Estonian Human Development Report

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Figure 6.3.8. Percentage of social protection costs in European Union countries in 2005, % of GDP 35 30 25 20 15 10 5 0 Sweden France Denmark Germany Belgium Austria United Kingdom The Netherlands Finland Italy Greece Slovenia Luxembourg Hungary Spain Poland Czech Republic Malta Cyprus Ireland Slovakia Lithuania ESTONIA Latvia Source: Statistics Estonia. average pension was 33% of average wages, and this ratio has decreased since wages have increased faster than pensions (Statistics… 2008, p. 162). The sufficiency of resources for social insurance are guaranteed by the social tax rate (more exactly the pension insurance portion), the number of those covered by social insurance, employment, and workers’ wages. The disbursement conditions (incl. indexing), the number of pensioners and the retirement age that affects the latter are all important from the standpoint of the system’s disbursements and the size of pensions. In Estonia, a three-pillar pension system is in use, in which pillar I is solidarity-based, which means that today’s pensions are financed by today’s social taxes; pillar II is pre-financed in principle by social tax, the resources are invested and the payments depend on both the deposits and the success of the investments; and pillar III is pre-financed and financed by voluntary contributions. Although the pre-financing system makes it possible to use money and capital market opportunities to finance the pension system, this method does not resolve the problems that develop as a result of the ageing of the population or other reasons. This method is a means of spreading risks, which improves the possibilities for balancing the system. Decisions regarding the pension system have diverse correlations with economic policies. Firstly, the average pension and its trend compared to the average wage and inflation is a politically sensitive issue, because it can be used as a basis for drawing conclusions about the government’s attitude toward a population group that constitutes a large portion of the electorate. Secondly, all decisions affecting the financial balance of the pension system have a great impact on the economy as a whole. In case of a shortage of financial resources, revenues can be increased by increasing social tax, while one possibility for reducing disbursements is to increase the retirement age, which decreases the number of pensioners. Taking into account the large percentage of the social tax in the general tax burden and the relatively short life expectancy, implementing either decision is political almost impossible. At the same time, this field will not be left untouched by the deepening of the financial and economic crisis. Viewed from the economic demand side, however, pension system disbursements are actually earned back because the majority of them are spent on consumption, where primarily domestic products and services (food products, utilities and transport costs) are consumed. Subsequently, we will compare Estonia’s social protection costs with the corresponding data from the European Union (see Figure 6.3.8.), where this includes all the resources that are allocated for the purpose of easing the ability of individuals or households to cope in case of a partial or total loss of income. In this comparison, Estonia’s indicator is next to last, ahead only of Latvia, and lagging significantly behind the European Union average. In the European Union, social benefits constituted 26.2% of GDP on average, while it was only 12.3% in Estonia. We can see a trend in social protection, whereby the percentage of GDP corresponds to the level of GDP, i.e. countries with higher standards of living also have comparatively better social protection. The comparative levels of social protection in the “new” European Union member states rank below the corresponding European Union average. However, Estonia and Latvia also significantly lag behind the other Central and East European countries. As we saw above, economic growth in Estonia has not been accompanied by an increase in social protection as percentage of GDP, rather a slight decline. Therefore, if the <strong>Estonian</strong> economic situation worsens, one can predict significant coping risks in an estimable part of the population. Implementation of polices through governance On studying the modest level of Estonia’s social sphere compared to other European countries, a question arises about the governance of these fields and the actions of public authority. The broader understanding of governance connects this activity not only to the national and local governments that must base their activities on public interest, but to other bodies that should protect the general interests of other stakeholders in the private sectors (e.g. owners and workers). Governance includes executive agencies, representative bodies, as well as enforcement and monitoring systems and informal regulators. An important part of governance is related to the realization of power, in either the public interest or in the case of companies, in the owners’ interest (European Commission (2005a), Jessop (2002), Kaufmann (2003), Michalski et al (2001)). The description of various aspects of governance is based on an approach that, on the one hand, divides governance into public and private spheres, while on the other hand, into supportive, regulatory, and compensatory measures (Gereffi, Humphrey and Sturgeon, 2003) (see Table 6.3.1.). The policies related to the social sphere can be divided into supportive, regulatory and compensatory models. The first create conditions for the realization of the abilities, individuals and companies; the second establish certain standards, for instance, in the field of health care; the third are based on redistribution and create resources and services for the population. The primary emphasis of this redistribution is that, while economic activity is related mostly to private ownership, | 136
a large part of the supportive and regulatory influence is related to the public sector, is enforced by the state and uses tax resources. The private and public sector and the supportive, regulatory and compensatory fields of governance are integrated and their differentiation into the aforementioned models helps to define the particularities of the policies of various fields of activity, while also simplifying their actual character. After all, the same policy can be related to various governance models, for example, in addition to a supportive role, education and research policy also has a regulatory and somewhat compensatory role; in addition to compensation, health care policy can be used to support certain options, etc. At the same time, one governance aspect can be considered to be more important in the case of any policy. For instance, with regard to education, the supportive aspect of governance is emphasized, although education also includes regulatory and compensatory aspects to a certain extent. Health care policies also have an important supportive aspect, especially in the case of various preventive programs. In other spheres of social policy, the compensatory aspect is most important and some regulatory aspects are added. Voluntary agreements, companies’ social responsibility and pressure group activities are the most direct reflection of the population’s intervention in shaping its living and working conditions. Informal associations and the development of the non-profit sector, are related to both the better and more specific definition of the various interests of the citizens as well as to the general development of democracy. The development of these associations and active participation in influencing various processes reflects the general organizational abilities of the society members as well as the political process in relation to the perception and protection of interests. Ideology also plays an important role in shaping the character of policies, if only to determine how great or small the role of the state should be in a specific field. This determines the extent to which one or another policy is implemented. At the same time, policies remain in the public sphere in any case, where it is possible to distinguish the measures designed at the local, national and EU levels and their impact on each other. Enforcement and monitoring mechanisms are important to the governance models and the policies related thereto. In the case of education, health care and social protection, the primary role is played by the national and local governments. The companies’ social responsibility and various agreements reflecting societal interests are voluntary and their violators are faced primarily with moral condemnation. It is worth emphasizing that the latter can apply very strong pressure. At the same time, crisis situations test various regulations and it is easier to withdraw from voluntary agreements than from regulations supported by government enforcement. Summary In Estonia the extensional development of the economy, where economic growth has been primarily based on a simple manufacturing base, has been gradually supplemented by activities that need more human and social Table 6.3.1. Models and fields of governance Governance model Supportive Regulatory Compensatory Public Field of activity Property rights Business laws Competition policy Education and research policy Labour laws Regulations related to the natural environment Health and safety measures Social insurance (In-service) training and retraining programs Health care policies Source: Gereffi, Humphrey and Sturgeon, 2003. Private Market ideology Specialized standards and practices Voluntary agreements Companies’ social responsibility Pressure group activity and consumer boycotts Collective contracts Philanthropy capital. On the one hand, the level of economic development is determined by the extent of resources that can be placed in the social sphere. On the other hand, a critical component is the human and social capital that is created by the social sphere, and which determines what type of economic development is possible. Since economic growth is related to savings and investments, this also means postponing consumption, for instance, taking home loans now that must be repaid in the future at the expense of consumption. When taking such risks related to the future, confidence in the governmental institutions is important. Moreover, guarantees are also important so that the benefits derived from economic growth are distributed to all citizens. This is guaranteed by the social policies in various fields of activity. These types of guarantees are especially important in countries with diverse ethnic compositions, like Estonia. The diverse ethnic and religious composition of a country’s population usually increases the cost of coordinating economic and social policies, since there are more points of departure and applications in this case than in countries with homogeneous ethnic and religious populations (La Porta et.al., 1998). The connection of social and economic viewpoints to human development and the assessment of corresponding policies and governance models must be based on mutual connections as well as significant differences. Economies based on private ownership and profits cannot be subordinated to the social needs, in order to establish rules that are primarily and principally based on the social dimension. At the same time human development, of which economic activity is an important part, is related to the social aspects of societal organization. One of the reasons for a divergence in economic and social policy lies in the difference in time ranges. Sociopolitical measures develop the population’s potential during a longer period, and therefore, the payment of expenditures takes time. For instance, general literacy assumes the long-term functioning of the school system and the involvement of the entire cohort of children of a corresponding age in the education system for decades. The use, not to mention development, of modern technology is not possible without education. With regard to Estonia’s choices, this signifies the need to concentrate the scarce resources made availa- 137 |
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Estonian Human Development Report
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Estonian Human Development Report T
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4.2. Ethnic differentiations in sat
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Preface This year, the Estonian Hum
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CHAPTER 1 Estonian Human Developmen
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Figure 1.1.3. Life expectancy in co
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Figure 1.2.2. Life expectancy at bi
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to reality. The greatest inaccuracy
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Figure 1.2.9. Internal migration ev
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12. Marksoo, A. 1992. “Dynamics o
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Table 1.3.1. PISA 2006 study result
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Table 1.3.2. Number of students in
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1.4. The gross domestic product and
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Figure 1.4.3. Estonian GDP (right a
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1.5. Changes in the Estonian Human
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2.2. Health of Estonian residents i
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Table 2.2.4. Differences in life ex
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Figure 2.4.1. Healthy life years of
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Figure 2.4.4. Various accidents, tr
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2.5. Lifestyle and behaviour as a s
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Figure 2.5.5. Smoking in Estonia in
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Figure 2.6.1. Overview of the compo
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Table 2.6.2. Use of specialized med
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dren. The majority of services are
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Figure 2.8.2. How much a health dis
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2.10. Policy recommendations aimed
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CHAPTER 3 Quality of life and life
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Table 3.2.1. Characteristics of liv
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Table 3.2.4. An assessment of the e
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Figure 3.2.4. Difference in the job
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Table 3.2.6. Agreement with stateme
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Figure 3.3.1. Satisfaction with lif
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Figure 3.3.4. Percentage of people
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Figure 3.4.1. Types of quality of l
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Figure 3.5.1. Percentage of teenage
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Figure 3.5.4. Percentage of respond
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Arieh A., Conti C., Kutsar D., Nicg
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Figure 3.6.2. Subjective quality of
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Pieper, A. Sixsmith, Care related q
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Figure 3.7.1. The placement of Euro
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Figure 4.2.1. Life satisfaction by
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Table 4.2.1. Factors forming genera
Page 88 and 89: Annexes Annex 4.2.1. Socio-demograp
Page 90 and 91: Figure 4.3.1. Changes in the assess
Page 92 and 93: Figure 4.3.4. Attitudes of the Esto
Page 94 and 95: olds considered themselves to be pa
Page 96 and 97: Table 4.4.3. Agreement of the Russi
Page 98 and 99: Table 4.5.2. The prospects of non-E
Page 100 and 101: Figure 4.5.4. Certainty of Estonian
Page 102 and 103: mote equal opportunities. At the (e
Page 104 and 105: CHAPTER 5 Quality of life in a cons
Page 106 and 107: Figure 5.2.1. GDP and AIC per capit
Page 108 and 109: Figure 5.2.3. Distribution of consu
Page 110 and 111: Figure 5.2.4. Indexes of environmen
Page 112 and 113: Table 5.3.1. Comparison of countrie
Page 114 and 115: Figure 5.3.3. Comparison of types o
Page 116 and 117: Table 5.3.5. Connections between po
Page 118 and 119: Table 5.4.1. Who and what are the f
Page 120 and 121: Table 5.4.3. Young people’s asses
Page 122 and 123: Figure 5.4.6. Time spent on the con
Page 124 and 125: Table 5.4.6. The perception of prob
Page 126 and 127: 5.6. Summary To briefly summarize t
Page 128 and 129: Table 6.2.1. Objective and subjecti
Page 130 and 131: Figure 6.2.4. Relationship between
Page 132 and 133: Figure 6.2.7. Difference between th
Page 134 and 135: Figure 6.3.1. GDP, government secto
Page 136 and 137: Figure 6.3.3. Employed 15-74-year-o
Page 140 and 141: References 1. Aaviksoo, A., G. Paat
Page 142 and 143: Figure 6.4.1. Labour market flexibi
Page 144 and 145: Figure 6.4.3. Creations of jobs ind
Page 146 and 147: Figure 6.4.5. Public expenditures o
Page 148 and 149: Figure 6.4.6. Ratio of the particip
Page 150 and 151: 6.5. Cities as development engines
Page 152 and 153: Table 6.5.2. Existence of developme
Page 154 and 155: have been underfinanced or are not
Page 156 and 157: Table 7.1. Factors that favour and
Page 158 and 159: Table 7.2. Potential economic devel
Page 160 and 161: Authors Chapter 1 Ene-Margit Tiit,
Page 162 and 163: Margit Keller (PhD) is a Senior Res
Page 164 and 165: Special prizes Estonian Human Devel
Page 166 and 167: Estonian Human Development Report H
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Page 170 and 171: Estonian Human Development Report T
Page 172 and 173: Honorable mentions Estonian Human D
Page 174 and 175: Estonian Human Development Report P
Page 176 and 177: Estonian Human Development Report A
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Estonian Human Development Report

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