Rapidity and flexibility are also being leveraged right now by the U.K. and its government.
The basis of a successful economic policy is entrepreneurial risk-taking. Unfortunately, the world is no longer as predictable and secure as we were used to even five years ago. But the economy’s fundamentals have not changed much. So does this mean we should be concerned about risk aversion when it comes to our economy?
As ambassador to the U.K., I meet often with British businesses, and ask them about their expectations and desires, regarding their government and regarding the broader British and global economies.
Estonia has long branded itself internationally as a country where, due to our small size, access to decision-makers is easier; the route to meeting them shorter, making us quicker and more flexible in carrying out the necessary decisions. In short, we are agile.
A lot of successful nations, often smaller ones like Ireland and Singapore, are capable of focusing on global changes, and use quick and decisive reactions to harness these changes, to great effect.
Good economic policies ensure these countries experience faster-than-average growth, placing them among the top worldwide.
The U.K., including the Labour Party, which won the elections in July after 14 years out of office, is also trying to capitalize on speed and flexibility.
They now have the opportunity to craft a budget according to their own models, informing citizens and businesses of their political choices for the coming years.
The budget is one of the most significant expressions of political intent in the long-standing British political culture.
The extensive document required Chancellor of the Exchequer Rachel Reeves an hour and 14 minutes to present just a brief overview of the government’s priorities, at the House of Commons at the end of October.
Tax hikes of £40 billion (over €50 billion) are planned for next year, raising the U.K.’s tax burden by approximately 1.2 percentage points and bringing the total tax burden to over 36 percent of GDP.
Naturally, tax burden is a critical indicator, but it is equally important what society receives in return for it.
The British government’s unstinting top priorities remain healthcare and education, which between them got two-thirds of the additional funds.
In the broader economic view, this budget can be summarized in the government’s oft-repeated message: Invest, invest, invest!
Without investments in infrastructure, innovation, and energy, economic growth cannot ensue.
The markets have reacted somewhat negatively to the tax rises, and investors have started to divest themselves of government bonds, though there has been no visible panic.
Conversations with businesspeople have clearly revealed a desire for the government to make snap yet wise decisions, as speed in decision-making does not equate to decisions needing to be made constantly.
Sometimes, not making a decision and opting for state non-intervention is better still, especially when it comes to regulation.
U.K. businesses say that regulators (i.e., the state) often inhibit firms from those taking risks which are fundamental to fostering innovation.
A potential solution is that the direction of sectoral development should come so heavily from the regulators, but rather from a ministry, with clear ambition and vision on the topic and whose authority the regulator can independently limit.
That said, a strong “topic owner” is often found wanting.
Development must be driven by a desire to grow, not by potential threats arising from risks. This is heard often in the financial sector too even though the British, thanks to the City of London, remain at the global forefront in this area.
In the energy sector, particularly with renewables and green energy, forward-looking decisions are expected. Business wants the government to take more risks in shaping green energy supply, including bearing the risk on green energy – because many future technologies will require and heavily rely on this.
Promises projected years into the future are not enough for investment decisions; the state must also take risks.
Without supply, there will be no demand, meaning no investments to utilize additional energy capacities.
Current demand cannot serve as a boundary, while distant future promises are insufficient for investment decisions; the state must take on risks too.
The same logic also applies, for example, to the implementation of climate technologies.
The government cannot “hide” taxes, especially those relating to business. For instance, a planned increase in capital gains tax next year is likely to backfire on the U.K. government.
Capital is mobile, and entrepreneurs will relocate elsewhere.
And naturally, policy on talent. Post-Brexit society expects less immigration, which has placed many businesses operating in the U.K. in a difficult position as it is hard to grow without a solid talent policy. Plus curbing illegal immigration does not equate to having a strong talent strategy.
Those desires of business are not new to us in Estonia, either.
On the contrary, it shows that competition for a favorable business climate is global.
There really is no significant difference, whether you are large or small, or in which corner of the world you reside.
When it comes to the global economy, the truth is most countries are small.
What is most vital, however, is that business often feels that governments are not taking it seriously, or fail to understand its importance in the development of every country’s society and economy.
In a previous role, I recall how we, along with public and private sector stakeholders, quickly reached a common understanding on attracting foreign venture capital to Estonia: We need them more than they need us.
This all served to guide our decisions on regulations, laws, and other changes.
It seems that embedding into economic policy at large the mindset that more effort than one’s competitors is needed for a better future, is a guarantee of success.
Particularly for a small and agile nation like Estonia: We need them more than they need us.
Even though we may have started to have our doubts on certain policies (such as green politics) and states want more direct control, yet with cross-border investments somewhat stalling, the desire and capital around the world have not gone anywhere.
Actively involving and flexibly applying these would be a great opportunity for both Estonia and our strong partners, the British. Not least right now.
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