22 October 2011

Skype and Sensibility: Estonia Lives the European Dream


The Estonians, with little debt, an enthusiastic attitude toward Europe and a stoic approach to austerity measures, are a model EU nation in the midst of a crisis. They live in a digital republic defined by a business-friendly atmosphere and government transparency, an image that is attracting European expats.

When a Greek leaves a sunny country filled with olive trees, magnificent beaches and warm sea foam, when he leaves a place where summer lasts for seven months and moves to a country where he is held captive by a seemingly endless winter, it's bound to raise a few questions. Some relate to the country he has left, but his new home raises even more questions. And there is one question that affects both countries: Why is the one society driving people away, while the other draws them in?

Loukas Nakosmatis, a friendly, stout Greek with a three-day beard, the chef and owner of "Artemis," answers this question with an entire story, his own war of the roses. The 46-year-old began developing his business four years ago while he was living in Athens, he says. It involved importing flowers from the Netherlands -- mostly roses, tulips and a few exotic varieties -- on overnight cargo flights. He intended to sell them in Athens, a dusty city of stone walls and buildings whose residents are desperate for green plants and fresh flowers.

Nakosmatis signed contracts and statements of intent with three or four dozen flower shops that wanted to buy his flowers. The profit margin for flowers is large, says Nakosmatis, a factor of 10 or even 20 percent, and it would have been enough money for everyone, including the retailers and him as an importer. It sounded like a brilliant plan, at least on paper.

But it was a trap, he says. After a year, Nakosmatis had receivables of about €30,000 ($40,000), and after a year-and-a-half they had gone up to €45,000. Almost all of his buyers owed him money. They had recognized his weakness: He was under pressure to unload his product while it was still fresh. You have to sell a rose, says Nakosmatis, quoting a Greek saying, or it will sell you, because it dies.

His customers used every trick in the book. They would have him show up at their shops with a delivery van full of flowers when they knew that they would be away, or they would say that they happened to be out of cash and would promise to pay him later, on another day, or by the next Monday -- but then they kept putting him off, says Nakosmatis.

Moving to Estonia

The retailers soon took it for granted that they could buy his flowers on credit. In the end, 43 out of 46 flower shops owed him money. He eventually gave up hope and fled to Estonia, taking a series of detours to get there. His customers still owe him €45,000, which he owes his bank, which probably owes other banks.

He describes it as a chain reaction straight across Europe. But couldn't he go to court and sue his customers for his money? He laughs bitterly. You should only go to court when you can afford it, he says, quoting another Greek saying.

As he tells his story, Nakosmatis is sitting outside under a blue evening sky, with Elias, Kostas and Krikor, fellow Greek expatriates, in front of the "Artemis," a small street restaurant he has opened in the pedestrian zone of the Estonian capital Tallinn. The business is going well, and Nakosmatis has begun to pay off his debts. A waiter is serving the guests at the next table: souvlaki, a mixed grill platter, Ouzo and Greek salad.

It's one of the few summer evenings in Tallinn when it's warm enough to eat outside. Half of the dozen or so small tables in his restaurant are taken by Japanese, Finns, Danes and Dutchmen, but there are no Estonians. A meal at his restaurant is too expensive for them, says Nakosmatis. Then he describes the two Estonian women he hired as waitresses.

"They are hardworking, honest and never late," he says. The group of Greek men falls silent for a moment. "Strange country," says Elias.

The Little Things

Just what is it that makes such a country work? What's so great about Estonia?

"Muchas cosas pequeñas," or many little things, says Spaniard Naphtali Peral. He says that he established his company here in only half a day, mainly online. The record for establishing a company, he adds, is only 18 minutes. In other words, the government doesn't say: Hey, Peral, who do you think you are, starting a company, just like that? No, he says, the state actually encourages entrepreneurship, and says things like: So you have an idea, Peral! Go for it! And then he says that it takes him 20 minutes to prepare his semi-annual tax return, and that when it was time to slash the government budget, Estonia's cabinet ministers started with their own salaries.

"And they weren't making very much to begin with. I mean, these aren't the people who are filling their pockets," he says. "Some of them are really smart, capable people, who could earn a lot more in other jobs!"

Peral owns a small language coaching company. He gives courses, trains managers and advises film producers looking to work in the Baltic countries. Peral is from Almería in Spain's Andalusia region, where he completed high school and attended university. He says that a few of his fellow students were truly dim-witted -- and they were the ones who went into politics.

"And what did our politicians do the minute they were in office?" he asks. "They ordered themselves an official car. Likely a BMW … preferably with a chauffeur. And they smeared gel into their hair, bought dark suits and were constantly on the road, dedicating buildings, touring sites or giving important speeches that someone else had written. But in that time, they could just as easily have worked for the country and for the people who voted for them."

And is everything better in Estonia, Señor Peral?

"Well, for a Spaniard the people here are rather cold," he says. "I get more hugs and kisses on a single day in Spain than I do here in a year. On the other hand, the business climate is fair and open, and you can trust the police, politicians and bureaucrats."

'We Wanted a Transparent State'

But when one asks Juhan Parts, the country's economics minister, what makes Estonia different, he gives a short answer: nothing. Estonia, says Parts, is a small but perfectly normal country. It's so normal, he says, that it can be discussed in the time it takes to drink a cup of coffee.

In the middle of this year, two rating agencies, Standard & Poor's and Fitch, upgraded Estonia's credit rating. The country had a budget surplus of €115 million in the first two quarters, and it is expected to virtually balance its budget for the entire year. Government debt is about 6.6 percent of the gross domestic product, as compared with 120 percent in Italy, 160 percent in Greece and 80 percent in Germany. In the first two quarters of 2011, the Estonian economy grew at an annualized rate of 8 percent.

What could Greeks, Germans and Italians learn something from the 1.4 million Estonians?

"Learn? Now that's a funny thought!" Parts says. "Hey, what do you think about the table back there, under the trees? Go ahead and sit down. I'll get us some coffee. Do you want one of these chocolate things?"

Parts, a 45-year-old born in Tallinn, was the founder of his party, became prime minister and is now economics minister -- an unusual minister, at that.

The garden café is a self-service operation, so he gets in line and waits his turn. Then he orders two coffees and two chocolate pastries. He has come to the appointment alone, without a bodyguard, staff members or a spokesman -- and in his family car. "We want to keep expenses down," he says.

When Parts was prime minister, he had all ministers' bills, notes and files stored in electronic databases, creating Europe's first completely paperless cabinet table.

Parts is vigorous, blonde, and athletic, but seems tired. He tries to conceal a yawn, explaining that he and his wife have just had their fourth child and nights have been short. "Comparisons are always difficult," he says. "But when we had finally escaped from Soviet socialism, we were sick and tired of government centralism. We wanted precisely the opposite in all respects: We wanted a transparent state. A country that isn't constantly intervening, nationalizing businesses, placing a bureaucracy above everything and imposing rules on people in every respect."

Clearing the Way for Achievers

But doesn't the government have to help those on the losing end of social change? Parts sighs and pulls out a pack of Kent cigarettes. But when he sees the photographer about to take a picture, he hesitates and puts them back in his pocket, smiling triumphantly at the photographer.

Of course, he says, it's important to help a society's losers, the ones who are left behind. It would be wonderful, he adds, to have a fantastic healthcare system and offer social guarantees for every emergency. "But you have to have the money. We don't have it. Our average monthly income is €800. So we have to reflect on what's important for a society's development. It's the top performers, the successful ones. Ideas! Companies! Products! If all you do is administer, nothing comes of it. The state must clear the way for those who want to achieve something. That's the function of the state."

When the photographer leaves, he lights a cigarette, inhales and narrows his eyes. "I don't want to pass judgment on Germany or Greece. All I can say is that Estonia is contributing its part of the bailout fund, even though our average income is smaller than that of the Greeks. And that, by the way, is a bitter pill to swallow for many Estonians."

He puts out his cigarette and glances at the clock. "Hey, are you familiar with Skype?"

When the Soviet system collapsed almost exactly 20 years ago, the Estonians crept out from under the ruins, declared independence and reinvented themselves, making sure that their legal system, administration, legislature and economic system were as far from socialist as possible. It helped that in 1991 Estonia was run-down, insignificant and had a small population. The Estonians had nothing to lose.

First they privatized all government-owned businesses that were operating at a profit, and closed all factories that were not profitable. Then they attracted investors and tourists by transforming the center of Tallinn into a Medieval Disneyland, complete with cobblestone streets, bell towers and brightly colored townhouses and guildhalls. Today visitors stumble from restaurants to souvenir shops, buying gourmet chocolate, knit caps, reindeer salami and amber, even though there is virtually no amber in all of Estonia. Japanese tourists photograph peroxide-blonde waitresses in their medieval-style outfits, the Russians buy gold jewelry and the Finns come to stock up on vodka.

Estonia finally joined the euro zone this January. The euro had always been the country's declared goal. In the last few years, starting in 2008, the Estonians had fought their way through the worst economic crisis they had ever seen, triggered by the global financial crisis and the bursting of the local real estate bubble. The economy shrank by 14 percent in 2009.

Then three things happened. First, the government announced a harsh austerity program. The government bureaucracy was thinned out, healthcare and social services were cut back, and even the streetlights in Tallinn were switched off at 3:30 in the morning. Businesses reduced wages by up to 40 percent, with the promise they would be increased as soon as the economy improved. The government did not pump borrowed funds into the economic cycle. Instead, it did what economists call internal devaluation.

The second -- and oddest -- development here was that the Estonians stoically accepted these measures. There was no unrest and no protests.

The third thing that happened was the positive outcome of this blood, sweat and tears strategy. Last year, Estonia easily satisfied the Maastricht criteria. In fact, its government finances were sounder than anywhere else in the European Union.

The Shining Example

And while the rest of the euro countries tended to see the common currency as more of a curse than a blessing, the Estonians were unwavering. They celebrated the introduction of the euro. Today a tattoo artist named Elena, who works at the Viru Tattoo Studio, offers a special price of €45 to tattoo the image of the euro coin onto a customer's upper arm or neck. It takes 20 minutes.

"You have to see Skype," says the minister. "It's nearby. It's a real Estonian story."

Skype's offices are in a five-story building in a Tallinn industrial park near the university on the city's outskirts. The drab gray building couldn't be more inconspicuous, but it houses the think tank behind one of the wildest business concepts of the last decade: Why don't people make phone calls via the Internet? It would be much cheaper! And why don't people make calls the way the characters do on the TV show Star Trek, by simply looking at each other through a camera?

It took four Estonian software developers three years to write the complicated programs that made the idea a reality. Microsoft just bought Skype, and the concept, for $8.5 billion. Nowadays it's easy to log in to Skype and call someone in Australia for free. In March, about 30 million people were logged on simultaneously for the first time. Eight years after it was founded, the service now has 170 million users -- a communications club of sorts. Sten Tamkivi, Skype's general manager, was one of the first users. He even has a club membership number: User 59.

He is 33, pale, overworked and happy. Call me Sten, he says. Everyone is on a first-name basis here. On a tour of the company's enormous open offices, visitors see young men with ponytails and women with unusual glasses slumped behind laptops. Sten points out the pool table, where two men with goatees and Black Sabbath T-shirts are playing, along with the computer game corner. He also steps over children. Skype employees can simply bring their children to work. There are toys everywhere. Finally, Tamkivi shows us the company sauna. 

Throughout the tour, he periodically rattles off figures.

Skype is free, with the exception of a few special services, which provide annual sales of $800 million.

The network is the idea behind the whole thing, says Tamkivi. Those who participate, by logging in, form a node. Those who use the network are able to benefit from the computing capacity of the network. At the same time, users contribute to the network by making their computing capacity available to the network. This alchemistic trick is made possible by highly complex software, which operates in the background, tapping into all logged in computers, linking them and using them for transport operations.

Compressing, fine-tuning and optimizing, that's our job, says Tamkivi. The technical idea behind Skype is like a motto for Europe: By helping others, you help yourself. Is Skype something of a metaphor for Estonia?

'Europe Has Too Many Restrictions'

"We had no money, so we had to come up with something. We built our concept on three pillars: communication in networks, the idea of limitlessness, and the future. We started small and built up from there. The more people participate, the more powerful the network becomes."

What can Europe learn from Skype? He laughs. "Europe? I'm not smart enough for that sort of a question. I can't answer it as a Skype manager, only as a citizen of Europe. Well, in many European countries we have too many restrictions, prohibitions, lobbyists and people protecting vested rights. Countries must act as simply as people think, using the same principles," he says. "My great-grandfather, for example, was a farmer. When he planned his year from an economic standpoint, he looked at what he had, and what he could spend for seed, equipment and a horse. It was a very simple calculation: This is how I earn, and this is how much I spend. Realistic. When you grow up here, in this climate, you think that way. The next winter will come, even if you protest against it. But you still need naïve hopes and dreams."

What are Estonia's dreams about?

"I would say they're about Europe. We have always wanted to be part of it. Here in Estonia, we have always dreamed of Europe and believed in Europe," he says. "We thought: Scandinavia, Northern Europe, that's where we belong. That's our world."

Despite its successes, Estonia is not an economic miracle. The country has relatively few exports, mostly semi-finished products with little added value. Productivity is not particularly high, with Estonia's GDP per capita at about 40 percent of the EU average. The country wants to attract industrious Europeans, including hardworking people like the Greek restaurant owner, Loukas Nakosmatis, and the Spanish entrepreneur, Naphtali Peral. It wants everyone in Europe to know that there is a small, smart nation far in the north where life is good, even if earnings are not record-breaking.

The Smart Car of Europe

The man who is trying to inculcate Estonia with a faith in the future is tall, bald and athletic. He studied mathematics, founded companies, sold them and made lots of money. His name is Linnar Viik, and he is Estonia's image creator. He served as an advisor to the first government, in 1991, acting discreetly in the background.

In the early afternoon, Viik packs his two children into his black Land Rover and drives out to the Viimsi Peninsula, where his father lives.

A few years ago, after his divorce, Viik decided that he wouldn't work more than 100 days a year. He wanted to simplify his life and spend time with his children. It's worked very well so far, he says. He taught at the university after selling the software company he had founded in the 1990s. Today he sits on the boards of various Scandinavian banks that have invested in Estonia. He is also a collector of Stratocaster electric guitars and art.

It was Viik who came up with the image of "e-Estonia," a digital, fully interconnected, ultramodern country.

When Viik was studying mathematics, he knew that there were old Soviet-era computers the size of closets standing around in the institute where he worked. There were also three Bulgarian-made computers in the basement. He brought together the computers, made an appointment with the prime minister and made him an offer he couldn't refuse. He asked for the item in the government's budget that was reserved for photocopiers and paper. He used the money to buy a small carload of PCs, and then he convinced politicians to make their work paperless for two reasons. First, there were the savings his plan would generate. More important, however, was the symbolism of the project. WLAN zones were set up throughout the country. Viik had large traffic signs made that read: "Attention: WLAN zone!" The right to Internet access at public libraries was written into the constitution.

If Europe's old industrialized nations are like sedans, large, sedate and comfortable, Estonia was to be like the Smart car, battery-driven but bare-bones, without power windows.

In the evening, Viik and his children return from his father's house with four buckets of plums that they leave with his father, who makes plum jam and plum wine. He puts his children to bed and then spends a few hours at his laptop. The next morning, he attends a reception for the Dalai Lama at the Estonian Academy of Sciences on Toompea Hill, in the historic district. Then he takes the ferry to Helsinki to attend a board meeting at NIB Bank.

He returns promptly, one-and-a-half days later, picks up his children from school and serves them the lunch he has prepared: potatoes, vegetables and a little pickled fish. Viik is an image consultant who knows how image consultants are supposed to live. For dessert, he serves the pale green plums he and his children picked, the ones his daughter likes so much.

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