was curious, so I went and looked up the average brute salary for 1997, and guess what: it was 3 573 EEK. Honestly, I don't remember salaries being that small in '97, but I was thirteen years old, so you're welcome to go to the Statistics Department's website and check that I got the right table. But if so, then for an increase of 68% in spending, we got a 345% increase in earnings!
So, despite the rising prices, Estonians are actually still doing progressively better all the time. But this is where the labour efficiency argument comes in. Bolstered by years of massive economic growth, Estonians are asking for ever-higher salaries. They're getting them, but now the employers are complaining: people want more cash just because the economy in general is growing, not because they're working harder and doing more. So the employer's labour costs are rising faster than the revenues. For whatever reasons, the employer isn't moving the company to China. To be entirely honest, I don't feel too badly for the employers: every worker is worth as much as they manage to get someone to pay them. By definition, a worker's value to a company far outweighs the costs. Rising salaries are a problem, but there is no way Estonia could compete on labour costs alone. We're not a country of cheap labour; we're a country of relatively cheap and very good labour. If employers want low salaries, they can go to China or India; if you got a 19.5% raise during an economic crisis, you obviously deserve it. On a more general level, we should be proud that Estonia's workforce is good enough to pull this off.
So if people are earning more, and spending not quite as much more, then what's the problem? Look at Iceland - it's had massive inflation for ages. OK, so we won't be joining the Eurozone any time soon, but that's a matter of pride rather than any actual difference to anyone's lives.
The most noise being made about it right now is the budget shortfall. Estonia's budget must be balanced, by law; the government cannot spend less money than it has. So when the government sees that the taxes are not coming in at the rate it's expecting, it has to cut spending. All the big news with the coalition parties barking at each other and the opposition sniggering are around cutting spending, and which programs will be left out. Again, let's be clear about what's happening: the budget, and government spending, are still bigger than last year - and will remain bigger than last year - but not as big as they thought last year. The rate at which the amount of government money is growing is falling rapidly.
Excuse me if I don't cower in fear.
Still, it is a problem, and one that nobody seems to know how to fix. If people's incomes are increasing, it must be corporate revenues that are falling. Remember, Estonia doesn't have corporate income tax: if the budget shortfall is due to the economic slowdown, it must be because the government isn't getting as much revenue tax and excise. (It could be that it's getting income tax from less people, but unemployment is down year-on-year, from 4.7% to 4.2%.)
So where is the shortfall, exactly? Conventional wisdom suggests that when prices are rising rapidly and people are scared for the economy, they buy less stuff. Stat.ee conveniently provides very fresh data on retail:
OK, I think that might contribute. The government gets 18% of every sale in VAT; with a fall like that, it's gonna miss a few kroons here and there.
The other industry in trouble is real estate, obviously. People have no confidence for long-term commitments, interest rates on mortgages have risen along with the EURIBOR, and property is still fairly expensive (as I explained before, if you've actually paid a high price for an apartment once, you're going to want to recoup it when you sell it on; foreclosures are still exceedingly rare in Estonia). Stat.ee conveniently provides a table of property sales numbers:
Of course the problem here is that construction is a major industry in Estonia. It's always been a great source of high income for industrious youth without a higher education; the great hope of the working class, if you will. (Just because no AnTyx blog post would be complete without a reference to nationality - a disproportionate number of young Russian men work in construction.) So if real estate transactions are in freefall, the construction industry must be dead in the water as well. Right?
This table doesn't show a total number of constructed floor space, remember - it shows the number of new floor space per quarter. Construction has naturally trailed off, but it's not fallen, in fact it's still growing - just not as quickly. And builders' salaries are still growing year-on-year, slightly exceeding the national average.
Stat.ee doesn't have data for 2008 for all sectors of the economy, unfortunately, but let's just look at another one: industrial production (which includes energy production). Estonia's industrial sector is often thought of as frail and unimpressive, but it's still very important. That's why we have some nice, fresh stats to look at:
Again: not growing as quickly as it used to, but it seems that the dearth of qualified hands and the increase in labour costs has not had a massively troubling effect on industrial production. (Click on the picture for a page with more details, including a breakdown by type of industry. Energy and building materials are down; metalwork, machinery and electronic equipment are up.)
The relative health of industrial production, and the massive issues of retail, have had an interesting effect: import is down, export is up. (Remember: Estonia's IT sector largely doesn't figure in export calculations, because the local wholly-owned subsidiaries don't actually sell anything to anyone.) We're still importing more stuff than exporting, but it's a step in the right direction as far as the balance of trade is concerned.
The crisis could get far worse, and I'm not going to claim that we're at the lowest point right now; but if it continues to develop in the same way, then I believe this is what they meant when they talked about a soft landing. The biggest real issue is the budget shortfall, and that's more of an inconvenience than a disaster. The retail sector is hurting, but a cooldown in consumerism might do the country good - as long as the salaries are growing and unemployment is kept low, nobody I care about is seriously hurt by it. Same with real estate: people hold on to their property rather than flipping it, construction is still puttering along, and real estate developers must die.
Economy is cyclical. Now, what do we do when we get to the other side of the crisis?