Refugees, Modern Economic Growth and Estonia

The way how the possible arrival of refugees has been received in the Estonian society by fear of how to handle them and by predicting a concurrent negative macroeconomic impact, illustrates quite vividly, how old-fashioned and limited is the economic theoretical thought in this corner of the world. Not only the average Estonian, but also several party leaders and journalists are of the opinion that the arriving refugees will eat our land bare as bone, unless they are immediately put to work effectively. Then again, it's said that we don't have enough jobs for ourselves.

The former gives an impression as if it's still believed that modern economic growth is based on toil and moil, amassing money, passing on before reaching pension age, inheriting and pinching pennies and that every mouthful of a refugee comes from the dinner plate of an Estonian child.

The practice, however, is rather different: the economic growth of Estonia as well as Latvia and Lithuania is based firstly on increasing domestic consumption and booming real estate, while the economic growth is being financed by foreign loans and the EU subsidies. It's not the savings that produce loans and consumption, but loans and subsidies that encourage consumption and growth. What would be the main obstacle for growth in this economic model and how would the economic growth be influenced by, say 1000 migrants a year – in their best age for borrowing and consuming – who all would like to get a car, an apartment and three credit cards as soon as possible?

The main obstacle for the money-printing negative-interest European economy over past decade has been the fact that in order to provide new loans, new clients in the right age group and with borrowing power – whose capacities to take on loans are not yet exhausted – are required. In Estonian case, for example, both natural population growth and migration are negative, which means that banks are losing thousand of clients to the grim reaper and to abroad every year, even when the borrowing power of the remaining clients is slowly increasing. Even if we start procreating intensively today, our offspring will not become respectable borrowing clients in next 20 years time. How should the banks and the economic growth manage meanwhile?

That's where the European Union comes to rescue, centrally redirecting resources in the framework of general strategic planning to regions, where supply is the lowest and added value the highest – in other words, for example, supplying Estonia with the motivated clients (refugees) in the right age group with borrowing power and consumerist attitudes. In addition to borrowing, migrants would also help boosting the volumes of which ever subsidy-based creative industries and applying increasingly for relevant EU funds and securing them for Estonia (there will surely be support measures specially for migrants, for which locals would not be eligible anyhow). An additional aspect to the sustainability of the migrant model is their traditionally high natural population growth: after a couple of decades of planned resettlement of refugees in Estonia, the adapted and well-to-do refugee populations should autonomously be able to supply the local community with the needed thousand or more additional people a year.

It's important to comprehend that all that only alleviates our otherwise desisting demographic and economic perspective: even if there was a thousand people arriving every year, it still would not compensate for the negative balance – resulting from a negative natural population growth and high emigration – that has reached up to 3000-4000 persons in past years. Additionally, it's essential to begin levelling processes today, when the local population is still big enough to be able to integrate migrants.

It has also been said that migrants may not be as profitable for our economy as the locals. Considering the daring, enterprising and adaptive nature of the arriving people, I'm rather sure that they will be perfectly capable of applying for and receiving bank loans, car leases and various EU funds as well as returning money back to the economy; there are many jobs and activities that will innately appeal to them. In ten years' time we might as well discover that an average migrant contributes more to our economic growth than the cautious and frugal Estonian, who is often too stingy to have children or buy a sack of potatoes from the shop. Therefore, it's quite likely that thanks to immigration our GDP will not only grow in total, but also per capita. Based on the Swedish example, it should be admitted that the migrants would probably not like to do the tedious and poorly paid jobs, but would you be willing to become a janitor after going through hell and high water to make it to the promised land, realising that your more enterprising and resourceful than the locals?

And by the way, the migrants will not be any happier to be shipped here than the narrow-minded Estonians for their arrival – they would much rather advance the Italian or French economy, which means that it's appropriate to start figuring, how we can turn Estonia more appealing as a destination for migration than the old Europe. Otherwise we will soon discover that the refugees, sent here by the European Union with great effort and expense, have taken advantage of the freedoms of the Schengen Area and made it back to the south in the shadow of night instead of furthering Estonian economy.

Published 01 October 2015

Author Viljar Veebel