teisipäev, oktoober 28, 2008

ace of disgrace

A couple of years ago there was a discussion track that would go something like this: Estonians would rejoice in their invention of the ubiquitous Skype, only to be rebuffed by non-Estonians who would remind them of the Scandinavian capital and management behind the successful IT start-up.

It didn't seem fair. The Finns could claim Nokia, the Swedes could sell their Volvos and Ikea furniture, but the lowly Estonians would have nothing of their own, because their expertise was exploited in a time of globalisation.

Due to size and capital constraints, Estonians would most likely be stuck under the yoke of "foreign" capital for all time. The minute somebody thought up something good, there would be Per or Lars with his bankcard, ready to bring it to the rest of the world.

The inequality of Nordic and Baltic relations were thus laid bare. The Nordics were the big people; the Baltics little. Sure, tiny Estonia could take part in the Nordic Investment Bank, but the Baltic brigands could not join the Nordic Council proper, lest they dilute its purity with their tainted, post-Soviet blood.

And so the nordic world remained somewhat fractured along national lines. Nordic banks might be the only banks in Estonia, but Estonia was outside their "home" market, even if said banks were managed by Estonians. Nordic companies might own most of the Estonian media, and yet that media was peripheral. Despite EU comradery and paeans to integration, a sense of otherness, nurtured during the Cold War, was maintained.

This way of looking at Northern Europe, though, is archaic and wrong. The reality has manifested itself in recent weeks as the Icelandic government goes from door to door in northern Europe, begging for alms to keep its bankrupt financial sector on life support until the IMF or the Russian Federation comes through with the big money.

Iceland, a quiet country known for its fishing industry, glaciers, and electronic music, is now a paragon of recklessness and instability. What do the two words "Iceland" and "bank" bring to mind? Exactly. If President Ilves had once hoped to follow the parliamentarians of Reykjavik into dull, nordic normalcy, he was sorely mistaken.

Meanwhile in Stockholm, the imperial financial capital of the nordic world, where my money and yours is likely counted and managed, rumors prevail about a bailout plan for Swedish banks with Baltic holdings, like SEB and Swedbank, formerly Hansapank. No one can predict the financial future in this autumn of 08, but I would be unsurprised if my Estonian bank goes the way of my American bank, which went bankrupt, was seized by the government, and sold/bequeathed to another bank in one night.

We up north, though, presume competence on the part of the Swedes. We presume that even if the Icelanders go bankrupt and the Estonians are forced to live out of their leased BMWs, there is a mountain of gold generated by sales of ABBA LPs and Volvo station wagons that is kept beneath Gamla Stan for rainy financial days in the nordic countries. And yet, while that sense of interconnectedness is so deep that the first country Iceland or Estonia might hit up for extra cash is Sweden, there are few institutions that can help to regulate that relationship.

And that is the real question the big people with power might wish to mull over a few times over a warm cup of glögi this coming holiday season. The interconnectedness of the nordic region has materialized in the form of a banking crisis that affects not just Reykjavik and not just Tallinn, but involves Stockholm and Copenhagen and Riga.

Still, the instruments of policy have yet to be refined. There are Nordic-Baltic 8 summits, which can serve as a powerful regional engine within the EU. There's even an EU Nordic Battle Group. But are nordic regional institutions really up to the tasks at hand? Do the requisite forums exist to help these interconnected countries face their challenges?

I feel so often that the thinking on these issues is mired in the past. As the Skype example illustrates, it's quite hard these days to locate a point of origin for a northern European company. And it's quite hard, such as in the cases of Estonia and Sweden, to know who is really in control of monetary policy. These new obstacles beg for new policies and institutional adjustment. While I am not advocating any specific changes at the moment, I wouldn't be surprised if the way we think about northern europe and the way it functions will change in response to this crisis.

25 kommentaari:

Hansken ütles ...

There is an interesting tendency in various EU documents, EU grants applications, industry press (I am talking about telecoms industry) where the regional enterprises are self-reflectively naming themselves. I have picked out that the new emerging term is either Baltic Sea Region, or simply Baltic countries. But this time the 'Baltic countries' refers to all countries around the Baltic Sea. It is interesting, as usually we, Estonians, have been looking forward and wondered how many decades would it take for, lets say, Swedes to accept us as a Nordic country. But maybe this will never happen. Maybe the new common nominator will be the Baltic? And we will all end up being Baltic countries... We'll see.

But when it comes to economic re-structuring then Taavi Veskimäe's column in today's Postimees was very intriguing. He encourages 'Estonian capital' to defend themselves and buy up the now cheap Estonian companies before the Scandinavians do. There is a point. Their banks are, in effect, governing our economy. And currently, being extremely strict about giving out credit, they are not really making a service. So, be wary of Swedes!

reeder ütles ...

Estonia seems like a place with a chip resting on its shoulder... All I read about is complaining about being second-rate... Cream rises to the top on its own accord. If it don't rise, it ain't cream...

The most stupid thing is that Estonians just sell their own country to foreigners. The point is to sell foreigners' own country to foreigners...

If Estonia is so hot shit, they would be really a lot happier if it had a colony of its own... How about getting engaged in Romania or Bulgaria or something... How about the non-Russian part of Moldova...

Modova is total vacuum. Nature dislikes a vacuum. Maybe Selver could open some stores there. Locals would criticize the functionalist architecture and waxy pesticide produce but secretly they will like the way it is more hygienical than the stuff at the marketplace...No, there is no stuff in the marketplace there any way.

Or better yet, spa hotels, the Estonian speciality... The potential yield in Moldova isn't high enough for anyone in Scandinavaia but for some Esto businessmen it might be good. Estos need a relatively shitty place to be master of and flood with capital... Open banks and lend money back to population... What other alternative do they have.

What are they thinking -- the business ideas are on the level of selling havtorn jam and then building a spa-hotell. It's stupid... But then again, why not -- it is not like globalization is any smarter...But start a colony first. Set a bunch of havtorn farms in Moldova, the biggest the world has ever seen. House the local berry pickers in the half-finished Spa hotell while it is being built, then kick them out at the end. ...

Giustino ütles ...

If Estonia is so hot shit, they would be really a lot happier if it had a colony of its own... How about getting engaged in Romania or Bulgaria or something... How about the non-Russian part of Moldova...

I think that was the plan for Georgia ... before August.

Jaanus ütles ...

I just changed my vote to Rahvaliit, if the person who recently changed their vote from Kesk would like to reconsider and get together there.

Let's not let SDE run away with it. Rahvaliit has too cool and solid a name to die away.

plasma-jack ütles ...

If they elected young Karel Rüütli to the no 1 position, they actually might have a chance for renaissance.

Rein Batuut ütles ...

Too many Estonians lack the charisma, agility and courage to do business outside Estonia - a legacy of Estonian history - we are (still) a slave nation. My hopes are on... erm, myself?!

Vello Vikerkaar ütles ...

Justin,

You’re a fine writer, though one who’s showing signs that he’s ready for a spell in a Washington think tank.

But I still want to strangle myself every time I hear the Rodney Dangerfield, “just don’t get no respect”-routine about the Estonians, even when employed toward a larger argument you make, which is… well, I’m not quite sure. —advocating “new policies” and “institutional adjustments” will serve you well when you’re running for Governor of Alaska. Let’s hope it doesn’t come to that, but if it does, I’ll come campaign for you, whichever party you choose.

But back to Skype. I wish we could settle that dispute (in both Estonian and foreign minds), because the story seems to cripple as much as it inspires. Was it Estonian capital behind Skype? Was it Estonian initiative behind Skype? Or was it Estonian labor (albeit highly specialized and educated) behind Skype? If it’s the first or second, that’s remarkable. (One enthusiastic attaboy and a gold star on your chart, Estonia.) If it happens to be the third, then that’s nice, but thanks very much for doing the job you were paid to do.

Really. What’s the story? Did Estonians go looking for the foreign partners? Or was it the other way around? Someone please set me straight.

But Skype or no Skype, Estonia suffers desperately due to what Don DeLillo called the “communal ego.” You tell me I’m a genius, I tell you you’re a genius, and we’re all geniuses together. A wonderful articulation of the complacency both American universities and small nations should guard against.

If my mother were still alive, she’d tell the Estonians not to beat themselves up because it doesn’t yet have a Nokia. She’d say they should revel in the fact that they have (despite its Centre Party whackos and a few others) a relatively good and progressive government which is striving toward standards no other post-Soviet republic even seems to be able to imagine. And it should celebrate that it doesn’t have eight year-old boys blowing their heads off with Uzis while dad looks on, or pensioners shooting teenagers for stealing McCain signs out of their yards (well, okay, an Estonian pensioner did blast a Erna retk participant with a load of rocksalt).

My mom would say, though, that Estonia ought to stop talking about Skype and move on to the next thing, whatever that’s going to be. And she’d advise the Estonian PR wizards to be careful not to cultivate the image of the kid who hangs around his high school well after he’s graduated. Because those kids almost always end up living in Finland’s basement, playing old Boston eight-tracks, and smoking dope, all the time imagining they’re the rulers of Europe.

It just ain’t healthy.

AndresS ütles ...

Vello - The idea behind Skype came from a Swede and a Dane. They shared the idea with 4 Estonians, who they had worked with previously on many projects, who were the ones to create the product. From there all the work to develop was done in Eesti while sales/marketing was done in London. The whole thing was financed initially by a little seed money from a few friends and what may have been left over from creating Kazaa but then VC firms in London and Silicon Valley stepped in to get it big.

So there was no Estonian capital behind it but I think it's safe to say that without Estonian initiative it would not have gotten to where it is.

peedu ütles ...

Also those 4 estonians (Toivo Annus, Jaan Tallinn, Ahti Heinla, Priit Kasesalu) were copartners in Skype when it was sold to eBay and got around 16 million USD off it.

peedu ütles ...

Actually, sorry it was $160 million.

Kristopher ütles ...

Well, there you have it, then they might not need foreign investors for their next big idea.

By the way, does anyone know if Jaan Tallinn is doing anything in his own field of research, which according to Wikipedia is "traveling interstellar distances using warps in space-time"?

You got to figure a guy like that is not going to be content developing peer-to-peer stuff for long.

AndresS ütles ...

Yes, the 4 owned about 3-4% of the company when it was sold and have pumped most of the money into ASI.ee. There was also about 60-70 employees in Estonia who made some money off the sale as well.

I think Jaan's wiki entry is a good example of people having fun with wiki. :)

Giustino ütles ...

Vello,

I have a recurring problem of not being able to express myself in a direct way.

What I am saying is that both the Skype and Icelandic banking crisis illustrate that there is still a regional grouping of northern European countries -- nordic countries, baltic countries, baltic sea region countries, whatever.

When Estonia and Iceland are in trouble, they rest assured that their big brothers in the nordic countries will bail them out. That's why they hit Sweden up for cash *first*.

The Icelanders went to the nordics *before* they went to the IMF and the Russians. The Estonians sleep more comfortably at night *because* they know those experienced Swedish money types can get them out of whatever mess they will face.

But in almost every sector -- finance, labor, defense -- the institutions are behind the times. In the 1950s and 60s, northern European countries had institutions that a) recognized their interconnectedness and b) did something about it.

I have a feeling that recent events may spur similar action when it comes to northern European governance. Because if the Swedes or Finns are expected to bail out their subsidiary countries when times get rough, and the banking sectors are interconnected as they are, then that naturally leads one to believe that there should be greater *regional* oversight, as opposed to relying just on *national* oversight.

In other words, you can't expect the Estonian government to mitigate problems caused by Swedish banking policies or vice versa. There has to be a concerted effort.

For example, Vello, what role does the Nordic Council play in your life? How relevant is the Baltic Assembly to you? This is what I mean by "institutional questions."

We have regional problems and yet, the regional policy making is lacking, partially because it has yet to dawn on some that, yes, Estonia is Swedbank's "home" market too. The days of colony are nigh.

Vello Vikerkaar ütles ...

Thankee. I getcha.

Good point about the Nordic Council. I admit I've never understood them. Other than being some kind of cooperative council, I always viewed it as some sort of early alternative to the EEC, but then the Scandinavians let Finland in and the Finns refused to support it given their ties to Russia. Which confuses me. Wouldn't/Shouldn't the Scandinavians have known that before they extended the invitation?

And is the Baltic Assembly relevant to anybody's life? They seem to have done well to choose a flag. I don't mean to belittle any accomplishments they may have made, but most of the past 15 years have been spent confiscating each other's airplanes, or like gamesmanship. Does Estonia have anything real to gain by an association with Latvia and Lithuania. Economic indicators aside, those "southern" republics have much more serious problems than Estonia.

I guess what I'm getting at is this: Do you think Estonians can trust in either one of these organizations to further its agenda? (Have the Balts been considered for membership in the Nordic Council?) Or is it only in the EU we trust?

Or, are we really left to our own wits and free market devices. In other words, kick ass and take names (Skype, Playtech, Merko in Bulgaria, whatever), and earn enough respect and clout that the institutions will be either irrelevant or mere formalities?

Or am I smoking too much crack?

Hansken ütles ...

The Finnish-Swedish MEPs Henrik Lax and Alexander Stubb (when he still was only a MEP) started already few years ago a public discourse about the need to invite the Baltic countries (the three) to join the Nordic Council. What about writing to their blogs and pointing out these economic arguments that you have highlighted here. The discourse should be kept alive and flying.

Kristopher ütles ...

And is the Baltic Assembly relevant to anybody's life?

I know that the baltic assembly has an annual prize for literature. They pay a big monetary prize, as I remember. So they are relevant to writers' lives. I remember Emil Tode won the baltic assembly prize, so there's even hope for writers using pseudonyms.

discourse should be kept alive and flying

I have trouble with the word "discourse". I'm picking on this word because I find it very symptomatic of abstract and impractical arguments. If someone put a gun to my head and asked me to define "discourse", I would say it is like a discussion that no one knows they had been having until some academic somewhere tells them they were.

Giustino ütles ...

Hey Kristopher,

Discourse you.

Think about that.

Kristopher ütles ...

Hey now... presumed cynicism?

Someone once said all these security arrangements only really work because the leaders are friends and have dinner together; maybe it is the same way with the economic arrangements.

Talk about councils and discourses just makes me really skeptical, unless the individuals are wizards/elves in the first case or ancient philosophers in the second case. I'm just sensitized to a word because it's been used sloppily, and not really by any of the people here.

stockholm slender ütles ...

I suppose everyone has forgotten Nordek these days - that was really a plan for an alternative EEC for the Nordic countries in the late 60's and early 70's. Finland got the "honour" of torpedoing it (due to Soviet pressure - Koivisto was going for it, so Kekkonen might have just used the Kremlin to further his own interests), but I believe that Denmark was already set on the EEC anyway, so it would have probably come to nothing in any case. (This is just based on my hazy recollection, so feel free to correct me if this is an inaccurate summary.)

Giustino ütles ...

(Have the Balts been considered for membership in the Nordic Council?

They have, and the motion has not passed. They were deemed neither wealthy nor nordic enough.

The Estonians tend to be the most interested. They have used one half of the NIB funds allocated for Baltic projects.

Da Russophile ütles ...

I like Skype, it's about the only good thing to come out of Estonia.

BTW, what is the chance of it defaulting in the next few months?

AndresS ütles ...

Skype defaulting? It's a profitable company, not sure what your last comment means.

Da Russophile ütles ...

No, I mean the country (i.e. Estonia). It is overleveraged and has a big CA deficit.

AndresS ütles ...

I think the chance of the country defaulting is fairly slim. Estonia has the lowest public debt in the world and a fairly balanced budget, the banks are backed by Sweden and aren't in much danger.

Bigger problem will be unemployment and local business going out of business plus an expectation of low tourist number in the next year.

kassandra ütles ...

eBay's Skype has disgraced itself in China. To quote Reuters:

"Savy Internet users in China began avoiding the version of Skype offered by its Chinese parter two years ago, but news it filtered and recorded text messages has sparked new worries about the global firm's commitment to privacy.
...
"The eBay-owned firm had to apologize on Thursday after a report revealed that its Chinese service not only monitors text chats with sensitive keywords, which it had earlier admitted, but also stores them along with millions of personal user records on computers that could easily be accessed by anybody."

Looks like the Estonians bailed out just in time.