On Becoming a Tiger
May 08, 2007
The tiger has become the international symbol for countries with healthy (even spectacular) rates of economic growth. This is probably because the imagery was first applied to Asian countries in Asia. New tigers are springing up elsewhere, however, including some surprising spots. One such spot is the United Arab Emirates, particularly its largest city, Dubai.
Approximately 20 percent of the world’s large construction cranes are at work in that city. The world’s tallest building is under construction there and there are plans for the world’s largest mall. Tourists and business people fly into Dubai landing at the world’s largest airport. Dubai’s ports are crammed with shipping containers. You can golf, ski, shop, swim, sail, and carouse. An amusement park twice the size of Disneyland and Disney World combined is also on the drawing boards. Manmade islands in fanciful shapes are rising out of the Arabian Gulf with great effort and at great cost.
Emiratis are outnumbered by foreigners, including foreign laborers whose working conditions have been a source of past embarrassment. Although the country is Muslim, those of other faiths worship openly and without fear. The country is both prosperous and peaceful. Dubai is a monument to capitalism (if not to excess) and yet, because it sits nestled in the Middle East between Saudi Arabia and Iran, Americans fail to appreciate what the Emirs have accomplished (remember the hubbub created by Dubai Ports World and New York City). Amazing what you can do with oil money you say. Actually, the majority of the UAE’s GDP comes from sources other than oil and natural gas. The secret to the Emirates’ success is vigorous investment, an educated population, great connectivity with the rest of the world, and visionary leadership (indicated by the implementation of good policy) — basically, the same strategy used by Singapore.
Singapore and Dubai are both blessed with a geographical location that makes them natural trading nations. How do you become a tiger without such a natural advantage? One might well look to Estonia for the answer [“Europe’s New Boomtown,” by John Tierney, New York Times, 5 September 2006].
“Tallinn [is] the capital of Estonia and the economic model for New Europe. It’s a boomtown with a beautifully preserved medieval quarter along with new skyscrapers, gleaming malls and sprawling housing developments: Prague meets Houston, except that Houston’s economy is cool by comparison. Economists call Estonia the Baltic Tiger, the sequel to the Celtic Tiger as Europe’s success story, and its policies are more radical than Ireland’s.”
Tucked near the end of the Baltic Sea, Estonia is not exactly at the crossroads of world trade, but it has been a member of the European Union and NATO since 2004. One thing Estonia does enjoy is freedom:
“On [2006’s] State of World Liberty Index, a ranking of countries by their economic and political freedom, Estonia is in first place, just ahead of Ireland and seven places ahead of the U.S. (North Korea comes in last at 159th.)”
The World Liberty Index ranking is a compilation of three other rankings for economic freedom, government and taxation freedom, and individual freedom. Estonia scores well in all of those individual rankings (coming at 8, 6, and 5 respectively). Economic success, however, appears to be most affected by the economic and gas & taxation freedom rankings. Singapore, for example, ranks high in economic freedom (2) and gas and taxation freedom (4), but plummets to 49th on the overall list because of its 95 ranking in individual freedom. The UAE also ranks relatively high in economic freedom (37) and gas & taxation freedom (7), but ranks 95th overall because of its 120th ranking in individual freedoms. Estonia has followed the pattern of vigorous investment, an educated population, great connectivity with the rest of the world, and visionary leadership (indicated by the implementation of good policy) mentioned earlier. According to Tierney:
“It transformed itself from an isolated, impoverished part of the Soviet Union thanks to a former prime minister, Mart Laar, a history teacher who took office not long after Estonia was liberated. He was 32 years old and had read just one book on economics: ‘Free to Choose,’ by Milton Friedman, which he liked especially because he knew Friedman was despised by the Soviets. Laar was politically naïve enough to put the theories into practice. Instead of worrying about winning trade wars, he unilaterally disarmed by abolishing almost all tariffs. He welcomed foreign investors and privatized most government functions (with the help of a privatization czar who had formerly been the manager of the Swedish pop group Abba). He drastically cut taxes on businesses and individuals, instituting a simple flat income tax of 26 percent. These reforms were barely approved by the legislature amid warnings of disaster: huge budget deficits, legions of factory workers and farmers who would lose out to foreign competition. But today the chief concerns are what to do with the budget surplus and how to deal with a labor shortage. Wages have soared thanks to jobs created by foreign companies like Elcoteq of Finland, which bought a failing electronics factory and now employs more than 3,000 people making phones for Nokia and Ericsson. Foreign investors worked with local software engineers to create Skype, the Internet telephone service, and the country has become so Web-savvy that it’s known as E-stonia.”
Estonia’s growth rate has been around 10 percent a year and its flat tax has been reduced to 20 percent. The government supports business by trying to eliminate needless red tape. As a result, Estonia has become an unlikely trading hub and a magnet for foreign direct investment. Other countries in the region have started to take notice. I am currently visiting another emerging economy — Kurdistan or what is called the other Iraq. I hope to write more on my trip shortly. In the meantime, see Tom Barnett’s great post on Kurdistan.