Dr. J.R. Clark, The Scott L. Probasco Chair of Free Enterprise and
former Estonian Prime Minister Mart LaarExplaining that his country is on the border of where East meets West, former Estonian Prime Minister Mart Laar told a University audience it’s an interesting place for historians. “Unfortunately, ‘interesting for historians’ means my country has been attacked and conquered by several countries,” Laar said. The Scott L. Probasco, Jr. Chair of Free Enterprise sponsored Laar’s presentation in the 2008 Burkett Miller Distinguished Lecture Series.
Laar’s influence on Estonia’s economy earned him the Cato Institute’s Friedman Prize for Advancing Liberty in 2006. In 1991, Estonia became free from communist rule and independence was officially restored. By 1992, when Laar was elected prime minister at the age of 32, inflation was 1000%, the economy was down 30% and food was being rationed. “It was a time for full catastrophe,” Laar said. “When you are young, and most of my ministers were younger than me, you don’t know what is possible.”
His model for success began with monetary reform and the Rule of Law. “We had to fight down corruption and establish an independent judicial system,” Laar said. When working to solve the banking crisis, Laar said he “refused bluntly” to help failing banks, saying the government would not pay for their mistakes, and as a result, many were bankrupted. “This was a very good lesson not to ask the government for help,” Laar said.
Laar led a tax revolution with the introduction of a flat rate, proportional income tax. “No lawyers are need by rich people. It takes ten minutes to figure out your taxes,” Laar said.
Though he admits he is not an economist, by the time he left office more than 90 percent of the economy was in private hands.
“I had read only one book on economics, Milton Friedman’s Right to Choose,” Laar said. “I was so ignorant at the time I thought that what Friedman wrote about the benefits of privatization, the flat tax and abortion of all customs rights was the result of economic reforms that had been put into place in the West. It seemed common sense to me, and as I thought it had already been done everywhere, I simply introduced it in Estonia, despite warnings from Estonian economists that it couldn’t be done. They said it was as impossible as walking on water. We did it, we just walked on water because we did not know that it was impossible.”
Today, Estonia has low unemployment and low inflation, living standards are improving rapidly and the government’s budget is running a strong surplus.