Good results, but
In many respects, Estonia has successfully established a sustainable democracy. Among the 41 countries in the SGI, Estonia ranks seventh for democracy, eighth for policy performance and 11th for governance. These positions remain the same as in 2019. As in 2019, performance is weakest regarding executive capacity. Overall, Estonia’s performance can be characterized as maintaining the same level instead of advancing new reform initiatives. This can be explained by the continued COVID-19 crisis that forced adjustments on all aspects of governance and social life.
Within the review period (November 2019–January 2021), Estonia had two governments. The first, with Jüri Ratas (Centre Party) as the prime minister, included the populist radical right party EKRE, which influenced the government’s policy priorities as well as public debates. Issues of homeland security, morality, public administration and pension reform gained significant attention, while other areas (e.g., RDI, e-governance, gender equality and minority rights) were neglected. After Ratas’s cabinet stepped down in January 2021, the neoliberal Reform party (with Kaja Kallas as the prime minister) formed the government. The Centre Party was invited into coalition again, but the conservative Pro Patria and populist EKRE moved from government to opposition. Continuity in the coalition composition may explain why both cabinets have a comprehensive governing program, but most targets remain extremely modest.
Labor shortages undermining growth
The country’s economy showed remarkable resilience during the COVID-19 crisis, evidenced by a fast recovery in employment, foreign trade and annual economic growth of about 8% in 2021. Despite the high employment rate, labor shortages and high taxes on labor continue to undermine economic development, particularly productivity. The labor market situation has triggered debates about migration policy and the need to regulate the increasing use of migrant workers, particularly Ukrainian workers.
The main elements of Estonia’s welfare system (i.e., the healthcare and pension systems), which are based on the Bismarckian principle of social insurance, face substantial financial problems. The pay-as-you-go (PAYG) pension pillar is accumulating debt due to the high population dependency ratio, while the mandatory pension pillar has been made voluntary and lost more than 24% of its total assets as a result of withdrawals. The reform had an immediate, positive effect on capital markets, domestic trade and the state budget, but could be harmful long term to seniors’ well-being and the sustainability of the pension system. Poverty among the elderly remains a concern.
for radical right
for radical right
Democracy remains constitutionally strong, although the overall situation is more heated and polarized due to the COVID-19 regulations. In 2020, the radical right EKRE verbally attacked LGBTQ+ movements, the free press, independent courts and COVID-19 restrictions. In 2021, when EKRE left the government and Alar Karis replaced Kersti Kaljulaid, an outspoken critic of EKRE, as the president, confrontation decreased. Local elections in October 2021 did not bring much success to the populists and kept mainstream parties in power; ethnic cleavages in voting became less salient.
over quality of service
over quality of service
In governance, little progress has been achieved in policy innovation, quality management and pursuing holistic approaches. Ongoing state reforms aim to improve the coherence of governance by merging executive agencies with overlapping functions and by strengthening the Prime Minister’s Office. In parallel to administrative mergers, several state agencies will move from the capital to regional locations in order to support regional development. At the moment, efficiency gains are prioritized over the quality of service provision and better public access. Regarding long-term perspectives, Estonia has adopted a national strategy, Estonia 2035, which will increase government focus on climate change and the UN SDGs. The allocation of EU structural funds in 2021 – 2027 will be aligned with the Estonia 2035 goals. However, Estonia 2035 has been widely criticized for being too vague and lacking ambition.