Each week, hundreds of bargain-hungry Finns hop hydrofoils for the 90-minute ride from Helsinki to Tallinn. They race around the cobblestone streets of the Estonian capital, snapping up everything from wedding dresses to beer, food, and electronic gear. Many of the goods are made in Finland and sold at branches of Finnish retailers, such as the Stockmann department store, a Helsinki institution. But prices in Tallinn are 50% cheaper, thanks to Estonia's lower labor costs, taxes, and rents. A blouse that costs $30 at a Seppala store back in Finland can be had for $15 at the Tallinn branch.
The weekly Descent of the Finns shows just how close Estonia--once a reluctant outpost of the Soviet Union--has gotten to Europe. But the Estonians know they won't thrive as new members of the European Union just by being cut-rate shopkeepers to the Finns. That's why they have integrated far more with the West than nearly any other East European nation. Estonia moved fast with deregulation, corporate restructuring, and privatization. It opened up trade policies, simplified its tax system, and pegged its currency, the kroon, to the mark and then the euro. As a result, Estonia is one of Europe's most dynamic economies, with growth of 4.5% expected this year. "Ten years ago, we were a total shipwreck," says Toomas Kabin, an Estonian national who heads the Swedish Chamber of Commerce in Tallinn. "It's doubtful any country could have done better."
Estonia has profited from its proximity to Finland and Sweden. Even more important is its well-educated workforce that can turn out quality goods for such demanding clients as Nokia Corp. (NOK
) and Ericsson (ERICY
). Low costs help, too: The average hourly wage in Estonia is just $2, compared with $12 in Finland.
Estonia's leaders know that costs will probably rise after the country's integration with the EU. But they figure wages will remain comparatively low--and that the combination of light regulation, good information technology, and competitive drive will lock in prosperity. Some have their doubts. Uno Silberg, leader of the "No to EU" movement and an economics professor at Tartu University, believes Estonia will simply be exchanging one tyrant--the Soviet Union--for another. "If we join the EU, we lose our sovereignty," he says. But to most Estonians, the trade-off is worth it, especially since the memory of Russian domination remains so fresh. The West and its wealth beckon.
By Ariane Sains in Tallinn
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