Why did estonia perform best? the north–south gap in the post-socialist economic transition of the baltic states

Abstract After more than a decade of post-socialist political and economic transformation one can distinguish two groups of transition countries–'successful' (with a consolidated liberal democracy and working market economy) and 'unsuccessful' cases. The first group is represented by the countries of Central Europe and the Baltic states, and the second by the Balkan countries and most of the former Soviet republics. Today, all three Baltic countries belong to the first group. However, in 1994 Estonia was praised by foreign analysts as 'a shining star from the Baltics', whereas the economic performance and reputation of Lithuania was rather low. What was it that enabled Estonia to perform best during the first decade of market transition: was it better initial economic conditions, peculiarities in the political process (e. g. the exclusion of a significant part of the 'non-ethnic' Estonian population who could have been the potential electorate for a post-communist party like the Lithuanian 'Laborists'), a Protestant cultural legacy, or perhaps even better public relations? This article discusses alternative answers and elaborates on a Weberian explanation. Keywords: Baltic statespost-communist transformationMax WeberHerrnhuter movement Acknowledgements The paper is an elaborated version of my presentation at the 4th Baltic Readings Symposium 'Changing Social Identities, Changing Public Discourses' held in Kaunas on 22 October 2005. I would like to thank all participants for their attention and comments. I would also thank three anonymous reviewers of this journal for very extensive, thorough comments, unusually constructive criticisms, and generous suggestions as to how to improve the language of my contribution. Notes 1 See http: //epp. eurostat. cec. eu. int/cache/ITYOFFPUB/KS-NJ-05-008/EN/KS-NJ-05-008-EN. PDF, accessed 6 April 2006. 2 http: //www. etc. ee/public/files/Positive%20Estonia%20Oct. 2004. doc, accessed 6 April 2006. 3 See also Aslund (Citation2002) ; N⊘rgaard (Citation2000) ; Smith, Pabriks and Purs (Citation2002). 4 On the state of the economies of the Baltic countries at the beginning of economic transformation, see Haavisto (Citation1997) ; Shen (Citation1994) ; Van Arkadie and Karlsson (Citation1992). 5 See http: //www. worldvaluessurvey. org, accessed 3 November 2005. 6 Weber (Citation1958, pp. 95–6, 144). 7 Estland and Livland are not identical with contemporary Estonia and Latvia. The government of Estland encompassed northern Estonia, and that of Livland, southern Estonia and one third of contemporary Latvia (Vidzeme). 8 On the history of the Herrnhuter movement in Baltic countries, see Harnack (Citation1860) ; Nerling (Citation1956) ; Plitt (Citation1861) ; Tobien (Citation1930, pp. 116–39) ; Webermann (Citation1956) ; Pivoras (Citation2000, pp. 30–1). 9 'Generally, one can assert that Pietism was spread much more widely in Estland (or generally, in the territory with an Estonian speaking population) than in the part of Livland with Latvian speakers; this fact explains its greater cultural significance in Estonia' (Webermann Citation1956, p. 156). 10 This policy was inspired by the economic success of farming cooperatives in Denmark during the second half of the nineteenth century. On the cooperative movement in Lithuania, see Simutis (Citation1942, pp. 32–42). For a discussion of how Denmark's agrarian development influenced strategies for economic modernization in Eastern Europe, see Kingston-Mann (Citation1999). 11 Weber (Citation1958, pp. 5, 22–3). 12 See in this regard the Corruption Perception Index, available at: http: //www. transparency. org/cpi/2004/cpi2004. en. html#cpi2004. org, accessed 15 May 2005. Estonia is in 25th place on this list, Lithuania 45th, Latvia 57th, and Russia 19th out of 145 countries. 13 On privatization in Estonia see also Terk (Citation2000). 14 See also Nissinen (Citation1999, pp. 216–44). 15 See Denzau and North (Citation1994). 16 It has even been suggested that evolutionary selection has a role to play in this regard. I would maintain that mechanisms of individual and collective learning are more important than mechanisms of evolutionary selection. However, the importance of rational learning compared to other forms of learning remains to be established. For a discussion of these issues, see Camerer (Citation1997) ; Güth and Kliemt (Citation2004) ; Mailath (Citation1998) ; Vanberg (Citation2002).