Flat tax champion who ignored the economists

Business Platform by John Blundell in The Business

“It is so fortunate that I am not an economist,” says Mart Laar, winner of the Washington DC-based Cato Institute’s Milton Friedman Prize. “I had only read one book on economics – Free to Choose. I was so ignorant at the time . . . it seemed common sense to me. I simply introduced [all the reforms] despite warnings from Estonian economists it could not be done.” Shades of Mrs Thatcher and the 364 economists there.

Laar had become Prime Minister of the Baltic nation of Estonia once it renounced its subordination to the USSR. He is a jovial, tubby, stubbly, blond gentleman who looks more like a postgraduate student than a retired prime minister with multiple triumphs under his belt. He thought his life’s destiny was to be a history teacher. Laar’s prize money – $500,000 (£280,000, E405,000) – from this influential think-tank will free him to write the book he has long wanted to research and publish on the anti-communist partisans who fought on deep in the Estonian woods against the Red Army until the late 1970s.

We hear little of Estonia. Success on a small scale is less newsworthy than bombs or droughts. Put it this way: Estonia outpaces China by every measure of growth and it has a free democracy, the rule of law and a highly critical free media. Estonia is the most northerly of the Baltic states whose experience of the 20th century was about as unhappy as possible. Overrun by Russia, then Germany and then Russia again (with matching brutality), men like Laar could only hope to live semi-fugitive lives at the lowest reaches of the educational ladder teaching obedient Soviet Leninist history.

With the ideals of communism crumbling, Laar’s career lifted off. By an extraordinary sequence of events he found himself prime minister with no experience and little relevant learning outside of his burning belief that socialism was an intellectual cul de sac.

On taking office at only 32, Laar found inflation at 1,000%, the economy frozen, with 95% state-owned and 92% of trade being eastwards to Russia. Now inflation is 2%, every state asset has been sold or is in the process of being liberated and trade with Russia is higher in volume but as a percentage of traffic it has shrunk to marginal significance. Goodbye USSR. Hello World.

The aspect of the Estonian economic miracle that thrills me most is its bold implementation of a simple flat tax. All Estonians pay a rate of 20% – no exemptions, no confusions, no ambiguities. Did the Treasury in Talinn